As filed with the Securities and Exchange Commission on May 11, 1999
Registration No. 333-69265
- - - - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 1
TO
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
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(d) under
the Securities Act, check the following box and list the Securities Act
registration 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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- - - - ----------------------------- ------------------- --------------- ------------------ ------------
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO MAXIMUM OFFERING OFFERING PRICE REGISTRATION
BE REGISTERED AMOUNT TO PRICE (1) (2) FEE (3) (4)
BE REGISTERED PER UNIT
(1) (2)
- - - - ----------------------------- ------------------- --------------- ------------------ ------------
<S> <C>
Capital Securities of
Southern States Capital $86,250,000 $25.00 $86,250,000 $23,978
Trust I
- - - - ----------------------------- ------------------- --------------- ------------------ ------------
- - - - ----------------------------- ------------------- --------------- ------------------ ------------
Junior Subordinated
Debentures of Southern (7)
States Cooperative, Inc.
due _______ ___, 2029 (5)
- - - - ----------------------------- ------------------- --------------- ------------------ ------------
- - - - ----------------------------- ------------------- --------------- ------------------ ------------
Guarantee of Capital
Securities by Southern (7)
States Cooperative, Inc.
(6)
- - - - ----------------------------- ------------------- --------------- ------------------ ------------
</TABLE>
(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 entire $23,978 fee was paid with our initial filing of this
Registration Statement on December 18, 1998.
(5) 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.
(6) No separate consideration will be received for the Guarantee of the
Capital Securities by Southern States Cooperative, Inc. (the "Guarantee").
(7) 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 ___% Capital Securities
SOUTHERN STATES CAPITAL TRUST I
(Liquidation Amount $25 per Capital Security)
Fully and Unconditionally Guaranteed by
SOUTHERN STATES COOPERATIVE, INCORPORATED
--------------------
Southern States Capital Trust I is offering up to $75,000,000
aggregate liquidation amount of its ___% Capital Securities. The Capital
Securities are registered under the Securities Act of 1933. The proceeds from
the sale of the Capital Securities will be used to buy a series of ___% Junior
Subordinated Debentures due _____, 2029 issued by Southern States Cooperative,
Incorporated. If you purchase these Capital Securities, you will be entitled to
receive annual distributions at a rate of __%. Distributions will be paid
quarterly. Interest payments on the junior subordinated debentures may be
deferred up to 20 consecutive quarters (5 years). If the interest payments are
deferred, Southern States Capital Trust I will also defer distributions. See
"Prospectus Summary."
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 rest of this 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.
--------------------
Underwriting commissions of $________ per Capital Security (or $________ for
all Capital Securities) will be paid by Southern States Cooperative,
Incorporated.
Per Capital
Security Total
-------- -----
Public Offering Price............. $25.00 $75,000,000
Underwriting Discount............. -- --
Proceeds to the Trust............. $25.00 $75,000,000
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.
--------------------
FIRST UNION CAPITAL MARKETS CORP.
LEHMAN BROTHERS NATIONSBANC MONTGOMERY SECURITIES LLC
--------------------
The date of this preliminary prospectus is ___________, 1999.
<PAGE>
[To follow front cover for EDGAR filing only]
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 Southern States 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
----
Prospectus Summary.............................................. 2
Risk Factors.................................................... 9
Southern States Capital Trust I................................. 15
Use of Proceeds................................................. 16
Capitalization.................................................. 18
Unaudited Pro Forma Condensed Combined Financial Information.... 19
Selected Historical Consolidated Financial Information.......... 24
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 28
Farm Cooperatives............................................... 45
Southern States................................................. 46
Business of Southern States..................................... 51
Acquisition of the Gold Kist Inputs Business.................... 67
Management...................................................... 72
Description of the Capital Securities........................... 82
Description of the Junior Subordinated Debentures............... 98
The Guarantee................................................... 109
The Expense Agreement........................................... 112
Effect of Obligations Under the Junior Subordinated Debentures,
the Guarantee and the Expense Agreement...................... 112
United States Federal Income Taxation........................... 115
ERISA Considerations............................................ 121
Underwriting.................................................... 122
Legal Matters................................................... 124
Experts......................................................... 124
Available Information........................................... 124
Disclosure Regarding Forward Looking Statements................. 125
Index to Financial Statements................................... F-1
<PAGE>
[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]
[Picture of Fertilizer Application]
[Picture of Petroleum and Propane Operations]
<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 Southern
States" in the full text portion of this prospectus does not include information
relating to the acquisition of the Gold Kist Inputs Business. For a description
of the Gold Kist Inputs Business and its integration with Southern States'
business operations, see "Acquisition of the Gold Kist Inputs Business."
Southern States' fiscal year ends on June 30.
SOUTHERN STATES COOPERATIVE, INCORPORATED
Overview
Southern States Cooperative, Incorporated ("Southern States") 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.
We also expanded our operations in the fall of 1998 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, our business is now owned
by over 300,000 farmer and local cooperative members. We are the principal
cooperative in a cooperative distribution system that now encompasses almost 700
retail locations. See "Southern States--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
believe we are now the largest livestock marketing cooperative in the United
States.
We are making this offering of Capital Securities to raise additional
capital to support the continued growth of our business.
1
<PAGE>
THE OFFERING
The Capital Securities to Be Offered by Southern States Capital Trust I
Southern States Capital Trust I ("Southern States Capital Trust" or
the "Trust") will sell its Capital Securities to the public and its Common
Securities to Southern States. Southern States Capital Trust will use the
proceeds from these sales to buy a series of ___% Deferrable Interest Junior
Subordinated Debentures due _________, 2029 from Southern States with the same
payment terms as the Capital Securities.
You Will Be Entitled to Receive Quarterly Distributions on the Capital
Securities
If you purchase the Capital Securities, you will be 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
_____ 1, 1999.
Quarterly Distributions May Be Deferred for up to 20 Consecutive Quarters
As long as no default under the junior subordinated debentures has
occurred, Southern States 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 the
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
__% of 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.
The Capital Securities May Be Redeemed Prior to Maturity
The Tust must redeem the Capital Securities when the junior
subordinated debentures are paid at maturity or upon any earlier redemption.
Southern States has the option at any time on or after _____________, 2004 to
redeem the junior subordinated debentures for the liquidation amount plus any
unpaid distributions. In addition, Southern States may redeem the junior
subordinated debentures before __________, 2004, if specific tax events occur.
Upon any redemption, you will receive the liquidation amount of $25 per Capital
Security plus any unpaid distributions accrued to the date of redemption.
As Owner of the Capital Securities, You Will Have Limited Voting Rights
Generally, holders of the Capital Securities will not have any
voting rights, except under the limited circumstances described under
"Description of the Capital Securities--Voting Rights." The holders of a
majority in liquidation amount of the Capital Securities, however, have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the property trustee, or to direct the exercise of any trust
or power conferred upon the property trustee.
2
<PAGE>
Southern States Has Fully and Unconditionally Guaranteed the Capital Securities
on a Subordinated Basis
Southern States has fully and unconditionally guaranteed the Capital
Securities based on:
o its obligations to make payments on the junior subordinated
debentures;
o its obligations under the guarantee agreement; and
o its obligations under the expense agreement (as that term is defined
below in the section captioned "Southern States Capital Trust I").
For a discussion of Southern States' obligations listed above, see
the sections entitled "The Guarantee" and "Effect of Obligations Under the
Junior Subordinated Debentures, the Guarantee and the Expense Agreement."
The guarantee does not cover payments when Southern States Capital
Trust does not have sufficient funds to make the payments. If Southern States
does not make a payment on the junior subordinated debentures, the Trust will
not have sufficient funds available to make distributions on the Capital
Securities and will not make such distributions. As a result, you will not be
able to rely upon the guarantee for payment of these amounts. Instead, you or
the property trustee may enforce the rights of the trust under the junior
subordinated debentures directly against Southern States.
The Junior Subordinated Debentures Will Be Subordinate to Existing and Future
Senior Indebtedness of Southern States
Southern States' obligations under the junior subordinated
debentures will be subject to payment on its Senior Indebtedness (as defined in
"Description of the Junior Subordinated Debentures--Subordination") and will be
effectively subordinate to all existing secured and unsecured debt of Southern
States and its subsidiaries. The junior subordinated debentures also will be
subordinate to all future debt of Southern States unless, by its terms, such
debt is on a parity with or subordinate to the junior subordinated debentures.
As of December 31, 1998, the aggregate amount of Senior Indebtedness and
liabilities and obligations of Southern States and its subsidiaries that would
have effectively ranked senior to the junior subordinated debentures was
approximately $331.8 million.
You Have Certain Rights in the Event of Default by Southern States
The following are events of default under both the Indenture and the Trust
Agreement (as these terms are defined in "Southern States Capital Trust I"):
o Southern States' failure for 30 days or more to pay interest on the
junior subordinated debentures when due;
o Southern States' failure to pay principal of or premium, if any, on
the junior subordinated debentures when due;
3
<PAGE>
o Southern States' failure to perform any other covenant in the
Indenture which continues for 60 days after written notice;
o specific bankruptcy, insolvency or reorganization events.
