Filed with the Securities and Exchange Commission on December 18, 1998
Registration No. ___
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Southern States Cooperative,
Incorporated Southern States Capital Trust I
- ------------------------------------- ------------------------------------
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
Virginia Delaware
- ------------------------------------- ------------------------------------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
5191 5191
- -------------------------------------- ------------------------------------
(Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number)
54-0387200 51-6509316
- ------------------------------------- -------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
6606 West Broad Street
Richmond, Virginia 23230
(804) 281-1000
-----------------------------------
(Address and telephone number of
registrants' principal executive
offices)
N. HOPPER ANCARROW, JR.
Southern States Cooperative, Inc.
6606 West Broad Street
Richmond, Virginia 23230
(804) 281-1205
------------------------------------------
(Name, address and telephone number of
agent for service)
copies to:
F. CLAIBORNE JOHNSTON, JR., ESQ. MICHAEL W. WEIR, ESQ.
Mays & Valentine, L.L.P. Sullivan & Cromwell
1111 East Main Street 125 Broad Street
Richmond, Virginia 23218 New York, New York 10004
(804) 697-1214 (212) 558-3941
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registrations statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
Proposed Proposed
Title of Each Class Proposed Maximum Maximum Amount of
of Securities to Maximum Offering Aggregate Registration
be Registered Amount to Price Offering Price Fee (3)
be Registered Per Unit (1) (2)
(1) (2)
- -------------------------------------------------------------------------------
Capital Securities of
Southern States $86,250,000 $25.00 $86,250,000 $23,978
Capital Trust I
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Junior Subordinated
Debentures of (6)
Southern States
Cooperative, Inc. due
_______ ___, 2029 (4)
- --------------------------------------------------------------------------------
Guarantee of Capital
Securities by (6)
Southern States
Cooperative, Inc. (5)
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(1) Includes $11,250,000 liquidation amount of Capital Securities ("Capital
Securities") offered hereby which may be sold to cover over-allotments, if any.
(2) Represents the aggregate liquidation amount of the Capital Securities
to be issued hereunder and the principal amount of the Junior Subordinated
Deferrable Interest Debentures (the "Junior Subordinated Debentures") that may
be distributed to holders of Capital Securities upon any liquidation of Southern
States Capital Trust I (the "Trust").
(3) The registration fee is calculated in accordance with Section 6 of the
Securities Act of 1933, as amended.
(4) The Junior Subordinated Debentures will be purchased by the Trust with
the proceeds of the sale of the Capital Securities. The Junior Subordinated
Debentures may later be distributed for no additional consideration to the
holders of the Capital Securities of the Trust upon its dissolution and the
distribution of its assets.
(5) No separate consideration will be received for the Guarantee of the
Capital Securities by Southern States Cooperative, Inc. (the "Guarantee").
(6) This Registration Statement is deemed to cover the Junior Subordinated
Debentures of Southern States Cooperative, Inc., the rights of holders of the
Junior Subordinated Debentures under the Junior Subordinated Indenture (as
defined herein), and the rights of holders of Capital Securities of the Trust
under the Trust Agreement (as defined herein) and the Guarantee which, taken
together, fully, irrevocably and unconditionally guarantee the obligations of
the Trust under the Capital Securities.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PRELIMINARY PROSPECTUS
$75,000,000
SOUTHERN STATES CAPITAL TRUST I
___% Capital Securities
(Liquidation Amount $25 per Capital Security)
Guaranteed as set forth herein by
SOUTHERN STATES COOPERATIVE, INCORPORATED
--------------------
You will find a brief description of the capital securities under "Prospectus
Summary" in this prospectus.
We urge you to carefully read the "Risk Factors" section beginning on page
__, where we describe specific risks associated with these capital securities,
along with the prospectus, before you make your investment decision.
[We plan to list the capital securities on the New York Stock Exchange
under the trading symbol __________. We expect that the capital securities will
begin trading on the New York Stock Exchange within 30 days after they are first
issued.]
--------------------
Per Capital
Security Total
Public Offering Price (1)............. $25.00 $75,000,000
Underwriting Discount................. (1) (1)
Proceeds to the Trust................. $25.00 $75,000,000
(1) Underwriting commissions of $________ per capital security (or
$________ for all capital securities) will be paid by Southern States
Cooperative, Incorporated.
The underwriters may also purchase up to an additional $11,250,000
liquidation amount of capital securities at $25 per capital security within 30
days from the date of this prospectus to cover over-allotments. Southern States
Cooperative, Incorporated will pay an underwriting commission of $_____ for each
such capital security purchased.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
We expect the capital securities will be ready for delivery in book-entry
form only through The Depository Trust Company on or about ____________, 1999.
--------------------
FIRST UNION CAPITAL MARKETS
LEHMAN BROTHERS NATIONSBANC MONTGOMERY SECURITIES LLC
--------------------
The date of this preliminary prospectus is ___________, 1999.
<PAGE>
[INSIDE FOLDOUT PAGES WITH MAPS AND PHOTOS]
Front
[Inside Fold out page with map of Southern States Cooperative, Incorporated
operating territory]
[Picture of Agricultural Retail Farm Supply Store]
[Picture of Metro Retail Store]
Inside Bookfacing
[Picture of Fertilizer Application]
[Picture of Petroleum and Propane Operations]
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized. Neither the
delivery of this Prospectus nor any sale made hereunder and thereunder shall
under any circumstances create an implication that there has been no change in
the affairs of the Company or the Trust since the date hereof. This Prospectus
does not constitute an offer or solicitation by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
Farm Cooperatives.................................................... 1
Disclosure Regarding Forward Looking Statements...................... 2
Prospectus Summary................................................... 3
Risk Factors......................................................... 10
Use of Proceeds...................................................... 15
Capitalization....................................................... 16
Unaudited Pro Forma Condensed Combined Financial Information......... 17
Selected Historical Consolidated Financial Information............... 23
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 27
The Company.......................................................... 39
Business of the Company.............................................. 45
Acquisition of the Gold Kist Inputs Business......................... 58
Management........................................................... 64
The Trust............................................................ 73
Accounting Treatment................................................. 74
Description of the Capital Securities................................ 74
Description of the Junior Subordinated Debentures.................... 89
The Guarantee........................................................ 99
The Expense Agreement................................................ 102
Effect of Obligations Under the Junior Subordinated Debentures,
the Guarantee and the Expense Agreement......................... 103
United States Federal Income Taxation................................ 105
ERISA Considerations................................................. 109
Underwriting......................................................... 110
Legal Matters........................................................ 112
Experts.............................................................. 112
Available Information................................................ 113
Index to Financial Statement......................................... F-1
<PAGE>
FARM COOPERATIVES
For decades cooperative associations have been an integral and important
part of American agriculture. Most farmers are members of at least one
cooperative. These associations are designed to secure for farmers the
economic advantages of group action in the production and marketing of
agricultural commodities.
o o o o
Cooperatives are voluntary business organizations which are created by
statute. The cooperative form enables persons to join together for mutual
help, including joint purchasing and marketing. A cooperative is usually a
"non-profit" enterprise. Agricultural cooperatives tend to be specialized as
one of three types: marketing, supply or bargaining cooperatives. As its name
signifies, the marketing cooperative is designed to assist members in
marketing the products grown or produced by them. Supply cooperatives exist
to secure the supplies and equipment needed by its members at the lowest
possible cost per unit. The bargaining cooperative is organized expressly to
act as a bargaining agent for its farmer-members.
o o o o
A supply cooperative purchases the supplies needed by its members. This
typically includes inputs such as fertilizer, feed, or petroleum products.
This bulk purchasing arrangement makes these supplies available to members at
prices which are at or below the prevailing market price. Net savings at the
end of the accounting period are distributed to each member based upon the
volume of business the member transacted with the cooperative.
o o o o
Marketing cooperatives generally function in one of two ways. First, the
cooperative may buy the products of members at the prevailing market rate. At
the end of the annual or fiscal year, the results of the cooperative's
activities will determine whether any net savings have been realized. These
net savings are the equivalent of profits. These savings are allocated to
each member-patron on the basis of his or her percentage of marketings. In
other words, the members receive a proportionate share of the "profits."
Alternatively, the cooperative may function as a marketing agency. In this
case, the member-producer contracts with the cooperative to sell the product.
In this transaction, a set amount based on volume is deducted from marketing
costs. All of the commodity production for a particular season is then
"pooled" and marketed by the cooperative. The net savings which are generated
through marketing are divided among the members of the cooperative based on
the volume marketed by each member.
The above text is quoted with permission from Looney, Wilder, Brownback and
Wadley, Agricultural Law: A Lawyer's Guide to Representing Farm Clients,
copyright(C) 1990 American Bar Association. All rights reserved.
* * * * * * *
Subchapter T of the Internal Revenue Code of 1986, as amended (the "Code"),
accords special treatment to organizations that operate "on a cooperative
basis." See "The Company--Cooperative Structure" for additional information
concerning the tax treatment of cooperatives under Subchapter T of the Code and
other matters relating to Southern States' organization and operation as a
cooperative.
1
<PAGE>
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements regarding our expected financial position, business and financing
plans. These forward-looking statements reflect our views with respect to future
events and financial performance. The words "believe," "expect," "plans" and
"anticipate" and similar expressions identify forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from such expectations are disclosed in this prospectus (the
"Cautionary Statements"), including the risks and uncertainties described under
"Risk Factors." All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the Cautionary Statements. We caution you not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this prospectus. We are not obligated to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this prospectus or to reflect the occurrence of unanticipated events.
---------------------
Trademarks and service marks are italicized where they appear in this
prospectus. All trademarks and service marks referred to in this prospectus
other than Roundup(R) are registered trademarks of Gold Kist Inc., and (other
than the "Gold Kist" mark), were conveyed to the Company in connection with the
Company's acquisition of the Gold Kist Inputs Business. See "Acquisition of the
Gold Kist Inputs Business." Roundup(R) is a registered trademark of the Monsanto
Company.
----------------------
First Union Capital Markets is an affiliate of First Union Trust Company,
National Association, which will act as Delaware Trustee with respect to the
Capital Securities offered hereby, and of First Union National Bank, which will
act as Property Trustee and Guarantee Trustee with respect to the Capital
Securities and Debenture Trustee with respect to the Junior Subordinated
Debentures. First Union Capital Markets is a division of Wheat First Securities,
Inc., which is an indirect subsidiary of First Union Corporation. First Union
Trust Company, National Association, and First Union National Bank are also
subsidiaries of First Union Corporation. First Union National Bank and
NationsBank, N.A., an affiliate of NationsBanc Montgomery Securities LLC,
together with CoBank, ACB, provided bridge financing to the Company for use in
the purchase of the Gold Kist Inputs Business. See "Use of Proceeds."
NationsBanc Montgomery Securities LLC received a structuring and documentation
fee in connection with the establishment of the bridge financing facility.
2
<PAGE>
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the information that may
be important to you. You should read the entire document before making a
decision. Also please note that the description under "Business of the Company"
in this summary does not reflect the acquisition of the Gold Kist Inputs
Business. For a description of the Gold Kist Inputs Business and its integration
with the Company's business operations, see "Acquisition of the Gold Kist Inputs
Business." The Company's fiscal year ends on June 30.
The Company
Overview
Southern States Cooperative, Incorporated ("Southern States" or the
"Company") is a regional farmers' supply and marketing cooperative. With fiscal
1998 sales of $1.1 billion, we are one of the largest agricultural cooperatives
east of the Mississippi River. We serve a wide range of rural and urban
customers in our traditional six-state Mid-Atlantic territory of Delaware,
Maryland, Virginia, West Virginia, Kentucky and North Carolina and, more
recently, in Michigan, Ohio and Indiana. As described under "Acquisition of the
Gold Kist Inputs Business," we also have expanded our operations in recent
months into the Southeastern and South Central states through the acquisition of
the agricultural farm supply operations of Gold Kist Inc., another agricultural
cooperative organization. Taking into account this recent acquisition, we are
now owned by over 300,000 farmer and local cooperative members. We are the
principal cooperative in a cooperative distribution system that now encompasses
more than 600 retail locations. This distribution system serves our farmer
members and other customers through both Company-owned facilities and a network
of local agricultural cooperatives and private dealers. See "The Company--The
Southern States Distribution System."
Founded in 1923, we operated for many years exclusively as a supply (or
"inputs") cooperative, purchasing, manufacturing, processing and distributing
fertilizer, crop protectants, feed, seed and other farm supply items for our
farmer members. Since 1977, we have also marketed grain for our members and
currently market approximately 25 to 30 million bushels of grain annually in our
Mid-Atlantic territory. During the last fiscal year, we entered into the
livestock marketing business through the acquisition of Michigan Livestock
Exchange, a 75-year-old livestock marketing cooperative operating in the
four-state territory of Michigan, Ohio, Indiana and Kentucky. As a result, we
are now the largest livestock marketing cooperative in the United States.
Our members must be agricultural producers or agricultural cooperative
associations. Business with members is conducted on a cooperative basis, and
patrons who are members or who are eligible to be members are qualified to
receive patronage refunds out of net savings on such business. See "Farm
Cooperatives" and "The Company--Cooperative Structure." We also engage in supply
and marketing transactions with other customers who are not eligible for
membership and who do not qualify for patronage refunds.
3
<PAGE>
Agriculture is both seasonal and cyclical in nature. A major portion of our
business is dependent on farmers purchasing supplies and services, which is
influenced by weather, the general farm economy and the success of particular
crops. Prices of agricultural supplies are sensitive to worldwide economic and
political factors. Commodities marketed by the Company for our members are also
subject to fluctuations in price, based on the supply of such commodities and
the demand for the raw or processed products.
Business of the Company
The Company is both a supply and a marketing cooperative:
>> As a supply cooperative, we provide agricultural inputs and services to
our members and others through our crops, feed, petroleum, retail farm
supply, and farm and home divisions.
>> As a marketing cooperative, we provide marketing services for our members
through our grain marketing and livestock marketing divisions.
Crops. Our Crops division procures, manufactures and distributes fertilizer,
seed and crop protectants such as herbicides and pesticides to members and other
customers throughout the Company's Mid-Atlantic territory. The Crops division
also customizes seeds for our customers by incorporating licensed genetics into
our seed stock.
Feed. Our Feed division procures, manufactures and distributes a wide
range of dairy, livestock, equine, poultry, pet and aquaculture feeds.
Petroleum. Our Petroleum division sells petroleum products, including all
grades of gasoline, kerosene, fuel oil, diesel fuel and propane, as well as
petroleum equipment. We own and operate two bulk terminals and 19 retail fuel
distribution facilities and offer farm delivery services in conjunction with the
sale of these products.
Retail Farm Supply. Our Retail Farm Supply division operates approximately
200 Company-owned and managed local cooperative retail farm supply locations in
our Mid-Atlantic territory. These locations provide members and other customers
with "one-stop shopping" for a full range of agricultural production materials
and related services.
Farm and Home. Our Farm and Home division distributes farm and home products
at wholesale to our retail farm supply locations and at retail through 27
metropolitan retail locations. The division also distributes fertilizer, crop
protectants, seeds and other agronomic supplies to dealers and commercial
accounts in several eastern and midwestern states through the Company's wholly
owned subsidiary, Wetsel, Inc.
Marketing. We conduct most of our marketing activities through our Grain
Marketing and Livestock Marketing divisions. The Grain Marketing division
operates a year-round market for produced grains, primarily corn, soybeans,
wheat and barley.
4
<PAGE>
The Livestock Marketing division was established April 1, 1998, through the
acquisition of Michigan Livestock Exchange. This division operates 12 livestock
auction facilities and 16 swine buying stations in the four-state territory of
Michigan, Ohio, Indiana and Kentucky.
Affiliated Financing Services. Two of our affiliated entities, Statesman
Financial Corporation and Michigan Livestock Credit Corporation, provide a
variety of financing programs to our members and other customers which enhance
our "one-stop-shopping" service. These programs support the Company's ability to
sell our products and market our members' products, generate profits for the
Company and provide an important source of liquidity through the purchase of
significant amounts of receivables from the Company. See "Business of the
Company--Affiliated Financing Services."
Acquisition of Gold Kist Inputs Business
In October, 1998, we purchased the agricultural farm supply (or "inputs")
business of Gold Kist Inc. ("Gold Kist"), a major southeastern marketing and
supply cooperative. Through this portion of its business (the "Gold Kist Inputs
Business"), Gold Kist purchased, manufactured and processed fertilizers, crop
protectants, seed, pet food, livestock feed and other farm supply items for
distribution and sale in the eight-state territory of Alabama, Arkansas,
Florida, Georgia, Louisiana, Mississippi, South Carolina and Texas. For its
fiscal year ended June 27, 1998, the Gold Kist Inputs Business generated $481
million of sales. See "Acquisition of the Gold Kist Inputs Business" and "Use of
Proceeds" for additional information concerning the terms of the agreement
between the Company and Gold Kist for the purchase of the Gold Kist Inputs
Business.
Through the purchase of the Gold Kist Inputs Business, we have acquired a
business that is very similar to our own agricultural supply operations. During
a period of industry consolidation among both agricultural producers and
suppliers, our acquisition of the Gold Kist Inputs Business significantly
enlarges our operations, increases our sales, assets and membership base and
solidifies our position as a principal supplier of agricultural inputs in the
eastern United States. See "Acquisition of the Gold Kist Inputs Business" for
additional information concerning the acquisition.
There are certain risks associated with our purchase of the Gold Kist Inputs
Business, however. These include the risk that the operating losses experienced
by that business prior to our acquisition may continue. See "Risk
Factors--Operating Losses and Integration of Gold Kist Inputs Business."
---------------
Our executive offices are located at 6606 West Broad Street, Richmond,
Virginia 23230, and our telephone number is 804-281-1000.
5
<PAGE>
The Offering
Distributions
Southern States Capital Trust I (the "Trust") will sell its capital
securities (the "Capital Securities") to the public and its common securities
(the "Common Securities") to Southern States. The Trust will use the proceeds
from these sales to buy a series of ___% Deferrable Interest Junior Subordinated
Debentures due _________, 2029 ("Junior Subordinated Debentures") from the
Company with the same payment terms as the Capital Securities.
If you purchase the Capital Securities, you are entitled to receive
cumulative cash distributions at an annual rate of ____% of the liquidation
amount of $25 per Capital Security. Distributions will accumulate from the date
the Trust issues the Capital Securities and will be paid quarterly in arrears on
January 1, April 1, July 1, and October 1 of each year, beginning April 1, 1999.
Deferral of Distributions
So long as no default under the Junior Subordinated Debentures has
occurred, the Company may defer interest payments on the Junior Subordinated
Debentures for up to 20 consecutive quarterly periods, but not beyond the
maturity date of the Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures--Option to Extend Interest Payment Period". If Southern
States defers interest payments on the Junior Subordinated Debentures, the Trust
will also defer distributions on the Capital Securities. During this deferral
period, you will still accumulate distributions at an annual rate of __% on the
liquidation amount of $25 per Capital Security and (to the extent permitted by
law) on any unpaid distributions. You will also be required to accrue interest
income and include it in your gross income for United States federal income tax
purposes, even if you are a cash basis taxpayer.
Maturity and Redemption
The Trust must redeem the Capital Securities when the Junior Subordinated
Debentures are paid at maturity or upon any earlier redemption. The Company has
the option at any time on or after _____________, 2004 to redeem the Junior
Subordinated Debentures at the liquidation amount plus any unpaid distributions.
In addition, the Company may redeem the Junior Subordinated Debentures before
__________, 2004, if certain tax events occur. Upon any redemption, you will
receive the liquidation amount of $25 per Capital Security plus any unpaid
distributions to the date of redemption.
Southern State's Guarantee of the Capital Securities
The Company will fully and unconditionally guarantee the Capital
Securities based on:
o its obligations to make payments on the Junior Subordinated Debentures;
o its obligations under the Guarantee Agreement (the "Guarantee"); and
6
<PAGE>
o its obligations under the Expense Agreement (as that term is defined
below in the section captioned "The Trust").
For discussion of Southern States' obligations listed above, see the
"Guarantee" and "Effect of Obligations Under the Junior Subordinated Debentures,
the Guarantee and the Expense Agreement" in this prospectus.
If the Company does not make a payment on the Junior Subordinated
Debentures, the Trust will not have sufficient funds to make payments on the
Capital Securities. The Guarantee does not cover payments when the Trust does
not have sufficient funds.
The Company's obligations under the Junior Subordinated Debentures are
subject to payment on its Senior Indebtedness (as defined) and will be
effectively subordinate to all existing secured and unsecured debt of the
Company and its subsidiaries. The Junior Subordinated Debentures also will be
subordinate to all future debt of the Company unless, by its terms, such debt is
on a parity with or subordinate to the Junior Subordinated Debentures. As of
September 30, 1998, the aggregate amount of Senior Indebtedness and liabilities
and obligations of the Company and its subsidiaries that would have effectively
ranked senior to the Junior Subordinated Debentures was approximately $146.1
million.
Liquidation of the Trust
The Company will have the right at any time to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Capital Securities and Common Securities in liquidation of the Trust.
In the event of the involuntary or voluntary liquidation, dissolution,
winding up or termination of the Trust, the holders of the Capital Securities
will be entitled to receive for each Capital Security a liquidation amount of
$25 plus accrued and unpaid distributions thereon (including interest thereon)
to the date of payment, unless, in connection with such dissolution, the Junior
Subordinated Debentures are distributed to the holders of the Capital
Securities.
If the Junior Subordinated Debentures are distributed, the Company will
use its best efforts to list them on the New York Stock Exchange or such other
stock exchange or automated quotation system, if any, on which the Capital
Securities are then listed or quoted.
Book Entry
The Capital Securities will be represented by a global security that will
be deposited with and registered in the name of The Depository Trust Company,
New York, New York or its nominee. This means that you will not receive a
certificate for the Capital Securities.
7
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data give
effect to (i) the acquisition of the Gold Kist Inputs Business using the
purchase method of accounting and (ii) the issuance of the Capital Securities.
The unaudited pro forma combined condensed financial data are intended for
information purposes only and are not necessarily indicative of the future
financial position or results of operations of the Company had the transactions
described above occurred on the indicated dates or been in effect for the
periods presented. The unaudited pro forma combined condensed financial data
should be read in conjunction with, and are qualified in their entirety by, the
unaudited pro forma financial statements and the historical consolidated
financial statements of the Company and the Gold Kist Inputs Business, including
in each case, the related notes thereto, included elsewhere herein, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Three Months Fiscal Year
Ended Ended
September 30, 1998 June 30, 1998
------------------ -------------
(amounts in thousands)
Statement of Operations Data:
Sales and other operating revenue............ $302,401 $1,600,045
Cost of products purchased and
marketed..................................... 253,544 1,318,291
Selling, general and administrative
expenses.................................. 68,056 281,075
Savings (loss) on operations (1)............. $(19,199) $ 679
========= =========
Other Statement of Operations Data:
EBITDA (2) .................................. $ (5,484) $ 46,784
Interest expense............................. 26,876
7,186
Ratio of earnings to fixed charges (3)(4).... --- ---
Ratio of EBITDA to interest expense (7)...... N/A 1.75x
As of
September 30, 1998
------------------
Balance Sheet Data:
Working capital.............................. $ 263,569
Total assets................................. 731,576
Long-term debt............................... 294,748
Other Balance Sheet Data:
Current ratio (5)............................ 2.53x
Long-term debt to total capitalization (6)... 0.55x
(1)Savings (loss) on operations represents income (loss) before other
deductions, other income, income taxes and distributions on capital
securities of trust subsidiary.
(2)EBITDA is defined as savings before income tax plus interest, depreciation
and amortization expenses (EBITDA is calculated exclusive of distributions on
the Capital Securities and dividends on the Series A Preferred Stock). EBITDA
should not be considered as an alternative to net savings (as determined in
accordance with generally accepted accounting principles), as a measure of
operating performance or as an alternative to net cash provided by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) as a measure of its ability to meet
cash needs. The Company believes that EBITDA is a measure commonly reported
8
<PAGE>
and widely used by investors as a measure of operating performance and debt
servicing ability because it assists in comparing performance on a consistent
basis without regard to interest, taxes, depreciation and amortization, which
can vary significantly depending upon capitalization structure, tax status
(particularly when comparing a cooperative company to a non-cooperative
company), accounting methods (particularly when acquisitions are involved) or
nonoperating factors (such as historical cost). Accordingly, this information
has been disclosed herein to permit a more complete comparative analysis of
operating performance relative to companies within and outside of the
industry and of the Company's debt servicing ability. However, EBITDA may not
be comparable in all instances to other similar types of measures used by
other companies in the agricultural industry.
(3)In the calculation of the ratio of earnings to fixed charges, earnings
consist of net savings (loss) before income taxes after consideration of
distributions on the Capital Securities plus fixed charges. Fixed charges
consist of interest expense on indebtedness, amortization of financing costs,
that portion of rental expense representative of the interest factor and
distributions on the Capital Securities.
(4)On a pro forma basis, earnings were insufficient to cover fixed charges by
$20.7 million and $1.3 million for the three months ended September 30, 1998
and the year ended June 30, 1998, respectively.
(5)Current ratio is defined as total current assets divided by total current
liabilities.
(6)Total capitalization is defined as the total of long-term debt, mandatorily
redeemable capital securities of trust subsidiary, net, mandatorily
redeemable preferred stock, capital stock and patrons' equity.
(7)This ratio is not considered meaningful for the three month period ended
September 30, 1998, as EBITDA for this period is negative.
Selected Historical Data
(in thousands)
Southern States:
Fiscal Year Ended June 30
------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Supply
Feed--tons............... 917 924 895 875 834
Fertilizer--tons......... 1,155 1,137 1,054 1,021 1,057
Seed--pounds, 100 wt..... 1,673 1,384 1,305 1,412 1,051
Petroleum--gallons....... 314,614 349,863 340,556 306,874 287,958
Marketing
Grain marketing--bushels. 24,830 29,380 27,637 28,517 20,543
Livestock marketing--head
Cattle................. 642 599 N/A N/A N/A
Swine.................. 2,689 2,516 N/A N/A N/A
Other.................. 136 120 N/A N/A N/A
Gold Kist Inputs Business:
Fiscal Year Ended
-----------------------------
June 27, June 28, June 29,
1998 1997 1996
---- ---- ----
Supply
Feed--tons............... 272 279 292
Fertilizer--tons......... 1,126 1,127 1,036
Grain--bushels handled... 10,563 13,862 N/A
Cotton--bales ginned..... 102 110 N/A
Peanuts--tons handled.... 35 57 N/A
9
<PAGE>
RISK FACTORS
You should carefully read the following risk factors and the other sections
of this Prospectus before purchasing any Capital Securities.
Risk Factors Relating to the Company
Weather
Historically, weather has had a significant impact on the farm economy and
our operating results. Weather also affects the demand for, and in some cases
the supply of, our products, which in turn has an impact on their prices.
Accordingly, weather patterns and events may have a material effect on our
business, financial condition, and results of operations.
Fluctuations in Commodity Prices
Agriculture is generally cyclical in nature. Agricultural commodities are
subject to wide fluctuations in price, based on supply of the farm commodities
and demand for raw or processed products. In addition, a portion of our business
is dependent on the demand of farmers for the purchase of products, which is
influenced by the general farm economy and the success of particular crops. The
cyclical nature of our operations related to various commodities may result in
variations from year to year in sales volume, cost of goods, and cost of raw
materials. See "Business of the Company--Other Factors Affecting the Business of
the Company--Commodity Price Hedging Activities."
Effect of Price Declines and Seasonality on the Company's Recent Operating
Results
The Company's net savings from operations for its fiscal year ended June 30,
1998, were $10.4 million. This was significantly below the net savings of $27.5
million for the year ended June 30, 1997 and $27.6 million for the year ended
June 30, 1996. The reduction in net savings in fiscal 1998 was attributable to
narrower margins as a result of significant declines in prices for fuels,
fertilizers, feeds, grains and livestock, coupled with weather related unit
volume reductions in petroleum and grain marketing. Results were further
impacted by a sharply lower patronage refund from CF Industries, our
interregional cooperative fertilizer source. The Company's business is highly
seasonal, and the Company normally experiences a loss in the first quarter
(ending September 30). For the quarter ended September 30, 1998, the Company's
net loss after taxes was $8.2 million, compared to a loss of $5.5 million in the
prior year. The same factors that affected the Company in fiscal 1998 continued
to impact the Company in the quarter ended September 30, 1998, and are expected
to impact the Company in the quarter ending December 31, 1998. See "Business of
the Company--Other Factors Affecting the Business of the Company--Seasonality."
10
<PAGE>
Operating Losses and Integration of Gold Kist Inputs Business
The Gold Kist Inputs Business incurred substantial operating losses for the
year ended June 27, 1998, and for the quarter ended September 26, 1998. A
continuation of such losses following the Company's acquisition of the Gold Kist
Inputs Business would severely impact the Company's operating results and could
result in the Company's inability to achieve any net savings from operations for
the year ended June 30, 1999, and possibly for periods thereafter. The Company
believes it can eliminate the operating losses of the Gold Kist Inputs Business
through a combination of closings or other dispositions of unprofitable
facilities, a reduction of credit losses experienced in the Gold Kist Inputs
Business, the elimination of losses incurred by the Gold Kist Inputs Business
through certain commodity futures and options trading activities, and through an
already completed reduction in the number of employees in the Gold Kist Inputs
Business and the related centralization of certain administrative, credit and
purchasing activities.
The acquisition of the Gold Kist Inputs Business significantly increased the
size of the Company's operations. This increase in size increases the demands
placed upon management, including demands resulting from the need to integrate
operations of the Gold Kist Inputs Business with those of the Company. We could
encounter difficulties in integrating the acquired operations with our
operations and we might not realize the benefits anticipated to be realized from
such integration as quickly as, or to the extent, anticipated. Such difficulties
may arise from the necessity of coordinating geographically separated
organizations, integrating different strategies and integrating personnel with
disparate business backgrounds and corporate cultures. Failure to achieve the
desired level of integration, and resulting synergies, could have a material
adverse effect on our business, results of operations, liquidity and financial
condition. See "Acquisition of the Gold Kist Inputs Business."
Competition
The agribusiness industry is highly competitive. We compete with a number
of companies, some of which may have capital resources, research and development
staffs, facilities, or brand-name recognition that may be greater than those of
the Company. Our potential inability to compete successfully could have a
material adverse effect on the Company's business, financial condition, and
results of operations. See "Business of the Company--Other Factors Affecting the
Business of the Company--Competition."
Environmental Matters
We are subject to stringent and changing federal, state and local
environmental laws and regulations, including those governing the labeling, use,
storage, discharge, and disposal of hazardous materials. These laws and
regulations may also impose liability for the cleanup of environmental
contamination. Because we use hazardous substances in certain of our
manufacturing processes, changes in environmental requirements or an
unanticipated significant adverse environmental event could have a material
adverse effect on our business, financial condition and results of operations.
See "Business of the Company--Other Factors Affecting the Business of the
Company--Matters Involving the Environment."
11
<PAGE>
Interests of Certain Underwriters in the Offering
The net proceeds of the offering will be applied to repay indebtedness
outstanding under a bridge loan facility used by the Company to finance the
purchase of the Gold Kist Inputs Business. The bridge loan facility was provided
by CoBank, ACB, NationsBank, N.A. and First Union National Bank. NationsBank,
N.A. is an affiliate of NationsBanc Montgomery Securities, LLC and First Union
National Bank is an affiliate of First Union Capital Markets. As a result of
these relationships and the intended use of the net proceeds, First Union
Capital Markets and NationsBanc Montgomery Securities, LLC have a further
interest in the successful completion of the offering in addition to the
underwriting fees they would receive upon such completion. See "Underwriting"
for a description of the independent underwriting procedures that are being
executed in connection with the offering.
Risk Factors Relating to the Capital Securities
Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures
The Company's obligations under the Guarantee and the Junior Subordinated
Debentures are unsecured and will rank junior in priority to the Company's
Senior Indebtedness. Substantially all of our existing indebtedness constitutes
Senior Indebtedness. The Junior Subordinated Indenture, the Guarantee and the
Trust Agreement do not limit the ability of the Company or any of our
subsidiaries to incur additional indebtedness, including Senior Indebtedness.
See "The Guarantee--Status of Guarantee" and "Description of the Junior
Subordinated Debentures--Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Company's making related payments on the Junior
Subordinated Debentures when due.
Option to Extend Interest Payment Period; Tax Consequences
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing, the Company has the right at any time
or from time to time to defer interest payments on the Junior Subordinated
Debentures for up to 20 consecutive quarters, but not beyond the maturity date
of the Junior Subordinated Debentures. See "Description of the Junior
Subordinated Debentures--Debenture Events of Default."
As a consequence, the Trust would defer distributions on the Capital
Securities during any such deferral period. However, you would still accumulate
distributions at the rate of ___% per annum on the liquidation amount and (to
the extent permitted by law) on the amount of the deferred distributions.
12
<PAGE>
Prior to the termination of any such deferral period, the Company may
further defer the payment of interest, provided that no deferral period may
exceed 20 consecutive quarters or extend beyond the maturity date of the Junior
Subordinated Debentures.
Upon the termination of any deferral period and the payment of all accrued
and unpaid interest (together with interest thereon at the annual rate of ___%,
compounded quarterly, to the extent permitted by applicable law), the Company
may elect to begin a new deferral period subject to the above conditions. The
Company is not limited on the number of times that it may elect to begin a
deferral period. See "Description of the Capital Securities--Distributions" and
"Description of the Junior Subordinated Debentures--Option to Extend Interest
Payment Period."
During a deferral period, you would be required to accrue interest income
for United States federal income tax purposes in respect of your pro-rata share
of the Junior Subordinated Debentures held by the Trust. As a result, you would
be required to include the accrued interest in your gross income for United
States federal income tax purposes prior to your receiving the cash
distribution. You also would not receive the cash distribution related to any
accrued and unpaid interest from the Trust if you sold the Capital Securities
before the end of any deferral period. See "United States Federal Income
Taxation-- Original Issue Discount" and "--Sales of Capital Securities."
The Company has no current intention of exercising its right to defer
interest payments on the Junior Subordinated Debentures. However, if the Company
exercises its right in the future, the market price of the Capital Securities is
likely to be affected. If you sell the Capital Securities during an interest
deferral period, you may not receive the same return on investment as someone
else who continues to hold the Capital Securities.
Tax Event Redemption
At any time a Tax Event (as that term is defined under "Description of the
Capital Securities--Redemption") occurs and is continuing, the Company has the
right to redeem the Junior Subordinated Debentures in whole (but not in part).
The redemption of the Junior Subordinated Debentures will cause a mandatory
redemption of the Capital Securities and Common Securities within 90 days of the
event at a redemption price equal to the liquidation amount of $25 per security
plus any unpaid distributions.
Exchange of Capital Securities for Junior Subordinated Debentures
The Trust may be terminated before its expiration at any time at the
Company's option. As a result, and subject to the terms of the Trust Agreement,
the trustees may distribute the Junior Subordinated Debentures to the holders of
the Capital Securities and Common Securities. See "Description of the Capital
Securities--Liquidation Distribution Upon Dissolution."
13
<PAGE>
Under current United States federal income tax law and assuming that the
Trust will not be taxable as a corporation, a distribution of the Junior
Subordinated Debentures upon a liquidation of the Trust should not be a taxable
event to holders of the Capital Securities. However, if a Tax Event were to
occur, a distribution of the Junior Subordinated Debentures could be a taxable
event to the Trust and the holders of the Capital Securities. See "United States
Federal Income Taxation--Receipt of Junior Subordinated Debentures or Cash Upon
Liquidation of the Trust."
Market Prices
The Company cannot predict the market prices for the Capital Securities or
the Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if the Trust is liquidated. Accordingly, the Capital
Securities or the Junior Subordinated Debentures that you receive upon a
distribution, may trade at a discount to the price that you paid to purchase the
Capital Securities.
Because payments on the Capital Securities will be made with proceeds of the
Junior Subordinated Debentures and because you may receive Junior Subordinated
Debentures on dissolution of the Trust, you are also making an investment
decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures."
Rights Under the Guarantee
If the Company defaults on its obligation to pay principal of or interest on
the Junior Subordinated Debentures, the Trust will not have sufficient funds to
pay distributions or the $25 per Capital Security liquidation amount. As a
result, you will not be able to rely upon the Guarantee for payment of these
amounts. Instead, the Property Trustee may enforce the rights of the Trust under
the Junior Subordinated Debentures directly against the Company or you may
institute a direct proceeding against the Company to enforce payment of
principal and interest on an amount of the Junior Subordinated Debentures equal
to the liquidation amount of Capital Securities that you hold.
Limited Voting Rights
Holders of Capital Securities have limited voting rights. In general, only
the Company can replace or remove any of the trustees. However, if any event of
default under the Trust Agreement is continuing only the holders of at least a
majority in aggregate liquidation amount of the Capital Securities may replace
the Property Trustee and the Delaware Trustee.
The trustees and the Company may, subject to certain conditions, amend the
Trust Agreement without the consent of holders of Capital Securities to cure any
ambiguity or make other provisions not inconsistent with other provisions under
the Trust Agreement or to ensure that the Trust (i) will not be taxable as a
corporation or as other than a grantor trust for United States federal income
tax purposes, or (ii) will not be required to register as an "investment
company" under the Investment Company Act. See "Description of the Capital
Securities--Voting Rights; Amendment of Trust Agreement" and "--Removal of
Trustees; Appointment of Successors."
14
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the Capital Securities will be invested by the
Trust in Junior Subordinated Debentures issued under the Junior Subordinated
Indenture and ultimately will be used by the Company to reduce bank indebtedness
incurred in connection with the acquisition of the Gold Kist Inputs Business.
The Company consummated its purchase of the Gold Kist Inputs Business on
October 13, 1998, utilizing a senior bridge loan facility provided by CoBank,
ACB, NationsBank, N.A. and First Union National Bank. The Company borrowed
$218.3 million under the bridge loan facility to pay the cash portion of the
purchase price paid at the closing, which totaled approximately $218.3 million.
The bridge loan facility, which bears interest at LIBOR plus variable increments
(effective rate of 6.665% at December 16, 1998), is repayable in full on or
before April 7, 1999. The Company intends to repay the bridge loan facility in
part with the proceeds of the offering of Capital Securities made by this
prospectus, and in part with the proceeds of a contemplated sale of shares of
Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"). The
Series A Preferred Stock, if sold, will be perpetual, non-voting and subject to
redemption by the Company on or after January 1, 2009. The Series A Preferred
Stock will rank on a parity with the Company's other preferred stock. The
balance of the amount repayable under the bridge loan facility is contemplated
to be paid from the Company's [$200 million, three-year revolving credit
facility] and from the proceeds of the sale to Statesman Financial Corporation,
an affiliated financing company, of approximately $93 million of accounts
receivable acquired as part of the Gold Kist Inputs Business. The revolving
credit facility provides that the Company may not use in excess of $118.3
million of that facility to repay the bridge loan facility.
In the event the offering of Capital Securities made by this prospectus is
not consummated prior to April 2, 1999, and the sale of the Series A Preferred
Stock is not completed by that date, the Company may elect, pursuant to a
financing commitment entered into between the Company and Gold Kist, to sell up
to $60 million of capital securities of another Delaware business trust, and up
to $40 million of preferred stock substantially similar to the Series A
Preferred Stock referenced above, to Gold Kist. See "Acquisition of the Gold
Kist Inputs Business--The Financing Commitment". The proceeds from the sale of
such securities to Gold Kist would be used to repay in part the bridge loan
facility.
For further information on the calculation of and the funding for the
purchase price for the purchase of the Gold Kist Inputs Business, see the Notes
to the Unaudited Pro Forma Condensed Combined Financial Statements. See also
Notes (1) and (5) under "Capitalization" for information concerning the
Company's revolving credit facility and the proposed sale of accounts receivable
by the Company to one or both of its financing affiliates in connection with the
acquisition of the Gold Kist Inputs Business.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization at September
30, 1998, of the Company and its consolidated subsidiaries as adjusted to
reflect the acquisition of the Gold Kist Inputs Business and the application of
the proceeds from the sale of the Capital Securities. See "Use of Proceeds." The
table should be read in conjunction with the Company's consolidated financial
statements and notes thereto included herein.
<TABLE>
<CAPTION>
Historical
----------------------
Gold Kist
Southern Inputs Financing
States Business Adjustments Combined
------ -------- ----------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Short-term notes payable............ $ 2,000 $ 2,000
======== ========
Long-term debt:
Term notes, 6.99%, due 2005..... $ 38,000 $ 38,000
Industrial revenue financings... 5,870 $ 6,900 12,770
Revolving credit facility (1)... 100,000 100,000
Bridge loan facility (5) $ 143,894 143,894
Capitalized lease obligations 1,911 1,911
Other debt...................... 242 242
-------- ------- --------- --------
Total long-term debt (including
current maturities)............ 144,112 8,811 143,894 296,817
Less current maturities......... 1,834 235 2,069
-------- ------- --------- -------
Total long-term debt (excluding
current maturities)............ 142,278 8,576 $ 143,894 294,748
-------- ------- --------- -------
Mandatorily redeemable capital
securities of trust
subsidiary (2)(5)........ 72,250 72,250
Redeemable preferred stock 2,114 2,114
Capital stock:
Preferred stock................ 1,483 1,483
Common stock................... 12,198 12,198
Patrons' equity:
Patronage refund allocations (3) 68,044 (343) 67,701
Operating capital (4).......... 89,344 89,344
-------- ------- --------- ---------
Total patrons' equity..... 157,388 157,045
-------- ------- --------- ---------
Total capitalization(5)(6) $315,461 $ 8,576 $ 215,801 $539,838
======== ======= ========= =========
</TABLE>
- ----------
(1) The Company [has received] commitments from CoBank, ACB, NationsBank, N.A.,
First Union National Bank and various participating lenders for a new
syndicated $200 million, three-year credit facility to replace the $40
million short-term and $100 million long-term credit facilities with CoBank
in place at September 30, 1998.
(2) As described herein, the sole assets of the Trust will be the Junior
Subordinated Debentures with an assumed principal amount of $75 million (net
of assumed issuance costs of $2,750).
(3) Represents retained earnings, which may be redeemed in the discretion of the
Board of Directors of the Company, subject to certain limitations.
(4) Represents retained earnings from non-member sourced income that is retained
as permanent capital.
(5) Subsequent to the Capital Securities offering, the Company also plans to
curtail its outstanding indebtedness under the bridge loan facility through
a separate offering of $50 million of preferred stock and the sale of
approximately $93 million of finance receivables to its unconsolidated
affiliate, Statesman Financial Corporation.
(6) The capitalization table above gives effect to the offering of the Capital
Securities and the utilization of the bridge loan facility to finance the
acquisition of the Gold Kist Inputs Business as if such transactions
occurred as of September 30, 1998. On October 13, 1998, $218.3 million was
utilized from the bridge facility to acquire the Gold Kist Inputs Business.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
has been prepared from and should be read in conjunction with, the historical
financial statements and the related notes thereto of the Company and the Gold
Kist Inputs Business included elsewhere herein.
The unaudited pro forma condensed combined balance sheet has been prepared
to give effect to the (a) acquisition of the Gold Kist Inputs Business and (b)
offering of the Capital Securities, as though such transactions occurred on
September 30, 1998. The unaudited pro forma condensed combined statements of
operations for the year ended June 30, 1998 and the interim period ended
September 30, 1998, have been prepared to give effect to the aforementioned
transactions as if such transactions occurred on July 1, 1997. Management has
allocated the estimated purchase price based on preliminary estimates of the
fair value of assets to be acquired and liabilities to be assumed. The final
purchase price and its allocation is subject to a post-closing adjustment of
current assets acquired, current and non-current liabilities assumed, as well as
a purchase price allocation for fixed assets acquired.
No pro forma adjustments are included for the Company's April 1, 1998,
purchase of Michigan Livestock Exchange because its balance sheet is included in
the Company's June 30, 1998, historical balance sheet and its operating results
are not material. The historic results of operations of Michigan Livestock
Exchange for the three months ended June 30, 1998, are included in the Company's
operating results for the year ended June 30, 1998.
The pro forma adjustments are based upon available information and certain
estimates and assumptions which management of the Company believes are
reasonable. The unaudited pro forma condensed combined statements of operations
do not purport to represent what the Company's results of operations would have
actually been had the transactions described in the respective notes occurred on
July 1, 1997. In addition, the unaudited pro forma condensed combined financial
information does not purport to project the Company's financial position or
results of operations for any future date or period.
17
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 1998
<TABLE>
<CAPTION>
Historical Financing Acquisition
Southern Gold Kist Pro Forma Pro Forma Pro Forma
States Inputs Business Adjustments Adjustments Combined
------- --------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Assets
Cash................................ $15,774 $ 72,250(1)
143,894(2)
$(216,144)(3) $ 15,774
Accounts receivable................. 58,341 $ 52,516 110,857
Crop notes receivable............... 77,893 77,893
Inventories......................... 139,721 75,378 992 (3) 216,091
Other............................... 14,313 708 15,021
-------- --------- ----------- ------------- ---------
Total current assets......... 228,149 206,495 216,144 (215,152) 435,636
Investments
Statesman Financial Corporation.. 18,150 18,150
Michigan Livestock Credit
Corporation.................. 12,156 12,156
Other companies (principally
cooperatives)............... 75,471 391 (343)(4) 75,519
Receivables......................... 1,576 1,576
Other assets........................ 10,829 826 (814)(3) 10,841
Property plant and equipment, net... 135,277 46,614 (4,193)(3) 177,698
-------- ------- ----------- --------- --------
$ 481,608 $ 254,326 $ 216,144 $(220,502) $ 731,576
======== ======== ========== =========== =======
Liabilities and Stockholders' and
Patrons' Equity
Short term notes payable............ $ 2,000 $ 2,000
Current portion of long-term debt... 1,834 $ 235 2,069
Accounts payable.................... 88,072 23,292 111,364
Accrued expenses.................... 35,600 35,600
Patronage refunds payable in cash... 2,378 2,378
Advances from managed member coops.. 16,763 16,763
Other current liabilities........... 1,812 1,096 $ (1,015)(3) 1,893
-------- ------- ---------- ------------ -------
Total current liabilities.... 148,459 24,623 (1,015) 172,067
Long-term debt...................... 142,278 8,576 143,894(2) 294,748
Other non-current liabilities....... 13,022 13,022
Deferred income tax liabilities..... 4,666 1,983 (3) 6,649
Mandatorily redeemable capital securities of
trust subsidiary, net................ 72,250(1) 72,250
Redeemable preferred stock............. 2,114 2,114
Capital Stock:
Preferred stock.................. 1,483 1,483
Common stock..................... 12,198 12,198
Patrons' equity........................ 157,388 (343)(4) 157,045
Divisional Equity...................... 221,127 (221,127)(3)
-------- -------- ---------- ----------- -------
$ 481,608 $ 254,326 $ 216,144 $(220,502) $ 731,576
========= ========= ========== =========== =======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
18
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1998
<TABLE>
<CAPTION>
Historical
------------------------
Gold Kist
Southern Inputs Pro Forma Pro Forma
States Business Adjustments Combined
---------- ---------- ------------- ---------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net sales............................. $210,893 $ 91,508 $ 302,401
Cost of sales......................... 175,922 78,506 (884)(6) 253,544
-------- -------- -------- -------
Gross margin....................... 34,971 13,002 884 48,857
Selling, general and administrative... 46,002 22,054 68,056
-------- -------- -------- -------
Savings (loss) on operations....... (11,031) (9,052) 884 (19,199)
Other income (deductions):
Interest income and finance charges 2,393 3,209 5,602
Interest expense................... (4,684) (3,994) (2,396)(7)
3,888 (7) (7,186)
Miscellaneous income, net.......... 2,561 171 2,732
-------- -------- -------- -------
270 (614) 1,492 1,148
-------- -------- -------- -------
Savings (loss) before income tax and
distributions on capital securities of
trust subsidiary...................... (10,761) (9,666) 2,376 (18,051)
Income tax expense (benefit).......... (2,680) (3,625) (691)(9)
946 (8) (6,050)
Distributions on capital securities
of trust subsidiary................ 1,735(9)
14(9) 1,749
-------- -------- -------- -------
Net savings (loss)................. $ (8,081) $ (6,041) $ 372 $(13,750)
======== ======== ======== =======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
19
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
<TABLE>
<CAPTION>
Historical
------------------------
Gold Kist
Southern Inputs Pro Forma Pro Forma
States Business Adjustments Combined
---------- ---------- ------------- ---------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net sales............................ $1,119,503 $480,542 $1,600,045
Cost of sales........................ 927,652 393,711 $ 257 (5)
(3,329)(6) 1,318,291
---------- -------- ----------- ----------
Gross margin...................... 191,851 86,831 3,072 281,754
Selling, general and administrative.. 175,784 105,291 281,075
---------- -------- ----------- ----------
Savings (loss) on operations...... 16,067 (18,460) 3,072 679
Other income (deductions):
Interest income and finance
charges.......................... 7,800 10,041 17,841
Interest expense.................. (16,859) (12,675) (9,583)(7)
12,241 (7) (26,876)
Miscellaneous income, net......... 6,625 1,169 7,794
---------- -------- ---------- ----------
(2,434) (1,465) 2,658 (1,241)
---------- -------- ----------- ----------
Savings (loss) before income
tax and distributions on
capital securities of trust
subsidiary........................ 13,633 (19,925) 5,730 (562)
Income tax expense (benefit)......... 2,966 (7,576) (2,761)(9)
2,281 (8) (5,090)
Distributions on capital 6,938 (9)
securities of trust subsidiary....... 55 (9) 6,993
---------- -------- ----------- ----------
Net savings (loss)................ $ 10,667 $ (12,349) $ (783) $ (2,465)
========== ======== =========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
20
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(in thousands of dollars, unless otherwise noted)
Basis of Presentation
The Gold Kist Inputs Business fiscal year is based upon a 52-53 week year
ending on the Sunday nearest to June 30. The Company's fiscal year is based upon
a 12 calendar month year ended June 30, 1998. Gold Kist Inputs Business
quarterly information includes 13 weeks. The Company's quarterly information is
based upon three month calendar quarters.
Allocation of Purchase Price
A summary of the purchase price (excluding liabilities assumed of $33,199)
as if the purchase closed on September 30, 1998 follows:
Cash paid at closing $213,144
Acquisition costs 3,000
--------
Purchase price $216,144
========
A summary of the allocation of the net purchase price follows:
Net assets of Inputs Business at September 30, 1998 $221,127
Fair value adjustments to:
Inventory 992
Write-off of acquired goodwill and capitalized
software (814)
Property, plant and equipment (4,193)
Accrued liabilities not assumed in the purchase 1,015
Deferred income tax liability (1,983)
---------
Total $216,144
========
Pro Forma Adjustments
(1) To reflect the assumed issuance of $75 million of Capital Securities net
of assumed related issuance costs of $2,750.
(2) To reflect proceeds from the Company's bridge loan facility to finance the
purchase price of the Gold Kist Inputs Business.
(3) To reflect the acquisition of the Gold Kist Inputs Business based upon the
estimated purchase price of $216,144 (includes acquisition costs of
$3,000) and to reflect the following fair value adjustments:
21
<PAGE>
Increase inventory for the manufacturing profit assumed
to have been earned by the seller $ 992
Decrease acquired goodwill and capitalized software
development costs with no future benefit 814
Decrease property, plant and equipment 4,193
Eliminate accrued payroll and benefit liabilities not
assumed in the purchase 1,015
Recognize deferred income taxes for fair value adjustments
to inventory and property, plant and equipment 1,983
(4) To record the revolvement of patronage refund allocations acquired
totaling $343 as required by the purchase agreement.
(5) To reflect the increase in cost of sales for the year ended June 30, 1998
of an assumed $257 purchase price adjustment to inventory at July 1, 1997.
(6) Adjustment to reduce depreciation expense based on the amounts assigned
and the estimated remaining useful lives of plant and equipment ranging
from 3 to 31 years.
(7) To reflect increased interest expense on borrowings utilizing the bridge
loan facility with a weighted average borrowing rate of approximately
6.66% and assuming that the facility is renewed after 180 days. Also, to
reflect the elimination of interest expense allocated by Gold Kist to the
Gold Kist Inputs Business based on assets employed.
(8) To record the income tax effect of the pro forma adjustments affecting
income at the applicable income tax rate, including the elimination of
interest expense allocated by Gold Kist to the Gold Kist Inputs Business
based on assets employed.
(9) To reflect dividends ($6,938 and $1,735, respectively) on the Capital
Securities at an assumed annual dividend rate of 9.25% and to reflect the
resulting income tax benefit at Company's statutory income tax rates of
$2,761 and $691, respectively as such dividends are deductible as
interest for income tax purposes. Also, to reflect accretion of
approximately $55 and $14 for the year ended June 30, 1998 and quarter
ended September 30, 1998, respectively, of the difference between the
face amount of the securities and the net proceeds over 30 years
utilizing the effective interest method.
Items Not Reflected in the Pro Forma Financial Information
Subsequent to the Capital Securities offering, the Company also plans to
curtail its outstanding indebtedness under the bridge loan facility through a
separate offering of $50 million of preferred stock and the sale of
approximately $93 million of finance receivables to its unconsolidated
affiliate, Statesman Financial Corporation.
22
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected historical consolidated financial data (except
wholesale volume data) for the Company are derived from the audited financial
statements of the Company as of and for each of the years in the five-year
period ended June 30, 1998. The selected historical financial data for the Gold
Kist Inputs Business are derived from the audited financial statements of the
Gold Kist Inputs Business as of and for the years ended June 27, 1998, June 28,
1997, and June 29, 1996. The following selected historical financial data should
be read in conjunction with information appearing in the respective consolidated
financial statements and the notes thereto included herein.
Southern States Cooperative, Incorporated
<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended June 30
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net purchases by patrons .... $1,022,847 $1,097,174 $1,008,841 $ 911,449 $ 870,032
Net marketings for patrons .. 92,863 115,972 110,667 99,185 77,476
Other operating revenue ..... 3,793 2,954 3,141 3,093 2,824
---------- ---------- ---------- ---------- ----------
Total revenue .......... $1,119,503 $1,216,100 $1,122,649 $1,013,727 $ 950,332
Cost of products purchased
and marketed .............. 927,652 1,014,440 926,753 835,139 786,354
---------- ---------- ---------- ---------- ----------
Gross margin .......... 191,851 201,659 195,896 178,588 163,978
Selling, general &
administrative ............ 175,784 166,132 157,809 150,678 149,256
---------- ---------- ---------- ---------- ----------
Savings on operations 16,067 35,527 38,087 27,910 14,722
Other deductions (net) ...... 2,434 1,987 3,441 4,738 2,992
---------- ---------- ---------- ---------- ----------
Savings before income
taxes .............. 13,633 33,540 34,646 23,172 11,730
Income taxes ................ 2,966 6,039 7,052 4,929 3,646
Cumulative effect of change
in accounting principle (1) -- -- -- -- (909)
---------- ---------- ---------- ---------- ----------
Net savings (2) ......... $ 10,667 $ 27,501 $ 27,594 $ 18,243 $ 7,175
========== ========== ========== ========== ==========
Distribution of Net Savings:
Dividends on stock .......... $ 961 $ 805 $ 989 $ 1,108 $ 1,274
Patronage refunds payable in
cash........................ 2,379 6,884 6,669 3,812 1,089
Patronage refund allocations. 3,703 10,591 10,306 5,961 1,743
Retained in the business..... 3,624 9,221 9,630 7,362 3,069
---------- ---------- ---------- ---------- ----------
Net savings ......... $ 10,667 $ 27,501 $ 27,594 $ 18,243 $ 7,175
========== ========== ========== ========== ==========
Other Data:
EBITDA (3) ................. $ 48,104 $ 65,704 $ 66,150 $ 53,297 $ 38,085
Interest expense ............ 16,859 15,566 15,237 14,798 12,258
Depreciation and amortization 17,612 16,598 16,267 15,327 14,097
CF Industries, Inc.
patronage dividend (4)..... 5,513 13,128 12,729 4,846 --
Capital expenditures ........ 33,905 19,945 18,529 17,333 18,424
Balance Sheet Data:
Working capital ............. $ 90,098 $ 108,682 $ 103,911 $ 92,154 $ 75,913
Property, plant and ......... 129,193 104,002 101,549 99,535 98,409
equipment (net)
Investments ................. 103,874 82,369 71,549 63,849 59,747
Total assets ................ 462,296 409,160 385,551 343,173 323,888
Long-term debt .............. 136,041 109,902 107,523 99,580 89,011
23
<PAGE>
Selected Ratios:
Ratio of earnings to
combined fixed charges and
preferred stock dividends(5) 1.63x 2.76x 2.89x 2.30x 1.76x
Ratio of EBITDA to interest
expense...................... 2.85x 4.22x 4.34x 3.60x 3.11x
Long-term debt/EBITDA ....... 2.83x 1.67x 1.63x 1.87x 2.34x
Current ratio (6) ........... 1.71x 2.00x 2.00x 2.11x 1.88x
Long-term debt to total
capitalization (7)........... 0.43x 0.38x 0.40x 0.40x 0.39x
Wholesale Volume Data ('000's):
Supply
Feed--tons ............. 917 924 895 875 834
Fertilizer--tons ....... 1,155 1,137 1,054 1,021 1,057
Seed -pounds, 100 wt ... 1,673 1,384 1,305 1,412 1,051
Petroleum--gallons ..... 314,614 349,863 340,556 306,874 287,958
Marketing
Grain marketing-bushels 24,830 29,380 27,637 28,517 20,543
Livestock marketing-head
Cattle .............. 642 599 N/A N/A N/A
Swine ............... 2,689 2,516 N/A N/A N/A
Other ............... 136 120 N/A N/A N/A
Statesman Financial
Corporation (8):
Total assets ................ $ 236,143 $152,400 $168,971 $144,384 $138,139
Receivables financed ........ 202,908 127,717 140,158 97,167 92,763
Debt ........................ 200,795 133,230 150,024 126,409 122,383
Total equity ................ 31,574 18,349 18,078 17,050 15,025
</TABLE>
24
<PAGE>
Gold Kist Inputs Business
<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended
---------------------------------------------
June 27, June 28, June 29,
1998 1997 1996
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Summary of Operations:
Net sales .......................................... $ 480,542 $ 488,409 $ 458,927
Cost of sales....................................... 393,711 389,798 363,725
------------ ------------ ------------
Gross margin................................... 86,831 98,611 95,202
Distribution, administrative and general............ 105,291 98,456 85,531
------------ ------------ ------------
Savings (loss) on operations................... (18,460) 155 9,671
Other deductions (net).............................. 1,465 2,746 3,406
------------ ------------ ------------
Earnings (loss) before income taxes............ (19,925) (2,591) 6,265
Income tax (benefit) expense........................ (7,576) (972) 2,256
------------ ------------ ------------
Net (loss) income.............................. $ (12,349) $ (1,619) $ 4,009
============ ============ ============
Other Data:
EBITDA (3) ......................................... $ (1,062) $ 14,877 $ 22,861
Interest expense.................................... 12,675 11,282 10,741
Depreciation and amortization....................... 6,188 6,186 5,855
CF Industries, Inc. patronage dividend (9).......... 3,696 10,108 8,938
Capital expenditures................................ 4,729 9,375 16,322
</TABLE>
<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended
---------------------------------------------
June 27, June 28, June 29,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance Sheet Data:
Working capital..................................... $175,454 $164,256 $164,531
Property, plant and equipment (net)................. 48,185 49,984 47,148
Total assets........................................ 289,143 269,039 261,451
Long-term debt...................................... 8,628 8,863 9,096
Selected Ratios:
Ratio of EBITDA/interest expense.................... (0.08)x 1.32x 2.13x
Current ratio (6)................................... 3.78x 4.04x 4.35x
Wholesale Volume Data (`000's):
Supply
Feed--tons..................................... 272 279 292
Fertilizer--tons............................... 1,126 1,127 1,036
Grain--bushels handled......................... 10,563 13,862 N/A
Cotton--bales ginned........................... 102 110 N/A
Peanut--tons handled........................... 35 57 N/A
</TABLE>
25
<PAGE>
- ---------------
(1) Effective July 1, 1993, the Company adopted SFAS No. 109, which required
the adoption of the liability method of accounting for income taxes. The
$909 cumulative effect of the change in accounting principle was recorded
in fiscal year 1994.
(2) Effective July 1, 1997, the Company adopted American Institute of
Certified Public Accountants Statement of Position No. 98-1, "Accounting
for Costs of Computer Software Developed or Obtained for Internal Use."
See Note 1d of the Notes to the Southern States Consolidated Financial
Statements included herein.
(3) EBITDA is defined as savings before income tax plus interest,
depreciation and amortization expenses. EBITDA should not be considered
as an alternative to net savings (as determined in accordance with
generally accepted accounting principles), as a measure of operating
performance or as an alternative to net cash provided by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) as a measure of its ability to
meet cash needs. The Company believes that EBITDA is a measure commonly
reported and widely used by investors as a measure of operating
performance and debt servicing ability because it assists in comparing
performance on a consistent basis without regard to interest, taxes,
depreciation and amortization, which can vary significantly depending
upon capitalization structure, tax status (particularly when comparing a
cooperative company to a non-cooperative company), accounting methods
(particularly when acquisitions are involved) or nonoperating factors
(such as historical cost). Accordingly, this information has been
disclosed herein to permit a more complete comparative analysis of
operating performance relative to companies within and outside of the
industry and of the Company's debt servicing ability. However, EBITDA may
not be comparable in all instances to other similar types of measures
used by other companies in the agricultural industry.
(4) For further information concerning the Company's relationship to CF
Industries, Inc., see "Business of the Company--Investment in Other
Companies and Cooperatives."
(5) In the calculation of the ratio of earnings to combined fixed charges and
preferred stock dividends, earnings consist of net savings before income
taxes and the cumulative effect of accounting changes plus interest
expense on indebtedness, amortization of financing costs and the portion
of rental expense representative of the interest factor. Fixed charges
consist of interest expense on indebtedness before deduction of
capitalized interest, amortization of financing costs, the portion of
rental expense representative of the interest factor and the pre-tax
earnings required to cover preferred stock dividends.
(6) Current ratio is defined as total current assets divided by total
current liabilities.
(7) Total capitalization is defined as the total of long-term debt,
mandatorily redeemable preferred stock, capital stock and patrons'
equity.
(8) The Company owns 46.3% of the common stock of Statesman Financial
Corporation ("SFC"). SFC purchases significant amounts of receivables
from the Company and provides agricultural production loans, building
loans, equipment loans, renovation loans, revolving credit loans and
other loans to and financing for customers of the Company. See "Business
of the Company--Affiliated Financing Services."
(9) For further information concerning the relationship of the Gold Kist
Inputs Business to CF Industries, Inc., see "Acquisition of the Gold Kist
Inputs Business--Gold Kist Inputs Business--Fertilizers and Crop
Protectants."
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included herein.
General
Management's discussion of sales, operating margins (or losses) and other
factors affecting the Company's pre-tax net savings (or losses) during the three
month periods ended September 30, 1998 and 1997 and during the fiscal years
ended June 30, 1998, 1997 and 1996, is based upon the following tables.
Operating margins, as utilized in the tables below, consist of divisional
(segment) operating results, including an allocation of interest expense based
upon divisional assets employed and excluding any allocation of general
corporate overhead.
Divisional Sales and Operating Margins
(in thousands)
<TABLE>
<CAPTION>
Sales for Operating Margins for
the fiscal year ended the fiscal year ended
----------------------------------------------------- ------------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Crops $ 151,042 $ 160,448 $ 148,598 $ 17,056 $ 26,609 $ 24,360
Feed 145,582 161,940 147,420 6,121 6,302 6,922
Petroleum 193,097 250,260 219,607 1,650 7,108 8,719
Retail Farm Supply 336,260 336,044 317,921 4,855 5,855 5,428
Farm and Home 196,116 188,426 175,827 5,967 7,173 7,811
Marketing 94,517 116,211 110,731 1,782 3,585 2,269
Other 2,889 2,771 2,545 (527) (198) 238
------------ ------------- ------------- ----------- ------------ ----------
Total $1,119,503 $ 1,216,100 $ 1,122,649 36,904 56,434 55,747
============ ============= ============= =========== ============ ==========
General corporate overhead (23,271) (22,894) (21,101)
Income tax expense (2,966) (6,039) (7,052)
----------- ----------- -----------
Net savings $ 10,667 $ 27,501 $ 27,594
=========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Sales for the Operating Margins for the
three months ended September 30, three months ended September 30,
--------------------------------------- ----------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Crops $ 17,792 $ 19,497 $ (1,069) $ (786)
Feed 36,517 37,067 1,304 1,824
Petroleum 36,817 53,942 (1,012) (518)
Retail Farm Supply 58,942 60,851 (4,293) (2,731)
Farm and Home 46,113 44,209 389 733
Marketing 14,084 18,696 291 400
Other 628 574 (137) (127)
-------------- -------------- ------------ --------------
Total $ 210,893 $ 234,836 (4,527) (1,205)
============== ============== ============ ==============
General corporate overhead (6,233) (5,827)
Income tax benefit 2,679 1,530
------------ ---------------
Net savings (loss) $ (8,081) $ (5,502)
============ ===============
</TABLE>
27
<PAGE>
Agriculture is both seasonal and cyclical in nature. As a result, the
Company's sales and operating margins fluctuate greatly on a quarterly basis.
The first quarter is typically the weakest for both sales and operating margins
and losses are expected. The second quarter also typically results in operating
losses, although sales are stronger than in the first quarter due principally to
increased sales of petroleum products. The third and fourth quarters are the
largest contributors to both sales and profitability for the year. See "Other
Factors Affecting the Business of the Company--Seasonality."
A major portion of the Company's business is dependent on the demand of
farmers for the purchase of supplies and services, which is influenced by
weather, the general farm economy and the success of particular crops. Prices of
agricultural supplies are sensitive to world-wide economic and political
factors. Commodities marketed by the Company on behalf of its members are also
subject to fluctuations in price, based on the supply of such commodities and
the demand for the raw or processed products.
Historical Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Net sales of $210.9 million for the three months ended September 30,
1998, reflected a decrease of $23.9 million (10%) from $234.8 million for the
comparative 1997 period. The decrease in net sales primarily reflected lower
volumes in all divisions except Farm and Home. The majority of the Company's
volume decrease occurred in the Petroleum and Marketing divisions which were
impacted by world-wide supply and demand factors for petroleum and grain
products, respectively. Average unit price varied from an increase of 18.8% in
seed products to a decrease of 27.8% in petroleum products. The loss for the
three months ended September 30, 1998, of $8.1 million was $2.6 million higher
than the $5.5 million loss for the corresponding 1997 period.
Crops
Sales of the Crops division decreased $1.7 million (8.7%) from $19.5
million for the three months ended September 30, 1997, to $17.8 million for the
comparative 1998 period. The majority of the Crops division's sales decline
resulted from decreases in fertilizer sales with tonnage down by approximately
16% while pricing remained steady. Seed sales decreased by 13% resulting from
significant declines in unit volume which were partially offset by price
increases. Sales of crop protection products increased approximately 10%,
offsetting the decline in seed revenue.
Operating losses for the Crops division increased by $0.3 million from a
loss of $0.8 million for the September 30, 1997 quarter to a loss of $1.1
million for the comparative 1998 period. The decrease resulted primarily from
lower fertilizer and seed operating margins resulting from lower volumes.
28
<PAGE>
Feed
Feed division sales decreased $0.6 million (1.5%) from $37.1 million for
the three months ended September 30, 1997, to $36.5 million for the comparative
1998 period. This decrease resulted from lower unit prices (down 14.0%) mostly
offset by a 12.6% increase in tons sold.
The operating margin for the Feed division decreased $0.5 million from
$1.8 million for the three months ended September 30, 1997, to $1.3 million for
1998. The decrease in profit primarily resulted from lower selling prices.
Petroleum
Petroleum division sales decreased $17.1 million (31.7%) from $53.9
million for the three months ended September 30, 1997, to $36.8 million for the
comparative 1998 period. Petroleum gallons sold decreased by 10.4 million (13%)
primarily due to lower commercial gasoline and fuel oil sales. In addition, the
decrease in heating degree-days led to significantly lower demand for heating
oil. Sales revenue for the prior period was significantly impacted by lower
prices, which decreased 27% from the prior period.
The Petroleum division's operating margin decreased from a loss of $0.5
million for the three months ended September 30, 1997, to a loss of $ 1.0
million for the 1998 period. The decline in operating margin resulted from
decreases in both world-wide petroleum prices, which led to inventory
write-downs, and in sales volume.
Retail Farm Supply
Sales of the Retail Farm Supply division decreased $1.9 million (3.1%)
from $60.9 million for the three months ended September 30, 1997, to $58.9
million for the comparative 1998 period. The decrease in sales can be attributed
to the impact of unusually dry weather in our operating territory reducing fall
fertilizer spreading and planting and also to depressed feed and petroleum
prices.
Operating margins for Retail Farm Supply decreased $1.6 million from a
loss of $2.7 million for the three months ended September 30, 1997, to a loss of
$4.3 million for the 1998 period. Reduced margins were mainly caused by the weak
prices in crop protectant products and fertilizer volume declines due to the
lack of fall fertilizer spreading. Also, margins on crop protection products
significantly decreased, offsetting margin improvements in feed, seed and farm
and home supplies.
Farm and Home
Sales of the Farm and Home division increased $1.9 million (4.3%) from
$44.2 million for the three months ended September 30, 1997, to $46.1 million
for the 1998 period. This increase in sales is primarily the result of an
increase in the sales of Wetsel, Inc. of $0.9 million (8.1%), as well as higher
sales of farm and home supplies in the metropolitan area stores.
29
<PAGE>
Operating margin for Farm and Home decreased $0.3 million from $0.7
million for the three months ended September 30, 1997, to $0.4 million for the
1998 period. The decrease in operating margin is primarily attributable to
increased operating expenses at Wetsel, Inc. relating to the purchase of a
distribution warehouse during fiscal year 1998.
Marketing
Sales of the Marketing division decreased $4.6 million (25%) from $18.7
million for the three months ended September 30, 1997, to $14.1 million for the
1998 period. This decrease is attributable to a decline of $7 million in grain
marketing revenue partially offset by new livestock marketing revenue of $2.4
million attributable to the acquisition of Michigan Livestock Exchange on April
1, 1998. The decline in grain marketing revenue resulted primarily from poor
growing conditions in the spring which negatively impacted the quality and
production of wheat and barley. The poor growing conditions were partially
offset by an early fall harvest which shifted some corn volume into the
September 30 quarter. The average price of a marketed bushel of grain is down
$0.62 (19.2%) from the same time period last year.
Operating margin for the Marketing division decreased $0.1 million from
$0.4 million for the three months ended September 30, 1997 to $0.3 million for
the 1998 period. The decrease in operating margin is attributable to lower grain
pricing, lower bushel volume, wheat quality issues and reduced grain drying
opportunities partially offset by the new Michigan Livestock Exchange operating
margins.
General Corporate Overhead
General corporate overhead, consisting primarily of general and
administrative costs not allocated to the divisions (such as information
systems, human resources and central management costs offset by various
miscellaneous income items), increased approximately $0.3 million (4.8%) from
$5.9 million for the three months ended September 30, 1997, to $6.2 million for
the comparative 1998 period. The increase resulted primarily from higher
employee expenses related to the acquisition of Michigan Livestock Exchange on
April 1, 1998 partially offset by a breach of contract settlement gain of $1.0
million.
Company wide interest expense, which is substantially allocated to
operating divisions based on assets employed and included as a charge against
divisional margins, increased $0.3 million (7%) from $4.4 million for the three
months ended September 30, 1997 to $4.7 million for 1998 period, primarily
reflecting higher borrowing levels associated with the acquisition of Michigan
Livestock Exchange.
Provision for Income Tax Benefit
The provision for income tax benefit in 1998 of $2.3 million increased
$0.8 million (53.4%) from $1.5 million in 1997 primarily due to a 53% increase
in pre-tax net losses. The forecasted effective tax rate was approximately 24.9%
and 21.8% for the quarters ended September 30, 1998 and 1997, respectively.
30
<PAGE>
Liquidity and Capital Resources at September 30, 1998
The Company's principal sources of funds are cash generated from
operating activities, committed and uncommitted bank lines and a committed
revolving credit facility, private placements of long-term bank debt and the
sale of receivables to Statesman Financial Corporation, an affiliated finance
company.
Cash and cash equivalents at September 30, 1998 were $15.8 million which
represents an increase of about $0.4 million from $15.4 million at June 30,
1998. Net cash provided by operating activities for the three months ended
September 30, 1998 and 1997 amounted to $12.3 million and $3.2 million,
respectively. The increase in net cash provided by operating activities resulted
from increases in accounts payable and advances from managed local cooperatives
partially offset by increases in inventory and a higher net loss. Net cash used
in investing activities for the three months ended September 30, 1998 amounted
to $12.9 million, an increase of $7.0 million from cash used in investing
activities in the corresponding 1997 period. This increase resulted primarily
from increased capital expenditures. Net cash provided by financing activities
for the three months ended September 30, 1998 of $1.0 million and net cash used
in financing activities of $1.5 million for the corresponding 1997 period were
primarily the result of net borrowing activities.
At September 30, 1998 the Company had $40 million in available borrowings
under its revolving credit facility and committed bank lines.
The Company anticipates capital expenditures of approximately $42.8
million in the current fiscal year, including capital expenditures of
approximately $18.7 million the Company contemplates making with respect to the
Gold Kist Inputs Business.
In October, 1998, the Company borrowed $218.3 million under a 180-day
"bridge" loan facility with NationsBank, N.A., First Union National Bank and
CoBank to finance the Company's purchase of the Gold Kist Inputs Business. In
December, 1998, the Company [received] commitments from CoBank, NationsBank,
N.A., First Union National Bank and various other participating lenders for a
new $200 million, three-year revolving credit facility. This new loan agreement
will replace the $40 million short-term and $100 million long-term CoBank
facilities that were in place at September 30, and will provide the Company with
additional borrowing capacity. The terms of the new revolving credit facility
permit up to $118.3 million of that facility to be used by the Company to repay
in part its outstanding indebtedness ($218.3 million at November 30, 1998) under
the bridge loan facility. The Company anticipates that the remaining balance
outstanding under the bridge loan facility will be repaid with the proceeds from
sales of securities and accounts receivables by the Company. See "Use of
Proceeds" and "Acquisition of the Gold Kist Inputs Business--The Financing
Commitment" for additional information concerning the Company's plans to repay
its bridge loan facility.
Management believes that the Company's cash on hand, anticipated funds
from operations, and amounts currently available under its various credit
facilities will be sufficient to cover its working capital needs, capital
expenditures, debt service requirements and tax obligations. The Company intends
to maintain and further strengthen its financial condition and, in connection
therewith, may from time to time consider other possible transactions,
including acquisitions, other capital market transactions or dispositions
of businesses that no longer meet its strategic objectives.
31
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Net sales of $1.1 billion decreased approximately $96 million (7.9%) from
$1.2 billion in 1997. The decrease in net sales primarily reflected lower
volumes in the Petroleum, Marketing and Feed divisions as well as lower unit
prices in all divisions. These divisions experienced 12 month average decreases
in prices from a minimum of 6.0% in fertilizer to a high of 18.0% in petroleum.
Net savings for 1998 amounted to $10.7 million, a decrease of approximately
$16.8 million (61%) from $27.5 million for 1997. Petroleum and grain prices in
particular were subject to world-wide supply and demand factors.
Crops
Sales of the Crops division decreased $9.4 million (5.9%) from $160.4
million in 1997 to $151 million in 1998. Decreases in sales of fertilizer gave
rise to the majority of the Crops division sales decline with fertilizer selling
prices declining approximately 6.0%, partially offset by a 1.5% increase in
tonnage. Sales of seed increased slightly due to unit volume increases of 20.8%,
which were mostly offset by decreases in average selling price of 15.8%. Sales
of crop protection products increased by 2.6% from 1997 to 1998.
Operating margin for the Crops division decreased by $9.6 million from
$26.6 million in 1997 to $17.1 million in 1998. The decrease resulted primarily
from a decrease of $7.6 million in the patronage refund from CF Industries, a
fertilizer supply cooperative owned by the Company and 10 other regional
cooperatives, as well as from decreased fertilizer operating margins driven by
lower fertilizer selling prices.
Feed
Sales of the Feed division decreased $16.3 million (10.1%) from $161.9
million in 1997 to $145.6 million in 1998. This decrease resulted primarily from
lower unit prices and decreases in volume of 9.2% and 0.8%, respectively.
Operating margin for the Feed division decreased $0.2 million from $6.3
million in 1997 to $6.1 million in 1998. This decrease in profit primarily
resulted from lower selling prices partially offset by a $500,000 reduction in
central management expense during 1998.
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Petroleum
Sales of the Petroleum division decreased $57.2 million (22.8%) from
$250.3 million in 1997 to $193.1 million in 1998. Petroleum gallons decreased by
35.3 million (10%), primarily due to lower commercial gasoline and fuel oil
sales. In addition, the decrease in heating degree-days led to significantly
less demand for heating oil. Average unit selling prices decreased 18% from
1998, also contributing to the lower sales revenue.
The Petroleum division's operating margin decreased by $5.4 million from
$7.1 million for 1997 to $1.7 million for 1998. The decline in operating margin
resulted from both decreases in worldwide petroleum prices, which led to
inventory write-downs, and decreases in sales volume.
Retail Farm Supply
Sales of the Retail Farm Supply division remained relatively consistent
with the prior year, increasing only slightly from $336.0 million in 1997 to
$336.3 million in 1998. Increased unit volume in crop protection products and
seed was offset by both lower unit volume and pricing in feed and petroleum.
Volume increases in seed were the result of a later growing season in 1998 and
greater demand for soybean seed.
Operating margin for the Retail Farm Supply division decreased $1.0
million from $5.9 million for 1997 to $4.9 million for 1998. The decrease in
operating margin resulted primarily from an increase in operational expenses
principally due to the acquisition of the two private dealer operations in
Kentucky, which was partially offset by higher margins resulting mainly from
more favorable fertilizer pricing.
Farm and Home
Sales of the Farm and Home division (including sales of Wetsel, Inc.)
increased $7.7 million (4.1%) from $188.4 million for 1997 to $196.1 million for
1998. This increase resulted from the higher sales volume of Wetsel, Inc., which
grew by $6.4 million (12.9%), as well as higher sales in the metropolitan area
stores over the same period.
Farm and Home operating margin decreased by $1.2 million from $7.2
million in 1997 to $6.0 million in 1998. The decrease in operating margin
primarily resulted from higher operating expenses in both the metropolitan
stores and at Wetsel, Inc.
Marketing
Sales of the Marketing division decreased $21.7 million (18.7%) from
$116.2 million in 1997 to $94.5 million in 1998. Livestock marketing revenues of
$3.2 million for the three months ended June 30, 1998, attributable to the
acquisition of MLE on April 1, 1998, served to partially offset the decrease.
Grain bushels marketed decreased 15.5% from 1997 to 1998 with large decreases in
corn and soybean bushels marketed, which were partially offset by an increase in
wheat bushels marketed.
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Operating margin for the Marketing division decreased $1.8 million, from
$3.6 million in 1997 to $1.8 million in 1998. Decreased profitability primarily
resulted from lower grain marketing volume due to depressed corn and bean
acreage yields and reduced corn drying revenue due to a drought during the
summer of 1997.
General Corporate Overhead
General corporate overhead, consisting primarily of general and
administrative costs not allocated to the divisions (such as information
systems, human resources and central management costs offset by various
miscellaneous income items), increased approximately 1.7% from $22.9 million for
1997 to $23.3 million for 1998. The increase resulted primarily from increased
employee related expenses partially offset by an increase in service charge
revenue. Company wide interest expense, which is substantially allocated to
operating divisions based on assets employed and included as a charge against
divisional margins, increased $1.3 million (8.3%) from $15.6 million in 1997 to
$16.9 million in 1998 primarily as a result of higher borrowing levels.
Income Tax Expense
Income taxes in 1998 were $3.0 million, a decrease of $3.0 million (50%)
from $6.0 million in 1997 primarily due to a 59% decrease in pretax net savings.
The effective income tax rate was 21.8% in 1998 versus 18.0% in 1997, (see Note
12 of Notes to the Southern States Consolidated Financial Statements for an
analysis of the differences between the statutory income tax rate and the
Company's effective income tax rate).
Fiscal 1997 Compared to Fiscal 1996
Net sales increased $93.5 million (8.3%) from $1.1 billion in 1996 to
$1.2 billion in 1997. This increase in sales volume was primarily due to higher
increased unit sales in all divisions which experienced unit growth ranging from
2.7% to 7.9% accompanied by 12 month average changes in prices ranging from a
low of a decrease of 3.0% in fertilizer to a high of an increase of 14.4% in
petroleum.
Crops
Sales of the Crops division increased $11.8 million (8.0%) from $148.6
million in 1996 to $160.4 million in 1997. Fertilizer tonnage increased
approximately 7.8%, slightly offset by a decrease in average selling price of
3.0%. Sales of seed increased due to both price increases and unit volume
increases of 5.9% and 6.1%, respectively. Sales of crop protection products
increased by 8.1% in 1997 over 1996.
Operating margin for the Crops division increased by $2.2 million from
$24.4 million in 1996 compared to $26.6 million in 1997. This increase resulted
primarily from increased gross margins driven by higher volume. An increase in
the patronage refund from CF Industries, Inc. (from $12.7 million to $13.1
million) also contributed to increased profitability. In addition, the Crops
division experienced only a 0.3% increase in operating expenses as a result of
the increased volume.
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Feed
Sales of the Feed division increased $14.5 million (9.8%) from $147.4
million in 1996 to $161.9 million in 1997. This increase resulted primarily from
higher unit prices and increases in volume of 6.6% and 3.2%, respectively.
Operating margin for the Feed division decreased $0.6 million from $6.9
million in 1996 to $6.3 million in 1997. This decrease in operating margin was
due primarily to higher employee costs associated with the opening of a new feed
mill in Summer Shade, Kentucky, new personnel positions within the division and
merit increases. These increased employee costs were mitigated somewhat by
increased gross margin dollars and income from the new ProPet LLC joint venture.
See "Business of the Company--Agricultural Inputs and Services--Feed."
Petroleum
Sales of the Petroleum division increased $30.7 million (14%) from $219.6
million in 1996 to $250.3 million in 1997. Approximately 2.7% of this increase
was volume-related, with the remainder resulting from increased commodity prices
in heating oils, gasoline and diesel fuel due to strong demand and low inventory
in the industry. The volume increase resulted in part from significant increases
in sales to commercial accounts.
The Petroleum division's operating margin decreased by $1.6 million from
$8.7 million in 1996 to $7.1 million in 1997. While the division experienced
increased volume, the gross margin percent decreased considerably due to
increased sales to commercial accounts, where margins are typically lower, and
weak wholesale market conditions.
Retail Farm Supply
Sales of the Retail Farm Supply division increased $18.1 million (5.7%)
from $317.9 million in 1996 to $336 million in 1997. This increase resulted from
higher sales volume across all retail lines of business - feed, crops, farm
supplies and petroleum. Sales of petroleum, feed and fertilizer were the largest
contributors to this increase. This was the result of both increased prices and
increased volume.
Operating margin for the Retail Farm Supply division increased from $5.4
million in 1996 to $5.9 million in 1997. This increase was driven by increased
gross margins resulting from higher volume and an increase in finance charge
revenue offset by increased operating expenses.
Farm and Home
Sales of the Farm and Home division (including sales of Wetsel, Inc.)
increased $12.6 million (7.2%) from $175.8 million in 1996 to $188.4 million in
1997. A $9.2 million increase in retail sales contributed to this higher sales
volume. During the year, Wetsel, Inc. experienced a $3.9 million or 8.4%
increase in sales volume to $49.9 million in 1997.
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Operating margin for the Farm and Home division decreased from $7.8
million in 1996 to $7.2 million in 1997. This decrease resulted from lower
earnings in the Wetsel, Inc. subsidiary caused by an increase in operating
expenses resulting from start-up operations in the Ohio region. In addition,
gross margins in the division (excluding Wetsel, Inc.) as a percent of sales
were lower as a result of a milder winter than the previous year. The closing of
a farm supply warehouse facility in Baltimore resulted in additional expenses.
Marketing
Grain marketing sales increased $5.5 million (5%) from $110.7 million in
1996 to $116.2 million in 1997. This resulted primarily from an increase of 4.4%
in grain bushels marketed, primarily corn and soybeans.
Operating margin from the Marketing division increased $1.3 million from
$2.3 million in 1996 to $3.6 million in 1997. Increased profitability resulted
from an increase in gross margins from additional volume and a decrease in
operating expenses for the year.
General Corporate Overhead
General corporate overhead, consisting primarily of general and
administrative costs not allocated to the divisions (such as information
systems, human resources and central management costs offset by various
miscellaneous income items), increased $1.8 million (8.5%) from $21.1 million
for 1996 to $22.9 million for 1997. The increase resulted primarily from
increased employee related expenses partially offset by an increase in service
charge revenue.
Company wide interest expense, which is substantially allocated to
operating divisions based on assets employed and included as a charge against
divisional margins, increased slightly from $15.2 million in 1996 to $15.6
million in 1997 as a result of marginally higher borrowing levels.
Income Tax Expense
Income tax expense decreased from $7.1 million in 1996 to $6.0 million in
1997. This decrease was principally due to an increase in the deduction for
patronage refunds, resulting in an effective tax rate for 1997 of 18.0%. See
Note 12 of the Notes to the Southern States Consolidated Financial Statements
included herein for an analysis of the differences between the statutory income
tax rate and the Company's effective tax rate.
Liquidity and Capital Resources at June 30, 1998
At June 30, 1998, the Company had a $40 million committed short-term line
of credit with CoBank ACB ("CoBank") and uncommitted short term lines of credit
with other institutions totaling $97 million. In addition, the Company had a
$100 million long-term committed revolving credit facility with CoBank which
expires in 2001. This agreement enables the Company to refinance short term debt
on a long term basis. At June 30, 1998, the Company had $93 million outstanding
under the long term revolving credit facility and $7.1 million outstanding under
the short term lines of credit.
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At June 30, 1998 the Company also had outstanding $38 million of term
notes held by CoBank that are payable at various dates with a final maturity of
November 1, 2005. Under the Company's loan agreements with CoBank the Company is
required to maintain, at each fiscal year end, on a consolidated basis, working
capital of at least $65 million, a ratio of current assets to current
liabilities of 1.45 to 1, net worth of at least 35% of total assets and not less
than $140 million and a ratio of long-term debt to net worth not to exceed .775
to 1. At June 30, 1998, the Company was in compliance with these financial
covenants.
The Company and Statesman Financial Corporation ("SFC") are parties to an
agreement under which SFC purchases certain receivables from the Company without
recourse. Under the terms of the agreement, the Company pays certain fees on
receivables sold to SFC. Receivables sold to SFC totaled approximately $996.7
million and $991.5 million for 1998 and 1997, respectively. The related
discounts and fees for 1998 and 1997 were $9.5 million and $8.2 million,
respectively. SFC paid volume incentive fees to the Company for purchases of
receivables amounting to $1.3 million and $1.4 million for 1998 and 1997,
respectively. In addition under the terms of the agreement, the Company was
obligated to maintain a computed minimum investment in SFC's preferred stock of
$17.9 million at each of June 30, 1998 and 1997. See Note 5 of the Notes to the
Southern States Consolidated Financial Statements included herein.
Major sources of cash during 1998 were $28.5 million from operating
activities and $48.7 million from increases in short and long-term debt. Major
uses of cash during 1998 were $33.9 million in capital expenditures, $10.4
million in additional investments in other companies, $6.9 million in the cash
portion of patronage refunds distributed from net savings for the 1997 fiscal
year and $6.6 million in stockholders' and patrons' equities redeemed and $22.6
million in payments on long term debt.
At June 30, 1998 the Company had outstanding commitments for the
construction and acquisition of plant and equipment totaling approximately $7.1
million. See Note 13 of the Notes to the Southern States Consolidated Financial
Statements included herein.
New Accounting Standards
During the Company's fiscal year ended 1998, the Financial Accounting
Standards Board issued several new accounting pronouncements, including
standards regarding derivative financial instruments and employer's disclosures
about pension and other postretirement benefit plans. The Company is currently
evaluating the impact of the derivatives standard. The other standard is not
expected to have a material impact on the Company's financial statements.
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<PAGE>
Year 2000
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to potentially severe
disruptions in operations.
The Company utilizes and is dependent upon a variety of data processing
systems and software to conduct its business. The data processing systems
include various software packages licensed to the Company by outside vendors and
software systems written by Company personnel. These run on a variety of
computer equipment, including stand-alone PC's, servers and workstations
connected to an in-house computer network, and a remote mainframe system. All of
these systems are vulnerable to the Y2K issue.
The Company expects to have all its data processing systems which run its
software applications compliant for Y2K by December 31, 1998. Some of the
Company's processing functions, however, currently run on data processing
systems owned by third parties, which are not Y2K compliant. These functions,
including those related to the acquired Gold Kist Inputs Business, will be
transferred to the Company's own systems by March of 1999 or made compliant by
June of 1999.
The Company also has sent out inquiries to over 400 of its most
significant vendors, seeking information concerning the effect of Y2K on such
vendors. To date, responses have been received from approximately 285 of such
vendors. Based on responses received to date, the Company has no reason to
believe Y2K will have a material impact on its ability to do business with its
vendors. For those inquiries not received, the Company will evaluate the need to
utilize other vendors to meet the Company's business needs.
The Company plans to complete substantially all its Y2K compliant work by
the end of March, 1999. The Company's total cost of achieving Y2K compliance is
estimated to be in the range of $300,000 to $690,000, excluding normal software
upgrades and replacements. Approximately $175,000 of these incremental costs
have already been incurred. The Company anticipates that remaining expenditures
will not be material to the Company's consolidated financial position or results
of operations. The Company acquired certain data processing systems and
computers as a part of the acquisition of the Gold Kist Inputs Business, but
intends to support that new business on existing Company systems after a
transitional period during which Gold Kist will provide certain information
support services to the Company. The transition period is expected to last until
March of 1999.
The costs of, and the date by which the Company plans to complete, its
anticipated Y2K modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from these plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability of personnel trained in this area, the ability of third
party vendors to correct their software and hardware, and similar uncertainties.
The failure to correct a material Y2K problem could result in an interruption
in, or the failure of, certain normal business activities or operations, which
could materially and adversely affect the Company's results of operations,
liquidity and financial condition. Although the Company expects to be Y2K
compliant, to be prudent, the Company is currently evaluating contingency plans.
38
<PAGE>
The Company's priorities with respect to Y2K compliance have been, first,
to assure the integrity of the basic operations systems that are critical to
maintaining an uninterrupted flow of information, goods and services between the
Company, its business partners, and its customers, and, secondly, to address Y2K
issues relating to other automated systems that support less critical processes.
In both areas, the Company has established time-tables for measuring progress
against its Y2K project goals and objectives so that it can minimize the risk of
failures in either area, and the potential impact on its ability to operate its
business effectively. Management's intention is to complete all planned
modifications early enough to allow sufficient time to correct any problems that
may arise. Testing of individual processes, systems testing of integrated
processes, frequent reporting to management, and measurement against project
milestones are all key elements to those efforts to reduce the risk of Y2K
failures.
THE COMPANY
General
Southern States is a regional farmers' supply and marketing cooperative.
With fiscal 1998 sales of $1.1 billion, the Company is one of the largest
agricultural cooperatives east of the Mississippi River. Southern States serves
a wide range of rural and urban customers in its traditional six-state
Mid-Atlantic territory of Delaware, Maryland, Virginia, West Virginia, Kentucky
and North Carolina and, more recently in Michigan, Ohio and Indiana. As
described under "Acquisition of the Gold Kist Inputs Business," Southern States
also has expanded its operations in recent months into the Southeastern and
South Central states through the acquisition of the Gold Kist Inputs Business.
Taking into account this recent acquisition, the Company is owned by over
300,000 farmer and local cooperative members. Southern States is the principal
cooperative in a cooperative distribution system that now encompasses more than
600 retail locations serving the Company's farmer members and other customers
through both Company-owned facilities and a network of local agricultural
cooperatives and private dealers. See "The Company--The Southern States
Distribution System."
Founded in 1923, Southern States operated for many years exclusively as a
supply (or "inputs") cooperative, procuring, manufacturing, processing and
distributing fertilizer, crop protectants, feed and seed and other farm supply
items on behalf of its farmer members. Since 1977, the Company also has marketed
grain for its members and currently markets approximately 25 to 30 million
bushels of grain annually in its Mid-Atlantic territory. During the last fiscal
year, the Company entered the livestock marketing business through the
acquisition of Michigan Livestock Exchange, a 75-year old, livestock marketing
cooperative operating in the four-state territory of Michigan, Ohio, Indiana and
Kentucky. As a result, the Company is the largest livestock marketing
cooperative in the United States.
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<PAGE>
Members of Southern States must be agricultural producers or agricultural
cooperative associations comprised of agricultural producers. Business with
members is conducted on a cooperative basis, and patrons who are members or who
are eligible to be members are qualified to receive patronage refunds out of net
savings on such business. See "Farm Cooperatives" and "The Company--Cooperative
Structure." Southern States also engages in supply and marketing transactions
with other customers who are not eligible for membership and who do not qualify
for patronage refunds. The Company also engages in non-cooperative activities
through several subsidiaries.
On October 13, 1998, Southern States completed its purchase of the Gold
Kist Inputs Business as described in "Acquisition of the Gold Kist Inputs
Business." The description of the business of the Company presented below in
"The Company--The Southern States Distribution System" and "The Business of the
Company" does not reflect the acquisition of the Gold Kist Inputs Business. For
a description of the Gold Kist Inputs Business and its integration with the
Company's business operations, see "Acquisition of the Gold Kist Inputs
Business."
The Southern States Distribution System
Southern States is the principal cooperative in a cooperative
distribution system that serves its farmer members in its Mid-Atlantic territory
through:
>> 133 Company-owned retail farm supply and petroleum outlets and 27
Company-owned metropolitan retail locations,
>> 70 local agricultural or petroleum cooperatives operating at 88
locations under standardized management contracts with Southern
States,
>> 16 independently owned and operated local retail cooperatives that
distribute Southern States supplies and products at 27 locations,
and
>> A network of 232 private dealers operating approximately 250
locations who sell Southern States supplies and products at retail
under retail distribution agreements with the Company.
In the aggregate, this distribution system operates through more than 500
retail locations in the Company's Mid-Atlantic territory. The purchase of the
Gold Kist Inputs Business added approximately 100 additional retail farm supply
locations to Southern States' distribution system.
Company-Owned Facilities. As described in greater detail below, in fiscal
1998, the Company sold approximately 42% of its total product and service volume
through the Company's 114 retail farm supply locations, its 27 metropolitan
retail locations, and its 19 retail petroleum facilities in its Mid-Atlantic
territory. To support this retail distribution network, the Company operates a
number of owned and leased bulk manufacturing and distribution facilities. See
"Business of the Company--Petroleum," "--Retail Farm Supply" and "--Farm and
Home."
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<PAGE>
Managed Local Cooperatives. The 70 managed local cooperatives, usually
organized on a county level, are a significant component of Southern States'
Mid-Atlantic distribution system. The managed local cooperatives have their own
local membership and locally-elected boards of directors, but each is a member
of Southern States and each operates under a standardized management agreement
with Southern States. In almost all instances, the managed local cooperatives
use the name "Southern States" in their operations. Sales to the managed local
cooperatives accounted for approximately 18% of Southern States' total product
and service volume in fiscal 1998. Southern States has no equity interest in the
managed local cooperatives and no representation on the boards of directors, but
manages day to day operations and recommends policies to their boards of
directors. The standardized management agreements are renewed annually, and may
be canceled by either party at the end of any year provided there is no
outstanding indebtedness owed Southern States. Southern States assesses a
management, accounting and administrative fee which approximates the actual cost
of service. No management agreements with local cooperatives have been canceled
in Southern States' history other than as a result of mergers of local
cooperatives into Southern States or, in a few cases, liquidation of a local
managed cooperative.
Private Dealers. Southern States also distributes supplies and products
through a network of 232 independent, privately-owned dealers, operating a total
of approximately 250 dealer locations in its Mid-Atlantic territory. These
dealers agree to sell Southern States supplies and products at retail to
Southern States members and others and to maintain adequate records of sales in
order that Southern States may allocate any patronage refund to such members.
Sales to private dealers accounted for approximately 11% of Southern States'
total product and service volume in fiscal 1998.
Independent Cooperatives. Southern States also distributes supplies and
products to 16 independently owned and operated local cooperatives operating 27
locations throughout its Mid-Atlantic territory. These cooperatives are members
of Southern States and use Southern States as a major supply source, but do not
operate under a management contract with Southern States and do not use the
"Southern States" name. Sales to independent cooperatives represented
approximately 3% of Southern States' total product and service volume in fiscal
1998.
Commercial and Other Accounts. In addition to the component parts of the
Southern States distribution system within its Mid-Atlantic territory, the
Company sells products to over 1,000 commercial and other accounts, including
other cooperatives located outside the Company's Mid-Atlantic territory, who
purchase supplies from the Company. Commercial accounts include resellers who do
not have a private dealer agreement with the Company, as well as
non-agricultural consumers. Commercial accounts are not eligible for membership
in Southern States and are not eligible for patronage refunds. Other accounts
include producers of agricultural products who purchase on a wholesale basis and
other regional cooperatives. These accounts are eligible for membership and for
wholesale patronage refunds. Sales to commercial and other accounts in fiscal
1998 accounted for approximately 13% of the Company's total product and service
volume.
41
<PAGE>
Cooperative Structure
For additional information concerning the nature of farm cooperatives
generally, see "Farm Cooperatives" on page 1.
Membership. The common stock of Southern States is membership common
stock and pursuant to Virginia law and the Southern States articles of
incorporation and bylaws, its issuance or transfer is limited to bona fide
agricultural producers who use the services or supplies of Southern States and
to cooperatives whose membership is comprised of such persons. Each member,
regardless of the number of shares of membership common stock registered in such
member's name, is entitled to only one vote in the affairs of Southern States.
Under various circumstances (e.g., death of a stockholder), Southern States
repurchases common stock from its members at par value ($1 per share) plus
declared and unpaid dividends, if any. In the event of liquidation or other
disposition of the assets of Southern States, the holders of common stock, after
satisfaction of obligations to creditors and to holders of all preferred stock,
would be entitled to receive a maximum of $1 per share (par value) plus declared
and unpaid dividends, if any, for each share of common stock held. The Board of
Directors of Southern States (the "Board of Directors") may from time to time
issue any and all of the authorized but unissued common stock of Southern States
without first offering such shares to existing holders of common stock, on such
terms as it deems advisable, but not for less than par value.
Governance. The members of the Company annually elect on a staggered
basis members of the Board of Directors to serve for three-year terms. Only
members of Southern States or members of a retail agricultural purchasing
cooperative handling supplies of Southern States are eligible to be elected by
the members to serve on the Southern States Board of Directors. At the present
time, the Board of Directors consists of 23 persons, 17 of whom are
member-elected. Six additional directors, designated by statute as public
directors, are appointed for three-year terms, on a staggered basis, by the
director of agricultural extension for the Commonwealth of Virginia. Each of
these appointed directors represents a different state in the Company's
Mid-Atlantic territory. Public directors need not be members or stockholders of
the Company. See "Management--Board of Directors."
The bylaws of the Company provide for a division of the territory in
which Southern States operates into nine or more election districts, determined
on the basis of the annual volume of business done with Southern States by
customers, with consideration given to the business done with members in, and
geographical area of, each election district. The bylaws further provide that
the Board may modify and redistrict whenever, in its discretion, such action is
advisable in order to maintain substantial equality in the volume of business
done in the different districts. Under the Company's bylaws, each election
district is to be represented on the board by one director who is elected at an
election district meeting by delegates to such meeting. The members served by
each private agency, each retail branch of Southern States, and each retail
agricultural supply cooperative handling supplies of Southern States are
entitled to vote in the election of delegates to election district meetings.
Delegates are elected by the membership of Southern States and the membership of
the retail agricultural purchasing cooperatives at their local annual meetings.
The directors elected by each election district are thereafter presented to the
annual meeting of the members of Southern States. The bylaws of the Company only
permit voting in person at election district meetings.
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<PAGE>
The officers of the Company are elected by the Board of Directors to
serve on a full-time salaried basis.
Patronage Refunds. As a cooperative, the Company operates for the benefit
of its members and other patrons and is obligated by its bylaws to return at the
end of the fiscal year all net savings from its patronage-sourced business,
after payment of dividends on capital stock and additions to its reserves, to
such members and other patrons eligible for membership in proportion to their
respective purchases. These net savings are the equivalent of profits and are
allocated to each member patron and each patron eligible for membership in the
form of patronage refunds on the basis of such person's percentage patronage. In
fiscal 1998, approximately two-thirds of the Company's supply business was with
members and subject to patronage refunds. The Company also engages in supply and
marketing transactions with other customers who are not eligible for membership
and who therefore do not qualify for and do not receive patronage refunds. In
addition, through several subsidiaries, the Company engages in non-cooperative
activities that do not generate patronage refunds.
Patronage refunds are normally paid partially in cash and partially in
the form of non-interest bearing patronage refund allocations. Beginning with
the fiscal year ended June 30, 1974, the policy of the Board of Directors
regarding patronage refunds changed from payment of the non-cash portion of the
refund in shares of membership capital stock or debentures to payment in the
form of patronage refund allocations ("PRAs"), which are participations not
bearing interest or paying dividends. Since 1974, patronage refunds have been
paid 40% in cash and 60% in PRAs. The Code requires a minimum cash component of
20%. The Company believes its policy of paying a higher cash component than is
required by law contributes to continued patronage. See "Description of Capital
Securities--Distributions," "Description of the Junior Subordinated
Debentures--Option to Extend Interest Payment Period" and "--Restrictions on
Certain Payments" for certain restrictions on the redemption of PRAs in the
event of deferral of interest on the Junior Subordinated Debentures, or in the
event of certain defaults.
The bylaws of the Company further require that issuance of PRAs be in
annual series, and identified by year issued. The bylaws require that the
redemption of PRAs take place pro rata in the order of issuance when the Board
of Directors determines that sufficient funds are available. An exception is
made to this policy for redemption upon the death of a holder or to settle
amounts in default owed to the Company.
In February 1996, the Company redeemed its 1974 PRAs, which totaled
slightly over $6 million. In February 1997, the Company redeemed its 1975 PRAs,
which also totaled approximately $6 million. In March 1998, the Company redeemed
its 1976 PRAs, which totaled approximately $4.6 million. In order to provide
continued support to the Company's equity base, in 1996, 1997 and 1998, a number
of the Company's managed local cooperatives exchanged approximately $1.2
million, $1.2 million and $800,000, respectively, of their revolved PRAs for an
equivalent value in shares of the Company's membership common stock.
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<PAGE>
The bylaws require that all debts of the Company shall be entitled to
priority over PRAs (or other non-cash patronage refund allocations), and that in
the event of operating losses, such losses may be charged in the order of
issuance by years to PRAs (or other non-cash patronage refund allocations) and
to operating capital reserves. The Company is deemed to have a lien upon and
security interest in PRAs as collateral for any indebtedness owed to the Company
by the holder. See "Description of Capital Securities--Distributions,"
"Description of the Junior Subordinated Debentures--Option to Extend Interest
Payment Period" and "--Restrictions on Certain Payments" for certain
restrictions on the redemption of PRAs in the event of deferral of interest on
the Junior Subordinated Debentures, or in the event of certain defaults.
Operating Capital. Annually, from fiscal year net savings, the Board of
Directors has made additions to operating capital. These reserves are used for
general purposes and are analogous to retained earnings. The equities of member
patrons in such additions are recognized by the Company, and the bylaws provide
that in the event the Board of Directors should determine such reserves have
served their purpose and any balance remains, the same shall be returned to the
member patrons pro rata on the basis of their interests therein. Otherwise,
these reserves will be returned to the member patrons only upon dissolution of
the Company.
Cooperative Taxation. A cooperative is a corporation for federal income
tax purposes and computes its taxable income and federal income tax liability in
essentially the same manner as any ordinary corporation. However, to the extent
a cooperative declares and pays patronage refunds to its members, it is allowed
to deduct those amounts from its pre-tax income. Patronage refunds may be paid
in the form of cash or credits (sometimes referred to as patronage refund
allocations), or a combination of both. A cooperative may deduct from its
pre-tax income both the amount of the cash patronage refund and the face amount
of any credits or noncash patronage refund allocations. A cooperative's members,
however, must recognize both those amounts in the computation of their
respective taxable incomes. In order to qualify for the federal income tax
deduction for patronage refunds, the cooperative must pay at least 20% of the
patronage refund in cash. The Company's Board of Directors determines the amount
and form in which the Company pays its patronage refunds. See "--Patronage
Refunds."
To the extent that the Company distributes "nonqualified" written notices
of allocation (i.e., notices of allocation that do not qualify for the federal
income tax deduction for patronage refunds), has income from transactions with
nonmember customers or has income from non-patronage sources, it is taxed at the
normal corporate rate. The Company has subsidiaries which are not cooperatives,
and all the income of these subsidiaries is subject to corporate income taxes.
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BUSINESS OF THE COMPANY
The Company is both a supply and a marketing cooperative. The Company
functions as a supply cooperative providing agricultural inputs and services to
its members and others through its crops, feed, petroleum, retail farm supply,
and farm and home divisions. The Company functions as a marketing cooperative
marketing its members' products through its grain marketing and livestock
marketing divisions. In addition to providing products and services to its
members, the Company provides products and services to its managed local
cooperatives and to numerous independent dealers and cooperatives.
Business Strategy
As a farmer-owned agricultural cooperative, the Company's primary
function is to enhance its members' economic welfare and bargaining power. To
fulfill this function, the Company pursues business initiatives that increase
its purchasing power with vendors, lower its production, processing and
distribution costs, increase its customer base and capitalize upon its
management expertise. The Company's ultimate objective is to position itself as
the business of choice for meeting the needs of its members and other customers
for products and value-added services. To achieve this goal, the Company seeks
to:
>> Offer a Full Line of Superior Products and Services: The Company
offers a full selection of high quality products and services at
competitive prices designed to meet the diverse needs of its farmer
membership base. The ability to use its purchasing power and its
manufacturing/processing expertise allows it to be price
competitive within its defined market areas.
>> Develop Value-Added, Technologically Advanced Products and
Services: In addition to its more traditional services, such as
fertilizer spreading, crop protectant application and insect
scouting, the Company offers technologically advanced services,
supported by reliable equipment and highly trained service
technicians in order to increase market share with existing
customers and attract new customers. For example, the Company's
Growmaster program uses Global Positioning Satellites and
computerized delivery vehicles in selected locations to optimize
the application of plant nutrients on farmers' fields, maximizing
production in an environmentally responsible manner. In addition,
Southern States has undertaken a research and development program
in the field of aquaculture, one of the fastest growing segments in
the agriculture industry, in order to provide its farmer members
with a viable alternative product line, including fish stock, fish
feed and guaranteed grower payment to farmer producers for
harvested fish.
>> Use Multiple Distribution Channels to Maximize Market Penetration:
The Company uses a variety of distribution channels to create
multiple outlets for its product offerings in order to generate
increased business volumes and economies of scale. The use of
several diverse distribution channels enables the Company to reach
many different types of customers and maximize market penetration.
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>> Access State-of-the-Art Products and Technology through
Partnerships and Strategic Alliances: The Company seeks to access
products and technology through partnerships and strategic
alliances, thereby significantly expanding the Company's scope with
minimal additional capital requirements. Investments with other
interregional cooperatives in the U.S. and abroad afford the
Company access to world class sources of fertilizer products,
seeds, animal genetics, and other ingredients required for the
Company's operations. The recent acquisition of MLE is expected to
lead to alliances up and down the food chain, from the producer to
the retailer.
>> Evaluate Opportunities to Enter New Markets and Achieve Operating
Efficiencies and Maximize Buying Power: The Company has and will
continue to capitalize on acquisition opportunities that will
enable it to enter new markets, increase its scale of operations
and achieve operating efficiencies in order to better service the
economic interests of its farmer-members. For example, in 1986
through acquisition, the Company entered the North Carolina market
which, according to United States Department of Agriculture
statistics, currently ranks fourth in farm income in the United
States. In 1998, through its acquisition of MLE, the Company became
the largest cooperative marketer of livestock in the United States
and now is able to offer MLE's marketing and other value-added
services, such as genetics, specialized financing programs and
feeding and animal health programs, to the Company's existing
customers. See "Acquisition of the Gold Kist Inputs Business" for a
discussion of the benefits anticipated to be realized as a result
of the acquisition of the Gold Kist Inputs Business.
>> Adapt its Business in Selected Locations to Accommodate Changing
Demographics and the Increasing Urbanization of its Customer Base:
Many rural areas have become urban or suburban markets, reflecting
well-documented demographic changes. The Company continues to adapt
its business to better serve this changing consumer base. Products
and services sold through the Farm and Home and Retail Farm Supply
divisions cater to the needs of the urban and suburban consumer,
and include lawn and garden supplies, pet supplies and homeowner
services. Sales of these products and services to urban and
suburban consumers can, in part, offset the cyclical nature of the
Company's agricultural operations.
Agricultural Inputs and Services
Crops
Through its Crops division, the Company procures, manufactures, processes
and distributes fertilizer, seed, and crop protectants to its members and others
through the Southern States distribution system. The Company believes that it is
the largest provider in its Mid-Atlantic territory for fertilizer, seed and crop
protectants in large part as a result of its ability to custom-produce
fertilizer, seed and crop protectant products and its extensive and diverse
distribution system. Sales of the Crops division in fiscal 1998 were $151
million.
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The Company distributes granular, blended and liquid fertilizer and
fertilizer materials in bagged and bulk form. The Company's annual fertilizer
sales volume is approximately 1.2 million tons, with approximately 800,000 tons
sold through Company-owned retail facilities and the managed local cooperatives.
The remainder is shipped directly to dealers, independent cooperatives and
commercial accounts. See "The Company--The Southern States Distribution System."
The Company has an annual production capacity of approximately 500,000
tons of fertilizer at six strategically located production and distribution
facilities. The Company procures the balance of the fertilizer it sells from CF
Industries, Inc. ("CF Industries"), a cooperative owned by 11 regional
cooperatives including the Company, which produces and supplies fertilizer
materials to its members. See "--Investments in Other Companies and
Cooperatives." CF Industries is one of North America's largest commercial
fertilizer manufacturers and distributors. CF Industries also supplies most of
the Company's nitrogen and phosphate and some potash requirements, providing
approximately 50% of the Company's total volume of fertilizer materials and
products in fiscal 1998. The Company purchased the remainder of its fertilizer
materials from more than 40 other suppliers.
Through its Crops division, the Company produces and sells field and
vegetable seeds, including small grains, soybeans, grasses, and legumes. The
Company also procures, manufactures and distributes crop protection products
such as herbicides and pesticides through its Retail Farm Supply and Farm and
Home divisions and to other cooperatives and dealers. Sales of crop protectants
are enhanced by the Company's ability to cross-sell seed products and offer
superior application services through quality equipment and highly trained
personnel.
The Crops division has successfully applied licensed genetic technology
to finished products, for example, by incorporating the Roundup(R) resistant
gene into its soybean seed products so that Roundup(R) destroys weeds but not
the grain. This ability, coupled with the division's access to the Company's
extensive and diverse distribution system, makes the Company an attractive
partner for bio-tech firms. For instance, the Company is a member-owner of
Farmers Forage Research, Incorporated ("FFR"), which is operated by the Company
and two other regional cooperatives. FFR employs skilled plant breeders who use
various facilities and regional test stations to develop improved varieties of
corn, soybeans, alfalfa, clover, grass and sorghum-sudan.
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Feed
Through its Feed division, the Company procures and manufactures dairy,
livestock, equine, poultry, pet and aquacultural feeds. The Company's feed
products are manufactured in ten feed mills and are distributed at wholesale and
retail. See "--The Southern States Distribution System". Approximately 65% of
the feed distributed is delivered in bulk form directly from the feed mill to
the farm with the remainder sold in bag form. Fiscal 1998 production was
approximately 900,000 tons, with resulting sales of $145.6 million. The Company
believes that it is the largest feed company in its Mid-Atlantic territory.
The Company's Feed division partners with others in the industry in order
to have access to national brands and technological developments in the field
without incurring substantial capital outlays and the associated risks. In
November 1996, Southern States joined with six other cooperatives in a pet food
joint venture in Ohio, known as Pro Pet. Southern States has recently completed
a cooperative milling joint venture in Pennsylvania with Agway Inc., a large
Syracuse, New York based supply cooperative. In addition, Southern States
participates with 10 other cooperatives in Cooperative Research Farms ("CRF"), a
network of five research farms, each devoted to a specified branch of animal
husbandry. CRF provides extensive feed research permitting its members to
formulate improved feeds and feeding programs.
Petroleum
Through its Petroleum division, the Company distributes all grades of
gasoline, kerosene, fuel oil, diesel fuel and propane, and other related
petroleum products. Approximately 70% of petroleum sales are made to
non-members. The Company's farm delivery services distinguish it from its
competition in the petroleum business. The division experiences seasonal
increases in sales and working capital requirements in the fall and winter
months, as a result of its emphasis on oil and propane heating fuels.
Approximately 65% of the Petroleum division's products are purchased on a
contract basis, with the balance purchased on the spot market. Southern States
owns two bulk terminals with aggregate storage capacity of approximately 155,000
barrels of product. The Company manages the throughput of its products at 27
dedicated storage terminals.
The Company also owns and operates 19 retail petroleum distribution
locations and distributes petroleum products through four managed local
cooperatives. Current sales volume for the division approximates 315 million
gallons annually. Petroleum sales for fiscal 1998 were $193.1 million.
Retail Farm Supply
The Company distributes agricultural supplies through its Retail Farm
Supply division, which operates approximately 200 Company-owned and managed
local cooperative retail farm supply locations in its Mid-Atlantic territory.
The retail store locations act as distribution centers, supplying members and
others with agricultural production materials procured or manufactured through
the Company's crops, feed and petroleum divisions.
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Although retail stores may vary considerably from location to location,
the typical store is a complete farm supply center offering for sale many
agricultural products including feeds, animal health products, fertilizers,
pesticides, seeds, petroleum, farm supplies and equipment. The typical store
also offers farm delivery and crop protectant application services, customized
fertilizer spreading, soil testing, insect scouting and agronomic and animal
nutrition advice.
The retail farm supply stores sell supplies and services to the Company's
members, other farmers and to a lesser extent to contractors and home owners.
The Company believes the quality "on the farm" services provided by the Retail
Farm Supply division in conjunction with the products sold through them, in
essence offering "one-stop-shopping," distinguish the Company's retail farm
supply operations from other options available to its customer base.
The Retail Farm Supply division accounts for approximately 30% of the
Company's total product and service volume. Sales through these facilities in
fiscal 1998 were $336.3 million.
Farm and Home
The Farm and Home division distributes farm and home products at
wholesale and retail. Sales of the Farm and Home division for fiscal 1998 were
$196.1 million.
Wholesale. The division provides wholesale purchasing and distribution of
farm and home products through centralized purchasing and three distribution
centers. Approximately 40% of the Farm and Home division's sales volume is
generated through its distribution centers, with the remaining 60% of its sales
volume attributable to direct shipments from the vendor to customer. The largest
customers of Farm and Home wholesale operations are the Company's Retail Farm
Supply stores, which accounted for approximately 53% of Farm and Home sales
volume in fiscal 1998, and the independent private dealers, which accounted for
approximately 26% of its sale volume for the same period. Other customers
include the Farm and Home retail stores discussed below and certain U. S.
commercial and international accounts.
Retail. The Farm and Home division also operates 27 metropolitan retail
locations. These locations, mostly at leased facilities, offer a wide array of
products and services, including lawn and garden supplies and tools, power
equipment, pet food, bird seed. hunting and equestrian supplies and landscape
consulting services. These urban retail stores also provide technical and sales
services in the form of knowledgeable in-store assistance and home delivery,
which help distinguish the Company's Farm and Home retail operations from its
competitors.
Wetsel. Wetsel, Inc., an independently-operated, wholly-owned subsidiary
of the Company, also serves as a wholesale distributor of agronomic supplies to
dealers and commercial accounts in several eastern and midwestern states. Sales
to lawn and garden centers account for approximately 49% of Wetsel's sales, with
the balance of its sales made to the turf industry (22%), greenhouse industry
(15%) and farms (14%). Wetsel also operates one retail store in Harrisonburg,
Virginia.
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Marketing Services
Grain Marketing
Through its Grain Marketing division, the Company purchases corn,
soybean, wheat and barley from its members and markets these grain products,
assuming all risks related to selling such grain. Grain is priced in the United
States principally through bids based on organized commodity markets.
The Grain Marketing division, centrally managed from Richmond, Virginia,
consists of 13 grain elevators located primarily along the eastern seaboard and
at a single location in central Kentucky. Combined storage capacity is
approximately 9 million bushels. The division markets approximately 25 to 30
million bushels of grain annually, primarily corn, soybeans, and wheat and
barley, selling approximately 15% of this volume to the Company's Feed division.
The balance is sold to other customers which include large commercial grain
buyers. Grain Marketing sales for fiscal 1998 were $94.5 million.
Livestock Marketing
Effective April 1, 1998, the Company acquired, through merger, Michigan
Livestock Exchange ("MLE"), a 75-year old, Michigan livestock marketing
cooperative with approximately 60,000 members in its four-state territory of
Michigan, Indiana, Ohio and Kentucky. The addition of MLE provides the Company
with an expanded membership base and cross-selling opportunities for its other
farm products in a territory outside, but contiguous to the Company's
Mid-Atlantic territory. Moreover, as a supplier of agricultural inputs to
farmers, the Company intends to use its livestock marketing operations as a
means to further integrate itself into the conception-to-consumption system
which is emerging in the food industry. This coordinated system links inputs,
producers, processors, distributors and the ultimate consumer to promote
operational efficiency and product consistency and to enhance farmer
profitability.
Through MLE, which has become the Company's Livestock Marketing division,
the Company operates 12 traditional livestock auction facilities and 16 swine
buying stations and also offers a vertically coordinated approach intended to
help farmers produce and market their products through the packers to the
customers. It does so by providing inputs to the livestock producer in an
efficient, low-cost manner and then by marketing the livestock products to meet
the expectations of the ultimate consumers for uniform, high-quality products.
In addition to providing livestock marketing services for members on a
commission basis and through purchases as principal, the division provides price
contracts, financial services for lending and investing in livestock and
livestock facilities, animal health sales, related real estate services and
livestock marketing strategies. During the 12 months ended June 30, 1998, MLE
marketed approximately 2.7 million hogs and 600,000 head of cattle.
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Properties
The Company's principal operating facilities are its feed mills,
fertilizer plants, petroleum storage and distribution facilities, its other farm
supply storage and distribution facilities and its retail store facilities.
These facilities are described elsewhere in this Prospectus in the sections
describing the Company's various operating divisions. See "--Agricultural Inputs
and Services" and "--Marketing Services."
The Company's corporate headquarters building, containing approximately
200,000 square feet of office space, is located on 11.8 acres in Richmond,
Virginia. An unrelated third-party constructed the headquarters building on land
owned by the Company and leased to the owner of the building for a 70-year
period expiring in 2048. Southern States leases approximately 170,000 square
feet of the building. See Note 13 of the Notes to the Southern States
Consolidated Financial Statements for additional information concerning the
Company's lease arrangement for its corporate headquarters and for other
operating leases.
For a description of the Gold Kist properties acquired by Southern States
in connection with the acquisition of the Gold Kist Inputs Business, see
"Acquisition of the Gold Kist Inputs Business"
Information Systems
The information systems used to support the Company's business operations
consist of a number of networked computer components running a mixture of
internally developed and purchased software applications. The Company's strategy
has been to move away from large mainframe systems towards smaller, more
flexible minicomputer and server based systems. This allows it to take advantage
of new technology, and provides the Company the flexibility to tailor computing
needs to the application, and ultimately to the needs of the business units such
technology supports. This strategy permits the Company to upgrade or expand only
where it is needed and avoid excess capacity where it is not needed, resulting
in optimum costs for the processes that require support.
Although the Company still has certain older applications that are
processed under a timesharing agreement on an IBM mainframe computer owned by an
outside company, current plans are to convert these functions to client-server
versions on Company-owned Intel servers by the end of March, 1999. The Company
now owns and utilizes in excess of 300 Intel servers in support of its Retail
Store operations and over 30 such servers to support other applications used
throughout the Company. Other integrated computer systems support the Company's
distribution and manufacturing functions, its feed, fertilizer, petroleum, grain
and related functions, and financial, payroll and human relations systems.
The Company believes that its information systems are sufficient to meet
its current needs and future expansion plans. For information concerning the
Company's efforts to assure that its business is not adversely affected by the
so-called "Year 2000" problem, see "Management's Discussion and Analysis--Year
2000".
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Affiliated Financing Services
Through two affiliated entities, Statesman Financial Corporation ("SFC")
and SFC's wholly-owned subsidiary, Michigan Livestock Credit Corporation
("MLCC"), the Company provides a variety of financing programs to its members
and other customers. These programs, which are intended to enhance the Company's
"one-stop-shopping" services, support the Company's ability to sell its
products, generate profits for the Company and provide an important source of
liquidity through the purchase of significant amounts of receivables from the
Company. Through the Company's direct investments in SFC and MLCC and its
financing services agreements with each of them the Company is exposed to credit
and interest rate risk resulting from the ongoing operations of SFC and MLCC.
Statesman Financial Corporation
SFC is owned 46.3% by the Company and 43.5% by 66 of the managed local
cooperatives. The remaining 10.2% is owned by Countrymark Inc., a regional
farm-supply cooperative headquartered in Indianapolis, Indiana. The Company
accounts for its ownership in SFC by the equity method.
SFC is engaged in a variety of financing programs with the Company and
its customers. These programs include accounts receivable financing, consumer
retail financing, leasing services, asset based financing and agrifinancing. The
consumer retail financing receivables, asset-based loans, and agrifinancing
receivables are primarily obligations of customers of the Company. See Note 5 of
the Notes to the Southern States Consolidated Financial Statements included
herein.
The Company and SFC are parties to an agreement under which SFC purchases
certain receivables from the Company without recourse. Under the terms of the
agreement, the Company discounts, or pays certain fees on, certain receivables
sold to SFC to provide SFC with revenue sufficient to cover interest charges
incurred and historical charge-offs. Receivables sold to SFC totaled
approximately $996.7 million, $991.5 million and $904.2 million for 1998, 1997
and 1996, respectively. SFC paid volume incentive fees to the Company in
connection with its purchases of receivables amounting to $1.8 million, $1.4
million and $1.3 million for 1998, 1997 and 1996, respectively.
Under the terms of the agreement, the Company is obligated to maintain a
computed minimum investment in SFC preferred stock ("SFC Preferred Stock"),
based on the average daily balances of receivables sold to SFC. The amount of
SFC Preferred Stock held by the Company was $17.9 million at June 30, 1998 and
1997. See Note 5 of Notes to the Southern States Consolidated Financial
Statements included herein.
Michigan Livestock Credit Corporation
Effective April 1, 1998, MLCC, all of whose shares of common stock were
owned by MLE, was merged into a wholly-owned subsidiary of SFC coincident to the
merger of MLE with the Company. Upon the effective date of the merger, the name
of the SFC subsidiary was changed to Michigan Livestock Credit Corporation.
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MLCC was organized in 1989 for the purpose of assuming various lending
operations previously conducted by MLE. The primary lines of business are
building loans, a livestock feeding program and operating loans. Its loans are
substantially collateralized by livestock, buildings or other property. As of
June 30, 1998, the building loan portion of the portfolio was approximately $46
million, or 66% of MLCC's total portfolio. The Livestock Feeding Program ("LFP")
is a bailment program in which the livestock are owned by MLCC and the
farmer/producers house and feed the animals in their facilities. LFP loans
aggregated $14.1 million at June 30, 1998. Operating loans are loans made
directly to farmer producers to support day to day operating needs. At June 30,
1998, these loans totaled $10 million.
The Company has a financing support agreement with MLCC similar to the
agreement it has with SFC. Under the terms of the agreement, the Company is
obligated to maintain a computed minimum investment in MLCC preferred stock
("MLCC Preferred Stock"), based on the average balance of receivables
outstanding at MLCC. Under the agreement, the Company's required minimum
investment in MLCC at June 30, 1998 was $8.6 million. The Company's investment
in MLCC at that date was $10.2 million in order to assure MLCC's compliance with
certain covenants in its bank loan agreement.
Investments in Other Companies and Cooperatives
Apart from its interest in its affiliated financing companies, the
Company has substantial investments in other companies and cooperatives. Its
largest investments are in other cooperatives from which it purchases supplies
or services and from which the Company in turn receives patronage dividends. The
patronage dividends received from these investments can vary greatly from year
to year depending on the performance of the underlying cooperative.
The Company's largest single investment is in CF Industries. See
"--Agricultural Inputs and Services--Crops." At June 30, 1998, the Company's
investment in CF Industries was $43.5 million, represented by ownership of
preferred stock issued to the Company (and other members) in accordance with a
base capital plan that is based upon each member's purchases from CF Industries
over a rolling 5-year period. Under the plan, annual adjustments are made to
each member's required preferred stock ownership. The Company's preferred stock
ownership represented approximately 5.6% of the outstanding preferred stock of
CF Industries at June 30, 1998. The patronage refund paid to the Company by CF
Industries was $5.5 million, $13.1 million and $12.7 million for each of the
fiscal years ended June 30, 1998, 1997 and 1996, respectively.
The Company's second largest investment in other companies and
cooperatives apart from its affiliated financing companies is in Southern States
Insurance Exchange (the "Exchange"). The Exchange is a Virginia-domiciled
insurance reciprocal licensed to write certain lines of insurance in the
Company's Mid-Atlantic territory and Pennsylvania. The Exchange provides a
wide-range of property and casualty coverages for its subscribers
(policyholders). Subscribers of the Exchange include the Company, the managed
local cooperatives, private dealers and other parties. Subject to certain
limitations, the Exchange pays cash dividends from its operating income to its
subscribers and allocates its remaining net income to individual subscriber
accounts in accordance with the subscriber agreement. In addition, the Exchange
returns certain prior years' subscriber savings when, in the judgment of its
Board of Directors, circumstances make it prudent to do so. At June 30, 1998,
the Company's investment in the Exchange was $11.3 million, representing the
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accumulated unreturned savings in the Company's subscriber account. The Company
received cash dividends and a return of prior years subscriber savings of $3.4
million, $2.9 million and $3.5 million for each of the fiscal years ended June
30, 1998, 1997 and 1996, respectively. The Exchange is operated by its
attorney-in-fact and manager, Southern States Underwriters, Inc., an indirect
subsidiary of the Company. The Exchange carries an A.M. Best's highest rating of
A+ Superior.
As of June 30, 1998, the Company reported total investments in other
companies and cooperatives (including CF Industries and Southern States
Insurance Exchange) of $75.6 million. The Company's investments are stated at
cash invested plus unpaid qualified written notices of allocation. See Note 6 of
the Notes to the Southern States Consolidated Financial Statements included
herein.
Other Factors Affecting the Business of the Company
Seasonality
The business of the Company is highly seasonal. The first and second
fiscal quarters historically have lower sales revenue and unit volume than the
third and fourth quarters. The majority of sales and greatest demand for working
capital for the Company's agricultural operations occur in late winter and
spring, which represents the prime planting season for the Company's customer
base.
For the Retail Farm Supply and Farm and Home divisions, with an emphasis
on farm-related and yard and garden products, the majority of sales and the
greatest demand for working capital also occur in late winter and spring. A
majority of the Company's sales in its Crops division occurs in the spring.
Offsetting such seasonal effects to some degree, sales related to the
Company's grain and feed operations tend to be highest during fall and winter.
In addition, the Company places a product emphasis on oil and propane heating
fuels in the late fall and early winter months. The grain, feed and petroleum
operations create seasonal increases in sales and working capital requirements
during the fall and winter months.
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Competition
The Company is one of the principal suppliers of agricultural inputs east
of the Mississippi River. It is also the largest livestock marketing cooperative
in the United States in terms of the number of head of livestock sold for member
producers.
Competition in feed, fertilizer, seed, grain, livestock, petroleum and
farm supplies exists with large national and regional manufacturers and
suppliers as well as small independent businesses operating in the Company's
territory. However, major competitors vary from area to area. No single
competitor competes throughout the Company's entire territory. The Company
believes it has a competitive advantage because through its extensive and
diverse distribution system it offers a full line of basic farm supplies and
services at locations convenient to patrons rather than limiting its sales to a
single line such as feed, seed or fertilizer. Member ownership, name
recognition, reputation for quality service and value, competent personnel and a
long tradition of leadership are believed to enhance the Company's competitive
position.
Employee Relations
The Company employs approximately 5,600 persons, including approximately
1,100 who were formerly employed by Gold Kist Inc. and who became employees of
the Company in October, 1998, in connection with the Company's acquisition of
the Gold Kist Inputs Business. Additionally, the managed local cooperatives
employ approximately 900 persons. Approximately 80 Company employees at two
locations are members of labor unions. There have been no work stoppages in the
past 14 years. The Company considers its relationship with employees to be good.
Matters Involving the Environment
The Company is subject to stringent and changing federal, state and local
environmental laws and regulations, including those governing the labeling, use,
storage, discharge, disposal and cleanup of hazardous materials as well as those
governing the use, labeling and disposal of crop protectants, fertilizers and
certain seed products. The Company believes that its operations are in
substantial compliance with all applicable environmental laws and regulations as
currently interpreted and that the Company has obtained or applied for the
necessary permits to conduct its business. Because the Company uses regulated
substances and generates hazardous materials in the course of certain of its
business activities, from time to time it is involved in administrative or
judicial proceedings and inquiries relating to environmental matters. Changes in
environmental requirements or an unanticipated significant adverse environmental
event could have a material adverse effect on the Company's business, financial
condition or results of operations.
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The Company has three sites at which environmental investigation and
remediation is ongoing and costs may be significant. At one such site, the
Company is investigating and remediating soil and groundwater petroleum
contamination pursuant to an order issued by the Kentucky Department for
Environmental Protection. Although the remediation plan has not been finalized,
the Company believes that future investigation and remediation costs will be
between $300,000 and $1 million. At a second site, the Company continues to
monitor nitrate contamination of the soil and groundwater pursuant to a consent
agreement under the Virginia Voluntary Remediation Program. The Company has
completed a soil remediation program related to the immediate site and is in
discussions with the Virginia Department of Environmental Quality regarding the
appropriate scope of investigation of possible groundwater contamination
relating to the site. Based on the information presently known to the Company,
the Company believes that future monitoring and remediation costs will be in the
range of $100,000 to $300,000. At the third site, the Company expects that it
will incur expenses of approximately $30,000 per year for an as yet undetermined
period on future operations and maintenance costs associated with a groundwater
remediation system implemented to address nitrate contamination. The costs for
the third site are subject to reimbursement by the prior owner of the site
pursuant to an indemnification agreement.
During fiscal 1996, 1997 and 1998, the Company incurred expenditures of
approximately $309,801, $477,447 and $872,306, respectively, for environmental
investigation and remediation at all owned or leased properties. As of September
30, 1998, the Company had reserved approximately $1.1 million for future
investigation and remediation costs associated with all currently or formerly
owned or leased properties, including the three sites identified in the
preceding paragraph. Based on current information and regulatory requirements,
the Company believes that the accruals established for environmental
expenditures are adequate.
In addition, as a result of off-site disposal activities, the Company has
been identified as a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund") at two sites that are listed on the Superfund National
Priorities List. CERCLA imposes joint and several liability on certain statutory
classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. The Company has executed de minimis settlement agreements for both of
these sites.
The Company also is aware of probable obligations for environmental
matters at 20 properties acquired in October, 1998 in connection with the
acquisition of the Gold Kist Inputs Business. Subject to certain limitations,
Gold Kist has agreed to indemnify the Company for any condition of those
properties (or any other real property formerly owned or leased by Gold Kist as
part of the Gold Kist Inputs Business) including soil, surface water and
groundwater contamination resulting from disposal or release of hazardous
materials if that condition existed, or arose from such properties, on or before
October 13, 1998. Such indemnification obligations will survive the closing for
a period of 10 years. For further information concerning Gold Kist's
environmental indemnification obligations, see "Acquisition of the Gold Kist
Inputs Business - the Asset Purchase Agreement - Representations and
Warranties". Gold Kist has agreed to assume principal management for the
handling of the 20 properties identified with environmental conditions and has
the right to assume principal management for any others with respect to which
its environmental indemnity obligations apply.
56
<PAGE>
The Company has expended, and expects in the future to expend, funds for
compliance with environmental laws and regulations, which expenditures may
impact the Company's future net income. The Company does not anticipate,
however, that its competitive position will be adversely affected by such
expenditures or by new environmental laws and regulations. Environmental
expenditures are capitalized when such expenditures provide future economic
benefits. During fiscal 1998, the Company had environmental capital expenditures
of approximately $1.02 million. The Company estimates that its environmental
capital expenditures for fiscal 1999 will be in the range of $2.5 million to $3
million and that (excluding capital expenditures associated with properties
acquired as a part of the Gold Kist Inputs Business) reasonably foreseeable
future levels of capital expenditures for environmental compliance will be
comparable. However, there can be no assurance that expenditures will not be
higher because of continually changing environmental compliance standards and
technology.
Government Regulation
The Company's business is impacted by numerous federal, state and local
laws which have been enacted to promote fair trade practices, safety, health and
welfare. The Company believes that its operating procedures conform to the
intent of these laws and that the Company currently is in substantial compliance
with all such laws, the violation of which could have a material adverse effect
on the Company.
In addition to the environmental laws discussed in the preceding section,
certain policies may be implemented from time to time by the United States
Department of Agriculture, the Department of Energy or other governmental
agencies which may impact the demands of farmers for the Company's products or
which may impact the methods by which certain of the Company's operations are
conducted. Such policies may impact the Company's farm supply and grain storage
and marketing operations.
In 1996, the Federal Agriculture Improvement and Reform Act ("FAIR") was
signed into law. The FAIR legislation (sometimes referred to as the 1996
"Freedom to Farm" law) represented the most significant change in government
farm programs in more than 60 years. Under FAIR, the former system of variable
price-linked subsidy payments to farmers was replaced by a program of fixed
payments which decline over a seven-year period. In addition, FAIR eliminated
federal planting restrictions and acreage controls. The Company believes that
FAIR was intended to accelerate the trend toward greater market orientation and
reduced government influence on the agricultural sector. Whether this
legislation favorably impacts the agriculture sector or the Company's business
depends in large part on whether U.S. agriculture becomes more competitive in
world markets as the agriculture industry moves toward greater market
orientation, the extent to which governmental actions expand international trade
agreements and whether market access opportunities for U.S. agriculture are
increased.
In October 1998, Congress passed legislation that temporarily increased
the subsidy payments that were being phased out by the 1996 FAIR legislation.
The 1998 legislation was enacted in response to a variety of world-wide economic
conditions adversely affecting agriculture, including substantial decreases in
the prices of various farm commodities from levels prevailing at the time the
FAIR legislation was enacted. The Company is not able to predict how this most
recent legislation might affect its business.
57
<PAGE>
Commodity Price Hedging Activities
The Company uses commodities futures contracts to minimize the risks
associated with the fluctuation in market prices of grains and petroleum
products. These futures contracts are commitments to either purchase or sell
designated amounts and varieties of grain and petroleum products at a future
date, and may be settled in cash or through delivery. The Company maintains
hedged positions on its petroleum products on an intermittent basis. With
respect to grain, however, the Company's strategy is to maintain fully hedged
positions to the extent possible. The Company's hedging activities are for the
sole purpose of eliminating the risk of market price fluctuations. No futures
contracts are purchased or sold for purely speculative purposes. For additional
information on commodity price hedging, see Note 15 of the Notes to the Southern
States Consolidated Financial Statements included herein.
Legal Proceedings
The Company is involved in various legal proceedings that arise in the
normal course of its business. Based upon its evaluation of the information
currently available, the Company believes that the ultimate resolution of such
proceedings will not have a material adverse effect on the financial position,
liquidity or results of operations of the Company.
The Company maintains general liability and property insurance and an
umbrella and excess liability policy in amounts it considers adequate and
customary for business of its kind. However, the Company expects that from time
to time it will experience legal claims in excess of its insurance coverage or
claims that ultimately will not be covered by insurance. Certain insurance
coverages carried by the Company are underwritten by Southern States Insurance
Exchange. See "--Investments in Other Cooperatives and Companies."
ACQUISITION OF THE GOLD KIST INPUTS BUSINESS
Under an Asset Purchase Agreement dated July 23, 1998 (the "Agreement"),
the Company agreed to purchase from Gold Kist Inc., a major southeastern
marketing and supply cooperative, the Gold Kist Inputs Business. Through this
portion of its business, Gold Kist purchased, manufactured and processed a wide
range of farm supply items for distribution and sale in the eight-state
territory of Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, South
Carolina and Texas. For its fiscal year ended June 27, 1998, the Gold Kist
Inputs Business generated $481 million of sales. The transaction was consummated
on October 13, 1998.
58
<PAGE>
Under the Agreement, the Company purchased substantially all the assets,
and assumed certain liabilities, of the Agri-Services division, the Fertilizer
and Crop Protectant division, and the Pet Food and Animal Health division
(excluding Pork Operations) of Gold Kist. The acquired assets included four
fertilizer plants (all owned), four crop protectant distribution centers (three
owned, one leased), 23 grain elevators (18 owned, five leased), 15 peanut buying
stations (nine owned, six leased), five cotton gins (three owned, two leased),
four feed mills (all owned), one seed processing plant (owned), a number of
owned and leased distribution and storage facilities, and approximately 100
retail farm supply stores and branch facilities, as well as substantially all
inventory and accounts receivable and certain other assets associated with the
Inputs Business. The Company also purchased a portfolio of crop time note
receivables held by a Gold Kist subsidiary. The purchased assets did not involve
the existing Gold Kist poultry, pork, aquaculture, seed marketing, cotton
marketing and other businesses. The Company paid a cash purchase price of $218.3
million at closing, exclusive of certain trade payables and other specified
liabilities assumed by the Company. The final purchase price is subject to a
post-closing adjustment based upon an audit of purchased inventory and a
post-closing valuation process for purchased receivables. See "--The Asset
Purchase Agreement--Purchase Price Adjustment" below.
Through the acquisition of the Gold Kist Inputs Business, the Company
acquired a business that is very similar to its own agricultural supply
operations, enabling the Company to: (i) expand its agricultural supply
activities and services into a contiguous geographic territory; (ii) increase
its purchasing power with vendors; (iii) distribute its products through
expanded distribution channels; (iv) increase the opportunity to provide
livestock marketing services in the area served; and (v) achieve efficiencies
and economies of scale, capitalizing on its operating expertise as it combines
the Gold Kist Inputs Business with the Company's operations. In an era of
industry consolidation among both agricultural producers and suppliers, the
acquisition of the Gold Kist Inputs Business significantly enlarges the
Company's operations, increases its sales, assets and membership base and helps
to solidify its position as a principal supplier of agricultural inputs east of
the Mississippi River.
Subsequent to the acquisition of the Gold Kist Inputs Business, in an
effort to improve operating effectiveness, the Company has closed one Gold Kist
retail location in north Georgia and terminated one leased facility in Arkansas.
The Company is studying the possible sale, closure or conversion to independent
private dealership status of selected additional locations in various parts of
the Gold Kist territory. The Company also is undertaking to expand its private
dealer system into the Gold Kist territory. As of December 4, 1998, five new
private dealers in the Gold Kist territory had completed the Company's
certification process and were purchasing product from the Company. Nine others,
including three independent cooperatives, were in various stages of that process
and were expected to be purchasing product by the end of December 1998.
Approximately 70 other private dealers throughout South Carolina, Georgia and
Alabama have been identified as prospective private dealers for the Company.
Gold Kist Inputs Business
As a result of its acquisition of the Gold Kist Inputs Business, the
Company purchases, manufactures and processes fertilizers, crop protectants,
seed, pet foods, feed, animal health products and other farm supply items for
distribution and sale at both wholesale and retail throughout the Southeastern
and South Central United States. These products are distributed through
approximately 100 retail stores acquired by the Company as part of the Gold Kist
Inputs Business and at wholesale to national accounts and independent dealers.
59
<PAGE>
Fertilizers and Crop Protectants
The Gold Kist Inputs Business distributes granular, blended and liquid
fertilizers and fertilizer materials. Each type is purchased or produced in
varying compositions depending upon the ultimate use of the product as a plant
food. The Gold Kist Inputs Business includes four fertilizer plants and two bulk
crop protectant storage facilities, as well as a number of other storage and
distribution facilities and fertilizer distribution terminal facilities at
various locations throughout its eight-state territory. Fertilizer materials are
warehoused at these facilities for resale through Gold Kist Inputs Business
retail stores and private dealers. In addition, granular fertilizers are
purchased and distributed in bagged and bulk form from these facilities. For the
fiscal year ended June 27, 1998, the Gold Kist Inputs Business purchased
approximately 39% of its fertilizer materials and products at market prices from
CF Industries. The remaining fertilizer materials and products were purchased
from more than 50 other suppliers.
The Gold Kist Inputs Business distributes agricultural and specialty crop
protectants, including pesticides, growth regulators and surface-active agents
that it purchases from approximately 50 manufacturers. Competition for sales of
crop protectants is primarily on the basis of price and service since most
retailers have access to the same inventory of products produced by the major
manufacturers. The Gold Kist Inputs Business also provides aerial application of
fertilizer for forestry customers and ground application of fertilizer and crop
protectants for turf customers.
The Company operates the fertilizer and crop protectant operations of the
Gold Kist Inputs Business as part of its Crops division, thereby adding forestry
and turf customers to its customer base.
Pet Food and Animal Products
The Gold Kist Inputs Business includes four major feed mills (all owned)
for its pet food and animal products operations with an aggregate annual
capacity of approximately 470,000 tons. The mills produce feeds distributed at
wholesale or at retail through its retail stores and independent dealers. All of
the mills are batch process mills in which ingredients are weighed. This type of
mill is capable of precision feed mixing. Feeds are distributed in bagged and
bulk form.
During the fiscal year ended June 27, 1998, the Gold Kist Inputs Business
feed mills produced substantially all the feed it distributed at wholesale or
retail. Its operations produce and market approximately 200 different feeds,
including custom blended feeds and feeds containing various medications. Pro
Balanced is a dairy feed sold through a special program which includes survey
and analysis of feed ingredients needed for a particular herd.
Feed ingredients are purchased in the marketplace from many sources,
including major grain companies. Feed formulation is based on the cost of
various alternative ingredients in a given week.
60
<PAGE>
Approximately 40% of the feed sold is delivered in bulk form directly
from the feed mill to the farm; the remainder is sold in bag form. The Gold Kist
Inputs Business operates a fleet of trucks, including feed tankers, for the
delivery of feed.
The Gold Kist Inputs Business also markets dog food under the Pay Day,
Pro Balanced and Performance Plus trademarks through independent dealers, under
the Gold Kist and Pro Balanced trademarks through its retail stores, and under
the Gold Kist and Top Notch trademarks through grocery wholesalers and retail
chain stores. Pro Balanced cat food is also marketed through independent
dealers, Gold Kist Inputs Business retail stores and grocery wholesalers and
retail chain stores. Pro Balanced, Pay Day, Gold Kist, Top Notch, and
Performance Plus are registered trademarks of Gold Kist all of which (other than
the name Gold Kist) were purchased by the Company pursuant to the Agreement.
Aquaculture feed products, primarily feed for commercial fish farming
operations, also form a significant portion of the Gold Kist Inputs Business'
feed business.
The Company operates these acquired pet food and animal supply operations
through its Feed division.
Retail Farm Supply Stores
The Gold Kist Inputs Business includes approximately 100 retail stores
located throughout its eight-state territory, but concentrated in South
Carolina, Georgia and Alabama. Its typical retail store is a complete farm
supply center offering for sale many types of feeds, animal health products,
fertilizers, pesticides, seeds, farm supplies and equipment. It also offers
services such as precision farming, customized fertilizer spreading, field
mapping, soil testing, insect scouting, and agronomic and animal nutrition
advice.
The Company operates these store locations as a part of its Retail Farm
Supply division.
61
<PAGE>
Grain Services and Cotton Gin Facilities
Gold Kist Inputs Business includes receiving and storage facilities, with
an aggregate storage capacity of approximately seven million bushels, for
handling unprocessed farm commodities such as soybeans, corn and other grains.
Nearly all these storage facilities are licensed by the federal or state
government and can issue negotiable warehouse receipts.
The Gold Kist Inputs Business also includes five cotton ginning and
storage facilities at various locations in its eight-state territory through
which it provides ginning and storage services to members and non-members.
The Company operates the acquired grain services and cotton gin
facilities as part of its Retail Farm Supply division.
The Asset Purchase Agreement
Purchase Price Adjustment. Under the Agreement, the cash portion of the
purchase price paid at closing (the "Estimated Purchase Price") was based on the
values for current assets as shown on the most recent available month-end
financial statement for the Gold Kist Inputs Business prior to the closing,
which was the August 31, 1998 statement (the "Pre-Closing Valuation"). On this
basis, the Pre-Closing Valuation was $236.7 million. After deducting certain
assumed liabilities and an agreed-upon "holdback" of $10 million, the Estimated
Purchase Price paid to Gold Kist at closing was $218.3 million. The final
purchase price (the "Final Purchase Price") will be calculated by the Company
within 75 days of the closing, based upon a physical count of inventory on hand
at the closing and a post-closing valuation of accounts receivable, each made in
accordance with certain agreed upon procedures, also as of the date of closing.
If Gold Kist and Southern States do not agree upon the Final Purchase Price
(which will be adjusted to include the $10 million holdback to the Estimated
Purchase Price), the matter will be submitted to a mutually agreed upon
nationally recognized independent certified public accounting firm who shall act
as arbitrator. The decision of the arbitrator will be final and binding on the
parties. Any difference between the Estimated Purchase Price and the Final
Purchase Price will be paid by the Company or Gold Kist, as the case may be,
with interest, promptly upon the determination of the Final Purchase Price.
Representations and Warranties. The Agreement contains customary
representations and warranties concerning the status of the Inputs Business and
the assets purchased. Most representations and warranties survive the closing
until June 30, 2001. Gold Kist has agreed to indemnify the Company for losses
arising out of certain environmental representations and warranties for a ten
year period following the closing, subject to an aggregate maximum of $35
million, and a threshold of $15,000 per individual claim. Gold Kist has agreed
to indemnify the Company for any loss (exclusive of environmental losses)
arising from breaches of such representations and warranties to the extent that
such losses do not exceed $10 million. There is a $500,000 threshold for losses
(exclusive of environmental losses) before a claim may be asserted against Gold
Kist.
Non-Competition. Under the Agreement, Gold Kist agreed to a five-year
non-competition agreement within the territory in which Gold Kist presently does
business.
The Financing Commitment
In connection with the closing of the Company's purchase of the Gold Kist
Inputs Business, the Company and Gold Kist entered into a separate agreement
pursuant to which Gold Kist agreed, subject to certain conditions, to purchase
on April 2, 1999, up to $100 million of preferred stock or other specified
equity-type securities from the Company or an affiliated entity of the Company.
If the Capital Securities offered hereby are sold in whole or in part, the
purchase obligation of Gold Kist will be reduced by the amount of the securities
sold by the Company. As described in "Use of Proceeds", the Company also is
undertaking to place up to $40 million liquidation amount of its Series A
Preferred Stock with certain institutional investors. To the extent the Company
sells all or a portion of the Preferred Stock as contemplated, the purchase
obligation of Gold Kist will be similarly reduced.
62
<PAGE>
The purchase commitment of Gold Kist is secured by an irrevocable direct
pay letter of credit in favor of the Company issued by Cooperative Centrale
Raiffeisen-Borenleen Bank, B.A., "Rabobank Nederlands," New York Branch
("Rabobank") in the amount of $100 million. The Rabobank letter of credit
expires by its terms on October 11, 1999.
MANAGEMENT
Directors
The Board of Directors of Southern States presently consists of 23
persons. Annually, members of Southern States elect on a staggered basis members
of the Board of Directors to serve for three year-terms. Members are elected
through an election district process, on a district representation basis. The
districts are redrawn from time to time by the Board of Directors to provide for
equitable representation of members in the territory served by the Company. At
the present time, 17 of the 23 members of the Board of Directors are
member-elected, or member-designated. The other six current members of the
Board, designated by Virginia law as public directors, are appointed for
three-year terms, on a staggered basis, by the director of agricultural
extension for the Commonwealth of Virginia. Each of these appointed directors
represents a different state in the Company's traditional Mid-Atlantic
territory. Public directors need not be members of Southern States.
The Directors of Southern States are as follows:
<TABLE>
<CAPTION>
Age as of Expiration of Years
December 15, Present Term Served
Name 1998 Position(s) Held as Director as Director Residence
- ---- ----- ---------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Earl L. Campbell 57 Chairman of the Board; 2000 13 Danville, Kentucky
Executive Committee
John Henry Smith 48 Vice Chairman of the 2000 7 Rosedale, Virginia
Board; Executive
Committee, Chairman
Michael W. Beahm 47 Member & Institutional 1999 2 Roanoke, Virginia
Relations Committee
Cecil D. Bell, Jr.* 58 Audit Committee, 2001 9 Georgetown, Kentucky
Chairman
Floyd K. Blessing 71 Executive and Budget 2001 14 Houston, Delaware
Committees
Jere L. Cannon 57 Audit Committee 1999 23 Flemingsburg, Kentucky
63
<PAGE>
William F. Covington* 73 Member & Institutional 2000 12 Mebane, North Carolina
Relations Committee,
Chairman; Executive
Committee
George E. Fisher 66 Member & Institutional 1999 11 Gordonsville, Virginia
Relations Committee
R. Bruce Johnson 47 Budget Committee 2000 4 West Point, Virginia
James A. Kinsey* 48 Executive and Audit 2000 7 Flemington, West Virginia
Committees
J. Wayne McAtee 54 Budget Committee 2000 16 Cadiz, Kentucky
Richard F. Price 68 Executive and Member & 2001 30 Phoenix, Maryland
Institutional Relations
Committees
William Pridgeon 46 Member & Institutional 2000 Elected Montgomery, Michigan
Relations Committee April 1,
1998
Curry A. Roberts* 41 Audit Committee 2001 6 Charlottesville, Virginia
James A. Stonesifer* 55 Budget Committee 1999 2 Union Bridge, Maryland
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
William W. Vanderwende* 65 Budget Committee, Chairman 1999 17 Bridgeville, Delaware
Wilbur C. Ward 60 Audit Committee 2001 5 Clarkton, North Carolina
Charles A. Wilfong 40 Member & Institutional 2001 3 Dunmore, West Virginia
Relations Committee
Fred K. Norris, Jr. Member & Institutional 1999 ** Eutawville, South Carolina
Relations Committee
Phil Ogletree, Jr. Budget Committee 1999 ** Orchard Hill, Georgia
H. Michael Davis Member & Institutional 2000 ** Valdosta, Georgia
Relations Committee
Herbert A. Daniel, Jr. Audit Committee 2001 ** Claxton, Georgia
James E. Brady, Jr. Audit Committee 2001 ** Marion, Alabama
</TABLE>
* Messrs. Bell (Kentucky), Covington (North Carolina), Kinsey (West
Virginia), Roberts (Virginia), Stonesifer (Maryland) and Vanderwende (Delaware)
are designated public directors.
64
<PAGE>
** Elected October 30, 1998, in connection with the acquisition of
the Gold Kist Inputs Business.
In connection with the April, 1998, acquisition of Michigan Livestock
Exchange ("MLE"), which expanded the operations of the Company into the states
of Michigan, Ohio and Indiana, the Board of Directors was expanded by one seat.
William Pridgeon, formerly the chairman of the board of directors of MLE, was
designated by the membership of MLE to represent the MLE territory on the Board
of Directors for a term expiring in 2000. In connection with the October, 1998,
acquisition of the Gold Kist Inputs Business, which expanded the Company's
operations into the states of South Carolina, Georgia, Florida, Alabama,
Mississippi, Louisiana, Arkansas and Texas, the Board of Directors was expanded
by six additional seats. Pursuant to the terms of the agreement for the purchase
of the Gold Kist Inputs Business (see "Acquisition of Gold Kist Inputs
Business--The Acquisition Agreement"), the bylaws of Southern States were
amended to provide for the election by the board of directors of Gold Kist Inc.,
sitting as delegates to a special election district for the Gold Kist territory,
of six additional directors from among the new members in the Gold Kist
territory, for staggered terms (two serving for one year, two for two years, and
two for three years). Messrs. Norris, Ogletree, Davis, Daniel, and Brady, each
of whom has previously served as and will continue to serve as a director of
Gold Kist, have been elected as directors from the territory formerly served by
the Gold Kist Inputs Business. A sixth individual, Mr. W. P. Smith, Jr., was
elected to serve as a director for the Company from the Gold Kist territory for
a two year term, but died unexpectedly in November, 1998. The vacancy on the
Board created by Mr. Smith's death has not been filled.
The Board of Directors is currently considering certain revisions to the
designated election districts as a result of the recent expansion of its
operating territory.
During the past five years, each of the directors has owned and/or
managed substantial farming operations, producing a wide range of agricultural
products. While the size and type of products produced on, and the number of
personnel employed at, each of the director's farms varies, each director's
business activities have been primarily related to owner-managed agribusiness
enterprises.
There are no family relationships among any of the directors and
executive officers.
Mr. Price is a member of the board of directors of CoBank, ACB, which has
various lending relationships with the Company. Mr. Kinsey is a member of the
board of directors of Agfirst Bank, FCB, a farm credit bank that participates in
certain of the CoBank lending facilities to the Company. Mr. Brady is a director
of The Perry County Bank, Marion, Alabama; Mr. Price is also a director of
Sparks State Bank, Sparks, Maryland; Mr. Bell is a director of Farmers Capital
Bank Corporation, Frankfort, Kentucky; and Mr. Wilfong is a director of Farm
Family Holdings, Inc., Glenmont, New York.
65
<PAGE>
Compensation Committee Interlocks and Insider Participation
Messrs. J. H. Smith (Chairman), Campbell, Blessing, Covington, Kinsey and
Price serve as members of the Company's Executive Committee which functions as
the Company's compensation committee. None of these directors, nor any of the
Company's executive officers, has any of the relationships to the Company that
is required to be disclosed pursuant to the regulations of the Securities and
Exchange Commission.
Director Compensation
The bylaws of Southern States provide that compensation and expense
reimbursement policies for Directors shall be established periodically by the
Board of Directors. Currently, Directors receive a per diem of $400, with the
Chairman receiving a per diem of $600, plus expenses incurred while traveling to
and from and attending meetings of the Board of Directors or other official
meetings or conferences.
Directors Deferred Compensation Plan. The Southern States Directors
Deferred Compensation Plan permits non-employee directors to defer all or part
of their meeting fees, retainers or other remuneration received from the
Company. The amount to be deferred and the period for deferral is specified by
an election made prior to the beginning of each calendar year. Payments begin
under the plan generally upon the director's death or the date specified by the
director in his deferral election. The director's deferred account balance is
credited with interest at a rate determined by the administrator for each
deferral cycle. Distributions are made in quarterly installments over 10 years.
All amounts accrued under the plan have been funded in a trust which is secure
against all contingencies except insolvency of the Company.
Executive Officers
The Executive Officers of Southern States are as follows:
<TABLE>
<CAPTION>
Age as of
Name December 15, 1998 Positions and Offices Held
- ----- ----------------- --------------------------
<S> <C> <C>
Wayne A. Boutwell 54 President and Chief Executive Officer -- Mr. Boutwell began his career in
1970 with the USDA in Washington, D.C. He served as President and CEO of
the National Council of Farmer Cooperatives from 1983 until 1996. In
September 1996, Mr. Boutwell was named President and Chief Executive Officer
- Elect of Southern States. Mr. Boutwell serves on the board of CF
Industries, Inc., the National Council of Farmer Cooperatives, Mississippi
State University Agribusiness Institute, and the International Food and
Agribusiness Management Association. Mr. Boutwell received his B.S. and
M.S. degrees in Agricultural Economics from Mississippi State University and
his Ph.D. from Virginia Tech.
66
<PAGE>
K. Gene McClung 54 Group Vice President, Marketing & Logistical Services -- Mr. McClung
commenced his career with the Company in 1964. He has served in a variety
of local, regional and headquarters managerial positions. He was promoted
to his present position effective April 1, 1998, after serving as Vice
President of Planning, Logistics and Business Development. Mr. McClung also
served the Company for a number of years as Director, Credit and Financial
Services and as President of Statesman Financial Corporation.
George W. Winstead 55 Group Vice President, Ag Inputs & Services -- Mr. Winstead began his career
with the Company in 1968. He has been in his present position since July 1,
1993, having previously served in a variety of local, regional and
headquarters managerial positions. Mr. Winstead serves as chairman of the
board of Universal Cooperatives Inc. and Cooperative Milling, Inc. Mr.
Winstead received his B.S. from East Carolina University.
Jonathan A. Hawkins 59 Senior Vice President and Chief Financial Officer -- Mr. Hawkins was named
to his current position in 1990 and also serves as President of Statesman
Financial Corporation. He joined the Company in 1980 and was promoted to
Vice President and Treasurer in 1983. He currently serves as Chairman of
the Board of the Institute of Cooperative Financial Officers. Mr. Hawkins
received his B.A. in Mathematics from the University of Richmond.
</TABLE>
<TABLE>
<S> <C> <C>
Gene R. Anderson 58 Senior Vice President, Corporate and Member Services -- Mr. Anderson joined
the Company on May 1, 1986, as Vice President for Human Resources. He was
promoted to his present position on October 15, 1998, having previously
served in several headquarters managerial capacities. Before joining the
Company, Mr. Anderson worked for 23 years for E.I. Du Pont de Nemours & Co.
Mr. Anderson has a B.A. in Industrial Relations from the University of North
Carolina.
C.A. Miller 59 Senior Vice President, Corporate Information and Support Services -- Mr.
Miller joined the Company as Director of Information Systems in 1979 and was
later promoted to Vice President. Mr. Miller was promoted to his current
position on October 15, 1998. Prior to joining the Company, Mr. Miller
served as Vice President of Deposit Guaranty National Bank in Jackson,
Mississippi, and then as Senior Vice President of the First National Bank of
Birmingham, Alabama. Mr. Miller has a B.A. in Banking and Finance and an
M.B.A. in Finance and Economics from the University of Mississippi.
67
<PAGE>
N. Hopper Ancarrow, Jr. 53 Vice President, General Counsel and Secretary -- Mr. Ancarrow joined the
Company's legal staff in 1971 and from 1972 until 1987 served as Assistant
Secretary of the Company. In 1987, he was named Vice President, General
Counsel and Secretary. Mr. Ancarrow earned his B.A. from the University of
North Carolina and his J.D. from the College of William & Mary - Marshall
Wythe School of Law.
Richard G. Sherman 51 Vice President, Human Resources -- Mr. Sherman joined the Company in June
1988 as Director of Human Resources at the central office in Richmond,
Virginia. He was promoted to his current position in August 1989. Before
joining the Company, Mr. Sherman worked for Texas City Refining Inc. and
Agway Inc. He has a B.A. in Economics and Business from Rider College, an
M.A. in Human Resources from the University of Houston and holds a Senior
Professional in Human Resources designation.
</TABLE>
The officers of the Company serve for a term of one year and until their
successors are elected by the Board of Directors. During the past five years the
principal occupation of each of the above named executive officers other than
Mr. Boutwell, has been as an officer or employee of the Company.
Executive Compensation
The following table shows, for the fiscal years ended June 30, 1998, 1997
and 1996, all compensation paid or accrued by the Company and its subsidiaries
to the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers:
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------------
Year
Ending Other Annual All Other
Name and Principal Position June 30 Salary (1) Bonus (2) Compensation (3) Compensation
- --------------------------- ------- ---------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Wayne A. Boutwell 1998 $381,429 $ 29,615 -- $ 13,033(4)
President and Chief Executive 1997 278,250 -- -- --
Officer (4) 1996 -- -- -- --
M. Terry Ragsdale 1998 $300,799 $ 50,265 $ 3,790 $ 39,103(5)
Chief Operating Officer (5) 1997 259,394 91,000 3,412 14,745(5)
1996 245,367 83,400 6,078 14,955(5)
George W. Winstead 1998 $169,778 $ 15,826 -- $ 7,471(6)
Group Vice President, 1997 160,116 46,495 -- 8,865(6)
Ag Inputs & Services 1996 150,616 43,138 695 9,468(6)
Jonathan A. Hawkins 1998 $154,591 $ 25,630 $ 1,924 $ 9,168(7)
Senior Vice President and 1997 139,784 43,430 1,733 10,834(7)
Chief Financial Officer 1996 125,282 36,980 1,462 10,361(7)
N. Hopper Ancarrow, Jr 1998 $144,409 $ 22,731 $ 1,046 $ 5,853(8)
Vice President, General 1997 138,229 41,262 954 7,465(8)
Counsel and Secretary 1996 132,366 39,499 775 7,631(8)
</TABLE>
68
<PAGE>
(1) Reflects salary before pretax contributions under the Southern States
Thrift Plan and before pretax contributions under the Southern States Flexible
Benefits Plan.
(2) Reflects share of Earnings Fund and Executive Bonus, if any, accrued
for each of the fiscal years under the Southern States Deferred Compensation
Plan (which includes the incentive compensation awards in addition to the
deferral rights). The various incentive compensation awards are described below.
For Mr. Boutwell, $29,615 was paid (or electively deferred) from his incentive
account for the fiscal year ended June 30, 1998 under the CEO Incentive Program
under the Southern States Deferred Compensation Plan. For the fiscal year ended
June 30, 1998, $61,115 was subtracted from Mr. Boutwell's incentive account as a
result of an incentive shortfall for the year. The balance in the incentive
account is subject to reduction for future incentive shortfalls and to
forfeiture. See "--Bonus Compensation--CEO Incentive Program" below.
(3) In the case of Messrs. Ragsdale, Hawkins and Ancarrow, the amounts
shown reflect that portion of the interest earned under the Southern States
Deferred Compensation Plan above 120% of the applicable federal rate in those
accounts not deemed invested in externally managed investments, as well as
amounts attributable to the Company's payment of certain taxes on their behalf.
In the case of Mr. Winstead, the amount shown reflects the payment by the
Company of certain taxes on his behalf. Other than such amounts, for the fiscal
years ended June 30, 1998, 1997 and 1996 no amount of "Other Annual
Compensation" was paid to any of the above named executive officers, except for
perquisites and other personal benefits which for each named executive officer
did not exceed the lesser of $50,000 or 10% of the amounts reported as Salary
and Bonus for such individual.
(4) Mr. Boutwell was employed by the Company on September 30, 1996 as
President and Chief Executive Officer-Elect. He became President and Chief
Executive Officer effective February 1, 1997. Mr. Boutwell received no income
from the Company during fiscal year 1996. Reflects $3,934 contributed or matched
by the Company or its subsidiaries for fiscal year 1998, under the Southern
States Thrift Plan. The remaining amount shown was paid by the Company for life
insurance premiums under a split dollar life insurance agreement.
The Company will recover the cost of premium payments from the cash value of the
policies.
(5) Mr. Ragsdale retired from the Company effective June 30, 1998.
Subsequent to his retirement, Mr. Ragsdale has been engaged by the Company to
perform certain consulting services primarily devoted to the acquisition of the
Gold Kist Inputs Business. For 1998, includes $26,185 paid as accrued but unused
vacation pay upon his retirement. In addition, reflects $2,917, $4,744 and
$4,953 contributed or matched by the Company or its subsidiaries for fiscal
years 1998, 1997 and 1996, respectively, under the Southern States Thrift Plan.
The remaining amount shown for each fiscal year was paid by the Company for life
insurance premiums under a split dollar life insurance agreement.
69
<PAGE>
(6) Reflects $2,465, $3,859 and $4,461 contributed or matched by the
Company or its subsidiaries for fiscal years 1998, 1997 and 1996, respectively,
under the Southern States Thrift Plan. The remaining amount shown for each
fiscal year was paid by the Company for life insurance premiums under a split
dollar life insurance agreement.
(7) Reflects $2,481, $4,147 and $3,673 contributed or matched by the
Company or its subsidiaries for fiscal years 1998, 1997 and 1996, respectively,
under the Southern States Thrift Plan. The remaining amount shown for each
fiscal year was paid by the Company for life insurance premiums under a split
dollar life insurance agreement.
(8) Reflects $2,134, $3,746 and $3,912 contributed or matched by the
Company or its subsidiaries for fiscal years 1998, 1997 and 1996, respectively,
under the Southern States Thrift Plan. The remaining amount shown for each
fiscal year was paid by the Company for life insurance premiums under a split
dollar life insurance agreement.
Deferred Compensation
The Southern States Deferred Compensation Plan permits executive
employees designated to defer all or part of their salary and all or part of
their bonus compensation. The amount to be deferred and the period for deferral
is specified by an election made prior to the beginning of each fiscal year.
Payments begin under the plan generally upon the executive's death or disability
or at cessation of employment. The executive's deferred account balance is
credited with earnings and losses based on deemed investments selected by the
executive from the same funds available for actual investment under the Southern
States Thrift Plan. Distributions are made in quarterly installments over 10
years. All vested amounts accrued under the Plan have been funded in a trust
which is secure against all contingencies except insolvency of the Company.
Amounts deferred pursuant to the plan for the accounts of the named individuals
during the fiscal years ended June 30, 1996, 1997 and 1998 are included under
the salary and bonus columns in the cash compensation table.
Bonus Compensation
Earnings Fund Program. All regular employees (other than the chief
executive officer) who are designated as eligible by the Board are entitled to a
proportionate share of the Earnings Fund under the Deferred Compensation Plan
for each fiscal year. The Earnings Fund share provided to each employee is
dependent upon the employee's position, the employee's fiscal year end salary
and the performance of the Company for the fiscal year. The Earnings Fund
includes only certain amounts by which the Company exceeds a threshold level of
performance. Distributions under this program are made annually after the close
of the fiscal year.
Executive Bonus. Each executive designated by the Board is also eligible
for an Executive Bonus, if any, in the amount determined by, and in the
discretion of, the chief executive officer. Executive Bonuses are awarded based
on an assessment of the executive's performance during the preceding 12 months
and are payable after the close of the fiscal year.
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<PAGE>
CEO Incentive Program. The CEO Incentive Program is a long term incentive
program under which the chief executive officer is granted an award of 1.5% of
the amount by which earnings before taxes exceeds 10% of the total stockholders'
and patrons' equity determined at the end of the prior year. Each award is
placed in an incentive account established on the books of the Company with a
beginning balance of $150,000. Shortfalls equal to 1.5% of the amount by which
earnings fall short of 10% of such equity are subtracted from the incentive
account. One-third of the balance in the incentive account is distributed as of
the end of each fiscal year, however, no distribution will be made for any
fiscal year in which the Company incurs a loss. Any positive balance in the
incentive account is subject to forfeiture upon the chief executive officer's
early termination of employment. The Board retains the right to adjust earnings
used for determining the award for any unusual gains or losses incurred during
the fiscal year. However, the Board may not reduce the balance in the incentive
account or defer a scheduled payment for which no deferral election has been
filed by the chief executive officer.