If any of these events of default occurs and is continuing, either the property
trustee or the holders of at least 25% of the principal amount of the junior
subordinated debentures may declare the principal of and interest on the junior
subordinated debentures due and payable immediately. Since Southern States
Capital Trust will hold all of the junior subordinated debentures, the property
trustee will have the authority to declare the principal of and interest on the
junior subordinated debentures due and payable.
The holders of a majority of the principal amount of the junior subordinated
debentures may, under certain circumstances, rescind and annul any acceleration
of the payment of the principal and interest as a result of an event of default.
See "Description of the Junior Subordinated Debentures--Debenture Events of
Default."
If the property trustee fails to enforce its rights, any holder of the Capital
Securities may proceed directly against Southern States to enforce the property
trustee's rights. In addition, if an event of default arises due to the failure
of Southern States to pay principal or interest on the junior subordinated
debentures, any holder of Capital Securities may proceed directly against
Southern States to collect its proportionate share of unpaid principal and
interest. Holders of Capital Securities have similar rights in the event of a
default by Southern States under the guarantee.
If an event of default has occurred or if Southern States has defaulted on its
obligations under the guarantee, Southern States will not be permitted to:
o declare or pay any dividends or make any distributions with respect
to its capital stock or patrons' equity;
o redeem, purchase, acquire or make a liquidation payment with respect
to its capital stock or patrons' equity;
o redeem any patronage refund allocations (discussed in "Southern
States--Cooperative Structure--Patronage Refunds"); or
o pay any principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities that rank equal with or
junior to the junior subordinated debentures.
Southern States May Liquidate the Trust at Any Time
Southern States 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 of the Trust in
liquidation of the Trust.
4
<PAGE>
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 any 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 so distributed, Southern
States 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.
You will not Receive a Certificate for the Capital Securities
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.
We expect the Capital Securities will be ready for delivery in
book-entry form only through The Depository Trust Company on or about
____________, 1999.
BUSINESS OF SOUTHERN STATES
Southern States is both a supply and a marketing cooperative:
>> As a supply cooperative, we provide agricultural supplies ("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 Southern States' 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.
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.
5
<PAGE>
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
26 metropolitan retail locations. This division also distributes fertilizer,
crop protectants, seeds and other agronomic supplies to dealers and commercial
accounts in several eastern and midwestern states through Southern States'
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.
The Livestock Marketing division was established in April 1998, through
the acquisition of Michigan Livestock Exchange. This division operates 11
livestock auction facilities and 28 swine buying stations, 10 of which are also
livestock auction facilities, in the four-state territory of Michigan, Ohio,
Indiana and Kentucky.
Acquisition of Gold Kist Inputs Business. In October 1998, we purchased
the agricultural farm supply business of Gold Kist Inc., a major southeastern
marketing and supply cooperative. Through this portion of our business, we
purchase, manufacture and process 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. This acquisition has significantly added
to the size and geographical scope of our business. See "Use of Proceeds" and
"Acquisition of the Gold Kist Inputs Business" for additional information
concerning the terms of the agreement between Southern States and Gold Kist for
the purchase of the Gold Kist Inputs Business. See also "Risk Factors--Our
Ability to Improve the Profitability of the Gold Kist Inputs Business May Affect
Operating Results" and "--Our Ability to Integrate the Gold Kist Inputs Business
May Affect Operating Results" for a discussion of risks associated with the
acquisition.
---------------
Our executive offices are located at 6606 West Broad Street, Richmond,
Virginia 23230, and our telephone number is 804-281-1000.
6
<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 Southern States had the
acquisition described above occurred on the indicated dates or been in effect
for the period 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 Southern States and the Gold Kist Inputs Business,
including in each case, the related notes thereto, included elsewhere in this
prospectus, and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Six Months Fiscal Year
Ended Ended
December 31, 1998 June 30, 1998
------------------ -------------
(amounts in thousands)
<S> <C> <C>
Statement of Operations Data:
Sales and other operating revenue............................. $574,482 $1,600,045
Cost of products purchased and marketed....................... 471,155 1,322,131
Selling, general and administrative expenses. 130,632 281,075
------- -------
Loss on operations (1)........................................ $ (27,305) $ (3,161)
========== ==========
Statement of Operations Data:
EBITDA (2) ................................................... $ 395 $ 46,784
Interest expense.............................................. 17,487 26,876
Ratio of earnings to fixed charges (3) (4).................... --- ---
Ratio of EBITDA to interest expense........................... .02x 1.74x
As of
December 31, 1998
------------------
Balance Sheet Data:
Working capital............................................... $150,222
Total assets.................................................. 749,022
Long-term debt................................................ 195,274
Other Balance Sheet Data:
Current ratio (5)............................................. 1.51x
Long-term debt to total capitalization (6).................... .45x
</TABLE>
(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 and distributions on
manditorily redeemable capital securities of trust subsidiary 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. Southern States 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 non operating factors
(such as historical cost). Accordingly, this information and the related
other EBITDA ratios, including the ratio of EBITDA to interest expense,
have been disclosed in this prospectus to permit a more complete
comparative analysis of operating performance relative to companies
within and outside of the industry and of Southern States' debt servicing
ability. However, EBITDA and EBITDA to interest expense may not be
comparable in all instances to other similar types of measures used by
other companies in the agricultural industry.
7
<PAGE>
(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
$29.3 million and $5.1 million for the six months ended December 31, 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,
company-obligated mandatorily redeemable capital securities of trust
subsidiary, net, mandatorily redeemable preferred stock, capital stock and
patrons' equity.
SELECTED HISTORICAL DATA
(in thousands)
Southern States:
<TABLE>
<CAPTION>
Six Months
Ended December 31 Fiscal Year Ended June 30
----------------- -------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Supply
Feed--tons............................ 589 456 917 924 895 875 834
Fertilizer--tons...................... 357 324 1,155 1,137 1,054 1,021 1,057
Seed--pounds, 100 wt............. 947 968 1,673 1,384 1,305 1,412 1,051
Petroleum--gallons.................... 150,309 171,319 314,614 349,863 340,556 306,874 287,958
Marketing
Grain marketing--bushels......... 11,649 14,781 24,830 29,380 27,637 28,517 20,543
Livestock marketing--head
Cattle......................... 300 N/A 642 599 N/A N/A N/A
Swine.......................... 793 N/A 2,689 2,516 N/A N/A N/A
Other.......................... 77 N/A 136 120 N/A N/A N/A
</TABLE>
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
8
<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 Capital Securities
Southern States' Obligations Under the Guarantee and the Junior Subordinated
Debentures Are Subordinated to Its Senior Indebtedness
Southern States' obligations under the guarantee and the junior
subordinated debentures are unsecured and will rank in priority of payment:
o junior to all of Southern States' present and future Senior
Indebtedness,
o senior to Southern States' existing preferred stock,
o senior to Southern States' common stock, and
o senior to Southern States' patronage equity.
This means that Southern States cannot make any payments on the
guarantee or the junior subordinated debentures if it defaults on a payment on
any of its Senior Indebtedness, except any indebtedness made equal with or
subordinate to the guarantee and the junior subordinated debentures by its
terms. In the event of bankruptcy, liquidation or dissolution of Southern
States, its assets would be available to pay obligations under the guarantee and
the junior subordinated debentures only after all payments had been made on
senior indebtedness, except indebtedness made equal with or subordinate to the
guarantee and the junior subordinated debentures by its terms. At December 31,
1998, the aggregate amount of senior indebtedness of Southern States that would
have effectively ranked senior to the guarantee and the junior subordinated
debentures was approximately $331.8 million.
Neither the indenture, the guarantee nor the trust agreement limits the
ability of Southern States or any of its subsidiaries to incur additional
indebtedness. See "Description of the Junior Subordinated
Debentures--Subordination" and "The Guarantee--Status of the Guarantee."
Southern States is contemplating an offering of $50 million of Series A
Cumulative Redeemable Preferred Stock. This preferred stock, if issued, will
rank junior in right of payment to the Capital Securities. See "Use of Proceeds"
for a further discussion of this preferred stock.
Southern States' Ability to Defer Interest Payments Has Tax Consequences for You
As long as no event of default (as described in "Description of the
Junior Subordinated Debentures--Debenture Events of Default") has occurred and
is continuing, Southern States 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.
9
<PAGE>
During any such interest payment deferral period, the trust would defer
distributions on the Capital Securities. However, you would still accumulate
distributions at an annual rate of ___% on the liquidation amount and (to the
extent permitted by law) on the amount of any unpaid distributions.
Prior to the termination of any such deferral period, Southern States
may further defer the payment of interest, provided that no interest payment
deferral period may exceed 20 consecutive quarters or extend beyond the maturity
date of the junior subordinated debentures.
Upon the termination of any interest payment deferral period and the
payment of all accrued and unpaid interest (together with interest thereon at an
annual rate of ___%, compounded quarterly, to the extent permitted by applicable
law), Southern States may elect to begin a new deferral period subject to the
above conditions. Southern States is not limited as to the number of times that
it may elect to begin an interest payment deferral period. See "Description of
the Capital Securities--Distributions; Option to Extend Interest Payment Period"
and "Description of the Junior Subordinated Debentures--Option to Extend
Interest Payment Period."
During an interest payment deferral period, you would be required to
accrue interest income for United States federal income tax purposes with
respect to your proportionate 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--US Holders--Interest Income and Original Issue
Discount" and "--Sales of Capital Securities."