Retirement Benefits
The following table shows the estimated annual benefits payable in the
form of a single life annuity upon retirement under the Company's retirement
program, consisting of the Retirement Plan for Employees of Southern States and
the Southern States Supplemental Retirement Plan, to persons in specified years
of service and average earnings classifications, before offset of Social
Security benefits, assuming retirement at 65 or at or after 62 with 30 years of
creditable service:
<TABLE>
<CAPTION>
Estimated Annual Benefits For Years of Service Indicated
--------------------------------------------------------
Highest 36 Month Average 10 15 20 25 30 or more
--- -- -- -- ----------
Earnings
- --------------------------
<S> <C> <C> <C> <C> <C>
$ 50,000 $10,000 $15,000 $ 20,000 $ 25,000 $ 30,000
100,000 20,000 30,000 40,000 50,000 60,000
150,000 30,000 45,000 60,000 75,000 90,000
200,000 40,000 60,000 80,000 100,000 120,000
250,000 50,000 75,000 100,000 125,000 150,000
300,000 60,000 90,000 120,000 150,000 180,000
350,000 70,000 105,000 140,000 175,000 210,000
400,000 80,000 120,000 160,000 200,000 240,000
500,000 90,000 135,000 180,000 220,000 270,000
</TABLE>
Compensation covered by the Plan includes compensation set forth in the
columns entitled "Salary" and "Bonus" in the Summary Compensation Table reduced
by the Bonus amounts that are electively deferred by executives under the
Southern States Deferred Compensation Plan. The credited years of service as of
December 31, 1997, under the retirement income plan for the five executive
officers listed in the summary compensation table are as follows: Mr. Boutwell
(1); Mr. Ragsdale (30); Mr. Winstead (29); Mr. Hawkins (17); and Mr. Ancarrow
(26).
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<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The Company's stockholder equity consists of its membership common stock
and its preferred stock. Only the shares of membership common stock have voting
rights.
At September 30, 1998, no person or entity was known by the Company to be
the beneficial owner of more than five percent of the Company's common shares.
Under the Company's articles of incorporation and under applicable Virginia law,
each member of Southern States has only one vote in the business affairs of the
Company, regardless of the number of shares of common stock owned. See "The
Company--Cooperative Structure."
At September 30, 1998, none of the directors of the Company and the
executive officers listed in the summary compensation table, either individually
or as a group, beneficially owned in excess of one percent of any class of the
Company's equity.
Certain Relationships and Related Transactions
The Company's members, including its directors, are customers of the
Company and/or of its affiliated financing companies. They purchase products
from the Company in the normal course of operating their farm businesses and may
sell certain agricultural products to the Company at market price. The prices,
terms and conditions of any purchase or sale transaction are on the same basis
for all the Company's members.
72
<PAGE>
THE TRUST
As used herein, (i) the "Junior Subordinated Indenture" means the Junior
Subordinated Indenture, as amended and supplemented from time to time, between
the Company and First Union National Bank, as trustee (the "Debenture Trustee"),
pursuant to which the Junior Subordinated Debentures are issued, (ii) the "Trust
Agreement" means the Amended and Restated Trust Agreement relating to the Trust,
as amended and supplemented from time to time, among the Company, as Depositor,
First Union National Bank, as Property Trustee (the "Property Trustee"), First
Union Trust Company, National Association, as Delaware Trustee (the "Delaware
Trustee"), and Wayne A. Boutwell and Jonathan A. Hawkins, the Administrative
Trustees (the "Administrative Trustees" and collectively with the Property
Trustee and the Delaware Trustee, the "Trustees") and (iii) the "Guarantee"
means the Guarantee Agreement relating to the Capital Securities, as amended and
supplemented from time to time, between the Company and First Union National
Bank, as Guarantee Trustee (the "Guarantee Trustee").
The Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary of
State on December 16, 1998, and will be governed by the Trust Agreement. The two
Administrative Trustees are individuals who are employees or officers of or
affiliated with the holder of the Common Securities. See "Description of The
Capital Securities--Miscellaneous." The Trust exists for the exclusive purposes
of (i) issuing and selling the Capital Securities and the related Common
Securities (together, the "Trust Securities"), (ii) using the proceeds from the
sale of the Trust Securities to acquire the Junior Subordinated Debentures and
(iii) engaging in only those other activities necessary or incidental thereto
(such as registering the transfer of the Trust Securities). Accordingly, the
Junior Subordinated Debentures will be the sole assets of the Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Trust.
All of the Common Securities will initially be owned by the Company.
The Common Securities will rank pari passu, and payments will be made thereon
pro rata, with the Capital Securities, except that upon the occurrence and
during the continuation of a Debenture Event of Default arising as a result of
any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the rights of the holders of the Common
Securities to payment in respect of Distributions and payments upon liquidation,
redemption or otherwise will be subordinated to the rights of the holders of the
Capital Securities. See "Description of The Capital Securities--Subordination of
Common Securities." The Company will acquire Common Securities in an aggregate
Liquidation Amount equal to 3% of the total capital of the Trust. The Trust has
a term of 50 years, but may dissolve earlier as provided in the Trust Agreement.
The principal executive office of the Trust is 6606 West Broad Street, Richmond,
Virginia 23230, Attention: Chief Financial Officer, and its telephone number is
(804) 281-1000.
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<PAGE>
No separate financial statements of the Trust are included herein. The
Company and the Trust do not consider that such financial statements would be
material to holders of the Capital Securities because (i) the Trust is a special
purpose entity, has no independent operations, and is not engaged in, and does
not propose to engage in, any activity other than the issuance of the Trust
Securities and the investment of the net proceeds from the sale of them in the
Junior Subordinated Debentures; (ii) the Company owns, directly or indirectly,
all of the voting securities of the Trust; and (iii) under the Guarantee, the
Company will guarantee the payment of Distributions and amounts on liquidation
and redemption of Capital Securities to the extent described herein.
<PAGE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated in the
Company's consolidated financial statements, with the Capital Securities being
treated as a minority interest and shown in the Company's consolidated balance
sheet as "Mandatorily Redeemable Capital Securities of Trust Subsidiary." The
financial statement footnotes of the Company will reflect that the primary
assets of the Trust are approximately $____ million principal amount Junior
Subordinated Debentures, bearing interest at ___% and maturing on ________, __,
2029. In addition, a footnote to the Company's financial statements will reflect
that the Guarantee, when taken together with the Company's obligations under the
Junior Subordinated Debentures and the Junior Subordinated Indenture and its
obligations under the Expense Agreement, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), provide a full and unconditional guarantee of amounts due on
the Capital Securities.
DESCRIPTION OF THE CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Trustees on behalf of
the Trust will issue the Capital Securities and the Common Securities. The
Capital Securities will represent preferred undivided beneficial interests in
the assets of the Trust and the holders thereof will be entitled to a preference
in certain circumstances with respect to Distributions and amounts payable on
redemption or liquidation over the Common Securities, as well as other benefits
as described in the Trust Agreement. This summary of certain provisions of the
Capital Securities and the Trust Agreement, which describes the material
provisions thereof, does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Trustees.
General
The Capital Securities will be limited to $86,250,000 aggregate
Liquidation Amount outstanding. The Capital Securities will rank pari passu, and
payments will be made thereon pro rata, with the Common Securities except as
described under "--Subordination of Common Securities." Legal title to the
Junior Subordinated Debentures will be held by the Property Trustee in trust for
the benefit of the holders of the Capital Securities and Common Securities. The
Guarantee will be a guarantee on a subordinated basis with respect to the
Capital Securities but will not guarantee payment of Distributions or amounts
payable on redemption or liquidation of such Capital Securities when the Trust
does not have funds on hand available to make such payments. See "The
Guarantee."
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<PAGE>
Distributions
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Trust, and Distributions on each Capital Security will be
payable at the annual rate of ___% of the stated Liquidation Amount of $25,
payable quarterly in arrears on January 1, April 1, July 1, and October 1 of
each year (each a "Distribution Date"), to the holders of the Capital Securities
at the close of business on the fifteenth day (whether or not a Business Day (as
defined below)) next preceding the relevant Distribution Date. Distributions on
the Capital Securities will be cumulative. Distributions will accumulate from
________ __, 1999. The first Distribution Date for the Capital Securities will
be April 1, 1999. The amount of Distributions payable for any period less than a
full Distribution period will be computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. Distributions payable for each full Distribution period will be computed
by dividing the rate per annum by four. If any date on which Distributions are
payable on the Capital Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable. "Business Day" means a day other than
(i) a Saturday or Sunday, (ii) a day on which banking institutions in The City
of New York are authorized or required by law or executive order to remain
closed, or (iii) a day on which the Property Trustee's Corporate Trust Office or
the Corporate Trust Office of the Debenture Trustee is closed for business.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such election, quarterly Distributions on the Capital Securities will be
deferred by the Trust during any such Extension Period. Distributions to which
holders of the Capital Securities are entitled will accumulate additional
Distributions thereon at the rate per annum of ___% thereof, compounded
quarterly from the relevant payment date for such Distributions, computed on the
basis of a 360-day year of twelve 30-day months and the actual days elapsed in a
partial month in such period. Additional Distributions payable for each full
Distribution period will be computed by dividing the rate per annum by four. The
term "Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Company may not (i) declare
or pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or
patrons' equity, (ii) redeem any patronage refund allocations or (iii) make any
payment of principal of or interest or premium, if any, on or repay, repurchase
or redeem any debt securities of the Company that rank pari passu in all
respects with or junior in interest to the Junior Subordinated Debentures (other
than (a) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company held by a member, upon the death or dissolution of such
member or otherwise because such member has ceased to be eligible for membership
in the Company, if the Board of Directors approves such repurchase or redemption
pursuant to a policy of assuring that the Company operates as a cooperative in
compliance with Subchapter T of the Code, (b) as a result of an exchange or
conversion of any class or series of the Company's capital stock (or any capital
stock of an affiliate of the Company) for any class or series of the Company's
capital stock or of any class or series of the Company's indebtedness for any
class or series of the Company's capital stock, (c) the declaration of, or any
payment or setting aside for payment of, patronage refunds, provided that not
more than 40% of such aggregate patronage refunds for any fiscal year shall be
in cash, with the remainder to be paid in the form of common stock or patronage
refund allocations, (d) any declaration of a dividend in connection with any
shareholder's rights plan, or the issuance of rights, stock or other property
under any shareholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock). Prior
to the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Company may elect to begin a new
Extension Period. There is no limitation on the number of times that the Company
may elect to begin an Extension Period. See "Description of the Junior
Subordinated Debentures--Option To Extend Interest Payment Period" and "United
States Federal Income Taxation--Original Issue Discount."
75
<PAGE>
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. See "Description of the Junior Subordinated
Debentures." If the Company does not make payments on the Junior Subordinated
Debentures, the Trust may not have funds available to pay Distributions or other
amounts payable on the Capital Securities. The payment of Distributions and
other amounts payable on the Capital Securities (if and to the extent the Trust
has funds legally available for and cash sufficient to make such payments) is
guaranteed by the Company on a limited basis as set forth herein under "The
Guarantee."
Redemption
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at Stated Maturity or upon earlier redemption
as provided in the Junior Subordinated Indenture, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined herein) of the Trust Securities, upon not less than 30
nor more than 60 days' notice, at a redemption price (the "Redemption Price")
equal to the aggregate Liquidation Amount of such Capital Securities plus
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by the
Company upon the concurrent redemption of such Junior Subordinated Debentures.
See "Description of the Junior Subordinated Debentures--Redemption." If less
than all of the Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the Capital Securities and the Common
Securities. The amount of premium, if any, paid by the Company upon the
redemption of all or any part of the Junior Subordinated Debentures to be repaid
or redeemed on a Redemption Date shall be allocated to the redemption pro rata
of the Capital Securities and the Common Securities.
76
<PAGE>
The Company has the right to redeem the Junior Subordinated Debentures
(i) at any time, in whole or in part, from time to time, on or after _______,
2004 or (ii) in whole (but not in part) at any time within 90 days following the
occurrence and during the continuation of a Tax Event (as defined herein). A
redemption of the Junior Subordinated Debentures would cause a mandatory
redemption of a Like Amount of the Capital Securities and Common Securities.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Junior Subordinated Indenture, allocated to the
Common Securities and to the Capital Securities based upon the relative
Liquidation Amounts of such classes and (ii) with respect to a distribution of
Junior Subordinated Debentures to holders of Trust Securities in connection with
a dissolution or liquidation of the Trust, Junior Subordinated Debentures having
a principal amount equal to the Liquidation Amount of the Trust Securities of
the holder to whom such Junior Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Trust of an opinion of counsel to
the Company experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced proposed change) in, the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the Capital Securities, there is more than an insubstantial risk that (i) the
Trust is, or will be within 90 days of the delivery of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) interest payable by the Company on the
Junior Subordinated Debentures is not, or within 90 days of the delivery of such
opinion, will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes or (iii) the Trust is, or will be within 90
days of the delivery of such opinion, subject to more than a de minimis amount
of other taxes, duties or other governmental charges.
Payment of Additional Sums. If a Tax Event described in clause (i) or
(iii) of the definition of Tax Event above has occurred and is continuing and
the Trust is the holder of all of the Junior Subordinated Debentures, the
Company will pay Additional Sums (as defined herein), if any, on the Junior
Subordinated Debentures.
77
<PAGE>
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities of the Trust will not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the Trust has become subject as a result of a Tax Event.
Possible Tax Law Changes. Prospective investors should be aware that
Enron Corporation has filed a petition in U.S. Tax Court challenging the
proposed disallowance by the IRS of the deduction of interest expense on
securities issued by Enron Corporation in 1993 and 1994 that are similar to,
although different in a number of respects from, the Junior Subordinated
Debentures. It is possible that a decision in that case could give rise to a Tax
Event, which would permit the Company to cause a redemption of the Capital
Securities. Prospective investors also should be aware that legislation has been
proposed by the Clinton Administration in the past that, if enacted, would have
denied an interest expense deduction to issuers of instruments such as the
Junior Subordinated Debentures. No such legislation is currently pending. There
can be no assurance, however, that similar legislation will not ultimately be
enacted into law, or that other developments will not occur on or after the date
hereof that would adversely affect the tax treatment of the Junior Subordinated
Debentures or the Trust. Such changes also could give rise to a Tax Event.
Redemption Procedures
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Trust has funds on hand available
for the payment of such Redemption Price. See also "--Subordination of Common
Securities."
If the Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, in the case of Capital Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Capital Securities. With respect to Capital Securities not held in book-entry
form, the Property Trustee, to the extent funds are available, will irrevocably
deposit with the paying agent for the Capital Securities funds sufficient to pay
the applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing the Capital Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Capital Securities called for redemption shall be
payable to the holders of the Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit, all
rights of the holders of such Capital Securities so called for redemption will
cease, except the right of the holders of such Capital Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Capital Securities will cease to be outstanding. If any date fixed for
redemption of Capital Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
the Trust or by the Company pursuant to the Guarantee as described under "The
Guarantee," Distributions on such Capital Securities will continue to accumulate
at the then applicable rate, from the Redemption Date originally established by
the Trust for such Capital Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
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<PAGE>
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
If less than all of the Capital Securities and Common Securities are to
be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Capital Securities to be
redeemed shall be selected on a pro rata basis not more than 60 days prior to
the Redemption Date by the Property Trustee from the outstanding Capital
Securities not previously called for redemption, or if the Capital Securities
are then held in the form of a Global Capital Security (as defined herein), in
accordance with DTC's customary procedures. The Property Trustee shall promptly
notify the securities registrar for the Trust Securities in writing of the
Capital Securities selected for redemption and, in the case of any Capital
Securities selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of the Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Capital Securities shall
relate, in the case of any Capital Securities redeemed or to be redeemed only in
part, to the portion of the aggregate Liquidation Amount of Capital Securities
which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either by
the Trust or the Company pursuant to the Guarantee, Distributions will cease to
accumulate on the Capital Securities or portions thereof) called for redemption.
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Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of such Capital Securities and Common Securities.
However, if on any Distribution Date or Redemption Date a Debenture Event of
Default has occurred and is continuing as a result of any failure by the Company
to pay any amounts in respect of the Junior Subordinated Debentures when due, no
payment of any Distribution on, or Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of such Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all of the outstanding Capital Securities then
called for redemption, shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Capital Securities
then due and payable.
In the case of any Event of Default (as defined herein) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Capital Securities have been cured, waived or otherwise eliminated. See
"--Events of Default; Notice" and "Description of the Junior Subordinated
Debentures--Debenture Events of Default." Until all such Events of Default under
the Trust Agreement with respect to the Capital Securities have been so cured,
waived or otherwise eliminated, the Property Trustee will act solely on behalf
of the holders of the Capital Securities and not on behalf of the holders of the
Common Securities, and only the holders of the Capital Securities will have the
right to direct the Property Trustee to act on their behalf.
Liquidation Distribution Upon Dissolution
The amount payable on the Capital Securities in the event of any
liquidation of the Trust is $25 per Capital Security plus accumulated and unpaid
Distributions, subject to certain exceptions, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures.
The holders of all of the outstanding Common Securities have the right at
any time to dissolve the Trust and, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Trust.
Pursuant to the Trust Agreement, the Trust will automatically dissolve
upon expiration of its term or, if earlier, will dissolve on the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of the Company;
(ii) the distribution of a Like Amount of the Junior Subordinated Debentures to
the holders of the Trust Securities, if the holders of Common Securities have
given written direction to the Property Trustee to dissolve the Trust (which
direction, subject to the foregoing restrictions, is optional and wholly within
the discretion of the holders of Common Securities); (iii) redemption of all of
the Trust Securities as described under "--Redemption" and (iv) the entry of an
order for the dissolution of the Trust by a court of competent jurisdiction.
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If dissolution of the Trust occurs as described in clause (i), (ii) or
(iv) above, the Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is determined by the
Property Trustee not to be practical, in which event such holders will be
entitled to receive out of the assets of the Trust available for distribution to
holders, after satisfaction of liabilities to creditors of the Trust as provided
by applicable law, an amount equal to, in the case of holders of Capital
Securities, the aggregate of the Liquidation Amount plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on its
Capital Securities shall be paid on a pro rata basis. The holders of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Capital Securities, except that if a Debenture
Event of Default has occurred and is continuing as a result of any failure by
the Company to pay any amounts in respect of the Junior Subordinated Debentures
when due, the Capital Securities shall have a priority over the Common
Securities.
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of the Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Capital
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Capital Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior
to maturity and the Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the Capital
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Capital Securities offered hereby.
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Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Capital
Securities (whatever the reason for such Event of Default and whether it is
voluntary or involuntary or is effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see
"Description of the Junior Subordinated Debentures--Debenture Events
of Default"); or
(ii) default by the Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for
a period of 30 days; or
(iii) default by the Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Trustees in the Trust
Agreement (other than a covenant or warranty a default in the
performance of which or the breach of which is dealt with in clause
(ii) or (iii) above), and continuation of such default or breach for
a period of 60 days after there has been given, by registered or
certified mail, to the Trustees and the Company by the holders of at
least 25% in aggregate Liquidation Amount of the outstanding Capital
Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice
of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or
insolvency with respect to the Property Trustee if a successor
Property Trustee has not been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities, the
Administrative Trustees and the Company, unless such Event of Default has been
cured or waived. The Company, as Depositor, and the Administrative Trustees are
required to file annually with the Property Trustee a certificate as to whether
or not they are in compliance with all the conditions and covenants applicable
to them under the Trust Agreement.
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If a Debenture Event of Default has occurred and is continuing as a
result of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect of
the Capital Securities as described above. See "--Subordination of Common
Securities," "--Liquidation Distribution Upon Dissolution" and "Description of
the Junior Subordinated Debentures--Debenture Events of Default."
The existence of an Event of Default does not entitle the holders of
Capital Securities to accelerate the maturity thereof.
Removal of Trustees; Appointment of Successors
Unless a Debenture Event of Default has occurred and is continuing, any
Trustee may be removed at any time by the holder of all the Common Securities.
If a Debenture Event of Default has occurred and is continuing, the Property
Trustee and the Delaware Trustee may be removed at such time only by the holders
of a majority in Liquidation Amount of the outstanding Capital Securities. In no
event will the holders of the Capital Securities have the right to vote to
appoint, remove or replace the Administrative Trustees, which voting rights are
vested exclusively in the holder of all the Common Securities. No resignation or
removal of a Trustee and no appointment of a successor trustee will be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the Trust Agreement.
Merger or Consolidation of Trustees
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Trustee is
a party, or any entity succeeding to all or substantially all the corporate
trust business of such Trustee, will be the successor of such Trustee under the
Trust Agreement, provided such entity is otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Trust may, at the request of the
holders of the Common Securities and with the consent of the Administrative
Trustees, but without the consent of the holders of the outstanding Capital
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities have
the same priority as the Capital Securities with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) a trustee of such
successor entity, possessing the same powers and duties as the Property Trustee,
is appointed to hold the Junior Subordinated Debentures, (iii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization,
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(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, (v) such successor entity has a purpose substantially
identical to that of the Trust, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Trust has received
an opinion from independent counsel experienced in such matters to the effect
that (a) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and (vii) the Company or any permitted successor or
assignee owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding the
foregoing, the Trust may not, except with the consent of holders of 100% in
aggregate Liquidation Amount of the Capital Securities, consolidate, amalgamate,
merge with or into, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to, any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease would cause the Trust or the successor entity to be taxable as
a corporation or as other than a grantor trust for United States federal income
tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided below and under "--Removal of Trustees; Appointment of
Successors" and "The Guarantee--Amendments and Assignment" and as otherwise
required by law and the Trust Agreement, the holders of the Capital Securities
will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Trustees, without the consent of the
holders of the Capital Securities (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which are not inconsistent with the
other provisions of the Trust Agreement, provided that any such amendment does
not adversely affect in any material respect the interests of any holder of
Trust Securities, or (ii) to modify, eliminate or add to any provisions of the
Trust Agreement to such extent as may be necessary to ensure that the Trust will
not be taxable as a corporation or as other than a grantor trust for United
States federal income tax purposes at any time that any Trust Securities are
outstanding or to ensure that the Trust will not be required to register as an
"investment company" under the Investment Company Act, provided that any such
amendment does not adversely affect in any material respect the interests of any
holder of Trust Securities. Any amendments of the Trust Agreement pursuant to
the foregoing sentence will become effective when notice of such amendment is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the holders of a majority of the Common Securities and the Trustees with (i) the
consent of holders representing not less than a majority in aggregate
Liquidation Amount of the outstanding Capital Securities and (ii) receipt by the
Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Trustees in accordance with such amendment
will not cause the Trust to be taxable as a corporation or as other than a
grantor trust for United States federal income tax purposes or will not affect
the Trust's exemption from status as an "investment company" under the
Investment Company Act. Without the consent of each holder of Trust Securities,
the Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
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So long as any Junior Subordinated Debentures are held by the Trust, the
Property Trustee will not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or execute any
trust or power conferred on the Property Trustee with respect to the Junior
Subordinated Debentures, (ii) waive any past default that is waivable under
Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any right to
rescind or annul a declaration that the Junior Subordinated Debentures shall be
due and payable or (iv) consent to any amendment, modification or termination of
the Junior Subordinated Indenture or the Junior Subordinated Debentures, where
such consent shall be required, without, in each case, obtaining the prior
approval of the holders of at least a majority in aggregate Liquidation Amount
of the outstanding Capital Securities, except that if a consent under the Junior
Subordinated Indenture would require the consent of each holder of Junior
Subordinated Debentures affected thereby, no such consent will be given by the
Property Trustee without the prior consent of each holder of the Capital
Securities. The Property Trustee may not revoke any action previously authorized
or approved by a vote of the holders of the Capital Securities except by
subsequent vote of the holders of the Capital Securities. The Property Trustee
will notify each holder of Capital Securities of any notice of default with
respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Capital Securities, before taking any
of the foregoing actions, the Property Trustee will obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be taxable as
a corporation or as other than a grantor trust for United States federal income
tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each registered holder of Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Capital Securities will be required
to redeem and cancel Capital Securities in accordance with the Trust Agreement.
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Notwithstanding that holders of Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Trustees or any affiliate of the
Company or any Trustee, will, for purposes of such vote or consent, be treated
as if they were not outstanding.
Book Entry, Delivery and Form
The Depository Trust Company ("DTC") will act as securities depository
("depository") for the Capital Securities. The Capital Securities initially will
be issued only as fully-registered securities registered in the name of Cede &
Co. (DTC's nominee). One or more fully-registered global Capital Securities
certificates, representing the total aggregate number of Capital Securities,
will be issued and will be delivered to DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Capital
Securities as represented by a global certificate.
DTC has advised the Company and the Trust that DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others,
such as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Capital Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Capital
Securities on DTC's records. The ownership interest of each actual purchaser of
each Capital Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Capital Securities.
Transfers of ownership interests in the Capital Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Capital Securities, except in the event that
use of the book-entry system for the Capital Securities is discontinued.
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To facilitate subsequent transfers, all the Capital Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Capital Securities with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the Capital Securities. DTC's records reflect only
the identity of the Direct Participants to whose accounts such Capital
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Capital Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in such Capital Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Capital Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Capital Securities. Under its usual procedures,
DTC would mail an Omnibus Proxy to the Trust as soon as possible after the
record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights
to those Direct Participants to whose accounts the Capital Securities are
credited on the record date (identified in a listing attached to the Omnibus
Proxy). The Company and the Trust believe that the arrangements among DTC,
Direct and Indirect Participants, and Beneficial Owners will enable the
Beneficial Owners to exercise rights equivalent in substance to the rights that
can be directly exercised by a holder of a beneficial interest in the Trust.
Distribution payments on the Capital Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Participant and not of DTC,
the Trust or the Company, subject to any statutory or regulatory requirements
that may be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursements of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a global
Capital Security certificate will not be entitled to receive physical delivery
of Capital Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Capital Securities.
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DTC may discontinue providing its services as depository with respect to
the Capital Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depository is
not obtained, Capital Securities certificates are required to be printed and
delivered. Additionally, the Trustees (with the consent of the Company) may
decide to discontinue use of the system of book-entry transfers through DTC (or
any successor depository) with respect to the Capital Securities. In that event,
certificates for the Capital Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company and the Trust believe to
be reliable, but neither the Company nor the Trust takes responsibility for the
accuracy thereof.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Trust will not be required to register or cause to be registered
the transfer of the Capital Securities after the Capital Securities have been
called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative courses of
action, or construe ambiguous provisions in the Trust Agreement, or is unsure of
the application of any provision of the Trust Agreement, and the matter is not
one on which holders of Trust Securities are entitled under the Trust Agreement
to vote, then the Property Trustee will take such action as it deems advisable
and in the best interests of the holders of the Trust Securities and will have
no liability except for its own bad faith, negligence or willful misconduct.
First Union National Bank, the Property Trustee, or certain of its
affiliates, may serve from time to time as trustee under other trust agreements
or indentures with the Company or its affiliates relating to other issues of
their securities. In addition, the Company and certain of its affiliates have
and in the future may have other customary commercial banking relationships with
First Union National Bank. See "Plan of Distribution" for additional information
concerning the relationship of the Property Trustee to the Underwriters.
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Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or taxable as a corporation or as other than a grantor
trust for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the
Administrative Trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust of the Trust or the Trust Agreement,
that the Property Trustee and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which First Union National Bank is acting as
Debenture Trustee. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Junior Subordinated Indenture does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Junior Subordinated Indenture, including the
definitions therein of certain terms. Whenever particular defined terms of the
Junior Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
General
Concurrently with the issuance of the Capital Securities, the Trust will
invest the proceeds thereof, together with the consideration paid by the Company
for the Common Securities, in the Junior Subordinated Debentures issued by the
Company. The Junior Subordinated Debentures will bear interest, accruing from
________ __, 1999, at the annual rate of ___% of the principal amount thereof,
payable quarterly in arrears on January 1, April 1, July 1, and October 1 of
each year (each, an "Interest Payment Date"), commencing April 1, 1999, to the
person in whose name each Junior Subordinated Debenture is registered at the
close of business on the fifteenth day (whether or not a Business Day) next
preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Trust, each Junior Subordinated Debenture will be
held in the name of the Property Trustee in trust for the benefit of the holders
of the Trust Securities. The amount of interest payable for any period less than
a full interest period will be computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period. The
amount of interest payable for any full interest period will be computed by
dividing the rate per annum by four. If any date on which interest is payable on
the Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of any such
delay), with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of ___%, compounded quarterly and
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. The amount of additional
interest payable for any full interest period will be computed by dividing the
rate per annum by four. The term "interest" as used herein includes quarterly
interest payments, interest on quarterly interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined herein), as
applicable.
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The Junior Subordinated Debentures will mature on _____ __, 2029 (the
"Stated Maturity").
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise. See
"--Subordination."
Option To Extend Interest Payment Period
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. At the end of such Extension
Period, the Company must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of ___%, compounded quarterly and computed
on the basis of a 360-day year of twelve 30-day months and the actual days
elapsed in a partial month in such period, to the extent permitted by applicable
law). The amount of additional interest payable for any full interest period
will be computed by dividing the rate per annum by four. During an Extension
Period, interest will continue to accrue and holders of Junior Subordinated
Debentures (or holders of Capital Securities while outstanding) will be required
to accrue interest income for United States federal income tax purposes. See
"United States Federal Income Taxation--Original Issue Discount."
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During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or
patrons' equity, (ii) redeem any patronage refund allocations or (iii) make any
payment of principal of or interest or premium, if any, on or repay, repurchase
or redeem any debt securities of the Company that rank pari passu in all
respects with or junior in interest to the Junior Subordinated Debentures (other
than (a) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company held by a member, upon the death or dissolution of such
member or otherwise because such member has ceased to be eligible for membership
in the Company, if the Board of Directors approves such repurchase or redemption
pursuant to a policy of assuring that the Company operates as a cooperative in
compliance with Subchapter T of the Code, (b) as a result of an exchange or
conversion of any class or series of the Company's capital stock (or any capital
stock of a affiliate of the Company) for any class or series of the Company's
capital stock or of any class or series of the Company's indebtedness for any
class or series of the Company's capital stock, (c) the declaration of, or any
payment or setting aside for payment of, patronage refunds, provided that not
more than 40% of such aggregate patronage refunds for any fiscal year shall be
in cash, with the remainder to be paid in the form of common stock or patronage
refund allocations, (d) any declaration of a dividend in connection with any
shareholders' rights plan, or the issuance of rights, stock or other property
under any shareholders' rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock). Prior
to the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Extension Period may exceed 20
consecutive quarterly periods or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Company may elect to begin a new
Extension Period subject to the above conditions. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company must
give the Property Trustee notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Capital Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Property Trustee will give notice of the Company's
election to begin a new Extension Period to the holders of the Capital
Securities. There is no limitation on the number of times that the Company may
elect to begin an Extension Period.
Optional Redemption
The Junior Subordinated Debentures are redeemable prior to maturity at
the option of the Company (i) at any time, in whole or in part, from time to
time, after _______, 2004 or (ii) in whole (but not in part) at any time within
90 days following the occurrence and during the continuation of a Tax Event (as
defined under "Description of the Capital Securities--Redemption"), in each case
at a redemption price equal to the principal amount of Junior Subordinated
Debentures called for redemption, together with accrued interest to but
excluding the date fixed for redemption.
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Distribution of Junior Subordinated Debentures to Holders Upon Liquidation of
the Trust
As described under "Description of Capital Securities--Liquidation
Distribution Upon Dissolution", under certain circumstances involving the
termination of the Trust, Junior Subordinated Debentures may be distributed to
the holders of the Capital Securities in exchange therefor upon liquidation of
the Trust after satisfaction of liabilities to creditors of the Trust as
provided by applicable law. If distributed to holders of Capital Securities, the
Junior Subordinated Debentures will initially be issued in the form of one or
more global securities and DTC, or any successor depositary for the Capital
Securities, will act as depositary for the Junior Subordinated Debentures. It is
anticipated that DTC arrangements for the Junior Subordinated Debentures would
be substantially identical to those in effect for the Capital Securities. If
Junior Subordinated Debentures are distributed to the holders of Capital
Securities in exchange therefor upon liquidation of the Trust, the Company will
use its best efforts to list the Junior Subordinated Debentures on the New York
Stock Exchange or such other stock exchanges or automated quotation system, if
any, on which the Capital Securities are then listed or quoted. There can be no
assurance as to the market price of any Junior Subordinated Debentures that may
be distributed to the holders of Capital Securities.
Additional Sums
The Company has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) the Trust is the holder of all Junior Subordinated
Debentures and (ii) the Trust is required to pay any additional taxes, duties or
other governmental charges as a result of a Tax Event, the Company will pay as
additional sums on the Junior Subordinated Debentures such amounts as may be
required so that the Distributions payable by the Trust will not be reduced as a
result of any such additional taxes, duties or other governmental charges. See
"Description of the Capital Securities--Redemption."
Registration, Denomination and Transfer
The Junior Subordinated Debentures will initially be registered in the
name of the Property Trustee, as trustee of the Trust. If the Junior
Subordinated Debentures are distributed to holders of Capital Securities, it is
anticipated that the depository arrangements for the Junior Subordinated
Debentures will be substantially identical to those in effect for the Capital
Securities. See "Description of the Capital Securities--Book Entry, Delivery and
Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depository and a successor depository is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
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Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description of
the Capital Securities--Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee or at the offices
of any Paying Agent or transfer agent appointed by the Company, provided that
payment of interest may be made at the option of the Company by check mailed to
the address of the persons entitled thereto or by wire transfer.
The Junior Subordinated Debentures will be issuable only in registered
form without coupons in minimum denominations of $25 and integral multiples
thereof. Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Indenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any moneys deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
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Restrictions on Certain Payments; Certain Covenants of the Company
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or
patrons' equity, (ii) redeem any patronage refund allocations or (iii) make any
payment of principal of or interest or premium, if any, on or repay, repurchase
or redeem any debt securities of the Company that rank pari passu in all
respects with or junior in interest to the Junior Subordinated Debentures (other
than (a) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company held by a member, upon the death or dissolution of such
member or otherwise because such member has ceased to be eligible for membership
in the Company, if the Board of Directors approves such repurchase or redemption
pursuant to a policy of assuring that the Company operates as a cooperative in
compliance with Subchapter T of the Code, (b) as a result of an exchange or
conversion of any class or series of the Company's capital stock (or any capital
stock of an affiliate of the Company) for any class or series of the Company's
capital stock or of any class or series of the Company's indebtedness for any
class or series of the Company's capital stock, (c) the declaration of, or any
payment or setting aside for payment of, patronage refunds, provided that not
more than 40% of such aggregate patronage refunds for any fiscal year shall be
in cash, with the remainder to be paid in the form of common stock or patronage
refund allocations, (d) any declaration of a dividend in connection with any
shareholders' rights plan, or the issuance of rights, stock or other property
under any shareholders' rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock), if at
such time (i) there has occurred any event (a) of which the Company has actual
knowledge that with the giving of notice or the lapse of time, or both, would
constitute a Debenture Event of Default and (b) that the Company has not taken
reasonable steps to cure, (ii) if the Junior Subordinated Debentures are held by
the Trust, the Company is in default with respect to its payment of any
obligations under the Guarantee or (iii) the Company has given notice of its
selection of an Extension Period as provided in the Junior Subordinated
Indenture and has not rescinded such notice, or such Extension Period, or any
extension thereof, is continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
dissolve, wind-up or liquidate the Trust, other than (a) in connection with a
distribution of Junior Subordinated Debentures to the holders of the Capital
Securities in liquidation of the Trust or (b) in connection with certain
mergers, consolidations or amalgamations permitted by the Trust Agreement and
(iii) to use its reasonable efforts, consistent with the terms and provisions of
the Trust Agreement, to cause the Trust to continue not to be taxable as a
corporation for United States federal income tax purposes.
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Modification of Junior Subordinated Indenture
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the provisions of the Junior Subordinated Indenture for specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies (provided that any such action does not materially adversely
affect the interests of the holders of the Junior Subordinated Debentures or the
holders of the Capital Securities so long as they remain outstanding) and
qualifying, or maintaining the qualification of, the Junior Subordinated
Indenture under the Trust Indenture Act. The Junior Subordinated Indenture
contains provisions permitting the Company and the Debenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Junior Subordinated Debentures, to modify the Junior Subordinated Indenture in a
manner affecting the rights of the holders of the Junior Subordinated
Debentures, except that no such modification may, without the consent of the
holder of each outstanding Junior Subordinated Debenture so affected, (i) change
the Stated Maturity of the Junior Subordinated Debentures, or reduce the
principal amount thereof, the rate of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or the
currency in which, any such amount is payable or impair the right to institute
suit for the enforcement of any Junior Subordinated Debenture or (ii) reduce the
percentage of principal amount of Junior Subordinated Debentures, the holders of
which are required to consent to any such modification of the Junior
Subordinated Indenture. Furthermore, so long as any of the Capital Securities
remain outstanding, no such modification may be made that adversely affects the
holders of such Capital Securities in any material respect, and no termination
of the Junior Subordinated Indenture may occur, and no waiver of any Debenture
Event of Default or compliance with any covenant under the Junior Subordinated
Indenture may be effective, without the prior consent of the holders of at least
a majority of the aggregate Liquidation Amount of the outstanding Capital
Securities unless and until the principal of (and premium, if any, on) the
Junior Subordinated Debentures and all accrued and unpaid interest thereon have
been paid in full and certain other conditions are satisfied.
The Junior Subordinated Indenture will be qualified under the Trust
Indenture Act of 1939.
Debenture Events of Default
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior
Subordinated Debentures when due (subject to the deferral of any due
date in the case of an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the
Junior Subordinated Debentures when due whether at maturity, upon
redemption, by declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect
certain other covenants contained in the Junior Subordinated
Indenture for 90 days after written notice to the Company from the
Debenture Trustee or the holders of at least 25% in aggregate
outstanding principal amount of the outstanding Junior Subordinated
Debentures; or
(iv) certain events of bankruptcy, insolvency or reorganization
of the Company.
For purposes of the Trust Agreement and this Prospectus, each such Event
of Default under the Junior Subordinated Debenture is referred to as a
"Debenture Event of Default." As described in "Description of the Capital
Securities--Events of Default; Notice," the occurrence of a Debenture Event of
Default will also constitute an Event of Default in respect of the Trust
Securities.
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The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Capital Securities shall
have such right. The holders of a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures may annul such declaration and waive
the default if all defaults (other than the non-payment of the principal of
Junior Subordinated Debentures which has become due solely by such acceleration)
have been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee. Should the holders of Junior Subordinated Debentures fail to
annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the outstanding Capital Securities shall have
such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debenture. See "--Modification of Junior Subordinated Indenture."
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Junior Subordinated
Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of Capital Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Capital Securities may institute a
legal proceeding directly against the Company for enforcement of payment to such
holder of an amount equal to the amount payable in respect of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities held by such holder (a "Direct
Action"). The Company may not amend the Junior Subordinated Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent
of the holders of all of the Capital Securities. The Company will have the right
under the Junior Subordinated Indenture to set-off any payment made to such
holder of Capital Securities by the Company in connection with a Direct Action.
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The holders of the Capital Securities will not be able to exercise
directly any remedies available to the holders of the Junior Subordinated
Debentures except under the circumstances described in the preceding paragraph.
See "Description of the Capital Securities--Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a Debenture
Event of Default, has occurred and is continuing; and (iii) certain other
conditions as prescribed in the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
Satisfaction and Discharge
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable or (ii) will become due
and payable at the Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal (and premium, if any) and interest
to the date of the deposit or to the Stated Maturity, as the case may be, then
the Junior Subordinated Indenture will cease to be of further effect (except as
to the Company's obligations to pay all other sums due pursuant to the Junior
Subordinated Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the Company will be deemed to have satisfied and
discharged the Junior Subordinated Indenture.
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Subordination
The Junior Subordinated Debentures will be subordinate and junior in
right of payment, to the extent set forth in the Junior Subordinated Indenture,
to all Senior Indebtedness (as defined herein) of the Company. If the Company
defaults in the payment of any principal, premium, if any, or interest, if any,
or any other amount payable on any Senior Indebtedness when the same becomes due
and payable, whether at maturity or at a date fixed for redemption or by
declaration of acceleration or otherwise, then, unless and until such default
has been cured or waived or has ceased to exist or all Senior Indebtedness has
been paid, no direct or indirect payment (in cash, property, securities, by
set-off or otherwise) may be made or agreed to be made on the Junior
Subordinated Debentures, or in respect of any redemption, repayment, retirement,
purchase or other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means any obligation of the Company
to its creditors, whether now outstanding or subsequently incurred, other than
any obligation as to which, in the instrument creating or evidencing the
obligation or pursuant to which the obligation is outstanding, it is provided
that such obligation is not Senior Indebtedness, but does not include trade
accounts payable and accrued liabilities arising in the ordinary course of
business. Senior Indebtedness includes any subordinated debt securities issued
by the Company in the future, but does not include the Junior Subordinated
Debentures or any junior subordinated debt securities issued by the Company in
the future with subordination terms substantially similar to those of the Junior
Subordinated Debentures. Substantially all of the existing indebtedness of the
Company constitutes Senior Indebtedness.
In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company, its creditors or its property, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshaling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
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In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
Governing Law
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
Information Concerning the Debenture Trustee
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee, other than
during the occurrence and continuance of a default by the Company in performance
of its obligations under the Junior Subordinated Indenture, is under no
obligation to exercise any of the powers vested in it by the Junior Subordinated
Indenture at the request of any holder of Junior Subordinated Debentures, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities that might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
First Union National Bank, the Debenture Trustee, or certain of its
affiliates, may serve from time to time as trustee under other indentures or
trust agreements with the Company or its affiliates relating to other issues of
their securities. In addition, the Company and certain of its affiliates has and
may have other customary commercial banking relationships with First Union
National Bank. First Union Trust Company, National Association, an affiliate of
the Debenture Trustee, is serving as Delaware Trustee under the Trust Agreement.
See "Plan of Distribution" for additional information concerning the
relationship of the Debenture Trustee to the Company and the Underwriters.
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THE GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Capital Securities by the Trust for the benefit of the
holders from time to time of the Capital Securities. First Union National Bank
will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Capital Securities.
General
The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth in the Guarantee, the Guarantee Payments (as
defined herein) to the holders of the Capital Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the Trust may
have or assert other than the defense of payment. The following payments with
respect to the Capital Securities, to the extent not paid by or on behalf of the
Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on such Capital
Securities, to the extent that the Trust has funds on hand available therefor at
such time, (ii) the Redemption Price with respect to any Capital Securities
called for redemption, to the extent that the Trust has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution,
winding-up or liquidation of the Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Capital Securities), the lesser of
(a) the Liquidation Distribution, and (b) the amount of assets of the Trust
remaining available for distribution to holders of the Capital Securities on
liquidation of the Trust. The Company's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the Company to the
holders of the Capital Securities or by causing the Trust to pay such amounts to
such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust's obligations under the Capital Securities, but will apply only to the
extent that the Trust has funds sufficient to make such payments, and is not a
guarantee of collection.
If the Company does not make payments on the Junior Subordinated
Debentures held by the Trust, the Trust will not be able to pay any amounts
payable in respect of the Capital Securities and will not have funds available
therefor. The Guarantee will rank subordinate and junior in right of payment to
all Senior Indebtedness of the Company. See "--Status of the Guarantee."
Moreover, the Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise. See "The Company."
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The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Junior Subordinated Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed all
of the Trust's obligations under the Capital Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee of the Trust's obligations in respect of the Capital Securities. See
"Effect of Obligations Under the Junior Subordinated Debentures, the Guarantee
and the Expense Agreement."
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Trust or
distribution to the holders of the Capital Securities of the Junior Subordinated
Debentures.
Amendments and Assignment
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Capital Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of the outstanding Capital Securities. The manner of obtaining any such approval
will be as set forth under "Description of the Capital Securities--Voting
Rights; Amendment of Trust Agreement." All guarantees and agreements contained
in the Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Capital Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such nonpayment default remains unremedied
for 30 days. The holders of not less than a majority in aggregate Liquidation
Amount of the outstanding Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee.
Any registered holder of Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
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Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default with respect to the Guarantee, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
Guarantee Trustee is under no obligation to exercise any of the powers vested in
it by the Guarantee at the request of any holder of the Capital Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationship between First Union National
Bank, the Guarantee Trustee, and the Company, see "Description of the Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities, upon full
payment of the amounts payable with respect to the Capital Securities upon
liquidation of the Trust or upon distribution of Junior Subordinated Debentures
to the holders of the Capital Securities. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the Capital Securities must restore payment of any sums paid under the
Capital Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to an Agreement as to Expenses and Liabilities entered into
by the Company under the Trust Agreement (as amended or supplemented from time
to time, the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the Trust, other than obligations of the Trust to pay to holders of the Trust
Securities the amounts due such holders pursuant to the terms of the Trust
Securities. The Expense Agreement will constitute an unsecured obligation of the
Company and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company in the same manner as the Guarantee and the Junior
Subordinated Debentures.
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EFFECT OF OBLIGATIONS UNDER THE JUNIOR SUBORDINATED
DEBENTURES, THE GUARANTEE AND THE EXPENSE AGREEMENT
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Trust has funds available for such payment) are irrevocably
guaranteed by the Company as and to the extent set forth under "The Guarantee."
Taken together, the Company's obligations under the Junior Subordinated
Debentures, the Junior Subordinated Indenture, the Trust Agreement, the Expense
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations in respect of the Capital Securities. If and to the extent
that the Company does not make payments on the Junior Subordinated Debentures,
the Trust will not have sufficient funds to pay Distributions or other amounts
due on the Capital Securities. The Guarantee does not cover payment of amounts
payable with respect to the Capital Securities when the Trust does not have
sufficient funds to pay such amounts. In such event, the remedy of a holder of
the Capital Securities is to institute a legal proceeding directly against the
Company for enforcement of payment of the Company's obligations under Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Capital Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures,
the Guarantee and the Expense Agreement are subordinate and junior in right of
payment to all Senior Indebtedness.
Sufficiency of Payments
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Capital Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Capital Securities
and Common Securities; (ii) the interest rate and interest and other payment
dates on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Capital Securities; (iii) the
Company will pay for all and any costs, expenses and liabilities of the Trust
except the Trust's obligations to holders of the Trust Securities; and (iv) the
Trust Agreement further provides that the Trust will not engage in any activity
that is not consistent with the limited purposes of the Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
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Enforcement Rights of Holders of Capital Securities
A holder of any Capital Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Trust or
any other person or entity. See "The Guarantee."
A default or event of default under any Senior Indebtedness of the
Company would not constitute a default or Event of Default in respect of the
Capital Securities. Moreover, in the event of payment defaults under, or
acceleration of, Senior Indebtedness of the Company, the subordination
provisions of the Junior Subordinated Indenture provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. See "Description of the Junior Subordinated
Debentures--Subordination."
Limited Purpose of Trust
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Trust, and the Trust exists for the sole purpose of issuing
its Capital Securities and Common Securities and investing the proceeds thereof
in Junior Subordinated Debentures. A principal difference between the rights of
a holder of a Capital Security and a holder of a Junior Subordinated Debenture
is that a holder of a Junior Subordinated Debenture is entitled to receive from
the Company payments on Junior Subordinated Debentures held, while a holder of
Capital Securities is entitled to receive Distributions or other amounts
distributable with respect to the Capital Securities from the Trust (or from the
Company under the Guarantee) only if and to the extent the Trust has funds
available for the payment of such Distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution, winding-up or liquidation
of the Trust, other than any such dissolution, winding-up or liquidation
involving the distribution of the Junior Subordinated Debentures, after
satisfaction of liabilities to creditors of the Trust as required by applicable
law, the holders of the Capital Securities will be entitled to receive, out of
assets held by the Trust, the Liquidation Distribution in cash. See "Description
of the Capital Securities--Liquidation Distribution Upon Dissolution." Upon any
voluntary or involuntary liquidation or bankruptcy of the Company, the Property
Trustee, as registered holder of the Junior Subordinated Debentures, would be a
subordinated creditor of the Company, subordinated and junior in right of
payment to all Senior Indebtedness as set forth in the Junior Subordinated
Indenture, but entitled to receive payment in full of all amounts payable with
respect to the Junior Subordinated Debentures before any shareholders of the
Company receive payments or distributions. Since the Company is the guarantor
under the Guarantee and has agreed under the Expense Agreement to pay for all
costs, expenses and liabilities of the Trust (other than the Trust's obligations
to the holders of the Trust Securities), the positions of a holder of the
Capital Securities and a holder of such Junior Subordinated Debentures relative
to other creditors and to shareholders of the Company in the event of
liquidation or bankruptcy of the Company are expected to be substantially the
same.
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UNITED STATES FEDERAL INCOME TAXATION
General
The following is a summary of certain of the material United States
federal income tax consequences of the purchase, ownership, and disposition of
Capital Securities. Unless otherwise stated, this summary deals only with
Capital Securities held as capital assets by holders who purchase them upon
original issuance ("Initial Holders"). It does not deal with special classes of
holders such as banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or currencies,
tax-exempt investors, or persons that will hold the Capital Securities as a
position in a "straddle," as part of a "synthetic security" or "hedge," as part
of a "conversion transaction" or other integrated investment, or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the United States Dollar or
the tax consequences to shareholders, partners, or beneficiaries of a holder of
Capital Securities. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the holders of
Capital Securities. This summary is based on the Code, Treasury regulations
thereunder, and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis.
Classification of the Junior Subordinated Debentures
In connection with the issuance of the Junior Subordinated Debentures,
Mays & Valentine, L.L.P., counsel to the Company and the Trust, will render its
opinion generally to the effect that under then current law and assuming full
compliance with the terms of the Junior Subordinated Indenture (and certain
other documents), and based on certain facts and assumptions contained in the
opinion, the Junior Subordinated Debentures held by the Trust will be classified
for United States federal income tax purposes as indebtedness of the Company.
Possible Tax Law Changes
Prospective investors should be aware that Enron Corporation has filed a
petition in U.S. Tax Court challenging the proposed disallowance by the IRS of
the deduction of interest expense on securities issued by Enron Corporation in
1993 and 1994 that are similar to, although different in a number of respects
from, the Junior Subordinated Debentures. It is possible that a decision in that
case could give rise to a Tax Event, which would permit the Company to cause a
redemption of the Capital Securities. Prospective investors also should be aware
that legislation has been proposed by the Clinton Administration in the past
that, if enacted, would have denied an interest expense deduction to issuers of
instruments such as the Junior Subordinated Debentures. No such legislation is
currently pending. There can be no assurance, however, that similar legislation
will not ultimately be enacted into law, or that other developments will not
occur on or after the date hereof that would adversely affect the tax treatment
of the Junior Subordinated Debentures or the Trust. Such changes also could give
rise to a Tax Event. See "Risk Factors--Tax Event Redemption," "Description of
the Capital Securities--Redemption," and "Description of the Junior Subordinated
Debentures--Redemption."
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Classification of The Trust
In connection with the issuance of the Capital Securities, Mays &
Valentine, L.L.P. will render its opinion generally to the effect that under
then current law and assuming full compliance with the terms of the Trust
Agreement and the Indenture (and certain other documents), and based on certain
facts and assumptions contained in the opinion, the Trust will be classified for
United States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each holder of Capital Securities generally will be
considered the owner of an undivided beneficial interest in the Junior
Subordinated Debentures, and each holder will be required to include in its
gross income any OID accrued with respect to its allocable share of the Junior
Subordinated Debentures.
Original Issue Discount
Because the Company has the option, under the terms of the Junior
Subordinated Debentures, to defer payments of interest by extending interest
payment periods for up to 20 quarterly periods, all of the stated interest
payments on the Junior Subordinated Debentures will be treated as OID. Holders
of debt instruments issued with OID must include that discount in income on an
economic accrual basis before the receipt of cash attributable to the interest,
regardless of their method of tax accounting. Generally, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures will
be accounted for as OID, and actual Distributions of stated interest will not be
separately reported as taxable income. The amount of OID that accrues in any
month will approximately equal the amount of the interest that accrues on the
Junior Subordinated Debentures in that month at the stated interest rate. If the
interest payment period is extended, holders will continue to accrue OID
approximately equal to the amount of the interest payment due at the end of the
extended interest payment period on an economic accrual basis over the length of
the extended interest period.
Because income on the Capital Securities will constitute OID, corporate
holders of Capital Securities will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Capital
Securities.
Market Discount and Bond Premium
Holders of Capital Securities other than Underwriters may be considered
to have acquired their undivided interests in the Junior Subordinated Debentures
with market discount or acquisition premium as those phrases are defined for
United States federal income tax purposes. Holders are advised to consult their
tax advisors as to the income tax consequences of the acquisition, ownership,
and disposition of the Capital Securities.
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Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the Trust
Under certain circumstances, as described under the caption "Description
of the Capital Securities--Redemption," Junior Subordinated Debentures may be
distributed to holders in exchange for the Capital Securities and in liquidation
of the Trust. Under current law, such a distribution, for United States federal
income tax purposes, would be treated as a non-taxable event to each holder, and
each holder would receive an aggregate tax basis in the Junior Subordinated
Debentures equal to the holder's aggregate tax basis in its Capital Securities.
A holder's holding period in the Junior Subordinated Debentures so received in
liquidation of the Trust would include the period during which the Capital
Securities were held by the holder.
Under certain circumstances described under the caption "Description of
the Capital Securities--Redemption" and "Description of the Junior Subordinated
Debentures--Redemption," the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of the redemption distributed to holders in redemption of
their Capital Securities. Under current law, such a redemption would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Capital Securities, and a holder could recognize gain or loss as if it
sold the redeemed Capital Securities for cash. See "--Sales of Capital
Securities."
Sales of Capital Securities
A holder that sells Capital Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Capital Securities and
the amount realized on the sale of the Capital Securities. A holder's adjusted
tax basis in the Capital Securities generally will be its initial purchase price
increased by OID previously includible in the holder's gross income to the date
of disposition and decreased by payments received on the Capital Securities. The
gain or loss generally will be a capital gain or loss and generally will be a
long-term capital gain or loss if the Capital Securities have been held for more
than one year.
The Capital Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who disposes of its Capital Securities
between record dates for payments of Distributions thereon will be required to
include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition in income as ordinary income (that is, OID), and
to add the amount to his adjusted tax basis in his pro rata share of the
underlying Junior Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include,
in the form of OID, all accrued but unpaid interest), a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
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United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate, or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust. This
discussion assumes that income with respect to the Capital Securities is not
effectively connected with a trade or business in the United States in which the
United States Alien Holder is engaged under present United States federal income
tax law. Subject to the discussion of backup withholding below, (1) payments by
the Trust or any of its paying agents to any holder of a Capital Security that
is a United States Alien Holder will not be subject to United States federal
withholding tax; provided that, (a) the beneficial owner of the Capital Security
does not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (b) the
beneficial owner of the Capital Security is not a controlled foreign corporation
that is related to the Company through stock ownership, and (c) either the
beneficial owner of the Capital Security certifies to the Trust or its agent,
under penalties of perjury, that it is not a United States holder and provides
its name and address or a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Capital
Security in such capacity, certifies to the Trust or its agent, under penalties
of perjury, that the statement has been received from the beneficial owner by it
or by a Financial Institution between it and the beneficial owner and furnishes
the Trust or its agent with a copy thereof; and (2) a United States Alien Holder
of a Capital Security will not be subject to United States federal withholding
tax on any gain realized upon the sale or other disposition of a Capital
Security.
Information Reporting to Holders
Subject to the qualifications discussed below, income on the Capital
Securities will be reported to holders on Form 1099, which should be mailed to
holders of Capital Securities by January 3l following each calendar year.
The Trust will be obligated to report annually to Cede & Co., as holder
of record of the Capital Securities, the OID related to the Junior Subordinated
Debentures that accrued during the year. The Trust currently intends to report
that information on Form 1099 by January 31 following each calendar year even
though the Trust is not legally required to report to record holders until April
15. The Underwriters have indicated to the Trust that, to the extent that they
hold Capital Securities as nominee for beneficial holders, they currently expect
to report to those beneficial holders on Forms 1099 by January 31 following each
calendar year. Under current law, holders of Capital Securities who hold as
nominees for beneficial holders will not have any obligation to report
information regarding the beneficial holders to the Trust. The Trust, moreover,
will not have any obligation to report to beneficial holders who are not also
record holders. Thus, beneficial holders of Capital Securities who hold their
Capital Securities through the Underwriters will receive a Form 1099 reflecting
the income on their Capital Securities from the nominee holders rather than the
Trust.
Backup Withholding
Under current United States federal income tax law, a 31% backup
withholding tax applies if a non-corporate person (i) fails to furnish his
Taxpayer Identification Number ("TIN") to the payor in the manner required; (ii)
furnishes an incorrect TIN and the payor is so notified by the Internal Revenue
Service (the "IRS"); (iii) is notified by the IRS that the person has failed
properly to report payments of interest and dividends; or (iv) in certain
circumstances, fails to certify, under penalties of perjury, that the person has
not been notified by the IRS that he is subject to backup withholding for
failure properly to report interest and dividend payments. Backup withholding
does not apply with respect to payments made to certain exempt recipients, such
as corporations and tax-exempt organizations.
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In the case of a United States Alien Holder, backup withholding and
information reporting do not apply to payments with respect to principal and
interest on a Capital Security with respect to which the holder has provided the
required certification under penalties of perjury that the holder is a United
States Alien Holder or has otherwise established an exemption, provided that
certain conditions are satisfied.
On October 6, 1997, the United States Treasury Department issued new
regulations that make certain modifications to the backup-withholding and
information-reporting rules described above. The new regulations attempt to
unify certification requirements and modify reliance standards. The new
regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the new regulations.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against the person's United States federal
income tax, provided that the required information is furnished to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP, AND
DISPOSITION OF THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Company, the obligor with respect to the Junior Subordinated
Debentures held by the Trust, and its affiliates and the Property Trustee may
each be considered a "party in interest" (within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) or a "disqualified
person" (within the meaning of Section 4975 of the Code) with respect to many
employee benefit plans ("Plans") that are subject to ERISA. Any purchaser
proposing to acquire Capital Securities with assets of any Plan should consult
with its counsel. The purchase or holding of Capital Securities by a Plan that
is subject to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975 of the Code (including individual
retirement arrangements and other plans described in Section 4975(e)(1) of the
Code) and with respect to which the Company, the Property Trustee, or any
affiliate is a service provider (or otherwise is a party in interest or a
disqualified person) may constitute or result in a prohibited transaction under
ERISA or Section 4975 of the Code, unless the Capital Securities are acquired in
accordance with an applicable exemption, such as Prohibited Transaction Class
Exemption ("PTCE") 84-14 (an exemption for certain transactions determined by an
independent qualified professional asset manager); PTCE 91-38 (an exemption for
certain transactions involving bank collective investment funds); PTCE 90-1 (an
exemption for certain transactions involving insurance company pooled separate
accounts); PTCE 95-60 (an exemption for transactions involving certain insurance
company general accounts); or PTCE 95-23 (an exemption for certain transactions
determined by an in-house asset manager). In addition, a Plan fiduciary
considering the purchase of Capital Securities should be aware that the assets
of the Trust may be considered "plan assets" for ERISA purposes. Therefore, a
Plan fiduciary should consider whether the purchase of Capital Securities could
result in a delegation of fiduciary authority to the Property Trustee, and, if
so, whether such a delegation of authority is permissible under the Plan's
governing instrument or any investment management agreement with the Plan. In
making that determination, a Plan fiduciary should note that the Property
Trustee is a national banking institution qualified to be an investment manager
(within the meaning of section 3(38) of ERISA) to which such a delegation of
authority generally would be permissible under ERISA. Further, before a
Debenture Event of Default, the Property Trustee will have only limited
custodial and ministerial authority with respect to assets of the Trust.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Trust have agreed that the Trust will sell to
each of the underwriters named below (the "Underwriters"), and each of the
Underwriters has agreed to purchase from the Trust, the respective Liquidation
Amount of Capital Securities set forth opposite its name below:
<TABLE>
<CAPTION>
Liquidation Amount of
Underwriters Capital Securities
-------------- ---------------------
<S> <C>
First Union Capital Markets, a division of
Wheat First Securities, Inc............................... $
Lehman Brothers Inc...........................................
NationsBanc Montgomery Securities LLC......................... ------------------
Total.................................................... $
==================
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Capital Securities
offered hereby, if any are taken.
The initial purchase price for the Capital Securities will be the initial
offering price set forth on the cover page of this Prospectus (the "Capital
Securities Offering Price"). The Underwriters propose to offer the Capital
Securities at the Capital Securities Offering Price. After the Capital
Securities are released for sale, the Capital Securities Offering Price and
other selling terms may from time to time be varied by the Underwriters.
In view of the fact that the proceeds from the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriters' arranging the investment therein of such
proceeds an amount of $____ per Capital Security and will reimburse the
Underwriters for ____________ of expenses.
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The Trust has granted to the Underwriters an option, exercisable for 30
days following the date of this Prospectus, to purchase up to $11,250,000
additional Liquidation Amount of Capital Securities from the Trust for $25 per
Capital Security. If the Underwriters exercise such option, the Company will pay
as compensation to the Underwriters an amount of $____ per Capital Security
purchased. The Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of the Capital Securities offered
hereby. If the Underwriters exercise their over-allotment option, each of the
Underwriters has severally agreed, subject to certain conditions, to purchase a
Liquidation Amount of Capital Securities proportionate to such Underwriter's
initial commitment as indicated in the preceding table.
The Capital Securities are a new issue of securities with no established
trading market. [Application is expected to be made to list the Capital
Securities on the New York Stock Exchange. If such application is made, trading
of the Capital Securities on the New York Stock Exchange would be expected to
commence within a 30-day period after the initial delivery of the Capital
Securities.] The Company and the Trust have been advised by the Underwriters
that they intend to make a market in the Capital Securities. However, the
Underwriters are not obligated to do so and such market making may be
interrupted or discontinued without notice.
The Company and the Trust have agreed in the Underwriting Agreement that,
subject to certain conditions, during a period of 180 days from the Issue Date,
they will not, without the prior written consent of the Underwriters, offer or
sell, grant any option for the sale of, or enter into any agreement to sell, any
additional securities of the Company, the Trust or any other trust the common
securities of which are held by the Company, that are substantially similar to
the Capital Securities or any securities convertible into or exchangeable for or
that represent the right to receive any such similar securities.
The Company and the Trust have agreed, running from the date of the
Underwriting Agreement and continuing to and including the later of (i) the
termination of trading restrictions for the Capital Securities, as notified to
the Company by the Underwriters and (ii) the time of delivery for the Capital
Securities, not to offer, sell, contract to sell or otherwise dispose of, except
as provided hereunder, securities of the Company, the Trust or any other trust
the common securities of which are held by the Company that are substantially
similar to the Capital Securities without the prior written consent of the
Underwriters.
The Company and the Trust have agreed to indemnify the Underwriters and
certain other persons against certain liabilities, including liabilities under
the Securities Act.
Certain of the Underwriters or their affiliates have provided from time
to time, and expect to provide in the future, commercial banking, investment
banking or advisory services to the Company and their affiliates, for which they
or its affiliates have received or will receive customary fees and commissions.
In addition, affiliates of First Union Capital Markets are serving as Property
and Delaware Trustees under the Trust Agreement and as Debenture and Guarantee
Trustees under the Indenture and Guarantee. First Union National Bank, an
affiliate of First Union Capital Markets, and NationsBank, N.A., an affiliate of
NationsBanc Montgomery Securities LLC, are lenders to the Company under the
bridge loan facility utilized by the Company to complete the purchase of the
Gold Kist Inputs Business and each will receive repayments under such facility
from the proceeds of the offering. See "Use of Proceeds." Because more than 10%
of the proceeds of the offering will be paid to affiliates of members of the
National Association of Securities Dealers, Inc. ("NASD") who are participating
in the offering, the offering is being made pursuant to Rule 2710(c)(8) of the
Rules of Conduct of the NASD, which requires the use of a "qualified independent
underwriter" ("QIU") for certain purposes in such an offering. Lehman Brothers
will serve as the QIU and has assumed the responsibilities of acting as QIU with
respect to pricing the Capital Securities offered hereby and conducting "due
diligence" in respect thereto. The price at which the Capital Securities are
being sold to the public will be no higher than the price recommended by Lehman
Brothers. See "Risk Factors--Interests of Certain Underwriters in the Offering."
Lehman Brothers will receive customary compensation for acting as QIU.
111
<PAGE>
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities will be passed upon for the Trust by Potter Anderson & Corroon LLP,
Wilmington, Delaware, special Delaware counsel to the Trust. The validity of the
Junior Subordinated Debentures, the Guarantee and certain matters relating
thereto, including United States federal income tax matters, will be passed upon
for the Company and the Trust by Mays & Valentine, L.L.P., Richmond, Virginia.
Certain legal matters will be passed upon for the Underwriters by Sullivan &
Cromwell, New York, New York.
EXPERTS
The consolidated balance sheet as of June 30, 1998 and 1997 and the
consolidated statements of operations, patron's equity and cash flows for each
of the three years in the period ended June 30, 1998, included in this
prospectus, have been included herein in reliance on the report, which includes
an explanatory paragraph that the Company changed its method of accounting for
costs of computer software developed or obtained for internal use, of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated financial statements of the Gold Kist Inputs Business as
of June 27, 1998 and June 28, 1997, and for the three years ended June 27, 1998,
June 28, 1997 and June 29, 1996 have been included in this prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
112
<PAGE>
AVAILABLE INFORMATION
Following the offering of the Capital Securities, the Company will file
annual, quarterly and other periodic reports with the Securities and Exchange
Commission as required by the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Although the Company will not be required to provide holders of
the Capital Securities with an annual report to shareholders containing audited
financial statements, the annual reports on Form 10-K filed with the Commission
will contain audited consolidated financial statements of the Company. Such
reports and other materials filed with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York
10048; and Northwestern Atrium, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also may be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Company's
filings will also be available to the public at the SEC Internet site
(http://www.sec.gov).
The Trust and the Company have filed a registration statement on Form S-1
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to such
Registration Statement for further information with respect to the Company and
the Capital Securities offered hereby. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Audited Financial Statements
Page
<S> <C>
Southern States Cooperative, Inc. and Subsidiaries
Independent Accountants' Report..................................................................F-2
Consolidated Balance Sheet at June 30, 1998 and 1997.............................................F-3
Consolidated Statement of Operations for the Years Ended
June 30, 1998, 1997, and 1996...............................................................F-5
Consolidated Statement of Patrons' Equity for the Years Ended
June 30, 1998, 1997, and 1996...............................................................F-6
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1998, 1997, and 1996................................................................F-7
Notes to Consolidated Financial Statements.......................................................F-8
Inputs Business of Gold Kist Inc.
Independent Auditors' Report.....................................................................F-31
Statements of Assets to be Acquired and Liabilities to be Assumed at
June 28, 1997 and June 27, 1998.............................................................F-32
Statements of Operations for the Years Ended June 29, 1996, June 28, 1997
and June 27, 1998...........................................................................F-33
Statements of Cash Flows for the Years Ended June 29, 1996, June 28, 1997
and June 27, 1998...........................................................................F-34
Notes to Financial Statements....................................................................F-35
Unaudited Interim Financial Statements
Southern States Cooperative, Inc. and Subsidiaries
Consolidated Balance Sheet at September 30, 1998 and June 30, 1998...............................F-40
Consolidated Statement of Operations for the Three Months Ended
September 30, 1998 and 1997.................................................................F-42
Consolidated Statement of Patrons' Equity for the Three Months Ended
September 30, 1998 and June 30, 1998........................................................F-43
Consolidated Statement of Cash Flows for the Three Months Ended
September 30, 1998 and 1997.................................................................F-44
Notes to Consolidated Financial Statements.......................................................F-45
Inputs Business of Gold Kist Inc.
Statements of Assets to be Acquired and Liabilities to be Assumed at
September 26, 1998 and September 27, 1997....................................................F-48
Statements of Operations for the Three Months Ended
September 26, 1998 and September 27, 1997....................................................F-49
Statements of Cash Flows for the Three Months Ended
September 26, 1998 and September 27, 1997....................................................F-50
Notes to Financial Statements....................................................................F-51
Pro Forma Financial Statements
Southern States Cooperative, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet at
September 30, 1998..........................................................................18
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Three Months Ended September 30, 1998.......................................................19
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended June 30, 1998....................................................................20
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.........................21
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors of
Southern States Cooperative, Incorporated:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, patrons' equity and of cash flows present
fairly, in all material respects, the financial position of Southern States
Cooperative, Incorporated and Subsidiaries (the "Company") at June 30, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, effective July 1, 1997, the
Company changed its method of accounting for costs of computer software
developed or obtained for internal use.
/s/ PricewaterhouseCoopers LLP
August 31, 1998, except as to Note 19, for
which the date is October 13, 1998
F-2
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, June 30, 1998 and 1997
---------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1k) $ 15,352,446 $ 16,853,790
Receivables, net (Notes 3 and 5) 55,329,766 63,949,179
Inventories (Notes 1c and 4) 133,167,494 124,904,835
Prepaid expenses 7,325,862 6,152,760
Deferred income taxes (Notes lh and 12) 4,989,913 4,103,975
Deferred charges 960,334 1,535,393
-------------------- --------------------
Total current assets 217,125,815 217,499,932
-------------------- --------------------
Investments and other assets:
Investments:
Statesman Financial Corporation (Notes 1a and 5) 18,144,573 18,125,983
Michigan Livestock Credit Corporation (Notes 1a and 5) 10,156,000
Other companies (principally cooperatives) (Notes 1f and 6) 75,573,146 64,242,819
Receivables (Notes 3 and 5) 1,316,515 460,779
Other assets 10,787,753 4,828,722
-------------------- --------------------
Total investments and other assets 115,977,987 87,658,303
-------------------- --------------------
Property, plant and equipment (Notes 1d and 7) 304,577,628 264,987,502
Less accumulated depreciation 175,384,990 160,985,624
-------------------- --------------------
Property, plant and equipment, net 129,192,638 104,001,878
-------------------- --------------------
$ 462,296,440 $ 409,160,113
==================== ====================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' AND
PATRONS' EQUITY 1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Short-term notes payable (Note 8) $ 7,100,000 $ 2,375,000
Current maturities of long-term debt (Note 9) 1,833,434 1,420,725
Accounts payable 71,235,641 64,957,946
Accrued expenses:
Environmental remediation (Note 13b) 429,649 387,215
Payrolls, employee benefits, related taxes and other 34,398,390 17,561,093
Accrued income taxes 2,380,815 2,223,732
Dividends payable 341,450 402,548
Patronage refunds payable in cash 2,378,378 6,884,321
Advances from managed member cooperatives (Note 2) 6,929,943 12,605,601
-------------------- ---------------------
Total current liabilities 127,027,700 108,818,181
-------------------- ---------------------
Long-term debt (Note 9) 136,041,301 109,902,250
-------------------- ---------------------
Other noncurrent liabilities:
Employee benefits 6,936,519 5,404,808
Deferred income taxes (Notes 1h and 12) 4,745,538 4,060,766
Environmental remediation (Note 13b) 746,498 752,864
Miscellaneous 5,403,204 3,127,195
-------------------- ---------------------
Total other noncurrent liabilities 17,831,759 13,345,633
-------------------- ---------------------
Redeemable preferred stock (Note 10) 2,114,100 2,114,100
Capital stock (Note 10):
Preferred 1,494,200 1,543,200
Common - $1 par value; 12,195,018 and 11,921,422 shares
outstanding at June 30, 1998 and 1997, respectively 12,195,018 11,921,422
Patrons' equity 165,592,362 161,515,327
-------------------- ---------------------
$ 462,296,440 $ 409,160,113
==================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the years ended June 30, 1998, 1997, and 1996
-----------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales and other operating revenue:
Net purchases by patrons (Note 2) $1,022,846,771 $1,097,173,192 $1,008,840,446
Net marketing for patrons 92,862,915 115,972,257 110,667,059
Other operating revenue 3,793,344 2,954,306 3,141,354
------------------ ------------------ ------------------
1,119,503,030 1,216,099,755 1,122,648,859
Cost of products purchased and marketed
(Notes 1c, 6 and 13b) 927,652,435 1,014,440,358 926,752,850
------------------ ------------------ ------------------
Gross margin 191,850,595 201,659,397 195,896,009
Selling, general and administrative expenses 175,783,844 166,132,518 157,809,479
------------------ ------------------ ------------------
Savings on operations 16,066,751 35,526,879 38,086,530
------------------ ------------------ ------------------
Other deductions (income):
Interest expense (Notes 5, 8, and 9) 16,859,373 15,565,523 15,236,987
Interest income and finance charges (7,800,390) (7,660,693) (6,919,039)
Miscellaneous income, net (6,624,656) (5,917,803) (4,877,412)
------------------ ------------------ ------------------
2,434,327 1,987,027 3,440,536
------------------ ------------------ ------------------
Savings before income taxes 13,632,424 33,539,852 34,645,994
Income tax expense (Notes 1h and 12) 2,965,786 6,038,411 7,052,233
------------------ ------------------ ------------------
Net savings $ 10,666,638 $ 27,501,441 $ 27,593,761
================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PATRONS' EQUITY
for the years ended June 30, 1998, 1997, and 1996
----------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Patronage refund allocations:
Balance, beginning of year $ 67,566,625 $ 63,445,207 $ 59,771,570
Allocation from net savings for the year 3,702,869 10,590,586 10,306,161
Allocations assumed in merger (Note 17) 2,683,000
Adjustments to prior year's allocation 153,836 102,104 124,540
Redemptions (5,955,206) (6,571,272) (6,757,064)
------------------ ------------------ ------------------
Balance, end of year 68,151,124 67,566,625 63,445,207
------------------ ------------------ ------------------
Operating capital:
Balance, beginning of year 93,948,702 84,653,534 75,220,267
Net savings from operations 10,666,638 27,501,441 27,593,761
Patronage refunds payable in:
Cash (2,378,378) (6,884,321) (6,668,809)
Patronage refund allocations (3,702,869) (10,590,586) (10,306,161)
Adjustments to prior year's estimated patronage refunds,
net of income taxes (123,724) 82,219 (143,988)
Dividends on capital stock declared:
Preferred (279,407) (283,808) (411,948)
Common, $.06 per share (681,536) (521,439) (577,295)
Other reductions (8,188) (8,338) (52,293)
------------------ ------------------ ------------------
Balance, end of year 97,441,238 93,948,702 84,653,534
------------------ ------------------ ------------------
Total patrons' equity $ 165,592,362 $ 161,515,327 $ 148,098,741
================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended June 30, 1998, 1997, and 1996
--------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net savings from continuing operations $ 10,666,638 $ 27,501,441 $ 27,593,761
Adjustments to reconcile net savings to cash provided by
operating activities:
Depreciation 17,256,620 16,302,811 16,212,388
Amortization 355,252 295,558 54,608
Deferred income taxes 274,611 (392,258) (528,607)
Gain on sale of property and equipment (510,695) (927,289) (187,048)
Undistributed earnings of finance company and joint
ventures (289,720) (189,019) (85,411)
Noncash patronage refunds received (6,764,372) (9,855,976) (9,055,759)
Redemption of noncash patronage refunds received 2,335,408 2,148,256 2,705,434
Cash provided by (used) for current assets and liabilities
(Note 16) 10,277,837 (3,453,180) (11,078,678)
----------------- ------------------ ------------------
Cash provided by operating activities 33,601,579 31,430,344 25,630,688
----------------- ------------------ ------------------
Investing activities:
Additions to property, plant and equipment (33,904,668) (19,944,578) (18,529,038)
Proceeds from disposal of property, plant and equipment 1,743,604 1,820,230
Additional investments in other companies (10,430,352) (2,856,293) 435,747
Net cash paid for acquisition (Note 17) (1,241,347) (1,596,798)
------------------
----------------- ------------------
Cash used in investing activities (43,832,763) (20,980,641) (19,690,089)
----------------- ------------------ ------------------
Financing activities:
Net increase in short-term notes payable 4,725,000 2,200,000 175,000
Proceeds from long-term debt 49,172,487 7,000,000 15,000,000
Repayment of long-term debt (31,594,763) (7,969,689) (3,430,490)
Net redemptions (purchases) of equities required by lender
(Note 9) 42,160 (67,009) 332,652
Dividends on capital stock paid (1,022,041) (958,265) (842,630)
Patronage refunds paid in cash (6,884,321) (6,668,809) (3,812,249)
Redemption of stockholders' and patrons' equity (6,630,611) (6,631,292) (8,857,671)
Proceeds from issuance of capital stock 921,929 1,214,365 1,294,645
----------------- ------------------ ------------------
Cash provided by (used in) financing activities 8,729,840 (11,880,699) (140,743)
----------------- ------------------ ------------------
(Decrease) increase in cash and cash equivalents (1,501,344) (1,430,996) 5,799,856
Balance at beginning of year 16,853,790 18,284,786 12,484,930
----------------- ------------------ ------------------
Balance at end of year $ 15,352,446 $ 16,853,790 $ 18,284,786
================= ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
1. Summary of Significant Accounting Policies:
a. Basis of Presentation - The consolidated financial statements include
the accounts of Southern States Cooperative, Incorporated ("Southern
States") and its wholly owned subsidiaries (collectively the "Company").
Upon consolidation, all significant intercompany accounts and
transactions have been eliminated.
Effective April 1, 1998 Michigan Livestock Exchange ("MLE") merged with
the Company. Pursuant to the merger, MLE became a division of the
Company, operating under the name MLE Marketing. The operating results
of MLE Marketing have been included in the Company's consolidated
financial statements since the date of the merger (see Note 17).
Southern States' investment in Statesman Financial Corporation ("SFC"),
a 46.3%-owned finance company and SFC's wholly owned subsidiary,
Michigan Livestock Credit Corporation ("MLCC"), is accounted for by the
equity method (see Note 5).
b. Lines of Business - The Company's primary lines of business are the
procurement, processing and distribution of agricultural production
supplies and the marketing of grain and livestock, for its members. The
Company distributes its products through a network of retail, wholesale
and processing facilities primarily located in Delaware, Kentucky,
Maryland, North Carolina, Virginia and West Virginia. The Company
markets grain through a network of grain facilities located in Delaware,
Kentucky, Maryland, North Carolina and Virginia. The Company markets
livestock through a network of livestock facilities located in Indiana,
Kentucky, Michigan and Ohio.
c. Inventories and Cost of Products Purchased and Marketed - Inventories,
except grain, are stated at the lower of cost or market. Cost is
determined on various bases, including average; first-in, first-out; and
specific-identification. Grain inventories are stated at net market, as
adjusted for unrealized gains and losses on open futures contracts, and
open purchase and sales contracts. Grain inventories are substantially
hedged to minimize risks arising from price volatility due to market
fluctuations. Patronage refunds from supplier cooperatives in the form
of qualified written notices of allocation are recorded as received and
are accounted for as reductions of cost of products purchased and
marketed. Nonqualified written notices of allocation are not recorded
until the cash is received.
d. Property, Plant and Equipment - Property, plant and equipment is
recorded at cost. The costs of property additions, major renewals and
betterments are capitalized while the costs of ordinary maintenance and
repairs are charged to operations as incurred. The costs of property
additions include interest capitalized during major plant construction.
The Company early adopted American Institute of Certified Public
Accountants ("AICPA") Statement of Position No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use"
("SOP 98-1") effective July 1, 1997. SOP 98-1 requires capitalization of
certain costs incurred during the application development stage of an
internal use software development project, including: (i) external
direct costs of materials and services consumed in developing or
obtaining internal-use computer software, which the company previously
captitalized and (ii) payroll and payroll-related costs for employees
who are directly associated with and who devote time to the internal-use
computer software project, which the company did not previously
capitalize. This change in accounting principle increased fiscal 1998
savings before income taxes and net savings by approximately $969,000
and $583,000, respectively.
Depreciation is determined principally by the straight-line method based
on estimated useful lives (buildings and improvements - 20 to 40 years,
machinery and equipment - 4 to 20 years, furniture and fixtures - 5 to
10 years). Gains and losses on disposition or retirement of assets are
reflected in income as incurred.
F-8
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------------
1. Summary of Significant Accounting Policies, continued:
e. Impairment of Long-Lived Assets - The Company reviews long-lived
tangible and intangible assets in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." For assets to be held and used in operations,
this standard requires that, whenever events indicate that an asset may
be impaired, undiscounted cash flows is analyzed at the lowest level for
which there are identifiable and independent cash flows. If the sum of
these undiscounted cash flows is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of the loss is
based on the estimated fair value of the asset.
f. Investments - Investments, principally in supplier cooperatives, are
stated at cash invested plus unpaid qualified written notices of
allocation.
g. Environmental Compliance and Remediation - Environmental compliance
costs include the cost of purchasing and/or constructing assets to
prevent, limit and/or control pollution or to monitor the environmental
status at various locations. These costs are capitalized and depreciated
based on estimated useful lives.
Environmental remediation costs of facilities used in current operations
are generally immaterial and are expensed as incurred. Remediation costs
and post remediation costs at facilities that relate to an existing
condition caused by past operations are accrued as liabilities on an
undiscounted basis when it is probable that such costs will be incurred
and when such costs are reasonably estimated.
h. Income Taxes - For income tax purposes, Southern States is a nonexempt
agricultural cooperative. Accordingly, Southern States does not pay
income taxes on that portion of savings distributed in qualified written
notices of allocation arising from sales to members, patrons eligible
for membership and certain other patrons; such savings are included in
the taxable income of these members and patrons. Deferred income tax
liabilities and assets are determined based on differences between
financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse.
i. Employee Retirement Plan - The employees of Southern States and certain
subsidiaries are covered under a multiemployer defined benefit
retirement plan. Southern States' policy is to fund and expense an
amount equal to Southern States' share of the actuarially determined
funding requirement of the plan.
j. Common Stock and Patronage Refunds Payable - Southern States is an
agricultural cooperative operating for the benefit of its
stockholders/members and other patrons. Pursuant to its bylaws, Southern
States is obligated to return all patronage-sourced savings for each
year, after payment of dividends on capital stock and reasonable
additions to capital reserves, to such members, patrons eligible for
membership and certain other patrons in proportion to the volume of
business transacted with them during the year. See Note 10 with respect
to requirements for membership and common stock ownership.
k. Cash Equivalents - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
l. Reclassifications - Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation.
F-9
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
m. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
n. Transfers of Financial Assets - The Company accounts for transfers of
financial assets pursuant to Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 applies a control
oriented financial components approach to financial-asset-transfer
transactions whereby Southern States (i) recognizes the financial and
servicing assets it controls and the liabilities it has incurred, (ii)
derecognizes financial assets when control has been surrendered, and
(iii) derecognizes liabilities once they are extinguished.
Because the transactions between SFC and Southern States met SFAS 125's
conditions for sale accounting, consistent with prior years, the finance
receivables sold to SFC were recorded as sales of financial assets and
all related discounts were expensed as incurred.
o. Derivatives - As part of its asset/liability management program, the
Company utilizes financial derivatives to reduce the Company's
sensitivity to interest rate fluctuations and commodity hedges to reduce
market price fluctuations relating to grain and petroleum products. Net
receipts or payments under the interest rate swap agreements are
recognized as adjustments to interest expense. Realized and unrealized
gains and losses on futures contracts for grain and petroleum products
are accounted for on a deferral basis.
p. New Accounting Standards - During the Company's fiscal year ended 1998,
the Financial Accounting Standards Board issued several new
pronouncements, including standards on information about derivatives,
and employer's disclosures about pension and other postretirement
benefit plans. The Company is currently evaluating any impact of the
derivatives standard; the other standards are not expected to have a
material impact on the Company's financial statements.
2. Managed Member Cooperatives:
Under management agreements, Southern States performs various financial,
management and accounting services for other agricultural cooperatives
("managed member cooperatives"). There were 70, 72 and 74 such cooperatives
at June 30, 1998, 1997 and 1996, respectively. These managed member
cooperatives are owned entirely by their stockholders and patrons and thus
are associated with Southern States solely by management agreements (the
"Agreements"). For services performed, Southern States was reimbursed
$3,947,069 in 1998, $3,795,021 in 1997 and $3,699,399 in 1996.
Under the Agreements, cash is advanced by Southern States to the managed
member cooperatives (primarily as revolving advances for sales of products
to the managed member cooperatives) and excess cash of the managed member
cooperatives is advanced to Southern States. The interest rate charged or
credited on monthly balances of these advances approximates the CoBank, ACB
national variable rate. Net interest income realized by Southern States on
net advances totaled $296,423, $647,554 and $639,165 in 1998, 1997 and
1996, respectively.
F-10
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------
2. Managed Member Cooperatives, continued:
Net purchases by patrons include purchases by managed member cooperatives
of approximately $208,833,488 in 1998, $218,673,169 in 1997 and
$199,066,506 in 1996.
3. Receivables:
The Company grants credit to farmers and other retail and wholesale
purchasers of agricultural production supplies primarily in Delaware,
Indiana, Kentucky, Maryland, Michigan, North Carolina, Ohio, Virginia and
West Virginia. Receivables at year end were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current:
Trade:
Accounts $149,625,090 $137,651,583
Notes 5,034,802 3,858,216
Advances to managed member cooperatives (Note 2) 24,644,909 30,116,873
Less receivables sold to SFC (Note 5) (121,331,851) (105,440,350)
----------------- -----------------
57,972,950 66,186,322
Less allowance for doubtful accounts (2,643,184) (2,237,143)
----------------- -----------------
Total current receivables $ 55,329,766 $ 63,949,179
================= =================
Noncurrent:
Trade notes $ 1,316,515 $ 460,779
----------------- -----------------
Total noncurrent receivables $ 1,316,515 $ 460,779
================= =================
4. Inventories:
Inventories at year end consisted of the following:
1998 1997
---- ----
Finished goods:
Purchased for resale $115,667,733 $109,516,828
Manufactured 4,384,872 3,556,316
----------------- -----------------
120,052,605 113,073,144
Materials and supplies 13,114,889 11,831,691
Totals $133,167,494 $124,904,835
================= =================
</TABLE>
F-11
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
5. Investments in Finance Companies:
SFC and Southern States are parties to an agreement dated September 16,
1991, and amended effective November 3, 1997, under which SFC purchases
from Southern States certain receivables without recourse. Under the terms
of the agreement, Southern States pays certain fees on receivables sold to
SFC. In addition, certain receivables are discounted to provide SFC with
revenues sufficient to cover interest charges incurred and historical
charge-offs. Receivables sold to SFC totaled approximately $996,700,000,
$991,500,000 and $904,200,000 for 1998, 1997 and 1996, respectively. The
related fees and discounts for 1998, 1997 and 1996 were $9,500,000,
$8,200,000 and $8,400,000, respectively. SFC paid volume incentive fees to
Southern States for purchases of receivables of $1,320,000, $1,375,000 and
$1,266,000 for 1998, 1997 and 1996, respectively.
Under the terms of the agreement, Southern States is obligated to maintain
a computed minimum investment in SFC's Class A noncumulative preferred
stock ("Class A Preferred Stock"), based on the average daily balances of
receivables sold to SFC. The amount of Class A Preferred Stock held by
Southern States was $17,918,000 at June 30, 1998 and 1997, respectively.
The consumer retail financing receivables, asset-based loans, and
agrifinancing receivables are primarily due from customers of Southern
States.
SFC has entered into operating lease agreements with Southern States and
its patrons whereby Southern States and its patrons lease computer
equipment, liquid propane tanks, and agricultural equipment from SFC. The
net book value of the assets leased to Southern States and its patrons by
SFC totaled approximately $7,005,000 and $7,971,000 as of June 30, 1998 and
1997, respectively. Total operating lease expenses incurred by Southern
States under the lease agreements totaled approximately $2,460,000,
$2,663,000 and $2,617,000 in 1998, 1997 and 1996, respectively. SFC paid
volume incentive fees to Southern States for operating lease agreements
totaling $295,000, $392,000 and $351,000 in 1998, 1997 and 1996,
respectively.
As of April 1, 1998, MLCC became a wholly owned subsidiary of SFC (See Note
17). MLCC and Southern States are parties to an agreement dated April 1,
1998, under which MLCC provides agricultural production loans, building
loans, equipment loans, renovation loans, revolving credit loans, and other
loans to and financing for customers of Southern States. Under the
agreement, Southern States agrees to provide MLCC with equity capital in
exchange for shares of MLCC preferred stock. The amount of MLCC preferred
stock held by Southern States was $10,156,000 at June 30, 1998.
F-12
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------------
5. Investment in Finance Companies, continued:
A consolidated condensed balance sheet for SFC as of June 30, 1998 and
1997, and the consolidated condensed statement of operations for the years
ended June 30 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Balance Sheet
Assets 1998 1997
------ ---- ----
<S> <C> <C>
Cash $ 3,917,971 $ 4,383,451
Finance receivables, net of allowance for credit losses of
$9,462,807 for 1998 and $2,931,800 for 1997 202,908,086 127,717,039
Other 18,394,143 11,844,430
Investments in other cooperatives 10,922,574 8,454,647
-------------------- -------------------
Total assets $ 236,142,774 $ 152,399,567
==================== ===================
Liabilities and Stockholders' Equity
Notes payable:
Short-term lines of credit $ 166,545,000 $ 98,230,000
Term loans 34,250,000 35,000,000
Accounts payable and accrued expenses 3,773,693 820,106
Preferred stock 31,074,000 17,918,000
Stockholders' equity 500,081 431,461
-------------------- -------------------
Total liabilities and stockholders' equity $236,142,774 $ 152,399,567
==================== ===================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Statement of Operations
<S> <C> <C> <C>
Net interest and fee income $ 4,152,215 $ 3,793,217 $ 3,560,414
General and administrative expenses 3,932,000 3,652,292 3,428,209
-------------------- ------------------- -------------------
Income before provision for income taxes 220,215 140,925 132,205
Provision for income taxes 86,318 55,703 46,558
-------------------- ------------------- -------------------
Net income $ 133,897 $ 85,222 $ 85,647
==================== =================== ===================
Southern States' equity interest $ 61,967 $ 38,368 $ 42,823
==================== =================== ===================
</TABLE>
The Company's 46.3% equity interest in SFC's consolidated net income has
been included in the Company's consolidated statement of operations as
miscellaneous income.
F-13
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
5. Investments in Finance Companies, continued:
The following unaudited proforma results of operations, assumes that the
purchase of MLCC had occurred on July 1, 1996. The unaudited proforma
results of operations are presented for informational purposes only and do
not purport to be indicative of SFC's future consolidated results of
operations.
<TABLE>
<CAPTION>
Year ended June, 30
1998 1997
---- ----
<S> <C> <C>
Interest and service fee income $24,791,835 $20,684,915
================= ==================
Net loss $2,026,773 $41,565
================= ==================
</TABLE>
SFC has a Master Loan Agreement with CoBank, ACB ("CoBank") that provides
for a $25,000,000 term loan payable due November 1, 1999 plus interest at
an average interest rate of 6.80%.
On November 6, 1997, SFC renewed an agreement for a syndicated bank lending
facility providing for line of credit borrowings totaling $150,000,000 and
certain term loan borrowings. This agreement is renewable annually and is
administered by CoBank. The line of credit borrowings of $107,000,000 at
June 30, 1998 bear interest at varying rates (approximately 5.82% at June
30, 1998). As of June 30, 1998, the balance of the amortizing term loan was
$5,500,000 payable $1,500,000 in 1999 and $2,000,000 annually in fiscal
2000 and 2001 plus interest at varying interest rates (approximately 7.37%
at June 30, 1998). SFC is required to maintain investments in CoBank's
capital stock and allocated equities based on percentages of the average
loans outstanding. These investments are pledged as collateral for the
notes payable.
SFC has a Loan Agreement with Crestar Bank ("Crestar") that provides for a
$10,000,000 line of credit (subject to certain net worth restrictions),
with a balance of $5,450,000 at June 30, 1998; and a $2,000,000 amortizing
term loan outstanding at June 30, 1998, which is due on November 1, 1998
and bears interest at 5.85%. The line of credit bears interest at varying
rates established by Crestar (approximately 6.73% at June 30, 1998).
MLCC has an agreement for a syndicated bank lending facility that provides
for a line of credit totaling $100,000,000 that is renewable annually and
is administered by CoBank. The line of credit borrowings of $53,000,000 at
June 30, 1998 bear interest at varying rates (approximately 5.84% at June
30, 1998). MLCC has a loan agreement with Crestar that provides for a
$5,000,000 line of credit with a balance of $1,095,000 at June 30, 1998.
The line of credit bears interest at varying rates established by Crestar
(approximately 6.73% at June 30, 1998). MLCC has subordinated debt of
$1,750,000 that consists of notes payable to two farm bureaus, which notes
are unsecured and subordinated to all "senior debt" of MLCC. "Senior debt"
includes all indebtedness of MLCC to banks. These notes have interest rates
of 10% to 10.5% and are due at various times through October 31, 2000.
F-14
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------------------
5. Investments in Finance Companies, continued:
Under the most restrictive debt agreement, SFC cannot exceed a debt to net
worth ratio of 7 to 1 at the end of each month. This requirement increases
seasonally to 8.5 to 1 for the months of June, July and August 1998 and
will revert to 7 to 1 on September 1, 1998. SFC plans to repay certain
borrowings by August 31, 1998 in order to comply with this requirement. SFC
is also required to achieve a "TIER" (Times Interest Earned Ratio) of 1.1
to 1 or greater. TIER is defined as net income before interest and taxes
plus the sum of depreciation and net additions to reserves for losses, all
divided by interest expense. SFC is also required to maintain a "Defaulted
Receivable Ratio" not to exceed .0055 to 1.
On August 1, 1996, SFC entered into a Financing Services and Contributed
Capital Agreement (the "Agreement") with Countrymark Cooperative, Inc.
("Countrymark") whereby SFC extends revolving credit to customers of
Countrymark through the issuance of credit cards. Under the terms of the
Agreement, Countrymark is obligated to maintain a computed minimum
investment in SFC's Class A noncumulative preferred stock. In connection
with this transaction, SFC and Countrymark also entered into a Common Stock
Subscription and Redemption Agreement (the "Common Stock Agreement").
Countrymark has the right to cancel the Common Stock Agreement and tender
its common stock to SFC and SFC has the right to cancel the Common Stock
Agreement and redeem the common stock at any time. As part of the Common
Stock Agreement, Countrymark purchased 73 shares of SFC's common stock
representing 10.2% of the 713 shares of authorized common stock; 66 managed
member cooperatives and Southern States each own 43.5% and 46.3%,
respectively. Additionally, for as long as Countrymark maintains at least a
9.96% ownership in SFC's common stock, Countrymark is entitled to maintain
one representative on the Board of Directors of SFC.
6. Investments in Other Companies:
Investments in other companies consisted of the following at year end:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CF Industries, Inc. $ 43,473,877 $ 39,223,577
CoBank, ACB 7,479,858 7,187,751
St. Paul Bank 1,470,947
Southern States Insurance Exchange 11,266,484 10,010,493
Universal Cooperatives, Inc. 3,216,156 3,396,809
Other cooperatives and companies 2,772,154 933,179
Joint ventures 5,893,670 3,491,010
-------------------- -------------------
Totals $ 75,573,146 $ 64,242,819
==================== ===================
</TABLE>
F-15
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
6. Investments in Other Companies, continued:
At June 30, 1998 and 1997, the Company's aggregate equity in the net assets
of these investees exceeded the carrying value of such investments by
approximately $15,650,000 and $17,000,000, respectively. Patronage refunds
received for 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CF Industries, Inc. $ 5,512,596 $ 13,127,754
CoBank, ACB 477,526 537,623
Southern States Insurance Exchange 3,407,439 2,884,326
Universal Cooperatives, Inc. 232,667 144,483
Other cooperatives 52,943 45,076
------------------- -------------------
Totals $ 9 ,683,171 $ 16,739,262
=================== ===================
</TABLE>
Purchases by Southern States from CF Industries, Inc. and Universal
Cooperatives, Inc. were approximately $88,000,000 and $90,000,000 in 1998
and 1997, respectively.
7. Property, Plant and Equipment:
Property, plant and equipment at year end is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 16,496,766 $ 14,620,768
Buildings and improvements 90,332,409 77,280,460
Machinery and equipment 100,032,931 96,145,743
Furniture and fixtures 28,667,191 24,743,450
Automotive equipment 53,307,919 47,888,301
Construction in progress 15,740,412 4,308,780
-------------------- -------------------
Totals $ 304,577,628 $ 264,987,502
==================== ===================
</TABLE>
At June 30, 1998 and 1997, property, plant and equipment, having an
aggregate book value of $6,990,070 and $7,918,587, respectively, was
pledged as collateral under industrial revenue financings (see Note 9).
The cost of property, plant and equipment includes: interest capitalized in
the amount of $451,478, $164,506, and $115,576 in 1998, 1997, and 1996
respectively; and capitalized software in the amount of $9,610,641 and
$2,938,329 at June 30, 1998 and 1997, respectively. Depreciation expense
associated with capitalized software was $237,251 and $234,027 in 1998 and
1997, respectively. There was no capitalized software or depreciation
expense associated with capitalized software for the year ended June 30,
1996.
F-16
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------------------
8. Short-Term Notes Payable:
At June 30, 1998, short-term notes of $7,100,000 bearing interest at rates
of 7.75% and 8.00% were payable to CoBank. At June 30, 1997, short-term
notes of $2,375,000 bearing interest at 8.00% were payable to CoBank. At
June 30, 1998, the Company had a $50,000,000 short-term line of credit with
CoBank and short-term lines of credit with other institutions totaling
$97,000,000 which do not require the maintenance of compensating balances
because generally credit extension is subject to availability of funds. At
June 30, 1998 and June 30, 1997, there were no borrowings under these lines
of credit.
During 1998, average daily short-term borrowings were approximately
$47,636,986 (maximum outstanding - $81,300,000) at a weighted average
interest rate approximating 5.77%. During 1997, such borrowings averaged
approximately $32,416,301 (maximum outstanding - $74,250,000) at a weighted
average interest rate approximating 5.57%. These rates were computed net of
qualified patronage refunds received from CoBank.
9. Long-Term Debt:
Long-term debt at year end consisted of:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Term notes - CoBank due 2005, 6.99% and 7.02% per annum at
June 30, 1998 and 1997, respectively (a) $ 38,000,000 $ 41,700,000
Revolving term loan - CoBank due 2001, 6.11%-6.31% and 6.12%
per annum at June 30, 1998 and 1997, respectively (a) 93,000,000 44,000,000
Senior Notes - Aetna Life Insurance Company 9.25% per
annum (b) 18,000,000
Industrial revenue financings (c) 6,620,000 7,520,000
Notes due through 2003 (maximum rate 10%) 254,735 102,975
------------------- --------------------
Total long-term debt 137,874,735 111,322,975
Less current maturities 1,833,434 1,420,725
------------------- --------------------
Long-term debt due after one year $ 136,041,301 $ 109,902,250
=================== ====================
</TABLE>
(a) The term notes with CoBank are payable $1,000,000 in 1999,
$3,000,000 annually in 2000 and 2001, $7,000,000 annually in 2002
and 2003, $9,000,000 in 2004, and $8,000,000 in 2005. The credit
facilities with CoBank include a revolving bank line of credit
agreement totaling, in aggregate, $93,000,000. This agreement, which
expires in 2001, enables the Company to refinance short-term debt on
a long-term basis. Accordingly, certain current maturities of
long-term debt intended to be refinanced were reclassified as
long-term debt (see Note 9(b)). Under the terms of the short-term
and long-term loan agreements with CoBank, the Company is required
to maintain investments in CoBank's capital stock and allocated
equities based on percentages of the average loans outstanding. At
June 30, 1998, such investments in the amount of $7,479,858 were
pledged as collateral for indebtedness to CoBank.
F-17
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------------
9. Long-Term Debt, continued:
(b) The Senior Notes, Series A (the "Notes") issued to Aetna Life
Insurance Company and due August 4, 1999 were payable $6,000,000 1998
through 2000. At June 30, 1997, the $6,000,000 payable in 1998 was
classified as long-term debt since the Company had the ability and
intent to refinance this debt. The Company prepaid the Notes in full
on August 4, 1997, utilizing funds available under its revolving
credit facility. Prepayment penalties of $240,000 were incurred
related to this prepayment.
(c) Two industrial revenue financings require payments sufficient to
enable the industrial development authorities to pay principal,
premium, if any, and interest on the revenue bonds. The obligations
mature serially in the following annual amounts: $750,000 annually in
fiscal 1999 through 2004, $1,620,000 in 2005 and $500,000 in 2006.
The obligations bear interest at rates ranging from 3.60% to 3.70%.
Long-term debt maturing within each of the four fiscal years after June 30,
1999 is as follows: 2000 - $3,810,331; 2001 - $96,811,398; 2002 -
$7,793,742; 2003 - $7,755,830; thereafter - $19,870,000. The Company has
an outstanding letter of credit in the amount of $20,000,000 at June 30,
1998 to collateralize certain borrowings.
Under the most restrictive outstanding debt agreement, the Company is
required to maintain, at fiscal year end, on a consolidated basis: (a)
working capital of at least $65,000,000, (b) a ratio of current assets to
current liabilities of at least 1.45 to 1, (c) net worth of at least 35% of
total assets and not less than $140,000,000, and (d) a ratio of adjusted
long-term debt to tangible net worth not to exceed .775 to 1 through
December 31, 1998 and .75 to 1 thereafter.
See Note 15, Derivative Financial Instruments for information relating to
interest rate swaps.
10. Capital Stock:
At June 30, 1998, Southern States' authorized capital stock consisted of
20,000,000 shares of common stock ($1 par value) and 200,000 shares of
cumulative preferred stock ("5%-6% Preferred Stock") ($100 par value),
issuable in series, the redemption of which is limited to 20,000 shares
annually. The Company's Articles of Incorporation were restated on July 13,
1998 to increase the authorized shares of preferred stock from 200,000
shares to 1,000,000 shares, $100 par value per share.
Wetsel, Inc. ("Wetsel"), a wholly owned subsidiary, has authorized 35,000
shares of Series 1, Class A cumulative redeemable preferred stock. At June
30, 1998 and 1997, Wetsel had 21,141 shares ($2,114,000) of 9% Series 1,
Class A cumulative redeemable preferred stock ("9% Redeemable Preferred
Stock") outstanding ($100 par value). Pursuant to an agreement dated
February 3, 1995, this stock may not be called for redemption by Wetsel or
put for redemption by the holders prior to December 31, 1999.
Southern States' authorized common stock is membership common stock and,
pursuant to the requirements of the Agricultural Cooperative Association
Act of Virginia and the Articles of Incorporation and Bylaws of Southern
States, its issuance or transfer is limited to bona fide producers of
agricultural products and cooperative associations that are owned and
controlled by such producers who use the services or supplies of Southern
States. Dividends on Southern States' common stock are limited annually to
6% of this stock's aggregate par value.
F-18
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------------------
10. Capital Stock, continued:
Each member, regardless of the number of shares of common stock registered
in the member's name, is entitled to one vote in the affairs of Southern
States. Under various circumstances (e.g., death of stockholder), Southern
States repurchases common stock from its members at par value plus declared
and unpaid dividends, if any. In the event of liquidation or other
disposition of the assets of Southern States, the holders of common stock,
after satisfaction of obligations to creditors and to holders of all
preferred stock, would be entitled to receive a maximum of $1 per share
(par value) plus declared and unpaid dividends, if any. Any remaining
amounts shall be returned to members and other patrons on a pro rata basis
of their respective interest therein.
F-19
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------------
10. Capital Stock, continued:
Changes in preferred stock ($100 par) and common stock ($1 par) during
1996, 1997 and 1998 follow:
<TABLE>
<CAPTION>
9%
5% - 6% Preferred Redeemable Preferred Common
------------------------------ ------------------------------ ----------------------------------
Outstanding Aggregate Outstanding Aggregate Outstanding Aggregate
Shares Par Value Shares Par Value Shares Par Value
------------- --------------- -------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1995 16,754 $1,675,400 21,141 $2,114,100 9,705,086 $9,705,086
Issued 385 38,500 1,256,145 1,256,145
Redeemed (750) (75,000) (113,867) (113,867)
------------- --------------- -------------- -------------- --------------- -----------------
Balances, June 30, 1996 16,389 $1,638,900 21,141 $2,114,100 10,847,364 $10,847,364
Issued 349 34,900 1,179,465 1,179,465
Redeemed (1,306) (130,600) (105,407) (105,407)
------------- --------------- -------------- -------------- --------------- -----------------
Balances, June 30, 1997 15,432 $1,543,200 21,141 $2,114,100 11,921,422 $11,921,422
Issued 424 42,400 879,529 879,529
Redeemed (914) (91,400) (605,933) (605,933)
------------- --------------- -------------- -------------- --------------- -----------------
Balances, June 30, 1998 14,942 $1,494,200 21,141 $2,114,100 12,195,018 $12,195,018
============= =============== ============== ============== =============== =================
</TABLE>
F-20
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
11. Employee Benefit and Compensation Plans:
Southern States sponsors a multiemployer defined benefit retirement plan
(the "Plan") which is noncontributory and includes substantially all
employees of Southern States, certain subsidiaries, SFC, and 70 managed
member cooperatives ("Participating Employers"). Plan assets are not
segregated for each Participating Employer and are used to provide benefits
for participants of all Participating Employers. Benefit formulas and
pension cost allocation and funding methodologies are the same for all
Participating Employers. If a Participating Employer withdraws from the
plan, the Participating Employer does not withdraw any assets from the Plan
and does not assume any of the Plan's obligation. Thus, the information
relating specifically to Southern States is not available. For 1998, 1997
and 1996, Southern States' expenses, including administrative expenses,
were $3,004,146, $3,899,638 and $3,897,414, respectively. A comparison of
accumulated benefits, as estimated by the Plan's actuary, and net assets of
the Plan is presented below.
<TABLE>
<CAPTION>
July 1
-----------------------------------------
<S> <C> <C>
1998 1997
---- ----
Actuarial present value of plan benefits:
Vested $ 98,115,602 $ 86,795,627
Nonvested 2,834,524 2,452,758
------------------ -------------------
Total benefits $ 100,950,126 $ 89,248,385
================== ===================
Net assets available for benefits $ 148,571,687 $ 122,878,661
================== ===================
</TABLE>
The discount rates used in computing the present value of plan benefits
were 7.34%, 7.47% and 7.88% for the years ended June 30, 1998, 1997 and
1996, respectively.
The Corporation has a non-qualified supplemental retirement plan covering
certain employees, which provides for incremental retirement payments from
the Company's funds so that total retirement payments equal amounts that
would have been payable from the Company's multiemployer retirement plan if
it were not for limitations imposed by income tax regulations. The amounts
expensed for the supplemental retirement plan were $232,755, $422,530 and
$446,103 in 1998, 1997 and 1996, respectively. The accumulated benefit
obligation recognized in the Company's consolidated balance sheet at June
30, 1998 and 1997 was $1,115,854 and $904,432, respectively.
Under the Company's 401(k) plan, the Company matches employee contributions
and may make discretionary contributions based on the Company's
performance. Employee contributions are matched to the extent of 40% of the
participant's first 3% contributed and 15% of the next 2% contributed. The
Company's matching contributions for 1998, 1997 and 1996 were $1,001,382,
$865,909 and $783,191, respectively. The Company provided for an additional
contribution of $672,136 for 1997 and $880,727 for 1996.
Southern States provides certain life insurance benefits for retired
employees. Substantially all of Southern States' employees may become
eligible for those benefits, generally upon attaining normal retirement age
while employed by Southern States. Those and similar benefits for active
employees are provided through insurance companies whose premiums are based
on benefits paid. The costs of these benefits for retired employees are a
function of the annual pension plan valuation.
F-21
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
11. Employee Benefit and Compensation Plans, continued:
Costs for postretirement benefits other than pensions, primarily medical
benefit costs, are accrued during the employee's period of service. The
accumulated postretirement benefit obligation ("APBO") as of July 1, 1993
(the "transition obligation") of $5,043,773 is being amortized over a
period of 20 years and is recorded in miscellaneous other noncurrent
liabilities. The Company's policy is to fund these benefits on a
pay-as-you-go basis.
Summary postretirement plan information is as follows:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
APBO:
Retirees $ 2,732,229 $ 2,809,411
Fully eligible active participants 621,812 639,355
Other active plan participants 585,216 601,748
----------------- ------------------
Total APBO 3,939,257 4,050,514
Unrecognized prior service cost (551,158) (612,398)
Unrecognized net gain 1,076,486 1,124,446
Transition obligation (3,782,828) (4,035,017)
Accrued postretirement benefit cost $ 681,757 $ 527,545
================= ==================
</TABLE>
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net periodic postretirement benefit cost:
Service cost $ 80,194 $ 116,692 $ 108,551
Interest cost 285,888 339,746 350,363
Amortization of unrecognized prior service cost 61,240
Amortization of net (gain) (47,960)
Amortization of transition obligation 252,189 252,189 252,189
----------------- ------------------ ------------------
$ 631,551 $ 708,627 $ 711,103
================= ================== ==================
</TABLE>
The health care cost trend rates used to determine the APBO at June 30,
1998 were 10%, 9% in 1999, and 0% thereafter for those under age 65, and
were 8% in 1998, 7% in 1999 and 0% thereafter for those age 65 and over as
benefits to participants are frozen. The discount rate used to determine
the APBO at June 30, 1998 and 1997 was 7.5%. A one percent increase in the
health care cost trend rate would increase the APBO at June 30, 1998 by
$62,000 and the net postretirement benefit cost by $6,000. The unrecognized
prior service cost resulted from a 1997 plan amendment which extended an
employer cost freeze, previously effective January 1, 1997, to January 1,
2000.
The Company has in effect other compensation plans for management and
retail store personnel under which current and deferred awards, based
principally on operating results, are made. The aggregate charge to
operations with respect to these plans approximated $1,816,084 in 1998,
$2,488,144 in 1997 and $2,530,723 in 1996.
F-22
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------------
12. Income Taxes:
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 2,123,899 $ 5,299,458 $ 6,256,673
State 567,276 1,131,211 1,296,002
------------------ ------------------ ------------------
Total current 2,691,175 6,430,669 7,552,675
Deferred federal and state 274,611 (392,258) (500,442)
------------------ ------------------ ------------------
Total $ 2,965,786 $ 6,038,411 $ 7,052,233
================== ================== ==================
</TABLE>
The significant differences between the U.S. federal statutory income tax
rate and the effective income tax rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Patronage refund deduction (15.6) (18.2) (17.1)
State income taxes, net of federal benefits 3.0 2.1 2.3
Other, net (0.6) (0.9) 0.2
---- ---- ----
Effective income tax rate 21.8% 18.0% 20.4%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts $ 1,058,273 $ 882,372
Inventory costs 935,034 821,472
Uninsured losses 512,983 491,161
Accrued vacation pay 2,062,041 1,908,970
Other, net 421,582
----------- -----------
Net current deferred income tax asset 4,989,913 4,103,975
----------- -----------
Noncurrent deferred tax assets (liabilities):
Deferred compensation 2,603,258 1,959,773
Non-qualified patronage refund allocations:
Issued 1,419,261 1,413,572
Received (1,001,333) (986,636)
Property, plant and equipment (7,933,404) (6,896,902)
Other, net 166,680 449,427
Net noncurrent deferred income tax liability (4,745,538) (4,060,766)
----------- -----------
Net deferred income tax asset $ 244,375 $ 43,209
=========== ===========
</TABLE>
F-23
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------------
13. Commitments, Contingencies and Other Matters:
a. Leases - Southern States is party to an agreement whereby an investment
company (the "Owner") constructed, on land owned by Southern States and
leased to the Owner for a 70-year term expiring in 2048, a headquarters
building for lease to Southern States. Under the terms of the building
lease, Southern States is obligated to pay rent (net of income from the
land rental) based upon the cost of the building and executory costs
such as insurance, maintenance and property taxes. This operating lease
has an initial term of 30 years, expiring in October 2008, and contains
options allowing Southern States to renew the lease for two additional
five-year periods and to purchase the building, at certain times
throughout the lease, at the greater of the building's original cost or
its then fair market value as defined in the lease. Should Southern
States not exercise its purchase option by the expiration of the
building lease, the Owner has options, exercisable throughout the
remaining term of the land lease, to purchase the land at its then fair
market value.
In addition, the Company leases transportation, data processing and
other equipment under operating leases expiring generally during the
next five years. Rent expense approximated $8,700,650 in 1998,
$8,109,700 in 1997 and $7,271,500 in 1996.
The Company's approximate minimum lease commitments under noncancellable
operating leases, less noncancellable subleases, are as follows:
<TABLE>
<CAPTION>
Office Building
-------------------------------------------
Year Equipment Lease Subleases Totals
---- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C>
1999 $4,807,330 $ 742,538 $ (549,499) $5,000,369
2000 3,298,218 742,538 (571,479) 3,469,277
2001 2,306,421 742,538 (594,338) 2,454,621
2002 1,291,509 742,538 (618,112) 1,415,935
2003 1,019,345 742,538 (208,713) 1,553,170
Thereafter 1,323,884 3,898,323 5,222,207
</TABLE>
b. Other Matters - The Company's 1998, 1997 and 1996 consolidated
statement of operations includes a provision in cost of products
purchased and marketed and other operating costs of $872,306, $477,447
and $309,801, respectively, to cover estimated environmental
remediation costs. These costs are offset by recoveries, primarily from
state agencies, of certain environmental costs expended in prior
periods, of $100,000, $41,415 and $591,383 in 1998, 1997 and 1996,
respectively. The unpaid portion of such costs totaled $1,176,147 and
$1,140,079 at June 30, 1998 and 1997, respectively, and is included as
a liability in the Company's consolidated balance sheet for the
respective years. The remaining actual environmental remediation
liability may be different from management's estimates due to the
uncertainty of the extent of pollution, the complexity of laws and
government regulations and their interpretation, the varying costs and
effectiveness of alternative cleanup technologies and methods, the
uncertain level of insurance or other types of recovery, and the
uncertain level of the Company's involvement.
The Company is a defendant in several lawsuits arising in the ordinary
course of business. While the outcome of any litigation cannot be
predicted with certainty, the Company believes that the ultimate
disposition of these matters will not have a material adverse effect on
its consolidated financial position or results of operations.
At June 30, 1998 and 1997, commitments for the construction and
acquisition of plant and equipment totaled approximately $7,079,926 and
$1,517,342, respectively.
F-24
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------------
14. Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Accounts Receivable - The carrying amounts approximate fair value
because of the short maturity of these assets.
Long-term Investments - Long-term investments, principally in supplier
cooperatives, are carried at cost and unpaid qualified written notices of
allocation are carried at stated or par value. The Company believes it is
not practicable to estimate the fair value of the securities of supplier
cooperatives without incurring excessive costs because there is no
established market for these securities and it is inappropriate to
estimate future cash flows which are largely dependent on future patronage
earnings of the supplier cooperatives.
Accounts Payable and Notes Payable - The carrying amounts approximate fair
value because of the short maturity of these liabilities.
Long-term Debt - The fair value of the Company's long-term debt is
estimated based on the discounted cash flow of that debt, using estimated
current rates for debt of the same remaining maturities. At June 30, 1998,
the estimated fair value of the long-term debt totaling $137,874,735 was
$134,290,704. At June 30, 1997, the estimated fair value of the long-term
debt totaling $111,322,975 was $104,903,697.
15. Derivative Financial Instruments:
At June 30, 1998, the Company had outstanding four variable to fixed
interest rate swaps with a notional amount of $65,000,000 and fair market
value of $63,783,631 with terms ranging from two to five years. Under the
terms of these agreements, the Company is paying fixed interest rates
ranging from 6.335% to 6.760% and receiving a variable rate based on
3-month London Interbank Offered Rates ("LIBOR") of 5.71875% at June 30,
1998. At June 30, 1997, the Company had outstanding three variable to
fixed interest rate swaps with a notional amount of $50,000,000 and fair
market value of $49,618,826 with terms ranging from two to five years.
Under the terms of those agreements, the Company was paying fixed interest
rates ranging from 6.335% to 6.760% and receiving a variable interest rate
based on 3-month LIBOR of 5.78125% at June 30, 1997. These interest rate
swaps are being used to convert certain floating rate debt to fixed rates.
Net receipts or payments under the agreements are being recognized as
adjustments to interest expense. The Company is exposed to credit losses
in the event of counterparty nonperformance, but does not anticipate any
such losses.
The Company uses futures contracts to protect purchase and sales contract
prices from directly related fluctuations in the market price of grains
and petroleum products. Those futures contracts are commitments to either
purchase or sell designated amounts and varieties of grain and petroleum
products at a future date, generally not exceeding a period of six months,
for a specified price, and may be settled in cash or through delivery. The
Company hedges purchases and sales with the sole purpose of eliminating
the risk of market price fluctuations. No futures contracts are purchased
or sold for purely speculative purposes. The Company is exposed to credit
losses in the event of counterparty nonperformance, but does not
anticipate any such losses.
F-25
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------
15. Derivative Financial Instruments, continued:
Realized and unrealized gains and losses on futures contracts are
accounted for on a deferral basis. Net realized gains and losses on open
and closed futures contracts, primarily in grain futures, reported in the
statement of operations under cost of products purchased and marketed were
net gains of $1,016,672 and $2,417,602 and a net loss of $9,208,824 for
1998, 1997 and 1996, respectively. Since these net realized gains were the
result of hedging transactions, they were substantially offset by net
losses and gains realized on cash transactions. Deferred gains on open and
closed new crop grain futures reported in the balance sheet under accrued
expenses were $274,802 and $1,149,269 for 1998 and 1997, respectively.
Deferred losses on open and closed new crop grain futures reported in the
balance sheet under other assets were $1,144,721 and $1,558,156 for 1998
and 1997, respectively.
16. Supplemental Disclosures of Cash Flow Information:
The components of cash provided by (used in) current assets and
liabilities, net of the effect of balances acquired from MLE on April 1,
1998, follow:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Receivables $ 27,870,279 $ (3,475,635) $(12,737,390)
Inventories (6,476,370) (7,664,598) (12,583,677)
Prepaid expenses (1,173,102) 840,253 (1,010,521)
Accounts payable (29,534,741) 6,738,389 13,117,776
Accrued expenses 20,838,166 1,335,287 2,589,490
Other, net (1,246,395) (1,226,876) (454,356)
------------ ------------ ------------
$ 10,277,837 $ (3,453,180) $(11,078,678)
============ ============ ============
</TABLE>
Cash payments for interest (net of amounts capitalized) were $16,694,502,
$15,480,960 and $15,244,333 for 1998 1997 and 1996, respectively. Cash
payments for income taxes were $2,533,809, $6,463,517 and $6,040,107 for
1998 1997 and 1996, respectively. Noncash transactions included the
assumption of patronage refund allocations from MLE during 1998 totaling
$2,683,000.
17. Merger:
On April 1, 1998, Southern States completed a merger with MLE Marketing,
a livestock marketing cooperative headquartered in East Lansing,
Michigan. MLE operates livestock dealer and auction markets in Indiana,
Kentucky, Michigan and Ohio. The merger constituted a tax-free
reorganization and has been accounted for using the purchase method under
Accounting Principles Board Opinion No. 16 ("APB 16"). The Company issued
76,000 shares (par value $76,000) of its common stock to the former
members of MLE and assumed patronage refund allocations issued in prior
years to MLE members in the amount of $2,683,000. The excess of the
aggregate purchase price over the fair market value of net assets
acquired of approximately $1 million is being amortized over 15 years.
F-26
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
18. Segment Information:
The Company has six reporting segments or divisions: Crops, Feed,
Petroleum, Retail Farm Supply, Farm and Home, and Marketing. The crops
segment procures, manufactures, processes and distributes fertilizer, seed
and crop protection products. The feed segment procures and manufactures
dairy, livestock, equine, poultry, pet and aquacultural feeds. The
petroleum segment distributes all grades of gasoline, kerosene, fuel oil,
propane and other related petroleum products. The retail farm supply
segment distributes agricultural supplies through approximately 200 Company
owned and managed member cooperatives. The farm and home segment
distributes farm and home products through wholesale and retail centers.
The marketing segment purchases corn, soybean, wheat, barley and livestock
from its members and markets these products.
The Company evaluates performance based upon operating profit or loss.
Interest expense is allocated to each of the segments based upon segment
assets employed and excluding the allocation of general corporate overhead.
The Company accounts for intersegment sales at current market prices.
The following tables present information about the Company's reported
segment profit and segment assets as well as the reconciliation of
reportable segment revenues, operating profit and assets to the Company's
consolidated totals.
<TABLE>
<CAPTION>
1998 Retail Farm
Crops Feed Petroleum Farm Supply and Home
----- ---- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $151,041,777 $145,581,994 $ 193,097,559 $ 336,259,693 $196,116,317
Intersegment revenues 156,898,258 62,314,122 17,555,622 40,404,007
Interest expense 2,461,380 1,805,800 1,488,294 6,570,858 2,965,678
Depreciation and amortization 1,315,274 2,107,916 2,057,166 6,594,762 1,844,868
Profit 16,865,664 6,120,876 1,650,180 4,855,530 5,966,802
Assets 55,508,563 34,270,787 35,634,480 104,946,956 69,168,805
Capital expenditures 1,102,859 3,046,937 173,721 18,086,655 991,688
</TABLE>
<TABLE>
<CAPTION>
1998
Marketing Other Total
--------- ----- -----
<S> <C> <C> <C>
Revenues from external customers $94,516,837 $2,888,853 $1,119,503,030
Intersegment revenues 8,876,637 711,122 286,759,768
Interest expense (191,898) 1,759,261 16,859,373
Depreciation and amortization 910,256 2,781,630 17,611,872
Profit 1,781,884 (526,980) 36,713,756
Assets 51,698,503 111,068,346 462,296,440
Capital expenditures 820,786 9,682,022 33,904,668
</TABLE>
F-27
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------------
18. Segment Information, continued:
<TABLE>
<CAPTION>
1997 Retail Farm
Crops Feed Petroleum Farm Supply and Home
----- ---- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $160,448,334 $161,939,799 $250.260,067 $336,043,632 $188,425,641
Intersegment revenues 152,832,784 65,124,073 21,514,906 40,531,928
Interest expense 1,911,693 1,711,774 1,078,107 6,376,174 2,963,301
Depreciation and amortization 1,253,195 2,118,456 1,946,686 6,220,394 1,721,362
Profit 26,609,406 6,301,755 7,106,830 5,854,165 7,172,649
Assets 50.852,032 32,269,622 36,414,775 106,164,547 64,464,842
Capital expenditures 1,363.892 2,481,491 20,468 10,558,910 1,017,205
</TABLE>
<TABLE>
<CAPTION>
1997
Marketing Other Total
--------- ----- -----
<S> <C> <C> <C>
Revenues from external customers $116,211,167 $2,771,115 $1,216,099,755
Intersegment revenues 20,572,748 781,968 301,358,407
Interest expense 1,989 1,522,485 15,565,523
Depreciation and amortization 756,392 2,581,884 16,598,369
Profit 3,585,102 (197,898) 56,432,009
Assets 15,487,755 103,506,540 409,160,113
Capital expenditures 1,104,470 3,398,142 19,944,578
</TABLE>
<TABLE>
<CAPTION>
1996 Retail Farm
Crops Feed Petroleum Farm Supply and Home
----- ---- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $148,597,613 $147,420,122 $219,607,207 $317,920,739 $175,826,722
Intersegment revenues 145,140,890 59,673,434 18,095,863 39,959,963
Interest expense 1,960,080 1,710,515 1,222,895 6,331,607 2,852,076
Depreciation and amortization 1,166,721 2,282,108 1,845,856 6,146,954 1,675,101
Profit 24,360,025 6,922,153 8,719,018 5,427,573 7,811,436
Assets 47,868,106 30,397,519 32,914,630 106,619,166 60,291,080
Capital expenditures 1,417,489 997,917 (22,783) 11,208,338 669,820
</TABLE>
<TABLE>
<CAPTION>
1996
Marketing Other Total
--------- ----- -----
<S> <C> <C> <C>
Revenues from external customers $110,731,601 $2,544,855 $1,122,648,859
Intersegment revenues 19,278,730 241,545 282,390,425
Interest expense 778,599 381,215 15,236,987
Depreciation and amortization 769,842 2,380,414 16,266,996
Profit 2,268,773 237,947 55,746,925
Assets 18,850,103 88,610,024 385,550,628
Capital expenditures 684,008 3,574,249 18,529,038
</TABLE>
F-28
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------
18. Segment Information, continued:
The following is a reconciliation of reportable segment profit to the
Company's consolidated totals.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Profit
Total profit for reportable segments $ 36,713,756 $ 56,432,009 $ 55,746,925
General corporate overhead (23,081,332) (22,892,157) (21,100,931)
Net savings before income taxes $ 13,632,424 $ 33,539,852 $ 34,645,994
=============== =============== ===============
</TABLE>
- --------------------------------------------------------------------------------
F-29
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------
19. Subsequent Event:
On July 23, 1998, the Company entered into a definitive agreement to
acquire the assets of the farm supply inputs business of Gold Kist Inc., a
Georgia cooperative marketing association for approximately $218,313,000,
net of liabilities assumed of approximately $38,096,000 (estimated based on
August 31, 1998 information). The transaction closed on October 13,
1998. The final purchase price will be based on a post-closing statement
of net current asset value. The net assets purchased include certain
inventory, real property, personal property, and certain accounts
receivable, other assets, and certain liabilities. The transaction will be
accounted for using the purchase method. The Company financed the
transaction utilizing a bridge loan facility.
20. Quarterly Results of Operations (Unaudited):
The Company's unaudited quarterly results of operations were as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Quarters
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Sales and other operating revenue $ 252,339,354 $ 285,393,263 $ 306,900,158 $ 371,466,980
Gross margin 37,670,114 41,343,163 61,499,930 61,146,190
Net savings/(loss) (746,431) (443,772) 15,750,418 12,941,226
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998 Quarters
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Sales and other operating revenue $ 234,836,413 $ 244,738,151 $ 277,043,216 $ 362,885,250
Gross margin 34,115,913 39,788,781 52,918,937 65,026,964
Net savings/(loss) (5,501,643) (2,029,222) 7,885,182 10,312,321
</TABLE>
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Gold Kist Inc.:
Southern States Cooperative, Incorporated:
We have audited the accompanying statements of assets to be acquired and
liabilities to be assumed of the Inputs Business (as defined in Note 1) of Gold
Kist Inc. and subsidiaries (the "Company") as of June 28, 1997 and June 27,
1998, and the related statements of operations and cash flows for each of the
years in the three-year period ended June 27, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these 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.
The accompanying financial statements of the Company's Inputs Business to be
sold to Southern States Cooperative, Inc. were prepared pursuant to the Asset
Purchase Agreement described in Note 1, and are not intended to be a complete
presentation of the Inputs Business's financial position, results of operations
and cash flows as if the Inputs Business had operated as a stand-alone company.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets to be acquired and liabilities to be
assumed of the Inputs Business as of June 28, 1997 and June 27, 1998, and the
results of their operations and cash flows for each of the years in the
three-year period ended June 27, 1998, pursuant to the Asset Purchase Agreement
described in Note 1, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
August 26, 1998
F-31
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF ASSETS TO BE ACQUIRED
AND LIABILITIES TO BE ASSUMED
(Amounts in Thousands)
<TABLE>
<CAPTION>
June 28, 1997 June 27, 1998
------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Receivables, principally trade, less allowance for doubtful accounts
of $4,830 in 1997 and $6,493 in 1998 .............................. $ 70,540 77,205
Crop notes receivable, less allowance for doubtful notes of $2,706
in 1997 and $6,816 in 1998 (note 2) ............................... 64,431 71,073
Inventories (note 3) ............................................... 81,594 89,218
Other current assets ............................................... 1,680 1,116
-------- --------
Total current assets ............................................ 218,245 238,612
Investments (note 4) ............................................... 310 1,535
Property, plant and equipment, net (note 5) ........................ 49,984 48,185
Other assets (note 6) .............................................. 500 811
-------- --------
Total assets .................................................... $269,039 289,143
-------- --------
LIABILITIES
Current liabilities:
Current maturities of long-term debt (note 7) ................... $ 232 235
Accounts payable ................................................. 49,453 59,134
Accrued compensation and related expenses ........................ 1,922 1,251
Other current liabilities ........................................ 2,382 2,538
-------- --------
Total current liabilities ....................................... 53,989 63,158
Long-term debt, excluding current maturities (note 7)............... 8,863 8,628
-------- --------
Total liabilities ............................................... 62,852 71,786
-------- --------
Net assets ...................................................... $206,187 217,357
======== ========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF OPERATIONS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------------
June 29, 1996 June 28, 1997 June 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net sales ....................................... $ 458,927 488,409 480,542
Cost of sales ................................... 363,725 389,798 393,711
--------- --------- ---------
Gross margin ................................. 95,202 98,611 86,831
Distribution, administrative and general expenses 85,531 98,456 105,291
--------- --------- ---------
Net operating margin (loss) .................. 9,671 155 (18,460)
--------- --------- ---------
Other income (deductions):
Interest income .............................. 6,918 8,448 10,041
Interest expense ............................. (10,741) (11,282) (12,675)
Miscellaneous, net ........................... 417 88 1,169
--------- --------- ---------
Total other deductions .................. (3,406) (2,746) (1,465)
--------- --------- ---------
Earnings (loss) before income taxes .......... 6,265 (2,591) (19,925)
Income tax (expense) benefit-(note 9) ........... (2,256) 972 7,576
--------- --------- ---------
Net income (loss) ............................ $ 4,009 (1,619) (12,349)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
June 29, 1996 June 28, 1997 June 27, 1998
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................... $ 4,009 (1,619) (12,349)
Non-cash items included in net income (loss):
Depreciation and amortization ......................................... 5,855 6,186 6,188
Allowance for doubtful accounts ....................................... 678 2,282 5,773
Gains on sales of assets .............................................. (243) (23) (475)
Equity in loss of limited liability corporation ....................... -- -- 481
Other ................................................................. 59 (82) (34)
Changes in operating assets and liabilities:
Receivables ........................................................... (13,385) 2,831 (8,334)
Crop notes receivable ................................................. (24,811) (8,479) (10,746)
Inventories ........................................................... 282 (1,678) (7,623)
Other current assets .................................................. (78) 447 564
Accounts payable and accrued expenses ................................. (81) 4,909 9,166
-------- -------- --------
Net cash provided by (used in) operating activities .................. (27,715) 4,774 (17,389)
-------- -------- --------
Cash flows from investing activities:
Acquisitions of investments ............................................ -- -- (1,673)
Acquisitions of property, plant and equipment .......................... (16,322) (9,375) (4,729)
Proceeds from disposals of property, plant and equipment ............... 2,930 404 871
Other .................................................................. -- (101) (367)
-------- -------- --------
Net cash used in investing activities ................................ (13,392) (9,072) (5,898)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings ..................................... 6,905 -- --
Principal payments of long-term debt ................................... (329) (270) (232)
Net transfers from Gold Kist Inc. ...................................... 34,531 4,568 23,519
-------- -------- --------
Net cash provided by financing activities ........................... 41,107 4,298 23,287
-------- -------- --------
Net change in cash and cash equivalents ............................. 0 0 0
Cash and cash equivalents at beginning of year ........................... 0 0 0
-------- -------- --------
Cash and cash equivalents at end of year ................................. $ 0 0 0
======== ======== ========
Supplemental disclosure of cash flow data: Cash paid during the years for:
Interest paid to third parties ........................................ $ 268 510 468
======== ======== ========
Income taxes (note 9) ................................................. $ -- -- --
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS
July 1, 1996, June 28, 1997 and June 27, 1998
(Dollar Amounts in Thousands)
(1) Basis of Presentation
Gold Kist Inc. ("Gold Kist" or "Company") and Southern States Cooperative,
Incorporated ("Southern States") have entered into an Asset Purchase Agreement
(the "Agreement"), dated as of July 23, 1998, pursuant to which the Company has
agreed to sell and assign, and Southern States has agreed to purchase and
assume, the assets and certain of the liabilities of the Company's agricultural
inputs business. The affected assets include substantially all of the assets of
the Company's Agri-Services segment, as well as certain crop notes receivable of
AgraTrade Financing, Inc., the Company's wholly-owned finance subsidiary (such
businesses and certain other assets to be acquired are referred to as the
"Inputs Business"). The Agri-Services segment purchases, manufactures and
processes fertilizers, agricultural chemicals, seeds, pet foods, feed and animal
health products and other farm supply items for distribution and sale at
wholesale and retail. Additionally, the segment serves as a contract procurement
agent for and storer of farm commodities such as soybeans, grain and peanuts and
is engaged in cotton processing and storage.
The financial statements are not intended to be a complete presentation of
the financial position, results of operations and cash flows as if the Inputs
Business had operated as a stand-alone company. Intercompany balances and
transactions within the Inputs Business have been eliminated. The accompanying
financial statements present the assets to be acquired and liabilities to be
assumed and the results of operations and cash flows of the Inputs Business,
based upon the structure of the transaction as described in the Agreement. The
transaction as set forth in the Agreement is hereinafter referred to as the
Acquisition.
Gold Kist provides various services to the Inputs Business including, but not
limited to, facilities management, information systems processing, corporate
protection and risk management, payroll and employee benefits administration,
auditing and financial reporting, credit, engineering, and government and public
relations services. Gold Kist allocates these expenses and all other central
operating costs, first on the basis of direct usage when identifiable, with the
remainder allocated among Gold Kist's businesses on the basis of their
respective assets, revenues, headcount, or other measures. In the opinion of
management of Gold Kist, these methods of allocated costs are reasonable. These
expenses totaled $5.2 million, $5.8 million and $5.4 million in 1996, 1997 and
1998, respectively.
The Inputs Business has been financed by operating cash flow and advances
from Gold Kist. Gold Kist has allocated interest expense to the Inputs Business
based upon net operating assets employed at interest rates that approximate
market. Interest expense charged to the Inputs Business for 1996, 1997 and 1998
was $10.6 million, $10.8 million and $12.2 million, respectively.
Sales of animal feeds from the Inputs Business to Gold Kist approximated $6.3
million in 1996, $5.4 million in 1997 and $6.0 million in 1998. The Inputs
Business recorded cotton procurement commission revenue from Gold Kist of $95
for 1998. These amounts have been included in the statements of operations.
The Inputs Business participates in a centralized cash management system
wherein cash receipts are transferred to and cash disbursements are funded by
Gold Kist. Since cash and cash equivalents related to the Inputs Business
operations will not be acquired by the Buyer, they are excluded from the
statements of assets to be acquired and liabilities to be assumed.
Significant accounting policies are designated below as an integral part of
the notes to financial statements to which the policies relate.
F-35
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
July 1, 1996, June 28, 1997 and June 27, 1998
(Dollar Amounts in Thousands)
(a) Fiscal Year
Gold Kist employs a 52/53 week fiscal year. The financial statements
for 1996, 1997 and 1998 reflect 52 weeks.
(b) Use of Estimates
Management of Gold Kist has made a number of estimates and assumptions to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
(c) Fair Value of Financial Instruments
The Inputs Business's financial instruments include accounts
receivables, crop notes receivable, accounts payables and accrued
expenses and debt. Because of the short maturity of accounts receivables,
crop notes receivable, accounts payable and accrued expenses, and
long-term debt with variable interest rates, the carrying value
approximates fair value. All financial instruments are considered to have
an estimated fair value which approximates carrying value at June 28,
1997 and June 27, 1998 unless otherwise specified.
(2) Crop Notes Receivable
The Inputs Business issues crop notes receivables to farmers and third party
agricultural inputs dealers which are generally secured by crop liens and bear
interest at variable rates based on the prime lending rate. An allowance for
doubtful notes has been recorded, the activity of which is summarized as
follows:
Years Ended
---------------------------------------------
June 29, 1996 June 28, 1997 June 27, 1998
------------- ------------- -------------
Allowance for doubtful notes -
beginning of the fiscal year $ 2,118 2,193 2,706
Bad debts provisions on crop
notes receivable ........... 379 1,528 6,798
Write-off of crop notes receivable (304) (1,015) (2,688)
------- ------- -------
Allowance for doubtful notes -
end of the fiscal year ...... $ 2,193 2,706 6,816
======= ======= =======
(3) Inventories
Inventories are summarized as follows:
June 28, 1997 June 27, 1998
------------- -------------
Merchandise for sale...................... $79,358 87,428
Raw materials and supplies................ 2,236 1,790
------- -------
$81,594 89,218
======= =======
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
July 1, 1996, June 28, 1997 and June 27, 1998
(Dollar Amounts in Thousands)
Merchandise for sale includes feed, fertilizers, seed, pesticides, equipment
and general farm supplies purchased or manufactured by Gold Kist for sale to
agricultural producers and consumers. These inventories are stated, generally,
on the basis of the lower of cost (weighted average) or market.
Raw materials and supplies consist of feed ingredients, packaging
materials and operating supplies. These inventories are stated, generally, on
the basis of the lower of cost (weighted average) or market. Gold Kist on behalf
of the Inputs Business engages in commodity futures and options transactions to
manage the risk of adverse price fluctuations with regard to its animal feed
ingredient purchases. Gains and losses on futures contracts are recognized when
closed. Option contracts are valued at fair market value. Gains or losses on
futures and options transactions are included as a part of product cost.
(4) Investments
In 1998, the Inputs Business entered into a 50% ownership interest in a
limited liability corporation engaged in the manufacturing of fertilizer
ingredients. This joint venture is accounted for using the equity method of
accounting. An investment in Southern States is recorded at cost and includes
the amount of patronage refund certificates and patrons' equities allocated,
less distributions received. These investments are not readily marketable and
quoted market prices are not available, as a result, it is not practical to
determine these investment's fair value.
At June 27, 1998, Gold Kist had a $28.8 million investment in CF Industries,
Inc., a major fertilizer cooperative, that is not included in the acquisition.
The Inputs Business Statements of Operations include patronage refunds from CF
Industries, Inc. of $8.9 million, $10.1 million and $3.7 million, respectively,
for 1996, 1997 and 1998. These patronage refunds are reflected as a reduction in
cost of sales.
(5) Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation of plant and
equipment is calculated by the straight-line method over the estimated useful
lives of the respective assets (buildings and improvements - 10 to 25 years,
machinery and equipment - 4 to 10 years).
Property, plant and equipment is summarized as follows:
June 28, 1997 June 27, 1998
------------- -------------
Land........................................... $ 4,018 4,205
Land improvements.............................. 5,184 5,800
Buildings...................................... 34,247 35,262
Machinery and equipment........................ 66,451 68,680
Construction in progress....................... 1,230 -
-------- -------
111,130 113,947
Less accumulated depreciation.................. 61,146 65,762
------- -------
$ 49,984 48,185
======= =======
(6) Other Assets
Other assets are summarized as follows:
June 28, 1997 June 27, 1998
------------- -------------
Goodwill....................................... $395 367
Other assets................................... 105 444
----- -----
$500 811
===== =====
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
July 1, 1996, June 28, 1997 and June 27, 1998
(Dollar Amounts in Thousands)
In 1997, Gold Kist acquired a cotton gin at Morven, Georgia that is included
in the Inputs Business. The cash purchase price totaled $1.7 million. Of this
amount, $423 of goodwill was recorded to reflect the excess of cash prices for
these businesses over the fair values of their net assets. The goodwill for this
acquisition is being amortized on a straight-line basis over a 15 year period.
(7) Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
June 28, 1997 June 27, 1998
------------- --------------
<S> <C> <C>
Tax exempt industrial revenue bonds due in 2016, secured by property,
plant and equipment (weighted average interest rate of 3.7% at
June 28, 1997 and 3.8% at June 27, 1998) .......................... $6,700 6,700
Capitalized lease obligation at 8.0% interest, due in monthly
installments to December 31, 2004, secured by real property ....... 2,174 1,980
Capitalized lease obligation at 8.25% interest, due in annual
installments to March 25, 2005 .................................... 206 183
Other ............................................................... 15 --
------ ------
9,095 8,863
Less current maturities ............................................. 232 235
------ ------
$8,863 8,628
====== ======
</TABLE>
Annual required principal repayments on long-term debt for the five years
subsequent to June 27, 1998 are as follows:
Year:
1999.................................................... $235
2000.................................................... 255
2001.................................................... 276
2002.................................................... 299
2003.................................................... 323
(8) Leases
The Inputs Business leases certain facilities and equipment from third
parties under capital leases and operating leases, many of which contain renewal
options. Commitments for minimum rentals under non-cancelable leases at the end
of 1998 are as follows:
Capitalized Operating
Leases Leases
----------- -----------
1999................................ $ 401 6,747
2000................................ 401 4,550
2001................................ 401 2,815
2002................................ 401 1,200
2003................................ 401 425
Thereafter.......................... 881 39
------ --------
Total minimum lease payments........ 2,886 15,776
======
Less amount representing interest... 723
------
Present value of net minimum lease
payments, including current
maturities of $235................ $2,163
=======
F-38
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
July 1, 1996, June 28, 1997 and June 27, 1998
(Dollar Amounts in Thousands)
Property, plant and equipment at year-end includes the following amounts for
capital leases.
June 28, 1997 June 27, 1998
------------ -------------
Land................................ $ 184 184
Buildings........................... 761 761
Machinery & equipment............... 1,798 1,798
----- -----
2,743 2,743
Less allowances for depreciation.... 796 1,129
------ -----
$1,947 1,614
===== =====
Total rental expense on operating leases was $11.7 million, $12.4 million and
$12.0 million in 1996, 1997 and 1998, respectively.
(9) Income Taxes
The operations of the Inputs Business are included in the consolidated income
tax returns of Gold Kist. All income tax payments are made by Gold Kist and are
not allocated to the Inputs Business. Pursuant to the Agreement, Gold Kist will
retain all income tax liabilities and rights to all tax refunds relating to
operations prior to the closing date of the acquisition. Accordingly, the
statements of assets to be acquired and liabilities to be assumed do not reflect
current or prior period income tax receivables or payables. The statements of
operations reflect management's estimates of income tax (expense) benefit using
effective federal and state statutory rates as if the Inputs Business was
operated as a stand-alone company. As Gold Kist manages its tax position on a
consolidated basis, which takes into account the results of all of its
operations, the Inputs Business's effective tax rate could vary in the future
from that reported in the accompanying statement of earnings. The Inputs
Business's future effective tax rate will largely depend on Southern States's
structure and tax strategies.
(10) Profit Sharing and Retirement Plans
The Inputs Business participates in various incentive plans provided by Gold
Kist for its employees, including a voluntary profit sharing and investment
plan, as well as an annual incentive plan for key employees. The Inputs Business
also participates in Gold Kist's two noncontributory defined benefit pension
plans, as well as a retiree health care benefit plan. All obligations and
liabilities of these plans associated with Inputs Business will be retained by
Gold Kist.
The costs of these plans have been allocated by Gold Kist to the Inputs
business based upon either plan participation, unit profitability or relative
payroll costs. Total benefit plan costs charged to the Inputs Business
operations were $1.9 million for 1996, $1.5 million for 1997 and $1.1 million
for 1998.
F-39
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of September 30, 1998 and June 30, 1998
--------------------
September 30, 1998
ASSETS (Unaudited) June 30, 1998
------------- -------------
Current assets:
Cash and cash equivalents $ 15,773,938 $ 15,352,446
Receivables, net 58,340,708 55,329,766
Inventories 139,720,753 133,167,494
Prepaid expenses 9,065,188 7,325,862
Deferred income taxes 5,060,732 4,989,913
Deferred charges 188,006 960,334
------------ ------------
Total current assets 228,149,325 217,125,815
------------ ------------
Investments and other assets:
Investments:
Statesman Financial Corporation 18,149,765 18,144,573
Michigan Livestock Credit Corporation 12,156,000 10,156,000
Other companies (principally
cooperatives) 75,471,318 75,573,146
Receivables 1,576,039 1,316,515
Other assets 10,829,015 10,787,753
------------ ------------
Total investments and other assets 118,182,137 115,977,987
------------ ------------
Property, plant and equipment 314,212,523 304,577,628
Less accumulated depreciation 178,935,686 175,384,990
------------ ------------
Property, plant and equipment, net 135,276,837 129,192,638
------------ ------------
$481,608,299 $462,296,440
============ ============
See accompanying notes
F-40
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of September 30, 1998 and June 30, 1998
---------------------
LIABILITIES AND STOCKHOLDERS' AND September 30, 1998
PATRONS' EQUITY (Unaudited) June 30, 1998
------------- -------------
Current liabilities:
Short-term notes payable $ 2,000,000 $ 7,100,000
Current maturities of long-term debt 1,833,628 1,833,434
Accounts payable 88,072,372 71,235,641
Accrued expenses:
Environmental remediation 327,444 429,649
Payrolls, employee benefits, related taxes
and other 35,272,753 34,398,390
Accrued income taxes 1,470,289 2,380,815
Dividends payable 340,987 341,450
Patronage refunds payable in cash 2,378,378 2,378,378
Advances from managed member cooperatives 16,763,210 6,929,943
------------ ------------
Total current liabilities 148,459,061 127,027,700
------------ ------------
Long-term debt 142,277,529 136,041,301
------------ ------------
Other noncurrent liabilities:
Employee benefits 6,808,805 6,936,519
Deferred income taxes 4,665,852 4,745,538
Environmental remediation 764,037 746,498
Miscellaneous 5,448,941 5,403,204
------------ ------------
Total other noncurrent liabilities 17,687,635 17,831,759
------------ ------------
Redeemable preferred stock 2,114,100 2,114,100
Stockholders' equity:
Capital stock:
Preferred 1,483,500 1,494,200
Common - $1 par value; 12,198,278 and
12,195,018 shares outstanding at
September 30, 1998 and June 30, 1998,
respectively 12,198,278 12,195,018
Patrons' equity 157,388,196 165,592,362
------------ ------------
$481,608,299 $462,296,440
============ ============
See accompanying notes
F-41
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the three months ended September 30, 1998 and 1997
(Unaudited)
------------------
Three Months Ended
September 30,
1998 1997
---- ----
Sales and other operating revenue:
Net purchases by patrons $ 196,624,640 $ 215,524,913
Net marketing for patrons 12,914,815 18,646,156
Other operating revenue 1,353,454 665,344
------------- -------------
210,892,909 234,836,413
Cost of products purchased and marketed 175,922,264 200,720,500
------------- -------------
Gross margin 34,970,645 34,115,913
Selling, general and administrative expenses 46,001,611 40,162,471
------------- -------------
Loss on operations (11,030,966) (6,046,558)
------------- -------------
Other deductions (income):
Interest expense 4,684,433 4,410,455
Interest income and finance charges (2,392,925) (2,625,718)
Miscellaneous income, net (2,561,666) (799,957)
------------- -------------
(270,158) 984,780
------------- -------------
Loss before income tax benefit (10,760,808) (7,031,338)
Income tax benefit (2,679,441) (1,529,695)
------------- -------------
Net loss $ (8,081,367) $ (5,501,643)
============= =============
See accompanying notes
F-42
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PATRONS' EQUITY
as of September 30, 1998 and June 30, 1998
----------------
September 30, 1998
(Unaudited) June 30, 1998
------------------ -------------
Patronage refund allocations:
Balance, beginning of year $ 68,151,124 $ 67,566,625
Allocation from net savings for the year 3,702,869
Allocations assumed in merger 2,683,000
Adjustments to prior year's allocation 153,836
Redemptions (107,321) (5,955,206)
------------- -------------
Balance, end of quarter 68,043,803 68,151,124
------------- -------------
Operating capital:
Balance, beginning of year 97,441,238 93,948,702
Net (loss) savings from operations (8,081,367) 10,666,638
Patronage refunds payable in:
Cash (2,378,378)
Patronage refund allocations (3,702,869)
Adjustments to prior year's estimated
patronage refunds,
net of income taxes (123,724)
Dividends on capital stock declared:
Preferred (279,407)
Common, $.06 per share (681,536)
Other reductions (15,478) (58,188)
------------- -------------
Balance, end of period 89,344,393 97,441,238
------------- -------------
Total patrons' equity $ 157,388,196 $ 165,592,362
============= =============
See accompanying notes
F-43
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS for the three months
ended September 30, 1998 and 1997
(Unaudited)
-----------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net loss from continuing operations $ (8,081,367) $ (5,501,643)
Adjustments to reconcile net savings to cash
provided by
operating activities:
Depreciation and amortization 4,672,767 4,170,221
Deferred income taxes (150,505) 77,060
Gain on sale of property and equipment (58,213) (76,039)
Undistributed earnings of finance company and joint ventures 379,905 76,609
Noncash patronage refunds received (2,529) (674)
Redemption of noncash patronage refunds received 43,967 2,080
Cash provided by (used) for current assets and liabilities 15,541,506 4,419,363
------------ ------------
Cash from operating activities 12,345,531 3,166,977
------------ ------------
Investing activities:
Additions to property, plant and equipment (11,305,282) (6,180,893)
Proceeds from disposal of property, plant and equipment 699,767 666,799
Additional investments in other companies, net (2,324,707) (420,254)
------------ ------------
Cash used in investing activities (12,930,222) (5,934,348)
------------ ------------
Financing activities:
Net (decrease) increase in short-term notes payable (5,100,000) 11,925,000
Proceeds from long-term debt 7,000,000 6,000,000
Repayment of long-term debt, including capital leases (763,578) (19,319,530)
Net redemption of stockholders' and patrons' equity (130,239) (146,894)
------------ ------------
Cash provided (used) in financing activities 1,006,183 (1,541,424)
------------ ------------
Increase (decrease) in cash and cash
equivalents 421,492 (4,308,795)
Balance at beginning of year 15,352,446 16,853,790
------------ ------------
Balance at end of period $ 15,773,938 $ 12,544,995
============ ============
</TABLE>
See accompanying notes
F-44
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
----------------
1. Basis of Presentation
In the opinion of management, the accompanying consolidated financial
statements of Southern States Cooperative, Inc. ("Southern States") and its
wholly owned subsidiaries (collectively the "Company") contain all
adjustments necessary to present fairly, in all material respects, the
Company's consolidated financial position as of September 30, 1998 and the
consolidated results of operations and cash flows for the three month
periods ended September 30, 1998 and 1997. All adjustments are of a normal,
recurring nature. These financial statements should be read in conjunction
with the June 30, 1998 consolidated financial statements and notes thereto
included herein. The results of operations for the three months ended
September 30, 1998 and 1997 are not indicative of the results to be expected
for the full year.
2. Inventory
Inventories at September 30, 1998 and June 30, 1998 consisted of the
following:
September 30, 1998 June 30, 1998
------------------ -------------
Finished goods:
Purchased for resale $119,807,626 $115,667,733
Manufactured 4,176,729 4,384,872
------------- ------------
123,984,355 120,052,605
Materials and supplies 15,736,398 13,114,889
------------ ------------
Totals $139,720,753 $133,167,494
============ ============
3. Other Information
The Company is a defendant in several lawsuits arising in the ordinary
course of business. While the outcome of any litigation cannot be predicted
with certainty, the Company believes that the ultimate disposition of these
matters will not have a material adverse effect on its consolidated
financial position or results of operations.
The Company's accrued environmental costs represents the cost to cover
estimated environmental remediation costs. The remaining actual
environmental remediation liability may be different from management's
estimates due to uncertainty of the extent of the pollution, the complexity
of laws and government regulations and their interpretation, the varying
costs and effectiveness of alternative cleanup technologies and methods,
the uncertain level of insurance or other types of recovery, and the
uncertain level of the Company's involvement.
F-45
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
------------------
4. Supplemental Disclosures of Cash Flow Information
The components of cash provided by (used in) current assets and liabilities:
1998 1997
---- ----
Receivables $ (3,010,942) $ 14,078,837
Inventories (6,553,259) (20,338,441)
Prepaid expenses (1,739,326) (2,742,668)
Accounts payable 16,836,731 13,411,777
Accrued expenses 772,158 29,781
Other, net 9,236,144 (19,923)
------------ ------------
$ 15,541,506 $ 4,419,363
============ ============
5. Segment Information
The Company has six reporting segments or divisions: Crops, Feed, Petroleum,
Retail Farm Supply, Farm and Home, and Marketing. The crops segment procures,
manufactures, processes and distributes fertilizer, seed and crop protection
products. The feed segment procures and manufactures dairy, livestock,
equine, poultry, pet and aquacultural feeds. The petroleum segment
distributes all grades of gasoline, kerosene, fuel oil, propane and other
related petroleum products. The retail farm supply segment distributes
agricultural supplies through approximately 200 Company owned and managed
local cooperatives. The farm and home segment distributes farm and home
products at wholesale and retail centers. The marketing segment purchases
corn, soybean, wheat, barley and livestock from its members and markets these
products.
The Company evaluates performance based on operating profit or loss. Interest
expense is allocated to each of the segments based upon segment assets
employed and excludes the allocation of general corporate overhead. The
Company accounts for intersegment sales at current market prices.
The following tables present information about the Company's reported segment
profits and losses as well as the reconciliation of reportable segment
revenues and operating losses to the Company's consolidated totals for the
quarters ended September 30, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
September 30, 1998
Retail Farm
Crops Feed Petroleum Farm Supply and Home Marketing
-------------- -------------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers $ 17,792,293 $ 36,516,880 $ 36,817,123 $ 58,942,352 $ 46,113,046 $14,083,725
Intersegment revenues 20,692,353 14,139,287 3,168,060 9,948,392 1,774,377
Segment profit (1,068,872) 1,304,032 (1,011,611) (4,293,079) 388,651 291,475
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
Other Total
---------- -----------
<S> <C> <C>
Revenues from external
customers $ 627,490 $ 210,892,909
Intersegment revenues 150,782 49,873,251
Segment profit (137,115) (4,526,519)
</TABLE>
September 30, 1997
<TABLE>
<CAPTION>
Retail Farm
Crops Feed Petroleum Farm Supply and Home Marketing
-------------- -------------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers $ 19,496,875 $ 37,067,372 $ 53,942,417 $ 60,851,268 $ 44,208,728 $ 18,696,141
Intersegment revenues 22,223,930 15,067,223 4,763,586 9,656,547 2,866,662
Segment profit (785,905) 1,824,375 (518,150) (2,730,443) 733,330 400,011
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
Other Total
---------- -----------
<S> <C> <C>
Revenues from external
customers $ 573,612 $ 234,836,413
Intersegment revenues 122,103 54,700,051
Segment profit (127,342) (1,204,124)
</TABLE>
F-46
<PAGE>
The following is a reconciliation of reportable segment revenues and
loss before income tax benefit to the Company's consolidated totals.
September 30, 1998 September 30, 1997
------------------ ------------------
Loss before income tax benefit
Total loss for reportable segments $ (4,526,519) $ (1,204,124)
General corporate expenses (6,234,289) (5,827,214)
------------- -------------
Net loss before income tax benefit $ (10,760,808) $ (7,031,338)
============= =============
6. New Accounting Standards
During the Company's fiscal year ended 1998, the Financial Accounting
Standards Board issued several new pronouncements, including standards on
information about derivatives, and employer's disclosures about pension and
other postretirement benefit plans. The Company is currently evaluating any
impact of the derivatives standard; the other standards are not expected to
have a material impact on the Company's financial statements.
7. Subsequent Event
On October 13, 1998, the Company purchased the assets of the farm supply
inputs business of Gold Kist Inc., a Georgia cooperative marketing
association for approximately $218,313,000, net of liabilities assumed of
approximately $38,096,000 (estimated based on August 31, 1998 information).
The final purchase price will be based on a post-closing statement of net
current asset value as defined in the purchase agreement. The net assets
purchased included certain inventory, real property, personal property, and
certain accounts receivable, other assets, and certain liabilities. The
transaction was accounted for using the purchase method. The Company
financed the transaction utilizing a bridge loan facility.
F-47
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF ASSETS TO BE ACQUIRED
AND LIABILITIES TO BE ASSUMED
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 26, 1998 September 27, 1997
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Receivables, principally trade, less allowance for doubtful accounts
of $5,481 as of September 26, 1998 and $6,493 as of June 27, 1998.. $ 52,516 77,205
Crop notes receivable, less allowance for doubtful notes of $7,000
as of September 26, 1998 and $6,816 as of June 27, 1998............ 77,893 71,073
Inventories (note 2)................................................. 75,378 89,218
Other current assets................................................. 708 1,116
--------- --------
Total current assets............................................... 206,495 238,612
Investments............................................................ 391 1,535
Property, plant and equipment, net..................................... 46,614 48,185
Other assets........................................................... 826 811
--------- ---------
Total assets....................................................... $254,326 289,143
======= =======
LIABILITIES
Current liabilities:
Current maturities of long-term debt................................. $ 235 235
Accounts payable..................................................... 23,292 59,134
Accrued compensation and related expenses............................ 1,251
Other current liabilities............................................ 1,096 2,538
------- -------
Total current liabilities.......................................... 24,623 63,158
Long-term debt, excluding current maturities........................... 8,576 8,628
------- -------
Total liabilities.................................................. 33,199 71,786
------- -------
Net assets......................................................... $221,127 217,357
======= =======
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF OPERATIONS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
September 26, 1998 September 27, 1997
------------------ ------------------
<S> <C> <C>
Net sales......................................................... $ 91,508 104,735
Cost of sales..................................................... 78,506 91,495
------- -------
Gross margin.................................................. 13,002 13,240
Distribution, administrative and general expenses................. 22,054 22,444
------- -------
Net operating loss............................................ (9,052) (9,204)
Other income (deductions):
Interest income............................................... 3,209 2,972
Interest expense.............................................. (3,994) (3,168)
Miscellaneous, net............................................ 171 753
-------- --------
Total other deductions................................... (614) 557
-------- --------
Loss before income taxes...................................... (9,666) (8,647)
Income tax benefit (note 3)....................................... 3,625 3,288
------- -------
Net loss...................................................... $ (6,041) (5,359)
======= =======
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
September 26, 1998 September 27, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (6,041) (5,359)
Non-cash items included in net income (loss):
Depreciation and amortization............................. 1,592 1,520
Allowance for doubtful accounts........................... (828) 292
(Gains) losses on sales of assets......................... 11 (396)
Other..................................................... 1,062 30
Changes in operating assets and liabilities:
Receivables............................................... 25,692 17,428
Crop notes receivable..................................... (6,996) (7,017)
Inventories............................................... 13,840 8,233
Other current assets...................................... 408 (3,068)
Accounts payable and other current liabilities............ (38,535) (24,348)
------- -------
Net cash used in operating activities................... (9,795) (12,685)
------- -------
Cash flows from investing activities:
Acquisitions of investments................................. - -
Acquisitions of property, plant and equipment............... (21) (2,270)
Proceeds from disposals of property, plant and equipment.... 56 594
------- -------
Net cash provided by (used in) investing activities..... 35 (1,676)
------- -------
Cash flows from financing activities:
Proceeds from long-term borrowings.......................... - -
Principal payments of long-term debt........................ (52) (47)
Net transfers from Gold Kist Inc............................ 9,812 14,409
------- -------
Net cash provided by financing activities............. 9,760 14,362
------- -------
Net change in cash and cash equivalents............... - -
Cash and cash equivalents at beginning of year................ - -
--------- ---------
Cash and cash equivalents at end of year...................... $ - -
========= =========
Supplemental disclosure of cash flow data:
Cash paid during the years for:
Interest paid to third parties............................ $ 87 117
======= =======
Income taxes (note 3)..................................... $ - -
======== =========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
(Unaudited)
1. Gold Kist Inc. ("Gold Kist" or "Company") and Southern States Cooperative,
Incorporated ("Southern States") have entered into an Asset Purchase
Agreement (the "Agreement"), dated as of July 23, 1998, pursuant to which
the Company has agreed to sell and assign, and Southern States has agreed
to purchase and assume, the assets and certain of the liabilities of the
Company's Agri-Services segment, as well as certain crop notes receivable
of AgraTrade Financing, Inc., the Company's wholly-owned finance subsidiary
(such businesses and certain other assets to be acquired are referred to as
the "Inputs Business"). The Agri-Services segment purchases, manufactures
and processes fertilizers, agricultural chemicals, seeds, pet foods, feed
and animal health products and other farm supply items for distribution and
sale at wholesale and retail. Additionally, the segment serves as a
contract procurement agent for and storer of farm commodities such as
soybeans, grain and peanuts and is engaged in cotton processing and
storage.
The financial statements are not intended to be a complete presentation
of the financial position, results of operations and cash flows as if the
Inputs Business had operated as a stand-alone company. Intercompany
balances and transactions within the Inputs Business have been eliminated.
The accompanying financial statements present the assets to be acquired
and liabilities to be assumed and the results of operations and cash
flows of the Inputs Business, based upon the structure of the transaction
as described in the Agreement. The transaction as set forth in the
Agreement is hereinafter referred to as the Acquisition.
The accompanying unaudited financial statements reflect the accounts of the
Inputs Business of Gold Kist Inc. ("Inputs Business"). All significant
intercompany balances and transactions have been eliminated. Due to the
seasonality of the Inputs Business, results of operations for interim
periods are not necessarily indicative of results for the entire year.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position, the results
of operations, and the cash flows. All significant intercompany balances
and transactions have been eliminated in consolidation. Results of
operations for the interim periods are not necessarily indicative of
results for the entire year.
2. Inventories consist of the following:
<TABLE>
<CAPTION>
Sept. 26, 1998 June 27, 1998
-------------- ---------------
<S> <C> <C>
Merchandise for sale............................. $73,781 87,428
Raw materials and supplies....................... 1,597 1,790
------ ------
$75,378 89,218
====== ======
</TABLE>
3. The operations of the Inputs Business are included in the consolidated
income tax returns of Gold Kist. All income tax payments are made by Gold
Kist and are not allocated to the Inputs Business. Pursuant to the
Agreement, Gold Kist will retain all income tax liabilities and rights to
all tax refunds relating to operations prior to the closing date of the
acquisition. Accordingly, the statements of assets to be acquired and
liabilities to be assumed do not reflect current or prior period income tax
receivables or payables. The statements of operations reflect management's
estimates of income tax (expense) benefit using effective federal and state
statutory rates as if the Inputs Business was operated as a stand-alone
company. As Gold Kist manages its tax position on a consolidated basis,
which takes into account the results of all of its operations, the Inputs
Business's effective tax rate could vary in the future from that reported
in the accompanying statement of earnings. The Inputs Business's future
effective tax rate will largely depend on Southern States's structure and
tax strategies.
F-51
<PAGE>
Inside Back Cover
[Picture of Tractor in Field]
<PAGE>
<TABLE>
============================================================ ===========================================================
<S> <C>
No person has been authorized to give any information or to $75,000,000
make any representations other than those contained in this
Prospectus in connection with the offer made by this
Prospectus and, if given or made, such information or
representations must not be relied upon as having been [SSC Logo]
authorized. Neither the delivery of this Prospectus nor any
sale made hereunder and thereunder shall under any
circumstances create an implication that there has been no
change in the affairs of the Company or the Trust since the SOUTHERN STATES
date hereof. This Prospectus does not constitute an offer or CAPITAL TRUST I
solicitation by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the
person making such offer or solicitation is not qualified to
do so or to anyone to whom it is unlawful to make such offer
or solicitation. __% Capital Securities
(Liquidation Amount $25
per Capital Security)
TABLE OF CONTENTS Guaranteed as set forth
Page herein by
----
Farm Cooperatives.................................... 1
Disclosure Regarding Forward Looking Statements...... 2
Prospectus Summary................................... 3 SOUTHERN STATES
Risk Factors......................................... 10 COOPERATIVE,
Use of Proceeds...................................... 15 INCORPORATED
Capitalization....................................... 16
Unaudited Pro Forma Condensed Combined Financial
Information....................................... 17
Selected Historical Consolidated Financial --------------------------------------
Information....................................... 23 Prospectus
Management's Discussion and Analysis of --------------------------------------
Financial Condition and Results of Operations..... 27
The Company.......................................... 39
Business of the Company.............................. 45
Acquisition of the Gold Kist Inputs Business......... 58
Management........................................... 64
The Trust............................................ 73 FIRST UNION CAPITAL MARKETS
Accounting Treatment................................. 74
Description of the Capital Securities................ 74 LEHMAN BROTHERS
Description of the Junior Subordinated Debentures.... 89
The Guarantee........................................ 89 NATIONSBANC MONTGOMERY
The Expense Agreement................................ 102 SECURITIES LLC
Effect of Obligations Under the Junior Subordinated
Debentures, the Guarantee and the Expense
Agreement......................................... 103
United States Federal Income Taxation................ 105 _______ __, 1999
ERISA Considerations................................. 109
Underwriting......................................... 110
Legal Matters........................................ 112
Experts.............................................. 112
Available Information................................ 113
Index to Financial Statements........................ F-1
=========================================================== ===========================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses (excluding commissions) to be incurred in connection with the
issuance and distribution of the securities to be offered are estimated as
follows and will be borne by the Company:
Registration under the Securities Act of 1933, as amended $ 23,978
[New York Stock Exchange Listing Fee....................]
Accounting Fees and Expenses ............................
Blue Sky Fees and Expenses
Legal Fees and Expenses..................................
Trustee and Transfer Agent Fees..........................
Printing and Engraving Expenses..........................
Miscellaneous
----------
Total.............................................. $
==========
Item 14. Indemnification of Directors and Officers
Sections 13.1-698 and 13.1-702 of the Code of Virginia (1950) (the "Code")
provide that, unless limited by its articles of incorporation, a corporation
shall indemnify a director or officer who entirely prevails in the defense of
any proceeding to which he was a party because he is or was a director or
officer of the corporation against reasonable expenses incurred by him in
connection with the proceeding. Further, under Sections 13.1-697 and 13.1-702 of
the Code, a corporation may indemnify an individual made a party to a proceeding
because he is or was a director or officer against reasonable expenses incurred
in the proceeding if (i) he conducted himself in good faith, and (2) he
believed, in the case of conduct in his official capacity with the corporation
that his conduct was in its best interests and, in all other cases, that his
conduct was at least not opposed to its best interests, and (3) in the case of
any criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Such indemnification is not permissible however, (a) in connection
with a proceeding by or in the right of the corporation in which the director
was adjudged liable to the corporation or (b) in connection with any other
proceeding charging improper personal benefit to him, whether or not involving
action in his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him.
Article D of the Restated Articles of Incorporation of Southern States
reads as follows:
The Association shall indemnify any person who was or is a
party to any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative by reason of the fact that he is or was a director,
officer, employee or agent of the Association, or is or was serving
at the request of the Association as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding to the full extent permitted under Title 13.1 of the Code
of Virginia, as the same may be amended from time to time, and under
any other controlling statutes or regulation whether Federal or
State. Such indemnification shall be in addition to, and not in
limitation of, any other indemnity required by law or agreement.
The Company maintains a Directors and Officers Liability Insurance Policy
(the "Policy") in place with Federal Insurance Company which indemnifies
directors and officers of the Company against certain damages and expenses
relating to claims against them caused by negligent acts, errors or omissions.
The Policy is a "claims made" policy with a $ 15,000,000 policy aggregate.
Reference is made to the indemnity provisions in the Underwriting
Agreement which is filed as Exhibit 1 to this Registration Statement.