Southern States has no current intention of exercising its right to
defer interest payments on the junior subordinated debentures. However, if
Southern States 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 payment deferral period, you may not receive the same return
on investment as someone else who continues to hold the Capital Securities.
The Capital Securities May Be Redeemed at Any Time if a Tax Event Occurs
Southern States has the right to redeem the junior subordinated
debentures in whole (but not in part) at any time a tax event occurs and is
continuing. A tax event is the occurrence of adverse tax consequences to the
trust or Southern States as more fully defined in "Description of the Capital
Securities--Redemption." 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.
10
<PAGE>
Distribution of the Junior Subordinated Debentures May Have an Adverse Effect on
Market Prices and May Have Tax Consequences for You
Southern States Capital Trust may be terminated before its expiration at
any time at Southern States' 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 Amount Upon Dissolution."
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 such 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 to the holders of the Capital Securities. See
"United States Federal Income Taxation--US Holder--Receipt of Junior
Subordinated Debentures or Cash Upon Liquidation of the Trust."
Southern States 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."
The Ability of the Trust to Make Timely Distributions Is Dependent on
Southern States Making Payments on the Junior Subordinated Debentures; The
Guarantee Covers Payments Only if the Trust Has Available Funds
The sole source of revenue for Southern States Capital Trust will be
payments made by Southern States on the junior subordinated debentures.
Consequently, the ability of the Trust to timely pay distributions on the
Capital Securities depends entirely upon Southern States making the related
payments on the junior subordinated debentures when due.
If Southern States 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
Southern States or you may institute a direct proceeding against Southern States
to enforce payment of principal and interest on an amount of the junior
subordinated debentures equal to the liquidation amount of the Capital
Securities that you hold.
11
<PAGE>
You Will Have Limited Voting Rights
Holders of the Capital Securities have limited voting rights. In
general, only Southern States 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 Southern States may, subject to certain conditions,
amend the trust agreement without the consent of holders of the 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:
o will not be taxable as a corporation or as other than a grantor
trust for United States federal income tax purposes, or
o will not be required to register as an "investment company" under
the Investment Company Act.
See "Description of the Capital Securities--Voting Rights",
"--Modification of the Trust Agreement" and "--Removal of Trustees; Appointment
of Successors."
Potential Tax Law Changes
From time to time, certain tax law changes have been proposed that would
deny interest deductions to corporate issuers of debt instruments with terms
that include many of the terms of the junior subordinated debentures. In
addition, the IRS has challenged taxpayers' treatment as indebtedness of
securities issued with characteristics similar to the junior subordinated
debentures. To date, such tax law change proposals have not been enacted, and
the only known challenge that has advanced as far as litigation was settled
short of trial, with a resolution favorable to the taxpayer's position. However,
if any similar tax law change were enacted or any such challenge by the IRS were
upheld, such event could give rise to a tax event which could result in an early
redemption of the Capital Securities.
Risk Factors Relating to Southern States
Declining Commodity Prices Have Affected Our Recent Operating Results
Our recent operating results have been adversely affected by declines in
a wide range of agricultural commodity prices. Southern States' net savings from
operations for its fiscal year ended June 30, 1998, were $10.7 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. This 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 volume reductions in petroleum and grain marketing as a
result of warmer than usual weather during the winter heating season and drought
conditions that adversely affected grain harvests.
12
<PAGE>
The decline in commodity prices that affected Southern States in fiscal
1998 continued to impact Southern States in the six-month period ended December
31, 1998. If lower than usual commodity prices continue, they will continue to
adversely affect our operating results in future periods.
Agriculture is generally cyclical in nature. Agricultural commodities are
subject to wide fluctuations in price, based on the supply of 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 particular 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 Southern States--Other Factors Affecting the
Business of Southern States--Commodity Price Hedging Activities."
Our Ability to Improve the Profitability of the Gold Kist Inputs Business May
Affect Operating Results
The Gold Kist Inputs Business incurred operating losses of $12.3 million
for the year ended June 27, 1998. A continuation of such losses following
Southern States' acquisition of the Gold Kist Inputs Business would severely
impact Southern States' operating results and could result in Southern States'
inability to achieve any net savings from operations for the year ended June 30,
1999, and possibly for periods thereafter. See "Acquisition of the Gold Kist
Inputs Business."
Our Ability to Integrate the Gold Kist Inputs Business May Affect Operating
Results
The acquisition of the Gold Kist Inputs Business increased Southern
States' total assets by approximately $250 million. 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
Southern States. 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."
13
<PAGE>
Weather Conditions Impact the Demand for Our Products and Services
Historically, weather has had a significant impact on the farm economy
and, consequently, our operating results. Weather conditions also affect the
demand for, and in some cases the supply of, our products, which in turn has an
impact on their prices. For example, weather patterns such as flood, drought or
frost can cause crop failures, thereby affecting the supply of feed and seed and
the marketing of grain products, as well as the demand for fertilizer, crop
protectants, seeds and other agronomic supplies. Weather conditions also
directly affect the demand for petroleum products, particularly during the
winter heating season. Accordingly, weather patterns and events may have a
material effect on our business, financial condition, and results of operations.
Adverse weather conditions also impact the financial position of agricultural
producers who do business with us, and may as a result adversely affect the
ability of such producers to repay their obligations to Southern States in a
timely manner.
The Agribusiness Industry Is Highly Competitive
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 Southern States'
territory. However, major competitors vary from area to area. Some of these
companies may have capital resources, research and development staffs,
facilities, or name recognition that may be greater than ours. Our potential
inability to compete successfully could have a material adverse effect on
Southern States' business, financial condition, and results of operations. See
"Business of Southern States--Other Factors Affecting the Business of Southern
States--Competition."
We Have Exposure to Environmental Liabilities
The use and handling of fertilizer, crop protectants and petroleum
products can and does result in environmental contamination. 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 Southern States--Other Factors
Affecting the Business of Southern States--Matters Involving the Environment."
First Union Capital Markets Corp. and NationsBanc Montgomery Securities, LLC Are
Underwriters in the Offering and May Have an Interest in a Successful Offering
Other Than as Underwriters
Investors in the Capital Securities should be aware that corporate
affiliates of certain of the underwriters are creditors of Southern States and
expect to be repaid out of the proceeds from the sale of Capital Securities. The
net proceeds of the offering will be applied to repay indebtedness outstanding
under a bridge loan facility used by Southern States 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 is an
affiliate of NationsBanc Montgomery Securities, LLC, and First Union National
Bank is an affiliate of First Union Capital Markets Corp. As a result of these
relationships and the intended use of the net proceeds, First Union Capital
Markets and NationsBanc Montgomery Securities 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 utilized in connection with
the offering.
14
<PAGE>
SOUTHERN STATES CAPITAL TRUST I
General
As used in this prospectus, (i) the "Indenture" means the Junior
Subordinated Indenture, as amended and supplemented from time to time, between
Southern States 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 Southern States Capital Trust, as amended and supplemented from time to
time, among Southern States, as depositor, First Union National Bank, as
property trustee, First Union Trust Company, National Association, as Delaware
trustee, and Wayne A. Boutwell and Jonathan A. Hawkins, the administrative
trustees (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
Southern States and First Union National Bank, as 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 Southern States, which will be the sole holder of the Common
Securities. See "Description of The Capital Securities--Miscellaneous."
The Trust exists for the exclusive purposes of:
o issuing and selling the Capital Securities and the related Common
Securities (together, the "Trust Securities"),
o using the proceeds from the sale of the Trust Securities to acquire
the junior subordinated debentures and
o 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 Southern
States. The Common Securities will rank equal to, and payments will be made
thereon ratably, 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 Southern States 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." Southern States 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.
15
<PAGE>
No separate financial statements of the Trust are included in this
prospectus. Southern States 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) Southern States owns,
directly or indirectly, all of the voting securities of the Trust; and (iii)
under the guarantee, Southern States will guarantee the payment of distributions
and amounts on liquidation and redemption of Capital Securities to the extent
described in this prospectus.
Accounting Treatment
The financial statements of the Trust will be consolidated in Southern
States' consolidated financial statements, with the Capital Securities being
treated as a minority interest and shown in Southern States' consolidated
balance sheet as "company-obligated mandatorily redeemable capital securities of
trust subsidiary." The notes to the Southern States financial statements 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 note to Southern States' financial
statements will reflect that the guarantee, when taken together with Southern
States' obligations under the junior subordinated debentures and the 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.
USE OF PROCEEDS
The proceeds from the sale of the Capital Securities will be invested by
the Trust in junior subordinated debentures issued by Southern States under the
Indenture and ultimately will be used by Southern States to reduce bank
indebtedness incurred in connection with the acquisition of the Gold Kist Inputs
Business.
Southern States 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. Southern States
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. In February, 1999, Southern States repaid $118.3 million of its
outstanding indebtedness under the bridge loan facility by borrowing an
equivalent amount under a newly-established three-year $200 million revolving
credit facility. The revolving credit facility provides that Southern States not
16
<PAGE>
use in excess of $118.3 million of that facility to repay the bridge loan
facility. The bridge loan facility, which had an outstanding principal balance
of $100 million at March 31, 1999, and which bears interest at LIBOR plus
variable increments (effective rate of 5.755% at March 31, 1999), is repayable
in full on or before October 8, 1999. Southern States intends to repay the
remaining balance of the bridge loan facility in part from 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. This preferred stock, if sold, will be perpetual, non-voting
and subject to redemption by Southern States on or after January 1, 2009. This
preferred stock will rank on a parity with Southern States' other preferred
stock.
In the event the offering of Capital Securities made by this prospectus
is not consummated prior to October 5, 1999, and the sale of the preferred stock
is not completed by that date, Southern States may elect, pursuant to a
financing commitment entered into between Southern States 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 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 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 (4) under "Capitalization" for information concerning Southern
States' revolving credit facility.
17
<PAGE>
CAPITALIZATION
The following table sets forth our historical consolidated
capitalization at December 31, 1998, and our pro forma consolidated
capitalization at December 31, 1998, adjusted to reflect the application of the
proceeds from the sale of the Capital Securities by the Trust. In that
connection, as described in this prospectus, the primary assets of the Trust
will be the junior subordinated debentures with a principal amount of $75
million (net of issuance costs of $2,750), bearing interest at a rate of ___ %
per year and maturing on __________, 2029, if not earlier redeemed. See "Use of
Proceeds." The table should be read in conjunction with the our consolidated
financial statements and notes thereto included in this prospectus.
<TABLE>
<CAPTION>
At December 31, 1998
Actual
Southern States Pro forma
(Amounts in thousands)
<S> <C> <C>
Short-term notes payable........................................... $ 2,400 $ 2,400
=============== ============
Long-term debt:
Term notes, 6.99%, due 2005.................................... $ 36,000 $ 36,000
Industrial revenue financings.................................. 12,570 12,570
Revolving credit facility (1).................................. 62,000 62,000
Bridge loan facility (4)....................................... 218,313 146,063
Capitalized lease obligations.................................. 2,344 2,344
Other debt..................................................... 107 107
--------------- -------------
Total long-term debt (including current maturities)............ 331,334 259,084
Less current maturities........................................ 63,810 63,810
--------------- ------------
Total long-term debt (excluding current maturities)............ 267,524 195,274
--------------- ------------
Company-obligated mandatorily redeemable capital securities of
trust subsidiary (5).............................................. 72,250
Redeemable preferred stock......................................... 2,114 2,114
Capital stock:
Preferred stock............................................... 1,465 1,465
Common stock.................................................. 12,166 12,166
Patrons' equity:
Patronage refund allocations (2).............................. 67,939 67,939
Operating capital (3)......................................... 82,819 82,819
--------------- ------------
Total patrons' equity.................................... 150,758 150,758
--------------- ------------
Total capitalization (4)............................ $434,027 $ 434,027
=============== ============
</TABLE>
(1) On January 12, 1999, Southern States closed a new syndicated $200 million,
three-year credit facility with CoBank, ACB, NationsBank, N.A. and First
Union National Bank to replace the $38 million short-term and $100 million
long-term credit facilities with CoBank in place at December 31, 1998.
In February of 1999, Southern States repaid $118.3 million of its
outstanding indebtedness under the bridge loan facility by borrowing an
equivalent amount under this new credit facility. At April 30,
1999, the bridge loan facility had an outstanding principal of $100
million.
(2) Represents retained earnings, which may be redeemed in the discretion of
the Board of Directors of the Company, subject to certain
limitations.
(3) Represents retained earnings from non-member sourced income that is
retained as permanent capital.
(4) Subsequent to the Capital Securities offering, Southern States also plans
to curtail its outstanding indebtedness under the bridge loan facility
through a separate offering of $50 million of preferred stock.
(5) This amount does not reflect the possibility that the underwriters may
exercise their option to purchase up to an additional $11,250,000 in
Capital Securities to cover over-allotments.
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
statements have been prepared from and should be read in conjunction with, the
historical financial statements and the related notes of Southern States and the
Inputs Business of Gold Kist, Inc. included elsewhere in this prospectus.
The unaudited pro forma condensed combined balance sheet has been
prepared to give effect to the offering of the mandatorily redeemable Capital
Securities, as though such transactions occurred on December 31, 1998. The
unaudited pro forma condensed combined statements of operations for the year
ended June 30, 1998 and the interim period ended December 31, 1998, have been
prepared to give effect to the aforementioned transaction as well as the
acquisition of the Gold Kist Inputs Business as if such transactions occurred on
July 1, 1997. Management has allocated the estimated the purchase price for the
Gold Kist Inputs Business 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 as well as final
purchase price allocations of fixed assets acquired. In that connection,
Southern States and Gold Kist, Inc. have been unable to agree on the final
purchase price due to a dispute over the valuation of acquired accounts
receivable. On December 24, 1998, Southern States asserted that the final
purchase price would result in the repayment of $16 million by Gold Kist, Inc.
to Southern States while Gold Kist, Inc. asserted that Southern States owes Gold
Kist, Inc. an additional $6.0 million. If Gold Kist, Inc. and Southern States
are unable to agree on the final purchase price this matter will be submitted to
a mutually agreed upon arbitrator. See a detailed discussion of this matter
under the heading titled "Acquisition of Gold Kist Inputs Business--The Asset
Purchase Agreement--Purchase Price Adjustment."
No pro forma adjustments are included for Southern States' April 1, 1998
purchase of Michigan Livestock Exchange because its balance sheet is included in
Southern States' 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
Southern States' 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 Southern States believes
are reasonable. The unaudited pro forma condensed combined statements of
operations do not purport to represent what Southern States' 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 statements do not purport to project Southern
States' financial position or results of operations for any future date or
period.
19
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Historical
Southern Pro Forma Pro Forma
States Adjustments Combined
---------- ----------- ---------
<S> <C> <C> <C>
Assets
Cash............................................ $ 54,601 $ 72,250(1)
(72,250)(1) $ 54,601
Accounts receivable............................. 129,640 129,640
Crop notes receivable...........................
Inventories..................................... 245,328 245,328
Other........................................... 17,113 17,113
--------- ---------- ---------
Total current assets..................... 446,682 -- 446,682
Investments
Statesman Financial Corporation............. 18,172 18,172
Michigan Livestock Credit
Corporation............................. 12,878 12,878
Other companies (principally
cooperatives).......................... 75,732 75,732
Receivables.................................... 1,511 1,511
Other assets................................... 10,965 10,965
Property plant and equipment, net.............. 183,082 183,082
--------- ----------- ---------
$ 749,022 $ -- $749,022
======== =========== =========
Liabilities and Stockholders' and Patrons' Equity
Short term notes payable...................... $ 2,400 $ 2,400
Current portion of long-term debt............. 63,810 63,810
Accounts payable.............................. 158,029 158,029
Accrued expenses.............................. 48,921 48,921
Patronage refunds payable in cash............. 1,803 1,803
Advances from managed member coops............ 21,497 21,497
-------- ----------- --------
Total current liabilities.............. 296,460 296,460
Bridge loan facility.......................... 218,313 (72,250) (1) 146,063
Long-term debt................................ 49,211 49,211
Other non-current liabilities................. 14,405 14,405
Deferred income tax liabilities............... 4,130 4,130
Company-obligated mandatorily redeemable
capital securities of trust subsidiary, net... 72,250 (1) 72,250
Redeemable preferred stock....................... 2,114 2,114
Capital Stock:
Preferred stock............................ 1,465 1,465
Common stock............................... 12,166 12,166
Patrons' equity.................................. 150,758 150,758
----------- ---------- -----------
$ 749,022 $ -- $ 749,022
=========== ========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
20
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1998
Historical
-------------------------------
Gold Kist
Southern Input Pro Forma Pro Forma
States Business Adjustments Combined
-------- --------- ----------- ---------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net sales..................................... $482,974 $91,508 $ 574,482
Cost of sales................................. 392,568 78,506 81 (3) 471,155
-------- ------- --------- ---------
Gross margin............................ 90,406 13,002 (81) 103,327
Selling, general and administrative........... 108,578 22,054 130,632
-------- ------- --------- ---------
Savings (loss) on operations............ (18,172) (9,052) (81) (27,305)
Other income (deductions):
Interest income and finance charges..... 8,737 3,209 11,946
Interest expense........................ (13,357) (3,994) (4,024)(4)
3,888 (4) (17,487)
Miscellaneous income, net............... 3,536 171 3,707
-------- -------- ---------- ---------
(1,084) (614) (136) (1,834)
--------- --------- ----------- ---------
Loss before income tax and distributions
on manditorily redeemable capital securities
of trust subsidiary...................... (19,256) (9,666) (217) (29,139)
Income tax expense (benefit)................... (4,795) (3,625) (1,381)(6)
(86)(5) (9,887)
Distributions on capital securities of trust
subsidiary..................................... 3,469 (6)
28 (6) 3,497
--------- --------- ----------- -----------
Net savings (loss)...................... $ (14,461) $ (6,041) $ (2,427) $ (22,749)
========== ========= =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
21
<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 (2)
511 (3) 1,322,131
------------ ----------- ----------- ----------
Gross margin........................ 191,851 86,831 (768) 277,914
Selling, general and administrative....... 175,784 105,291 281,075
------------ ----------- ----------- -----------
Savings (loss) on operations........ 16,067 (18,460) (768) (3,161)
Other income (deductions):
Interest income and finance charges. 7,800 10,041 17,841
Interest expense.................... (16,859) (12,675) (9,583)(4)
12,241 (4) (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) 1,890 (4,402)
Income tax expense (benefit).............. 2,966 (7,576) (2,762) (6)
752 (5) (6,620)
Distributions on capital securities of
trustsubsidiary....................... 6,938 (6)
55 (6) 6,993
-------------- ------------ ----------- ----------
Net savings (loss).................. $ 10,667 $ (12,349) $ (3,093) $ (4,775)
============== ============ ============ ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
22
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(in thousands of dollars, unless otherwise noted)
Basis of Presentation
Effective October 13, 1998, Southern States acquired the Gold
Kist Inputs Business. The Gold Kist Inputs Business results of operations have
been included in Southern States' historical consolidated statement of
operations since the date of acquisition. The results of operations of the Gold
Kist Inputs Business from July 1, 1998 through September 30, 1998 have been
included as a pro forma adjustment in the unaudited pro forma condensed combined
statement of operations for the six months ended December 31, 1998. The results
of operations for the Gold Kist Inputs Business for the 13 day period from
October 1, 1998 to October 13, 1998 have been excluded. This nine business day
period is not considered material for this presentation.