Under the Trust Agreement, the Company agrees to indemnify each Trustee
with respect thereto or any predecessor Trustee for the Trust, and to hold each
such Trustee harmless against any loss, damage, liability, tax, penalty, expense
or claim of any kind or nature whatsoever incurred without negligence or bad
faith on its part, arising out of or in connection with the creation,
administration or termination of the Trust, including the costs and expenses of
defending itself against any claim or liability in connection with the good
faith exercise or performance of any of its powers or duties under the Trust
Agreement.
Item 15. Recent Sales of Unregistered Securities
During the three fiscal years ended June 30, 1998, the Company issued the
following:
A. Southern States Membership Common Stock. Southern States' common stock
is membership common stock, issued at a price equal to its $1.00 par value per
share. Southern States' membership common stock, notwithstanding a 6% dividend
feature, does not have characteristics typical of an investment security. As an
agricultural cooperative, voting rights in the Company are per capita,
regardless of the number of shares of membership common stock held; there is no
opportunity for capital appreciation, as shares are issued at par ($1.00 per
share) and are redeemable at par; there is no trading market in such shares as
they are subject to significant transfer restrictions. Pursuant to the
requirements of the Agricultural Cooperative Association Act of Virginia and the
Articles of Incorporation and Bylaws of Southern States, its issuance and
transfer is limited to bona fide producers of agricultural products and
cooperative associations that are owned and controlled by such producers who use
the services or supplies of Southern States. An agricultural producer who
qualifies for membership but is not already a member will automatically receive
the first $1.00 of any patronage refund in the form of one share of membership
common stock. Southern States is of the opinion that its membership common stock
should not be considered a security within the meaning of the federal securities
laws, but is nevertheless providing the information below to comply with the
requirements of this item 15 under a contrary view.
1. Issuance of Shares of Membership Common Stock to Managed Local
Cooperatives in Lieu of Cash Refunds of Patronage Refund Allocations.
(a)...Securities Issued. During the fiscal years ended June 30,
1996, 1997 and 1998, the Company issued an aggregate of 1,255,945 shares,
1,179,265 shares, and 803,329 shares of its membership common stock,
respectively, to 66 managed local cooperatives, all of which are managed by the
Company under uniform management contracts and all of which operate as an
integral part of the Southern States cooperative distribution system. See "The
Company--The Southern States Distribution System--Managed Local Cooperatives" in
the Prospectus included as Part I of this Registration Statement. The shares of
membership stock were issued in lieu of cash payments made on the Company's
patronage refund allocations previously distributed to patrons for the fiscal
years ended June 30, 1974, 1975 and 1976, respectively. See "The
Company--Cooperative Structure--Patronage Refunds" in the Prospectus included as
Part I of this Registration Statement.
(b)...Underwriters and Other Purchasers. No underwriters were
involved. See (a) above.
(c)...Consideration. The shares were issued at par value ($1.00 per
share) in lieu of an equivalent dollar amount otherwise payable in cash upon
revolvement of the Company's patronage refund allocations for the years in
question.
(d)...Exemption from Registration Claimed. The Company is of the
opinion that even if its shares of membership common stock are considered to be
securities for purposes of the Securities Act of 1933, the issuance of such
shares was exempt from registration pursuant to Section 4(2) of the Securities
Act in the circumstances described.
2. Issuance of Shares of Membership Common Stock to Agricultural Producers
Who Wish to Qualify to Do Business with the Company on a Cooperative Basis.
(a) Securities Issued. During each of the fiscal years ended June
30, 1996, 1997 and 1998, the Company issued one (1) share of its membership
common stock, $1.00 par value per share, to each of approximately 200
agricultural producers who purchased one share each in order to qualify for
membership in the Company. Such transactions usually involved agricultural
producers who did not wish to wait to receive a share of membership common stock
in connection with a future patronage refund based upon business done with the
Company.
(b) Underwriters and Other Purchasers. No underwriters were
involved. See (a) above.
(c) Consideration. $1.00 per share. See (a) above.
(d) Exemption from Registration Claimed. The Company is of the
opinion that the issuance of one (1) share of its membership common stock, at a
purchase price of $1.00, to persons wishing to qualify to do business with the
Company on a cooperative basis, does not involve the issuance of a security for
purposes of the Securities Act of 1933, and that even if such transactions are
viewed as involving the issuance of a security, such transactions were exempt
under Rule 504 of Regulation D.
3. Issuance of Shares in Connection with Mergers of Managed Local
Cooperatives into the Company.
(a) Securities Issued. In the fiscal year ended June 30, 1998, the
Company issued approximately 4,120 shares of its membership common stock to
members of two managed local cooperatives that were merged into the Company
during that period.
(b) Underwriters and Other Purchasers. No underwriters were
involved.
(c) Consideration. $1.00 per share. See (a) above.
(d) Exemption from Registration Claimed. The Company is of the
opinion that even if its shares of membership common stock are considered to be
securities for purposes of the Securities Act of 1933, the issuance of such
shares was exempt from registration under Rule 504 of Regulation D.
4. Issuance of Shares in Connection with Merger of Michigan Livestock
Exchange with and into the Company.
(a) Securities Issued. The Company has issued or will issue a
maximum of approximately 78,000 shares of its membership common stock to members
of Michigan Livestock Exchange ("MLE"), a Michigan cooperative, in connection
with the merger of MLE into the Company effective April 1, 1998. The merger
agreement specified that each active member of MLE who held allocated equities
of MLE at the time of the merger would receive one share of the Company's
membership common stock in exchange for and in lieu of the first $1.00 of
allocated equity held in MLE, which allocated equity was assumed by the Company
in the merger.
(b) Underwriters and other Purchasers. No underwriters were
involved.
(c) Consideration.
(i) One share of membership common stock, $1.00 par value, was
issued or will be issued to each of approximately 38,000 members of MLE as
described in (a) above as part of the consideration for the merger; there were
no discounts or commissions. Members of MLE are required by law to own one share
of the Company's membership common stock in order to be a member of the Company.
Each share issued represents, and will be issued in lieu of, the first $1.00 of
any allocated equity due to such member of MLE, which allocated equities were
assumed by the Company in the merger.
(ii) A maximum of approximately 40,000 of the shares
referenced in (a) above will be issued on the basis of one share per member, to
MLE members who were not due any allocated equity from MLE at the time of
merger, in order to qualify such members of MLE for membership in the Company.
The consideration is $1.00 per share which was deemed by the parties to the
merger to have been paid as part of the merger consideration.
(d) Exemption from Registration Claimed. The Company is of the
opinion that even if its shares of membership common stock are considered to be
securities for purposes of the Securities Act of 1933, the issuance of such
shares was exempt from registration under Rule 504 of Regulation D, as the
consideration for such shares was limited to $1.00 per share, or a maximum of
approximately $78,000.
B. Southern States 6% Cumulative Preferred Stock. Southern States'
6% cumulative preferred stock is issued at a price equal to its $100.00 par
value.
(a) Securities Issued. During its fiscal years ended June 30,
1996, 1997 and 1998, the Company issued 385, 349 and 424 shares, respectively,
of its 6% cumulative preferred stock to existing holders of such securities, in
lieu of cash dividends thereon, pursuant to prior elections made by such holders
to receive additional shares in lieu of cash dividends.
(b) Underwriters and other Purchasers. No underwriters were
involved.
(c) Consideration. Each of the shares referenced in (a) above were
issued at par value, for $100.00 per share, in lieu of cash dividends in like
amount.
(d) Exemption from Registration Claimed. The Company's 6%
cumulative preferred stock was initially sold in 1970 pursuant to the exemption
in Section 3(a)(5)(B) of the Securities Act. At that time, purchasers were given
the option of electing to receive future dividends, if declared, in the form of
cash or in additional shares of the same issue. The Company is of the opinion
that the issuance of additional shares of its 6% cumulative preferred stock
pursuant to such elections is not a sale of such securities within the meaning
of Section 2(3) of the Securities Act. The Company relies on the interpretive
ruling of the General Counsel of the SEC listed at 17 C.F.R. Section 231.929
(par. 1121 of the CCH Federal Securities Law Reports) in support of this
position.
C. "Payment Plus" Debt Obligations.
(a) Securities Issued. On April 1, 1998, Michigan Livestock
Exchange ("MLE"), a Michigan cooperative, merged into the Company. MLE has, for
a number of years, operated a "Payment Plus" program under which farmers and
other members of MLE who sell livestock to or through MLE, can elect to receive
sales proceeds on a deferred basis. Such proceeds are payable upon demand of the
MLE member, and are paid with interest at a specified rate. If not earlier paid,
such obligations are paid 12 months after the date of the livestock sale
transaction that gave rise to such proceeds. The Payment Plus obligations of
MLE, at the time of its merger into the Company, were secured by an irrevocable
stand-by letter of credit issued by the St. Paul Bank for Cooperatives. MLE had
outstanding Payment Plus indebtedness of approximately $17,000,000 at April 1,
1998, held by approximately 550 members of MLE. Payment Plus obligations became
obligations of the Company upon the effective date of the merger and at June 30,
1998, were outstanding at approximately the same level outstanding at April 1,
1998.
(b) Underwriters and other Purchasers. No underwriters were
involved.
(c) Consideration. Payment Plus obligations are interest-bearing
debt obligations for livestock sales proceeds owed by MLE (now the Company) to
members as a result of commercial transactions handled by MLE (now the Company).
(d) Exemption from Registration Claimed. Prior to its merger into
the Company, MLE was a farmers' cooperative organization exempt from tax under
section 521 of the Internal Revenue Code of 1954. Accordingly, if the Payment
Plus obligations of MLE are viewed as securities, the Company is of the view
they were exempt from registration pursuant to section 3(a)(5)(B) of the
Securities Act of 1933. Upon the merger of MLE into the Company effective April
1, 1998, the Payment Plus obligations became obligations of the Company.
Although the Payment Plus obligations (as obligations of the Company) no longer
qualify for the exemption in section 3(a)(5)(B) of the 1933 Act, the Company has
continued to maintain the bank letter of credit securing such obligations and,
accordingly, is of the opinion that if such obligations constitute securities,
they are exempt from registration by virtue of the exemption from registration
provided by section 3(a)(2) of the 1933 Act.
Item 16. Exhibits, Financial Statement Schedules
(A) EXHIBITS
An index of exhibits appears at page II-10 and is incorporated herein by
reference.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II-Valuation and Qualifying Accounts.
All other schedules are omitted as the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes included herein.
Item 17. Undertakings
(a) Each of the undersigned registrants hereby undertakes to provide to
the underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by them is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Southern
States Cooperative, Incorporated has duly caused this Registration Statement on
Form S-1 to be signed on its behalf
<PAGE>
by the undersigned, thereunto duly authorized, in the County of Henrico, State
of Virginia on December 18, 1998.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
BY: /s/ Wayne A. Boutwell
-------------------------
Wayne A. Boutwell
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed for the following persons in
the capacities indicated on December 18, 1998.
/s/ Wayne A. Boutwell President and Chief
- ------------------------------ Executive Officer
Wayne A. Boutwell
/s/ Jonathan A. Hawkins Senior Vice President and
- --------------------------- Chief Financial Officer
Jonathan A. Hawkins
/s/ Robert W. Taylor Controller and
- --------------------------- Principal Accounting Officer
Robert W. Taylor
Michael W. Beahm, Cecil D. Bell, Jr., Floyd K.
Blessing, James E. Brady, Earl L. Campbell, Jere L.
Cannon, William F. Covington, Herbert A. Daniel, H.
Michael Davis, George E. Fisher, R. Bruce Johnson,
James A. Kinsey, J. Wayne McAtee, Fred K. Norris,
Phil Ogletree, Jr., Richard F. Price, Willliam Directors
Pridgeon, Curry A. Roberts, John Henry Smith,
James A. Stonesifer, William W. Vanderwende, Wilbur
C. Ward, Charles A. Wilfong
By: /s/ N. Hopper Ancarrow, Jr.
-----------------------------
N. Hopper Ancarrow, Jr.
Attorney-In-Fact
Pursuant to the requirements of the Securities Act of 1933, Southern
States Capital Trust I has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Henrico, State of Virginia, on December 18, 1998.
SOUTHERN STATES CAPITAL TRUST I
BY: /s/ Jonathan A. Hawkins
-------------------------------
Jonathan A. Hawkins
Administrative Trustee
<PAGE>
EXHIBIT INDEX
to Registration Statement
on Form S-1
SOUTHERN STATES COOPERATIVE, INCORPORATED
SOUTHERN STATES CAPITAL TRUST I
Exhibit No. Description of Exhibit
UNDERWRITING AGREEMENT:
1.* Underwriting Agreement between Southern States Cooperative,
Incorporated and First Union Capital Markets, a division of Wheat
First Securities, Inc., and NationsBanc Montgomery Securities
LLC, dated ________ __, 1998
ARTICLES OF INCORPORATION AND BYLAWS:
3.1 Restated Articles of Incorporation of Southern States
Cooperative, Incorporated, effective July 30, 1998
3.2 Bylaws of Southern States Cooperative, Incorporated, amended as
of October 13, 1998
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1 Certificate of Trust executed by First Union Trust Company,
National Association, filed on December 16, 1998
4.2 Trust Agreement among Southern States Cooperative, Incorporated
and First Union Trust Company, National Association, dated
December 15, 1998
4.3* Form of Amended and Restated Trust Agreement among Southern States
Cooperative, Incorporated, First Union National Bank, First Union
Trust Company, National Association and the Administrative Trustees,
dated ________ __, 1999
4.4* Form of Junior Subordinated Indenture between Southern States
Cooperative, Incorporated and First Union National Bank, as
Indenture Trustee, dated ________ __, 1999
4.5* Form of Capital Securities Certificate for Southern States Capital
Trust I (included as Exhibit E to Exhibit 4.3 above)
4.6* Form of Junior Subordinated Debenture (included as Sections 2.2
and 2.3 of Exhibit 4.4 above)
4.7* Form of Guarantee Agreement between Southern States Cooperative,
Incorporated and First Union National Bank, dated ________ __,
1999
Certain instruments relating to long-term debt not being registered
have been omitted in accordance with Item 601(b) (4) (iii) of
Regulation S-K. Registrant will furnish a copy of any such instrument
to the Commission upon its request.
5.1* Opinion of Mays & Valentine, L.L.P. regarding the legality of the
Junior Subordinated Debentures and the Guarantee
5.2* Opinion of Potter Anderson & Corroon LLP regarding the legality
of the Capital Securities
8.* Opinion of Mays & Valentine, L.L.P. regarding certain federal
income tax matters
MATERIAL CONTRACTS:
10.1 (a) Asset Purchase Agreement between Gold Kist Inc. and
Southern States Cooperative, Inc., dated July 23, 1998
(b) Letter Agreement between Gold Kist Inc. and Southern States
Cooperative, Inc., dated as of October 13, 1998, amending the
Asset Purchase Agreement
(c) Commitment Letter between Gold Kist Inc. and Southern
States Cooperative, Inc., dated October 13, 1998
10.2 Term Loan Credit Agreement by and among Southern States Cooperative,
Incorporated and NationsBank, N.A., First Union National Bank and
CoBank, ACB, dated October 9, 1998
10.3* Revolving Loan Agreement between Southern States Cooperative,
Incorporated and CoBank, ACB, First Union National Bank,
NationsBank, N.A. and various other lenders, dated January __,
1999
10.4 Third Amended and Restated Financing Services and Contributed
Capital Agreement between Southern States Cooperative,
Incorporated and Statesman Financial Corporation, dated November
3, 1997
10.5 Financing Services and Contributed Capital Agreement between
Southern States Cooperative, Incorporated and Michigan Livestock
Credit Corporation, dated April 1, 1998
10.6 (a) Southern States Insurance Exchange Subscriber's Agreement
and Power of Attorney, dated April 27, 1988
(b) Agreement between Southern States Insurance Exchange and
Southern States Underwriters, Incorporated, dated April 27,
1988
10.7 (a) Form of Management Agreement between Southern States
Cooperative, Incorporated and various local managed
cooperatives (listed in Attachment A to Exhibit 10.7)
(b) Management/Operating Agreement between Orange-Madison
Cooperative Farm Service, Inc. and Southern States
Cooperative, Inc., dated March 1, 1991, as amended by
Reclassification Agreement, dated September 1, 1991, as
amended November 20, 1992, as amended April 1, 1993, as
amended February 1, 1994, as amended May 1, 1994, as amended
March 2, 1995
10.8 (a) Member Product Purchase Agreement between CF Industries,
Inc. and Southern States Cooperative, Incorporated, dated
October 18, 1974, as supplemented by letter from J. Sultenfuss
to G. Adlich, dated January 7, 1998
(b) CF Industries, Inc. Product Purchase Agreement Assignment
and Assumption Agreement by and among Gold Kist Inc., Southern
States Cooperative, Inc. and CF Industries, Inc., dated
October 13, 1998
10.9 Agreement and Plan of Merger between and among Southern States
Cooperative, Incorporated, and Michigan Livestock Exchange,
Statesman Financial Corporation and Michigan Livestock Credit
Corporation, dated as of December 31, 1997
10.10 (a) Ground Lease between Southern States Cooperative,
Incorporated, as Lessor, and Gold Bond Stamp Company of
Georgia, as Lessee, dated as of July 15, 1977
<PAGE>
(b) Lease and Agreement between Gold Bond Stamp Company of
Georgia, as Lessor, and Southern States Cooperative,
Incorporated, as Lessee, dated as of July 15, 1977
10.11 Lease Agreement with Purchase Option by and between Scott
Petroleum Corporation and Gold Kist Inc., dated January 5, 1995
MANAGEMENT REMUNERATION PLANS:
10.12 Southern States Supplemental Retirement Plan, effective November 11,
1987, as amended and restated through Fourth Amendment, effective
July 1, 1995
10.13 Southern States Deferred Compensation Plan, effective July 1, 1995,
as amended and restated through Fourth Amendment, effective July 1,
1998
10.14 Southern States Directors Deferred Compensation Plan, effective July
1, 1989, as amended and restated through First Amendment, effective
July 1, 1995
10.15 Form of Executive Split Dollar Agreement between Southern States
Cooperative, Incorporated and certain executive officers (listed in
Attachment A to Exhibit 10.15)
12. Computation of Ratios
21. List of Subsidiaries
CONSENTS OF EXPERTS AND COUNSEL:
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3* Consent of Mays & Valentine, L.L.P. (included in Exhibit 5.1 and
Exhibit 8)
23.4* Consent of Potter Anderson & Corroon LLP (included in Exhibit 5.2)
24. Powers of Attorney
25. Statement of Eligibility on Form T-1 under the Trust Indenture Act
of 1939, as amended, of First Union National Bank, as Property
Trustee under the Trust Agreement and the Amended and Restated Trust
Agreement, and as Trustee under the Junior Subordinated Indenture
and the Guarantee
27. Financial Data Schedule
- -----------------------
* To be filed by amendment.
<PAGE>
Report of Independent Public Accountants on Schedule II
Southern States Cooperative, Incorporated
To the Board of Directors of
Southern States Cooperative, Incorporated
In connection with our audits of the consolidated financial statements of
Southern States Cooperative, Incorporated and Subsidiaries as of June 30, 1998
and 1997, and for each of the three years in the period ended June 30, 1998,
which financial statements are included in the Prospectus, we have also audited
the financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
August 31, 1998
S-1
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SOUTHERN STATES COOPERATIVE, INCORPORATED
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
<S> <C> <C> <C> <C> <C>
Balance Charged Balance
at Beginning to Costs and Charged to at End of
of the Period Expenses Other Accounts Deductions Period
------------- ------------ -------------- ---------- ----------
Year ended 6-30-98
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful accounts 2237 100 1233 (1) 927 (2) 2643
Allowance for discounts and
other deductions 0 0 0 0
------------- ------------ ------------- ------------ -------------
2237 100 1233 927 2643
============ ============ ============= ============ =============
Year ended 6-30-97
Reserve and allowances
deducted from asset accounts:
Allowance for doubtful accounts 2217 93 73 (2) 2237
Allowance for discounts and
other deductions 0 0 0 0
------------- ------------ ------------- -------------
2217 93 73 2237
============ ============ ============= =============
Year ended 6-30-96
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful accounts 1644 643 70 (2) 2217
Allowance for discounts and
other deductions 0 0 0 0
------------ ------------ ------------- ------------
1644 643 70 2217
============ ============ ============= ============
</TABLE>
(1) Allowance balance of subsidiary at acquisition
(2) Accounts charged off, net of recoveries
S-2
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
SOUTHERN STATES COOPERATIVE, INCORPORATED
The name of the Association is Southern States Cooperative,
Incorporated.
The purposes for which this Association is formed are to engage in any
cooperative activity for producers of agricultural products in connection with:
(a) Producing, assembling, marketing, buying or selling
agricultural products, or harvesting, preserving,
drying, processing, manufacturing, blending, canning,
packing, ginning, grading, storing, warehousing,
handling, transporting, shipping, or utilizing such
products, or manufacturing or marketing the
by-products thereof.
(b) Manufacturing, processing, storing, transporting,
delivering, handling, buying for or furnishing
supplies to its members and other patrons.
(c) Performing or furnishing business or educational or
other services, including the services of buildings,
machinery and equipment, and assuming production and
marketing risks, on a cooperative basis.
(d) Financing any of the above enumerated activities for
its members and patrons.
The authorized capital stock of this Association shall be 20,000,000
shares of Common Stock, of the par value of $1 each, and 1,000,000 shares of
Preferred Stock, of the par value of $100 each. Such capital stock may be issued
from time to time by the Board of Directors of this Association as they deem
necessary.
1. Preferred Stock
(a) The Board of Directors may, from time to time, issue Preferred Stock in one
or more series, with variations as may be determined by the Board of Directors
prior to the issuance thereof, and may reclassify any of the authorized but
unissued Preferred Stock of a particular series as shares, or additional shares,
of any other series, whether then or theretofore created (except any series as
to which it shall have been otherwise provided at the time of creating such
series), as to (i)the distinctive serial designations; (ii) the rate or rates,
which may be fixed or otherwise, of cumulative, non-cumulative or partially
cumulative dividends thereon, provided, however, the dividend rate which the
Preferred Stock of any series shall be entitled to receive shall not exceed the
maximum dividend rate permitted by law, (iii) the times of payment of dividends;
(iv) the redemption price, if any, and the premium payable thereon, if any; (v)
the preference payable on liquidation or dissolution or winding up of the
Association; and provided, further, all shares of Preferred Stock shall be of
equal rank and shall be identical in all other respects, except in respect of
the particulars that may be fixed by the Board of Directors, as hereinabove
provided; and all shares of each series shall be identical.
<PAGE>
One share of said Preferred Stock shall be designated
"4% Series Cumulative Preferred Stock"; 2,175 shares of said Preferred
Stock shall be designated "5% Series Cumulative Preferred Stock"; and
100,000 shares of said Preferred Stock shall be designated "6% Series
Cumulative Preferred Stock". The cumulative dividends on each series
specified above shall be payable one-half on January 1 and one-half on
June 30 of each year and all shares of each such series shall be
identical and of equal rank except in respect to the rate of dividend
thereon.
The preferences, voting powers, rights, restrictions
and qualifications of the Preferred Stock of the Association shall be
as follows:
The Preferred Stock of each series shall be preferred
as to assets and dividends, and out of the net savings of the
Association for each fiscal year cumulative dividends at, but not
exceeding, the fixed dividend rate for each series shall be declared
and paid at such periods as the Board of Directors shall fix for each
series, before any dividends may be declared on the Common Stock for
such year.
All or any of the outstanding Preferred Stock, or any
series thereof, may be redeemed by the Association at any time as may
be determined by the Board of Directors after thirty (30) days' notice
and upon payment in cash of the stated redemption price thereof, plus
accrued and unpaid dividends, if any. In the event only part of the
outstanding Preferred Stock or of any series thereof shall be redeemed,
that part to be so redeemed shall be determined by drawing lots.
In the event of any liquidation or dissolution or
winding up (whether voluntary or involuntary) of the Association, then,
after the payment of its debts, the holders of each series of the
outstanding Preferred Stock shall have a preference on the assets of
the Association and shall be entitled to be paid therefrom in full both
the stated preference on liquidation, dissolution or windup, or if no
liquidation preference is stated, at the par value of their shares, and
the unpaid dividends accrued thereon before any amount shall be paid to
the holders of the Common Stock or any other class of stock ranking
junior to the Preferred Stock.
(b) As used in this Section 1, "articles of incorporation"
shall mean the articles of incorporation as in effect at any time or as
may thereafter be amended, and shall include, without limitation, all
provisions contained in any articles of amendment or restatement
creating the Preferred Stock.
<PAGE>
For the purposes of the articles of incorporation,
any class or series of stock of the Association shall be deemed to
rank---
(i) prior to another class or series either as to
dividends or upon liquidation, if the holders of such class or
series shall be entitled to the receipt of dividends or of
amounts distributable on liquidation, dissolution or
winding-up, as the case may be, in preference or priority to
holders of such other class or series;
(ii) on a parity with another class or series either
as to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates, or redemption or
liquidation prices per share thereof are different from those
of such others, if the holders of such class or series of
stock shall be entitled to receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend
rates or prices, without preference or priority one over the
other with respect to the holders of such other class or
series; and
(iii) junior to another class or series either as to
dividends or upon liquidation, if the rights of the holders of
such class or series shall be subject or subordinate to the
rights of the holders of such other class or series in respect
of the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
2. Common Stock
(a) Subject to the provisions of law, the preferences of any
capital stock ranking prior (as defined in paragraph (b) of Section 1
above) to the Common Stock and any restrictions contained in the Bylaws
of the Association, dividends may be paid on the Common Stock, at such
times and in such amounts as may be declared by the Board of Directors
out of funds legally available therefor.
(b) The Common Stock shall be issued to, held by, or
transferred to, only such persons or associations as are eligible for
membership in the Association according to the requirements for
membership prescribed in the Bylaws of the Association.
(c) Voting rights in this Association shall be vested in its
common stockholder-members; provided, however, each member shall be
entitled to one and only one vote regardless of the number of shares or
amount of stock owned by such member.
(d) Whenever any member desires to sell his Common Stock, he
shall first offer it to the Association, for purchase by the
Association, or by a person or persons designated by the Board of
Directors of the Association, at its par value plus declared and unpaid
dividends. In the event such stock is not purchased by the Association,
or by a person or persons designated as aforesaid, within thirty (30)
days after the receipt of a written notice by the Association offering
the said stock for sale, then the member may sell the said Common Stock
to any other person or association eligible for membership in the
Association. This restriction on the transfer of Common Stock shall be
printed upon every Common Stock certificate. If the Board of Directors
decides to repurchase such Common Stock, the Association shall have the
right to apply any sum or sums of money in which the member may be
indebted to the Association on the payment therefor. The Association
shall be deemed to have a prior lien against such Common Stock as
security for the payment of such indebtedness. This shall also govern
the repurchase of the Common Stock in case of death, dismissal,
expulsion, or withdrawal of any member or members.
<PAGE>
3. Other Matters
The Board of Directors may, from time to time, sell any and
all of the unissued capital stock of the Association, whether the same
be any of the original authorized capital or of any increase thereof,
without first offering the same to stockholders then existing, and all
such sales may be made upon such terms and conditions as by the said
Board may be deemed advisable, and may restrict a purchase, sale,
distribution, transfer, owning and holding of stock as fully and to the
extent authorized by law.
The Association shall indemnify any person who was or is a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, arbitrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of the Association, or
is or was serving at the request of the Association as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the full extent permitted
under Title 13.1 of the Code of Virginia, as the same may be amended from time
to time, and under any other controlling statutes or regulation whether Federal
or State. Such indemnification shall be in addition to, and not in limitation
of, any other indemnity required by law or agreement.
The number of directors shall be fixed by the Bylaws and in the absence
of a bylaw fixing the number, the number shall be fifteen (l5).
EXHIBIT 3.2
(September 23, 1998)
THE BYLAWS OF
SOUTHERN STATES COOPERATIVE, INCORPORATED
ARTICLE I - PURPOSES AND POWERS
The purposes for which this Association is formed are set forth in the
Articles of Incorporation.
ARTICLE II - MEMBERSHIP
Section 1. Eligibility. Bona fide producers of agricultural products
(including tenants and landlords receiving a share of the crop) and cooperative
associations owned and controlled by bona fide producers of agricultural
products which comply with the provisions of the Agricultural Marketing Act, [12
USCA Section 1141j(a)] may become members of the Association by complying with
the membership requirements.
Section 2. Membership Requirements. Any person or association eligible
for membership, upon the acquisition of one (1) or more shares of the common
capital stock of the Association shall be deemed a lawful member entitled to
vote.
Section 3. Voting. Each member shall be entitled to one (1) and only
one (1) vote regardless of the number of shares or amount of the common capital
stock of the Association owned by such member.
Section 4. Dismissal of Members. The Board of Directors shall have the
right to dismiss any member or members who have been adjudged by the Board of
Directors to have violated any of the membership requirements as provided in
these Bylaws; or to be acting contrary to the aims and purposes, or the best
interests of the Association, or has failed to patronize the Association for a
period of three (3) years or longer, provided, however, that any such member or
members shall have an opportunity to appear in his or their own behalf before
the next regular or special meeting of the membership, whose decision in all
such matters shall be final. The Board of Directors shall repurchase at par
value, plus any accrued and unpaid dividends, the common capital stock of any
member or members dismissed hereunder within a reasonable time after such
dismissal.
Section 5. Subsequent Ineligibility. In the event any member shall
cease to be eligible to hold membership in the Association, such member may be
required to surrender said common stock at par value, plus any declared and
unpaid dividends.
<PAGE>
Section 6. Death of Members. The Board of Directors may repurchase at
par value, plus any declared and unpaid dividends, the common capital stock of
any deceased member. Should the Association not desire to repurchase such stock
of a deceased member it may be sold or transferred to any other person eligible
for membership in the Association as set forth in Section 1 of this Article. An
association of producers shall be deemed deceased when it is no longer eligible
for membership in the Association.
Section 7. Roll. A roll of the members and their addresses shall be
kept by the Association. Each member shall notify the Association of any change
of address within fifteen (15) days of any such change. The Board of Directors
may suspend the voting rights of any member who fails to give such notice of any
change of address and withhold dividends on any membership stock registered in
such member's name and notice of any membership meetings until his new address
can be ascertained and his eligibility to continue his membership in this
Association can be determined.
Section 8. Annual Meetings. The annual meeting of the members of this
Association shall be held at such time and place in the State of Virginia or in
any other State as may be allowed by law, as the Board of Directors may
determine.
Section 9. Special Meetings. Special meetings of the members may be
held at any place within the State of Virginia or in any other State as may be
allowed by law, at any time upon the call of the Board of Directors, or at least
ten percent (10%) of the members of the Association.
Section 10. Notice of Meetings. Written or printed notice of all
meetings of the members, annual or special, setting forth the time and place
together with a statement of purposes thereof and containing any other
information that may be required by law, shall be mailed to each member eligible
to vote at his address as the same appears on the records of the Association not
less than fifteen (15) days prior to the date of such meeting. In lieu of notice
given in any other manner, all or any meetings of members, annual or special,
may, if the Board of Directors so directs as to any or all such meetings, be
held after notice by publication in a periodical published by or for the
Association which substantially all the members of the Association receive, or
in a newspaper or newspapers, whose combined circulation is general in the
territory in which the Association operates.
Section 11. Quorum at Meetings for All Members. A quorum at any meeting
of the members (except local membership meetings which shall be governed by
Section 3 of Articles IV and V and Section 4 of Article VI) shall consist of
fifty (50) members, represented in person, or by proxy. A majority of such
quorum shall decide any question that may come before the meeting, except as
otherwise provided by law, the Articles of Incorporation, or these Bylaws.
Section 12. Quorum at Election District Meetings. A quorum at any
Election District Meeting shall consist of ten (10) delegates or alternates
present in person. A majority of such quorum shall decide any question that may
come before the meeting.
<PAGE>
Section 13. Proxy Voting. Absent members may vote at all meetings of
the members by proxy in writing.
Section 14. Order of Business. The order of business at the annual
meetings and, as far as possible, at all other meetings of the members shall be
determined by the Board of Directors.
Section 15. Voting by Mail. The Board of Directors may, if it deems it
necessary or desirable, submit amendments to the Bylaws or other matters to the
members for their determination by mail ballot. Printed copies of proposed Bylaw
amendments or other questions so submitted and an appropriate mail ballot shall
be mailed to each and every member eligible to vote at his address as the same
appears on the records of the Association, not less than fifteen (15) days prior
to the date when said ballots must be returned by mail in order to be counted.
ARTICLE III - CAPITAL STOCK
Section 1. Certificates. Certificates of stock may be issued and shall
be signed by either the President and Chairman of the Board of Directors, Vice
President and Vice Chairman of the Board of Directors, Treasurer, or Assistant
Treasurer, and the Secretary or Assistant Secretary or any two (2) officers
authorized by the Board of Directors, under the corporate seal, and on the
record of each certificate shall be entered the name of the person owning the
shares, represented thereby, the number of such shares and the date of issue.
Facsimile signatures of such officers and a facsimile of the seal of the
Association may be used. The Board of Directors may elect to adopt the
provisions of the Virginia Code permitting shares to be issued without
certificates.
Section 2. Payment for Stock. (a) Except as may be limited by the
Articles of Incorporation, preferred capital stock may be issued for not less
than its par value for cash, or in exchange for real, personal or other property
at valuations determined by the Board of Directors and may be issued and held by
any person, firm or corporation.
(b) Common capital stock, including fractional shares, may be issued
for not less than its par value for cash, or in payment of patronage refunds as
provided in the Bylaws, or for the promissory notes of the members. The
Association shall hold the common capital stock as security for the payment of
said notes, but such retention shall not affect the members' right to vote. In
the event any such notes be not paid at maturity, the Board of Directors may
return to the member the amount paid by him and cancel his membership. The said
common capital stock shall be issued to and held by only such persons as are
eligible for membership in the Association.
<PAGE>
Section 3. Repurchase of Common Capital Stock. (a) Whenever any member
desires to sell his common capital stock he shall first offer it to the
Association for purchase by the Association, or by a person or persons
designated by the Board of Directors of the Association, at its par value plus
declared and unpaid dividends, if any. In the event such stock is not purchased
by the Association, or by a person or persons designated as aforesaid, within
thirty (30) days after the receipt of a written notice by the Association
offering the said stock for sale, then the member may sell the said common
capital stock to any person eligible for membership in the Association. This
restriction on the transfer of common capital stock shall be printed upon every
common stock certificate, or in the disclosure statement issued in lieu of a
certificate.
(b) If the Board of Directors decides to repurchase such common capital
stock, the Association shall have the right to apply any sum or sums of money
for which the member may be indebted to the Association on the payment therefor.
This section shall also govern the repurchase of the common capital stock in
case of the death, dismissal, expulsion, or withdrawal of any member or members.
Section 4. Transfers. Transfers of shares shall be made only on the
records of the Association by the holder in person or under power of attorney
duly executed, witnessed and filed with the Association, and upon surrender of
any outstanding certificates of such shares. Transfers will be made only when
the stockholder is not delinquent in his indebtedness to the Association.
Transfers of the common capital stock shall be made only after the requirements
of Article III, Section 3, of these Bylaws have been satisfied.
Section 5. Dividends. The Board of Directors may declare dividends on
common capital stock not to exceed six percent (6%) per annum and on the
preferred capital stock of the Association at a rate per annum to be fixed by
the Board of Directors not to exceed the maximum rate permitted by law, together
with any dividends in arrears on shares of preferred capital stock.
ARTICLE IV - PRIVATE DEALERS AND ADVISORY BOARDS
Section 1. Establishment of Private Dealers. Distribution of supplies
and services may be provided through Private Dealers that agree to resell the
Association's products and services to members of the Association and others.
Each Private Dealer must agree to operate in a manner that reflects the
cooperative nature of transactions in the Association's goods with Members and
Patrons entitled to patronage refunds under Article XII of these Bylaws. Unless
otherwise agreed, Members and Patrons entitled to patronage refunds under
Article XII who acquire goods and services offered by the Association through
such Private Dealers shall be deemed patrons of the Association for patronage
refund purposes with respect to such goods and services.
Nothing herein shall prevent the establishment of distribution through
other types of non-cooperative outlets when deemed beneficial to the overall
economic well being of the Association.
<PAGE>
Section 2. Establishment and Election of Advisory Boards. Where in the
judgment of Management factors such as, among others, the number of members
served by a Private Dealer and the volume of transactions in the Association's
goods and services handled by a Private Dealer justify the creation of a local
Advisory Board to serve as a liaison between the members patronizing one (1) or
more of such Private Dealers, the local members shall elect, from their own
number, at their local annual meeting, an Advisory Board. Each Advisory Board
shall consist of six (6) members whose terms of office shall be three (3) years.
A member of an Advisory Board shall only be eligible to be elected to succeed
himself for one (1) additional term before going off the Advisory Board for at
least one (1) year. All vacancies on the Advisory Board shall be filled by the
remaining members of the said Advisory Board, subject to confirmation by the
local members of the Association served by the Private Dealer at their next
local annual meeting. The Advisory Board shall elect a Chairman, a Vice
Chairman, and a Secretary for terms of one (1) year.
Section 3. Quorum. At all local meetings of the members as provided for
in this Article a quorum shall consist of ten (10) members then having voting
power. A majority of such quorum shall decide any question that may come before
the meeting. At all meetings of the Advisory Board a majority of the Advisory
Board shall constitute a quorum. A majority of such quorum shall decide any
questions that may come before the meeting.
Section 4. Cancellation of Private Dealer Agreement. In the event of
the cancellation of such Private Dealer Agreement, the Advisory Board for such
Private Dealer shall continue in office until a new Private Dealer shall be
appointed. In the event it shall not prove practical or feasible to so appoint
another Private Dealer, such Advisory Board shall be deemed to have resigned as
Advisory Board members and the members of the Association served by such Private
Dealer shall be invited to participate in membership activities of the nearest
retail distribution point serving members of the Association.
ARTICLE V - STOCKHOLDER ADVISORY BOARDS
Section 1. Election of Stockholder Advisory Board. The local members of
the Association, served by a retail service of the Association, shall elect from
their own number a Stockholder Advisory Board at their local annual meeting.
Each Stockholder Advisory Board shall consist of six (6) members, whose terms of
office shall be for three (3) years. The terms of office shall be so arranged
that the terms of two (2) members shall expire each year. A member of an
Advisory Board shall only be eligible to be elected to succeed himself for one
(1) additional term before going off the Advisory Board for at least one (1)
year. All vacancies on the Stockholder Advisory Board shall be filled by the
remaining members of said Advisory Board, subject to confirmation by the local
members of the Association served by the retail service at their next local
annual meeting. The Stockholder Advisory Board shall elect a Chairman, Vice
Chairman and a Secretary for terms of one (1) year. Management shall determine
which retail locations shall be grouped together as a retail service having a
Stockholder Advisory Board; and where two (2) or more Stockholder Advisory
Boards are grouped together to form one (1) Advisory Board, management may
provide for such combined Advisory Board to have more than six (6) members in
situations where it is deemed necessary to do so to adequately represent
Members. Nothing herein shall prevent the establishment of a retail service
without a Stockholder Advisory Board where circumstances warrant that decision.
But the Members at such a retail service shall be provided an opportunity to
participate in nearby local membership activities designated by Management.
<PAGE>
Section 2. Duties of Stockholder Advisory Board. Each Stockholder
Advisory Board shall serve in an advisory capacity with respect to operation of
the retail service it serves and shall make recommendations to the Board of
Directors of the Association on matters referred to the Advisory Board by the
Directors and may make recommendations to the Directors on policies affecting
the retail service.
Section 3. Quorum. At all local meetings of the members as provided for
in this Article a quorum shall consist of ten (10) members then having voting
power. A majority of such quorum shall decide any questions that may come before
the meeting. At all meetings of the Stockholder Advisory Board a majority of the
Advisory Board shall constitute a quorum. The majority of such quorum shall
decide any questions that may come before the meeting.
ARTICLE VI - MARKETING
(A)
GRAIN MARKETING
Section 1A. Grain Producers Advisory Board Election. The Grain
Producers Advisory Board shall consist of as many eligible members elected by
the membership in each region for terms of three (3) years each as may, from
time to time, be established by the Board of Directors. If more than one (1)
member represents a region, the terms shall be staggered. The Advisory Board
shall also have one (1) at-large member as provided in Section 2A of this
Article. Each member of the Advisory Board shall serve until the election and
acceptance of his duly qualified successor. Vacancies, other than from the
expiration of a term of office, shall be filled from the region in which the
vacancy occurs, by a majority vote of the remaining Advisory Board members. The
Board of Directors shall divide the territory served by Grain Marketing into at
least four (4) geographic regions so that as far as practical, each area of such
territory shall be represented on the Grain Producers Advisory Board. Changes in
the number and boundaries of these regions may be made by the Board from time to
time as circumstances require.
Elections for members of the Grain Producers Advisory Board shall be
held in accordance with procedures not inconsistent with these Bylaws. The
chairmen of the Elevator Advisory Boards in each region shall each appoint a
nominating committee consisting of one (1) member from their respective Elevator
Advisory Board and two (2) grain producer members from the area served by such
Elevator. These nominating committees shall nominate at least two (2) members
from the region for each position on the Grain Producers Advisory Board to be
filled. In the event there shall be more than one (1) Elevator Advisory Board in
a region, there shall be a nominee from the area served by each Elevator.
<PAGE>
Grain producer members who have failed to use the grain marketing
services of the Association within the three (3) fiscal years immediately
preceding any election held under this Article, shall be ineligible to vote in
such election.
The nominee in each region receiving the highest number of votes from
the region shall be deemed elected to the Grain Producers Advisory Board. The
term of office shall begin on December 1 in the year of election and shall end
on December 1 three (3) years thereafter, or until the election and acceptance
of a duly qualified successor, whichever is later, unless duly terminated at an
earlier date. In the event of a tie, the winner shall be determined by lot.
The mailing address of each grain producer member shall determine the
region in which the member shall vote. Members of the Grain Producers Advisory
Board may succeed themselves.
The Grain Producers Advisory Board shall elect a Chairman, Vice
Chairman, and a Secretary for terms of one (1) year.
Section 2A. The At-Large Grain Producers Advisory Board Member. In
addition to the elected members of the Grain Producers Advisory Board, one (1)
at-large Member shall be appointed by the Board of Directors for a term of three
(3) years, or until his successor is appointed. The at-large Member shall have
the same powers and rights as other members of the Advisory Board. Any vacancy
occurring in the office of at-large Advisory Board Member shall be filled in the
same manner as the original appointment was made.
Section 3A. Duties of the Grain Producers Advisory Board. The Grain
Producers Advisory Board shall serve in an advisory capacity to the Board of
Directors with respect to the operation of the Grain Marketing Division, and
shall make recommendations to the Board of Directors of the Association on
matters referred to the Grain Producers Advisory Board by the Board of Directors
and may make recommendations to the Board on policies affecting Grain Marketing
operations.
Section 4A. Quorum. At all local membership meetings of Grain Marketing
members as provided for in this Article, a quorum shall consist of ten (10)
grain producer members then having voting power. A majority of such quorum shall
decide any question that may come before the meeting. At all meetings of the
Grain Producers Advisory Board or Elevator Advisory Boards, a majority of the
Grain Producers Advisory Board or Elevator Advisory Boards shall constitute a
quorum. A majority of such quorum shall decide any questions that may come
before the meeting.
Section 5A. Elevator Advisory Boards. The Board of Directors shall
establish the duties, method of selection, terms of office and the number of
Advisory Boards established in the various regions in which Grain Marketing has
patrons. It shall be the purpose of these Advisory Boards to serve as the
community liaison between the Grain Producers Advisory Board and communities
where Grain Marketing operations are substantial enough to warrant the creation
of such a local Advisory Board. It shall be an express responsibility of the
Grain Producers Advisory Board to make recommendations to the Board of Directors
with regard to the specific responsibilities of the Board of Directors under
this section.
<PAGE>
(B)
LIVESTOCK MARKETING
Section 1B. Livestock Divisional Board Election. The Livestock
Divisional Board shall consist of as many eligible members in each region for
terms of three (3) years each as may, from time to time, be established by the
Board of Directors. If more than one (1) member represents a region, the terms
shall be staggered. The Livestock Divisional Board shall also have one (1)
at-large member as provided in Section 2B of this Article. The initial Livestock
Divisional Board shall be appointed by the Board of Directors and shall
thereafter be self perpetuating with all vacancies, whether from the expiration
of term of office or otherwise, to be filled by a majority vote of the remaining
Livestock Divisional Board from eligible members from the region in which the
vacancy occurs. Each member of the Livestock Divisional Board shall serve until
the appointment and acceptance of his duly qualified successor. The Board of
Directors shall divide the territory served by the Livestock Marketing Division
into at least four (4) geographic regions so that as far as practical, each area
of such territory shall be represented on the Livestock Divisional Board.
Changes in the number and boundaries of these regions may be made from time to
time as circumstances require.
The Livestock Divisional Board shall elect a Chairman, Vice Chairman,
and a Secretary for terms of one (1) year.
Section 2B. The At-Large Livestock Divisional Board Member. In addition
to the appointed members of the Livestock Divisional Board, one (1) at-large
Member shall be appointed by the Board of Directors for a term of three (3)
years, or until his successor is appointed. The at-large Member shall have the
same powers and rights as other members of the Livestock Divisional Board. Any
vacancy occurring in the office of at-large Livestock Divisional Board member
shall be filled in the same manner as the original appointment was made.
Section 3B. Duties of the Livestock Divisional Board. The Livestock
Divisional Board shall serve in an advisory capacity to the Board of Directors
with respect to the operation of the Livestock Marketing Division, and shall
make recommendations to the Board of Directors on matters referred to the
Livestock Divisional Board, and may make recommendations to the Board of
Directors on policies affecting Livestock Marketing Division operations.
<PAGE>
ARTICLE VII - ELECTION DISTRICTS
The Board of Directors shall divide the territory in which the
Association operates into nine (9) or more Election Districts on the basis of
the annual volume of business done with the Association, with proper
consideration being given to the member patronage and geographical area of each.
The Board of Directors may modify and redistrict the territory whenever
advisable in order to maintain substantial equality in the volume of business
done in the different districts.
ARTICLE VIII - DIRECTORS
Section 1. Powers. The business of the Association shall be managed
under the direction of the Board of Directors.
Section 2. Number of Directors. The Board of Directors shall consist of
one (1) Director elected from the membership in each Election District and up to
a maximum of six (6) Public Directors residing within the operating territory of
the Association.
Section 3. Term of Office. Directors representing Election Districts
and Public Directors shall serve a term of three (3) years and thereafter until
their successors are elected or appointed.
Section 4. Election District Meetings. Each Election District shall be
represented by one (1) Director who shall be elected at an Election District
Meeting of the delegates from the respective districts. Delegates shall be
elected by the members served by the Association through its retail distribution
system, its grain elevators, its livestock marketing system, and its member
cooperatives in each Election District. The number of delegates and the
procedure for selecting them shall be determined from time to time in a manner
that provides all members in good standing an opportunity to vote for at least
one (1) delegate to such Election District Meeting. Such delegates shall be
elected by the members of the Association and the member retail cooperatives. In
addition to a delegate or delegates, an alternate or alternates shall also be
elected by such members to serve in the event the delegate or delegates shall be
unable or unwilling to serve. The time and place of an Election District Meeting
in each Election District shall be determined by the Board of Directors of the
Association and at least ten (10) days' written notice of the time and place of
said meeting shall be mailed by the Secretary of the Election District to each
delegate elected in each Election District. If any delegate shall be unable or
unwilling to attend such Election District Meeting, his alternate shall serve in
his place. A quorum at such meeting shall consist of ten (10) delegates or
alternates present in person and all matters, including the election of a
Director, shall be decided by majority vote of the delegates or alternates
present. Proxy voting shall not be permitted in such Election District Meetings.
The nominating committee selected under Section 5 by the delegates shall choose
a Chairman and Secretary to serve until the adjournment of the next Election
District Meeting. Vacancies in those offices shall be filled in the same manner.
Complete records of the Election District proceedings shall be recorded by the
Secretary of the Election District. The due election of the Director by the
Election District Meeting shall be final.
<PAGE>
Section 4A. Initial Election of Directors Representing the Gold Kist
Territory. Notwithstanding anything to the contrary in these Bylaws, the members
served by the Association as a result of the acquisition of the inputs business
assets (the "Inputs Business") of Gold Kist Inc. ("Gold Kist") pursuant to an
Asset Purchase Agreement dated July 23, 1998, shall be initially represented on
the Board of Directors by six (6) additional Directors from such new members
residing in the states of Georgia, Florida, South Carolina, Alabama,
Mississippi, Tennessee, Louisiana, Texas, and Arkansas (the "Gold Kist Operating
Territory") who shall be elected for staggered terms (two serving for one year,
two for two years, and two for three years, in each case such period to be
measured from the date of the next annual meeting of members of the Association
following the closing date of the purchase of the Gold Kist Inputs Business) by
the Gold Kist Board of Directors sitting as delegates to a Special Election
district Meeting convened for such election. Such Special Election District
Meeting shall be held as promptly as practicable following the closing date of
the purchase of the Gold Kist Inputs Business. For the purposes of this Section
4A, the Election District shall be defined as the Gold Kist operating territory.
Subsequent representation on the Board of Directors for the Gold Kist operating
territory commencing at the November 1999 annual meeting of the members of the
Association shall be from new Election Districts to be equitably established by
the Board of Directors pursuant to Article VII of these Bylaws.
Section 5. Nominating Committee. The delegates to an Election District
Meeting may elect for the next Election District Meeting a nominating committee
consisting of not less than three (3) nor more than five (5) members, who shall
either be members of the Association or members of a retail member cooperative
whose duty it shall be, prior to such next Election District Meeting, to
nominate one (1) or more persons to serve as Director and to advise delegates in
the district prior to such Election District Meeting the names and
qualifications of such nominees. In the event any member of a nominating
committee shall be unable or unwilling to serve, the remaining members, so long
as they shall not be less than three (3) in number, shall have full power to
act. In the event the members of the nominating committee remaining shall be
less than three (3), the additional members necessary to bring the total to
three (3) shall be selected by the member or members able and willing to serve.
Section 6. Eligibility. Only members of the Association residing in the
Election District or members of a retail member cooperative residing in such
district shall be eligible to serve on the Board of Directors of the
Association. Provided, however, that for the purpose of determining eligibility
for election to the Board of Directors, a member who does not reside in any
Election District, but does reside in the Association's trading area, as
determined by the Board of Directors, in a state contiguous to an Election
District, shall be eligible for election to the Board of Directors in such
Election District. No private dealer, or person having a financial interest in
such dealer, or employee of such dealer, or any person who is or has been an
employee of the Association, or any association affiliated with the Association,
at any time during the ten (10) year period immediately prior to the Election
District Meeting at which such person stands for election, shall be eligible for
nomination for, or service on, the Board of Directors of the Association; nor
shall any such person be eligible to be a delegate to, or to vote in, any
Election District Meeting.
<PAGE>
Section 7. Vacancies. Any vacancy, other than from the expiration of a
term of office, in the office of elected director shall be filled for the
unexpired term by the delegates last elected in the election district which the
director represented, at a special Election District Meeting called by the Board
of Directors of the Association. Wide discretion shall be vested in the Board of
Directors in the matter of calling a special Election District Meeting when such
vacancy shall occur within the year in which a regular Election District Meeting
is scheduled to be called in such district.
Section 8. Public Director. Public Directors shall be appointed each
for a term of three (3) years, on a staggered basis, by the Director of the
State Agricultural Extension Service of the Commonwealth of Virginia. In the
case of any vacancy in the office of Public Director such vacancy shall be
filled by the person named by the public official mentioned herein. In the event
of any delay in the appointment of a Public Director, the incumbent shall hold
office until the new appointment is made. In the event the addition or deletion
of a Public Director is made necessary, the term of any appointment may be
adjusted in order to provide for the expiration of about one-third (1/3) of the
terms of all Public Directors each year.
Section 9. Compensation. Subject to applicable law and amendments
thereof from time to time, compensation and expense reimbursement policies in
respect to Directors shall be established periodically by the Board of
Directors.
Section 10. Meetings. Regular meetings of the Board of Directors shall
be held at least once each quarter at such time and place as may be determined
by the Board of Directors. Special meetings of the Board of Directors shall be
held upon call of the President and Chairman of the Board of Directors or upon
written request of a majority of the Directors.
Section 11. Notice of Meetings. Notice of both regular and special
meetings shall be mailed by the Secretary to each member of the board at his
last known post office address not less than five (5) days before any such
meeting, and notice of special meetings shall state the purpose thereof.
Section 12. Quorum. A majority of the Board of Directors shall
constitute a quorum at any meeting.
<PAGE>
ARTICLE IX - EXECUTIVE COMMITTEE
Section 1. Election. The Board of Directors may elect from their own
number an Executive Committee of not less than three (3) members. A majority of
the members of the Committee shall constitute a quorum for the transaction of
any business that may come before any meeting thereof and a majority of the
members of the Committee present shall decide any question that may come before
such meeting. Two (2) days oral or written notice shall be given before each
meeting.
Section 2. Powers and Duties. The Executive Committee shall have such
powers and duties as may, from time to time, be prescribed by the Board of
Directors and as may be consistent with law. Minutes of all meetings of the
Executive Committee shall be kept by the Secretary and submitted to the Board of
Directors.
ARTICLE X - OFFICERS AND AGENTS
Section 1. Election of Officers. The officers of the Association shall
be a President and Chairman of the Board of Directors, a Vice President and Vice
Chairman of the Board of Directors, a President and Chief Executive Officer, a
Secretary, a Treasurer, and such other officers as may from time to time be
elected or appointed by the Board of Directors, all of whom shall be elected for
one (1) year terms and shall hold office until their successors are elected and
qualified. The President and Chairman of the Board of Directors and the Vice
President and Vice Chairman of the Board of Directors shall be elected by the
Board of Directors from their own number. The President and Chief Executive
Officer, Secretary and Treasurer and other officers as may be elected or
appointed shall be elected or appointed by the Board of Directors, but need not
be Directors or members of the Association.
Section 2. President and Chairman of the Board of Directors. The
President and Chairman of the Board of Directors shall preside at all meetings,
shall have general supervision of the affairs of the Association, sign all
certificates of stock and may sign and countersign all contracts and other
instruments of the Association; shall make reports to the Board of Directors and
members, and perform all such other duties as are incident to this office or are
properly required of this officer by the Board of Directors.
Section 3. Vice President and Vice Chairman of the Board of Directors.
The Vice President and Vice Chairman of the Board of Directors shall exercise
all functions of the President and Chairman of the Board of Directors in the
absence or disability of the latter, and such officer may with the Secretary or
any Assistant Secretary sign certificates of stock.
Section 4. The President and Chief Executive Officer. The President and
Chief Executive Officer shall carry out the policies of the Association
established from time to time by the Board of Directors and shall be the General
Manager of its operations, including all purchasing, marketing, manufacturing,
processing, distribution, and service activities required to effectuate the
Association's purposes as outlined in its Articles of Incorporation and the
policies of the Board of Directors enacted in furtherance thereof. The President
and Chief Executive Officer shall have authority to sign checks, drafts, notes,
and all other orders for the payment of money and to sign the corporate name to
all deeds, contracts, leases, and other documents of every nature and
description. Such officer may delegate the authority vested in this office, or
any portion of it, to subordinate agents and employees.
<PAGE>
Section 5. Subordinate Agents and Employees. Subject to the policies
established by the Board of Directors, the President and Chief Executive Officer
shall have the authority to employ, fix the compensation of, supervise, and
terminate the employment of all agents and employees of the Association except
as otherwise provided. If the President and Chief Executive Officer deems it to
be in the best interests of the Association, such officer may, from time to
time, confer upon such subordinate agents of the Association such operational
titles and designations (including those of Vice President with appropriate
indication of such agents' areas of operation) as the President and Chief
Executive Officer may determine, provided that any title or designation so
conferred shall not constitute such agent an officer of the Association.
Section 6. Secretary. The Secretary shall issue notices for all
meetings, of the Board of Directors and members, except Election District
Meetings, shall keep the minutes of the meetings of the Directors, Executive
Committee, and the Annual and Special Meetings of all the members, shall have
charge of the seal and corporate books, shall sign with the President and
Chairman of the Board of Directors, such instruments as require such signature
and may sign certificates of stock. The Secretary shall make such reports and
perform such other duties as are incident to this office or properly required of
the Secretary by the Board of Directors or the President and Chief Executive
Officer. The Secretary may delegate the performance of any of his or her duties
to one (1) or more Assistant Secretaries.
Section 7. Treasurer. The Treasurer shall have the custody of all the
funds and securities of the Association, and shall deposit the same in the name
of the Association in such bank or banks as the Directors may select. The
Treasurer shall have authority to sign all checks, drafts, notes, and orders for
the payment of money and to sign the corporate name to deeds, contracts, and
leases and other documents of every nature and description. The Treasurer shall
at all reasonable times exhibit his or her books and accounts to any Director
upon application at the office of the Association during business hours. He or
she shall give bond with sufficient surety in such amounts as the Board of
Directors may require, the premium for which shall be paid by the Association.
The Treasurer may delegate the performance of any of his or her official duties
to one (1) or more Assistant Treasurers, provided they give bond with surety
approved by the President and Chief Executive Officer.
Section 8. Removal. Any officer may be removed at any time by the Board
of Directors.
<PAGE>
ARTICLE XI
PATRONAGE REFUND ALLOCATIONS AND SIMILAR INTERESTS
The Board of Directors may elect to satisfy any patronage refund wholly
or partially in Patronage Refund Allocations or any other non-cash form which
shall be paid in such manner and on such terms and conditions as may be approved
by the Board of Directors from time to time not inconsistent with these Bylaws.
The following terms and conditions shall apply to Patronage Refund Allocations:
(a) All debts of the Association shall be entitled to priority over all
Patronage Refund Allocations.
(b) Retirement of Patronage Refund Allocations and similar interests
shall take place pro rata in the order of issuance when the Board of Directors
determines there are funds available for that purpose.
(c) The Association shall have a right to apply such Patronage Refund
Allocations to any indebtedness owed to the Association by the holder thereof
after maturity and shall be deemed to have a lien thereon as security for such
indebtedness.
(d) In order to contribute to the liquidity of estates of owners of
Patronage Refund Allocations, the Board of Directors may establish a policy of
redeeming such Patronage Refund Allocations upon the owner's death.
The Board of Directors is not prohibited from adding such additional
terms and conditions as may be deemed appropriate.
ARTICLE XII- DISPOSITION OF NET EARNINGS
Section 1. (a) As used in this Article, the term "Member" shall be
deemed to include any person, firm, or corporation owning at least one (1) share
of the common stock of the Association; the term "Patron" shall include (i) any
person, firm, or corporation which is eligible for membership in the Association
but is not a Member of the Association, and (ii) any person, firm, or
corporation, which is not a Member of the Association, with whom the Association
has in effect an Agreement in writing pursuant to which it has agreed to pay
patronage refunds to such person on the basis of the quantity or value of the
Association's business done with or for such person during the fiscal year.
(b) The Board of Directors may set aside each fiscal year, from the net
earnings, such amounts as the Board of Directors in its discretion deems
necessary for the efficient prosecution of the Association's business, provided,
however, that no amounts shall be so set aside which are not reasonable in
amount, giving due regard to the purposes thereof (such amounts being sometimes
hereinafter referred to as "reasonable reserves"). Such reasonable reserves may
be used for such proper corporate purposes as shall be determined by the Board
of Directors, including, but not limited to the accumulation of working capital,
contributions to sinking funds to meet future indebtedness, payment of federal
income taxes, acquisition of funds for expansion or replacement, payment of
dividends on capital stock or accumulations of reserves to offset price
declines. Such unallocated reserves shall either be apportioned on the books of
the Association on a patronage basis to Members and Patrons who were or became
such during the fiscal year, or else the books and records of the Association
shall afford a means for doing so at any time.
<PAGE>
Section 2. (a) This Association shall be operated upon the cooperative
basis in carrying out its business within the scope of the objects and purposes
defined in Article B of the Articles of Incorporation. It shall be operated in
such manner as to qualify this Association as a farmers cooperative association
as defined in the Agricultural Marketing Act [12 USCA, Section 1141j(a)], and
the Capper-Volstead Act [7 USCA, Section 291]. The Association shall annually
determine its net earnings (loss), including the appropriate portions thereof
constituting net earnings for patronage refunds, and with respect to such net
earnings, it shall then allocate and distribute patronage refunds to its Members
and Patrons determined on the basis of their patronage with the Association
during such year. The Association shall be absolutely liable for the payment of
patronage refunds as provided herein without further action on the part of any
officer or of the Board of Directors. The Association shall pay such patronage
refunds as soon as practicable after the close of the fiscal year and in no
event later than eight and one-half (8 1/2) months after the close thereof. Each
transaction between this Association and each Member and Patron shall be subject
to and include as a part of its terms, whether or not the same shall be
expressly referred to in said transaction, the provisions of this Article XII.
(b) The Association's overall net earnings (loss) shall first be
determined using generally accepted accounting principles. The overall net
amount thereof applicable to the Association's marketing, supply and/or service
operating functions, including their respective allocation units, shall then be
increased or decreased, as the case may be, in accordance with the applicable
rules and regulations for computing income taxes in order to determine the
overall net earnings (loss) of the Association.
(c) From the amount of total net earnings so determined, there shall
then be transferred to and credited to reserves created under 1 (b) of this
Article such net amounts of extraneous income and/or expense which are unrelated
to the marketing, purchasing and/or service operations carried on by the
Association for its Members and Patrons on a cooperative basis.
(d) The Association's remaining net earnings (loss) shall then be
divided into two (2) parts on the basis of the quantity or value of business
done by the Association with or for persons acquiring supplies or services from,
or marketing products through the Association. These parts shall consist of (i)
a non-patronage-sourced portion determined on the basis of the quantity or value
of business done with or for persons who are not eligible to receive patronage
refunds from the Association, and (ii) a remaining patronage-sourced portion
attributable to the quantity or value of business done with or for Members
and/or Patrons who are eligible to receive patronage refunds from the
Association. These parts shall then be handled or adjusted as follows.
<PAGE>
(e) The non-patronage-sourced portion of net earnings (loss) as defined
in 2 (d) (i) above, shall be retained and credited to the Association's reserves
or deficit as the case may be. The patronage-sourced portion of an overall net
loss, as defined in 2 (d) (ii) above shall be retained and handled in accordance
with Section 4.
(f) There shall then be deducted and recouped, from the
patronage-sourced amount of net earnings still remaining, in accordance with 4
(a) below, the accumulated amount of patronage-sourced losses from prior year(s)
then remaining, but only to the extent such prior year(s)' loss(es) have not
otherwise been disposed of by the Board of Directors. The amount to be deducted
hereunder shall be further limited to an amount which does not exceed the lesser
of (i) the current year's patronage-sourced net earnings amount before such
deduction, or (ii) the amount of any available, patronage sourced net operating
loss carry-overs or carry-forwards from the current or prior year(s).
(g) Any remaining patronage-sourced, net earnings shall be further
reduced (but not below zero) by the ratably-determined portion of dividends on
stock paid or payable for the fiscal year. The amount of this reduction shall
not exceed the lesser of (i) the amount by which current or accumulated earnings
and profits of the Association would be reduced (but not below zero) by reason
of payment or accrual of such dividends or (ii) the current year(s)'
patronage-sourced, remaining net earnings to which this adjustment applies.
(h) Any remaining patronage-sourced net earnings shall be further
reduced (but not below zero) by any additional appropriations to the reserves
created under 1 (b) from patronage-sourced net earnings.
(i) Any amount then remaining, shall constitute the net earnings of the
Association from which Member(s) and Patron(s) patronage refunds shall be paid,
and such amount shall be apportioned among the Member(s) and Patron(s) of the
allocation units on any equitable patronage basis(es) approved by the Board of
Directors, and the amount so determined, shall be paid as patronage refunds in
the form of qualified or of non-qualified written notices of allocation,
provided, however, that a payment by a qualified, written notice of allocation
shall be accompanied by not less than twenty percent (20%) of the stated dollar
amount thereof in cash with the balance in such form as may be determined by the
Board of Directors not inconsistent with other provisions of these Bylaws.
<PAGE>
(j) If the net earnings in any allocation unit is insufficient to pay a
patronage refund of at least one-half of one percent (l/2 of 1%) of the total
dollar volume of business with Members and Patrons for each fiscal year in a
purchasing allocation unit, or the Livestock Marketing Allocation Unit, or
one-half (1/2) cent per bushel in Grain Marketing, then such net earnings, in
the discretion of the Board of Directors, may be carried by the Association in
the reserve established under 1 (b) of this Article.
Section 3. Patronage refunds may be distributed in cash, credits,
Patronage Refund Allocations, revolving fund certificates, capital equity
certificates, preferred or common stock, certificates of indebtedness, letters
of advice, or any combination thereof designated by the Board of Directors and
in accordance with these Bylaws. By entering into a business transaction with
this Association, the Members and Patrons agree to accept a distribution of the
patronage refund under these Bylaws, in such form or forms as are hereinabove
provided in this Section, in satisfaction of the obligation of this Association
to make the patronage refund; and the Members and Patrons shall be deemed to
have received the amount of such patronage refund and reinvested the same in
whatever non-cash allocation or allocations may be established pursuant to this
provision. The books and records of this Association shall show the interest of
each Member and Patron which shall be credited on this Association's books to
the respective Member and/or Patron.
Section 4. The Board of Directors of this Association shall have
complete discretion to determine the handling and ultimate disposition of the
Association's loss(es) and the form, priority and manner in which such loss(es)
or portion(s) thereof shall be taken into account, retained, and ultimately
recouped. The Board may retain loss(es) of the Association and subsequently (a)
recoup and dispose of them by offset against the net earnings of the Association
of subsequent year(s), or (b) may apply such loss(es) to prior year(s)'
patronage allocations at any time in order to recoup and dispose of them by
means of offset and cancellation against Member(s) and Patron(s)' allocations or
book credits; or the Board of Directors may select and use any other method of
disposition as the Board of Directors, in its sole discretion, shall from time
to time determine.
Section 5. In the discretion of the Board of Directors, no patronage
refund or dividend on capital stock shall be paid to any Member or Patron who is
indebted to the Association until such debt has been paid, or the said patronage
refund or dividend may be offset against such Member's or Patron's indebtedness,
and the balance, if any, remitted to such Member or Patron. The Association
shall be deemed to have a security interest in such patronage refund to secure
such indebtedness. The Board of Directors may require that the first dollar of
any cash patronage refund to any Patron who is not a Member, but who is
qualified for membership in the Association, shall be applied to the purchase of
one (1) share of the Association's membership capital stock.
Section 6. Notwithstanding any contrary provisions in these Bylaws, the
Board of Directors shall fix and/or amend from time to time the minimum amount
which shall be paid as a patronage refund and any amount less than that so fixed
shall not be distributed to the Member or Patron entitled thereto (unless he
claims it in cash) but shall be retained by the Association as though it were
part of a reasonable reserve set aside pursuant to Section 1 (b) of this
Article.
Section 7. Each person who hereafter applies for and is accepted to
membership in this Association shall, by such act alone, consent that the amount
of any distributions with respect to his patronage which are made in written
notices of allocation (as defined in 26 U.S.C. ss.1388) and which are received
by him from the Association, will be taken into account by him at their stated
dollar amounts in the manner provided in 26 U.S.C. ss.1385(a) in the taxable
year in which such written notices of allocation are received by him, provided,
however, that this consent will not extend to written notices of allocation
clearly denominated on their face to be "nonqualified."
<PAGE>
ARTICLE XIII - DISSOLUTION
In the event of any liquidation or dissolution or winding up (whether
voluntary or involuntary) of the Association, then, after the payment of its
debts, including all outstanding debentures, the holders of the outstanding
Preferred Stock shall have a preference on the assets of the Association, and
shall be entitled to be paid therefrom in full both the par value of their
shares and the unpaid dividends accrued thereon before any amount shall be paid
to the holders of the Common Stock. After the holders of the Preferred Stock
shall have been paid par value for their Preferred Stock, plus all accrued and
unpaid cumulative dividends thereon, the holders of Common Stock shall be
entitled to be paid the par value of such stock, plus declared and unpaid
dividends thereon. After said Common Stock has received its par value, plus
declared and unpaid dividends thereon, any balance in or unused portion of
Patronage Refund Allocations, capital book equities, or other allocations, and
capital reserves shall be returned to members and other patrons on a pro rata
basis of their respective interest therein.
Any assets and funds then remaining shall be distributed to the patrons
of the Association on the basis of the ratio the patronage of each patron bears
to the total patronage of the Association during the period of its operation. As
used in this Article, patronage refers to business done with or through the
Association on a cooperative basis.
ARTICLE XIV - AUDITING
At least once each year, the Board of Directors shall secure the
services of a certified public accountant, who shall make a proper audit of the
records and accounts of the Association and render a comprehensive report in
writing thereof, which report shall be submitted to and considered by the Board
of Directors in executive session. Special audits shall be made upon order of
the Board of Directors or upon a majority vote of the members at any regular or
special meeting.
ARTICLE XV - MISCELLANEOUS
Section 1. Fiscal Year. The Fiscal Year of the Association shall begin
on July 1 of each year and shall end on the 30th day of June of the following
year.
<PAGE>
Section 2. Seal. The seal of the Association shall consist of two (2)
concentric circles between which shall be written the name of the Association
and in the center of which shall be the word, "Seal."
Section 3. Limitation of Liability and Indemnification of Directors and
Others. The Association shall indemnify any person who was or is a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative by reason of the fact
that he is or was a director, officer, or employee of the Association, or is or
was serving at the request of the Association as a director, officer, or
employee of another corporation, partnership, joint venture, trust or other
enterprise, or as a "fiduciary" (as defined by Section 3[21](A) of the Employee
Retirement Income Security Act of 1974, and as the same shall be from time to
time amended, called the "act") with regard to any "employee benefit plan" (as
defined in Section 3(3) of the Act), in which employees of the Association, or
any subsidiary, affiliate, or managed cooperative are participants because of
such employment.
The indemnification shall be against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permitted under Title 13.1 of the Code of Virginia, as the same
may be amended from time to time, and under any other controlling statutes or
regulations whether Federal or State. Such indemnification shall be in addition
to, and not in limitation of, any other indemnity required by law or agreement.
If in order to be entitled to indemnity an affirmative determination
must be made that the indemnitee has met some standard of conduct under
applicable law, indemnification to which the indemnitee is entitled shall be
made promptly upon the determination by independent legal counsel in a written
opinion, which counsel shall be acceptable to indemnitee and a disinterested
quorum of the Board of Directors, or, at the option of the indemnitee, shall be
selected by the Chief Judge of the U.S. District Court for the Eastern District
of Virginia.
Section 4. Service Charges. A service charge may be assessed on any
checks issued in payment of dividends on capital stock, interest on debentures,
redemptions of capital stock, debentures or patronage refund allocations, and
patronage refunds paid wholly in cash that are not presented for payment within
120 days of the date of issuance (the "stale date"). The service charge will be
assessed at the stale date and annually on the anniversary date of the check
issuance date. The amount of the service charge will approximate the cost of
special handling and maintaining the account on the Association's records. This
charge will be determined by and reviewed periodically by management. Mailings
other than checks related to patron equities that are returned unclaimed may
initiate annual service charge assessments on accounts that are not otherwise
being assessed service charges. The Association shall through appropriate means
endeavor to communicate with members and patrons to advise them of this Bylaw
and the rules and regulations established hereunder.
<PAGE>
Section 5. Forfeiture and Insufficient Mailing Addresses. In addition
to the service charges provided for in Section 4. above, any check issued as
described in Section 4. that is not presented for payment within 120 days of the
date of issuance because of the payee's failure to maintain a proper mailing
address will result in a cessation of future mailings related to such payee's
equity account. On the third anniversary of the check issuance date, if no
correct mailing address for the payee has been located or provided, the payee's
entire account balance shall be forfeited to the Association. The amounts
forfeited will include, but not be limited to, common stock, accumulated
dividends on common stock, patronage refund allocations (even if not yet called
by the Board for revolvement), capital book equities or any similar credit
reflected on the records of the Association. These forfeiture rules do not apply
to debentures or preferred stock.
ARTICLE XVI - AMENDMENTS
These Bylaws may be amended, altered, repealed, added to, or revised by
a majority vote of the Board of Directors, or by the vote of two-thirds (2/3) of
the members voting thereon at any regular or special meeting of the members, or
by the written assent of two-thirds (2/3) of the members voting thereon by mail
ballot, provided that written notice of the proposed Bylaw amendments or
revisions shall have been delivered to each member or mailed to his last known
address as shown by the records of the Association, at least fifteen (15) days
prior to such meeting or the date on which the mail ballots must be returned to
be counted. Any modification of the Bylaws made by the Board of Directors shall
be reported at the next Annual Meeting of the Association and may be repealed or
changed by the members in any manner authorized by applicable law.
EXHIBIT 4.1
CERTIFICATE OF TRUST
OF SOUTHERN STATES CAPITAL TRUST I
THIS Certificate of Trust of Southern States Capital Trust I
(the "Trust"), dated December 15, 1998, is being duly executed and filed by the
undersigned, as trustee, to form a business trust under the Delaware Business
Trust Act (12 Del. C.ss.ss. 3801 et seq.).
1. Name. The name of the business trust being formed hereby
is "Southern States Capital Trust I."
2. Delaware Trustee. The name and business address of the
trustee of the Trust with a principal place of business in the State of Delaware
is First Union Trust Company, National Association, One Rodney Square, 920 King
Street, 1st Floor, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration.
3. Effective Date. The Certificate of Trust shall be effective
as of December 15, 1998.
IN WITNESS WHEREOF, the undersigned, as the sole initial
trustee of the Trust, has executed this Certificate of Trust as of the date
first above written.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION
as Delaware Trustee
By: /s/ Stephen J. Kaba
Name: Stephen J. Kaba
Title: Vice President
EXHIBIT 4.2
TRUST AGREEMENT
TRUST AGREEMENT, dated as of December 15, 1998 (this "Trust
Agreement"), among Southern States Cooperative, Incorporated, an agricultural
cooperative corporation organized under the laws of Virginia, as depositor (the
"Depositor"), and First Union Trust Company, National Association, as trustee
(the "Delaware Trustee").
The Depositor and the Delaware Trustee hereby agree as
follows:
Section 1. The Trust. The trust created hereby shall be known
as SOUTHERN STATES CAPITAL TRUST I (the "Trust"), in which name the Delaware
Trustee or the Depositor, to the extent provided herein, may conduct the
business of the Trust, make and execute contracts, and sue and be sued.
Section 2. The Trust Estate. The Depositor hereby assigns,
transfers, conveys and sets over to the Trust the sum of $10. The Delaware
Trustee hereby acknowledges receipt of such amount in trust from the Depositor,
which amount shall constitute the initial trust estate. It is the intention of
the parties hereto that the Trust created hereby constitute a business trust
under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. ss. 3801 et seq.
(the "Business Trust Act") and that this document constitutes the governing
instrument of the Trust. The Delaware Trustee is hereby authorized and directed
to execute and file a certificate of trust with the Secretary of State of the
State of Delaware in accordance with the provisions of the Business Trust Act.
Section 3. Amended and Restated Trust Agreement. The
Depositor, the Delaware Trustee and certain other parties will enter into an
Amended and Restated Trust Agreement, satisfactory to each such party, to
provide for the contemplated operation of the Trust created hereby and the
issuance of the Capital Securities (as defined below) and the Common Securities
(as defined below) of the Trust. Prior to the execution and delivery of such
Amended and Restated Trust Agreement, the Delaware Trustee shall not have any
duty or obligation hereunder or with respect to the trust estate, except as
otherwise required by applicable law or as may be necessary to obtain, prior to
such execution and delivery, licenses, consents or approvals required by
applicable law or otherwise.
<PAGE>
Section 4. Certain Authorizations. The Depositor and the
Delaware Trustee hereby authorize and direct the Depositor, acting on its own
behalf and on behalf of the Trust, (i) to enter into an Underwriting Agreement
among the Depositor, each of the underwriters listed on Schedule A thereto (the
"Underwriters") and certain other parties, pursuant to which the Trust will
issue and sell to the Underwriters certain of its Capital Securities
representing preferred undivided beneficial interests in the assets of the Trust
(the "Capital Securities"), (ii) to sell to the Depositor certain of its Common
Securities representing common undivided beneficial interests in the assets of
the Trust (the "Common Securities," and, together with the Capital Securities,
the "Trust Securities"), (iii) to purchase with the proceeds from the issuance
and sale of the Trust Securities certain Junior Subordinated Deferrable Interest
Debentures to be issued by the Depositor (the "Debentures") and (iv) to prepare
and file with the Securities and Exchange Commission a registration statement,
in preliminary and final form, with respect to the issuance and sale of the
Capital Securities and such other filings in connection therewith as may be
required by the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, and the Trust Indenture Act of 1939, as amended.
Section 5. Trustees. The number of trustees shall initially be
one and thereafter shall be such number as shall be fixed from time to time by a
written instrument signed by the Depositor, which may increase or decrease the
number of Trustees; provided, however, that to the extent required by the
Business Trust Act, one Trustee shall either be a natural person who is a
resident of the State of Delaware or, if not a natural person, an entity which
has its principal place of business in the State of Delaware and otherwise meets
the requirements of applicable Delaware law. Subject to the foregoing, the
Depositor is entitled to appoint or remove without cause any Trustee at any
time. Any Trustee may resign upon 30 days prior notice to the Depositor;
provided, however, that such notice shall not be required if it is waived by the
Depositor.
Section 6. Limitation Applicable to the Delaware Trust. First
Union Trust Company, National Association, in its capacity as Delaware Trustee,
shall not have any of the powers or duties of the Trustees of the Trust created
hereby, except as expressly provided in Section 4 hereof or as required by the
Business Trust Act and shall be a Trustee of the Trust for the sole purpose of
satisfying the requirements of Section 3807 of the Business Trust Act.
Section 7. Compensation; Expenses; Indemnity. The Depositor
agrees:
(a) to pay to the Delaware Trustee from time to time such reasonable
compensation for all services rendered by it hereunder as may be agreed by the
Depositor and the Delaware Trustee from time to time (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) to reimburse the Delaware Trustee upon request for all reasonable
expenses, disbursements and advances incurred or made by the Delaware Trustee in
accordance with any provision of this Trust Agreement (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence, bad faith or wilful misconduct; and
<PAGE>
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) the Delaware Trustee (individually and as Delaware Trustee),
(ii) of any Affiliate of the Delaware Trustee (individually and as Delaware
Trustee) and (iii) any officer, director, shareholder, employee, representative
or agent of the Delaware Trustee (individually and as Delaware Trustee)
(referred to herein as an "Indemnified Person") from and against any loss,
damage, liability, tax, penalty, expense or claim of any kind or nature
whatsoever incurred by such Indemnified Person by reason of the creation,
operation or termination of the Trust or any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Trust Agreement, except
that no Indemnified Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Person by reason of its own
negligence, bad faith or wilful misconduct with respect to such acts or
omissions.
Section 8. Governing Law. This Trust Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, without regard for the conflicts of laws provisions thereof; provided,
however, that the provisions of 12 Del. C. ss. 3540 shall not apply to the
Trust.
Section 9. Consent to Jurisdiction; Service of Process. Each
of the parties hereto hereby consents to (i) the non-exclusive jurisdiction of
courts of the State of Delaware or any federal court sitting in Wilmington,
Delaware for the purpose of any suit, action or proceeding relating to or
arising out of this Trust Agreement and (ii) service of process in connection
therewith by mail. The foregoing shall not be construed to prevent any party
from bringing any suit, action or proceeding in any other jurisdiction or from
serving process by any other means.
Section 10. Counterparts. This Trust Agreement may be executed
in one or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first written above.
SOUTHERN STATES COOPERATIVE,
INCORPORATED, as Depositor
By: /s/ J. A. Hawkins
----------------------------
Name: Jonathan A. Hawkins
Title: Senior Vice President &
Chief Financial Officer
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION,
as Delaware Trustee
By: /s/ Stephen J. Kaba
----------------------------
Name: Stephen J. Kaba
Title: Vice President
EXHIBIT 10.1(a)
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 23, 1998, by and between
Gold Kist Inc., a Georgia cooperative marketing association ("Gold Kist") and
Southern States Cooperative, Inc., a Virginia agricultural cooperative
corporation ("Southern States").
WHEREAS, Gold Kist wishes to sell and assign to Southern States, and
Southern States wishes to purchase and assume from Gold Kist, for the
consideration and on the terms and conditions set forth herein, the business of
certain divisions of Gold Kist, and substantially all of the assets that are
primarily used in connection therewith (the "Inputs Business," as defined
herein), and certain liabilities of the Inputs Business.
NOW, THEREFORE, in consideration of the mutual agreements and the
representations and warranties, conditions and promises contained herein, and
intending to be legally bound hereby Gold Kist and Southern States hereby agree
as follows (capitalized terms having the meaning given in Article XIX or
elsewhere herein):
ARTICLE I
Sale and Purchase of the Purchased Assets and Assumption
of the Assumed Liabilities
At the Closing, and subject to the terms and conditions of this
Agreement: (a) Gold Kist shall sell, transfer, convey, assign and deliver to
Southern States, and Southern States shall purchase and acquire from Gold Kist,
the Purchased Assets free and clear of all Liens, and (b) Gold Kist shall assign
to Southern States, and Southern States shall assume from Gold Kist, the Assumed
Liabilities. No other liabilities of Gold Kist arising out of the Inputs
Business, the ownership or operation of any of the Purchased Assets, the
consummation of the transactions under this Agreement or otherwise, except as
expressly provided in this Agreement, shall be assumed by Southern States.
ARTICLE II
The Purchased Assets
2.1. The Purchased Assets. The "Purchased Assets" shall mean
all right, title, interest and claims of Gold Kist in and to the following
assets:
(a) all Inventory;
(b) all Owned Real Property as listed on Schedule 6.6.1;
<PAGE>
(c) all Owned Personal Property as identified more particularly
on Schedule 6.9.1;
(d) all Accounts Receivable;
(e) all Prepaid Expenses;
(f) the Contracts;
(g) the Real Property Leases as listed on Schedule 6.6.2
(including all of Gold Kist's right, title, and interest, if any, in and to the
Improvements located on the Leased Real Property);
(h) the Personal Property Leases listed on Schedule 6.9.3;
(i) Gold Kist's 50% interest in Scott G. Williams, LLC.;
(j) all equity interests (stock and patronage refund allocations)
of Southern States held by Gold Kist;
(k) all Assignable Permits;
(l) all Trademarks as listed on Schedule 6.11, and all other
Intellectual Property Rights of the Inputs Business;
(m) all of Gold Kist's rights and obligations under the CFI
Product Purchase Agreement to the extent the same may be assignable; and,
(n) all of the books, records, computer files, and other files,
data or information, including membership lists or other membership records
(wherever located, and whether in printed form or stored in computer files,
tapes or other medium) of Gold Kist primarily relating to or primarily used in
connection with the Inputs Business and the Purchased Assets and the operations
thereof for all periods beginning on July 1, 1996, and ending on or before the
Closing Date which Gold Kist can reasonably make available to Southern
States without adversely impacting its own business operations (including its
tax obligations), and which are requested by Southern States in writing
after the Closing ("Records"), provided that Southern States will reimburse
Gold Kist for all expenses incurred in providing any such Records for periods
ending before June 27, 1998.
For purposes of this Agreement, the Inputs Business of Gold Kist
shall mean the following Gold Kist operating divisions: the Agri Services
Division, the Fertilizer and Chemical Division, and the Pet Food and Animal
Health Division (excluding Pork Operations), together with (a) the Morven,
Georgia cotton gin and all machinery, equipment and other personal property used
in connection therewith and (b) all qualifying crop time notes receivables
(these to consist of notes made by Gold Kist patrons and dealers, excluding
Dealer Direct Notes) held by Agra Trade Financing, Inc., but not any other
business operations of Agra Trade Financing, Inc. or any other Gold Kist
operations.
2
<PAGE>
2.2. The Excluded Assets. The Purchased Assets shall not
include (a) any of the assets, whether tangible or intangible, real or personal,
of the Pork Operations of Gold Kist's Pet Food and Animal Health Division, (b)
any cash, (c) any insurance policies and the rights to refunds thereunder other
than as the parties may agree upon in writing (d) all assets of Gold Kist Plans
and Programs, (e) any tax refunds, (f) the trade names and trademarks containing
the name "Gold Kist", "GK" or any variations thereof, (g) any current assets of
the Inputs Business that are not included in the Post-Closing Statement of Net
Current Asset Value, including any intercompany or intracompany receivables or
claims, (h) any causes of action or claims that Gold Kist may have against third
parties with respect to matters occurring prior to Closing, (i) all assets other
than the Records that are located at the Gold Kist principal office located at
Perimeter Center, Atlanta, Georgia, (j) all assets of any business or business
activities of Gold Kist which are not part of the Inputs Business, (k) any
shares of common stock or patronage preferred stock of CF Industries, Inc. held
by Gold Kist at the Closing, or (l) any other equity interest or investments
(other than the Southern States equity referred to in Section 2.1(j) (the
"Excluded Assets").
ARTICLE III
The Assumed Liabilities
3.1. The Assumed Liabilities. The "Assumed Liabilities" shall
mean the following obligations and liabilities of Gold Kist relating solely to
the Inputs Business:
(a) the accrued expenses (other than as the same may
constitute Excluded Liabilities) and trade accounts payable of the Inputs
Business and obligations with respect to customers' advance payments for
products or services reflected on the Post-Closing Statement of Net Current
Asset Value;
(b) all of Gold Kist's liabilities and obligations
under and pursuant to the Real Property Leases, including the Solon Scott Lease,
and Personal Property Leases existing on or arising after the Closing Date;
provided, that, Southern States will not assume any obligation or liability
resulting from or arising out of any default, or nonperformance by Gold Kist
prior to the Closing Date under or with respect thereto;
(c) all of Gold Kist's liabilities and obligations
under and pursuant to the Contracts, the Operating Agreement of Scott G.
Williams, LLC., the Guaranty Agreement with respect to Scott G. Williams, LLC.,
and the CFI Product Purchase Agreement, provided, that, Southern States shall
not assume any obligation or liability resulting from or arising out of any
default, or nonperformance by Gold Kist prior to the Closing Date under or with
respect thereto;
(d) all of Gold Kist's liabilities under and pursuant
to the Bulloch County, Georgia IDA Bond; and
(e) any liability or obligation that arises from any
Post-Closing Environmental Condition.
3
<PAGE>
3.2. The Excluded Liabilities. Except for the Assumed
Liabilities, and any obligations pursuant to this Agreement, Southern States
shall not assume any obligation, payment or liability of Gold Kist of any kind,
whether fixed, contingent, known, or unknown and whether existing as of the
Closing or arising thereafter, and no Excluded Liabilities will be included in
the Post Closing Statement of Net Current Asset Value even if required by GAAP.
Without limiting the generality of the foregoing, and regardless of whether any
of the foregoing may be disclosed to Southern States pursuant to Article VI
hereof, or otherwise, or whether Southern States may have knowledge of the same,
Southern States shall not be deemed to assume any liability, payment or
obligation of Gold Kist arising out of or relating to: (a) any workers'
compensation claims related to the operation of the Inputs Business prior to the
Closing, or any other claims or liabilities relating to the employment by Gold
Kist of persons prior to the Closing including but not limited to the claims and
liabilities described in Section 14.3.2 hereof; (b) any actual or alleged
tortious conduct of Gold Kist or any of its employees or agents; (c) any claim
for products liability related to the operation of the Inputs Business prior to
the Closing; (d) any claim for breach of warranty or contract versus Gold Kist
related to the operation of the Inputs Business prior to the Closing; (e) any
claim predicated on strict liability or any similar legal theory related to the
operation of the Inputs Business prior to the Closing; (f) the violation of any
law, ordinance or regulation in effect prior to the Closing related to the
operation of the Inputs Business prior to the Closing but not related to any
Pre-Closing Environmental Condition; (g) any business or business activities of
Gold Kist which are not part of the Inputs Business; (h) any tax liabilities,
except as otherwise expressly provided herein; (i) any liabilities under the
Plans and Programs, accrued vacation, or sick pay; (j) any intercompany or
intracompany liabilities or corporate charges; (k) any liability in any pending
or threatened litigation, governmental proceeding, or workers compensation
claim; (l) mortgage loans or any other indebtedness not listed as an Assumed
Liability; (m) any liability arising out of or secured by an Excluded Asset; (n)
any liabilities or obligations of Gold Kist under any collective bargaining
agreements; (o) any liability or obligation that arises from any Pre-Closing
Environmental Condition; or (p) any other liabilities of Gold Kist not within
the scope of the definition "Assumed Liabilities" (collectively, the "Excluded
Liabilities").
ARTICLE IV
Purchase Price
4.1. Preparation of Pre-Closing Statement of Net Current Asset
Value. As soon as practicable after the satisfaction of all conditions to
Closing, Gold Kist shall prepare the Pre-Closing Statement of Net Current Asset
Value which shall be based upon the most recent available unaudited month end
financial statement of Gold Kist (not more than 45 days old at Closing). Gold
Kist shall deliver the Pre-Closing Statement of Net Current Asset Value to
Southern States at least ten (10) days prior to the Closing Date, for review by
Southern States and its accountants.
4.2. Estimated Purchase Price. The aggregate estimated
purchase price (the "Estimated Purchase Price") of the Purchased Assets shall be
an amount equal to (i) $41.4 million plus (ii) one hundred percent (100%) of the
Net Current Asset Value, as set forth on the Pre-Closing Statement of Net
Current Asset Value less (x) the remaining principal balance on the Bulloch
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County, Georgia IDA Bond and (y) the capitalized liability on the Gold Kist
books for the remaining lease payments under the Solon Scott Lease and less (z)
$10 million. Unless otherwise agreed to in writing, however, the Estimated
Purchase Price shall in no event be an amount greater than $251.4 million and
the Purchased Assets shall be reduced to cause the Estimated Purchase Price to
be less than $251.4 million by reducing the Accounts Receivable with Gold Kist
retaining the Accounts Receivable that are most practicable for it to handle.
4.3. Payment of Estimated Purchase Price. The Estimated
Purchase Price shall be payable at the Closing by wire transfer of immediately
available funds to Gold Kist's account as provided to Southern States.
4.4. Final Purchase Price. The aggregate final purchase price
(the "Final Purchase Price") of the Purchased Assets shall be an amount equal to
(i) $41.4 million plus (ii) one hundred percent (100%) of the Net Current Asset
Value as set forth on the Post-Closing Statement of Net Current Asset Value less
(x) the remaining principal balance on the Bulloch County, Georgia IDA Bond as
of the Closing Date and (y) the capitalized liability on the Gold Kist books for
the remaining lease payments due on the Solon Scott Lease as of the Closing
Date. Notwithstanding anything else in this Article IV, unless Southern States
otherwise agrees in writing, the Final Purchase Price shall not exceed $251.4
million and the Purchased Assets shall be reduced to cause the Final Purchase
Price to be less than $251.4 million by reducing the Accounts Receivable, with
Gold Kist receiving the Accounts Receivable that are most practicable for it to
handle.
4.5. Post-Closing Adjustment and Payment of Final Purchase
Price.
(a) (i) On or before the Closing, Gold Kist and
Southern States shall jointly conduct a physical count and inspection of the
Inventory. Such physical count and inspection shall be conducted in accordance
with the Inventory Procedures (the "Inventory Procedures") attached as Exhibit A
which shall conform to GAAP except insofar as the Inventory Procedures may
otherwise provide in paragraph B(8) thereof. The results of such physical count
and inspection shall be used to determine the value of the Inventory to be set
forth on the Post-Closing Statement of Net Current Asset Value.
(ii) The Accounts Receivable shall be valued in
accordance with GAAP pursuant to the Accounts Receivables Valuation Procedures
attached as Exhibit B (the "Receivables Valuation Procedures").
(b) Southern States shall prepare the Post-Closing
Statement of Net Current Asset Value in accordance with GAAP and pursuant to the
applicable provisions of Section 3.2 and the Inventory Procedures and
Receivables Valuation Procedures. Not later than seventy-five (75) days after
the Closing, Southern States shall deliver the Post-Closing Statement of Net
Current Asset Value to Gold Kist and its accountants for review and verification
of compliance with GAAP, the applicable provisions of Section 3.2 and the
Inventory Procedures and Receivables Valuation Procedures. In connection with
the preparation of the Post-Closing Statement of Net Current Asset Value, Gold
Kist shall be permitted to observe the preparation thereof, and to review all
work papers, books and records of Southern States and its accountants associated
with such preparation. Gold Kist shall cooperate with Southern States and its
accountants to the extent reasonable and practical in the course of preparing
the Post Closing Statement of Net Current Asset Value.
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(c) If Gold Kist objects to the Post-Closing
Statement of Net Current Asset Value, it shall give written notice of such
objection to Southern States within thirty (30) days after its receipt thereof.
Gold Kist shall, in such notice, specify in reasonable detail the basis and
reason for such objection and the amount to which Gold Kist objects. If Gold
Kist does not object to the Post-Closing Statement of Net Current Asset Value
within such period, the Post-Closing Statement of Net Current Asset Value shall
be final and binding upon Southern States and Gold Kist. If Gold Kist objects to
the Post-Closing Statement of Net Current Asset Value within such period and
Gold Kist and Southern States are unable to resolve such objection within
fifteen (15) days after written notice of Gold Kist's objection, then such
objection shall be submitted to a mutually agreed upon office of such nationally
recognized independent certified public accounting firm with recognized
agricultural production credit experience as may be jointly selected by Gold
Kist and Southern States, who shall act as an arbitrator. The arbitrator shall
be instructed to use its commercially reasonable efforts to perform such
services within thirty (30) days of the submission to it of the Post-Closing
Statement of Net Current Asset Value and the related dispute and, in any case,
as soon as practicable after such submission. In reaching its decisions
hereunder, such arbitrator shall be guided by GAAP and shall resolve any
disputes by determining what such values should be under GAAP and pursuant to
the applicable provisions of Section 3.2 and the Inventory Procedures and
Receivables Valuation Procedures. Each of the parties shall bear all costs and
expenses incurred by it (including legal and accounting fees) in connection with
such arbitration; provided, however, that the fees and expenses of the
arbitrator shall be shared equally by Southern States and Gold Kist. This
provision for arbitration shall be specifically enforceable by the parties and
the decision of the arbitrator in accordance with the provisions hereof shall be
final and binding and there shall be no right of appeal therefrom.
(d) If the Net Current Asset Value as shown on the
Post-Closing Statement of Net Current Asset Value, as finally determined in
accordance with Section 4.5(c), is greater than the Net Current Asset Value as
shown on the Pre-Closing Statement of Net Current Asset Value, then Southern
States shall pay to Gold Kist within two (2) business days after such
determination, an amount equal to the difference between the Final Purchase
Price and the Estimated Purchase Price, plus interest calculated in accordance
with Section 4.5(g), by wire transfer of immediately available funds to Gold
Kist's account as provided to Southern States.
(e) If the Net Current Asset Value as shown on the
Post-Closing Statement of Net Current Asset Value, as finally determined in
accordance with Section 4.5 (c), is less than the Net Current Asset Value as
shown on the Pre-Closing Statement of Net Current Asset Value, but the Final
Purchase Price is nevertheless greater than or equal to the Estimated Purchase
Price, then Southern States shall pay to Gold Kist within two (2) business days
after such determination, an amount equal to the difference between the Final
Purchase Price and the Estimated Purchase Price, plus interest calculated in
accordance with Section 4.5(g), by wire transfer of immediately available funds
to Gold Kist's account as provided to Southern States.
(f) If the Net Current Asset Value as shown on the
Post-Closing Statement of Net Current Asset Value, as finally determined in
accordance with Section 4.5 (c), is less than the Net Current Asset Value as
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shown on the Pre-Closing Statement of Net Current Value, and as a result the
Final Purchase Price is less than the Estimated Purchase Price, then within two
(2) business days following such determination, Gold Kist shall pay to Southern
States by wire transfer of immediately available funds to an account designated
by Southern States any amount by which the Final Purchase Price is less than the
Estimated Purchase Price, plus interest calculated in accordance with Section
4.5(g).
(g) Interest shall accrue, from the Closing Date
until paid, on any amount paid pursuant to Section 4.5(d), Section 4.5(e) or
Section 4.5(f) at an annual rate, computed daily on the basis of an annual
period of 360 days, equal to LIBOR plus one-half percent (1/2%). LIBOR shall
mean the London interbank offered rate for deposits in U.S. dollars for an
interest period of one month as reported on the Telerate Service, determined as
of 1:00 p.m. (New York time) on the first business day of each month.
ARTICLE V
The Closing
5.1. Time and Place. The consummation of the transactions
contemplated in this Agreement (the "Closing") shall take place at such location
as Southern States and Gold Kist may mutually agree, at 9:00 a.m., Eastern
Standard Time, on October 12, 1998, or such other date as Gold Kist and Southern
States may agree (the "Closing Date"). All actions at the Closing shall be
deemed to be taken simultaneously, and all documents executed at the Closing
shall be effective as of 12:01 a.m. on October 12, 1998.
5.2. Actions by Gold Kist at the Closing. At the Closing, Gold
Kist shall deliver to Southern States the following:
(a) one or more special warranty deeds, in recordable
form for the appropriate jurisdiction, conveying good and marketable title, free
and clear of Liens, to each parcel of real property included in the Owned Real
Property;
(b) a bill of sale to the Owned Personal Property and
the Inventory as shall be effective to vest in Southern States good and
sufficient title to the Owned Personal Property and Inventory free and clear of
Liens, which shall be in substantially the form of Exhibit C attached hereto;
(c) an assignment and transfer of Accounts Receivable
conveying all of Gold Kist's right, title, and interest in and to the Accounts
Receivable which shall be in substantially the form of Exhibit D attached
hereto;
(d) such instruments of assignment and transfer of
all of Gold Kist's right, title, and interest in the Trademarks, and the other
Intellectual Property Rights of the Inputs Business, the Assignable Permits, the
Prepaid Expenses, and the books and records of Gold Kist relating to the Inputs
Business, as may be reasonably requested by Southern States, including an
assignment of trademarks in the form of Exhibit E;
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(e) an Assignment and Assumption Agreement to: (i)
the Contracts (other than the CFI Product Purchase Agreement); (ii) the Real
Property Leases; (iii) the Personal Property Leases; and (iv) the other Assumed
Liabilities in substantially the form of Exhibit F attached hereto, or such
other form of assignment reasonably requested by Southern States or Gold Kist,
which shall, among other things, convey good and marketable title to the
leasehold interests in the Leased Real Property, free and clear of Liens;
(f) the Product Purchase Agreement Assignment and
Assumption Agreement, substantially in the form of Exhibit G attached hereto;
(g) the Operating Agreement Assignment and Amendment,
substantially in the form of Exhibit H attached hereto;
(h) the Transition Services Agreement, substantially
in the form of Exhibit I attached hereto;
(i) the certificate of Gold Kist described in Section
11.2;
(j) a certificate of good standing of Gold Kist from
the Secretary of State of Georgia, dated within thirty (30) days of the Closing
Date;
(k) a certificate of status of foreign corporation
for Gold Kist from the Secretary of State of South Carolina, Florida, Alabama,
Mississippi, Tennessee, Louisiana and Texas, each dated within sixty (60) days
of the Closing Date;
(l) copies, certified by the Secretary of Gold Kist
of: (i) the Certificate of Incorporation of Gold Kist; (ii) the Bylaws of Gold
Kist; and (iii) the resolutions of the board of directors of Gold Kist,
approving the transactions contemplated herein;
(m) the opinion of the General Counsel of Gold Kist
described in Section 11.4;
(n) the Closing Consents; and
(o) such other documents and instruments as may be
reasonably requested by Southern States, including, without limitation the
documents, instruments, and other items required to be delivered by Gold Kist to
Southern States pursuant to Article XI hereof.
5.3. Actions by Southern States at the Closing. At the
Closing, Southern States shall deliver to Gold Kist the following:
(a) the Estimated Purchase Price in accordance with
the provisions of Section 4;
(b) the Transition Services Agreement;
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(c) an Assignment and Assumption Agreement to (i) the
Contracts (other than the CFI Product Purchase Agreement), (ii) the Real
Property Leases, (iii) the Personal Property Leases, and (iv) the other Assumed
Liabilities in substantially the form of Exhibit F attached hereto, or other
form of assignment reasonably requested by Southern States or Gold Kist;
(d) the Product Purchase Agreement Assignment and
Assumption Agreement;
(e) the Operating Agreement Assignment and Amendment;
(f) a certificate of good standing of Southern States
from the Virginia State Corporation Commission, dated within thirty (30) days of
the Closing Date;
(g) the certificate of Southern States described in
Section 10.2;
(h) copies, certified by the Secretary of Southern
States, of: (i) the Articles of Incorporation of Southern States; (ii) the
Bylaws of Southern States; and (iii) the resolutions of the board of directors
of Southern States approving the transactions contemplated herein;
(i) the opinion of counsel to Southern States as
described in Section 10.4; and
(j) such other documents and instruments as may be
reasonably requested by Gold Kist, including, without limitation, the documents,
instruments, and other items required to be delivered by Southern States to Gold
Kist pursuant to Article X hereof.
ARTICLE VI
Representations and Warranties of Gold Kist
Gold Kist represents and warrants to Southern States as follows, and
acknowledges and confirms that Southern States is relying upon such
representations and warranties in connection with the execution, delivery and
performance of this Agreement:
6.1. Corporate Organization and Authority. Gold Kist is a
cooperative marketing association duly organized, validly existing, and in good
standing under the laws of the State of Georgia. Gold Kist is duly qualified to
conduct business as a foreign corporation in the jurisdictions listed on
Schedule 6.1, which are all of the jurisdictions in which Gold Kist is required
to be so qualified in order to conduct the Inputs Business and in which the
failure of Gold Kist to so qualify would have a material adverse effect on the
financial condition or operations of the Inputs Business. Gold Kist has the
requisite corporate power and authority to own or lease the Purchased Assets, to
carry on the Inputs Business as it is now being conducted, to execute and
deliver this Agreement, and to consummate the transactions contemplated herein.
The execution and delivery of this Agreement by Gold Kist, and the consummation
by Gold Kist of the transactions contemplated herein, have been duly and validly
approved and authorized by the board of directors of Gold Kist.
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6.2. Validity of Agreement; No Violation; Consents.
6.2.1. This Agreement has been duly authorized,
executed and delivered by Gold Kist and is a valid and binding obligation of
Gold Kist, enforceable against Gold Kist in accordance with its terms, except as
may be limited by bankruptcy, reorganization, insolvency and similar laws of
general application relating to or affecting the enforcement of rights of
creditors or the relief of debtors. Except as otherwise set forth herein or as
set forth on Schedule 6.2.1, the execution, delivery, and performance of this
Agreement by Gold Kist and the consummation of the transactions contemplated
herein, will not: (a) violate or conflict with any provision of the Certificate
of Incorporation or Bylaws of Gold Kist; (b) violate or conflict in any material
respect with any provision of any law, rule, regulation, order, permit,
certificate, writ, judgment, injunction, decree, determination, award, or other
decision of any court, governmental agency or instrumentality binding upon Gold
Kist or to which the Purchased Assets are subject; (c) violate, conflict with,
or result in the breach of or a default under, or result in the acceleration of
any liability, or the cancellation or termination of any of the Contracts, Bond
Documents, or the Real Property Leases which have not been waived; or (d) result
in the creation, or imposition of, any Lien upon, or with respect to, any of the
Purchased Assets.
6.2.2. Gold Kist may execute, deliver and perform
this Agreement without the necessity of Gold Kist obtaining any consent,
approval, authorization or wavier or giving any notice or otherwise, except for
the expiration of any waiting period required under the HSR Act or such
consents, approvals, authorizations, waivers and notices (a) disclosed on
Schedule 6.2.2 hereto (the "Required Consents"); or (b) which have been obtained
and are unconditional and are in full force and effect.
6.3. Inputs Financial Statements. The Inputs Financial
Statements, when prepared, will present fairly, in all material respects, the
financial position of the Inputs Business as of June 27, 1998, and as of June
28, 1997, and the results of operations of the Inputs Business for each of the
three years ended June 29, 1996, June 28, 1997, and June 27, 1998, in conformity
with generally accepted accounting principles.
6.4. Absence of Certain Changes.
(a) Except as set forth on Schedule 6.4, since June
27, 1998, Gold Kist has conducted the Inputs Business only in the usual and
ordinary course of business consistent with Gold Kist prior practices and there
has not been:
(i) any material adverse change in the
financial condition, operations, assets, or liabilities of the Inputs Business;
(ii) any damage, destruction, or loss,
whether or not covered by insurance, which has materially and adversely affected
or will materially and adversely affect the Purchased Assets or the Inputs
Business;
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(iii) any other fact, event or condition of
any character that will materially and adversely affect the Purchased Assets or
the Inputs Business, or could reasonably be expected materially to disrupt,
interrupt, prevent or impair the conduct of the Inputs Business.
(b) Except as set forth on Schedule 6.4, since June
27, 1998, Gold Kist has not, with respect to the Inputs Business or with respect
to the Purchased Assets:
(i) made or agreed to make with respect to
the Inputs Business any capital expenditure or commitment for additions to
property, plant or equipment, except for expenditures and commitments not
exceeding $100,000 in the aggregate;
(ii) made or agreed to make any increase in
the compensation payable to any Business Employees, except for normal and
customary increases made in the ordinary course of business pursuant to
presently existing policies and for severance and other arrangements related to
this transaction;
(iii) entered into any transaction or
contract, or amended or terminated any transaction or contract, except normal
transactions or contracts consistent in nature and scope with prior practices
and entered into in the ordinary course of business in arms length transactions;
(iv) with respect to the Inputs Business,
canceled or waived any claim or right of substantial value, or sold,
transferred, distributed or otherwise disposed of any of the Purchased Assets,
except in the ordinary course of business;
(v) with respect to the Inputs Business,
disposed of, or permitted to lapse or disclosed to any third person any material
proprietary right (including without limitation any licensed right) listed or
described on Schedule 6.11.1;
(vi) agreed to do any of the foregoing.
6.5. Taxes. Gold Kist has prepared and timely filed with the
appropriate governmental agencies all tax reports, filings and returns required
to be filed by it related to the Inputs Business, and Gold Kist has paid, or
made provision for the payment of, all such taxes which have become due pursuant
to said returns or pursuant to any assessment received by Gold Kist. All
federal, state, city, and foreign income, profits, franchise, sales, use,
occupation, property, excise, and other taxes due in connection with the Inputs
Business have been fully paid or shall be fully paid by Gold Kist as of the date
hereof or hereafter when due. Gold Kist has not received notice of any tax
deficiency outstanding, proposed or assessed against it with respect to the
Inputs Business, nor has it executed any waiver of any statute of limitations on
the assessment or collection of any tax. There are no tax liens upon, pending
against or, to the Best Knowledge of Gold Kist threatened against, any Purchased
Asset.
6.6. Real Property.
6.6.1. Schedule 6.6.1 sets forth a complete list of
all real property owned in whole or in part by Gold Kist primarily used in the
Inputs Business and being purchased by Southern States in connection with its
purchase of the Inputs Business (the "Owned Real Property") and a list of all
Liens thereon. Gold Kist has good and marketable title in fee simple to all of
the Owned Real Property, free and clear of all Liens except for those set forth
on Schedule 6.6.1.
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6.6.2. Schedule 6.6.2 sets forth a complete list of
all leases or subleases (the "Real Property Leases"), of real property leased by
Gold Kist primarily used in the Inputs Business and being assumed by Southern
States in connection with its purchase of the Inputs Business (the "Leased Real
Property"). Except as disclosed on Schedule 6.6.2, the Real Property Leases are
in full force and effect, are valid and enforceable in accordance with their
terms and constitute the legal, valid and binding obligations of Gold Kist and,
to the Best Knowledge of Gold Kist, of the other parties thereto (except, in
each case, as may be limited by bankruptcy, reorganization, insolvency and
similar laws of general application relating to or affecting the enforcement of
rights of creditors or the relief of debtors), and, to the Best Knowledge of
Gold Kist, no condition exists or event, act or omission has occurred which,
with or without notice, lapse of time or both, would constitute a default or a
basis of force majeure or other claim of excusable delay or nonperformance
thereunder. Gold Kist has made available to Southern States a copy of each of
the Real Property Leases, and each such copy is correct and complete and
includes any and all modifications thereof. The interest of Gold Kist in and
under any of the Real Property Leases is unencumbered and subject to no present
Lien, except for any Lien listed in Schedule 6.6.2.
6.6.3. To the Best Knowledge of Gold Kist, except as
described on Schedule 6.6.3 hereto, (a) no improvement or structure on any Owned
Real Property or Leased Real Property encroaches on any adjacent property or
conflicts with the rights of any owner thereof, and (b) no improvement or
structure on any real property owned or leased by any other person encroaches on
any Owned Real Property or Leased Real Property.
6.6.4. Except as set forth on Schedule 6.6.4, to the
Best Knowledge of Gold Kist, all easements, rights of way, licenses, and other
non-ownership interests, if any, granted to or by Gold Kist in any of the Owned
Real Property (the "Realty Use Rights") are valid and effective in accordance
with their terms. Gold Kist has furnished Southern States with copies of all
material written Realty Use Rights which it has, all of which are identified on
Schedule 6.6.4.
6.6.5. To the Best Knowledge of Gold Kist, the
Improvements located on the Owned Real Property and the Leased Real Property are
in substantial compliance with all applicable material building, fire, and other
regulatory laws, ordinances, and regulations. Gold Kist has not received any
written notice of any violation thereof.
6.6.6. To the Best Knowledge of Gold Kist, all
requisite certificates of occupancy and other material permits or approvals
legally required with respect to the Improvements located on the Owned Real
Property and the Leased Real Property and the occupancy and use thereof, have
been obtained and are currently in full force and effect.
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6.7. Contracts and Agreements.
6.7.1. Schedule 6.7 sets forth a list of all
contracts, agreements, leases (other than the Real Property Leases and the
Personal Property Leases), licenses, purchase orders, instruments and
commitments, whether written or oral, and whether or not in the ordinary course
of business, to which Gold Kist is a party or is bound, which primarily relate
to the Inputs Business and which Southern States agrees to assume in connection
with the purchase of the Inputs Business, except for the following: purchase
orders and other commitments, whether written or oral, to which Gold Kist is a
party or is bound, which were entered into by Gold Kist in the ordinary course
of business, which do not involve obligations following the Closing Date
extending past June 30, 1999 or having a value of more than $50,000
individually, and which, in every case, are related solely to the Inputs
Business (the "Immaterial Contracts"). The contracts listed on Schedule 6.7 are
referred to herein as the "Material Contracts". The Material Contracts and the
Immaterial Contracts are referred to collectively herein as the "Contracts".
Gold Kist has furnished to Southern States a copy of each of the Material
Contracts, and each such copy is correct and complete and includes all
modifications thereof. The Contracts constitute all existing contracts and
commitments of Gold Kist, whether written or oral: (a) which, together with the
Transition Agreement, are necessary to conduct the Inputs Business in the same
manner and to the extent currently conducted by Gold Kist; (b) by which the
Purchased Assets may be bound or affected; or (c) which primarily relate to or
affect the Purchased Assets and the Inputs Business.
6.7.2. All of the Material Contracts are in full
force and effect and constitute the legal, valid and binding obligations of Gold
Kist and, to the Best Knowledge of Gold Kist, of the other parties thereto
(except, in each case, as may be limited by bankruptcy, reorganization,
insolvency and similar laws of general application relating to or affecting the
enforcement of rights of creditors or the relief of debtors), and to the Best
Knowledge of Gold Kist, no condition exists or event, act or omission has
occurred which, with or without notice, or lapse of time or both, would
constitute a default or a basis of force majeure or other claim of excusable
delay or nonperformance thereunder. Except for the Required Consents, no consent
of any party to the Material Contracts is required to assign the Material
Contracts, and Gold Kist's rights and obligations thereunder, to Southern
States. No other party to any Material Contract has notified Gold Kist of the
assertion of its right to renegotiate the terms or conditions of any Material
Contract, and, to the Best Knowledge of Gold Kist, no such basis exists.
6.8. Permits. Schedule 6.8 sets forth a list of all material
governmental licenses, permits, consents, approvals, or certificates issued to
Gold Kist and which are primarily related to the Inputs Business (the
"Permits"). Gold Kist has furnished to Southern States a copy of each of the
Permits, and each such copy is correct and complete and includes any and all
modifications thereof. To the Best Knowledge of Gold Kist: (a) the Permits are
in full force and effect; (b) Gold Kist is not in material violation of any of
the Permits; (c) no proceedings for the suspension or cancellation of any of the
Permits is pending or threatened; (d) no condition exists which (with or without
notice, the passage of time or both) would constitute a material violation of
any of the Permits; and (e) the Permits constitute all material governmental
licenses, permits, consents, approvals or certificates required to be obtained
or held by Gold Kist in connection with operation of the Inputs Business as
presently conducted, the failure to obtain which would have a material adverse
effect on the financial condition or operations of the Inputs Business;
provided, however, that no representation is made in this sentence with respect
to "Environmental Permits", as to which all representations and warranties are
set forth in Section 6.16 hereof. Those Permits (including the Environmental
Permits) which are assignable by Gold Kist to Southern States are marked with an
asterisk on Schedule 6.8, and are referred to herein as the "Assignable
Permits", and the remaining Permits are referred to herein as the "Nonassignable
Permits".
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6.9. Title to and Condition of Personal Property.
6.9.1. Schedule 6.9.1 sets forth a computer list of
machinery, equipment, furniture, fixtures, vehicles and other items of tangible
personal property that are owned by Gold Kist and that are primarily used in
connection with the Inputs Business and that are being purchased by Southern
States in connection with the purchase of the Inputs Business (the "Owned
Personal Property"). The computer list is the list used by Gold Kist in its
operations and to the Best Knowledge of Gold Kist, is accurate in all material
respects. The Owned Personal Property, together with the other Purchased Assets,
constitute all assets of Gold Kist which, together with the Transition
Agreement, are necessary to conduct the Inputs Business in the same manner and
to the extent currently conducted by Gold Kist.
6.9.2. Except for the Liens on Schedule 6.9.2., all
of which will be removed prior to the Closing except as otherwise contemplated
herein, Gold Kist has good and sufficient title to the Owned Personal Property,
free and clear of any Liens.
6.9.3. Schedule 6.9.3 sets forth a list of all
machinery, equipment, furniture, fixtures, vehicles and other items of tangible
personal property that are leased by Gold Kist and that are primarily used in
the Inputs Business (the "Leased Personal Property"), the leases for which (the
"Personal Property Leases") are being assumed by Southern States in connection
with the purchase of the Inputs Business. Gold Kist has valid leasehold
interests in all the Leased Personal Property. The Personal Property Leases are
valid and in full force and effect.
6.9.4. All of the Owned Personal Property and Leased
Personal Property used by Gold Kist in the Inputs Business and the operations
thereof is owned or leased by Gold Kist and not owned or leased by any member,
shareholder or affiliate thereof. To the Best Knowledge of Gold Kist, the Owned
Personal Property and the Leased Personal Property is, collectively, in
reasonable operating condition, and has been appropriately maintained in the
ordinary course of business, conforms to all material requirements of law and is
substantially fit for use in accordance with and sufficient for Gold Kist's
present operations, subject to ordinary wear and tear. To the Best Knowledge of
Gold Kist, the Inputs Business is not conducted under any material restriction
imposed upon Gold Kist (but not imposed upon other persons conducting similar
businesses or operating similar assets for similar purposes in the localities
where its businesses and assets are located) by any zoning, anti-pollution,
health or other law, ordinance or regulation.
6.10. Accounts Receivable. The Accounts Receivable are valid
and bona fide obligations resulting from the operations of the Inputs Business
prior to the Closing and, to the Best Knowledge of Gold Kist arose out of
arms-length transactions free of known defenses and without right of set off or
deduction on the part of account debtors. To the Best Knowledge of Gold Kist, no
basis presently exists for the assertion of any defense, counterclaim or
set-off.
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6.11. Intellectual Property.
6.11.1. Schedule 6.11 sets forth a list of all
trademarks, trademark registrations, pending applications for trademark
registrations (the "Trademarks") trade names, service marks, copyrights and
fictitious business names used or owned by Gold Kist, or in which Gold Kist has
any proprietary interest, primarily in connection with the Inputs Business and
all license agreements (excluding pre-packaged, mass marketed computer software
licensed by third parties at a cost of less than $2,500 per license) with
respect to any of the foregoing as to which Gold Kist is a licensor or licensee
(collectively, the "Intellectual Property Rights"). Gold Kist is the sole owner
of each item listed on Schedule 6.11, free and clear of all Liens. All
assignments of the Trademarks have been recorded at the United States Patent and
Trademark Office. Except as set forth on Schedule 6.11, the Trademarks are
currently in compliance with all legal requirements (including payment of
filing, examination, maintenance fees, and affidavits of use and
incontestability), are valid and enforceable and are not subject to any
maintenance fees or taxes on actions or filings falling due within ninety (90)
days after the Closing Date.
6.11.2. To the Best Knowledge of Gold Kist, Gold Kist
has the right to use, free and clear of any claims or rights of others all
Intellectual Property Rights used by Gold Kist in connection with the Inputs
Business.
6.11.3. There are no pending or, to the Best
Knowledge of Gold Kist, threatened claims against Gold Kist by any person with
respect to any of the Trademarks or claims of infringement by Gold Kist on the
rights of any person, and, to the Best Knowledge of Gold Kist, no valid basis
exists for any such claim. Gold Kist has not received any written notice: (a)
that any of the Trademarks or Intellectual Property Rights infringe upon or
otherwise conflict with any patent, invention, copyright, trademark, service
mark, trade name, or trade secret of any other person or (b) of any claim by any
other person that it has any adverse right, title, claim, or interest in and to
any of the Trademarks or Intellectual Property Rights. The Trademarks and
Intellectual Property Rights constitute all of the intellectual property or
proprietary rights required by Gold Kist for the operation of the Inputs
Business as presently conducted.
6.12. Inventory. Gold Kist has good and sufficient title to
the Inventory, free and clear of any Liens. Except as set forth in Schedule
6.12, all Inventory consists of, and will at the Closing Date consist of, a
quantity and quality usable and saleable in the ordinary course of business,
except for obsolete items and items of below-standard quality, all of which
shall be appropriately written-off or written down in accordance with the
Inventory Procedures in the Post-Closing Statement of Net Current Asset Value.
6.13. Labor Relations.
6.13.1. Except for the agreement with Teamsters Local
Union No. 612, relating to the Guntersville, Georgia, Feed Mill, which Southern
States is not assuming, Gold Kist is not a party to any collective bargaining
agreements related to the Inputs Business. Gold Kist has furnished to Southern
States a copy of the collective bargaining agreement with Teamsters Local Union
No. 612, and such copy is correct and complete and includes any and all
modifications thereof.
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6.13.2. To the Best Knowledge of Gold Kist: (a) Gold
Kist is in compliance in all material respects with all Federal, state, and
other applicable laws regarding employment practices, terms and conditions of
employment, and wages and hours with respect to the Inputs Business; (b) since
June 27, 1998, Gold Kist has not engaged in any unfair labor practice with
respect to the Inputs Business; (c) there is no unfair labor practice complaint
against Gold Kist pending before the National Labor Relations Board or any
similar state or local labor agency with respect to the Inputs Business; (d)
there is no labor strike, dispute, slowdown, representation question or stoppage
pending or threatened against or involving the Inputs Business; (e) there exists
no grievance which may have a material adverse effect upon the Inputs Business;
(f) no arbitration proceeding arising out of or under any collective bargaining
agreement is pending or threatened with respect to the Inputs Business; and (g)
since June 27, 1998, Gold Kist has not experienced any strike, interruption, or
material work slowdown by its labor force due to employment problems of any
nature with respect to the Inputs Business.
6.14. Employees and Employee Benefits.
6.14.1. Except as set forth on Schedule 6.14, there
are no employment contracts or severance agreements with any of the employees of
Gold Kist who are employed in the Inputs Business, including employees on leave
of absence (the "Business Employees"). Gold Kist has furnished to Southern
States a list of the Business Employees and will provide such additional
information concerning the Business Employees as Southern States may reasonably
request, subject to its existing policies with respect to providing information
about its employees to other potential employers.
6.14.2. Schedule 6.14 sets forth a complete list of
all employee benefit plans and programs to which Gold Kist is a party and in
which the Business Employees participate (the "Plans and Programs"). None of the
Plans and Programs are multiemployer plans (as defined in ERISA Section 3(37)).
6.15. Litigation. Except as set forth on Schedule 6.15, (a)
Gold Kist is not subject to any judgment, award, order, or decree or involved in
any governmental action or any proceeding in which relief is sought or ordered
affecting the operation of the Inputs Business or the Purchased Assets or which
would prevent, delay, question or challenge the transactions contemplated by
this Agreement; (b) there are no actions, claims, suits, proceedings (whether in
equity or in law) or investigations pending or, to the Best Knowledge of Gold
Kist, threatened, involving or against the Inputs Business or the Purchased
Assets before any court or governmental or regulatory body which individually or
in the aggregate would have a material adverse effect on the condition,
financial or otherwise, of the Inputs Business or which question or challenge
the validity of this Agreement or any action taken or to be taken pursuant to
this Agreement; and (c) to the Best Knowledge of Gold Kist, no facts exist which
would serve as a basis under current laws or regulations, for the institution of
any actions, laws, audit investigation, claim, or procedure which might affect
materially and adversely the business or financial condition of the Inputs
Business.
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6.16. Environmental. Except as set forth on Schedule 6.16, to
the Best Knowledge of Gold Kist with respect to the Purchased Assets and the
Inputs Business:
(a) all underground petroleum or chemical storage
tanks located under the Owned Real Property or the Leased Real Property are in
compliance with all Environmental Laws, including all regulations regarding
petroleum underground storage tanks that are scheduled to become effective in
December 1998;
(b) Gold Kist is not the subject of any governmental
investigation or proceeding pertaining to the presence, generation, discharge,
emission, release or threatened release, spill, use, storage, processing,
receiving, containment, treatment, shipment, transportation, handling or
disposition of any Hazardous Material, nor has Gold Kist provided (or been
required to provide) nor received notice of any violation of any Environmental
Law or release or threat of release of Hazardous Materials or received any claim
or notice under any Environmental Laws with respect to the Owned Real Property,
the Leased Real Property or the other Purchased Assets;
(c) included within the list of Permits on Schedule
6.8 are all Permits and other governmental authorizations currently held by Gold
Kist pursuant to or relating to any Environmental Law, including EPA product
registrations (the "Environmental Permits"), and Gold Kist is conducting the
Inputs Business in compliance with the Environmental Permits, which constitute
all of the permits, approvals, certificates, or other authorizations required to
be obtained from any public, governmental, regulatory or judicial authority to
conduct the Inputs Business in substantially the same manner and extent it is
presently conducted by Gold Kist; and
(d) there is no action, activity, circumstance,
condition, event, or incident, including without limitation, the release,
emission, discharge, presence, or disposal of any Hazardous Material, that could
reasonably be expected to form the basis of any environmental claim or result in
any liability, remedial action or penalties against Gold Kist with respect to
the Inputs Business, the Owned Real Property, the Leased Real Property or the
other Purchased Assets, including the properties of Scott G. Williams LLC.
6.17. Insurance. Gold Kist maintains policies of insurance
which insure the Purchased Assets and the Inputs Business in commercially
reasonable amounts for occurrences normally insured against. There are no claims
by Gold Kist pending or, to the Best Knowledge of Gold Kist, threatened with
respect to the Purchased Assets or the Inputs Business under said policies or
disputes with underwriters, and, to the Best Knowledge of Gold Kist, all
premiums due and payable have been paid and all such policies are in full force
and effect in accordance with their respective terms.
6.18. Membership Information. The membership information to be
provided to Southern States by Gold Kist pursuant to Section 2.1(n) above, which
shall consist of the names and addresses of current members of Gold Kist as a
result of their doing business with one or more of the Inputs Divisions, will be
complete and correct to the Best Knowledge of Gold Kist.
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ARTICLE VII
Representations and Warranties of Southern States
Southern States represents and warrants to Gold Kist as follows, and
acknowledges and confirms that Gold Kist is relying upon such representations
and warranties in connection with the execution, delivery and performance of
this Agreement:
7.1. Corporate Organization and Authority. Southern States is
an agricultural cooperative corporation duly organized, validly existing, and in
good standing under the laws of the State of Virginia, and is (or will be at the
Closing Date) duly qualified to conduct business as a foreign corporation in the
States of Georgia, Alabama, South Carolina, Florida, Mississippi, Tennessee,
Louisiana, Texas and Arkansas. Southern States has the requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated herein and therein. The execution and delivery of this
Agreement by Southern States and the consummation by Southern States of the
transactions contemplated herein and therein have been duly and validly approved
and authorized by the board of directors of Southern States.
7.2. Validity of Agreement; No Violation. This Agreement has
been duly executed and delivered by Southern States. This Agreement is a valid
and binding obligation of Southern States, enforceable in accordance with its
terms, except as may be limited by bankruptcy, reorganization, insolvency and
similar laws of general application relating to or affecting the enforcement of
rights of creditors or the relief of debtors. The execution, delivery, and
performance of this Agreement by Southern States and the consummation of the
transactions contemplated hereby will not: (a) violate or conflict with any
provision of the Articles of Incorporation or Bylaws of Southern States or (b)
violate or conflict in any material respect with any provision of any law, rule,
regulation, order, permit, certificate, writ, judgment, injunction, decree,
determination, award, or other decision of any court, governmental agency or
instrumentality binding upon Southern States or to which Southern States is
subject.
7.3. Brokers or Finders. Southern States has not incurred any
obligation or liability, contingent or otherwise, for brokers or finders fees or
commissions or other similar payments in connection with this Agreement.
ARTICLE VIII
Covenants of Gold Kist
8.1. access. Prior to the Closing, Gold Kist shall provide
Southern States with reasonable access during normal business hours to the
Purchased Assets and to Gold Kist's employees, officers, agents and consultants,
books and records (including property or sales tax returns), compensation and
employee benefit plan documents, and such other information relating to the
Inputs Business and the Business Employees subject to its existing policies with
respect to providing information about its employees to other potential
employers, as Southern States may reasonably request. Gold Kist shall provide
Southern States with, or allow Southern States to make, copies, at Southern
States' expense, of any requested materials that are relevant to the Inputs
Business and do not contain any confidential or proprietary information about
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Gold Kist or otherwise violate any internal procedures of Gold Kist. Gold Kist
shall authorize the independent accountants of Gold Kist to allow the
independent accountants of Southern States to review the work papers and other
accounting records of Gold Kist's accountants prepared in connection with the
preparation of the Inputs Financial Statement as provided for in Section 8.9
below. Southern States shall use its reasonable efforts to minimize any
disruption to Gold Kist's business in connection with the conduct of the due
diligence process contemplated herein, and Gold Kist shall receive reasonable
advance notice of and shall have the right to participate in, any discussions
Southern States might have with any federal or state regulatory authorities
about Gold Kist or the Inputs Business. Prior to the Closing, Southern States
will not, without the consent of Gold Kist, conduct a "Phase II" environmental
assessment or any other environmental investigation of Gold Kist's Owned or
Leased Real Property or any former real property of Gold Kist, other than visual
inspections of the properties; provided, however, that Gold Kist acknowledges
that Southern States may conduct any Phase II assessment, or any other
environmental investigation, with respect to those matters identified on
Schedule 14.12.
8.2. Conduct of Business.
8.2.1. Affirmative Covenants. Prior to the Closing,
except as may be agreed to in writing by Gold Kist and Southern States, Gold
Kist shall conduct the Inputs Business, in all material respects, according to
its ordinary and usual course of business and consistent with Gold Kist's prior
practice. Without limiting the generality of the foregoing, Gold Kist shall: (a)
maintain in effect and fully perform all of its obligations under the Contracts
and the Real Property Leases in accordance with the terms thereof; (b) give
prompt written notice to Southern States of any notice given or received by Gold
Kist of any default or breach or alleged default or breach under any of the
Material Contracts, the Real Property Leases or the Personal Property Leases and
of any claim or threat to commence any action, suit, proceeding, or
investigation against Gold Kist with respect to the Inputs Business; (c)
maintain the Owned Personal Property, the Leased Personal Property and
Improvements on the Owned Real Property and the Leased Real Property in the same
condition and repair as on the date of this Agreement, ordinary wear and tear
excepted; (d) protect and maintain in effect the Trademarks and the Trade
Secrets; (e) comply, in all material respects, with all laws applicable to it in
the conduct of the Inputs Business; (f) preserve the business of the Inputs
Business; (g) maintain in full force and effect all insurance policies currently
in effect with respect to the Purchased Assets, or policies that provide
coverage that is comparable to such insurance policies; and (h) promptly advise
Southern States of any breach of any representation or warranty, covenant,
condition or obligation of Gold Kist hereunder.
8.2.2. Negative Covenants.
(a) Prior to the Closing, except as may be agreed in
writing by Gold Kist and Southern States, Gold Kist shall not: (i) make or
commit to make any capital expenditures with respect to the Inputs Business,
individually or in the aggregate, in excess of $100,000; (ii) enter into or
agree to enter into any lease, contract, commitment, transaction or
understanding of any kind with respect to the Inputs Business, outside of the
ordinary course of business, or to amend or agree to amend any of the Material
Contracts, the Personal Property Leases or the Real Property Leases except in
the ordinary course of business; (iii) enter into any hedging contract, forward
purchase or forward delivery contract, or other similar contract, arrangement,
or agreement relating to the Inputs Business involving any commitment extending
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beyond the Closing Date; or (iv) voluntarily take any action which would render
any representation and warranty of Gold Kist contained in Article VI hereof
inaccurate at any time between the date hereof and the Closing Date, including
as of the Closing Date.
(b) If Gold Kist proposes to Southern States in
writing that Gold Kist enter into any hedging contract, forward purchase or
forward delivery contract, or other similar contract, arrangement, or agreement
relating to the Inputs Business involving a commitment extending beyond October
12, 1998, which written proposal (x) sets forth the basic terms of such contract
or agreement, including the proposed product, delivery date and price, (y)
states that such contract or agreement is subject to the provisions of this
Section 8.2.2(b), and (z) is not approved by Southern States (a "Rejected
Proposed Contract"), then, if the Closing does not occur (i) Southern States
will pay to Gold Kist an amount equal to any net profit which Gold Kist would
have realized on all of such Rejected Proposed Contracts in the aggregate on or
before the Rejected Proposed Contract Termination Date had Gold Kist entered
into all of the Rejected Proposed Contracts, and (ii) Gold Kist will pay to
Southern States an amount equal to any net loss which Gold Kist would have
realized on all of such Rejected Proposed Contracts in the aggregate on or
before the Rejected Proposed Contract Termination Date had Gold Kist entered
into all of the Rejected Proposed Contracts (such calculation to be made and
such amount to be paid in either event as soon as may be practicable after the
Rejected Proposed Contract Termination Date). For purposes of this paragraph,
the "Rejected Proposed Contract Termination Date" shall mean the date as of
which all of the Rejected Proposed Contracts would have matured had they been
entered into.
8.2.3. Railroad Agreements. Notwithstanding any other
provisions in this Agreement, Gold Kist may cancel any and all Railroad
Agreements used in the Inputs Business, listed on Schedule 8.2.3 hereof, at any
time on or before Closing, and Southern States acknowledges that Gold Kist will
not obtain any consents from the Railroads to the assignment of the Railroad
Agreements as a part of this transaction.
8.3. Consents of Third Parties. Gold Kist shall use its
commercially reasonable efforts to obtain the Closing Consents prior to the
Closing Date, and to obtain the remaining Required Consents as soon as
practicable following the Closing Date, or to continue in effect and to assure
that the Inputs Business and Southern States shall be entitled to all of the
benefits of the Contracts, including without limitation: (i) as required, the
consent of the landlords or lessors of the Leased Real Property and the lessors
of the Leased Personal Property to the assignment to, and assumption by,
Southern States of the Real Property Leases and the Personal Property Leases;
(ii) as required, the consent of third parties to the assignment to, and
assumption by, Southern States of the Contracts; (iii) as required, the consent
of any governmental, public or regulatory authority to the assignment to
Southern States of the Assignable Permits; and (iv) the consent of the other
member of Scott G. Williams, LLC. to the Operating Agreement Assignment and
Amendment.
8.4. Cooperation. Gold Kist shall cooperate with Southern
States to effect the consummation of the transactions contemplated herein on the
Closing Date.
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8.5. Industrial Revenue Bond. Prior to the Closing, Gold Kist
shall use commercially reasonable efforts to permit Southern States to assume
Gold Kist's obligations under the Bulloch County, Georgia IDA Bond.
8.6. Supplement to Schedules. After the date hereof, Gold Kist
shall, from time to time prior to or at the Closing, by notice to Southern
States, supplement or amend any Schedule, including without limitation, one or
more supplements or amendments thereto, to correct any matter which would
constitute a breach of any representation or warranty set forth herein. Such
supplemental or amended Schedule shall not be deemed to cure any willful and
intentional breach of such representation or warranty for the purposes of
Article XVI hereof. If, however, the Closing occurs, such supplemental or
amended Schedule shall be effective to cure and correct for all purposes any
breach of any representation or warranty that would have existed by reason of
Gold Kist not having made such supplement or amendment.
8.7. Satisfaction of Conditions. Gold Kist shall use its best
efforts (not to include the expenditure of any substantial sums) to cause the
conditions to the obligations of Southern States contained in Article XI to be
satisfied to the extent that the satisfaction of such conditions is in the
control of Gold Kist; however, the foregoing shall not constitute a limitation
upon the covenants and obligations of Gold Kist otherwise expressly set forth in
this Agreement.
8.8. No Other Negotiations. In consideration of the time and
expense that will be incurred by Southern States in connection with the
transaction contemplated by this Agreement, Gold Kist agrees that following the
execution of this Agreement or until termination of this Agreement pursuant to
Article XVI hereof, it shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorize or permit any officer, director or employee of, or
any investment banker, attorney, accountant or other advisor or representative
of, Gold Kist or any of its subsidiaries to, directly or indirectly, (i)
solicit, initiate or encourage the submission of any Acquisition Proposal (as
hereinafter defined) or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or agree to
or endorse, or take any other action to facilitate any Acquisition Proposal or
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal. Gold Kist shall as promptly as
practicable advise Southern States orally and in writing of the receipt by it
(or any of the other entities of persons referred to above) after the date
hereof of any Acquisition Proposal, or any inquiry which could lead to any
Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal or inquiry, and the identity of the person making any such Acquisition
Proposal or inquiry. Gold Kist will keep Southern States fully informed of the
status and details of any such Acquisition Proposal or inquiry. The term
"Acquisition Proposal" as used herein means any offer or proposal involving the
purchase of all or any portion of all the assets of the Gold Kist Inputs
Business as defined and specified in Article II of this Agreement.
8.9. Audit of Gold Kist Inputs Business. In contemplation of
the consummation of the transaction contemplated by this Agreement, Gold Kist
will develop in connection with the preparation of its audited financial
statements for its fiscal year ending June 27, 1998, a separate audited
financial statement for the Gold Kist Inputs Business (the "Inputs Financial
Statement"), which shall include a balance sheet as of June 27, 1998 and June
28, 1997, and a related statement of operations, cash flows and, if and to the
extent mutually agreed, a statement of divisional equity, in any case for each
of the three years ended June 29, 1996, June 28, 1997, and June 27, 1998.
Southern States and Gold Kist agree to share equally the cost of preparing the
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Inputs Financial Statement. Gold Kist will use its best efforts to have the
Inputs Financial Statement completed within 60 days of the end of its fiscal
year and will make the Inputs Financial Statement for the Inputs Business
available to Southern States for use in arranging any financing required by
Southern States in connection with the Purchase Transaction.
ARTICLE IX
Covenants of Southern States
9.1. Cooperation. Southern States shall cooperate with Gold
Kist to effect the consummation of the transactions contemplated herein on the
Closing Date and will use its reasonable efforts to obtain the necessary
financing. Southern States shall also use its reasonable efforts to cause Gold
Kist to be relieved at Closing, or as soon thereafter as may be practicable,
from any and all liabilities with respect to the Assumed Liabilities.
9.2. Negative Covenant. Southern States shall not take any
action which would render any representation and warranty of Southern States
contained in Article VII hereof inaccurate at any time between the date hereof
and the Closing Date, including as of the Closing Date, and shall promptly
advise Gold Kist of any breach of any representation or warranty, covenant,
condition or obligation of Southern States hereunder.
9.3. Satisfaction of Conditions. Southern States shall use its
best efforts (not to include the expenditure of any substantial sums) to cause
the conditions to the obligations of Gold Kist contained in Article X to be
satisfied to the extent that the satisfaction of such conditions is in the
control of Southern States; however, the foregoing shall not constitute a
limitation upon the covenants and obligations of Southern States otherwise
expressly set forth in this Agreement.
9.4. Amendment of Bylaws and Board Resolutions. As of the
Closing, Southern States shall have amended its Bylaws to the extent any such
amendment shall be necessary to carry out the intent of this Section 9.4 and
Section 14.1, and its Board of Directors shall have adopted appropriate
resolutions, to provide for (i) the establishment and maintenance for up to two
years following the Closing of a separate allocation unit of Southern States for
the operation of the retail facilities of the Inputs Business for purposes of
operations and patronage; and (ii) the addition of six (6) seats on the Southern
States Board of Directors to proportionately represent the members who will be
served by Southern States through its acquisition of the Purchased Assets and
its operation of the Inputs Business. Southern States will provide that
initially the six additional seats on its Board of Directors will be filled for
staggered terms by designees of Gold Kist serving on the Gold Kist Board of
Directors. A copy of such Bylaws as proposed to be amended to the extent
necessary for this Section 9.4 and Section 14.1 and proposed resolutions
referred to above are attached to this Agreement as Schedule 9.4.
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ARTICLE X
Conditions Precedent to the Obligations of Gold Kist
The obligations of Gold Kist hereunder are subject to the fulfillment
of each of the following conditions prior to or at the Closing any one of which
may be waived in whole or in part by the Gold Kist:
10.1. Performance of Obligations. Southern States shall have
performed, or complied with, in all respects, all of its agreements and
covenants hereunder.
10.2. Representations and Warranties. The representations and
warranties of Southern States made herein shall be deemed to have been made
again at and as of the Closing Date and shall then be true in all material
respects, and Southern States shall deliver to Gold Kist a Certificate of an
officer of Southern States dated as of the Closing Date, certifying to that
effect.
10.3. Closing Consents. Gold Kist and Southern States shall
have received the Closing Consents, and any HSR Act waiting period with respect
to the transaction contemplated hereby shall have expired or been terminated.
10.4. Opinion of Counsel to Southern States. Southern States
shall have delivered to Gold Kist the opinion of its counsel, Mays & Valentine,
L.L.P., dated the Closing Date, in form and substance satisfactory to Gold Kist
and its counsel.
10.5. Miscellaneous. Gold Kist shall have received such other
instruments and documents as Gold Kist and its counsel may reasonably request,
including but not limited to the instruments and documents to be delivered by
Southern States to Gold Kist pursuant to Section 5.3 hereof.
10.6. Absence of Litigation. No temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the transactions and other actions contemplated under this
Agreement shall have been issued by any Federal or state court and remain in
effect. Southern States agrees to use commercially reasonable efforts to have
any such injunction or order lifted.
10.7. No Change In Law. No law, order or regulation shall have
been enacted which prohibits the Closing or the satisfaction of any of the
conditions to the obligations of Gold Kist contained in this Article X.
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ARTICLE XI
Conditions Precedent to the Obligations of Southern States
The obligations of Southern States hereunder are subject to the
fulfillment of each of the following conditions prior to or at the Closing, any
one of which may be waived in whole or in part by Southern States:
11.1. Performance of Obligations. Gold Kist shall have
performed, or complied with, in all respects all of its agreements and covenants
hereunder.
11.2. Representations and Warranties. The representations and
warranties of Gold Kist made herein shall be deemed to have been made again at
and as of the Closing Date and shall then be true in all material respects, and
Gold Kist shall deliver to Southern States a Certificate of an officer of Gold
Kist, dated as of the Closing Date, certifying to that effect.
11.3. Closing Consents. Gold Kist and Southern States shall
have received the Closing Consents, (including the Operating Agreement
Assignment and Amendment) and any HSR Act waiting period with respect to the
transaction contemplated hereby shall have expired or been terminated.
11.4. Opinion of Counsel to Gold Kist. Gold Kist shall have
delivered to Southern States the opinion of its General Counsel, dated the
Closing Date, in form and substance satisfactory to Southern States and its
counsel.
11.5. No Material Adverse Change. There shall be no material
adverse change in the assets, liabilities, the business or condition, financial
or otherwise, or the results of operations of the Inputs Business.
11.6. Transition Services. On or before the Closing, Gold Kist
and Southern States shall have entered into a Transition Services Agreement in
substantially the same form as Exhibit I hereto, pursuant to which Gold Kist
shall provide to Southern States the services specified therein and on the terms
and conditions set forth therein.
11.7. Financing. Southern States shall have obtained the
financing necessary to consummate the transactions contemplated in this
Agreement, on terms and conditions reasonably satisfactory to Southern States.
11.8. CFI Product Purchase Agreement. Southern States shall
have received the consent of CF Industries, Inc. to the assumption of Gold
Kist's member purchase rights and obligations under the CFI Product Purchase
Agreement.
11.9. Miscellaneous. Southern States shall have received such
other instruments and documents as Southern States and its counsel may
reasonably request, including but not limited to the instruments and documents
to be delivered by Gold Kist to Southern States pursuant to Section 5.2 hereof.
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11.10. Absence of Litigation. No temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the transactions and other actions contemplated under this
Agreement shall have been issued by any Federal or state court and remain in
effect. Gold Kist agrees to use commercially reasonable efforts to have any such
injunction or order lifted.
11.11. No Change in Law. No law, order or regulation shall
have been enacted which prohibits the Closing or the satisfaction of any of the
conditions to the obligations of Southern States contained in this Article XI.
ARTICLE XII
Confidentiality
12.1. Confidentiality. Each party shall continue to abide by
the terms of the confidentiality agreement between Gold Kist and Southern
States, dated February 3, 1998 (the "Confidentiality Agreement") subject to
Southern States' and Gold Kist's right to make such disclosures as either may
deem appropriate to their lenders or other parties who are involved in arranging
financing for either Southern States or Gold Kist. No public announcement of the
execution of or relating to this Agreement shall be made by either party without
the prior consent of the other, provided, however, that either party shall be
entitled to make such disclosures as may in the opinion of its counsel be
required to comply with applicable laws or the requirements of the Securities
and Exchange Commission or the National Association of Securities Dealers. Also,
until termination of this Agreement as provided for in Article XVI, Gold Kist
agrees it will not reveal the terms of the Southern States proposal set out
herein or in the letter of intent between the parties dated May 15, 1998, to any
person other than those directors, officers, agents and employees, including
attorneys, accountants and business or financial advisors, who need to know such
information, except as contemplated by this Section 12.1.
12.2. Equitable Remedies. The parties acknowledge and agree
that in the event of a default or breach by either party of the provisions of
this Article XII, the other party shall sustain irreparable injury and damages,
the amount and extent of which cannot be measured in money and for which there
does not and shall not exist any adequate remedy at law. Accordingly, each of
the parties hereby agrees that in the event of a default or breach by either
party of the provisions of this Article XII, the other party shall be entitled
to injunctive relief and to specific performance and that in any legal action or
proceeding for injunctive relief and specific performance the party against whom
such action or proceeding is instituted shall be deemed to have hereby been
waived, and shall not assert in such action or proceeding, the defense or claim
that the party instituting such action or proceeding has an adequate remedy at
law or that an adequate remedy at law exists. The foregoing shall not, however,
be deemed to limit or restrict the remedies at law or in equity of either party
for any default or breach of the provisions of this Article XII.
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ARTICLE XIII
Destruction of Tangible Assets
13.1. Condition of Tangible Assets. At the Closing, Gold Kist
shall use its commercially reasonable efforts to deliver physical possession of
the Owned Personal Property, the Leased Personal Property and the Improvements
(collectively, the "Tangible Assets") to Southern States in substantially the
same physical condition as they exist as of the date hereof, except for normal
wear and tear and changes occurring in the usual and ordinary course of business
or incident to the customary use of the same. Gold Kist will amend its schedules
to reflect any material damage to or destruction of Purchased Assets that is
inconsistent with the foregoing sentence.
13.2. Risk of Loss. All risk of loss as a result of any
destruction, damage, or depletion of or to the Tangible Assets prior to the
Closing, whether by reason of fire, theft, accident or other cause, shall be
borne by Gold Kist, and all insurance proceeds payable as a result thereof shall
be paid and belong solely to Gold Kist.
13.3. Destruction. If, prior to the Closing, the Tangible
Assets other than Inventory, are destroyed or damaged to an extent that (a)
their value or physical condition differs in any material respect from the value
or physical condition as it exists as of the date hereof, or (b) the destruction
or damage has a material adverse effect on the operation of the Inputs Business
(either (a) or (b) referred to herein as a "Material Loss"), Southern States may
in its sole discretion, by written notice to Gold Kist, terminate this
Agreement. If, prior to the Closing, the Tangible Assets, other than Inventory,
are destroyed or damaged, to an extent that does not result in a Material Loss,
or in the event that Southern States in its sole discretion elects to proceed to
Closing notwithstanding the occurrence of a Material Loss, Gold Kist and
Southern States shall consummate the transactions contemplated in this
Agreement, and at the Closing Gold Kist shall deliver physical possession of the
Tangible Assets to Southern States in such physical condition as the same may
then exist, but in that event Gold Kist will pay to Southern States any net
insurance proceeds received for the property damage to the Purchased Assets, but
not any proceeds for business interruption or other kinds of insurance that may
be payable with respect to any period prior to the Closing Date with respect to
such damage or destruction. For purposes of this Section, the value or physical
condition of the Owned Personal Property shall be deemed to differ materially
from the date hereof if the sum of the book value, as shown on the Gold Kist's
books and records, of the Owned Personal Property destroyed or damaged, or the
aggregate costs of all necessary repairs to, and replacements of, the Owned
Personal Property, is greater than ten percent (10%) of its book value as shown
on the Gold Kist's books and records.
13.4. Liability Upon Termination. If this Agreement is
terminated by Southern States pursuant to this Article XIII, neither Gold Kist
nor Southern States shall be liable or obligated to the other except and to the
extent as may be expressly provided in this Agreement.
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ARTICLE XIV
Post-Closing and Other Matters
14.1. Operations of Inputs Business After the Closing. Subject
to appropriate amendments to the bylaws of Southern States to the extent any
such amendment shall be necessary, after the Closing, the retail facilities of
the Gold Kist Inputs Business shall be maintained and operated for a period of
up to two (2) years as the "Southern Retail" allocation unit of Southern States.
14.2. Gold Kist Inputs Business-Members and Patrons. Promptly
following the Closing, Southern States will undertake to add as members of
Southern States those agricultural producers eligible for membership in Southern
States who are members of Gold Kist and who have been, or are, doing business
with the Gold Kist Inputs Divisions. Southern States will undertake to do
business with such persons on a cooperative basis under the articles of
incorporation and bylaws of Southern States as the same shall exist from time to
time. Southern States will, as soon as practical after the Closing, issue to
each such person one share of membership common stock ($1 par value) which
shares shall be deemed to be fully paid at the time of issuance as a result of
the transfer of the Purchased Assets to Southern States by Gold Kist. Patronage
refund allocations or "notified equities" of Gold Kist held by such members of
Gold Kist at the time of Closing shall remain as equity interests of Gold Kist
and Southern States shall have no rights or obligations with respect thereto.
14.3. Employees and Employee Benefits.
14.3.1. Southern States will undertake to take
applications and consider for employment in connection with its acquisition of
the Inputs Business as many of the Business Employees who are able to work and
are employed on a full-time basis as of the Closing Date, except where there is
a redundancy of position or process or where positions do not fit within the
Southern States organization. The Business Employees to whom Southern States
offers employment and who elect to become employees of Southern States are
hereinafter referred to as the "Transferred Employees". The Transferred
Employees shall become employees of Southern States effective at 12:01 a.m.
Eastern Standard Time on the Closing Date or such later date as may be mutually
agreed upon by the parties. If Gold Kist and Southern States agree that the
Transferred Employees will not become employees of Southern States on the
Closing Date, Gold Kist will lease the Transferred Employees to Southern States
pursuant to a mutually agreed upon employee lease agreement. Nothing in this
Agreement shall be construed as giving any person any right to employment or to
any terms or conditions of employment including but not limited to any type or
levels of compensation or benefits, with Southern States.
14.3.2. Gold Kist shall be and remain liable and
responsible for any and all liabilities or payments arising, prior to the
Closing, in respect to the employment by Gold Kist of the Business Employees or
the termination of that employment, including but not limited to (i) all claims
relating to workers' compensation whether incurred or made by the Business
Employees arising out of events or circumstances which occurred prior to the
Closing Date; (ii) all health expenses incurred by the Business Employees prior
to the Closing Date, whether or not claims for such expenses have been filed
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prior to the Closing Date; (iii) any bonus or incentive plans maintained by Gold
Kist; (iv) any severance payable to any of the Business Employees by reason of
the termination of their employment with Gold Kist, whether such severance is
payable under any policy, Plan or Program of Gold Kist or any collective
bargaining agreement referenced in Section 6.13.1, and whether or not such
Business Employees become Transferred Employees; (v) any vacation accrual which
is or becomes payable upon the termination of employment with Gold Kist; (vi)
any benefits payable to the Business Employees under any of Gold Kist's Plans
and Programs; and (vii) any salary, wages or other compensation payable to the
Business Employees for any period of employment prior to the Closing.
14.3.3. Southern States shall not assume, and Gold
Kist shall retain all obligations to fund or otherwise shall provide all
benefits in respect of or payable under, Gold Kist's Plans and Programs. No
assets or liabilities of any of Gold Kist's Plans and Programs shall be
transferred from such Plans and Programs to any plan maintained or established
by Southern States.
14.3.4. Subject to restrictions and limitations
imposed by applicable law, Southern States agrees to make available to the
Transferred Employees its employee pension benefit plans and programs and for
purposes of determining eligibility to become a participant, to treat service
with Gold Kist or any of its affiliates through the Closing Date as service with
Southern States. In addition, for purposes of determining vesting in the
Southern States employee pension benefit plans, Southern States agrees to treat
service, up to 5 years, with Gold Kist or any of its affiliates through the
Closing Date as service with Southern States.
14.3.5. Subject to restrictions and limitations
imposed by applicable law or by limitations imposed by insurance companies
providing plan benefits or stop loss insurance with respect to the plans,
Southern States agrees to make available to the Transferred Employees its
employee welfare benefit plans and programs and for purposes of determining
eligibility to become a participant, to treat service with Gold Kist or any of
its affiliates through the Closing Date as service with Southern States.
Southern States shall use its best efforts to provide such coverage without
regard to any waiting period, evidence and requirement of insurability,
preexisting condition, actively at work requirement or exclusion or limitation
(except to the extent and in the manner any such waiting period, evidence and
requirement of insurability, preexisting condition, actively at work requirement
or exclusion or limitation applies immediately prior to the Closing). In
addition Southern States will treat service with Gold Kist by the Transferred
Employees as service with Southern States for purposes of vacations, seniority
and the like.
14.3.6. Gold Kist agrees to provide Southern States
with such records as Southern States may reasonably request regarding service of
and participation by employees prior to the Closing Date in employee benefit
plans and programs maintained or participated in by Gold Kist.
14.4. Allocation of Purchase Price. Gold Kist and Southern
States shall allocate the Estimated Purchase Price, when determined, among the
Purchased Assets and the Assumed Liabilities in accordance with an allocation
schedule substantially in the form set forth on Exhibit J. As soon as may be
practicable after the Closing, Gold Kist and Southern States shall amend Exhibit
J to reflect any adjustments to the Estimated Purchase Price made pursuant to
Section 4.5. As soon as may be practicable after the Closing and prior to filing
any tax return which includes information related to the transactions
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contemplated in this Agreement, Gold Kist and Southern States employing the
allocation of the Purchase Price made pursuant to this Section 14.4 shall
prepare mutually acceptable IRS Forms 8594 which they shall use to report the
transactions contemplated in this Agreement to the Internal Revenue Service and
to all other taxing authorities. Neither Gold Kist nor Southern States shall
take a position in any tax proceeding, tax audit or otherwise inconsistent with
such allocation; provided, however, that nothing contained herein shall require
Gold Kist or Southern States to contest any proposed deficiency or adjustment by
any taxing authority or agency which challenges such allocation of the Purchase
Price, or exhaust administrative remedies before any taxing authority or agency
in connection therewith, and Gold Kist and Southern States shall not be required
to litigate before any court (including without limitation the United States Tax
Court), any proposed deficiency or adjustment by any taxing authority or agency
which challenges such allocation of the Purchase Price. Gold Kist and Southern
States shall give prompt notice to the other of the commencement of any tax
audit or the assertion of any proposed deficiency or adjustment by any taxing
authority or agency which challenges such allocation of the Purchase Price.
14.5. Transition Services Agreement. As a condition to the
Closing, Gold Kist and Southern States shall enter into a transition services
agreement substantially in the form of Exhibit I hereto (the "Transition
Services Agreement"), pursuant to which Gold Kist agrees to use reasonable
commercial efforts to provide Southern States with certain accounting, computer
and related information support services relating to the operations of the
Inputs Business at a fee equivalent to Gold Kist's costs of providing such
services. Such costs shall include all direct and indirect costs of such
services, including, but not limited to, a reasonable allocation of overhead of
Gold Kist, all stay bonuses, hiring costs and other expenses associated with the
employees providing such services, any costs related to assets used in providing
the services, interest on advances made for the services at Gold Kist's cost of
funds, and any costs associated with any errors of Gold Kist except errors that
reflect the gross negligence of Gold Kist.
14.6. Use of the Gold Kist Name by Southern States after
Closing. Gold Kist acknowledges and agrees that Southern States shall have the
right (i) until the close of business on June 30, 1999, to utilize the packaging
included in the Inventory or replacement packaging therefor, that is imprinted
with the words "Gold Kist" or the initials or trade symbol "GK" (or words or
symbols to similar effect), (ii) until the close of business on September 30,
1999, to sell products or supplies that utilize such packaging and (iii) until
the close of business on the date which is six (6) months after the Closing Date
to utilize trucks and other rolling stock and signage imprinted with the words
"Gold Kist" or the initials or trade symbol "GK" (or words or symbols to similar
effect). At Closing, Gold Kist will abandon the trademarks listed on Schedule
14.6 which utilize the symbol "GK" as a part of the mark. Except as otherwise
provided herein, any use of the name "Gold Kist" or the trade symbol "GK" by
Southern States after the Closing shall only be as authorized in writing by Gold
Kist. Southern States shall be responsible for and shall ensure that all goods
provided and offered by Southern States under the name "Gold Kist" or the trade
symbol "GK" shall be advertised, offered and provided in a high quality manner
and consistent with the quality control standards established by Gold Kist.
Southern States shall cooperate with Gold Kist in facilitating Gold Kist's
control of the quality of goods offered under the name "Gold Kist" or the trade
symbol "GK", to permit reasonable, periodic inspection of Southern State's
operations, at reasonable times and with reasonable notice, and to supply Gold
Kist with specimens of all uses of the name "Gold Kist" or the trade symbol "GK"
upon request.
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14.7. Post-Closing Rebates and Annual Volume Discounts. To the
extent any Inputs Business product purchase refund, rebate, annual volume
discount or similar payment is made to Gold Kist after the Closing by any vendor
or supplier of products or supplies, such refund, rebate, annual volume discount
or similar payment shall be paid over to Southern States to the extent such
payment shall be attributable to Inventory purchased by Southern States pursuant
to this Agreement; provided, however, that none of such refunds, rebates, annual
volume discounts or similar payments will be used to reduce Gold Kist's costs of
the Inventory in determining the Net Current Asset Value. To the extent any
Inputs Business product purchase refund, rebate, annual volume discount or
similar payment made to Gold Kist after the Closing shall be based upon sales
volume, such payment shall be paid over to Southern States to the extent any
portion of such payment shall be attributable to sales by Southern States on or
after the Closing Date; provided, however, that the Inventory that is sold by
Southern States will not be counted as both Inventory and sales by Southern
States for purposes of acquiring portions of the same payments under this
Section 14.7. Gold Kist shall provide Southern States upon request with a copy
of any supporting information furnished to Gold Kist by any vendor or supplier
of products in connection with any such refund, rebate, annual volume discount
or similar payment. To the extent any Inputs Business product purchase refund,
rebate, annual volume discount or similar payment made to Southern States after
the Closing shall be based upon sales volume, such payment shall be paid over to
Gold Kist to the extent any portion of such payment shall be attributable to
sales by Gold Kist on or before the Closing Date. Southern States shall provide
Gold Kist upon request with a copy of any supporting information furnished to
Southern States by any vendor or supplier of products in connection with any
such refund, rebate, annual volume discount or similar payment. Gold Kist and
Southern States shall use their reasonable commercial efforts to have each
supplier combine the respective sales where the combination will produce more
rebate, annual volume discount or similar payment. The parties shall share
proportionately in any overall such payments, with all sales sharing equally in
the payments.
14.8. WARN Act. If a plant closing or a mass layoff occurs or
is deemed to occur with respect to the Inputs Business in connection with the
transactions contemplated in this Agreement or after the Closing, Southern
States shall be solely responsible for providing all notices required under the
Work Adjustment and Retraining Notification Act, 29 U.S.C. ss.2109 et seq. or
the regulations promulgated thereunder (the "WARN Act") and for taking all
remedial measures, including without limitation, the payment of all amounts,
penalties, liabilities, costs and expenses if such notices are not provided.
14.9. Additional Documents. From and after the Closing Date,
each of the parties shall, at the request of the other, prepare, execute, and
deliver to the other such additional documents and instruments and take such
action as the other may deem reasonably necessary to further evidence or effect
any of the transactions contemplated herein.
14.10. Non-Competition. In consideration of Southern States'
purchase of the Inputs Business pursuant to this Agreement, Gold Kist agrees
that for a period of five (5) years following the Closing Date, it will not,
directly or indirectly, for itself or on behalf of any individual, partnership,
corporation or any other legal entity, as principal, agent, or otherwise, engage
in, control, manage or otherwise participate in the ownership, control or
management of a business in direct competition with any portion of the Inputs
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Business within any part of the "Trade Area," as defined herein, it being
acknowledged that none of Gold Kist's other businesses, including but not
limited to its feed production for its poultry and aquaculture operations, are
in competition with any portion of the Inputs Business and that Gold Kist may
acquire up to 5% of the outstanding securities of any competitor of the Inputs
Business whose securities are publicly traded. For purposes of this Section
14.10, "Trade Area" shall mean the states of Georgia, South Carolina, Florida,
Alabama, Mississippi, Louisiana, Texas, Arkansas, and Tennessee. Gold Kist
recognizes that irreparable injury may result to Southern States if Gold Kist
breaches this Section 14.10, and Gold Kist agrees that if it engages in any act
in violation of the provisions hereof, Southern States shall be entitled, in
addition to any actual damages proved, to injunctive relief prohibiting Gold
Kist from engaging in any such act.
14.11. Cooperation Regarding Tax Filings. Gold Kist and
Southern States shall reasonably cooperate, and shall use reasonable efforts to
cause their respective affiliates, officers, employees, agents, auditors and
Representatives reasonably to cooperate, in preparing and filing all tax
returns, including, but not limited to, maintaining and making available to each
other all records necessary in connection with taxes and in resolving all
disputes and audits with respect to all taxable periods relating to taxes.
"Representatives" means, with respect to any person, the officers, employees,
counsel, accountants, financial advisers, consultants, agents, auditors and
other representatives of such person.
14.12. Investigations After Closing. For a period of ten (10)
years following the Closing, Southern States agrees that it will not conduct
environmental investigations of any Owned Real Property or Leased Real Property
for the purpose of triggering coverage under the indemnity provided pursuant to
Article XV below; provided, however, that Gold Kist acknowledges that (i)
Southern States may conduct any such environmental investigations with respect
to those matters identified on Schedule 14.12, and (ii) as to any other
properties, Southern States may conduct any environmental investigation to the
extent that such investigation is consistent with Prudent Environmental
Management Practice. For the purposes of this Agreement, an environmental
investigation shall be considered to be conducted consistent with Prudent
Environmental Management Practice only if it is necessary for expansion,
renovation, or sale of any property, is necessary to prevent adverse impacts to
human health or the environment, or is otherwise required by law. If a dispute
arises with respect to whether an investigation constitutes a Prudent
Environmental Management Practice, Gold Kist and Southern States agree to
negotiate in good faith in an attempt to resolve such dispute. In the event such
dispute cannot be resolved within twenty (20) days of written notice of a
dispute (or shorter period as exigent circumstances may warrant), Gold Kist and
Southern States shall select within fourteen (14) days thereafter a mutually
satisfactory Environmental Arbitrator, who shall review the information relevant
to the dispute provided by the parties. The Environmental Arbitrator shall,
within thirty (30) days, render a decision binding upon the parties hereto
(absent mutual agreement of the parties to an alternate resolution) and the
parties may enforce any final determination of the Environmental Arbitrator in
any court of competent jurisdiction. If the parties cannot agree on the
selection of an Environmental Arbitrator, the provisions of Section 18.12 of
this Agreement shall apply.
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ARTICLE XV
Indemnification
15.1. Survival. Each of the covenants, agreements, and
representations and warranties of Gold Kist and Southern States herein shall
survive the Closing until 5:00 p.m. Eastern Standard Time on June 30, 2001, at
which time, such covenants, agreements, representations and warranties shall
expire and terminate, provided, however, that (i) the representations and
warranties of Gold Kist respecting taxes set forth in Section 6.5 shall survive
the Closing for the applicable statute of limitations; (ii) the representations
and warranties of Gold Kist respecting environmental matters set forth in
Section 6.16 shall survive the Closing until 5:00 p.m. Eastern Standard Time on
the first anniversary of the Closing Date, at which time such representations
and warranties shall expire and terminate; (iii) the representations and
warranties of Gold Kist to the extent they apply solely to title to the
Purchased Assets set forth in Sections 6.6.1, 6.9.2 and 6.12, and the obligation
of Gold Kist to indemnify Southern States for any loss arising out of any
Excluded Liabilities pursuant to Section 15.2(iii), shall survive the Closing
without limitation as to time; (iv) the obligations of Gold Kist to indemnify
Southern States for any loss arising out of any Pre-Closing Environmental
Condition pursuant to Section 15.2(iv), shall survive the Closing until 5:00
p.m. Eastern Standard Time on the tenth anniversary of the Closing Date, at
which time such representations and warranties shall expire and terminate; (v)
the representations and warranties of Gold Kist set forth in the second sentence
of Section 6.12 shall expire and terminate at Closing; and (vi) the covenants
and agreements of Gold Kist or Southern States to be performed after Closing
Date shall survive the Closing without limitation as to time (the "Survival
Period").
15.2. Indemnification by Gold Kist. Subject to the provisions
of Sections 15.3 and 15.6, Gold Kist shall indemnify, defend and hold harmless
Southern States and the directors, officers, employees and shareholders of
Southern States (the "Southern States Indemnified Persons") against and in
respect of all losses, costs, and expenses suffered or incurred or required to
be paid by Southern States Indemnified Persons as a result of: (i) the breach by
Gold Kist of any representation and warranty made by Gold Kist to Southern
States Indemnified Persons in Article VI of this Agreement and the Schedules
including therewith hereto that is executed and delivered pursuant hereto or in
connection with the closing of the transactions hereunder; (ii) the
non-fulfillment by Gold Kist of any agreement or covenant of Gold Kist contained
herein; (iii) the Excluded Liabilities but not including any liability or
obligation arising from any Pre-Closing Environmental Condition; (iv) any
liability or obligation arising from any Pre-Closing Environmental Condition;
(v) the waiver by Gold Kist and Southern States of compliance with the Bulk
Transfers Laws; and (vi) all actions, suits, proceedings, demands, assessments,
judgments, costs, including reasonable attorney's fees, and expenses incident to
any of the foregoing.
15.3. Limitations on Indemnification by Gold Kist.
(a) Notwithstanding the provisions of Section 15.2,
Gold Kist shall have no liability to indemnify Southern States Indemnified
Persons hereunder until the aggregate amount of Southern States Indemnified
Persons' indemnifiable losses exceeds $500,000 (the "Gold Kist Minimum Amount").
If the aggregate amount of Southern States Indemnified Persons' indemnifiable
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losses exceeds the Gold Kist Minimum Amount, Gold Kist shall Indemnify Southern
States Indemnified Persons for the amount that such indemnifiable losses exceed
the Gold Kist Minimum Amount and are less than or equal to $10,000,000. The
foregoing limitations shall not apply to Gold Kist's indemnification obligations
with respect to the following: (i) the Excluded Liabilities; (ii) the
representations and warranties of Gold Kist to the extent they apply solely to
title to the Purchased Assets set forth in Sections 6.6.1, 6.9.2 and 6.12; (iii)
any liability or obligation arising from any Pre-Closing Environmental Condition
or the representations and warranties of Gold Kist respecting environmental
matters contained in Section 6.16 (all of which matters shall be subject to the
limitation of paragraph (b) of this Section 15.3); (iv) the representations and
warranties of Gold Kist respecting taxes set forth in Section 6.5; (v) the
covenants or agreements of Gold Kist to be performed after Closing Date; or (vi)
the failure to comply with the Bulk Transfer Laws.
(b) Notwithstanding the provisions of Section 15.2.,
Gold Kist shall have no liability to indemnify Southern States Indemnified
Persons hereunder with respect to the matters referenced in clause (iii) of
Section 15.3(a) above with respect to any individual claim until the aggregate
amount of Southern States Indemnified Persons' indemnifiable losses exceed
$15,000 for such claim; provided however, that if the aggregate amount of any
such losses with respect to a claim exceeds $15,000, Gold Kist shall indemnify
Southern States for the entire amount of such claim, including the initial
$15,000 amount.
(c) Notwithstanding the provisions of Sections 15.2
and 15.3(b), Gold Kist shall have no liability to indemnify Southern States
Indemnified Persons hereunder with respect to the matters referenced in clause
(iii) of Section 15.3(a) above for the amount that such indemnifiable losses are
in excess of $35 million.
(d) Notwithstanding the provisions of Section 15.2,
Gold Kist's liability to indemnify Southern States Indemnified Persons shall not
include any costs incurred by Southern States Indemnified Persons in the conduct
of any Site Remediation that was not required to be conducted (i) under any
lawful government order or directive; (ii) under any Environmental Law,
including any action levels or cleanup standards enforced thereunder; or (iii)
to prevent significant risk to human health.
(e) Subject to the provisions of this Article XV,
Southern States agrees that it will not make any new claim or file any new legal
action against Gold Kist for the cost of any Site Remediation claim that first
arises more than ten (10) years after the Closing Date.