The Gold Kist Inputs Business fiscal year is based upon a 52-53 week
year ending on the Sunday nearest to June 30. Southern States' fiscal year is
based upon a 12 calendar month year ended June 30, 1998. Gold Kist Inputs
Business quarterly information includes 13 weeks. Southern States quarterly
information is based upon three month calendar quarters.
Pro Forma Adjustments
(1) To reflect the issuance of $75 million of Capital Securities net of
related issuance costs of $2,750 and the retirement of $72,250 of
outstanding debt under the bridge loan facility.
(2) 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.
(3) Adjustment to increase depreciation expense based on the amounts
assigned and the estimated remaining useful lives of plant and
equipment ranging from 2 to 19 years.
(4) To reflect increased interest expense on borrowings utilizing the bridge
loan facility with a weighted average borrowing rate of approximately
6.66% and 6.32% for the periods ended June 30, 1998 and December 31,
1998, respectively. Also, to reflect the elimination of interest expense
on liabilities not assumed by Southern States. Interest expense on the
historical Gold Kist Inputs Business' financial statements was allocated
by Gold Kist, Inc. to the Gold Kist Inputs Business based on assets
employed.
(5) 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, Inc. to the Gold Kist Inputs
Business based on assets employed.
(6) To reflect dividends ($6,938 and $3,469, respectively) on the Capital
Securities at an assumed annual dividend rate of 9.25% and to reflect
the resulting income tax benefit at Southern States' statutory income
tax rates of $2,761 and $1,381, respectively as such dividends are
deductible as interest for income tax purposes. Also, to reflect
accretion of $55 and $28 for the year ended June 30, 1998, and six
months ended December 31, 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, Southern States also
plans to curtail its outstanding indebtedness under the bridge facility through
a separate offering of $50 million of preferred stock.
23
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected historical consolidated financial data
(except wholesale volume data) for Southern States are derived from the
unaudited financial statements of Southern States as of and for the six months
ended December 31, 1998 and 1997, which only include adjustments of a normal
and recurring nature, and from the audited financial statements of Southern
States as of and for the six-months ended December 31, 1998 and 1997 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 in this prospectus.
Southern States Cooperative, Incorporated
<TABLE>
<CAPTION>
Six Months Ended December 31 As of and for the Fiscal Year Ended June 30
---------------------------- ---------------------------------------------------
(Amounts in thousands)
1998 1997 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Net purchases by patrons.............. $438,109 $420,397 $1,022,847 $1,097,174 $1,008,841 $ 911,449 $ 870,032
Net marketings for patrons............ 42,773 57,739 92,863 115,972 110,667 99,185 77,476
Other operating revenue............... 2,093 1,439 3,793 2,954 3,141 3,093 2,824
-------- -------- ---------- ---------- ---------- --------- ---------
Total revenue.................... $482,975 $479,575 $1,119,503 $1,216,100 $1,122,649 $1,013,727 $ 950,332
Cost of products purchased and
marketed......... 392,568 405,670 927,652 1,014,440 926,753 835,139 786,354
-------- -------- ---------- ---------- ---------- ---------- ---------
Gross margin......................... 90,407 73,905 191,851 201,659 195,896 178,588 163,978
Selling, general & administrative..... 108,578 81,850 175,784 166,132 157,809 150,678 149,256
-------- -------- ---------- ---------- ---------- ---------- ---------
Savings (loss) on operations... (18,171) (7,946) 16,067 35,527 38,087 27,910 14,722
Other deductions (net)................ 1,085 1,802 2,434 1,987 3,441 4,738 2,992
-------- -------- ---------- ---------- ---------- ---------- ---------
Savings (loss) before income
taxes....... (19,256) (9,748) 13,633 33,540 34,646 23,172 11,730
Income taxes (benefit)................ (4,795) (2,125) 2,966 6,039 7,052 4,929 3,646
Cumulative effect of change in
accounting principle (1).......... --- --- --- --- --- --- (909)
--------- --------- ---------- ----------- ---------- ---------- ---------
Net savings (loss) (2)........ $ (14,461) $ (7,623) $ 10,667 27,501 27,594 $ 18,243 $ 7,175
========= ========= ========== =========== =========== ========== =========
Distribution of Net Savings (Loss):
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.............. (14,461) (7,623) 3,624 9,221 9,630 7,362 3,069
--------- -------- ---------- ---------- ----------- ---------- ---------
Net savings (loss)............. $ (14,461) $ (7,623) $ 10,667 $ 27,501 $ 27,594 $ 18,243 $ 7,175
========= ========= ========== ========== =========== ========= =========
Statement of Cash Flows and Other
Statement of Operations Data:
Cash flow from operating activities... $ 90,886 $45,337 $33,602 $ 31,430 $ 25,631 $19,560 $21,243
Cash flow used by
investing activities............. (230,450) (17,739) (43,833) (20,981) (19,690) (21,537) (20,002)
Cash flow from (used by)
financing activities............. 178,813 (19,549) 8,730 (11,881) (141) 4,859 (1,125)
EBITDA (3) ........................... $ 4,476 $ 7,173 $ 48,104 $ 65,704 $ 66,150 $ 53,297 $ 38,085
Interest expense...................... 13,357 8,524 16,859 15,566 15,237 14,798 12,258
Depreciation and amortization......... 10,374 8,397 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.................. 24,909 17,269 33,905 19,945 18,529 17,333 18,424
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital....................... $ 150,222 $ 76,254 $ 90,098 $108,682 $103,911 $ 92,154 $ 75,913
Property, plant and equipment (net)... 183,082 111,950 129,193 104,002 101,549 99,535 98,409
Investments........................... 106,782 83,854 103,874 82,369 71,549 63,849 59,747
Total assets.......................... 749,022 427,881 462,296 409,160 385,551 343,173 323,888
Long-term debt........................ 267,524 97,575 136,041 109,902 107,523 99,580 89,011
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... .34x .84x 2.85x 4.22x 4.34x 3.60x 3.11x
Long-term debt/EBITDA................. 59.77x 13.10x 2.83x 1.67x 1.63x 1.87x 2.34x
Current ratio (6)..................... 1.52x 1.51x 1.71x 2.00x 2.00x 2.11x 1.88x
Long-term debt to total
capitalization (7)................ .62x .37x 0.43x 0.38x 0.40x 0.40x 0.39x
Wholesale Volume Data (`000's):
Supply
Feed--tons....................... 589 456 917 924 895 875 834
Fertilizer--tons................. 357 324 1,155 1,137 1,054 1,021 1,057
Seed -pounds, 100 wt............. 947 968 1,673 1,384 1,305 1,412 1,051
Petroleum--gallons............... 150,309 171,319 314,614 349,863 340,556 306,874 287,958
Marketing
Grain marketing-bushels.......... 11,649 14,781 24,830 29,380 27,637 28,517 20,543
Livestock marketing-head
Cattle........................ 300 N/A 642 599 N/A N/A N/A
Swine......................... 793 N/A 2,689 2,516 N/A N/A N/A
Other......................... 77 N/A 136 120 N/A N/A N/A
Statesman Financial Corporation (8):
Total assets.......................... $180,684 $144,433 $236,143 $152,400 $168,971 $144,384 $138,139
Receivables financed.................. 74,937 93,340 202,908 127,717 140,158 97,167 92,763
Debt.................................. 149,250 124,705 200,795 133,230 150,024 126,409 122,383
Total equity.......................... 31,759 18,547 31,574 18,349 18,078 17,050 15,025
</TABLE>
25
<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
<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>
26
<PAGE>
- - - - ---------------
(1) Effective July 1, 1993, Southern States 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, Southern States 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 in this prospectus.
(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. Southern
States 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
non operating factors (such as historical cost). Accordingly, this
information and the related other EBITDA ratios, including ratio of
EBITDA to interest expense and long term debt/EBITDA has been
disclosed in this prospectus to permit a more complete comparative
analysis of operating performance relative to companies within and
outside of the industry and of Southern States' debt servicing
ability. However, EBITDA, EBITDA to interest expense and long term
debt/EBITDA may not be comparable in all instances to other similar
types of measures used by other companies in the agricultural
industry. Earnings were insufficient to cover fixed charges by $19.4
million and $9.9 million for the six months ended December 31, 1998
and 1997, respectively.
(4) For further information concerning Southern States' relationship to
CF Industries, Inc., see "Business of Southern States--Investments
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) Southern States owns 38.4% of the common stock of Statesman
Financial Corporation. Statesman purchases significant amounts of
receivables from Southern States and provides agricultural
production loans, building loans, equipment loans, renovation loans,
revolving credit loans and other loans to and financing for
customers of Southern States. See "Business of Southern
States--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."
27
<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 in this
prospectus.
General
Management's discussion of sales, operating margins (or losses) and
other factors affecting Southern States' pretax net savings (or losses) during
the six month periods ended December 31, 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
========= =========== ========
<CAPTION>
Sales for the Operating Margins for the
six months ended December 31, six months ended December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Crops $44,810 $37,544 $(1,072) $ (307)
Feed 84,536 75,063 5,864 4,094
Petroleum 76,320 110,268 (5,403) 631
Retail Farm Supply 145,660 118,123 (5,618) (2,854)
Farm and Home 85,923 79,326 76 56
Marketing 44,625 57,867 123 959
Other 1,101 1,384 (534) (421)
----------- ----------- --------- ---------
Total $482,975 $479,575 (6,564) 2,158
=========== ===========
General corporate overhead (12,692) (11,906)
Income tax benefit (4,795) (2,125)
--------- ---------
Net loss $(14,461) $(7,623)
========= =========
</TABLE>
28
<PAGE>
Agriculture is both seasonal and cyclical in nature. As a result,
Southern States' 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 "Business of Southern States--Other Factors Affecting the Business of
Southern States--Seasonality."
A major portion of Southern States' 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 Southern States 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
Six Months Ended December 31, 1998 Compared to Six Months Ended
December 31, 1997
While performance in sales and operating margins are typically weak
during the first six months of the fiscal year, they are usually mitigated by
sales of petroleum products. In 1998, sales and operating margins in petroleum
products were disappointing. This resulted in heightened exposure to operating
losses within the Gold Kist Inputs Business at a time when results are typically
weak.
Net sales of $483.0 million for the six months ended December 31,
1998, reflected a nominal increase of $3.4 million from $479.6 million for the
comparative 1997 period. Despite the inclusion of the net sales of the Gold Kist
Inputs Business since its October 13, 1998 acquisition, net sales remained flat
primarily as a result of lower Petroleum and Marketing volumes, which have
continued to be impacted negatively by worldwide supply and demand factors for
petroleum and grain products, respectively. Average unit price varied from an
increase of 3.1% in fertilizer to a decrease of 28.1% in Petroleum. The loss for
the six months ended December 31, 1998, of $14.5 million was $6.9 million
higher than the $7.6 million loss for the corresponding 1997 period.
Southern States' business plan for improving the operating performance
of the Gold Kist Inputs Business and reducing the operating losses experienced
under its former ownership has been to
o substantially reduce unprofitable business locations, particularly in
the West Texas and Mississippi Delta regions, through internal
restructuring, divestiture, closure or other appropriate remedial steps;
o implement Southern States' credit underwriting standards and practices;
o implement Southern States' commodity price risk management policies;
o reduce administrative costs through centralization of procurement,
accounting and administration; and
o develop and expand the Southern States private dealer network in the
Gold Kist territory.
29
<PAGE>
Although the Inputs Business is now operated as an integral part
of Southern States and separate financial statements are no longer produced for
the Inputs Business, Southern States believes it has made progress toward
achieving a number of its objectives. Losses in the Inputs Business from
unfavorable commodity futures contracts were eliminated for the quarter ended
December 31, 1998. Losses from such transactions in the Inputs Business were
$4.1 million for the year ended June 27, 1998. Also, Southern States has
substantially achieved its targeted savings in procurement, accounting and
administrative functions through reduced employment levels. Southern States had
anticipated that the implementation of stricter credit underwriting standards
would likely adversely impact sales in the Gold Kist territory. Southern States
believes it has made substantial progress in implementing improved credit
underwriting standards and practices, but also believes this has negatively
impacted sales to greater degree than management initially anticipated. Also,
the continuation of depressed commodity price levels in the agriculture sector
and unfavorable weather conditions during the 1998 harvest season adversely
affected sales. As a result of these various factors, sales levels in the Gold
Kist territory were impacted during the quarter ended December 31, 1998, more
severely than originally anticipated.
Subsequent to the acquisition of the Inputs Business, Southern States
has closed three retail locations in Georgia and one in Louisiana, and is
offering for sale a fifth location in South Carolina. It also terminated a
leased facility in Arkansas. It also is in discussions with several parties with
respect to a possible sale of its seven retail locations in West Texas.
Southern States has rapidly expanded its private dealer network into the
Gold Kist territory. As of April 9, 1999, 51 new private dealers locations in
this new territory, including eight independent cooperative locations, had
completed the Southern States certification process and were purchasing product
from Southern States. Twenty others, including 10 independent cooperatives, were
in various stages of that process and are expected to be purchasing product by
the end of May. Approximately 55 other private dealers throughout the Gold Kist
territory have been identified as prospective private dealers for Southern
States.
Overall, although Southern States did not achieve its sales goals or its
operating performance goals for the Gold Kist territory for the quarter ended
December 31, 1998, it continues to believe that this acquisition enhances
Southern States' strategic position and that over time the business in the new
territory will make a significant positive contribution to Southern States'
business.
Crops
Sales of the Crops division increased $7.3 million (19.4%) from
$37.5 million for the six months ended December 31, 1997 to $44.8 million for
the comparative 1998 period primarily as a result of the inclusion of sales of
the acquired Gold Kist businesses since acquisition. The majority of the Crops
division sales increase resulted from increased sales of fertilizer and crop
protection products. Fertilizer sales, which approximates 65% of total crops
division sales, increased approximately 23% in fertilizer tonnage, while crop
protection product sales which approximates 12% of total crops division sales,
increased approximately 70% over the same period. Seed sales remained relatively
flat as compared to the same period in the prior year.
Operating losses for the Crops division increased by $0.8 million
from a loss of $0.3 million for the six months ended December 31, 1997 to a loss
of $1.1 million for the comparative 1998 period. The decrease resulted primarily
from lower seed and crop protection product operating margins resulting from
higher employee expenses and increased allocated interest expense, both
resulting from the acquisition of the Gold Kist Inputs Business.
Feed
Feed division sales increased $9.4 million (12.6%) from $75.1
million for the six months ended December 31, 1997, to $84.5 million for the
comparative 1998 period. The increase resulted primarily from a 29.3% increase
in tonnage from 456,000 to 589,000 tons, partially offset by a 15% decrease in
average unit selling price. The majority of the increased tonnage can be
attributed to the acquisition of the Gold Kist Inputs Business on October 13,
1998.
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The operating margin for the Feed division increased approximately
$1.8 million from $4.1 million for the six months ended December 31, 1997, to
$5.9 million for 1998. The increase in operating profit primarily resulted from
increases in tonnage partially offset by lower selling prices and increased
employee expenses resulting from the acquisition of the Gold Kist Inputs
Business.
Petroleum
Petroleum division sales decreased $34.0 million (30.8%) from $110.3
million for the six months ended December 31, 1997, to $76.3 million for the
comparative 1998 period. Sales declined due to both volume and price declines.
Petroleum gallons sold declined 12.2% (21 million gallons) primarily due to
lower fuel oil and LP gas sales resultant from a 17.6% decrease in heating
degree days while the average unit selling price decreased 20.5% from the prior
period due to continued declines in worldwide petroleum prices
The Petroleum division's operating margin decreased $6.0 million
from a profit of $0.6 million for the six months ended December 31, 1997, to a
loss of $5.4 million for the 1998 period. The decline in operating margin
resulted from continued decreases in worldwide petroleum prices, which led to
inventory write-downs, a $3.0 million provision for environmental remediation
and from decreases in sales volume.
Retail Farm Supply
Sales of the Retail Farm Supply division increased $27.6 million
(23.3%) from $118.1 million for the six months ended December 31, 1997, to
$145.7 million for the comparative 1998 period. The increase in sales can be
primarily attributed to the increased volume resulting from the acquisition of
the Gold Kist Inputs Business as of October 13, 1998, however, sales performance
in the Gold Kist territory has been slower than expected. While increased credit
standards were expected to have a negative impact on sales, the impact was
greater as a result of continued price deflation and drought conditions in
portions of the Southeast. This was partially offset by lower retail petroleum
service sales due to the continued decline in worldwide petroleum pricing.
Retail Farm Supply operating losses increased $2.7 million from a
loss of $2.9 million for the six months ended December 31, 1997, to a loss of
$5.6 million for the 1998 period. The increase in operating losses was mainly
caused by increased employee related costs, operating lease expense and
depreciation resulting from the acquisition of the Gold Kist Inputs Business on
October 13, 1998.