15.4. Indemnification by Southern States. Subject to the
provisions of Sections 15.5 and 15.6, Southern States shall indemnify and hold
harmless Gold Kist and the directors, officers, employees and shareholders of
Gold Kist (the "Gold Kist Indemnified Persons") against and in respect of all
losses, costs, and expenses suffered or incurred or required to be paid by Gold
Kist Indemnified Persons as a result of: (i) the breach by Southern States of
any representation and warranty made by Southern States to Gold Kist in Article
VII hereof; (ii) the nonfulfillment by Southern States of any agreement or
covenant of Southern States contained herein; (iii) the failure of Southern
States to discharge, when due, the Assumed Liabilities; (iv) the operations by
Southern States from and after the Closing of the Inputs Business, including but
not limited to any liability or obligation arising from any Post-Closing
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Environmental Condition; and (v) all actions, suits, proceedings, demands,
assessments, judgments, costs, including reasonable attorney's fees, and
expenses incident to the foregoing.
15.5. Limitations on Indemnification by Southern States.
Notwithstanding the provisions of Section 15.4, Southern States shall have no
liability to indemnify Gold Kist Indemnified Persons hereunder until the
aggregate amount of Gold Kist Indemnified Persons' indemnifiable issues exceeds
$500,000 (the "SSC Minimum Amount"). If the aggregate amount of Gold Kist
Indemnified Persons' indemnifiable losses exceeds the SSC Minimum Amount,
Southern States shall indemnify Gold Kist Indemnified Persons for the amount
that such indemnifiable losses exceed the SSC Minimum Amount and are less than
or equal to $10,000,000. The foregoing limitations shall not apply to Southern
States' indemnification obligations with respect to (a) the Assumed Liabilities;
(b) the covenants or agreements of Southern States to be performed after Closing
Date; (c) the operations by Southern States from and after the Closing of any
Inputs Business, including but not limited to any liability or obligation
arising from any Post-Closing Environmental Condition.
15.6. Procedures for Indemnification.
15.6.1. If Southern States Indemnified Persons seek
indemnification from Gold Kist for indemnifiable losses, Southern States
Indemnified Persons shall give notice to Gold Kist of such loss, specifying in
reasonable detail the nature and basis for the claim and the amount thereof (the
"Notice of Loss"). If, within sixty days after the date on which Gold Kist
receives the Notice of Loss, Gold Kist has not delivered to Southern States a
notice objecting to all or any portion of the claimed loss and setting forth the
amount of such claimed loss objected to and the reasons for such objection,
Southern States Indemnified Persons shall be entitled to indemnification for
such loss unless Gold Kist's failure to object was inadvertent, and Gold Kist
shall promptly pay such loss. If the failure of Gold Kist was inadvertent, the
process should be begun again but the Survival Period with respect to the Claim
shall be extended if the First Notice of Loss was within the Survival Period.
If, within sixty days after the date on which Gold Kist receives a Notice of
Loss, Gold Kist delivers to Southern States an objection to all or any portion
of the claimed loss, setting forth the amount of such loss objected to and the
reasons for such objection, Southern States Indemnified Persons shall be
entitled to reimbursement for the portion of such loss not objected to by Gold
Kist and Gold Kist shall promptly pay such amount. Southern States Indemnified
Persons shall be entitled to indemnification for the portion of such claimed
loss to which Gold Kist objected to upon the earlier of: (a) the Gold Kist's and
Southern States' written agreement with respect to the indemnification of such
loss or (b) a final judgment or award of an arbitrator as provided in Section
18.12.
15.6.2. If Gold Kist Indemnified Persons seek
indemnification from Southern States for indemnifiable losses, Gold Kist
Indemnified Persons shall give a Notice of Loss to Southern States, specifying
in reasonable detail the nature and basis for the claim and the amount thereof.
If, within sixty days after the date on which Southern States receives the
Notice of Loss, Southern States has not delivered to Gold Kist a notice
objecting to all or any portion of the claimed loss and setting forth the amount
of such claimed loss objected to and the reasons for such objection, Gold Kist
Indemnified Persons shall be entitled to indemnification for such loss unless
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Southern States' failure to object was inadvertent, and Southern States shall
promptly pay such loss. If the failure of Southern States was inadvertent, the
process should be begun again but the Survival Period with respect to the Claim
shall be extended if the first Notice of Loss was within the Survival Period.
If, within sixty days after the date on which Southern States receives a Notice
of Loss, Southern States delivers to Gold Kist an objection to all or any
portion of the claimed loss, setting forth the amount of such loss objected to
and the reasons for such objection, Gold Kist Indemnified Persons shall be
entitled to reimbursement for the portion of such loss not objected to by
Southern States and Southern States shall promptly pay such amount. Gold Kist
Indemnified Persons shall be entitled to indemnification for the portion of such
claimed loss to which Southern States objected to upon the earlier of: (a) the
Gold Kist's and Southern States' written agreement with respect to the
indemnification of such loss or (b) a final judgment or award of an arbitrator
pursuant to Section 18.12.
15.6.3. The obligations and liabilities of an
Indemnifying Person with respect to losses resulting from the assertion of
liability by third parties (each, a "Third Party Claim") shall be subject to the
following terms and conditions:
(a) The Indemnified Persons shall promptly give
written notice to the Indemnifying Persons of any Third Party Claim which might
give rise to any loss by the Indemnified Persons, stating the nature and basis
of such Third Party Claim, and the amount thereof to the extent known; provided,
however, that no delay on the part of the Indemnified Persons in notifying any
Indemnifying Persons shall relieve the Indemnifying Persons from any liability
or obligation hereunder unless (and then solely to the extent) the Indemnifying
Person thereby is prejudiced by the delay. Such notice shall be accompanied by
copies of all relevant documentation with respect to such Third Party Claim,
including, without limitation, any summons, complaint or other pleading which
may have been served, any written demand or any other document or instrument.
(b) If the Indemnifying Persons shall acknowledge in
a writing delivered to the Indemnified Persons that such Third Party Claim is
properly subject to their indemnification obligations hereunder, then the
Indemnifying Persons shall have the right to assume the defense of any Third
Party Claim at their own expense and by their own counsel, which counsel shall
be reasonably satisfactory to the Indemnified Persons; provided, however, that
the Indemnifying Persons shall not have the right to assume the defense of any
Third Party Claim, notwithstanding the giving of such written acknowledgment, if
(i) the Indemnified Persons shall have been advised by counsel that there are
one or more legal or equitable defenses available to them which are different
from or in addition to those available to the Indemnifying Persons, and, in the
reasonable opinion of the Indemnified Persons, counsel for the Indemnifying
Persons could not adequately represent the interests of the Indemnified Persons
because such interests could be in conflict with those of the Indemnifying
Persons, (ii) such action or proceeding involves, or could have a material
effect on, any material matter beyond the scope of the indemnification
obligation of the Indemnifying Persons or (iii) the Indemnifying Persons shall
not have assumed the defense of the Third Party Claim in a timely fashion.
(c) If the Indemnifying Persons shall assume the
defense of a Third Party Claim (under circumstances in which the proviso to
Section 15.6.3(b) is not applicable), the Indemnifying Persons shall not be
responsible for any legal or other defense costs subsequently incurred by the
Indemnified Persons in connection with the defense thereof. If the Indemnifying
Persons do not exercise their right to assume the defense of a Third Party Claim
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by giving the written acknowledgment referred to in Section 15.6.3(b), or are
otherwise restricted from so assuming by the proviso to Section 15.6.3(b), the
Indemnifying Persons shall nevertheless be entitled to participate in such
defense with their own counsel and at their own expense. If the defense of a
Third Party Claim is assumed by the Indemnified Persons pursuant to clause (i)
or (ii) of the proviso of Section 15.6.3(b), the Indemnified Persons shall not
be entitled to settle such Third Party Claim without the prior written consent
of the Indemnifying Persons, which consent shall not be unreasonably withheld or
delayed.
(d) If the Indemnifying Persons exercise their right
to assume the defense of a Third Party Claim pursuant to clauses (i) or (ii) of
Section 15.6.3(b), (i) the Indemnified Persons shall be entitled to participate
in such defense with their own counsel at their own expense and (ii) the
Indemnifying Persons shall not make any settlement of any claims without the
written consent of the Indemnified Persons, which consent shall not be
unreasonably withheld or delayed.
15.6.4. Notwithstanding any other provisions of this
Agreement, neither Gold Kist nor Southern States shall have any claim for
indemnification hereunder unless such claim is asserted, as provided herein,
against the other within the Survival Period (in which event the party's right
to indemnification for such matters shall continue until liability is finally
determined), it being acknowledged that the Survival Period of certain
indemnities is without limitation as to time as provided in Sections 15.1, 15.2
and 15.4.
15.6.5. Notwithstanding any other provision in this
Article XV, the following procedures shall apply to any claim arising under
clause (iv) of Section 15.2. above or with respect to a breach of the
representations and warranties set forth in Section 6.16. (collectively
"Environmental Claims").
(a) Any Environmental Claim that is of the nature of
a third party claim shall also be governed by the notification procedures set
forth in Section 15.6.1., provided, however, that Southern States shall be
deemed to have provided notice to Gold Kist of the matters identified in
Schedule 14.12. as of the Closing Date. In the event of any inconsistency
between the Section 15.6.1. procedures and the procedures set forth in this
Section 15.6.5., the procedures set forth in this Section 15.6.5. shall govern.
(b) Gold Kist shall assume Principal Management for
the matters identified in Schedule 14.12.
(c) Upon assertion of any Environmental Claim other
than claims arising from the matters identified in Schedule 14.12., Gold Kist
shall be entitled to assume Principal Management. To assume Principal
Management, Gold Kist must notify Southern States within thirty days of notice
to Gold Kist of the Environmental Claim, or such other period as the parties may
agree to in writing, that it intends to assume Principal Management. In the
event Gold Kist does not undertake Principal Management, Southern States may
assume Principal Management of the subject matter of the Environmental Claim.
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(d) The party that does not have Principal Management
for an Environmental Claim shall be entitled, at its sole cost and expense, to
reasonably participate in the management of such Environmental Claim. Such
participation shall include: (i) receiving copies of all reports, work plans and
analytical data submitted to governmental agencies, all notices or other letters
or documents received from governmental agencies, any other non-privileged
documents and correspondence materially bearing on the Environmental Claim, and
notices of material meetings; (ii) the opportunity to attend and participate in
such material meetings; (iii) the right of reasonable consultation with the
party exercising Principal Management; and (iv) the right to approve in writing
in advance all budgets for the Environmental Claim, all material contracts
related thereto, the submission of any cleanup plan or any similar material
action relating to the Environmental Claim and any amendment or modification
thereof, and the acceptance of any consensual governmental orders or
requirements (which approval shall not be unreasonably withheld or delayed).
(e) The party undertaking Principal Management
hereunder for any matter shall manage the matter in good faith and in a
responsible manner, and any activities conducted in connection therewith shall
be undertaken promptly and concluded as expeditiously and as economically as
practicable using commercially reasonable efforts, subject to the schedules and
approvals required by the applicable governmental authorities. The parties agree
to reasonably cooperate with one another in connection with addressing any
Environmental Claim. Either party may take such action as is reasonable under
the circumstances to respond to an actual or threatened emergency or imminent
endangerment situation arising from an Environmental Claim.
(f) Any action with respect to an Environmental Claim
shall be deemed adequate for purposes of satisfying the obligations of this
Section 15.6.5. to the extent such action: (i) attains compliance with any
lawful government order or directive and with applicable Environmental Laws,
including any action levels or cleanup standards enforced thereunder; (ii)
mitigates any significant risk to human health and (iii) achieves such actions
as economically as practicable.
(g) The parties agree to negotiate in good faith
regarding any dispute arising under this section 15.6.5. In the event such
dispute cannot be resolved within twenty (20) days of written notice of a
dispute (or shorter period as exigent circumstances may warrant), Gold Kist and
Southern States shall select within fourteen (14) days thereafter a mutually
satisfactory Environmental Arbitrator, who shall review the information relevant
to the dispute provided by the parties. The Environmental Arbitrator shall
within thirty (30) days render a decision binding upon the parties hereto
(absent mutual agreement of the parties to an alternate resolution) and the
parties may enforce any final determination of the Environmental Arbitrator in
any court of competent jurisdiction. If the parties cannot agree on the
selection of an Environmental Arbitrator, the provisions of Section 18.12 of
this Agreement shall apply.
(h) Gold Kist intends to acquire insurance against
Environmental Claims other than the matters identified in Schedule 14.12 and to
comply with the procedures required by the insurance company pursuant to the
insurance policy in handling any such Environmental Claim. Southern States shall
cooperate in good faith with Gold Kist in connection with such compliance,
including providing reasonable access to the properties related to the
Environmental Claims; provided, however, Gold Kist expressly acknowledges that
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Gold Kist's indemnity to Southern States under this Agreement will not be
affected by any provisions under any such insurance policy and that the
procedures required by such insurance policy will in no way affect the financial
obligations of Gold Kist under this Agreement with respect to any Environmental
Claim by Southern States and will not be relevant in determining whether or to
what extent any action with respect to an Environmental Claim is deemed
adequate, appropriate, responsible, commercially reasonable or timely for
purposes of satisfying the obligations of this Section 15.6.5.
15.7. Computation of Losses. In determining the amount of any
indemnifiable loss hereunder, the aggregate amount of any insurance proceeds
received by or benefiting the indemnified party and any tax deduction or tax
benefit received by the indemnified party in connection with the facts giving
rise to the right to indemnification shall be deducted from the amount to be
paid by the indemnifying party. If, with respect to any indemnifiable loss paid
by an indemnifying party, the indemnified party subsequently receives insurance
proceeds, a tax deduction, or a tax benefit, the indemnified party shall, as
soon as may be practicable, pay to the indemnifying party an amount equal to
such insurance proceeds, tax deduction, or tax benefit.
15.8. Exclusive Remedy. Notwithstanding anything to the
contrary contained herein, except in the case of fraud or willful misconduct,
the indemnity provisions of this Article XV shall be the sole and exclusive
remedy against Southern States or Gold Kist for any breach of the
representations, warranties, agreements and covenants contained in this
Agreement.
ARTICLE XVI
Termination
16.1. Procedure for Termination. This Agreement may be
terminated at any time on or before the Closing Date as follows:
(a) by the mutual agreement of Gold Kist and Southern
States;
(b) by Gold Kist (provided that Gold Kist is not in
breach of its obligations under this Agreement): (i) if Gold Kist reasonably
determines that the transactions contemplated hereby cannot be consummated
because of any nonfulfillment of any condition set forth in Article X hereof
which, as determined by Gold Kist, cannot be cured or rectified on or before the
Closing or such other prior date required by this Agreement for the fulfillment
of such condition; (ii) if Southern States breaches any representation or
warranty made by Southern States in this Agreement and such breach has a
material adverse effect on Gold Kist; or (iii) if Southern States fails to
comply with any of Southern States' covenants or agreements contained in this
Agreement; and
(c) by Southern States (provided that Southern States
is not in breach of its obligations under this Agreement): (i) if Southern
States reasonably determines that the transactions contemplated hereby cannot be
consummated because of any nonfulfillment of any condition set forth in Article
XI hereof which, as determined by Southern States, cannot be cured or rectified
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on or before the Closing or such other prior date required by this Agreement for
the fulfillment of such condition; (ii) if Gold Kist breaches any representation
or warranty made by Gold Kist in this Agreement and such breach has a material
adverse effect on the Purchased Assets or the Inputs Business; (iii) if Gold
Kist fails to comply with any of its covenants or agreements contained in this
Agreement; or (iv) pursuant to Article XIII hereof.
(d) by either Gold Kist or Southern States if the
Closing shall not have occurred on or before November 15, 1998; provided,
however, that the right to terminate this Agreement pursuant to this Section
16.1(d) shall not be available to any parties whose failure to fulfill any
obligation of this Agreement has been the cause of, or resulted in, the failure
of the Closing to have occurred on or before the aforesaid date.
16.2. Effect of Termination. If this Agreement is terminated
as provided in Section 16.1, the obligations of the parties hereunder shall
terminate; provided however, that if this Agreement is terminated by a party as
a result of the other party's willful failure to comply with its agreements or
covenants hereunder, then the party that terminated this Agreement shall have
the right to pursue all legal and equitable remedies available to it.
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ARTICLE XVII
Bulk Transfer Laws, Expenses and Taxes
17.1. Bulk Transfer Laws. Gold Kist and Southern States hereby
waive compliance with the provisions of any applicable bulk transfer laws, or
any other similar laws ("Bulk Transfer Laws"), and Gold Kist hereby agrees to
defend, indemnify, and hold harmless Southern States from and against any costs,
expenses, liability or claims by any person arising out of or due to the failure
to comply with such Bulk Transfer Laws, including, without limitation, any
claims by any person against all or any part of the Purchased Assets, but
excluding any Assumed Liabilities.
17.2. Costs and Expenses. Except as otherwise specifically
provided herein, all costs and expenses incurred by or on behalf of Gold Kist
and Southern States, including, without limitation, all fees and expenses of
agents, representatives, counsel, and accountants employed in connection with
the authorization, preparation, execution, and performance of this Agreement or
other matters relating thereto shall be borne solely by the party that incurred
the same and the other party shall have no liability with respect thereof.
17.3. Transfer Taxes. All sales, use, and transfer taxes and
recording, filing, title, and registration fees or other charges imposed upon or
incurred in connection with or as a result of the transfer of the Purchased
Assets to Southern States and the consummation of the transactions contemplated
herein shall be borne and paid by Southern States.
17.4. Real Estate and Other Taxes. To the extent such amounts
are not reflected in the calculation of the Estimated Purchase Price pursuant to
Section 4.2 hereof, real estate and ad valorem taxes imposed upon or assessed
against the Owned Real Property or the Leased Real Property or other Purchased
Assets shall be prorated as of the Closing Date.
17.5. Utilities and Other Charges. To the extent such amounts
are not reflected in the calculation of the Estimated Purchase Price pursuant to
Section 4.2 hereof, (a) charges for electricity, water, gas, and other utilities
and for telephone services related to the Purchased Assets as of or for the
calendar month in which the Closing occurs shall be prorated as of the Closing
Date; (b) payments under the Contracts and the Real Property Leases and the
Personal Property Leases as of or for the calendar month in which the Closing
occurs shall be prorated as of the Closing Date; and (c) other similar prepaid
expenses and other charges of Gold Kist related to the Inputs Business shall be
prorated as of the Closing Date as mutually agreed by Gold Kist and Southern
States.
ARTICLE XVIII
Miscellaneous
18.1. Entire Agreement. This Agreement, together with the
Schedules and the Exhibits hereto, constitutes the entire agreement between the
parties with respect to the matters set forth herein and supersedes all prior
agreements, arrangements, and understandings between the parties with respect to
the same.
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18.2. Modification. No provision of this Agreement, including
the provisions of this Section, may be modified, deleted, or amended in any
manner except by an agreement in writing executed by Gold Kist and Southern
States.
18.3. Notices. All notices, requests, consents, and other
communications to, upon, or between the parties shall be in writing and shall be
deemed to have been given, delivered, or made when personally delivered, sent by
telecopy, or when sent or mailed by certified mail, postage prepaid and return
receipt requested to the parties at the address set forth below or to such other
address as any party may specify by notice to the other party:
If to Southern States:
Southern States Cooperative, Inc.
6606 West Broad Street
Richmond, VA 23230-1717
Attn: N. Hopper Ancarrow, Jr.
Vice President and General Counsel
Phone: 804-281-1205
Fax: 804-281-1383
With a copy to:
Mays & Valentine, L.L.P.
Post Office Box 1122
1111 East Main Street
Richmond, VA 23219
Attn: F. Claiborne Johnston, Jr., Esq.
Phone: 804-697-1214
Fax: 804-697-1339
If to Gold Kist:
Gold Kist Inc.
P. O. Box 2210
Atlanta, GA 30301-2210
Attn: J. David Dyson,
General Counsel, Vice President and Secretary
Phone: 770-393-5328
Fax: 770-393-5421
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With a copy to:
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, GA 30309-3424
Attn: B. Harvey Hill, Jr., Esq.
Phone: 404-881-7446
Fax: 404-881-4777
18.4. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision.
18.5. No Assignment. Neither this Agreement nor any interest
herein may be assigned by either party without the consent of the other party;
provided, however, that Southern States may assign any rights (but not the
obligations) of Southern States under the Agreement to any person providing
financing to Southern States; and provided further, that, upon written notice to
Gold Kist, Southern States may assign its rights and obligations under this
Agreement to an entity organized by Southern States for the purpose of acquiring
the Purchased Assets, provided that Southern States retains all obligations
hereunder pursuant to an agreement that is reasonably satisfactory to Gold Kist
and such assignment is conditioned upon the prior approval and execution of such
agreement.
18.6. Waiver. No waiver of any provision hereof shall be
effective against the party waiving such provision unless such waiver is in a
writing executed by such party. The failure, at any time, of any party hereto to
require the performance of any provision hereof shall not affect the right of
such party to enforce the same. The waiver by any party hereto of any condition
or of the breach of any representation, warranty, covenant, or agreement shall
not be deemed to be a further or continuing waiver of such condition or such
breach or of any other condition or the breach of any other representation,
warranty, covenant, or agreement.
18.7. Benefit. This Agreement shall be binding on and inure to
the respective benefit of Southern States and Gold Kist and their respective
successors and permitted assigns.
18.8. Construction. This Agreement shall be construed and
enforced in accordance with the laws of the State of Georgia, other than its
rules with respect to choice of laws.
18.9. Counterparts. This Agreement may be executed in more
than one counterpart, each of which shall be deemed an original and all of which
shall constitute a single instrument and agreement.
18.10. Headings. The underlined headings provided herein are
for convenience only and shall not affect the interpretation of this Agreement.
18.11. Third Party Beneficiaries. None of the provisions of
this Agreement or any document contemplated hereby is intended to grant any
right or benefit to any person or entity which is not a party to this Agreement.
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18.12. Arbitration. Except as otherwise set forth herein, any
dispute hereunder between Gold Kist and Southern States, or any of their
successors or assigns, shall be settled by binding arbitration conducted on a
confidential basis, under the US Arbitration Act, if applicable, and the
then-current Commercial Arbitration Rules of the American Arbitration
Association strictly in accordance with the terms of this Agreement and the
substantive law of the State of Georgia. The arbitration shall be conducted at
the Association's regional office located in the Charlotte, North Carolina area
by three independent arbitrators, at least one of whom shall be knowledgeable in
the agricultural industry, one of whom shall be an attorney and one of whom
shall be a member of a nationally recognized accounting firm familiar with
business engaged in agriculture. Judgment upon the arbitrators' award is binding
and final upon all parties and may be entered and enforced in any court of
competent jurisdiction. Neither party shall institute a proceeding hereunder
unless at least 60 days prior thereto such party shall have given written notice
to the other party of its intent to do so.
ARTICLE XIX
Definitions
In addition to the other terms defined herein, the following shall
apply throughout this Agreement:
19.1. Accounts Receivable. The term "Accounts Receivable"
shall mean (a) all accounts receivable and notes receivable of the Gold Kist
Inputs Business (excluding intercompany or intracompany accounts receivable) and
(b) all crop time notes receivable held by Agra Trade Financing, Inc. (to
include notes of Gold Kist patrons and Gold Kist dealers, but to exclude any and
all Dealer Direct Notes), in each case existing as of the Closing Date, as set
forth on the books and records of Gold Kist as of the Closing Date, which books
and records shall detail the account name, address, the amount due, and the
aging of all such accounts receivable.
19.2. Assignable Permits. The term "Assignable Permits" shall
have the meaning set forth in Section 6.8.
19.3. Assumed Liabilities. The term "Assumed Liabilities"
shall have the meaning set forth in Section 3.1.
19.4. Best Knowledge of Gold Kist. The term "Best Knowledge of
Gold Kist", including "Gold Kist's knowledge" and all similar terms or
expressions in this Agreement, shall mean the actual knowledge of the officers
and employees of Gold Kist listed in Schedule 19.4, and the knowledge of any
other officers or employees of Gold Kist shall not be the Best Knowledge of Gold
Kist.
19.5. Bond Documents. The term "Bond Documents" shall mean all
documents and instruments executed in connection with the Bulloch County,
Georgia IDA Bond.
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19.6. Bulloch County, Georgia IDA Bond. The term "Bulloch
County, Georgia IDA Bond" shall mean the Industrial Revenue Bond, in the
original principal amount of $6,700,000 issued by the Industrial Development
Authority of Bulloch County, Georgia, due 2016 (Statesboro Cotton Gin Project).
19.7. Bulk Transfer Laws. The term "Bulk Transfer Laws" shall
have the meaning set forth in Section 17.1.
19.8. Business Employees. The term "Business Employees" shall
have the meaning set forth in Section 6.14.1.
19.9. CFI Product Purchase Agreement. The term "CFI Product
Purchase Agreement" shall mean the Gold Kist Member Product Purchase Agreement
dated September 16, 1975 with CF Industries, Inc.
19.10. Closing. The term "Closing" shall have the meaning set
forth in Section 5.1.
19.11. Closing Consents. "Closing Consents" shall mean those
third party consents included within the Required Consents that are marked by an
asterisk on Schedule 6.2.2.
19.12. Closing Date. The term "Closing Date" shall have the
meaning set forth in Section 5.1.
19.13. Contracts. The term "Contracts" shall have the meaning
set forth in Section 6.7.1; and shall specifically include the CFI Product
Purchase Agreement, to the extent Gold Kist's rights and duties thereunder may
be assignable, but shall specifically exclude any collective bargaining
agreements and any other contracts containing obligations or liabilities
excluded in Section 3.2.
19.14. Dealer Direct Notes. The term "Dealer Direct Notes"
shall mean the notes with fertilizer or chemical dealers who are not retail
customers of Gold Kist, but not any notes of customers of such dealers.
19.15. Environmental Arbitrator. The term "Environmental
Arbitrator" shall mean a mutually satisfactory technical consultant, lawyer, or
other person selected by Southern States and Gold Kist as an Environmental
Arbitrator pursuant to Section 14.12 or Section 15.6.5(g).
19.16. Environmental Claims. The term "Environmental Claims"
shall have the meaning set forth in Section 15.6.5.
19.17. Environmental Laws. The term "Environmental Laws" shall
mean any and all federal, state or local statutes, laws, regulation, ordinances,
court decisions, orders or rules relating to the environment; occupational
safety and health; the effect of Hazardous Materials on the environment or human
health; emissions, discharges or releases of Hazardous Materials into the
environment, including without limitation into ambient air, surface water,
groundwater or land; or otherwise relating to the handling of Hazardous
Materials or the clean-up or other remediation of Hazardous Materials.
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19.18. Environmental Permits. The term "Environmental Permits"
shall have the meaning set forth in Section 6.16.
19.19. Estimated Purchase Price. The term "Estimated Purchase
Price" shall have the meaning set forth in Section 4.2.
19.20. Excluded Liabilities. The term "Excluded Liabilities"
shall have the meaning set forth in Section 3.2.
19.21. Final Purchase Price. The term "Final Purchase Price"
shall have the meaning set forth in Section 4.4.
19.22. GAAP. The term "GAAP" shall mean generally accepted
accounting principles as applied in the United States.
19.23. Gold Kist Indemnification Person. The term "Gold Kist
Indemnification Person" shall have the meaning set forth in Section 15.4.
19.24. Gold Kist Minimum Amount. The term "Gold Kist Minimum
Amount" shall have the meaning set forth in Section 15.3.
19.25. Guaranty Agreement. The term "Guaranty Agreement" shall
mean the guaranty by Gold Kist of obligations of Scott G. Williams, LLC. to Sun
Trust Bank.
19.26. Hazardous Materials. The term "Hazardous Materials
shall mean any and all "hazardous substances," "hazardous wastes," "pollutants,"
"contaminants" or "toxic substances," as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42
U.S.C. Section 7401 et seq., or the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., and regulations promulgated thereunder, or any analogous
federal, state or local laws and regulations; including but not limited to
petroleum and petroleum products, polychlorinated biphenyls ("PCBs"),
radioactive materials and asbestos.
19.27. HSR Act. The terms "HSR Act" shall mean the
Hart-Scott-Rodino Antitrust Improvements Act of 1996, as amended, or any
successor law, and regulations and rules issues pursuant to that Act or any
successor law.
19.28. Improvements. The term "Improvements" shall mean all of
the buildings, structures, improvements, fixtures, and appurtenances, including
construction in progress, located on the "Owned Real Property," as defined
herein, or the "Leased Real Property," as defined herein, as the case may be.
19.29. Inputs Business. The term "Inputs Business" shall have
the meaning set forth in Section 2.1.
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19.30. Inputs Financial Statement. The term "Inputs Financial
Statement" shall have the meaning set forth in Section 8.9.
19.31. Intellectual Property Rights. The term "Intellectual
Property Rights" shall have the meaning set forth in section 6.11.1.
19.32. Inventory. The term "Inventory" shall mean all
inventory of operating supplies, raw materials, work-in-process, and finished
goods related to the Inputs Business, counted pursuant to this Agreement.
19.33. Inventory Procedures. The term "Inventory Procedures"
shall mean the Inventory Procedures as set forth in Exhibit A hereto.
19.34. Leased Personal Property. The term "Leased Personal
Property" shall have the meaning set forth in Section 6.9.3.
19.35. Leased Real Property. The term "Leased Real Property"
shall have the meaning set forth in Section 6.6.2.
19.36. Liens. The term "Liens" shall mean all liens,
encumbrances. leases, casements, covenants, licenses, defects of title, claims,
security interests, mortgages, pledges, charges, restrictions, equities,
agreements and rights of others of every nature and description whatsoever;
provided, however, that the term "Liens" shall not include any "Permitted Liens"
as defined below.
19.37. Net Current Asset Value. The term "Net Current Asset
Value" shall mean the book value (lower of Gold Kist cost or market) of the
Inventory, net of usual and customary reserves, computed on a first-in first-out
basis in accordance with GAAP and the Inventory Procedures, plus the Accounts
Receivable as valued pursuant to GAAP and the Receivables Valuation Procedures,
and plus the Prepaid Expenses, as defined herein, less the accrued expenses and
the trade accounts payable of the Inputs Business, all as calculated in
accordance with GAAP; provided, however, that neither the current portion of the
Bulloch County, Georgia IDA Bond nor the current portion of the Solon Scott
Lease will be included as a liability in this computation if and to the extent
that any such current portion is included in the total amount of such respective
obligation deducted in the calculations of the Estimated Purchase Price pursuant
to Section 4.2. and the Final Purchase Price pursuant to Section 4.4.
19.38. Nonassignable Permits. The term "Nonassignable Permits"
shall have the meaning set forth in Section 6.8.
19.39. Operating Agreement Assignment and Amendment. The term
"Operating Agreement Assignment and Amendment" shall mean the Assignment of
Interest and Amendment to Operating Agreement of the Scott G. Williams, LLC.,
delivered at closing pursuant to Section 5.2(g) and 5.3(e), substantially in the
form of Exhibit H attached hereto.
19.40. Owned Personal Property. The term "Owned Personal
Property" shall have the meaning set forth in Section 6.9.1.
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19.41. Owned Real Property. The term "Owned Real Property"
shall have the meaning set forth in Section 6.6.1.
19.42. Permitted Lien. The term "Permitted Liens" shall mean
(a) all liens, encumbrances, leases, easements, covenants, licenses, defects of
title, claims, security interests, mortgages, pledges, charges, restrictions,
equities, agreements and rights of others of every nature and description
whatsoever which arise in the ordinary course of business and do not materially
adversely affect the full use and enjoyment of the assets subject thereto for
the purposes for which they are currently used, or materially detract from their
value; (b) liens for taxes not yet due and payable; and (c) liens existing in
connection with the Bulloch County, Georgia IDA Bond and the Solon Scott Lease.
19.43. Permits. The term "Permits" shall have the meaning set
forth in Section 6.8.
19.44. Personal Property Leases. The term "Personal Property
Leases" shall have the meaning set forth in Section 6.9.3.
19.45. Plans and Programs. The term "Plans and Programs" shall
have the meaning set forth in Section 6.14.2.
19.46. Post-Closing Environmental Conditions. The term
"Post-Closing Environmental Conditions" shall mean any and all conditions of any
Owned Real Property or Leased Real Property acquired by Southern States,
including soil, surface water and groundwater contamination, resulting from the
disposal or release of Hazardous Materials by Southern States after the Closing
Date; or that is attributable to the operation of the Inputs Business by
Southern States after the Closing Date; provided, however, that any migration of
contamination first released prior to the Closing Date shall constitute a
Pre-Closing Environmental Condition to the extent applicable to such migration
and shall constitute a Post-Closing Environmental Condition to the extent caused
after the Closing Date by operations of the Inputs Business.
19.47. Post-Closing Statement of Net Current Asset Value. The
term "Post-Closing Statement of Net Current Asset Value" shall mean the
statement of Net Current Asset Value, calculated as of the Closing Date.
19.48. Pre-Closing Environmental Conditions. The term
"Pre-Closing Environmental Conditions" shall mean any and all conditions of any
Owned Real Property, Leased Real Property, or any other property formerly owned
or leased by Gold Kist as a part of the Inputs Business, or that is attributable
to the operations or properties of Scott G. Williams LLC., (to the extent of
Southern States' interest in Scott G. Williams, LLC.), including soil, surface
water and groundwater contamination, resulting from the disposal or release of
Hazardous Materials, which condition was in existence on, or arose from, such
property on or before the Closing Date; or that is attributable to the operation
of the Inputs Business or the Purchased Assets on or before the Closing Date,
including, but not limited to, the scheduled conditions under Section 6.16 of
the Agreement.
47
<PAGE>
19.49. Pre-Closing Statement of Net Current Asset Value. The
term "Pre-Closing Statement of Net Current Asset Value" shall mean the statement
of "Net Current Asset Value," as defined herein, calculated as of the Closing
Date as provided for in Section 4.1.
19.50. Prepaid Expenses. The term "Prepaid Expenses" shall
mean those accounts relating to the Inputs Business which benefit Southern
States and are included in the Post-Closing Statement of Net Current Asset
Value.
19.51. Principal Management. The term "Principal Management"
shall mean the authority to direct the handling of the subject matter of an
Environmental Claim as provided in Section 15.6.5.
19.52. Product Purchase Agreement Assignment and Assumption
Agreement. The term "Product Purchase Agreement Assignment and Assumption
Agreement" shall mean the CF Industries, Inc. Product Purchase Agreement
Assignment and Assumption Agreement, delivered at Closing pursuant to Sections
5.2(f) and 5.3(d) as set forth substantially in the form of Exhibit G.
19.53. Purchased Assets. The term "Purchased Assets" shall
have the meaning set forth in Section 2.1.
19.54. Purchase Transaction. The term "Purchase Transaction"
shall mean the asset purchase transaction contemplated by this Agreement and any
and all transactions related thereto.
19.55. Real Property Leases. The term "Real Property Leases"
shall have the meaning set forth in Section 6.6.2.
19.56. Receivables Valuation Procedures. The term "Receivables
Valuation Procedures" shall mean the Accounts Receivable Valuation Procedures as
set forth in Exhibit B hereto.
19.57. Records. The term "Records" shall have the meaning set
forth in Section 2.1(n).
19.58. Rejected Proposed Contract. The term "Rejected Proposed
Contract" shall have the meaning set forth in Section 8.2.2.(b).
19.59. Rejected Proposed Contract Termination Date. The term
"Rejected Proposed Contract Termination Date" shall have the meaning set forth
in Section 8.2.2(b).
19.60. Required Consents. The term "Required Consents" shall
have the meaning set forth in Section 6.2.2.
19.61. Scott G. Williams, LLC. The term "Scott G. Williams,
LLC." shall mean the Georgia limited liability company established under that
name under articles of organization dated June 27, 1997.
48
<PAGE>
19.62. Site Remediation. The term "Site Remediation" shall
mean the remediation of environmental conditions on any Owned Real Property or
Leased Real Property, including the investigation, cleanup, and monitoring of
such remediation.
19.63. Solon Scott Lease. The term "Solon Scott Lease" shall
mean the Lease Agreement with Purchase Option dated January 5, 1995 between Gold
Kist and Scott Petroleum Corporation, a Mississippi corporation.
19.64. Southern States Indemnified Persons. The term "Southern
States Indemnified Persons" shall have the meaning set forth in Section 15.2.
19.65. SSC Minimum Amount. The term "SSC Minimum Amount" shall
have the meaning set forth in Section 15.5.
19.66. Survival Period. The term "Survival Period" shall have
the meaning set forth in Section 15.1.
19.67. Tangible Assets. The term "Tangible Assets" shall have
the meaning set forth in Section 13.1.
19.68. Trademarks. The term "Trademarks" shall have the
meaning set forth in Section 6.11.1.
19.69. Transition Services Agreement. The term "Transition
Services Agreement" shall have the meaning set forth in Section 14.5.
19.70. Transferred Employees. The term "Transferred Employees"
shall have the meaning set forth in Section 14.3.1.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: _________________________________________
Wayne A. Boutwell
Chief Executive Officer and President
GOLD KIST INC.
By: _________________________________________
Gaylord O. Coan
Chief Executive Officer and Chairman
EXHIBIT 10.1(b)
October 13, 1998
Gold Kist Inc.
P. O. Box 2210
Atlanta, GA 30301-2210
Attn: J. David Dyson,
General Counsel, Vice President and Secretary
Asset Purchase Agreement-
Scott G. Williams, LLC. and Wilson Pugh
Gentlemen:
Recent conversations relating to the anticipated closing under
the Asset Purchase Agreement, dated as of July 23, 1998, (the "Agreement"), by
and between Southern States Cooperative, Inc. ("Southern States") and Gold Kist
Inc. ("Gold Kist") have indicated that Gold Kist will be unable to deliver the
Operating Agreement Assignment and Amendment or the consent of the landlord (the
"Wilson Pugh Consent") under the "Wilson-Pugh" lease with respect to Leased Real
Property located in Portland Arkansas (the "Wilson Pugh Property") as agreed at
Closing. This letter is to confirm certain agreements between Gold Kist and
Southern States relating to the Operating Agreement Assignment and Amendment and
the Wilson Pugh Consent.
Southern States and Gold Kist have agreed that:
a) Notwithstanding the provisions of Section 11.3 of the
Agreement, or any other provision of the Agreement, neither
(i) delivery of the Operating Agreement Assignment and
Amendment at Closing, and receipt of the consent and signature
of Acts 16:25, Inc. thereto nor (ii) delivery of the Wilson
Pugh Consent, shall be a condition to the obligations of
Southern States under that Agreement, or otherwise considered
a condition to Closing.
<PAGE>
b) With respect to the Operating Agreement Assignment and Amendment:
i) At Closing, Southern States will neither acquire Gold
Kist's 50% interest in Scott G. Williams, LLC. nor
assume any of Gold Kist's obligations with respect to
such interest, including without limitation,
obligations under the Operating Agreement or the
Guaranty Agreement with respect to Scott G. Williams,
LLC.; and
ii) The Estimated Purchase Price and the Final Purchase
Price for the Purchased Assets shall be reduced by
$1.36 million.
c) With respect to the Wilson Pugh Property:
i) At Closing, Southern States will neither take an
assignment of the lease(s) between Gold Kist and
Wilson Pugh with respect to the Wilson Pugh Property
nor acquire the liquid fertilizer tank (and related
site improvements) located on such property. Southern
States will purchase the Inventory and Owned Personal
Property located on the Wilson Pugh Property and will
remove such assets as soon as practicable after
Closing;
ii) The Estimated Purchase Price and the Final Purchase
Price for the Purchased Assets shall be reduced by
$125,088.00; and
iii) Gold Kist and Southern States acknowledge that, in
connection with the calculation of the Net Current
Asset Value as shown on the Post Closing Statement of
Net Asset Value, the lease payments made by Gold Kist
with respect to the Wilson Pugh Property shall not be
included in Prepaid Expenses.
d) As a result of the agreements set forth in paragraphs (b)(ii)
and (c)(ii) above, the $41.4 million figure set forth in
clause (i) of each of Sections 4.2 and 4.4 of the Agreement
shall be reduced to $39,914,912.00 .
Capitalized terms not otherwise defined herein shall have the
meanings ascribed in the Agreement. The Agreement, except as specifically
amended by this letter agreement, is hereby ratified and confirmed and shall
remain in full force and effect in accordance with its terms.
Please sign the enclosed copy of this letter agreement to
evidence your agreement to the foregoing.
<PAGE>
Very truly yours,
-------------------------------------
Wayne A. Boutwell
Chief Executive Officer and President
SEEN AND AGREED:
GOLD KIST INC.
By:___________________________
M.A. Stimpert
Senior Vice President
EXHIBIT 10.1(c)
October 13, 1998
Southern States Cooperative, Inc.
6606 West Broad Street
P. O. Box 26234
Richmond, Virginia 23260
Ladies and Gentlemen:
In order to facilitate the closing of the Asset Purchase
Agreement dated July 23, 1998, between Southern States Cooperative, Inc.
("Southern States") and Gold Kist Inc. ("Gold Kist") for the purchase of the
Gold Kist Inputs Business, and subject to the terms and conditions set out below
and on the attached Terms Sheet, Gold Kist hereby commits to purchase under the
circumstances described below from Southern States and from a trust entity to be
formed by Southern States, $100 million principal (liquidation) amount of
preferred securities (the "Preferred Securities") in the form described in each
of Annex A and Annex B to the attached Terms Sheet.
Approval of Gold Kist Lenders. The commitment of Gold Kist set
forth herein and on the attached Terms Sheet is expressly
subject to receipt of approvals by (1) CoBank, ACB; (2) the
Prudential Insurance Company of America and (3) Cooperative
Centrale Raiffeisen - BoerenleekBank B.A., "Rabobank
Nederland", New York Branch, as Agent, under the Gold Kist
Credit Agreement dated August 4, 1998, with various banks and
lending institutions as lenders.
This obligation of Gold Kist to purchase the Preferred
Securities shall be of no force and effect if, prior to the Purchase Date (as
specified in the Terms Sheet), Southern States shall have placed with other
purchasers similar capital and/or equity in a minimum amount of $100 million. To
the extent that, prior to the Purchase Date, Southern States shall have placed
with other purchasers capital and/or equity securities similar to the Preferred
Securities in an amount less than $100 million, then the Gold Kist commitment to
purchase Preferred Securities shall be reduced correspondingly on a
dollar-for-dollar basis. For purposes of this letter and the attachments hereto,
any Southern States preferred stock or subordinated debt will be considered
similar securities to the Preferred Securities.
<PAGE>
This commitment is a duly authorized, irrevocable obligation
of Gold Kist Inc., enforceable in accordance with its terms. If you are in
agreement with the terms and conditions stated above, and as set forth in the
Terms Sheet attached and the annexes thereto, please signify by executing and
returning a copy of this letter to the undersigned.
Sincerely,
________________________
M. A. Stimpert
Senior Vice President
Agreed to by Southern States Cooperative, Inc.
_____________________________________
Wayne A. Boutwell
President and Chief Executive Officer
<PAGE>
Attachment to Commitment Letter
Dated October 13, 1998
Terms Sheet for Purchase of Southern States
Preferred Securities by Gold Kist
1. Time of Purchase:
The date on which Gold Kist will purchase the Preferred Securities (the
"Purchase Date") will be 175 days after October 9, 1998 which is the effective
date of the 180-day senior bridge facility made available to Southern States for
the purchase of the Gold Kist Inputs Business (the "Senior Bridge Facility") in
the event Southern States has not placed a minimum of $100 million of similar
securities prior to the Purchase Date. Accordingly the Purchase Date will be
April 2, 1999. The purchase of the Preferred Securities will be made pursuant to
one or more purchase agreements containing customary terms and conditions.
2. Composition of the $100 million of Preferred Securities:
The $100 million of Preferred Securities shall be comprised of (a) $40
million of DRD Preferred (as more specifically described on Annex A), bearing an
initial dividend rate of 7.5% per annum and (b) $60 million of Capital
Securities (as more specifically described on Annex B), bearing an initial
distribution rate of 8.0% per annum. If less than $100 million amount of
Preferred Securities is placed with Gold Kist, the amount of each type of
Preferred Securities sold to Gold Kist will be as determined by Southern States,
not to exceed, in the case of the DRD Preferred, $40 million liquidation amount,
and in the case of the Capital Securities, $60 million liquidation amount.
Similarly, upon any redemption of less than the entire $100 million of Preferred
Securities, Southern States shall have the right to redeem whichever type of
Preferred Securities (DRD Preferred or Capital Securities) it wishes, in any
amount up to the entire outstanding amount held by Gold Kist. For so long as the
Preferred Securities are held by Gold Kist, the Preferred Securities will be
subject to mandatory redemption from the net proceeds of all placements of
substantially similar securities by Southern States until the Preferred
Securities held by Gold Kist have been redeemed in their entirety.
<PAGE>
If Southern States places securities similar to the Preferred
Securities prior to the Purchase Date, Southern States will immediately instruct
the LOC bank described in paragraph 4 below, to issue an amendment to the LOC or
a replacement LOC reflecting a reduction in the amount of the LOC to the extent
that Gold Kist's commitment to purchase Preferred Securities has thereby been
reduced.
3. Purchase price; Fees Associated with the Placement of the Preferred
Securities with Gold Kist:
Gold Kist shall purchase the Preferred Securities at par. Southern
States shall pay to Gold Kist at the time of purchase a placement fee equal to
2% of the liquidation amount of the DRD Preferred and 1% of the liquidation
amount of the Capital Securities. The amount of the placement fee paid to Gold
Kist shall be refunded to Southern States on a pro rata basis upon any
redemption, in whole or in part, of the Preferred Securities from Gold Kist.
4. Terms and Conditions of the Letter of Credit ("LOC") Supporting the Gold Kist
Purchase Agreement:
Gold Kist's obligation to purchase the Preferred Securities shall be
secured by an irrevocable direct pay bank letter of credit ("LOC"). The LOC
shall be in an amount at least equal to the purchase price of the Preferred
Securities which Gold Kist is committed to purchase, shall have an initial term
expiring no earlier than 10 days after the Purchase Date and shall be
irrevocable and unconditional. The LOC shall be issued by a financial
institution located in the United States (including, but not limited to,
Rabobank's U.S. branch) with a debt rating of AA/Aa2 or higher. A draft of the
LOC will be provided to Southern States not later than October 9, 1998. Southern
States also shall be furnished with an opinion satisfactory to it from counsel
for the LOC bank, including foreign counsel if appropriate, as to the due
authorization, execution and delivery and binding effect of the LOC.
<PAGE>
5. Fees Associated with the LOC and Other Financing Costs:
Southern States will bear the cost, not to exceed 125 basis points per
annum, payable monthly, for the LOC for its initial term and any renewal
thereof. Gold Kist will be responsible for the costs of changes, if any, to Gold
Kist's various loan agreements. Southern States will be responsible for all
costs of its Senior Bridge Facility.
6. Provisions Relating to the Transfer of Preferred Securities by Gold Kist:
Gold Kist shall hold any Preferred Securities purchased by it for a
period of at least nine (9) months from the Purchase Date. Upon the expiration
of that period (contemplated to terminate in January, 2000) Gold Kist may, at
its election, give notice to Southern States of its desire to sell the Preferred
Securities, in whole or in part. Delivery of notice shall commence a 120-day
waiting period during which Gold Kist may not sell or offer to sell the
Preferred Securities or any portion thereof without the consent of Southern
States. Within 10 business days of Gold Kist giving notice of its desire to
sell, Southern States shall advise Gold Kist of its intentions with respect to
the placement or sale of the Preferred Securities or similar securities. If,
during the waiting period, Southern States determines not to place the Preferred
Securities or similar securities, then Southern States shall so advise Gold Kist
and Southern States shall not unreasonably refuse to waive the remainder of the
waiting period. Upon the later of (1) expiration of the 120-day waiting period
(which could occur as early as April, 2000) and (2) termination of a placement
of the Preferred Securities or similar securities commenced by Southern States
prior to the end of the waiting period, Gold Kist will be free to transfer the
Preferred Securities as permitted by law and subject to the transfer
restrictions described in the draft Offering Memorandums proposed by Southern
States, copies of which have been furnished to Gold Kist. Southern States will
provide such financial and other information and assistance as may reasonably be
required by Gold Kist in its efforts to resell the Preferred Securities.
<PAGE>
7. Special Counsel:
Sullivan & Cromwell will serve as special counsel in connection with
the purchase of the Preferred Securities. Southern States shall be responsible
for the fees and expenses of special counsel.
8. Southern States Obligation:
Southern States shall be obligated to continue with all good faith
reasonable efforts to place, on terms and conditions reasonably satisfactory to
Southern States, through one or more of the markets referenced below, a minimum
of $50 million of perpetual preferred stock and a minimum of $75 million of
trust preferred securities substantially similar to the Capital Securities
proposed to be sold to Gold Kist. Southern States shall pursue its efforts
concurrently on three separate "tracks":
(1) Rule 144A offerings as presently contemplated by Southern
States.
(2) Private placement market.
(3) Registered public offering of trust preferred securities
and/or preferred stock.
<PAGE>
Annex A
Description of Preferred Stock to be Issued
to Gold Kist Inc. by Southern States Cooperative, Inc.
(Supplements Description of Series A Preferred Stock
in Draft Offering Memorandum)
- --------------------------------------------------------------------------------
1. Purchase Amount. $40 million principal (liquidation) amount.
2. Designation and Rank. Series B Cumulative Redeemable Preferred Stock.
Ranks pari passu with other Southern States preferred stock.
3. Dividend Rate. 7.5% per annum initial rate; subject to increase to 8.0%
per annum nine months after the Purchase Date; and to 8.25% twenty-one
months after the Purchase Date. Dividends payable quarterly.
4. Mandatory Redemption. Mandatorily redeemable while held by Gold Kist
as described in the Terms Sheet.
5. Transferability. Preferred Stock to be transferable in minimum
principal amounts of $100,000 to QIBs or Institutional Accredited
Investors pursuant to Rule 144A or Rule 501(a)(1), (2), (3) or (7),
subject to the conditions and restrictions on transfer set out in the
draft Offering Memorandum for the Preferred Stock.
6. Form of Certificate. Preferred Stock to be delivered as a single
physical certificate; $100,000 block limitation on transfers.
Application will be made to DTC for book-entry transfer and trading in
PORTAL if requested by Gold Kist.
7. Other Information. Except as otherwise provided above, the Preferred
Stock will be similar in its terms and conditions to, and subject to
restrictions on transfer similar to those applicable to, the proposed
issue of ___% Series A Preferred Stock described in the draft Offering
Memorandum prepared by Southern States with respect thereto, a copy of
which has been furnished to Gold Kist.
<PAGE>
Annex B
Description of Capital Securities to be Issued to
Gold Kist Inc. by Southern States Capital Trust II and
Guaranteed by Southern States Cooperative, Inc.
(Supplements Description of Series A Capital Securities
in Draft Offering Memorandum)
- --------------------------------------------------------------------------------
1. Purchase Amount. $60 million liquidation amount of Series B Capital
Securities issued by Southern States Capital Trust [ II ], a Delaware
business trust (the "Trust").
2. Payment Source. Capital Securities payable solely from payments made on
8% Adjustable Rate Junior Subordinated Deferrable Interest Debentures
of Southern States (ranking senior to Southern States' preferred stock,
common stock and all patrons' equities; subordinated to Senior Debt -
virtually all of the Company's indebtedness is Senior Debt). The Junior
Subordinated Debentures will have a thirty (30) year maturity. The
interest rate payable on the Junior Subordinated Debentures will be
adjustable in the same manner described in paragraph 5 below for the
Capital Securities.
3. Guarantee. Capital Securities guaranteed by Southern States to the
extent of funds held by the Trust (same as provided for in the
contemplated 144A Offering).
4. Documentation. Issue to be fully documented as a Rule 144A issue of
Capital Securities, substantially similar to documentation for the
Capital Securities presently contemplated by Southern States,
including:
(1) Trust Agreement (for organizational purposes).
(2) Amended and Restated Trust Agreement.
(3) Indenture.
(4) Guarantee.
(5) Purchase Agreement.
(6) Delaware Trustee - First Union Trust Company, N.A.
(7) Property Trustee, Guarantee Trustee and Debenture Trustee -
First Union National Bank.
5. Interest Rate. The initial rate of distributions on the Capital
Securities shall be 8% per annum; subject to increase to 8.5% nine
months after the Purchase Date; and to 8.75% per annum twenty-one
months after the Purchase Date. Distributions payable semi-annually.
6. Mandatory Redemption. Mandatorily redeemable while held by Gold
Kist as described in the Terms Sheet.
<PAGE>
7. Transferability. Capital Securities to be transferable in minimum
principal amounts of $100,000 to QIBs or Institutional Accredited
Investors pursuant to Rule 144A or Rule 501(a)(1), (2), (3) or (7),
subject to the conditions and restrictions on transfer set out in the
draft Offering Memorandum for the Capital Securities.
8. Form of Security. Capital Securities to be delivered as a single
physical certificate; $100,000 block limitation on transfers.
Application will be made to DTC for book-entry transfer and trading in
PORTAL if requested by Gold Kist.
9. Other Information. Except as otherwise provided above, the Capital
Securities will be similar in its terms and conditions, and subject to
restrictions on transfer similar to those applicable, to the proposed
issue of the Capital Securities described in the draft Offering
Memorandum prepared by Southern States with respect thereto, a copy of
which has been furnished to Gold Kist.
EXHIBIT 10.2
TERM LOAN CREDIT AGREEMENT
TERM LOAN CREDIT AGREEMENT dated as of October 9, 1998 (the "Credit
Agreement" or this "Agreement") by and among SOUTHERN STATES COOPERATIVE,
INCORPORATED, a Virginia agricultural cooperative corporation (the "Borrower"),
the lenders identified herein (the "Lenders"), and NATIONSBANK, N.A., as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent") and FIRST UNION NATIONAL BANK and COBANK, ACB, as Co-Agents.
WITNESSETH
WHEREAS, the Borrower has requested a bridge loan of $225 million in
the aggregate; and
WHEREAS, the Lenders have agreed to provide such bridge loan on the
terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used herein:
"Acquired Business" means the business, operations and assets of Gold
Kist Inc. acquired pursuant to the terms of the Asset Purchase Agreement.
"Acquisition" means the acquisition by the Borrower of the Acquired
Business pursuant to the terms of the Asset Purchase Agreement.
"Affiliate" means, with respect to any Person, any other Person (i)
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person or (ii) directly or indirectly owning or holding
five percent (5%) or more of the equity interest in such Person. For purposes of
this definition, "control" when used with respect to any Person means the power
to direct the management and policies of such 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.
"Agents' Fee Letters" means (i) that letter agreement dated as of
September 18, 1998 from NationsBanc Montgomery Securities LLC, NationsBank,
N.A., First Union National Bank and CoBank, ACB, and accepted by the Borrower,
as amended, modified or supplemented and (ii) that letter agreement dated as of
September 18, 1998 from NationsBanc Montgomery Securities LLC and NationsBank,
N.A., and accepted by the Borrower, as amended, modified or supplemented.
"Applicable Percentage" means for any day, the rate per annum set forth
below, it being understood that the Applicable Percentage for (i) Base Rate
Loans shall be the percentage set forth under the column "Base Rate Margin", and
(ii) Eurodollar Loans shall be the percentage set forth under the column
"Eurodollar Margin":
The Applicable Percentage shall be determined (i) by reference to the
Borrower's corporate ratings provided by S&P and Moody's; or (ii) if no such
<PAGE>
rating is provided by both S&P and Moody's, then by reference to the Borrower's
quiet corporate rating provided by S&P as updated after giving effect to the
Acquisition; or (iii) if no such quiet corporate rating is provided or has not
been updated to give effect to the Acquisition, then the Applicable Percentage
shall be 1.125% in the case of the Eurodollar Margin and 0% in the case of the
Base Rate Margin.
IF BASED ON THE CORPORATE RATING BY BOTH S&P AND MOODY'S
Pricing S&P & Moody's Eurodollar Base Rate
Level Corporate Ratings Margin Margin
I >BBB+ or Baa1 or better 0.425% 0%
II >BBB and Baa2 0.550% 0%
III >BBB or Baa2 (but not both) 0.625% 0%
IV >BBB- and Baa3 0.750% 0%
V >BBB- or Baa3 (but not both) 0.875% 0%
VI >BB+ and Ba1 1.125% 0%
VII >BB+ or Ba1 (but not both) 1.500% 0.25%
VIII <BB+ and Ba1 2.000% 0.75%
IF THERE IS NO CORPORATE RATING BY S&P AND MOODY'S:
S&P
Pricing Quiet Corporate Rating Eurodollar Margin Base Rate
Level Margin
I BBB+ or better 0.425% 0%
II BBB 0.550% 0%
III BBB- 0.750% 0%
IV BB+ 1.125% 0.25%
V below BB+ 2.000% 0.75%
or unrated
The foregoing Applicable Percentages shall be effective for the period
from the Closing Date through the date sixty (60) days following the Closing
Date; thereafter (i) for the period sixty-one days following the Closing Date
through one hundred twenty (120) days following the Closing Date, the Applicable
Percentages shall be those shown above plus twenty-five basis points (0.25%),
and (ii) from the date one hundred twenty-one (121) days following the Closing
Date and thereafter, the Applicable Percentages shall be those shown above plus
fifty basis points (0.50%).
The Applicable Percentage shall be determined and adjusted on the date
of each change in rating. Adjustments in the Applicable Percentage shall be
effective as to all Loans, existing and prospective, from the date of
adjustment. The Administrative Agent shall promptly notify the Lenders of
changes in the Applicable Percentage.
"Asset Disposition" means (i) the sale, lease or other disposition of
any property or asset (including, without limitation, the capital stock of a
Subsidiary) by the Borrower or any of its Subsidiaries, and (ii) receipt by the
Borrower or any of its Subsidiaries of any cash insurance proceeds or
condemnation award payable by reason of theft, loss, physical destruction or
damage, taking or similar event with respect to any of their property or assets;
provided that the following shall not be considered an Asset Disposition for
purposes hereof, (A) the sale of inventory in the ordinary course of business,
and (B) the sale and transfer of accounts receivable, other than the accounts
receivable relating to the Acquired Business, in the ordinary course of business
or pursuant to established financing programs.
2
<PAGE>
"Asset Purchase Agreement" means that certain Asset Purchase Agreement
dated as of July 23, 1998 by and between the Borrower and Gold Kist Inc., as
amended, modified and restated from time to time.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United
States Code, as amended, modified, succeeded or replaced from time to time.
"Bankruptcy Event" means, with respect to any Person, the occurrence of
any of the following with respect to such Person: (i) a court or governmental
agency having jurisdiction in the premises shall enter a decree or order for
relief in respect of such Person in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of such Person or for any substantial part of its property
or ordering the winding up or liquidation of its affairs; or (ii) there shall be
commenced against such Person an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or any
case, proceeding or other action for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of such Person
or for any substantial part of its property or for the winding up or liquidation
of its affairs, and such involuntary case or other case, proceeding or other
action shall remain undismissed, undischarged or unbonded for a period of sixty
(60) consecutive days; or (iii) such Person shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of such Person or for any substantial part of its property
or make any general assignment for the benefit of creditors; or (iv) such Person
shall be unable to, or shall admit in writing its inability to, pay its debts
generally as they become due.
"Base Rate" means, for any day, the rate per annum (rounded upwards, if
necessary, to the nearest whole multiple of 1/100 of 1%) equal to the greater of
(a) the Federal Funds Rate in effect on such day plus 1/2 of 1% or (b) the Prime
Rate in effect on such day. If for any reason the Administrative Agent shall
have determined (which determination shall be conclusive absent manifest error)
that it is unable after due inquiry to ascertain the Federal Funds Rate for any
reason, including the inability or failure of the Administrative Agent to obtain
sufficient quotations in accordance with the terms hereof, the Base Rate shall
be determined without regard to clause (a) of the first sentence of this
definition until the circumstances giving rise to such inability no longer
exist. Any change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such change in
the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate determined
by reference to the Base Rate.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina or Richmond, Virginia are
authorized or required by law to close; provided, however, that when used in
connection with a rate determination, borrowing or payment in respect of a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks in London, England are not open for dealings in U.S. dollar deposits in
the London interbank market.
"Capital Expenditure" means all expenditures (whether paid in cash or
other consideration) that are or should be included in additions to property,
plant and equipment in accordance with GAAP; provided that, for purposes of this
Agreement, there shall not be included hereunder expenditures of proceeds of
insurance settlements, condemnation awards and other settlements in respect of
lost, destroyed, damaged or condemned assets, equipment or other property to the
extent such expenditures are used to repair or replace the assets, equipment or
other property lost, destroyed, damaged or condemned.
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"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States or any agency or instrumentality
thereof with maturities of not more than twelve months from the date of
acquisition, (ii) U.S. dollar time deposits, certificates of deposit, "money
market" accounts and repurchase agreements relating to direct obligations of the
United States with, and commercial paper and fixed rate notes issued by, a
Lender or other domestic commercial bank with a short term commercial paper
rating of at least A-1 by S&P or P-1 by Moody's, (iii) obligations of any state
with respect to which interest is exempt from federal income tax with a long
term rating of at least AA- by S&P or Aa-3 by Moody's and (iv) other short term
investments in an aggregate amount not to exceed $7,500,000 at any time.
"Change of Control" means the occurrence of any of the following
events: (i) any Person or two or more Persons acting in concert shall have
acquired beneficial ownership, directly or indirectly, of, or shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation, will result in its or their acquisition of
or control over, Voting Stock of the Borrower (or other securities convertible
into such Voting Stock) representing 35% or more of the combined voting power of
all Voting Stock of the Borrower, or (ii) during any period of up to 24
consecutive months, commencing after the Closing Date, individuals who at the
beginning of such 24 month period were directors of the Borrower (together with
any new director whose election by the Borrower's Board of Directors or whose
nomination for election by the Borrower's shareholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors of the Borrower then in office. As used herein,
"beneficial ownership" shall have the meaning provided in Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto, as interpreted by the rules and regulations issued
thereunder, in each case as in effect from time to time. References to sections
of the Code shall be construed also to refer to any successor sections.
"Commitment Period" means the period from and including the Closing
Date to and including the closing date of the Acquisition (but not later than
October 20, 1998).
"Commitments" means the Term Loan Commitments hereunder.
"Consolidated Funded Debt" means Funded Debt of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means, as of any date, shareholders' equity or
net worth for the Borrower and its Subsidiaries on a consolidated basis
determined in accordance with GAAP.
"Consolidated Total Capitalization" means the sum of (i) Consolidated
Funded Debt plus (ii) Consolidated Net Worth.
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"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any material agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Contributed Capital Agreements" means (i) that Third Amended and
Restated Financing Services and Contributed Capital Agreement dated as of
November 3, 1997, between Southern States Cooperative, Incorporated and
Statesman Financial Corporation and (ii) Financing Services and Contributed
Capital Agreement dated as of April 1, 1998, between Southern States
Cooperative, Incorporated and Michigan Livestock Credit Corporation.
"Credit Documents" means, collectively, this Agreement, the Notes, the
Agents' Fee Letters, and all other related agreements and documents issued or
delivered hereunder or thereunder or pursuant hereto or thereto.
"Debt Transaction" means, with respect to the Borrower or any of its
Subsidiaries, any sale, issuance or placement of Funded Debt, whether or not
evidenced by promissory note or other written evidence of indebtedness, other
than Funded Debt permitted by Section 6.10(a), (b), (c) and (d).
"Default" means any event or condition which with notice or lapse of
time, or both, would constitute an Event of Default.
"Defaulting Lender" means any Lender that has failed to make a loan or
to purchase a participation interest required hereunder, has failed to pay to
the Administrative Agent or any other Lender any amounts owing hereunder or
under the other Credit Documents, or has been deemed insolvent or become the
subject of bankruptcy, reorganization or insolvency proceedings (or with respect
to which a receiver, trustee or similar official has been appointed).
"Environmental Laws" means any and all lawful and applicable Federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or other governmental restrictions relating to the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"Equity Transaction" means, with respect to the Borrower or any of its
Subsidiaries, any issuance of shares of its capital stock or other equity
interest (including all classes of preferred or hybrid securities, trust
preferred securities and perpetual preferred securities), other than an issuance
(i) in connection with a conversion of debt securities to equity or (ii) in
connection with exercise by a present or former employee, officer or director
under a stock incentive plan, stock option plan or other equity-based
compensation plan or arrangement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, as interpreted by the rules and
regulations thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA Affiliate" means an entity which is under common control with
the Borrower within the meaning of Section 4001(a)(14) of ERISA, or is a member
of a group which includes the Borrower and which is treated as a single employer
under Sections 414(b) or (c) of the Code.
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"ERISA Event" means (i) with respect to any Plan, the occurrence of a
Reportable Event or the substantial cessation of operations (within the meaning
of Section 4062(e) of ERISA); (ii) the withdrawal by the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate from a Multiple Employer Plan
during a plan year in which it was a substantial employer (as such term is
defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple
Employer Plan; (iii) the distribution of a notice of intent to terminate or the
actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA;
(iv) the institution of proceedings to terminate or the actual termination of a
Plan by the PBGC under Section 4042 of ERISA; (v) any event or condition which
would reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan;
(vi) the complete or partial withdrawal of the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate from a Multiemployer Plan; (vii) the conditions
for imposition of a lien under Section 302(f) of ERISA exist with respect to any
Plan; or (vii) the adoption of an amendment to any Plan requiring the provision
of security to such Plan pursuant to Section 307 of ERISA.
"Eurodollar Loans" means any Loan bearing interest at a rate determined
by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Loan comprising part of the same borrowing (including conversions, extensions
and renewals), a per annum interest rate determined pursuant to the following
formula:
Eurodollar Rate = Interbank Offered Rate
-----------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
(expressed as a decimal) which is in effect from time to time under Regulation D
of the Board of Governors of the Federal Reserve System (or any successor), as
such regulation may be amended from time to time or any successor regulation, as
the maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency, special, or marginal reserves) applicable with respect
to eurocurrency liabilities as that term is defined in Regulation D (or against
any other category of liabilities that includes deposits by reference to which
the interest rate of Eurodollar Loans is determined), whether or not the
Administrative Agent has any eurocurrency liabilities subject to such reserve
requirement at that time. Eurodollar Loans shall be deemed to constitute
eurocurrency liabilities and as such shall be deemed subject to reserve
requirements without benefits of credits for proration, exceptions or offsets
that may be available from time to time to the Administrative Agent. The
Eurodollar Rate shall be adjusted automatically on and as of the effective date
of any change in the Eurodollar Reserve Percentage.
"Event of Default" shall have the meaning given such term in Section
7.1.
"Federal Funds Rate" means, for any day, the rate of interest per annum
(rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%)
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (A) if such day is
not a Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day and (B) if no such rate is
so published on such next preceding Business Day, the Federal Funds Rate for
such day shall be the average rate quoted to the Administrative Agent on such
day on such transactions as determined by the Administrative Agent.
"Funded Debt" means, as of any day for the Borrower, without
duplication, (i) all indebtedness for borrowed money, (ii) all indebtedness and
obligations evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations to pay the deferred purchase price of property or services
(other than trade accounts payable arising in the ordinary course of business),
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(iv) all obligations as lessee under capital leases, (v) all obligations of
reimbursement relating to letters of credit, bankers' acceptances or other
similar instruments (whether or not then drawn and owing), (vi) all Guaranty
Obligations, (vii) all obligations under interest rate protection agreements,
foreign currency exchange agreements or commodity purchase or option agreements
on a net basis, (viii) the attributed principal amount of any securitization
transaction and (ix) all obligations under any synthetic lease, tax retention
operating lease, off-balance sheet loans or other similar off-balance sheet
financing product where the product is considered borrowed money indebtedness
for tax purposes, but is classified as an operating lease for purposes of GAAP.
Funded Debt shall exclude, in any event, any obligations of the Borrower under
the Contributed Capital Agreements.
"GAAP" means generally accepted accounting principles in the United
States applied on a basis consistent with the annual audited financial
statements referenced in Section 5.1.
"Governmental Authority" means any federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Guaranty Obligation" means any obligation, contingent or otherwise,
directly or indirectly guaranteeing the indebtedness or other obligation of
another Person, including without limitation, (i) an agreement to purchase or
pay (or to supply or advance funds for the purchase or payment of) any such
indebtedness or other obligation (whether by way of partnership agreement,
keep-well agreement, comfort letter, maintenance agreement or the like), or (ii)
any arrangement entered into for the purpose of assuring payment of the
indebtedness or other obligation of another Person or otherwise protecting a
party from loss in respect thereof; provided that such term shall not include
endorsements for collection or deposit in the ordinary course of business;
provided further that such term shall not include any obligations of the
Borrower or any of its Subsidiaries under the Contributed Capital Agreements.
"Interbank Offered Rate" means, for the Interest Period for each
Eurodollar Loan comprising part of the same borrowing (including conversions,
extensions and renewals), a per annum interest rate (rounded upwards, if
necessary, to the nearest whole multiple of 1/100 of 1%) equal to the rate of
interest, determined by the Administrative Agent on the basis of the offered
rates for deposits in dollars for a period of time corresponding to such
Interest Period (and commencing on the first day of such Interest Period),
appearing on Telerate Page 3750 (or, if, for any reason, Telerate Page 3750 is
not available, the Reuters Screen LIBO Page) as of approximately 11:00 A.M.
(London time) two (2) Business Days before the first day of such Interest
Period. As used herein, "Telerate Page 3750" means the display designated as
page 3750 by Dow Jones Markets, Inc. (or such other page as may replace such
page on that service for the purpose of displaying the British Bankers
Association London interbank offered rates) and "Reuters Screen LIBO Page" means
the display designated as page "LIBO" on the Reuters Monitor Money Rates Service
(or such other page as may replace the LIBO page on that service for the purpose
of displaying London interbank offered rates of major banks).
"Interest Payment Date" means (a) as to any Base Rate Loans, the last
Business Day of each month and the date of repayment of principal of such Loan,
(b) as to any Eurodollar Loans having an Interest Period of three months or
less, the last day of such Interest Period and (c) as to any Eurodollar Loans
having an Interest Period longer than three months, each day which is three
months after the first day of such Interest Period and the last day of such
Interest Period.
"Interest Period" means as to any Eurodollar Loan, a period of one,
two, three or six months' duration, as the Borrower may elect, commencing in
each case on the date of the borrowing (including conversions, extensions and
renewals); provided, however, (A) if any Interest Period would end on a day
which is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day (except where the next succeeding Business Day falls in
the next succeeding calendar month, then on the next preceding Business Day),
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(B) no Interest Period shall extend beyond the Termination Date, and (C) where
an Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month in which the Interest Period is to end,
such Interest Period shall end on the last day of such calendar month.
"Investment" shall have the meaning given to such term in Section 6.14
hereof.
"Lien" means any mortgage, pledge, hypothecation, assignment, security
interest, encumbrance, lien, preference or priority of any kind.
"Loans" or "loans" means the Term Loan.
"Material Adverse Effect" means a material adverse effect on (i) the
condition (financial or otherwise), operations, business, assets, liabilities or
prospects of the Borrower and its Subsidiaries, taken as a whole, (ii) the
ability of the Borrower to perform any material obligation under the Credit
Documents or (iii) the material rights and remedies of the Administrative Agent
and the Lenders under the Credit Documents.
"Materials of Environmental Concern" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Laws, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Moody's" means Moody's Investors Service, Inc., or any successor or
assignee of the business of such company in the business of rating securities.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate and at least one employer
other than the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate
are contributing sponsors.
"Net Proceeds" means gross cash proceeds (including any cash received
by way of deferred payment pursuant to a promissory note, receivable or
otherwise, as and when received) received in connection with an Asset
Disposition, Equity Transaction or Debt Transaction, net of (i) reasonable
transaction costs, including in the case of an Equity Transaction or a Debt
Transaction, underwriting discounts and commissions and in the case of an Asset
Disposition occurring in connection with a claim under an insurance policy,
costs incurred in connection with adjustment and settlement of the claim, (ii)
estimated taxes payable in connection therewith, and (iii) in the case of an
Asset Disposition or Debt Transaction, any amounts payable in respect of Funded
Debt, including without limitation principal, interest, premiums and penalties,
which is secured by, or otherwise related to, any property or asset which is the
subject thereof to the extent that such Funded Debt and any payments in respect
thereof are paid with a portion of the proceeds therefrom.
"Notes" means the promissory notes of the Borrower in favor of each of
the Lenders evidencing such Lender's Term Loan Committed Amount, individually or
collectively, as appropriate, as such promissory notes may be amended, modified,
supplemented, extended, renewed or replaced from time to time. The Notes shall
be in substantially the form attached as Schedule 2.1(e).
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Schedule 2.1(b), as required by Section 2.1(b).
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"Notice of Extension/Conversion" means a written notice of extension or
conversion in substantially the form of Schedule 3.2, as required by Section
3.2.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Investments" means (i) cash and Cash Equivalents, (ii)
investments and loans existing on the Closing Date identified on Schedule 6.14,
(iii) investments, loans and advances in wholly-owned Subsidiaries of the
Borrower, (iv) loans and advances to officers and directors in an aggregate
amount up to $2,000,000 at any time outstanding, (v) loans and investments made
pursuant to the requirements of the Contributed Capital Agreements, (vi)
investments in CoBank, ACB pursuant to legal and contractual requirements, (vii)
investments consisting of refunds to which the Borrower is entitled held by
CoBank, ACB and/or CF Industries, Inc., (viii) investments in suppliers solely
as a result of volume or patronage refunds arising in the ordinary course of
business, (ix) investments in or received from customers in connection with
collection of amounts owing to the Borrower or its Subsidiaries and (x) loans to
customers in the ordinary course of business in an aggregate amount up to
$5,000,000 at any time outstanding.
"Permitted Liens" shall have the meaning given such term in Section
6.11.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
(whether or not incorporated) or any Governmental Authority.
"Plan" means any employee benefit plan (as defined in Section 3(3) of
ERISA) which is covered by ERISA and with respect to which the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to be) an
"employer" within the meaning of Section 3(5) of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by the Administrative Agent as its prime rate in effect at its
principal office in Charlotte, North Carolina, with each change in the Prime
Rate being effective on the date such change is publicly announced as effective
(it being understood and agreed that the Prime Rate is a reference rate used by
the Administrative Agent in determining interest rates on certain Loans and is
not intended to be the lowest rate of interest charged on any extension of
credit by the Administrative Agent to any debtor).
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including the abandonment or discarding of barrels, containers
and other closed receptacles containing any Materials of Environmental Concern).
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA, other than those events as to which the notice requirement has been
waived by regulation.
"Required Lenders" means, at any time, Lenders having at least
sixty-six and two-thirds percent (66-2/3%) of the aggregate principal amount of
the Term Loans outstanding; provided that the outstanding principal amounts of
the Term Loans owing to Defaulting Lenders shall be excluded for purposes of
making determinations of Required Lenders.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws, certificate of organization and operating agreement,
or other organizational or governing documents of such Person, and any law,
treaty, rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable or to which any of its material
property is subject.
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"Restricted Payment" means (i) any dividend or distribution, direct or
indirect, on account of or in respect of any equity interest, (ii) patronage
refunds, other than those approved by the Board of Directors of the Borrower
prior to the Closing Date, (iii) any redemption, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any equity interest and (iv) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock now or hereafter outstanding.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., or any successor or assignee of the business of such division in the
business of rating securities.
"Single Employer Plan" means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
"Subsidiary" means, as to any Person, (a) any corporation more than 50%
of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time, any class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person directly or indirectly
through Subsidiaries, and (b) any partnership, association, joint venture or
other entity in which such Person directly or indirectly through Subsidiaries
has more than 50% of the voting interests at any time. Unless otherwise
identified, "Subsidiary" or "Subsidiaries" shall mean Subsidiaries of the
Borrower.
"Term Loan" means the Term Loan made pursuant to Section 2.1(a).
"Term Loan Commitment" means, with respect to each Lender, the
commitment to make its portion of the Term Loan (and for purposes of making
determinations hereunder after the Closing Date, the principal amount
outstanding on the Term Loan).
"Term Loan Commitment Percentage" means, for each Lender, the
percentage such Lender's Term Loan comprises of the aggregate Term Loan, as
identified on Schedule 2.1(a), adjusted for assignments made in accordance with
the provisions hereof.
"Term Loan Committed Amount" means, collectively, the aggregate amount
of all Term Loans, being TWO HUNDRED TWENTY-FIVE MILLION DOLLARS ($225,000,000),
and, individually, the amount of each Lender's Term Loan, as identified on
Schedule 2.1(a).
"Voting Stock" means, with respect to any Person, capital stock issued
by such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to vote
has been suspended by the happening of such a contingency.
1.2 Accounting Terms. Accounting terms used herein but not otherwise
defined shall have the meanings provided under GAAP.
SECTION 2. LOANS
2.1 Term Loan.
(a) Commitment. During the Commitment Period, subject to the
terms and conditions hereof, each Lender severally agrees to make a Term Loan to
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the Borrower upon request in a single advance in an amount not to exceed such
Lender's Term Loan Committed Amount. The Term Loan may consist of Base Rate
Loans or Eurodollar Loans, or a combination thereof, at the option of the
Borrower. Amounts repaid on the Term Loan may not be reborrowed.
(b) Advance. The Borrower shall submit an appropriate Notice
of Borrowing relating to the Term Loan not later than 11:00 A.M. (Charlotte,
North Carolina time) on the Business Day prior to the date of the requested
borrowing, with respect to the portion of the Term Loan initially consisting of
a Base Rate Loan, or on the third Business Day prior to the Closing Date, with
respect to the portion of the Term Loan initially consisting of one or more
Eurodollar Loans, which Notice of Borrowing shall be irrevocable and shall
specify (i) the date of the requested borrowing, (ii) that the funding of the
Term Loan is requested, and (iii) whether the funding of the Term Loan shall be
comprised of Base Rate Loans, Eurodollar Loans or combination thereof, and if
Eurodollar Loans are requested, the Interest Period(s) therefor. If the Borrower
shall fail to deliver such Notice of Borrowing to the Administrative Agent by
11:00 A.M. (Charlotte, North Carolina time) on the third Business Day prior to
the date of the requested borrowing, then the full amount of the Term Loan shall
be initially comprised of Base Rate Loans. The Administrative Agent shall give
notice to each Lender promptly upon receipt of such Notice of Borrowing and the
contents thereof. Each Lender shall make its Term Loan Committed Amount
available to the Administrative Agent for the account of the Borrower, or in
such other manner as the Administrative Agent may specify in writing, by 1:00
P.M. (Charlotte, North Carolina time) on the date specified in such Notice of
Borrowing in U.S. dollars and in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the Borrower
by the Administrative Agent by crediting the account of the Borrower with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
(c) Repayment. The Term Loans shall be due and payable in full
one hundred eighty (180) days from the Closing Date.
(d) Interest. Subject to the provisions of Section 3.1, the
Term Loan shall bear interest at a per annum rate equal to (i) in the case of
Eurodollar Loans, the sum of the Eurodollar Rate plus the Applicable Percentage,
and (ii) in the case of Base Rate Loans, the sum of the Base Rate plus the
Applicable Percentage. Interest is payable in arrears on each Interest Payment
Date (or at such other times as may be specified herein).
(e) Note. The Term Loan shall be evidenced by the Notes.
(f) Use of Proceeds. The Term Loan will be used solely to
finance the Acquisition.
(g) Maximum Number of Eurodollar Loans. The Borrower will be
limited to a maximum number of five (5) Eurodollar Loans outstanding at any
time. For purposes hereof, Eurodollar Loans with separate or different Interest
Periods will be considered as separate Eurodollar Loans even if their Interest
Periods expire on the same date.
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS.
3.1 Default Rate. After the occurrence and during the continuance of an
Event of Default, the principal and, to the extent permitted by law, interest on
the loans and other amounts owing hereunder shall bear interest, payable on
demand, at a per annum rate two percent (2%) in excess of the rate which would
otherwise be applicable.
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3.2 Extensions and Conversions. Requests by the Borrower for extensions
or conversions of loans hereunder shall be made by giving a Notice of
Extension/Conversion (or telephone notice promptly confirmed in writing) to the
Administrative Agent by 11:00 A.M. (Charlotte, North Carolina time) on the
Business Day of the requested extension or conversion in the case of Base Rate
Loans, and on the third Business Day prior to the date of the requested
extension or conversion in the case of Eurodollar Loans. Each request shall be
in a minimum principal amount of $5,000,000 in the case of Eurodollar Loans and
$1,000,000 in the case of Base Rate Loans and, in each case, integral multiples
of $100,000 in excess thereof, and shall specify (i) the date of the requested
extension or conversion, (ii) the loans and aggregate amounts to be extended or
converted, and (iii) whether the extension or conversion shall consist of
Eurodollar Loans, Base Rate Loans or combination thereof. Loans may be continued
and extended as, or converted into, Eurodollar Loans only if no Default or Event
of Default then exists, and only then at the end of an applicable Interest
Period. Each request for extension or conversion hereunder shall be deemed
affirmation by the Borrower that no Default or Event of Default has occurred and
is continuing. If the Borrower shall fail to specify (A) the type of loan
requested, the request shall be deemed a request for Base Rate Loans, (B) the
duration of the applicable Interest Period in the case of Eurodollar Loans, the
request shall be deemed to be a request for an Interest Period of one month.
Unless extended in accordance with the provisions hereof, Eurodollar Loans shall
be converted to Base Rate Loans at the end of the applicable Interest Period.
Eurodollar Loans may be continued, or converted into Base Rate Loans, only on
the last day of the applicable Interest Period. The Administrative Agent shall
give notice to each Lender promptly upon receipt of each such notice of request
for extension or conversion and the contents thereof.
3.3 Prepayments.
(a) Voluntary Prepayments. The loans may be prepaid in whole
or in part without premium or penalty, except as provided in Section
3.11(Indemnity). Amounts prepaid on the Term Loans may not be reborrowed.
(b) Mandatory Prepayments.
(i) Asset Dispositions. The Borrower will make prompt
payment on the Term Loan in an amount equal to seventy-five percent
(75%) of all Net Proceeds received from Asset Dispositions occurring
after the Closing Date, to the extent (A) such Net Proceeds are not
reinvested in the same or similar property within two months (2) months
of the date of the sale, lease, disposition, casualty, theft or loss
which gave rise to the Asset Disposition and (B) the aggregate amount
of such Net Proceeds not reinvested in accordance with the foregoing
subsection (A) shall exceed $1,000,000 in any fiscal year.
(ii) Debt and Equity Transactions. The Borrower will
make prompt payment on the Term Loan in an amount equal to one hundred
percent (100%) of the Net Proceeds received from any Debt Transaction
or Equity Transaction.
3.4 [Intentionally Omitted]
3.5 Fees. The Borrower agrees to pay to the appropriate parties all
fees and amounts owing under the Agents' Fee Letters.
3.6 Capital Adequacy. If any Lender shall have reasonably determined
that the adoption of or any change in any Requirement of Law regarding capital
adequacy or in the interpretation or application thereof as a consequence of its
obligations hereunder or compliance by the Lender or any corporation controlling
the Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any central bank or Governmental Authority in
each case made subsequent to the date hereof as a consequence of its obligations
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hereunder does or shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which the Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
the Lender's or such corporation's policies with respect to capital adequacy) by
an amount reasonably deemed by the Lender to be material, then from time to
time, within 15 days after demand by the Lender (with a copy to the
Administrative Agent), the Borrower shall pay to the Lender such additional
amount as shall be certified by the Lender as being required to compensate it
for such reduction. Such a certificate as to any additional amounts payable
under this subsection submitted by a Lender (which certificate shall include a
description in reasonable detail of the basis for the computation) to the
Borrower shall be conclusive absent manifest error.
3.7 Inability to Determine Interest Rate. Notwithstanding any other
provision of this Agreement, if (i) the Administrative Agent shall reasonably
determine (which determination shall be conclusive and binding absent manifest
error) that, by reason of circumstances affecting the relevant market,
reasonable and adequate means do not exist for ascertaining the Eurodollar Rate
for such Interest Period, or (ii) the Administrative Agent shall reasonably
determine (which determination shall be conclusive and binding absent manifest
error) that the Eurodollar Rate does not adequately and fairly reflect the cost
of funding Eurodollar Loans, the Administrative Agent shall forthwith give
telephone notice of such determination, confirmed in writing, to the Borrower
and the Lenders, and thereafter the right to request and continue loans as
Eurodollar Loans shall be suspended until such time as the conditions giving
rise to such notice shall no longer exist.
3.8 Illegality. Notwithstanding any other provision of this Agreement,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof, in each case occurring after the Closing
Date, shall make it unlawful for any Lender to make or maintain Eurodollar Loans
as contemplated by this Agreement or to obtain in the interbank eurodollar
market through its Eurodollar lending office the funds with which to make such
loans, (a) such Lender shall promptly notify the Borrower and the Administrative
Agent thereof, (b) the commitment of such Lender hereunder to make Eurodollar
Loans or continue Eurodollar Loans as such shall forthwith be suspended until
such Lender shall give notice that the condition or situation which gave rise to
the suspension shall no longer exist, and (c) loans then outstanding as
Eurodollar Loans, if any, shall be converted on the last day of the Interest
Period for such Loans or within such earlier period as required by law to Base
Rate Loans. The Borrower hereby agrees promptly to pay such Lender, upon its
demand, any additional amounts necessary to compensate such Lender for actual
and direct costs (but not including anticipated profits) reasonably incurred in
making any repayment in accordance with this subsection including, but not
limited to, any interest or fees payable by the Lender to lenders of funds
obtained by it in order to make or maintain its Eurodollar Loans hereunder. A
certificate as to any additional amounts payable pursuant to this subsection
submitted by the Lender to the Borrower shall be conclusive in the absence of
manifest error.
3.9 Requirements of Law. If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to any Eurodollar Loans made by it, or change the basis of
taxation of payments to any Lender in respect thereof (except for
changes in the rate of tax on the net income or franchise tax
applicable to such Lender);
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(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory Loans or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, Loans or other extensions of credit by, or any other
acquisition of funds by, any office of any Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on any Lender any other condition
(excluding any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to the Lender of
making or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder or under the Note, then, in any such case, the Borrower shall promptly
pay the Lender, within 15 days after its demand, any additional amounts
necessary to compensate the Lender for such additional cost or reduced amount
receivable as reasonably determined by the Lender with respect to its Eurodollar
Loans. A certificate as to any additional amounts payable pursuant to this
subsection submitted by the Lender, describing in reasonable detail the nature
of such event and a reasonably detailed explanation of the calculation thereof,
to the Borrower shall be conclusive in the absence of manifest error.
3.10 Taxes. All payments made by the Borrower hereunder or under any
Note will be made free and clear of, and without deduction or withholding for,
any present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any Governmental
Authority or by any political subdivision or taxing authority thereof or therein
with respect to such payments (but excluding (i) any tax imposed on or measured
by the net income or profits of a Lender pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the principal
office or applicable lending office of the respective Lender is located or any
subdivision thereof or therein and (ii) any franchise taxes, branch taxes, taxes
on doing business or taxes on the overall capital or net worth of the Lender
pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or its applicable lending office is
located or any subdivision thereof or therein) and all interest, penalties or
similar liabilities with respect thereto (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement or
under any Note, after withholding or deduction for or on account of any such
Taxes, will not be less than the amount provided for herein or in such Note. The
Borrower will furnish to the Lender as soon as practicable after the date the
payment of any Taxes is due pursuant to applicable law certified copies (to the
extent reasonably available and required by law) of tax receipts evidencing such
payment by the Borrower. The Borrower agrees to indemnify and hold harmless, and
reimburse, each Lender upon its written request, for the amount of any Taxes so
levied or imposed and paid by such Lender. The agreements in this subsection
shall survive termination of this Agreement and payment of the Notes and all
other amounts payable hereunder.
3.11 Indemnity. The Borrower hereby agrees to indemnify each Lender and
to hold each Lender harmless from any funding loss or expense which such Lender
may sustain or incur (other than as a result of and to the extent the Lender's
gross negligence or willful misconduct) as a consequence of (a) default by the
Borrower in payment of the principal amount of or interest on any Eurodollar
Loan by the Lender in accordance with the terms hereof, (b) default by the
Borrower in accepting a Eurodollar Loan after the Borrower has given a notice in
accordance with the terms hereof, (c) default by the Borrower in making any
prepayment of a Eurodollar Loan after the Borrower has given a notice in
accordance with the terms hereof, and/or (d) the making by the Borrower of a
prepayment of a Eurodollar Loan, or the conversion thereof, on a day which is
not the last day of the Interest Period with respect thereto. A certificate as
to any additional amounts payable pursuant to this subsection submitted by the
Lender, to the Borrower shall be conclusive in the absence of manifest error.
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3.12 Pro Rata Treatment. Except to the extent otherwise provided
herein:
(a) Loans. Each advance of a Loan and each payment of principal,
interest and fees on or in respect thereof, and each conversion or extension of
such Loans, shall be allocated pro rata among the Lenders in accordance with
their respective Term Loan Commitment Percentages.
(b) Advances. Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its ratable share of such borrowing available to
the Administrative Agent, the Administrative Agent may assume that such Lender
is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to the
Administrative Agent by such Lender within the time period specified therefor
hereunder, such Lender shall pay to the Administrative Agent, on demand, such
amount with interest thereon at a rate equal to the Base Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this subsection shall be conclusive in the
absence of manifest error.
3.13 Sharing of Payments. The Lenders agree among themselves that, in
the event that any Lender shall obtain payment in respect of any loan or any
other obligation owing to such Lender under this Agreement through the exercise
of a right of setoff, banker's lien or counterclaim, or pursuant to a secured
claim under Section 506 of Title 11 of the United States Code or other security
or interest arising from, or in lieu of, such secured claim, received by such
Lender under any applicable bankruptcy, insolvency or other similar law or
otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Agreement, such Lender shall promptly purchase
from the other Lenders a participation in such Loans and other obligations in
such amounts, and make such other adjustments from time to time, as shall be
equitable to the end that all Lenders share such payment in accordance with
their respective ratable shares as provided for in this Agreement. The Lenders
further agree among themselves that if payment to a Lender obtained by such
Lender through the exercise of a right of setoff, banker's lien, counterclaim or
other event as aforesaid shall be rescinded or must otherwise be restored, each
Lender which shall have shared the benefit of such payment shall, by repurchase
of a participation theretofore sold, return its share of that benefit (together
with its share of any accrued interest payable with respect thereto) to each
Lender whose payment shall have been rescinded or otherwise restored. The
Borrower agrees that any Lender so purchasing such a participation may, to the
fullest extent permitted by law, exercise all rights of payment, including
setoff, banker's lien or counterclaim, with respect to such participation as
fully as if such Lender were a holder of such Loan or other obligation in the
amount of such participation; provided that no Lender purchasing such a
participation shall be entitled to receive any greater amount pursuant to this
Section than the transferor Lender would have been entitled to receive in
respect of the amount of participation transferred had no such transfer
occurred. Except as otherwise expressly provided in this Agreement, if any
Lender or the Administrative Agent shall fail to remit to the Administrative
Agent or any other Lender an amount payable by such Lender or the Administrative
Agent to the Administrative Agent or such other Lender pursuant to this
Agreement on the date when such amount is due, such payments shall be made (by
Administrative Agent or Lender) together with interest thereon for each date
from the date such amount is due until the date such amount is paid to the
Administrative Agent or such other Lender at a rate per annum equal to the Base
Rate. If under any applicable bankruptcy, insolvency or other similar law, any
Lender receives a secured claim in lieu of a setoff to which this Section 3.13
applies, such Lender shall, to the extent practicable, exercise its rights in
respect of such secured claim in a manner consistent with the rights of the
Lenders under this Section 3.13 to share in the benefits of any recovery on such
secured claim.
3.14 Payments and Computations. Payments shall be made hereunder in
U.S. dollars in immediately available funds, without offset, deduction,
counterclaim or withholding of any kind at the offices of the Administrative
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Agent provided in the notice section hereof. Payments received after 2:00 p.m.
(Charlotte, North Carolina time) will be given credit the next following
Business Day. The Borrower shall, at the time it makes any payment under this
Agreement, specify to the Administrative Agent, the loans, fees or other amounts
payable by the Borrower hereunder to which such payment is to be applied (and in
the event that it fails to specify, or if such application would be inconsistent
with the terms hereof, the Administrative Agent shall apply such payment in such
manner as the Administrative Agent may deem appropriate). The Administrative
Agent will distribute such payments to the Lenders, if such payment is received
prior to 2:00 p.m. (Charlotte, North Carolina time) on a Business Day, in like
funds received prior to the end of such Business Day and otherwise the
Administrative Agent will distribute such payment to such Lenders on the next
succeeding Business Day. Computations of interest and fees hereunder shall be
made on the basis of actual number of days elapsed over a year of 360 days.
SECTION 4 CONDITIONS
4.1 Conditions to Closing. This Credit Agreement shall become effective
upon the satisfaction of the following conditions precedent:
(a) Execution of Credit Agreement and Credit Documents.
Receipt by the Administrative Agent of (i) multiple counterparts of this Credit
Agreement and (ii) a Note for each Lender, in each case executed by a duly
authorized officer of each party thereto and in each case conforming to the
requirements of this Credit Agreement.
4.2 Conditions to the Term Loan Advance. The obligation of each Lender
to make the Term Loan advance hereunder is subject to the satisfaction of the
following conditions precedent on the date of making the Term Loan advance:
(a) Legal Opinions. Receipt of multiple counterparts of
opinions of counsel for the Borrower relating to the Credit Documents and the
transactions contemplated herein, in form and substance satisfactory to the
Administrative Agent and the Required Lenders.
(b) Financial Information. Receipt of such financial
information as may be requested by, and in each case in form and substance
satisfactory to the Administrative Agent and the Lenders.
(c) Evidence of Insurance. Receipt of insurance certificates
or policies evidencing flood hazard insurance (for improvements located in areas
having "special flood hazards"), casualty insurance (including builders' risk
and all-risk permanent policies) and liability conforming to the requirements of
this Credit Agreement and the other Credit Documents, together with evidence of
payment of premiums thereon.
(d) Absence of Legal Proceedings. The absence of any action,
suit, investigation or proceeding pending in any court or before any arbitrator
or governmental instrumentality which could reasonably be expected to have a
Material Adverse Effect.
(e) Corporate Documents. Receipt of the following (or their
equivalent) for the Borrower:
(i) Articles of Incorporation. Copies of the articles
of incorporation or charter documents certified to be true and complete
as of a recent date by the appropriate governmental authority of the
state of its incorporation.
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(ii) Resolutions. Copies of resolutions of the Board
of Directors approving and adopting the respective Credit Documents,
the transactions contemplated therein and authorizing execution and
delivery thereof, certified by a secretary or assistant secretary as of
the Closing Date to be true and correct and in force and effect as of
such date.
(iii) Bylaws. Copies of the bylaws certified by a
secretary or assistant secretary as of the Closing Date to be true and
correct and in force and effect as of such date.
(iv) Good Standing. Copies, where applicable, of (A)
certificates of good standing, existence or its equivalent certified as
of a recent date by the appropriate governmental authorities of the
state of incorporation and each other state in which the failure to so
qualify and be in good standing could reasonably be expected to have a
Material Adverse Effect and (B) certificates indicating payment of all
corporate franchise taxes certified as of a recent date by the
appropriate governmental taxing authorities.
(v) Officer's Certificate. An officer's certificate
dated as of the Closing Date substantially in the form of Schedule
5.1(f)(v) with appropriate insertions and attachments.
(f) Asset Purchase Agreement. Receipt by the Administrative
Agent of the final Asset Purchase Agreement, together with all exhibits and
schedules thereto, certified by an officer of the Borrower.
(g) Fees. Receipt of all fees then owing pursuant to the
Agents' Fee Letters or otherwise.
(h) Consummation of Acquisition. Receipt by the Administrative
Agent of evidence of consummation of the Acquisition substantially on the terms
and conditions provided in the Asset Purchase Agreement (including satisfaction
of the conditions set forth therein in all material respects, other than
remittance of cash consideration). There shall not have been any material
modification, amendment, supplement or waiver to the Asset Purchase Agreement
without the prior written consent of all the Lenders, including, but not limited
to, any modification, amendment, supplement or waiver relating to all disclosure
schedules and exhibits.
(i) Consent. Receipt by the Administrative Agent of evidence
that all governmental, shareholder and material third party consents (including
Hart-Scott-Rodino clearance) and approvals necessary or desirable in connection
with the Acquisition and the related financings and other transactions
contemplated hereby and expiration of all applicable waiting periods without any
action being taken by any authority that could reasonably be likely to restrain,
prevent or impose any material adverse conditions on the Acquisition or such
other transactions contemplated hereby or that could reasonably be likely to
seek or threaten any of the foregoing, and no law or regulation shall be
applicable which in the judgment of the Administrative Agent could reasonably be
likely to have such effect.
(j) Representations and Warranties. The representations and
warranties made by the Borrower herein or in any other Credit Documents or which
are contained in any certificate furnished at any time under or in connection
herewith shall be true and correct in all material respects on and as of the
date of the Term Loan advance as if made on and as of such date (except for
those which expressly relate to an earlier date).
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(k) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on such date or after giving
effect to the Term Loan advance to be made on such date unless such Default or
Event of Default shall have been waived in accordance with this Credit
Agreement.
(l) Involuntary Bankruptcy or Insolvency. There shall not have
been commenced against the Borrower an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or any
case, proceeding or other action for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of such Person
or for any substantial part of its property or for the winding up or liquidation
of its affairs, and shall remain undismissed, undischarged or unbonded.
(m) Officer's Compliance Certificate. Receipt by the
Administrative Agent of a certificate of a responsible officer of the Borrower
stating that to the best of his knowledge and belief, the Borrower is in
compliance with the provisions of this Agreement in all material respects and no
Default or Event of Default exists hereunder.
(n) No Material Adverse Effect. No circumstances, events or
conditions shall have occurred since the date of the audited financial
statements referenced in Section 5.1(a)(i) which would have a Material Adverse
Effect.
(o) Section 2.1 Conditions. All conditions set forth therein
shall have been satisfied.
(p) Additional Matters. All other documents and legal matters
in connection with the transactions contemplated by this Credit Agreement shall
be reasonably satisfactory in form and substance to the Agents and the Required
Lenders.
SECTION 5 REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants:
5.1 Financial Condition.
(a) For the Borrower. The following financial statements were
prepared in accordance with GAAP consistently applied for the periods covered
thereby and are complete and correct in all material respects and present fairly
the financial condition and results from operations, subject in the case of
interim statements to normal year-end adjustments and the absence of footnotes:
(i) an audited consolidated balance sheet of the Borrower and
its consolidated Subsidiaries dated as of June 30, 1998, together with
related statements of operations and cash flows certified by
PricewaterhouseCoopers, LLP, certified public accountants.
(b) For the Acquired Business. Each of the following financial
statements has been represented to the Borrower to have been prepared in
accordance with GAAP consistently applied for the periods covered thereby and to
be complete and correct in all material respects and to present fairly the
financial condition and results from operations, subject in the case of interim
statements to normal year-end adjustments and the absence of footnotes:
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(i) an audited consolidated balance sheet of Gold Kist Inc.
and its consolidated Subsidiaries dated as of June 27, 1998, together
with related statements of income and cash flows certified by KPMG Peat
Marwick, certified public accountants; and
(ii) a pro forma balance sheet of the Acquired Business as of
the Closing Date, together with pro forma statements of income and cash
flows for the period prior to the Closing Date.
5.2 No Change. Since the date of the audited financial statements
identified above, (a) there have been no developments or events which have had,
or could reasonably be expected to have, a Material Adverse Effect and (b)
except as permitted herein, no Restricted Payments have been made or declared or
are contemplated by the Borrower.
5.3 Corporate Organization. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its organization, is qualified to do business in each jurisdiction where failure
to so qualify would have a Material Adverse Effect and is in substantial
compliance with all Requirements of Law except to the extent that failure to be
in compliance could not reasonably be expected to have a Material Adverse
Effect. A complete list of Subsidiaries of the Borrower is attached as Schedule
5.3.
5.4 Enforceable Obligation. The Borrower has the power and authority
and legal right to enter into, deliver and perform under this Agreement and the
other Credit Documents to which it is a party and has taken all necessary action
to authorize the execution, delivery and performance by it of this Agreement and
the other Credit Documents to which it is a party. This Agreement and the other
Credit Documents to which the Borrower is a party constitute legal, valid and
binding obligations of the Borrower enforceable against it in accordance with
their respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or by general equitable principles
(whether enforcement is sought by proceedings in equity or at law). No consent
or authorization (including approvals, notices, filings or other similar acts)
of any Governmental Authority or other Person is required in connection with the
borrowings hereunder or the execution, delivery, validity, enforceability of the
Credit Documents or performance by the Borrower of its obligations thereunder.
5.5 No Legal Bar. The execution, delivery and performance of the Credit
Documents, the borrowings hereunder and the use of the Term Loan will not
violate any Requirement of Law or any Contractual Obligation of the Borrower
(except those as to which waivers or consents have been obtained), and will not
result in, or require, the creation or imposition of any Lien on any of its
respective properties or revenues pursuant to any Requirement of Law or
Contractual Obligation other than the Liens arising under or contemplated in
connection with the Credit Documents. The Borrower is not in default under or
with respect to any of its Contractual Obligations in any respect which would
reasonably be expected to have a Material Adverse Effect.
5.6 Legal Proceedings. No claim, litigation or proceeding before any
arbitrator or Governmental Authority is pending, or to the knowledge of the
Borrower, threatened which if adversely determined could reasonably be expected
to have a Material Adverse Effect.
5.7 No Default. No Default or Event of Default presently exists.
5.8 Ownership of Property; Liens. The Borrower has good record and
marketable title in fee simple to, or a valid leasehold interest in, all its
material real property, and none of such property is subject to any Lien, except
for Permitted Liens.
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5.9 Federal Regulations. No part of the proceeds of the Loans hereunder
will be used, directly or indirectly, for any purpose in violation of Regulation
U of the Board of Governors of the Federal Reserve System, as amended, modified
or replaced. The Borrower is not subject to, nor are the loans and transactions
contemplated herein subject to, the provisions of the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940
or the Interstate Commerce Act, in each case as amended.
5.10 Taxes. The Borrower has filed or caused to be filed all United
States federal income tax returns and all other material tax returns which, to
the best knowledge of the Borrower, are required to be filed and has paid (a)
all taxes shown to be due and payable on said returns or (b) all taxes shown to
be due and payable on any assessments of which it has received notice made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental Authority (other than
any (i) taxes, fees or other charges with respect to which the failure to pay,
in the aggregate, would not have a Material Adverse Effect or (ii) taxes, fees
or other charges the amount or validity of which are currently being contested
and with respect to which reserves in conformity with GAAP have been provided on
the books of such Person), and no tax Lien has been filed, and, to the best
knowledge of the Borrower, no claim is being asserted, with respect to any such
tax, fee or other charge except as permitted hereunder.
5.11 ERISA
Except as would not reasonably be expected to have a Material Adverse
Effect:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred, and, to
the best knowledge of the Borrower, no event or condition has occurred or exists
as a result of which any ERISA Event could reasonably be expected to occur, with
respect to any Plan; (ii) no "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA and Section 412 of the Code, whether or not
waived, has occurred with respect to any Plan; (iii) each Plan has been
maintained, operated, and funded in compliance with its own terms and in
material compliance with the provisions of ERISA, the Code, and any other
applicable federal or state laws; and (iv) no lien in favor of the PBGC or a
Plan has arisen or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA), whether or not vested, under each
Single Employer Plan, as of the last annual valuation date prior to the date on
which this representation is made or deemed made (determined, in each case, in
accordance with Financial Accounting Standards Board Statement 87, utilizing the
actuarial assumptions used in such Plan's most recent actuarial valuation
report), did not exceed as of such valuation date the fair market value of the
assets of such Plan.
(c) Neither the Borrower nor any ERISA Affiliate has incurred, or, to
the best knowledge of the Borrower, could be reasonably expected to incur, any
withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan. Neither the Borrower nor any ERISA Affiliate would become subject to any
withdrawal liability under ERISA if the Borrower or any ERISA Affiliate were to
withdraw completely from all Multiemployer Plans and Multiple Employer Plans as
of the valuation date most closely preceding the date on which this
representation is made or deemed made. Neither the Borrower nor any ERISA
Affiliate has received any notification that any Multiemployer Plan is in
reorganization (within the meaning of Section 4241 of ERISA), is insolvent
(within the meaning of Section 4245 of ERISA), or has been terminated (within
the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best
knowledge of the Borrower, reasonably expected to be in reorganization,
insolvent, or terminated.
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(d) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has
occurred with respect to a Plan which has subjected or may subject the Borrower
or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or
502(l) of ERISA or Section 4975 of the Code, or under any agreement or other
instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or
is required to indemnify any person against any such liability.
(e) Neither the Borrower nor any ERISA Affiliate has any material
liability with respect to "expected post-retirement benefit obligations" within
the meaning of the Financial Accounting Standards Board Statement 106. Each Plan
which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections
601-609 of ERISA and Section 4980B of the Code apply has been administered in
compliance in all material respects of such sections.
5.12 Year 2000 Compliance. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by suppliers, vendors and customers) that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Borrower or any of its Subsidiaries (or
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with the timetable. Based on the foregoing, the Borrower believes
that all computer applications (including those of its suppliers, vendors and
customers) that are material to its and any of its Subsidiaries' business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
(that is, be "Year 2000 compliant"), except to the extent that a failure to do
so could not reasonably be expected to have Material Adverse Effect.
5.13 Environmental Matters.
Except as would not reasonably be expected to have a Material Adverse
Effect:
(a) Each of the facilities and properties owned, leased or operated by
the Borrower and its Subsidiaries (the "Properties") and all operations at the
Properties are in compliance with all applicable Environmental Laws, and there
is no violation of any Environmental Law with respect to the Properties or the
businesses operated by the Borrower and its Subsidiaries (the "Businesses"), and
there are no conditions relating to the Businesses or Properties that could give
rise to liability under any applicable Environmental Laws.
(b) None of the Properties contains, or has previously contained, any
Materials of Environmental Concern at, on or under the Properties in amounts or
concentrations that constitute or constituted a violation of, or could give rise
to liability under, Environmental Laws.
(c) Neither the Borrower nor any Subsidiary of the Borrower has
received any written or verbal notice of, or inquiry from any Governmental
Authority regarding, any violation, alleged violation, non-compliance, liability
or potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the Businesses, nor
does the Borrower or any Subsidiary of the Borrower have knowledge or reason to
believe that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties, or generated, treated, stored or disposed of
at, on or under any of the Properties or any other location, in each case by or
on behalf of the Borrower or any Subsidiary of the Borrower in violation of, or
in a manner that would be reasonably likely to give rise to liability under, any
applicable Environmental Law.
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(e) No judicial proceeding or governmental or administrative action is
pending or, to the best knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary of the Borrower is or
will be named as a party, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with respect to
the Borrower or any Subsidiary of the Borrower, the Properties or the
Businesses.
(f) There has been no release or, threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations (including, without limitation, disposal) of the Borrower or any
Subsidiary of the Borrower in connection with the Properties or otherwise in
connection with the Businesses, in violation of or in amounts or in a manner
that could give rise to liability under Environmental Laws.
SECTION 6 COVENANTS
The Borrower covenants and agrees to:
6.1 Financial Statements. Furnish, or cause to be furnished, to the
Administrative Agent and the Lenders:
(a) Annual Audited Statements. As soon as available, but in
any event within 90 days after the end of each fiscal year, audited
consolidated and company-prepared consolidating balance sheets of the
Borrower and its Subsidiaries and related audited consolidated and
company-prepared consolidating statements of operations, patrons'
equity and cash flows, audited by PricewaterhouseCoopers, LLP, or other
independent public accounting firm reasonably acceptable to the
Administrative Agent, setting forth comparative information for the
previous year, and reported without a "going concern" or like
qualification or exception, or qualification indicating limitation of
the scope of the audit; and
(b) Quarterly Statements. As soon as available, and in any
event within 45 days after the end of each fiscal quarter, a
company-prepared consolidated and consolidating balance sheet of the
Borrower and its Subsidiaries and related company-prepared consolidated
and consolidating statements of income, retained earnings and cash
flows for the quarter and for the portion of the year with comparative
information for the corresponding periods for the previous year.
All such financial statements shall be complete and correct in all material
respects (subject, in the case of interim statements, to normal recurring
year-end audit adjustments) and shall further be prepared in reasonable detail
and in accordance with GAAP throughout the periods reflected therein (except as
approved by such accountants and disclosed therein) and shall further be
accompanied by a description of, and an estimation of the effect on the
financial statements on account of, any change in the application of accounting
principles from a prior period.
(c) Other Information. Promptly upon request, such additional
financial and other information as the Administrative Agent and the
Lenders may reasonably request from time to time.
6.2 Certificates and Notices. Furnish, or cause to be furnished, and
give notice to the Administrative Agent and the Lenders:
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(a) Accountant's Certificate and Reports. Concurrently with
the delivery of the financial statements referred to in subsection
6.1(a) above, a certificate of the independent certified public
accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such
certificate.
(b) Officer's Compliance Certificate. Concurrently with the
delivery of the financial statements referred to in Sections 6.1(a) and
6.1(b) above, a certificate of a responsible officer of the Borrower
stating that to the best of his knowledge and belief, (i) the financial
statements fairly present in all material respects the financial
condition of the parties to which such statements relate and (ii) the
Borrower is in compliance with the provisions of this Agreement in all
material respects and no Default or Event of Default exists hereunder.
Such certificate shall include the calculations required to indicate
compliance with Section 6.9. A form of Officer's Compliance Certificate
is attached as Schedule 6.2(b).
(c) Accountants' Reports. Promptly upon receipt, a copy of any
final (as distinguished from a preliminary or discussion draft)
"management letter" or other similar report submitted by independent
accountants or financial consultants to the Borrower in connection with
any annual, interim or special audit.
(d) Public and Other Information. Copies of reports and
information which the Borrower or its Subsidiaries sends to its members
or files with the Securities and Exchange Commission, and any other
financial or other information as the Administrative Agent.
(e) Notice of Default. Promptly, upon becoming aware thereof,
notice of the occurrence of an Event of Default hereunder.
(f) Notice of Legal Proceedings. Promptly, upon the
commencement of or any material development in legal proceedings
(including litigation, arbitration and administrative proceedings)
which if adversely determined could reasonably be expected to have a
Material Adverse Effect.
(g) ERISA. Promptly, after any responsible officer of the
Borrower knows or has reason to know of (i) any event or condition,
including, but not limited to, any Reportable Event, that constitutes,
or might reasonably lead to, an ERISA Event; (ii) with respect to any
Multiemployer Plan, the receipt of notice as prescribed in ERISA or
otherwise of any withdrawal liability assessed against any of their
ERISA Affiliates, or of a determination that any Multiemployer Plan is
in reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due
date (including extensions) thereof of all amounts which the Borrower
or any ERISA Affiliate is required to contribute to each Plan pursuant
to its terms and as required to meet the minimum funding standard set
forth in ERISA and the Code with respect thereto; or (iv) any change in
the funding status of any Plan that reasonably could be expected to
have a Material Adverse Effect; together with a description of any such
event or condition or a copy of any such notice and a statement by the
chief financial officer of the Borrower briefly setting forth the
details regarding such event, condition, or notice, and the action, if
any, which has been or is being taken or is proposed to be taken by the
Borrower with respect thereto. Promptly upon request, the Borrower
shall furnish the Administrative Agent and the Lenders with such
additional information concerning any Plan as may be reasonably
requested, including, but not limited to, copies of each annual
report/return (Form 5500 series), as well as all schedules and
attachments thereto required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA and the Code,
respectively, for each "plan year" (within the meaning of Section 3(39)
of ERISA).
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(h) Other. Promptly, any other development or event which a
responsible officer of the Borrower determines could reasonably be
expected to have a Material Adverse Effect.
6.3 Compliance with Laws. Be in substantial compliance with all
applicable Requirements of Law and make payment of all taxes (except to the
extent contested in good faith and as to which appropriate reserves are held in
accordance with GAAP), except to the extent that failure to comply therewith
could not be reasonably expected to have a Material Adverse Effect.
6.4 Payment of Obligations.
Pay, discharge or otherwise satisfy at or before maturity or before
they become delinquent, as the case may be, in accordance with prudent business
practice (subject, where applicable, to specified grace periods) all material
obligations of the Borrower of whatever nature and any additional costs that are
imposed as a result of any failure to so pay, discharge or otherwise satisfy
such obligations, except when the amount or validity of such obligations and
costs is currently being contested in good faith by appropriate proceedings and
reserves, if applicable, in conformity with GAAP with respect thereto have been
provided on the books of the Borrower, as the case may be.
6.5 Maintenance of Property; Insurance.
Keep all material property useful and necessary in its business in
reasonably good working order and condition (ordinary wear and tear excepted);
maintain with financially sound and reputable insurance companies casualty,
liability and such other insurance (which may include plans of self-insurance)
with such coverage and deductibles, and in such amounts as may be consistent
with prudent business practice and in any event consistent with normal industry
practice (except to any greater extent as may be required by the terms of any of
the other Credit Documents); and furnish to the Administrative Agent, upon
written request, full information as to the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and
correct entries in conformity with GAAP and all Requirements of Law shall be
made of all dealings and transactions in relation to its businesses and
activities; and permit, during regular business hours and upon reasonable notice
by the Administrative Agent, the Administrative Agent to visit and inspect any
of its properties and examine and make abstracts (including photocopies) from
any of its books and records (other than materials protected by the
attorney-client privilege and materials which the Borrower may not disclose
without violation of a confidentiality obligation binding upon it) at any
reasonable time, and to discuss the business, operations, properties and
financial and other condition of the Borrower with officers and employees of the
Borrower and with its independent certified public accountants. The cost of the
inspection referred to in the preceding sentence shall be for the account of the
Lenders unless an Event of Default has occurred and is continuing, in which case
the reasonable cost of such inspection shall be for the account of the Borrower.
6.7 Environmental Laws.
(a) Comply in all material respects with, and take reasonable actions
to ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws and obtain and comply in all
material respects with and maintain, and take reasonable actions to ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws except to the extent that
failure to do so would not reasonably be expected to have a Material Adverse
Effect;
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(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings and the failure to do or the pendency of such
proceedings would not reasonably be expected to have a Material Adverse Effect;
and
(c) Defend, indemnify and hold harmless the Administrative Agent and
the Lenders, and their respective employees, agents, officers and directors,
from and against any and all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under, any Environmental Law
applicable to the operations of the Borrower or any Subsidiary of the Borrower
or the Properties, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable
attorney's and consultant's fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of the
foregoing arise out of the gross negligence or willful misconduct of the party
seeking indemnification therefor. The agreements in this paragraph shall survive
repayment of the Loans and all other amounts payable hereunder, and termination
of the Commitments.
6.8 Year 2000 Compatibility. Take all action necessary to assure that
its computer based systems are able to operate and effectively process data
including dates on and after January 1, 2000, and, at the reasonable request of
the Administrative Agent and the Required Lenders, provide reasonable evidence
to the Lenders of such year 2000 compatibility.
6.9 Financial Covenants. Comply with the following financial covenants:
(a) Ratio of Consolidated Funded Debt to Consolidated Total
Capitalization. At all times, the ratio of Consolidated Funded Debt to
Consolidated Total Capitalization shall be not greater than 0.75:1.0.
(b) Consolidated Net Worth. At all times, Consolidated Net
Worth shall be not less than $______________ (being not less than 85%
of Consolidated Net Worth as of September 30, 1998 on a pro forma basis
after giving effect to the Acquisition).
(c) Capital Expenditures. The Capital Expenditures made or
incurred by the Borrower and its Subsidiaries on a consolidated basis
will not exceed $75,000,000 in the aggregate for the duration of the
Term Loan hereunder.
6.10 Limitations on Funded Debt. The Borrower will not, nor will it
permit any of its Subsidiaries to, create, assume, incur or suffer to exist any
Funded Debt except:
(a) the Term Loan hereunder;
(b) the Funded Debt described on Schedule 6.10 and renewals,
refinancings and extensions thereof on terms and conditions no less
favorable than for such existing Funded Debt (other than renewals,
refinancings and extensions of the CoBank, ACB Term Revolver Facility
described on Schedule 6.10 which shall be on terms and conditions
consistent with then prevailing market standards for such Funded Debt);
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(c) additional unsecured Funded Debt of the Borrower not to
exceed $1 million in the aggregate at any time outstanding;
(d) Funded Debt, including capital lease obligations, incurred
to provide all or a portion of the purchase price or costs of
construction of an asset or, in the case of a sale/leaseback
transaction, to finance the value of such asset owned by the Borrower
or any of its Subsidiaries, provided that (i) such Funded Debt when
incurred shall not exceed the purchase price or cost of construction of
such asset or, in the case of a sale/leaseback transaction, the fair
market value of such asset, (ii) no such Funded Debt shall be
refinanced for a principal amount in excess of the principal balance
outstanding thereon at the time of such refinancing, and (iii) the
total amount of all such Funded Debt shall not exceed $1,000,000 at any
time outstanding; and
(e) additional Funded Debt to the extent that the proceeds
thereof will be used to make prepayments on the Term Loan in accordance
with Section 3.3(b)(ii).
6.11 Restriction on Liens. The Borrower will not, nor will it permit
any of its wholly-owned Subsidiaries to, create, assume, incur or suffer to
exist any Lien on any property or asset of any kind, real or personal, tangible
or intangible, now owned or hereafter acquired by it or assign or subordinate
any present or future right to receive assets except (each of the following,
"Permitted Liens"):
(a) Liens existing on the Closing Date identified on Schedule
6.11;
(b) Liens securing taxes, assessments or governmental charges
or levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons; provided that (A) with
respect to Liens securing state and local taxes, such taxes are not
delinquent, (B) with respect to Liens securing claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and the like,
such liens are unfiled and no other action has been taken to enforce
the same, or (C) with respect to taxes, assessments or governmental
charges or levies or claims or demand secured by such Liens, payment is
not at the time required, except in each such case where such amounts
are being contested in good faith by appropriate proceedings and for
which adequate reserves have been established in accordance with GAAP;
(c) Liens not securing indebtedness which are incurred in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance, social security and other like laws;
(d) any Lien arising pursuant to any order of attachment,
distraint or similar legal process arising in connection with court
proceedings so long as the execution or other enforcement thereof is
effectively stayed and the claims secured thereto are being contested
in good faith by appropriate proceedings;
(e) zoning restrictions, easements, licenses, reservations,
covenants, conditions, waivers, restrictions on the use of property or
other minor encumbrances or irregularities of title which do not
materially impair the use of any property in the operation or business
of the Borrower or such Subsidiary or the value of such property for
the purpose of such business; and
(f) Liens securing purchase money and sale/leaseback Funded
Debt (including capital leases) to the extent permitted under Section
6.10(d), provided that any such Lien attaches only to the property
financed or leased and such Lien attaches thereto concurrently with or
within 90 days after the acquisition thereof in connection with any
purchase money transaction and within 30 days after the closing of any
sale/leaseback transaction;
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6.12 Mergers and Acquisitions. The Borrower will not, nor will it
permit any of its Subsidiaries to, enter into a transaction of merger or
consolidation, nor will it acquire all or substantially all of the capital stock
(or other equity interest) or assets of any other Person without the prior
written consent of the Required Lenders, other than (i) the Acquisition and (ii)
acquisitions permitted under Section 6.14.
6.13 Transactions with Affiliates. The Borrower will not, nor will it
permit any of its Subsidiaries to, enter into a transaction with an officer,
director, shareholder or Affiliate other than (i) customary fees and expenses
paid to directors, (ii) the Contributed Capital Agreements, and (ii) where such
transactions are on terms and conditions substantially as favorable as would be
obtainable in a comparable arm's-length transaction with a Person other than an
officer, director, shareholder or Affiliate.
6.14 Investments. The Borrower will not, nor will it permit any of its
Subsidiaries to, make loans or advances to or otherwise make an investment in or
capital contribution (collectively, an "Investment") to any other Person, except
for Permitted Investments.
6.15 Restricted Payments. The Borrower will not make Restricted
Payments; provided that so long as no Default or Event of Default shall exist
immediately prior thereto or would exist immediately after giving effect
thereto, the Borrower may (i) make regular scheduled payments of dividends on
preferred stock, and (ii) make redemptions of equity interests in connection
with the settlement of estates and the retirement of members up to $1 million in
the aggregate from the Closing Date.
6.16 Fiscal Year. The Borrower will not change its fiscal year from a
June 30 fiscal year end.
6.17 Prepayments of Indebtedness, etc. The Borrower will not:
(a) after the issuance thereof, amend or modify (or permit the
amendment or modification of), the terms of any other Indebtedness in a
manner adverse to the interests of the Lenders (including specifically
shortening any maturity or average life to maturity or requiring any
payment sooner than previously scheduled or increasing the interest
rate or fees applicable thereto); or
(b) make any prepayment, redemption, defeasance or acquisition
for value of (including without limitation, by way of depositing money
or securities with the trustee with respect thereto before due for the
purpose of paying when due), or refund, refinance or exchange of any
Funded Debt (other than intercompany Indebtedness permitted hereunder)
other than regularly scheduled payments of principal and interest on
such Funded Debt.
6.18 No Further Negative Pledges.
Except with respect to prohibitions or restrictions under agreements
relating to Funded Debt permitted pursuant to Section 6.10(b), the Borrower will
not enter into, assume or become subject to any agreement prohibiting or
otherwise restricting the creation or assumption of any Lien upon its properties
or assets, whether now owned or hereafter acquired, or requiring the grant of
any security for such obligation if security is given for some other obligation.
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SECTION 7 EVENTS OF DEFAULT
7.1 Event of Default. Each of the following shall constitute an "Event
of Default" hereunder:
(a) the failure to make any payment of principal when due or
to make any payment of interest, fees or other amounts owing hereunder
within three (3) Business Days of when due, or
(b) any representation or warranty made herein or in
connection herewith shall prove to be false or incorrect in any
material respect, or
(c) failure to observe or comply with (A) the financial
covenants in Section 6.9 or the covenants in Sections 6.10 through 6.18
(except in the case of negative covenants contained in Sections 6.10
through 6.18, those defaults which may occur or arise other than on
account of or by affirmative or intentional act of the Borrower or
Subsidiary or event or condition which the Borrower shall with
knowledge permit to exist, all of which shall be subject to the
provisions of clause (B) hereof), inclusive, or (B) any of the other
covenants or provisions contained herein or in any other Credit
Document and such failure to observe or comply shall continue for a
period of 30 days after the earlier of actual knowledge of a
responsible officer of the Borrower or notice to the Borrower thereof,
or
(d) the occurrence and continuance of an event of default
beyond applicable grace or cure periods, if any, under any other note
or agreement relating to indebtedness for borrowed money in excess of
$1 million owing by the Borrower or any Subsidiary of the Borrower
which results in, or would permit, acceleration of such indebtedness,
or would otherwise cause such indebtedness to become due prior to its
stated maturity, or
(e) the Borrower shall fail within 30 days of the due date to
pay, post bond or otherwise discharge any judgment, settlement or
order, or
(f) any Bankruptcy Event shall occur with respect to the
Borrower; or
(g) any of the following events or conditions, if such event
or condition could reasonably be expected to have a Material Adverse
Effect: (1) any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA and Section 412 of the Code, whether or
not waived, shall exist with respect to any Plan, or any lien shall
arise on the assets of the Borrower or any ERISA Affiliate in favor of
the PBGC or a Plan; (2) an ERISA Event shall occur with respect to a
Single Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in the termination of such Plan
for purposes of Title IV of ERISA; (3) an ERISA Event shall occur with
respect to a Multiemployer Plan or Multiple Employer Plan, which is, in
the reasonable opinion of the Administrative Agent, likely to result in
(i) the termination of such Plan for purposes of Title IV of ERISA, or
(ii) the Borrower or any ERISA Affiliate incurring any liability in
connection with a withdrawal from, reorganization of (within the
meaning of Section 4241 of ERISA), or insolvency of (within the meaning
of Section 4245 of ERISA) such Plan; or (4) any prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the
Code) or breach of fiduciary responsibility shall occur which may
subject the Borrower or any ERISA Affiliate to any liability under
Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the
Code, or under any agreement or other instrument pursuant to which the
Borrower or any ERISA Affiliate has agreed or is required to indemnify
any person against any such liability; or
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(h) there shall occur a Change of Control.
7.2 Remedies. Upon the occurrence of an Event of Default, and at any
time thereafter, the Administrative Agent shall, upon the request and direction
of the Required Lenders, (i) declare the unpaid principal of, and any accrued
interest owing on, the loans and all other indebtedness or obligations owing
hereunder or under any of the other Credit Documents or in connection herewith
or therewith, immediately due and payable, whereupon the same shall be
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower, (ii) enforce any
other rights and interests available under the Credit Documents or at law,
including rights of set off. Notwithstanding the foregoing, in the case of an
Event of Default described in clause (f) of Section 7.1 relating to bankruptcy
and insolvency, the Loans and all accrued interest and all other indebtedness
and other amounts owing hereunder or under any of the other Credit Documents
owing to the Administrative Agent and the Lenders shall become immediately due
and payable without presentment, demand, protest or the giving of any notice or
other action by the Administrative Agent and the Lenders, all of which are
hereby waived by the Borrower.
SECTION 8 AGENCY PROVISIONS
8.1 Appointment. Each Lender hereby designates and appoints
NationsBank, N.A. as Administrative Agent (in such capacity, the "Administrative
Agent") of such Lender to act as specified herein and the other Credit
Documents, and each such Lender hereby authorizes the Administrative Agent as
the Administrative Agent for such Lender, to take such action on its behalf
under the provisions of this Agreement and the other Credit Documents and to
exercise such powers and perform such duties as are expressly delegated by the
terms hereof and of the other Credit Documents, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere herein and in the other Credit Documents, the Administrative
Agent shall not have any duties or responsibilities, except those expressly set
forth herein and therein, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any of the other Credit
Documents, or shall otherwise exist against the Administrative Agent. The
provisions of this Section are solely for the benefit of the Administrative
Agent and the Lenders, and the Borrower shall not have any rights as a third
party beneficiary of the provisions of this Section 8. In performing its
functions and duties under this Agreement and the other Credit Documents, the
Administrative Agent shall act solely as Administrative Agent of the Lenders and
does not assume and shall not be deemed to have assumed any obligation or
relationship of agency or trust with or for the Borrower or any of its
Affiliates.
8.2 Delegation of Duties. The Administrative Agent may execute any of
its duties hereunder or under the other Credit Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
8.3 Exculpatory Provisions. The Administrative Agent and its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall not be (i)
liable to any Lender for any action lawfully taken or omitted to be taken by it
or such Person under or in connection herewith or in connection with any of the
other Credit Documents (except for its or such Person's own gross negligence or
willful misconduct), or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower
contained herein or in any of the other Credit Documents or in any certificate,
report, document, financial statement or other written or oral statement
referred to or provided for in, or received by the Administrative Agent under or
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in connection herewith or in connection with the other Credit Documents, or
enforceability or sufficiency therefor of any of the other Credit Documents, or
for any failure of the Borrower to perform its obligations hereunder or
thereunder. The Administrative Agent shall not be responsible to any Lender for
the effectiveness, genuineness, validity, enforceability, collectability or
sufficiency of this Agreement, or any of the other Credit Documents or for any
representations, warranties, recitals or statements made herein or therein or
made by the Borrower in any written or oral statement or in any financial or
other statements, instruments, reports, certificates or any other documents in
connection herewith or therewith furnished or made by the Administrative Agent
to the Lenders or by or on behalf of the Borrower to the Administrative Agent or
any Lender or be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained herein or therein or as to the use of the proceeds of the Loans or of
the existence or possible existence of any Default or Event of Default or to
inspect the properties, books or records of the Borrower or its Affiliates.
8.4 Reliance on Communications. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower, independent accountants and other experts selected by the
Administrative Agent with reasonable care). The Administrative Agent may deem
and treat the Lenders as the owner of their respective interests hereunder for
all purposes unless a written notice of assignment, negotiation or transfer
thereof shall have been filed with the Administrative Agent in accordance with
Section 9.3(b) hereof. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or under any of the
other Credit Documents unless it shall first receive such advice or concurrence
of the Required Lenders as it deems appropriate or it shall first be indemnified
to its satisfaction by the Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder or under any of the other Credit
Documents in accordance with a request of the Required Lenders (or to the extent
specifically provided in Section 9.6, all the Lenders) and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders (including their successors and assigns).
8.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower referring to the Credit Document, describing such Default or Event
of Default and stating that such notice is a "notice of default." In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall give prompt notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders.
8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender
expressly acknowledges that each of the Administrative Agent and its officers,
directors, employees, agents, attorneys-in-fact or affiliates has not made any
representations or warranties to it and that no act by the Administrative Agent
or any affiliate thereof hereinafter taken, including any review of the affairs
of the Borrower or any of its Affiliates, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, assets, operations, property,
financial and other conditions, prospects and creditworthiness of the Borrower
or its Affiliates and made its own decision to make its Loans hereunder and
enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and decisions
30
<PAGE>
in taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business, assets,
operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower and its Affiliates. Except for notices, reports
and other documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, assets, property, financial or other
conditions, prospects or creditworthiness of the Borrower or its Affiliates
which may come into the possession of the Administrative Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
8.7 Indemnification. The Lenders agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitments, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the final payment of all of
the obligations of the Borrower hereunder and under the other Credit Documents)
be imposed on, incurred by or asserted against the Administrative Agent in its
capacity as such in any way relating to or arising out of this Agreement or the
other Credit Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by the Administrative Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or willful misconduct of the Administrative Agent. If any indemnity
furnished to the Administrative Agent for any purpose shall, in the opinion of
the Administrative Agent, be insufficient or become impaired, the Administrative
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished. The
agreements in this Section shall survive the repayment of the Loans and other
obligations under the Credit Documents and the termination of the Commitments
hereunder.
8.8 Administrative Agent in its Individual Capacity. The Administrative
Agent and its affiliates may make loans to, accept deposits from and generally
engage in any kind of business with the Borrower, its Subsidiaries or Affiliates
as though the Administrative Agent were not the Administrative Agent hereunder.
With respect to the Loans made by and all obligations of the Borrower hereunder
and under the other Credit Documents, the Administrative Agent shall have the
same rights and powers under this Agreement as any Lender and may exercise the
same as though it were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its individual capacity.
8.9 Successor Administrative Agent. The Administrative Agent may, at
any time, resign upon thirty (30) days' written notice to the Borrower and the
Lenders. Upon any such resignation, the Required Lenders shall have the right to
appoint a successor Administrative Agent with the consent of the Borrower, such
consent not to be unreasonably withheld; provided, however, that no such consent
of the Borrower shall be required after the occurrence and during the
continuance of an Event of Default. If no successor Administrative Agent shall
have been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the notice of resignation, then the retiring
Administrative Agent shall select a successor Administrative Agent provided such
successor is a Lender hereunder or a commercial bank organized under the laws of
the United States of America or of any State thereof and has a combined capital
and surplus of at least $400,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations as
31
<PAGE>
Administrative Agent, as appropriate, under this Agreement and the other Credit
Documents and the provisions of this Section 8.9 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Administrative
Agent under this Agreement.
8.10 Minimum Commitments of Administrative Agent and Co-Agents.
Subsequent to the Closing Date, each of NationsBank, N.A., First Union
National Bank and CoBank, ACB agrees to maintain a Commitment in an amount equal
to or greater than Thirty-Seven Million Five Hundred Thousand Dollars
($37,500,000) so long as (i) no Event of Default has occurred and is continuing
and (ii) (A) with respect to NationsBank, N.A., such Lender remains as
Administrative Agent and (B) with respect to each of First Union National Bank
and CoBank, ACB, such Lender remains as Co-Agent; provided that each of
NationsBank, First Union and CoBank may participate or assign any of such amount
to a Federal Reserve Bank or to a parent or a majority owned subsidiary of each
of NationsBank, N.A., First Union National Bank and CoBank, ACB, respectively.
SECTION 9 MISCELLANEOUS
9.1 Notices. Notices and other communications shall be effective, and
duly given, (i) when received, (ii) when transmitted by telecopy or other
facsimile device to the numbers set out below if transmitted before 5:00 p.m. on
a Business Day, or otherwise on the next following Business Day, (iii) the day
following the day on which delivered prepaid to a reputable national overnight
air courier service, or (iv) the third Business Day following the day sent by
certified or registered mail postage prepaid, in each case to the Borrower and
the Administrative Agent at the address shown below and to the Lenders at their
address shown on Schedule 2.1(a), or at such other address as may be specified
by written notice to the other parties:
Borrower: SOUTHERN STATES COOPERATIVE, INCORPORATED
6606 West Broad Street
Richmond, Virginia 23230
Attn: Leslie Newton
Phone: (804) 281-1308
Fax: (804) 281-1650
Administrative Agent: NATIONSBANK, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 388-1108
Telecopy: (704) 388-9436
with a copy to:
NATIONSBANK, N.A.
1111 E. Main Street
Fourth Floor Pavilion
VA2-310-04-07
Richmond, Virginia 23277-0001
Attn: Marty Mitchell
Phone: (804) 788-2285
Fax: (804) 788-3669
32
<PAGE>
9.2 Right of Set-Off. In addition to other rights now or hereafter
available to the Administrative Agent and the Lenders under the Credit Documents
or under applicable law, the Administrative Agent and the Lenders may, after the
occurrence of an Event of Default, exercise rights of set-off and may
appropriate and apply any and all deposits (general and specific) or other
amounts held or owing by the Administrative Agent and the Lenders to the loans
and other amounts owing by the Borrower hereunder or under the other Credit
Documents, regardless of whether the Loans or such other amounts are contingent
or unmatured, without presentment, demand, protest or notice of any kind (any
such rights of presentment, demand, protest or notice being hereby waived).
9.3 Benefit of Agreement.
(a) This Agreement shall be binding upon, and shall inure to
the benefit of, successors and assigns of the parties hereto; provided that the
Borrower may not assign or transfer any its obligations or interests without
prior written consent of the Administrative Agent and the Lenders.
(b) Subject to Section 8.10, a Lender, in accordance with
applicable law, may make assignments of its rights, obligations or rights and
obligations hereunder; provided, that (i) the assignee is a Lender, an affiliate
of a Lender or other Person reasonably acceptable to the Administrative Agent
and, so long as no Event of Default then exists, the Borrower (which consent
will not be unreasonably withheld or delayed), (ii) any such assignment shall be
a minimum aggregate principal amount of $1,000,000 and integral multiples
thereof and shall be of a constant and not varying percentage of the assigning
Lender's rights and obligations under the respective Loans and Commitments
relating thereto subject to the assignment, (iii) transfer fee of $3,500 shall
be paid to the Administrative Agent for its own account by the assignee. The
assignment shall be in form reasonably acceptable to the Administrative Agent.
Upon execution and delivery of any such assignment agreement and notice to the
Administrative Agent thereof, the assignee shall be considered a "Lender" under
the Credit Documents for all purposes as if it had been an original signatory to
the Credit Agreement with all rights, interests and obligations attendant
thereto. The Administrative Agent shall maintain a registry of the Lenders and
their respective interest, commitments and obligations available for inspection
by the Borrower and the Lenders, which entries and information shall be
conclusive absent manifest error.
(c) A Lender may, in accordance with applicable law, sell,
grant or transfer participation interests in its loans, rights, interests,
commitments and obligations hereunder; provided that (i) the selling Lender
shall continue to be obligated under the Credit Agreement and considered for all
purposes by the Borrower, the Administrative Agent and the other Lenders
exclusively as the "Lender" hereunder without regard to the participation
interest and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender (regardless of whether or not notice is
given thereof), (ii) participants shall not have the right to, nor shall they be
granted rights to approve, amendments, waivers or modifications relating to the
Credit Documents, except those which would reduce the principal amount of, or
rate of interest or fees in respect of, the loans, postpone the date fixed for
payment of principal, interest or fees, or release of all or substantially all
of the collateral, in each case relating to the loans in which the participant
has an interest. The rights of a participant hereunder shall be limited to the
rights of the selling Lender, provided that the participant shall have the same
rights of set-off, indemnity and additional amounts hereunder as available to
Lenders under applicable law, but in the case of indemnities and additional
amounts shall be limited in amount to that which would have been available to
the selling Lender.
9.4 No Waiver. No failure or delay on the part of the Administrative
Agent or the Lenders in exercising any right, power or privilege hereunder or
under any other Credit Document and no course of dealing between the
33
<PAGE>
Administrative Agent or the Lenders, on the one hand, and the Borrower, on the
other hand, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
the Administrative Agent and the Lenders would otherwise have.
9.5 Payment of Expenses. The Borrower agrees to: (i) pay all reasonable
out-of-pocket costs and expenses of (A) the Administrative Agent in connection
with the negotiation, preparation, execution and delivery of the Credit
Documents (including reasonable fees and expenses of Administrative Agent's
counsel, Moore & Van Allen, PLLC) and any amendments, waivers or consents
relating to the Credit Documents and (B) the Administrative Agent and each of
the Lenders in connection with enforcement of the Credit Documents and the
documents and instruments referred to therein (including, without limitation, in
connection with any such enforcement, the reasonable fees and disbursements of
counsel for the Administrative Agent and the Lenders); (ii) pay and hold the
Administrative Agent and the Lenders harmless from and against any and all
present and future stamp and other similar taxes with respect to the foregoing
matters and save the Administrative Agent and the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to the Administrative Agent or
the Lenders) to pay such taxes; and (iii) indemnify the Administrative Agent and
the Lenders, its officers, directors, employees and representatives from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses incurred by any of them as a result of, or arising out of,
or in any way related to, or by reason of (A) any investigation, litigation or
other proceeding (whether or not the Administrative Agent or any of the Lenders
is a party thereto) related to the entering into and/or performance of any
Credit Document or the use of proceeds of the Loans (including other extensions
of credit) hereunder or the consummation of any other transactions contemplated
in any Credit Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding or (B) the presence or Release of any Materials
of Environmental Concern at, under or from any property owned, operated or
leased by the Borrower or any of its Subsidiaries, or the failure by the
Borrower or any of its Subsidiaries to comply with any Environmental Law (but
excluding, in the case of either of clause (A) or (B) above, any such losses,
liabilities, claims, damages or expenses to the extent incurred by reason of
gross negligence or willful misconduct on the part of the Person to be
indemnified).
9.6 Amendments and Waivers. This Agreement and the other Credit
Documents and the provisions hereunder and thereunder may not be amended,
modified, waived or terminated except with the prior written consent of the
Borrower and the Required Lenders, provided that no such amendment, modification
or waiver shall (i) reduce the amount, or extend the maturity of any Note or any
installment thereon, or reduce the rate of interest or extend the time of
payment of interest thereon, or reduce any fee payable to any Lender hereunder,
or change the duration or amount of any Lender's commitment hereunder, in each
case without the written consent of each Lender directly affected thereby, (ii)
amend, modify or waive any provision of this Section or the definition of
"Required Lenders", or consent to the assignment or transfer of the rights and
obligations of the Borrower hereunder, or (iii) subordinate the priority of the
obligations of the Borrower under this Agreement and the other Credit Documents,
in each case without the written consent of all of the Lenders, except as
expressly provided in Section 3.4 or elsewhere herein, or (iv) amend, modify or
waive any provision of Section 8 without the prior written consent of the
Administrative Agent.
9.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same agreement. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
34
<PAGE>
9.8 Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
9.9 Survival. The indemnities and payment obligations hereunder,
including those set out in Sections 3.6, 3.8, 3.9, 3.10, 3.11 and 9.5, shall
survive the making and repayment of the Loans and termination of commitments
hereunder.
9.10 Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance with the
laws of the State of Virginia. The Borrower and the Lenders consent to the
nonexclusive jurisdiction of the federal and state courts located in Richmond,
Virginia and waive, to the extent permitted by applicable law, the right to
trial by jury.
[Remainder of Page Intentionally Left Blank]
35
<PAGE>
IN WITNESS WHEREOF, this Credit Agreement has been executed this day by
duly authorized officers of the undersigned parties.
BORROWER: SOUTHERN STATES COOPERATIVE, INCORPORATED,
a Virginia agricultural cooperative corporation
By:_________________________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A.,
as Administrative Agent and a Lender
By:_________________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By:_________________________________________
Name:
Title:
COBANK, ACB
By:_________________________________________
Name:
Title:
<PAGE>
Schedule 2.1(a)
Schedule of Lenders and Commitments
<TABLE>
<CAPTION>
Term Loan Term Loan
Committed Commitment
Amount Percentage
Lender Notice Address
<S> <C> <C> <C>
NationsBank, N.A. NationsBank, N.A. $75,000,000 33.33333%
101 N. Tryon Street
Independence Center, 15th Floor
Charlotte, North Carolina 28255
Attn: Ret Taylor
Phone: (704) 388-1108
Fax: (704) 388-9436
with a copy to:
NationsBank, N.A.
1111 E. Main Street
Fourth Floor Pavilion
VA2-310-04-07
Richmond, Virginia 23277-0001
Attn: Marty Mitchell
Phone: (804) 788-2285
Fax: (804) 788-3669
First Union National Bank First Union National Bank $75,000,000 33.33333%
7 North 8th Street, 3rd Floor
VA3247
Richmond, Virginia 23219
Attn: Eileen McCrickard
Phone: (804) 343-6014
Fax: (804) 343-6013
CoBank, ACB CoBank, ACB $75,000,000 33.33333%
----------- ---------
5500 South Quebec Street
Englewood, Colorado 80111
Attn: Lori O'Flaherty
Phone: (303) 740-4342
Fax: (303) 694-5830
$225,000,000 100.00%
</TABLE>
<PAGE>
Schedule 2.1(b)
Form of Notice of Borrowing
NationsBank, N.A.
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
RE: Credit Agreement dated as of October 9, 1998 (as amended and
modified, the "Credit Agreement") among Southern States
Cooperative, Incorporated, the Lenders identified therein and
NationsBank, N.A., as Administrative Agent and First Union
National Bank and CoBank, ACB, as Co-Agents. Terms used but
not otherwise defined herein shall have the meanings provided
in the Credit Agreement.
Ladies and Gentlemen:
The undersigned hereby gives notice of a request for the Term Loan pursuant to
Section 2.1(b) of the Credit Agreement:
(A) Date of Borrowing ________________________________________
(which is a Business Day)
(B) Interest rate basis ________________________________________
(C) Interest Period and the
last day thereof ________________________________________
In accordance with the requirements of Section 4.2 of the Credit Agreement, the
undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all material
respects as of the date of this request, and will be true and correct after
giving effect to the requested Term Loan (except for those which expressly
related to an earlier date).
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
(c) The Acquisition has been consummated substantially on the terms and
conditions provided in the Asset Purchase Agreement (including satisfaction of
the conditions set forth therein in all material respects, other than remittance
of cash consideration), and there has not been any material modification,
amendment, supplement or waiver to the Asset Purchase Agreement without the
prior written consent of all the Lenders, including, but not limited to, any
modification, amendment, supplement or waiver relating to all disclosure
schedules and exhibits.
(d) All governmental, shareholder and material third party consents
(including Hart-Scott-Rodino clearance) and approvals necessary or desirable in
connection with the Acquisition and the related financings and other
transactions contemplated by the Credit Agreement and expiration of all
applicable waiting periods without any action being taken by any authority that
<PAGE>
could reasonably be likely to restrain, prevent or impose any material adverse
conditions on the Acquisition or such other transactions contemplated hereby or
that could reasonably be likely to seek or threaten any of the foregoing, and no
law or regulation is applicable which in the judgment of the Administrative
Agent could reasonably be likely to have such effect.
(e) There has not been commenced against the undersigned an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or any case, proceeding or other action for the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of such Person or for any substantial part of its property or
for the winding up or liquidation of its affairs, and remains undismissed,
undischarged or unbonded.
(f) Accompanying this Notice of Borrowing is a certificate of a
responsible officer of the undersigned stating that to the best of his knowledge
and belief, the undersigned is in compliance with the provisions of the Credit
Agreement in all material respects and no Default or Event of Default exists
thereunder.
(g) No circumstances, events or conditions have occurred since the date
of the audited financial statements referenced in Section 6.1 of the Credit
Agreement which could reasonably be expected to have a Material Adverse Effect.
(h) All conditions set forth in Section 2.1 of the Credit Agreement
shall have been satisfied.
Very truly yours,
Southern States Cooperative, Incorporated
By:________________________________________
Name:
Title:
2
<PAGE>
Schedule 2.1(e)
Form of Note
October 9, 1998
FOR VALUE RECEIVED, the undersigned Borrower hereby promises to pay to
the order of _______________________, its successor and assigns (the "Lender"),
the principal amount of such Lender's Term Loan Committed Amount in U.S. dollars
and in immediately available funds in such amounts and on such dates as provided
in the Credit Agreement, together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is issued pursuant to, and is entitled to the benefits of,
the Credit Agreement dated as of the date hereof (as the same may be amended or
modified and in effect from time to time, the "Credit Agreement") among Southern
States Cooperative, Incorporated, the Lenders identified therein, NationsBank,
N.A., as Administrative Agent and First Union National Bank and CoBank, ACB, as
Co-Agents, to which Credit Agreement reference is hereby made for a statement of
the terms and conditions under which this Note may be prepaid or its maturity
date accelerated. Capitalized terms used herein and not otherwise defined herein
are used with the meanings attributed to them in the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
In the event payment of amounts due hereunder are accelerated under the
terms of the Credit Agreement, all such amounts shall become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby waived by the undersigned Borrower. Further, in the event this
Note is not paid when due at any stated or accelerated maturity, the undersigned
Borrower agrees to pay, in addition to principal and interest, all costs of
collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by and construed in accordance with the
laws of the State of Virginia.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first written above.
SOUTHERN STATES COOPERATIVE,
INCORPORATED,
a Virginia agricultural cooperative corporation
By:________________________________________
Name:
Title:
<PAGE>
Schedule 3.2
Notice of Extension/Conversion
NationsBank, N.A.,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of October 9, 1998 (as amended and
modified, the "Credit Agreement") among Southern States
Cooperative, Incorporated, the Lenders identified therein and
NationsBank, N.A., as Administrative Agent and First Union
National Bank and CoBank, ACB, as Co-Agents. Terms used but
not otherwise defined herein shall have the meanings provided
in the Credit Agreement.
Ladies and Gentlemen:
The undersigned hereby gives notice pursuant to Section 3.2 of the
Credit Agreement that it requests an extension or conversion of a Loan
outstanding under the Credit Agreement, and in connection therewith sets forth
below the terms on which such extension or conversion is requested to be made:
(A) Date of Extension or Conversion
(which is the last day of the
applicable Interest Period) _______________________________
(B) Principal Amount of
Extension or Conversion _______________________________
(C) Interest rate basis _______________________________
(D) Interest Period and the
last day thereof _______________________________
In accordance with the requirements of Section 4.2 of the Credit
Agreement, the undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit
(except for those which expressly relate to an earlier date).
(b) No Default or Event of Default exists, or will exist after
giving effect to the requested Extension of Credit.
(c) There has not been commenced against the undersigned an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or any case, proceeding or
other action for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person
or for any substantial part of its property or for the winding up or
liquidation of its affairs, and remains undismissed, undischarged or
unbonded.
<PAGE>
(d) No circumstances, events or conditions have occurred since
the date of the audited financial statements referenced in Section 6.1
of the Credit Agreement which could reasonably be expected to have a
Material Adverse Effect.
(e) All conditions set forth in Section 2.1 of the Credit
Agreement shall have been satisfied.
Very truly yours,
SOUTHERN STATES COOPERATIVE, INCORPORATED
By:__________________________________
Name:
Title:
<PAGE>
Schedule 5.1(f)(v)
Officer's Certificate
Pursuant to Section 5.1(f)(v) of the Credit Agreement (the "Credit
Agreement"), dated as of October 9, 1998, among Southern States Cooperative,
Inc., a Virginia agricultural cooperative corporation (the "Corporation"), the
Lenders identified therein and NationsBank, N.A., as Administrative Agent and
First Union National Bank and CoBank, ACB, as Co-Agents, the undersigned,
_____________________ Secretary of the Corporation hereby certifies as follows:
1. Attached hereto as Annex I is a true and complete copy of
resolutions duly adopted by the Board of Directors of the Corporation on
_______________________, 1998. The attached resolutions have not been rescinded
or modified and remain in full force and effect. The attached resolutions are
the only corporate proceedings of the Corporation now in force relating to or
affecting the matters referenced to therein.
2. Attached hereto as Annex II is a true and complete copy of the
By-laws of the Corporation as in effect on the date hereof.
3. Attached hereto as Annex III is a true and complete copy of the
Certificate of Incorporation of the Corporation and all amendments thereto as in
effect on the date hereof.
4. The following persons are now duly elected and qualified officers of
the Corporation, holding the offices indicated, and the signature appearing
opposite his name below is his true and genuine signature, and such officer is
duly authorized to execute and deliver on behalf of the Corporation, the Credit
Agreement, the Notes to be issued pursuant thereto and the other Credit
Documents and to act as a responsible officer on behalf of the Corporation under
the Credit Agreement.
Name Office Signature
- ---- ------ ---------
------------------------
------------------------
IN WITNESS WHEREOF, the undersigned has hereunto set his/her name and
affixed the corporate seal of the Corporation.
-----------------------------
Secretary
(CORPORATE SEAL)
Date: _______________________, 1998
I, _____________________, ___________________ of Southern States
Cooperative, Incorporated, hereby certify that _____________________, whose
genuine signature appears above, is, and has been at all times since
______________________, a duly elected, qualified and acting
____________________ of Southern States Cooperative, Incorporated
_______________________________ of
Southern States Cooperative, Incorporated
____________, __, 1998
<PAGE>
Schedule 5.3
Subsidiaries
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Schedule 6.2(b)
Officer's Compliance Certificate
This Certificate is delivered in accordance with the provisions of
Section 6.2(b) of that Credit Agreement dated as of October 9, 1998 (as amended,
modified and supplemented, the "Credit Agreement") among Southern States
Cooperative, Incorporated, a Virginia agricultural cooperative corporation (the
"Borrower"), the Lenders identified therein, and NationsBank, N.A., as
Administrative Agent and First Union National Bank and CoBank, ACB, as
Co-Agents. Terms used but not otherwise defined herein shall have the same
meanings provided in the Credit Agreement.
The undersigned, being a responsible officer of the Borrower, hereby
certifies, in my official capacity and not in my individual capacity, that to
the best of my knowledge and belief:
(a) the financial statements accompanying this Certificate fairly
present the financial condition of the parties covered by such financial
statements in all material respects;
(b) during the period the Borrower has observed or performed all of its
covenants and other agreements in all material respects, and satisfied in all
material respects every material condition, contained in the Credit Agreement to
be observed, performed or satisfied by them;
(c) the undersigned has no actual knowledge of any Default or Event of
Default; and
(d) detailed calculations demonstrating compliance with the financial
covenants set out in Section 7.9 of the Credit Agreement accompany this
Certificate.
This the _______________ day of ________________________, 199_.
SOUTHERN STATES COOPERATIVE, INCORPORATED
By:___________________________________
Name:
Title:
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Attachment to Officer's Certificate
Computation of Financial Covenants
<PAGE>
Schedule 6.10
Funded Debt
[Describe $5.7 million leveraged lease with NationsBanc Leasing, Inc.
reflecting to aircraft].
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Schedule 6.11
Liens on the Closing Date
Lien by CoBank, ACB on the capital stock of the Borrower to secure loans and
obligations owing by the Borrower.
<PAGE>
Schedule 6.14
Investments on the Closing Date
EXHIBIT 10.4
THIRD AMENDED AND RESTATED
FINANCING SERVICES AND CONTRIBUTED CAPITAL AGREEMENT
THIRD AMENDED AND RESTATED FINANCING SERVICES AND CONTRIBUTED CAPITAL
AGREEMENT ("Agreement") dated as of the 3rd day of November, 1997, between
SOUTHERN STATES COOPERATIVE, INCORPORATED (the "Cooperative"), a Virginia
corporation, and STATESMAN FINANCIAL CORPORATION ("Statesman"), a Virginia
corporation.
Cooperative desires from time to time to sell to Statesman certain
accounts receivable owing to it and certain installment sales contracts, and
Statesman is interested in purchasing such receivables and installment sales
contracts. The parties desire to set forth the terms and conditions upon which
such sales may be made. The Cooperative also desires to have Statesman issue
from time to time credit cards to customers of the Cooperative and its Local
Cooperatives and Dealerships, to extend from time to time asset based financing
to customers of the Cooperative pursuant to separate agreements to be entered
into between each such customer and Statesman and to lease personal property
from time to time to customers of the Cooperative, Local Cooperatives and
Dealerships. Therefore, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
"Accounts Receivable - Local Cooperative" means the amounts advanced by
the Cooperative to a Local Cooperative and owing from time to time from such
Local Cooperative to the Cooperative.
"Agreement" means this Financing Services and Contributed Capital
Agreement, as it may be amended, supplemented, or modified from time to time.
"Approved Contracts" means those Installment Sales Contracts arising
out of the sale of goods by a Retail Service or a customer of the Cooperative
which have been approved in advance by Statesman as evidenced by a Statesman
Approval Number.
"Asset Based Financing" means financing of a Dealership by Statesman
secured by accounts receivable, inventory, equipment, including rolling stock,
real estate and other fixed assets, or any of such items.
"Average Total Delinquency Percentage" means with respect to each of
Retail Accounts, Grain Marketing Accounts and Accounts Receivable - Local
Cooperatives (each a "type" of Receivable) that percentage determined by
dividing the average total delinquent Receivables of that type (including any
Receivables of that type sold to Statesman which are delinquent), measured as of
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the last day of each calendar month, for the twelve-month period ending on the
last Business Day of the calendar month preceding a settlement date by the
average total Receivables of that type owing the Cooperative (including those
sold to Statesman), measured as of the last day of each calendar month, for the
same twelve-month period. "Average Total Delinquency Percentage" means with
respect to Wholesale Accounts that percentage determined by dividing the average
total delinquent Wholesale Accounts (including any Wholesale Accounts sold to
Statesman which are delinquent), measured as of the last day of each calendar
month, for the twelve-month period ending on the last Business Day of the
calendar month preceding the date of determination by the average total
Wholesale Accounts owing the Cooperative (including those sold to Statesman),
measured as of the last day of each calendar month, for the same twelve-month
period.
"Average Total Delinquency Percentage Variance" means with respect to
each of Retail Accounts, Grain Marketing Accounts and Accounts Receivable -
Local Cooperatives (each a "type" of Receivable) the difference, regardless of
which is greater, between (i) the Average Total Delinquency Percentage for that
type of Receivables computed as of the last Business Day of the calendar month
preceding any settlement date and (ii) the percentage obtained by dividing the
total delinquent Receivables of that type (including Receivables of that type
sold to Statesman which are delinquent) on such date by the total Receivables of
that type (including those sold to Statesman) on such date. "Average Total
Delinquency Percentage Variance" means with respect to Wholesale Accounts the
difference, regardless of which is greater, between (i) the Average Total
Delinquency Percentage for Wholesale Accounts computed as of the last Business
Day of the calendar month preceding the date of determination and (ii) the
percentage obtained by dividing the total delinquent Wholesale Accounts
(including Wholesale Accounts sold to Statesman which are delinquent) on such
date by the total Wholesale Accounts (including those sold to Statesman) on such
date.
"Balances Owed" means the net amount payable to the Cooperative on
Receivables as a result of goods sold or services performed, or both, after
adjustment for all rebates, credits and all other adjustments made by the
Cooperative on all Purchased Receivables.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Richmond, Virginia, are authorized or required to
close under applicable law.
"Collateral" means any property which is subject to a purchase money
security interest securing the obligations of the obligor on a Purchased
Contract.
"Dealership" means any wholesale customer of the Cooperative which has
purchased merchandise or products from the Cooperative for resale to its
customers and shall include a private dealer of the Cooperative but shall not
include a Retail Service or a Local Cooperative.
"Default" means any of the events specified in Article X, whether or
not any requirement for the giving of notice or the lapse of time, or both, has
been satisfied.
"Dispute" has the meaning set forth in Section 4.06.
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"Eligible Contracts" means Installment Sales Contracts arising out of
the sale of goods by Retail Services or a customer of the Cooperative other than
Approved Contracts which Statesman has determined to purchase from the
Cooperative.
"Eligible Receivables" means Receivables which Statesman has determined
to purchase from the Cooperative.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
"ERISA Reportable Event" means any of the events specified in Section
10.01(j) or (k), provided that any requirement for the giving of notice, the
lapse of time, or both, has been satisfied.
"Event of Default" means any of the events specified in Section 10.01,
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"GAAP" means generally accepted accounting principles consistently
applied with respect to a corporation conducting a business the same as or
similar to that of the Cooperative and its Subsidiaries, if any, as in effect
from time to time.
"Grain Marketing Accounts" means amounts owed to the Cooperative for
the purchase of grain commodities, whether evidenced by open account, note, or
otherwise or any combination thereof.
"Headquarters" means the office of Statesman at 6606 West Broad Street,
Post Office Box 25567, Richmond, Virginia 23260.
"Historical Charge Off Percentage" means with respect to each of Retail
Accounts, Grain Marketing Accounts and Accounts Receivable - Local Cooperatives
(each a "type" of Receivable) that percentage which is obtained by dividing (a)
the sum of (i) gross bad debt expense of the Cooperative for Receivables of that
type for any fiscal year and (ii) the gross bad debt expense of Statesman for
such fiscal year on Receivables of that type purchased from the Cooperative by
(b) the total dollar volume for sales which generate Receivables of that type
(whether cash or non-cash) of the Cooperative for such fiscal year.
"Independent Cooperative" means a cooperative which is not a Local
Cooperative.
"Installment Sales Contract" means a written agreement providing for
the deferred payment of the purchase price of goods sold in the ordinary course
of business.
"Installment Sales Financing" means the purchasing by Statesman of
chattel paper (as defined in Article 9 of the Uniform Commercial Code of
Virginia) arising out of a sale of merchandise by a Retail Service, Local
Cooperative or Dealership.
"Leases" means contracts for the lease of personal property for a fixed
period of time by Statesman to the Cooperative, a Local Cooperative, a
Dealership or a customer of either.
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"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), charge or encumbrance of any kind or nature whatsoever (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 Uniform
Commercial Code of Virginia or comparable law of any jurisdiction to evidence
any of the foregoing).
"Local Cooperative" means any corporation which is managed by the
Cooperative under a management agreement or contract.
"Manufacturer" means the original equipment manufacturer of goods
offered for sale by the Cooperative.
"Multiemployer Plan" means a Plan described in Section 4001(a)(3) of
ERISA which covers employees of the Cooperative or to which the Cooperative is
or may be required to make contributions under ERISA.
"Net Balance" means the outstanding balance owing on an Installment
Sales Contract including any applicable late charges but exclusive of any
unearned finance charges as provided for in such Installment Sales Contract.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
"Plan" means any employee welfare plan established or maintained by the
Cooperative or to which the Cooperative has made contributions in the past or
may in the future be required to make contributions under ERISA.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from
time to time.
"Purchased Contracts" means Approved Contracts and Eligible Contracts
which have been purchased by Statesman from the Cooperative or a customer of the
Cooperative.
"Purchased Receivables" means Eligible Receivables which have been
purchased by Statesman from the Cooperative.
"Purchased Wholesale Accounts" means Wholesale Accounts which have been
purchased by Statesman from the Cooperative.
"Receivables" means the amounts owing the Cooperative from time to time
for the sale of goods or the performance of services in the ordinary course of
business and shall include Retail Accounts, Grain Marketing Accounts, and
Accounts Receivable - Local Cooperatives.
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"Receivables Certificate" means the certificate referred to in Section
2.03(1).
"Reserve Account" means the account established under the provisions of
Section 2.04.
"Retail Accounts" means amounts owing the Cooperative arising out of
the sale in the ordinary course of business of goods and services by Retail
Services, which amounts are not evidenced by Installment Sales Contracts.
"Retail Service" means any retail store owned and operated by the
Cooperative.
"Southern States Credit Card Program" means the program of Statesman to
approve revolving or open-end credit in specific amounts for individual
customers of the Cooperative, Local Cooperatives and Dealerships, to extend
credit to such customers for the purchase of goods from the Cooperative, Local
Cooperatives and Dealerships and to settle periodically with the Cooperative,
Local Cooperatives and Dealerships for purchases made by customers pursuant to
that program, as such program may exist from time to time.
"Statesman Approval Number" means a number given by Statesman to a
Retail Service to evidence that a particular Installment Sales Contract is an
Approved Contract.
"Subsidiary" means any corporation the majority of the voting shares of
which at the time are owned directly or indirectly by the Cooperative and/or by
one or more Subsidiaries of the Cooperative.
"Termination Date" means that date on which certain obligations of the
parties hereunder may be terminated as provided in Section 11.04.
"Wholesale Accounts" means any obligation arising out of the sale of
goods or the performance of services in the ordinary course of business which is
not an Account Receivable - Local Cooperative, Grain Marketing Account, or
Retail Account.
"Wholesale Reserve Account" means the account established under the
provisions of Section 4.04.
ARTICLE II
ACCOUNTS RECEIVABLE FINANCING
SECTION 2.01. PURCHASE OF RECEIVABLES. Statesman may from time to time,
at its option upon the terms and subject to the conditions contained in this
Agreement, purchase Receivables from the Cooperative, provided that Statesman
has determined in its sole and absolute discretion that such Receivables are
acceptable to it (which acceptable Receivables are herein referred to as the
"Eligible Receivables"), and in no event shall Statesman purchase Receivables if
after such purchase the aggregate amount owing on all Receivables purchased by
Statesman from the Cooperative shall exceed ONE HUNDRED MILLION DOLLARS
($100,000,000). All such purchases shall be made without recourse to the
Cooperative except so far as Statesman shall have the right to make charges to
the Reserve Account as provided in Section 2.05, and nothing contained herein
shall obligate Statesman to purchase any Receivables.
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SECTION 2.02. OFFER TO SELL. The Cooperative may from time to time
offer to sell Receivables to Statesman as herein provided, but, except as the
parties may otherwise agree, no Receivable from any obligor shall be sold unless
all accounts owing from such obligor to the Cooperative are sold, and no Retail
Account arising out of a sale at any Retail Service shall be sold unless all
Retail Accounts arising out of sales at such Retail Service are sold.
SECTION 2.03. PROCEDURES.
(1) Prior to 11:00 a.m. (Richmond, Virginia, time) on the tenth
Business Day of each month, or such later day as may be agreed to by Statesman,
the Cooperative shall deliver to Statesman by hand or send by telecopy a
certificate substantially in the form of Exhibit A attached hereto (a
"Receivables Certificate") with the blanks therein appropriately completed and
reflecting the following information for the preceding month:
(a) the amount of all Receivables arising out of sales of
goods or services during the preceding month, if any, which were sold by the
Cooperative to Statesman as of the end of such preceding month;
(b) Receivables which were previously sold to Statesman under
the provisions of this Article II showing the outstanding balances as of the
last day of the preceding month in the aggregate for Retail Accounts, Grain
Marketing Accounts and Accounts Receivable - Local Cooperatives;
(c) Receivables which were previously sold to Statesman
pursuant to this Article II upon which there was any change in the outstanding
balance during such month, and all debits and credits thereon, including without
limitation payments and other remittances by or on behalf of the account
obligor, credits, rebates and adjustments, showing in the aggregate for Retail
Accounts, Grain Marketing Accounts and Accounts Receivable - Local Cooperatives
the prior balance, the amount and nature of adjustments and the balance as of
the last day of the preceding month;
(d) the Cooperative shall promptly make available to
Statesman, at Statesman's request, listings of accounts with balances and other
referenced amounts by obligor that are referred to in Sections 2.03(1)(a), (b)
and (c).
(2) Not later than 11:00 a.m. (Richmond, Virginia, time) on the fifth
Business Day after receipt by Statesman of the Receivables Certificate,
Statesman shall pay to the Cooperative the amount by which (a) the aggregate
outstanding balance on each Receivable it has purchased exceeds (b) the Purchase
Discount (as herein defined) and the amount, if any, to be placed in the Reserve
Account pursuant to Section 2.04, provided, however, that Statesman may choose
not to pay for any Receivable evidenced by a promissory note or other instrument
unless such note or other instrument has been endorsed and delivered to
Statesman.
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(3) Promptly upon delivery of the certificate described in Section
2.03(1), the Cooperative shall assign and transfer as provided in such
certificate those Receivables Statesman is purchasing and all proceeds thereof,
cash or non-cash.
(4) (a) For purposes of this Article II, the Purchase Discount for
Retail Accounts shall be the product obtained by multiplying the outstanding
balance of the Retail Accounts being purchased by (i) the average Historical
Charge Off Percentage of the Cooperative for Retail Accounts for the three
preceding fiscal years times (ii) the sum of 1 plus the Average Total
Delinquency Percentage Variance for Retail Accounts, plus the anticipated
interest charges for the current month relating to the outstanding purchased
Retail Accounts. Such amount shall be computed according to the following
formula:
Discount = Retail Accounts being purchased x [(aHCO%) x
(1 + ADV)] + AIC
where
aHCO% = average Historical Charge Off Percentage for Retail
Accounts for the three preceding fiscal years which
for purposes of this calculation shall not be less
than .35% or such other percentage as may be from
time to time agreed to by the Cooperative and
Statesman.
ADV = Average Total Delinquency Percentage Variance for
Retail Accounts.
AIC = the anticipated interest charges for the current
month for borrowings relating to outstanding Retail
Accounts purchased by Statesman.
(b) For purposes of this Article II, the Purchase Discount for
Grain Marketing Accounts shall be the product obtained by multiplying the
outstanding balance of the Grain Marketing Accounts being purchased by (i) the
average Historical Charge Off Percentage of the Cooperative for Grain Marketing
Accounts for the three preceding fiscal years times (ii) the sum of 1 plus the
Average Total Delinquency Percentage Variance for Grain Marketing Accounts, plus
the anticipated interest charges for the current month relating to the
outstanding purchased Grain Marketing Accounts. Such amount shall be computed
according to the following formula:
Discount = Grain Marketing Accounts being purchased x
[(aHCO%) x (1 + ADV)] + AIC
where
aHCO% = average Historical Charge Off Percentage for Grain
Marketing Accounts for the three preceding fiscal
years which for purposes of this calculation shall
not be less than .15% or such other percentage as may
be from time to time agreed to by the Cooperative and
Statesman.
ADV = Average Total Delinquency Percentage Variance for
Grain Marketing Accounts.
AIC = the anticipated interest charges for the current
month for borrowings relating to outstanding Grain
Marketing Accounts purchased by Statesman.
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(c) For purposes of this Article II, the Purchase Discount for
Accounts Receivable - Local Cooperatives shall be the product obtained by
multiplying the outstanding balance of the Accounts Receivable - Local
Cooperatives being purchased by (i) the average Historical Charge Off Percentage
of the Cooperative for Accounts Receivable - Local Cooperatives for the three
preceding fiscal years times (ii) the sum of 1 plus the Average Total
Delinquency Percentage Variance for Accounts Receivable - Local Cooperatives,
plus the anticipated interest charges for the current month relating to the
outstanding purchased Accounts Receivable - Local Cooperatives. Such amount
shall be computed according to the following formula:
Discount = Accounts Receivable - Local Cooperatives being
purchased x [(aHCO%) x (1 + ADV)] + AIC
where
aHCO% = average Historical Charge Off Percentage for
Accounts Receivable - Local Cooperatives for the
three preceding fiscal years which for purposes of
this calculation shall not be less than .05% or such
other percentage as may be from time to time agreed
to by the Cooperative and Statesman.