Farm and Home
Sales of the Farm and Home division increased $6.6 million (8.3%)
from $79.3 million for the six months ended December 31, 1997, to $85.9 million
for the 1998 period. This increase in sales is primarily the result of an
increase in the sales of Wetsel, Inc. of $2.6 million (13.0%) from $20.2 million
for the six months ended December 31, 1997 to $22.8 million for the 1998 period,
as well as higher sales in the metropolitan area stores.
Operating margin for the Farm and Home division remained
relatively flat at $0.06 million for the six months ended December 31, 1997,
compared to $0.08 million for the 1998 period. The flat operating margin
resulted from decreased operating margins at Wetsel, which were attributable to
increased expenses associated with the acquisition of a distribution warehouse
and increased margins at retail stores, which were offset by higher operating
costs, particularly employee-related expenses.
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Marketing
Sales of the Marketing division decreased $13.3 million (22.9%) from
$57.9 million for the six months ended December 31, 1997, to $44.6 million for
the 1998 period. This decrease is attributable to a decline of $18.9 million in
grain marketing partially offset by $5.7 million in new livestock marketing
revenue attributable to the acquisition of the Michigan Livestock Exchange on
April 1, 1998. The decline in grain marketing revenue resulted from drought
conditions in the summer and early fall which impacted the quality and the
production of wheat and corn in the Southern States Mid-Atlantic territory. As
a result bushels marketed declined by 21.2% while a strong western United States
harvest caused a $0.57 (14.7%) reduction in the average per bushel unit price
for grain marketed.
Operating margin for the Marketing division decreased $0.8 million
from $0.1 million for the six months ended December 31, 1997, to $0.9 million
for the 1998 period. The decrease in operating margin is primarily attributable
to lower grain pricing, lower bushel volume, and reduced grain drying
opportunities as well as operating losses at Michigan Livestock Exchange.
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 only $0.8 million, from $11.9 million for
the six months ended December 31, 1997, to $12.7 million for the comparative
1998 period. The increase resulted primarily from increased employee expenses
related to the acquisitions of the Gold Kist Inputs Business on October 13, 1998
and Michigan Livestock Exchange on April 1, 1998 partially offset by the
elimination of outsourced computer operations effective July 1, 1998 and higher
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 approximately $4.8 million (56.7%) from $8.5
million for the six months ended December 31, 1997 to $13.4 million for the 1998
period. The majority of the increase (62%) results from borrowings on the bridge
loan facility to fund the acquisition of the Gold Kist Inputs Business with the
remaining increase attributable to increased working capital needs.
Provision for Income Tax Benefit
The income tax benefit for the first six months of 1998 of $4.8
million increased $2.7 million from $2.1 million in 1997 primarily due to a 98%
increase in pretax net losses. The forecasted effective tax rate was
approximately 24.9% and 21.8% for 1998 and 1997, respectively.
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Liquidity and Capital Resources at December 31, 1998
At December 31, 1998, Southern States had $140 million in a
committed short-term line of credit with CoBank, ACB with $60 million in
outstandings. This credit facility represents the consolidation of the $100
million long term revolving credit facility with CoBank and the $40 million
short term committed credit facility with CoBank that was in existence at June
30, 1998. Southern States also had uncommitted short term lines of credit with
six commercial banks totaling $92 million under which there were no outstandings
at December 31, 1998. Southern States' wholly-owned subsidiary, Wetsel, Inc.,
maintains separate credit facilities. Wetsel has a $10 million short term
committed credit facility, also with CoBank, that had a $2.4 million outstanding
balance at December 31, 1998.
At December 31, 1998, Southern States also had outstanding $35
million in term notes held by CoBank that are payable at various dates with a
final maturity of November 1, 2004. Wetsel also has a $3 million term note with
CoBank with a final maturity of January 15, 2001.
Under all of Southern States' loan agreements with CoBank, Southern
States 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 of not
more than .775 to 1. At December 31, 1998, Southern States was in compliance
with these financial covenants.
The credit lines with commercial banks are on a competitive bid
basis. The CoBank credit facilities for both Southern States and Wetsel are, at
the companies' option, based on quoted fixed rates or at LIBOR-based
maximum rates.
Southern States and Statesman Financial Corporation are parties to
an agreement under which Statesman purchases certain receivables from Southern
States without recourse. Under the terms of the agreement, Southern States pays
certain fees on receivables sold to Statesman. Receivables sold to Statesman
totaled approximately $483.6 million and $426.2 million for six months ended
December 31, 1998 and 1997, respectively. Statesman pays volume incentive fees
to Southern States for purchase of receivables at the end of the fiscal year. In
addition, under the terms of the agreement, Southern States was obligated to
maintain a computed minimum investment in Statesman's preferred stock of $17.9
million at each of December 31, 1998 and 1997. See Note 5 of the Notes to the
Southern States Consolidated Financial Statements included in this prospectus.
Cash and cash equivalents at December 31, 1998 were $54.6 million,
which represents a increase of $39.3 million from $15.2 million at December 31,
1997. Net cash provided by operating activities for the six months ended
December 31, 1998 and 1997 amounted to $90.9 million and $45.3 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
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in investing activities for the six months ended December 31, 1998, amounted to
$230.4 million, an increase of $212.7 million from cash used in investing
activities in the corresponding 1997 period. This increase resulted primarily
from the $203.1 million in net cash paid for the Gold Kist Inputs Business. Net
cash provided by financing activities for the six months ended December 31,
1998, of $178.8 million and net cash used by financing activities for the year
ended December 31, 1997, of $19.5 million were primarily the result of net
borrowing activities.
Capital Expenditures for the six months ended December 31, 1998,
totaled $24.5 million. Southern States had outstanding commitments for the
construction and acquisition of property, plant and equipment totaling
approximately $4.0 million at December 31, 1998. Southern States also maintains
a reserve for environmental expenditures which totaled $3.8 million at December
31, 1998. See Note 13 of the Notes to the Southern States Consolidated Financial
Statements included herein.
Southern States anticipates capital expenditures of approximately $42.8
million in the fiscal year ended June 30, 1999, of which approximately $18.7
million relates to the Gold Kist Inputs Business. Also, included in projected
capital expenditures is $1.0 to $2.0 million in anticipated costs for
environmental remediation projects in the year ended June 30, 1999.
In October, 1998, Southern States borrowed $218.3 million under a
180-day "bridge" loan facility with NationsBank, N.A., First Union National Bank
and CoBank to finance the purchase of the Gold Kist Inputs Business. In January,
1999, this facility was paid down by $118.3 million utilizing proceeds of the
new Southern States' syndicated facility discussed in the next paragraph. The
outstanding balance is $100 million at March 31, 1999. Repayment of the bridge
loan facility, whose maturity has been extended from April, 1999, to October 5,
1999, is anticipated through the sale of securities by Southern States either in
a public offering or private offering, or pursuant to the financing commitment
with Gold Kist described in "Acquisition of the Gold Kist Inputs Business--The
Financing Commitment." Proceeds under the $100 million irrevocable direct pay
letter of credit have been assigned to the lenders under the bridge loan
facility. Interest on the facility is at a fixed spread over LIBOR.
On January 12, 1999, Southern States entered into a new $200 million
three-year revolving credit facility with various commercial banks, including
NationsBank, N.A., First Union National Bank and CoBank. This facility replaced
the $140 million in short-term and long-term facilities with CoBank that were in
place at December 31, 1998, and the $92 million in uncommitted facilities with
various commercial banks. Under the terms of this new facility, Southern States
must maintain a ratio of funded indebtedness to capitalization of less than or
equal to .50 to 1, have tangible net worth of at least $256 million plus 25% of
net income in a fiscal year and maintain a ratio of consolidated cash flow to
consolidated interest expense and distribution of greater than 1.50 to 1.
Interest rates under this facility are determined on a competitive bid basis or
at a LIBOR-based maximum rate.
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Management believes that Southern States' 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. Southern States
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.
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. Fertilizer sales, which comprise
approximately 62% of Crops division sales, decreased approximately 4.5% with
fertilizer selling prices declining approximately 6.0%, partially offset by a
1.5% increase in tonnage. Sales of seed, which comprise approximately 17% of
Crops division sales, increased approximately 2.2% due to unit volume increases
of 20.8%, which were mostly offset by decreases in average selling price of
18.6%. Sales of crop protection products, which comprise approximately 21% of
crops division sales, increased by 4.6% 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 Michigan Livestock Exchange 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.
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.
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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
Southern States' 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
decrease of 3.0% in fertilizer to 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. Fiscal 1997 fertilizer sales, which
comprised approximately 63% of Crops division sales, exhibited a 7.8% increase
in tonnage, slightly offset by a decrease in average selling price of 3.0%.
Sales of seed, which approximates 16% of fiscal 1997 Crops division sales,
increased due to both price increases and unit volume increases of 5.9% and
6.1%, respectively. Sales of crop protection products, comprising 21% of fiscal
1997 Crops sales, 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 Southern States--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 in this prospectus for an analysis of the differences
between the statutory income tax rate and the Company's effective tax rate.
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Liquidity and Capital Resources at June 30, 1998
At June 30, 1998, Southern States had a $40 million committed
short-term line of credit with CoBank, ACB with $2 million in outstandings.