ADV = Average Total Delinquency Percentage Variance for
Accounts Receivable - Local Cooperatives.
AIC = the anticipated interest charges for the current
month for borrowings relating to outstanding Accounts
Receivable - Local Cooperatives purchased by
Statesman.
Notwithstanding anything to the contrary contained in this Agreement, a
portion of such purchase price shall be placed in the reserve account described
in Section 2.04.
SECTION 2.04. RESERVE ACCOUNT. Statesman shall place in a reserve
account (the "Reserve Account") an amount not to exceed one-eighth of one
percent (0.125%) of the aggregate outstanding balance on each Receivable it
elects to purchase, provided, however, that in no event shall any additional
amount be deducted from the Purchase Price paid to the Cooperative or placed in
the Reserve Account if the aggregate amount in the Reserve Account is equal to
or greater than one quarter of one percent (0.25%) of the aggregate unpaid
balance of all Receivables which Statesman has purchased from the Cooperative
(including the Receivables being paid for on such date). Funds in the Reserve
Account need not be segregated from other funds of Statesman. If at the end of
any fiscal year of Statesman, the balance in the Reserve Account after charges
to the Reserve Account as permitted in Section 2.05 is greater than one-eighth
of one percent (0.125%) of the balance owing on Receivables which Statesman has
purchased from the Cooperative, no Event of Default shall have occurred and be
continuing and no obligation of the Cooperative to Statesman is then due and
payable, Statesman will upon request of the Cooperative remit such excess to the
Cooperative.
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SECTION 2.05. CHARGES TO RESERVE ACCOUNT. Statesman may in its sole and
absolute discretion charge losses on Purchased Receivables related to Credit
Risk (as defined in Section 4.06) against the Reserve Account. Statesman agrees
to add to the Reserve Account the amount received as a recovery less associated
collection costs on any losses on Purchased Receivables which were previously
charged to the Reserve Account. Statesman shall notify the Cooperative promptly
in writing of any such reduction in the Reserve Account. As of the end of each
month, Statesman will provide the Cooperative with a report of transactions in
the Reserve Account during such month showing the balance in such account as of
the end of such month.
SECTION 2.06. PAYMENTS FROM THE COOPERATIVE. Monthly with the delivery
of each Receivables Certificate the Cooperative shall remit to Statesman in
immediately available funds an amount equal to the sum of (i) all payments
received by the Cooperative during the preceding month on Purchased Receivables,
(ii) all rebates or credits on any Purchased Receivable allowed by the
Cooperative during the preceding month, and (iii) all other adjustments made by
the Cooperative on any Purchased Receivable during such month which resulted in
a reduction of the amount owing thereon, minus any proceeds the Cooperative has
collected on Purchased Receivables and paid to Statesman since the delivery of
the previous Receivables Certificate.
SECTION 2.07. METHOD OF PAYMENT. All payments from the Cooperative to
Statesman under the terms of this Agreement shall be made to Statesman in
immediately available funds in Richmond, Virginia. Whenever any payment is
scheduled to be made on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
SECTION 2.08. FACILITY FEES FOR PURCHASE OF RECEIVABLES. The
Cooperative will pay to Statesman by the tenth Business Day of each month, or
such later day as may be agreed to by Statesman, a Facility Fee in such amount
as shall be agreed upon from time to time by the Cooperative and Statesman.
SECTION 2.09. COLLECTION OF RECEIVABLES. Statesman hereby authorizes
the Cooperative to collect Purchased Receivables, subject to direction and
control, but Statesman may, without cause or notice, curtail or terminate said
authority at any time. Upon receipt of all checks, drafts, cash and other
remittance in payments of or on account of the Purchased Receivables, the
Cooperative will account to Statesman for such proceeds as herein provided. The
Cooperative will endorse all checks, drafts and other items evidencing such
proceeds where necessary to permit collection of such items, which endorsement
Statesman is also hereby authorized to make, as attorney-in-fact on behalf of
the Cooperative.
The Cooperative will pay all proceeds it collects on Purchased
Receivables to Statesman monthly no later than the tenth Business Day of each
month or at such other intervals as Statesman may from time to time request.
If the Cooperative receives any promissory note or other instrument
(other than a check) in payment of or on account of any Purchased Receivable, it
will immediately endorse the same and deliver it to Statesman.
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Within ten (10) days of receipt of a written request of Statesman, the
Cooperative will notify the obligor on each Purchased Receivable to make
payments to Statesman at its Headquarters or at such other address as Statesman
shall have furnished to the Cooperative in writing and shall promptly deliver to
Statesman all proceeds of any Purchased Receivables then held by the
Cooperative. From and after receipt of such request, the Cooperative will
promptly forward to Statesman all checks, drafts, cash and other remittances
received by it in payment of or on account of any Purchased Receivable.
If the Cooperative shall fail to notify account obligors to make
payments to Statesman as herein provided, and in any event upon the occurrence
of an Event of Default, Statesman may so notify such account obligors.
SECTION 2.10. REPURCHASE OF RECEIVABLES. If the Cooperative shall at
any time determine not to sell to Statesman the Retail Accounts arising out of
sales made at any Retail Service, the Cooperative will with the consent of
Statesman promptly repurchase from Statesman all Retail Accounts arising out of
sales made at such Retail Service which Statesman has previously purchased from
it. The purchase price for such Retail Accounts will be the Balances Owed on the
Retail Accounts giving credit for all payments received by Statesman to the date
of sale to the Cooperative.
ARTICLE III
INSTALLMENT SALES FINANCING
SECTION 3.01. GENERAL. Statesman will from time to time, upon the terms
and subject to the conditions contained in this Agreement, purchase from the
Cooperative Approved Contracts. Statesman may from time to time, at its option
upon the terms and subject to the conditions contained in this Agreement,
purchase from the Cooperative other Installment Sales Contracts arising out of
the sale of goods by Retail Services, which Installment Sales Contracts
Statesman has determined in its sole and absolute discretion to be acceptable
(which contracts are herein referred to as "Eligible Contracts"). Nothing
contained herein shall obligate Statesman to purchase any Installment Sales
Contract other than those Installment Sales Contracts which have been approved
in advance by Statesman as evidenced by a Statesman Approval Number (which
contracts are herein referred to as "Approved Contracts").
SECTION 3.02. NON-RECOURSE PURCHASES. Statesman will from time to time
upon the terms and subject to the conditions contained in this Agreement,
purchase Approved Contracts from the Cooperative. Such purchases shall be
without recourse to the Cooperative except as specifically provided for herein.
SECTION 3.03. FULL RECOURSE OPTION.
(1) Statesman may from time to time, at its option upon the terms and
subject to the conditions contained in this Agreement, purchase from the
Cooperative Installments Sales Contracts arising out of the sales of goods by
Retail Services, which Installment Sales Contracts Statesman has determined in
its sole and absolute discretion to be acceptable (which contracts are herein
referred to as "Eligible Contracts"), notwithstanding the fact that such
contracts have not been previously approved by Statesman and do not bear an
appropriate Statesman Approval Number. All purchases of such contracts shall be
subject to full recourse to the Cooperative as provided in paragraph (2) of this
Section 3.03.
<PAGE>
(2) If any installment on any Installment Sales Contract purchased
under the provisions of this Section 3.03 is not paid within ninety (90) days of
the date it is scheduled to be paid, upon written demand by Statesman, the
Cooperative will repurchase such contract immediately for its Net Balance.
SECTION 3.04. PURCHASE PRICE; DELIVERY OF PURCHASED CONTRACTS. The
purchase price for Approved Contracts and Eligible Contracts shall be the Net
Balance or such other amount as may from time to time be agreed to in writing by
the Cooperative and Statesman. Upon receipt of an Approved Contract or Eligible
Contract duly endorsed and all related credit information, and the satisfaction
of all the conditions set forth in Article VI hereof, provided no Event of
Default shall have occurred and be continuing, and provided Statesman shall not
then be entitled to require that the Cooperative repurchase Purchased Contracts
under the provisions of Section 3.03 hereof, Statesman shall pay the Cooperative
in cash the purchase price for each such Approved Contract or Eligible Contract.
Promptly thereafter, the Cooperative will notify each obligor on each such
Purchased Contract to make all future payments to Statesman at its Headquarters.
The Cooperative authorizes Statesman to insert its name, or the name of any
other assignee, in the space provided therefor in the assignment clause of all
Purchased Contracts and to return to the Cooperative all Installment Sales
Contracts not purchased. Statesman will identify in writing those contracts it
agrees to purchase and will return those contracts it declines to purchase. The
Cooperative is authorized to cancel the endorsement on each Installment Sales
Contract which Statesman does not purchase.
SECTION 3.05. WARRANTIES.
(1) By the delivery and sale of each such Installment Sales Contract
under the provisions of Section 3.02 or Section 3.03, the Cooperative warrants
to Statesman that:
(a) It has good title to such Installment Sales Contract or is
authorized to obtain payment on behalf of one who has good title and the sale
and transfer thereof are otherwise rightful;
(b) Each such Installment Sales Contract is a binding
obligation arising from the sale of merchandise by a Retail Service in the
ordinary course of business as described in the contract to a person or entity
specified therein as the obligor and constitutes the valid and legally binding
obligation of such obligor enforceable in accordance with its terms; such
contract states the full agreement of the parties and arises out of legally
sufficient consideration;
(c) All signatures on such Installment Sales Contract are
genuine or authorized and all obligors thereon have the capacity to execute such
contract;
(d) Such Installment Sales Contract has not been materially
altered;
(e) No obligor on such Installment Sales Contract has any
defense against the Cooperative which is good against it;
<PAGE>
(f) The conduct of the Cooperative in making the sale out of
which each contract arose was in all material respects in compliance with all
applicable laws and was not induced by fraud, false or misleading
representations or any other manner of unfair or deceptive trade practices or
other unlawful conduct;
(g) All credit information concerning the obligors on such
contracts was obtained and recorded in strict compliance with all applicable
state and federal laws, and the Cooperative has no reason to believe that any
such information is false, misleading or incomplete in any respect;
(h) All current credit information with respect to such
obligors has been accurately reported to Statesman;
(i) The Installment Sales Contract forms provided by Statesman
have not been altered, modified or supplemented in any respect;
(j) All information required to be disclosed in such forms has
been accurately recorded therein and the Cooperative has complied with the
Truth-in-Lending Act and all other applicable disclosure laws, federal and
state;
(k) No fee has been charged with respect to any contract and
no such contract includes any deferred payment price or other charge which
violates any applicable usury law or consumer protection law;
(l) Such Installment Sales Contract contains all of the terms
and conditions of the agreement between the Cooperative and the obligors with
respect to such purchase and the Cooperative has not entered into any other
agreement with the obligor with respect to such contract and has not waived or
agreed to waive any term or condition contained in the form or taken any other
action which might result in any constructive or implied waiver or modification
thereof;
(m) Each down payment shown in each Installment Sales Contract
has actually been received in cash from the obligor or a person paying such
amount on behalf of the obligor and no part thereof has been directly or
indirectly advanced by the Cooperative;
(n) Each trade-in shown in each Installment Sales Contract has
actually been delivered to the Cooperative and the amount recorded in the
contract accurately reflects the agreed value thereof;
(o) All aspects of the sale have been in strict compliance
with all applicable consumer protection acts and regulations, including without
limitation the Truth-in-Lending Act, the Equal Credit Opportunity Act and any
applicable state law;
(p) All applicants for credit have been given all notices
required by applicable law;
(q) The Cooperative has no knowledge of any insolvency
proceeding involving any party obligated on such Installment Sales Contract; and
<PAGE>
(r) Such Installment Sales Contract is not subject to any
claim, lien, security interest, charge or other encumbrance in favor of any one
other than the Cooperative and Statesman, and the Cooperative has not offered
such Contract for sale to any purchaser other than Statesman.
(2) The Cooperative further represents and warrants that it is and
shall be solvent at the time of each sale of any Installment Sales Contract.
SECTION 3.06. REMEDIES OF STATESMAN WITH RESPECT TO INSTALLMENT SALES
CONTRACTS PURCHASED UNDER THE PROVISIONS OF THIS ARTICLE THREE.
(1) Breach of Warranty. If any warranty made by the Cooperative under
the provisions of Section 3.05 of this Agreement shall prove to have been false
in any material respect as it relates to any Purchased Contract, the Cooperative
covenants and agrees promptly upon written demand by Statesman to purchase such
Purchased Contract for the Net Balance in immediately available funds. Statesman
covenants and agrees that upon receipt of such payment it will cancel the
endorsement and deliver such Purchased Contract to the Cooperative at the
address stated in Section 11.07 of this Agreement. Statesman represents and
warrants to the Cooperative with respect to each such Installment Sales Contract
that the Net Balance paid to it is the Net Balance of such contract and that
except as disclosed in a writing accompanying such contract, Statesman has not
released any party to such contract from its obligation thereunder, released any
security interest directly securing such contract or consented to any reduction
in the amount owing thereon or the extension of the due date for any payment or
installment thereunder. Such transfer from Statesman to the Cooperative will be
without recourse and except as provided in the immediately preceding sentence,
without representation or warranty of any nature or type.
(2) Determination of Breach. For the purpose of determining whether or
not any warranty made by the Cooperative under the provisions of Section 3.05
was false and that the Cooperative is therefore obliged to repurchase any
Purchased Contract, the Cooperative shall be bound by a written statement of an
officer of Statesman that in the reasonable judgment of Statesman it has
determined that any obligor under any Purchased Contract has refused to make any
scheduled payment under such contract because of any fact which has been
represented as otherwise by the Cooperative to Statesman under the provisions of
Section 3.05 hereof.
SECTION 3.07. CONTRACT FORMS. Statesman will provide and the
Cooperative will use forms of contracts and credit applications previously
approved by Statesman. In the event Statesman determines that any previously
approved form should not be used, it will so advise the Cooperative and the
Cooperative will discontinue any use of such form.
SECTION 3.08. PAYMENTS. The Cooperative will cause each Retail Service
on the day of receipt of any payment on any Purchased Contract to report such
payment to Statesman at its Headquarters. The Cooperative covenants and agrees
that all payments received by it on Purchased Contracts will be charged to the
Cooperative's intercompany accounts payable to Statesman and paid to Statesman
in collected funds no less frequently than every five (5) business days. In the
event the Cooperative shall fail to endorse any check or other item when
necessary to permit its collection, Statesman is authorized, as its
attorney-in-fact to make such endorsement on behalf of the Cooperative.
<PAGE>
SECTION 3.09. OBLIGOR COMPLAINTS AND RETURNED MERCHANDISE.
(1) The Cooperative shall, within three (3) Business Days of its
receipt, provide Statesman with a copy of any written complaint from any
obligor(s) relating to any Purchased Contract or any merchandise or service
purchased thereunder;
(2) If the purchaser under any Purchased Contract returns merchandise,
for any reason, within 10 days from the date of the sale, the Cooperative will
fully reimburse such purchaser for any down payment and immediately repurchase
the Purchased Contract from Statesman for its Net Balance.
SECTION 3.10. MODIFICATIONS, EXTENSIONS. Statesman may, without
affecting the agreements of the Cooperative herein, change, modify, extend or
renew the dates and amounts of the periodic installment payments in any
Purchased Contract.
SECTION 3.11. WARRANTY, SERVICE, OR SIMILAR AGREEMENTS. The Cooperative
covenants and agrees to indemnify and hold Statesman harmless from any and all
losses arising out of the breach of any performance or extended warranties and
all service or similar agreements made by Manufacturer, the Cooperative, or any
other Person relating to merchandise which is the subject of any Purchased
Contract, even if any such warranty, service, or similar agreements are not
immediately effective. Unless such agreement expressly provides otherwise, the
Cooperative agrees to provide repairs and service to the purchaser of the
merchandise at its usual rates of charge.
SECTION 3.12. REPOSSESSION.
(1) The Cooperative will, at Statesman's request, act as its agent in
the repossession of any property described in any Purchased Contract in
accordance with all applicable laws and in that capacity take certain actions,
including the transportation of the property from its location to the
Cooperative's place of business, repair and restoration of the property to a
marketable condition, and storage, without storage fee. Statesman will
compensate the Cooperative for its reasonable actual costs in such
transportation, repair, and restoration, except as covered by an extended
warranty or service agreement. In the event Statesman directs the Cooperative on
its behalf to sell the property, it will pay the Cooperative such commission as
is agreed upon from time to time by the Cooperative and Statesman and as
evidenced by Statesman's letter. The Cooperative agrees to sell said property in
accordance with the applicable provisions of the Uniform Commercial Code, as it
may be amended from time to time, and other applicable law.
(2) Where an extended warranty or service agreement is included in the
sales contract purchased, the Cooperative hereby agrees to perform at its
expense or have performed such warranty or service work under the terms of such
extended warranty or service agreement. A pro rata refund will be paid in cash
to Statesman of the unearned identifiable charge assessed for the extended
warranty or service agreement, which will then be credited to any balance due on
such Purchased Contract.
<PAGE>
ARTICLE IIIA
CREDIT CARD FINANCING
Section 3A.01. Approval of Customer's Credit. Statesman agrees to
review information on customers of the Cooperative, Local Cooperatives and
Dealerships recorded on its Statesman Revolving Credit Card Application and
Agreement forms and submitted to it by the Cooperative, a Local Cooperative or a
Dealership and to approve extending open-end or revolving credit to such
customers in a specific dollar amount or to deny such credit.
Section 3A.02. Purchases By Credit Card Customers. After Statesman has
approved the credit of a customer in the Southern States Credit Card Program, so
long as the customer pays his or her account in accordance with the terms
thereof established from time to time by Statesman and otherwise complies with
the terms thereof and is not bankrupt or insolvent, Statesman will extend credit
to such customer up to the preapproved dollar limit for the purchase of goods
and services from the Cooperative, a Local Cooperative or a Dealership.
Section 3A.03. Approval of Requests to Change Credit. Statesman agrees
upon request of the Cooperative, a Local Cooperative or a Dealership to review
information on customers of the Cooperative, such Local Cooperative or such
Dealership and to approve changing the amount of open-end or revolving credit
for such customers to a specific dollar amount or to deny such change.
Section 3A.04. Settlement for Purchases. Statesman will periodically
settle with the Cooperative and each Local Cooperative and Dealership for
purchases made from the Cooperative or such Local Cooperative or Dealership, as
the case may be, under the Southern States Credit Card Program by periodically
crediting to the Cooperative or such Local Cooperative or Dealership, as the
case may be, the aggregate amount of such purchases since the last settlement
date, net of the applicable merchant's discount as may be agreed to from time to
time by the Cooperative or such Local Cooperative or Dealership, as the case may
be, and Statesman. All sales under the Southern States Credit Card Program made
in accordance with the instructions provided from time to time by Statesman to
the Cooperative, the Local Cooperatives and the Dealerships will be without
recourse. Statesman may, however, require the Cooperative, a Local Cooperative
or a Dealership to reimburse it for certain purchases as may be agreed to from
time to time by Statesman and the Cooperative, such Local Cooperative or such
Dealership. The parties acknowledge and agree that in the event of any conflict
between the terms hereof and any other agreement between the parties or between
Statesman and a Local Cooperative or a Dealership with respect to such rights
and obligations, the terms of the other agreement shall govern.
<PAGE>
ARTICLE IIIB
ASSET BASED FINANCING
SECTION 3B.01. GENERAL. From time to time at the request of the
Cooperative, Statesman may extend asset based financing to customers of the
Cooperative. Such financing shall be extended pursuant to separate agreements to
be entered into between each such customer and Statesman.
SECTION 3B.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate Statesman to extend any asset based financing to any person. All
decisions with respect to asset based financing shall be made by Statesman in
its sole discretion, subject to such agreements as Statesman may enter into from
time to time with its asset based borrowers.
ARTICLE IIIC
PERSONAL PROPERTY LEASING
SECTION 3C.01. APPROVAL OF CUSTOMER'S CREDIT. Statesman agrees to
review information on customers of the Cooperative, Local Cooperatives and
Dealerships recorded on its Statesman application forms for the lease of liquid
propane tanks (or other personal property then being leased by Statesman) and
submitted to it by the Cooperative, a Local Cooperative or a Dealership and to
approve leasing such property to such customers or to determine not to lease
such property.
SECTION 3C.02. PAYMENT FOR LEASED PROPERTY. If Statesman approves the
lease of personal property, it will promptly notify the Cooperative or the Local
Cooperative or Dealership which requested such lease, and if it has received a
properly completed Lease Agreement appropriately signed by the customer and the
Cooperative, the Local Cooperative or the Dealership, as the case may be, it
will remit to the Cooperative, or to the Local Cooperative or Dealership which
requested such lease the invoice price of the leased equipment.
SECTION 3C.03. COLLECTION OF RENT. The Cooperative, or the Local
Cooperative or Dealership which requested the lease will serve as the agent of
Statesman in the collection of the monthly rent due under the lease and will
remit to Statesman monthly from the proceeds of liquid propane sold to the
lessee the monthly rentals due under the lease.
ARTICLE IV
FINANCING WHOLESALE ACCOUNTS
SECTION 4.01. PURCHASE OF WHOLESALE ACCOUNTS. Statesman shall from time
to time, upon the terms and subject to the conditions contained in this
Agreement, purchase Wholesale Accounts from the Cooperative, provided that
Statesman has determined in its sole and absolute discretion that such Wholesale
Accounts are acceptable to it and as to which approval has not been withdrawn by
Statesman as provided below. All such purchases shall be made without recourse
to the Cooperative except as provided in Sections 4.09 and 4.11 and except so
far as Statesman shall have the right to make charges to the Wholesale Reserve
Account as provided in Section 4.05.
<PAGE>
SECTION 4.02. REPAYMENT TERMS OFFERED ON CREDIT SALES. The Cooperative
agrees to provide Statesman with a comprehensive list of all credit repayment
plans (the "Repayment Terms") which it plans to offer to Cooperative Wholesale
Account customers. Statesman will review the Repayment Terms to be offered prior
to their implementation by the Cooperative and will advise the Cooperative of
its acceptance of the proposed Repayment Terms. Statesman will purchase only
those invoices which are in conformity with the preestablished Repayment Terms
which have been approved by Statesman. The Cooperative will not make any changes
in the Repayment Terms offered to the Wholesale Account customers without first
obtaining Statesman's written approval.
The requested credit line, anticipated sales volume, financial
information, credit application and any other information which Statesman in its
sole discretion may request shall be obtained by the Cooperative and each and
every sale to Wholesale Accounts shall be made only in accordance with the
Statesman approved Repayment Terms and the Statesman Approval, which may be
withdrawn at any time before actual delivery of merchandise or rendition of
services to the customer.
SECTION 4.03. PROCEDURES.
(1) Prior to the generation of new receivables, the Cooperative will
provide to Statesman information concerning customers to which the Cooperative
plans to sell merchandise or render a service which will result in the creation
of a Wholesale Receivable. Statesman will review the information and determine
in its sole and absolute discretion the terms under which the Cooperative may
sell to the customer such that Statesman will purchase the resulting Wholesale
Account (the "Statesman Approval"). Any customer which has been approved by
Statesman will hereinafter be referred to as an "Approved Wholesale Account."
Statesman will notify the Cooperative in writing of its decision.
(2) Not later than 10:00 a.m. (Richmond, Virginia, time) on each
Business Day, the Cooperative will provide to Statesman information on Approved
Wholesale Accounts being offered to Statesman for purchase. This information
shall include all information which Statesman may reasonably request and shall
be in a form satisfactory to Statesman.
(3) Not later than 12 noon (Richmond, Virginia, time) on the same
Business Day, Statesman will confirm to the Cooperative those Approved Wholesale
Accounts it is purchasing and will prepare and deliver its check drawn on
Crestar Bank, Richmond, Virginia, or other bank satisfactory to the Cooperative,
or make an ACH transfer or wire transfer, for the face amount of the Wholesale
Accounts which Statesman is purchasing less any amount to be placed in the
Wholesale Reserve Account pursuant to Section 4.04 and less the Purchase
Discount for Wholesale Accounts. Statesman may choose not to pay for any
Wholesale Account evidenced by a promissory note or other instrument unless such
note or other instrument has been endorsed and delivered to Statesman.
<PAGE>
(4) For purposes of this Article IV, the Purchase Discount for
Wholesale Accounts shall be the product obtained by multiplying the outstanding
balance of the Wholesale Accounts being purchased by (i) the average Historical
Charge Off Percentage of the Cooperative for Wholesale Accounts for the three
preceding fiscal years times (ii) the sum of 1 plus the Average Total
Delinquency Percentage Variance for Wholesale Accounts, plus the anticipated net
interest charges for the current month relating to the outstanding purchased
Wholesale Accounts. Such amount shall be computed according to the following
formula:
Discount = Wholesale Accounts being purchased x [(aHCO%) x
(1 + ADV)] + AIC
where
aHCO% = average Historical Charge Off Percentage for
Wholesale Accounts for the three preceding fiscal
years which for purposes of this calculation shall
not be less than .35% or such other percentage as may
be from time to time agreed to by the Cooperative and
Statesman.
ADV = Average Total Delinquency Percentage Variance for
Wholesale Accounts.
AIC = the amount by which the anticipated interest
charges for the current month for borrowings relating
to outstanding Wholesale Accounts purchased by
Statesman exceed the finance charges anticipated to
be collected during such month by Statesman on
Wholesale Accounts.
(5) Upon receipt of such payment, the Cooperative shall sell, assign,
and convey to Statesman and without any further action on its part, shall be
deemed to have sold, assigned and conveyed to Statesman each such Approved
Wholesale Account, and all of the Cooperative's interest in the goods
represented by such Wholesale Accounts and in all goods that may be returned by
customers obligated on such Wholesale Accounts, all its rights as an unpaid
vendor or lienor, all its rights of stoppage in transit, replevin and
reclamation relating thereto, all its rights in and to all security therefor and
guarantees thereof, and guarantees thereto, all of its rights against third
parties with respect thereto, and all other proceeds thereof, cash or non-cash.
Any goods so recovered or returned shall be segregated in a manner acceptable to
Statesman and held for Statesman's account as owner. The Cooperative shall
notify Statesman promptly of all such returned or recovered goods.
(6) Statesman may at any time and from time to time revoke the
Statesman Approval with respect to any customer of the Cooperative or reduce the
amount of Wholesale Accounts owing from such customer which it will purchase
from the Cooperative or change the Repayment Term approved for such customer. It
will promptly notify the Cooperative of its decision to revoke the Statesman
Approval for any Wholesale Account, or to reduce the amount of such Account or
change terms and Statesman shall not be obligated to purchase any Wholesale
Account arising out of the delivery of any merchandise to or the commencement of
any service for such obligor which occurs after such notice is given to the
Cooperative except as Statesman shall have otherwise agreed. The revocation or
alteration of the Statesman Approval with respect to a customer shall not affect
the right of the Cooperative to extend credit for merchandise or services to any
customer, but all payments received from such customer shall be applied to
earliest invoices first, and payments shall be applied to invoices included in
Wholesale Accounts purchased by Statesman before they are applied to invoices
arising after the revocation or alteration of the Statesman Approval with
respect to such customer or the reduction of the amount of credit approved for
such customer.
<PAGE>
SECTION 4.04. WHOLESALE RESERVE ACCOUNT. Statesman shall place in a
reserve account (the "Wholesale Reserve Account") an amount not to exceed
one-eighth of one percent (0.125%) of the aggregate outstanding balance on each
invoice it elects to purchase, provided, however that in no event shall any
additional amount be deducted from the amount paid to the Cooperative under this
Article IV or placed in the Wholesale Reserve Account if the aggregate amount in
the Wholesale Reserve Account is equal to or greater than one quarter of one
percent (0.25%) of the aggregate unpaid balance of all Wholesale Accounts which
Statesman has purchased from the Cooperative (including the invoices being
purchased on such date). Funds in the Wholesale Reserve Account need not be
segregated from other funds of Statesman. If at the end of any fiscal year of
Statesman, the balance in the Wholesale Reserve Account after charges to the
Reserve Account as provided in Section 4.05 is greater than one-eighth of one
percent (0.125%) of the balance owing on Wholesale Accounts which Statesman has
purchased from the Cooperative, no Event of Default shall have occurred and be
continuing and no obligation of the Cooperative to Statesman is then due and
payable, Statesman will upon request of the Cooperative remit such excess to the
Cooperative.
SECTION 4.05. CHARGES TO WHOLESALE RESERVE ACCOUNT. Statesman may in
its sole and absolute discretion charge losses on Purchased Wholesale Accounts
related to Credit Risk as set forth in Section 4.06 against the Wholesale
Reserve Account. Statesman agrees to add to the Wholesale Reserve Account the
amount received as a recovery less associated collection costs on any losses on
purchased Wholesale Accounts which were previously charged to the Wholesale
Reserve Account. Statesman shall notify the Cooperative promptly in writing of
any such reduction in the Wholesale Reserve Account. As of the end of each
month, Statesman will provide the Cooperative with a report of transactions in
the Wholesale Reserve Account during such month showing the balance in such
account as of the end of such month.
SECTION 4.06. CREDIT RISK. On all Purchased Wholesale Accounts,
Statesman agrees to assume any loss which is due solely to the financial
inability of the customer to pay at maturity (the "Credit Risk") unless the
representation contained in paragraph (l)(i) of Section 4.10 was not true at the
time Statesman purchased such Wholesale Account, provided the customer has
received and accepted the goods and/or services which gave rise to such
Purchased Wholesale Account without any Dispute. The term "Dispute" shall mean
any dispute, deduction, claim, offset, defense or counterclaim of any kind,
including, without limitation, any dispute relating to goods or services already
paid for or relating to any obligation to the Cooperative other than the
Wholesale Account on which payment is being withheld.
<PAGE>
SECTION 4.07. FACILITY FEE FOR PURCHASED WHOLESALE ACCOUNTS. The
Cooperative will pay to Statesman by the tenth Business Day of each month, or
such later day as may be agreed to by Statesman, a Facility Fee in such amount
as shall be agreed upon from time to time by the Cooperative and Statesman.
SECTION 4.08. PAYMENTS FROM THE COOPERATIVE. If any remittances on
Wholesale Accounts which have been purchased by Statesman are made directly to
the Cooperative, the Cooperative shall immediately deliver them to Statesman in
Richmond, Virginia, in precisely the form received, and until they are so
delivered they shall be held in trust by the Cooperative for the benefit of
Statesman.
SECTION 4.09. DISPUTES. The Cooperative will promptly notify Statesman
of and settle at the Cooperative's cost and expense, including attorneys' fees,
all Disputes relating to Wholesale Accounts which Statesman has purchased.
However, if any Dispute is not settled by the Cooperative within sixty days
after the invoice date or within such shorter period as Statesman may determine,
Statesman may settle, compromise or litigate such Dispute in Statesman's or the
Cooperative's name upon such terms as Statesman in Statesman's sole discretion
may deem advisable and for the Cooperative's account and risk. Statesman may
also at its discretion and without notice to the Cooperative take possession of
and sell any returned goods at such prices and upon such terms as Statesman
deems advisable. The Cooperative shall promptly pay to Statesman any deficiency,
and all costs and expenses, including attorneys' fees, resulting from any such
Dispute, and if the Cooperative fails to pay such amount, Statesman may deduct
it from any payment it is required to make to the Cooperative under the terms of
this Agreement.
SECTION 4.10. WARRANTIES.
(1) With respect to each Approved Wholesale Account which the
Cooperative offers to sell under this Article IV, the Cooperative warrants to
Statesman that:
(a) It has good title to such Wholesale Account, there is no
restriction on its sale and transfer and the sale and transfer thereof is
otherwise rightful;
(b) Such Wholesale Account is a binding obligation arising
from the sale of merchandise or the provision of a service by the Cooperative in
the ordinary course of business, as described in the invoice relating to such
transaction, to a person or entity specified therein as the obligor, arises out
of legally sufficient consideration, and constitutes the valid and legally
binding obligation of such obligor enforceable in accordance with its terms;
(c) No invoice has not been materially altered;
(d) The obligor on such Wholesale Account has no defense
against the Cooperative which is good against it;
(e) The conduct of the Cooperative in making the sale or sales
out of which such Wholesale Account arose was in all material respects in
compliance with all applicable laws and was not induced by fraud, false or
misleading representations or any other manner of unfair or deceptive trade
practices or other unlawful conduct;
<PAGE>
(f) All credit information concerning the obligor on such
Wholesale Account was obtained and recorded in strict compliance with all
applicable state and federal laws, and the Cooperative has no reason to believe
that any such information is false, misleading or incomplete in any respect;
(g) All current credit information with respect to such
obligor has been accurately reported to Statesman;
(h) The terms and conditions of the agreement between the
Cooperative and the obligor with respect to such Wholesale Account, including
the Repayment Terms, are not materially different from those approved by
Statesman for such obligor, and the Cooperative has not amended or waived or
agreed to amend or waive any such term or condition or taken any other action
which might result in any constructive or implied waiver or modification
thereof;
(i) The Cooperative has no knowledge of any insolvency
proceeding involving the obligor on such Wholesale Account; and
(j) Such Wholesale Account is not subject to any claim, lien,
security interest, charge or other encumbrance in favor of any one other than
the Cooperative and Statesman, and the Cooperative has not offered such
Wholesale Account for sale to any purchaser other than Statesman.
(2) The Cooperative further represents and warrants that it is and
shall be solvent at the time of each sale of Wholesale Accounts.
SECTION 4.11. REMEDIES OF STATESMAN WITH RESPECT TO WHOLESALE ACCOUNTS
PURCHASED UNDER THE PROVISIONS OF THIS ARTICLE FOUR.
(1) Breach of Warranty. If any warranty made by the Cooperative under
the provisions of Section 4.10 of this Agreement shall prove to have been false
in any material respect as it relates to any Wholesale Account purchased by
Statesman, the Cooperative covenants and agrees promptly upon written demand by
Statesman to purchase such Wholesale Account for the net balance owing thereon
in immediately available funds. Statesman covenants and agrees that upon receipt
of such payment it will promptly transfer and assign such Wholesale Account and
all proceeds thereof to the Cooperative. Statesman represents and warrants to
the Cooperative with respect to each such Wholesale Account it sells back to the
Cooperative that the net balance paid to it is the net balance owing on such
Wholesale Account and that except as disclosed in a writing at the time of such
sale, Statesman has not released the obligor thereon of its obligation
thereunder, or consented to any reduction in the amount owing thereon or the
extension of the due date for any payment or installment thereunder. Such
transfer from Statesman to the Cooperative will be without recourse and except
as provided in the immediately preceding sentence, without representation or
warranty of any nature or type.
(2) Determination of Breach. For the purpose of determining whether or
not any warranty made by the Cooperative under the provisions of Section 4.10
was false and that the Cooperative is therefore obliged to repurchase any
Wholesale Account, the Cooperative shall be bound by a written statement of an
officer of Statesman that in the reasonable judgment of Statesman it has
determined that any obligor under any Wholesale Account has refused to make any
scheduled payment under such contract because of any fact which has been
represented as otherwise by the Cooperative to Statesman under the provisions of
Section 4.10 hereof.
<PAGE>
SECTION 4.12. WHOLESALE ACCOUNTS WHICH ARE NOT APPROVED. Statesman may
from time to time purchase Wholesale Accounts other than Approved Wholesale
Accounts at such price as may from time to time be agreed to by the parties
hereto. Except for the price and the absence of any obligation of Statesman to
purchase such Wholesale Accounts, and to the extent the parties may otherwise
agree at the time of such sale, all aspects of such sales shall be similar to
the sales of Approved Wholesale Accounts.
SECTION 4.13. NOTICE TO OBLIGORS; STATEMENTS. Statesman may notify the
obligor on each Wholesale Account that Statesman purchases from the Cooperative
that such account has been purchased by Statesman and that all payments with
respect to such Wholesale Accounts and inquiries with respect thereto should be
addressed to Statesman at its address. Such notice may at the option of
Statesman be given in the name of the Cooperative or of Statesman. Thereafter,
Statesman will maintain the records with respect to each such account and send
appropriate statements to each obligor thereon.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce Statesman to purchase Receivables, Installment Sales
Contracts and Wholesale Accounts from it, the Cooperative represents and
warrants to Statesman as follows:
SECTION 5.01. SUBSIDIARIES. The Cooperative has the following
Subsidiaries and none others:
Name of Subsidiary Percentage Owned by Cooperative
Mountain State Greenhouses, Inc. 100%
SSC Insurance Agency, Inc. 100%
Southern States Holdings, Inc. 100%
Southern States Underwriters, Inc. 100%
Virginia Seed Service, Inc. 100%
Wetsel, Inc. 100%
SECTION 5.02. GOOD STANDING. Each of the Cooperative and its
Subsidiaries is a corporation organized and existing in good standing under the
laws of its respective jurisdiction of incorporation and each has the corporate
power to own its property and to carry on its business as now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it therein or in
which the transaction of its business makes such qualification necessary.
<PAGE>
SECTION 5.03. CORPORATE AUTHORITY. The Cooperative has full power and
authority to enter into this Agreement, to sell Receivables, Approved Contracts,
Eligible Contracts and Wholesale Accounts, to execute and deliver Receivables
Certificates and instruments conveying such Receivables and contracts, to
endorse contracts and to incur the obligations provided for herein, all of which
have been duly authorized by all proper and necessary corporate action. No
consent or approval of stockholders or of any public authority is required as a
condition to the validity of this Agreement or the sale of any Receivable,
Installment Sales Contract or Wholesale Account.
SECTION 5.04. BINDING AGREEMENTS. This Agreement constitutes, and each
endorsement by the Cooperative of a Purchased Contract, when made and such
Purchased Contract is delivered pursuant hereto for value received, will
constitute, the valid and legally binding obligations of the Cooperative
enforceable against the Cooperative in accordance with its terms.
SECTION 5.05. LITIGATION. There are no proceedings pending or, so far
as the officers of the Cooperative know, threatened before any court or
administrative agency that, in the opinion of the officers of the Cooperative,
will materially adversely affect the financial condition or operations of the
Cooperative or any of its Subsidiaries.
SECTION 5.06. NO CONFLICTING AGREEMENTS. There is no charter, bylaw or
preference stock provision of the Cooperative or any of its Subsidiaries and no
provision of any existing mortgage, indenture, contract or agreement binding on
the Cooperative or any of its Subsidiaries or affecting their respective
properties that would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement or the sale or transfer
of any Receivable, Installment Sales Contract or Wholesale Account.
SECTION 5.07. BALANCE SHEET. The consolidated balance sheet of the
Cooperative and its Subsidiaries as of June 30, 1997, and the related statements
of income and retained earnings and changes in cash flow for the period then
ended certified by Coopers & Lybrand L.L.P., and the unaudited consolidated
balance sheet of the Cooperative and its Subsidiaries as of September 30, 1997,
and the related statement of income for the period then ended, heretofore
delivered to Statesman, are complete and correct and fairly present the
financial condition of the Cooperative and its Subsidiaries and the results of
their operations and transactions in their surplus accounts as of the dates and
for the periods referred to therein and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the period involved. There are no liabilities, direct or indirect,
fixed or contingent of the Cooperative or any of its Subsidiaries as of the
dates of such balance sheets that are not reflected therein or in the notes
thereto. There has been no material adverse change in the financial condition or
operations of the Cooperative since the dates of those balance sheets, and there
has been no other material adverse change in the Cooperative.
SECTION 5.08. LICENSES. The Cooperative has all licenses necessary or
desirable for it to conduct its businesses as presently being conducted and such
businesses are in compliance with all applicable laws in all material respects.
SECTION 5.09. EMPLOYEE BENEFIT PENSION PLANS. No fact, including but
not limited to, any Reportable Event as defined in Section 4043 of ERISA, exists
in connection with any employee benefit pension plan of the Cooperative covered
by said Act, which might constitute grounds for the termination of any such plan
by the PBGC or for the appointment of any trustee to administer any such plan by
the appropriate United States District Court.
<PAGE>
SECTION 5.10. RECEIVABLES FREE OF LIENS. Except as the Cooperative has
expressly disclosed to Statesmen in writing, no Receivable is subject to any
mortgage, pledge, security interest or other lien or encumbrance of any kind.
ARTICLE VI
CONDITIONS
The Cooperative will not offer to sell any Receivables, Installment
Sales Contracts or Wholesale Accounts to Statesman unless:
SECTION 6.01. LEGAL MATTERS. It shall have satisfied any legal concerns
reported to the Cooperative by Statesman or its counsel with respect to the
purchase of any Receivable, Installment Sales Contract or Wholesale Account.
SECTION 6.02. EVIDENCE OF CORPORATE ACTION. Statesman shall have
received certified copies of papers evidencing all corporate action taken by the
Cooperative to authorize this Agreement and the sale of Receivables, Installment
Sales Contracts and Wholesale Accounts, and such other papers as Statesman may
reasonably require.
SECTION 6.03. REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties set forth in Article V hereof shall be true and
correct as of the date of such offer, except to the extent they relate solely to
an earlier date.
SECTION 6.04. ABSENCE OF DEFAULTS. No Event of Default as defined in
Section 10.01 shall have occurred and be continuing and no event shall have
occurred or condition exist which with the giving of notice or lapse of time or
both would constitute such an Event of Default.
SECTION 6.05. CERTIFICATE OF INCUMBENCY. The Cooperative shall have
delivered to Statesman in a form satisfactory to Statesman a list setting forth
the names and signatures of each officer or employee of the Cooperative who is
authorized to sign Receivables Certificates, to transfer Receivables and to
transfer and endorse Installment Sales Contracts, together with the signature of
such person.
SECTION 6.06. FINANCING STATEMENTS. Statesman shall have received
receipted copies of financing statements in appropriate form and showing they
have been filed in the appropriate offices to satisfy the filing requirements of
the applicable Uniform Commercial Code relating to the sale of accounts.
SECTION 6.07. OPINION OF COUNSEL FOR THE COOPERATIVE. Statesman shall
have received a favorable written opinion of counsel for the Cooperative dated
as of the date of the first purchase of Receivables, Installment Sales Contracts
or Wholesale Accounts hereunder, and, if so requested by Statesman, annually
thereafter, as to all matters referred to in Article V, except Sections 5.07,
5.08 and 5.09, that financing statements in the appropriate form have been filed
in the appropriate offices in which to file financing statements for any
Receivables sold by the Cooperative and stating that as of the date of such
opinion the indices to financing statements in such offices do not disclose any
financing statements of record showing the Cooperative or any of its
Subsidiaries as debtor and including a description of any accounts, contract
rights, general intangibles or other rights to the payment of money of such
debtor.
<PAGE>
SECTION 6.08. CREDIT STANDARDS. The Cooperative shall have delivered to
Statesman a written statement of its then current standards for extending credit
to its customers and its collection policy for Receivables, Installment Sales
Contracts and Wholesale Accounts, together with any applicable additions
thereto, deletions therefrom or modifications thereof.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Cooperative covenants and agrees with Statesman that so long as the
Cooperative may offer to sell Receivables, Installment Sales Contracts or
Wholesale Accounts to Statesman hereunder and until payment in full of all
Purchased Receivables, Purchased Contracts and Purchased Wholesale Accounts and
performance of all other obligations of the Cooperative hereunder, the
Cooperative will:
SECTION 7.01. FINANCIAL STATEMENTS. Furnish to Statesman (i) as soon as
available, but in no event more than forty-five (45) days after the end of each
quarterly period in each of its fiscal years, a balance sheet of the Cooperative
as of the close of such quarter and a profit and loss statement to the close of
such quarter, certified by the chief financial officer of the Cooperative and
accompanied by a certificate of that officer stating whether any event has
occurred that constitutes an Event of Default hereunder or that would constitute
such an Event of Default with the giving of notice or the lapse of time, or
both, and, if so, stating the facts with respect thereto; (ii) as soon as
available, but in no event more than ninety (90) days after the close of each of
the Cooperative's fiscal years, a copy of the annual audit report of the
Cooperative in reasonable detail, substantially similar to the financial
statements referred to in Section 5.07 above, prepared in accordance with
generally accepted accounting principles applied on a basis consistent with that
of the preceding year and certified by Coopers & Lybrand L.L.P. or other
independent certified public accountants of recognized national standing, which
report shall include a balance sheet of the Cooperative as of the end of such
fiscal year, a statement of income and retained earnings for such fiscal year
and changes in cash flow for such fiscal year, accompanied by a certificate of
said accountants stating whether any event existed as of the end of such fiscal
year that constituted an Event of Default hereunder or that would constitute
such an Event of Default with the giving of notice or the lapse of time, or
both, and, if so, stating the facts with respect thereto; (iii) promptly upon
their becoming available, copies of all financial statements, reports, notices,
and proxy statements sent by the Cooperative to patrons or stockholders and of
all regular, periodic and special reports or any registration statement filed by
the Cooperative or any of its Subsidiaries with any securities exchange or with
the Securities and Exchange Commission or any governmental authority succeeding
to any or all of the functions of the Securities and Exchange Commission; and
(iv) such additional information, reports, or statements, including interim
financial statements, as Statesman may from time to time reasonably request. The
Cooperative will also upon request permit Statesman and its agents to inspect
its books and records.
<PAGE>
SECTION 7.02. TAXES. Pay and discharge all taxes, assessments, and
governmental charges upon it, its income, and its properties prior to the date
on which penalties are attached thereto, unless and to the extent only that such
taxes, assessments, and governmental charges shall be contested by it in good
faith and by appropriate proceedings, and the Cooperative shall have set aside
on its books adequate reserves with respect to any such tax, assessment or
charge so contested.
SECTION 7.03. BUSINESS PLAN. Furnish to Statesman as soon as available,
but in any event within 120 days after the Cooperative's new fiscal year, a copy
of the Cooperative's new fiscal year business plan which will contain, but not
be limited to, projected balance sheets, profit and loss statements, changes in
cash flow each prepared in accordance with generally accepted accounting
principles consistently applied, estimated usage of indebtedness, and
assumptions utilized in preparing the business plan.
SECTION 7.04. PAYMENT OF OBLIGATIONS. Pay and discharge at or before
their maturity all its indebtedness and other obligations and liabilities,
except when the same may be contested in good faith and by appropriate
proceedings, and the Cooperative shall have set aside on its books adequate
reserves with respect to any such obligation or liability.
SECTION 7.05. INSURANCE. Maintain adequate insurance with responsible
companies satisfactory to Statesman in such amounts and against such risks as is
customarily carried by owners of similar businesses and property.
SECTION 7.06. CORPORATE EXISTENCE, LICENSES, PERMITS, ETC. Maintain its
corporate existence in good standing and maintain all permits and licenses
necessary or desirable for the conduct of its business.
SECTION 7.07. PROPERTIES. Maintain, preserve, and protect all
franchises and trade names and preserve all the remainder of its property used
or useful in the conduct of its business and keep the same in good repair,
working order, and condition, and from time to time make or cause to be made all
necessary and proper repairs, renewals, replacements, betterments, and
improvements thereto so that the business carried on in connection therewith may
be properly and advantageously conducted at all times, and permit Statesman and
its agents to enter upon and inspect such properties.
SECTION 7.08. EMPLOYEE BENEFIT PENSION PLANS. Promptly during each
year, pay contributions that in the judgment of the chief executive and chief
financial officers of the Cooperative after reasonable inquiry are believed
adequate to meet at least the minimum funding standards set forth in Sections
302 through 305 of ERISA, with respect to each employee benefit plan of the
Cooperative, if any, covered by that Act; file each annual report required to be
filed pursuant to Section 103 of ERISA in connection with each such plan for
each year; and notify Statesman within ten (10) days of the occurrence of a
Reportable Event (as defined in Section 4043 of ERISA) that might constitute
grounds for termination of any such plan by PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer any such
plan, provided that nothing contained herein shall prohibit the Cooperative from
terminating any such plan if it has theretofore complied with the provisions of
this Section.
<PAGE>
SECTION 7.09. COMPLIANCE WITH LAWS. The Cooperative shall not knowingly
be in violation of any laws, ordinances, governmental rules and regulations
(collectively "Laws") to which it is subject and will not knowingly fail to
obtain any licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its property or to the conduct of its business,
which violation or failure to obtain might materially adversely affect the
business, profit, operations, or condition (financial or otherwise) of the
Cooperative, provided, however, that the Cooperative shall be deemed to have
complied with this provision so long as it is contesting in good faith and by
the appropriate proceedings the violation of any such law and has set aside on
its books adequate reserves in respect thereof, if so required, in accordance
with generally accepted accounting principles. Without limiting the foregoing,
the Cooperative agrees to comply, and to cause all persons occupying, leasing or
renting any properties of the Cooperative to comply with all laws relating to
environmental protection.
SECTION 7.10. RECORD RETENTION. Retain records of compliance with all
applicable consumer protection laws and the log of any complaints for the longer
of twenty-five (25) months or any time period required by applicable law.
SECTION 7.11. BOOKS AND RECORDS. Maintain complete and accurate books
and records with respect to all transactions with all account obligors of
Purchased Receivables and Purchased Wholesale Accounts and all parties obligated
on Purchased Contracts, including without limitation records of all sales,
deliveries, charges, payments, discounts, allowances and other credits, make
such records available for inspection by Statesman and its agents at all
reasonable times and upon request of Statesman deliver the same to Statesman at
its Headquarters.
SECTION 7.12. COOPERATION. The Cooperative will cooperate with
Statesman in all reasonable respects in collecting any Receivables, Installment
Sales Contracts or Wholesale Accounts which Statesman has acquired from the
Cooperative, but nothing contained herein shall obligate the Cooperative to
incur any out of pocket expenses.
ARTICLE VIII
NEGATIVE COVENANTS
The Cooperative covenants and agrees with Statesman that so long as the
Cooperative may offer to sell Receivables, Installment Sales Contracts or
Wholesale Accounts to Statesman hereunder and until payment in full of all
Purchased Receivables, Purchased Contracts and Purchased Wholesale Accounts and
performance of all other obligations of the Cooperative hereunder, without the
written consent of Statesman, the Cooperative will not:
<PAGE>
SECTION 8.01. MORTGAGES AND PLEDGES. Create, incur, assume, or suffer
to exist any mortgage, pledge, lien, or other encumbrance of any kind upon, or
any security interest in, any of its property or assets, whether now owned or
hereafter acquired, except (i) liens for taxes not yet delinquent or being
contested in good faith and by appropriate proceedings; (ii) liens in connection
with workers' compensation, unemployment insurance, or other social security
obligations; (iii) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
or appeal bonds, and other obligations of like nature arising in the ordinary
course of business; (iv) mechanic's, workman's, materialman's, landlord's,
carrier's, or other like liens arising in the ordinary course of business with
respect to obligations that are not due or that are being contested in good
faith; (v) those mortgages, pledges, liens, and encumbrances reflected in the
financial statements referred to in Section 5.07 above; (vi) mortgages, pledges,
liens, and encumbrances in favor of Statesman; (vii) zoning restrictions,
easements, licenses, restrictions on the use of real property or minor
irregularities in the title thereto, which do not, in the opinion of the
Cooperative, materially impair the use of such property in the operation of the
business of the Cooperative or the value of such property for the purposes of
such business; and (viii) any mortgage, encumbrance or other lien upon, or
security interest in, any property hereafter acquired by the Cooperative created
contemporaneously with such acquisition to secure or provide for the payment or
financing of any part of the purchase price thereof, or the assumption of any
mortgage, encumbrance or lien upon, or security interest in, any such property
hereafter acquired existing at the time of such acquisition, or the acquisition
of any such property subject to any mortgage, encumbrance or other lien or
security interest without the assumption thereof, provided that each such
mortgage, encumbrance, lien or security interest shall attach only to the
property so acquired and fixed improvements thereon. Nothing contained in this
Section 8.01 shall prohibit the Cooperative from entering into any lease
required to be capitalized by generally accepted accounting principles in
accordance with the Financial Accounting Standards Board Statement No. 13
(Accounting for Leases) in effect on the date of this Agreement, provided such
lease is not otherwise prohibited by the terms of this Agreement.
SECTION 8.02. MERGER, ACQUISITION OR SALE OF ASSETS. (1) Enter into any
merger or consolidation with, or acquire all or substantially all of the assets
of, any person, firm, joint venture, or corporation, unless the Cooperative is
the surviving corporation and upon the consummation of its merger the net worth
of the surviving corporation is not less than the net worth of the Cooperative
prior to the merger and there shall exist no Event of Default as defined in
Section 10.01, provided, however, that in the case of any merger of a Local
Cooperative, as defined in Article I Section 1.01, the Cooperative's Chief
Financial Officer shall certify to Statesman Financial Corporation that the
Cooperative has Net Worth in an amount not less than 95% of the Net Worth of the
Cooperative immediately prior to such merger and no event shall have occurred or
condition exist which with the giving of notice or lapse of time, or both, would
constitute such an Event of Default, or (2) sell, lease, or otherwise dispose of
all or substantially all of its assets except in the ordinary course of its
business.
SECTION 8.03. CHANGES IN NAME; LOCATION. Without giving Statesman at
least sixty (60) days prior written notice, change its name, its principal place
of business or the place in which it may keep its records relating to
Receivables, Installment Sales Contracts and Wholesale Accounts.
<PAGE>
SECTION 8.04. AMENDMENT OF PAYMENT TERMS. Amend or modify any Purchased
Receivable, Purchased Contract or Purchased Wholesale Account or consent to the
extension of the time of any payment or release of any collateral securing the
obligation of the obligor or otherwise waive any term or condition of such
Purchased Receivable, Purchased Contract or Purchased Wholesale Account except
to the extent the Cooperative may deem appropriate to facilitate the ultimate
collection of such obligation.
SECTION 8.05. CREDIT STANDARDS; COLLECTION POLICY. Amend in any
material respect its standards for extending credit to its customers or its
collection policy for Receivables, Installment Sales Contracts and Wholesale
Accounts; or make any other amendment or modification to such standards or
policy without having given Statesman not less than ten (10) days prior written
notice thereof.
ARTICLE IX
CONTRIBUTED CAPITAL PLAN
SECTION 9.01. DEFINITIONS. As used in this Article the following terms
shall have the following definitions:
"Contributed Capital Rate" means the ratio of debt to tangible net
worth which institutional lenders extending credit to Statesman require it to
maintain from time to time, whether such ratio is stated as an affirmative or
negative covenant, and in the event Statesman is required to maintain different
ratios on different dates, "Contributed Capital Rate" means the ratio which is
in effect on the applicable TAPOS Determination Date.
"Determination Period" or "Determination Periods" means the calendar
month, the six calendar month period and the twelve calendar month period
immediately preceding the TAPOS Determination Date.
"Minimum Class A Investment" means the number of shares of Statesman
Class A Preferred Stock determined by Statesman as follows:
MI = (HT/(PV x R)) - RE
where
MI = Minimum Class A Investment (stated at the par value).
HT = the highest TAPOS computed for the Cooperative during
any of the three Determination Periods.
PV = the par value of one share of the Statesman Class A
Preferred Stock.
R = the Contributed Capital Rate, expressed as a decimal.
<PAGE>
RE = As of the TAPOS Determination Date (x) the product
of (i) the percentage of the total outstanding common
stock of Statesman held by the Cooperative and (ii)
the sum of Statesman's Retained Earnings and Paid In
Capital divided by (y) the par value of Class A
Preferred Stock.
If the Minimum Class A Investment computed using this formula is a
fraction, it will be rounded upward to the next whole number of shares.
"TAPOS" means calculated total program outstanding as determined by
Statesman for each of the three Determination Periods according to the following
formula:
TAPOS = RPP + NR + ISF + WA + ABL + CCR + L + NBC - TD - SAP
where
RPP = average Purchased Receivables previously purchased
and outstanding during such Determination Period.
NR = Eligible Receivables tendered for purchase
subsequent to the end of the previous Determination
Period.
ISF = average net Purchased Contracts outstanding during
such Determination Period.
WA = average net Purchased Wholesale Accounts
outstanding during such Determination Period.
ABL = average Asset Based Financing loans outstanding to
one or more Dealerships of the Cooperative during
such Determination Period.
CCR = average amount outstanding on accounts of customers
of the Cooperative, Local Cooperatives and
Dealerships under the Southern States Credit Card
Program during such Determination Period.
L = average Leases outstanding to the Cooperative,
Local Cooperatives, Dealerships and customers of
either during such Determination Period.
NBC = average investment (stated at par value) which
Statesman was required to maintain in CoBANK ACB
(formerly the National Bank for Cooperatives) during
such Determination Period in support of Cooperative
related borrowings.
TD = average term debt which is excluded in the
determination of the Contributed Capital Rate during
such Determination Period.
SAP = average outstanding Class A Preferred Stock of
Statesman held by the Cooperative during such
Determination Period (stated at the par value).
<PAGE>
In the computation for a Determination Period of one month, the amounts
of RPP, ISF, WA, ABL, CCR, L, NBC, TD and SAP as of the last Business Day of
such calendar month shall be used as the average for such month. In computations
for other Determination Periods, the average for each such amount shall be
computed using the outstanding amounts as of the last Business Day of each month
in such Determination Period.
"TAPOS Determination Date" means the date during each calendar month on
which the month-end calculation is made to determine the amount due.
SECTION 9.02. PURCHASE OF STOCK. Upon the delivery to Statesman of the
first Receivables Certificate hereunder the Cooperative will purchase Statesman
Class A Preferred Stock with such par value as will cause it to have a Minimum
Class A Investment in Statesman Class A Preferred Stock and on each TAPOS
Determination Date thereafter it will acquire such additional Statesman Class A
Preferred Stock if any as may be necessary for it to maintain a Minimum Class A
Investment.
SECTION 9.03. REDEMPTION OF CLASS A PREFERRED STOCK. Statesman
covenants and agrees that if on any TAPOS Determination Date the amount of
Statesman Class A Preferred Stock held by the Cooperative exceeds the Minimum
Class A Investment computed as of such date, it will, subject to the provisions
of Section 9.04, upon written demand by the Cooperative redeem for cash at its
par value those shares held by the Cooperative which are in excess of the
Minimum Class A Investment determined as of such date. The Cooperative covenants
and agrees that notwithstanding the provisions contained in paragraph (v) of
subsection 5(b) of Article II of the Articles of Incorporation of Statesman the
Cooperative shall not have any right to redeem shares held by it except as
provided herein.
SECTION 9.04. CUMULATIVE OBLIGATIONS. The obligation of the Cooperative
hereunder to purchase Statesman Class A Preferred Stock shall be in addition to
any other undertaking the Cooperative may have entered into or may hereafter
enter into to purchase such stock as a result of Asset Based Financing or
Installment Sales Financing provided by Statesman to any Local Cooperative,
Independent Cooperative or Dealership of the Cooperative or any lease financing
by Statesman for the Cooperative, and the obligations of the Cooperative to
purchase Statesman Class A Preferred Stock under, or as a condition to, each
such financing arrangement shall be cumulative.
ARTICLE X
EVENTS OF DEFAULT
SECTION 10.01. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Default shall be made in the payment of any amount payable
hereunder, when and as the same becomes due and payable, whether at the stated
maturity thereof or by acceleration or otherwise; or
<PAGE>
(b) Default shall be made in the due observance or performance
of any other term, covenant, or agreement contained in this Agreement; or
(c) Any representation or warranty made by the Cooperative
herein, or in any Receivables Certificate or any statement or representation
made in any other certificate, report, or opinion delivered pursuant hereto
shall prove to have been incorrect in any material respect when made; or
(d) The Cooperative or any Subsidiary of the Cooperative shall
become insolvent or unable to meet its obligations as they mature, make an
assignment for the benefit of creditors, consent to the appointment of a trustee
or a receiver, or admit in writing its inability to pay its debts as they
mature; or
(e) A trustee or receiver shall be appointed for the
Cooperative or any Subsidiary of the Cooperative or for a substantial part of
its properties without the consent of the Cooperative or such Subsidiary and not
be discharged within thirty (30) days; or
(f) Bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings shall be instituted by or against the Cooperative or any
Subsidiary of the Cooperative, and, if instituted against it, be consented to by
the Cooperative or such Subsidiary or remain undismissed for a period of thirty
(30) days; or
(g) Any default shall be made with respect to any obligation
for the payment of borrowed money of the Cooperative or any Subsidiary of the
Cooperative when due or the performance of any other obligation incurred in
connection with any indebtedness for borrowed money of the Cooperative or any
Subsidiary of the Cooperative, if the effect of such default is to accelerate
the maturity of such indebtedness; or
(h) Any final judgment for the payment of money in excess of
ONE HUNDRED THOUSAND DOLLARS ($100,000.00) which in the opinion of Statesman is
not adequately insured or indemnified against shall be rendered against the
Cooperative or any Subsidiary of the Cooperative and the same shall remain
undischarged for a period of thirty (30) days during which time execution shall
not be effectively stayed; or
(i) Any substantial part of the properties of the Cooperative
or any Subsidiary of the Cooperative shall be sequestered or attached and shall
not have been returned to the possession of the Cooperative or such Subsidiary
or released from such attachment within thirty (30) days; or
(j) The occurrence of a Reportable Event as defined in Section
4043 of ERISA which might constitute grounds for termination of any employee
benefit plan of the Cooperative or any Subsidiary of the Cooperative covered by
ERISA by PBGC or grounds for the appointment by the appropriate United States
District Court of a trustee to administer any such plan; or
(k) Complete or partial withdrawal under Section 4201 or 4204
of ERISA from a Multiemployer Plan by any other party which is or may be
required under the provisions of ERISA to make a contribution to such Plan,
except as a result of the merger of such party with the Cooperative.
<PAGE>
Upon the occurrence and continuation of any Event of Default, Statesman
may, by notice to the Cooperative take any or all of the following actions: (i)
terminate any obligation it may have to review any Receivables, Installment
Sales Contract or Wholesale Account tendered to it, (ii) terminate any
obligation it may otherwise have to purchase any Eligible Receivable, any
Approved Contract, any Eligible Contract or any Wholesale Account, (iii)
terminate any obligation it may have to repay to the Cooperative any part of the
Reserve Account so long as any Purchased Receivable shall remain unpaid, and
(iv) terminate any obligation it may have to repay to the Cooperative any part
of the Wholesale Reserve Account so long as any Purchased Wholesale Account
shall remain unpaid.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. INDEMNIFICATION.
(a) The Cooperative shall indemnify Statesman, its officers,
directors, agents and employees and hold them and each of them harmless from and
against all loss, cost, damage, and expense, including reasonable attorney fees,
at any time incurred:
(1) because of any liability of the Cooperative,
Manufacturer, or any other Person (other than Statesman) related to any
merchandise which is the subject of any sale or to any service performed or
goods furnished by the Cooperative, Manufacturer, or any other Person or entity
in connection with any sale out of which any Purchased Receivable, Purchased
Contract or Purchased Wholesale Account arose, including, but not limited to,
services performed under any warranty or other agreement obligating the
Cooperative, Manufacturer, or other Person or entity to perform such services or
furnish goods; or
(2) because of any liability of the Cooperative for
any action at any time taken or omitted to be taken by the Cooperative.
(b) The Cooperative covenants and agrees to indemnify
Statesman, its officers, directors, employees, and agents and hold them and each
of them harmless from and against all loss, cost, damage, and expense, including
reasonable attorneys' fees, at any time incurred by them or any of them because
of any violation of state or Federal law or regulation by the Cooperative or
other illegal or actionable conduct resulting from acts or omissions by the
Cooperative or its agents in connection with the sale of merchandise, providing
of services or extension of credit.
<PAGE>
SECTION 11.02. NOTICES.
(a) By Statesman. In consideration of the Agreement of the
Cooperative to make a capital investment in Statesman based upon the amount of
asset based loans made by Statesman to customers of the Cooperative, Statesman
covenants and agrees to use its best efforts to notify the Cooperative promptly
in the event it terminates its agreement to extend asset based financing to any
Dealership of the Cooperative (as defined in the Agreement), if it gives any
notice to any such Dealership of any event of default under the terms of any
financing agreement between such Dealership and Statesman, if any such
Dealership defaults in the payment of any obligation for principal or interest
owing to Statesman and such default continues for a period of ten (10) days or
more, or if any officer of Statesman has knowledge that any condition exists or
event has occurred with respect to such Dealership which constitutes grounds for
the termination by Statesman of its financing arrangements with such Dealership
or which would constitute such grounds with the giving of notice or lapse of
time or both.
(b) By Cooperative. In consideration of the agreement by
Statesman to provide the Cooperative with such notices, the Cooperative
covenants and agrees it will promptly notify Statesman upon the occurrence of
any of the following events: the Cooperative puts any such Dealership on C.O.D.
or otherwise limits sales to such Dealership, or terminates any existing
agreement between the Cooperative and any such Dealership; any such Dealership
makes any material misrepresentation to the Cooperative; there is a material
change in the management or ownership of such Dealership; any material adverse
change occurs in the financial condition or operations of such Dealership; or if
to the knowledge of any executive officer of the Cooperative an event of default
has occurred under any agreement between any such Dealership and the Cooperative
or any condition exists or event has occurred which with the giving of notice or
lapse of time or both would constitute such an Event of Default.
SECTION 11.03. FAILURE TO RECORD SECURITY INSTRUMENT. No failure
(intentional or inadvertent) by Statesman to file any financing statement
relating to a security instrument (whether conditional sales contract, chattel
mortgage, or security agreement) contained in or arising out of any Eligible
Contract or any Receivable shall impair or void the obligations of the
Cooperative hereunder.
SECTION 11.04. TERMINATION. This Agreement may be terminated by either
party hereto by giving the other party ninety days (90) prior written notice of
such termination prior to any anniversary date of this Agreement. No such
termination shall affect any rights of the parties accruing up to the date of
final payment of all Purchased Contracts, Purchased Receivables, Purchased
Wholesale Accounts and Southern States Credit Card Program outstandings
previously purchased or relieve the Cooperative from ownership requirements for
Statesman Class A Preferred Stock as required in Section 9.02.
SECTION 11.05. SUCCESSORS. The covenants, representations, and
agreements herein set forth shall be binding upon the parties hereto and their
successors and assigns.
SECTION 11.06. AMENDMENTS, ETC. No amendment, modification,
termination, or waiver of any provision of this Agreement shall in any event be
effective unless the same shall be in writing and signed by Statesman, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
SECTION 11.07. NOTICES, ETC. All notices and other communications
provided for under this Agreement shall be in writing and mailed, faxed,
telegraphed or delivered, if to the Cooperative at its address at:
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED
6606 WEST BROAD STREET (ZIP 23230)
POST OFFICE BOX 26234
RICHMOND, VIRGINIA 23260
ATTENTION: MR. J. A. HAWKINS
and if to Statesman, at its address at
STATESMAN FINANCIAL CORPORATION
6606 WEST BROAD STREET (ZIP 23230)
POST OFFICE BOX 25567
RICHMOND, VIRGINIA 23260
ATTENTION: MR. JOHN C. FROMAN
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 11.07. All such notices and communications shall, when mailed,
be effective when deposited addressed as aforesaid.
SECTION 11.08. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 11.09. HEADINGS. Article and Section headings in this Agreement
are included in such Agreement for the convenience of reference only and shall
not constitute a part of the Agreement for any other purpose.
SECTION 11.10. GOVERNING LAW. This Agreement has been entered into, and
shall be governed in all respects by, the laws of the Commonwealth of Virginia.
SECTION 11.11. SURVIVAL. All warranties, representations and covenants
made by the Cooperative herein, or in any agreement referred to herein or on any
certificate, document or other instrument delivered by it or on its behalf under
this Agreement, shall be considered to have been relied upon by Statesman and
shall survive the delivery to Statesman of the Receivables, Purchased Contracts
and Purchased Wholesale Accounts purchased pursuant hereto regardless of any
investigation made by Statesman or on its behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Cooperative hereunder. Except as otherwise expressly provided herein, all
covenants made by the Cooperative hereunder or under any other agreement or
instrument shall be deemed continuing until the Purchased Contracts, Purchased
Receivables and Purchased Wholesale Accounts and all other liabilities and
obligations of the Cooperative to Statesman are satisfied in full.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
ATTEST: By: ___________________________
__________________
Title: ________________________
STATESMAN FINANCIAL CORPORATION
ATTEST: By: ___________________________
___________________
Title: ________________________
EXHIBIT 10.5
FINANCING SERVICES AND CONTRIBUTED CAPITAL AGREEMENT
FINANCING SERVICES AND CONTRIBUTED CAPITAL AGREEMENT ("Agreement")
dated as of the 1st day of April, 1998, between SOUTHERN STATES COOPERATIVE,
INCORPORATED (the "Cooperative"), a Virginia corporation, and MICHIGAN LIVESTOCK
CREDIT CORPORATION ("MLCC"), a Virginia corporation.
The Cooperative desires to have MLCC extend from time to time
agricultural production loans, building loans, equipment loans, renovation
loans, revolving credit loans, and other loans to and financing for customers of
the Cooperative and other persons pursuant to separate agreements to be entered
into between each such customer and MLCC and to lease dairy cattle and other
livestock from time to time to customers of the Cooperative and other persons,
and to contract with third parties to feed cattle and other livestock. MLCC
desires to have the Cooperative provide it with equity capital, and each of the
parties desires to have its business operations complement the business
operations of the other party. Therefore, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
"Agreement" means this Financing Services and Contributed Capital
Agreement, as it may be amended, supplemented, or modified from time to time.
"Agricultural Production Loan" means to loan for a term of not more
than one year, the proceeds of which are used to raise crops or livestock.
"Building Loan" means a loan secured by a mortgage lien on hog barns
and other amenities or other buildings with the principal amortized over a
period of 7 to 10 years.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Richmond, Virginia, are authorized or required to
close under applicable law.
"Collateral" means any property which is subject to a security interest
or other lien securing the obligations of the obligor to MLCC.
"Customer of the Cooperative" means a member of the Cooperative or
other person who purchases goods or services from the Cooperative.
"Default" means any of the events specified in Article XIV, whether or
not any requirement for the giving of notice or the lapse of time, or both, has
been satisfied.
<PAGE>
"Equipment Loan" means a loan secured by a security interest in farming
equipment with its principal amortized over a period of 3 to 5 years.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
"ERISA Reportable Event" means any of the events specified in Section
14.01 (j) or (k), provided that any requirement for the giving of notice, the
lapse of time, or both, has been satisfied.
"Event of Default" means any of the events specified in Section 14.01,
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"Headquarters" means the office of MLCC at 6606 West Broad Street, Post
Office Box 25567, Richmond, Virginia 23260.
"Leases" means contracts for the lease of dairy cattle or other
livestock for a fixed period of time by MLCC to a Customer of the Cooperative or
other Person.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), charge or encumbrance of any kind or nature whatsoever (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 Uniform
Commercial Code of Virginia or comparable law of any jurisdiction to evidence
any of the foregoing).
"Livestock Feeding Agreement" means an agreement pursuant to which MLCC
contracts with third Persons to take possession of and feed livestock in order
that such livestock may be sold at a profit.
"Loan" means an Agricultural Production Loan, a Building Loan, an
Equipment Loan, a Renovation Loan, a Revolving Credit Loan, or any substantially
similar extension of credit now or hereafter made by MLCC to a Customer of the
Cooperative or other Person.
"Local Cooperative" means any corporation which is managed by the
Cooperative under a management agreement or contract.
"Manufacturer" means the original equipment manufacturer of goods
offered for sale by the Cooperative.
"Multi-employer Plan" means a Plan described in Section 4001(a)(3) of
ERISA which covers employees of the Cooperative or to which the Cooperative is
or may be required to make contributions under ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
<PAGE>
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
"Plan" means any employee welfare plan established or maintained by the
Cooperative or to which the Cooperative has made contributions in the past or
may in the future be required to make contributions under ERISA.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from
time to time.
"Renovation Loan" means a loan with the principal amortized over a
period of 5 to 7 years, the proceeds of which are used to renovate farm
equipment or farm buildings and other structures.
"Revolving Credit Loan" means a loan which permits the borrower to
obtain advances from time to time, make payments from time to time, and borrow
again from time to time.
"Subsidiary" means any corporation the majority of the voting shares of
which at the time are owned directly or indirectly by the Cooperative and/or by
one or more Subsidiaries of the Cooperative.
"Termination Date" means that date on which certain obligations of the
parties hereunder may be terminated as provided in Section 15.03.
ARTICLE II
AGRICULTURAL PRODUCTION LOANS
SECTION 2.01. GENERAL. MLCC may from time to time extend Agricultural
Production Loans to customers of the Cooperative and other Persons. Such
financing shall be extended pursuant to separate agreements to be entered into
between each such Person and MLCC.
SECTION 2.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate MLCC to extend any Agricultural Production Loan to any person. All
decisions with respect to Agricultural Production Loans shall be made by MLCC in
its sole discretion, subject to such agreements as MLCC may enter into from time
to time with its Agricultural Production Loan borrowers.
<PAGE>
ARTICLE III
BUILDING LOANS
SECTION 3.01. GENERAL. MLCC may from time to time extend Building Loans
to Customers of the Cooperative and other Persons. Such loans shall be extended
pursuant to separate agreements to be entered into between each such Person and
MLCC.
SECTION 3.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate MLCC to extend any Building Loan to any person. All decisions with
respect to Building Loans shall be made by MLCC in its sole discretion, subject
to such agreements as MLCC may enter into from time to time with its Building
Loan borrowers.
ARTICLE IV
EQUIPMENT LOANS
SECTION 4.01. GENERAL. MLCC may from time to time extend Equipment
Loans to Customers of the Cooperative and other Persons. Such financing shall be
extended pursuant to separate agreements to be entered into between each such
Person and MLCC.
SECTION 4.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate MLCC to extend any Equipment Loan to any Person. All decisions with
respect to Equipment Loans shall be made by MLCC in its sole discretion, subject
to such agreements as MLCC may enter into from time to time with its Equipment
Loan borrowers.
ARTICLE V
REVOLVING CREDIT LOANS
SECTION 5.01. GENERAL. MLCC may from time to time extend Revolving
Credit Loans to Customers of the Cooperative and other Persons. Such financing
shall be extended pursuant to separate agreements to be entered into between
each such Person and MLCC.
SECTION 5.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate MLCC to extend any Revolving Credit Loan to any Person. all decisions
with respect to Revolving Credit Loans shall be made by MLCC in its sole
discretion, subject to such agreements as MLCC may enter into from time to time
with its Revolving Credit Loan borrowers.
<PAGE>
ARTICLE VI
RENOVATION LOANS
SECTION 6.01. GENERAL. MLCC may from time to time extend Renovation
Loans to Customers of the Cooperative and other Persons. Such financing shall be
extended pursuant to separate agreements to be entered into between each such
Person and MLCC.
SECTION 6.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate MLCC to extend any Renovation Loan to any Person. All decisions with
respect to Renovation Loans shall be made by MLCC in its sole discretion,
subject to such agreements as MLCC may enter into from time to time with its
Renovation Loan borrowers.
ARTICLE VII
LEASING OF DAIRY CATTLE AND OTHER LIVESTOCK
SECTION 7.01. GENERAL. MLCC may from time to time lease dairy cattle or
other livestock to Customers of the Cooperative and other Persons. Such leases
shall be made pursuant to separate lease agreements to be entered into between
each such Person and MLCC.
SECTION 7.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate MLCC to lease dairy cattle or other livestock to any Person. All
decisions with respect to such leases shall be made by MLCC in its sole
discretion, subject to such agreements as MLCC may from time to time enter into
with the lessees of such dairy cattle or other livestock.
ARTICLE VIII
LIVESTOCK FEEDING PROGRAM
SECTION 8.01. GENERAL. MLCC may from time to time enter into Livestock
Feeding Agreements with Customers of the Cooperative and other Persons. Such
transactions shall be governed by separate agreements to be entered into between
each such Person and MLCC.
SECTION 8.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate MLCC to enter into any livestock feeding program with any Person. All
decisions with respect to such livestock feeding programs shall be made by MLCC
in its sole discretion, subject to such agreements as MLCC may enter into from
time to time with respect to such livestock feeding programs.
<PAGE>
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
To induce MLCC to make Loans and extend other credit accommodations to
its Customers and to lease dairy cattle and other livestock to its Customers and
to enter into livestock feeding programs with its Customers, the Cooperative
represents and warrants to MLCC as follows:
SECTION 9.01. SUBSIDIARIES. The Cooperative has the following
Subsidiaries and none others:
<TABLE>
<CAPTION>
Name of Subsidiary Percentage Owned by Cooperative
------------------ -------------------------------
<S> <C>
Mountain State Greenhouses, Inc. 100%
SSC Insurance Agency, Inc. 100%
Southern States Holdings, Inc. 100%
Southern States Underwriters, Inc. 100%
Virginia Seed Service, Inc. 100%
Wetsel, Inc. 100%
</TABLE>
SECTION 9.02. GOOD STANDING. Each of the Cooperative and its
Subsidiaries is a corporation organized and existing in good standing under the
laws of its respective jurisdiction of incorporation and each has the corporate
power to own its property and to carry on its business as now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it therein or in
which the transaction of its business makes such qualification necessary.
SECTION 9.03. CORPORATE AUTHORITY. The Cooperative has full power and
authority to enter into this Agreement, and to incur the obligations provided
for herein, all of which have been duly authorized by all proper and necessary
corporate action. No consent or approval of stockholders or of any public
authority is required as a condition to the validity of this Agreement.
SECTION 9.04. BINDING AGREEMENTS. This Agreement constitutes the valid
and legally binding obligation of the Cooperative enforceable against the
Cooperative in accordance with its terms.
SECTION 9.05. LITIGATION. There are no proceedings pending or, so far
as the officers of the Cooperative know, threatened before any court or
administrative agency that, in the opinion of the officers of the Cooperative,
will materially adversely affect the financial condition or operations of the
Cooperative or any of its Subsidiaries.
SECTION 9.06. NO CONFLICTING AGREEMENTS. There is no charter, bylaw or
preference stock provision of the Cooperative or any of its Subsidiaries and no
provision of any existing mortgage, indenture, contract or agreement binding on
the Cooperative or any of its Subsidiaries or affecting their respective
properties that would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement.
<PAGE>
SECTION 9.07. BALANCE SHEET. The consolidated balance sheet of the
Cooperative and its Subsidiaries as of June 30, 1997, and the related statements
of income and retained earnings and changes in cash flow for the period then
ended certified by Coopers & Lybrand L.L.P., and the unaudited consolidated
balance sheet of the Cooperative and its Subsidiaries as of January 31, 1998,
and the related statement of income for the period then ended, heretofore
delivered to MLCC, are complete and correct and fairly present the financial
condition of the Cooperative and its Subsidiaries and the results of their
operations as of the dates and for the periods referred to therein and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the period involved. There are no liabilities,
direct or indirect, fixed or contingent of the Cooperative or any of its
Subsidiaries as of the dates of such balance sheets that are not reflected
therein or in the notes thereto. There has been no material adverse change in
the financial condition or operations of the Cooperative since the dates of
those balance sheets, and there has been no other material adverse change in the
Cooperative.
SECTION 9.08. LICENSES. The Cooperative has all licenses necessary or
desirable for it to conduct its businesses as presently being conducted and such
businesses are in compliance with all applicable laws in all material respects.
SECTION 9.09. EMPLOYEE BENEFIT PENSION PLANS. No fact, including but
not limited to, any Reportable Event as defined in Section 4043 of ERISA, exists
in connection with any employee benefit pension plan of the Cooperative covered
by said Act, which might constitute grounds for the termination of any such plan
by the PBGC or for the appointment of any trustee to administer any such plan by
the appropriate United States District Court.
ARTICLE X
CONDITIONS
The Cooperative will not request that MLCC make a Loan or otherwise
extend credit to any Person, lease dairy cattle or other livestock to any
Person, or enter into any livestock feeding program with any Person unless:
SECTION 10.01. LEGAL MATTERS. It shall have satisfied any legal
concerns reported to the Cooperative by MLCC or its counsel with respect to
making of any Loans, the leasing of any livestock or the entering into of any
livestock feeding program.
SECTION 10.02. EVIDENCE OF CORPORATE ACTION. MLCC shall have received
certified copies of papers evidencing all corporate action taken by the
Cooperative to authorize this Agreement and such other papers as MLCC may
reasonably require.
SECTION 10.03. REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties set forth in Article IX hereof shall be true and
correct as of the date of such offer, except to the extent they relate solely to
an earlier date.
<PAGE>
SECTION 10.04. ABSENCE OF DEFAULTS. No Event of Default as defined in
Section 14.01 shall have occurred and be continuing and no event shall have
occurred or condition exist which with the giving of notice or lapse of time or
both would constitute such an Event of Default.
ARTICLE XI
AFFIRMATIVE COVENANTS
The Cooperative covenants and agrees with MLCC that so long as the
Cooperative may request that MLCC make a Loan or otherwise extend credit to any
Person, lease dairy cattle or other livestock to any Person, or enter into any
livestock feeding program and until payment in full of all Loans, the payment of
all obligations under Leases and livestock feeding programs and performance of
all other obligations of the Cooperative hereunder, the Cooperative will:
SECTION 11.01. FINANCIAL STATEMENTS. Furnish to MLCC (i) as soon as
available, but in no event more than forty-five (45) days after the end of each
quarterly period in each of its fiscal years, a consolidated balance sheet of
the Cooperative and its Subsidiaries as of the close of such quarter and a
profit and loss statement to the close of such quarter, certified by the chief
financial officer of the Cooperative and accompanied by a certificate of that
officer stating whether any event has occurred that constitutes an Event of
Default hereunder or that would constitute such an Event of Default with the
giving of notice or the lapse of time, or both, and, if so, stating the facts
with respect thereto; (ii) as soon as available, but in no event more than
ninety (90) days after the close of each of the Cooperative's fiscal years, a
copy of the annual audit report of the Cooperative in reasonable detail,
substantially similar to the financial statements referred to in Section 9.07
above, prepared in accordance with generally accepted accounting principles
applied on a basis consistent with that of the preceding year and certified by
Coopers & Lybrand L.L.P. or other independent certified public accountants of
recognized national standing, which report shall include a consolidated balance
sheet of the Cooperative and its Subsidiaries as of the end of such fiscal year,
a statement of income and retained earnings for such fiscal year and changes in
cash flow for such fiscal year, accompanied by a certificate of said accountants
stating whether any event existed as of the end of such fiscal year that
constituted an Event of Default hereunder or that would constitute such an Event
of Default with the giving of notice or the lapse of time, or both, and, if so,
stating the facts with respect thereto; (iii) promptly upon their becoming
available, copies of all financial statements, reports, notices, and proxy
statements sent by the Cooperative to patrons or stockholders and of all
regular, periodic and special reports or any registration statement filed by the
Cooperative or any of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any governmental authority succeeding to
any or all of the functions of the Securities and Exchange Commission; and (iv)
such additional information, reports, or statements, including interim financial
statements, as MLCC may from time to time reasonably request.
SECTION 11.02. TAXES. Pay and discharge all taxes, assessments, and
governmental charges upon it, its income, and its properties prior to the date
on which penalties are attached thereto, unless and to the extent only that such
taxes, assessments, and governmental charges shall be contested by it in good
faith and by appropriate proceedings, and the Cooperative shall have set aside
on its books adequate reserves with respect to any such tax, assessment or
charge so contested.
<PAGE>
SECTION 11.03. BUSINESS PLAN. Furnish to MLCC as soon as available, but
in any event within 120 days after the Cooperative's new fiscal year, a copy of
the Cooperative's new fiscal year business plan which will contain, but not be
limited to, projected balance sheets, profit and loss statements, changes in
cash flow each prepared in accordance with generally accepted accounting
principles consistently applied, estimated usage of indebtedness, and
assumptions utilized in preparing the business plan.
SECTION 11.04. PAYMENT OF OBLIGATIONS. Pay and discharge at or before
their maturity all its indebtedness and other obligations and liabilities,
except when the same may be contested in good faith and by appropriate
proceedings, and the Cooperative shall have set aside on its books adequate
reserves with respect to any such obligation or liability.
SECTION 11.05. INSURANCE. Maintain adequate insurance with responsible
companies satisfactory to MLCC in such amounts and against such risks as is
customarily carried by owners of similar businesses and property.
SECTION 11.06. CORPORATE EXISTENCE, LICENSES, PERMITS, ETC. Maintain
its corporate existence in good standing and maintain all permits and licenses
necessary or desirable for the conduct of its business.
SECTION 11.07. PROPERTIES. Maintain, preserve, and protect all
franchises and trade names and preserve all the remainder of its property used
or useful in the conduct of its business and keep the same in good repair,
working order, and condition, and from time to time make or cause to be made all
necessary and proper repairs, renewals, replacements, betterments, and
improvements thereto so that the business carried on in connection therewith may
be properly and advantageously conducted at all times, and permit MLCC and its
agents to enter upon and inspect such properties.
SECTION 11.08. EMPLOYEE BENEFIT PENSION PLANS. Promptly during each
year, pay contributions that in the judgment of the chief executive and chief
financial officers of the Cooperative after reasonable inquiry are believed
adequate to meet at least the minimum funding standards set forth in Sections
302 through 305 of ERISA, with respect to each employee benefit plan of the
Cooperative, if any, covered by that Act; file each annual report required to be
filed pursuant to Section 103 of ERISA in connection with each such plan for
each year; and notify MLCC within ten (10) days of the occurrence of a
Reportable Event (as defined in Section 4043 of ERISA) that might constitute
grounds for termination of any such plan by PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer any such
plan, provided that nothing contained herein shall prohibit the Cooperative from
terminating any such plan if it has theretofore complied with the provisions of
this Section.
SECTION 11.09. COMPLIANCE WITH LAWS. Not knowingly be in violation of
any laws, ordinances, governmental rules and regulations (collectively "Laws")
to which it is subject and will not knowingly fail to obtain any licenses,
permits, franchises or other governmental authorizations necessary to the
ownership of its property or to the conduct of its business, which violation or
failure to obtain might materially adversely affect the business, profit,
operations, or condition (financial or otherwise) of the Cooperative, provided,
however, that the Cooperative shall be deemed to have complied with this
provision so long as it is contesting in good faith and by the appropriate
proceedings the violation of any such law and has set aside on its books
adequate reserves in respect thereof, if so required, in accordance with
generally accepted accounting principles. Without limiting the foregoing, the
Cooperative agrees to comply, and to cause all persons occupying, leasing or
renting any properties of the Cooperative to comply with all laws relating to
environmental protection.
<PAGE>
ARTICLE XII
NEGATIVE COVENANTS
The Cooperative covenants and agrees with MLCC that so long as the
Cooperative may request that MLCC make a Loan or otherwise extend credit to any
Person, lease dairy cattle or other livestock to any Person, or enter into any
livestock feeding program and until payment in full of all Loans, the payment of
all obligations under Leases and livestock feeding programs and performance of
all other obligations of the Cooperative hereunder, without the written consent
of MLCC, the Cooperative will not:
SECTION 12.01. MORTGAGES AND PLEDGES. Create, incur, assume, or suffer
to exist any mortgage, pledge, lien, or other encumbrance of any kind upon, or
any security interest in, any of its property or assets, whether now owned or
hereafter acquired, except (i) liens for taxes not yet delinquent or being
contested in good faith and by appropriate proceedings; (ii) liens in connection
with workers' compensation, unemployment insurance, or other social security
obligations; (iii) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
or appeal bonds, and other obligations of like nature arising in the ordinary
course of business; (iv) mechanic's, workman's, materialman's, landlord's,
carrier's, or other like liens arising in the ordinary course of business with
respect to obligations that are not due or that are being contested in good
faith; (v) those mortgages, pledges, liens, and encumbrances reflected in the
financial statements referred to in Section 9.07 above; (vi) mortgages, pledges,
liens, and encumbrances in favor of MLCC; (vii) zoning restrictions, easements,
licenses, restrictions on the use of real property or minor irregularities in
the title thereto, which do not, in the opinion of the Cooperative, materially
impair the use of such property in the operation of the business of the
Cooperative or the value of such property for the purposes of such business; and
(viii) any mortgage, encumbrance or other lien upon, or security interest in,
any property hereafter acquired by the Cooperative created contemporaneously
with such acquisition to secure or provide for the payment or financing of any
part of the purchase price thereof, or the assumption of any mortgage,
encumbrance or lien upon, or security interest in, any such property hereafter
acquired existing at the time of such acquisition, or the acquisition of any
such property subject to any mortgage, encumbrance or other lien or security
interest without the assumption thereof, provided that each such mortgage,
encumbrance, lien or security interest shall attach only to the property so
acquired and fixed improvements thereon. Nothing contained in this Section 12.01
shall prohibit the Cooperative from entering into any lease required to be
capitalized by generally accepted accounting principles in accordance with the
Financial Accounting Standards Board Statement No. 13 (Accounting for Leases) in
effect on the date of this Agreement, provided such lease is not otherwise
prohibited by the terms of this Agreement.
<PAGE>
SECTION 12.02. MERGER, ACQUISITION OR SALE OF ASSETS. (1) Enter into
any merger or consolidation with, or acquire all or substantially all of the
assets of, any person, firm, joint venture, or corporation, unless the
Cooperative is the surviving corporation and upon the consummation of its merger
the net worth of the surviving corporation is not less than the net worth of the
Cooperative prior to the merger and there shall exist no Event of Default as
defined in Section 14.01, provided, however, that in the case of any merger of a
Local Cooperative, as defined in Article I - Section 1.01, the Cooperative's
Chief Financial Officer shall certify to MLCC that the Cooperative has Net Worth
in an amount not less than 95% of the Net Worth of the Cooperative immediately
prior to such merger and no event shall have occurred or condition exist which
with the giving of notice or lapse of time, or both, would constitute such an
Event of Default, or (2) sell, lease, or otherwise dispose of all or
substantially all of its assets except in the ordinary course of its business.
ARTICLE XIII
CONTRIBUTED CAPITAL PLAN
SECTION 13.01. DEFINITIONS. As used in this Article the following
terms shall have the following definitions:
"Contributed Capital Rate" means the ratio of debt to tangible net
worth which institutional lenders extending credit to MLCC require it to
maintain from time to time, whether such ratio is stated as an affirmative or
negative covenant, and in the event MLCC is required to maintain different
ratios on different dates, "Contributed Capital Rate" means the ratio which is
in effect on the applicable TAPOS Determination Date.
"Determination Period" or "Determination Periods" means the calendar
month, the six calendar month period and the twelve calendar month period
immediately preceding the TAPOS Determination Date.
"Minimum Class X Investment" means the number of shares of MLCC Class X
Preferred Stock determined by MLCC as follows:
MI = (HT/(PV x R)) - RE
where
MI = Minimum Class X Investment (stated at the par value).
HT = The highest TAPOS during any of the three Determination
Periods.
PV = The par value of one share of the MLCC Class X Preferred
Stock.
R = The Contributed Capital Rate, expressed as a decimal.
<PAGE>
RE = The balance of MLCC's retained earnings as of the
TAPOS Determination Date divided by the par value of
Class X Preferred Stock.
If the Minimum Class X Investment computed using this formula is a
fraction, it will be rounded upward to the next whole number of shares.
"TAPOS" means calculated total program outstanding as determined by
MLCC for each of the three Determination Periods according to the following
formula:
TAPOS = AL + L + LFP + NBC - TD - SAP
where
AL = Average amount of Loans outstanding during such
Determination Period.
L = Average Leases outstanding during such Determination
Period.
LFP = Average cost to MLCC of livestock owned by MLCC
which is subject to a Livestock Feeding Agreement.
NBC = Average investment (stated at par value) which MLCC
was required to maintain in CoBANK ACB during such
Determination Period.
TD = Average term debt which is excluded in the
determination of the Contributed Capital Rate during
such Determination Period.
SAP = Average outstanding Preferred Stock of MLCC of all
classes during such Determination Period (stated at the
par value).
In the computation for a Determination Period of one month, the amounts
of AL, LFP, L, NBC, TD and SAP as of the last Business Day of such calendar
month shall be used as the average for such month. In computations for other
Determination Periods, the average for each such amount shall be computed using
the outstanding amounts as of the last Business Day of each month in such
Determination Period.
"TAPOS Determination Date" means the date during each calendar month on
which the month-end calculation is made to determine the amount due.
SECTION 13.02. PURCHASE OF STOCK. Upon the request of MLCC on or after
the date of this Agreement, the Cooperative will purchase MLCC Class X Preferred
Stock with such par value as will cause it to have a Minimum Class X Investment
in MLCC Class X Preferred Stock and on each TAPOS Determination Date thereafter
it will acquire such additional MLCC Class X Preferred Stock if any as may be
necessary for it to maintain a Minimum Class X Investment.
SECTION 13.03. REDEMPTION OF CLASS X PREFERRED STOCK. MLCC covenants
and agrees that if on any TAPOS Determination Date the amount of MLCC Class X
Preferred Stock held by the Cooperative exceeds the Minimum Class X Investment
computed as of such date, it will, subject to the provisions of Section 13.04,
upon written demand by the Cooperative redeem for cash at its par value those
shares held by the Cooperative which are in excess of the Minimum Class X
Investment determined as of such date.
<PAGE>
SECTION 13.04. CUMULATIVE OBLIGATIONS. The obligation of the
Cooperative hereunder to purchase MLCC Class X Preferred Stock shall be in
addition to any other undertaking the Cooperative may have entered into or may
hereafter enter into to purchase such stock as a result of Loans or Leases or
livestock feeding programs provided by MLCC to any Customer of the Cooperative
or any lease financing by MLCC for the Cooperative, and the obligations of the
Cooperative to purchase MLCC Class X Preferred Stock under, or as a condition
to, each such financing arrangement shall be cumulative.
ARTICLE XIV
EVENTS OF DEFAULT
SECTION 14.01. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Default shall be made in the payment of any amount payable
hereunder, when and as the same becomes due and payable, whether at the stated
maturity thereof or by acceleration or otherwise; or
(b) Default shall be made in the due observance or performance
of any other term, covenant, or agreement contained in this Agreement; or
(c) Any representation or warranty made by the Cooperative
herein or any statement or representation made in any certificate, report, or
opinion delivered pursuant hereto shall prove to have been incorrect in any
material respect when made; or
(d) The Cooperative or any Subsidiary of the Cooperative shall
become insolvent or unable to meet its obligations as they mature, make an
assignment for the benefit of creditors, consent to the appointment of a trustee
or a receiver, or admit in writing its inability to pay its debts as they
mature; or
(e) A trustee or receiver shall be appointed for the
Cooperative or any Subsidiary of the Cooperative or for a substantial part of
its properties without the consent of the Cooperative or such Subsidiary and not
be discharged within thirty (30) days; or
(f) Bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings shall be instituted by or against the Cooperative or any
Subsidiary of the Cooperative, and, if instituted against it, be consented to by
the Cooperative or such Subsidiary or remain undismissed for a period of thirty
(30) days; or
(g) Any default shall be made with respect to any obligation
for the payment of borrowed money of the Cooperative or any Subsidiary of the
Cooperative when due or the performance of any other obligation incurred in
connection with any indebtedness for borrowed money of the Cooperative or any
Subsidiary of the Cooperative, if the effect of such default is to accelerate
the maturity of such indebtedness; or
<PAGE>
(h) Any final judgment for the payment of money in excess of
ONE MILLION DOLLARS ($1,000,000.00) which in the opinion of MLCC is not
adequately insured or indemnified against shall be rendered against the
Cooperative or any Subsidiary of the Cooperative and the same shall remain
undischarged for a period of thirty (30) days during which time execution shall
not be effectively stayed; or
(i) Any substantial part of the properties of the Cooperative
or any Subsidiary of the Cooperative shall be sequestered or attached and shall
not have been returned to the possession of the Cooperative or such Subsidiary
or released from such attachment within thirty (30) days; or
(j) The occurrence of a Reportable Event as defined in Section
4043 of ERISA which might constitute grounds for termination of any employee
benefit plan of the Cooperative or any Subsidiary of the Cooperative covered by
ERISA by PBGC or grounds for the appointment by the appropriate United States
District Court of a trustee to administer any such plan; or
(k) Complete or partial withdrawal under Section 4201 or 4204
of ERISA from a Multi-employer Plan by any other party which is or may be
required under the provisions of ERISA to make a contribution to such Plan,
except as a result of the merger of such party with the Cooperative.
Upon the occurrence and continuation of any Event of Default, MLCC may,
by notice to the Cooperative terminate any obligation it may have to review any
application tendered to it for any Loan or other extension of credit, any Lease
or any livestock feeding program
ARTICLE XV
MISCELLANEOUS
SECTION 15.01. INDEMNIFICATION.
(a) The Cooperative shall indemnify MLCC, its officers,
directors, agents and employees and hold them and each of them harmless from and
against all loss, cost, damage, and expense, including reasonable attorney fees,
at any time incurred:
(1) because of any liability of the Cooperative,
Manufacturer, or any other Person (other than MLCC) related to any merchandise
which is the subject of any sale or to any service performed or goods furnished
by the Cooperative, Manufacturer, or any other Person or entity in connection
with any sale which, in either case, was financed directly or indirectly by
MLCC, including, but not limited to, services performed under any warranty or
other agreement obligating the Cooperative, Manufacturer, or other Person or
entity to perform such services or furnish goods; or
<PAGE>
(2) because of any liability of the Cooperative
for any action at any time taken or omitted to be taken by the Cooperative.
(b) The Cooperative covenants and agrees to indemnify MLCC,
its officers, directors, employees, and agents and hold them and each of them
harmless from and against all loss, cost, damage, and expense, including
reasonable attorneys' fees, at any time incurred by them or any of them because
of any violation of state or Federal law or regulation by the Cooperative or
other illegal or actionable conduct resulting from acts or omissions by the
Cooperative or its agents in connection with the sale of merchandise, providing
of services or extension of credit.
SECTION 15.02. COOPERATION.
(a) General. Each of the parties hereto covenants and agrees
with the other party that it will cooperate generally with the other in
identifying and soliciting good customers, will make appropriate business
referrals to the other and will generally conduct its business in a manner which
may enhance the business of the other.
(b) Sharing of Information. Each party covenants and agrees
that upon request of the other party it will share with such other party
financial and other information it has on its customers and other Persons,
provided that nothing contained herein shall obligate either party to share any
information if so doing would violate any applicable law, any agreement to which
it is a party, or any actual or implied understanding it may have with any
Person about the confidentiality of such information.
(c) Forwarding of Payments. If either party receives any
payment which is, or includes any amount which is, properly payable to the other
party, it will promptly remit to the other party such amount as is payable to
the other party
(d) Review by MLCC. MLCC covenants and agrees that it will
promptly review and respond to any reasonable request for credit, the lease of
livestock or any of its other business service being generally offered by it
which it receives from any Person known by it to be a Customer of the
Cooperative.
SECTION 15.03. TERMINATION. This Agreement may be terminated by either
party hereto by giving the other party ninety days (90) prior written notice of
such termination prior to any anniversary date of this Agreement. No such
termination shall affect any rights of the parties accruing up to the date of
final payment of all Loans to customers of the Cooperative which MLCC has
previously funded, or Leases or livestock feeding programs which MLCC has
previously entered into, or relieve the Cooperative from ownership requirements
for MLCC Class X Preferred Stock as required in Section 13.02.
SECTION 15.04. SUCCESSORS. The covenants, representations, and
agreements herein set forth shall be binding upon the parties hereto and their
successors and assigns.
SECTION 15.05. AMENDMENTS, ETC. No amendment, modification,
termination, or waiver of any provision of this Agreement shall in any event be
effective unless the same shall be in writing and signed by MLCC, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
<PAGE>
SECTION 15.06. NOTICES, ETC. All notices and other communications
provided for under this Agreement shall be in writing and mailed, faxed,
telegraphed or delivered, if to the Cooperative at its address at:
SOUTHERN STATES COOPERATIVE, INCORPORATED
6606 WEST BROAD STREET (ZIP 23230)
POST OFFICE BOX 26234
RICHMOND, VIRGINIA 23260
ATTENTION: MR. J. A. HAWKINS
and if to MLCC, at its address at
MICHIGAN LIVESTOCK CREDIT CORPORATION
6606 WEST BROAD STREET (ZIP 23230)
POST OFFICE BOX 25567
RICHMOND, VIRGINIA 23260
ATTENTION: MR. JOHN C. FROMAN
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 15.06. All such notices and communications shall, when mailed,
be effective when deposited addressed as aforesaid.
SECTION 15.07. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 15.08. HEADINGS. Article and Section headings in this Agreement
are included in such Agreement for the convenience of reference only and shall
not constitute a part of the Agreement for any other purpose.
SECTION 15.09. GOVERNING LAW. This Agreement has been entered into,
and shall be governed in all respects by, the laws of the Commonwealth of
Virginia.
SECTION 15.10. SURVIVAL. All warranties, representations and covenants
made by the Cooperative herein, or in any agreement referred to herein or on any
certificate, document or other instrument delivered by it or on its behalf under
this Agreement, shall be considered to have been relied upon by MLCC and shall
survive the making of Loans by MLCC and the entering into by MLCC of any leases
or livestock feeding programs regardless of any investigation made by MLCC or on
its behalf. All statements in any such certificate or other instrument shall
constitute warranties and representations by the Cooperative hereunder. Except
as otherwise expressly provided herein, all covenants made by the Cooperative
hereunder or under any other agreement or instrument shall be deemed continuing
until payment in full of all Loans, the payment of all obligations under Leases
and livestock feeding programs and performance and satisfaction in full of all
other obligations and liabilities of the Cooperative hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
ATTEST: By:_______________________________
______________________ Title:____________________________
MICHIGAN LIVESTOCK CREDIT CORPORATION
ATTEST: By:______________________________
_____________________ Title:___________________________
EXHIBIT 10.6(a)
SOUTHERN STATES INSURANCE EXCHANGE
of which
SOUTHERN STATES UNDERWRITERS, INCORPORATED
6606 West Broad Street, Richmond, Virginia
is
ATTORNEY-IN-FACT
--------------------
SUBSCRIBER'S AGREEMENT AND POWER OF ATTORNEY
The undersigned (the "Undersigned") and certain other parties who have
executed agreements identical to this Agreement (all of whom with the
Undersigned, when insured through the reciprocal insurer established hereunder,
are hereinafter collectively referred to as the "Subscribers") desire to engage
in interinsurance or in exchanging contracts of insurance on the reciprocal
plan, and to accept, cede, and retrocede reinsurance of any risks permitted by
law, through an attorney-in-fact having authority to obligate the Subscribers
personally on contracts of insurance or reinsurance ("insurance contracts") made
with any of the Subscribers as a policyholder or with other insureds or
reinsureds, it being understood that no such other insured or reinsured will be
deemed to be a Subscriber by virtue of being an insured or reinsured, and it
being further understood that no person or entity ceding reinsurance to or
purchasing or assuming reinsurance from the insurance reciprocal established
hereunder will be deemed to be a Subscriber by virtue of any such transaction.
It is the intent and purpose of this Subscriber's Agreement and Power of
Attorney (this "Agreement") to vest in an attorney-in-fact the power necessary
to enable the Subscribers to achieve this objective.
Accordingly, and in consideration of the execution of agreements
identical to this Agreement by other Subscribers and of the execution of this
Agreement by the Attorney-in-Fact (identified in Article V below), the
Undersigned hereby joins the other Subscribers to constitute the SOUTHERN STATES
INSURANCE EXCHANGE (the "Reciprocal"), a domestic reciprocal insurer organized
and licensed under the laws of Virginia, with this Agreement setting forth the
rights, privileges, and obligations of the Subscribers as underwriters and as
policyholders, and the powers and duties of the Attorney-in-Fact, all of which
is hereby made subject to the requirements of applicable law.
I. CLASSES OF SUBSCRIBERS; VOTING RIGHTS
Each Subscriber shall be deemed to be either a Class I Subscriber or a
Class II Subscriber. Each Subscriber which is a cooperative association, as
determined by the Advisory Committee (described in Article IV below), shall be
deemed to be a Class I Subscriber, and all other Subscribers shall be deemed to
be Class II Subscribers. Class I Subscribers shall have the sole power to vote
in the election of the Advisory Committee, the removal by Subscribers of members
of the Advisory Committee, or any other affairs of the Reciprocal which the
Advisory Committee may put to a vote of the Subscribers, and only Class I
Subscribers will be entitled to notice of, or to attend, any annual or special
meeting of the Subscribers. On all matters on which the Subscribers are entitled
to vote, each Class I Subscriber shall be entitled to one vote per $100 of the
annual net premiums paid by such Subscriber during the calendar year immediately
preceding the date of such vote. Proxy voting is permitted. There will be no
fractional votes.
<PAGE>
II. Subscriber's LIMITED LIABILITY AS AN INTER-INSURER
1. Contingent Assessment Liability. The liability for each Subscriber
subject to assessment for the obligations of the Reciprocal shall not be joint,
but shall be individual and several. Each Subscriber subject to assessment shall
have a contingent assessment liability for payment of actual losses and expenses
incurred while such Subscriber's policy (or policies) is or was in force, but no
Subscriber shall be assessed or charged with an aggregate or contingent
liability on any one policy for obligations incurred by the Reciprocal in any
one calendar year in excess of one times the earned premium on such policy.
2. Assessments. Assessments may be levied from time to time upon the
Subscribers, (i) other than as to nonassessable policies, by the
Attorney-in-Fact upon the prior approval of the Advisory Committee, to the
extent permitted by applicable law, or (ii) as otherwise required by applicable
law. Each Subscriber's share of a deficiency for which an assessment is made,
not exceeding in any event such Subscriber's maximum aggregate contingent
liability as set forth in Section 1 of this Article, shall be computed by
applying to the premiums earned on the Subscriber's policy or policies during
the period to be covered by the assessment, the ratio of the total deficiency to
the total premiums earned during such period upon all policies subject to the
assessment. In computing the earned premiums for the purposes of this section,
the gross premium received by the Reciprocal for a policy shall be used as a
base, deducting therefrom only charges not recurring upon the renewal or
extension of the policy. No Subscriber shall have an offset against any
assessment for which he is liable on account of any claim for unearned premium
or losses payable.
3. Time Limit for Assessment. Unless otherwise provided by applicable
law, every Subscriber having contingent liability shall be liable for and shall
pay his share of any assessment as computed and limited in accordance with this
Article if, while such Subscriber's policy is in force or within one year after
its termination, such Subscriber is notified by the Attorney-in- Fact or the
Virginia State Corporation Commission or the receiver of its intention to levy
such assessment, or if delinquency proceedings are commenced against the
Reciprocal under the provisions of chapter 3 of Title 38.1 of the Virginia Code
while such Subscriber's policy is in force or within one year after its
termination.
4. Non-assessable Policies. When, in the judgment of the Advisory
Committee, sufficient reserves for the payment of losses have been accumulated
to make possible the issuance of non-assessable policies, the Advisory Committee
may direct the Attorney-in-Fact to apply to the regulatory bodies of the states
in which the Reciprocal is duly licensed to transact insurance for the necessary
authorization (i) to reduce or extinguish the contingent liability of the
Subscribers under the Reciprocal's policies then in force in such states and
(ii) to omit provisions imposing contingent liability in all policies delivered
or issued for delivery in such states.
III. MEETINGS OF CLASS I SUBSCRIBERS
1. Annual Meetings. The annual meetings of the Class l Subscribers shall
be held annually, on the day and at the place, hour, and location in the state
of Virginia designated by the Advisory Committee. Only Class I Subscribers shall
be entitled to notice of, and to attend, annual meetings.
2. Special Meetings. Special meetings of the Class I Subscribers may be
called by the Attorney-in-Fact or the Advisory Committee. Only Class I
Subscribers shall be entitled to notice of, and to attend, special meetings.
<PAGE>
3. Quorum. The presence in person or by proxy of a majority of the votes
of Class I Subscribers at any annual or special meeting of the Class I
Subscribers shall constitute a quorum for the transaction of business.
4. Notice of Meetings. Written notice stating the place, day, and hour of
every meeting of the Subscribers (and, in case of a special meeting, the purpose
or purposes for which the meeting is called) shall be given to each Class I
Subscriber not less than ten nor more than fifty days previous thereto, either
personally or by mail, by or at the direction of the Secretary of the Advisory
Committee to each Class I Subscriber. Meetings may be held without notice if all
of the Class I Subscribers are present in person or by proxy or if notice is
waived by those Class I Subscribers not present, either before or after such
meeting. If the notice is mailed, such notice shall be deemed to be given when
deposited in the United States mail addressed to the Class I Subscriber at its
address as it appears on the records of the Reciprocal.
5. Action Without a Meeting. Any action which is required or which may be
taken at a meeting of the Class I Subscribers may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the Class I Subscribers.
IV. ADVISORY COMMITTEE
1. Membership. There shall be an Advisory committee of not less than six
(6) nor more than fifteen (15) persons. Not less than three-fourths of such
Committee shall be composed of Class I Subscribers or representatives of the
Class I Subscribers other than the Attorney-in-Fact or any person employed by,
representing, or having a financial interest in the Attorney-in-Fact. At each
Annual Meeting of the Subscribers, the Class I Subscribers will determine the
size of the Advisory Committee, and the members of the Advisory Committee will
be elected by a majority of the votes of those Class I Subscribers present or
represented by proxy at the Meeting. Each member shall be elected for a term of
one year and shall serve until his successor is elected and qualified, or until
such member resigns or is removed by the Class I Subscribers or by the Advisory
Board, or until such member's membership ceases automatically as provided in
Section 4 of this Article.
2. Quorum. A majority of the members of the Advisory Committee shall
constitute a quorum for the transaction of business.
3. Action Without a Meeting. Any action which may be taken at a meeting
of the Advisory Committee may be taken without a meeting if a consent in
writing, setting forth the action so taken. shall be signed by all of the
members of the Advisory Committee.
4. Vacancies. Any vacancies on the Advisory Committee occurring between
annual meetings of the Subscribers shall be filled for the unexpired portion of
the term by the remaining members of the Advisory Committee, except that
vacancies caused by the removal of members by the Class I Subscribers shall be
filled for the unexpired portion of the term by the Class I Subscribers.
5. No Uninsured Members. In case the Reciprocal shall for any reason
cease to grant insurance to any Subscriber represented on the Advisory
Committee, such Subscriber and any representative of such Subscriber on the
Advisory Committee shall automatically thereupon cease to be a member of the
Advisory Committee.
6. Personal Liability and Indemnification. No members of the Advisory
Committee shall, as such, incur any personal liability for any loss of any kind,
except for such loss arising by reason of his own gross negligence or willful
misconduct. Each person who at any time serves as a member of the Advisory
Committee shall be indemnified by the Reciprocal against any and all liabilities
incurred by him in such capacity or arising out of his status as such a member
to the fullest extent permitted under Virginia law, except there shall be no
indemnity against his gross negligence or willful misconduct.
<PAGE>
7. Powers of the Advisory Committee. In addition to all of the powers
necessary or appropriate to perform its duties hereunder or as required by law,
the Advisory Committee shall have full power and discretion:
(i) To adopt regulations applicable to the Attorney-in-Fact, not
inconsistent herewith, as the Advisory Committee may see fit.
(ii) At any time and with or without cause, by a vote of at least
three-fourths of its members, to suspend the Attorney-in-Fact from
its functions or remove it from the office of Attorney-in-Fact and
terminate its powers.
(iii) To fix the amount of travel expenses to be allowed for attendance
at meetings of the Advisory Committee or of sub-committees
thereof, and to fix reasonable compensation to Advisory Committee
members for time spent on behalf of the Reciprocal.
(iv) To appoint such sub-committees of the Advisory Committee as shall
be necessary or appropriate and delegate to such sub-committees
authority to exercise any or all of its own powers.
(v) To place limitations on the authority of the Attorney-in-Fact to
transact insurance on behalf of the Reciprocal.
(vi) to modify the terms of this Subscribers Agreement jointly with the
Attorney-in-Fact; provided that no such modification shall be
effective retroactively, nor as to any insurance contract issued
prior thereto.
(vii) To call special meetings of the Subscribers.
(viii) To disqualify any Subscriber to act further as such for failure to
pay assessments or for acts detrimental to the interests of the
Reciprocal.
(ix) To remove any member of the Advisory Committee, with or without
cause. by vote of a majority of the Advisory Committee.
8. Duties of the Advisory Committee. The Advisory Committee shall have
the following duties.
(i) To supervise the finances of the Reciprocal and the Reciprocal's
operations to such extent as to assure their conformity with this
Agreement.
(ii) To supervise and direct the management of the business and affairs
of the Reciprocal, subject to any limitations set forth in this
Agreement or in applicable law.
(iii) To fix the times and places of its own meetings.
(iv) To elect a Chairman, Vice-Chairman, and Secretary.
(v) To fix, by mutual agreement with the Attorney-in-Fact, the
management fee of the Attorney-in-Fact for its services in
fulfilling its obligations hereunder, provided such fees shall not
exceed during any one year ten percent (10%) of all revenues
received or due on premiums and investment income during such
year, with no deduction being made from such premiums and
investment income for any costs or expenses of the Reciprocal
(including, by way of example rather than limitation, costs of
reinsurance).
<PAGE>
(vi) To direct the Attorney-in-Fact in the safeguarding of all moneys
and other assets and in the making and changing of investments.
(vii) To determine proper investments for funds of the Reciprocal not
necessary for the day-to-day business of the Reciprocal, and to
contract with investment advisors and consultants for the
management of the Reciprocal's investment portfolio.
(viii) To cause proper notice of each annual meeting of Subscribers (and
of each special meeting of Subscribers called by it or by the
Attorney-in-Fact) to be mailed by the Secretary to every Class I
Subscriber.
(ix) To select qualified auditors to audit the books and accounts of
the Attorney-in-Fact and the Reciprocal whose report shall be
given to the Advisory Committee.
(x) To fill any vacancy which may occur in the office of
attorney-in-fact at any time by selecting and appointing a
successor and executing thereto in the name and on behalf of each
Subscriber a power of attorney, designation, or other instrument
as may be necessary or proper to enable such successor to act as
attorney-in-fact with all the powers and duties herein given to
the Attorney-in-Fact, without any further action on the part of
the Undersigned; and the Advisory Committee will mail to all the
Subscribers timely notice of each and every such change.
(xi) To fill for the unexpired term any vacancy which may occur in the
Advisory Committee.
(xii) To determine annually the amount of, and to direct the
Attorney-in-Fact to establish and maintain, a special surplus
reserve hereinafter referred to as the "Reserve for
Contingencies".
(xiii) To contract, subcontract, or otherwise enter into contracts or
agreements, for the purpose of securing and obtaining such
services, consultation, and advice, as it may deem necessary or
desirable in fulfilling its obligations under this Agreement.
V. ATTORNEY-IN-FACT
1. Appointment. The Undersigned hereby appoints Southern States
Underwriters, Incorporated ("Underwriters"), a Virginia corporation with its
principal place of business in the Southern States Building, 6606 West Broad
Street, Richmond, Virginia (Henrico County), its attorney-in-fact (when acting
in its capacity as attorney-in-fact for the Subscribers, Underwriters and each
successor to the office of attorney-in-fact are herein referred to as the
"Attorney-in-Fact"), with the powers and duties set forth herein. The scope of
this appointment is limited to the purposes contemplated by this Agreement. In
case of the dissolution, resignation, suspension, removal, or withdrawal of
Underwriters as Attorney-in-Fact the Advisory Committee shall appoint a
successor Attorney-in-Fact.
2. Powers and Duties. The Attorney-in-Fact shall manage the Reciprocal,
subject to the supervision of the Advisory Committee, and shall have the power
to act for and bind the Subscribers in all transactions relating to or arising
out of the operations of the Reciprocal. In addition, the Attorney-in-Fact shall
have all of the powers and responsibilities set forth herein or set forth in the
policies and directives of the Advisory Committee, as well as the power to
perform or execute on behalf of the Reciprocal, in its name or otherwise, any
other act or thing or writing in relation to any transaction by the Reciprocal
which is or may be necessary to carry out the purposes set forth in this
Agreement. Without limiting the generality of the foregoing, the
Attorney-in-Fact shall have the following powers and duties:
(i) To prepare insurance contracts with such terms as it deems proper.
<PAGE>
(ii) To sign insurance contracts in its own name as acting for all of
the Subscribers, or in the name of the Reciprocal on behalf of the
Subscribers, for any kinds of insurance permitted in Article VI of
this Agreement.
(iii) To issue insurance contracts on behalf of the Reciprocal to
Subscribers and to other persons and entities.
(iv) To accept, retrocede, and cede on behalf of the Reciprocal
reinsurance; provided, however, that the terms of all reinsurance
to be accepted shall be subject (either collectively or
individually) to approval or ratification by the Advisory
Committee.
(v) To accept service of process on behalf of the Reciprocal and to
appoint the Secretary of the Commonwealth and his successors in
office, as well as the appropriate officials of other states in
which the Reciprocal is or becomes authorized to transact
business, as agent of the Reciprocal upon whom may be served all
lawful process against or notice to the Reciprocal.
(vi) To bind risks by temporary binder.
(vii) To adjust, settle, and pay any loss covered by any insurance
contract issued by the Reciprocal, by compromise or otherwise; to
receive and give all notices; to receive proofs of loss, agree to
appraisals, and recover amounts due the Reciprocal under all
insurance contracts.
(viii) To acknowledge or contest any claim that may be made on account of
any insurance contracts issued by the Reciprocal, to retain legal
counsel, and to defend, compromise, or settle any suit or
proceeding that may be brought against the Reciprocal on account
of such contracts, and to enter into such other arrangements which
in its judgment shall be expedient to prevent a multiplicity of
suits or to minimize expenses.
(ix) To enforce, in its own name or otherwise, the payment or
performance of any obligation, of any kind whatsoever, of any
person or entity to the Reciprocal; and to institute, prosecute,
defend, compromise, and settle, in its own name or otherwise, any
suit or other legal proceeding arising out of the operations of
the Reciprocal.
(x) To endorse all checks, drafts, and other papers drawn to the order
of the Reciprocal and deposit the same to its account as such
Attorney-in-Fact, and disburse from such funds all claims under
insurance contracts issued by the Reciprocal, and expenses to
settle such claims.
(xi) To offset any dividend, distribution, money, credit, balance, or
any other payment or obligation of any kind whatsoever due or
credited to a Subscriber or a former Subscriber or an insured or a
reinsured, or to any account of any of them, against amounts due
the Reciprocal by such Subscriber, former Subscriber, insured, or
reinsured, or against debits or deficit balances in any account of
any of them.
(xii) To maintain a reserve fund of not less than that required by law.
(xiii) To execute and file any and all instruments and papers, and do any
and all acts, required by the laws of Virginia or any other state
in which the Advisory Committee determines that it is desirable
for the Reciprocal to be licensed or authorized to transact
business.
(xiv) Before resigning, to give to the Advisory Committee at least
ninety (90) days' written notice of its intention so to do.
<PAGE>
(xv) At its option, to delegate in writing any or all of the powers and
duties hereby conferred upon it, at any time and from time to
time, to one or more Deputies and/or Assistant Deputies (who may
be either persons, firms, or corporations) nominated by it,
provided that the Advisory Committee shall first approve such
nominations. The powers of any Deputy or Assistant Deputy shall be
subject to revocation by the Advisory Committee or by the
Attorney-in-Fact at any time upon written notice to such Deputy or
Assistant Deputy (and, in the case of revocation by the Advisory
Committee, to the Attorney-in-Fact). In the event the
Attorney-in-Fact shall, as permitted herein, delegate all of its
powers and duties hereunder, then, upon approval by the Advisory
Committee, the management fee to be paid to the Attorney-in-Fact
hereunder may be withdrawn from the funds of the Reciprocal by
such Deputy, but only to the extent the Attorney-in-Fact would
have otherwise been permitted hereunder to withdraw such funds to
cover such fee.
(xvi) To pay to each member of the Advisory Committee the allowance for
traveling expenses incident to attendance at Advisory Committee
meetings and such other fees or allowances as may be prescribed by
the Advisory Committee.
(xvii) To comply with all applicable bond or other requirements imposed
upon the Attorney-in-Fact under Virginia law or under the law of
any other state in which the Reciprocal is duly licensed to
transact insurance, or as may be prescribed by the Advisory
Committee.
(xviii)To account for all moneys and other property of the Reciprocal
coming into its hands, and to refrain from withdrawing or
appropriating for its own use from the funds of the Reciprocal any
moneys or property to which it is not entitled under this
Agreement.
(xix) To pay out of the funds of the Reciprocal all expenses and
disbursements of every kind and character incident to the
Reciprocal's administration and the exchange of insurance
contacts, including but not limited to the costs of securing,
issuing, exchanging and administering insurance contracts, the
cost of reinsurance, collection expenses, investment expenses,
losses. damages, judgments, court costs, legal expenses, losses
adjustment expenses, license fees, taxes, inspection expenses,
annual meeting expenses, and expenses for audits, examinations,
rating bureaus, and insurance, trade and service organizations;
provided, however, that the Attorney-in-Fact must pay out of its
own funds all customary office and business expenses (including
but not limited to wages paid to employees, fees paid to deputies,
rent, printing, stationery, and postage) and all expenses incurred
in connection with bonds and other legal requirements affecting
the ability of the Attorney-in-Fact to serve in such capacity.
(xx) To deduct for itself from the funds of the Reciprocal an annual
management fee, to the extent and at such times expressly
permitted by the Advisory Committee.
(xxi) To contract, subcontract, or otherwise enter into contracts or
agreements, at its own expense, for the purpose of securing and
obtaining such services, consultation, and advice, as it may deem
necessary or desirable in fulfilling its obligations under this
Agreement.
Each of the foregoing powers and duties of the Attorney-in-Fact shall be
subject to the limitations thereon placed by the Advisory Committee, by other
provisions of this Agreement, or by applicable law.
VI. CONTRACTS OF INSURANCE
The Attorney-in-Fact, while acting as Attorney-in-Fact for the
Subscribers, is authorized to transact on behalf of the Reciprocal any or all of
the classes of insurance (including reinsurance) which a reciprocal insurer may
be permitted to transact under the law of the states in which the Reciprocal is
duly licensed to transact insurance. subject to the limitations placed on this
authority by the Advisory Board; provided, however, that the Attorney-in-Fact
may not transact such business on behalf of the Reciprocal except in conformity
with applicable law.
<PAGE>
VII. GENERAL PROVISIONS
1. Distribution. All savings resulting from the operation of the
Reciprocal, calculated after setting aside the reserves and surplus required by
applicable law together with the Reserve for Contingencies and such additional
reserves for losses and other funds as shall be determined by the Advisory
Committee to be necessary or desirable, may be allocated between classes of
Subscribers, and among the Subscribers of a class on an equitable basis by lines
of insurance, and credited to the Subscriber's individual surplus accounts or
returned to the Subscribers, at such times and in such manner as the Advisory
Committee shall determine in its sole discretion.
2. Termination of Subscribership. The Undersigned may revoke this
Agreement at any time upon written notice to the Attorney-in-Fact. Upon such
revocation, or upon the termination or cancellation (whether by the Undersigned
or otherwise) of all of the Undersigned's insurance contracts issued by the
Reciprocal, or upon the disqualification of the Undersigned as a Subscriber by
the Advisory Committee, the Undersigned will immediately cease to be a
Subscriber, in which event the Undersigned shall cease to assume any liability
as an insurer on any insurance contract issued after the date its subscribership
ceases, it being understood that the terms of the Agreement and provisions of
law applicable to insurance contracts issued prior to such date shall remain in
full operation and effect as to the Undersigned.
3. Settlement of Accounts After Termination. In the event of a
termination of a subscribership, the Attorney-in-Fact shall close the former
Subscriber's account and return to such former Subscriber, as provided in this
Section and subject to offset by the Attorney-in-Fact, the unexpended portion of
the former Subscriber's premium deposit and surplus accounts as such accounts
then stand; provided, however, that such accounts shall be adjusted subsequent
to such termination for any claims, losses, or other expenses attributable to
the policy period for which such Subscriber is responsible notwithstanding
termination of subscribership. The Attorney-in-Fact shall return the amount of
such adjusted accounts to the former Subscriber at such time or over such period
of time as may be selected by the Advisory Committee; provided, however, that
such amounts shall be returned by the end of the third calendar year following
the date of the termination of subscribership: provided, further, in any event,
that if such payment would reduce the funds of the Reciprocal to an amount less
than the sum of the legal reserve, the Reserve for Contingencies, the surplus
required by law, and such additional surplus as the Advisory Committee deems
prudent to the financial condition of the Reciprocal, then such payment shall be
deferred until it can be made without so reducing such funds. If the former
Subscriber's pro rata share of the Reciprocal's reserve for losses account is
represented by a debit or deficit balance, such amount shall be deducted from
any funds due him or, in case such funds are insufficient, the former Subscriber
will pay over to the Attorney-in-Fact the amount of such deficiency upon demand.
In no event shall a former Subscriber receive any distribution or any payment
for credits, surplus, savings, or reserves so long as a claim against such
former Subscriber is outstanding and unpaid, unless otherwise directed by the
Advisory Committee.
4. Conflicts With Applicable Law; Savings Clause. If any provision or
portion of this Agreement conflicts with, or is in any way inconsistent with,
applicable law, then such provision or portion shall be interpreted in a manner
that is consistent with such law and, given this constraint, in a manner that is
as consistent as possible with the intent of this Agreement. If any provision or
portion of this Agreement is held to be invalid or unenforceable, such
invalidity or unenforceabiIity shall not affect or impair the remainder of this
Agreement
<PAGE>
5. Pronouns. Any personal pronoun used herein to refer to the
Attorney-in-Fact shall apply regardless of whether the Attorney-in-Fact is a
firm, corporation, or one or more individuals.
6. Headings. Headings used in this Agreement are for convenience only and
shall not affect the construction of this Agreement.
7. Governing Law. This Agreement shall be interpreted under and governed
by the laws of the Commonwealth of Virginia.
8. Covenant to Perform; Ratification. In consideration of the premises,
the Undersigned covenants that it will fully and faithfully carry out execute,
and perform everything which the Attorney-in-Fact shall by virtue hereof bind
it, and in the same manner the Undersigned hereby ratifies all that the
Attorney-In-Fact may lawfully do or cause to be done by virtue hereof.
The following signature evidences the agreement of the Undersigned to the
terms of this Agreement.
------------------------------
By
------------------------------
Its
------------------------------
Dated:
-----------------------
In consideration of the execution of this Agreement by the party whose
signature appears above, Southern States Underwriters, Incorporated agrees to
the terms of this Agreement.
SOUTHERN STATES UNDERWRITERS, INCORPORATED
By
---------------------------------------
Its
------------------------------------
Dated:
-------------------------
EXHIBIT 10.6(b)
AGREEMENT made this 27th day of April, 1988, between Southern States
Insurance Exchange, a Virginia reciprocal insurer (the "Reciprocal") and
Southern States Underwriters, Incorporated, a Virginia corporation
("Underwriters");
In consideration of the mutual covenants and agreements contained
herein the parties agree as follows:
WITNESSETH:
1. The Reciprocal and Underwriters do hereby agree to a modification of
the Subscribers Agreement and Power of Attorney (the "Agreement") to delete from
the Agreement ARTICLE I. CLASSES OF SUBSCRIBERS; VOTING RIGHTS and replace it
with a new Article I as follows:
I. CLASSES OF SUBSCRIBERS; VOTING RIGHTS
Each Subscriber shall be deemed to be either a Class I Subscriber or a
Class II Subscriber. Each Subscriber which is a cooperative association, as
determined by the Advisory Committee (described in Article IV below), shall be
deemed to be a Class I Subscriber, and all other Subscribers shall be deemed to
be Class II Subscribers. Class I Subscribers shall have the sole power to vote
in the election of the Advisory Committee, the removal by Subscribers of members
of the Advisory Committee, or any other affairs of the Reciprocal which the
Advisory Committee may put to a vote of the Subscribers, and only Class I
Subscribers will be entitled to notice of, or to attend, any annual or special
meeting of the Subscribers. On all matters on which the Class I Subscribers are
entitled to vote, each Class I Subscriber shall be entitled to one vote. Proxy
voting is permitted. There will be no fractional votes.
2. The Reciprocal is joining with Underwriters to effect this
modification of the Agreement pursuant to the action of the Advisory Committee
of the Reciprocal at its April 26, 1988, meeting mandating the modification
under the authority granted in Article IV 7 (vi) of the Agreement.
<PAGE>
3. The foregoing modification of the Agreement will be communicated by
Underwriters to all subscribers and become a part of each Agreement then in
effect or thereafter entered into effective as of July 1, 1988.
WITNESSETH the following signatures and seals as of this 27th day of
April, 1988.
SOUTHERN STATES INSURANCE EXCHANGE
BY: /s/ Gene A. James
-----------------------------------
Chairman of the Advisory Committee
SOUTHERN STATES UNDERWRITERS, INCORPORATED
BY: /s/ Gene R. Anderson
-----------------------------
President
EXHIBIT 10.7(a)
(As amended to 4/1/93)
MANAGEMENT AGREEMENT
BETWEEN
------------------------------------------------------------------------------
AND
SOUTHERN STATES COOPERATIVE, INCORPORATED
THIS AGREEMENT, made and executed between ____________
______________________________________________, an agricultural cooperative
association of the State of Virginia, with its principal place of business at
_________________________________ (and duly qualified to transact business in
the State of _______________), hereinafter called "Local Cooperative", and
SOUTHERN STATES COOPERATIVE, INCORPORATED, a cooperative agricultural
association of the State of Virginia, with its registered office at 6606 West
Broad Street, Richmond, Virginia, hereinafter called "Southern States", this
_____ day of _____________, 19____.
WHEREAS, the Local Cooperative is a producer-owned and
producer-controlled cooperative association, organized and operated for the
mutual help and benefit of the members thereof, and Southern States is an
agricultural cooperative association, organized and operated for the mutual help
and benefit of its members; and
WHEREAS, Southern States is in a position to furnish quality
supplies and render management, accounting, and other like services to its
members at low cost by reason of its several plants, warehouses, other
facilities, and trained personnel; and
WHEREAS, the Local Cooperative can operate at less expense by
using - along with other similar Local Cooperatives affiliated with Southern
States - the services and supplies now made available by Southern States
W I T N E S S E T H :
That in consideration of the mutual obligations herein
provided, the admission of the Local Cooperative to membership in Southern
States, and other good and valuable consideration, IT IS AGREED BETWEEN THE
PARTIES HERETO that the Local Cooperative shall immediately subscribe to and pay
for one (1) share of the common capital stock of Southern States Cooperative,
Incorporated, and when a share of said stock is issued accordingly, the Local
Cooperative shall thereupon be deemed to have employed Southern States as its
agent and/or attorney in fact to manage its business affairs upon the following
terms:
<PAGE>
1. All capital that is necessary or required by the Local
Cooperative for successful and profitable operations shall be obtained, except
as hereinafter provided, from Southern States at the same rate of interest
charged by Southern States to other affiliated Local Cooperatives, not to exceed
the prevailing legal rate of interest; provided, however, that in the event the
Local Cooperative shall call upon Southern States for capital Southern States
determines is not necessary for successful and profitable operations, or for
capital in excess of the Local Cooperative's net worth, Southern States shall
have the privilege of requiring the Local Cooperative to raise such capital by
the sale of its own investment stock. All capital advanced by Southern States to
the Local Cooperative shall be on open account or on the basis of negotiable
notes executed by the Local Cooperative, and the Local Cooperative, through its
officers and directors, agrees to furnish from time to time any collateral for
such advances that may be required by Southern States. The Local Cooperative at
all times shall have the privilege of raising a part or all of its capital
requirements by the sale of its own investment stock or securities.
2. Southern States shall make available to Local Cooperative
all commodities and supplies manufactured, processed, assembled, handled, or
distributed by it, and the Local Cooperative in turn agrees to use the wholesale
facilities and services of Southern States as its principal source of supply for
all such commodities, recognizing that farmers can perform for themselves
through their own wholesale plants such services at cost to the Local
Cooperative and its members. However, this section shall in no way preclude the
Local Cooperative from handling commodities and supplies manufactured,
processed, assembled, handled, or distributed by others or performing local
custom services that may be beneficial to local patrons.
3. No new services shall be undertaken or existing services
discontinued by, or in behalf of, Local Cooperative until the same have been
approved by the Board of Directors of Local Cooperative.
4. Southern States shall supervise and/or make purchases of
commodities and supplies for the account of the Local Cooperative, and when
purchases are made, shall charge said purchases to Local Cooperative's account
and Southern States may make contracts for the account of the Local Cooperative
in the regular course of its business, including contracts for marketing its
products or the products of members or patrons marketing through the Local
Cooperative, and contracts of agency, including agreements whereby the Local
Cooperative shall act as agent for the sale of farm machinery, farm, garden,
orchard, and other supplies, materials, and equipment used by farmers, and
arrange all the terms thereof, all in accordance with policies previously
determined by the Board of Directors of the Local Cooperative, but without the
necessity of specific authority from the Board for any individual transaction or
any series of transactions.
<PAGE>
5. Southern States shall be authorized to draw upon such funds
of the Local Cooperative as shall be required to properly carry on the
operations of the Local Cooperative, and Southern States shall at all times keep
accurate accounts of its receipts and disbursements for the account of the Local
Cooperative and shall repay any advances made by the Local Cooperative and not
expended in its behalf by Southern States within thirty (30) days after demand
by the Local Cooperative, less any amount that may be due Southern States by
Local Cooperative
6. Services rendered by Southern States to the Local
Cooperative under this Agreement shall include supervision of management and
credit, accounting, internal auditing, procurement and training of personnel,
assistance with local meetings and membership relations, general assistance in
legal, real estate, engineering, traffic, information and publicity, and
merchandising matters, special marketing services, preparation of tax returns,
payment of dividends on any outstanding stock, and distribution of patronage
refunds. Southern States shall perform all services under this Agreement for
Local Cooperative on an actual cost basis. Special charges, such as local legal
fees, special outside audits, engineering and preparation of blueprints of
construction, postage, parcel post, freight, advertising, etc., shall be paid by
the Local Cooperative.
Southern States, at the beginning of each fiscal year,
in the light of the total purchasing volume of the Local Cooperative for the
preceding year and anticipated expenses for the ensuing year, shall advise the
Local Cooperative of the charge to be made by Southern States for the ensuing
year as Southern States' estimated fee for such year for Local Cooperative's
purchasing operations. At the end of each fiscal year, after the actual cost of
rendering such service has been determined by Southern States, in the event the
actual cost shall be less than the estimated fee actually paid, such difference
shall be credited to the Local Cooperative by Southern States. In the event the
actual cost shall be more than the estimated fee actually paid, such difference
shall be paid to Southern States by the Local Cooperative.
Southern States, at the beginning of each fiscal year,
in the light of the total marketing volume of the Local Cooperative for the
preceding year and anticipated expenses for the ensuing year, shall advise the
Local Cooperative of the charge per bushel to be made on Local Cooperative's
monthly volume for the ensuing year, as Southern States' estimated fee for such
year for Local Cooperative's marketing operations. At the end of each fiscal
year, after the actual cost of rendering such service has been determined by
Southern States, in the event the actual cost shall be less than the estimated
fee actually paid, such difference shall be credited to the Local Cooperative by
Southern States. In the event the actual cost shall be more than the estimated
fee actually paid, such difference shall be paid to Southern States by the Local
Cooperative.
<PAGE>
7. The Local Cooperative authorizes and directs Southern
States to apply and contract for and otherwise arrange and effect, for and on
behalf of the Local Cooperative, insurance and bond coverage usually carried by
business corporations rendering a local farm supply or petroleum service,
including where the exposure exists:
(1) Fire and lightning extended coverage sprinkler leakage on
buildings, machinery, equipment, and merchandise;
(2) Workmen's Compensation;
(3) Fidelity Bonds;
(4) Public Liability;
(5) Safe Burglary;
(6) Inside and Outside Holdup;
(7) Automobile Collision, Fire, Theft, Public Liability,and Property
Damage; and
(8) Cargo in Owned Vehicles.
Specific coverage shall be effected promptly by
Southern States upon notification of the necessity for same by the President or
Manager of the Local Cooperative. Southern States is hereby granted wide
discretion in arranging for insurance and bond coverage for the Local
Cooperative, and shall be responsible for losses only to the extent coverage has
been arranged and actually effected. Southern States shall be required to use
only its best judgment in arriving at proper values reported for the account of
the Local Cooperative as required by applicable co-insurance clauses or
otherwise, and the selection of insurance or indemnity companies or other means
of effecting insurance coverage shall be also in the sole discretion of Southern
States. The Local Cooperative agrees to pay all premiums and other costs of said
insurance coverage promptly upon receipt of the notice of the same.
<PAGE>
8. The Southern States Employee Welfare Benefit Plans
heretofore adopted by Southern States for the benefit of its employees shall be,
and hereby are, adopted (together with all the included plans) as the Employee
Welfare Benefit Plans of the Local Cooperative for the benefit of its employees
(and Directors, in the case of the Travel Plan), and all amendments and
modifications of said Plans hereafter approved by the Board of Directors of
Southern States (or where appropriate, the Employee Benefits Administrative
Committee [the "EBAC"]) shall apply automatically to the employees (and
Directors, where applicable) of said Local Cooperative; and Southern States
shall advise the Local Cooperative of any such amendment hereafter adopted.
Southern States is authorized to execute such instruments and to perform any and
all acts as may be necessary on behalf of the Local Cooperative to accept,
continue in force, or amend said Plans. As of January 1, 1993, the following are
included plans:
Southern States Medical Plan
Southern States Dental Plan
Southern States Term Life Plan
Southern States Special Accidental Death and Dismemberment Plan
Southern States Travel Accident Plan
Southern States Long Term Disability Plan
Southern States Health Care Spending Account
Southern States Dependent Care Spending Account
Southern States Flexible Benefit Plan
Southern States Employee Assistance Plan
(if applicable in geographic area)
Southern States Severance Plan
9. The Retirement Plan for Employees of Southern States
Cooperative, Incorporated, as amended and restated effective July 1, 1989,
heretofore adopted by Southern States for the benefit of its employees shall be
and hereby is, adopted as the Retirement Plan of the Local Cooperative for the
benefit of its employees, and all amendments and modifications of said Plan
hereafter approved by the Board of Directors of Southern States (or where
appropriate, the Employee Benefits Administrative Committee [the "EBAC"] or the
Employee Benefits Investment Committee [the "EBIC]) shall apply automatically to
the employees of said Local Cooperative; and Southern States shall advise the
Local Cooperative of any such amendment hereafter adopted. Southern States is
authorized to execute such instruments and to perform any and all acts as may be
necessary on behalf of the Local Cooperative to accept, continue in force, or
amend said Plan.
<PAGE>
10. The Southern States Thrift Plan and Trust, as amended and
restated effective January 1, 1987, heretofore adopted by Southern States for
the benefit of its employees shall be and hereby is, adopted as the Thrift Plan
of the Local Cooperative for the benefit of its employees, and all amendments
and modifications of said Plan hereafter approved by the Board of Directors of
Southern States (or where appropriate, the Employee Benefits Administrative
Committee [the "EBAC"] or the Employee Benefits Investment Committee [the
"EBIC"] shall apply automatically to the employees of said Local Cooperative;
and Southern States shall advise the Local Cooperative of any such amendment
hereafter adopted. Southern States is authorized to execute such instruments and
to perform any and all acts as may be necessary on behalf of the Local
Cooperative to accept, continue in force, or amend said Plan.
11. The vacation and sick leave policies of Local Cooperative
shall be the same as the present vacation and sick leave policies of Southern
States. Changes to these policies shall be subject to the approval of the Board
of Directors of Local Cooperative.
12. The Local Cooperative agrees that payment of dividends on
outstanding common or preferred stock, or interest on debentures or interest on
other capital contributions, setting aside reasonable and necessary reserves,
and the payment of patronage refunds to patrons can have an important bearing
upon the operations of the Local Cooperative, and that it will, therefore, first
consult Management of Southern States before such dividends are declared, such
reserves set aside, such interest declared, and such patronage refunds declared
by the Board of Directors of Local Cooperative.
13. If and when the Local Cooperative shall declare a dividend
on its preferred and common stock, or shall authorize payment of interest on
debentures or other capital contributions, the funds for that purpose shall be
turned over to the duly authorized agents of Southern States, together with a
list of stockholders, and owners of such debentures or capital contributions,
and it shall be the duty of Southern States to pay the dividend or interest
pursuant to the terms of the resolutions passed by the Board of Directors of the
Local Cooperative.
<PAGE>
14. In case the Local Cooperative shall declare a patronage
refund in cash and/or instruments evidencing such refund, the funds for that
purpose shall be turned over to the duly authorized agents of Southern States,
and the Local Cooperative shall furnish Southern States with a list of patrons
entitled to the same, and it shall be the duty of Southern States to pay the
refund pursuant to the terms of the resolution passed by the Board of Directors
of the Local Cooperative.
15. The Local Cooperative agrees to follow all accounting
practices prescribed by the Management of Southern States Cooperative,
Incorporated, and agrees to permit accountants, or other persons designated by
said Management of Southern States Cooperative, Incorporated, to audit and
inspect its books and records at such times as said Management may deem
advisable. Southern States shall be required to make at least one audit of the
affairs of the Local Cooperative each year and shall, in addition, cause the
records it keeps for Local Cooperative to be included among the records audited
in the Annual Audit of Southern States by an independent public accounting firm.
Southern States shall review the results of such audits with the Board of
Directors of Local Cooperative from time to time. Any other audits desired by
the Board of Directors of Local Cooperative shall be paid for by the Local
Cooperative.
16. It shall be the policy of the Local Cooperative to enter
into no contract or agreement with any officer or director whereby such officer
or director would receive any financial benefits, direct or indirect, and
differing in any way from the business relations accorded regular members of the
Local Cooperative, or any other kind of contract differing from terms generally
current. Neither shall the Local Cooperative purchase goods or services from any
officers or directors (except farm products produced by such officer or
director), nor shall it employ any son or son-in-law, daughter or
daughter-in-law, of any officers or directors.
17. The Local Cooperative agrees that at the first meeting of
its Board of Directors following the execution of this Agreement, a Credit
Policy based upon the best interests of the Local Cooperative shall be duly
adopted if such policy already shall not be in effect.
18. The Local Cooperative agrees to employ a Manager
satisfactory to Southern States, and to secure such cooperation and working
relations between the Manager of the Local Cooperative and Southern States as is
necessary for efficient and satisfactory operations, and in the event such
cooperation is found not to exist, to discharge such Manager. The compensation
of the Manager and other employees of the Local Cooperative shall, with the
advice of Southern States, be determined by the Board of Directors of Local
Cooperative, provided, in the case of an emergency, Southern States is
authorized to adjust such compensation, subject to approval of such adjustment
at the next meeting of the Board of Directors of Local Cooperative. For the
purpose of arranging a proper Fidelity Bond covering such Manager and all
employees of the Local Cooperative, Local Cooperative agrees that such Manager
and all employees of the Local Cooperative shall be included under the Blanket
Fidelity Bond covering all employees of Southern States and its affiliated Local
Cooperatives, the premium and cost of such coverage to be charged to the account
of the Local Cooperative.
<PAGE>
19. This Agreement shall be in full force and effect during the
current fiscal year, ending June 30, 19___, and shall continue from year to year
thereafter unless and until terminated by either of the parties hereto by the
giving of sixty (60) days' written notice prior to the expiration of the then
current fiscal year, provided that Local Cooperative may not exercise this
privilege of terminating the Agreement unless and until it shall have repaid all
monies that may be due and owing to Southern States.
<PAGE>
IN WITNESS WHEREOF, ___________________________________
____________________________________________________________________________
has caused this Agreement to be executed in its name, on its behalf, and under
its corporate seal, by its respective President or Vice President, and attested
by its Assistant Secretary, pursuant to the authority duly invested in them by
its Board of Directors, and SOUTHERN STATES COOPERATIVE, INCORPORATED, has
caused this Agreement to be executed in its name, on its behalf, and under its
corporate seal, by its President and Chief Executive Officer or its Group Vice
President - Retail & Marketing Services and attested by its Secretary or
Assistant Secretary, all done as of this _____ day of ___________________,
19___.
___________________________
___________________________
ATTEST: By:________________________
President
___________________________
Assistant Secretary
(CORPORATE SEAL)
SOUTHERN STATES COOPERATIVE,
INCORPORATED
ATTEST: By:________________________
__________________________ Title:_____________________
(CORPORATE SEAL)
<PAGE>
Attachment A
to EXHIBIT 10.7(a)
SCHEDULE IDENTIFYING OMITTED DOCUMENTS
Managed Local Cooperatives Having Management Agreements
with the Company Substantially in the Form of the
Management Agreement Filed as EXHIBIT 10.7(a):
Augusta Petroleum Cooperative, Incorporated
Southern States Beckley Cooperative, Incorporated
Southern States Bedford Cooperative, Incorporated
Southern States Bowling Green Petroleum Cooperative, Incorporated
Southern States Breck Cooperative, Incorporated
Southern States Bristol Cooperative, Incorporated
Brunswick Cooperative Association, Incorporated
Southern States Buckhannon Cooperative, Incorporated
Southern States Campbell Cooperative, Incorporated
Southern States Carroll County Cooperative, Incorporated
Southern States Charlottesville Cooperative, Incorporated
Southern States Chatham Cooperative, Incorporated
Southern States Chesapeake Association, Incorporated
Southern States Clark Cooperative, Incorporated
Southern States Clarksburg Cooperative, Incorporated
Culpeper Petroleum Cooperative, Incorporated
Southern States Cumberland Cooperative, Incorporated
Southern States Cynthiana Cooperative, Incorporated
<PAGE>
Southern States Danville Cooperative, Incorporated
Farmers Cooperative, Inc.
Southern States Flemingsburg Cooperative, Incorporated
Southern States Frederick Cooperative, Incorporated
Southern States Front Royal Cooperative, Incorporated
Southern States Galax Cooperative, Incorporated
Southern States Georgetown Cooperative, Incorporated
Southern States Glasgow Cooperative, Incorporated
Southern States Hampstead Cooperative, Incorporated
Southern States Hardin Cooperative, Incorporated
Southern States Henderson Cooperative, Incorporated
Southern States Hopkinsville Cooperative, Incorporated
Southern States Hopkinsville Petroleum Cooperative, Incorporated
Southern States Horse Cave Cooperative, Incorporated
Southern States Huntington Cooperative, Incorporated
Kent Cooperative, Incorporated
Southern States Leitchfield Cooperative, Incorporated
Southern States Lexington Cooperative, Incorporated
Southern States London Cooperative, Incorporated
Southern States Loudoun County Cooperative, Incorporated
Southern States Madisonville Cooperative, Incorporated
Southern States Marion Cooperative, Incorporated
Southern States Marlinton Cooperative, Incorporated
<PAGE>
Marshall County Cooperative, Incorporated
Southern States Martinsburg Cooperative, Incorporated
Southern States Martinsville Cooperative, Incorporated
Southern States Maysville Cooperative, Incorporated
Southern States Milford Cooperative, Incorporated
Southern States Morgantown Cooperative, Incorporated
Southern States Mount Airy Cooperative, Incorporated
Southern States Oak Hill Cooperative, Incorporated
Southern States Oakland Cooperative, Incorporated
Southern States Owenton Cooperative, Incorporated
Southern States Petersburg Cooperative, Incorporated
Southern States Pulaski Cooperative, Incorporated
Southern States Roanoke Cooperative, Incorporated
Rockingham Petroleum Cooperative, Incorporated
Russell County Cooperative, Incorporated
Southern States Russellville Cooperative, Incorporated
Southern States Shelbyville Cooperative, Incorporated
Southern States Simpson Cooperative, Incorporated
Southern States Smyrna-Clayton Cooperative, Incorporated
Southern States Somerset Cooperative, Incorporated
Southern States Southside Cooperative, Incorporated
Southern States Spencer Cooperative, Incorporated
Southern States Taneytown Cooperative, Incorporated
<PAGE>
Southern States Tazewell Cooperative, Incorporated
Southern States Tidewater Petroleum Cooperative, Incorporated
Washington Farmers Cooperative, Incorporated
Southern States Winchester Cooperative, Incorporated
Southern States Woodsboro Cooperative, Incorporated
* None of the management agreements between the Company and the local
cooperatives listed above differ in any material way from the prototype
management agreement provided as Exhibit 10.7(a) to this Registration Statement.
EXHIBIT 10.7(b)
MANAGEMENT/OPERATING AGREEMENT
THIS AGREEMENT is made as of this 1st day of March, 1991, by and between
Orange-Madison Cooperative Farm Service, Inc. ("Orange-Madison"), a nonstock
corporation organized pursuant to the Virginia Agricultural Association Act, and
Southern States Cooperative, Inc. ("Southern States"), a corporation organized
pursuant to the Virginia Agricultural Cooperative Association Act.
--------------------
Orange-Madison is an agricultural cooperative
association organized and operated for the mutual help and
benefit of the members thereof.
Orange-Madison owns and operates three retail stores
located in Madison, Orange, and Gordonsville, Virginia and
various other facilities and equipment.
Southern States is an agricultural cooperative
association organized and operated for the mutual help and
benefit of the members thereof.
Southern States, among other services that it
provides to its members, has the ability and the expertise to
provide management and related services to independent local
agricultural cooperative associations in an efficient and
cost-effective manner.
Orange-Madison has experienced operating losses for
the past several operating years and has been exploring and
investigating various alternatives to eliminate future
operating losses while continuing to provide a full range of
services to its member-patrons.
In an effort, and with the intention, to (i) retain
ownership of its assets, (ii) retain its status as an
independent local agricultural cooperative association, (iii)
eliminate future operating losses, and (iv) continue to
provide a full range of services to its member-patrons,
Orange-Madison has discussed with Southern States various
arrangements whereby Southern States would furnish supplies
and render certain management and related services to certain
activities of Orange-Madison.
Southern States is willing to furnish supplies and to
render management and related services to certain activities
of Orange-Madison as set forth in this Agreement.
<PAGE>
Orange-Madison desires to retain Southern States to
furnish supplies and to render management and related services
for certain activities of Orange-Madison as set forth in this
Agreement.
------------------------------
NOW, THEREFORE, in consideration of the mutual obligations and
covenants contained herein, Orange-Madison and Southern States agree as follows:
1. Definitions. As used herein, the following terms shall
have the following meanings:
a. Advance Account Rate. The term "Advance Account
Rate" shall mean the Co-Bank National Seasonal Variable Rate (as it exists from
time to time), plus one-quarter percent (1/4%).
b. Business. The term "Business" shall mean the
activities and business directly associated with or relating to Managed Assets,
including the operations relating to the retail stores and the facilities
included among the Managed Assets but excluding the operations relating to the
facilities included among the Excluded Assets.
c. Claims. The term "Claims" shall include, without
limitation, claims, demands, suits, causes of action for personal injury or
property damage (including any depreciation of property values, lost use of
property, consequential damages arising directly or indirectly out of
Environmental Conditions); actual or threatened damages to natural resources;
claims for the recovery of response costs or administrative or judicial orders
directing the performance of investigations, response or remedial actions under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"), 42 U.S.C. ss. 9601, et seq.; the Toxic Substance Control Act
("TSCA"), 15 U.S.C. ss. 2601, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1802, et seq.; the Resources Conservation and Recovery Act
("RCRA"), 42 U.S.C. ss. 9601, et seq.; the Clean Water Act ("CWA"), 33 U.S.C.
ss. 1251, et seq.; the Safe Drinking Water Act, 42 U.S.C. ss. 300(f), et seq.;
the Clean Air Act ("CAA"), 42 U.S.C. ss. 7401, et seq. or other Environmental
Laws, including the laws and regulations promulgated by the Commonwealth of
Virginia; a requirement to implement "corrective action" pursuant to any order
or permit issued pursuant to RCRA; claims for restitution, contribution or
equitable indemnity from third parties or any governmental agency; fines,
penalties, liens against property; claims for injunctive relief or other orders
or notices of violation from federal, state or local agencies or courts; and,
with regard to any present or former employees, exposure to or injury from
Environmental Conditions or Environmental Noncompliance.
<PAGE>
d. Effective Date. The term "Effective Date" shall
mean March 1, 1991, on which date Southern States shall assume its duties with
respect to the management of the Business and the Managed Assets.
e. Environmental Conditions. The term "Environmental
Conditions" shall mean conditions of the environment, including the natural
resources (including flora and fauna), soil, surface water, ground water, any
present or potential drinking water supply, subsurface strata or the ambient
air, relating to or arising out of the use, handling, storage, treatment,
recycling, generation, transportation, off-site shipment, release, spilling,
leaking, pumping, pouring, emptying, discharging, injecting, escaping, leaching,
disposal, dumping or threatened release of Hazardous Materials by Orange-Madison
or Orange-Madison's predecessors in interest, agents, representatives, employees
or independent contractors.
f. Environmental Expenses. The term "Environmental
Expenses" shall include any liability, loss, cost or expense including, without
limitation, costs of investigation, cleanup, remedial or response action, the
costs associated with posting financial assurances for the completion of
response, remedial or corrective actions, the preparation of any closure or
other necessary or required plans or analyses or other reports or analyses
submitted to or prepared by regulating agencies, including the cost of health
assessments, epidemiological studies and the like, retention of engineers and
other expert consultants, legal counsel, capital improvements, operation and
maintenance testing and monitoring costs, power and utility costs and pumping
taxes or fees, and administrative costs incurred by governmental agencies.
g. Environmental Laws. The term "Environmental Laws"
shall mean CERCLA, TSCA, the Hazardous Materials Transportation Act, 49 U.S.C.
ss. 1802, et seq., RCRA, CWA, the Safe Drinking Water Act, 42 U.S.C. ss. 300(f),
et seq., CAA, and the plans, rules, regulations or ordinances adopted, or other
criteria and guidelines promulgated pursuant to the preceding laws or other
similar laws, regulations, rule or ordinance now or hereafter in effect,
including laws and regulations promulgated by the Commonwealth of Virginia.
h. Environmental Noncompliance. The term
"Environmental Noncompliance" means, but is not limited to: (i) the release or
threatened release of any Hazardous Materials into the environment, any storm
drain, sewer, septic system or publicly owned treatment works, in violation of
any effluent or emission limitations, standards or other criteria or guidelines
established by any federal, state or local law, regulation, rule, ordinance,
plan or order; (ii) any noncompliance of physical structure, equipment, process
or facility with the requirements of building or fire codes, zoning or land use
regulations or ordinance, conditional use permits and the like; (iii) any
noncompliance with federal, state or local requirements governing occupational
safety and health; (iv) any facility operations, procedures designs, etc., which
do not conform to the statutory or regulatory requirements of CERCLA, CAA, CWA,
TSCA, RCRA or any other Environmental Laws, including the laws and regulations
promulgated by the Commonwealth of Virginia, intended to protect public health,
welfare and the environment; (v) the failure to have obtained permits, variances
or other authorizations necessary for the legal operation of any equipment,
process, facility or any other activity; and (vi) the operation of any facility
or equipment in violation of any permit condition, schedule or compliance,
administrative or court order and the like.
<PAGE>
i. Escrow Agreement. The term "Escrow Agreement"
shall have the meaning ascribed to it in Section 5 hereof.
j. Excluded Assets. The term "Excluded Assets" shall
mean those assets and that property, plant, and equipment owned and/or operated
by Orange-Madison on the Effective Date and listed or described on Appendix I
attached hereto and incorporated herein by reference.
k. Existing Current Assets. The term "Existing
Current Assets" shall mean all cash, inventory, and accounts receivable on hand
or otherwise owned or held by Orange-Madison on the Effective Date; provided,
however, that such term shall not include the Excluded Assets.
l. Fixed Capital Requirements. The term "Fixed
Capital Requirements" shall mean payments for repairs, improvements, or
additions to property, plant, and equipment (which repairs, improvements, and
additions relate to the Business and the Managed Assets and are capitalized in
accordance with Southern States' policies and procedures as they exist from time
to time).
m. Hazardous Materials. The term "Hazardous
Materials" shall mean hazardous substances, hazardous constituents, toxic
substances or related materials, whether solids, liquids or gases, including but
not limited to substances defined as "hazardous wastes," "hazardous substances,
"toxic substances," "pollutants," "contaminants," "chemicals known to the State
to cause cancer or reproductive toxicity," "petroleum, crude oil or any fraction
thereof" or other similar designations in, or otherwise subject to regulation
under CERCLA, TSCA, the Hazardous Materials Transportation Act, 49 U.S.C. ss.
1802, et seq., RCRA, CWA, the Safe Drinking Act, 42 U.S.C. ss. 300(f), et seq.,
CAA, and in the plans, rules, regulations or ordinances adopted, or other
criteria and guidelines promulgated pursuant to the preceding laws or other
Environmental Laws; and any other substances, constituents or wastes subject to
environmental regulations under any applicable federal, state or local law,
regulation or ordinance now or hereafter in effect.
n. Managed Assets. The term "Managed Assets" shall
mean all assets and/or all property, plant, and equipment owned and/or operated
by Orange-Madison on the Effective Date other than the Excluded Assets.
o. Notice. The term "Notice" shall have the meaning
ascribed to it in Section 19(e) hereof.
p. Savings or Loss Before Taxes. The term "Savings or
Loss Before Taxes" shall mean the annual results derived from the operations of
Orange-Madison, prior to any (i) provision for income taxes, (ii) provision for
loss reimbursement under Section 6 hereof, and (iii) any patronage
distributions, and as reported to members or shareholders in reports compiled
and presented using generally accepting accounting principles ("GAAP").
<PAGE>
q. Adjustments to Savings or Loss Before Taxes. The
term "Adjustments to Savings or Loss Before Taxes" shall mean the sum of (s) the
excess of (i) calculated earnings on the proceeds of Existing Current Assets,
computed at the Advance Account Rate over (ii) any actual earnings from
investing the proceeds of the sale or disposition of the Existing Current
Assets, (t) any loss, cost, expense, gain, or earnings associated with or
relating, attributable, or allocable to Excluded Assets, (u) any loss, cost,
expense, gain or earnings not directly associated with or directly relating,
attributable, or allocable to the conduct of the Business or the Managed Assets,
(v) any loss resulting from any Environmental Expenses or Claims of the Managed
Assets (to the extent such Environmental Expenses or Claims relate to
Environmental Conditions or Environmental Noncompliance existing at the
Effective Date) or of the Excluded Assets, (w) any loss or gain resulting from
the sale or disposition of Excluded Assets, (x) any write-off or recoveries of
accounts receivable (to the extent such accounts receivable are included in
Existing Current Assets), (y) any other loss, cost, expense, gain, or earnings
of a non-operating nature, or (z) any other loss, cost, expense, gain, or
earnings that are associated with or relating, attributable, or allocable to
operations prior to the Effective Date or subsequent to the Termination Date,
and not previously adjusted in (s) through (y) hereof.
r. Operating Losses. "Operating Losses" shall mean
Savings or Loss Before Taxes reduced or increased by Adjustments to Savings or
Loss Before Taxes.
s. Term. The term "Term" shall have the meaning
ascribed to it in Section 16 hereof.
t. Termination Date. The term "Termination Date"
shall have the meaning ascribed to it in Section 16 hereof.
u. Working Capital Requirements. The term "Working
Capital Requirements" shall mean the funds required for, or invested in,
accounts receivable, inventory, cash on hand, or other current assets required
for, associated with, or relating to the conduct of the Business; provided,
however, that the term "Working Capital Requirements" shall not include funds
required for retirement of Orange-Madison patron equity.
2. Management and Services Generally.
a. Southern States is hereby retained, under the
direction of the Board of Directors of Orange-Madison, to manage and operate the
Business and the Managed Assets. Southern States shall render the following
services in connection with its management and operation of the Business and the
Managed Assets: (i) management, management supervision, credit administration,
accounting, internal auditing, procurement and training of personnel, (ii)
general assistance in legal, real estate, engineering, traffic, information and
publicity, and merchandising matters, (iii) special marketing services, (iv)
distribution of patronage refunds and other patronage notices, and (v) such
other services as are expressly described herein, including, but not limited to,
services relating to Environmental Expenses, Claims, Environmental Conditions
and Environmental Noncompliance as provided in the Agreement or in the Escrow
Agreement.
<PAGE>
b. Southern States shall compile financial data
generated from its management and operation of the Business and the Managed
Assets and from Orange-Madison's management and operation of the Excluded Assets
for the preparation of periodic financial reports and the preparation of tax
returns for the combined operations of Orange-Madison. Southern States will not
be responsible for the generation, analysis or review of such financial
information regarding the Excluded Assets and will have no control over the
management of the Excluded Assets in order to achieve certain accounting or tax
results. Based on and subject to the foregoing, Southern States shall make
periodic reports regarding the status of its compilation of such financial data
to the Board of Directors of Orange-Madison and shall prepare tax returns and
periodic and/or annual reports for Orange-Madison.
c. For the calendar year ended December 31, 1991, and
in consideration of the management of and the services provided to the Business
and Managed Assets by Southern States hereunder (including the employment by
Southern States of the General Manager described in Section 2(g) hereof),
Orange-Madison shall pay to Southern States an annual fee (the "Management Fee")
of $150,000.00, which fee shall be payable in equal monthly installments. At the
beginning of each calendar year thereafter, Southern States shall advise the
Board of Directors of Orange-Madison in writing of the charge to be made by
Southern States for the ensuing year as Southern States' management fee for such
year; provided, however, that in no event shall such fee be increased from year
to year by a percentage greater than the percentage increase in the similar fee
charged by Southern States to its managed local cooperatives.
d. In addition to the Management Fee described in
Section 2(c) hereof, Orange-Madison shall pay to Southern States (i) an annual
fee (the "RSS Rental Fee") estimated at $27,420.00 in connection with the rental
by Orange-Madison of certain retail support systems owned by Southern States and
to be installed at the Orange-Madison retail stores, and (ii) an annual fee (the
"RSS Maintenance Fee") estimated at $9,360.00 in connection with the agreement
by Southern States to service and maintain the retail support systems owned by
Southern States and to be installed at the Orange-Madison retail stores.
e. The Management Fee, the RSS Rental Fee, and the
RSS Maintenance Fee, which shall be included in the calculation of Savings or
Loss Before Taxes as such term is defined in Section 1 hereof, constitute all of
the fees payable by Orange-Madison to Southern States pursuant to this
Agreement.
f. Special charges, such as local legal fees, local
consulting fees, appraisals, fees or expenses relating to permitting,
advertising, etc., shall be for the account of Orange-Madison, are not included
in the Management Fee, and shall be included in the calculation of Savings or
Loss Before Taxes as such term is defined in Section 1 hereof; provided,
however, that all such charges, as a condition to their inclusion in the
calculation of Savings or Loss Before Taxes, must be (i) reasonable in amount,
(ii) related to the operation of the Business and the Managed Assets, (iii)
unrelated to the Excluded Assets, and (iv) reasonably acceptable in all respects
(including the incurrence thereof) to Southern States. All other special
charges, including without limitation those described in Section 2(i) hereof,
shall be for the account of Orange-Madison and shall be paid from the proceeds
of the sale or other disposition of the Excluded Assets or of the Existing
Current Assets. In the event that special charges of the type described in the
immediately preceding sentence and reasonable in amount are incurred by
Orange-Madison at the direction of the Board of Directors of Orange-Madison
after the proceeds of the sale or other disposition of the Excluded Assets have
been expended and the proceeds of the sale or other disposition of the Excluded
Assets have been expended and the proceeds of the sale or other disposition of
Existing Current Assets have been expended in accordance with the provisions of
Section 5 hereof, such special charges shall be paid by Orange-Madison;
provided, however, that such special charges shall not be included in Working
Capital Requirements or in the calculation of Saving or Loss Before Taxes as
such terms are defined in Section 1 hereof.
<PAGE>
g. Following nomination by Southern States and
approval by the Board of Directors of Orange-Madison, Southern States shall
employ, for and on behalf of Orange-Madison, a general manager of the Business
and the Managed Assets. Such general manager shall secure such cooperation and
working relations between Orange-Madison and Southern States as is necessary for
efficient and satisfactory operations of the Business and the Managed Assets. If
such general manager is found by Southern States and the Board of Directors of
Orange-Madison to have mismanaged the Business and the Managed Assets, Southern
States, following consultation with the Board of Directors of Orange-Madison,
shall replace such general manager with another person nominated and approved in
the manner provided in this Section 2(g).
h. During the Term of this Agreement, in connection
with the presentation and discussion of the annual budget for the Business and
the Managed Assets, the Board of Directors of Orange-Madison, following
consultation with Southern States, shall determine and establish a merit fund to
be used by Southern States to effect compensation increases to the employees of
the Business and the Managed Assets. The compensation (including any increase in
compensation) of each of the employees of the Business and the Managed Assets
shall, with the advice of the Board of Directors of Orange-Madison, be
determined by Southern States.
i. Notwithstanding anything herein to the contrary,
the Board of Directors of Orange-Madison shall retain all corporate powers
granted to them by the Articles of Incorporation and By-laws of Orange-Madison
or by applicable law, including without limitation the power to retain
attorneys, auditors, engineers, and similar advisors.
3. Working Capital and Fixed Asset Requirements.
a. All Working Capital Requirements in connection
with the Business and Managed Assets shall be provided by Southern States at the
Advance Account Rate, which shall be the same rate of interest charged by
Southern States to other affiliated local cooperatives. All capital provided by
Southern States shall be, at Southern States' sole discretion, on open account
or on the basis of negotiable notes executed by Orange-Madison, and
Orange-Madison, through its officers and directors, agrees to furnish from time
to time any collateral for such advances that may be required by Southern
States, including without limitation a first lien security interest in inventory
(other than that included in Excluded Assets) and proceeds therefrom financed by
working capital provided by Southern States. Orange-Madison at all times shall
have the privilege of raising a part of all of its capital requirements by the
sale of its own investment stock or securities.
<PAGE>
b. All Fixed Capital Requirements shall be advanced
by Southern States, upon the recommendation of the general manager and the
approval of the Board of Directors of Orange-Madison, provided that no year
shall the amount committed for, or advanced with respect to, Fixed Capital
Requirements exceed Orange-Madison's prior year depreciation expense associated
with the Managed Assets.
4. Calculation of Savings or Loss Before Taxes and Operating
Losses.
a. Pursuant to, and in accordance with the provisions
and restrictions of Section 2(b) hereof, Southern States shall calculate Savings
or Loss Before Taxes and Operating Losses for each year during the Term and
shall submit such calculations for the review and approval of the Board of
Directors of Orange-Madison, or their duly appointed representative, within 120
days following the end of each calendar year during the Term hereof. Southern
States will consult with the Board of Directors or its duly appointed
representative and provide them with such information as is reasonably necessary
to permit such a review of such calculations.
b. In the event that the Board of Directors of
Orange-Madison, or their duly authorized representative, in good faith
reasonably dispute the calculation of Savings of Loss Before Taxes and Operating
Losses submitted by Southern States pursuant to Section 4(a) hereof, such
calculations shall be submitted to an independent accounting firm, mutually
acceptable to the Board of Directors of Orange-Madison and to Southern States,
with the cost being borne equally by Southern States and Orange-Madison. The
findings of such independent accounting firm shall be conclusive and binding on
both Southern States and the Board of Directors of Orange-Madison.
5. Proceeds of Existing Current Assets.
a. As soon after the Effective Date as shall be
practicable, not to exceed ten (10) days from the Effective Date, Southern
States and representatives of Orange-Madison shall take a physical inventory of
the merchandise inventory of Orange-Madison, other than that inventory which is
a part of the Excluded Assets (the "Inventory"). Only items that are normally
merchandised for resale are to be included in the Inventory. Southern States and
Orange-Madison shall value such Inventory that is in good, saleable condition at
cost or market (in quantities purchased by Orange-Madison), whichever is lower,
plus freight in. All damaged, obsolete, or unsaleable Inventory shall be
discounted and valued in accordance with its conditions, age, and potential
resale value.
b. On the Effective Date, Southern States shall
advance to Orange-Madison, pursuant to and in accordance with the provisions of
Section 3 hereof (including without limitation the provisions thereof requiring
the execution of Orange-Madison of notes and such other documents as shall be
necessary to create a first lien security interest in favor of Southern States),
an amount equal to the sum of the following: (i) the amount of cash on hand or
otherwise owned or held by Orange-Madison on the Effective Date; and (ii) the
amount determined by multiplying the book value of the accounts receivable of
Orange-Madison on the Effective Date by .85. Following completion of the
inventory described in Section 5(a) hereof, Southern States shall advance to
Orange-Madison an amount equal to the value of the Inventory of Orange-Madison
as determined pursuant to Section 5(a) hereof. The amounts thus advanced shall,
in addition to all proceeds from the sale or other disposition of Existing
Current Assets, be held and applied in accordance with Section 5(c) hereof. The
valuations determined for Inventory and accounts receivable shall be reflected
in the financial statements of Orange-Madison immediately prior to the Effective
Date.
<PAGE>
c. All proceeds derived form the sale or other
disposition of Existing Current Assets (except for proceeds of those Existing
Current Assets with respect to which Southern States has made an advance
pursuant to Section 5(b) hereof which proceeds have been set aside pursuant to
Section 5(b) hereof) shall be set aside and held in escrow pursuant to, and in
accordance with the terms of the Escrow Agreement attached hereto as Appendix II
and incorporated herein by reference (the "Escrow Agreement"). The Escrow
Agreement generally shall provide that the proceeds derived from the sale or
disposition of Existing Current Assets shall be set aside and applied to (i)
provide a $50,000.00 fund for such purposes as the Board of Directors of
Orange-Madison shall direct pursuant to Section 2(i) hereof, (ii) pay down by
$1,000,000.00 the working capital loan extended to Orange-Madison by CoBank,
(iii) pay down trade creditors of Orange-Madison other than Southern States,
(iv) provide a fund for Environmental Expenses and Claims associated with the
Managed Assets. Following expiration or termination of the Escrow Agreement, the
proceeds derived from the sale or disposition of Existing Current Assets shall
continue to be set aside by Orange-Madison. Orange-Madison shall be solely
responsible for applying such proceeds (w) to provide a fund for Environmental
Expenses and Claims associated with the Excluded Assets, (x) repairs and
improvements to property, plant, and equipment (which repairs, improvements, and
additions relate to the Excluded Assets and are capitalized in accordance with
Southern States' policies and procedures as they exist from time to time) (y) to
pay for all other costs or expenses not described in, or funded pursuant to,
Section 3 above, up to the cumulative amount of $100,000.00, and thereafter (z)
to pay down any loans extended to Orange-Madison by CoBank.
6. Operating Losses. In the event Orange-Madison experiences
Operating Losses during the Term of this Agreement, Southern States shall cover,
bear, or otherwise absorb such losses. As defined in Section 1 hereof,
"Operating Losses" do not include Environmental Expenses and/or Claims relating
to any Environmental Conditions or Environmental Noncompliance existing at the
Effective Date or any Environmental Expenses and/or Claims relating directly or
indirectly to the Excluded Assets.
7. Commodities and Supplies.
a. Southern States shall make available to
Orange-Madison all commodities and supplies manufactured, processed, assembled,
handled, or distributed by it. Orange-Madison agrees to use the wholesale
facilities and services of Southern States as its principal source of supply for
all such commodities and supplies, recognizing that farmers can perform such
services for themselves through their own wholesale plants at cost to
Orange-Madison and its members. Southern States' commodities and supplies shall
be sold or furnished to Orange-Madison at "service guide" prices (as established
from time to time by Southern States) or less.
<PAGE>
b. This section shall in no way preclude
Orange-Madison from handling commodities and supplies manufactured, processed,
assembled, handled, or distributed by others or performing local custom services
that may be beneficial to local patrons.
8. Services and Operations of Orange-Madison. No new services
or operations shall be undertaken or existing services or operations
discontinued by, or on behalf of, Orange-Madison until the same have been
approved by the Board of Directors of Orange-Madison. In addition, no
indebtedness secured by any interest in the Managed Assets shall be incurred by
Orange-Madison without Southern States' prior written consent.
9. Purchases and Commodities. Southern States shall supervise
and/or make purchases of commodities and supplies for the Business and Managed
Assets, which purchases shall be for the account of Orange-Madison and shall be
charged to Orange-Madison's account. Southern States may make contracts for the
account of the Business and Managed Assets of Orange-Madison in the regular
course of its Business, including contracts for marketing its products or the
products of members or patrons marketing through Orange-Madison, and contracts
of agency, including agreements whereby Orange-Madison shall act as agent for
the sale of farm machinery, farm, garden, orchard, and other supplies,
materials, and equipment used by farmers, and arrange all the terms thereof, all
in accordance with policies previously determined by the Board of Directors of
Orange-Madison, but without the necessity of specific authority from the Board
for any individual transaction or any series of transactions.
10. Operating Expenses and Accounts. Southern States shall be
authorized to draw upon funds of Orange-Madison (other than the funds described
in Section 5 above) as shall be required to properly carry on the operations of
the Business and Managed Assets of Orange-Madison, and Southern States shall at
all times keep accurate accounts of its receipts and disbursements with respect
to the Business and Managed Assets of Orange-Madison and shall repay any
advances made by Orange-Madison and not expended in its behalf by Southern
States in connection with the Business and Managed Assets within thirty (30)
days after demand by Orange-Madison, less any amount that may be due Southern
States from Orange-Madison.
11. Insurance. Unless Orange-Madison already has in full force
and effect coverage satisfactory to Southern States covering all identifiable
known exposures, Orange-Madison authorizes and directs Southern States to obtain
or attempt to obtain, for and on behalf of Orange-Madison, all insurances and
bonds with respect to the Business and the Managed Assets usually carried by
like businesses providing local farm supply or petroleum services. Such
insurance or bonds will include, but not be limited to:
a. All risk or specified perils property
insurance covering the physical assets of
buildings, machinery and equipment,
furniture and fixtures, and stocks of
merchandise on an actual cash value or
replacement cost basis;
<PAGE>
b. Workmen's Compensation;
c. All fidelity, license, and permit bonds;
d. Comprehensive general and automotive
liability in limits not less than $1,000,000
single limit bodily injury and property
damage;
e. Crime coverages to include burglary
(merchandise and/or safe) and robbery;
f. Automobile physical damage comprehensive and
collision;
g. Owned cargo while being transported;
h. Director and officer liability; and
i. Such other coverages as needed for data
processing equipment or other unique
exposures.
Specific coverage shall be effected promptly by Southern
States upon notification of the necessity for same to the Board of Directors of
Orange-Madison. Southern States is hereby granted wide discretion in arranging
for insurance and bond coverage for Orange-Madison with respect to the Business
and Managed Assets and the selection of insurance or indemnity companies or
other means of effecting insurance coverage shall be also in the sole discretion
of Southern States. Orange-Madison agrees to pay all premiums and other costs of
said insurance coverage promptly upon receipt of the notice of the same, which
premiums and other costs shall be included in the calculation of Savings or Loss
Before Taxes as such term is defined in Section 1 hereof.
12. Payment of Patronage Refunds. Orange-Madison agrees that
payment of patronage refunds to patrons can have an important bearing upon the
operations of Orange-Madison, and that it will, therefor, first consult with
Southern States before such patronage refunds are authorized by the Board of
Directors of Orange-Madison.
13. Accounting. Pursuant to, and in accordance with, the
provisions and restrictions of Section 2(b) hereof, Orange-Madison agrees (i) to
follow all accounting practices prescribed by Southern States with respect to
the Business and the Managed Assets, (ii) to conform its accounting practices
with respect to the Excluded Assets to those prescribed by Southern States with
respect to the Business and the Managed Assets, and (iii) to permit accountants,
or other persons designated by Southern States to audit and inspect its books
and records at such times as Southern States may deem advisable. Southern States
shall be required to make at least one audit of the affairs of the Business and
the Managed Assets (an "Internal Compliance Audit") during the Term of this
Agreement. Southern States shall review the results of such Internal Compliance
Audits with the Board of Directors of Orange-Madison from time to time. Any
audits other than the Internal Compliance Audits desired by the Board of
Directors of Orange-Madison shall be paid by Orange-Madison and the cost thereof
shall not be included in the calculation of Savings or Loss Before Taxes as such
term is defined in Section 1 hereof.
<PAGE>
14. Policy Against Conflicts of Interest. It shall be the
policy of Orange-Madison to enter into no contract or agreement with any officer
or director whereby such officer or director would receive any financial
benefits, direct or indirect, differing in any way from the business relations
accorded regular members of Orange-Madison, or any other kind of contract
differing from terms generally current. Neither shall Orange-Madison purchase
goods or services from any officers or directors (except farm products produced
by such officer or director), nor shall it employ any spouse, parent, son or
son-in-law, daughter or daughter-in-law, of any officers or directors.
15. Credit Policy. Orange-Madison agrees that at the first
meeting of its Board of Directors following the execution of this Agreement, the
credit policy described on Appendix III attached hereto and incorporated herein
by reference shall be duly adopted.
16. Term and Termination.
a. Term. The term of this Agreement (the "Term")
shall commence on the Effective Date, and shall terminate, unless sooner
terminated as provided in Section 16(b) hereof on December 31, 1993 (the
"Termination Date").
b. Termination. This Agreement may be terminated by
mutual consent of Orange-Madison and Southern States. In addition, either party
may immediately terminate this Agreement if the other party (i) is in default of
any material provision of this Agreement and continues in default for a period
of ten (10) days following notice by the nondefaulting party, or (ii) files a
petition for bankruptcy or reorganization under the Federal Bankruptcy Act or
makes an assignment for the benefit of creditors, or (iii) is guilty of any
fraudulent act or of willful withholding of any funds, payments or property of
the other party or to which the other party lawfully is entitled.
c. On or before the Termination Date or any sooner
termination hereof, all amounts and monies that may be due and owing to Southern
States by Orange-Madison shall be and become immediately due and payable.
d. As soon as practicable following the Termination
Date, Southern States shall use its reasonable efforts to deliver to
Orange-Madison all material records generated or maintained by Southern States
with respect to the Business and the Managed Assets during the Term hereof.
17. Treatment/Handling of Excluded Assets.
a. Orange-Madison shall retain all responsibility for
the management and operation of the Excluded Assets. Such management and
operation shall include the following: (i) management, management supervision,
credit administration, accounting (including tax accounting), internal auditing,
procurement and training of personnel; (ii) general management for legal, real
estate, engineering, traffic, information and publicity, marketing and
merchandising matters; and (iii) other activities in the management and
operation of the Excluded Assets.
<PAGE>
b. Any and all costs associated with the activities
and responsibilities described in Section 17(a) shall be paid, after the
expiration or termination of the Escrow Agreement, from the proceeds from the
sale or other disposition of the Existing Current Assets and shall not be
included in the calculation of Savings or Loss Before Taxes as such term is
defined in Section 1 hereof.
c. Southern States shall have no control or authority
over the activities of the Excluded Assets and shall not participate in the
management or operation of the Excluded Assets. Upon request by Southern States,
Orange-Madison shall provide information to Southern States regarding
Orange-Madison's management and operation of the Excluded Assets for information
purposes. Such communication shall not be construed as control or authority by
Southern States over the Excluded Assets.
18. Treatment/Handling of Environmental Conditions and
Environmental Noncompliance Relating to the Managed Assets.
a. The parties acknowledge that the Managed Assets,
which will be operated henceforth by Southern States by this Agreement, have
certain Environmental Conditions and/or Environmental Noncompliance as of the
Effective Date of this Agreement. With respect to existing Environmental
Conditions or Environmental Noncompliance, and without in any way limiting the
scope of Orange-Madison's obligations under Sections 19(a) and (b) hereof,
Orange-Madison will be responsible for all investigations, studies, cleanup,
corrective action or response or remedial action, including defense costs,
required by any local, state or federal government agency now or hereafter
authorized to regulate environmental matters (hereinafter "Governmental
Entities"), or by any consent decrees or court or administrative order now or
hereafter applicable to the Business and Managed Assets, or by any federal,
state or local law, regulation, rule or ordinance now or hereafter in effect.
b. Orange-Madison shall pay all costs in connection
with any investigations, studies, cleanup, repair and remedial action relating
to the matters acknowledged in 18(a) including, without limitation, all capital
improvements, installation, operation, maintenance, testing, monitoring costs,
preparation of plans, designs, applications, studies and reports by or for
Governmental Entities or other regulating agencies, the preparation of closure
or other required plans, the retention of legal counsel, engineers and other
expert consultants. The parties acknowledge that the proceeds held in escrow
pursuant to the Escrow Agreement shall be used, in part, to pay the costs listed
in the preceding sentence but further acknowledge that such proceeds shall not
limit or be deemed to limit the liability of Orange-Madison to pay all such
costs.
c. Southern States shall have the right to control
and manage all investigations and any environmental cleanup, remediation or
related activities relating to matters acknowledged in 18(a).
<PAGE>
d. In the event that Environmental Conditions or
Environmental Noncompliance (other than that described in Section 18(a) hereof)
arise at the Managed Assets subsequent to the date hereof, Southern States shall
promptly notify Orange-Madison of any such Environmental Conditions or
Environmental Noncompliance, but Southern States shall have the exclusive right
to control and manage the resolution of such issues. Orange-Madison will pay all
reasonable costs incurred by Southern States in defending and correcting the
conditions that constitute Environmental Conditions or Environmental
Noncompliance, which costs shall be included in the calculation of Savings or
Loss Before Taxes as such term as defined in Section 1 hereof. The provisions of
this Section 18 do not diminish Orange-Madison's obligations under Section 19(a)
and (b) hereof.
19. Miscellaneous.
a. General Indemnification. Orange-Madison shall
indemnify and hold Southern States and its officers, directors, employees,
agents, members, and affiliates harmless from and against any and all losses,
damages, costs, and out-of-pocket expenses, including reasonable attorney's and
other expert's fees, incurred by them and arising out of or resulting from (i)
the ownership or operation of the Excluded Assets, (ii) the ownership or
operation of the Managed Assets either before or after the term of this
Agreement, or (iii) the business and operations of Orange-Madison, the
management of which business and operations are not expressly assumed by
Southern States hereunder.
b. Environmental Indemnification. Orange-Madison
agrees to indemnify, defend by counsel acceptable to Southern States and hold
harmless Southern States, its subsidiaries, affiliates, successors and assigns
and their respective directors, officers, employees, shareholders,
representatives and agents (hereinafter for the purposes of this Section
referred to collectively as "Southern States") from and without limitation,
diminution in value, losses, liabilities and expenses, lawsuits, deficiencies,
interest, penalties, attorneys' fees and all amounts paid in defense or
settlement of the foregoing whether or not arising out of third-party claims,
which may be imposed upon or incurred by Southern States or asserted against
Southern States by any other party or parties (including Governmental Entities),
in connection with any Environmental Conditions or Environmental Noncompliance
arising out of, resulting from or attributable to, the assets, business or
operations of Orange-Madison, Orange-Madison's predecessors in interest,
including, without limitation, any Claims, Expenses, losses, liabilities, etc.,
resulting from the alleged exposure of any person to Environmental Conditions or
Environmental Noncompliance, regardless of whether such Environmental Conditions
or Environmental Noncompliance or exposure resulted from activities of
Orange-Madison or Orange-Madison's agents, representatives, employees or
independent contractors and the breach of any of Southern States'
representatives and warranties. Orange-Madison's obligations pursuant to this
Section shall exist regardless of whether Southern States is alleged or held to
be strictly or jointly and severally liable.
c. Southern States' Indemnification. Southern States
shall indemnify and hold Orange-Madison and its officers, directors, employees,
agents, members, and affiliates harmless from and against any and all losses,
damages, costs, and out-of-pocket expenses, including reasonable attorney's and
other expert's fees, incurred by them and arising out of or resulting from (i)
Southern States' willful and continued failure to substantially perform its
obligations hereunder, or (ii) any willful conduct by Southern States pursuant
to this Agreement that is unlawful, illegal, or otherwise prohibited by law. For
purposes, hereof, no conduct shall be deemed "willful" unless done or omitted to
be done not in good faith and without reasonable belief that the action or
omission was in the best interests of the Business or the Managed Assets.
<PAGE>
d. Retail Support System. Upon the expiration or
termination of this Agreement, in the event that Orange-Madison is and remains
an independent, unaffiliated local cooperative and a customer of Southern
States, Southern States shall grant to Orange-Madison a non-exclusive,
non-transferable license for the use of the software associated with the retail
support system described in Section 2 hereof and shall sell, lease, or otherwise
transfer to Orange-Madison the hardware or other equipment associated therewith
on substantially the same terms as such software, hardware, or other equipment
is made available to other independent, unaffiliated, local cooperatives that
are customers of Southern States.
e. Notices. All notices, requests, demands, and other
communications required or permitted to be given hereunder (a "Notice") shall be
deemed to have been duly given if in writing, signed by or on behalf of the
party giving them, and delivered by hand, or sent by first class, certified, or
registered mail, postage prepaid (and such Notice will be deemed to have been
given as of the date delivered by hand or as of the third (3rd) business day
after the date mailed), addressed:
(1) If to Orange-Madison, to:
W. W. Sanford, III
Post Office Box 165
Orange, Virginia 22960
with a copy to:
Donald E. Showalter, Esquire
Wharton, Aldhizer & Weaver
100 South Mason Street
Harrisonburg, Virginia 22801
(2) If to Southern States, to:
Southern States Cooperative, Inc.
6606 West Broad Street
Richmond, Virginia 23260
Attn: N. Hopper Ancarrow, Jr., Esquire
Such names and addresses may be changed by such a Notice.
<PAGE>
f. Assignment. This Agreement and all rights and
obligations hereunder may not be sold, assigned, or transferred by Southern
States or Orange-Madison.
g. Entire Agreement Modification. This Agreement,
including the Appendices referred to herein and which form a part hereof,
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein. This Agreement may not be changed except by a
writing signed by each of the parties.
h. Governing Law. The interpretation and enforcement
of this Agreement will be in accordance with the laws of the Commonwealth of
Virginia.
i. Waiver. The failure of any party to this Agreement
at any time or times to require performance of any provisions of this Agreement
shall in no matter affect the right to enforce the same. No waiver by any party
to this Agreement of any condition, or of the breach of any term, provision,
warranty, representation, agreement, or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of any other term, provision,
warranty, representation, agreement, or covenant contained in this Agreement.
j. Severability. In the event that any court of
competent jurisdiction shall determine that any provision of this Agreement is
invalid, such determination shall not affect the validity of any other provision
of this Agreement which shall remain in full force and effect and which shall be
construed as to be valid under applicable law.
k. Section Headings: Gender. The section headings or
captions contained herein are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement. The use of any
gender herein shall be deemed to be or include other genders and the use of the
singular herein shall be deemed to be or include the plural (and vice versa).
l. Counterparts. This Agreement may be executed by
each party upon a separate copy, and in such case one counterpart of this
Agreement shall consist of enough of such copies to reflect the signature of all
of the parties to this Agreement.. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or the terms of this Agreement to
produce or account for more than one of such counterparts.
IN WITNESS WHEREOF, the parties hereof have caused
this Agreement to be executed on the day and year first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
(Corporate Seal) By: /s/ John Hawkins
--------------------------------------
Its: Sr. Vice President and Treasurer
<PAGE>
ORANGE-MADISON COOPERATIVE FARM
SERVICE, INC.
(Corporate Seal) By: /s/ W. W. Sanford, III
--------------------------------------
Its: President
<PAGE>
APPENDIX I
EXCLUDED ASSETS
1. Real estate and improvements, including grain bins, known as "Old
Orange Feed Mill Property," which property is more specifically
described as follows:
All those four certain lots or parcels of land lying and being situate
in the Town of Orange, Spotswood Magistrial District, Orange County,
Virginia, at the southern Terminus of Mill Street, all as shown and
described as lot #1 containing 0.6175 acres, more or less, Lot #2
containing 0.4054 acres, more or less, Lot #3 containing 0.9175 acres,
more or less, and Lot #4 containing 0.6293 acres, more or less, as
containing 1.693 acres by a plat of a survey thereof by Stearns L.
Coleman, C.L.S., dated December 17, 1990.
The said property as described includes the former Orange Milling
Company property, with the flour mill and "tile warehouse" buildings
still standing thereon in 1986, plus a tract of railroad property,
shown on the plat appended to its deed of conveyance to the Cooperative
to be 0.849 acre. Also conveyed but not shown or described above is all
that right, title and interest of the Cooperative in and to all that
strip of adjoining land lying between the car clearance line on the
north side of the C & O Ry, siding noted in the description of the
tract of land hereinabove described and the center line of the said C
and O Ry, siding.
Being the same tracts or parcels of land, title to which vested in
Orange-Madison Cooperative Farm Service, Incorporated, together with
and subject to certain rights of way, easements and covenants, under
and by virtue of the following deeds:
(1) Deed from V. R. Shackelford and Peachy Lyne
Shackelford, his wife, dated February 19, 1937, and recorded
in Orange County Deed Book 110 at page 45. (Orange-Madison
Cooperative Farm Bureau, Incorporated, the named Grantee in
said deed, having changed its name by amendments to its
charter filed with the State Corporation Commission of
Virginia on October 15, 1951, to Orange-Madison Cooperative
Farm Service, Incorporated.)
(2) Deed from V. R. Shackelford and Peachy Lyne
Shackelford, his wife, dated January 15, 1946, and recorded in
Orange County Deed Book 125 at page 321. (Orange-Madison
Cooperative Farm Bureau, Incorporated, the Grantee in said
deed, having changed its name as noted in (1) above.)
<PAGE>
(3) Deed from the Chesapeake and Ohio Railway Company
dated May 14, 1958, and recorded in Orange County Deed Book
181 at page 137.
(4) Deed from Henry C. DeJarnette, et ux, dated March
28, 1969, and recorded in Orange County Deed Book 238 at page
392.
This tract is subject to the reservation of a 10' easement
along the northern portion of the land so conveyed, said
reservation made and described in a deed from the said Henry
C. DeJarnette to John Long in a deed dated June 15, 1936, and
recorded in Orange County Deed Book 108 at page 238.
2. Inventories consisting primarily of fee, grains and feed ingredients,
which inventories are in amounts usual and customary and are located at
the "Old Orange Feed Mill Property" on the Effective Date.
3. Rapidan Mill note receivable (Mel Hall note) or the proceeds therefrom.
<PAGE>
RECLASSIFICATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of September, 1991,
by and between ORANGE-MADISON COOPERATIVE FARM SERVICE, INC. ("Orange-Madison"),
a nonstock corporation organized pursuant to the Virginia Agricultural
Cooperative Association Act, and SOUTHERN STATES COOPERATIVE, INC. ("Southern
States"), a corporation organized pursuant to the Virginia Agricultural
Cooperative Association Act.
RECITALS
WHEREAS, Orange-Madison and Southern States are parties to a
certain Management/Operating Agreement, dated March 1, 1991 (the "Operating
Agreement"), through which Southern States renders management and related
services with respect to the Managed Assets but not with respect to the Excluded
Assets.
WHEREAS, the Excluded Assets are identified on Appendix 1 to
the Operating Agreement.
WHEREAS, in accordance with the terms and conditions set forth
herein, the parties desire (i) to reclassify as a Managed Asset that parcel of
real property (and improvements thereon) lying and being situate in the Town of
Orange, Spotswood Magisterial District, Orange County, Virginia at the southern
Terminus of Mill Streets, shown and described as lot #1 containing 0.6175 acres
more or less, and more specifically described on Appendix 1 to the Operating
Agreement (the "Grain Facility"), and (ii) to grant Southern States a security
interest in the feed, grain, and feed ingredients, which Orange-Madison owns and
stores in the Grain Facility.
WHEREAS, the parties desire that the Operating Agreement
continue in full force and effect in accordance with its terms in all other
respects.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual obligations and
covenants contained herein, Orange-Madison and Southern States agree as follows:
1. Reclassification. Notwithstanding the provisions of the
Operating Agreement, (i) the parties hereby reclassify the Grain Facility as a
Managed Asset, effective September 1, 1991 (the "Effective Date"), to be
operated by Southern States in accordance with the Operating Agreement, and (ii)
Orange-Madison hereby grants Southern States a security interest in the
inventory at such facility, which inventory includes but is not limited to feed,
grains, and feed ingredients, which security interest the parties acknowledge is
evidence and perfected by the following financing statements: (a) financing
statement number 910310406, which was filed with the State Corporation
Commission of the Commonwealth of Virginia, on March 4, 1991, (b) financing
statement number 45081, which was filed with the Circuit Court Clerk's Office in
Madison County, Virginia on March 1, 1991, and (c) financing statement number
910075, which was filed with the Circuit Court Clerk's Office in Orange County,
Virginia on March 1, 1991.
<PAGE>
2. Term. The Grain Facility shall remain a Managed Asset and
this Agreement shall remain in effect for a period of twelve (12) months from
the Effective Date (the "Initial Term"). At the end of such Initial Term, this
Agreement shall be automatically renewed from year to year (each, a "Renewal
Term") until and unless terminated as provided herein. Notwithstanding the
foregoing, this Agreement shall not be renewed for any Renewal Term and shall
expire and terminate at and as of the end of the Initial Term if Southern States
shall have notified Orange-Madison, in writing, of its intent to terminate the
Agreement at the expiration of the Initial Term at least sixty (60) days prior
to the expiration of such Initial Term.
3. Termination. This Agreement may be terminated, effective at
the end of the current Renewal Term, if any, by Southern States notifying
Orange-Madison, in writing, of its intent to terminate the Agreement at least
sixty (60) days prior to the expiration of such Renewal Term. In addition, this
Agreement will terminate immediately upon the termination of the Operating
Agreement as provided in Paragraph 16b thereof, without any notice or other
action by the parties hereunder.
4. Effect of Expiration or Termination.
a. Upon the expiration of the Initial Term or, if applicable,
a Renewal Term, the Grain Facility shall cease being a Managed Asset and shall
convert back to an Excluded Asset.
b. In the event this Agreement is terminated, prior to the
expiration hereof, pursuant to Paragraph 3 above, the parties rights hereunder
shall be determined in accordance with Paragraph 16 of the Operating Agreement.
5. Miscellaneous.
a. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them in the Operating
Agreement.
b. Notices. All notices, requests, demands, and other
communications required or permitted to be given hereunder shall be deemed to
have been duly given if given in accordance with Section 19e of the Operating
Agreement.
c. Assignment. This Agreement and all rights and obligations
hereunder may not be sold, assigned, or transferred by Southern States or
Orange-Madison.
d. Entire Agreement: Modification. This Agreement contains the
entire understanding of the parties hereof with respect to the subject matter
contained herein. This Agreement may not be changed except by a writing signed
by each of the parties.
<PAGE>
e. Governing Law. The interpretation and enforcement of this
Agreement will be in accordance with the laws of the Commonwealth of Virginia.
f. Waiver. The failure of any party to this Agreement at any
time or times to require performance of any provisions of this Agreement shall
in no manner affect the right to enforce the same. No waiver by any part of this
Agreement of any condition, or of the breach of any term, provision, warranty,
representation, agreement or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed or construed
as a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of the breach of any other term, provision, warranty,
representation, agreement, or covenant contained in this Agreement.
g. Severability. In the event that any court of competent
jurisdiction shall determine that any provision of this Agreement is invalid,
such determination shall not affect the validity of any other provision of this
Agreement which shall remain in full force and effect and which shall be
construed as to be valid under applicable law.
h. Section Headings: Gender. The section headings or captions
contained herein are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement. The use of any gender herein
shall be deemed to be or include other genders and the use of the singular
herein shall be deemed to be or include the plural (and vice versa).
i. Counterparts. This Agreement may be executed by each party
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signature of all of the parties
to this Agreement. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and it shall not be necessary in
making proof of this Agreement or the terms of this Agreement to produce or
account for more than one of such counterparts.
<PAGE>
IN WITNESS WHEREOF, the parties hereof have caused their duly
authorized representatives to execute this Agreement on the day and year first
above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
(Corporate Seal)
By: /s/ Thomas M. Kirkpatrick
-----------------------------------
Its: Vice President Retail Division II
ORANGE-MADISON COOPERATIVE FARM
SERVICE, INC.
(Corporate Seal)
By: /s/ W. W. Sanford, III
-----------------------------------
Its: President
<PAGE>
AMENDMENT TO MANAGEMENT/OPERATING AGREEMENT
THIS AGREEMENT is made as of this 20th day of November, 1992, by and
between ORANGE-MADISON COOPERATIVE FARM SERVICE, INC. ("Orange-Madison"), a
nonstock corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act, and SOUTHERN STATES COOPERATIVE, INC. ("Southern States"), a
corporation organized pursuant to the Virginia Agricultural Association Act.
WHEREAS, Orange-Madison and Southern States are parties to a certain
Management/Operating Agreement, dated March 1, 1991 (the "Operating Agreement"),
through which Southern States renders management and related services with
respect to the managed assets and provides all Working Capital Requirements in
connection with the Business and Managed Assets; and
WHEREAS, the Operating Agreement excludes funds required for retirement
of Orange-Madison patron equity from the term Working Capital Requirements; and
WHEREAS, the parties desire to amend the provisions of the Operating
Agreement (i) to permit a limited retirement of Orange-Madison patron equity
from Working Capital Requirements, and (ii) to require the repayment to Southern
States of all Working Capital Requirements used to retire Orange-Madison patron
equity from the proceeds derived from the sale of Existing Current Assets as a
cost under Section 5(c)(y) of the Operating Agreement; and
WHEREAS, the parties desire that the Operating Agreement continue in
full force and effect in accordance with its terms in all other respects.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual obligations and
covenants contained herein, Orange-Madison and Southern States agree as follows:
1. Notwithstanding the definition of Working Capital Requirements
contained in Section 1(u) of the Operating Agreement or any other provision of
the Operating Agreement, Working Capital Requirements shall include a maximum of
$30,000 in the aggregate to retire Orange-Madison patron equity to settle
estates during the Term, and any extensions or renewals thereof, of the
Operating Agreement. It is the intent of the parties that the funds available
for such retirements be limited to a maximum of $30,000 which shall be a
cumulative ceiling for the full term of the Operating Agreement, beginning March
1, 1991, and extending through December 31, 1993.
2. Section 5(c)(y) of the Operating Agreement is amended to require
that all Working Capital Requirements utilized for the retirement of patron
equity shall be repaid to Southern States out of the proceeds available from the
termination of the Escrow Agreement derived from the sale or other disposition
of Existing Current Assets. Working Capital Requirements advanced for the
retirement of patron equity shall be evidenced by a negotiable promissory note
in the amount of $30,000 which shall be executed by Orange-Madison and against
which existing and future advances for said retirements shall be made. The
parties agree that said note shall be repaid from funds remitted to
Orange-Madison pursuant to Section 8(b) of the Escrow Agreement dated as of
March 1, 1991, by and between Southern States and Orange-Madison and applied by
Orange-Madison as permitted by Paragraph 2 of the Management of Excluded Asset
Fund Agreement dated as of March 1, 1991, by and between National Bank for
Cooperatives ("CoBank") and Orange-Madison.
<PAGE>
IN WITNESS WHEREOF, the parties hereof have caused their duly
authorized representatives to execute this Agreement on the day and year first
above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
(Corporate Seal)
By: /s/ John Hawkins
--------------------------------
Its: Sr. Vice President & Treasurer
ORANGE-MADISON COOPERATIVE FARM SERVICE, INC.
(Corporate Seal)
By: /s/
-------------------------------
Its: Chairman
National Bank for Cooperatives joins in the execution of the above and
within Amendment to evidence its consent to same and to evidence its written
consent to the application of funds as required by Paragraph 2 of the Management
of Excluded Asset Fund Agreement, dated as of March 1, 1991, between National
Bank for Cooperatives and Orange-Madison.
NATIONAL BANK FOR COOPERATIVES
By: /s/ Thomas C. Martin
-------------------------------
Its: Assistant Vice President
<PAGE>
THIRD AMENDMENT TO MANAGEMENT/OPERATING AGREEMENT
THIS AGREEMENT is made as of this 1st day of April, 1993, by and
between ORANGE-MADISON COOPERATIVE FARM SERVICE, INC. ("Orange-Madison"), a
nonstock corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act, and SOUTHERN STATES COOPERATIVE, INC. ("Southern States"), a
corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act.
WHEREAS, Orange-Madison and Southern States are parties to a certain
Management/Operating Agreement, dated March 1, 1991, as amended in September
1991 and November 1992, (the "Operating Agreement"), through which Southern
States renders management and related services with respect to the managed
assets and provides all Working Capital Requirements in connection with the
Business and Managed Assets; and
WHEREAS, the parties desire to amend the provisions of the Operating
Agreement (i) to provide for the adoption by Orange-Madison of certain of the
Southern States benefit plans and employee vacation and sick leave policies, and
(ii) to provide for the automatic renewal of the Operating Agreement from year
to year after December 31, 1993; and
WHEREAS, the parties desire that the Operating Agreement, as amended,
continue in full force and effect in accordance with its terms in all other
respects.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual obligations and
covenants contained herein, Orange-Madison and Southern States agree as follows:
<PAGE>
1. The Operating Agreement is amended to add the following provisions
in Section 19, to be designated as Sections 19(m), (n), and (p):
19. Miscellaneous.
m. Welfare Benefit Plans. Effective as of the dates set forth
below, the Southern States Employee Welfare Benefit Plans heretofore adopted by
Southern States for the benefit of its employees shall be, and hereby are,
adopted (together with all the included plans) as the Employee Welfare Benefit
Plans of Orange-Madison for the benefit of its employees, (and Directors, in the
case of the Travel Accident Plan), and all amendments and modifications of said
Plans hereafter approved by the Board of Directors of Southern States (or where
appropriate, the Employee Benefits Administrative Committee [the "EBAC"]) shall
apply automatically to the employees (and Directors, where applicable) of
Orange-Madison; and Southern States shall advise Orange-Madison of any such
amendment hereafter adopted. Southern States is authorized to execute such
instruments and to perform any and all acts as may be necessary on behalf of
Orange-Madison to accept, continue in force, or amend said Plans. As of the date
of this Agreement, the following are included plans and the effective dates of
adoption by Orange-Madison are set forth below.
<PAGE>
<TABLE>
<CAPTION>
Orange-Madison
Name of Plan Effective Date
------------ --------------
<S> <C>
Southern States Medical Plan April 1, 1993
Southern States Dental Plan April 1, 1993
Southern States Term Life Plan July 1, 1993
Southern States Special Accidental April 1, 1993
Death and Dismemberment Plan
Southern States Travel Accident Plan April 1, 1993
Southern States Long Term April 1, 1993
Southern States Health Care January 1, 1994
Spending Account
Southern State Dependent Care January 1, 1994
Spending Account
Southern States Flexible Benefit Plan April 1, 1993
Southern States Employee Assistance Plan - April 1, 1993
(if applicable in geographic area)
Southern States Severance Plan January 1, 1994
</TABLE>
(n) Retirement Plan. Effective January 1, 1994, the Retirement Plan for
Employees of Southern States Cooperative, Incorporated, as amended and restated
effective July 1, 1989, heretofore adopted by Southern States for the benefit of
its employees shall be and hereby is, adopted as the Retirement Plan of
Orange-Madison for the benefit of its employees, and all amendments and
modifications of said Plan hereafter approved by the Board of Directors of
Southern States (or where appropriate, the Employee Benefits Administrative
Committee [the "EBAC"] or the Employee Benefits Investment Committee [the
"EBIC"]) shall apply automatically to the employees of Orange-Madison; and
Southern States shall advise Orange-Madison of any such amendment hereafter
adopted. Southern States is authorized to execute such instruments and to
perform any and all acts as may be necessary on behalf of Orange-Madison to
accept, continue in force, or amend said Plan.
(o) Thrift Plan. Effective January 1, 1994, the Southern
States Thrift Plan and Trust, as amended and restated effective January 1, 1987,
heretofore adopted by Southern States for the benefit of its employees shall be
and hereby is, adopted as the Thrift Plan of Orange-Madison for the benefit of
its employees, and all amendments and modifications of said Plan hereafter
approved by the Board of Directors of Southern States (or where appropriate, the
Employee Benefits Administrative Committee [the "EBAC"] or the Employee Benefits
Investment Committee [the "EBIC"]) shall apply automatically to the employees of
Orange-Madison; and Southern States shall advise Orange-Madison of any such
amendment hereafter adopted. Southern States is authorized to execute such
instruments and to perform any and all acts as may be necessary on behalf of
Orange-Madison to accept, continue in force, or amend said Plan.
(p) Vacation and Sick Leave Policies. Effective January 1,
1994, the vacation and sick leave policies of Orange-Madison shall be the same
as the present vacation and sick leave policies of Southern States effective
January 1, 1994. Changes to these policies shall be subject to the approval of
the Board of Directors of Orange-Madison.
2. Section 16(a) of the Operating Agreement is amended to read as
follows:
(a) Term. The term of this Agreement (the "Term") shall
commence on the Effective Date and continue in full force and effect through
December 31, 1993, and shall continue, unless sooner terminated as provided in
Section 16(b) hereof, from year to year thereafter until terminated by either
party hereto by the giving of at least sixty (60) days' prior written notice to
the other party of its intention to terminate at the end of the then current
calendar year (the "Termination Date").
<PAGE>
IN WITNESS WHEREOF, the parties hereof have caused their duly
authorized representatives to execute this Agreement on the day and year first
above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
(Corporate Seal)
By: /s/ M. T. Ragsdale
--------------------------------------
Its: Executive Vice President and Chief
Operating Officer
ORANGE-MADISON COOPERATIVE FARM
SERVICE, INC.
(Corporate Seal)
By: /s/
-------------------------------------
Its: Chairman of Board
<PAGE>
FOURTH AMENDMENT TO MANAGEMENT/OPERATING AGREEMENT
THIS AGREEMENT is made as of this 1st day of February, 1994, by and
between ORANGE-MADISON COOPERATIVE FARM SERVICE, INC. ("Orange-Madison"), a
nonstock corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act, and SOUTHERN STATES COOPERATIVE, INC. ("Southern States"), a
corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act.
WHEREAS, Orange-Madison and Southern States are parties to a certain
Management/Operating Agreement, dated March 1, 1991, as amended in September
1991, November 1992, and April 1993 (the "Operating Agreement"), through which
Southern States renders management and related services with respect to the
managed assets and provides all Working Capital Requirements in connection with
the Business and Managed Assets; and
WHEREAS, the parties desire to amend the provisions of the Operating
Agreement to remove Southern States' obligation to cover, bear, or otherwise
absorb the Orange-Madison Operating Losses, as defined in the Operating
Agreement, after December 31, 1993; and
WHEREAS, the parties desire that the Operating Agreement, as amended,
continue in full force and effect in accordance with its terms in all other
respects.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual obligations and
covenants contained herein, Orange-Madison and Southern States agree as follows:
1. The Operating Agreement is amended to delete in its entirety the
provisions of Section 6, effective January 1, 1994.
<PAGE>
IN WITNESS WHEREOF, the parties hereof have caused their duly
authorized representatives to execute this Agreement on the day and year first
above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
(Corporate Seal)
By: /s/ John Hawkins
---------------------------------
Its: Sr. Vice President & CFO
ORANGE-MADISON COOPERATIVE FARM
SERVICE, INC.
(Corporate Seal)
By: /s/
-------------------------------
Its: Board Chairman
<PAGE>
FIFTH AMENDMENT TO MANAGEMENT/OPERATING AGREEMENT
THIS AGREEMENT is made as of this 1st day of May, 1994, by and between
ORANGE-MADISON COOPERATIVE FARM SERVICE, INC. ("Orange-Madison"), a nonstock
corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act, and SOUTHERN STATES COOPERATIVE, INC. ("Southern States"), a
corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act.
WHEREAS, Orange-Madison and Southern States are parties to a certain
Management/Operating Agreement, dated May 1, 1991, as amended in September 1991,
November 1992, April 1993, and February 1994 (the "Operating Agreement"),
through which Southern States renders management and related services with
respect to the Managed Assets and provides all Working Capital Requirements in
connection with the Business and Managed Assets; and
WHEREAS, the parties desire to amend the provisions of the Operating
Agreement to reclassify as a Managed Asset that parcel of real property,
together with the improvements thereon, lying and being situate in the Town of
Orange, Spotswood Magisterial District, Orange County, Virginia, at the southern
terminus of Mill Street, shown and described as Lot #2 containing 0.4054 acres,
more or less; Lot #3 containing 0.917 acres, more or less; and Lot #4 containing
0.6293 acres, more or less, as shown on a plat of survey thereof by Stearns L.
Coleman, dated December 17, 1990, and described in Appendix 1 to the Operating
Agreement (the "Mill Street Facility"). Said Mill Street Facility being adjacent
to the Grain Facility which was reclassified as a Managed Asset by a
Reclassification Agreement, effective as of September 1, 1991; and
<PAGE>
WHEREAS, the parties desire that the Operating Agreement, as amended,
continue in full force and effect in accordance with its terms in all other
respects.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual obligations and
covenants contained herein, Orange-Madison and Southern States agree as follows:
1. The Operating Agreement is amended to reclassify the Mill Street
Facility as a Managed Asset to be managed by Southern States in accordance with
the Operating Agreement, effective May 1, 1994.
IN WITNESS WHEREOF, the parties hereof have caused their duly
authorized representatives to execute this Agreement on the day and year first
above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
(Corporate Seal)
By: /s/ John Hawkins
-------------------------------------
Its: Sr. Vice President & CFO
ORANGE-MADISON COOPERATIVE FARM
SERVICE, INC.
(Corporate Seal)
By: /s/
-----------------------------------
Its: Board Chairman
<PAGE>
SIXTH AMENDMENT TO MANAGEMENT/OPERATING AGREEMENT
THIS AGREEMENT is made as of this 2nd day of March, 1995, by and
between ORANGE-MADISON COOPERATIVE FARM SERVICE, INC. ("Orange-Madison"), a
nonstock corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act, and SOUTHERN STATES COOPERATIVE, INC. ("Southern States"), a
corporation organized pursuant to the Virginia Agricultural Cooperative
Association Act.
WHEREAS, Orange-Madison and Southern States are parties to a certain
Management/Operating Agreement, dated March 1, 1991, as amended in September
1991, November 1992, April 1993, February 1994, and May 1994 (the "Operating
Agreement"), through which Southern States renders management and related
services with respect to the Managed Assets and provides all Working Capital
Requirements in connection with the Business and Managed Assets; and
WHEREAS, the Operating Agreement and the Amendment to
Management/Operating Agreement, dated November 20, 1992, limit and restrict
funds required for retirement of Orange-Madison patron equity from Working
Capital Requirements; and
WHEREAS, the parties desire to amend the provisions of the Operating
Agreement to permit retirement of Orange-Madison patron equity in order to
settle estates (without limiting the aggregate maximum of such retirements to
settle patron estates); and
WHEREAS, the parties desire that the Operating Agreement, as amended,
continue in full force and effect in accordance with its terms in all other
respects.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual obligations and
covenants contained herein, Orange-Madison and Southern States agree as follows:
1. The $30,000 limitation on the retirement of Orange-Madison patron
equity to settle estates is removed. (Said $30,000 limitation was set forth in
the Amendment to Management/Operating Agreement, dated November 20, 1992.)
2. Section 1(u) of the Operating Agreement is amended to add the
following clause to the end of the section: ". . . except for redemptions to
settle estates of deceased patrons."
IN WITNESS WHEREOF, the parties hereof have caused their duly
authorized representatives to execute this Agreement on the day and year first
above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
(Corporate Seal)
By: /s/ John Hawkins
--------------------------------------
Its: Sr. Vice President & CFO
ORANGE-MADISON COOPERATIVE FARM
SERVICE, INC.
(Corporate Seal)
By: /s/
-------------------------------
Its: Board Chairman
EXHIBIT 10.8(a)
January 7, 1998
Mr. Greg Adlich
Vice President, Crops Division
Southern States Cooperative, Inc.
P. O. Box 26234
Richmond, Virginia 23260
Subject: MEMBER PRODUCT PURCHASE AGREEMENT
Schedules of Product Purchases
Contract Year 2001-2002
Dear Greg:
As is required by the Member Product Purchase Agreement (Section III, Paragraph
3.2) we are enclosing Schedules of Product Purchases for designation of your
company's product requirements.
The foundation of that Agreement is the execution of a mutually agreeable
schedule of purchases for the next five (5) years. Because the Member Product
Agreement is an integral part of the CF Industries, Inc. long-term financing, it
is essential that designations thereunder be kept current.
In accordance with the provisions of the Agreement, at the end of each year a
mutually agreeable supplement to the Schedules of Product Purchases covering the
fifth (5th) year hence is to be executed by each Member and by CF.
It is imperative that supplements to the Schedules of Product Purchases for
contract year 2001-2002 be executed formally by each Member and by CF. To allow
both the Members and CF, respectively, adequate time to prepare and analyze
these product requirements, the timetable on the following page is suggested.
<PAGE>
Mr. Greg Adlich
Vice President, Crops Division
Southern States Cooperative, Inc.
January 7, 1998
Page 2
<TABLE>
<CAPTION>
<S> <C>
February 16, 1998 - Member product requirements for contract year 2001-2002 should be submitted to
CF, in duplicate, both copies to be signed and dated by an appropriate officer
of the Member.
February 27, 1998 - CF and the Members are to agree mutually to product requirements for contract
year 2001-2002.
March 9, 1998 - All Schedules of Product Purchases are to be executed by appropriate officers
of both CF and the Member, and one (1) copy is to be returned to Member.
</TABLE>
We recognize that a substantial amount of effort will be needed by Members to
prepare these forecast product requirements. To assist Members in this regard,
if we are so requested CF will be pleased to make available assistance from our
Marketing and Member Services personnel.
We look forward to working with you to make the Member Product Purchase
Agreement a successful tool for Members and CF to meet the plant food
requirements of your farmer patrons.
Sincerely yours,
/s/ John H. Sultenfuss
---------------------------
John H. Sultenfuss
Senior Vice President
Marketing and Sales
JHS:DJB
Attachments
cc: M.R. Smith
<PAGE>
CF INDUSTRIES, INC.
MEMBER PRODUCT PURCHASE AGREEMENT
October 18, 1974
<PAGE>
CF INDUSTRIES, INC.
MEMBER PRODUCT PURCHASE AGREEMENT
Contents
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
I Nature of Agreement 2
II Definitions 2
III Term 3
IV Price and Patronage 4
V Payments 6
VI Taxes 6
VII Specifications 7
VIII Quantity 7
IX Damages 10
X Allocation 12
XI Delivery 15
XII Force Majeure 15
XIII Default and Waiver 17
XIV Assignment 18
XV Warranties 18
XVI Modifications 19
XVII Cooperation 20
XVIII Disputes 20
XIX Notices 21
XX Law 21
</TABLE>
<PAGE>
MEMBER PRODUCT PURCHASE AGREEMENT
This Agreement made and entered into by and between CF INDUSTRIES, INC., an
agricultural cooperative association organized under the laws of the State of
Illinois ("Co-op"), and ________________________________________, an
agricultural cooperative association organized under the laws of
______________________________________________ ("Member"),
WITNESSETH
WHEREAS, Co-op has undertaken at the instance and request of its
members to develop and operate plants and equipment for the production and
distribution of fertilizer materials for the benefit of its members; and
WHEREAS, Co-op has committed a substantial financial investment in
production and distribution facilities for the benefit of its members and in
reliance on the Agreement will commit additional funds for expansion of such
facilities to meet the requirements of its members; and
WHEREAS, Member wishes to participate in the benefits of a dependable
long-term supply of fertilizers and to cooperate with other members of Co-op in
the development and operation of production and distribution facilities by the
execution of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained it is hereby agreed as follows:
<PAGE>
I
NATURE OF AGREEMENT
Nature of 1.1 This Agreement is generally intended to provide
Agreement for the sale and purchase by Member of fertilizer
materials produced, purchased and distributed by Co-op.
II
DEFINITIONS
Definitions As used in this Agreement the following terms
shall have the following respective meanings:
2.1 "Facilities" shall mean the plants and
equipment operated by Co-op for the manufacture, storage
and distribution of fertilizer materials.
2.2 "Ton" shall mean two thousand pounds
avoirdupois.
2.3 "Year" shall mean a fiscal year of twelve
(12) consecutive months commencing July 1st and ending
June 30th.
2.4 "Month" shall mean a calendar month.
2.5 "Product" shall mean any fertilizer materials
(in dry, liquid or gaseous form) sold and purchased or
to be sold and purchased hereunder.
2.6 "Nutrient" shall mean the nitrogen,
phophorous or potassium content of Product, expressed as
N, P2O5 and K2O respectively.
2.7 "Available Supply" shall mean the quantity of
all Product or Nutrient secured by Co-op for
distribution to its members from assured sources,
whether by manufacture, or (except for "spot purchases")
by purchase or barter, during each Year; it shall not
mean Product processed or exchanged with or sold to
other persons in connection with contracts with
non-members for the general benefit of all members.
2.8 "Shipping Point" shall mean the place
designated by Co-op for the delivery of Product within
the relevant market area.
<PAGE>
III
TEAM
Term 3.1 The term of this Agreement shall be as
follows:
(a) Base Period - The Base Period of this
Agreement shall be a term of ten Years commencing on the
first day of July, 1975.
(b) Evergreen Period - After the expiration of
the Base Period this Agreement shall remain in force for
an indefinite term until the Product sales and purchases
provided in the Schedule of Product Purchases and all
supplements thereto have been completed as required by
this Agreement.
3.2 At the end of the first Year of this
Agreement and each Year thereafter, the parties shall
execute a mutually agreeable supplement to the schedule
of Product Purchases covering the fifth Year hence, as
further provided in Section 8.5. The parties agree that
the supplements to the Schedule of Product Purchases for
the sixth through tenth Years of the Base Period shall
provide for the sale and purchase of Product in an
aggregate quantity not less than the aggregate quantity
to be sold and purchased during the first through fifth
years of the Base Period.
<PAGE>
IV
PRICE AND PATRONAGE
Price and 4.1 The parties to this Agreement have
Patronage intentionally left the purchase price to be paid by Member
to Co-op for Product open for later determination. It is
the intention of the parties that they be bound by this
Agreement from the date of signing of the Agreement, even
though the price is not determined at that time. Each Year
pricing policies of Co-op shall be reviewed and
established by its Board of Directors at the time of
adoption of the annual budget.
4.2 The price applicable to each shipment of
Product shall be generally competitive with fair market
prices in effect for sales to independent purchasers by
producers of like Products of the same grade and quality
(excluding prices for spot sales on an isolated or
irregular basis) for shipment to the same class of trade,
or absent such market, the price to dealers with
appropriate discounts, the same date, after appropriate
adjustment for the allowances and discounts customarily
granted for freight (as appropriate to Co-op's established
distribution system in the relevant market) and for prompt
payment.
4.3 Co-op shall from time to time publish
effective prices for each type of Product.
4.4 Co-op may from time to time offer as an
allowance to induce Member to accept delivery of certain
Product during each Year in substantially equal quantities
each Month an amount representative of the cost savings
realized by Co-op as a consequence of such uniform
delivery (as compared with normal seasonal delivery
patterns which would be expected to occur in a free market
in a period of adequate supply).
<PAGE>
4.5 Subject to the Articles of Incorporation and
Bylaws of Co-op, each Year Co-op shall distribute to
Member on a fair and equitable basis that part of the net
earnings remaining after setting aside reasonable and
adequate reserves recognized from business transacted with
all members of Co-op during such Year as patronage
dividends in the form of cash, shares of stock,
certificates of interest, or such other notification of
patronage participation as Co-op shall determine; and
Member hereby consents and agrees to include in the gross
income of Member all patronage dividends in the taxable
year received.
4.6 In the event of Force Majeure, or other
contingency as provided in Article XII hereof, including,
without limitation, governmental action, resulting in a
substantial increase in the estimated costs of operation
of Co-op, the minimum price for any or all Product
effected by such event shall be appropriately increased.
V
PAYMENTS
Payments 5.l Payment for Product shall be made by Member
to Co-op within thirty days after Member takes delivery of
Product.
5.2 Payments shall be made in U.S. dollars.
5.3 Payment shall be made at the office of Co-op
at Long Grove, Illinois, or as otherwise specified by
Co-op.
<PAGE>
VI
TAXES
Taxes 6.1 The Price established pursuant to this
Agreement shall not include excise, transfer, sales or
other taxes, or charges payable to governments, imposed,
levied, assessed or collected for the transfer or sale, of
Product. Member shall pay and be responsible for the
amount of all such taxes or other charges and shall pay
directly as due or advance the amount due to Co-op for
timely payment.
6.2 Member shall be entitled to contest the
imposition of any such taxes or charges and Co-op shall
render full cooperation to Member in this behalf.
VII
SPECIFICATIONS
Specifi- 7.1 All Products shall conform to quality
cations specifications generally accepted in the industry.
7.2 In theevent any Product delivered deviates
from the foregoing specifications, Member shall be
entitled to a rice adjustment to the extent of any loss
on the resale f the Product resulting from the granting
of actual and reasonable credits or cost reductions to
purchasers; provided notice of such deviation and
adequateopportunity to inspect and to accept a return of
such Product shall have been given to Co-op prior to
resale.
7.3 Member shall have the right to inspect
Product either at the time of delivery or at the time of
unloading from the carrier and within ten business days
after such inspection must give notice to Co-op of any
claim for damages on account of condition, quality or
grade of the Product, specifying in detail the basis of
such claim. The failure of Member to comply with these
conditions shall constitute acceptance of the Product by
Member, except in the event of latent defects not readily
discoverable in the ordinary routine of business.
<PAGE>
VIII
QUANTITY
Quantity 8.1 Member shall purchase from Co-op and Co-op
shall sell to Member during each Year the quantity of
nutrient (contained in Product of various types) as set
forth in the Schedule of Product Purchases hereto
attached.
8.2 Co-op reserves the right to adjust production
of a particular Product and to substitute other Product
containing in the aggregate the same Nutrient content as
the curtailed Product when appropriate to the best
interests of the Product needs of substantially all of its
members after giving due consideration to the effect of
such adjustment of production upon each of its members;
provided, Co-op shall give to member reasonable notice and
opportunity to cancel its commitment for the Product to be
curtailed.
8.3 The quantity of Product delivered hereunder
shall be governed by weights and measurements taken by
Co-op at the time of delivery to carrier. Member may call
for an examination of any weighing or measuring devices to
be made by an independent qualified examiner at Member's
cost. If such examination discloses any inaccuracy in the
weighing or measuring equipment of 1% or more, the cost of
examination and correction shall be reimbursed by Co-op to
Member and all invoices for shipments of Product during
the period of such inaccuracy, but not more than thirty
days prior to the examination, shall be adjusted
appropriately.
<PAGE>
8.4 Co-op will use its best efforts to ship and
Member will use its best efforts to accept delivery of
Product in approximately equal weekly quantities.
8.5 During each Year this Agreement is in force,
and not later than three Months prior to the end of such
Year, Member shall furnish to Co-op a proposed supplement
(commonly referred to as "intents") to the Schedule of
Product Purchases setting forth the types and quantities
of Product, if any, Member desires to purchase from Co-op
during the succeeding fifth Year; provided, however, that
Member and Co-op must mutually agree on the quantities of
Nutrient to be sold and purchased pursuant to such
supplement and Co-op may decline to accept changes in
quantities of Nutrient to the extent appropriate to
equitably supply all members of Co-op. In determining
whether a proposed supplement is acceptable Coop shall
consider, among other factors, the ability of Co-op to
produce, acquire and distribute Products and Member's
ability to provide storage and distribute Products. The
proposed purchases ("intents") as accepted by Co-op shall
become a permanent index for purposes of applying the
allocation formulas described in Section 10.2 hereof.
Member may make reasonable amendments to the Schedule of
Product Purchases to change the Product mix, but not to
change the quantity of Nutrient, after reasonable prior
notice and within the practical constraints of Co-op's
productive capacities and its commitments to other
members.
<PAGE>
8.6 Co-op shall use its best efforts to make
available 110% of the quantity of N and P2O5, and 100% of
the quantity of K2O agreed to be sold to Member in the
form of Product needed by Member in each Year.
IX
DAMAGES
Damages 9.1 If any Nutrient Co-op agreed to sell
hereunder during each Year remains unshipped one month
after the end of such Year by reason of a breach or
default of Member, Coop shall be entitled to recover
liquidated damages calculated as follows:
If the Nutrient shipped is less than the
percentage in column A but not less than the
percentage in column B the amount of such damages
shall be the percentage in column C (on a
non-cumulative basis) of the highest price
published by Co-op applicable to Member for such
Nutrient (determined in proportion to the types
of Product not taken) during the Year of default
for the quantity of Nutrient unshipped.
A B C
100% 90% -- %
90 89 5
89 88 7.5
88 87 10
87 86 12.5
86 0 15
<PAGE>
9.2 If any Nutrient Member agreed to purchase
hereunder during each Year remains unshipped one Month
after the end of such Year by reason of a breach or
default of Co-op, Member shall be entitled to recover
liquidated damages calculated as follows: If the Nutrient
shipped is less than the percentage in column A, abut not
less than the percentage in column B, the amount of such
damages shall be the percentage in column C (on a
noncumulative basis) of the highest price published by
Co-op applicable to Member for such Nutrient (determined
in proportion to the types of Product not shipped) during
the Year of default for the Nutrient unshipped.
A B C
100% 96% -- %
96 95 5
95 94 7.5
94 93 10
93 92 12.5
92 O 15
9.3 Member may from time to time waive its rights
to purchase Nutrient in order to permit other members to
purchase said Nutrient; in such event, Member waiving
rights to purchase shall not be liable for liquidated
damages if an actual sale of such Nutrient is made to
another member at the current published price to the
extent of such sale.
9.4 Upon the request of Member Co-op will act as
agent for Member and assist Member to dispose of any
Nutrient which Member agreed to purchase, but which
exceeds Member's need for such Nutrient.
<PAGE>
X
ALLOCATION
10.1 All allocations of Product shall be determined in equivalent tons
of Nutrient (N, P2O5 or K2O); for example, the N and P2O5 content of diammonium
phosphate shall be considered separately.
10.2 In the event Co-op, for any reason, shall be unable to supply the
needs of all members as expressed in their proposals for purchases of Product
and supplements ("intents") thereto, Co-op shall allocate the Available Supply
of Product among all members on the following basis:
(a) During the Year commencing July l, 1975, Member shall be
entitled to purchase that part of the Available Supply of
Nutrient which bears the same proportion to the total
Available Supply of Nutrient as the quantity of Nutrient
shipped to Member during the prior Year bears to the total
quantity of Nutrient shipped from Co-op to all members of
Co-op during the prior Year.
(b) During the Year commencing July l, 1976, Member shall be
entitled to purchase that part of the Available Supply of
Nutrient which bears the same proportion to the total
Available Supply of Nutrient as a number determined by adding
three times the quantity of Nutrient shipped to Member in the
prior Year to the quantity of Nutrient Member proposed to
purchase in the current Year and dividing the sum by four,
bears to a number determined by adding three times the total
quantity of Nutrient shipped by Co-op to all members of Coop
during the prior Year to the quantity of Nutrient all members
of Co-op proposed to purchase in the current Year and dividing
the sum by four.
(c) During the Year commencing July 1, 1977, Member shall be
entitled to purchase that part of the Available Supply of
Nutrient which bears the same proportion to the total
Available Supply of Nutrient as a number determined by adding
the quantity of Nutrient shipped to Member in the prior Year
to the quantity of Nutrient Member proposed to purchase in the
current Year and dividing the sum by two, bears to a number
determined by adding the total quantity of Nutrient shipped by
Co-op to all members of Co-op during the prior Year to the
quantity of Nutrient all members of Co-op proposed to purchase
in the current Year and dividing the sum by two.
<PAGE>
(d) During the Year commencing July 1, 1978, Member shall be
entitled to purchase that part of the Available Supply of
Nutrient which bears the same proportion to the total
Available Supply of Nutrient as a number determined by adding
the quantity of Nutrient shipped to Member in the prior Year
to three times the quantity of Nutrient Member proposed to
purchase in the current Year and dividing the sum by four,
bears to a number determined by adding the total quantity of
Nutrient shipped by Co-op to all members of Co-op during the
prior Year to three times the quantity of Nutrient all members
of Co-op proposed to purchase in the current Year and dividing
the sum by four.
(e) During the Year commencing July 1, 1979, and each Year
thereafter, Member shall be entitled to purchase that part of
the Available Supply of Nutrient which bears the same
proportion to the total Available Supply of Nutrient as the
quantity of Nutrient Member proposed to purchase in the
current Year, bears to the total quantity of Nutrient all
members of Co-op proposed to purchase from Co-op during the
current Year.
<PAGE>
XI
DELIVERY
Delivery 11.1 All Products shall be delivered to Member
and risk of loss shall pass at the Shipping Point.
11.2 Delivery by Co-op to carrier shall
constitute delivery to Member, and if Member requires that
the Product be shipped to the order of Member or freight
prepaid or allowed, after delivery of the Product to
carrier, Co-op shall be deemed to be acting for the
account and the accommodation of Member.
11.3 Co-op shall not be obligated to deliver in
any Month more than twelve percent of the annual quantity
of any Product, other than anhydrous ammonia and nitrogen
solutions, to be sold and purchased during that Year.
11.4 Delivery orders shall be placed by Member in
accordance with reasonable procedures established from
time to time by Co-op after adequate prior notice to
Member.
XII
FORCE MAJEURE
Force l2.l In the event of either party being rendered
Majeure unable by Force Majeure to perform any of its obligations
in receiving or delivering Product hereunder, the
obligations of such party shall be suspended, to the
extent it is unable, in whole or in part, to receive or
deliver Product by reason of Force Majeure, during the
continuance of any inability so caused and the cause of
such inability shall, so far as possible, be remedied with
reasonable diligence.
<PAGE>
12.2 The term "Force Majeure" as used in this
Agreement shall mean natural catastrophy, strikes,
lockouts, or other industrial disturbances, acts of the
public enemy, wars, declared or undeclared, blockades,
insurrections, riots, fires, civil disturbances,
explosions, curtailment of power or natural gas,
compliance with laws, governmental regulations, orders and
requests, whether valid or not, curtailment or other
inability to obtain equipment, supplies, materials, or
transportation Facilities, breakdown of Facilities,
machinery or equipment and any other cause whether of the
kinds herein enumerated or otherwise, not within the
reasonable control of the party claiming suspension, all
of which by the exercise of due diligence such party could
not have reasonably foreseen and provided against;
provided, however, that the settlement of strikes or
lockouts shall be entirely within the discretion of the
party having the difficulty.
12.3 In addition to all other contingencies, the
obligations to make future deliveries of Product hereunder
are contingent upon the construction of additional
production and distribution Facilities. If such additional
Facilities are not completed as planned for reasons beyond
the reasonable control of Co-op, then Co-op shall be
excused from delivery of so much of the Product as would
have been available if the Facilities were completed.
12.4 During any period of shortage of Product
caused by any of the foregoing causes, Co-op may prorate
the Available Supply of Product among its members and
customers under this and other agreements on a fair and
equitable basis. The parties hereby agree that in the
event of a Force Majeure it may not be feasible to
implement the provisions of Article X hereof relating to
Allocations.
<PAGE>
12.5 It is expressly understood and agreed that
in no event shall the provisions of this Article XII be
construed to excuse or suspend the obligations of Member
under this Agreement so as to enable Member to purchase
Product from other Sources at more favorable prices, or on
more favorable credit terms, or to honor other purchase
agreements or to first exhaust supplies of Product
available from productive Facilities owned, directly or
indirectly, by Member, whether now or hereafter existing.
XIII
DEFAULT AND WAIVER
Default 13.1 If either party shall fail to perform any
and of the and covenants or obligations imposed upon it in
Waiver this Agreement (except where such failure shall be excused
under Article XII hereof) , the other party shall notify
the party in default in writing of the alleged default and
if the party in default shall not undertake with all due
diligence to correct the same to comply with the
obligations and covenants hereof within thirty (30) days
from and after receiving such notice, then,
notwithstanding any other provision of this Agreement, the
complaining party shall have the right to terminate this
Agreement on notice in writing to the party in default,
and such termination shall not constitute a waiver of any
other remedy to which the party not in default may be
entitled for breach of the contract.
13.2 Waiver by either party of any breach of the
terms and conditions herein contained shall not be
construed as a waiver of any subsequent breach of the same
or any other provision of this Agreement.
<PAGE>
XIV
ASSIGNMENT
Assignment 14.1 This Agreement shall not be assignable by
either party without the prior written consent of the
other party, except by merger or consolidation of Member
with agricultural cooperative association and except that
Co-op shall have full right and power to assign the
benefit of all or any part of this Agreement, and either
party shall have the right to grant a security interest
herein to any financial institution in connection with any
agreement made for the benefit of the party.
XV
WARRANTIES
Warranties 15.1 Co-op makes no warranty, express or implied,
concerning any Product other than that it shall conform to
the specifications set forth in Article VII hereof. All
other warranties of any kind, express or implied in fact
or by law, including, but not limited to, implied
warranties of merchantability or fitness for any
particular purpose or any implied warranty arising from
course of dealing or usage of any trade, are expressly
excluded from this warranty and from this Agreement.
MODIFICATION
Modifica- 16.1 This Agreement constitutes the entire
tion Agreement between the parties hereto for the sale and
purchase of Product from Agreements, understandings,
representations, conditions and warranties by and between
the parties.
<PAGE>
16.2 Neither party shall be liable for any
representation or warranty of any kind, express or
implied, not expressly set forth in this Agreement.
16.3 This Agreement may not be modified or
amended except by written instrument signed by both of the
parties and shall not be modified or altered by any
subsequent course of performance by either of the parties,
except as expressly otherwise herein provided.
XVI
COOPERATION
17.1 The parties agree to cooperate fully with
one another and to carry out the intents and purposes of
this Agreement and whenever consent may be required of
either party with respect hereto such consent shall not
be unreasonably withheld.
XVIII
DISPUTES
Disputes 18.1 The parties agree that as a condition
precedent to commencement of any suit, all disputes and
controversies of every kind and nature between the parties
hereto arising out of or in connection with this
Agreement, its construction, validity, interpretation,
performance, operation, enforcement, breach, continuance,
or termination, which is not disposed of by agreement of
the parties, shall be submitted for decision by the full
Board of Directors of Co-op by presentation of a concise
statement of the matter in controversy in sufficiently
comprehensive form to express the nature of the
controversy and the issues to be decided. The Board of
Directors shall promptly render a decision on the issues
at its regular meeting next after the submission.
18.2 If either party is not satisfied with the
result of such decision such party shall be entitled to
pursue all other available lawful remedies.
<PAGE>
XIX
NOTICES
Notices 19.1 Unless otherwise provided herein, any notice
required under the terms hereof shall be in writing and
shall be deemed delivered when deposited in the United
States or Canadian mails, postage prepaid, addressed as
follows:
To Co-op CF Industries, Inc.
Salem Lake Drive
Long Grove, Illinois
To Member
or to such other address as either party may designate in
writing.
XX
LAW
Law 20.1 This Agreement shall be construed and governed in
accordance with the laws of the State of Illinois, U.S.A.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been
executed by the parties pursuant to authorization of their
respective Boards of Directors this 16th day of September,
1974.
"Co-op" CF INDUSTRIES, INC,
By /s/
--------------------------
"Member"
Southern States Cooperative, Inc.
By /s/
-----------------------------
June 30, 1975
EXHIBIT 10.8(b)
CF INDUSTRIES, INC. PRODUCT PURCHASE AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
KNOW ALL MEN BY THESE PRESENTS, that, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
pursuant to that certain Asset Purchase Agreement dated as of July 23, 1998 (the
"Asset Purchase Agreement"), between Gold Kist Inc., a Georgia agricultural
cooperative marketing association ("Gold Kist") and Southern States Cooperative,
Inc., a Virginia agricultural cooperative corporation ("Southern States"), Gold
Kist hereby assigns all of its rights and obligations under a certain Member
Product Purchase Agreement (executed September 16, 1975) between Gold Kist and
CF Industries, Inc., a Delaware corporation ("CF") (the "MPPA") to Southern
States, and Southern States accepts and assumes all such rights and obligations
to the same extent as if it had executed a new MPPA.
This agreement is further subject to the terms and provisions of that
certain letter agreement dated June 1, 1998, between CF, Southern States, and
Gold Kist, and shall be binding upon, and inure to the benefit of, Gold Kist,
Southern States, and their respective successors and assigns.
IN WITNESS WHEREOF, each of Gold Kist and Southern States has caused
this instrument to be signed and delivered by its duly authorized officer on
October 13, 1998.
GOLD KIST INC.
By /s/ Gayland O. Coan
------------------------
Name: Gaylord O. Coan
Title: President and Chairman
SOUTHERN STATES COOPERATIVE, INC.
By /s/ Wayne A. Boutwell
----------------------------
Name: Wayne A. Boutwell
Title: President and CEO
CONSENTED AND AGREED TO:
CF INDUSTRIES, INC.
By /s/ Robert C. Liuzzi
- -------------------------
Name: Robert C. Liuzzi
Title: President and CEO
EXHIBIT 10.9
================================================================================
AGREEMENT AND PLAN OF MERGER
between and among
SOUTHERN STATES COOPERATIVE, INCORPORATED
and
MICHIGAN LIVESTOCK EXCHANGE
and
STATESMAN FINANCIAL CORPORATION
and
MICHIGAN LIVESTOCK CREDIT CORPORATION
Dated as of December 31, 1997
================================================================================
<PAGE>
Agreement
Table of Contents
(Not Part of the Agreement)
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I
The Mergers....................................................................................................1
1.1. Merger of MLE into Southern States...............................................................1
1.2. Merger of MLCC into Statesman....................................................................1
1.3. Consummation of the MLE Merger and the MLCC Merger...............................................1
1.4. Approval by MLE Members and MLCC Stockholders....................................................2
ARTICLE II
Closing........................................................................................................2
2.1. Time and Place...................................................................................2
ARTICLE III
Representations and Warranties of the MLE and MLCC.............................................................2
3.1. Organization.....................................................................................2
3.2. Subsidiaries.....................................................................................3
3.3. Member Equities and Capitalization...............................................................3
3.4. Authority Relative to this Agreement.............................................................4
3.5. Consents and Approvals; No Violation.............................................................4
3.6. Financial Statements and Reports.................................................................4
3.7. Absence of Undisclosed Liabilities...............................................................5
3.8. Absence of Material Adverse Change...............................................................5
3.9. Finders and Investment Bankers...................................................................5
3.10. Severance, Termination, Change in Control and Similar Agreements.................................5
3.11. Real Property....................................................................................6
3.12. Title to and Condition of Personal Property......................................................7
3.13. Litigation.......................................................................................7
3.14. Compliance with other Instruments and Laws.......................................................7
3.15. Taxes............................................................................................8
3.16. Employees........................................................................................9
3.17. Employee Benefit Plans and Programs..............................................................9
3.18. Accounts and Notes Receivable...................................................................13
3.19. Insurance.......................................................................................13
3.20. Intellectual Property...........................................................................13
3.21. Contracts.......................................................................................14
3.22. Environmental Matters...........................................................................15
3.23. Disclosure......................................................................................16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE IV
Separate Representations and Warranties of MLCC...............................................................17
4.1. Financial Statements and Reports................................................................17
4.2. Absence of Undisclosed Liabilities..............................................................17
ARTICLE V
Representations and Warranties of Southern States.............................................................17
5.1. Organization....................................................................................17
5.2. Authority Relative to this Agreement............................................................18
5.3. Consents and Approvals; No Violation............................................................18
5.4 Financial Statements and Reports................................................................18
5.5. Litigation......................................................................................18
5.6 Absence of Undisclosed Liabilities..............................................................19
5.7 Absence of Material Adverse Change..............................................................19
5.8 Finders and Investment Bankers..................................................................19
5.9 Compliance with Other Instruments and Laws......................................................19
5.10 Disclosure......................................................................................20
ARTICLE VI
Representations and Warranties of Statesman...................................................................20
6.1. Organization....................................................................................20
6.2. Authority Relative to this Agreement............................................................20
6.3. Consents and Approvals; No Violation............................................................21
6.4 Financial Statements and Reports................................................................21
6.5. Litigation......................................................................................21
6.6. Absence of Undisclosed Liabilities..............................................................22
6.7 Absence of Material Adverse Change..............................................................22
6.8 Compliance with Other Instruments and Laws......................................................22
6.9 Disclosure......................................................................................23
ARTICLE VII
Conduct of Business Pending the Merger........................................................................23
7.1. Conduct of Business of the MLE Companies........................................................23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII
Additional Agreements.........................................................................................25
8.1. Southern States By-laws.........................................................................25
8.2. MLE Results of Operations.......................................................................26
8.3 Exchange of MLE Equities........................................................................26
8.4. MLCC Lending Programs...........................................................................26
8.5. Additional Agreements...........................................................................26
8.6. No Solicitation of Acquisition Proposals........................................................27
8.7. Access to Information; Confidentiality..........................................................27
8.8. Public Announcements............................................................................27
ARTICLE IX
Closing Conditions............................................................................................28
9.1. Conditions Precedent to the Obligations of All Parties..........................................28
9.2. Conditions Precedent to the Obligations of MLE..................................................28
9.3. Conditions Precedent to Obligations of MLCC.....................................................29
9.4. Conditions Precedent to Obligations of Southern States..........................................29
9.5 Conditions Precedent to Obligations of Statesman................................................30
ARTICLE X
Termination and Abandonment...................................................................................31
10.1. Termination.....................................................................................31
10.2. Procedure and Effect of Termination.............................................................32
10.3. Effect on MLCC Merger of Termination by MLE or Southern States..................................32
ARTICLE XI
Miscellaneous.................................................................................................32
11.1. Amendment and Modification......................................................................32
11.2. Waiver of Compliance; Consents..................................................................32
11.3. Investigations; Survival of Warranties..........................................................33
11.4. Notices.........................................................................................33
11.5. Assignment; Parties in Interest.................................................................34
11.6. Further Assurances..............................................................................34
11.7. Governing Law...................................................................................34
11.8. Counterparts....................................................................................34
11.9. Entire Agreement................................................................................34
11.10. Severability....................................................................................34
</TABLE>
EXHIBITS
Exhibit A Plan of Merger of Michigan Livestock Exchange with and
into Southern States Cooperative, Incorporated
Exhibit B Plan of Merger of Michigan Livestock Credit Corporation with
and into Statesman Financial Corporation
Exhibit C Proposed Amendments to Bylaws of Southern States Cooperative,
Incorporated
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Merger dated as of December 31 1997 (the
"Agreement"), between and among Southern States Cooperative, Incorporated, a
Virginia agricultural cooperative corporation ("Southern States"), and Michigan
Livestock Exchange, a Michigan non-stock cooperative membership corporation
("MLE"), Statesman Financial Corporation, a Virginia corporation ("Statesman"),
and Michigan Livestock Credit Corporation, a Michigan corporation ("MLCC").
ARTICLE I
The Mergers
1.1. Merger of MLE into Southern States. At the Effective Time
(as defined in Section 1.3 hereof), in accordance with this Agreement and the
Virginia Stock Corporation Act ("VSCA") and applicable Michigan law, MLE shall
be merged into Southern States (the "MLE Merger") under and in accordance with
the terms of the Plan of Merger attached hereto as Exhibit A (the "MLE Plan of
Merger"), the separate existence of MLE shall cease, and Southern States shall
continue as the surviving corporation of the MLE Merger with the effect as
provided for under the VSCA and applicable Michigan law. The Articles of
Incorporation and By-laws of the surviving corporation in the MLE Merger shall
be the Articles of Incorporation and By-laws of Southern States as in effect
immediately prior to the Effective Time, except as the By-laws of Southern
States shall be amended as of the Effective Time as provided for in Section 8.1
of this Agreement, until thereafter amended as provided for therein and under
the VSCA.
1.2. Merger of MLCC into Statesman. At the Effective Time (as
defined in Section 1.3 hereof), in accordance with this Agreement and the
Virginia Stock Corporation Act ("VSCA") and applicable Michigan law, MLCC shall
be merged into Statesman or with or into a wholly owned subsidiary of Statesman
(the "MLCC Merger") under and in accordance with the terms of the Plan of Merger
attached hereto as Exhibit B (the "MLCC Plan of Merger"), the separate existence
of MLCC shall cease, and Statesman shall continue as the surviving corporation
of the MLCC Merger with the effect as provided for under the VSCA and applicable
Michigan law. The Articles of Incorporation and By-laws of the surviving
corporation in the MLCC Merger shall be the Articles of Incorporation and
By-laws of Statesman as in effect immediately prior to the Effective Time until
thereafter amended as provided for therein and under the VSCA.
1.3. Consummation of the MLE Merger and the MLCC Merger. The
parties hereto will cause each of the MLE Merger and the MLCC Merger to be
consummated by delivering to the State Corporation Commission of the
Commonwealth of Virginia (the "Virginia Commission") articles of merger (the
"Articles of Merger") in such form as required by, and executed and acknowledged
in accordance with, the relevant provisions of the VSCA. Each of the MLE Merger
and the MLCC Merger shall become effective as of the time that the Virginia
Commission finds that the Articles of Merger comply with the requirements of law
and that all required fees have been paid, and it shall issue a certificate of
merger with respect to the MLE Merger and the MLCC Merger for record in
accordance with the relevant provisions of the VSCA (or at such later time
specified as the effective time in the Articles of Merger). The term "Effective
Time" shall mean the date and time at which the MLE Merger and MLCC Merger
become effective.
<PAGE>
1.4. Approval by MLE Members and MLCC Stockholders. The MLE
Merger shall be approved by the members of MLE and the MLCC Merger shall be
approved by the shareholders of MLCC, in each case in accordance with applicable
Michigan law. In order to consummate the MLE Merger, MLE shall, in accordance
with applicable law, duly call, give notice of, convene and hold a meeting of
its members as soon as practical, for the purposes of voting on and approving
the adoption of this Agreement and the MLE Plan of Merger. Subject to Section
8.6, MLE shall include in the materials distributed to its members in connection
with the meeting called to vote upon this Agreement, the recommendation of the
Board of Directors of MLE that the members of MLE vote in favor of the approval
of the MLE Merger and the adoption of this Agreement and the MLE Plan of Merger.
ARTICLE II
Closing
2.1. Time and Place. The closing of the transactions provided
for in this Agreement (the "Closing") shall take place at the main office of
Southern States in Richmond, Virginia, at 10:00 a.m., local time, as soon as
practicable following satisfaction of the closing conditions set forth in
Article IX, provided, however, that the parties hereto agree to use all
reasonable efforts to consummate the Closing on or before April 1, 1998, or as
soon as practicable thereafter. The date on which the Closing actually occurs is
herein referred to as the "Closing Date."
ARTICLE III
Representations and Warranties of MLE and MLCC
MLE represents and warrants to Southern States with respect to
itself and, where applicable with respect to each of the Subsidiaries (as
hereinafter defined), and MLCC represents and warrants to each of Southern
States and Statesman with respect to itself, as follows:
3.1. Organization. MLE is a non-stock, membership corporation
duly organized, validly existing and in good standing under the laws of the
State of Michigan. MLCC is a stock corporation duly organized, validly existing
and in good standing under the laws of the State of Michigan. Each of MLE and
MLCC has all requisite power and authority, and all governmental licenses,
authorizations and approvals, to own, lease and operate its properties and to
carry on its business as now being conducted. Each of MLE and MLCC is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary. Each of MLE and
MLCC has heretofore delivered or made available to Southern States accurate and
complete copies of its Articles of Incorporation and By-laws, as amended and in
effect on the date hereof.
<PAGE>
3.2. Subsidiaries. Except as specifically set forth in
Schedule 3.2, neither MLE nor MLCC has any subsidiaries and neither of them owns
any capital stock of or equity interests in any corporation, partnership, joint
venture or other entity or enterprise. MLE owns directly or indirectly each of
the outstanding shares of capital stock or other ownership interest of each of
MLE's subsidiaries shown on Schedule 3.2. (Each subsidiary of MLE listed on
Schedule 3.2 is hereinafter referred to as a "Subsidiary" and MLE together with
all of the Subsidiaries, are hereinafter referred to as the "MLE Companies".)
Each of the outstanding shares of capital stock or other ownership interest of
each of the Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and, except as set forth on Schedule 3.2, is owned, directly or
indirectly, by MLE free and clear of all liens, pledges, security interests,
claims or other encumbrances. The following information for each Subsidiary set
forth in Schedule 3.2 is true and correct: (i) its name and jurisdiction of
incorporation or organization and all jurisdictions where it is or is required
to be qualified to do business; (ii) its authorized capital stock or other
ownership interest; and (iii) the number of issued and outstanding shares of
capital stock or other ownership interest, the names of the holders thereof, and
the number of shares or amount of interest held by each such holder. Each of the
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its state of organization and has all requisite power and authority, and
all government licenses, authorization and approvals, to own, lease and operate
its properties and to carry on its business as now being conducted. Each
Subsidiary is duly qualified or licensed and in good standing to do business in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary.
3.3. Member Equities and Capitalization.
(a) The aggregate amount of members' and patrons'
equities of MLE is accurately reflected on the MLE Financial Statements (as
defined herein) and the individual member's and patron's equities of MLE are
accurately reflected on MLE's books and records. MLE has furnished to Southern
States an accurate and complete list of member and patron allocated equities
broken down by year of allocation.
(b) All issued and outstanding capital stock or
other ownership interests in MLE or any of its subsidiaries are duly authorized,
validly issued, fully paid, non-assessable and free of preemptive rights.
(c) Except as set forth in Schedule 3.3(c),
there are not now, and at the Closing there will not be, any options, warrants,
calls, subscriptions, or other rights or other agreements or commitments of any
nature whatsoever (either firm or conditional) obligating MLE or any Subsidiary
to issue, transfer, deliver or sell, or cause to be issued, transferred,
delivered or sold, any additional shares of capital stock or other equity
interest of MLE or any Subsidiary, or any options, warrants, calls or other
rights with respect to any securities of, or equity interest in, MLE or any
Subsidiary or any securities or obligations convertible into or exchangeable for
any such capital stock or other interest, or obligating MLE or any Subsidiary to
grant, extend or enter into any such agreement or commitment, and no
authorization therefor has been given or made.
3.4. Authority Relative to this Agreement. Each of MLE and
MLCC has all requisite power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby on behalf of itself and
all of the Subsidiaries. The execution and delivery of this Agreement by each of
MLE and MLCC and the consummation by each of MLE and MLCC of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of each of MLE and MLCC, and immediately prior to the Closing, no
other corporate or cooperative action or proceedings on the part of any of the
MLE Companies or any of their respective shareholders or members will be
necessary to authorize this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by each of MLE and MLCC and constitutes a valid and legally binding
agreement, enforceable against each of MLE and MLCC in accordance with its
terms.
<PAGE>
3.5. Consents and Approvals; No Violation. Except as
specifically set forth in Schedule 3.5, (i) there is no legal impediment to the
consummation of the transactions contemplated by this Agreement; (ii) no filing
with, notice to, or permit, authorization, consent or approval of, any public
body or authority or other third party is necessary for the consummation of the
transactions contemplated by this Agreement; and (iii) neither the execution and
delivery of this Agreement, consummation of the transactions contemplated
hereby, nor compliance with any of the provisions hereof will (A) conflict with
or result in any violation of any provision of the Articles of Incorporation or
By-Laws of MLE or any Subsidiary, (B) violate any statute, rule, regulation,
order, writ, injunction or decree of any public body or authority by which MLE,
any Subsidiary or any of their respective properties is bound, (C) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration or any right to receive prepayment penalties) or the loss of any
benefit to which MLE or any Subsidiary is entitled, under any contract,
agreement, note, bond, mortgage, indenture, license, lease, franchise, permit or
other instrument or obligation to which MLE or any Subsidiary is a party, or by
which any of them or any of their properties are bound, or (D) result in the
creation of any lien, encumbrance or charge of any kind on any asset of MLE or
any Subsidiary.
3.6. Financial Statements and Reports. MLE has furnished to
Southern States the following financial statements (collectively, the "MLE
Financial Statements"): (i) audited consolidated, and unaudited consolidating,
balance sheets, statements of income, statements of changes in members' and
stockholders' equity and statements of cash flows as of and for the three most
recently ended fiscal years (the fiscal year ended December 31, 1996 being
referred to herein as the "MLE Last Fiscal Year End") of MLE and the
Subsidiaries; (ii) unaudited consolidated and consolidating balance sheets and
statements of income, changes in members' and stockholders' equity and cash flow
of MLE and the Subsidiaries as of and for the nine (9) month period ended
September 30, 1997; and (iii) unaudited consolidated and consolidating balance
sheets of MLE as of November 30, 1997 (the "MLE Balance Sheet"). The MLE
Financial Statements are correct and complete in all material respects with
respect to each item therein, and present fairly the consolidated financial
position, results of operations and changes in members' and stockholders' equity
of MLE and the Subsidiaries as of and for the periods indicated, and are
consistent in all material respects with the books and records of MLE and each
of the Subsidiaries (which books and records are correct and complete in all
material respects). The audited MLE financial statements have been prepared in
accordance with generally accepted accounting principles applied consistently
throughout the periods covered thereby.
3.7. Absence of Undisclosed Liabilities. Except as
specifically set forth in Schedule 3.7, there are no liabilities, obligations or
contingencies of any nature whatsoever (whether absolute, accrued, contingent or
otherwise), except for liabilities, obligations or contingencies which are
accrued or reserved against on the MLE Balance Sheet or are immaterial
liabilities which were incurred after the date of the MLE Balance Sheet in the
ordinary course of business consistent with past practice.
<PAGE>
3.8. Absence of Material Adverse Change. Except as
specifically set forth in Schedule 3.8, since the date of the MLE Balance Sheet,
the business of MLE and each of the Subsidiaries has been operated in the usual
and ordinary course and substantially in the same manner as previously
conducted, and there has not been: (i) except for the effect of reserves
established with the consent of Southern States or Statesman in contemplation of
the Mergers, any material adverse change in the business, financial condition,
results of operations or prospects of MLE or any Subsidiary, and, to the best
knowledge of MLE, no fact or condition exists or is contemplated or threatened
which might reasonably be expected to result in any such material adverse
change; (ii) any material impairment of the ability of MLE or any Subsidiary to
perform their respective obligations under this Agreement; (iii) any material
threat or impediment to the consummation of the MLE Merger or the MLCC Merger
and the other transactions contemplated by this Agreement; (iv) any loss or, to
the best knowledge of MLE, threatened or contemplated loss of business of one or
more customers of MLE or any Subsidiary, which loss will have a material adverse
effect upon the business, results of operations or prospects of MLE or any
Subsidiary; (v) any material loss, damage, condemnation or destruction of or to
any of the properties of MLE or any Subsidiary (whether covered by insurance or
not); (vi) any borrowings by MLE or any Subsidiary arising other than in the
ordinary course of business consistent with past practices; (vii) any mortgage,
pledge, lien or encumbrance made on any of the Real Property (as defined in
Section 3.11 hereof), Personal Property (as defined in Section 3.12 hereof) or
other properties or assets of MLE or any Subsidiary other than in the ordinary
course of business consistent with past practices; or (viii) any sale, transfer
or other disposition of any of the Real Property, Personal Property or other
assets or properties of MLE or any Subsidiary, other than (A) in the ordinary
course of business consistent with past practices or (B) as contemplated by this
Agreement.
3.9. Finders and Investment Bankers. Except as specifically
set forth in Schedule 3.9, all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of MLE or any Subsidiary in such manner as to
give rise to any claim against MLE or any Subsidiary for any broker's or
finder's fee or similar compensation.
3.10. Severance, Termination, Change in Control and Similar
Agreements. Except as specifically set forth in Schedule 3.10, neither MLE nor
any Subsidiary is a party to or bound by any agreement or arrangement for the
benefit of any current or former employee or director providing for any
severance, termination or retention payments or benefits or for any payments or
benefits payable in connection with or as a result of, directly or indirectly,
any change in control of MLE or any Subsidiary, and neither MLE nor any
Subsidiary will be a party to or bound by any such agreement or arrangement at
the Closing. No amount that could be received (whether in cash or property) as a
result of the consummation of the transactions contemplated by this Agreement by
any officer, director or employee of MLE or any Subsidiary under any employment,
severance or termination agreement or other compensation arrangement or plan
currently in effect will be characterized as an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Internal Revenue Code of 1986,
as amended (the "Code")).
<PAGE>
3.11. Real Property.
(a) Schedule 3.11 contains a complete and correct
list of all real property and all interests in real property owned by MLE and
each of the Subsidiaries (collectively, the "Owned Real Property"). Schedule
3.11 also sets forth the owner of each parcel of Owned Real Property and
describes all improvements thereon. Each of MLE and each Subsidiary, as the case
may be, has good, valid and marketable fee simple title to its Owned Real
Property free and clear of all Liens, other than (i) Liens existing on the date
hereof and specifically identified on Schedule 3.11, and (ii) statutory Liens
for taxes not yet due and payable (the items referred to in the foregoing
clauses (i) and (ii) are, collectively, "Permitted Liens").
(b) Schedule 3.11 contains a complete and correct
list of all leases, subleases, licenses and occupancy agreements (collectively,
"Leases") pursuant to which MLE or any of its Subsidiaries is the lessee,
sublessee, licensee or occupant of any real property leased or subleased by MLE
or any Subsidiary (collectively, the "Leased Real Property"). Schedule 3.11 also
contains a complete and correct list of all leases, subleases, licenses and
occupancy agreements pursuant to which MLE or any Subsidiary is the lessor,
sublessor or licensor of any part of the Leased Real Property or the Owned Real
Property (collectively, the "Other Leases"). Schedule 3.11 also sets forth the
landlord and tenant for each Lease and each Other Lease. MLE has delivered or
made available to Southern States complete and correct copies of the Leases and
the Other Leases. MLE and each Subsidiary have duly complied with the material
provisions of each of the Leases or Other Leases to which MLE or any Subsidiary
is a party and is not in default under any of the Leases or Other Leases. To the
best knowledge of MLE, no condition or state of facts exists which, with notice
or the passage of time or both, would constitute a default under any of the
Lease or Other Leases. Each of the Leases or Other Leases is in full force and
effect and is enforceable by MLE or such Subsidiary against all other parties
thereto.
(c) Except as specifically set forth in Schedule
3.11, the Owned Real Property and the Leased Real Property (collectively, the
"Real Property") constitute all the fee simple and leasehold interests in real
property of MLE or any Subsidiary.
(d) Except as specifically set forth in Schedule
3.11, there are no proceedings in eminent domain or other similar proceedings
pending or threatened affecting any portion of the Real Property. There exists
no writ, injunction, decree, order or judgment outstanding, nor any litigation
pending or threatened, relating to the ownership, lease, use, occupancy or
operation by any person of any Real Property.
(e) Except as specifically set forth in Schedule
3.11, the use and operation of the Real Property in the conduct of the business
of MLE or any Subsidiary does not violate in any material respect any instrument
of record or other agreement affecting the Real Property. There is no material
violation of any covenant, condition, restriction, easement or order of any
governmental authority having jurisdiction over the Real Property or any other
person entitled to enforce the same affecting the Real Property or the use or
occupancy thereof. MLE and each of the Subsidiaries enjoy peaceful and
undisturbed possession under the Leases for the Leased Real Property.
(f) Except as specifically set forth in Schedule
3.11, the Real Property is in compliance in all material respects with all
applicable building, environmental, zoning, subdivision and other land use and
similar applicable laws, codes, ordinances, rules, regulations and orders of
governmental authorities (collectively, the "Real Property Laws"), and neither
MLE nor any Subsidiary has received any notice of violation or claimed violation
of any Real Property Law. There is no pending or, to the best knowledge of MLE,
anticipated change in any Real Property Law that will have or result in a
material adverse effect upon the ownership, alteration, use, occupancy or
operation of the Real Property or any portion thereof. No current use by MLE or
any Subsidiary of the Real Property is dependent on a nonconforming use or other
governmental approval the absence of which would materially limit the use of
such properties or assets in the business of MLE or any Subsidiary.
<PAGE>
3.12. Title to and Condition of Personal Property.
(a) Except as specifically set forth in Schedule
3.12, MLE and each of the Subsidiaries have good title to all material tangible
assets constituting personal property purported to be owned by it, including,
without limitation, all such personal property reflected on the MLE Balance
Sheet or acquired after the date thereof, all fixed assets, chattels, machinery,
equipment, leasehold improvements, computer hardware, fixtures, furniture,
furnishings, handling equipment, implements, parts, tools and accessories of all
kinds, and has valid leasehold interests in all personal property leased by it,
in each case free and clear of all Liens (personal property owned or leased by
MLE, collectively, the "Personal Property").
(b) Except as specifically set forth in Schedule
3.12, the Personal Property is in good operating condition, in good repair, has
been well maintained, conforms with all applicable ordinances and regulations,
environmental laws,, regulations and ordinances and is substantially fit for use
in accordance with MLE and each Subsidiary's past practices.
3.13. Litigation. Except as specifically set forth in Schedule
3.13, there is no action, suit, proceeding or investigation pending, or, to the
best knowledge of MLE, threatened against MLE or any Subsidiary which relates to
the transactions contemplated by this Agreement or which would, if adversely
determined, result in any liability to MLE or any Subsidiary, nor has MLE or any
Subsidiary received threat of any such action, proceeding, investigation or
inquiry. No such action, proceeding or, to the best knowledge of MLE,
investigation or inquiry has been pending at any time since the MLE Last Fiscal
Year End. There are no citations, fines or penalties heretofore asserted against
MLE or any Subsidiary under any federal, state or local law regulation, or
ordinance which remain unpaid, nor has MLE or any Subsidiary received any notice
or any other communication since MLE's Last Fiscal Year End from any federal,
state or local agency or other governmental authority with respect to any
material violations or alleged violations of any federal, state or local law or
regulation.
3.14. Compliance with Other Instruments and Laws. Except as
specifically set forth in Schedule 3.14, neither MLE nor any Subsidiary is in
violation of or default under any term of, nor is there any set of facts which
would, upon receipt of notice or passage of time constitute a violation of or
default under (i) its Articles of Incorporation or By-laws; (ii) any note, bond,
mortgage, indenture, instrument or agreement relating to indebtedness for
borrowed money; (iii) any judgment, decree or order of any court or governmental
body; or (iv) any other material contract, agreement, license, lease, franchise,
permit or other instrument or obligation to which it is a party or by which it
or any of its properties or assets is bound. MLE and each of the Subsidiaries
are in compliance in all material respects with all statutes, laws, ordinances,
rules, regulations, permits, concessions, grants, franchises, licenses and other
governmental authorizations and approvals applicable to the operation of their
respective businesses. All permits, concessions, grants, franchises, licenses
and other governmental authorizations and approvals material to the conduct of
the businesses of MLE or any Subsidiary have been duly obtained and are in full
force and effect, and there are no proceedings pending or, to the best knowledge
of MLE, threatened which may result in the revocation, cancellation, suspension
or materially adverse modification thereof. None of such permits, concessions,
grants, franchises, licenses or other governmental authorizations and approvals
will be affected in a manner that would have an adverse effect on the financial
condition, operations or business of MLE or any of the Subsidiaries by the
consummation of the transactions contemplated by this Agreement.
<PAGE>
3.15. Taxes.
(a) MLE and each of the Subsidiaries have duly
and timely filed all federal, state, and local tax returns required to be filed
by or with respect to MLE or any Subsidiary or any of their respective assets or
business, and all such returns are true and correct in all material respects.
True and complete copies of all such tax returns for the preceding five years
have been furnished or made available to Southern States. MLE and each of the
Subsidiaries have duly and timely paid, collected and withheld all taxes,
levies, duties, imposts, assessments, fees and other governmental charges
(including any interest and penalties thereon and additions thereto) ("Taxes")
that are or may be required to be paid, collected or withheld by or with respect
to MLE or any Subsidiary or any of their respective assets or business, except
for Taxes not yet due and for which adequate reserves are being maintained and
reflected on the MLE Balance Sheet in accordance with generally accepted
accounting principles. Except as specifically set forth on Schedule 3.15, no
taxing authority is now asserting or, to the best knowledge of MLE, threatening
to assert against MLE or any Subsidiary any deficiency or claim for Taxes.
Except as specifically set forth on Schedule 3.15, neither MLE nor any
Subsidiary (i) has been granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment of, any Tax or (ii)
is currently under, or has received notice of commencement of, any audit by any
taxing authority, or is a party to any judicial proceeding with respect to
Taxes.
(b) Except as specifically set forth in Schedule
3.15, there is no contract or agreement (including Tax sharing, allocation and
indemnification agreements) under which MLE or any Subsidiary has, or may at any
time in the future have, an obligation to contribute to the payment of any
portion of any Tax (or pay any amount computed by reference to any portion of
any Tax).
(c) Except as specifically set forth in Schedule
3.15, no written ruling has been received from, and no closing or other similar
agreement has been executed with, any taxing authority that is presently binding
upon MLE or any Subsidiary or any of their respective assets or business.
(d) Schedule 3.15 sets forth (i) all states and
localities in which MLE or any Subsidiary is required to file Tax returns or pay
Taxes and (ii) all elections with respect to Taxes presently binding upon MLE or
any Subsidiary.
(e) None of the assets of MLE or any of its
Subsidiaries (i) is properly required to be treated as being owned by any other
person under the "safe harbor lease" provisions of former Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended, or (ii) has been financed with or
directly or indirectly secures any bond or debt the interest on which is tax
exempt under Section 103(a) of the Code.
<PAGE>
3.16. Employees. Except as specifically set forth on Schedule
3.16, MLE and each Subsidiary has complied in all material respects with all
legal requirements relating to the employment of labor, including, without
limitation, provisions relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other Taxes. Except as set
forth in Schedule 3.16, neither MLE nor any Subsidiary is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practice or other collective
bargaining disputes. Neither MLE nor any Subsidiary has any knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of MLE or any Subsidiary. Schedule 3.16
contains (i) a list of all grievances, if any, filed pursuant to any collective
bargaining agreement which is presently pending and which involves any employee
at any facility of MLE or the Subsidiaries, as well as a description and the
status of each, (ii) a list of all pending unfair labor practice charges, if
any, as well as a description of and a statement as to the status of each, filed
prior to the date hereof with any governmental agency by or on behalf of any
employee at any facility of MLE or any Subsidiary, and (iii) a list of all
pending employee-related litigation, if any, including administrative
proceedings, as well as a description of and a statement as to the status of
each case, filed by or on behalf of any employee at any facility of MLE or the
Subsidiaries.
3.17. Employee Benefit Plans and Programs.
(a) Schedule 3.17 lists (i) each "employee
benefit plan" within the meaning of Section 3(3) of ERISA (including, without
limitation, pension, profit sharing, stock bonus, medical reimbursement, life
insurance, disability and severance pay plans) that is maintained or otherwise
contributed to by, or under which there is any continuing obligation on the part
of, MLE or any Subsidiary for the benefit of any current or former employee or
director, spouse or former spouse, dependent or beneficiary thereof of MLE or
any Subsidiary or any of its current or former ERISA Affiliates (collectively,
"Employees") and (ii) all other employee benefit plans, agreements, programs,
policies or other arrangements (including, without limitation, vacation, sick,
personal or other leave and dependent care), not subject to ERISA, that are
maintained or otherwise contributed to by, or under which there is any
continuing actual or contingent obligation on the part of, MLE or any Subsidiary
for the benefit of any Employee (collectively, "Plans"). For purposes hereof, an
"ERISA Affiliate" means each entity that is or, depending on the context, was a
member of a controlled group or affiliated service group of which MLE or any
Subsidiary or, depending on the context, was such a member or that is or,
depending on the context, was under common control with MLE or any Subsidiary
(within the meaning of Sections 414(b), 414(c), 414(m) or 414(o) of the Code).
(b) Schedule 3.17 hereto also contains a true and
complete list of the terms and conditions of employment, including compensation,
change in control agreements, severance and benefit continuation agreements and
other benefits other than Plans, of present and former employees of MLE or any
Subsidiary and the spouses, former spouses, dependents or beneficiaries of any
such persons.
(c) With respect to each of the Plans which is
not a "multiemployer plan" (as such term is defined in Section 3(37) of ERISA),
MLE and each Subsidiary has made available to Southern States:
<PAGE>
(i) a current, accurate and complete
copy (or, to the extent no such copy exists, an accurate description) of the
Plan document therefor (including all existing amendments thereto that shall
become effective at a later date) and, to the extent applicable;
(ii) any related trust agreement, annuity
contract, insurance contract (including, without limitation, any stop loss
coverage), or other funding instrument;
(iii) any summary plan description and all
summaries of material modifications thereto;
(iv) any related investment manager
agreement, administrative services agreement or other agreement with any service
provider;
(v) the last five years' annual reports
on IRS Form 5500 series;
(vi) for any Plan which is a defined
benefit pension plan, the last five years' actuarial valuation reports;
(vii) the last five years' tax returns on
Form 990 for any trust funds;
(viii) the last five years' tax or other
returns on which excise taxes relating thereto has been reported;
(ix) for any Plan which is a health, life
insurance, disability or accident plan, the claims experience for the last three
years; and
(x) the latest employee handbook and all
modifications thereto.
(d) Except as set forth in Schedule 3.17, with
respect to each of the Plans which is not a "multiemployer plan" (as such term
is defined in Section 3(37) of ERISA):
(i) each such Plan has been established
and administered in compliance with its terms and with the applicable
provisions, if any, of ERISA and the Code and of any applicable state or other
law, and neither MLE nor any ERISA Affiliate has received any written notice
alleging to the contrary with respect to any such plan;
(ii) each such Plan is enforceable in
accordance with the written terms thereof and no representation or assurance has
been made to any Employee of MLE or any ERISA Affiliate that differs from the
written terms of any such Plan;
(iii) MLE has the right to amend or
terminate each such Plan at any time and for any reason;
(iv) there is no action, claim or demand of
any kind (other than routine claims for benefits), whether through litigation,
administrative or other proceedings or otherwise, that has been brought or, to
the best knowledge of MLE, is proposed or threatened, against any such Plan or
the assets thereof, against the fiduciary of any such plan, or against MLE or
any Subsidiary;
<PAGE>
(v) each Plan that is intended to be
qualified within the meaning of Section 401(a) of the Code has received a
favorable determination letter as to its qualification, and to the best
knowledge of MLE, there are no facts or circumstances that would jeopardize any
Plan's qualification under Section 401(a) of the Code;
(vi) each Plan that is intended to be a
cafeteria plan within the meaning of Section 125 of the Code has been
established and operated in accordance with the applicable requirements thereof,
and, to the best knowledge of MLE, there are no facts or circumstances that
would jeopardize any Plan's treatment as a cafeteria plan under Section 125 of
the Code;
(vii) to the best knowledge of MLE no
"reportable event" (as such term is used in Section 4043 of ERISA), "prohibited
transaction" (as such term is used in Section 4975 of the Code or ERISA), or
"accumulated funding deficiency" (as such term is used in Section 412 or 4971 of
the Code) has occurred, or would occur by reason of the consummation of the
transactions contemplated in this Agreement, with respect to any Plan;
(viii) MLE and each Subsidiary and each of
their respective ERISA Affiliates has complied with the health care continuation
requirements of Section 601, et seq. of ERISA and COBRA with respect to
Employees;
(ix) Neither MLE nor any Subsidiary has any
obligation under any Plan to provide health, life insurance or other welfare
benefits to former employees, spouses, former spouses, or their dependents
except as specifically required by law;
(x) the Real Property, Personal Property
and other properties and assets of MLE and the Subsidiaries are not subject to
any liens or other encumbrances (whether absolute or contingent), or any
condition which could result in any such lien or encumbrance, under the Code or
ERISA with respect to the Plans;
(xi) there are no liabilities which would
have a material adverse effect with respect to the Plans which are not disclosed
in the MLE Balance Sheet;
(xii) none of the agreements listed on
Schedule 3.17 hereto will be breached by the execution, delivery and performance
of this Agreement by either MLE or MLCC;
(xiii) none of the agreements listed on
Schedule 3.17 hereto requires Southern States or Statesman to retain any
Employee of MLE or any Subsidiary as an Employee for any period of time or to
assume any employment, compensation, fringe benefit, welfare pension, profit
sharing or deferred compensation plan or other employee benefit plan in respect
of any Employee of MLE, any Subsidiary or any ERISA Affiliate; and
(xiv) each Plan which is a defined benefit
pension plan, which is subject to Title IV of ERISA is fully funded on a plan
termination basis.
<PAGE>
(e) With respect to each of the Plans which is
a "multiemployer plan" (as such term is defined in Section 3(37) of ERISA),
except as set forth in Schedule 3.17:
(i) MLE has identified each such plan on
Schedule 3.17 as such a multiemployer plan and has disclosed the ongoing regular
contribution obligation thereunder to Southern States;
(ii) neither MLE nor any Subsidiary has
incurred any withdrawal liability with respect to any such multiemployer plan
that remains unsatisfied, or would incur any withdrawal liability with respect
to any such multiemployer plan if it or any of its ERISA Affiliates withdrew at
the Closing; and no withdrawal liability will be triggered by reason of the
consummation of the transactions contemplated in this Agreement;
(iii) MLE has made available to Southern
States a current, accurate and complete copy (or, to the extent no such copy
exists, an accurate description) of the plan document therefor (including all
existing amendments thereto that shall become effective at a later date), and
any summary plan description and all summaries of material modifications
thereto;
(iv) there is no action, claim or demand
of any kind (other than routine claims for benefits), whether through
litigation, administrative or other proceedings or otherwise, that has been
brought or, to the best knowledge of MLE, is proposed or threatened, against or
by any such multiemployer plan or the assets thereof, MLE or any Subsidiary or
any fiduciary of any such multiemployer plan;
(v) the Real Property, Personal Property
and other properties and assets of MLE and the Subsidiaries are not subject to
any liens or other encumbrances (whether absolute or contingent), or any
condition which could result in any such lien or encumbrance, under the Code or
ERISA with respect to any such multiemployer plan; and
(vi) there are no liabilities with respect
to any such multiemployer plan which are not disclosed in the MLE Balance Sheet.
(f) Information provided by MLE to Southern
States regarding the costs of benefits and administration of the Plans for the
Employees of MLE and the Subsidiaries is accurate and complete.
3.18. Accounts and Notes Receivable. Except as specifically
set forth in Schedule 3.18, the accounts receivable and notes receivable of MLE
or any Subsidiary reflected on the MLE Balance Sheet, and such additional
accounts receivable or notes receivable as are reflected on the books of MLE or
any Subsidiary on the date hereof, including, without limitation, all customer
accounts receivable and notes receivable, are genuine and represent the valid
and binding obligations of the obligor thereon, enforceable in accordance with
their terms and are good and collectible at the recorded amounts thereof, are
free and clear of any Liens and have arisen only from bona fide transactions in
the ordinary course of business.
3.19. Insurance. Each of MLE and each Subsidiary has fire and
casualty insurance policies with extended coverages, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. Schedule 3.19 lists all policies of
insurance covering MLE or any Subsidiary and their respective properties as
maintained by MLE or such Subsidiary on the date hereof. Such policies are in
full force and effect and all premiums due thereon have been paid. MLE and the
Subsidiaries have complied in all material respects with the terms and
provisions of such policies. No notice of termination or premium increase has
been received under any of such policies.
<PAGE>
3.20. Intellectual Property.
(a) For purposes of this Section 3.20, the term
"Intellectual Property" means the United States and foreign trademarks, trade
names, trade dress, copyrights, and similar rights, including registrations and
applications to register or renew the registration of any of the foregoing, the
United States and foreign letters patent and patent applications, and
inventions, processes, designs, formulae, trade secrets, know-how, computer
software, data, customer lists, and all similar intellectual property rights,
tangible embodiments of any of the foregoing (in any medium including electronic
media), and licenses of any of the foregoing.
(b) Schedule 3.20 sets forth a complete and
correct list of all Intellectual Property that is owned by MLE or any Subsidiary
(the "Owned Intellectual Property"), which term includes all owned computer
software. Except as specifically set forth in Schedule 3.20, the Owned
Intellectual Property constitutes all Intellectual Property used or held for use
in connection with, necessary for the conduct of, or otherwise material to the
business of MLE or any Subsidiary. Schedule 3.20 sets forth a complete and
correct list of all written or oral licenses and arrangements (i) pursuant to
which the use by any person of Intellectual Property is permitted by MLE or any
Subsidiary and (ii) pursuant to which the use by MLE of Intellectual Property is
permitted by any person (collectively, together with any of the foregoing
relating to computer software, the "Intellectual Property Licenses").
Immediately after the Closing, Southern States or Statesman, as the case may be,
will have the right to use all Intellectual Property described in Schedule 3.20
and will own all Owned Intellectual Property, free and clear of Liens. True and
complete copies of all Intellectual Property Licenses have been furnished to
Southern States and Statesman. MLE and the Subsidiaries have duly complied with
the provisions of each Intellectual Property License and none of them is in
default under any such Intellectual Property License. To the best knowledge of
MLE, no condition or state of facts exists which, with notice or the passage of
time or both, would constitute a default under any such Intellectual Property
License. All Intellectual Property Licenses are in full force and effect and are
enforceable by MLE or any Subsidiary, as the case may be, against all other
parties thereto. Except as specifically set forth in Schedule 3.20, (i) the
conduct of the business of MLE and the Subsidiaries does not infringe the rights
of any third party in respect of any Intellectual Property, (ii) to the best
knowledge of MLE, none of the Owned Intellectual Property is being infringed by
third parties, and (iii) there is no claim or demand of any person pertaining
to, or any proceeding which is pending or, to the best knowledge of MLE,
threatened that challenges the rights of MLE or any Subsidiary in respect of any
Owned Intellectual Property or Intellectual Property License, or that claims
that any default exists under any Intellectual Property License.
3.21. Contracts.
(a) Except as may be listed on another Schedule
to this Agreement, Schedule 3.21 sets forth a list of all material written
agreements, contracts and commitments, together with all amendments thereto, and
accurate descriptions of all oral agreements of the following types to which MLE
or any Subsidiary is a party as of the date hereof:
<PAGE>
(i) Borrowing and Lending Arrangements.
Mortgages, indentures, security agreements and other agreements and instruments
relating to the borrowing of money or advances of credit;
(ii) Partnership. Partnership or joint
venture agreements;
(iii) Employment. Employmentagreements and
consulting agreements;
(iv) Bonus and Benefit Plans. Bonus,
profit sharing, compensation, stock option, pension, retirement, severance,
deferred compensation or other plans, agreements, arrangements, trusts or funds
for the benefit of employees, including all arrangements subject to ERISA;
(v) Sales Agency. Material sales
agency, manufacturer's representative or distributorship agreements, supply
agreements, marketing agreements, advertising agreements, agreements with
outside credit card companies, licenses and other agreements relating to
Intellectual Property, including all Intellectual Property Licenses;
(vi) Capital Expenditures. Agreements
or commitments for capital expenditures to be made in excess of $50,000 for any
single project;
(vii) Investment Agreements. Agreements
to provide funds or to make any investment (in the form of a loan, capital
contribution or otherwise) in any entity or business;
(viii) Agreements with Affiliates.
Agreements or commitments with any officer or director of MLE or any Subsidiary
or with any entity or business venture in which such officer or director has a
direct or indirect interest or any person who owns more than 5% of the issued
and outstanding equity of MLE or any Subsidiary;
(ix) Loan Agreements. Loans, credit,
factoring, subordination or similar agreements;
(x) Powers of Attorney. Outstanding
powers of attorney empowering any person, company or other organization to act
on behalf of MLE or any Subsidiary;
(xi) Guaranty. Outstanding guaranty or
similar type of agreement, whether or not entered into in the ordinary course of
business;
(xii) Professional Advisors. All
agreements, contracts, commitments and understandings with professional advisors
for services to be rendered on behalf of MLE or a Subsidiary;
(xiii) Customer Agreements. Agreements or
other arrangements with customers of any of the MLE Companies with an aggregate
value in excess of $50,000;
(iv) Other Agreements. All other
agreements, contracts and commitments (excluding purchase orders, sales orders
and contracts for the purchase of goods and services created in the ordinary
course of business), including, without limitation, real estate leases, written
or oral, to which MLE or any Subsidiary is a party or by which any of its
properties is bound as of the date hereof, any one (or series) of which in any
way involve payments or receipts of more than $50,000 following the date hereof,
and all Intellectual Property Licenses; and,
<PAGE>
(b) True and compete copies of all of the
agreements, contracts and commitments referred to in this Section 3.21 (the
"Material Contracts") have been furnished or made available to Southern States.
MLE and each of the Subsidiaries have duly complied with the provisions of each
Material Contract to which MLE or any such Subsidiary is a party and neither MLE
nor any Subsidiary is in default under any such Material Contract. All Material
Contracts to which MLE or any Subsidiary is a party are in full force and effect
and are enforceable by MLE or such Subsidiary against all other parties thereto.
3.22. Environmental Matters.
(a) As used in this Agreement:
(i) "Applicable Environmental Law"
means federal, state and local laws, principles of common law, regulations, and
ordinances that exist on the date hereof, relating to pollution or protection of
the environment which are applicable to MLE or any Subsidiary or their
respective businesses, including laws relating to the emission, discharge,
release or threatened release of any Hazardous Substance (as hereinafter
defined) into the environment, or otherwise relating to the presence,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of any Hazardous Substance.
(ii) "Hazardous Substance" means any
pollutant, contaminant, toxic or hazardous or extremely hazardous substance,
material, waste, constituent or chemical (including, petroleum or any product,
by-product, or fraction thereof, asbestos and asbestos-containing materials,
polychlorinated biphenyls ("PCBs"), pesticides, defoliants, explosives,
flammables, corrosives and urea formaldehyde) that is regulated by or requires
notification, investigation or remediation under any Applicable Environmental
Law.
(b) Except as specifically set forth in Schedule 3.22
hereto:
(i) Each of MLE and the Subsidiaries has
obtained all material permits, licenses and other authorizations and filed all
notices which are required to be obtained or filed by MLE or such Subsidiary
under any Applicable Environmental Law;
(ii) Each of MLE and the Subsidiaries is in
compliance in all material respects with all terms and conditions of such
required permits, licenses and authorizations;
(iii) Each of MLE and the Subsidiaries is in
compliance in all material respects with all requirements contained in any
Applicable Environmental Law;
(iv) There are no past or present activities
related to the presence, manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of a material amount of any Hazardous
Substance by MLE or any Subsidiary;
<PAGE>
(v) The properties and plants of MLE or
any Subsidiary do not contain any asbestos, PCBs, aboveground or underground
storage tanks in any form, any surface impoundment, lagoon, landfill or other
containment facility for the storage, treatment or disposal of any Hazardous
Substance, or any wetlands area; and
(vi) Neither MLE nor any Subsidiary has
knowledge or received notice of any violation of any Applicable Environmental
Law, nor has it been advised by any governmental agency of any actual or
potential claim, liability or demand pursuant to any Applicable Environmental
Law, including but not limited to, a claim, notice or demand under the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.ss.9601 et seq. ("CERCLA") or other similar state law, brought by any
governmental agency, private party or other entity with respect to the operation
of the business of MLE or any Subsidiary.
3.23. Disclosure. This Agreement, including all Schedules and
other exhibits or related documents, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained herein, in light of the circumstances in
which they are made, not misleading. There is no material fact which has not
been disclosed to Southern States or Statesman in writing, which is or could be
anticipated to be material to Southern States' or Statesman's decision to
consummate the transactions contemplated by the Agreement on the terms and
conditions set forth herein.
ARTICLE IV
Separate Representations and Warranties of MLCC
In addition to, and severally with, the representations and
warranties made by MLCC in the preceding Article III, MLCC represents and
warrants to each of Southern States and Statesman as follows:
4.1. Financial Statements and Reports. MLCC has furnished to
Statesman the following financial statements (collectively, the "MLCC Financial
Statements"): (i) audited balance sheet, statement of income, statement of
changes in stockholders' equity and statement of cash flows as of and for the
fiscal year ended December 31, 1996 (the "MLCC Last Fiscal Year End") of MLCC;
the (ii) unaudited balance sheets and statements of income, changes in
stockholders' equity and cash flow of MLCC as of and for the two fiscal years
ended December 31, 1994 and December 31, 1995 and for the nine (9) month period
ended September 30, 1997; and (iii) unaudited balance sheet of MLCC as of
November 30, 1997 (the "MLCC Balance Sheet"). The MLCC Financial Statements are
correct and complete in all material respects with respect to each item therein,
and present fairly the consolidated financial position, results of operations
and changes in stockholders' equity of MLCC as of and for the periods indicated,
and are consistent in all material respects with the books and records of MLCC
(which books and records are correct and complete in all material respects). The
audited MLCC financial statements have been prepared in accordance with
generally accepted accounting principles applied consistently throughout the
periods covered thereby.
4.2. Absence of Undisclosed Liabilities. Except as
specifically set forth in Schedule 4.2, there are no liabilities, obligations or
contingencies of any nature whatsoever (whether absolute, accrued, contingent or
otherwise), except for liabilities, obligations or contingencies which are
accrued or reserved against on the MLCC Balance Sheet or are liabilities which
were incurred after the date of the MLCC Balance Sheet in the ordinary course of
business consistent with past practice.
<PAGE>
ARTICLE V
Representations and Warranties of Southern States
Southern States represents and warrants to MLE as follows:
5.1. Organization. Southern States is an agricultural
cooperative corporation duly incorporated, validly existing and in good standing
under the laws of the Commonwealth of Virginia. Southern States has all
requisite power and authority, and all governmental licenses, authorizations and
approvals, to own, lease and operate its properties and to carry on its business
as now being conducted. Southern States is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary. Southern States has heretofore delivered or made
available to MLE accurate and complete copies of its Articles of Incorporation
and By-laws, as amended and in effect on the date hereof.
5.2. Authority Relative to this Agreement. Southern States has
all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Southern States and the consummation by
Southern States of the transactions contemplated hereby have been duly and
validly authorized and approved by the Board of Directors of Southern States,
and, immediately prior to the Closing, no other corporate action or proceedings
on the part of Southern States or its shareholders will be necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Southern States and constitutes a valid and binding agreement of Southern
States, enforceable against Southern States in accordance with its terms.
5.3. Consents and Approvals; No Violation. Except as
specifically set forth in Schedule 5.3, (i) there is no legal impediment to the
consummation of the transactions contemplated by this Agreement; (ii) no filing
with, and no permit, authorization, consent or approval of, any public body or
authority is necessary for the consummation by Southern States of the
transactions contemplated by this Agreement; and (iii) neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby nor compliance by Southern States with any of the provisions hereof will:
(A) conflict with or result in any violation of any provision of the Articles of
Incorporation or By-laws of Southern States, (B) violate any statute, rule,
regulation, order, writ, injunction or decree of any public body or authority by
which Southern States is bound, or (C) except as specifically set forth in
Schedule 5.3, (1) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any contract,
agreement, note, bond, mortgage, indenture, license, lease, franchise, permit or
other instrument or obligation to which Southern States is a party, or by which
it or any of its properties is bound, or (2) result in the creation of any lien,
encumbrance or charge of any kind on any asset of Southern States.
<PAGE>
5.4. Financial Statements and Reports. Southern States has
furnished to MLE the following financial statements (collectively, the "Southern
States Financial Statements"): (i) audited consolidated balance sheet, statement
of income, statement of changes in stockholders' equity and statement of cash
flows as of and for the fiscal year ended June 30, 1997 ("Southern States Last
Fiscal Year End") of Southern States; and (ii) unaudited consolidated balance
sheet ("Southern States Balance Sheet") and statements of income, changes in
stockholders' equity and cash flow of Southern States as of and for the five (5)
month period ended November 30, 1997. The Southern States Financial Statements
are correct and complete in all material respects with respect to each item
therein, have been prepared in accordance with generally accepted accounting
principles applied consistently throughout the periods covered thereby, and
present fairly the consolidated financial position, results of operations and
changes in stockholders' equity of Southern States as of and for the periods
indicated, and are consistent in all material respects with the books and
records of Southern States (which books and records are correct and complete in
all material respects).
5.5. Litigation. Except as specifically set forth in Schedule
5.5, there is no action, proceeding or investigation pending, or to the best
knowledge of Southern States threatened, against Southern States which relates
to the transactions contemplated by this Agreement or which would, if adversely
determined, result in any liability to Southern States, nor has Southern States
received threat of any such action, proceeding investigation or inquiry. No such
action, proceeding or, to the best knowledge of Southern States, investigation
or inquiry has been pending, at any time since the date of Southern States Last
Fiscal Year End. There are no citations, fines, or penalties heretofore asserted
against Southern States under any federal, state or local law, regulation or
ordinance which remain unpaid, nor has Southern States received notices or any
other communications since Southern States Last Fiscal Year End from any
federal, state or local agency or other governmental authority with respect to
any material violations or alleged violations of any federal, state or local law
or regulation.
5.6. Absence of Undisclosed Liabilities. Except as
specifically set forth in Schedule 5.6, there are no liabilities, obligations or
contingencies of any nature whatsoever (whether absolute, accrued, contingent or
otherwise), except for liabilities, obligations or contingencies which are
accrued or reserved against on the Southern States Balance Sheet or are
immaterial liabilities which were incurred after the date of the Southern States
Balance Sheet in the ordinary course of business consistent with past practice.
5.7. Absence of Material Adverse Change. Except as
specifically set forth in Schedule 5.7, since the date of the Southern States
Balance Sheet, the business of Southern States has been operated in the usual
and ordinary course and substantially in the same manner as previously
conducted, and there has not been: (i) any material adverse change in the
business, financial condition, results of operations or prospects of Southern
States, and, to the best knowledge of Southern States, no fact or condition
exists or is contemplated or threatened which might reasonably be expected to
result in any such material adverse change; (ii) any material impairment of the
ability of Southern States to perform its obligations under this Agreement;
(iii) any material threat or impediment to the consummation of the MLE Merger or
the MLCC Merger and the other transactions contemplated by this Agreement; (iv)
any loss or, to the best knowledge of Southern States, threatened or
contemplated loss of business of one or more customers of Southern States, which
loss will have a material adverse effect upon the business, results of
operations or prospects of Southern States; (v) any material loss, damage,
condemnation or destruction of or to any of the properties of Southern States
(whether covered by insurance or not); (vi) any borrowings by Southern States
arising other than in the ordinary course of business consistent with past
practices; (vii) any mortgage, pledge, lien or encumbrance made on any of the
properties or assets of Southern States arising other than in the ordinary
course of business consistent with past practices; or (viii) any sale, transfer
or other disposition of any of the assets or properties of Southern States,
other than (A) in the ordinary course of business consistent with past practices
or (B) as contemplated by this Agreement.
<PAGE>
5.8. Finders and Investment Bankers. Except as specifically
set forth in Schedule 5.8, all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Southern States in such manner as to give rise
to any claim against Southern States for any broker's or finder's fee or similar
compensation.
5.9. Compliance with Other Instruments and Laws. Except as
specifically set forth in Schedule 5.9, Southern States is not in violation of
or default under any term of nor is there any set of facts which would, upon
receipt of notice or passage of time constitute a violation of or default under
(i) its Articles of Incorporation or By-laws; (ii) any note, bond, mortgage,
indenture, instrument or agreement relating to indebtedness for borrowed money;
(iii) any judgment, decree or order of any court or governmental body; or (iv)
any other material contract, agreement, license, lease, franchise, permit or
other instrument or obligation to which it is a party or by which it or any of
its properties or assets is bound. Southern States is in compliance in all
material respects with all statutes, laws, ordinances, rules, regulations,
permits, concessions, grants, franchises, licenses and other governmental
authorizations and approvals applicable to the operation of their respective
businesses. All permits, concessions, grants, franchises, licenses and other
governmental authorizations and approvals material to the conduct of the
business of Southern States have been duly obtained and are in full force and
effect, and there are no proceedings pending or, to the best knowledge of
Southern States, threatened which may result in the revocation, cancellation,
suspension or materially adverse modification thereof. None of such permits,
concessions, grants, franchises, licenses or other governmental authorizations
and approvals will be affected in a manner that would have an adverse effect on
the financial condition, operations or business of Southern States by the
consummation of the transactions contemplated by this Agreement.
5.10. Disclosure. This Agreement, including all Schedules and
other exhibits or related documents, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained herein, in light of the circumstances in
which they are made, not misleading. There is no material fact which has not
been disclosed to MLE in writing, which is or could be anticipated to be
material to MLE's decision to consummate the transactions contemplated by the
Agreement on the terms and conditions set forth herein.
<PAGE>
ARTICLE VI
Representations and Warranties of Statesman
Statesman represents and warrants to MLCC as follows:
6.1. Organization. Statesman is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Virginia. Statesman has all requisite power and authority, and
all governmental licenses, authorizations and approvals, to own, lease and
operate its properties and to carry on its business as now being conducted.
Statesman is duly qualified or licensed and in good standing to do business in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary.
Statesman has heretofore delivered or made available to MLCC accurate and
complete copies of its Articles of Incorporation and By-laws, as amended and in
effect on the date hereof.
6.2. Authority Relative to this Agreement. Statesman has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Statesman and the consummation by Statesman of the
transactions contemplated hereby have been duly and validly authorized and
approved by its Board of Directors and, to the extent required by law, its
shareholders, and, immediately prior to the Closing, no other corporate action
or proceedings on the part of Statesman or its shareholders will be necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Statesman and constitutes a valid and binding agreement of Statesman,
enforceable against Statesman in accordance with its terms.
6.3. Consents and Approvals; No Violation. Except as
specifically set forth in Schedule 6.3, (i) no filing with, and no permit,
authorization, consent or approval of, any public body or authority is necessary
for the consummation by Statesman of the transactions contemplated by this
Agreement; and (ii) neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor compliance by Statesman
with any of the provisions hereof will (A) conflict with or result in any
violation of any provision of the Articles of Incorporation or By-laws of
Statesman, (B) violate any statute, rule, regulation, order, writ, injunction or
decree of any public body or authority by which Statesman is bound, or (C)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any contract, agreement, note, bond,
mortgage, indenture, license, lease, franchise, permit or other instrument or
obligation to which Statesman is a party, or by which it or any of its
properties is bound.
6.4. Financial Statements and Reports. Statesman has furnished
to MLCC the following financial statements (collectively, the "Statesman
Financial Statements"): (i) audited balance sheet, statement of income,
statement of changes in stockholders' equity and statements of cash flows as of
and for the fiscal year ended June 30, 1997 ("Statesman Last Fiscal Year End")
of Statesman; and (ii) unaudited balance sheet ("Statesman Balance Sheet") and
statement of income, changes in stockholders' equity and cash flow of Statesman
as of and for the five (5) month period ended November 30, 1997. The Statesman
Financial Statements are correct and complete in all material respects with
respect to each item therein, have been prepared in accordance with generally
accepted accounting principles applied consistently throughout the periods
covered thereby, and present fairly the consolidated financial position, results
of operations and changes in stockholders' equity of Statesman as of and for the
periods indicated, and are consistent in all material respects with the books
and records of Statesman (which books and records are correct and complete in
all material respects).
<PAGE>
6.5. Litigation. Except as specifically set forth in Schedule
6.5, there is no action, proceeding or investigation pending, or, to the best
knowledge of Statesman, threatened against Statesman which relates to the
transactions contemplated by this Agreement or which would, if adversely
determined, result in any liability to Statesman, nor has Statesman received
threat of any such action, proceeding, investigation or inquiry. No such action,
proceeding or, to the best knowledge of Statesman, investigation or inquiry has
been pending at any time since the Statesman Last Fiscal Year End. There are no
citations, fines, or penalties heretofore asserted against Statesman under any
federal, state or local law, regulation or ordinance which remain unpaid, nor
has Statesman received notices or any other communications since the Statesman
Last Fiscal Year End from any federal, state or local agency or other
governmental authority with respect to any material violations or alleged
violations of any federal, state or local law or regulation.
6.6. Absence of Undisclosed Liabilities. Except as
specifically set forth in Schedule 6.6, there are no liabilities, obligations or
contingencies of any nature whatsoever (whether absolute, accrued, contingent or
otherwise), except for liabilities, obligations or contingencies which are
accrued or reserved against on the Statesman Balance Sheet or are immaterial
liabilities which were incurred after the date of the Statesman Balance Sheet in
the ordinary course of business consistent with past practice.
6.7. Absence of Material Adverse Change. Except as
specifically set forth in Schedule 6.7, since the date of the Statesman Balance
Sheet, the business of Statesman has been operated in the usual and ordinary
course and substantially in the same manner as previously conducted, and there
has not been: (i) any material adverse change in the business, financial
condition, results of operations or prospects of Statesman, and, to the best
knowledge of Statesman, no fact or condition exists or is contemplated or
threatened which might reasonably be expected to result in any such material
adverse change; (ii) any material impairment of the ability of Statesman to
perform its obligations under this Agreement; (iii) any material threat or
impediment to the consummation of the MLE Merger or the MLCC Merger and the
other transactions contemplated by this Agreement; (iv) any loss or, to the best
knowledge of Statesman, threatened or contemplated loss of business of one or
more customers of Statesman, which loss will have a material adverse effect upon
the business, results of operations or prospects of Statesman; (v) any material
loss, damage, condemnation or destruction of or to any of the properties of
Statesman (whether covered by insurance or not); (vi) any borrowings by
Statesman arising other than in the ordinary course of business consistent with
past practices; (vii) any mortgage, pledge, lien or encumbrance made on any of
the properties or assets of Statesman arising other than in the ordinary course
of business consistent with past practices; or (viii) any sale, transfer or
other disposition of any of the assets or properties of Statesman, other than
(A) in the ordinary course of business consistent with past practices or (B) as
contemplated by this Agreement.
<PAGE>
6.8. Compliance with Other Instruments and Laws. Except as
specifically set forth in Schedule 6.8, Statesman is not in violation of or
default under any term of nor is there any set of facts which would, upon
receipt of notice or passage of time constitute a violation of or default under
(i) its Articles of Incorporation or By-laws; (ii) any note, bond, mortgage,
indenture, instrument or agreement relating to indebtedness for borrowed money;
(iii) any judgment, decree or order of any court or governmental body; or (iv)
any other material contract, agreement, license, lease, franchise, permit or
other instrument or obligation to which it is a party or by which it or any of
its properties or assets is bound. Statesman is in compliance in all material
respects with all statutes, laws, ordinances, rules, regulations, permits,
concessions, grants, franchises, licenses and other governmental authorizations
and approvals applicable to the operation of their respective businesses. All
permits, concessions, grants, franchises, licenses and other governmental
authorizations and approvals material to the conduct of the business of
Statesman have been duly obtained and are in full force and effect, and there
are no proceedings pending or, to the best knowledge of Statesman, threatened
which may result in the revocation, cancellation, suspension or materially
adverse modification thereof. None of such permits, concessions, grants,
franchises, licenses or other governmental authorizations and approvals will be
affected in a manner that would have an adverse effect on the financial
condition, operations or business of Statesman by the consummation of the
transactions contemplated by this Agreement.
6.9. Disclosure. This Agreement, including all Schedules and
other exhibits or related documents, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained herein, in light of the circumstances in
which they are made, not misleading. There is no material fact which has not
been disclosed to MLCC in writing, which is or could be anticipated to be
material to MLCC's decision to consummate the transactions contemplated by the
Agreement on the terms and conditions set forth herein.
<PAGE>
ARTICLE VII
Conduct of Business Pending the Merger
7.1. Conduct of Business of the MLE Companies. Each of the MLE
Companies hereby covenants to Southern States, and MLCC covenants to Statesman,
that, except as specifically provided in this Agreement or except with the prior
written consent of Southern States, or, in the case of MLCC, Statesman, during
the period from the date of this Agreement to the Closing, each of the MLE
Companies will conduct its operations only in the ordinary and usual course
consistent with past practice, and will use its customary and reasonable efforts
to preserve intact its business organization, to keep available the services of
its officers, employees and consultants, to maintain satisfactory relationships
with suppliers, customers and all others having business relationships with it
and to maintain accounting records consistent with past practice. MLE and each
of the Subsidiaries will promptly advise Southern States, or, in the case of
MLCC, Statesman, in writing of any change in the financial condition, operations
or business of any of the MLE Companies which MLE or MLCC, as the case may be,
recognizes is or is likely to be materially adverse to any of the MLE Companies.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, prior to the Closing, without the prior
written consent of Southern States, or, in the case of MLCC, Statesman, neither
MLE nor any Subsidiary will do or enter into any written or oral agreement to do
any of the following:
(a) amend the Articles of Incorporation or
By-Laws of MLE or any Subsidiary;
(b) rescind, modify, amend or otherwise change
or affect any of the resolutions of the Boards of Directors of MLE or any
Subsidiary approving the execution of this Agreement and recommending it to the
members of MLE for approval;
(c) (i) except as mutually agreed by MLE and
Southern States, based upon the results of operations of MLE for the fiscal year
ended December 31, 1997, either: (A) pay any patronage refund or (B) authorize
any additional allocated patrons equity; or (ii) authorize for issuance, issue,
sell, deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any equity or shares of capital stock of any class of MLE
or of any Subsidiary, or any securities convertible into or exchangeable for
such equity or shares of capital stock;
(d) split, combine or reclassify any member's
equity or shares of capital stock of MLE or of any Subsidiary of any class,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of any class of equity
or capital stock of MLE or of any Subsidiary, or redeem or otherwise acquire any
such equity or shares of capital stock;
(e) except in the ordinary course of business
under existing lines of credit, consistent with past practice and not in excess
of current requirements or as may be required to extend MLE's and/or MLCC's
existing credit facilities with St. Paul Bank until April 30, 1998 upon terms
and conditions substantially similar to the terms of MLE's current credit
facilities with St. Paul Bank, (i) create, incur, assume, maintain or permit to
exist any long-term debt, including obligations in respect of capital leases
(other than obligations under capital leases existing on the date hereof) or
create, incur, assume, maintain or permit to exist any short-term borrowing in
an aggregate amount for MLE or any such Subsidiary exceeding $500,000, (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person;
(iii) make any loans, advances or capital contributions to, or investments in,
any other person; or (iv) waive, release, grant or transfer any material rights
or modify or change any existing license, lease, contract or other document
material to MLE or any Subsidiary;
<PAGE>
(f) (i) increase or commit to increase in any
manner the compensation, bonus, bonus opportunity, fringe benefits or other
benefits of any employee, or enter into or commit to enter into, any employment
or consulting agreement with or for the benefit of any person employed or
otherwise engaged by MLE or any Subsidiary as of the date of this Agreement,
except as any of such may occur in the ordinary course of business and in
accordance with its customary past practices (and in any such event MLE will
consult with Southern States before taking such action); (ii) increase or commit
to increase in any manner the benefits, rights or entitlements under any Plan of
any Employee; (iii) pay or commit to pay any pension or other retirement benefit
or allowance not required by an existing Plan; (iv) amend or commit to amend any
Plan; (v) institute or enter into or commit to institute or enter into any
bonus, profit-sharing, incentive, stock option or other equity benefit, deferred
compensation, severance, retention, change in control, pension, retirement,
health, welfare, group insurance or other employee or retiree benefit plan,
agreement, trust, fund or arrangement; or (vi) hire or employ any additional
employee (either on a salaried or hourly basis) other than on a part time basis
and consistent with past practice and seasonal needs without first advising
Southern States of such intended new hire;
(g) except in the ordinary course of business,
consistent with past practice, sell, transfer, lease, license, mortgage or
otherwise dispose of, or encumber, or agree to sell, transfer, lease, license,
assign, mortgage or otherwise dispose of or encumber, any properties, real,
personal or mixed, including automobiles, whether owned or leased;
(h) enter into any other agreements, commitments
or contracts which, individually or in the aggregate, are material to MLE or any
Subsidiary, except agreements, commitments or contracts for the purchase, sale
or lease of goods or services in the ordinary course of business consistent with
past practice and not in excess of current requirements, or otherwise make any
material change in the conduct of the business or operations of MLE or any such
Subsidiary;
(i) enter into any agreement, commitment or
contract with respect to the purchase of any capital assets involving an amount
in excess of $50,000 for any single project;
(j) enter into any other agreements, leases,
commitments or contracts which individually involve the expenditure of more than
$25,000 (except for purchase orders, sales orders and contracts for the purchase
of goods and services in the ordinary course of business);
<PAGE>
(k) except as specifically permitted in this
Agreement, willfully take any action or omit to take any action that would
result in the representations and warranties of MLE and the Subsidiaries
contained in this Agreement not being true and correct on the date made or,
except with respect to those representations and warranties made as of a
specified date, on the Closing Date or in any of the conditions to the
consummation of the transactions contemplated hereby not being satisfied on the
Closing Date;
(l) make any new elections, or make any changes
to current elections, with respect to Taxes;
(m) create any subsidiary of MLE or any
Subsidiary whether by acquisition, merger or otherwise; provided, that if
Southern States consents to the creation of any such subsidiary, then any
representations or warranties of MLE and the Subsidiaries relating to their
respective subsidiaries or the business to be acquired by any such subsidiary
made by MLE or any Subsidiary shall be deemed to be made with respect to such
acquired subsidiary or acquired business, with the same force and effect as the
representations and warranties made by MLE and the Subsidiaries in Article III
hereof; or
(n) change any method of accounting or any
accounting principle or practice used by MLE or any Subsidiary.
ARTICLE VIII
Additional Agreements
8.1. Southern States By-laws. As of the Effective Time of the
MLE Merger, Southern States shall have amended its By-laws in the manner set
forth in Exhibit C to this Agreement and its Board of Directors shall have
adopted the appropriate resolutions to provide for the following: (i) the
establishment and maintenance of MLE's operations and activities relating to
livestock marketing prior to the Effective Time as a separate allocation unit of
Southern States for purposes of operations and patronage of the MLE business
("MLE Allocation Unit"); (ii) the creation of an election district providing for
one seat on Southern States' Board of Directors based on commission volume and
other inputs and services; and (iii) the establishment of a livestock marketing
board for the purpose of consulting with Southern States with respect to the
business and operations of the MLE Allocation Unit. The livestock marketing
board initially will be composed of the twelve persons serving as members of the
board of directors of MLE at the Effective Time plus up to five additional
persons to be designated by the Board of Directors of Southern States. The
livestock marketing board shall be reduced to not more than twelve members by
the date which is five years after the Effective Time of the MLE Merger.
8.2. MLE Results of Operations. MLE covenants that, exclusive
of the effect of any reserves established with the consent of Southern States in
contemplation of the Mergers, the results of operations of the MLE Companies,
determined in accordance with accounting principals consistently applied in
accordance with past practices, for the period between September 30, 1997 and
the final day of the month immediately preceding the Closing shall not be a
deficit amount.
<PAGE>
8.3. Exchange of MLE Equities. Southern States agrees that, at
the Effective Time, it will assume on a dollar for dollar basis the allocated
patrons' equities of MLE existing on the books of MLE at such time, provided,
however, that the first dollar of each such members' allocated equity shall be
exchanged for and represented by one share of Southern States' membership common
stock, $1.00 par value per share. Southern States further agrees that those
allocated member and patron equities assumed by Southern States will be revolved
with Southern States' patronage refund allocations, treating MLE's 1983 class
year of assumed equities as if they were patronage refund allocations of
Southern States for the year 1977, with corresponding treatment for subsequent
years of MLE equities assumed (e.g., 1984 member equities of MLE will be
revolved at the same time as Southern States revolves its 1978 patronage refund
allocations), provided, however, that no more than one class year of MLE
equities will be revolved by Southern States in any one fiscal year. Patronage
equities of the MLE Allocation Unit arising after the Effective Time of the MLE
Merger will be subject to revolvement under the same policies applicable to all
other Southern States patronage refund allocations as determined by the Board of
Directors of Southern States from time to time. Southern States agrees that
operating savings of Southern States attributable to the business of Statesman
will be allocated among the members and patrons of Southern States in such a
manner as will cause the patrons of the MLE Allocation Unit to share equitably
in such operating savings.
8.4. MLCC Lending Programs. After the Effective Time,
Statesman will undertake to continue to provide the animal and facility credit
programs currently provided by MLCC, subject to the exercise of its good faith
business judgment concerning the nature and extent of such programs and the
terms and conditions of credit to individual obligors.
8.5. Additional Agreements. Each of the parties hereto agrees
to use all reasonable efforts to take or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement and to cooperate with each other in connection with the
foregoing, including using its best efforts to obtain all necessary consents,
approvals and authorizations as are required to be obtained under any Federal,
state or local law or regulation, to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby, to cause to be lifted or rescinded any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby, and to effect all necessary
registrations and Filings.
8.6. No Solicitation of Acquisition Proposals. Until such
time, if any, as this Agreement is terminated pursuant to Section 10.1, MLE will
not, and will cause each of the Subsidiaries and their respective directors,
officers, employees, representatives, partners and agents (collectively, the
"Representatives") to not, directly or indirectly, (i) solicit, initiate or
encourage the submission of any Acquisition Proposal (as hereinafter defined) or
(ii) participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or agree to or endorse, or take any
other action to facilitate any Acquisition Proposal or any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal; provided, however, that nothing contained in this
paragraph shall prohibit the Board of Directors of MLE from furnishing
information to, or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide Acquisition Proposal if, and only to
the extent that (A) the Board of Directors of MLE, after consultation with and
based upon the advice of independent legal counsel, determines in good faith
that such action is necessary for the Board of Directors of MLE to comply with
its fiduciary duties to its members and patrons under applicable law and (B)
prior to taking such action, MLE (x) provides reasonable notice to Southern
States to the effect that it is taking such action and (y) receives from such
other person or entity an executed confidentiality agreement in reasonably
customary form. MLE shall as promptly as practicable advise Southern States
orally and in writing of the receipt by it (or any of the other entities or
persons referred to above) after the date hereof of any Acquisition Proposal, or
any inquiry which could lead to any Acquisition Proposal, the material terms and
conditions of such Acquisition Proposal or inquiry, and the identity of the
person making any such Acquisition Proposal or inquiry. MLE will keep Southern
States fully informed of the status and details of any such Acquisition Proposal
or inquiry. The term "Acquisition Proposal" as used herein means any offer
involving the capital stock, membership rights and/or allocated patrons'
equities of MLE or any of its subsidiaries, any proposal for a merger,
consolidation or other business combination involving MLE or any of its
subsidiaries, any proposal or offer to acquire in any manner a substantial
portion of the business or assets of MLE or any of its subsidiaries, or any
proposal or offer with respect to any other transaction similar to any of the
foregoing with respect to MLE or any of its subsidiaries, other than the
business combination contemplated by this Agreement.
<PAGE>
8.7. Access to Information; Confidentiality. MLE and Southern
States shall each afford to the other and to the other's financial advisors,
legal counsel, accountants, consultants, financing sources, and other authorized
representatives access during normal business hours throughout the period prior
to the Effective Time to all of its books, records, properties, plants and
personnel and, during such period, each shall furnish as promptly as practicable
to the other all information as such other party reasonably may request,
provided that neither party shall disclose to the other any competitively
sensitive information and no investigation pursuant to this Section 8.7 shall
affect any representations or warranties made herein or the conditions to the
obligations of the respective parties to consummate the MLE Merger and the MLCC
Merger. Each party shall continue to abide by the terms of the confidentiality
agreement between MLE and Southern States, dated November 5, 1997 (the
"Confidentiality Agreement").
8.8. Public Announcements. Southern States, Statesman and the
MLE Companies will consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement and shall
not issue any such press release or make any such public statement prior to such
consultation without the mutual consent of Southern States and MLE, except as in
the opinion of counsel for the MLE Companies or Southern States is required by
law.
ARTICLE IX
Closing Conditions
9.1. Conditions Precedent to the Obligations of All Parties.
The respective obligations of each party to effect the Closing of each of the
MLE Merger and the MLCC Merger shall be subject to the fulfillment at or prior
to the Closing of each of the following conditions: (i) none of the parties
hereto shall be subject to a preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission nor any statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would (A) make the acquisition or holding by
Southern States of the assets and/or equities of the MLE Companies illegal or
make the acquisition or holding by Statesman of the assets and/or capital stock
of MLCC illegal or (B) otherwise prevent the consummation of the Closing as
contemplated by this Agreement; and (ii) receipt of all governmental,
environmental, regulatory and other third-party consents and approvals required
to effect the transactions contemplated herein.
<PAGE>
9.2. Conditions Precedent to the Obligation of MLE. The
obligation of MLE to effect the Closing is also subject to the fulfillment, at
or prior to the Closing Date, of the following additional conditions:
(a) Southern States shall have performed in all
material respects each obligation to be performed by it hereunder on or prior to
the Closing, and the transactions contemplated herein shall have been approved
by the Board of Directors and, to the extent required by law, the members of
Southern States.
(b) The representations and warranties of
Southern States set forth in this Agreement shall be true and correct at and as
of the Closing as if made at and as of such time, except to the extent that any
such representation or warranty is made as of a specified date (in which case
such representation or warranty shall have been true and correct as of such
date).
(c) MLE shall have received a certificate,
dated the Closing Date, of the Chief Executive Officer, Chief Operating Officer,
or any Senior Vice President of Southern States to the effect that the
conditions specified in paragraphs (a) and (b) of this Section 9.2 have been
fulfilled.
(d) MLE shall have received the opinion of Mays
& Valentine, L.L.P., counsel to Southern States, addressed to them and dated the
Closing Date, as to such items and in such form and substance as are reasonably
requested by MLE.
(e) The By-laws of Southern States shall have
been amended as contemplated in Section 8.1 above.
9.3. Conditions Precedent to Obligations of MLCC. The
obligation of MLCC to effect the Closing shall be subject to the fulfillment, at
or prior to the Closing Date, of the following additional conditions:
(a) Statesman shall have performed in all
material respects each obligation to be performed by it hereunder on or prior to
the Closing, and the transactions contemplated herein shall have been approved
by the Board of Directors and, to the extent required by law, shareholders of
Statesman.
(b) The representations and warranties of
Statesman set forth in this Agreement shall be true and correct at and as of the
Closing as if made at and as of such time, except to the extent that any such
representation or warranty is made as of a specified date (in which case such
representation or warranty shall have been true and correct as of such date).
(c) MLCC shall have received a certificate,
dated the Closing Date, of the President or any Vice President of Statesman to
the effect that the conditions specified in paragraphs (a) and (b) of this
Section 9.3 have been fulfilled.
<PAGE>
(d) MLCC shall have received the opinion of Mays
& Valentine, L.L.P., counsel to Statesman, addressed to them and dated the
Closing Date, as to such items and in such form and substance as are reasonably
requested by MLCC.
9.4. Conditions Precedent to Obligations of Southern States.
The obligation of Southern States to effect the Closing shall be subject to the
fulfillment, at or prior to the Closing Date, of the following additional
conditions:
(a) Each of the MLE Companies shall have
performed in all material respects each of its obligations under this Agreement
required to be performed by it on or prior to the Closing pursuant to the terms
hereof.
(b) The representations and warranties of each
of MLE and MLCC contained in this Agreement shall be true and correct when made
and at and as of the Closing Date as if made at and as of such time, except to
the extent that any such representation or warranty is made as of a specified
date (in which case such representation or warranty shall have been true and
correct as of such date).
(c) Except for the effect of reserves established
with the consent of Southern States in contemplation of the Mergers, there shall
not have occurred after the date hereof any material adverse change in the
financial condition, business or results of operations of any of the MLE
Companies.
(d) Southern States shall be satisfied that the
consolidated balance sheet of MLE as of the final day of the month immediately
preceding the Closing reflects all such reserves or other provisions for loss or
contingencies as shall be necessary or appropriate to its continuing business
and operations as contemplated by this Agreement.
<PAGE>
(e) Southern States shall have received a
certificate, dated the Closing Date, of the President of MLE to the effect that
the conditions specified in paragraphs (a), (b), (c), (f) and (j), of this
Section 9.4 applicable to each of MLE and the Subsidiaries have been fulfilled.
(f) There shall not be any action or proceeding
commenced by or before any court or governmental agency or authority in the
United States, or threatened by any governmental agency or authority in the
United States, that challenges the consummation of the Closing or seeks to
impose material limitations on the ability of Southern States to exercise full
rights of ownership of any of the material assets or business of any of the MLE
Companies or seeks material damages from any of the MLE Companies in connection
with such ownership.
(g) All necessary third-party consents relating
to the transactions contemplated by this Agreement shall have been obtained and
shall be in full force and effect.
(h) Southern States shall have received the
opinion of McDermott, Will & Emery, counsel to the MLE Companies, addressed to
it and dated the Closing Date, as to such items and in such form and substance
as are reasonably requested by Southern States.
(i) Southern States shall be satisfied with the
results of its environmental due diligence of all of the Real Property.
(j) Southern States shall have received
satisfactory assurance from all lessors under the Leases regarding the status of
such Leases and the effect on the status of such Leases of this Agreement and
the consummation of the transactions contemplated hereby.
(k) Southern States shall have received
satisfactory assurance that the Marketing and Management Agreement, dated
November 2, 1994, between MLE, Indiana Livestock Exchange and Thorn Apple
Valley, Inc., a Michigan corporation and any other designated agreement shall
continue in full force and effect without interruption or alteration, in any
fashion on account of the consummation of the transactions contemplated herein.
(l) Southern States shall have received the
written consent of CoBANK, ACB relating to the transactions contemplated by this
Agreement and such consent shall be in full force and effect.
9.5. Conditions Precedent to Obligations of Statesman. The
obligations of Statesman to effect the Closing of the MLCC Merger shall be
subject to the fulfillment, at or prior to the Closing Date, of the following
additional conditions:
(a) MLCC shall have performed in all material
respects its obligations under this Agreement required to be performed by it on
or prior to the Closing pursuant to the terms hereof.
(b) The representations and warranties of MLCC
contained in this Agreement shall be true and correct when made and at and as of
the Closing Date as if made at and as of such time, except to the extent that
any such representation or warranty is made as of a specified date (in which
case such representation or warranty shall have been true and correct as of such
date).
<PAGE>
(c) There shall not have occurred after the
date hereof any material adverse change in the financial condition, business or
results of operations of MLCC.
(d) Statesman shall have received a certificate,
dated the Closing Date, of the President of MLCC, to the effect that the
conditions specified in paragraphs (a), (b), (c) and (f) of this Section 9.5
applicable to MLCC have been fulfilled.
(e) There shall not be any action or proceeding
commenced by or before any court or governmental agency or authority in the
United States, or threatened by any governmental agency or authority in the
United States, that challenges the consummation of the Closing or seeks to
impose material limitations on the ability of Statesman to exercise full rights
of ownership of any of the material assets or business of MLCC or seeks material
damages from MLCC in connection with such ownership.
(f) All necessary third-party consents relating
to the transactions contemplated by this Agreement shall have been obtained and
shall be in full force and effect.
(g) Statesman shall have received the opinion of
McDermott, Will & Emery, counsel to MLCC, addressed to it and dated the Closing
Date, as to such items and in such form and substance as are reasonably
requested by Statesman.
(h) Statesman shall have received satisfactory
assurance from all of MLCC's lenders regarding the status of their respective
loans to MLCC and the effect on the status of such loans of this Agreement and
the consummation of the transactions contemplated hereby.
(i) Statesman shall have received the written consent
of CoBANK, ACB, Crestar Bank, NationsBank, N.A. First Union National Bank,
SunTrust Bank, Atlanta, Wachovia Bank of North Carolina, N.A. relating to the
transactions contemplated by this Agreement and such consents shall be in full
force and effect.
ARTICLE X
Termination and Abandonment
10.1. Termination. With respect to all of the transactions
contemplated hereby, this Agreement may be terminated at any time prior to the
Closing:
(a) by mutual consent of MLE and Southern States;
<PAGE>
(b) by either MLE or Southern States if the
Closing shall not have occurred on or before April 30, 1998; provided, however,
that the right to terminate this Agreement pursuant to this Section 10.1(b)
shall not be available to any party whose failure to fulfill any obligation of
this Agreement has been the cause of, or resulted in, the failure of the Closing
to have occurred on or before the aforesaid date;
(c) by Southern States, if an MLE Company shall
have breached any of its covenants herein or shall have made a misrepresentation
or if Southern States is not satisfied with the results of its environmental due
diligence as stated in Section 9.4(h).
(d) by MLE, if Southern States shall have made a
misrepresentation herein;
(e) by either Southern States or MLE, if any
court of competent jurisdiction or other governmental agency of competent
jurisdiction shall have issued an order, decree or ruling or taken any other
action binding on the parties hereto restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated herein, and such
order, decree, ruling or other action shall have become final and
non-appealable; provided, however, that neither Southern States nor the MLE
Companies may terminate this Agreement as a result of any such order, decree,
ruling or other action issued at the request of a party seeking to purchase any
of the MLE Companies' equities, shares or assets unless such order, decree,
ruling or other action is issued without the consent of and over the opposition
of the party seeking to terminate this Agreement pursuant to this Section
10.1(e).
10.2. Procedure and Effect of Termination. In the event of
termination of this Agreement pursuant to Section 10.1 by either Southern States
or MLE, written notice thereof shall forthwith be given to the other and this
Agreement shall terminate, without further action by either of them. If this
Agreement is terminated as provided herein, no party hereto shall have any
liability or further obligation to any other party to this Agreement except that
the provisions of the final sentence of Section 8.7, Article XI and this Section
10.2 shall survive such termination.
10.3. Effect on MLCC Merger of Termination by MLE or Southern
States. In the event of termination of this Agreement pursuant to this Article
X, all obligations of either Statesman or MLCC under this Agreement also shall
be terminated simultaneously.
ARTICLE XI
Miscellaneous
11.1. Amendment and Modification. Subject to applicable law,
this Agreement may be amended, modified or supplemented by mutual agreement of
Southern States and MLE or, as applicable, with respect to the MLCC Merger by
Statesman and MLCC at any time before Closing; provided, however, that this
Agreement may not be amended except by an instrument in writing signed by each
of the parties hereto.
11.2. Waiver of Compliance; Consents. Any failure of Southern
States or Statesman, on the one hand, or any of the MLE Companies, on the other
hand, to comply with any obligation, covenant, agreement or condition herein may
be waived by MLE, or with respect to Statesman, MLCC on the one hand, or
Southern States, or with respect to MLCC, Statesman on the other, respectively,
only by a written instrument signed by the party or parties granting such
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 11.2.
<PAGE>
11.3. Investigations; Survival of Warranties. The respective
representations, warranties and covenants of Southern States, Statesman and the
MLE Companies contained herein or in any certificates, schedules or other
documents delivered prior to or at the Closing shall not be deemed waived or
otherwise affected by any investigation made by any party hereto. Each and every
representation, warranty and covenant of Southern States, Statesman or any of
the MLE Companies and each of their respective officers, directors, shareholders
and partners shall expire with, and be terminated and extinguished by, the
Closing; provided, however, this Section 11.3 shall have no effect upon any
other obligation of the parties hereto to be performed before or after the
Closing or on the obligations of the parties described in Sections 8.1, 8.3, and
8.4 and in the final sentence of Section 8.7 and in this Article XI, all of
which will survive the Closing.
11.4. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice; provided that notices of a change of address shall be effective
only upon receipt thereof):
(a) if to Southern States or Statesman, to:
Wayne A. Boutwell, Chief Executive Officer
Southern States Cooperative, Inc.
6606 West Broad Street
Richmond, Virginia 23230-1717
Phone: (804) 281-1000
Fax: (804) 281-1383
with a copy to:
N. Hopper Ancarrow, Jr., Esquire
Vice President and General Counsel
Southern States Cooperative, Inc.
Richmond, Virginia 23230-1717
Phone: (804) 281-1205
Fax: (804) 281-1383
(b) if to the MLE Companies, to:
Thomas H. Reed, CEO
Michigan Livestock Exchange
806 Coolidge Road
East Lansing, Michigan 48823
Phone: (517) 337-2856
Fax: (517) 337-6070
with a copy to:
Michael R. Fayhee, Esquire
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60603
Phone: (312) 984-7522
Fax: (312) 984-2097
<PAGE>
11.5. Assignment; Parties in Interest. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto without the prior written consent
of the other parties, provided that Southern States and Statesman may assign
either of their respective rights and obligations to one or more affiliates, but
no such assignment shall relieve Southern States or Statesman of their
respective obligations hereunder. This Agreement is not intended to confer upon
any other person except the parties hereto any rights or remedies.
11.6. Further Assurances. From time to time, at Southern
States' or Statesman's request and without further consideration, the MLE
Companies will execute and deliver to Southern States or Statesman, as the case
may be, such documents and take such action as Southern States or Statesman may
reasonably request in order to consummate the transactions contemplated hereby
and to vest in Southern States and with respect to MLCC, Statesman good and
valid title to the respective assets of the MLE Companies.
11.7. Governing Law. This Agreement shall be governed by the
laws of the Commonwealth of Virginia without regard to the laws that might
otherwise govern under applicable principles of conflicts of law as to all
matters, including, but not limited to, matters of validity, construction,
effect, performance and remedies.
11.8. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.9. Entire Agreement. This Agreement, including the
documents and instruments referred to herein, embodies the entire agreement and
understanding of the parties hereto in respect of the MLE Merger and MLCC Merger
and all other matters contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement, together with the
documents and instruments referred to herein, supersedes all prior agreements
and understandings between the parties with respect to the MLE Merger and MLCC
Merger and such other matters.
11.10. Severability. If any provision of this Agreement shall
be held illegal, invalid or unenforceable, the parties hereto agree that such
provision shall be enforced to the maximum extent permissible so as to effect
the intent of the parties, and the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby. If necessary to effect the intent of the parties hereto, the
parties will negotiate in good faith to amend this Agreement to replace the
unenforceable language with enforceable language which as closely as possible
reflects such intent.
<PAGE>
IN WITNESS WHEREOF, Southern States, Statesman, MLE and MLCC
have caused this Agreement to be signed by their respective duly authorized
officers on the date first above written.
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: _______________________________________________
Name: Wayne A. Boutwell
Title: President and Chief Executive Officer
STATESMAN FINANCIAL CORPORATION
By:________________________________________________
Name: Jonathan A. Hawkins
Title: President
MICHIGAN LIVESTOCK EXCHANGE
By:________________________________________________
Name: Thomas H. Reed
Title: President and Chief Executive Officer
MICHIGAN LIVESTOCK CREDIT CORPORATION
By:________________________________________________
Name: Thomas H. Reed
Title: President
<PAGE>
EXHIBIT A
Plan of Merger
of
Michigan Livestock Exchange
with and into
Southern States Cooperative, Inc.
1. The names of the merging corporations are Michigan Livestock
Exchange ("MLE"), a Michigan non-stock membership corporation
and Southern States Cooperative, Inc. ("SSC"), a Virginia
agricultural cooperative corporation. MLE shall be merged with
and into SSC and SSC shall be the surviving corporation in the
merger (the "Merger").
2. Upon the effective date of the Merger, the membership
interests in MLE shall be extinguished, and each membership
interest shall be and become one share of membership common
stock of SSC, $1 par value per share.
3. Upon the effective date of the Merger, allocated patronage
equities of MLE existing on such date shall be and become
allocated patronage equities of SSC on a dollar for dollar
basis, except that the first dollar of each allocated patron's
equity of MLE thereafter shall be represented by the one share
of SSC membership common stock, $1 par value per share,
exchanged for each membership interest in MLE as provided for
in Section 2 above.
4. The Articles of Incorporation and By-laws of SSC as in effect
prior to the Merger shall continue (until amended or repealed
as provided by applicable law) to be the Articles of
Incorporation and By-laws of SSC provided, however, that the
By-laws of SSC shall be amended as of the effective date of
the Merger in the form provided for in the Agreement of Merger
of which this Plan of Merger is a part.
5. The directors of SSC after the Merger shall consist of the
same individuals serving as members of the board of directors
prior to the Merger, with the addition of William Pridgeon,
who shall be the duly elected director of the MLE Allocation
Unit of SSC until his successor shall have been duly elected
in accordance with the By-laws of SSC.
<PAGE>
EXHIBIT B
Plan of Merger
of
Michigan Livestock Credit Corporation
with and into
SFC II Corporation
1. The names of the merging corporations are Michigan Livestock
Credit Corporation ("MLCC"), a Michigan corporation, and SFC
II Corporation ("SFC II"), a Virginia corporation. MLCC shall
be merged with and into SFC II and SFC II shall be the
surviving corporation in the merger (the "Merger").
2. Upon the effective date of the Merger, by virtue of the Merger
and without any action on the part of any of the parties
hereto or any holder of any of the following securities: (i)
the 100,000 shares of MLCC Common Stock, par value $1.00 per
share, held by Michigan Livestock Exchange, a Michigan
non-stock corporation which is the sole holder of MLCC Common
Stock, shall be converted into shares of SFC II Class X
Preferred Stock, $1,000 par value per share, with the
aggregate number of shares of Class X Preferred Stock to be
issued to be equal to the number of shares (or, if that number
is not an even number, than to the next lowest whole number)
determined by dividing (a) the net equity of MLCC as shown on
its balance sheet as of the close of the month end immediately
prior to the effective date of the MLCC Merger, by (b) one
thousand dollars ($1,000.00). For purposes of this section 2
of this Plan of Merger, the "net equity" of MLCC shall mean
its total equity after the establishment of such loan loss
reserves or other reserves for contingencies as shall be
satisfactory to Statesman Financial Corporation less the
aggregate liquidation preference of any shares of MLCC
preferred stock then outstanding. No fractional shares of SFC
II Class X Preferred Stock shall be issued pursuant to this
Plan of Merger; (ii) each outstanding share of MLCC Class A
Preferred Stock, par value $1.00 per share, shall be converted
into one (1) share of SFC II Class A Preferred Stock, par
value $1.00 per share; (iii) each outstanding share of MLCC
Class B Preferred Stock, par value $1.00 per share, shall be
converted into one (1) share of SFC II Class B Preferred
Stock, par value $1.00 per share; and (iv) each outstanding
share of MLCC Class C Preferred Stock, par value $20.00 per
share, shall be converted into one (1) share of SFC II Class C
Preferred Stock, par value $20.00 per share.
3. The Articles of Incorporation and By-laws of SFC II as in
effect prior to the Merger shall continue (until amended or
repealed as provided by applicable law) to be the Articles of
Incorporation and By-laws of SFC II provided, however, that
the Articles of Incorporation of SFC II shall be amended as of
the effective date of the Merger to change the name of SFC II
to "Michigan Livestock Credit Corporation".
<PAGE>
EXHIBIT C
Proposed Amendments to By-laws of
Southern States Cooperative, Inc.
Article VI of the By-laws of Southern States Cooperative, Inc.
shall be amended to renumber the current provisions of Article VI as Article
VI(A), and to add a new Article VI(B) as follows:
(B)
Livestock Marketing
Section 1B. Livestock Divisional Board Election. The Livestock
Divisional Board shall consist of as many eligible members in each region for
terms of three (3) years each as may, from time to time, be established by the
Board of Directors. If more than one (1) member represents a region, the terms
shall be staggered. The Livestock Divisional Board shall also have one (1)
at-large member as provided in Section 2B of this Article. The initial Livestock
Divisional Board shall be appointed by the Board of Directors and shall
thereafter be self perpetuating with all vacancies, whether from the expiration
of term of office or otherwise, to be filled by a majority vote of the remaining
Livestock Divisional Board from eligible members from the region in which the
vacancy occurs. Each member of the Livestock Divisional Board shall serve until
the appointment and acceptance of his duly qualified successor. The Board of
Directors shall divide the territory served by the Livestock Marketing Division
into at least four (4) geographic regions so that as far as practical, each area
of such territory shall be represented on the Livestock Divisional Board.
Changes in the number and boundaries of these regions may be made from time to
time as circumstances require.
The Livestock Divisional Board shall elect a Chairman, Vice
Chairman and Secretary for terms of one (1) year.
Section 2B. The At-Large Livestock Divisional Board Member. In
addition to the appointed members of the Livestock Divisional Board, one (1)
at-large Member shall be appointed by the Board of Directors for a term of three
(3) years, or until his successor is appointed. The at-large member shall have
the same powers and rights as other members of the Livestock Divisional Board.
Any vacancy occurring in the office of at-large Livestock Advisory Board member
shall be filled in the same manner as the original appointment was made.
Section 3B. Duties of the Livestock Divisional Board. The
Livestock Divisional Board shall serve in an advisory capacity to the Board of
Directors with respect to the operation of the Livestock Marketing Division, and
shall make recommendations to the Board of Directors on matters referred to the
Livestock Divisional Board, and may make recommendations to the Board of
Directors on policies affecting Livestock Marketing Division operations.
Amend Article VIII, Section 4: Add "its livestock marketing
facilities" after elevators in the sixth line.
EXHIBIT 10.10(a)
GROUND LEASE
between
SOUTHERN STATES COOPERATIVE, INCORPORATED
as Lessor
and
GOLD BOND STAMP COMPANY OF GEORGIA
as Lessee
Dated: as of July 15, 1977
Location: Richmond, Virginia.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
1. DEMISE OF PREMISES.................................................................... 1
2. CERTAIN DEFINITIONS................................................................... 2
3. TITLE AND CONDITION................................................................... 4
4. USE OF PROPERTY; QUIET ENJOYMENT...................................................... 5
5. TERM.................................................................................. 5
6. RENT.................................................................................. 5
7. NET LEASE; NON-TERMINABILITY.......................................................... 6
8. TAXES AND ASSESSMENTS; COMPLIANCE WITH LAW............................................ 7
9. LIENS................................................................................. 8
10. INDEMNIFICATION....................................................................... 9
11. MAINTENANCE AND REPAIR................................................................ 10
12. ALTERATIONS, RELEASE OF LAND AND REDUCTION
OF BASIC RENT......................................................................... 10
13. CONDEMNATION.......................................................................... 12
14. CASUALTY.............................................................................. 16
15. ASSIGNMENT, SUBLETTING AND MORTGAGING................................................. 17
16. PERMITTED CONTESTS.................................................................... 17
17. CONDITIONAL LIMITATIONS; DEFAULT PROVISION............................................ 20
18. ADDITIONAL RIGHTS OF LESSOR........................................................... 26
19. NOTICES............................................................................... 26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
20. ESTOPPEL CERTIFICATES................................................................. 27
21. NO MERGER............................................................................. 29
22. SURRENDER............................................................................. 30
23. SEPARABILITY.......................................................................... 30
24. RIGHTS OF MORTGAGEE................................................................... 31
25. APPRAISERS............................................................................ 34
26. THE SUBLEASE.......................................................................... 35
27. ATTORNMENT OF SUBLESSEE; NO PERSONAL LIABILITY
OF LESSEE............................................................................. 38
28. OPTION TO PURCHASE.................................................................... 39
29. TERMINATION OF OPTIONS................................................................ 41
30. TERMINATION OF AGREEMENT FOR LEASE AND
DEVELOPMENT........................................................................... 42
31. TERMINATION DATE AGREEMENT............................................................ 42
32. BINDING EFFECT........................................................................ 42
33. HEADINGS.............................................................................. 43
34. GOVERNING LAW......................................................................... 43
35. SCHEDULES............................................................................. 43
Schedule A-1 Description of Land...................... 44
A-2 Permitted Encumbrances.................. 46
A-3 Lessee's Equipment...................... 47
B Description of Improvements............. 48
C Lease Term and Rent..................... 49
SIGNATURE PAGE........................................................................ 50
ACKNOWLEDGEMENTS...................................................................... 51
</TABLE>
<PAGE>
THIS LEASE, dated as of July 15, 1977, between SOUTHERN STATES
COOPERATIVE, INCORPORATED, a Virginia Corporation (herein, together with its
successors and assigns, called "Lessor") having an address at Seventh and Main
Streets, P. O. Box 1656, Richmond, Virginia 23213, and GOLD BOND STAMP COMPANY
OF GEORGIA, a New Jersey corporation, (herein, together with its successors and
assigns, called "Lessee") having an address at 12755 State Highway 55,
Minneapolis, Minnesota.
1. Demise of Premises.
(a) In consideration of rents and covenants herein stipulated to be paid
and performed and upon the terms and conditions hereinafter specified, Lessor
hereby demises and lets to Lessee, for the term hereinafter described, the
premises consisting of
(i) the parcel of land described in Schedule A-I hereto, and
(ii) all easements, rights and appurtenances relating to such
parcel, but not including Improvements as hereinafter defined such
premises being herein called the "Leased Premises".
(b) Lessee shall improve the Leased Premises through the construction of
the Improvements (hereinafter defined) as described in Schedule B hereto. Such
Improvements shall be completed in a good and workmanlike manner, and shall be
completed expeditiously in compliance with all laws, ordinances, orders, rules,
regulations and requirements applicable thereto. All work done in connection
with such Improvements shall comply with the requirements of any insurance
policy required to be maintained by Lessee hereunder. Lessee shall promptly pay
all costs and expenses of such Improvements, shall discharge all liens (other
than the Mortgage hereinafter defined) filed against the Leased Premised arising
out of the same and shall procure and pay for all permits and licenses required
in connection with such Improvements. Lessee shall deliver to Lessor immediately
after substantial completion of such construction a Certificate duly executed on
behalf of Lessee to the effect that
<PAGE>
(i) such construction has been completed in a manner satisfactory to
it; and
(ii) all building permits and certificates of occupancy, if any are
required, have been obtained and that all applicable zoning and use laws,
ordinances, regulations and agreements permit the use of the Property, as
hereinafter defined, for the purposes contemplated.
2. CERTAIN DEFINITIONS.
(a) The term "Improvements" means, an office building consisting of the
buildings, structures and other improvements on the Leased Premises at the date
hereof, if any, and hereafter erected thereon, together with all equipment
fixtures and items of personal property attached to or used in the operation or
maintenance of the improvements now or hereafter on the Leased Premises and
owned by Lessee, specifically including, but not limited to, those items
enumerated on Schedule A-3 hereto, which building equipment is used in the
operation and maintenance of the Leased Premises or of any building, structure
or other improvement thereon and which may or may not be affixed to the Leased
Premises, including without limitation, fixtures, machinery, elevators,
air-conditioning systems and equipment and all additions, alterations,
restorations and repairs to and replacements of any of the foregoing (but not
including trade fixtures, machinery and equipment and/or computers which are the
property of a sublessee or third parties).
<PAGE>
(b) The term "Lessee" means, the lessee in possession under this Lease and
shall include any successor assignees of Lessee's interest in this Lease.
(c) The term "Lessee's Estate" means, all the right, title and interest of
Lessee in the Property.
(d) The term "Lessor's Estate" means, all the right, title and interest of
Lessor in the Leased Premises.
(e) The term "Mortgage" means, the Deed of Trust from Lessee, as grantor
to the Trustees named therein, for the benefit of The Lincoln National Life
Insurance Company and upon discharge thereof any deed of trust, mortgage or
other security instrument which creates a first lien on Lessee's Estate.
(f) The term "Mortgagee" means, the mortgagee or a beneficiary, under any
Mortgage.
(g) The term "Property" means, the Leased Premises and Improvements,
collectively.
(h) The term "Sublease" means, any lease of the Improvements and sublease
of the Leased Premises.
(i) The term "Sublessee" means, any lessee under a Sublease.
(j) The term "Notes" means, any notes which are secured by a Mortgage.
3. TITLE AND CONDITION
The Leased Premises are demised and let subject to
<PAGE>
(i) the rights of any parties in possession thereof and the existing
state of the title thereof as of the commencement of the term of this
Lease,
(ii) any state of facts which an accurate survey or physical
inspection thereof might show, and
(iii) all zoning regulations, restrictions, rules and ordinances,
building restrictions and other laws and regulations now in effect or
hereafter adopted by any governmental authority having jurisdiction over
the Property.
4. USE OF PROPERTY; QUIET ENJOYMENT.
(a) Lessee may occupy and use the Property for an office building and for
any other lawful purpose.
(b) If and so long as Lessee shall observe and perform all covenants,
agreements and obligations required to be observed and performed by it
hereunder, Lessor warrants peaceful and quiet occupation and enjoyment of the
Leased Premises by Lessee; however, Lessor and its agents may enter upon and
inspect the Leased Premises at reasonable times.
5. TERM.
Subject to other terms, covenants, agreements and conditions contained
herein, Lessee shall have and hold the Leased Premises for a term which shall
commence and expire on the dates set forth in Schedule C hereto.
6. RENT.
<PAGE>
(a) Lessee covenants to pay to Lessor, as rent for the Leased Premises
during the term of this Lease, the respective amounts set forth in Schedule C
hereto (herein called the "Basic Rent") on the dates set forth in Schedule C
(herein called the "Basic Rent Payment Dates") in lawful money of the United
States of America at Lessor's address set forth above or at such other place or
to such other person as Lessor from time to time may designate in writing.
(b) Lessee covenants to pay and discharge, when the same shall become due,
as additional rent, all other amounts, liabilities and obligations which Lessee
assumes or agrees to pay or discharge pursuant to this Lease, together with
every fine, penalty, interest and cost which may be added for non-payment or
late payment thereof and, in the event of any failure by Lessee to pay or
discharge any of the foregoing, Lessor shall have all rights, powers and
remedies provided herein, by law or otherwise in the case of non-payment of the
Basic Rent (provided, however, that amounts payable as liquidated damages
pursuant to Paragraph 17(f) shall not constitute additional rent).
7. NET LEASE; NON TERMINABILITY.
This Lease is a net lease, and, except as otherwise expressly provided
herein, any present or future law to the contrary notwithstanding, Lessee shall
not be entitled to any abatement, reduction, set-off, counterclaim, release or
reduction with respect to any Basic Rent, additional rent or other sum payable
hereunder, nor shall the obligations of Lessee hereunder be affected, by reason
of: any damage to or destruction of the Premises; any taking of the Premises or
any part thereof by condemnation or otherwise; any prohibition, limitation,
restriction or prevention of Lessee's use, occupancy or enjoyment of the
Premises, or any interference with such use, occupancy or enjoyment by any
person; any eviction by paramount title or otherwise, any default by Lessor
hereunder or under any other agreement, the impossibility or illegality of
performance by Lessor, Lessee or both; any action of any governmental authority;
or any other cause whether similar or dissimilar to the foregoing. The parties
intend that the obligations of Lessee hereunder shall be separate and
independent covenants and agreements and shall continue unaffected unless such
obligations shall have been modified or terminated pursuant to an express
provision of this Lease.
<PAGE>
8. TAXES AND ASSESSMENTS; COMPLIANCE WITH LAW.
(a) Lessee shall pay: (i) all taxes, assessments, levies, fees, water and
sewer rents and charges, and all other governmental charges, general and
special, ordinary and extraordinary, foreseen and unforeseen, which are, at any
time prior to or during the term hereof, imposed or levied upon or assessed
against (A) the Property, (B) any Basic Rent, additional rent or other sum
payable hereunder or (C) this Lease or the leasehold estate hereby created or
which arise in respect of the operation, possession or use of the Property; (ii)
all gross receipts or similar taxes imposed or levied upon, assessed against or
measured by any Basic Rent, additional rent or other sum payable hereunder;
(iii) all sales, use and similar taxes at any time levied, assessed or payable
on account of the acquisition, leasing or use of the Property; and (iv) all
charges for utilities serving the Property. Lessee shall not be required to pay
any franchise, estate, inheritance, transfer, income or similar tax of Lessor
(other than any tax referred to in clause (ii) above. Lessee will furnish to
Lessor, promptly after demand therefor, proof of payment of all items referred
to above which are payable by Lessee. If any such assessment may legally be paid
in installments, Lessee may pay such assessment in installments; in such event,
Lessee shall be liable only for installments which become due and payable during
the term hereof.
<PAGE>
(b) Lessee shall comply with and cause the Property to comply with (i) all
statutes, laws, rules, orders, regulations or ordinances applicable to the
Property or the use thereof and (ii) all contracts (including insurance
policies), agreements and restrictions applicable to the Property as the
ownership, occupancy or use thereof, including but not limited to all such
statutes, laws, rules, orders, regulations or ordinances, requirements,
contracts, agreements and restrictions which require structural, unforeseen or
extraordinary changes to the Improvements.
9. LIENS.
Lessee will not directly or indirectly create or permit to be created or
to remain, and will promptly discharge, at its expense, any mortgage, lien,
encumbrance or charge on, pledge of, or conditional sale or other title
retention agreement with respect to the Property or any part thereof or Lessee's
interest therein or the Basic Rent or additional rent payable under this Lease,
other than the Mortgage, Permitted Encumbrances as defined in Schedule A-2
attached hereto, and any mortgage, lien, encumbrance or other charge on, pledge
of, or conditional sale or any other title retention agreement created by or
resulting from any act of or failure to act by Lessor. The existence of any
mechanic's, laborer's, materialman's, supplier's or vendor's lien, or any right
in respect thereof, shall not constitute a violation of this Paragraph 9, if
payment is not yet due upon the contract or for the goods or services in respect
of which any such lien has arisen. Nothing contained in this Lease shall be
construed as constituting the consent or request of Lessor, expressed or
implied, to or for the performance of any labor or services or the furnishing of
any goods or materials by any contractor, sub-contractor, laborer, materialman
or vendor.
<PAGE>
10. INDEMNIFICATION.
Lessee shall defend all actions against Lessor with respect to, and shall
pay, protect, indemnify and save harmless Lessor from and against, any and all
liabilities, losses, damages, costs, expenses (including reasonable attorneys'
fees and expenses), causes of action, suits, claims, demands or judgments of any
nature arising from (i) injury to or death of any person, or damage to or loss
of property, on the Property or on adjoining sidewalks, streets or ways, or
connected with the use, condition or occupancy of any thereof, (ii) violation of
this Lease, (iii) any act or omission of Lessee or its agents, contractors,
licensees, sublessees or invitees, and (iv) any contest referred to in Paragraph
l6.
11. MAINTENANCE AND REPAIR.
Lessee will maintain at its expense the Property in good repair and
condition, except for ordinary wear and tear, and will make with reasonable
promptness all structural and non-structural, foreseen and unforeseen and
ordinary and extraordinary changes and repairs which may be required to keep the
Property in good repair and condition. Lessor shall not be required to maintain,
repair or rebuild the Improvements or to maintain the Property, and Lessee
waives the right to make repairs at the expense of Lessor pursuant to any law at
any time in effect.
12. ALTERATIONS, RELEASE OF LAND AND REDUCTION OF BASIC RENT.
<PAGE>
(a) Lessee may, without expense to Lessor, make additions to and
alterations of the Improvements at any time located or constructed on the Leased
Premises, and Lessee may make substitutions and replacements for the same,
provided that
(i) the market value of the Leased Premises shall not be lessened by
reason of any such addition, alteration, substitution or replacement,
(ii) the foregoing actions shall be performed in a good and
workmanlike manner, and
(iii) such additions, substitutions and replacements shall be
expeditiously completed in compliance with all laws, ordinances, orders,
rules, regulations and requirements applicable thereto.
Lessee shall promptly pay all costs and expenses of each such addition,
alteration, substitution or replacement and subject to Paragraph 9 shall
discharge all liens filed against the Property arising out of the same. Lessee
shall procure and pay for all permits and licenses required in connection with
any such addition, alteration, substitution or replacement.
(b) Lessee may, at its expense,
(i) construct upon the Leased Premises any additional buildings,
structures or other improvements and
(ii) install, assemble or place upon the Leased Premises any items
of machinery or equipment used or useful in Lessee's business, in each
case upon compliance with all the terms and conditions set forth in
Paragraph 12(a).
<PAGE>
(c) In the event any Sublessee is entitled pursuant to the Sublease to a
release therefrom of any portion of the Leased Premises necessary for the
construction and operation of proposed additional improvements, Lessor and
Lessee will release such portion of the Leased Premises from the terms of this
Lease and the Basic Rent shall thereafter be reduced in the proportion that the
area of the released portion bears to the area of the Leased Premises covered by
this Lease immediately prior to such release.
13. CONDEMNATION.
(a) If a portion of the Leased Premises shall be taken in or by
condemnation or other eminent domain proceedings pursuant to any law, general or
special, Lessee shall have the option, at its expense, to repair any damage to
the Leased Premises caused by such taking in conformity with the requirements of
Paragraph 11(a) promptly after such taking so that, after the completion of such
repair, the Leased Premises shall be, as nearly as practicable, in its condition
immediately prior to such taking.
(b) Except as herein otherwise specifically provided, if a portion of the
Leased Premises shall be taken as aforesaid, this Lease shall continue but the
Basic Rent thereafter payable by Lessee shall be reduced from the date of each
such partial taking by an amount equal to the product of the Basic Rent payable
at the time of each such taking multiplied by a fraction, the numerator of which
is the area of the Leased Premises taken and the denominator of which is the
area of the Leased Premises immediately prior to such taking.
(c) If the entire Leased Premises shall be taken in or by condemnation or
other eminent domain proceedings under any law, general or special (other than a
taking for temporary use), this Lease shall terminate on the date of the
termination of the Sublease occasioned by such taking, except with respect to
obligations and liabilities of Lessee under this Lease, actual or contingent,
which have arisen on or prior to such date of termination, upon payment by
Lessee of
<PAGE>
(i) all Basic Rent due with respect to the period during which this
Lease is in effect, and
(ii) all other sums due and payable by it under this Lease to and
including such date, and Lessee shall not be required to repair the
Property pursuant to Paragraph 12(a).
If at the time of a taking (other than a taking for temporary use)
under such proceedings of any substantial portion of the Property which is
sufficient, in the good faith judgment of Lessee, to render the remaining
portion thereof uneconomic for Lessee's continued use or occupancy,
Lessee, at its election, may give written notice to Lessor of the
termination of this Lease on any date for the payment of Basic Rent after
the date of such taking (but not less than thirty (30) days after such
taking) provided that the Sublease shall have terminated on or by such
date, and this Lease shall terminate as of the date specified in such
notice.
(d) All awards and payments made on account of any taking of the Property
in condemnation or other eminent domain proceedings shall be paid as follows:
(i) if on account of the Leased Premises, to Lessor, and, if on
account of the Improvements, to Lessee; or
<PAGE>
(ii) if the award cannot be so allocated by the condemning authority
or the court before which such action is pending, to Lessor and Lessee in
proportion to the fair market value of the Leased Premises and the
Improvements, respectively, determined as of the date prior to such taking
as if this Lease had not been and would not be terminated by reason of
such taking. If Lessor and Lessee are unable to agree upon such respective
values, such values shall be determined by appraisal within a reasonable
time in accordance with Paragraph 25 and the fees for such appraisal shall
be deducted from the awards and payments made with respect to the Property
prior to the disbursement of such awards and payments in accordance with
this clause, provided, however, that all payments to be made under this
Paragraph 13(d) shall be subject to the provisions of the Sublease and the
Mortgage, as long as the same are in effect. For the purposes of this
Lease, all amounts payable pursuant to any agreement with any condemning
authority which has been made in settlement of or under threat of such
taking shall be deemed to constitute an award made in such proceeding.
(e) In the event of a taking in or by such proceedings of all or any
portion of the Leased Premises for temporary use, this Lease shall continue in
full effect without reduction or abatement of Basic Rent and additional rent,
and Lessee, subject to the provisions of the Sublease and the Mortgage, as long
as the same are in effect, shall be entitled, after paying the reasonable
expenses of Lessor, Lessee and the Mortgagee incurred in collecting the same, to
make claim for, recover and retain any awards or proceeds made on account
thereof, whether in the form of rents or otherwise, unless such period of
temporary use or occupancy shall extend beyond the term of this Lease, in which
case such awards or proceeds, after deducting the cost of repairs made to the
Improvements by Lessee by reason thereof, shall be apportioned between Lessor
and Lessee as of such date of expiration of the term of this Lease.
<PAGE>
(f) In the event of the termination of the Sublease as the result of the
rejection of the Sublessee's offer to purchase the Property resulting from
condemnation of a portion of the Property, Lessor shall have the right to
terminate this Lease by purchasing Lessee's Estate at its fair market value,
determined as of the date immediately following such damage or destruction.
14. CASUALTY.
(a) If the improvements shall be substantially damaged or destroyed in any
single casualty during the term hereof so that the Property shall in the
judgment of Lessee, be uneconomic for restoration for Lessee's continued use and
occupancy, then Lessee may give notice to Lessor, within thirty (30) days after
such occurrence, of its intention to terminate this Lease on any business day
specified in such notice which occurs not less than thirty (30) days after the
date of giving of such notice, provided that any Sublease in effect shall have
terminated on or by such date, and this Lease shall terminate on the date
specified in such notice. The entire compensation or proceeds payable in
connection with any damage or destruction of the Improvements shall be payable
to Lessee, provided, however, that all payments to be made under this Paragraph
14 shall be subject to the provisions of the Sublease and the Mortgage, as long
as the same are in effect.
(b) In the event of the termination of the Sublease as the result of the
rejection of the Sublessee's offer to purchase the Property resulting from
substantial damage or destruction to the Property, Lessor shall have the right
to terminate this Lease by purchasing Lessee's Estate at its fair market value,
determined as of the date immediately following such damage or destruction.
<PAGE>
15. ASSIGNMENT, SUBLETTING AND MORTGAGING.
Lessee may assign, transfer, sell, mortgage or pledge the whole or any
part of its interest in this Lease, its interest in the leasehold estate hereby
created and the term hereby demised and let, as security or otherwise, and may
sublet the whole or any part of the Property. Lessee may also mortgage or pledge
its interest in and to any sublease, including without limitation, the Sublease,
and the rentals payable thereunder. Lessee shall, at or prior to the time of any
such assignment, transfer, sale, mortgage, pledge or sublease, give Lessor
notice thereof. Lessor agrees to execute and deliver, at the request of Lessee,
an agreement modifying this Lease and containing such modifications hereof as
may be required by the Mortgagee, provided that such modifications do not
(i) increase Lessor's liability hereunder,
(ii) reduce or diminish Lessee's obligations hereunder, or
(iii) release Lessee from any of its
obligations hereunder.
16. PERMITTED CONTESTS.
Lessee shall not be required to
(a) pay any tax, assessment, levy, fee, water or sewer rent or charge
referred to in Paragraph 8(a),
(b) comply with any statute, law, rule, order, regulation or ordinance
referred-to in Paragraph 8(b), or
<PAGE>
(c) discharge or remove any lien, encumbrance or charge referred to in
Paragraph 9 or 12(a), so long as Lessee shall contest, in good faith and without
expense to Lessor, the existence, amount or validity thereof, the amount of the
damage caused thereby or the extent of its liability therefor by appropriate
proceedings which shall operate during the pendency thereof to prevent
(i) the collection of, or other realization upon the tax,
assessment, levy, fee, water or sewer rent or charge or lien, encumbrance
or charge so contested,
(ii) the sale, forfeiture or loss of the Property or any part
thereof or the Basic Rent or any additional rent or any portion thereof to
satisfy the same or to pay any damages caused by any such encroachment,
hindrance, obstruction, violation or impairment,
(iii) any interference with the use or occupancy of the Property or
any part thereof,
(iv) any interference with the payment of the Basic Rent or any
additional rent or any portion thereof, and
(v) in the case of any statute, law, rule, order, regulation or
ordinance, imposition of any criminal liability upon the Lessor.
<PAGE>
Anything to the contrary notwithstanding in this Paragraph, Lessee shall
also not be required to take any action described in clauses (a) through (c)
above, so long as Lessee or Sublessee shall contest the existence, amount or
validly thereof, the amount of the damage caused thereby or the extent of
Lessee's liability therefor. While any such proceedings are pending, Lessor
shall not have the right to pay, remove or cause to be discharged the tax,
assessment, levy, fee, water or sewer rent or charge or lien, encumbrance or
charge thereby contested. Lessee further agrees that each such contest shall be
promptly prosecuted to a final conclusion. Lessee will pay or cause to be paid
and save Lessor harmless from and against any and all losses, judgments, decrees
and costs (including all reasonable attorneys' fees and expenses) in connection
with any such contest and will, promptly after the final settlement or
determination of such contest, fully pay and discharge the amounts which shall
be levied, assessed, charged or imposed or be determined to be payable therein
or in connection therewith, together with all penalties, fines, interests, costs
and expenses thereof or in connection therewith and perform all acts, the
performance of which shall be ordered or decreed as a result thereof.
17. CONDITIONAL LIMITATIONS, DEFAULT PROVISION.
(a) Any of the following occurrences or acts shall constitute an event of
default under this Lease: if Lessee, at any time during the continuance of this
Lease (and with regard to subparagraphs l and 2, regardless of the pendency of
any bankruptcy, reorganization, receivership, insolvency or other proceedings,
at law, in equity or before any administrative tribunal, which have or might
have the effect of preventing Lessee from complying with the terms of this
Lease), shall
(i) fail to make any payment of Basic Rent, additional rent or other
sum herein required to be paid by Lessee for ten (l0) days after written
notice thereof, or
<PAGE>
(ii) fail to observe or perform any other provision hereof for
thirty (30) days after Lessor shall have deliver to Lessee notice of such
failure (provided that in the case of any default referred to in this
clause (2) which cannot with diligence be cured within such thirty (30)
day period, if Lessee shall prosecute promptly to cure the same and
thereafter shall prosecute the curing of such default with diligence, then
upon receipt by Lessor of a certificate duly authorized on behalf of
Lessee stating the reason that such default cannot be cured within thirty
(30) days and stating that Lessee is proceeding with diligence to cure
such default, the time within which such failure may be cured shall be
extended for such period as may be necessary to complete the curing of the
same with diligence), or
(iii) shall file a petition in bankruptcy or for reorganization or
for an arrangement pursuant to any federal or state bankruptcy law or any
similar federal or state law, or shall be adjudicated a bankrupt or become
insolvent or shall make an assignment for the benefit of creditors or
shall admit in writing its inability to pay its debts generally as they
become due, or if a petition or answer proposing the adjudication or
Lessee as a bankrupt or its reorganization pursuant to any federal or
state bankruptcy law or any similar federal or state law shall be filed in
any court and Lessee shall consent to or acquiesce in the filing thereof
or such petition or answer shall not be discharged or denied within 90
days after the filing thereof or if a receiver, trustee or liquidator of
Lessee or of all or substantially all of the assets of Lessee or of
Lessee's Estate shall be appointed in any proceeding brought by Lessee, or
if any such receiver, trustee or liquidator shall be appointed in any
proceeding brought against Lessee and shall not be discharged within 90
days after such appointment, or if Lessee shall consent to or acquiesce in
such appointment.
<PAGE>
Notwithstanding the foregoing, the happening of an act or occurrence
described in this Paragraph 17(a) shall not constitute an event of default under
this Lease if the happening of such act or occurrence has occurred under the
Sublease and constitutes an event of default thereunder on the part of the
Sublessee.
(b) If an event of default shall have happened and be continuing Lessor
shall have the right at its election then or at any time thereafter while such
event of default shall continue, to give Lessee written notice of Lessor's
intention to terminate the term of this Lease on a date specified in such
notice. Upon the giving of such notice, the term of this Lease and the estate
hereby granted shall expire and terminate on such date as fully and completely
and with the same effect as if such date were the date herein fixed for the
expiration of the term of this Lease, and all rights of Lessee hereunder shall
expire and terminate, but Lessee shall remain liable as hereinafter provided.
Unless such notice shall have been given, this Lease shall not terminate,
notwithstanding any default under this Lease and the abandonment of the Property
by Lessee. If an event of default shall have happened and be continuing and
Lessee shall have abandoned the Property, Lessor may, at its option, enforce all
of its rights and remedies under this Lease, including the right to receive
Basic Rent, additional rent and all other sums payable hereunder as they become
due. Moreover, Lessor shall be entitled to recover from Lessee all costs of
maintenance and preservation of the Leased Premises, and all costs (including
attorney's and receiver's fees, incurred in connection with the appointment of
and performance by a receiver to protect the Leased Premises and Lessor's
interest under this Lease.
<PAGE>
(c) If an event of default shall have happened and be continuing, Lessor
shall have the immediate right, whether or not the term of this Lease shall have
been terminated pursuant to Paragraph 17(b), to re-enter and repossess the
Property or any part thereof by force, summary proceedings ejectment or
otherwise and the right to remove all persons and property therefrom. Lessor
shall be under no liability for or by reason of any entry, repossession or
removal. No such re-entry or taking of possession of the Property by Lessor
shall be construed as an election on Lessor's part to terminate the term of this
Lease unless a written notice of such intention be given to Lessee pursuant to
Paragraph 17(b), or unless the termination of this Lease be decreed by a court
of competent jurisdiction.
(d) At any time or from time to time after the repossession of the
Property or any part thereof pursuant to Paragraph 17(c), whether or not the
term of this Lease shall have been terminated pursuant to Paragraph 17(b),
Lessor may (but shall be under no obligation to) relet the Property or any part
thereof for the account of Lessee, in the name of Lessee or Lessor or otherwise
without notice to Lessee, for such term or terms (which may be greater or less
than the period which would otherwise have constituted the balance of the term
of this Lease) and on such conditions (which may include concessions or free
rent) and for such uses as Lessor, in its absolute discretion, may determine,
and Lessor may collect and receive any rents payable by reason of such
reletting. Lessor shall not be responsible or liable for any failure to relet
the Property or any part thereof or for any failure to collect any rent due upon
such reletting.
(e) No expiration or termination of the term of this Lease pursuant to
Paragraph 17(b), by operation of law or otherwise, and no repossession of the
Property or any part thereof pursuant to Paragraph 17(c) or otherwise, and no
reletting of the Property or any part thereof pursuant to Paragraph 17(d), shall
relieve Lessee of its liabilities and obligations hereunder, all of which shall
survive such expiration, termination, repossession or reletting.
<PAGE>
(f) In the event of any expiration or termination of this Lease or
repossession of the Property or any part thereof by reason of the occurrence of
an event of default, Lessee will pay to Lessor the Basic Rent, additional rent
and other sums required to be paid by Lessee to and including the date of such
expiration termination or repossession; and, thereafter, Lessee shall, until the
end of what would have been the term of this Lease in the absence of such
expiration, termination or repossession, and whether or not the Property or any
part thereof shall have been relet, be liable to Lessor for, and shall pay to
Lessor, as liquidated and agreed current damages
(A) the Basic Rent, additional rent and other sums which would
be payable under this Lease by Lessee in the absence of such
expiration, termination or repossession, less
(B) the net proceeds, if any, of any reletting effected for
the account of Lessee pursuant to Paragraph 17(d), after deducting
from such proceeds all Lessor's expenses in connection with such
reletting (including without limitation, all repossession costs,
brokerage commissions, legal expenses, attorney's fees, alteration
costs and expenses of preparation for such reletting).
Lessee will pay such current damages on the days on which the Basic Rent
would have been payable under this Lease in the absence of such expiration,
termination recover or repossession, and Lessor shall be entitled to recover the
same from Lessee on each such day.
(g) The words "enter", "re-enter" or "re-entry", as used in this
Paragraph l7, are not restricted to their technical meaning.
<PAGE>
18. ADDITIONAL RIGHTS OF LESSOR.
No right or remedy herein conferred upon or reserved to Lessor is intended
to be exclusive of any other right or remedy, and each and every remedy shall be
cumulative and in addition to any other right or remedy given hereunder or now
or hereafter existing at law or in equity or by statute, provided that Lessor
shall not be reimbursed for any loss or damage more than once.
19. NOTICES.
All notices, demands, requests, consents, approvals and other instruments
required or permitted to be given pursuant to the terms of this Lease shall be
in writing and shall be deemed to have been properly given if
(a) with respect to Lessor, sent by certified mail, postage prepaid,
addressed to Lessor at its address first above set forth, and
(b) with respect to Lessee, sent by certified mail, postage prepaid,
addressed to Lessee at its address first above set forth.
Lessor and Lessee shall each have the right from time to time to specify
as its address for purposes of this Lease any other address in the United States
of America upon giving fifteen (l5) days written notice thereof, similarly
given, to the other party. A counterpart or confirmed copy of each notice
required or permitted to be given hereunder shall also be given to the
Mortgagee, if the Mortgage is then in effect, and to the Sublessee, if a
Sublease is then in effect, sent by registered or certified mail, postage
prepaid, in each case at the last address of the Mortgagee or the Sublessee, as
the case may be, known to the party giving such notice.
<PAGE>
20. ESTOPPEL CERTIFICATES.
(a) Lessee will execute, acknowledge and deliver to Lessor, promptly upon
request but not more often than once each six (6) months, a certificate
certifying
(i) that this Lease is unmodified and in full effect (or, if there
have been modifications, that this Lease is in full effect, as modified,
and stating the modifications),
(ii) the dates, if any, to which the Basic Rent, additional rent and
other sums payable hereunder have been paid and the amount of the Basic
Rent currently payable, and
(iii) that no notice has been received by Lessee of any default
which has not been cured, or, if any default for which notice has been
received has not been cured, specifying the nature and period of existence
thereof and what action Lessee is taking or proposes to take with respect
thereto.
Any such certificate may be relied upon by any prospective purchaser of the
Leased Premises or any part thereof.
(b) Lessor will execute, acknowledge and deliver to Lessee, promptly upon
request, a certificate certifying
<PAGE>
(i) that this Lease is unmodified and in full effect (or, if there
have been modifications, that this Lease is in full effect, as modified,
and stating the modifications),
(ii) the dates, if any, to which the Basic Rent, additional rent and
other sums payable hereunder have been paid and the amount of the Basic
Rent currently payable, and
(iii) that no notice has been given by Lessor of any default which
has not been cured, or if any default for which notice has been given has
not been cured, specifying the nature and period of existence thereof and
what action Lessor is taking or proposes to take with respect thereto.
Any such certificate may be relied upon by any prospective assignee of Lessee's
interest in this Lease or the Mortgagee or any assignee of the Mortgagee.
(c) Lessee will cause the Sublease to contain a provision requiring the
Sublessee to execute, acknowledge and deliver to Lessor, promptly upon request,
but not more often than once each six (6) months, a certificate certifying
(i) that the Sublease is unmodified and in full effect (or if there
have been modifications, that the Sublease is in full effect as modified,
and stating the modifications),
(ii) the dates, if any, to which the Basic Rent, additional rent and
other sums payable under the Sublease have been paid and the amount of the
Basic Rent currently payable thereunder, and
<PAGE>
(iii) that no notice has been received by the Sublessee of default
under the Sublease which has not been cured or, if any default for which
notice has been received has not been cured, specifying the nature and
period of existence thereof and what action the Sublessee is taking or
proposes to take with respect thereto.
21. NO MERGER.
There shall be no merger of this Lease or of the leasehold estate hereby
created with the fee estate in the Leased Premises or any part thereof by reason
of the fact that the same person may acquire or hold, directly or indirectly,
this Lease or the leasehold estate hereby created or any interest in this Lease
or in such leasehold estate and the fee estate in the Leased Premises or any
interest in such fee estate.
22. SURRENDER.
Upon the expiration or earlier termination of this Lease, Lessee shall
peaceably leave and surrender the Leased Premises to Lessor in the same
condition in which the Leased Premises were originally received from Lessor at
the commencement of the term of this Lease, except as improved, repaired,
rebuilt, restored, altered or added to as provided in, permitted by or required
by any provisions of this Lease and except for ordinary wear and tear and except
as provided in Paragraphs l3 and l4. Lessee shall have the right to remove from
the Leased Premises on or prior to such expiration or earlier termination all
property situated thereon which is not owned by Lessor, including the
Improvements, or, at its election, to allow such property to remain on the
Leased Premises, but Lessee shall be required to repair, at its expense, any
damage to the Leased Premises resulting from any such removal. Such property not
so removed shall become the property of Lessor, and Lessor may thereafter, at
its expense, cause such property to be removed from the Leased Premises and
disposed of.
<PAGE>
23. SEPARABILITY.
Each and every covenant and agreement contained in this Lease is, and
shall be construed to be, a separate and independent covenant and agreement, and
the breach of any such covenant or agreement by Lessor shall not discharge or
relieve Lessee from its obligations to perform the same. If any term or
provision of this Lease or the application thereof to any person or circumstance
shall to any extent be invalid and unenforceable, the remainder of this Lease,
or the application of such term or provision to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and shall be
enforced to the extent permitted by law.
24. RIGHTS OF MORTGAGEE.
(a) If Lessee shall be in default in the observance or performance of any
covenant in this Lease beyond any applicable period of grace referred to herein,
Lessor shall send written notice of such default to the Mortgagee at its address
set forth in the Mortgage or as the Mortgagee may designate by notice to Lessor.
The Mortgagee shall have 30 days after delivery of such written notice from
Lessor within which to cure or remove such default, and if such default cannot
with diligence be cured within such 30 day period, a reasonable time thereafter,
provided, that the Mortgagee proceeds promptly to cure the same and thereafter
prosecutes the curing of such default with diligence. Notwithstanding any other
provision of this Lease, Lessor shall not have any right pursuant to this Lease
or otherwise to terminate this Lease due to such default unless Lessor shall
have first given written notice thereof to the Mortgagee and unless the
Mortgagee shall have failed to cure or remove, or cause to be cured or removed,
such default within the time required by this subparagraph (a).
<PAGE>
(b) Lessor will accept performance by the Mortgagee or the Sublessee or
either of them of any covenant, agreement or obligation of Lessee contained in
this Lease with the same effect as though performed by lessee.
(c) Lessor shall have no rights in and to the rentals payable to Lessee
under any Sublease of all or any part of the Property, which rentals may be
assigned by Lessee to the Mortgagee.
(d) If this Lease shall be terminated for any reason, (other than pursuant
to Paragraphs l3 and l4) or in the event of the rejection or disaffirmance of
this Lease pursuant to bankruptcy law or other law affecting creditor's rights,
Lessor will enter into a new lease of the Leased Premises with the Mortgagee, or
any party designated by the Mortgagee, not less than ten (l0) nor more than
thirty (30) days after the request of the Mortgagee referred to below, for the
remainder of the term of this Lease, effective as of the date of such
termination, rejection or disaffirmance, upon all the terms and provisions
contained in this Lease, provided, that the Mortgagee makes a written request to
Lessor for such new lease within ninety (90) days after the effective date of
such termination, rejection or disaffirmance, as the case may be, and such
written request is accompanied by a copy of the new lease, prepared at Lessee's
expense, duly executed and acknowledged by the Mortgagee, or the party
designated by the Mortgagee to be the lessee thereunder, and the Mortgagee cures
all defaults under this Lease which can be cured by the payment of money and
pays to Lessor all Basic Rent and additional rent which would at the time of
such execution and delivery be due and payable by Lessee under this Lease but
for such rejection, disaffirmance or termination, less net amounts received by
Lessor under Paragraph 17(d), if any. If the Mortgagee, or the party so
designated by the Mortgagee, shall have entered into a new lease with Lessor
pursuant to this subparagraph (d), then any default under this Lease which
cannot be cured by the payment of money shall be deemed cured. Any new lease
made pursuant to this subparagraph (d) shall have the same priority of lien as
this Lease and shall be accompanied by a conveyance of Lessor's title, if any,
to the Improvements (free of any mortgage or other lien, charge or encumbrance
created or suffered to be created by Lessor) for a term of years equal in
duration to the term of the new lease. The provisions of this subparagraph (d)
shall survive the termination, rejection or disaffirmance of this Lease and
shall continue in full effect thereafter to the same extent as if this
subparagraph (d) were a separate and independent contract made by Lessor, Lessee
and the Mortgagee and, from the effective date of such termination, rejection or
disaffirmance of this Lease to the date of execution and delivery of such new
lease, the Mortgagee may use and enjoy the leasehold estate created by this
Lease without hindrance by Lessor.
<PAGE>
(e) Lessor will not accept a voluntary surrender of this Lease. This Lease
shall not be modified without the prior written consent of the Mortgagee.
(f) The provisions of this Paragraph 24 are for the benefit of the
Mortgagee and may be relied upon and shall be enforceable by the Mortgagee.
Neither the Mortgagee nor any other holder or owner of the indebtedness secured
by the Mortgage or otherwise shall be liable upon the covenants, agreements or
obligations of Lessee contained in this Lease, unless and until the Mortgagee or
such holder or owner becomes the lessee hereunder.
<PAGE>
25. APPRAISERS.
Whenever in this Lease it is provided that any question shall be
determined by appraisers, such questions shall be submitted to a board of
appraisers, three (3) in number, each of whom shall be a qualified member of the
American Institute of Real Estate Appraisers, or any successor of such
Institute, or if such organization or successor shall no longer be in existence,
a recognized national association or institute of appraisers. One such appraiser
shall be named by each of the parties hereto and the third shall be selected by
the two so named, and the decision of any two (2) of such appraisers shall be
final and conclusive on the parties hereto. If the two appraisers designated by
the parties fail to select a third appraiser within fifteen (l5) days after the
appointment by such parties, either party shall have the right to apply to the
American Institute of Real Estate Appraisers or such successor for the
designation of a third appraiser. Lessor agrees that it will recognize any
designation by Lessee of the Mortgagee as the party to exercise the rights of
Lessee with respect to the selection of appraisers in connection with any
dispute arising hereunder which it is provided herein is to be determined by
appraisal pursuant to this Paragraph. The cost of any such appraisal shall be
borne equally by Lessor and Lessee.
<PAGE>
26. THE SUBLEASE.
So long as the Sublease shall be in effect:
(i) Lessor and Lessee shall not agree between themselves to any
termination (except as expressly provided in Paragraph 13 or l4 hereof),
surrender or modification of this Lease without the prior written consent
of the Sublessee;
(ii) Lessor will give to the Sublessee a copy of any notice or other
communication given by Lessor to Lessee, at the time of giving such notice
or communication to Lessee, and Lessor will not exercise any right, power
or remedy with respect to any default hereunder and no notice to Lessee of
any default and no termination of this Lease in connection therewith shall
be effective, unless Lessor shall have given to the Sublessee written
notice or a copy of its notice to Lessee of such default or any such
termination, as the case may be;
(iii) Lessor will not exercise any right power or remedy with
respect to any event of default hereunder until the expiration of any
grace period provided with respect thereto, plus
(A) in the case of a default constituting an event of default
under clause (l) of Paragraph 17(a), fifteen (l5) days after the
date Lessor has given to the Sublessee written notice of such
default or a copy of its notice to Lessee of such default (as
required by clause (ii) above), or
(B) in the case of a default constituting an event of default
under clause (2) of Paragraph 17(a), thirty (30) days after the last
to occur of
<PAGE>
(1) any grace period provided with respect thereto, or
(2) the date Lessor gives to the Sublessee written
notice of such default or a copy of its notice to Lessee of
such default (as required by clause (ii) above).
Lessor will not exercise any right, power or remedy with
respect to any default referred to in subclause (B) of this
clause (iii), if
(x) the Sublessee, within such thirty (30) day period referred
to in subclause (B), shall give to Lessor written
notice that it intends to undertake the correction of
such default or to cause the same to be corrected, and
(y) the Sublessee shall thereafter prosecute diligently the
correction of such default, and
(iv) the performance by the Sublessee of any of the terms and
provisions of this Lease on Lessee's part to be performed shall be deemed
to be performance thereof by Lessee.
27. ATTORNMENT OF SUBLESSEE; NO PERSONAL LIABILITY OF LESSEE.
(a) Lessee shall cause the Sublease to contain language to the following
effect:
If:
(i) the Ground Lease shall terminate for any reason other than as
specifically provided for in Paragraphs l3 and l4 thereof, or
<PAGE>
(ii) the Ground Lease shall have been rejected or disaffirmed by
Lessee thereunder or any trustee or receiver thereof pursuant to
bankruptcy or insolvency law or other law affecting creditor's rights and
if the Mortgagee (or its designee) shall not have entered into a new lease
or acquired the interest of the Lessee thereunder pursuant to Paragraph 24
thereof,
the Sublessee under the Sublease shall attorn to Ground Lessor. Upon the Ground
Lessor's acceptance thereof, Ground Lessor and such Lessee shall continue the
Sublease in full force and effect as a direct lease from the Ground Lessor to
such Lessee on the same terms and conditions of the Sublease, including without
limitation, the obligation to pay Basic Rent, additional rent and all other sums
(including without limitation, sums payable pursuant to Paragraph 19(a) of the
Sublease) payable under the Sublease (as those terms are defined in the
Sublease) for the period after the termination, rejection or disaffirmance of
the Ground Lease, and all of the terms and conditions of the Sublease shall be
binding upon the Ground Lessor and such Lessee to the same extent as if Ground
Lessor and such Lessee had been the original lessor and lessee, respectively,
under the Sublease.
(b) the Lessor agrees that if the Sublessee shall attorn to Lessor in
accordance with the Sublease, Lessor shall accept such attornment and thereafter
continue the Sublease in full force and effect as a direct lease from Lessor to
the Sublessee on the same terms and conditions of the Sublease, including,
without limitation, the obligation to pay Basic Rent, additional rent and any
other sums payable under the Sublease (as those terms are defined in the
Sublease) for the period after the termination, rejection or disaffirmance of
this Lease and that all of the terms and conditions of the Sublease shall be
binding upon Lessor and the Sublessee to the same extent as if Lessor and
Sublessee had been the original lessor and lessee, respectively, under the
Sublease.
<PAGE>
(c) Lessee agrees that the provisions of Paragraphs 27(a) and 27(b) shall
be for the benefit of the Sublessee and that the Sublessee may rely thereon in
entering into the Sublease.
28. OPTION TO PURCHASE.
Provided the Sublessee shall not have purchased the Premises (as defined
in the Sublease) pursuant to paragraph 11 or 13 of the Sublease or Paragraph
l3(f) or 14(b) hereof, Lessee shall have the right to purchase the Leased
Premises upon the expiration of the Sublease, as the same may be extended
pursuant to paragraph 3 thereof, and thereafter once every five years during the
term of this Lease, on the last day of such five year period, subject to the
following terms and conditions:
(i) At least 130 days prior written notice must have been given to
Lessor.
(ii) The purchase price shall be the fair market value of the Leased
Premises, such value determined pursuant to Paragraph 25 hereof.
(iii) Lessor shall convey title subject only to (w) Permitted
Encumbrances, (x) all charges, liens, security interests and encumbrances
attaching to the title on or after the commencement of the term hereof
which shall have not been created by Lessor or which shall be consented to
by Lessee, and (y) all applicable laws, regulations, ordinances, and
Permitted Encumbrances, but free of the lien of the Mortgage and charges,
liens, security interests and encumbrances resulting from acts of Lessor
taken without the consent of Lessee.
<PAGE>
(iv) Upon the date fixed for any purchase of Lessor's interest in
the Leased Premises or any portion thereof hereunder, Lessee shall pay to
Lessor the purchase price therefor specified herein together with all
Basic Rent, additional rent and other sums then due and payable hereunder
to and including such date of purchase, and Lessor shall deliver to Lessee
a conveyance of the Leased Premises and any other instruments necessary to
convey the title thereto. Lessee shall pay all charges incident to such
conveyance and assignment, including counsel fees, escrow fees, recording
fees, title insurance premiums and all applicable taxes (other than any
income or franchise taxes of Lessor) which may be imposed by reason of
such conveyance and assignment and the delivery of said conveyance and
other instruments. Upon the completion of any such purchase of the Leased
Premises but not prior thereto, this Lease shall terminate, except with
respect to obligations and liabilities of Lessee hereunder, actual or
contingent, which have arisen on or prior to such date of purchase.
29. TERMINATION OF OPTIONS.
Anything herein to the contrary notwithstanding, each option to purchase
contained in this Lease shall terminate on the earlier of the following dates:
(i) the specific date of termination referred to in each option; or (ii) that
date which is 2l years after the death of the last survivor of the descendants
of Franklin D. Roosevelt, former president of the United States of America, who
was alive on the date of this Lease.
<PAGE>
30. TERMINATION OF AGREEMENT FOR LEASE AND DEVELOPMENT TERM.
If the Agreement for Lease and Development dated as of April 18, 1977
herewith between Lessor and Lessee (the "Agreement for Lease and Development")
is terminated pursuant to Paragraph 6.7 thereof, then this Lease shall
automatically cease and terminate as of the date of termination of the Agreement
for Lease and Development, and shall be of no further force and effect between
Lessor and Lessee.
31. TERMINATION DATE AGREEMENT.
Upon the occurrence of the Permanent Loan Funding Date, as defined in the
Agreement for Lease and Development, Lessor and Lessee shall enter into a
written agreement setting forth the Termination Date, as defined in Schedule C
hereof.
32. BINDING EFFECT.
All of the covenants, conditions and obligations contained in this Lease
shall be binding upon and inure to the benefit of the respective successors and
assigns of Lessor and Lessee to the same extent as if each such successor and
assign were in each case named as a party to this Lease; and the term "Lessor",
as used in this Lease, shall include any successor owner or owners, at any time,
of the Leased Premises or any part thereof. This Lease may not be changed,
modified or discharged except by a writing signed by Lessor and Lessee [and
consented to by the Mortgagee, if such consent is required pursuant to Paragraph
24(f) hereof].
<PAGE>
33. HEADINGS.
The headings to the various paragraphs and schedules of this Lease have
been inserted for reference only and shall not to any extent have the effect of
modifying, amending or changing the expressed terms and provisions of this
Lease.
34. GOVERNING LAW.
This Lease shall be governed by and interpreted under the laws of the
State of Virginia.
35. SCHEDULES.
The following are Schedules A-1, A-2, A-3, B and C referred to in this
Lease.
<PAGE>
SCHEDULE A-1
ALL that certain lot, piece or parcel of land, with appurtenances thereunto
pertaining, lying and being in Brookland District, Henrico County, Virginia,
containing 11.80 acres, more or less, outlined in red, on "Map of 11.80 Acres Of
Land In Brookfield, In Brookland District, Henrico County, Virginia" dated
September 22, 1976, revised January 12, 1977, February 8, 1977, and February 14,
1977, made by LaPrade Brothers, Civil Engineers and Surveyors, Richmond,
Virginia, a copy of which said plat was recorded on February 15, 1977 in the
Clerk's Office of the Circuit Court for the County of Henrico, Virginia in Deed
Book 1714, page 684.
TOGETHER with a non-exclusive easement of ingress and egress for vehicular and
pedestrian traffic over the private road as it meanders east from Broad Street
through the "Brookfield Development" to the west line of the above described
property, said non- exclusive easement for ingress and egress for vehicular and
pedestrian traffic is outlined in red on "Map of Private Road In Brookfield From
Broad Street Road to Southern States Cooperative, Incorporated, Property in
Brookland District, Henrico County, Virginia" dated February 11, 1977, made by
LaPrade Brothers, Civil Engineers and Surveyors, Richmond, Virginia, a copy of
which plat was recorded on February 15, 1977 in the aforesaid Clerk's Office in
Deed Book 1714, page 684.
TOGETHER with a non-exclusive easement to drain surface water along a path
shaded in blue on the plat entitled "Easement For Surface Drainage Across
Richmond Equivest, Inc. Property, From North Line Southern States Cooperative,
Inc. Property To South Line Of 1-64," dated February 18, 1977, made by LaPrade
Brothers, Civil Engineers and Surveyors, Richmond, Virginia, a copy of which
plat was recorded on March 28, 1977 in the aforesaid Clerk's Office in Deed Book
1716, page 1137.
<PAGE>
SCHEDULE A-2
(a) Easements, rights of way, restrictions and other minor defects and
irregularities in the title and ownership of the Leased Premises, which do not
materially impair the use thereof for the purposes for which it is held by
Lessor or leased by Lessee or materially affect its value;
(b) Rights reserved to or vested in any municipality or public authority
by the terms of any right, power, franchise, grant, license, permit, and rights
of any municipality or public authority to condemn or appropriate the Leased
Premises;
(c) Any liens thereon for taxes, assessments, fees, water, sewer or other
rents, rates and charges, excises, levees, license fees, permits, inspection
fees and other governmental authorities, which are not delinquent to the extent
that penalties for nonpayment may be assessed, or, if delinquent, the amount or
validity of which, is being contested as permitted by paragraph 16 of the Lease;
(d) Liens which arise by operation of law in the ordinary course of
business securing claims, which are not delinquent, of materialmen, mechanics,
workmen, repairmen, suppliers, carriers, warehousemen, landlords, vendors or
employees.
<PAGE>
SCHEDULE A-3
l. Miscellaneous plumbing
2. Kitchen equipment
3. Exhaust fans
4. Vinyl wallcovering
5. Sound insulation
6. Miscellaneous built-in shelving, counters and storage
7. Graphics and signage
8. Drapes
9. Full-height doors
10. Special lighting
11. Carpet
12. Millwork
<PAGE>
SCHEDULE B
An eight-story office building containing approximately 210,000 square
feet, together with paved, striped and lighted parking for approximately 750
cars, to be constructed in accordance with the plans and specifications prepared
by Cooper, Carry & Associates, Inc., Architects, pursuant to an Agreement
between Lessee and Cooper, Carry & Associates, Inc.
<PAGE>
SCHEDULE C
TERM
The term of this Lease shall commence on August l, 1977, and end at
midnight on the earlier of (i) the last day of the month in which the seventieth
(70th) anniversary of the Permanent Loan Funding Date (as defined in the
Agreement for Lease and Development) occurs or (ii) January l, 2050 (the
"Termination Date").
RENT
The Basic Rent from the commencement of the term until the Permanent
Loan Funding Date shall be at the rate of $1.00 per annum payable in arrears on
the day immediately preceding the Permanent Loan Funding Date.
The Basic Rent from the Permanent Loan Funding Date through the
Termination Date shall be at the rate of $127,500 per annum, payable monthly in
arrears on the last day of the month in installments of $10,625, provided that
if the Permanent Loan Funding Date shall occur on a date other than the first
day of a calendar month, the first monthly installment shall be prorated to the
end of such calendar month.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
signed and sealed as of the day and year first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
[CORPORATE SEAL]
By: /s/ John J. Feland
-------------------------
Vice President
ATTEST:
By: /s/ E.M. Holdaway
------------------
Secretary
GOLD BOND STAMP COMPANY
OF GEORGIA
[CORPORATE SEAL]
By: /s/ H. W. Greenough
---------------------------
President
ATTEST:
By: /s/ C. C. Krause
----------------------
Assistant Secretary
<PAGE>
STATE OF VIRGINIA :
: ss.:
CITY OF RICHMOND :
I, Lois E. Sisk, a Notary Public in and for the State and City
aforesaid, do certify that John J. Feland, and E. M. Holdaway a Vice President
and Secretary respectively, of SOUTHERN STATES COOPERATIVE, INCORPORATED, a
Virginia corporation, whose names are signed to the writing above, bearing date
as of the 15th day of July, 1977, have acknowledged the same before me in my
City aforesaid.
Given under my hand this 29th day of July 10, 1977.
/s/ Lois E. Sisk
----------------------------
Notary Public
Commission Expires 10-14-80
[NOTARIAL SEAL]
<PAGE>
STATE OF Minnesota :
: ss..
COUNTY OF HENNEPIN :
I, Terri Nims, a Notary Public in and for the State and County
aforesaid, do certify that H. W. Greenough and C. C. Krause a President and
Assistant Secretary, respectively, of GOLD BOND STAMP COMPANY OF GEORGIA, a New
Jersey corporation, whose names are signed to the writing above, bearing date as
of the 15 day of July, 1977, have acknowledged the same before me in my County
aforesaid.
Given under my hand this 26 day of July, 1977.
/s/ Terri Nims
--------------------
Notary Public
[NOTARIAL SEAL]
EXHIBIT 10.10(b)
LEASE AND AGREEMENT
between
GOLD BOND STAMP COMPANY OF GEORGIA
as Lessor
and
SOUTHERN STATES COOPERATIVE, INCORPORATED
as Lessee
Dated as of July 15, 1977
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<S> <C>
1 Lease of Premises; Title and Condition................................................ 1
2 Use................................................................................... 2
3 Terms................................................................................. 2
4 Rent.................................................................................. 3
5 Net Lease; Non-Terminability.......................................................... 4
6 Taxes and Assessments; Compliance with Law............................................ 5
7 Liens................................................................................. 6
8 Indemnification....................................................................... 7
9 Maintenance and Repair................................................................ 7
10 Alterations; Land Release............................................................. 8
11 Condemnation and Casualty............................................................. 11
12 Insurance............................................................................. 14
13 Purchase Right........................................................................ 16
14 Procedure Upon Purchase............................................................... 17
15 Assignment and Subletting............................................................. 18
16 Permitted Contests.................................................................... 19
17 Conditional Limitations; Default Provisions........................................... 20
18 Additional Rights of Lessor........................................................... 23
19 Ground Lease.......................................................................... 25
20 Notices, Offers and Other Instruments................................................. 26
21 Estoppel Certificates................................................................. 27
22 No Merger............................................................................. 27
23 Surrender............................................................................. 28
24 Merger, Consolidation or Sale of Assets............................................... 28
25 Termination of Options................................................................ 29
26 Termination of Agreement for Lease and Development.................................... 29
27 Commencement Agreement................................................................ 29
28 Separability; Binding Effect; Governing Law........................................... 30
29 Schedules............................................................................. 31
Schedule A - Description of the Premises, the Ground Lease Equipment and
Fixtures of Lessor;
Liens and Encumbrances
Schedule B - Terms and Basic Rent Payments
Schedule C - Purchase Prices
Schedule D - Released Parcels
</TABLE>
<PAGE>
Location of Definitions
Agreement for Lease and Development - paragraph 26
Basic Rent - paragraph 4 and Schedule B.
Commencement Agreement - paragraph 27
Event of default - paragraph 17(a).
Extended Terms - paragraph 3 and Schedule B. Fair Market Value - paragraph 13.
Ground Lease - paragraph l.
Ground Lessor - paragraph 19(c).
Impositions - paragraph 6
Improvements - paragraph l.
Interim Term - paragraph 3 and Schedule B.
Lease Year - Schedule B
Lessee - page l.
Lessor - page l.
Lessor's Cost - Schedule C.
Mortgage - paragraph 12(b).
Mortgagee - paragraph 12(b).
Net Proceeds - paragraph 11(a).
Payment Dates - paragraph 4 and Schedule B.
Permitted Encumbrances - paragraph 7.
Premises - paragraph l.
Primary Term - paragraph 3 and Schedule B.
Primary Term Commencement Date - Schedule B.
Project Costs - paragraph 13.
Released Parcel - paragraph 10(b)
Remaining Parcel - paragraph 10(b)
Termination Date - paragraph 11(b).
Trade Fixtures - paragraph 10(a).
<PAGE>
LEASE AND AGREEMENT, dated as of July 15, 1977, (this Lease),
between GOLD BOND STAMP COMPANY OF GEORGIA, a New Jersey corporation (Lessor)
having an address at 12755 State Highway 55, Minneapolis, Minnesota 55441, and
SOUTHERN STATES COOPERATIVE, INCORPORATED, a Virginia corporation (herein,
together with any corporation succeeding thereto by consolidation, merger or
acquisition of its assets substantially as an entirety, called Lessee), having
an address at Seventh and Main Streets, P. O. Box 1656, Richmond, Virginia
23213.
1. Lease of Premises; Title and Condition. In consideration of
the rents and covenants herein stipulated to be paid and performed by Lessee and
upon the terms and conditions herein specified, Lessor hereby subleases and
leases to Lessee, and Lessee hereby sublets and lets from Lessor, the premises
(the Premises) consisting of (i) Lessor's interests in the land described in
Part I of Schedule A pursuant to the ground lease described in Part II of
Schedule A (the Ground Lease), together with all of Lessor's other interests
under the Ground Lease, (ii) all buildings and other improvements and all
equipment, fixtures and items of personal property attached to or used in the
operation or maintenance of the improvements now or hereafter located on the
land and owned by Lessor, specifically including, but not limited to, those
items enumerated in Part III of Schedule A (the Improvements), and (iii) all
easements, rights and appurtenances relating to the Premises. The Premises are
leased to Lessee in their present condition without representation or warranty
by Lessor and subject to the rights of parties in possession, to the existing
state of title, to all applicable legal requirements now or hereafter in effect,
and to all the terms and conditions of, and to the continuance of, the Ground
Lease. Lessee has examined the Premises and title thereto and the Ground Lease
and has found the same satisfactory. Lessor and Lessee acknowledge that the
Improvements on the Premises have been designed and are being constructed in
accordance with plans approved by Lessee, and that construction of the
Improvements is being supervised by Lessee. Solely as between Lessor and Lessee,
the taking of possession of the Premises by Lessee shall be conclusive evidence
that the Premises are in good condition and that Lessee has accepted the
Premises "as is." Lessor makes no warranties or representations, express or
implied, as to the design, construction, condition, merchantability or quality
of the Improvements or the materials, equipment, fixtures, appliances or
workmanship in the Improvements, nor as to the fitness of the Improvements,
materials, equipment, fixtures or appliances for any particular purpose, whether
known or unknown to Lessor, it being agreed that, as between Lessor and Lessee,
all such risks regarding the proper design, construction and condition of the
Premises as of the date of taking of possession by Lessee are to be borne by
Lessee.
<PAGE>
2. Use. Lessee may occupy and use the Premises for any lawful
purpose, subject to the provisions of the Ground Lease.
3. Terms. The Premises are leased for an interim term (the
Interim Term), a primary term of thirty years (the Primary Term), and, at
Lessee's option, for two consecutive additional terms of five years each (the
Extended Terms), unless and until the term of this Lease shall expire or be
terminated pursuant to any provisions hereof. The Interim Term, Primary Term and
each Extended Term shall commence and expire on the dates set forth in Schedule
B. Lessee may exercise its option to extend the term of this Lease for an
Extended Term by giving notice thereof to Lessor not less than six months before
the expiration of the then existing Term.
4. Rent. (a) Lessee shall pay to Lessor in lawful money of the
United States as fixed rent for the Premises, the amounts set forth in Schedule
B (Basic Rent) on the dates set forth therein (Payment Dates), at Lessor's
address as set forth above, or at such other address or to such other person as
Lessor from time to time may designate.
<PAGE>
(b) All amounts which Lessee is required to pay pursuant to
this Lease (other than Basic Rent, amounts payable upon purchase of the Premises
and amounts payable as liquidated damages pursuant to paragraph 17), together
with every fine, penalty, interest and cost which may be added for non-payment
or late payment thereof, shall constitute additional rent. If Lessee shall fail
to pay any additional rent, Lessor shall have the right to pay the same and
shall have all rights, powers and remedies with respect thereto as are provided
herein or by law in the case of non-payment of Basic Rent. Lessee shall pay to
Lessor interest at the rate of 12% per annum on all overdue Basic Rent from due
date thereof until paid, and on all overdue additional rent paid by Lessor on
behalf of Lessee from the date of payment by Lessor until repaid by Lessee.
Lessee shall also pay to Lessor any delinquent handling charge on the Mortgage
(as hereinafter defined) paid by Lessor. Lessee shall perform all its
obligations under this Lease at its sole cost and expense, and shall pay all
Basic Rent and additional rent when due, without notice or demand.
5. Net Lease; Non-Terminability. (a) This Lease is a net
lease, and, except as otherwise expressly provided herein, any present or future
law to the contrary notwithstanding, Lessee shall not be entitled to any
abatement, reduction, set-off, counterclaim, defense or deduction with respect
to any Basic Rent, additional rent or other sum payable hereunder, nor shall the
obligations of Lessee hereunder be affected, by reason of: any damage to or
destruction of the Premises; any taking of the Premises or any part thereof by
condemnation or otherwise; any prohibition, limitation, restriction or
prevention of Lessee's use, occupancy or enjoyment of the Premises, or any
interference with such use, occupancy or enjoyment by any person; any eviction
by paramount title or otherwise; any default by Lessor hereunder or under any
other agreement; the termination of the Ground Lease; the impossibility or
illegality of performance by Lessor, Lessee or both; any action of any
governmental authority; or any other cause whether similar or dissimilar to the
foregoing. The parties intend that the obligations of Lessee hereunder shall be
separate and independent covenants and agreements and shall continue unaffected
unless such obligations shall have been modified or terminated pursuant to an
express provision of this Lease.
<PAGE>
(b) Lessee shall remain obligated under this Lease in
accordance with its terms and shall not take any action to terminate, rescind or
avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization,
liquidation, dissolution or other proceeding affecting Lessor or any assignee of
Lessor or any action with respect to this Lease which may be taken by any
trustee, receiver or liquidator or by any court. Except as otherwise expressly
provided herein, Lessee waives all rights to terminate or surrender this Lease,
or to any abatement or deferment of Basic Rent, additional rent or other sums
payable hereunder.
<PAGE>
6. Taxes and Assessments; Compliance with Law. (a) Lessee
shall pay: (1) all taxes, assessments, levies, fees, water and sewer rents and
charges, and all other governmental charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, which are, at any time prior to or
during the term hereof, imposed or levied upon or assessed against (A) the
Premises, (B) any Basic Rent, additional rent or other sum payable hereunder or
(C) this Lease or the leasehold estate hereby created or which arise in respect
of the operation, possession or use of the Premises; (ii) all gross receipts or
similar taxes imposed or levied upon, assessed against or measured by any Basic
Rent, additional rent or other sum payable hereunder; (iii) all sales, use and
similar taxes at any time levied, assessed or payable on account of the
acquisition, leasing or use of the Premises; and (iv) all charges for utilities
serving the Premises (all of which are collectively referred to as
"impositions"). In no event, however, shall Lessee be required to pay any
franchise, estate, inheritance, transfer, income or similar tax of Lessor (other
than any tax referred to in clause (ii) above). Lessee will furnish to Lessor,
promptly after demand therefor, proof of payment of all impositions which are
payable by Lessee. If any such assessment may legally be paid in installments,
Lessee may pay such assessment in installments. If, however, by law, any
imposition is or may be payable in installments, Lessee may pay the same (with
any accrued interest on the unpaid balance of such imposition) in installments
as the same become due and before any interest or additional charge may be added
thereto for the non-payment of any such installment; and provided, further, that
any imposition payable with respect to a fiscal tax period during which the term
of this Lease shall expire or terminate, otherwise than (i) because of the fault
of Lessee or (ii) if Lessee purchases the Property pursuant to paragraph 11 or
13, shall be adjusted between Lessor and Lessee as of the expiration or
termination of the term of this Lease, so that Lessee shall pay only an amount
which bears the same relation to the total imposition as the part of such fiscal
tax period included within the term of this Lease bears to the entire fiscal tax
period. With respect to any assessment which by law is or may be payable in
installments, Lessee shall pay only those installments which become due during
the term of this Lease.
(b) Lessee shall comply with and cause the Premises to comply
with (i) all legal requirements applicable to the Premises or the use thereof
and (ii) all contracts (including insurance policies), agreements and
restrictions applicable to the Premises or the ownership, occupancy or use
thereof, including but not limited to all such legal requirements, contracts,
agreements and restrictions which require structural, unforeseen or
extraordinary changes to the Improvements.
<PAGE>
7. Liens. Lessee will promptly remove and discharge any
charge, lien, security interest or encumbrance upon the Premises or any Basic
Rent, additional rent or other sum payable hereunder which arises for any
reason, including all liens which arise out of the use, occupancy, construction,
repair or rebuilding of the Premises or by reason of labor or materials
furnished or claimed to have been furnished to Lessee or for the Premises, but
not including the liens and encumbrances set forth in Part IV of Schedule A, the
Mortgage, Permitted Encumbrances (as defined in the Mortgage), and any mortgage,
charge, lien, security interest or encumbrance created by Lessor or Ground
Lessor, as hereinafter defined, without the consent of Lessee.
8. Indemnification. Lessee shall defend all actions against
Lessor with respect to, and shall pay, protect, indemnify and save harmless
Lessor from and against, any and all liabilities, losses, damages, costs,
expenses (including reasonable attorneys' fees and expenses), causes of action,
suits, claims, demands or judgments of any nature arising from (i) injury to or
death of any person, or damage to or loss of property, on the Premises, or
connected with the use, condition or occupancy of any thereof, (ii) violation of
this Lease, (iii) any act or omission of Lessee or its agents, contractors,
licensees, sublessees or invitees, and (iv) any contest referred to in paragraph
16.
9. Maintenance and Repair. Lessee will maintain at its expense
the Premises in good repair and condition, except for ordinary wear and tear,
and will make with reasonable promptness all structural and non-structural,
foreseen and unforeseen and ordinary and extraordinary changes and repairs which
may be required to keep the Premises in good repair and condition. Lessor shall
not be required to maintain, repair or rebuild the Improvements or to maintain
the Premises, and Lessee waives the right to make repairs at the expense of
Lessor pursuant to any law at any time in effect.
<PAGE>
10. Alterations; Land Release. (a) Lessee may, at its expense,
make additions to and alterations of the Improvements, construct additional
Improvements and make substitutions and replacements for the Improvements,
provided that (i) the market value of the Premises shall not be materially
lessened thereby, (ii) such work shall be expeditiously completed in a good and
workmanlike manner and in compliance with all applicable legal requirements and
the requirements of all insurance policies required to be maintained by Lessee
hereunder, and (iii) no Improvements shall be demolished unless Lessee shall
have first furnished Lessor with such surety bonds or other security acceptable
to Lessor as shall be necessary to assure rebuilding of such Improvements. All
such additions, alterations, additional Improvements, substitutions and
replacements shall be and remain part of the realty and the property of Lessor
and shall be subject to this Lease. Lessee may place upon the Premises any
furniture, furnishings, inventory, trade fixtures, machinery, computers or
equipment belonging to Lessee or third parties (collectively, Trade Fixtures)
and may remove the same at any time during the term of this Lease. Lessee shall
repair any damage to the Premises caused by such removal. Lessor agrees to
execute a waiver on the form reasonably specified by the owner of such Trade
Fixtures which relinquishes any rights Lessor may now or hereafter have, by
nature of this Lease, to such Trade Fixtures.
(b) Provided no event of default has occurred or is occurring
under this Lease, Lessee shall have the right at any time during the Primary
Term, on sixty (60) days prior written notice, to have released from this Lease
and the Ground Lease a portion of the Premises substantially similar (but in no
event greater on a square foot basis) to Area #1 or Area #2 as shown on the plat
of the Premises attached hereto as Schedule D together with non-exclusive
easement for parking and access (the "Released Parcel") under the following
terms and conditions:
<PAGE>
(i) The improvements to be constructed on the Released Parcel
shall be harmonious and consistent in use with the Improvements.
(ii) If adequate parking is not available on the Released
Parcel for the improvements constructed thereon, Lessee shall construct
parking (including, if necessary, deck parking) in order to provide on
the Released Parcel and the Remaining Parcel (as hereinafter defined)
the number of parking spaces required by the County of Henrico to serve
both the Improvements and all improvements constructed on the Released
Parcel.
(iii) If necessary, Lessor and Lessee will both execute a
non-exclusive cross-easement agreement to insure adequate access and
parking for the Released Parcel and the Remaining Parcel.
(iv) Notice of release shall be accompanied by a survey of the
Premises indicating by metes and bounds the location of the Released
Parcel including any non- exclusive cross-easement.
(v) The remaining portion of the Premises subject to this
Lease (the "Remaining Parcel") shall (A) be capable of being operating
as a totally separate physical unit without additional cost to Lessor,
(B) include the original Improvements and existing parking areas, (c)
be no more than one parcel of land, (D) have access to public streets
and easements of maintenance, and (E) not be in violation of any
applicable covenant, law, ordinance or statute.
<PAGE>
(vi) Lessor and Lessee shall execute and deliver a supplement
to this Lease in recordable form reflecting the release from this Lease
of the Released Parcel.
(vii) Lessor shall cooperate with Lessee in obtaining a
release of the Released Parcel from the Mortgage pursuant to the
provisions thereof, and shall execute and deliver a supplement to any
assignment of this Lease in favor of the Mortgagee (as hereinafter
defined) reflecting the release.
(viii) Lessee shall bear all costs and expenses incurred in
obtaining the release of the Released Parcel from this Lease, the
Ground Lease, the Mortgage and any assignment.
(ix) There shall be no decrease in the Basic Rent payable
hereunder except to the extent there is a reduction in the Basic Rent
payable under the Ground Lease, in which case the Basic Rent payable
herein shall be reduced by the amount of any reduction in the Basic
Rent payable under the Ground Lease.
11. Condemnation and Casualty. (a) Lessee hereby irrevocably
assigns to Lessor any award, compensation or insurance payment to which Lessee
may become entitled by reason of its interest in the Premises (i) if the
Premises are damaged or destroyed by fire or other casualty or (ii) if the use,
occupancy or title of the Premises or any part thereof is taken, requisitioned
or sold in, by or on account of any actual or threatened eminent domain
proceeding or other action by any person having the power of eminent domain.
Lessee is hereby authorized and empowered in the name and on behalf of Lessor to
appear in any such proceeding or action, to negotiate, prosecute and adjust any
claim for any award, compensation or insurance payment on account of any such
damage, destruction, taking, requisition or sale, and to collect any such award,
compensation or insurance payment. Lessor shall be entitled to participate in
any such proceeding, action, negotiation, prosecution or adjustment. All amounts
paid in connection with any such damage, destruction, taking, requisition or
sale shall be applied pursuant to this paragraph 11, and all such amounts (minus
the expense of collecting such amounts) are herein called the Net Proceeds.
Lessee shall take all appropriate action in connection with each such
proceeding, action, negotiation, prosecution and adjustment and shall pay all
expenses thereof, including the cost of Lessor's participation therein.
<PAGE>
(b) If an occurrence of the character referred to in clause
(i) or (ii) of paragraph 11(a) shall affect all or a substantial portion of the
Premises and shall render the Premises unsuitable for restoration for continued
use and occupancy in Lessee's business, in Lessee's sole discretion, then Lessee
shall, not later than 90 days after such occurrence, deliver to Lessor (A)
notice of its intention to terminate this Lease on the next Payment Date (the
Termination Date) which occurs not less than 90 days after the delivery of such
notice and (B) a certificate of Lessee describing the event giving rise to such
termination and stating that its board of directors has determined that such
event has rendered the Premises unsuitable for restoration for continued use and
occupancy in Lessee's business. If the Termination Date occurs during the
Interim Term or the Primary Term, such notice shall be accompanied by an
irrevocable offer by Lessee to purchase Lessor's interest in any remaining
portion of the Premises and the Net Proceeds, if any, payable in connection with
such occurrence (or the right to receive the same when made, if payment thereof
has not yet been made) on the Termination Date, at a price determined in
accordance with Schedule C. If either (l) Lessor shall reject such offer by
notice given to Lessee not later than the 20th day prior to the Termination Date
or (2) the Termination Date occurs during an Extended Term, this Lease shall
terminate on the Termination Date except with respect to obligations and
liabilities of Lessee hereunder, actual or contingent, which have arisen on or
prior to the Termination Date, upon payment by Lessee of all Basic Rent,
additional rent and other sums then due and payable hereunder to and including
the Termination Date, and the Net Proceeds shall belong to Lessor. Unless Lessor
shall have rejected such offer in accordance with this paragraph, Lessor shall
be conclusively presumed to have accepted such offer, and, on the Termination
Date, shall convey Lessor's interest in the remaining portion of the Premises,
if any, to Lessee or its designee and shall assign to Lessee or its designee all
Lessor's interest in the Net Proceeds, pursuant to and upon compliance with
paragraph 14.
<PAGE>
(c) If, after an occurrence of the character referred to in
clause (i) or (ii) of paragraph 11(a), Lessee does not give notice of its
intention to terminate this Lease, then this Lease shall continue in full
effect, and Lessee shall repair any damage to the Premises caused by such event
in conformity with the requirements of paragraph 10 so as to restore the
Premises (as nearly as practicable) to the condition and market value thereof
immediately prior to such occurrence. Lessee shall be entitled to receive the
Net Proceeds payable in connection with such occurrence, but only against
certificates of Lessee delivered to Lessor from time to time as such work of
repair progresses, each such certificate describing the work of repair for which
Lessee is requesting payment and the cost incurred by Lessee in connection
therewith and stating that Lessee has not theretofore received payment for such
work. Any Net Proceeds remaining after final payment has been made for such work
shall be retained by Lessor. In the event of any temporary requisition, this
Lease shall remain in full effect for the term of this Lease then in effect and
Lessee shall be entitled to the Net Proceeds payable by reason thereof and
allocable to such term; and the balance of the Net Proceeds payable by reason
thereof shall be paid to Lessor. If the cost of any repairs required to be made
by Lessee pursuant to this paragraph 11(c) shall exceed the amount of such Net
Proceeds, the deficiency shall be paid by Lessee.
<PAGE>
12. Insurance. (a) Lessee will maintain insurance on the
Premises of the following character:
(i) Insurance against loss by fire, lightning and other risks
from time to time included under "extended coverage" policies, in
amounts sufficient to prevent Lessor or Lessee from becoming a
co-insurer of any loss but in any event in amounts not less than 90% of
the actual replacement value of the Improvements exclusive of
foundations and excavations; such insurance to include a replacement
cost endorsement, and a $50,000 deductible clause, provided Lessee in
such event pays up to $50,000 to be applied and treated as Net
Proceeds.
(ii) General public liability insurance against claims for
bodily injury, death or property damage occurring on, in or about the
Premises and adjoining streets and sidewalks, in the minimum amounts of
$1,000,000 for any one accident, and $100,000 for property damage, or
in such other amounts as from time to time are commonly obtained in the
case of commercial property located in the Richmond area similar to the
Premises, when occupied by a Lessee having a net worth at the time such
determination is being made comparable to the net worth of Lessee and
its affiliates.
(iii) Workmen's compensation insurance to the extent required
by the law of the state in which the Premises are located and to the
extent necessary to protect Lessor and the Premises against workmen's
compensation claims.
<PAGE>
Such insurance shall be written by companies with a financial rating of A+ or
better by Alfred M. Best's Key Rating Guide, or if the same shall be
discontinued, by companies of approximate net worth and recognized financial
standing to those rated A+ or better. The insurance required by clauses (i) and
(ii) above shall name as insured parties Lessor and Lessee as their interests
may appear.
(b) Every such policy (other than any general public liability
or workmen's compensation policy) shall bear a first mortgagee endorsement in
favor of the mortgagee or beneficiary (the Mortgagee) under any mortgage or deed
of trust creating a first lien on Lessor's interest in the Premises (the
Mortgage); and any loss under any such policy shall be payable to the Mortgagee
to be held and applied pursuant to paragraph 11. Every policy referred to in
paragraph 12(a) shall provide that it will not be cancelled except after 10
day's written notice to Lessor and the Mortgagee and that it shall not be
invalidated by any act or neglect of Lessor or Lessee, nor by occupancy of the
Premises for purposes more hazardous than permitted by such policy, nor by any
foreclosure or other proceedings relating to the Premises, nor by change in
title to the Premises, nor by waiver of subrogation rights by insured.
(c) Lessee shall deliver to Lessor and the Mortgagee original
or duplicate policies or certificates of insurers, satisfactory to the
Mortgagee, evidencing the existence of all insurance which is required to be
maintained by Lessee hereunder, such delivery to be made (i) promptly after the
execution and delivery hereof and (ii) within at least 30 days prior to the
expiration of any such insurance. Promptly after payment of premiums for all
insurance policies required to be maintained pursuant to paragraph 12(a), Lessee
will send to Lessor and the Mortgagee evidence of such payment. Any insurance
required hereunder may be provided under blanket policies.
<PAGE>
13. Purchase Right. Lessee shall have the option to purchase
Lessor's interest in the Premises on the last day of the fifteenth, twentieth,
and twenty-fifth Lease Year, as such term is defined in Schedule B, and on the
last day of the Primary Term or any Extended Term then in effect, upon 90 days'
prior notice to Lessor, at a price equal to the greater of (i) Project Costs, as
defined in Paragraph 1.20 of the Agreement for Lease and Development, or (ii)
the fair market value ("Fair Market Value") of Lessor's interest in the Premises
(considered as encumbered by this Lease) as of the date of purchase based upon
the present value of both the remaining rental payments due under this Lease and
the residual value of the Premises using the then current rate of
capitalization, such value to be as determined by Lessor and Lessee, or, if
Lessor and Lessee fail to agree, as determined by appraisers selected in the
following manner: Lessor and Lessee shall each appoint an appraiser, and the
Fair Market Value shall be as determined by the two appraisers so appointed. If
the two appraisers so appointed are unable to agree upon Fair Market Value, fair
market value shall be determined by a third appraiser selected by the two
appraisers appointed by the parties hereto. All appraisers shall be members in
good standing of the American Institute of Real Estate Appraisers or any
organization succeeding thereto. Lessor and Lessee shall share the costs of such
appraisals equally. If Lessee shall have paid a portion of the Project Costs
pursuant to Paragraph 4.4 of the Agreement for Lease and Development, the Fair
Market Value of the Premises as above determined shall be reduced by an amount
which bears the same ratio to the amount of the Project Costs paid for by Lessee
pursuant to Paragraph 4.4 of the Agreement of Lease and Development as the Fair
Market Value of the Premises as above determined bears to the total Project
Costs. The Fair Market Value of the Premises shall also be reduced by the
aggregate of all capital expenditures (other than Project Costs) made by Lessee
with respect to the Premises, including but not limited to expenditures for
drainage on the non-exclusive easement as shown on a plat entitled "Easement For
Surface Drainage Across Richmond Equivest, Inc. Property, From North Line
Southern States Cooperative, Inc. Property to South Line of 1-64", as more
particularly described on Schedule A Part I. On such date of purchase, Lessor
shall convey its interest in the Premises to Lessee or its designee pursuant to
and in compliance with paragraph 14 hereof.
<PAGE>
Notwithstanding the foregoing option in Lessee to purchase
Lessor's interest in the Premises, Lessor and Lessee agree that, in order for
Lessee to exercise such right, Lessee must either (x) pay off the outstanding
indebtedness of the Mortgage, including accrued interest and any prepayment
penalty, or (y) take title subject to the Mortgage and expressly assume all of
the terms, covenants and conditions of the Mortgage and expressly agree to
become personally liable on the promissory note or other evidence of
indebtedness.
14. Procedure Upon Purchase. (a) If Lessee shall purchase
Lessor's interest in the Premises pursuant to this Lease, Lessor shall convey
title thereto as it existed on the date of the commencement of the term hereof,
and Lessee or its designee shall accept such title, subject, however, to (i) all
charges, liens, security interests and encumbrances attaching thereto on or
after such date which shall not have been created or suffered by Lessor or which
shall be consented to by Lessee and (ii) all applicable laws, regulations,
ordinances and Permitted Encumbrances, but free of charges, liens, security
interests and encumbrances resulting from acts of Lessor taken without the
consent of Lessee, and the Mortgage, except that in regard to a purchase
pursuant to paragraph 13, the purchase price shall be reduced by (i) the amount
of principal and interest, if any, paid by Lessee if Lessee discharges the
Mortgage pursuant to paragraph 13, or by (ii) the outstanding principal and
interest secured by the Mortgage as of the date of purchase if Lessee assumes
the indebtedness secured by the Mortgage pursuant to paragraph 13.
<PAGE>
(b) Upon the date fixed for any purchase of Lessor's interest
in the Premises hereunder, Lessee shall pay to Lessor the purchase price
therefor specified herein together with all Basic Rent, additional rent and
other sums then due and payable hereunder to and including such date of
purchase, and Lessor shall deliver to Lessee a proper deed of conveyance with
Special Warranty of Title of Lessor's interest in the Premises then being sold
to Lessee and any other instruments necessary to convey the title thereto
described in paragraph 14(a) and to assign any other property then required to
be assigned by Lessor pursuant hereto. Lessee shall pay all charges incident to
such conveyance and assignment, including counsel fees, escrow fees, recording
fees, title insurance premiums and all applicable taxes (other than any income
or franchise taxes of Lessor) which may be imposed by reason of such conveyance
and assignment and the delivery of said conveyance and other instruments. Upon
the completion of any such purchase of Lessor's entire interest in the Premises
but not prior thereto, this Lease shall terminate, except with respect to
obligations and liabilities of Lessee hereunder, actual or contingent, which
have arisen prior to such date of purchase.
15. Assignment and Subletting. Lessee may sublet all or any
portion of the Premises or assign its interest hereunder. No such assignment or
sublease shall modify or limit any right or power of Lessor hereunder or affect
or reduce any obligation of Lessee hereunder, and all such obligations shall
continue in full effect as obligations of a principal and not of a guarantor or
surety, as though no assignment or subletting had been made. Neither this Lease
nor the term hereby demised shall be mortgaged by Lessee, nor shall Lessee
mortgage or pledge its interest in any sublease of the Premises or the rentals
payable thereunder. Any such mortgage or pledge, and any sublease or assignment
made otherwise than as permitted by this paragraph l5, shall be void. Lessee
shall, within 10 days after the execution of any assignment, deliver a conformed
copy thereof to Lessor.
<PAGE>
16. Permitted Contests. Lessee shall not be required, nor
shall Lessor have the right, to pay, discharge or remove any tax, assessment,
levy, fee, rent, charge, lien or encumbrance, or to comply with any legal
requirement applicable to the Premises or the use thereof, so long as Lessee
shall contest the existence, amount or validity thereof by appropriate
proceedings which shall prevent the collection of or other realization upon the
tax, assessment, levy, fee, rent, charge, lien or encumbrance so contested, and
the sale, forfeiture or loss of the Premises or any Basic Rent or any additional
rent, to satisfy the same, and which shall not affect the payment of any Basic
Rent or any additional rent, and provided that such contest shall not subject
Lessor to the risk of any material civil liability or any criminal liability.
Lessee shall give such reasonable security as may be demanded by Lessor or the
Mortgagee to insure payment of such tax, assessment, levy, fee, rent, charge,
lien or encumbrance and to prevent any sale or forfeiture of the Premises by
reason of such non-payment.
17. Conditional Limitations; Default Provisions. (a) Any of
the following occurrences or acts shall constitute an event of default under
this Lease; (i) if Lessee shall (l) fail to pay any Basic Rent, additional rent
or other sum required to be paid by Lessee hereunder and such failure shall
continue for 10 days after notice to Lessee of such failure or (2) fail to
observe or perform any other provision hereof and such failure shall continue
for 30 days after notice to Lessee of such failure (provided, that in the case
of any such default which cannot be cured by the payment of money and cannot
with diligence be cured within such 30-day period, if Lessee shall commence
promptly to cure the same and thereafter prosecute the curing thereof with
diligence, the time within which such default may be cured shall be extended for
such period as is necessary to complete the curing thereof with diligence); or
(ii) if Lessee shall file a petition in bankruptcy or for reorganization or for
an arrangement pursuant to any federal or state bankruptcy law or any similar
federal or state law, or shall be adjudicated a bankrupt or become insolvent or
shall make an assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a petition or
answer proposing the adjudication of Lessee as a bankrupt or its reorganization
pursuant to any federal or state bankruptcy law or any similar federal or state
law shall be filed in any court and Lessee shall consent to or acquiesce in the
filing thereof or such petition or answer shall not be discharged or denied
within 90 days after the filing thereof; or (iii) if a receiver, trustee or
liquidator of Lessee or of all or substantially all of the assets of Lessee or
of the Premises or Lessee's estate therein shall be appointed in any proceeding
brought by Lessee, or if any such receiver, trustee or liquidator shall be
appointed in any proceeding brought against Lessee and shall not be discharged
within 90 days after such appointment, or if Lessee shall consent to or
acquiesce in such appointment; or (iv) if the Premises shall have been left
unoccupied and unattended for a period of 30 days.
<PAGE>
(b) If an event of default shall have happened and be
continuing, Lessor shall have the right to give Lessee notice of Lessor's
intention to terminate the term of this Lease on a date not less than 5 days
after the date of such notice. Upon the giving of such notice, the term of this
Lease and the estate hereby granted shall expire and terminate on such date as
fully and completely and with the same effect as if such date were the date
herein fixed for the expiration of the term of this Lease, and all rights of
Lessee hereunder shall expire and terminate, but Lessee shall remain liable as
hereinafter provided.
<PAGE>
(c) If an event of default shall have happened and be
continuing, Lessor shall have the immediate right, whether or not the term of
this Lease shall have been terminated pursuant to paragraph 17(b), to re-enter
and repossess the Premises by summary proceedings, ejectment or in any manner
Lessor determines to be necessary or desirable and the right to remove all
persons and property therefrom. Lessor shall be under no liability by reason of
any such re-entry, repossession or removal. No such re-entry or repossession of
the Premises shall be construed as an election by Lessor to terminate the term
of this Lease unless a notice of such intention is given to Lessee pursuant to
paragraph 17(b), or unless such termination is decreed by a court of competent
jurisdiction.
(d) At any time or from time to time after the re-entry or
repossession of the Premises pursuant to paragraph 17(c), whether or not the
term of this Lease shall have been terminated pursuant to paragraph 17(b),
Lessor may (but shall be under no obligation to) relet the Premises for the
account of Lessee, in the name of Lessee or Lessor or otherwise, without notice
to Lessee, for such term or terms and on such conditions and for such uses as
Lessor, in its absolute discretion, may determine, subject to the provisions of
the Ground Lease. Lessor may collect and receive any rents payable by reason of
such reletting. Lessor shall not be liable for any failure to relet the Premises
or for any failure to collect any rent due upon any such reletting.
(e) No expiration or termination of the term of this Lease
pursuant to paragraph 17(b), by operation of law or otherwise, and no re-entry
or repossession of the Premises pursuant to paragraph 17(c) or otherwise, and no
reletting of the Premises pursuant to paragraph 17(d) or otherwise, shall
relieve Lessee of its liabilities and obligations hereunder, all of which shall
survive such expiration, termination, re-entry, repossession or reletting.
<PAGE>
(f) In the event of any expiration or termination of the term
of this Lease or re-entry or repossession of the Premises by reason of the
occurrence of an event of default, Lessee will pay to Lessor all Basic Rent,
additional rent and other sums required to be paid by Lessee to and including
the date of such expiration, termination, re-entry or repossession; and,
thereafter, Lessee shall, until the end of what would have been the term of this
Lease in the absence of such expiration, termination, re-entry or repossession,
and whether or not the Premises shall have been relet, be liable to Lessor for,
and shall pay to Lessor, as liquidated and agreed current damages: (i) all Basic
Rent, additional rent and other sums which would be payable under this Lease by
Lessee in the absence of such expiration, termination, re-entry or repossession,
less (ii) the net proceeds, if any, of any reletting effected for the account of
Lessee pursuant to paragraph 17(d), after deducting from such proceeds all
Lessor's expenses in connection with such reletting (including all repossession
costs, brokerage commissions, property management fees, reasonable attorneys'
fees and expenses, employees' expenses, alteration costs and expenses of
preparation for such reletting). Lessee will pay such current damages on the
days on which Basic Rent would be payable under this Lease in the absence of
such expiration, termination, re-entry or repossession, and Lessor shall be
entitled to recover the same from Lessee on each such day.
(g) The words "re-enter" or "re-entry" as used in this
paragraph 17 are not restricted to their technical meaning.
18. Additional Rights of Lessor. (a) No right or remedy
hereunder shall be exclusive or any other right or remedy, but shall be
cumulative and in addition to any other right or remedy hereunder or now or
hereafter existing. Failure to insist upon the strict performance of any
provision hereof or to exercise any option, right, power or remedy contained
herein shall not constitute a waiver or relinquishment thereof for the future.
Receipt by Lessor of any Basic Rent, additional rent or other sum payable
hereunder with knowledge of the breach of any provision hereof shall not
constitute waiver of such breach, and no waiver by Lessor of any provision
hereof shall be deemed to have been made unless in writing. Lessor shall be
entitled to injunctive relief in case of the violation, or attempted or
threatened violation, of any provision hereof, or to a decree compelling
performance of any provision hereof, or to any other remedy allowed to Lessor by
law.
<PAGE>
(b) Lessee hereby waives and surrenders for itself and all
those claiming under it, including creditors of all kinds, (i) any right and
privilege which it or any of them may have to redeem the Premises or to have a
continuance of this Lease after termination of Lessee's right of occupancy by
order or judgment of any court or by any legal process or writ, or under the
terms of this Lease, or after the termination of the term of this Lease as
herein provided, and (ii) the benefits of any law which exempts property from
liability for debt or for distress for rent.
(c) If Lessee shall be in default in the performance of any of
its obligations hereunder, Lessee shall pay to Lessor, on demand, all expenses
incurred by Lessor as a result thereof, including reasonable attorneys' fees and
expenses. If Lessor shall be made a party to any litigation commenced against
Lessee and Lessee, at its expense, shall fail to provide Lessor with counsel
approved by Lessor, Lessee shall pay all costs and reasonable attorneys' fees
and expenses incurred by Lessor in connection with such litigation.
19. Ground Lease. (a) Lessee will duly and punctually observe
and perform, at its expense, all covenants, terms and conditions imposed by the
Ground Lease upon the lessee thereunder (excluding the payment of Basic Rent),
to the end that, during the term of this Lease, Lessor shall have no
responsibility for compliance with the provisions of the Ground Lease and shall
be exonerated from all liability thereunder.
<PAGE>
(b) If any event shall occur which, pursuant to the terms of
the Ground Lease, with or without the passage of time, shall enable the lessee
under the Ground Lease to terminate the same, Lessee shall notify Lessor thereof
within 5 days after Lessee shall have become aware of the occurrence thereof.
Notwithstanding any such right of termination, Lessee shall take no action so to
terminate the Ground Lease and shall take such action, if any, as shall be
necessary to maintain the estate of Lessor in the Premises, except as provided
in Paragraphs 13 and 14 of the Ground Lease.
(c) If any event shall occur which, pursuant to the terms of
the Ground Lease, with or without the passage of time, shall enable the lessor
thereunder (the Ground Lease) to terminate the same or to impair or restrict the
rights of the lessee thereunder, Lessee shall notify Lessor within 5 days after
Lessee shall have become aware of the occurrence thereof and shall take such
action, if any, as shall be necessary to maintain the rights of Lessor in the
Premises and to enable the full enjoyment of such rights as they existed prior
to such impairment or restriction, except as provided in Paragraphs 13 and 14 of
the Ground Lease.
(d) If (i) the Ground Lease shall terminate for any reason
other than as specifically provided for in Paragraphs 13 and 14 thereof, or (ii)
the Ground Lease shall have been rejected or disaffirmed by the lessee
thereunder or any trustee or receiver thereof pursuant to bankruptcy or
insolvency law or other law affecting creditors' rights and if the Mortgagee (or
its designee) shall not have entered into a new lease or acquired the interest
of the lessee thereunder pursuant to Paragraph 24 thereof, then Lessee shall
attorn to the Ground Lessor. Upon Ground Lessor's acceptance thereof, Ground
Lessor and Lessee shall continue this Lease in full force and effect as a direct
lease from Ground Lessor to Lessee on the same terms and conditions of this
Lease, including without limitation, the obligation to pay Basic Rent,
additional rent and all other sums [including without limitation, sums payable
pursuant to paragraph 19(a) payable under this Lease for the period after the
termination, rejection or disaffirmance of the Ground Lease], and all of the
terms and conditions of this Lease shall be binding upon Ground Lessor and
Lessee to the same extent as if Ground Lessor and Lessee had been the original
lessor and lessee, respectively, under this Lease.
<PAGE>
20. Notices, Offers and Other Instruments. All notices,
offers, consents and other instruments given pursuant to this Lease shall be in
writing and shall be validly given when mailed by prepaid registered or
certified mail, (a) if to Lessor, addressed to Lessor at its address set forth
above, and (b) if to Lessee, addressed to Lessee at its address set forth above.
Lessor and Lessee each may from time to time specify any address in the United
States as its address for purposes of this Lease by giving 15 days' written
notice to the other party.
21. Estoppel Certificates. Lessee will, from time to time,
promptly upon request by Lessor but not more often than once each six (6)
months, execute, acknowledge and deliver to Lessor a certificate of Lessee
stating:
(i) that this Lease is unmodified and in full effect (or if
there have been modifications, that this Lease is in full effect as
modified, and stating the modifications),
(ii) the dates, if any, to which the Basic Rent, additional
rent and other sums payable under this Lease have been paid and the
amount of the Basic Rent currently payable thereunder, and
<PAGE>
(iii) that no notice has been received by Lessee of default
under this Lease which has not been cured or, if any default for which
notice has been received has not been cured, specifying the nature and
period of existence thereof and what action Lessee is taking or
proposes to take with respect thereto.
Any such certificate may be relied upon by any prospective mortgagee or
purchaser of the Premises.
22. No Merger. There shall be no merger of this Lease or of
the leasehold estate hereby created with either the Ground Lease or the
leasehold estate thereby created or the fee estate in the Premises by reason of
the fact that the same person acquires or holds, directly or indirectly, this
Lease or the leasehold estate hereby created or any interest herein or in such
leasehold estate as well as either or both (a) the Ground Lease or the leasehold
estate thereby created or any interest in the Ground Lease or such leasehold
estate or (b) the fee estate in the Premises or any interest in such fee estate.
23. Surrender. Upon the expiration or termination of the term
of this Lease, Lessee shall surrender the Premises to Lessor in the condition in
which the Premises were originally received from Lessor, except as repaired,
rebuilt, restored, altered or added to as permitted or required hereby and
except for ordinary wear and tear and in the case of termination pursuant to
paragraph 11, except for the condemned portion of the Premises or the damage
giving rise to such termination. Lessee shall remove from the Premises on or
prior to such expiration or termination all property situated thereon which is
not owned by Lessor, and shall repair any damage caused by such removal.
Property not so removed shall become the property of Lessor, and Lessor may
cause such property to be removed from the Premises and disposed of, but the
cost of any such removal and disposition and of repairing any damage caused by
such removal shall be borne by Lessee.
<PAGE>
24. Merger, Consolidation or Sale of Assets. It shall be a
condition precedent to the merger of Lessee into another corporation, to the
consolidation of Lessee with one or more other corporations and to the sale or
other disposition of all or substantially all the assets of Lessee to one or
more other entities that the surviving entity or transferee of assets, as the
case may be, shall deliver to Lessor and to the Mortgagee an acknowledged
instrument in recordable form assuming all obligations, covenants and
responsibilities of Lessee hereunder and under any instrument executed by Lessee
consenting to the assignment of Lessor's interest in this Lease to the Mortgagee
as security for indebtedness. Lessee covenants that it will not merge or
consolidate or sell or otherwise dispose of all or substantially all of its
assets unless such an instrument shall have been so delivered.
25. Termination of Options. Anything herein to the contrary
notwithstanding, each option to purchase contained in this Lease shall terminate
on the earlier of the following dates: (i) the specific date of termination
referred to in each option; or (ii) that date which is 21 years after the death
of the last survivor of the descendants of Franklin D. Roosevelt, former
president of the United States of America, who was alive on the date of this
Lease.
26. Termination of Agreement for Lease and Development. If the
Agreement for Lease and Development of even date herewith between Lessor and
Lessee (the Agreement of Lease and Development) is terminated pursuant to
Paragraph 6.7 thereof during the Interim Term, then this Lease shall
automatically cease and terminate as of the date of termination of the Agreement
for Lease and Development, and shall be of no further force and effect between
Lessor and Lessee.
<PAGE>
27. Commencement Agreement. Upon the occurrence of the Primary
Term Commencement Date, Lessor and Lessee shall enter into a written
Commencement Agreement forth:
(a) The Primary Term Commencement Date.
(b) The Basic Rent payable during:
(i) the first Lease year
(ii) the second through and including the
fifteenth Lease Year;
(iii) the sixteenth Lease Year through the end of the
Primary Term; and
(iv) the Extended Terms.
(c) The amount of Project Costs, and the amount, if any,
paid by Lessee for Project Costs pursuant to Paragraph 4.4 of the Agreement for
Lease and Development.
Notwithstanding the refusal or failure of either or both parties hereto to
execute the Commencement Agreement, the Primary Term of this Lease at the Basic
Rent herein provided shall nonetheless commence.
28. Separability; Binding Effect; Governing Law. Each
provision hereof shall be separate and independent and the breach of any such
provision by Lessor shall not discharge or relieve Lessee from its obligations
to perform each and every covenant to be performed by Lessee hereunder. If any
provision hereof or the application thereof to any person or circumstance shall
to all extent be invalid or unenforceable, the remaining provisions hereof, or
the application of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable, shall not be affected thereby, and
each provision hereof shall be valid and shall be enforceable to the extent
permitted by law. All provisions contained in this Lease shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
assigns of Lessor and Lessee to the same extent as if each such successor and
assign were named as a party hereto. This Lease may not be changed, modified or
discharged except by a writing signed by Lessor and Lessee. This Lease shall be
governed by and interpreted under the laws of the Commonwealth of Virginia.
<PAGE>
29. Schedules. The following are Schedules A, B and C referred
to it this Lease, which Schedules are hereby incorporated by reference herein.
<PAGE>
SCHEDULE A
Part 1 - Description of the Premises
ALL that certain lot, piece or parcel of land, with improvements thereon and
appurtenances thereunto pertaining, lying and being In Brookland District,
Henrico County, Virginia, containing 11.80 acres, more or less, outlined in red,
on "Map of 11.80 Acres of Land in Brookfield, In Brookland District, Henrico
County, Virginia" dated September 22, 1976, revised January 12, 1977, February
8, 1977, and February 14, 1977, made by LaPrade Brothers, Civil Engineers and
Surveyors, Richmond, Virginia, a copy of which said plat was recorded on
February 15, 1977 in the Clerk's Office of the Circuit Court for the County of
Henrico, Virginia in Deed Book 1714, page 684.
TOGETHER with a non-exclusive easement of ingress and egress for vehicular and
pedestrian traffic over the private road as it meanders east from Broad Street
through the "Brookfield Development" to the west line of the above described
property, said non-exclusive easement for ingress and egress for vehicular and
pedestrian traffic is outlined in red on "Map of Private Road In Brookfield From
Broad Street Road to Southern States Cooperative, Incorporated, Property in
Brookland District, Henrico County, Virginia" dated February 11, 1977, made by
LaPrade Brothers, Civil Engineers and Surveyors, Richmond, Virginia, a copy of
which plat was recorded on February 15, 1977 in the aforesaid Clerk's Office in
Deed Book 1714, page 684.
TOGETHER with a non-exclusive easement to drain surface water along a path
shaded in blue on the plat entitled "Easement For Surface Drainage Across
Richmond Equivest, Inc. Property, From North Line Southern States Cooperative,
Inc. Property To South Line of 1-64," dated February 18, 1977, made by LaPrade
Brothers, Civil Engineers and Surveyors, Richmond, Virginia, a copy of which
plat was recorded on March 28, 1977 in the aforesaid Clerk's Office in Deed Book
1716, page 1137.
<PAGE>
PART II - Description of the Ground Lease
Ground Lease, dated as of July 15, 1977, between Southern
States Cooperative, Incorporated, as lessor, and Gold Bond Stamp Company of
Georgia, a New Jersey Corporation, as lessee, covering the above-described Land,
a memorandum of which is recorded in the Clerk's office of the Circuit Court of
Henrico County, Virginia.
<PAGE>
PART III - Equipment and Fixtures Owned by Lessor:
1. Miscellaneous plumbing
2. Kitchen equipment
3. Exhaust fans
4. Vinyl wallcovering
5. Graphics and signage
6. Sound insulation
7. Miscellaneous built-in shelving, counters and storage
8. Drapes
9. Full height doors
10. Special lighting
11. Carpet
12. Millwork
<PAGE>
Part IV - Liens and Encumbrances
1. Real estate taxes and assessments not yet delinquent.
2. Reservations, restrictions and provisions contained in the Deed dated
February 15, 1977 from Richmond Equivest, Inc., a Virginia corporation,
as grantor, to Southern States Cooperative, Incorporated, a Virginia
corporation, as grantee, and recorded February 15, 1977 in the Clerk's
Office of the Circuit Court of Henrico County, Virginia, in Deed Book
1714, page 684, as follows:
(a) The reservation of a non-exclusive sixteen (16) foot
permanent and a thirty-six (36) foot initial construction easement
over, across and under the Leased Premises for a water line at the
location shown on a plat attached to the Deed.
(b) The reservation of a non-exclusive sixteen (16) foot
permanent storm sewer easement over, across and under the Leased
Premises at the location shown on a plat attached to the Deed.
(c) A restrictive covenant by which Grantee agrees that
Grantor shall be entitled to review and approve the submission by
Grantee of future plans of development with respect to the Leased
Premises and Grantee's final plan relative to the exterior appearance
of any buildings or additions to buildings proposed for the Leased
Premises and the site plan of such improvements, the approval thereof
not to be unreasonably withheld. Grantor shall have the right to
require deck parking for any substantial expansion of Improvements
after initial construction. Grantor shall not disapprove future Plans
of Development because an additional building, an addition to an
existing building, or deck parking is proposed on the Leased Premises.
This covenant runs with the land and shall be effective for fifteen
(15) years after the date of the Deed.
<PAGE>
(d) A covenant by the Grantee to join in the dedication of
certain roadways off of the Leased Premises, if requested by Grantor,
for a period of fifteen (15) years after the date of the Deed.
3. Counterpart Water and Sewer Agreement dated November 22, 1976 and
recorded in the aforesaid Clerk's Office between Richmond Equivest,
Inc., and County of Henrico, Virginia whereby Richmond agrees to
construct and install water distribution system and a sewage disposal
system in accordance with plans and specifications approved by County
pursuant to the terms and conditions of Water and Sewer Agreements of
August 24, 1971 in Deed Book 1480, pages 460 and 469 respectively,
which this Agreement incorporates by reference and which systems are to
serve a tract of 11.8 acres being developed by Richmond.
4. Restrictive Covenants: By instrument dated September 6, 1968, recorded
in Deed Book 1372, page 74, Virginia Shopping Center, Inc. imposed
restrictions on the insured real estate. Amended by Agreement dated
October 15, 1970, recorded in Deed Book 1446, page 257.
5. Easements affecting the private road known as Brookfield Road between
Broad Street and the Leased Premises, as follows:
(a) Easement granted Virginia Electric and Power Company dated
April 10, 1972, recorded in Deed Book 1513, page 32, for underground
cables and conduits, with right to clear and right of ingress and
egress.
<PAGE>
(b) Easement granted Chesapeake and Potomac Telephone Company
dated February 2, 1976, recorded in Deed Book 1669, page 790, for
underground cables, etc., 10' wide to serve Richmond Corporation
Headquarters building and land adjacent to the south.
(c) Easement granted Board of Supervisors of Henrico County
dated November 4, 1975, recorded in Deed Book 1658, page 853, for
construction, operation and maintenance of water and sewer service
lines through, over and under property of Richmond Equivest in
accordance with two plats recorded therewith.
6. Terms, conditions and covenants contained in an agreement dated
February 15, 1977, between Richmond Equivest, Inc., a Virginia
corporation, as seller, and Southern States Cooperative, Incorporated,
a Virginia corporation, as buyer, including inter alia the following:
(a) Buyer agrees to pay one-half of the cost of extending the
private road known as Brookfield Road to the Leased Premises, and to
reimburse Seller on an annual basis for one-half of the cost of
maintaining the extended portion.
(b) Seller has the non-exclusive easement to introduce storm
water from a tract of land owned by Seller, containing approximately
four (4) acres on the east line of Falmouth Street, into Buyer's storm
sewer system to the extent of the excess capacity of that system
created by oversizing of the same as requested by Seller.
7. Conditional Exclusive Option to Purchase the Leased Premises in favor
of Richmond Equivest, Inc. under agreement dated February 15, 1977.
<PAGE>
SCHEDULE B
Terms and Basic Rent Payments
I. Lease Terms
l. The Interim Term shall commence on August 1, 1977 and end at
midnight on the day which immediately precedes the Primary Term Commencement
Date, as hereafter defined, unless earlier terminated pursuant to the provisions
of this Lease.
2. The Primary Term shall commence on the Primary Term Commencement
Date and shall end at midnight on the earlier of (i) the last day of the month
in which the thirtieth (30th) anniversary of the Primary Term Commencement Date
occurs or (ii) January l, 2010, unless earlier terminated or extended pursuant
to the provisions of this Lease.
3. The first Extended Term shall commence on the day next following the
termination of the Primary Term and shall end at midnight on the date which is
the fifth (5th) anniversary thereof, unless earlier terminated pursuant to the
provisions of this Lease.
4. The second Extended Term shall commence on the day next following
the termination of the first Extended Term and shall end at midnight on the date
which is the fifth (5th) anniversary thereof, unless earlier terminated pursuant
to the provisions of this Lease.
II. Basic Rent
1. Each monthly installment of Basic Rent during the Interim Term is
$1.00 and is payable in arrears on August 31, 1977 and thereafter on the last
day of the month.
2. Each monthly installment of Basic Rent during the first Lease Year
of the Primary Term is $ (1) , and is payable in arrears on the
last day of the month.
<PAGE>
3. Each monthly installment of Basic Rent after the first (1st),
through and including, the fifteenth (15th) Lease Year of the Primary Term is $
(2) , and is payable in arrears on the last day of the month.
4. Each monthly installment of Basic Rent after the fifteenth (15th)
Lease Year of the Primary Term through the end of the Primary Term, and each
Extended Term, if the same are exercised by Lessee pursuant to paragraph 3 of
this Lease, is $ (3) , and is payable in arrears on the last day of the month.
III. Definitions
1. "Lease Year" shall mean each twelve-month period commencing on the
first day of the month preceding the Primary Term Commencement Date and each
anniversary thereof, all or any portion of which occurs during the Primary Term
or any Extended Term.
2. "Primary Term Commencement Date" shall mean the date on which the
indebtedness secured by the Mortgage is distributed.
- ----------------------------
(1) An amount calculated as follows:
(a) Multiplying the sum of (i) the original principal amount of
indebtedness secured by the Mortgage and (ii) the amount paid by Lessor pursuant
to Paragraph 4.2 (as limited by Paragraph 4.4) of the Agreement for Lease and
Development by .000129.
(b) Add to the product obtained in clause (a) above the annual Basic
Rent payable under the Ground Lease.
(c) Divide the sum obtained in clause (b) above by 12.
(2) An amount calculated as follows:
(a) Multiply the sum of (i) the original principal amount of
indebtedness secured by the Mortgage and (ii) the amount paid by Lessor pursuant
to Paragraph 4. 2 (as limited by Paragraph 4. 4) of the Agreement of Lease and
Development by the sum of (x) the debt constant of the indebtedness secured by
the Mortgage (that is, 0.0928016724) multiplied by 0.958 and (y) .0015.
<PAGE>
(b) Add to the product obtained in clause (a) above the annual basic
Rent payable under the Ground Lease.
(c) Subtract from the sum obtained in clause (b) above an amount equal
to .1224 multiplied by the product of l.085 times one-half of the available
Investment Tax Credit.
(d) Divide the difference obtained in clause (c) by 12.
(3) An amount calculated as follows:
(a) Multiply the sum of (i) the original principal amount of
indebtedness secured by the Mortgage and (ii) the amount paid by Lessor pursuant
to Paragraph 4.2 (as limited by Paragraph 4.4) of the Agreement of Lease and
Development by the sum of (x) the debt constant of the indebtedness secured by
tie Mortgage (that is, 0.0928016724) multiplied by 0.958 and (y) .0015.
(b) Add to the product obtained in clause (a) above the annual Basic
Rent payable under the Ground Lease.
(c) Divide the sum obtained in clause (b) above by 12.
<PAGE>
SCHEDULE C
Purchase Prices
(1) Interim Term. Upon a purchase of the Premises pursuant to paragraph 11(b) of
this Lease during the Interim Term, the purchase price shall be the amount of
Project Costs paid by Lessor pursuant to Paragraph 4.2 of the Agreement for
Lease and Development.
(2) Primary Term. Upon a purchase of the Premises pursuant to paragraph 11(b) of
this Lease during the Primary Term, the purchase price shall be the principal
amount of indebtedness secured by the Mortgage as of the Termination Date with
accrued and unpaid interest thereon through the Termination Date.
SCHEDULE D
Released Parcels
[site plan by Cooper, Carry & Associates, Architects: omitted]
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this
Lease to be duly executed and delivered, and caused their corporate seals to be
hereunto affixed and attested, all as of the date first above written.
[Corporate Seal] GOLD BOND STAMP COMPANY OF GEORGIA
as Lessor
Attest: By /s/ H. W. Greenough
--------------------------
Pres.
By /s/ C. C. Krause
---------------------
SOUTHERN STATES COOPERATIVE,
INCORPORATED
as Lessee
By /s/ John J. Feland
------------------------
Vice President
[Corporate Seal]
Attest:
By /s/ E. M. Holdaway
--------------------------
Assistant Secretary
<PAGE>
STATE OF MINNESOTA )
) ss.:
COUNTY OF HENNEPIN )
I, Terry Nims, a Notary Public here and for the State and County
aforesaid, do certify that H. W. Greenough and C. C. Krause, whose names as
President and an Assistant Secretary, respectively, of GOLD BOND STAMP COMPANY
OF GEORGIA, a New Jersey Corporation, are signed to the writing above, bearing
date as of July 15, 1977, have acknowledged the same before me in my County
aforesaid.
Given unto my hand and official seal this 26 day of July, 1977.
[Notarial Seal]
/s/ Terry Nims
--------------------------
Notary Public
My commission expires: Apr. 22, 1983
COMMONWEALTH OF VIRGINIA )
) ss.:
CITY OF RICHMOND )
I, Linda S. Morris, a Notary Public here and for the State and City
aforesaid, do certify that John J. Feland and E. M. Holdaway, whose names, as
Vice President and an Secretary, respectively, of SOUTHERN STATES COOPERATIVE,
INCORPORATED, a Virginia Corporation, are signed to the writing above, bearing
date as of July 15, 1977, have acknowledged the same before me in my City
aforesaid.
Given unto my hand and official seal this 29th day of July,
1977.
[Notarial Seal]
/s/ Linda S. Morris
----------------------
Notary Public
My commission expires: December 17, 1977
EXHIBIT 10.11
LEASE AGREEMENT WITH PURCHASE OPTION
THIS AGREEMENT, dated the 5th day of January, 1995, by and between SCOTT
PETROLEUM CORPORATION, a Mississippi corporation, with offices in Itta Bena,
Mississippi ("Lessor"), and GOLD KIST INC., a cooperative marketing association
organized pursuant to the Georgia Cooperative Marketing Act with corporate
offices in Atlanta, Georgia ("Lessee").
W I T N E S S E T H:
Lessor, for and in consideration of the terms, covenants, and conditions
herein contained, does hereby lease and demise to Lessee, and Lessee does hereby
take from Lessor, upon and subject to the terms, covenants, and conditions
herein contained, Lessor's interest in certain real property in various counties
in the State of Mississippi (more particularly described in Exhibit A, attached
hereto and incorporated herein by reference), together with all improvements
thereon ("Premises") and all equipment thereon including, but not limited to the
items specified in Exhibit B, attached hereto and incorporated herein by
reference (the "Equipment") (Premises and Equipment referred to collectively as
the "Facilities").
TO HAVE AND TO HOLD the Premises at the rental and upon the
terms, covenants and conditions herein contained and for the term set forth
herein.
1. Term - The term of the lease herein made shall be for ten (10) years,
beginning on January 5, 1995, and ending on December 31, 2004, unless
sooner terminated as provided herein.
2. Rent - Lessee agrees to pay the Lessor as monthly rent for the leased
Facilities the amount of $30,081 per month during the term of this
lease. Said rent shall be payable in advance every month on or before
the first day of each month.
3. Lessor's Mortgage - The Facilities are encumbered by a first priority
deed of trust in favor of Mark G. Loften as trustee for the benefit of
The Equitable Life Assurance Society of the United States as the same
has been modified (the "Mortgage"). If Lessor fails to make any payment
due on the Mortgage, Lessee may make such payment and any penalty on
behalf of Lessor and reduce the rentals due hereunder by the amount so
paid. In addition Lessee, after making two or more payments within any
twelve-month period on the Mortgage pursuant to this paragraph may
exercise immediately the Purchase Option specified in paragraph 24 and
prepay the Mortgage according to its terms and reduce the Purchase
Price under the Purchase Option by the amount so paid.
4. Competition - Each of the shareholders, officers and directors of
Lessor hereby agrees that they shall not engage, directly or
indirectly, in the financing, management, or operation of a fertilizer
business within a radius of one hundred twenty (120) miles from
Indianola, for a period of three (3) years after the commencement date
of the Lease. Should there be a breach by any of the shareholders,
officers or directors of the covenants hereunder and should Lessee be
required to enforce the covenants herein by legal action, Lessee shall
be entitled to recover, in addition to all other remedies available to
Lessee at law or at equity, all attorneys' fees and court costs
incurred by Lessee in requiring compliance with the terms and
obligations of this paragraph. Any action for breach of this Paragraph
shall be against the breaching party only.
<PAGE>
5. Taxes - Lessee shall pay or cause to be paid all city, county, and
state property taxes, charges and assessments levied and assessed
against the Facilities and any personal property of Lessee on the
Premises. If Lessee fails to pay taxes and assessments as they become
due, so that in Lessor's judgment its property interest in the
Facilities is jeopardized and Lessee continues in such a failure after
being requested by Lessor to pay the same, Lessor shall have the right
to pay such taxes and assessments, and to add such payment amount
together with interest thereon to any installment of rent thereafter
payable hereunder.
6. Services and Utilities - Lessee shall pay for all charges for the
provision of all utilities serving the leased Premises and incurred by
Lessee in connection with its use of the Facilities, including, but
not limited to, gas, electricity, and water.
7. Quiet Possession - Lessor warrants and represents that Lessor is
presently vested with good and marketable title to the Premises and
the Equipment and covenants and agrees that Lessee, upon paying the
said rental and observing the covenants and conditions contained
herein, shall have quiet possession of the Facilities for the term of
the lease.
8. Use of the Facilities - The Premises shall be used and occupied by
Lessee as a fertilizer and crop protection chemical blending,
handling, storage and distribution facility and for other legal
purposes. Lessee shall comply with all laws, ordinances, rules and
regulations concerning the Facilities and its use thereof, and shall
be obligated to comply with any law that requires any alteration,
maintenance, or restoration of the Facilities as a result of the
Lessee's particular and specific use of the Facilities. Lessee shall
not use or permit the use of the Facilities in any manner that will
tend to create waste or a nuisance.
9. Removal of Fuel Tanks at Indianola - Lessor has placed on the Indianola
property tanks and related piping, diking and other fixtures for the
storage of fuel (the "Tanks"). Lessor, at its sole cost and expense has
agreed to remove the Tanks and remediate the site as may be required.
All such work shall be completed on or before March 1, 1995. So long as
remediation has begun and is being diligently pursued, Scott may extend
the time for remediation until June 1 ,1995. All remediation work shall
meet the requirements of the Mississippi Department of Environmental
Quality. Lessor hereby indemnifies and holds harmless Lessee, its
successors and assigns from any and all utilities, costs, damages,
and/or expenses caused by the Tanks and/or their removal and/or the
site remediation.
<PAGE>
10. Condition of Facilities - Except for the Tanks as discussed in
Paragraph 9 above and except for the warranties made by Lessor in the
Agreement of Sale dated May 8, 1992, between and among the parties
hereto and FarmKist Enterprises, Lessee has examined the leased
Facilities and accepts them in their present condition without any
representations on the part of Lessor or its agents as to the present
or future condition or as to the suitability of the Facilities for
Lessee's use thereof. Lessee accepts the Facilities subject to all
applicable municipal, county and state laws, zoning ordinances and
regulations governing and regulating the Facilities and subject to all
matters disclosed pursuant to the terms of this agreement and any
exhibits attached hereto.
11. Repair and Maintenance - Except for damage caused by acts of Lessor,
its agents, employees or invitees, Lessee at its expense shall keep in
good order, condition and repair the Facilities and all structures and
portions thereof and shall make any and all necessary repairs to same
within a reasonable time after receipt of written notice from Lessor of
the need for such repairs. In the event Lessee fails to perform its
obligations hereunder, Lessor may at its option come in or upon the
Premises after ten days' prior written notice to Lessee and put the
same in good order, condition, maintenance and repair, and the costs
thereof together with interest thereon shall be due and payable
immediately or as additional rent to Lessor with Lessee's next rental
installment.
12. Removal and Substitution of Equipment - If Lessee, in its sole
discretion, determines that any item(s) of Equipment have become
inadequate, obsolete, worn out, unsuitable, undesirable, inappropriate
or unnecessary for its purposes at any time, Lessee may remove such
items from the Premises and sell, trade in, or otherwise dispose of
them (as a whole or in part) without any responsibility or
accountability to Lessor therefor. If Lessee elects to substitute and
install (if appropriate) other machinery, equipment and related
property or none of such machinery, equipment or related property shall
not be subject to this Agreement. The removal from the Facilities of
any portion of the Equipment pursuant to the provisions of this
Paragraph shall not entitle Lessee to any diminution in or postponement
or abatement of the rents payable hereunder nor to any reduction in the
purchase price if Lessee elects to exercise the purchase option
specified in Paragraph 24.
13. Additions and Alterations - Lessee may make all such changes,
alterations, additions, or improvements in or to the Premises as it may
deem necessary, suitable or desirable. Lessee shall make all such
changes, alterations and improvements in compliance with law and in a
good and workmanlike manner without impairing the structural soundness
of the Premises or any structures located thereon. Unless the Premises
are sold to Lessee pursuant to paragraph 24 of this agreement, Lessor
shall, at the termination of this agreement, have the option to require
Lessee to remove any and all changes, alterations, additions and
improvements in and to the Premises and restore the Premises to the
condition as existed upon Lessee's occupancy of the Premises. Unless
Lessor requires their removal, all changes, alterations, additions, and
improvements placed upon the Premises shall become the property of
Lessor and shall remain upon and be surrendered with the Premises at
the termination of this agreement.
<PAGE>
14. Condemnation - If the Facilities or any portion thereof are taken under
the power of eminent domain, condemned for a temporary or permanent
public or quasi-public use, or sold under the threat of the exercise of
said power, Lessee may, at Lessee's option, to be exercised in writing
to Lessor, exercise the Purchase Option specified in Paragraph 24. If
Lessee does not exercise the Purchase Option, this Lease shall remain
in full force and effect as to the portion of the Facilities remaining,
with no reduction in rent or the Purchase Price. Any award for the
taking of the fee for the Premises for the purposes hereunder shall be
the property of Lessee, and Lessee shall be entitled to any award for
loss of or damage to Lessee's trade fixtures and removable personal
property.
15. Damage or Destruction - In the event of damage to or destruction of the
Premises by fire or any other casualty, whether covered by an insurance
policy required to be maintained hereunder or not, during the term of
this Lease or in the event of such a partial destruction thereof as to
render the Premises wholly untenantable or unfit for occupancy, or
should the Premises be so badly injured that the same cannot be
repaired within thirty (30) days from the happening of such injury,
then and in such case, Lessee may exercise the Purchase Option
immediately. If Lessee does not exercise the Purchase Option, this
Lease shall remain in full force and effect with no reduction in rent
or in the Purchase Price. Insurance proceeds paid because of fire,
damage or destruction shall be payable as provided in Paragraph 19.
Lessee shall promptly notify Lessor in case of fire or other damage or
destruction to the Premises.
16. Liens - Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for
the use in the Premises for construction or other purposes done by
Lessee or caused to be done by Lessee on the Premises. Lessee shall
keep the Premises free and clear of all liens resulting from
construction or repair work done by or for the Lessee or resulting from
Lessee's occupancy or use of the Premises. If Lessee shall, in good
faith, contest the validity of any such lien, claim, or demand, Lessee
shall, at its sole expense, defend itself and Lessor against the same
and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor or
the Premises, upon the condition that if Lessor shall require, Lessee
shall provide to Lessor a surety bond satisfactory to Lessor in an
amount equal to such contested lien claim or demand indemnifying Lessor
against liability for the same and holding the Premises free from the
effect of such lien or claim. In addition, Lessee shall pay Lessor's
attorneys fees and costs in participating in such action.
<PAGE>
So long as Lessee is not in default hereunder, Lessor shall not cause
or permit any liens of any nature (excluding the Mortgage) be levied
against the Facilities or any portion thereof. Lessor shall satisfy or
otherwise remove with five days any lien placed on Facilities or any
portion thereof which lien arises through Lessor. If Lessor fails to
keep the Facilities free and clear of liens as specified herein, Lessee
may after notice to Lessor pay any and all such liens and reduce the
rent due hereunder by the sum of such amount paid plus Lessee's costs
in satisfying such liens, including but not limited to, actual
attorneys' fees.
17. Indemnity - Lessee shall indemnify and hold Lessor harmless from and
against any and all claims arising from Lessee's use and occupancy of
the Facilities, or from the conduct of Lessee's business or from any
activity, work or things done, permitted or suffered by Lessee in or
about the Premises or elsewhere, and shall further indemnify and hold
Lessor harmless from and against any and all claims arising from any
breach or default in the performance of any obligation on Lessee's part
to be performed under the terms of this Lease or arising from the
negligence of the Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorneys' fees, expenses
and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon. In case any action or proceeding shall
be brought against Lessor by reason of any claim, Lessee, upon notice
from Lessor, shall defend the same at Lessee's expense. Lessee, as a
material part of the consideration to Lessor, hereby assumes all risks
of damage to property or injury to persons, in, upon, or about the
Facilities arising from any cause, and Lessee hereby waives all claims
in respect thereof against Lessor. The indemnity obligations of this
paragraph shall not apply to damages directly resulting from the
negligence or intentional acts of Lessor, its agents, servants, or
employees.
18. Exemption of Lessor from Liability - Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, inventory, equipment,
merchandise or other property of Lessee, Lessee's employees, invitees,
customers, or any other person in or about the Premises, nor shall
Lessor be liable for any injury to the person of Lessee, Lessee's
employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain,
or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether the said damage or injury
results from conditions arising upon the Premises or upon portions of
the building on the Premises, or from other sources or places, and
regardless of whether the cause of such damage or injury or the means
of repairing the same is inaccessible to Lessee.
19. Insurance - Lessee shall obtain and keep in force a policy of standard
fire and comprehensive hazard insurance covering loss of or damage to
the Premises leased. Pursuant to the terms of the Mortgage, The
Equitable Life Assurance Society of the United States shall be
designated as a "loss payee" on such policies of fire and comprehensive
hazard insurance relating to the property described on Exhibit A as the
liquid fertilizer terminal (Greenville) and the dry fertilizer terminal
(Greenville), and such loss payee clause shall continue throughout the
term of this Lease, or until the Mortgage is satisfied and cancelled,
whichever occurs first. Lessor hereby assigns to Lessee any proceeds
from insurance which may be made available to Lessor by the Grantee
under the Mortgage. Lessee shall obtain and keep in force all insurance
which it deems necessary for protection against loss of or damage to
any of its property situated in or about the leased Premises. Lessee
shall, at Lessee's expense, obtain and keep in force during the term of
this Lease, a policy of general and public liability insurance insuring
Lessor and Lessee against any liability for personal injury and
property damage arising out of the use, occupation or maintenance of
the Premises and all areas appurtenant thereto by Lessee. Such policy
shall contain provisions insuring performance by Lessee of the
indemnity provisions of Paragraph 16 hereof.
<PAGE>
20. Assignment and Subletting - Lessee may assign, transfer, mortgage,
sublet, or otherwise transfer or encumber all or any part of Lessee's
interest in this Lease or in the Premises leased hereunder upon
written notice to Lessor. No subletting or assignment shall release
Lessee of Lessee's obligations or alter the primary liability of
Lessee to pay the rent and to perform all other obligations of the
Lessee hereunder. Lessor may not assign, transfer, mortgage, sublet or
otherwise transfer or encumber its interest in this Lease or in the
Facilities whether by operation of law or otherwise.
21. Default -
a. The occurrence of any one or more of the following events shall
constitute a default by Lessee:
1) The vacating or abandonment of the Premises by Lessee.
2) The failure by Lessee to pay rent when due, if the
failure continues for fifteen days after notice has
been given to Lessee.
3) The failure of Lessee to perform any other
provisions, covenants or conditions of this Lease
required of Lessee if such a failure to perform is
not cured within twenty (20) days; Lessee shall not
be in default of this Lease if Lessee commences to
cure the default within the 20-day period and
thereafter diligently and in good faith prosecutes
such cure to completion. Lessor shall be in default
upon failure to perform obligations required of
Lessor hereunder within a reasonable time, but in no
event later than twenty (20) days after written
notice by Lessee to Lessor specifying the failure to
perform; provided, however, that if the default
cannot reasonably be cured within twenty (20) days,
Lessor shall not be in default of this Agreement if
Lessor commences to cure the default within the
twenty (20) day period and thereafter diligently and
in good faith prosecutes such cure to completion.
<PAGE>
b. The occurrence of any one or more of the following events shall
constitute a default by Lessor:
1) Failure to make any payment on the Mortgage, if the
failure continues for fifteen (15) days.
2) Failure to keep the Facilities or any portion thereof
free and clear of all liens or encumbrances other
than the Mortgage.
3) Failure to remove the fuel tanks at Indianola and/or
remediate the soil and groundwater. So long as
remediation has begun and is being diligently
pursued, Scott may extend the time for remediation
until June 1, 1995. All remediation work shall meet
the requirements of the Mississippi Department of
Environmental Quality.
22. Remedies
a. If Lessee is in default, Lessor may, at any time thereafter,
with or without notice of demand and without limiting Lessor
in the exercise of any right or remedy which Lessor may have
by reason of such default:
1) Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this
Lease Agreement shall terminate and Lessee shall
immediately surrender possession of the Premises to
Lessor. In such event, Lessor shall be entitled to
recover from Lessee all damages incurred by Lessor by
reason of Lessee's default.
2) Maintain Lessee's right to possession in which case
this Lease shall continue in effect whether or not
Lessee shall have abandoned the Premises. In such
event, Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease,
including the right to recover the rent as it becomes
due hereunder.
3) Perform at its own expense such obligation that
Lessee fails to perform, the cost of which together
with interest thereon shall be immediately payable or
shall be due and payable as additional rent to Lessor
with Lessee's next rental installment.
4) Pursue any other remedy now or hereafter available to
Lessor under applicable laws or judicial decisions.
b. In the event of a default by Lessor, Lessee may:
<PAGE>
1) Perform at its own expense such obligation that
Lessor fails to perform and deduct the cost thereof
from rent thereafter due.
2) May, at its option, immediately exercise the Purchase
Option.
23. Surrender of Premises - Upon expiration of the term of this lease or
after termination of this lease pursuant to the conditions hereunder,
Lessee shall surrender to Lessor the Premises in good condition,
except for ordinary wear and tear. Lessee shall remove all of its
personal property within the above-stated time and shall perform all
restoration and repairs made necessary by any such removal of changes,
alterations, additions, improvements, trade fixtures or personal
property.
24. Option to Purchase
(a) Lessee shall have the right and option, irrevocable during the
term of this lease (the "Option"), to purchase the Facilities.
(b) The Option may be exercised by Lessee on or after December 1,
2004 by giving written notice of its exercise to Lessor. In the
event of exercise of the Option, the sale of the Premises shall
be closed within six (6) months following termination of this
lease, unless the closing is extended by mutual consent of the
parties. Lessee shall remain in possession of the Premises during
any such extension.
(c) The purchase price for the Facilities shall be determined by the
schedule attached as Exhibit C (the "Purchase Price").
(d) The Purchase Price shall be reduced by the amount of all
insurance proceeds paid during the term hereof to Equitable
holder of the Mortgage, and by the amount of any liens against
Lessor satisfied by Lessee for which a rental deduction was not
made by Lessee.
(e) Lessor agrees that Lessee and its servants, agents, employees and
representatives shall have access to the Facilities during the
term of the lease to conduct and commission any surveys,
engineering studies, environmental audits, site studies, test
borings, soil and sub-soil studies, water table and supply, and
other investigations Lessee may deem necessary to conduct on the
Premises. Lessee assumes all responsibilities for its acts, or
the acts of its agents, servants, employees, contractors or
representatives, in exercising its rights hereunder, and agrees
to indemnify and hold Lessor harmless from and against any
property damage, personal injury, or claim of lien against the
Premises resulting from the activities permitted hereunder.
(f) At closing, Lessor shall convey good and marketable title to the
Facilities to Lessee by warranty deed subject to easements and
restrictions of record; applicable zoning ordinances; current
property taxes; and encroachments, overlaps, and boundary line
disputes and such other matters as would be disclosed by a
current survey and inspection of the property. Marketable title
as provided herein, shall be such title as is acceptable to a
title insurance company (licensed to conduct business in the
state of Mississippi) for issuance of its owner's title policy at
standard rates, subject to standard permitted exceptions and the
exceptions set forth above.
<PAGE>
(g) In the event that there are defects in the title or matters of
survey as to the Premises, not excepted as provided herein, at
Lessee's option, Lessee shall have the right either (1) to
rescind, at any time prior to the closing date, its exercise of
the Option, and to be released from any further obligations to
proceed with the final purchase of the Premises unless Lessor, at
its expense, shall have cured such defects to the satisfaction of
Lessee within a reasonable time after having received written
notice of the defects from Lessee or (2) to cure such defects and
deduct the cost thereof from the Purchase Price.
(h) Lessor shall pay all transfer tax or documentary stamp taxes
applicable to the transaction contemplated hereunder and for the
preparation of the warranty deed to effect the transaction.
Lessee shall pay the cost of recording all documents to be
recorded. Each party shall pay its own attorneys fees. Applicable
property taxes for the year in which the closing is effected
shall be prorated as of the date of closing.
(i) Closing shall be held at a time and place mutually agreed upon by
Lessor and Lessee no later than 48 hours prior to the closing
time and no later than the end of the term of this lease.
(j) Each party warrants to the other that it has not dealt with any
real estate agent, broker or finder with respect to this
transaction and that it is not aware of any finder's fee or
brokerage or real estate commission which will result from the
execution of this agreement, the exercise of the Option, or the
ultimate consummation of the purchase contemplated hereby. Any
fee generated by or occasioned as a result of the breach of the
warranty contained herein shall be borne by the breaching party.
25. Surveys - The parties are entering into this Lease with Purchase
Option without conducting surveys of the Premises. At its sole
discretion and expense, Lessee may have surveys on the Premises done.
If such surveys are prepared, the parties agree to modify the legal
descriptions for the Premises to reflect the results of the surveys.
Each party shall bear its own costs in preparing and executing such
modification. No adjustment to the rent or the Purchase Price shall be
made due to such surveys.
26. Lessor's Adjacent Storage Tank Facility - Lessor owns a parcel of real
property located adjacent to a part of the real property leased hereby
known as the "Dry Fertilizer Terminal (Greenville)", and Lessor and
Lessee recognize that it will be necessary for Lessor to construct a
loading facility and install pipelines for the use of Lessor's storage
tank facility. Lessee is evaluating the feasibility of construction of
a railroad spur track on the Dry Fertilizer Terminal at Greenville,
and Lessor might wish to use such spur track. Therefore, Lessor and
Lessee agree:
<PAGE>
(a) That, after proper study and evaluation regarding the
feasibility and location and other aspects of such improvements as
Lessee shall deem appropriate, Lessor shall be granted an easement
for the installation of an underground pipeline and a loading
facility as may be reasonably necessary for the use of Lessor's
storage tank facility, such easement to connect Lessor's storage
tanks to the loading facility and extending westwardly to Lake
Ferguson; but such easements for a pipeline and/or a loading
facility shall not interfere with the normal operation of the dry
terminal of Lessee nor create a hazard or unsafe condition by its
operation in the midst of the operation of Lessee's terminal.
(b) The cost of the installation and maintenance of any pipeline or
loading facility of Lessor shall be paid by Lessor; and
(c) To negotiate in good faith an agreement to share the benefits,
costs, and obligations of a railroad spur track which is, or may
be, located on the Dry Fertilizer Terminal in Greenville.
27. Holding Over - If Lessee remains in possession of the Premises or any
part thereof after the termination of this Lease without the express
written consent of the Lessor, such occupancy shall be a tenancy from
month to month at a rental in the amount of the last monthly rental
plus all other charges payable hereunder, and upon all of the terms
hereof applicable to a month to month tenancy; provided, however, that
there shall be no renewal of this Agreement by operation of law.
28. Waiver - No waiver by either party of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent
breach by the other party of the same or any other provision. A
party's consent to or approval of any act shall not be deemed to
render unnecessary the obtaining of such party's consent to or
approval of any subsequent act by the other party. The acceptance of
rent hereunder by Lessor shall not be a waiver of any preceding breach
by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted, regardless of Lessor's knowledge
of such preceding breach at the time of the acceptance of such rent.
29. Notice - Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the
other party or to any other person shall be in writing and either
served personally or sent by pre-paid, first-class mail. Any notice,
demand, request, consent, approval or communication that either party
desires or is required to give to the other party shall be addressed
to the other party at the address set forth by the signatures on this
lease. Either party may change its address by notifying the other
party of the change of address with the same formality set forth above
in this paragraph. Notice shall be deemed effective as of the time of
mailing if mailed as provided in this paragraph.
<PAGE>
30. Severability - The unenforceability, invalidity, or illegality of any
provision of this lease shall not render the other provisions
unenforceable, invalid, or illegal.
31. Successors - This lease shall be binding upon and inure to the benefit
of the parties and their successors and assigns.
32. Entire Agreement: Amendments - This lease contains all agreements of
the parties with respect to any matter mentioned herein, supersedes
all prior communications, negotiations, and agreements of the parties,
and may not be modified or amended except by written agreement of the
parties.
IN WITNESS WHEREOF, the parties have caused this agreement to be executed
by its duly authorized officers as of the day and year first above written.
SCOTT PETROLEUM CORPORATION, Lessor
102 Main Street
Itta Bene, Mississippi
By: /s/ Solon Scott
- -------------------------- ---------------------
Witness Title: President
GOLD KIST INC., Lessee
244 Perimeter Center Parkway, N.E.
Post Office Box 2210
Atlanta, Georgia 30301
Attention: Real Estate Department
/s/ Barbara M. Goetz By: /s/ Allen C. Merritt
- ---------------------------- ----------------------------
Witness Title: Vice President
<PAGE>
CORPORATE ACKNOWLEDGEMENT
STATE OF GEORGIA )
)
COUNTY OF DEKALB )
On this 5 day of January, 1995, before me, the undersigned Notary Public, duly
commissioned, qualified and acting, within and for the said County and State,
appeared in the person the within named Allen C. Merritt to me personally known,
who stated that he was the Vice President of GOLD KIST INC., a corporation, and
was duly authorized to execute the foregoing instrument for and in the name and
behalf of said corporation, and further stated and acknowledged that he had so
signed, executed and delivered said instrument for the consideration, uses and
purposes therein mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal,
this the 5 day of January, 1995.
/s/ Carolyn J. Rice
------------------------
NOTARY PUBLIC
My commission expires: [date unclear]
<PAGE>
STATE OF MISSISSIPPI
COUNTY OF LEFLORE
THIS DAY PERSONALLY APPEARED before me, the undersigned authority in
and for the above named County and State, within my jurisdiction, the within
named SOLON SCOTT, who acknowledged that he is the President, of Scott Petroleum
Corporation, a Mississippi corporation, and that for and on behalf of said
corporation, and as its act and deed, he executed the above and foregoing
instrument on the day and year and for the purposes therein stated, after first
having been duly authorized by said corporation so to do.
GIVEN under my hand and official seal on this, the 5th day of January,
1995.
/s/ Becky W. Diamond
------------------------
NOTARY PUBLIC
My Commission Expires: Nov. 23, 1997
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
<PAGE>
EXHIBIT "A" TO LEASE FROM
SCOTT PETROLEUM CORPORATION ("LESSOR")
TO GOLD KIST, INC. ("LESSEE")
LESSOR'S UNDIVIDED 1/2 INTEREST IN THE FOLLOWING PROPERTY:
TRACT A
DRY FERTILIZER TERMINAL (GREENVILLE)
PARCEL 1:
Commencing at a concrete monument marking the Southeast corner of
Section 15, Township 18 North, Range 9 West, Washington County,
Mississippi; thence, along the South line of said Section 15, South
89(degree)16' West 2,355.69 feet; thence North 28(degree)25' West
3,039.59 feet; thence South 61(degree)35' West 49.55 feet; thence
South 29(degree)26'30" East 61.93 feet to the West right-of-way of a
public road, said point being on a circular curve having a radius of
5,661.58 feet and having a chord bearing of South 47(degree)52'52"
West from said point to the Point of Tangency of said curve, thence
along said curve to the right a distance of 390.70 feet to said Point
of Tangency, thence South 49(degree)51'06" West 673.44 feet to the
Point of Beginning of the tract herein described; thence continue
South 49(degree)51'06" West 419.17 feet; thence North 73(degree)32'05"
West 569.34 feet; thence North 16(degree)27'55" East 350.00 feet;
thence South 73(degree)32'05" East 800.00 feet to the Point of
Beginning, and containing 5.501 acres, more or less, and being located
in Section 13, Township 18 North, Range 9 West, Washington County,
Mississippi.
TOGETHER WITH THE FOLLOWING EASEMENTS:
{1} An easement for the construction and maintenance of a pipeline as
set forth in Easement Agreement recorded in Book 1660 at Page 263 of
the Land Deed Records of Washington County, Mississippi, said Easement
Agreement providing that upon completion of construction of a
pipeline, said easement shall revert to a width of 10 feet, measuring
5 feet on either side of the centerline of said pipeline, said
easement being more particularly described as follows, to-wit:
[A] An easement 25 feet in width, the centerline of which is described
as follows:
Commence at a concrete monument marking the Southeast corner of Section
15, Township 18 North, Range 9 West, Washington County, Mississippi;
thence, along the South line of said Section 15, South 89(degree)16'
West 2,355.69 feet; thence North 28(degree)25' West 3,039.59 feet;
thence South 61(degree)35' West 49.55 feet; thence South
29(degree)26'30" East 61.93 feet to the West right-of-way of a public
road, said point being on a circular curve having a radius of 5,661.58
feet and having a chord bearing of South 47(degree)52'52" West from
said point to the Point of Tangency of said curve, thence along said
curve to the right a distance of 390.70 feet to said Point of Tangency,
thence South 49(degree)51'06" West 673.44 feet; thence continue South
49(degree)51'06" West 419.17 feet; thence North 73(degree)32'05" West
641.80 feet to the Point of Beginning of said easement centerline;
thence South 22(degree)14'48" West 759.4 feet to a point on the South
edge of the Greenville Port Terminal docking facility, and the terminus
of said easement centerline.
<PAGE>
[B] An easement 20 feet in width, the centerline of which is described
as follows:
Commence at a concrete monument marking the Southeast corner of Section
15, Township 18 North, Range 9 West, Washington County, Mississippi;
thence, along the South line of said Section 15, South 89(degree)16'
West 2,355.69 feet; thence North 28(degree)25' West 3,039.59 feet;
thence South 61(degree)35' West 49.55 feet; thence South
29(degree)26'30" East 61.93 feet to the West right-of-way of a public
road, said point being on a circular curve having a radius of 5,661.58
feet and having a chord bearing of South 47(degree)52'52" West from
said point to the Point of Tangency of said curve, thence along said
curve to the right a distance of 390.70 feet to said Point of Tangency,
thence South 49(degree)51'06" West 673.44 feet; thence continue South
49(degree)51'06" West 419.17 feet; thence North 73(degree)32'05" West
569.34 feet; thence North 16(degree)27'55" East 10.00 feet to the Point
of Beginning of said easement centerline; thence North 73(degree)32'05"
West 71.45 feet; thence South 22(degree)14'48" West 10.05 feet to the
terminus of said easement centerline.
{2} An easement for the construction and maintenance of underground
pilings for the foundation of facilities, as said easement is set forth
in instrument executed by the Board of Supervisors of Washington
County, Mississippi and Greenville Port Commission as grantors and
Scott Petroleum Corporation as grantee, which is recorded in Book 660
at Page 258 of the Land Deed Records of Washington County, Mississippi,
said easement being over and across the following described strip of
land, to-wit:
A strip of land 15 feet wide, adjacent to and parallel with the
Northernmost boundary of the tract containing 5.501 acres, more or
less, located in Section 13, Township 18 North, Range 9 West,
Washington County, Mississippi, described hereinabove.
PARCEL 2:
Commencing at the point of beginning of the property described as
"Tract 1" in Warranty Deed dated May 27, 1988, executed by the
Greenville Port Commission in favor of Scott Petroleum Corporation,
which is recorded in Book 1647, at Page 19, of the Land Deed Records of
Washington County, Mississippi, said property being hereinafter
described in this Deed and the legal descriptions of property and
easements contained herein, as "Tract 1"; thence North 73 degrees 32
minutes 05 seconds West 800.00 feet to the Point of Beginning of the
tract herein described; thence South 16 degrees 27 minutes 55 seconds
West 350.00 feet; thence North 73 degrees 32 minutes 05 seconds West
723.91 feet to the top bank of the berm of Lake Ferguson; thence,
continue North 73 degrees 32 minutes 05 seconds West to the thalweg of
said Lake Ferguson; thence northeasterly along said thalweg
approximately 450 feet; thence South 73 degrees 32 minutes 05 seconds
East to the top bank of said berm; thence, continue South 73 degrees 32
minutes 05 seconds East 433.49 feet to the Point of Beginning,
containing 4.650 acres, more or less, between the top bank of said berm
and the west line of Tract 1, together with the riparian rights
adjacent thereto, and being located in Section 13, Township 18 North,
Range 9 West, Washington County, Mississippi;
<PAGE>
LESS AND EXCEPT from the two (2) parcels described above, the following
tract or parcel of land conveyed to Scott Petroleum Corporation by deed
of even date herewith executed by FarmKist Enterprises more
particularly described as follows, to-wit:
PARCEL (A) - AMMONIA TANK FARM SITE:
Commencing at a concrete monument marking the Southeast Corner of
Section 15, Township 18 North, Range 9 West, Washington County,
Mississippi; thence, along the South line of said Section 15, South 89
degrees 16 minutes West 2355.69 feet; thence North 28 degrees 25
minutes West 3039.59 feet; thence South 61 degrees 35 minutes West
49.55 feet; thence South 29 degrees 26 minutes 30 seconds East 61.93
feet to the West right-of-way of a public road, said point being on a
circular curve having a radius of 5661.58 feet and having a chord
bearing of South 47 degrees 52 minutes 52 seconds West from said point
to the Point of Tangency of said curve; thence along said curve to the
right a distance of 390.70 feet to said Point of Tangency; thence South
49 degrees 51 minutes 06 seconds West 1092.61 feet to the Southeast
corner of the property described as "Tract 1" in Warranty deed dated
May 27, 1988, executed by the Greenville Port Commission in favor of
Scott Petroleum Corporation, which s recorded in Book 1647, at Page 19,
of the Land Deed Records of Washington County, Mississippi, said
property being also described as the "Dry Fertilizer Terminal
(Greenville)" in that certain Deed executed by Scott Petroleum
Corporation in favor of FarmKist Enterprises dated May 8, 1992, and
recorded in Book 1764, at Page 89 of said Land Deed Records, said
property being hereinafter described in this Deed and the legal
descriptions of property and easements contained herein, as "Tract 1";
thence North 73 degrees 32 minutes 05 seconds West 23.64 feet to the
Point of Beginning of the tract herein described; thence continue North
73 degrees 32 minutes 05 seconds West 169.11 feet; thence North 16
degrees 36 minutes 32 seconds East 146.98 feet; thence South 73 degrees
09 minutes 40 seconds East 168.58 feet; thence south 16 degrees 24
minutes 05 seconds West 145.88 feet to the Point of Beginning,
containing 0.57 acres, more or less, and being located in Section 13,
Township 18 North, Range 9 West, Washington County, Mississippi.
<PAGE>
The property conveyed herein is SUBJECT TO easements granted to Scott Petroleum
Corporation by deed of even date herewith executed by FarmKist Enterprises, said
easements being particularly described in said deed as follows:
(A) A perpetual right-of-way and easement twenty (20) feet in width to
install, lay, maintain, operate, repair, replace, alter, renew and
remove underground pipelines and electrical lines, cables, wires and
connections, and all necessary fixtures, equipment and appurtenances
thereto, over, through and across the following described parcel of
property, to-wit:
Commencing at the Southeast Corner of "Tract l", previously described;
thence North 73 degrees 32 minutes 05 seconds West 192.75 feet; thence
North 16 degrees 27 minutes 55 seconds East 10.0 feet to the Point of
Beginning of the centerline of a 20.0 foot wide easement; thence North
73 degrees 32 minutes 05 seconds West 458.02 feet; thence South 22
degrees 14 minutes 48 seconds West 10.05 feet to the terminus of the
present easement described.
(B) The right and easement to install, lay, maintain, operate, repair,
replace, alter, renew and remove underground pipelines on an existing
easement owned by Grantor, which existing easement is described as
follows:
An easement for the construction and maintenance of a pipeline as set
forth in Easement Agreement recorded in Book 1660 at Page 263 of the
Land Deed Records of Washington County, Mississippi, said Easement
Agreement providing that upon completion of construction of a pipeline,
said easement shall revert to a width of 10 feet, measuring 5 feet on
either side of the centerline of said pipeline, said easement being
more particularly described as follows, to-wit:
An easement 25 feet in width, the centerline of which is described as
follows:
Commence at a concrete monument marking the Southeast corner of Section
15, Township 18 North, Range 9 West, Washington County, Mississippi;
thence, along the South line of said Section 15, South 89(degree)16'
West 2,355.69 feet; thence North 28(degree)25' West 3,039.59 feet;
thence South 61(degree)35' West 49.55 feet; thence South
29(degree)26'30" East 61.93 feet to the West right-of-way of a public
road, said point being on a circular curve having a radius of 5,661.58
feet and having a chord bearing of South 47(degree)52'52" West from
said point to the Point of Tangency of said curve, thence along said
curve to the right a distance of 390.70 feet to said Point of Tangency,
thence South 49(degree)51'06" West 673.44 feet; thence continue South
49(degree)5l'06" West 419.17 feet; thence North 73(degree)32'05" West
641.80 feet to the Point of Beginning of said easement centerline;
thence South 22(degree)14'48" West 759.4 feet to a point on the South
edge of the Greenville Port Terminal docking facility, and the terminus
of said easement centerline.
Provided, however, that the use of said easement shall be subject to
the terms and conditions set forth in the Easement Agreement recorded
in Book 1660, at Page 263 referred to above, and the installation and
maintenance of any pipelines installed by Grantee shall be performed in
such a manner that the same shall not interfere with any existing
pipelines or facilities owned by Grantor.
<PAGE>
(C) A non-exclusive easement for the use of all existing storm sewers and
drainage easements now serving the property as described above as Tract
1, provided, however, that Grantee shall be responsible for paying any
special charges, fees or assessments which might be imposed by any
proper governing body or agency because of Grantee's use of such storm
sewers and drainage easements.
(D) A perpetual right-of-way and non-exclusive easement of ingress and
egress on, over and across the driveways and parking areas, as now
located or as the same may be hereafter located, on land owned by
Grantor adjacent to the above described property, for the purpose of
providing the Grantee herein, its successors and assigns, ingress and
egress from a public road to the above described property, and from
said property to the public road, so that trucks and vehicles of
Grantee, its customers, suppliers, employees and affiliates may have
ingress and egress to and from the above described property, except
that this easement shall not be used by retail customers of Grantee,
said ingress and egress easement being located on Grantor's property
which is more particularly described as follows, to-wit:
PARCEL 1:
Commencing at a concrete monument marking the Southeast corner of
Section 15, Township 18 North, Range 9 West, Washington County,
Mississippi; thence, along the South line of said Section 15, South
89(degree)16' West 2,355.69 feet; thence North 28(degree)25' West
3,039.59 feet; thence South 6l(degree)35' West 49.55 feet; thence South
29(degree)26'30" East 61.93 feet to the West right-of-way of a public
road, said point being on a circular curve having a radius of 5,661.58
feet and having a chord bearing of South 47(degree)52'52" West from
said point to the Point of Tangency of said curve, thence along said
curve to the right a distance of 390.70 feet to said Point of Tangency,
thence South 49(degree)5l'06" West 673.44 feet to the Point of
Beginning of the tract herein described; thence continue South
49(degree)5l'06" West 419.17 feet; thence North 73(degree)32'05" West
569.34 feet; thence North 16(degree)27'55" East 350.00 feet; thence
South 73(degree)32'05" East 800.00 feet to the Point of Beginning, and
containing 5.501 acres, more or less, and being located in Section 13,
Township 18 North, Range 9 West, Washington County, Mississippi.
<PAGE>
PARCEL 2:
Commencing at the point of beginning Tract 1, previously described;
thence North 73 degrees 32 minutes 05 seconds West 800.00 feet to the
Point of Beginning of the tract herein described; thence South 16
degrees 27 minutes 55 seconds West 350.00 feet; thence North 73 degrees
32 minutes 05 seconds West 723.91 feet to the top bank of the berm of
Lake Ferguson; thence, continue North 73 degrees 32 minutes 05 seconds
West to the thalweg of said Lake Ferguson; thence northeasterly along
said thalweg approximately 450 feet; thence South 73 degrees 32 minutes
05 seconds East to the top bank of said berm; thence, continue South 73
degrees 32 minutes 05 seconds East 433.49 feet to the Point of
Beginning, containing 4.650 acres, more or less, between the top bank
of said berm and the west line of Tract 1, together with the riparian
rights adjacent thereto, and being located in Section 13, Township 18
North, Range 9 West, Washington County, Mississippi
Provided, however, that said easement of ingress and egress shall be
used in common with Grantor, and Grantor and Grantee acknowledge and
agree that neither shall unreasonably block the easement areas with
trucks or other vehicles, or restrict the flow of traffic over and
across any part of the common use easements in such a manner that will
unreasonably interfere with the use and enjoyment thereof by either
party. Grantor shall have the right to relocate the driveways and
parking areas as it may deem necessary, provided however, that such
relocation shall not unreasonably interfere with the right of ingress
and egress herein granted to Grantee.
All of said property and easements described above being located in Section 13,
Township 18 North, Range 9 West, Washington County, Mississippi.
TRACT B - LIQUID FERTILIZER TERMINAL (GREENVILLE)
Commencing at the Northwest Corner of the Cemetery Block of Third
Addition to the City of Greenville, Washington County, Mississippi at
the Southeast corner of the intersection of Poplar and Union
rights-of-way according to a plat on file in Book K-2 at Page 1 of the
Records of said County and State; thence North 34(degree)30' East,
along the East right-of-way of Poplar Street, 416.1 feet; thence North
55(degree)30' West 66.5 feet to a concrete monument; thence North
34(degree)30' East 80.0 feet to the Point of Beginning of the tract
herein described; thence North 55(degree)30' West 220.0 feet; thence
South 34(degree)30' West 80.0 feet to the North right-of-way of Hunt
Street; thence, along said right-of-way, North 55(degree)30' West 130.0
feet; thence North 34(degree)30' East 600.0 feet to the South
right-of-way of Belle Aire Street; thence, along said right-of-way,
South 55(degree)30' East 130.0 feet; thence South 34(degree)30' West
183.0 feet; thence South 55(degree)30' East 220.0 feet to the West
right-of-way of Poplar Street; thence, along said right-of-way, South
34(degree)30' West 337.0 feet to the Point of Beginning, containing
3.492 acres, more or less, and also being all of Lots 12, 15, 18 and
21, the East Half of Lots 16 and 17, the North 120 feet of Lots 13 and
14, the South 17 feet of Lots 19 and 20, all in Block 12 of the Belle
Aire Addition and Lewys Lane from Belle Aire to Hunt Street, as
recorded on a map in Book 13 at Page 10 of the Records of said County
and State.
<PAGE>
TRACT C - LIQUID FERTILIZER TERMINAL (BELZONI)
[A] A 0.17 acre parcel of land located in the Northeast Quarter of
Section 10, Township 15 North, Range 3 West, Humphreys County,
Mississippi, more particularly described as follows, to-wit:
Beginning at an iron pipe at the Northeast corner of Lot 6 of Fleming
Subdivision as shown in Plat Book 2, at Page 39 of the Land Records of
Humphreys County, Mississippi; run thence South 58(degree)30' East 55.6
feet along the Easterly projected North line of said Lot 6 to an iron
post on the top edge of the Yazoo River bank; thence continue South
58(degree)30' East + 25 feet to the low-water line of said river;
thence Southerly along said low-water line of river to the intersection
of the Easterly projection of the South line of said Lot 6; thence
North 58(degree)30' West + 25 feet along said line to an iron post on
the top edge of the river bank; thence continue North 58(degree)30'
West 42.1 feet to an iron pipe at the Southeast corner of said Lot 6;
thence North 20(degree)38' East 127.28 feet along the East line of Lot
6 to the Point of Beginning, containing 0.17 acre, more or less.
[B] A parcel of land containing 0.167 acres located in Sections 3 and
10, Township 15 North, Range 3 West, Humphreys County, Mississippi, and
being part of the former Illinois Central Gulf Railroad right-of-way,
more particularly described as follows, to-wit:
Beginning at an iron pipe at the Northwest corner of Lot 6 of Fleming
Subdivision as shown in Plat Book 2, at Page 39 of the Land Records of
Humphreys County, Mississippi; run thence South 31(degree)30' West
72.95 feet along the West line of said Lot 6 to an iron pipe; thence
North 58(degree)30' West 100.0 feet to an iron pin on the East right of
way line of Old U. S. Highway #49 West; thence North 31(degree)30' East
72.95 feet along said East right of way line of Highway #49 to an iron
pipe; thence South 58(degree)30' East 100.0 feet to the Point of
Beginning.
Being a part of former Illinois Central Gulf Railroad property which
was conveyed to Mrs. Eloise Ware Mills, et al, by deed recorded in Book
111, Page 320 of the Land Deed Records of Humphreys County,
Mississippi.
[C] Lot Six (6) of Fleming Subdivision in Humphreys County,
Mississippi, as per map or plat thereof on file in the office of the
Chancery Clerk of said County and State, in Plat Book 2, Page 39; and
being the same property conveyed to the Board of Supervisors of
Humphreys County, Mississippi, by deed dated January 9, 1981, and
recorded in Book 103, Page 319, and being also the same property
conveyed by the Board of Supervisors of Humphreys County, Mississippi,
to the undersigned grantors by deed dated July 9, 1986, and recorded in
Book 118, Page 67 of the Land Deed Records of Humphreys County,
Mississippi.
<PAGE>
TRACT D - LIQUID FERTILIZER TERMINAL (YAZOO COUNTY)
Beginning at an iron pin at the intersection of the North right-of-way
line of Mississippi Highway No. 49W and the East right-of-way line of
the U. S. Corps of Engineers East Levee of Yazoo River, said point
being 2900 feet South and 540 feet West of the Northeast corner of
Section 30, Township 12 North, Range 2 West; run thence North
21(degree)18'48" East 364.87 feet along said right-of-way line of levee
to an iron pin; thence South 68(degree)41'12" East 60.0 feet along said
right-of-way line of levee to an iron pin; thence South 49(degree)00'
East 61.4 feet along the South right-of-way line of a public gravel
road to an iron pin; thence South 2l(degree)l8'48" West 367.46 feet to
an iron pin on the North right-of-way line of U. S. Highway No. 49;
thence North 57(degree)30' West 120.0 feet along said right-of-way line
to the Point of Beginning, containing 1.0 acre in the East Half of East
Half of Section 30, Township 12 North, Range 2 West, Yazoo County,
Mississippi.
Together with an easement for the purpose of the construction,
maintenance, repair and replacement of a pipeline on, over and across
the following described property, to-wit:
A strip of land 10 feet in width lying adjacent to and North of a line
described as follows: Commencing at an iron pin at the intersection of
the North right-of-way line of Mississippi Highway No. 49W and the East
right-of-way line of the U. S. Corps of Engineers, East levee of Yazoo
River, said point being 2900 feet South and 540 feet West of the
Northeast corner of Section 30, Township 12 North, Range 2 West; run
thence South 57(degree)30' East 120.0 feet along the North right-of-
way line of U. S. Highway No. 49W to an iron pin at the Southeast
corner of a 1.0 acre lot and the Point of Beginning for the line herein
described; run thence South 57(degree)30' East 832.0 feet along said
right-of-way line to the end of Wise Brothers property and the end of
line and easement herein described, being located in Sections 29 and
30, Township 12 North, Range 2 West, Yazoo County, Mississippi.
TRACT E - FERTILIZER BRANCH (INDIANOLA)
Commence at the point where the West line of Section 28, Township 19
North, Range 4 West, Sunflower County, Mississippi, intersects the
centerline of an East-West county road that runs along the One-Quarter
Section Line; thence run East along the centerline and centerline
extended of said county road 1,036.5 feet to the East right-of-way of
U. S. Highway 49; thence South 47(degree)07' West following said East
right-of-way 433.60 feet to the Point of Beginning of the herein
described parcel of land; thence continue South 47(degree)07' West
along said right-of-way 261.0 feet; thence South 42(degree)53' East
500.0 feet; thence North 47(degree)07' East 285.16 feet to the
centerline of a ditch; thence North 45(degree)39' West following said
ditch 500.58 feet to the Point of Beginning, containing 3.16 acres,
more or less, and being situate in the Northwest Quarter of Southwest
Quarter of Section 28, Township 19 North, Range 4 West, Sunflower
County, Mississippi, subject to any existing easements thereon.
<PAGE>
SUBJECT to that certain easement for drainage and road right-of-way
more particularly described in Warranty Deed dated October 2, 1980, and
recorded in Book J-23, Page 561.
TRACT F - VACANT LOT (WINONA)
A part of Residence Lot No. 90, East of the Illinois Central Railroad,
according to the map of the Town of Winona, Mississippi, made by J. W.
Mercer in 1894, as the same is recorded in the office of the Chancery
Clerk of Montgomery County, Mississippi, at Winona, Mississippi, and
particularly described as beginning at a point in the East boundary
line of Cameron Street 200 feet South of the intersection of the East
line of Cameron Street with the South boundary line of Kent Alley;
thence North 83(degree)10' East 100 feet; thence North 200 feet; thence
Easterly along the South boundary line of Kent Alley 37 feet to the
West boundary line of the right-of-way line of the C & G Railroad;
thence Southeasterly along said railway right-of-way a distance of 397
feet; thence West 400 feet to the East boundary line of Cameron Street;
thence North along the East boundary line of Cameron Street a distance
of 81 feet to the Point of Beginning; subject to existing easement in
favor of C & G Railway for spur track.
TRACT G - BUNGE PARCEL (TCHULA):
A 0.74 acre tract of land located in the West One-half of the Southwest
Quarter (W1/2SW1/4) of Section 8, Township 15 North, Range l East,
Holmes County, Mississippi, and being more particularly described as
follows:
From the Southwest corner of Section 8, Township 15 North, Range l
East, Holmes County, Mississippi, proceed North along the west line of
said Section 8 for a distance of 1,000.60 feet to a point lying on the
centerline of the northerly rail of the northerly spur track of the
Illinois Central Gulf Railroad, as it exists of this date; Thence
proceed N 42(degree) 57' 00" E along said northerly rail of the
northerly spur track for a distance of 200.20 feet to a point; Thence
proceed N 47(degree) 03' 00" W for a distance of 10.00 feet to the
Point of Beginning of this description; From said Point of Beginning
proceed N 46(degree) 54' 46" W along the southwest property line of the
Bunge Corporation property as described in Deed Book 155, at Page 649,
for a distance of l50.00 feet to an iron pipe; Thence proceed N
42(degree) 57' 00" E for a distance of 216.00 feet to an iron pipe;
Thence proceed S 46(degree) 54' 46" E for a distance of 150.00 feet to
a point on the northern boundary line of the Illinois Central Gulf
Railroad and the southeastern boundary of the Bunge Corporation
property; Thence proceed S 42(degree) 57' 00" W along said northern
boundary line of the Illinois Central Gulf Railroad and the
southeastern boundary of the Bunge Corporation property for a distance
of 216.00 feet to the Point of Beginning.
<PAGE>
Together with a non-exclusive easement of ingress and egress running
from the parcel of property described above northwardly to the Southern
boundary of U.S. Hwy. 49E, said easement being 30' in width and being
located in the East One- half of the Southeast Quarter (E1/2 SE1/4) of
Section 7, Township 15 North, Range 1 East, and the West One-Half of
the Southwest Quarter (W1/2 SW1/4) of Section 8, Township 15 North,
Range 1, East, Holmes County, Mississippi, and being more particularly
described as follows:
Begin at the Southwest Corner of the above described property and
proceed N 46(degree) 54' 46" W along the southwest property line of the
Bunge Corporation for a distance of 192.48 feet to a point; Thence
proceed N 27(degree) 21' 06" W for a distance of 524.21 feet to a point
on the south right-of-way line of U.S. Highway 49E; Thence proceed N
49(degree) 57' 25" E along said south right-of-way line of U.S. Highway
49E for a distance of 30.75 feet to a point; Thence proceed S
27(degree) 21' 06" E for a distance of 525.80 feet to a point; Thence
proceed S 46(degree) 54' 46" E for a distance of 187.24 feet to a point
on the northwest line of the above described property; Thence proceed S
42(degree) 57' 00" W along said northwest line of the above described
property for a distance of 30.00 feet to the Point of Beginning.
Attached hereto as Exhibit "A" is a copy of Surveyor's Plat prepared by
Donald M. Byrd, PE, dated May 5, 1994, which depicts the property and
easement hereby conveyed.
TRACT H - INDUSTRIAL PARK LOT (GREENWOOD)
Lot 1 in Block 3 of the Greenwood-Leflore Industrial Park as same
appears on plat thereof recorded in Map Book 6 at page 6 and 7 of the
Records of Maps of Leflore County, Mississippi.
LESS AND EXCEPT THE FOLLOWING PARCEL:
That certain tract or parcel of land in Lot 1 of Block 3 of the
Greenwood Leflore Industrial Park as same appears on plat thereof
recorded in Map Book 6 at Page 6 and 7 of the Records of Maps of
Leflore County, Mississippi, more particularly described by metes and
bounds as follows, to-wit:
Beginning at an iron pin on the Northwest corner of Lot 1 in Block 3 of
the Greenwood-Leflore Industrial Park and the right-of-way line of
Eastman Street; thence run South 30 degrees 15 minutes 50 seconds East
for 50.07 feet to a point, thence run along a curve with a 100 feet
radius for 104.13 feet to a point on the right-of-way line of Sycamore
Street, thence run Easterly along the right-of-way line of Sycamore
Street for 114.68 feet to a point, thence run Northwesterly along a
curve with a 300 foot radius for 247.26 feet to a point on the North
boundary line of Lot 1, thence run South 59 degrees 44 minutes 10
seconds West along the boundary of Lot 1 for 7.04 feet to the Point of
Beginning, containing 0.09 acres, more or less.
<PAGE>
TRACT K - TANK SITE (VAIDEN)
Part of the SE1/4 of Section 23, T 17 N, R 5 E, Second Judicial
District, Carroll County, Mississippi described as follows: Beginning
at the NE corner of the SE1/4 of said Section 23 and measure thence
West 1408.0 feet to a stake on the East right-of-way of State Highway
#51; thence measure along said East right-of-way S 20(degree)00' E
602.0 feet and N 20(degree)00' W 92.10 feet; thence measure N
66(degree)30' E 64.30 feet to the Point of Beginning of the parcel of
land herein described and from this POINT OF BEGINNING run thence N
66(degree)30' E 152.55 feet; thence N 19(degree)30' W 107.70 feet;
thence S 71(degree)00' W 42.0 feet; thence S l8(degree)10' E 35.75
feet; thence S 46(degree)22' W 123.65 feet; thence S 25(degree)40' E
32.60 feet to the Point of Beginning and containing 0.25 acres, more or
less.
Together with the following described Easements for ingress and egress:
A non-exclusive easement of ingress and egress on, over, across and
through land owned by Grantor, adjacent to the above described
property, for the purpose of providing the Grantee herein, its
successors and assigns, ingress and egress from a public road to the
above described property, and from said property to the public road, so
that trucks and vehicles of Grantee, its customers, suppliers,
employees and affiliates may have ingress and egress to and from the
above-described property, said easements being located on the Grantor's
property which is more particularly described as follows, to- wit:
Beginning at a point at the SW corner of the above described property
and from this POINT OF BEGINNING run thence N 66(degree)30' E 60.0
feet; thence S 20(degree)00' E 40.0 feet; thence S 66(degree)30' W
124.30 feet to a point on the Eastern right-of-way of State Highway
#51; thence N 20(degree)00' W along said Eastern right of way 40.00
feet; thence N 66(degree)30'E 64.30 feet to the Point of Beginning.
AND ALSO: Beginning at a point at the SW corner of the above described
property and from this POINT OF BEGINNING run thence N 25(degree)40' W
32.60 feet; thence N 20(degree)00' W 87.30 feet; thence N 71(degree)00'
E 23.18 feet; thence S 20(degree) 00' E 76.75 feet; thence N
46(degree)22' E 48.58 feet; thence N 20(degree) 00' W 58.58 feet;
thence N 71(degree)00' E 93.33 feet; thence N 19(degree)30' W 20.0
feet; thence S 71(degree)00' W 217.59 feet to a point on the Eastern
right-of-way of State Highway #51; thence S 20(degree)00' E 40.0 feet;
thence N 71(degree)00' E 24.26 feet; thence S 20(degree)00' E 122.82
feet; thence N 66(degree)30' E 40.0 feet to the Point of Beginning.
<PAGE>
EXHIBIT B
[Schedule of Farmkist Fixed Assets @ 12/31/94: omitted]
<PAGE>
EXHIBIT C
<TABLE>
<CAPTION>
Buyout Residual
Date Payment Value Reduction Payment#
- --------- --------- ------------ --------- --------
<S> <C> <C> <C> <C>
2,596,289.25
01/05/95 30,081.00 2,583,516.85 12,772.40 1
02/05/95 30,081.00 2,570,659.30 12,857.55 2
03/05/95 30,081.00 2,557,716.03 12,943.27 3
04/05/95 30,081.00 2,544,686.47 13,029.56 4
05/05/95 30,081.00 2,531,570.05 13,116.42 5
06/05/95 30,081.00 2,518,366.19 13,203.86 6
--------- ---------
180,485.98 77,923.06
07/05/95 30,081.00 2,505,074.30 13,291.89 7
08/05/95 30,081.00 2,491,693.80 13,380.50 8
09/05/95 30,081.00 2,478,224.09 13,469.71 9
10/05/95 30,081.00 2,464,664.59 13,559.50 10
11/05/95 30,081.00 2,451,014.69 13,649.90 11
12/05/95 30,081.00 2,437,273.79 13,740.90 12
01/05/96 30,081.00. 2,423,441.28 13,832.51 13
02/05/96 30,081.00 2,409,516.56 13,924.72 14
03/05/96 30,081.00 2,395,499.01 14,017.55 15
04/05/96 30,081.00 2,381,388.00 14,111.00 16
05/05/96 30,081.00 2,367,182.93 14,205.08 17
06/05/96 30,081.00 2,352,883.15 14,299.78 18
--------- ---------
360,971.97 165,483.04
07/05/96 30,081.00 2,338,488.04 14,395.11 19
08/05/96 30,081.00 2,323,996.96 14,491.08 20
09/05/96 30,081.00 2,309,409.28 14,587.68 21
10/05/96 30,081.00 2,294,724.34 14,684.94 22
11/05/96 30,081.00 2,279,941.51 14,782.83 23
12/05/96 30,081.00 2,265,060.12 14,881.39 24
01/05/97 30,081.00 2,250,079.53 14,980.60 25
02/05/97 30,081.00 2,234,999.06 15,080.47 26
03/05/97 30,081.00 2,219,818.06 15,181.00 27
04/05/97 30,081.00 2,204,535.85 15,282.21 28
05/05/97 30,081.00 2,189,151.75 15,384.09 29
06/05/97 30,081.00 2,173,665.10 15,486.65 30
--------- ---------
360,971.97 179,218.05
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
07/05/97 30,081.00 2,158,075.21 15,589.90 31
08/05/97 30,081.00 2,142,381.38 15,693.83 32
09/05/97 30,081.00 2,126,582.92 15,798.45 33
10/05/97 30,081.00 2,110,679.14 15,903.78 34
11/05/97 30,081.00 2,094,669.34 16,009.80 35
12/05/97 30,081.00 2,078,552.81 16,116.53 36
01/05/98 30,081.00 2,062,328.83 16,223.98 37
02/05/98 30,081.00 2,045,996.69 16,332.14 38
03/05/98 30,081.00 2,029,555.67 16,441.02 39
04/05/98 30,081.00 2,013,005.05 16,550.63 40
05/05/98 30,081.00 1,996,344.08 16,660.96 41
06/05/98 30,081.00 1,979,572.05 16,772.04 42
--------- ---------
360,971.97 194,093.06
07/05/98 30,081.00 1,962,688.19 16,883.85 43
08/05/98 30,081.00 1,945,691.79 16,996.41 44
09/05/98 30,081.00 1,928,582.07 17,109.72 45
10/05/98 30,081.00 1,911,358.28 17,223.78 46
11/05/98 30,081.00 1,894,019.68 17,338.61 47
12/05/98 30,081.00 1,876,565.48 17,454.20 48
01/05/99 30,081.00 1,858,994.92 17,570.56 49
02/05/99 30,081.00 1,841,307.22 17,687.70 50
03/05/99 30,081.00 1,823,501.60 17,805.62 51
04/05/99 30,081.00 1,805,577.28 17,924.32 52
05/05/99 30,081.00 1,787,533.47 18,043.82 53
06/05/99 30,081.00 1,769,369.36 18,164.11 54
--------- ---------
360,971.97 210,202.69
07/05/99 30,081.00 1,751,084.16 18,285.20 55
08/05/99 30,081.00 1,732,677.06 18,407.10 56
09/05/99 30,081.00 1,714,147.24 18,529.82 57
10/05/99 30,081.00 1,695,493.89 18,653.35 58
11/05/99 30,081.00 1,676,716.19 18,777.70 59
12/05/99 30,081.00 1,657,813.30 18,902.89 60
01/05/00 30,081.00 1,638,784.39 19,028.91 61
02/05/00 30,081.00 1,619,628.62 19,155.77 62
03/05/00 30,081.00 1,600,345.15 19,283.47 63
04/05/00 30,081.00 1,580,933.12 19,412.03 64
05/05/00 30,081.00 1,561,391.67 19,541.44 65
06/05/00 30,081.00 1,541,719.96 19,671.72 66
--------- ---------
360,971.97 227,649.40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
07/05/00 30,081.00 1,521,917.09 19,802.86 67
08/05/00 30,081.00 1,501,982.21 19,934.88 68
09/05/00 30,081.00 1,481,914.43 20,067.78 69
10/05/00 30,081.00 1,461,712.86 20,201.57 70
11/05/00 30,081.00 1,441,376.61 20,336.24 71
12/05/00 30,081.00 1,420,904.79 20,471.82 72
01/05/01 30,081.00 1,400,296.50 20,608.30 73
02/05/01 30,081.00 1,379,550.81 20,745.69 74
03/05/01 30,081.00 1,358,666.82 20,883.99 75
04/05/01 30,081.00 1,337,643.60 21,023.22 76
05/05/01 30,081.00 1,316,480.23 21,163.37 77
06/05/01 30,081.00 1,295,175.76 21,304.46 78
--------- ---------
360,971.97 246,544.19
07/05/01 30,081.00 1,273,729.27 21,446.49 79
08/05/01 30,081.00 1,252,139.80 21,589.47 80
09/05/01 30,081.00 1,230,406.40 21,733.40 81
10/05/01 30,081.00 1,208,528.12 21,878.29 82
11/05/01 30,081.00 1,186,503.97 22,024.14 83
12/05/01 30,081.00 1,164,333.00 22,170.97 84
01/05/02 30,081.00 1,142,014.23 22,318.78 85
02/05/02 30,081.00 1,119,546.66 22,467.57 86
03/05/02 30,081.00 1,096,929.30 22,617.35 87
04/05/02 30,081.00 1,074,161.17 22,768.14 88
05/05/02 30,081.00 1,051,241.25 22,919.92 89
06/05/02 30,081.00 1,028,168.52 23,072.72 90
--------- ---------
360,971.97 267,007.24
07/05/02 30,081.00 1,004,941.98 23,226.54 91
08/05/02 30,081.00 981,560.60 23,381.38 92
09/05/02 30,081.00 958,023.34 23,537.26 93
10/05/02 30,081.00 934,329.17 23,694.17 94
11/05/02 30,081.00 910,477.03 23,852.14 95
12/05/02 30,081.00 886,465.88 24,011.15 96
01/05/03 30,081.00 862,294.65 24,171.22 97
02/05/03 30,081.00 837,962.29 24,332.37 98
03/05/03 30,081.00 813,467.71 24,494.58 99
04/05/03 30,081.00 788,809.83 24,657.88 100
05/05/03 30,081.00 763,987.56 24,822.26 101
06/05/03 30,081.00 738,999.82 24,987.75 102
--------- ---------
360,971.97 289,168.71
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
07/05/03 30,081.00 713,845.48 25,154.33 103
08/05/03 30,081.00 688,523.46 25,322.03 104
09/05/03 30,081.00 663,032.62 25,490.84 105
10/05/03 30,081.00 637,371.84 25,660.78 106
11/05/03 30,081.00 611,539.98 25,831.85 107
12/05/03 30,081.00 585,535.92 26,004.06 108
01/05/04 30,081.00 559,358.50 26,177.42 109
02/05/04 30,081.00 533,006.56 26,351.94 110
03/05/04 30,081.00 506,478.94 26,527.62 111
04/05/04 30,081.00 479,774.47 26,704.47 112
05/05/04 30,081.00 452,891.96 26,882.50 113
06/05/04 30,081.00 425,830.25 27,061.72 114
--------- ---------
360,971.97 313,169.57
07/05/04 30,081.00 398,588.12 27,242.13 115
08/05/04 30,081.00 371,164.38 27,423.74 116
09/05/04 30,081.00 343,557.81 27,606.57 117
10/05/04 30,081.00 315,767.20 27,790.61 118
11/05/04 30,081.00 287,791.31 27,975.88 119
12/05/04 289,709.92 0.00 287,791.31 120
---------- ----------
440,114.91 425,830.25
</TABLE>
EXHIBIT 10.12
SOUTHERN STATES
SUPPLEMENTAL RETIREMENT PLAN
(As Adopted Effective November 11, 1987)
Including:
1. First Amendment
(Effective July 1, 1989)
2. Second Amendment
(Effective July 1, 1989)
3. Third Amendment
(Effective January 1, 1993)
4. Fourth Amendment
(Effective July 1, 1995)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definition of Terms
<S> <C>
1.1 Administrative Committee.......................................................................................... 1
1.2 Administrator..................................................................................................... 1
1.3 Affiliate......................................................................................................... 1
1.4 Beneficiary....................................................................................................... 1
1.5 Board............................................................................................................. 1
1.6 Code.............................................................................................................. 1
1.7 Corporation....................................................................................................... 1
1.8 Eligible Employee................................................................................................. 1
1.9 Employee.......................................................................................................... 1
1.10 Participant....................................................................................................... 1
1.11 Plan.............................................................................................................. 1
1.12 Plan Year......................................................................................................... 1
1.12A Rabbi Trust....................................................................................................... 2
1.13 Retirement Plan................................................................................................... 2
1.14 Supplemental Death Benefit........................................................................................ 2
1.15 Supplemental Retirement Benefit................................................................................... 2
ARTICLE II
Eligibility and Participation
2.1 Eligibility and Date of Participation............................................................................. 2
2.2 Length of Participation........................................................................................... 2
ARTICLE III
Supplemental Retirement Benefit
3.1 Supplemental Retirement Benefit................................................................................... 2
ARTICLE IV
Death Benefit
4.1 Death after Benefit Commencement.................................................................................. 3
4.2 Death before Benefit Commencement................................................................................. 3
4.3 Supplemental Death Benefit........................................................................................ 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE V
Vesting
<S> <C>
5.1 Vesting Generally................................................................................................. 3
5.2 Forfeiture of Benefits............................................................................................ 4
5.3 No Restoration of Forfeited Benefits.............................................................................. 5
ARTICLE VI
Payment of Benefits
6.1 Time and Manner for Payment of Benefits........................................................................... 5
6.2 Discretionary Cash-Out by Lump Sum Payment........................................................................ 5
6.3 Benefit Determination and Payment Procedure....................................................................... 5
6.4 Payments to Minors and Incompetents............................................................................... 6
6.5 Distribution of Benefit When Distributee Cannot Be Located........................................................ 6
6.6 Claims Procedure.................................................................................................. 6
ARTICLE VII
Funding
7.1 Funding........................................................................................................... 7
7.2 Use of Rabbi Trust Permitted...................................................................................... 7
ARTICLE VIII
Fiduciaries
8.1 Fiduciaries and Duties and Responsibilities....................................................................... 7
8.2 Limitation of Duties and Responsibilities of Fiduciaries.......................................................... 7
8.3 Service by Fiduciaries in More Than One Capacity.................................................................. 8
8.4 Allocation or Delegation of Duties and Responsibilities by Fiduciaries............................................ 8
8.5 Assistance and Consultation....................................................................................... 8
8.6 Compensation and Expenses......................................................................................... 8
8.7 Indemnification................................................................................................... 8
ARTICLE IX
Plan Administrator
9.1 Appointment of Plan Administrator................................................................................. 8
9.2 Corporation as Plan Administrator................................................................................. 9
9.3 Procedure if a Committee.......................................................................................... 9
9.4 Action by Majority Vote if a Committee............................................................................ 9
9.5 Appointment of Successors......................................................................................... 9
9.6 Duties and Responsibilities of Plan Administrator................................................................. 9
9.7 Power and Authority............................................................................................... 9
9.8 Availability of Records........................................................................................... 9
9.9 No Action by Plan Administrator with Respect to Own Benefit....................................................... 9
9.10 Limitation on Power and Authority................................................................................. 9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
Administrative Committee
<S> <C>
10.1 Makeup and Appointment of Administrative Committee................................................................ 10
10.2 Administrative Committee Procedures............................................................................... 10
10.3 Powers and Authority.............................................................................................. 10
10.4 Plan Interpretation............................................................................................... 10
10.5 Records........................................................................................................... 10
10.6 No Action with Respect to Own Benefit............................................................................. 10
10.7 Necessary Information............................................................................................. 11
ARTICLE XI
Amendment and Termination of Plan
11.1 Amendment or Termination of the Plan.............................................................................. 11
ARTICLE XII
Miscellaneous
12.1 Non-assignability................................................................................................. 11
12.2 Right to Require Information and Reliance Thereon................................................................. 11
12.3 Notices and Elections............................................................................................. 11
12.4 Delegation of Authority........................................................................................... 12
12.5 Service of Process................................................................................................ 12
12.6 Governing Law..................................................................................................... 12
12.7 Binding Effect.................................................................................................... 12
12.8 Severability...................................................................................................... 12
12.9 No Effect on Employment Agreement................................................................................. 12
12.10 Gender and Number................................................................................................. 12
12.11 Titles and Captions............................................................................................... 12
12.12 Construction...................................................................................................... 12
</TABLE>
<PAGE>
This SUPPLEMENTAL RETIREMENT PLAN (hereinafter the "Plan") is adopted
the day of November, 1987 and is effective November 11, 1987 (the "Effective
Date" of the Plan) by SOUTHERN STATES COOPERATIVE, INCORPORATED, a Virginia
corporation (hereinafter called the "Corporation");
W I T N E S S E T H:
WHEREAS, the Corporation desires to retain the services of certain top
management employees and deems it appropriate to provide for additional
supplemental retirement income for such employees pursuant to the terms of the
Plan in consideration of their services and as an incentive to remain in the
employ of the Corporation;
NOW, THEREFORE, WITNESSETH:
ARTICLE I
Definition of Terms
The following words and terms as used in this Plan shall have the
meaning set forth below, unless a different meaning is clearly required by the
context:
1.1 "Administrative Committee": The Administrative Committee provided
for in Article X.
1.2 "Administrator": The plan administrator provided for in Article IX
hereof.
1.3 "Affiliate": Any subsidiary, affiliate or other related business
entity (whether by management contract or ownership) to the Corporation.
1.4 "Beneficiary": The person or persons entitled under the Retirement
Plan to receive any benefits payable thereunder after the Participant's death.
1.5 "Board": The present and any succeeding Board of Directors of the
Corporation.
1.6 "Code": The Internal Revenue Code of 1986, as the same may be
amended from time to time, or the corresponding section of any subsequent
Internal Revenue Code, and, to the extent not inconsistent therewith,
regulations issued thereunder.
1.7 "Corporation": Southern States Cooperative, Incorporated, a Virginia
corporation.
1.8 "Eligible Employee": An Employee who is a participant in the
Retirement Plan, who is a member of the Corporation's management group and who
is designated as an Eligible Employee by the Chief Executive Officer of the
Corporation.
1.9 "Employee": An individual who is employed in the service of the
Corporation as a common law employee.
1.10 "Participant": An Eligible Employee qualified to participate in the
Plan, for so long as he is considered a Participant, as provided in Article II
hereof.
1.11 "Plan": This document, as contained herein or duly amended, which
shall be known as the "Southern States Supplemental Retirement Plan".
1.12 "Plan Year": The calendar year.
1.12A "Rabbi Trust": A trust fund described in paragraph 7.2 and
established or maintained for the Plan.
<PAGE>
1.13 "Retirement Plan": The Retirement Plan for Employees of Southern
States, a defined benefit pension plan maintained by the Corporation.
1.14 "Supplemental Death Benefit": The Supplemental Pre-Retirement
Spouse's Death Benefit or the Supplemental Alternate Death Benefit due the
Beneficiary of a Participant under the Plan, as determined pursuant to Article
IV hereof.
1.15 "Supplemental Retirement Benefit": The amount due a Participant or
his Beneficiary under the Plan, as determined pursuant to Article III hereof.
ARTICLE II
Eligibility and Participation
2.1 Eligibility and Date of Participation. Each Eligible Employee shall
be a Participant in the Plan commencing with the date he first becomes, or again
becomes, an Eligible Employee.
2.2 Length of Participation. Each Eligible Employee who becomes a
Participant shall be or remain a Participant for so long as he is entitled to
future benefits under the terms of the Plan.
ARTICLE III
Supplemental Retirement Benefit
3.1 Supplemental Retirement Benefit. Subject to the terms and conditions
set forth herein, a Participant who retires under the Retirement Plan as an
Eligible Employee and who becomes entitled to the payment of benefits under the
Retirement Plan shall be entitled to a Supplemental Retirement Benefit,
generally expressed as a benefit payable monthly for the life of the Participant
and commencing at the applicable time provided in paragraph 4.1 of the
Retirement Plan, equal to the excess, if any, of:
(i) The amount of the Participant's accrued benefit under the
Retirement Plan, determined without regard to the limitations on
contributions and benefits imposed by Section 415 of the Code and the
limitation on compensation imposed by Section 401(a)(17) of the Code,
over
(ii) The amount of the Participant's accrued benefit under the
Retirement Plan.
To the extent that the Participant's accrued benefit payable under the
Retirement Plan is increased at any time due to increases in limitations on
contributions and benefits imposed by Section 415 of the Code or to increases in
the compensation limit imposed by Section 401(a)(17) of the Code, whether by
statute, regulations, action of the Secretary of Treasury or his delegate or
otherwise, the Participant's Supplemental Retirement Benefit shall be reduced
correspondingly.
<PAGE>
ARTICLE IV
Death Benefit
4.1 Death after Benefit Commencement. If a Participant dies after his
Supplemental Retirement Benefit commences to be paid, the only benefits payable
under the Plan to his Beneficiary after his death shall be those, if any,
provided under the form of payment being made to him at his death.
4.2 Death before Benefit Commencement. If a Participant dies before his
Supplemental Retirement Benefit commences to be paid, the only benefit payable
under the Plan with respect to him shall be the Supplemental Death Benefit, if
any, provided in paragraph 4.3.
4.3 Supplemental Death Benefit. Subject to the terms and conditions set
forth herein, if a Participant dies before his Supplemental Retirement Benefit
commences to be paid and either while an Eligible Employee or after retiring as
an Eligible Employee, his Beneficiary shall be entitled to a Supplemental Death
Benefit as follows:
(i) If his Beneficiary is entitled to receive a pre-retirement
spouse's death benefit under the Retirement Plan, such Beneficiary shall
be entitled to receive as a Supplemental Pre-Retirement Spouse's Death
Benefit under the Plan an amount equal to the excess, if any, of:
(A) The amount of such pre-retirement spouse's death
benefit under the Retirement Plan, determined without regard
to the limitations on contributions and benefits imposed by
Section 415 of the Code and without regard to the limitation
on compensation imposed by Section 401(a)(17) of the Code,
over
(B) The actual amount of such pre-retirement spouse's
death benefit under the Retirement Plan.
(ii) If his Beneficiary is entitled to receive an alternate
death benefit under the Retirement Plan, such Beneficiary shall be
entitled to receive as a Supplemental Alternate Death Benefit under the
Plan an amount equal to the excess, if any, of:
(A) The amount of such alternate death benefit under the
Retirement Plan, determined without regard to the limitations
on contributions and benefits imposed by Section 415 of the
Code and the limitation on compensation imposed by Section
401(a)(17) of the Code, over
(B) The actual amount of such alternate death benefit
under the Retirement Plan.
To the extent that the Participant's accrued benefit or his pre-retirement
spouse's death benefit or alternate death benefit payable under the Retirement
Plan is increased at any time due to increases in the limitations on
contributions and benefits imposed by Section 415 of the Code or in the
limitation on compensation imposed by Section 401(a)(17) of the Code, whether by
statute, regulations, action of the Secretary of Treasury or his delegate or
otherwise, the Participant's Supplemental Death Benefit shall be reduced
correspondingly.
ARTICLE V
Vesting
5.1 Vesting Generally. Subject to the forfeiture events described in
paragraph 5.2 hereof, a Participant's Supplemental Retirement Benefit or
Supplemental Death Benefit, as the case may be, shall be vested at the time of
his retirement as an Eligible Employee under the Retirement Plan or death while
an Eligible Employee, but only to the extent, and determined in the manner, that
such Participant has a vested and non-forfeitable right to his employer-derived
accrued benefit under the Retirement Plan.
<PAGE>
5.2 Forfeiture of Benefits.
5.2(a) Notwithstanding any contrary provision hereof, the Supplemental
Retirement Benefit and the Supplemental Death Benefit with respect to a
Participant shall be forfeited upon the occurrence of any the following events
(as defined in subparagraph 5.2(b)):
(i) The Participant's voluntary termination of employment with
the Corporation under circumstances which do not constitute retirement
for purposes of the Retirement Plan;
(ii) The Participant's termination of employment with the
Corporation for "cause";
(iii) The Participant's entering into "competition", or his
making an "unauthorized disclosure of confidential information", after
his retirement from the employment of the Corporation, in which case all
payments to or with respect to the Participant shall cease and all
payments made to the Participant or his Beneficiary under the Plan since
the occurrence of such event of forfeiture shall be returned to the
Corporation; or
(iv) The discovery after the Participant's retirement from the
employment of the Corporation or death of "cause" for his termination or
of his "unauthorized disclosure of confidential information" prior to
his retirement or death before retirement, in which case all payments
under the Plan to or with respect to the Participant shall cease and all
payments previously made to the Participant or his Beneficiary under the
Plan shall be returned to the Corporation.
All determinations hereunder shall be made by the Administrative
Committee.
5.2(b) For purposes of this paragraph:
(i) "Cause" means the willful gross misconduct of the
Participant which is materially injurious to the Corporation or any
Affiliate, the unauthorized disclosure of confidential information, or
the engaging in competition by the Participant.
(ii) "Competition" means engaging by the Participant, without
the written consent of the Board or a person authorized thereby, in a
business as a more than one percent (1%) stockholder, an officer, a
director, an employee, a partner, an agent, a consultant, or any other
individual or representative capacity (unless the Participant's duties,
responsibilities, and activities, including supervisory activities, for
or on behalf of such business, are not related in any way to such
"competitive activity") if it involves:
(A) Engaging in, or entering into services or providing
advice pertaining to, any line of business that the
Corporation or any Affiliate actively conducts or develops in
competition with the Corporation or any Affiliate in the same
geographic area as such line of business is then conducted, or
(B) Employing or soliciting for employment any employees
of the Corporation or any Affiliate.
(iii) "Unauthorized disclosure of confidential information" means
the disclosure by the Participant, without the written consent of the
Board or a person authorized thereby, to any person other than as
required by law or court order, or other than to an authorized employee
of the Corporation or an Affiliate, or to a person to whom disclosure is
necessary or appropriate in connection with the performance by the
Participant of his duties as an employee or director of the Corporation
or an Affiliate (including, but not limited to, disclosure to the
Corporation's or an Affiliate's outside counsel, accountants or bankers
of financial data properly requested by such persons and approved by an
authorized officer of the Corporation), any confidential information of
the Corporation or any Affiliate with respect to any of the products,
services, customers, suppliers, marketing techniques, methods or future
plans of the Corporation or any Affiliate; provided, however, that:
<PAGE>
(A) Confidential information shall not include any
information known generally to the public (other than as a
result of unauthorized disclosure by the Participant) or any
information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to
that conducted by the Corporation or any Affiliate; and
(B) The Participant shall be allowed to disclose
confidential information to his attorney solely for the
purpose of ascertaining whether such information is
confidential within the intent of the Plan, but only so long
as the Participant both discloses to his attorney the
provisions of this paragraph and agrees not to waive the
attorney-client privilege with respect thereto.
5.3 No Restoration of Forfeited Benefits. There shall be no restoration
of forfeited benefits. If a Participant incurs a forfeiture and subsequently is
an Eligible Employee and a Participant, his Supplemental Retirement Benefit and
Supplemental Death Benefit shall be determined as though the Retirement Plan
provided for accrual of benefits without regard to his service credited and
compensation earned prior to such forfeiture.
ARTICLE VI
Payment of Benefits
6.1 Time and Manner for Payment of Benefits.
6.1(a) A Participant's Supplemental Retirement Benefit, or the
Supplemental Death Benefit with respect to a Participant, shall be payable
commencing at the time that the Participant's accrued benefit or comparable
death benefit (other than his accumulated contributions or contribution refund
death benefit) commences to be paid under the Retirement Plan.
6.1(b) Subject to the forfeiture events of paragraph 5.2, benefits shall
be payable to a Participant and, where applicable, the Participant's Beneficiary
in the manner elected by the Participant (or where applicable, the Beneficiary).
Such election shall be subject to all the same options, conditions, privileges,
actuarial equivalent or value factors, restrictions, benefit suspensions and
other payment provisions as are applicable to the benefits payable under the
Retirement Plan to the Participant or his Beneficiary, provided, however, that
no spousal consent shall be required for any election under the Plan.
6.2 Discretionary Cash-Out by Lump Sum Payment. In the sole discretion
of the Administrative Committee, a lump sum payment of benefits, determined on
the basis of applicable actuarial equivalent and value factors under the
Retirement Plan, may be made to a Participant or his Beneficiary if either (i)
the entire actuarial value of the benefit is not over $10,000 or (ii) the
monthly payment amount is not over $100.
6.3 Benefit Determination and Payment Procedure. The Administrative
Committee shall make all determinations concerning eligibility for benefits
under the Plan, the time or terms of payment, and the form or manner of payment
to the Participant (or the Participant's Beneficiary in the event of the death
of the Participant). The Administrative Committee shall promptly notify the
Corporation and, where payments are to be made from a Rabbi Trust, the trustee
thereof, of each such determination that benefit payments are due and provide to
the Corporation or trustee all other information necessary to allow the
Corporation or trustee to carry out said determination, whereupon the
Corporation or trustee shall pay such benefits in accordance with the
Administrative Committee's determination.
6.4 Payments to Minors and Incompetents. If a Participant or Beneficiary
entitled to receive any benefits hereunder is a minor or is adjudged to be
legally incapable of giving valid receipt and discharge for such benefits, or is
deemed so by the Administrative Committee, benefits will be paid to such person
as the Administrative Committee may designate for the benefit of such
Participant or Beneficiary. Such payments shall be considered a payment to such
Participant or Beneficiary and shall, to the extent made, be deemed a complete
discharge of any liability for such payments under the Plan.
<PAGE>
6.5 Distribution of Benefit When Distributee Cannot Be Located. The
Administrator shall make all reasonable attempts to determine the identity
and/or whereabouts of a Participant or his Beneficiary entitled to benefits
under the Plan, including the mailing by certified mail of a notice to the last
known address shown on the Corporation's or the Administrator's records. If the
Administrator is unable to locate such a person entitled to benefits hereunder,
or if there has been no claim made for such benefits, the Corporation shall
continue to hold the benefit due such person, subject to any applicable statute
of escheats.
6.6 Claims Procedure.
6.6(a) A Participant or Beneficiary (the "claimant") shall have the
right to request any benefit under the Plan by filing a written claim for any
such benefit with the Administrator on a form provided by the Administrator for
such purpose. The Administrator shall give such claim due consideration and
shall either approve or deny it in whole or in part. Within ninety (90) days
following receipt of such claim by the Administrator, notice of any denial
thereof, in whole or in part, shall be delivered to, and a receipt therefor
shall be obtained from, the claimant or his duly authorized representative or
such notice of denial shall be sent by registered mail to the claimant, or his
duly authorized representative, at the address shown on the claim form or such
individual's last known address. The aforesaid ninety (90) day response period
may be extended to one hundred eighty (180) days after receipt of the claimant's
claim if special circumstances exist and if written notice of the extension to
one hundred eighty (180) days indicating the special circumstances involved and
the date by which a decision is expected to be made is furnished to the claimant
within ninety (90) days after receipt of the claimant's claim. Such notice of
denial shall be written in a manner calculated to be understood by the claimant
and shall:
(i) Set forth a specific reason or reasons for the denial,
(ii) Make specific reference to the pertinent provisions of the
Plan on which any denial of benefits is based,
(iii) Describe any additional material or information necessary
for the claimant to perfect the claim and explain why such material or
information is necessary, and
(iv) Explain the claim review procedure of subparagraph 6.6(b).
If such notice of denial is not provided to the claimant within the applicable
ninety (90) day or one hundred eighty (180) day period, the claimant's claim
shall be considered denied for purposes of the claim review procedure of
subparagraph 6.6(b).
6.6(b) A Participant or Beneficiary whose claim filed pursuant to
subparagraph 6.6(a) has been denied, in whole or in part, may, within sixty (60)
days following receipt of notice of such denial, or following the expiration of
the applicable period provided for in subparagraph 6.6(a) for notifying the
claimant of the decision on the claim if no notice of denial is provided, make
written application to the Administrative Committee for a review of such claim,
which application shall be filed with the Administrator. For purposes of such
review, the claimant or his duly authorized representative may review Plan
documents pertinent to such claim and may submit to the Administrative Committee
written issues and comments respecting such claim. The Administrative Committee
may schedule and hold a hearing. The Administrative Committee shall make a full
and fair review of any denial of a claim for benefits and issue its decision
thereon promptly, but no later than sixty (60) days after receipt by the
Administrator of the claimant's request for review, or one hundred twenty (120)
days after such receipt if a hearing is to be held or if other special
circumstances exist and if written notice of the extension to one hundred twenty
(120) days is furnished to the claimant within sixty (60) days after the receipt
of the claimant's request for a review. Such decision shall be in writing, shall
be delivered by the Administrator to the claimant and shall:
(i) Include specific reasons for the decision,
(ii) Be written in a manner calculated to be understood by
the claimant, and
(iii) Contain specific references to the pertinent Plan
provisions on which the decision is based.
<PAGE>
The Administrative Committee's decision made in good faith shall be final.
ARTICLE VII
Funding
7.1 Funding.
7.1(a) The undertaking to pay the benefits hereunder shall be an
unfunded obligation payable solely from the general assets of the Corporation
and subject to the claims of the Corporation's creditors.
7.1(b) Except as provided in the Rabbi Trust established as permitted in
paragraph 7.2, nothing contained in the Plan and no action taken pursuant to the
provisions of the Plan shall create or be construed to create a trust of any
kind of a fiduciary relationship between the Corporation and the Participant or
his Beneficiary or any other person or to give any Participant or Beneficiary
any right, title or interest in any specific asset or assets of the Corporation.
To the extent that any person acquires a right to receive payments from the
Corporation under the Plan, such rights shall be no greater than the right of
any unsecured general creditor of the Corporation.
7.2 Use of Rabbi Trust Permitted. Notwithstanding any provision herein
to the contrary, the Plan Sponsor may in its sole discretion elect to establish
and fund a Rabbi Trust for the purpose of providing benefits under the Plan.
ARTICLE VIII
Fiduciaries
8.1 Fiduciaries and Duties and Responsibilities. Authority to control
and manage the operation and administration of the Plan shall be vested in the
following, who, together with their membership, if any, shall be the Fiduciaries
under the Plan with those powers, duties, and responsibilities specifically
allocated to them by the Plan:
8.1(a) Plan Administrator - The Plan Administrator named and
serving as provided in ARTICLE IX hereof.
8.1(b) Administrative Committee - The Administrative Committee appointed
and serving as provided in ARTICLE X hereof.
8.2 Limitation of Duties and Responsibilities of Fiduciaries. The duties
and responsibilities, and any liability therefor, of the Fiduciaries provided
for in paragraph 8.1 shall be severally limited to the duties and
responsibilities specifically allocated to each such Fiduciary in accordance
with the terms of the Plan, and there shall be no joint duty, responsibility, or
liability among any such groups of Fiduciaries in the control and management of
the operation and administration of the Plan.
8.3 Service by Fiduciaries in More Than One Capacity. Any person or
group of persons may serve in more than one Fiduciary capacity with respect to
the Plan.
8.4 Allocation or Delegation of Duties and Responsibilities by
Fiduciaries. By written agreement filed with the Administrator and the
Administrative Committee, any duties and responsibilities of any Fiduciary may
be allocated among Fiduciaries or may be delegated to persons other than
Fiduciaries, provided, however, that any delegation by an Administrator which is
not either the Corporation or the Administrative Committee for which the annual
cost is in excess of any amount set by the Administrative Committee shall be
subject to the advice and consent of the Administrative Committee. Any written
agreement shall specifically set forth the duties and responsibilities so
allocated or delegated, shall contain reasonable provisions for termination, and
shall be executed by the parties thereto.
<PAGE>
8.5 Assistance and Consultation. A Fiduciary, and any delegate named
pursuant to paragraph 8.4, may engage agents to assist in its duties and may
consult with counsel, who may be counsel for the Corporation, with respect to
any matter affecting the Plan or its obligations and responsibilities hereunder,
or with respect to any action or proceeding affecting the Plan.
8.6 Compensation and Expenses. All compensation and expenses of the
Fiduciaries and their agents and counsel shall be paid or reimbursed by the
Corporation; provided, however, that:
(i) The engagement of such agents by an Administrator which is
not either the Corporation or the Administrative Committee for which the
annual cost is in excess of any amount set by the Administrative
Committee shall be subject to the advice and consent of the
Administrative Committee, and
(ii) Each person or committeeman serving as a Fiduciary shall
serve without compensation for such service unless otherwise determined
by the Corporation.
8.7 Indemnification. The Corporation shall indemnify and hold harmless
any individual who is an employee of the Corporation and who is a Fiduciary or a
member of a Fiduciary under the Plan and any other individual who is an employee
of the Corporation and to whom duties of a Fiduciary are delegated pursuant to
paragraph 8.4, to the extent permitted by law, from and against any liability,
loss, cost or expense arising from their good faith action or inaction in
connection with their responsibilities under the Plan.
ARTICLE IX
Plan Administrator
9.1 Appointment of Plan Administrator. The Corporation may appoint one
or more persons to serve as the Plan Administrator (the "Administrator") for the
purpose of carrying out the duties specifically imposed on the Administrator by
the Plan and the Code. In the event more than one person is appointed, the
persons shall form a committee for the purpose of functioning as the
Administrator of the Plan. The person or committeemen serving as Administrator
shall serve for indefinite terms at the pleasure of the Corporation, and may, by
thirty (30) days prior written notice to the Corporation, terminate such
appointment. The Corporation shall inform the Administrative Committee of any
such appointment or termination, and the Administrative Committee may assume
that any person appointed continues in office until notified of any change.
9.2 Corporation as Plan Administrator. In the event that no
Administrator is appointed or in office pursuant to paragraph 9.1, the
Corporation shall be the Administrator.
9.3 Procedure if a Committee. If the Administrator is a committee, it
shall appoint from its members a Chairman and a Secretary. The Secretary shall
keep records as may be necessary of the acts and resolutions of such committee
and be prepared to furnish reports thereof to the Administrative Committee and
the Corporation. Except as otherwise provided, all instruments executed on
behalf of such committee may be executed by its Chairman or Secretary, and the
Administrative Committee may assume that such committee, its Chairman or
Secretary are the persons who were last designated as such to them in writing by
the Corporation or its Chairman or Secretary.
9.4 Action by Majority Vote if a Committee. If the Administrator is a
committee, its action in all matters, questions and decisions shall be
determined by a majority vote of its members qualified to act thereon. They may
meet informally or take any action without the necessity of meeting as a group.
9.5 Appointment of Successors. Upon the death, resignation or removal of
a person serving as, or on a committee which is, the Administrator, the
Corporation may, but need not, appoint a successor.
<PAGE>
9.6 Duties and Responsibilities of Plan Administrator. The Administrator
shall have the following duties and responsibilities under the Plan:
9.6(a) The Administrator shall be responsible for the fulfillment of all
relevant reporting and disclosure requirements set forth in the Plan and the
Code, the distribution thereof to Participants and their Beneficiaries and the
filing thereof with the appropriate governmental officials and agencies.
9.6(b) The Administrator shall maintain and retain necessary records
respecting its administration of the Plan and matters upon which disclosure is
required under the Plan and the Code.
9.6(c) The Administrator shall make any elections for the Plan required
to be made by it under the Plan and the Code, upon advice and consent of the
Administrative Committee where the Corporation or the Administrative Committee
is not the Administrator.
9.7 Power and Authority. The Administrator is hereby vested with all the
power and authority necessary in order to carry out its duties and
responsibilities in connection with the administration of the Plan imposed
hereunder and as may from time to time be granted by the Administrative
Committee. For such purpose, the Administrator shall have the power to adopt
rules and regulations consistent with the terms of the Plan.
9.8 Availability of Records. The Corporation and the Administrative
Committee shall, at the request of the Administrator, make available necessary
records or other information they possess which may be required by the
Administrator in order to carry out its duties hereunder.
9.9 No Action by Plan Administrator with Respect to Own Benefit. No
Administrator who is a Participant shall take any part as the Administrator in
any discretionary action in connection with his participation as an individual.
Such action shall be taken by the remaining Administrator, if any, or otherwise
by the Corporation.
9.10 Limitation on Power and Authority.
9.10(a) The Administrator shall have no power in any way to modify,
alter, add to or subtract from any provisions of the Plan.
9.10(b) Notwithstanding any grant of authority by the Plan, if the
Administrator is not the Corporation or the Administrative Committee, the
Administrator shall exercise its discretionary authority granted under the Plan,
only as directed or authorized by the Administrative Committee, except in
connection with the following matters (unless otherwise directed by the
Administrative Committee):
(i) Determination of elected benefits under the Retirement
Plan.
(ii) Initial review of claims.
If the Administrative Committee authorizes the Administrator to direct payments
from the Plan and notifies the Corporation of such authorization, the
Corporation shall not be responsible to inquire or determine whether any
specific directions or notifications to the Corporation by the Administrator
within the scope of its authorization are with the authority of and/or at the
direction of the Administrative Committee.
ARTICLE X
Administrative Committee
10.1 Makeup and Appointment of Administrative Committee. The Board shall
appoint an Administrative Committee to administer the Plan consisting of one or
more persons who shall serve at the pleasure of the Board and without
compensation for service on the Administrative Committee. Vacancies shall be
filled by the Board. A person shall not be ineligible to be a member of the
Administrative Committee because he is or may be a Participant of the Plan. The
Administrator shall be notified by the Corporation of the persons constituting
the membership of the Administrative Committee (including its Chairman and
Secretary) and may assume that any person appointed (or holding the position of
its Chairman or Secretary) continues as a member thereof (or to hold such
position) until notified by the Corporation.
<PAGE>
10.2 Administrative Committee Procedures. The Administrative Committee
shall adopt rules for the conduct of its business and administration of the Plan
as it considers desirable, provided they do not conflict with the Plan. The
Administrative Committee shall hold meetings upon such notice, at such place or
places, and at such intervals as it may from time to time determine.
10.3 Powers and Authority. The Administrative Committee is hereby vested
with all the power and authority necessary in order to carry out its duties and
responsibilities in connection with its administration of the Plan. The
Administrative Committee is empowered to settle claims against the Plan and to
make such equitable adjustments in a Participant's or Beneficiary's rights or
entitlements under the Plan as it deems appropriate in the event an error or
omission is discovered or claimed in the operation or administration of the
Plan. The Administrative Committee may authorize one or more of its members or
any agent to act on its behalf and may contract for legal, accounting, clerical
and other services to carry out the Plan.
10.4 Plan Interpretation. The Administrative Committee may construe the
Plan, correct defects, supply omissions or reconcile inconsistencies to the
extent necessary to effectuate the Plan and such action shall be conclusive.
10.5 Records. The Administrative Committee shall keep records reflecting
its administration of the Plan which shall be subject to audit by the
Corporation. Participants may examine records pertaining directly to them during
reasonable business hours.
10.6 No Action with Respect to Own Benefit. No member of the
Administrative Committee shall participate in any decision of the Administrative
Committee which involves the payment of benefits to him or in which he has a
financial interest other than as a Participant of the Plan. If the entire
Administrative Committee is disqualified to act by reason of this Section, the
Corporation shall perform as the Administrative Committee.
10.7 Necessary Information. The Corporation and the Administrator shall
supply full and timely information to the Administrative Committee of all
matters relating to Participants and Beneficiaries and the Plan.
ARTICLE XI
Amendment and Termination of Plan
11.1 Amendment or Termination of the Plan.
11.1(a) The Plan may be terminated at any time by the Board. The Plan
may be amended in whole or in part from time to time by the Board effective as
of any date specified. No amendment or termination shall operate to decrease a
Participant's Supplemental Retirement Benefit, or the Supplemental Death Benefit
with respect to a Participant in pay status, as of the earlier of the date on
which the amendment or termination is approved by the Board or the date on which
an instrument of amendment or termination is signed on behalf of the
Corporation.
11.1(b) The Corporation hereby delegates to the Administrative Committee
the right to modify, alter, or amend the Plan in whole or in part to make any
technical modification, alteration or amendment which in the opinion of counsel
for the Corporation is required by law and is deemed advisable by the
Administrative Committee and to make any other modification, alteration or
amendment which does not, in the Administrative Committee's view, substantially
increase costs, contributions or benefits and does not materially affect the
eligibility, vesting or benefit accrual or allocation provisions of the Plan.
<PAGE>
ARTICLE XII
Miscellaneous
12.1 Non-assignability. The interests of each Participant under the Plan
are not subject to claims of the Participant's creditors; and neither the
Participant, nor his Beneficiary, shall have any right to sell, assign, transfer
or otherwise convey the right to receive any payments hereunder or any interest
under the Plan, which payments and interest are expressly declared to be
non-assignable and non-transferable.
12.2 Right to Require Information and Reliance Thereon. The Corporation,
the Administrative Committee and Administrator shall have the right to require
any Participant, Beneficiary or other person receiving benefit payments to
provide it with such information, in writing, and in such form as it may deem
necessary to the administration of the Plan and may rely thereon in carrying out
its duties hereunder. Any payment to or on behalf of a Participant or
Beneficiary in accordance with the provisions of the Plan in good faith reliance
upon any such written information provided by a Participant or any other person
to whom such payment is made shall be in full satisfaction of all claims by such
Participant and his Beneficiary; and any payment to or on behalf of a
Beneficiary in accordance with the provision so the Plan in good faith reliance
upon any such written information provided by such Beneficiary or any other
person to whom such payment is made shall be in full satisfaction of all claims
by such Beneficiary.
12.3 Notices and Elections. All notices required to be given in writing
and all elections required to be made in writing, under any provision of the
Plan, shall be invalid unless made on such forms as may be provided or approved
by the Administrator and, in the case of a notice or election by a Participant
or Beneficiary, unless executed by the Participant or Beneficiary giving such
notice or making such election.
12.4 Delegation of Authority. Whenever the Corporation is permitted or
required to perform any act, such act may be performed by its Chief Executive
Officer or other person duly authorized by its Chief Executive Officer or the
Board.
12.5 Service of Process. The Administrator shall be the agent for
service of process on the Plan.
12.6 Governing Law. The Plan shall be construed, enforced and
administered in accordance with the laws of the Commonwealth of Virginia, and
any federal law which preempts the same.
12.7 Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Corporation, its successors and assigns, and the Participant and
his heirs, executors, administrators and legal representatives.
12.8 Severability. If any provision of the Plan should for any reason be
declared invalid or unenforceable by a court of competent jurisdiction, the
remaining provisions shall nevertheless remain in full force and effect.
12.9 No Effect on Employment Agreement. The Plan shall not be considered
or construed to modify, amend or supersede any employment agreement between the
Corporation and the Participant heretofore or hereafter entered into unless so
specifically provided.
12.10 Gender and Number. In the construction of the Plan, the masculine
shall include the feminine or neuter and the singular shall include the plural
and vice-versa in all cases where such meanings would be appropriate.
12.11 Titles and Captions. Titles and captions and headings herein have
been inserted for convenience of reference only and are to be ignored in any
construction of the provisions hereof.
<PAGE>
12.12 Construction. The Plan is intended to be construed as a "plan
which is unfunded and is maintained by the employer primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees," within the meaning of Sections 201(2), 301(a)(3), and
401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended,
and shall be interpreted and administered accordingly.
IN WITNESS WHEREOF, the Corporation has caused the Plan to be signed on
its behalf by its duly authorized officer or member of its Board of Directors on
the day, month and year aforesaid.
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: /s/ Gene E. James
---------------------------------------
Its President & CEO
EXHIBIT 10.13
SOUTHERN STATES DEFERRED COMPENSATION PLAN
(As Restated Effective July 1, 1995)
Including:
1. First Amendment
(Effective July 1, 1996)
2. Second Amendment
(Effective July1, 1997)
3. Third Amendment
(Effective October 1, 1997)
4. Fourth Amendment
(Effective July 1, 1998)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE I
Definition of Terms
<S> <C>
1.1 Act.................................................................................................... 1
1.2 Affiliated Employers................................................................................... 1
1.3 Administrator.......................................................................................... 1
1.4 Beneficiary............................................................................................ 1
1.5 Benefit Commencement Date.............................................................................. 1
1.6 Board.................................................................................................. 2
1.7 Code................................................................................................... 2
1.8 Corporation............................................................................................ 2
1.9 Deferred Thrift Benefit................................................................................ 2
1.10 Earnings Fund Share.................................................................................... 2
1.11 Effective Date......................................................................................... 2
1.12 Eligible Employee...................................................................................... 2
1.12A Eligible Executives.................................................................................... 2
1.13 Employee............................................................................................... 2
1.14 Executive Bonus........................................................................................ 2
1.15 Fiscal Year............................................................................................ 2
1.16 Participant............................................................................................ 2
1.17 Plan................................................................................................... 2
1.18 Plan Sponsor........................................................................................... 3
1.19 Plan Year.............................................................................................. 3
1.20 Rabbi Trust............................................................................................ 3
1.21 Reserve Account........................................................................................ 3
1.22 Rollover Account....................................................................................... 3
1.23 Salary................................................................................................. 3
1.24 Subsidiary............................................................................................. 3
1.25 Thrift Plan............................................................................................ 3
ARTICLE II
Participation
2.1 Participation.......................................................................................... 3
2.2 Termination of Participation........................................................................... 4
ARTICLE III
Incentive Compensation Awards
3.1 Earnings Fund Program.................................................................................. 4
3.2 Executive Bonus Program................................................................................ 5
3.3 Chief Executive Officer Incentive Program.............................................................. 6
3.4 Eligible Executives Incentive Program ................................................................. 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
Elective Deferrals
<S> <C>
4.1 Deferral of Earnings Fund Share and Executive Bonus.................................................... 6
4.2 Deferral of Salary..................................................................................... 6
4.3 Deferred Thrift Benefit................................................................................ 6
ARTICLE V
Allocations to and Vesting in Reserve Account
5.1 Allocations of Deferred Earnings Fund Share and Executive Bonus........................................ 6
5.2 Allocations of Deferred Salary......................................................................... 7
5.3 Allocations of Deferred Thrift Benefit................................................................. 7
5.4 Subtractions from Reserve Account...................................................................... 7
5.5 Deemed Earnings on Reserve Accounts.................................................................... 7
5.6 Vesting in Reserve Account............................................................................. 7
5.7 Equitable Adjustment in Case of Error or Omission...................................................... 7
5.8 Statement of Reserve Account Balance................................................................... 7
ARTICLE VI
Special Rules Relating to Rollover Account
6.1 Transfer to Rollover Account........................................................................... 8
6.2 Deemed Earnings on Rollover Account.................................................................... 8
6.3 Subtractions from Rollover Account..................................................................... 8
6.4 Vesting in Rollover Account............................................................................ 8
6.5 Equitable Adjustment in Case of Error or Omission...................................................... 8
6.6 Statement of Rollover Account Balance.................................................................. 8
6.7 Death Benefits Attributable to Rollover Account........................................................ 8
6.8 Disability Benefits Attributable to Rollover Account................................................... 9
6.9 Restrictions on Death or Disability Benefits........................................................... 10
ARTICLE VII
Funding
7.1 Funding................................................................................................ 10
7.2 Use of Rabbi Trust Permitted........................................................................... 11
ARTICLE VIII
Time and Form of Payment
8.1 Current Earning Fund Share and Executive Bonus Payments................................................ 11
8.2 Distribution of Accounts............................................................................... 11
8.3 Death After Benefit Commencement....................................................................... 13
8.4 Benefit Determination and Payment Procedure............................................................ 13
8.5 Payments to Minors and Incompetents.................................................................... 14
8.6 Distribution of Benefit When Distributee Cannot Be Located............................................. 14
8.7 Claims Procedure....................................................................................... 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IX
Beneficiary Designation
<S> <C>
9.1 Beneficiary Designation................................................................................ 15
ARTICLE X
Withdrawals
10.1 Severe Financial Hardship Withdrawals.................................................................. 15
10.2 Other Withdrawals...................................................................................... 16
ARTICLE XI
Plan Administration
11.1 Plan Administrator..................................................................................... 16
11.2 Power and Authority of Administrator................................................................... 16
ARTICLE XII
Amendment and Termination of Plan
12.1 Amendment or Termination of the Plan................................................................... 16
ARTICLE XIII
Adoption by Additional Corporations
13.1 Adoption by Additional Corporations.................................................................... 17
ARTICLE XIV
Miscellaneous
14.1 Non-assignability...................................................................................... 17
14.2 Right to Require Information and Reliance Thereon...................................................... 17
14.3 Notices and Elections.................................................................................. 17
14.4 Delegation of Authority................................................................................ 18
14.5 Service of Process..................................................................................... 18
14.6 Governing Law.......................................................................................... 18
14.7 Binding Effect......................................................................................... 18
14.8 Severability........................................................................................... 18
14.9 No Effect on Employment Agreement...................................................................... 18
14.10 Gender and Number...................................................................................... 18
14.11 Titles and Captions.................................................................................... 18
</TABLE>
<PAGE>
This Deferred Compensation Plan (hereinafter the "Plan" and formerly
known as the Deferred Incentive Compensation Plan) is amended and restated this
28th day of June , 1995, effective July 1, 1995, unless otherwise specifically
stated, by Southern States Cooperative, Incorporated, a Virginia corporation
(hereinafter called the "Plan Sponsor");
WITNESSETH:
WHEREAS, the Plan was adopted to provide an incentive compensation
program for certain executives of the Corporation and to allow for the deferral
of the receipt of such incentive compensation; and
WHEREAS, the Plan Sponsor deems it appropriate to expand the deferral
program to include salary deferral, withdrawal rights and the right of a
Participant to select a rate of return for the deemed investment of the Reserve
Account based on various measures permitted by the Administrator.
NOW, THEREFORE, in consideration of the premises herein, the Plan
Sponsor agrees as follows:
ARTICLE I
Definition of Terms
The following words and terms as used in this Plan shall have the
meaning set forth below, unless a different meaning is clearly required by the
context:
1.1 "Act": The Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time, or the corresponding sections of any
subsequent legislation which replaces it, and, to the extent not inconsistent
therewith, the regulations issued thereunder.
1.2 "Affiliated Employers": The Plan Sponsor and all of its
Subsidiaries.
1.3 "Administrator": The plan administrator provided for in Article XI
hereof.
1.4 "Beneficiary": The person or persons designated by a Participant or
otherwise entitled pursuant to Article IX to receive benefits under the Plan
attributable to such Participant after the death of such Participant.
1.5 "Benefit Commencement Date":
(i) When used with respect to the Reserve Account, the first
July 1 or January 1 following the Participant's cessation of employment
as an Employee of the Affiliated Employers for whatever reason.
(ii) When used with respect to the Rollover Account, generally
the first July 1 or January 1 following the earlier of:
(A) The later of:
(I) The Participant's cessation of employment as
an Employee of the Affiliated Employers, or
(II) The date the Participant reaches age
fifty-five (55), or
(B) The date the Participant reaches age sixty-five
(65).
<PAGE>
In the case of the Death or Disability Benefits described in Article VI,
the first July 1 or January 1 following the Participant's death and
receipt of a claim from the Beneficiary, or following receipt of proof
of the Participant's total and permanent disability. However, if a
Participant's Benefit Commencement Date occurs prior to January 1, 1990,
such Participant shall continue to receive benefit payments as
determined under the Plan as amended effective January 1, 1990.
1.6 "Board": The present and any succeeding Board of Directors of the
Plan Sponsor, unless such term is used with respect to a particular Corporation
and its Employees, in which event it shall mean the present and any succeeding
Board of Directors of that Corporation.
1.7 "Code": The Internal Revenue Code of 1986, as the same may be
amended from time to time, or the corresponding section of any subsequent
Internal Revenue Code, and, to the extent not inconsistent therewith,
regulations issued thereunder.
1.8 "Corporation": The Plan Sponsor and any of its Subsidiaries approved
by the Board of the Plan Sponsor for participation in and adopting the Plan.
1.9 "Deferred Thrift Benefit": The amount awarded to certain
Participants under paragraph 4.3.
1.10 "Earnings Fund Share": The share of the Earnings Fund awarded to
certain Participants under paragraph 3.1, the Chief Executive Officer Incentive
Distribution to the Chief Executive Officer under paragraph 3.3 of the Plan and
the Eligible Executive's Distribution to the Eligible Executives under paragraph
3.4.
1.11 "Effective Date": The Effective Date of this restatement of the
Plan is July 1, 1995.
1.12 "Eligible Employee": An Employee who is employed by the Corporation
in:
(i) Its 200 pay series, or
(ii) Effective July 1, 1989, its 100 pay series.
1.12A "Eligible Executives": The Chief Financial Officer and the Group
Vice Presidents.
1.13 "Employee": An individual who is employed in the service of the
Affiliated Employers as a common law employee.
1.14 "Executive Bonus": The discretionary bonus awarded to certain
Participants under paragraph 3.2.
1.15 "Fiscal Year": The fiscal year of the Plan Sponsor.
1.16 "Participant": An Eligible Employee but only during such period and
for such purposes as he is considered a Participant as described in Article II
of the Plan. Participants may be classified as Active or Inactive Participants
as provided in Article II.
1.17 "Plan": This document, as contained herein or as duly amended,
which shall be known as the "Southern States Deferred Compensation Plan". Prior
to July 1, 1995 the Plan was known as the "Southern States Deferred Incentive
Compensation Plan"
1.18 "Plan Sponsor": Southern States Cooperative, Incorporated, a
Virginia corporation, or its corporate successor.
1.19 "Plan Year": The twelve (12) month period beginning on the first
day of July of each year.
<PAGE>
1.20 "Rabbi Trust": A trust fund described in paragraph 7.2 and
established or maintained for the Plan.
1.21 "Reserve Account": The bookkeeping account of a Participant
attributable to elective and non-elective deferrals under the Plan and to any
deemed earnings thereon less any amounts transferred pursuant to paragraph 6.1
to the Rollover Account.
1.22 "Rollover Account": The bookkeeping account of a Participant
attributable to elective and non-elective deferrals made prior to January 1,
1990 and deemed earnings thereon (less any distributions made prior to July 1,
1990) which are transferred from the Reserve Account pursuant to paragraph 6.1.
1.23 "Salary": A Participant's regular base salary paid or payable for
personal services rendered to the Corporation as an Eligible Employee, including
that portion of such amount which is electively deferred under or contributed to
this Plan or any other plan, whether a deferred compensation or cafeteria plan,
of the Corporation for such Plan Year, but excluding any such compensation
deferred or contributed from a prior period, bonuses, incentive pay, expense
reimbursement and allowances and benefits not normally paid in cash to the
Participant. Salary for any Plan Year shall be determined as of the first day of
the Plan Year.
1.24 "Subsidiary": A corporation (other than the Plan Sponsor) in which
the Plan Sponsor owns an equity interest and holds fifty percent (50%) or more
of the votes entitled to be cast for directors.
1.25 "Thrift Plan": The Southern States Thrift Plan and Trust as
restated effective January 1, 1987 and as thereafter amended.
ARTICLE II
Participation
2.1 Participation. The Board, upon recommendation of the President and
Chief Executive Officer of the Plan Sponsor, shall determine in advance of each
Fiscal Year, the offices and positions that will be entitled to actively
participate in the Plan for the Fiscal Year. Each Eligible Employee who is so
designated by the Board by his office or position for a Fiscal Year shall be a
Participant and an Active Participant in the Plan for the Fiscal Year. In
addition, where a designated office or position is vacated by a Participant and
is subsequently filled during a Fiscal Year, or where an office or position is
newly designated (either a currently filled position or a newly created
position) for participation in the Plan, the Board, upon recommendation of the
President and Chief Executive Officer of the Plan Sponsor, may include any
Active Participant's successor or replacement and/or the individual who fills
the newly designated office or position, as a Participant and an Active
Participant in the Plan for such Fiscal Year, as of a date designated by the
Board. For purposes of this paragraph, the Board's determination of the offices
and positions entitled to actively participate in the Plan shall continue in
effect for subsequent Fiscal Years unless changed in advance of a Fiscal Year.
In making its designation, the Board may distinguish between Employees who are
eligible to participate only in the deferral aspect of the Plan and those who
are eligible for the Earning Fund Program on the Executive Bonus.
2.2 Termination of Participation.
2.2(a) A Participant shall cease to be an Active Participant upon the
first to occur of the following events:
(i) The Participant retires or otherwise terminates his
employment with the Corporation; or
(ii) The Participant ceases to be an Eligible Employee.
2.2(b) A Participant shall be an Inactive Participant whenever he is not
an Active Participant but he is still entitled to future benefits under the
terms of the Plan.
<PAGE>
2.2(c) An individual shall cease to be a Participant when he is neither
an Active Participant nor an Inactive Participant.
ARTICLE III
Incentive Compensation Awards
3.1 Earnings Fund Program.
3.1(a) With respect to each Fiscal Year, each Covered Participant for
such Fiscal Year shall be entitled to a share (the "Earnings Fund Share") of the
Earnings Fund for such Fiscal Year equal to the ratio of such Covered
Participant's Covered Base Salary for such Fiscal Year to the sum of all Covered
Participants' Covered Base Salary for such Fiscal Year.
3.1(b) For purposes hereof, the following terms shall have the meanings
set forth below:
(i) The term "Applicable Percentage" means the following
percentage determined by reference to the Participant's incentive group:
Incentive Group Applicable Percentage
200 Pay Series (Incentive Group A) 17 1/2%
200 Pay Series (Incentive Group B) 15%
200 Pay Series (Incentive Group C) 12 1/2%
200 Pay Series (Incentive Group D) 10%
100 Pay Series (Incentive Group E) 10%
(ii) The term "Associated Companies" means corporations (other
than the Plan Sponsor) in which the Plan Sponsor owns an equity interest
of more than five percent (5%) but holds less than fifty percent (50%)
of the votes entitled to be cast for directors.
(iii) The term "Covered Base Salary" for a Fiscal Year means the
product obtained by multiplying a Participant's final annual base salary
determined at the earlier of the last day of the Fiscal Year or the date
he ceases to be an Active Participant by his Applicable Percentage for
the Fiscal Year subject, however, to the following:
(A) Where a Participant becomes an Active Participant on
a day other than the first day of a Fiscal Year, ceases to be
an Active Participant on a day other than the last day of a
Fiscal Year, or becomes a member of a different incentive
group while an Active Participant during a Fiscal Year, his
Covered Base Salary shall be determined separately for each
such period, his Covered Base Salary for each such period
shall then be prorated on the basis of the ratio of the number
of days in each such period to the number of days in the
Fiscal Year, and his Covered Base Salary for the Fiscal Year
shall be the sum of his Covered Base Salary for each such
period.
(B) Where a Participant is designated as a "partial"
Covered Participant for a Fiscal Year, his Covered Base Salary
shall be his otherwise determined Covered Base Salary for the
Fiscal Year multiplied by the "partial" percentage applicable
to him.
(iv) The term "Covered Participant" for a Fiscal Year means a
Participant (other than the Chief Executive Officer and the Eligible
Executives) who is an Active Participant designated by the Board to be
eligible for the Earnings Fund Program at any time during the Fiscal
Year, provided, however, that the Chief Executive Officer of the Plan
Sponsor may disqualify a Participant at any time as a result of a
performance not deemed to be of the caliber that warrants treatment as a
Covered Participant and entitlement to a standard Earnings Fund Share:
<PAGE>
(A) In whole, in which case the Participant shall not be
considered a Covered Participant and shall not be entitled to
an Earnings Fund Share for the Fiscal Year(s) to which such
disqualification relates, or
(B) In part, in which case the President and Chief
Executive Officer of the Plan Sponsor shall designate the
percentage (the "partial" percentage) of the Participant's
partial qualification as a Covered Participant and the
Participant shall only be entitled to such a partial standard
Earnings Fund Share (determined by adjusting his Covered Base
Salary) for the Fiscal Year(s) to which such partial
qualification relates.
(v) The term "Earnings Fund" means, with respect to any Fiscal
Year, the lesser of:
(A) The sum of (I) the product obtained by multiplying
the excess of Net Earnings for the Fiscal Year over ten
percent (10%) of Net Worth as of the beginning of the Fiscal
Year by five percent (5%) plus (II) $5,000 for each full one
million dollars ($1,000,000) of actual consolidated dollar
volume in total operations of the Affiliated Employers for the
Fiscal Year over budgeted dollar volume in total operations,
or
(B) The aggregate sum of the Covered Base Salary of each
Covered Participant for the Fiscal Year.
(vi) The term "Net Earnings" means the consolidated pre-tax net
earnings of the Affiliated Employers adjusted to reflect the imputed
cost of investments in Associated Companies and to exclude in respect to
Associated Companies all dividends, patronage refunds, gains and losses
on investments, and equity in unrealized earnings and losses.
(vii) The term "Net Worth" means the consolidated book value of
the assets less liabilities of the Affiliated Employers, excluding the
recorded value of investments in Associated Companies.
3.2 Executive Bonus Program.
3.2(a) With respect to each Fiscal Year, an Active Participant
designated by the Board to be eligible for the Elective Bonus Program shall be
entitled to a bonus (the "Executive Bonus") in such amount, if any, as is
determined by and in the discretion of the President and Chief Executive Officer
of the Plan Sponsor as soon as possible following the end of each Fiscal Year
based on his assessment of the Participant's performance during the preceding
twelve (12) months.
3.2(b) The Executive Bonus to which an Active Participant may be
entitled for a Fiscal Year shall not exceed his Covered Base Salary for the
Fiscal Year.
3.3 Chief Executive Officer Incentive Program. With respect to each
Fiscal Year beginning on or after July 1, 1997, the Chief Executive Officer
shall be entitled to an Incentive Distribution pursuant to the program described
in Appendix A to the Plan.
3.4 Eligible Executives Incentive Program. With respect to each Fiscal
Year beginning on or after July 1, 1998, the Eligible Executives shall be
entitled to an Incentive Distribution pursuant to the program described in
Appendix B to the Plan.
ARTICLE IV
Elective Deferrals
4.1 Deferral of Earnings Fund Share and Executive Bonus. A Participant
may elect to defer the receipt of any or all of his Earnings Fund Share and his
Executive Bonus for a Fiscal Year. The election to defer such amounts shall be
made annually and filed with the Administrator prior to the beginning of the
Fiscal Year for which such payments will be made; provided, however, that when
an individual becomes an Active Participant on a day other than the first day of
a Fiscal Year, he shall have thirty (30) days after he is notified of
commencement of active participation to file his election with the
Administrator. Such election shall be in writing on a form provided by the
Administrator for this purpose.
<PAGE>
4.2 Deferral of Salary. A Participant may elect to defer the receipt of
any or all of his Salary for a Plan Year. The election to defer such amounts may
be subject to any maximum or minimum percentage or dollar amount as the
Administrator in its sole discretion may determine and shall be made annually
and filed with the Administrator prior to the beginning of the Plan Year for
which such payments will be made; provided, however, that when an individual
becomes an Active Participant on a day other than the first day of a Plan Year,
he shall have thirty (30) days after he is notified of commencement of active
participation to file his election with the Administrator. Such election shall
be in writing on a form provided by the Administrator for this purpose.
4.3 Deferred Thrift Benefit. Each Participant who is an Active
Participant at some time during the period from March 16, 1989 through December
31, 1990, inclusive, and who during such period would have been eligible to be
an active participant in the Thrift Plan but for the exclusion of Employees in
the Corporation's 200 pay series from active participation in the Thrift Plan
shall be entitled to a non-elective deferred award (the "Deferred Thrift
Benefit") in an amount equal to one and one-half percent (1-1/2%) of his
"Compensation" (as defined in the Thrift Plan) for that portion of the 1989 and
1990 calendar years beginning on the later of (i) March 16, 1989 or (ii) the
date he becomes an Active Participant through the earlier of (iii) December 31,
1990 or (iv) the date he is first eligible after March 15, 1989 to become an
active participant in the Thrift Plan. For purposes hereof, such Deferred Thrift
Benefit shall be determined for each such separate period of exclusion from
participation in the Thrift Plan if there is more than one such period with
respect to a Participant.
ARTICLE V
Allocations to and Vesting in Reserve Account
5.1 Allocation of Deferred Earnings Fund Share and Executive Bonus. The
Earning Fund Share and Executive Bonus, or portion thereof, of a Participant for
a Fiscal Year which is deferred pursuant to paragraph 4.1 shall be allocated to
the Participant's Reserve Account upon receipt by the Plan Administrator of
notification authorizing the fiscal year award.
5.2 Allocation of Deferred Salary. The Salary which is deferred pursuant
to paragraph 4.2 shall be allocated to the Participant's Reserve Account as of
the last day of the calendar month in which such Salary would otherwise have
been paid, if the Participant is employed as of such date. A Participant whose
employment terminates during the calendar month shall be paid the amount of his
deferred Salary for such month in cash.
5.3 Allocation of Deferred Thrift Benefit. The Deferred Thrift Benefit
of a Participant with respect to a calendar month shall be allocated to the
Participant's Reserve Account as of the last day of such calendar month.
5.4 Subtractions from Reserve Account. All distributions, withdrawals
and forfeitures from a Participant's Reserve Account shall be subtracted when
made.
5.5 Deemed Earnings on Reserve Accounts.
5.5(a) With respect to the Reserve Account of Participants whose
benefits begin to be paid on or after January 1, 1996 and with respect to
earnings credited for periods beginning on and after July 1, 1995, there shall
be credited daily to the Reserve Account of each Participant earnings and losses
based on the deemed investments selected by the Participant (or, if deceased,
his Beneficiary) in accordance with the procedures adopted for the Plan by the
Administrator from time to time. The available investment options shall be the
funds available for directed investment under the Thrift Plan. For periods prior
to October 1, 1997, the Reserve Account of a Participant who does not make a
deemed investment direction shall be credited with earnings and losses as though
his Reserve Account were invested in the Stable Value Fund under the Thrift
Plan. For periods beginning on and after October 1, 1997, the Reserve Account of
a Participant who does not make a deemed investment direction shall be credited
with earnings and losses as though his Reserve Account were invested in the
Default Fund named under the Thrift Plan
<PAGE>
5.5(b) With respect to the Reserve Account of Participants whose
benefits begin to be paid on or before July 1, 1995 and with respect to earnings
credited for periods beginning before July 1, 1995, there shall be credited to
the Reserve Account an additional amount equal to the average balance in the
Reserve Account during such Fiscal Year, multiplied by the rate of interest paid
on new debentures sold by the Plan Sponsor during the Fiscal Year, or in the
absence of such debenture rate, the daily average rate of interest charged by
CoBank A.C.B. for variable term loans during the Fiscal Year.
5.5(c) Notwithstanding the foregoing, for the purpose of determining the
balance of a Participant's Reserve Account as of January 1, 1990 that is to be
transferred to the Rollover Account pursuant to paragraph 6.1, there shall be
credited to the Reserve Account an additional amount equal to the average
balance in the Reserve Account during the period beginning July 1, 1989 and
ending December 31, 1989 ( for purposes of this subparagraph the "Crediting
Period"), multiplied by the rate of interest paid on new debentures sold by the
Plan Sponsor during the Crediting Period, or in the absence of such debenture
rate, the daily average rate of interest charged by the National Bank for
Cooperatives, Baltimore Region for variable term loans during the Crediting
Period plus an amount equal to the April 1, 1990 distribution multiplied by the
rate of interest described above and applied for a three month period.
5.6 Vesting in Reserve Account. Except as provided in paragraph 10.2, a
Participant's rights to the balance in his Reserve Account shall be fully vested
and non-forfeitable at all times, and the termination of his employment as an
Eligible Employee for any reason or his death shall not diminish the amount
payable to the Participant or his Beneficiary.
5.7 Equitable Adjustment in Case of Error or Omission. Where an error or
omission is discovered in the account of a Participant, the Administrator shall
be authorized to make such equitable adjustment as it deems appropriate.
5.8 Statement of Reserve Account Balance. Within a reasonable time after
the end of each Fiscal Year, the Administrator shall provide to each Participant
(or, if deceased, to his Beneficiary) a statement of the balance as of such date
in his Reserve Account.
ARTICLE VI
Special Rules Relating to Rollover Account
6.1 Transfer to Rollover Account. The balance of a Participant's Reserve
Account as of December 31, 1989 less any subtractions made for distributions
made prior to July 1, 1990 shall be transferred as of January 1, 1990 to the
Rollover Account. Notwithstanding the foregoing, in the event that the balance
of a Participant's Reserve Account as of January 1, 1990 is less than Fifteen
Hundred Dollars ($1,500), such Participant's deferred benefit shall not be
transferred to the Rollover Account but shall remain in and subject to the rules
relating to the Reserve Account.
6.2 Deemed Earnings on Rollover Account. Effective January 1, 1990, at
the end of each Fiscal Year or such other crediting period required under the
Plan, there shall be credited to the Rollover Account an additional amount equal
to the average balance in the Rollover Account during such Fiscal Year or other
crediting period, multiplied by the following annual rate of interest determined
on the basis of the Participant's age as of January 1, 1990:
Under Age 45 10.50%
45-49 11.00%
50-54 11.50%
55-59 12.50%
60 and Over 13.00%
<PAGE>
6.3 Subtractions from Rollover Account. All distributions from a
Participant's Rollover Account shall be subtracted when made.
6.4 Vesting in Rollover Account. A Participant's rights to the balance
in his Rollover Account shall be fully vested and non-forfeitable at all times,
and the termination of his employment as an Eligible Employee for any reason or
his death shall not diminish the amount payable to the Participant or his
Beneficiary.
6.5 Equitable Adjustment in Case of Error or Omission. Where an error or
omission is discovered in the Rollover Account of a Participant, the
Administrator shall be authorized to make such equitable adjustment as it deems
appropriate.
6.6 Statement of Rollover Account Balance. Within a reasonable time
after the end of each Fiscal Year, the Administrator shall provide to each
Participant (or, if deceased, to his Beneficiary) a statement of the balance as
of such date in his Rollover Account.
6.7 Death Benefits Attributable to Rollover Account.
6.7(a) Effective July 1, 1990, except as provided in subparagraph 6.9,
in the event a Participant who has a balance in his Rollover Account dies while
an Eligible Employee and before his Benefit Commencement Date, then the
Beneficiary of such Participant shall be entitled to a benefit under the Plan
(the "Death Benefit") in an amount equal to the following:
(i) In the event such Participant's death occurs prior to the
date he reaches age 62, the applicable Death Benefit shall be equal to
70% of the balance of his Rollover Account determined as though he had
lived and earnings had continued to be credited until the last day of
the calendar month in which he would have reached age 65, or the actual
balance in his Rollover Account as of the next July or January 1
following the date of his death, if greater.
(ii) In the event such Participant's death occurs on or after
the date he reaches age 62, the applicable Death Benefit shall be equal
to 100% of the balance of his Rollover Account determined as though he
had lived and earnings had continued to be credited until the last day
of the calendar month in which he would have reached age 65, or the
actual balance in his Rollover Account as of the next July 1 or January
1 following the date of his death, if greater.
6.7(b) In the event a Participant who has a balance in his Rollover
Account dies before his Benefit Commencement Date at a time when he is not an
Eligible Employee, then the Beneficiary of such Participant shall be entitled to
receive the balance in the Participant's Rollover Account determined at the next
July 1 or January 1 following his death.
6.8 Disability Benefits Attributable to Rollover Account.
6.8(a) Effective July 1, 1990, except as provided in subparagraph 6.9,
in the event a Participant who has a balance in his Rollover Account becomes
totally and permanently disabled while an Eligible Employee and before his
Benefit Commencement Date, then he shall be entitled to a benefit under the Plan
(the "Disability Benefit") in an amount equal to the following:
(i) In the event such Participant provides proof of his total
and permanent disability prior to the date he reaches age 62, the
applicable Disability Benefit shall be equal to 70% of the balance of
his Rollover Account determined as though earnings had continued to be
credited until the last day of the calendar month in which he would have
reached age 65, or the actual balance in his Rollover Account as of the
next July 1 or January 1 following the date proof of disability is
furnished, if greater.
<PAGE>
(ii) In the event such Participant provides proof of his total
and permanent disability on or after the date he reaches age 62, the
applicable Disability Benefit shall be equal to 100% of the balance of
his Rollover Account determined as though earnings had continued to be
credited until the last day of the calendar month in which he would have
reached age 65, or the actual balance in his Rollover Account as of the
next July 1 or January 1 following the date proof of disability is
furnished, if greater.
6.8(b) For purposes hereof, the determination of total and permanent
disability shall be made by the Administrator in accordance with the following
standard. A Participant shall be considered to be totally and permanently
disabled if he is unable to perform each of the material duties of his regular
occupation or of any gainful occupation for which he is reasonably fitted taking
into consideration his training, education or experience, as well as prior
earnings. In making its determination, the Administrator may rely on the advice
of one or more physicians appointed or approved by the Plan Sponsor and the
Administrator shall have the right to require further medical examinations from
time to time to determine whether there has been any change in the Participant's
physical condition.
6.8(c) In the event that a Participant's total and permanent disability
ceases:
(i) If he again becomes an Eligible Employee, no further
Disability Benefits shall be paid and the balance in his Rollover
Account shall be recomputed and he shall be entitled to the remainder of
his recomputed Rollover Account (including any Death Benefit, if
applicable) in such manner and at such time as though no total and
permanent disability had occurred. The recomputed balance as of the day
following the last disability payment shall be the amount which would
have been in the Rollover Account had the Participant terminated
employment on the date payment of the Disability Benefit began and
received payments on the basis of the balance as of such date during the
period of disability.
(ii) If he does not again become an Eligible Employee, no
further Disability Benefits shall be paid and the balance in his
Rollover Account shall be recomputed and he shall be entitled to any
remaining payments on the basis of the recomputed balance. The
recomputed balance as of the day following the last disability payment
shall be the amount which would have been in the Rollover Account had
the Participant terminated employment on the date as of payment of the
Disability Benefit began and received payments on the basis of the
balance as of such date during the period of disability.
6.8(d) In the event a Participant who has a balance in his Rollover
Account provides proof of his total and permanent disability before his Benefit
Commencement Date at a time when he is not an Eligible Employee, then he shall
be entitled to receive the balance in his Rollover Account determined at the
next July 1 or January 1 following the date proof of his total and permanent
disability is provided to the Administrator.
6.9 Restrictions on Death or Disability Benefits. Neither the Death
Benefit nor the Disability Benefit described in this ARTICLE shall be paid under
the following circumstances:
(i) The Participant fails to execute such applications, submit
to such physical examinations and provide such truthful and complete
information as may be requested by the Administrator,
(ii) The Participant is determined to be uninsurable based on
the underwriting factors applied by the Administrator, or
(iii)The Participant's death or disability is the result of
a suicide or intentional self-inflicted injury which occurs within the
thirteen (13) month period beginning January 1, 1990.
ARTICLE VII
Funding
7.1 Funding.
<PAGE>
7.1(a) The undertaking to pay benefits hereunder shall be unfunded
obligation payable solely from the general assets of the Corporation and subject
to the claims of the Corporation's creditors. The Reserve Account and the
Rollover Account shall be maintained as book reserve accounts solely for
accounting purposes.
7.1(b) Except as provided in the Rabbi Trust established as permitted in
paragraph 7.2, nothing contained in the Plan and no action taken pursuant to the
provisions of the Plan shall create or be construed to create a trust of any
kind or a fiduciary relationship between the Corporation and the Participant or
his Beneficiary or any other person. To the extent that any person acquires a
right to receive payments from the Corporation under the Plan, such rights shall
be no greater than the right of any unsecured general creditor of the
Corporation.
7.1(c) Where more than one Corporation participates in the Plan, the
funding and payment provisions hereof shall apply separately to each such
Corporation.
7.1(d) The Plan Sponsor may in its discretion make the payment of any or
all benefits under the Plan in lieu of payment by one or more Corporations.
Where the Plan Sponsor makes payments on behalf of other Corporations, the Plan
Sponsor may require contributions by participating Corporations to the Plan
Sponsor at such times (whether before, at or after the time of payment), in such
amounts and or such basis as it may from time to time determine in order to
defray the cost of benefits and administration of the Plan.
7.2 Use of Rabbi Trust Permitted. Notwithstanding any provision herein
to the contrary, the Plan Sponsor may in its sole discretion elect to establish
and fund a Rabbi Trust for the purpose of providing benefits under the Plan.
ARTICLE VIII
Time and Form of Payment
8.1 Current Earnings Fund Share and Executive Bonus Payments. A
Participant's Earnings Fund Share and Executive Bonus, or portion thereof, for a
Fiscal Year for which no deferral election has been properly filed by the
Participant shall be paid to the Participant (or his Beneficiary) as soon as
practicable following the close of the Fiscal Year.
8.2 Distribution of Accounts.
8.2(a) Distributions from a Participant's Reserve Account and Rollover
Account shall commence on the Participant's Benefit Commencement Date.
8.2(b) Distributions from a Participant's Reserve Account which begin to
be paid on or after January 1, 1996 shall be made in quarterly installment
payments to the Participant or his Beneficiary over the Distribution Period on
the first day of each calendar quarter until the Participant's Reserve Account
has been paid in full as follows:
(i) The initial quarterly payment shall be based on the balance
in the Participant's Reserve Account at the end of the calendar quarter
immediately preceding the Benefit Commencement Date. The initial payment
shall be an amount equal to the applicable preceding quarterly balance
divided by 41 in the case of a July 1 Benefit Commencement Date or 39 in
the case of a January 1 Benefit Commencement Date. The initial payment
amount shall continue to be made quarterly until the following October
1.
(ii) The quarterly payment amount shall be recalculated and
adjusted beginning with each October payment and continuing until the
next October payment when the payment amount shall again be recalculated
based on the balance in the Participants' Reserve Account after the
preceding July 1 payment. The new quarterly payment at each October 1
shall be equal to that adjusted balance divided by the remaining number
of payments to be made.
<PAGE>
(iii) The final quarterly payment shall be the balance in the
Participant's Reserve Account and will be paid as soon as reasonably
possible following the completion of the final June 30 valuation.
(iv) All payments, other than the final payment, shall be
rounded to the nearest whole dollar.
(v) All payments will be deducted on a pro rata basis from the
investment options which the Participant has selected pursuant to
subparagraph 5.5(a) as deemed investments of the balance of his Reserve
Account.
(vi) Effective July 1 of a final payment year which begins prior
to October 1, 1997, the Reserve Account of the Participant shall be
credited with deemed earnings and losses based on the performance of the
Stable Value Fund investment under the Thrift Plan.
(vii) Effective July 1 of a final payment year which begins on or
after October 1, 1997, the Reserve Account of the Participant shall be
credited with deemed earnings and losses based on the performance of the
Default Fund investment under the Thrift Plan.
8.2(c) Distributions from a Participant's Reserve Account which begin on
or before July 1, 1995 shall be made in quarterly payments to the Participant or
his Beneficiary over the Distribution Period on the first day of each calendar
quarter until the Participant's Reserve Account has been paid in full as
follows:
(i) The quarterly payments during the Distribution Period are
intended to be substantially equal. Annual recalculations applying the
Payment Factors shall be made in order to compensate for variations
between actual deemed earnings credited pursuant to paragraph 5.5 and
the assumed average rate of ten percent (10%) per annum.
(ii) The initial quarterly payment shall be based on the balance
in Participant's Reserve Account on the immediately preceding June 30th
in the case of a January 1 Benefit Commencement Date and on the June
30th of the immediately preceding calendar year in the case of a July 1
Benefit Commencement Date. The initial payment amount shall be an amount
equal to the applicable June 30th balance multiplied by .041527 in the
case of a July 1 Benefit Commencement Date or .040796 in the case of a
January 1 Benefit Commencement Date. The initial payment amount shall
continue to be made quarterly until the following October 1.
(iii) The quarterly payment amount shall be recalculated and
adjusted beginning with each October payment and continuing until the
next October payment when the quarterly payment amount shall again be
recalculated. The recalculation shall be based on the balance in the
Participant's Reserve Account after the preceding July payment. The new
quarterly payment amount at each October 1 shall be an amount equal to
that adjusted balance multiplied by the applicable Payment Factor for
the quarterly payment number as of which the recalculation occurs.
(iv) The final quarterly payment shall be the balance in the
Participant's Reserve Account.
(v) All payments, other than the final payment, shall be
rounded to the nearest whole dollar.
(vi) The "Payment Factors" are as follows:
Payment Factors
--------------------------------------------
Quarterly July 1 Benefit January 1 Benefit
Payment Number Commencement Date Commencement Date
-------------- ----------------- -----------------
1 .041527 .040796
2 .039233
4 .041859
6 .041859
<PAGE>
8 .045187
10 .045187
12 .049517
14 .049517
16 .055352
18 .055352
20 .063594
22 .063594
24 .076051
26 .076051
28 .096940
30 .096940
32 .138907
34 .138907
36 .265200
38 .265200
39 Balance
41 Balance
8.2(d) Distribution from a Participant's Rollover Account shall normally
be made in equal quarterly payments to the Participant or his Beneficiary over
the Distribution Period on the first day of each calendar quarter until the
Participant's Rollover Account has been paid. The quarterly payments shall be
determined on the basis of the applicable interest rate described in paragraph
6.2.
8.2(e) For purposes hereof the term "Distribution Period":
(i) When used with respect to the Reserve Account, the forty-one
(41) consecutive calendar quarters beginning with July in the case of a
July 1 Benefit Commencement Date or the thirty-nine (39) consecutive
calendar quarters beginning with January in the case of a January 1
Benefit Commencement Date.
(ii) When used with respect to the Rollover Account, the forty
(40) consecutive calendar quarters beginning with the Benefit
Commencement Date.
8.2(f) Notwithstanding the foregoing:
(i) The Board shall have the right, in its sole discretion to
vary the manner and the time of making the installment distribution
provided in this paragraph by making such distributions in a lump sum
equal to the balance in the Reserve Account and the Rollover Account at
the time in question or over a shorter or longer period than required
herein as it may find appropriate.
(ii) The Board, in its discretion, may require that the balance
or a portion of the balance in the Participant's Reserve Account or
Rollover Account shall be paid as a lump sum where the balance or a
portion of the balance due to the Participant or any Beneficiary under
either or both the Reserve Account or the Rollover Account as of the
Benefit Commencement Date is twenty five hundred dollars ($2,500) or
less.
(iii) All lump sum payments made pursuant to this subparagraph
shall be made on July 1 of the calendar year in which the Benefit
Commencement Date otherwise occurs, or if later, the July 1 next
following the Board's determination to make such payment.
8.3 Death After Benefit Commencement. If a Participant dies after his
Benefit Commencement Date, no benefits shall be payable other than the remaining
benefits due to the Participant under the Plan which shall be paid to his
Beneficiary.
<PAGE>
8.4 Benefit Determination and Payment Procedure. The Administrator shall
make all determinations concerning eligibility for benefits under the Plan, the
time or terms of payment, and the form or manner of payment to the Participant
(or the Participant's Beneficiary in the event of the death of the Participant).
The Administrator shall promptly notify the Corporation and, where payments are
to be made from a Rabbi Trust, the trustee thereof, of each such determination
that benefit payments are due and provide to the Corporation or trustee all
other information necessary to allow the Corporation or trustee to carry out
said determination, whereupon the Corporation or trustee shall pay such benefits
in accordance with the Administrator's determination.
8.5 Payments to Minors and Incompetents. If a Participant or Beneficiary
entitled to receive any benefits hereunder is a minor or is adjudged to be
legally incapable of giving valid receipt and discharge for such benefits, or is
deemed so by the Administrator, benefits will be paid to such person as the
Administrator may designate for the benefit of such Participant or Beneficiary.
Such payments shall be considered a payment to such Participant or Beneficiary
and shall, to the extent made, be deemed a complete discharge of any liability
for such payments under the Plan.
8.6 Distribution of Benefit When Distributee Cannot Be Located. The
Administrator shall make all reasonable attempts to determine the identity
and/or whereabouts of a Participant entitled to benefits under the Plan,
including the mailing by certified mail of a notice to the last known address
shown on the Corporation's or the Administrator's records. If the Administrator
is unable to locate such a person entitled to benefits hereunder, or if there
has been no claim made for such benefits, the Corporation shall continue to hold
the benefit due such person, subject to any applicable statute of escheats.
8.7 Claims Procedure.
8.7(a) A Participant or Beneficiary (the "claimant") shall have the
right to request any benefit under the Plan by filing a written claim for any
such benefit with the Administrator on a form provided by the Administrator for
such purpose. The Administrator shall give such claim due consideration and
shall either approve or deny it in whole or in part. Within ninety (90) days
following receipt of such claim by the Administrator, notice of any denial
thereof, in whole or in part, shall be delivered to the claimant or his duly
authorized representative or such notice of denial shall be sent by mail to the
claimant or his duly authorized representative at the address shown on the claim
form or such individual's last known address. The aforesaid ninety (90) day
response period may be extended to one hundred eighty (180) days after receipt
of the claimant's claim if special circumstances exist and if written notice of
the extension to one hundred eighty (180) days indicating the special
circumstances involved and the date by which a decision is expected to be made
is furnished to the claimant within ninety (90) days after receipt of the
claimant's claim. Such notice of denial shall be written in a manner calculated
to be understood by the claimant and shall:
(i) Set forth a specific reason or reasons for the denial,
(ii) Make specific reference to the pertinent provisions of the
Plan on which any denial of benefits is based,
(iii) Describe any additional material or information necessary
for the claimant to perfect the claim and explain why such material or
information is necessary, and
(iv) Explain the claim review procedure of subparagraph 8.7(b).
If such notice of denial is not provided to the claimant within the applicable
ninety (90) day or one hundred eighty (180) day period, the claimant's claim
shall be considered denied for purposes of the claim review procedure of
subparagraph 8.7(b).
8.7(b) A Participant or Beneficiary whose claim filed pursuant to
subparagraph 8.7(a) has been denied, in whole or in part, may, within sixty (60)
days following receipt of notice of such denial, or following the expiration of
the applicable period provided for in subparagraph 8.7(a) for notifying the
claimant of the decision on the claim if no notice of denial is provided, make
written application to the Administrator for a review of such claim, which
application shall be filed with the Administrator. For purposes of such review,
the claimant or his duly authorized representative may review Plan documents
pertinent to such claim and may submit to the Administrator written issues and
comments respecting such claim. The Administrator may schedule and hold a
hearing. The Administrator shall make a full and fair review of any denial of a
claim for benefits and issue its decision thereon promptly, but no later than
sixty (60) days after receipt by the Administrator of the claimant's request for
review, or one hundred twenty (120) days after such receipt if a hearing is to
be held or if other special circumstances exist and if written notice of the
extension to one hundred twenty (120) days is furnished to the claimant within
sixty (60) days after the receipt of the claimant's request for a review. Such
decision shall be in writing, shall be delivered or mailed by the Administrator
to the claimant or his duly authorized representative in the manner prescribed
in subparagraph 8.7(a) for notices of approval or denial of claims, and shall:
<PAGE>
(i) Include specific reasons for the decision,
(ii) Be written in a manner calculated to be understood by the
claimant, and
(iii) Contain specific references to the pertinent Plan
provisions on which the decision is based.
The Administrator's decision made in good faith shall be final.
ARTICLE IX
Beneficiary Designation
9.1 Beneficiary Designation.
9.1(a) Each Participant shall be entitled to designate a Beneficiary
hereunder by filing a designation in writing with the Administrator on the form
provided for such purpose. Any Beneficiary designation made hereunder shall be
effective only if signed and dated by the Participant and delivered to the
Administrator prior to the time of the Participant's death. Any Beneficiary
designation hereunder shall remain effective until changed or revoked hereunder.
9.1(b) Any Beneficiary designation may include multiple, contingent or
successive Beneficiaries and may specify the proportionate distribution to each
Beneficiary.
9.1(c) A Beneficiary designation may be changed by the Participant at
any time, or from time to time, by filing a new designation in writing with the
Administrator.
9.1(d) If the Participant dies without having designated a Beneficiary,
or if the Beneficiary so designated has predeceased him, then his estate shall
be deemed to be his Beneficiary.
9.1(e) If a Beneficiary of the Participant shall survive the Participant
but shall die before the Participant's entire benefit under the Plan has been
distributed, then, absent any other provision by the Participant, the unpaid
balance thereof shall be distributed to the such other beneficiary named by the
deceased Beneficiary to receive his interest or, if none, to the estate of the
deceased Beneficiary. If multiple beneficiaries are designated, absent any other
provision by the Participant, those named or the survivor of them shall share
equally in any amounts payable hereunder.
ARTICLE X
Withdrawals
10.1 Severe Financial Hardship Withdrawals.
<PAGE>
10.1(a) In the event of any Severe Financial Hardship and upon written
request of a Participant (or, if subsequent to his death, his Beneficiary), the
Administrator in its sole discretion may pay in one lump sum to the Participant
(or his Beneficiary) all or any portion of the Participant's Reserve Account
and/or Rollover Account. Any such payment shall be limited to that amount
reasonably necessary to alleviate the Severe Financial Hardship, and any
remaining payments or account balances shall be appropriately adjusted.
10.1(b) For purposes hereof, a "Severe Financial Hardship" means an
unforeseeable emergency, and shall be defined in a manner consistent with the
meaning ascribed thereto under Section 457 of the Code as a severe financial
hardship of the Participant (or, if subsequent to his death, his Beneficiary)
resulting from a sudden and unexpected illness, accident or loss of property due
to casualty, or any other similar extraordinary and unforeseeable circumstance
arising as a result of events beyond the control of the Participant (or, if
subsequent to his death, his Beneficiary).
10.2 Other Withdrawals. Upon written request at any time prior to pay
out of the entire Reserve Account and Rollover Account, a Participant may elect
to withdraw all or a portion of his Reserve Account and/or his Rollover Account
subject to the following forfeiture provisions:
(i) The Participant shall forfeit ten percent (10%) of the
amount elected to be withdrawn. Such forfeited amount shall be
subtracted from the account from which withdrawn but shall not at any
time be distributed to the Participant; and
(ii) The Participant shall forfeit the right to make additional
deferrals of Salary and/or of his Earnings Fund Share and Executive
Bonus for one full Plan Year following the withdrawal.
It is intended that the forfeitures described herein constitute a "substantial
limitation or restriction" on the right to receive the amounts held in the
Reserve Account and the Rollover Account as that term is used for purposes of
Sections 61 and 451 of the Code. Any remaining payments or account balances
shall be appropriately adjusted.
ARTICLE XI
Plan Administration
11.1 Plan Administrator. The Plan shall be administered by a plan
administrator (the "Administrator") to be appointed by and serve at the pleasure
of the Plan Sponsor, or in the absence of the appointment or in the event any
person so appointed shall fail or cease to serve, the Plan Sponsor shall be the
Administrator.
11.2 Power and Authority of Administrator. The Administrator is hereby
vested with all the power and authority necessary in order to carry out its
duties and responsibilities in connection with the administration of the Plan,
including the power to interpret the provisions of the Plan. For such purpose,
the Administrator shall have the power to adopt rules and regulations consistent
with the terms of the Plan.
ARTICLE XII
Amendment and Termination of Plan
12.1 Amendment or Termination of the Plan.
12.1(a) The Plan may be terminated at any time by the Board of the Plan
Sponsor. The Plan may be amended in whole or in part from time to time by the
Board of the Plan Sponsor effective as of any date specified. No amendment or
termination shall operate:
<PAGE>
(i) To decrease a Participant's Reserve Account balance or
Rollover Account balance as of the earlier of the date on which the
amendment or termination is approved by the Board of the Plan Sponsor or
the date on which an instrument of amendment or termination is signed or
approved on behalf of the Plan Sponsor, or
(ii) To vary the distribution plan of a Participant under
paragraph 6.2 after the Participant retires or otherwise ceases to be
employed by the Affiliated Employers without the consent of the
Participant or, if deceased, his Beneficiary.
12.1(b) Notwithstanding the foregoing, the Board hereby delegates to the
Chief Executive Officer the right to modify, alter, or amend the Plan in whole
or in part to make any technical modification, alteration or amendment which in
the opinion of counsel for the Plan Sponsor is required by law and is deemed
advisable by the Chief Executive Officer and to make any other modification,
alteration or amendment which does not, in the Chief Executive Officer's view,
substantially increase costs, contributions or benefits and does not materially
affect the eligibility, vesting or benefit accrual or allocation provisions of
the Plan.
ARTICLE XIII
Adoption by Additional Corporations
13.1 Adoption by Additional Corporations. Any Subsidiary of the Plan
Sponsor may adopt the Plan with the consent of the Board of the Plan Sponsor and
approval by its Board.
ARTICLE XIV
Miscellaneous
14.1 Non-assignability. The interests of each Participant under the Plan
are not subject to claims of the Participant's creditors; and neither the
Participant, nor his Beneficiary, shall have any right to sell, assign, transfer
or otherwise convey the right to receive any payments hereunder or any interest
under the Plan, which payments and interest are expressly declared to be
non-assignable and non-transferable.
14.2 Right to Require Information and Reliance Thereon. The Corporation
and Administrator shall have the right to require any Participant, Beneficiary
or other person receiving benefit payments to provide it with such information,
in writing, and in such form as it may deem necessary to the administration of
the Plan and may rely thereon in carrying out its duties hereunder. Any payment
to or on behalf of a Participant or Beneficiary in accordance with the
provisions of the Plan in good faith reliance upon any such written information
provided by a Participant or any other person to whom such payment is made shall
be in full satisfaction of all claims by such Participant and his Beneficiary;
and any payment to or on behalf of a Beneficiary in accordance with the
provision so the Plan in good faith reliance upon any such written information
provided by such Beneficiary or any other person to whom such payment is made
shall be in full satisfaction of all claims by such Beneficiary.
14.3 Notices and Elections. All notices required to be given in writing
and all elections required to be made in writing, under any provision of the
Plan, shall be invalid unless made on such forms as may be provided or approved
by the Administrator and, in the case of a notice or election by a Participant
or Beneficiary, unless executed by the Participant or Beneficiary giving such
notice or making such election. Subject to limitations under applicable
provisions of the Code or the Act (such as the requirement that deferral
elections be in writing), the Administrator is authorized in its discretion to
accept other means for receipt of effective notices, elections, consent and/or
application by Participants and/or Beneficiaries, including but not limited to
interactive voice systems, on such basis and for such purposes as it determines
from time to time.
<PAGE>
14.4 Delegation of Authority. Whenever the Plan Sponsor or any other
Corporation is permitted or required to perform any act, such act may be
performed by its President or Chief Executive Officer or other person duly
authorized by its President or Chief Executive Officer or the Board of the
Corporation.
14.5 Service of Process. The Administrator shall be the agent for
service of process on the Plan.
14.6 Governing Law. The Plan shall be construed, enforced and
administered in accordance with the laws of the Commonwealth of Virginia, and
any federal law which preempts the same.
14.7 Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Corporation, its successors and assigns, and the Participant and
his heirs, executors, administrators and legal representatives.
14.8 Severability. If any provision of the Plan should for any reason be
declared invalid or unenforceable by a court of competent jurisdiction, the
remaining provisions shall nevertheless remain in full force and effect.
14.9 No Effect on Employment Agreement. The Plan shall not be considered
or construed to modify, amend or supersede any employment or other agreement
between the Corporation and the Participant heretofore or hereafter entered into
unless so specifically provided.
14.10 Gender and Number. In the construction of the Plan, the masculine
shall include the feminine or neuter and the singular shall include the plural
and vice-versa in all cases where such meanings would be appropriate.
14.11 Titles and Captions. Titles and captions and headings herein have
been inserted for convenience of reference only and are to be ignored in any
construction of the provisions hereof.
IN WITNESS WHEREOF, the Plan Sponsor has caused the Plan to be signed on
its behalf by its duly authorized officer or member of its Board of Directors on
the day, month and year aforesaid.
SOUTHERN STATES COOPERATIVE,
INCORPORATED, Plan Sponsor
By: /s/ Gene E. James
-------------------------------
Its President & CEO
<PAGE>
SOUTHERN STATES
DEFERRED COMPENSATION PLAN
(As Restated July 1, 1995)
Chief Executive Officer Incentive Program
Appendix A
A-1.1 Definitions.
A-1.1(a) "EBT": Earnings before tax determined based on the audited
consolidated financial statements of the Plan Sponsor for the Fiscal Year and
appearing as "Savings from continuing operations before income taxes and
cumulative effect of change in accounting principles".
A-1.1(b) "Incentive Bank":
(i)With respect to the first complete Fiscal Year of any Chief
Executive Officer's term, One Hundred Fifty Thousand Dollars
($150,000) plus any Incentive Formula Award for the Fiscal Year or
minus any Incentive Shortfall for the Fiscal Year.
(ii)With respect to any Fiscal Year remaining in the Chief
Executive Officer's term, the ending balance in the Incentive Bank
for the prior Fiscal Year less the Incentive Distribution
attributable to the prior Fiscal Year, plus any Incentive Formula
Award for the Fiscal Year or minus any Incentive Shortfall for the
Fiscal Year.
A-1.1(c) "Incentive Formula Award": 1.5% of the amount by which EBT
for the current Fiscal Year exceeds 10% of the sum of the Plan Sponsor's total
stockholder's and patron's equity determined at the end of the prior Fiscal
Year. For the first five (5) Fiscal Years of employment as Chief Executive
Officer, no Incentive Formula Award will be granted for a partial Fiscal Year.
After completion of five (5) complete Fiscal Years of employment as Chief
Executive Officer, the Incentive Formula Award shall be determined based on
the pro rata portion of the Fiscal Year during which the Chief Executive
Officer was employed in that capacity.
A-1.1(d) "Incentive Shortfall": 1.5% of the amount by which the 10%
of the sum of the Plan Sponsor's total stockholder's and patron's equity
determined at the end of the prior Fiscal Year exceeds EBT for the current
Fiscal Year. Any Incentive Shortfall shall be determined based on the pro rata
portion of the Fiscal Year during which the Chief Executive Officer was
employed in that capacity.
A-1.1(e) "Incentive Distribution": One-third (1/3) of the balance in
the Incentive Bank as of the end of a Fiscal Year, provided, however, no
Incentive Distribution shall be payable for any Fiscal Year in which the Plan
Sponsor incurs a loss.
A-1.2 Chief Executive Officer Incentive Program. An Incentive
Distribution determined each Fiscal Year shall be payable to the Chief
Executive Officer following the close of such Fiscal Year. If no deferral
election is in place under the Plan, the Incentive Distribution shall be paid
to the Chief Executive Officer, or if deceased, to his Beneficiary, as soon as
reasonably practical following the completion of the audit of the financial
statements for the Fiscal Year.
A-1.3 Forfeiture of Incentive Bank. The entire positive balance of
the Incentive Bank shall be forfeited in the event the Chief Executive Officer
terminates employment with the Plan Sponsor (whether voluntarily or
involuntarily), for any reason including death or disability, prior to
completing at least three (3) complete Fiscal Years of employment as Chief
Executive Officer. The lesser of the entire positive balance of the Incentive
Bank or One Hundred Fifty Thousand Dollars ($150,000) of the Incentive Bank
will be forfeited in the event the Chief Executive Officer terminates
employment with the Plan Sponsor (whether voluntarily or involuntarily), for
any reason (including death or disability) other than Normal Retirement under
the Retirement Plan for Employees of Southern States, prior to the completing
at least five (5) complete Fiscal Years of employment as Chief Executive
Officer.
<PAGE>
A-1.4 Payout of Incentive Bank Balance. Upon the Chief Executive
Officer's termination of employment with the Plan Sponsor for any reason, the
balance in the Incentive Bank, not forfeited pursuant to paragraph A-1.3,
shall be paid to the Chief Executive Officer (or, if deceased, his
Beneficiary) as soon as reasonably possible following the end of the Fiscal
Year.
A-1.5 Board Discretion. The Board reserves the right at any time to
adjust any component of the Chief Executive Officer Incentive Program,
including the right to adjust EBT for unusual gains or losses incurred during
a Fiscal Year. However, the Board may not reduce the balance in the Incentive
Bank or defer payment of an Incentive Distribution for which no deferral
election is in place under the Plan.
A-1.6 Separate Incentive Bank for Each CEO. In the event that the
Board continues the Chief Executive Officer Incentive Program for an
individual who succeeds the individual in that position on July 1, 1997, a new
and separate Incentive Bank shall be established for such successor.
<PAGE>
SOUTHERN STATES
DEFERRED COMPENSATION PLAN
(As Restated July 1, 1995)
Eligible Executives Incentive Program
Appendix B
B-1.1 Definitions.
B-1.1(a) "EBT": Earnings before tax determined based on the audited
consolidated financial statements of the Plan Sponsor for the Fiscal Year and
appearing as "Savings from continuing operations before income taxes and
cumulative effect of change in accounting principles".
B-1.1(b) "Incentive Bank":
(i) With respect to the first complete Fiscal Year of any Eligible
Executive's term, any Incentive Formula Award for the Fiscal Year.
(ii) With respect to any Fiscal Year remaining in the Eligible
Executives' term, the ending balance in the Incentive Bank for the
prior Fiscal Year less the Incentive Distribution attributable to
the prior Fiscal Year, plus any Incentive Formula Award for the
Fiscal Year.
B-1.1(c) "Incentive Formula Award": .40% of the amount by which EBT for
the current Fiscal Year exceeds a 4% return on Total Assets determined at the
end of the prior Fiscal Year.
B-1.1(d) "Incentive Distribution": One-half (1/2) of the balance in the
Incentive Bank as of the end of a Fiscal Year.
B-1.1(e) "Total Assets": Total assets determined based on the audited
consolidated financial statements of the Plan Sponsor for the Fiscal Year and
appearing at the bottom of the balance sheet of the annual report of the Plan
Sponsor.
B-1.2 Eligible Executives Incentive Program. An Incentive Distribution
determined each Fiscal Year shall be payable to each Eligible Executive
following the close of such Fiscal Year. If no deferral election is in place
under the Plan, the Incentive Distribution shall be paid to the Eligible
Executive, or if deceased, to his Beneficiary, as soon as reasonably practical
following the completion of the audit of the financial statements for the
Fiscal Year.
B-1.3 Payout of Incentive Bank Balance. Upon an Eligible Executive's
termination of employment with the Plan Sponsor for any reason, the balance in
the Incentive Bank shall be paid to such Eligible Executive (or, if deceased,
his Beneficiary) as soon as reasonably possible following the end of the
Fiscal Year.
B-1.4 Board Discretion. The Board reserves the right at any time to
adjust any component of the Eligible Executives Incentive Program, including
the right to adjust EBT for unusual gains or losses incurred during a Fiscal
Year. However, the Board may not reduce the balance in the Incentive Bank or
defer payment of an Incentive Distribution for which no deferral election is
in place under the Plan.
B-1.5 Separate Incentive Bank for Each Eligible Executives. In the
event that the Board continues the Eligible Executives Incentive Program for
any individual who succeeds the individuals in those positions on July 1,
1998, a new and separate Incentive Bank shall be established for such
successor.
EXHIBIT 10.14
SOUTHERN STATES
DIRECTORS DEFERRED COMPENSATION PLAN
(As Restated Effective July 1, 1989)
Including:
1. First Amendment
(Effective July 1, 1995)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE I
Definition of Terms
<S> <C>
1.1 Administrator................................................................................................. 1
1.2 Beneficiary................................................................................................... 1
1.3 Benefit Commencement Date..................................................................................... 1
1.4 Benefit Schedule.............................................................................................. 1
1.5 Board......................................................................................................... 1
1.6 Code ......................................................................................................... 1
1.7 Compensation.................................................................................................. 1
1.8 Corporation................................................................................................... 1
1.9 Deferral Account.............................................................................................. 1
1.9(a) Insured Deferral Account...................................................................................... 2
1.9(b) Plan Deferral Account......................................................................................... 2
1.10 Deferral Benefit.............................................................................................. 2
1.11 Deferral Contributions........................................................................................ 2
1.12 Deferral Cycle................................................................................................ 2
1.13 Deferral Cycle Amount......................................................................................... 2
1.14 Director...................................................................................................... 2
1.15 Effective Date................................................................................................ 2
1.16 Eligible Director............................................................................................. 2
1.17 Participant................................................................................................... 2
1.18 Plan ......................................................................................................... 2
1.19 Plan Sponsor.................................................................................................. 3
1.20 Plan Year..................................................................................................... 3
1.20A Rabbi Trust ..................................................................................................
1.21 Rate of Return................................................................................................ 3
1.22 Scheduled Death Benefit....................................................................................... 3
ARTICLE II
Eligibility and Participation
2.1 Eligibility................................................................................................... 3
2.2 Notice and Election Regarding Active Participation............................................................ 4
2.3 Commencement of Active Participation.......................................................................... 4
2.4 Length of Participation....................................................................................... 4
ARTICLE III
Deferral Election, Deferral Account and Adjustments and Benefit Schedules
3.1 Deferral Account.............................................................................................. 5
3.2 Deferral Election............................................................................................. 5
3.3 Termination of Deferral Election and Completion of Contribution of Deferred
Cycle Amount................................................................................................ 6
3.4 Crediting of Deemed Earnings to Deferral Accounts............................................................. 6
3.5 Equitable Adjustment in Case or Error or Omission............................................................. 6
3.6 Statement of Deferral Account Balance......................................................................... 6
3.7 Issuance of Benefit Schedule.................................................................................. 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
Vesting
<S> <C>
4.1 Vesting....................................................................................................... 7
ARTICLE V
Funding
5.1 Funding....................................................................................................... 7
5.2 Use of Rabbi Trust Permitted.................................................................................. 8
ARTICLE VI
Payment of Benefits
6.1 Deferral Benefit.............................................................................................. 8
6.2 Time and Form Payment of Insured Deferral Account............................................................. 8
6.3 Time and Form of Payment of Plan Deferral Account............................................................. 8
6.4 Acceleration of Time or Form of Payment....................................................................... 9
6.5 Early Withdrawal Rights....................................................................................... 9
6.6 Benefit Determination and Payment Procedure................................................................... 9
6.7 Payments to Minors and Incompetents........................................................................... 9
6.8 Distribution of Benefit When Distributee Cannot Be Located.................................................... 10
ARTICLE VII
Beneficiary Designation
7.1 Beneficiary Designation....................................................................................... 10
ARTICLE VIII
Plan Administrator
8.1 Plan Administrator............................................................................................ 10
8.2 Power and Authority of Administrator.......................................................................... 10
ARTICLE IX
Amendment and Termination of Plan
9.1 Amendment or Termination of the Plan.......................................................................... 11
ARTICLE X
Adoption by Additional Corporations
10.1 Adoption by Additional Corporations........................................................................... 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XI
Miscellaneous
<S> <C>
11.1 Non-assignability............................................................................................. 11
11.2 Right to Require Information and Reliance Thereon............................................................. 11
11.3 Notices and Elections......................................................................................... 11
11.4 Delegation of Authority....................................................................................... 11
11.5 Service of Process............................................................................................ 11
11.6 Governing Law................................................................................................. 11
11.7 Binding Effect................................................................................................ 12
11.8 Severability.................................................................................................. 12
11.9 No Effect on Employment Agreement............................................................................. 12
11.10 Gender and Number............................................................................................. 12
11.11 Titles and Captions........................................................................................... 12
</TABLE>
<PAGE>
This restatement of the DIRECTORS DEFERRED COMPENSATION PLAN
(hereinafter the "Plan") is adopted the day of , 1989 by
SOUTHERN STATES COOPERATIVE, INCORPORATED, a Virginia corporation (hereinafter
called the "Plan Sponsor");
W I T N E S S E T H:
WHEREAS, the Plan Sponsor deems it desirable to amend and restate the
Plan as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained, the Plan is amended and restated as herein set forth:
ARTICLE I
Definition of Terms
The following words and terms as used in this Plan shall have the
meaning set forth below, unless a different meaning is clearly required by the
context:
1.1 "Administrator": The Plan Administrator provided for in Article VIII
hereof.
1.2 "Beneficiary": The person or persons designated by a Participant or
otherwise entitled pursuant to Article VII to receive benefits under the Plan
attributable to such Participant after the death of such Participant.
1.3 "Benefit Commencement Date": The first day of the first period for
which a Participant's Deferral Benefit, if any, under the Plan commences to be
paid as specified in Article VI. There may be separate Benefit Commencement
Dates for different benefits under the Plan.
1.4 "Benefit Schedule": The exhibit or schedule, provided initially or
after revision, attached to a Participant's Deferral Election with respect to a
Deferral Cycle for the purpose of specifying the amount and calculation of both
the Participant's Scheduled Death Benefit for such Deferral Election and the
Rate of Return with respect to such Deferral Election and such other information
as the Administrator deems appropriate. Benefit Schedules may be provided with
estimated figures so long as final Benefit Schedules for a Deferral Cycle are
provided within a reasonable time after the beginning of the Deferral Cycle.
1.5 "Board": The present and any succeeding Board of Directors of the
Plan Sponsor, unless such term is used with respect to a particular Corporation
and its Directors, in which event it shall mean the present and any succeeding
Board of Directors of that Corporation.
1.6 "Code": The Internal Revenue Code of 1986, as the same may be
amended from time to time, or the corresponding section of any subsequent
Internal Revenue Code, and, to the extent not inconsistent therewith,
regulations issued thereunder.
1.7 "Compensation": A Participant's retainers, fees and other
remuneration for personal services rendered to the Corporation as an Eligible
Director and otherwise payable currently in cash, but exclusive of expense
allowances and reimbursements and amounts previously deferred under this Plan.
1.8 "Corporation": Southern States Cooperative, Incorporated, a Virginia
corporation, and any of its subsidiaries, affiliates, and other related
corporations (whether by management agreement or ownership) approved by the
Board of the Plan Sponsor for participation in and adopting the Plan.
1.9 "Deferral Account": An unfunded, bookkeeping account maintained on
the books of the Corporation for a Participant which reflects his interest in
amounts attributable to Deferral Contributions under the Plan. The Deferral
Account of a Participant consists of two subdivisions, as follows:
1.9(a) "Insured Deferral Account": The Participant's account
balance, if any, under the Plan attributable to:
<PAGE>
(i) His Deferral Contributions made to the Plan with respect to
Compensation earned prior to July 1, 1989, but only if he elects in or
as part of a Deferral Election filed for a Deferral Cycle to have such
deferred amount applied to a Deferral Cycle, and
(ii) His Deferral Contributions made to the Plan with respect to
Compensation earned after June 30, 1988, unless the Participant elects
that such contributions shall be allocated to the Plan Deferral Account.
Separate subdivisions of the Insured Deferral Account shall be maintained to
reflect Deferral Contributions made with respect to different Deferral Cycles.
1.9(b) "Plan Deferral Account": The Participant's account balance, if
any, under the Plan attributable to his Deferral Contributions made with respect
to Compensation earned prior to July 1, 1989 (unless he elects otherwise) and
his Deferral Contributions made with respect to Compensation earned after June
30, 1989 and which the Participant elects to allocate to the Plan Deferral
Account.
1.10 "Deferral Benefit": The deferred amount due a Participant
or his Beneficiary under the Plan, as determined by the balance in the
Participant's Deferral Account.
1.11 "Deferral Contributions": That portion of a Participant's
Compensation which is deferred under the Plan
1.12 "Deferral Cycle": A period of three (3), or such other number as
the Plan Administrator may provide or permit in a Participant's Deferral
Election, years each beginning on July 1 during which it is intended that the
Participant contribute a stated Deferral Cycle Amount to the Plan.
(i) A Deferral Cycle is identified by the first Plan Year in
which the Deferral Cycle begins and, when determined to be appropriate
by the Administrator, by the last Plan Year in which the Deferral Cycle
ends.
(ii) A Participant may not have more than one Deferral Cycle in
effect at any time.
1.13 "Deferral Cycle Amount": With respect to a Deferral Cycle, the
Deferral Contributions which a Participant states, in his first or timely
amended Deferral Election for the Deferral Cycle, he intends to contribute for
each year of the Deferral Cycle.
1.14 "Director": An individual who is employed as a member of the
Board.
1.15 "Effective Date": The Effective Date of the Plan is May 1, 1987.
The Effective Date of this restatement of the Plan is July 1, 1989.
1.16 "Eligible Director": A Director who is not a common law
employee of the Corporation.
1.17 "Participant": An Eligible Director who elects to participate in
the Plan for so long as he is considered a Participant as provided in Article II
of the Plan. Participants may be classified as Active or Inactive Participants
as provided in Article II.
1.18 "Plan": This document, as contained herein or duly amended, which
shall be known as "Southern States Directors Deferred Compensation Plan".
1.19 "Plan Sponsor": Southern States Cooperative, Incorporated,
a Virginia corporation or its corporate successor.
1.20 "Plan Year": The calendar year.
1.20A "Rabbi Trust": A trust fund described in paragraph 5.2 and
established or maintained for the Plan.
<PAGE>
1.21 "Rate of Return":
1.21(a) With respect to:
(i) A Participant's Insured Deferral Account and each
subdivision thereof reflecting Deferral Contributions made for different
Deferral Cycles, the annual interest rate contained in the Participant's
Benefit Schedule pertaining thereto.
(ii) A Participant's Plan Deferral Account, the interest rate
paid on new debentures sold by the Plan Sponsor during its fiscal year
ending with or within the Plan Year, or in the absence of such debenture
rate, the daily average rate of interest charged by the National Bank
for Cooperatives, Baltimore Region for variable term loans during the
Plan Year.
1.21(b) The Administrator shall have the power to increase, but not
decrease, the Rate of Return for a Plan Year after the rate is initially
established and communicated to Participants.
1.21(c) The Administrator may, but need not, establish a Rate of Return
that is guaranteed for a period or periods. Any guarantee may vary from Plan
Year to Plan Year, from Deferral Cycle to Deferral Cycle, from Participant to
Participant, or on such other basis as the Administrator may determine from time
to time.
1.22 "Scheduled Death Benefit": A listing in a Participant's Benefit
Schedule of the anticipated death benefit(s) payable to or with respect to the
Participant and the Deferral Cycle and determined on the basis of applicable
facts including the Participant's age and the Rate of Return, assumed
insurability, assumed completion of the contribution of the Deferral Cycle
Amount with respect to which the Benefit Schedule is prepared and such other
factors as the Administrator deems appropriate.
ARTICLE II
Eligibility and Participation
2.1 Eligibility. Each Eligible Director shall be eligible to participate
in the Plan and to defer Compensation hereunder.
<PAGE>
2.2 Notice and Election Regarding Active Participation.
2.2(a) The Administrator shall give notice of eligibility to each
Director who is anticipated to be eligible to be an Active Participant and make
Deferral Contributions to the Plan as follows:
(i) In the case of a Director anticipated to be eligible to
make a Deferral Election for allocation to the Insured Deferral Account
as of the first day of a Deferral Cycle, within a reasonable period of
time prior to the beginning of each such Deferral Cycle.
(ii) In the case of a Director anticipated to be eligible to
make a Deferral Election for allocation to the Plan Deferral Account as
of the first day of any calendar month, within a reasonable period of
time prior to the beginning of the first such calendar month for which
he is eligible.
2.2(b) In order to become an Active Participant and make Deferral
Contributions with respect to a Plan Year, an Eligible Director must file with
the Administrator an election as hereinafter provided (the "Deferral Election"):
(i) In the case of a Deferral Election for Deferral
Contributions to be allocated to the Insured Deferral Account which is
effective as of the first day of a Deferral Cycle, such election must be
filed at least thirty (30) days (or such later time permitted or
approved by the Administrator) prior to the beginning of the Deferral
Cycle for which the election is made.
(ii) In the case of a Deferral Election for Deferral
Contributions to be allocated to the Plan Deferral Account which is
effective as of the first day of any calendar month, such election must
be filed prior to the beginning of the calendar month for which the
election is made; or
2.2(c) By executing and filing such election with the Administrator, an
Eligible Director consents and agrees to the following:
(i) To be bound by all terms and conditions of the Plan and
all amendments thereto.
(ii) In the case of an election to make Deferral Contributions
to be allocated to the Insured Deferral Account, to execute such
applications and take such physical examinations and to supply
truthfully and completely such information as may be requested by any
health questionnaire issued by the Administrator; and
(iii) In the case of an election to make Deferral Contributions
to be allocated to the Insured Deferral Account, to make the agreed upon
Deferral Contributions to the Plan for each year in the Deferral Cycle.
2.3 Commencement of Active Participation. An Eligible Director shall
become an Active Participant with respect to a Plan Year only if he is an
Eligible Director on the date in such Plan Year his Deferral Election is
scheduled to become effective and he timely files and has in effect a Deferral
Election with respect to such Plan Year.
2.4 Length of Participation. An individual who is or becomes a
Participant shall be or remain an Active Participant whenever he is an Eligible
Director with a Deferral Election in effect; and he shall be or remain an
Inactive Participant whenever he is entitled to future benefits under the terms
of the Plan and is not considered an Active Participant.
<PAGE>
ARTICLE III
Deferral Election, Deferral
Account and Adjustments and Benefit Schedules
3.1 Deferral Account.
3.1(a) The Corporation shall establish and maintain on its books a
Deferral Account, and appropriate subdivisions thereof, for each Participant to
reflect the Participant's benefits under the Plan.
3.1(b) The balance in the Deferral Account of a Participant shall
consist of his Deferral Contributions made to the Plan pursuant to paragraph
3.2, amounts credited pursuant to subparagraph 3.3(b) and deemed earnings or
loss thereon determined pursuant to paragraph 3.4.
3.2 Deferral Election.
3.2(a) Subject to the restrictions and conditions hereinafter provided,
an Eligible Director who has not yet reached his Benefit Commencement Date by
the beginning of a calendar month shall be entitled to elect to defer, as a
Deferral Contribution with respect to such calendar month, a dollar amount of
his Compensation which is specified by and in accordance with his direction in
his Deferral Election(s) for such Plan Year. Any such Eligible Director may make
either or both of the following types of Deferral Elections with respect to a
Plan Year:
(i) An individual who is an Eligible Director on the first day
of a Deferral Cycle may make a Deferral Election effective at the
beginning of the Deferral Cycle and such election shall be based on the
rules of subparagraph 3.2(c). Any such election must be filed with the
Administrator at the time required under clause (i) of subparagraph
2.2(b). Deferral Contributions made pursuant to such election shall be
allocated to the Insured Deferral Account.
(ii) An individual who is an Eligible Director on the first day
of any calendar month and who is then eligible to make a Deferral
Election may make an initial or amended Deferral Election in the form of
an initial or increased Deferral Election effective at the beginning of
the calendar month for which filed. Any such election must be filed with
the Administrator at the time required under clause (ii) of subparagraph
2.2(b). Deferral Contributions made pursuant to such election shall be
allocated to the Plan Deferral Account.
3.2(b) Deferral Contributions made by a Participant for a calendar month
shall be credited to his Deferral Account as of the last day of such calendar
month. Such contributions shall be considered made when the Compensation from
which such contributions are deducted would otherwise have been paid.
3.2(c) For a Deferral Cycle, a Participant's election to defer
Compensation for allocation to the Insured Deferral Account is subject to the
following rules:
(i) A Participant's Deferral Cycle Amount must be stated in
whole dollar amounts.
(ii) Such Deferral Election shall be irrevocable and shall be
effective for the entire Deferral Cycle, provided however that such
Deferral Election may be revised as provided in the election form for a
Deferral Cycle in the event that the Rate of Return is adjusted based on
a health examination.
(iii) Such Deferral Election may contain a designation that all
or part of the Participant's balance in his Plan Deferral Account shall
be allocated to the Insured Deferral Account in equal increments over
the Deferral Cycle.
<PAGE>
3.3 Termination of Deferral Election and Completion of
Contribution of Deferral Cycle Amount.
3.3(a) In the event that a Participant ceases to be an Eligible
Director, his Deferral Election shall be terminated and Deferral Contributions
shall automatically cease.
3.3(b) In the event that a Participant ceases to be an Eligible Director
for reasons other than his death, such Participant may contribute from his funds
other than Compensation the remaining Deferral Cycle Amount for each year in any
incomplete Deferral Cycle; provided that in the event of his death after ceasing
to be an Eligible Director, contributions scheduled to be made thereafter shall
not be due. Such contributions shall be made on an after-tax basis at such time
as the Participant and the Administrator shall agree.
3.3(c) If the Participant fails or refuses to complete the contributions
for the Deferral Cycle:
(i) no Scheduled Death Benefit shall be paid with respect
to such incomplete Deferral Cycle, and
(ii) contributions actually made by the Participant for the
Deferral Cycle shall be credited with earnings at the Rate of Return
applicable to the Subdivision of the Insured Deferral Account which
represents such incomplete Deferral Cycle.
The Deferral Benefit payable to the Participant or his surviving spouse
with respect to such subdivision shall be based only on the
contributions to such subdivision plus earnings thereon and shall not be
based on the projected benefit set forth in the Benefit Schedule for
such incomplete Deferral Cycle.
3.4 Crediting of Deemed Earnings to Deferral Accounts.
3.4(a) At the end of each Plan Year and at such other time as a
Participant's Deferral Benefit becomes payable, there shall be credited to the
Deferral Account an amount representing deemed earnings (without compounding for
the Plan Year) on the average balance of such account during such Plan Year.
Such earnings shall be determined by multiplying such average balance by the
Rate of Return. In the case of a calculation of earnings prior to the end of a
Plan Year, the Rate of Return for the prior Plan Year will be used.
3.4(b) In the event that the Scheduled Death Benefit becomes payable by
reason of the Participant's death prior to the applicable Benefit Commencement
Date, there shall be credited to the Insured Deferral Account the amount
required so that the balances will be equal to the amount of the Scheduled Death
Benefit and no further deemed earnings shall be credited with respect thereto.
3.4(c) If a Participant's Deferral Benefit held in the Plan Deferral
Account is paid in quarterly installments, earnings shall be credited after the
Benefit Commencement Date as provided in clause (ii) of subparagraph 6.3(b).
3.5 Equitable Adjustment in Case of Error or Omission. Where an error or
omission is discovered in the account of a Participant, the Administrator shall
be authorized to make such equitable adjustment as it deems appropriate.
3.6 Statement of Deferral Account Balance. Within a reasonable time
after the end of each Plan Year and at the date a Participant's Deferral Benefit
becomes payable under the Plan, the Administrator shall provide to each
Participant (or, if deceased, to his Beneficiary) a statement of the balance as
of such date in his Deferral Account.
3.7 Issuance of Benefit Schedule.
3.7(a) Within a reasonable time prior to the Deferral Election filing
date for a Deferral Cycle for a Participant or Eligible Director who is then
anticipated to be eligible to become a Participant, the Administrator shall
provide to such Participant or Eligible Director the applicable Benefit Schedule
for such Deferral Cycle.
<PAGE>
3.7(b) A Participant's Benefit Schedule(s) shall contain information
regarding Scheduled Death Benefit(s) or Rate(s) of Return applicable thereto and
shall be used in connection with the computation of benefits provided to him
under the Plan.
3.7(c) If:
(i) A Participant elects a greater or lesser Deferral Cycle
Amount or alternate time of payment than is assumed in his Benefit
Schedule,
(ii) A Participant is determined by the Administrator not to
be a satisfactory health risk, or
(iii) The assumed Rate of Return for a Deferral Cycle is
changed,
the Administrator shall unilaterally and appropriately modify the Benefit
Schedule in question and the Scheduled Death Benefit thereby affected based on
the assumed underwriting standards of the Plan, actual Rate of Return or actual
Deferral Cycle Amount applicable to the Participant. A copy of any such revised
Benefit Statement shall be provided to the Participant.
ARTICLE IV
Vesting
4.1 Vesting. A Participant's rights to the balance in the Deferral
Account and Deferral Benefit shall be fully vested and non-forfeitable at all
times, and termination of his employment as a Director of the Corporation for
any reason whatsoever or his death shall not in any way diminish the amount
payable to the Participant or his Beneficiary.
ARTICLE V
Funding
5.1 Funding.
5.1(a) The undertaking to pay Deferral Benefits hereunder shall be an
unfunded obligation payable solely from the general assets of the Corporation
and subject to the claims of the Corporation's creditors. The Deferral Account
shall be maintained as a book reserve account solely for accounting purposes.
5.1(b) Except as provided in the Rabbi Trust established as permitted in
paragraph 5.2, nothing contained in the Plan and no action taken pursuant to the
provisions of the Plan shall create or be construed to create a trust of any
kind of a fiduciary relationship between the Corporation and the Participant or
his Beneficiary or any other person or to give any Participant or Beneficiary
any right, title or interest in any specific asset or assets of the Corporation.
To the extent that any person acquires a right to receive payments from the
Corporation under the Plan, such rights shall be no greater than the right of
any unsecured general creditor of the Corporation.
5.1(c) Where more than one Corporation participates in the Plan, the
funding and payment provisions hereof shall apply separately to each such
Corporation.
5.1(d) The Plan Sponsor may in its discretion make payment of any or all
benefits under the Plan in lieu of payment by one or more Corporations. Where
the Plan Sponsor makes payments on behalf of other Corporations, the Plan
Sponsor may require contributions by participating Corporations to the Plan
Sponsor at such times (whether before at or after the time of payment), in such
amounts and on such basis as it may from time to time determine in order to
defray the costs of benefits and administration of the Plan.
5.2 Use of Rabbi Trust Permitted. Notwithstanding any provision herein
to the contrary, the Plan Sponsor may in its sole discretion elect to establish
and fund a Rabbi Trust for the purpose of providing benefits under the Plan.
<PAGE>
ARTICLE VI
Payment of Benefits
6.1 Deferral Benefit. For purposes hereof, a Participant's Deferral
Benefit shall be the balance in his Deferral Account at the time in question.
6.2 Time and Form of Payment of Insured Deferral Account.
6.2(a) A Participant's Deferral Benefit attributable to each subdivision
of his Insured Deferral Account shall become payable at the following applicable
times:
(i) The first day of the calendar quarter selected by the
Participant in the Deferral Election for the subdivision of the Insured
Deferral Account relating to the Deferral Cycle for which the Deferral
Election is made, if the Participant is then alive.
(ii) If earlier, the first day of the calendar quarter following
the date of the Participant's death.
6.2(b) A Participant's Deferral Benefit and/or Scheduled Death Benefit
attributable to each subdivision of his Insured Deferral Account shall be paid
to the Participant or, if deceased, his Beneficiary in cash in forty (40)
substantially equal quarterly installments as set forth in the Participant's
Benefit Schedule with respect to each such subdivision.
6.3 Time and Form of Payment of Plan Deferral Account.
6.3(a) A Participant's Deferral Benefit attributable to his Plan
Deferral Account with respect to each Deferral Election shall become payable at
one of the following times selected by the Participant in such Deferral Election
and based on the date, which must be the first day of a calendar quarter,
specified by the Participant therein (the "Elected Date"):
(i) Elected Date - the Elected Date.
(ii) Earlier of Elected Date or Termination as a Director - the
earlier of the Elected Date or the first day of the calendar quarter
next following the date the Participant ceases to be a Director.
(iii) Later of Elected Date or Termination as a Director - the
later of the Elected Date or the first day of the calendar quarter next
following the date the Participant ceases to be a Director.
A Participant's time of payment election may also include a time of payment
acceleration to the first day of the calendar quarter following the date of his
death where he dies before his otherwise applicable payment date.
6.3(b) A Participant Deferral Benefit attributable to his Plan Deferral
Account with respect to each Deferral Election shall be paid to the Participant
or his Beneficiary in cash in either of the following options selected by the
Participant in such Deferral Election:
(i) Lump Sum Payment - a lump sum payment.
(ii) Quarterly Installments - substantially equal consecutive
quarterly installments payable on the first day of each calendar quarter
over a term certain selected by the Participant in his Deferral Election
but not extending beyond ten (10) years, taking into account projected
earnings on the unpaid portion of any such payments at the Rate of
Return in effect each year.
6.4 Acceleration of Time or Form of Payment. Notwithstanding any
provision herein to the contrary, the Board of the Plan Sponsor in its sole
discretion may accelerate the time of payment hereunder or may pay a portion or
all of a Participant's Deferral Benefit or Deferral Account with respect to the
Participant in a lump sum payment in commutation of amounts otherwise to be paid
after the Participant ceases to be a Director. In the case of an Insured
Deferral Account (but not the Plan Deferral Account), the payment shall be
discounted at the Rate of Return relating to the subdivision(s) of such account
for which the acceleration relates and for the period(s) to which it relates.
<PAGE>
6.5 Early Withdrawal Rights.
6.5(a) In the event of any unforseeable emergency and upon written
request of a Participant (or, if subsequent to his death, his Beneficiary), the
Board of the Plan Sponsor in its sole discretion may cause to be paid in one
lump sum to the Participant or his Beneficiary all or any portion of the
Participant's Deferral Benefit. Any such payment shall be limited to that amount
reasonably necessary to alleviate the unforseeable emergency. For purposes
hereof an unforseeable emergency shall be defined as a severe financial hardship
to the Participant (or, if subsequent to his death, his Beneficiary) resulting
from a sudden and unexpected illness, accident or loss of property due to
casualty, or any other similar extraordinary and unforseeable circumstance
arising as a result of events beyond the control of the Participant (or, if
subsequent to his death, his Beneficiary).
6.5(b) Upon written request at any time prior to pay out of the
Participant's entire Deferral Benefit, a Participant may elect to withdraw all
or a portion of his Deferral Account subject to the following forfeiture
provisions:
(i) The Participant shall forfeit ten percent (10%) of the
amount elected to be withdrawn. Such forfeited amount shall be
subtracted from the account from which withdrawn but shall not at any
time be distributed to the Participant; and
(ii) The Participant shall forfeit the right to make additional
deferrals of Compensation for one full Plan Year following the
withdrawal.
It is intended that the forfeitures described herein constitute a "substantial
limitation or restriction" on the right to receive the amounts held in the
Deferral Account as that term is used for purposes of Sections 61 and 451 of the
Code. Any remaining payments or account balances shall be appropriately
adjusted.
6.6 Benefit Determination and Payment Procedure. Except to the extent
allocated to the Board of the Plan Sponsor, the Administrator shall make all
determinations concerning eligibility for benefits under the Plan, the time or
terms of payment, and the form or manner of payment to the Participant (or the
Participant's Beneficiary in the event of the death of the Participant). The
Administrator shall promptly notify the Corporation and, where payments are to
be made from a Rabbi Trust, the trustee thereof, of each such determination that
benefit payments are due and provide to the Corporation or trustee all other
information necessary to allow the Corporation or trustee to carry out said
determination, whereupon the Corporation or trustee shall pay such benefits in
accordance with the Administrator's determination.
6.7 Payments to Minors and Incompetents. If a Participant or Beneficiary
entitled to receive any benefits hereunder is a minor or is adjudged to be
legally incapable of giving valid receipt and discharge for such benefits, or is
deemed so by the Administrator, benefits will be paid to such person as the
Administrator may designate for the benefit of such Participant or Beneficiary.
Such payments shall be considered a payment to such Participant or Beneficiary
and shall, to the extent made, be deemed a complete discharge of any liability
for such payments under the Plan.
6.8 Distribution of Benefit When Distributee Cannot Be Located. The
Administrator shall make all reasonable attempts to determine the identity
and/or whereabouts of a Participant or Beneficiary entitled to benefits under
the Plan, including the mailing by certified mail of a notice to the last known
address shown on the Corporation's or the Administrator's records. If the
Administrator is unable to locate such a person entitled to benefits hereunder,
or if there has been no claim made for such benefits, the Corporation shall
continue to hold the benefit due such person, subject to any applicable statute
of escheats.
ARTICLE VII
Beneficiary Designation
<PAGE>
7.1 Beneficiary Designation.
7.1(a) Each Participant shall be entitled to designate a Beneficiary
hereunder by filing a designation in writing with the Administrator on the form
provided for such purpose. Any Beneficiary designation made hereunder shall be
effective only if signed and dated by the Participant and delivered to the
Administrator prior to the time of the Participant's death. Any Beneficiary
designation hereunder shall remain effective until changed or revoked hereunder.
7.1(b) Any Beneficiary designation may include multiple, contingent or
successive Beneficiaries and may specify the proportionate distribution to each
Beneficiary.
7.1(c) A Beneficiary designation may be changed by the Participant at
any time, or from time to time, by filing a new designation in writing with the
Administrator.
7.1(d) If the Participant dies without having designated a Beneficiary,
or if the Beneficiary so designated has predeceased him, then his estate shall
be deemed to be his Beneficiary.
7.1(e) If a Beneficiary of the Participant shall survive the Participant
but shall die before the Participant's entire benefit has been distributed,
then, absent any other provision by the Participant, the unpaid balance thereof
shall be distributed to the estate of the deceased Beneficiary. If multiple
beneficiaries are designated, absent any other provision by the Participant,
those named or the survivors of them shall share equally in any amounts payable
hereunder.
ARTICLE VIII
Plan Administrator
8.1 Plan Administrator. The Plan shall be administered by a plan
administrator (the "Administrator") to be appointed by and serve at the pleasure
of the Plan Sponsor, or in the absence of the appointment or in the event any
person so appointed shall fail or cease to serve, the Plan Sponsor shall be the
Administrator.
8.2 Power and Authority of Administrator. The Administrator is hereby
vested with all the power and authority necessary in order to carry out its
duties and responsibilities in connection with the administration of the Plan,
including the power to interpret the provisions of the Plan. For such purpose,
the Administrator shall have the power to adopt rules and regulations consistent
with the terms of the Plan.
<PAGE>
ARTICLE IX
Amendment and Termination of Plan
9.1 Amendment or Termination of the Plan. The Plan may be terminated at
any time by the Board of the Plan Sponsor. The Plan may be amended in whole or
in part from time to time by the Board of the Plan Sponsor effective as of any
date specified. No amendment or termination shall operate to decrease a
Participant's Deferred Benefit as of the earlier of the date on which the
amendment or termination is approved by the Board of the Plan Sponsor or the
date on which an instrument of amendment or termination is signed on behalf of
the Plan Sponsor.
ARTICLE X
Adoption by Additional Corporations
10.1 Adoption by Additional Corporations. Any subsidiary, affiliate or
other related corporation to the Plan Sponsor (whether by management agreement
or ownership) may adopt the Plan with the consent of the Board of the Plan
Sponsor and approval by its Board.
ARTICLE XI
Miscellaneous
11.1 Non-assignability. The interests of each Participant under the Plan
are not subject to claims of the Participant's creditors; and neither the
Participant, nor his Beneficiary, shall have any right to sell, assign, transfer
or otherwise convey the right to receive any payments hereunder or any interest
under the Plan, which payments and interest are expressly declared to be
non-assignable and non-transferable.
11.2 Right to Require Information and Reliance Thereon. The Corporation
and Administrator shall have the right to require any Participant, Beneficiary
or other person receiving benefit payments to provide it with such information,
in writing, and in such form as it may deem necessary to the administration of
the Plan and may rely thereon in carrying out its duties hereunder. Any payment
to or on behalf of a Participant or Beneficiary in accordance with the
provisions of the Plan in good faith reliance upon any such written information
provided by a Participant or any other person to whom such payment is made shall
be in full satisfaction of all claims by such Participant and his Beneficiary;
and any payment to or on behalf of a Beneficiary in accordance with the
provision so the Plan in good faith reliance upon any such written information
provided by such Beneficiary or any other person to whom such payment is made
shall be in full satisfaction of all claims by such Beneficiary.
11.3 Notices and Elections. All notices required to be given in writing
and all elections required to be made in writing, under any provision of the
Plan, shall be invalid unless made on such forms as may be provided or approved
by the Administrator and, in the case of a notice or election by a Participant
or Beneficiary, unless executed by the Participant or Beneficiary giving such
notice or making such election.
11.4 Delegation of Authority. Whenever the Plan Sponsor or any other
Corporation is permitted or required to perform any act, such act may be
performed by its President or Chief Executive Officer or other person duly
authorized by its President or Chief Executive Officer or the Board of the
Corporation.
11.5 Service of Process. The Administrator shall be the agent
for service of process on the Plan.
11.6 Governing Law. The Plan shall be construed, enforced and
administered in accordance with the laws of the Commonwealth of Virginia.
11.7 Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Corporation, its successors and assigns, and the Participant and
his heirs, executors, administrators and legal representatives.
<PAGE>
11.8 Severability. If any provision of the Plan should for any reason be
declared invalid or unenforceable by a court of competent jurisdiction, the
remaining provisions shall nevertheless remain in full force and effect.
11.9 No Effect on Employment Agreement. The Plan shall not be considered
or construed to modify, amend or supersede any employment or other agreement
between the Corporation and the Participant heretofore or hereafter entered into
unless so specifically provided.
11.10 Gender and Number. In the construction of the Plan, the masculine
shall include the feminine or neuter and the singular shall include the plural
and vice-versa in all cases where such meanings would be appropriate.
11.11 Titles and Captions. Titles and captions and headings herein have
been inserted for convenience of reference only and are to be ignored in any
construction of the provisions hereof.
IN WITNESS WHEREOF, the Plan Sponsor has caused the Plan to be signed on
its behalf by its duly authorized officer or member of its Board of Directors on
the day, month and year aforesaid.
SOUTHERN STATES COOPERATIVE,
INCORPORATED, Plan Sponsor
By: /s/ Gene A. James
------------------------------
Its President & CEO
EXHIBIT 10.15
SOUTHERN STATES COOPERATIVE, INCORPORATED
SPLIT DOLLAR AGREEMENT
THIS AGREEMENT, made as of the day of , 19__, by and
between outhern States Cooperative, Incorporated, a Virginia corporation (herein
called Corporation") and (herein called "Employee"), an individual
residing in the Commonwealth of Virginia.
WHEREAS, Employee is employed by Corporation;
WHEREAS, Employee wishes to obtain life insurance protection for his
family in the event of his death, under a policy of life insurance insuring his
life (herein called the "Policy");
WHEREAS, Corporation is willing to pay a portion of the premium due
on the Policy for Employee, on the terms and conditions herein set forth; and
WHEREAS, Employee will be the owner of the Policy and possess all
incidents of ownership in and to the Policy and the Policy will be collaterally
assigned to Corporation by Employee, in order to secure the repayment of its
interest in the Policy.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants contained herein, the parties agree as follows:
ARTICLE I
Policy
1.1 Application for Insurance. Employee has purchased or will
contemporaneously purchase the policy of life insurance insuring his or her
life, which is described in Exhibit A attached hereto and by this reference made
a part hereof, and which was or will be issued by the insurance company
identified in Exhibit A (herein called "Insurer") in the total initial face
amount of Dollars ($ ). The parties hereto have taken all necessary action to
cause Insurer to issue the Policy and shall take any further action which may be
necessary to cause the Policy to conform to the provisions of this Agreement.
1.2 Assignment of Policy. To secure the repayment to Corporation of
its Corporate Interest in the Policy arising hereunder and as defined in
paragraph 5.4, Employee has, contemporaneously herewith, assigned the Policy to
Corporation as collateral, in the form attached hereto as Exhibit B (the
"Assignment"). The Assignment shall be filed with Insurer and shall not be
terminated, altered or amended by Employee, without the express written consent
of Corporation. The parties agree to be bound by the terms and conditions of the
Assignment and of this Agreement.
1.3 Additional Policy Benefits and Riders. Employee may add a rider
to the Policy for Employee's own benefit. Upon written request by Corporation,
Employee shall add a rider to the Policy for the benefit of Corporation.
<PAGE>
ARTICLE II
Ownership of Policy
2.1 Ownership of Policy. Employee shall be the sole and absolute
owner of the Policy including all supplemental riders and endorsements, and may
exercise all ownership rights granted to the owner thereof by the terms of the
Policy, except as may otherwise be provided herein.
2.2 Corporation's Rights. Corporation's rights with respect to the
Policy shall be limited to the following:
(i) The right to receive the Corporate Interest upon the
occurrence of a Termination Event as defined in paragraph 5.1 or
upon Rollout as defined in paragraph 5.3;
(ii) The right to possess the Policy;
(iii) The right to borrow against the Policy and to secure such
loan with the Policy in an amount which together with the unpaid
interest thereon will at no time exceed the Corporate Interest; and
(iv) The right to release the Assignment upon receipt of the
Corporate Interest.
Corporation shall make the Policy reasonably available to Employee and Insurer.
2.3 Employee's Rights. Employee, as owner of the Policy, shall
retain all other rights in the Policy not held by Corporation pursuant to
paragraph 2.2, including but not limited to, the following:
(i) The right to succeed to full ownership of the Policy cash
values after satisfaction of the Corporation Interest upon the
occurrence of a Termination Event or Rollout;
(ii) The right to designate and change the beneficiary or
beneficiaries of the portion of the Policy payable upon the death of
Employee, pursuant to paragraph 4.1 (the "Employee Death Benefit
Portion"); and
(iii) The right to assign Employee's rights in and with respect
to the Policy.
Prior to a Termination Event, Employee shall not have the right to borrow
against the Policy.
2.4 Application of Dividends. Dividends shall be applied to purchase
paid-up additional insurance protection.
ARTICLE III
Premium Payments
3.1 Payment of Premiums on the Policy. On or before the due date of
each Policy premium, or within the grace period provided therein, Corporation
shall pay the full amount of all premiums (including the cost associated with
all supplemental riders and endorsements) on the Policy to Insurer according to
the schedule of planned annual premiums in the Policy, and shall, upon request,
promptly furnish Employee evidence of timely payment of such premium.
3.2 Reimbursement by Employee. Each month, Employee shall reimburse
Corporation a portion of the premium paid by Corporation. The amount of the
reimbursement shall equal one-twelfth (1/12) of:
(i) The economic value attributable to the life insurance
protection provided to Employee under this Agreement, plus
(ii) The excess, if any, of the actual premium for the Policy
and for any rider added to the Policy to benefit Employee over
Insurer's standard class premium rates for like policies having the
same face amount and carrying no rider.
<PAGE>
The value of the economic benefit attributable to the life insurance protection
provided to Employee under this Agreement shall be the lower of the PS-58 rates
or Insurer's current published premium rate for annually renewable term
insurance for standard risks, assuming death benefit equal to the face amount of
the Policy less the Corporate Interest.
ARTICLE IV
Death Benefits
4.1 Employee's Death Benefit Portion. If Employee dies prior to a
Termination Event, Employee's designated beneficiary or beneficiaries as set
forth in the Policy shall be entitled to receive the excess of the death
proceeds as provided in the Policy over the Corporate Interest. For purposes of
this Agreement, "death proceeds" shall mean the face amount of the death benefit
provided for in the Policy plus any increase in the Death Benefit from
dividends, cash or accumulation value as those terms may be defined in the
Policy contract or option contained therein.
4.2 Corporation's Death Benefit Portion. Corporation shall have the
unqualified right to receive a portion of such death benefit equal to the
Corporate Interest.
ARTICLE V
Termination of Agreement
5.1 Termination of Agreement. This Agreement shall terminate, without
notice, upon the occurrence of any of the following events:
(i) The total cessation of the business of Corporation;
(ii) The bankruptcy, receivership or dissolution of
Corporation;
(iii) The termination of Employee's employment with Corporation
prior to his or her retirement (other than by reason of Employee's
death or disability); or
(iv) The failure of Employee to repay to Corporation, his or
her portion of the premiums required by paragraph 3.2 whether such
failure occurs while Employee is employed with Corporation or
following his or her retirement or disability.
The events described in this paragraph are referred to throughout this Agreement
as "Termination Events". For this purposes, "retirement" means Employee's
retirement determined under the Retirement Plan for Employees of Southern States
and "disability" means the inability to work due to illness or injury as
determined under the Southern States Long Term Disability Plan.
5.2 Disposition of Policy upon Termination of Agreement. If this
Agreement terminates pursuant to an event described in paragraph 5.1, Employee
shall have the right to obtain a release of the collateral assignment of the
Policy to Corporation. To obtain such release, Employee shall repay to
Corporation within sixty (60) days of the Termination Event, the Corporate
Interest. Alternatively, at the election of Employee prior to the expiration of
said sixty (60) day period, Employee may request, in writing, that Corporation
apply to Insurer for a loan from the Policy the proceeds of which shall be paid
to Corporation in satisfaction of its Corporate Interest. Upon receipt of such
amount, Corporation shall release the collateral assignment of the Policy, by
the execution and delivery of an appropriate instrument of release. If Employee
fails to exercise either such option within such sixty (60) day period, then, at
the request of Corporation, Employee shall execute any document or documents
required by Insurer to transfer the interest of Employee in the Policy to
Corporation. Alternatively, Corporation may enforce its right to be repaid the
Corporate Interest from the cash surrender value of the Policy under the
collateral assignment of the Policy; provided that in the event the cash
surrender value of the Policy exceeds the amount due Corporation, such excess
shall be paid to Employee. Thereafter, neither Employee nor his respective
heirs, assigns or beneficiaries shall have any further interest in and to the
Policy, either under the terms thereof or under this Agreement.
<PAGE>
5.3 Rollout of Policy to Employee. If an Employee retires or
terminates employment with Corporation as a result of a disability and no
Termination Event has occurred prior to Employee's reaching his or her Rollout
Age as that term is defined in Exhibit A hereto, Corporation shall surrender
dividend additions (and, if necessary, apply for a loan from the Policy the
proceeds of which shall be paid to Corporation) in an amount sufficient to
satisfy its Corporate Interest and, having obtained such satisfaction, shall
execute any document or documents required by Insurer to release the Assignment
so that Employee's rights in and to the Policy shall become free and clear of
any obligation to Corporation.
5.4 Corporate Interest Defined. Corporate Interest means an amount
equal to the cumulative value of all premiums paid by Corporation, less (i) the
amounts repaid to it by Employee pursuant to paragraph 3.2 and (ii) any
indebtedness secured by the Policy that was incurred by Corporation and remains
outstanding as of the date of such termination, including any interest due on
such indebtedness.
ARTICLE VI
Named Fiduciaries
6.1 Fiduciaries. The named fiduciary and Plan Administrator shall be
Richard G. Sherman.
ARTICLE VII
Claims Procedure
7.1 Claims Procedure. If for any reason a claim for benefits under
this Plan is denied, the Plan Administrator shall deliver to the claimant a
written explanation setting forth the specific reasons for the denial, pertinent
references to the section of this Agreement on which the denial is based, such
other data as may be pertinent and information on the procedures to be followed
by the claimant in obtaining a review of his claim, all written in a manner
calculated to be understood by the claimant. For this purpose:
(i) The claimant's claim shall be deemed filed when presented
orally or in writing to the Plan Administrator.
(ii) The Plan Administrator's explanation shall be in writing
delivered to the claimant within ninety (90) days of the date the
claim is filed.
7.2 Claims Review. The claimant shall have sixty (60) days following
his receipt of the denial of the claim to file with the Plan Administrator a
written request for review of the denial. For such review, the claimant or his
representative may submit pertinent document and written issues and comments.
The Plan Administrator shall decide the issue on review and furnish the claimant
with a copy within sixty (60) days of receipt of the claimant's request for
review of his claim. The decision on review shall be in writing and shall
include specific reasons for the decision, written in a manner calculated to be
understood by the claimant, as well as specific references to the pertinent
provisions of this Agreement on which the decision is based. If a copy of the
decision is not so furnished to the claimant within such sixty (60) days, the
claim shall be deemed denied on review.
ARTICLE VIII
Miscellaneous Provisions
<PAGE>
8.1 Insurer not a Party. Insurer shall be fully discharged from its
obligations under the Policy by payment of the Policy death benefit to the
beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall Insurer be considered a party to
this Agreement, or any subsequent modifications or amendments of this Agreement.
No provision of this Agreement, nor of any modification or amendment of this
Agreement, shall in any way be construed as enlarging, changing, varying, or in
any other way affecting the obligations of Insurer as expressly provided in the
Policy, except insofar as the provisions of this Agreement are made a part of
the Policy by the Assignment executed by Employee and filed with Insurer in
connection herewith.
8.2 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision.
8.3 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the matters set forth herein and
supersedes all prior agreements and understandings between the parties with
respect to the same.
8.4 Waiver. No waiver of any provision of this Agreement shall be
effective as against the waiving party unless such waiver is in writing signed
by the waiving party. Waiver by a party as provided in this section shall not be
construed as or constitute either a continuing waiver or a waiver of any other
matter.
8.5 Modification. This Agreement may not be amended, altered or
modified, except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated except as
provided herein.
8.6 Benefit. This Agreement shall be binding on and inure to the
benefit of Corporation and its successors and assigns and Employee and his
successors, assigns, heirs, executors, administrators, and beneficiaries. All
benefits payable pursuant to this Agreement shall be payable only from the
Policy, and only to the extent that the Policy so provides.
8.7 Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia.
8.8 Original Copies. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original.
8.9 Headings. The underlined headings herein are for convenience
only and shall not affect the interpretation of this Agreement.
8.10 Interpretation. This Agreement will be interpreted consistent
with its being a welfare benefit plan for a select group of management and
highly compensated employees. The Plan Administrator shall have full discretion
authority to interpret the terms of the Agreement which interpretations shall be
binding and conclusive for all purposes.
8.11 Notice to Parties. Any and all notices required to be given
under the terms of this Agreement shall be given in writing and signed by the
appropriate party, and shall be sent by certified mail, postage prepaid, to the
appropriate address set forth below:
(i) to Employee at:
---------------------------------------
---------------------------------------
---------------------------------------
(ii) to Corporation at:
Southern States Cooperative, Incorporated
6606 West Broad Street
Post Office Box 26234
Richmond, Virginia 23260
ATTN: Richard G. Sherman
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the above written date.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By:
----------------------------------
President
[INSERT NAME OF EMPLOYEE]
-------------------------------------
<PAGE>
EXHIBIT A
The following life insurance policy or policies is (are) subject to the attached
Split-Dollar Agreement:
Insurer - Northwestern Mutual Life Insurance Company
Insured -
Policy Number -
Face Amount -
Corporation - Southern States Cooperative Incorporated
Date of Issue - _________________, 19__
Rollout Age -
<PAGE>
EXHIBIT B
Assignment of Life Insurance Policy as Collateral
A. FOR VALUE RECEIVED, ("Employee") hereby assigns, transfers and sets over to
Southern States Cooperative, Incorporated, with its principal offices in
Richmond, Virginia, its successors and assigns, (herein called the
"Corporation") Policy No. , issued by The Northwestern Mutual Life Insurance
Company, (herein the "Insurer") and any supplementary contracts issued in
connection therewith (said policy and contracts being herein called the
"Policy"), upon the life of Employee, an individual residing in the Commonwealth
of Virginia and all claims, options, privileges, rights, title and interest
therein and thereunder (except as provided in Paragraph C hereof), subject to
all the terms and conditions of the Policy and to all superior liens, if any,
which Insurer may have against the Policy. The undersigned by this instrument
jointly and severally agree and Corporation, by the acceptance of this
Assignment, agrees to the conditions and provisions herein set forth.
B. It is expressly agreed that, without detracting from the generality of the
foregoing, the following specific rights are included in this Assignment and
pass by virtue hereof:
1. The right to collect from Insurer an amount equal to the
Corporate Interest in the Policy or a portion of the death proceeds
as provided for under the terms of a Split Dollar Agreement between
Employee and Corporation, dated (herein called the "Split Dollar
Agreement"), when it becomes a claim by death or maturity or upon
such other events as may be set forth in the Split Dollar Agreement:
2. The right to surrender the Policy and receive the surrender
values thereof at any time provided by the terms of the Policy and
at such other times as Insurer may allow; and
3. The right to obtain one or more loans or advances on the Policy,
either from Insurer, or, at any time, from other persons, and to
pledge or assign the Policy as security for such loans or advances.
C. It is expressly agreed that the following specific rights, so long as the
Policy has not been surrendered, are reserved and excluded from this Assignment
and do not pass by virtue hereof:
1. The right to collect from Insurer any disability benefit payable
in cash that does not reduce the amount of insurance;
2. The right to designate and change the beneficiary;
3. The right to elect any optional mode of settlement permitted by
the Policy or allowed by Insurer,
but the reservation of these rights shall in no way impair the right of
Corporation to surrender the Policy completely with all its incidents or impair
any other right of Corporation hereunder, and any designation or change of
beneficiary or election of a mode of settlement shall be made subject to this
Assignment and to the rights of Corporation hereunder.
D. This Assignment is made and the Policy is to be held as collateral security
for any and all liabilities of the undersigned, or any of them, to Corporation,
either now existing or that may hereafter arise under the terms of the Split
Dollar Agreement (all of which liabilities secured or to become secured are
herein called "Liabilities").
E. Corporation covenants and agrees with the undersigned as follows:
1. That any balance of sums received hereunder from Insurer
remaining after payment of the then existing Liabilities, matured or
unmatured, shall be paid by Corporation to the persons entitled
thereto under the terms of the Policy had this Assignment not been
executed;
<PAGE>
2. That Corporation will not exercise either the right to surrender
the Policy or the right to obtain policy loans from Insurer, except
as expressly provided under the terms of the Split Dollar Agreement;
and
3. That Corporation will upon request forward without unreasonable
delay to Insurer the Policy for endorsement of any designation or
change of beneficiary or any election of an optional mode of
settlement.
F. Insurer is hereby authorized to recognize Corporation's claims to the rights
hereunder without investigation into the reason for any action taken by
Corporation, or the validity or the amount of the Liabilities or the existence
of any default therein, or the application to be made by Corporation of any
amounts to be paid to Corporation. The sole signature of Corporation shall be
sufficient for the exercise of any rights under the Policy assigned hereby and
the sole receipt of Corporation for any sums received shall be a full discharge
and release to Insurer. Checks for all of any part of the sums payable under the
Policy and assigned herein, shall be drawn to the exclusive order of Corporation
(or to the Beneficiary if so directed by Corporation), if, when, and in such
amounts as may be requested by Corporation.
G. The exercise of any right, option privilege or power given herein to
Corporation shall be at the option of Corporation, but (except as restricted by
Paragraph E(2) above) Corporation may exercise any such right, option, privilege
or power without notice to, or assent by, or affecting the liability of, or
releasing any interest hereby assigned by the undersigned, or any of them.
H. Corporation may take or release other security, may release any party
primarily or secondarily liable for any of the Liabilities, may grant
extensions, renewals or indulgences with respect to the Liabilities, or may
apply to the Liabilities in such order as Corporation shall determine, the
proceeds of the Policy hereby assigned or any amount received on account of the
Policy by the exercise of any right permitted under this Assignment, without
resorting or regard to other security.
I. Each of the undersigned declares that no proceedings in bankruptcy are
pending against him and that his property is not subject to any assignment for
the benefit of creditors.
EXECUTED IN RICHMOND, VIRGINIA THIS ________ DAY OF__________________ , 19__.
- --------------------------------- ------------------------------
Witness Employee
Employee's Address:
------------------------------
------------------------------
COMMONWEALTH OF VIRGINIA
OF
- ------- -------
Subscribed, sworn and acknowledged before me by _________________,
the Employee, subscribed and sworn before me by _____ , the witness, this
_________ day of _______________, 19__.
[SEAL]________________________
Notary Public
My Commission expires ________________________.
<PAGE>
Attachment A
to EXHIBIT 10.15
SCHEDULE IDENTIFYING OMITTED DOCUMENTS
Executive Officers who Participate in the Company's
Executive Split Dollar Program Under Agreements Substantially
in the Form of the Split Dollar Agreement Filed as EXHIBIT 10.15
<TABLE>
<CAPTION>
Executive Policy No. Face Amount Age at Rollout Issue Date Status
- --------- ---------- ----------- -------------- ---------- ------
<S> <C> <C> <C> <C> <C>
N. Hopper Ancarrow, Jr. 13126400 103,580 65 11/01/94 Active
Gene R. Anderson 13132450 105,487 75 11/01/94 Active
Wayne A. Boutwell 13969294 208,885 75 11/01/96 Active
Jonathan A. Hawkins 13127063 106,438 75 11/01/94 Active
Kenneth G. McClung 13127184 104,340 66 11/01/94 Active
Charles A. Miller, III 13132566 105,000 75 11/01/94 Active
M. Terry Ragsdale 13127269 159,541 85 11/01/94 Retired
Richard G. Sherman 13127882 103,093 65 11/01/94 Active
George W. Winstead 13126278 104,823 67 11/01/94 Active
</TABLE>
EXHIBIT 12
<TABLE>
SOUTHERN STATES COOPERATIVE, INCORPORATED
Ratios of Earnings to Fixed Charges
<CAPTION>
Year ended June 30,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes,
extraordinary charge, cumulative
effect of accounting changes and
discontinued operations and 13,632,424 33,539,852 34,645,994 23,172,418 11,730,434
distributions on capital securties
Interest expense, net of capitalized 16,859,373 15,565,523 15,236,987 14,797,975 12,257,694
interest
Portion of rents representative of 2,900,188 2,703,206 2,423,809 2,393,876 2,208,645
interest factor
Amortization of capitalized interest 62,249 15,143 10,832 6,051 6,764
Distributions on capital securities - - - - -
---------- ---------- ---------- ---------- ----------
Total Earnings $33,454,234 $51,823,724 $52,317,622 $40,370,320 $28,203,537
=========== =========== =========== =========== ===========
Fixed Charges:
Interest expense (before deducting
capitalized interest) 17,310,851 15,730,029 15,352,563 14,876,278 12,337,035
Portion of rents representative of 2,900,188 2,703,206 2,423,809 2,393,876 2,206,645
interest factor
Distributions on trust preferred capital - - - - -
securities
Preferred stock dividend requirements of
majority-owned subsidiaries grossed 316,063 316,061 316,061 316,063 336,154
up for pre-tax effect ---------- ---------- ---------- ---------- ----------
Total Fixed Charges $ 20,527,102 $ 18,749,297 $ 18,092,434 $ 17,586,217 $14,881,834
============ ============ ============ ============ ===========
Ratio of Earnings to Fixed Charges 1.63 2.76 2.89 2.30 1.76
============ ============ ============ ============ ===========
Insufficient to cover fixed charges by
<CAPTION>
Pro Forma
----------------------
Three Months Ended Three
September 30, Year Months Ended
-------------- --------------- Ended September 30,
1998 1997 June 30, 1998 1998
---- ---- ------------- ------------
Earnings:
Income (loss) before income taxes,
extraordinary charge, cumulative
effect of accounting changes and
discontinued operations and (10,760,808) (7,031,338) (562,000) (20,589,000)
distributions on capital securties
Interest expense, net of capitalized 4,684,443 4,410,455 26,876,000 7,186,000
interest
Portion of rents representative of 812,166 666,713 6,900,148 2,068,483
interest factor
Amortization of capitalized interest 15,562 4,785 62,249 15,562
Distributions on capital securities - - 6,993,000 1,749,000
----------- ----------- --------- ---------
Total Earnings ($5,248,637) ($1,949,385) 40,269,397 (9,569,955)
============ ============ ========== ===========
Fixed Charges:
Interest expense (before deducting
capitalized interest) 4,684,443 4,410,455 27,327,478 7,186,000
Portion of rents representative of 812,166 666,713 6,900,148 2,068,483
interest factor
Distributions on trust preferred capital - - 6,993,000 1,749,000
securities
Preferred stock dividend requirements of
majority-owned subsidiaries grossed 79,015 79,015 316,063 131,254
up for pre-tax effect ----------- ----------- --------- ---------
Total Fixed Charges $5,575,624 $ 5,156,183 $ 41,536,689 $ 11,134,737
========== =========== ============ ============
Ratio of Earnings to Fixed Charges (0.94) (0.38) 0.94 (0.86)
========== =========== ============ ============
Insufficient to cover fixed charges by $10,824,261 $ 7,105,568 $ 1,267,292 $20,704,692
</TABLE>
EXHIBIT 21
Southern States Cooperative, Incorporated
LIST OF SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation
Southern States Holdings, Inc. Virginia
Southern States Underwriters, Inc. Virginia
SSC Insurance Agency, Inc. Virginia
Wetsel, Inc. Virginia
Mountain State Greenhouses, Inc. Virginia
Agriland Exchange, Inc. Michigan
Virginia Seed Service, Inc. Virginia
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated August 31, 1998, except for the information included in Note 19 for
which the date is October 13, 1998, on our audits of the financial statements
and the financial statement schedule of Southern States Cooperative,
Incorporated and Subsidiaries. We also consent to the reference to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
December 18, 1998
EXHIBIT 23.2
The Board of Directors
Southern States Cooperative, Incorporated:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
(signed) KPMG Peat Marwick LLP
Atlanta, Georgia
December 18, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Wayne A. Boutwell, Jonathan A. Hawkins and N. Hopper Ancarrow, Jr.,
or any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (including without limitation in any capacity
on behalf of Southern States Cooperative, Inc. (the "Company") and/or Southern
States Capital Trust I (the "Trust") or as an officer, director or trustee
thereof), to sign a Registration Statement on Form S-1 for registration of up to
$100,000,000 of ___% Capital Securities (liquidation amount $25.00 per Capital
Security) to be issued by the Trust (the "Capital Securities") and qualification
of any indenture relating to such Capital Securities under the Trust Indenture
Act of 1939, and any and all amendments (including post-effective amendments) to
such Registration Statement, and to file the same, with all applications,
statements and exhibits thereto, and all preliminary prospectuses, prospectuses,
prospectus supplements and documents in connection therewith, with the
Securities and Exchange Commission, granting unto each of said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as the undersigned might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Power
of Attorney on the 17th day of November, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Michael W. Beahm /s/ Cecil D. Bell, Jr /s/ Floyd K. Blessing
- --------------------------- ----------------------- --------------------------
Michael W. Beahm Cecil D. Bell, Jr. Floyd K. Blessing
/s/ James E. Brady /s/ Earl L. Campbell /s/ Jere L. Cannon
- --------------------------- ----------------------- --------------------------
James E. Brady Earl L. Campbell Jere L. Cannon
/s/ William F. Covington /s/ Herbert A. Daniel /s/ H. Michael Davis
- --------------------------- ----------------------- --------------------------
William F. Covington Herbert A. Daniel H. Michael Davis
/s/ George E. Fisher /s/ R. Bruce Johnson /s/ James A. Kinsey
- --------------------------- ----------------------- --------------------------
George E. Fisher R. Bruce Johnson James A. Kinsey
/s/ J. Wayne McAtee /s/ Fred K. Norris /s/ Phil Ogletree, Jr.
- --------------------------- ----------------------- --------------------------
J. Wayne McAtee Fred K. Norris Phil Ogletree, Jr.
/s/ Richard F. Price /s/ William Pridgeon /s/ Curry A. Roberts
- --------------------------- ----------------------- --------------------------
Richard F. Price William Pridgeon Curry A. Roberts
/s/ John Henry Smith /s/ James A. Stonesifer /s/ William W. Vanderwende
- --------------------------- ----------------------- --------------------------
John Henry Smith James A. Stonesifer William W. Vanderwende
/s/ Wilbur C. Ward /s/ Charles A. Wilfong
- --------------------------- -----------------------
Wilbur C. Ward Charles A. Wilfong
</TABLE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2) _____
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
230 SOUTH TRYON STREET, 9TH FL.
CHARLOTTE, NC 28288-1179 22-1147033
(Address of principal executive office) (Zip Code) (I.R.S. Employer
Identification No.)
Patricia A. Welling (804) 343-6067
800 East Main Street, Richmond, Virginia 23219
SOUTHERN STATES CAPITAL TRUST I
(Exact name of obligor as specified in its charter)
Delaware (Applied For)
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6606 West Broad Street
P. O. Box 23264
Richmond, VA 23260
(Address of principal executive offices) (Zip Code)
Capital Securities of Southern States Capital Trust I
(Title of the indenture securities)
<PAGE>
1. General information.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
3. Voting Securities of the Trustee.
Response not required.
(See answer to Item 13)
4. Trusteeships under other indentures.
Response not required.
(See answer to Item 13)
5. Interlocking directorates and similar relationships with the obligor or
underwriters.
Response not required.
(See answer to Item 13)
6. Voting securities of the Trustee owned by the obligor or its officials.
Response not required.
(See answer to Item 13)
7. Voting securities of the Trustee owned by underwriters or their officials.
Response not required.
(See answer to Item 13)
8. Securities of the obligor owned or held by the Trustee.
Response not required.
(See answer to Item 13)
<PAGE>
9. Securities of underwriters owned or held by the Trustee.
Response not required.
(See answer to Item 13)
10. Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
Response not required.
(See answer to Item 13)
11. Ownership or holdings by the Trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
Response not required.
(See answer to Item 13)
12. Indebtedness of the obligor to the Trustee.
Response not required.
(See answer to Item 13)
13. Defaults by the obligor.
A. None
B. None
14. Affiliations with the underwriters.
Response not required.
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under the
laws of the United States.
16. List of Exhibits.
(1) *Articles of Incorporation.
(2) Certificate of Authority of the Trustee to conduct business. No
Certificate of Authority of the Trustee to commence business is
furnished since this authority is continued in the Articles of
Association of the Trustee.
(3) *Certificate of Authority of the Trustee to exercise corporate
trust powers.
<PAGE>
(4) *By-Laws.
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939 as amended. Included at Page 5 of this Form
T-1 Statement.
(7) *Report of condition of Trustee. (Incorporated herein by reference
per SEC registration number 333- 58547).
(8) Inapplicable.
(9) Inapplicable.
* Exhibits thus designated have heretofore been filed with the
Securities and Exchange Commission, have not been amended since filing
are incorporated herein by reference (See Exhibit T-1 Registration
Number 333-58547).
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this Statement of Eligibility and Qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Richmond, and in the Commonwealth of Virginia on the 17th day of December, 1998.
FIRST UNION NATIONAL BANK
(Trustee)
BY: /s/ Patricia A. Welling
-----------------------
EXHIBIT T-1 (6)
CONSENT OF TRUSTEE
Under Section 321(b) of the Trust Indenture Act of 1939 and in
connection with the issuance by Southern States Capital Trust I of its Capital
Securities of Southern States Capital Trust I, First Union National Bank, as the
Trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION NATIONAL BANK
BY: /s/ Patricia A. Welling
-----------------------
Dated: December 17, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Southern States Cooperative, Incorporated as of, and for
the twelve month period ended June 30, 1998 and as of, and for the three month
period ended September 30, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> JUN-30-1998 SEP-30-1998
<CASH> 15,352 15,774
<SECURITIES> 0 0
<RECEIVABLES> 55,330 61,454
<ALLOWANCES> 2,643 3,113
<INVENTORY> 133,167 139,721
<CURRENT-ASSETS> 217,126 228,149
<PP&E> 304,578 314,213
<DEPRECIATION> 175,385 178,936
<TOTAL-ASSETS> 462,296 481,608
<CURRENT-LIABILITIES> 127,028 148,459
<BONDS> 0 0
2,114 2,114
1,494 1,484
<COMMON> 12,195 12,198
<OTHER-SE> 165,592 157,388
<TOTAL-LIABILITY-AND-EQUITY> 462,296 481,608
<SALES> 1,119,503 210,893
<TOTAL-REVENUES> 1,119,503 211,163
<CGS> 927,652 175,922
<TOTAL-COSTS> 1,103,436 221,924
<OTHER-EXPENSES> 2,434 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 13,632 (10,761)
<INCOME-TAX> 2,966 (2,679)
<INCOME-CONTINUING> 13,632 (8,081)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,667 (8,081)
<EPS-PRIMARY> 0.0 0.0
<EPS-DILUTED> 0.0 0.0
</TABLE>