Southern States also had uncommitted short term lines of credit with seven
commercial banks totaling $97 million under which there were no outstandings at
June 30, 1998. In addition, Southern States had a $100 million long term
committed revolving credit facility with CoBank which expires in 2001. At June
30, 1998, Southern States had $93 million outstanding under this revolving
facility. Southern States' wholly-owned subsidiary, Wetsel, Inc., maintains
separate credit facilities. Wetsel has a $10 million short term committed credit
facility, also with CoBank, that had $5.1 million outstanding balance at June
30, 1998.
At June 30, 1998, Southern States also had outstanding $35 million
in term notes held by CoBank that are payable at various dates with a final
maturity of November 1, 2004. Wetsel also has a $3 million term note with CoBank
with a final maturity of January 15, 2001.
Under all of Southern States' loan agreements with CoBank, Southern
States 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 of not
more than .775 to 1. At June 30, 1998, Southern States was in compliance with
these financial covenants.
The credit lines with commercial banks are on a competitive bid
basis. The CoBank credit facilities for both Southern States and Wetsel are, at
the companies' option, based on quoted fixed rates or at LIBOR-based
maximum rates.
Southern States and Statesman Financial Corporation are parties to
an agreement under which Statesman purchases certain receivables from Southern
States without recourse. Under the terms of the agreement, Southern States pays
certain fees on receivables sold to Statesman. Receivables sold to Statesman
totaled approximately $996.7 million and $991.5 million for 1998 and 1997,
respectively. Statesman paid volume incentive fees to Southern States for
purchase of receivables amounting to $1.3 million and $1.4 million for 1998 and
1997, respectively. In addition, under the terms of the agreement, Southern
States was obligated to maintain a computed minimum investment in Statesman'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.
Cash and cash equivalents at June 30, 1998 were $15.3 million, which
represents a decrease of $1.5 million from $16.8 million at June 30, 1997. Net
cash provided by operating activities for the year ended June 30, 1998 and 1997
amounted to $33.6 million and $31.4 million, respectively. The increase in net
cash provided by operating activities resulted from increases in accounts
payable and a decrease in net receivables partially offset by a decrease in
advances from managed local cooperatives, an increase in inventories and lower
net savings. Net cash used in investing activities for the year ended June 30,
1998 amounted to $43.8 million, an increase of $22.9 million from cash used in
investing activities in the corresponding 1997 period. This increase resulted
from increased capital expenditures and additional investments in other
companies. Net cash provided by financing activities for the year ended June 30,
1998, of $8.7 million and net cash used by financing activities for the year
ended June 30, 1997, were primarily the result of net borrowing activities.
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Capital expenditures for the year ended June 30, 1998, totaled
$33.9 million. Of this amount, approximately $1 million related to compliance
with environmental regulations. Southern States had outstanding commitments for
the construction and acquisition of property, plant and equipment totaling
approximately $7.1 million at June 30, 1998. Southern States also maintains a
reserve for environmental expenditures which totaled $1.2 million at June 30,
1998. See Note 3 of the Notes to the Southern States Unaudited Interim
Consolidated Financial Statements for the six month period ended December 31,
1998 included herein.
Southern States anticipates capital expenditures of approximately
$42.8 million in the fiscal year ended June 30, 1999, of which approximately
$18.7 million relates to the Gold Kist Inputs Business. Also, included in
projected capital expenditures is $2.5 to $3 million in anticipated costs for
environmental remediation projects in the year ended June 30, 1999.
Management believes that Southern States' cash on hand, anticipated
funds from operations, and amounts currently available under its various credit
facilities will be sufficient to cover ties working capital needs, capital
expenditures, debt service requirements and tax obligations. Southern States
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.
New Accounting Standards
During Southern States' fiscal year ended June 30, 1998, the
Financial Accounting Standards Board ("FASB") issued several new pronouncements,
including Statement of Financial Accounting Standards ("SFAS") No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits", which
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable and eliminates certain disclosures that are
no longer useful. Both of these standards are effective for the year ended June
30, 1999. The adoption of these standards will result only in additional
disclosure and are not expected to have an impact on the financial position or
results of operations. In addition in June of 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
effective for fiscal quarters beginning after June 15, 1999. SFAS No. 133
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
assets or liabilities in the statement of financial position and measure those
instruments at fair value. Southern States will adopt SFAS No. 133 in fiscal
year 2000. Southern States is currently evaluating any impact of the derivatives
standard.
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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.
Southern States 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 Southern States by outside
vendors and software systems written by Southern States 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.
Southern States' 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 Southern States, 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, Southern States 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.
Southern States' compliance efforts consist of analysis, remediation
and testing phases, and cover information technology ("IT") systems, non-IT
systems and vendor relationships. IT systems include financial and
administrative systems, retail systems, wholesale systems, and technical
support. Each of these systems is managed and supported by a separate team,
responsible for all phases of the compliance effort as they relate to the
supported systems.
As of March 31, 1999, Southern States had assessed all systems for
Y2K compliance. Fewer than half of the systems required change and planned
changes and replacement are being monitored closely. As of March 31, 1999,
approximately 80% of the remediation effort was complete. Our target date for
completion of IT systems, including testing, is June 30, 1999. Some of Southern
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States' processing functions currently run on data processing systems owned by
third parties, which are not Y2K compliant. These functions will be transferred
to Southern States' own systems or made compliant by June 30, 1999. This
transfer includes those related to the acquired Gold Kist Inputs Business.
Although most compliance activity for non-IT systems has been
undertaken by management of the individual plants or facilities, Southern
States' senior management has monitored the processes closely and provided
support where required. Assessment and remediation of non-IT systems are almost
complete. Southern States has not separately tracked the replacement cost and
time related to non-IT systems.
Southern States surveyed over 400 of its most significant vendors
seeking information concerning the effect of Y2K on such vendors. In excess of
70% of these vendors surveyed responded that they were Y2K compliant. Southern
States purchasing agents and buyers are required to obtain evidence that
vendors' systems will be Y2K compliant or are required to develop a contingency
plan including alternative sources or increased safety stocks. Based on
responses received to date, Southern States has no reason to believe Y2K will
have a material impact on its ability to do business with its vendors.
Although Southern States has no reason to anticipate that a failure
will occur, the most likely worst-case Y2K scenario would entail a disruption or
failure of Southern States' power suppliers' or voice and data transmission
suppliers' ability to provide power or data transmission services to a computer
system or a facility. Such failures do occur from time to time, affecting
individual locations and systems, and appropriate procedures are in place to
handle them. Although it is impossible to quantify the impact of extended
failures, it would most likely include some manufacturing down-time losses,
diminished service levels, customer inconvenience, and additional costs
associated with the implementation of the contingency plan.
As of April 30, 1999, Southern States' total cost of achieving Y2K
compliance is estimated to be in the range of $700,000 to $800,000, excluding
normal software upgrades and replacements and other previously scheduled systems
changes. Approximately $300,000 of these incremental costs have already been
incurred. Previously scheduled replacements of one major system and several
minor systems, involving aggregate costs of approximately $400,000, were
accelerated in order to resolve Y2K issues. These scheduled system replacements
are expected to be completed by June 30, 1999. Amounts required to fix Y2K
problems have been funded from operations. Southern States anticipates that
remaining expenditures will not be material to its consolidated financial
position or results of operations. Southern States acquired certain data
processing systems and computers as a part of the acquisition of the Gold Kist
Inputs Business, but now supports that new business on existing systems after a
transitional period during which Gold Kist provided certain information support
services to Southern States.
The costs of, and the date by which Southern States 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 Southern
States' results of operations, liquidity and financial condition. Although
Southern States expects to be Y2K compliant, to be prudent, Southern States is
currently evaluating contingency plans.
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Market Risks from Changing Commodity Prices and Interest Rates
The principal market risks affecting Southern States are exposure to
changes in commodity prices and interest rates on borrowings. Although Southern
States has international net sales volume and related accounts receivable for
foreign customers, it considers the foreign currency exchange risk in such
activities to be immaterial.
Interest Rate Risk. Southern States uses interest rate swaps to
hedge interest rate changes on a portion of its borrowings. At December 31,
1998, Southern States had $65 million notional value of interest rate swaps
outstanding. The swaps carried coupons with a weighted average rate of 6.28% and
6.60% at December 31, 1998 and 1997, respectively. See Note 15 of Notes to the
Southern States Consolidated Financial Statements. Assuming December 31, 1998
variable rates and borrowings at December 31, 1998, a one-hundred-basis-point
change in interest rates would impact Southern States' net interest expense by
approximately $1.6 million on an annualized basis, net of the effect of the
swaps.
Commodities Risk. See "Business of Southern States--Other Factors
Affecting the Business of Southern States--Commodity Price Hedging Activities"
for information concerning hedging activities utilized by Southern States to
minimize the risk of change in commodity prices on various commodities bought
and sold in its business.
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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.
* * * * * * *
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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 "Southern States--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.
SOUTHERN STATES
General
Southern States is a regional farmers' supply and marketing
cooperative. With fiscal 1998 sales of $1.1 billion, Southern States 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, Southern States 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 almost 700
retail locations serving its farmer members and other customers through both
company-owned facilities and a network of local agricultural cooperatives and
private dealers. See "Southern States--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, Southern States 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, Southern States 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, Southern States is the largest livestock
marketing cooperative in the United States.
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
"Southern States--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. Southern States also
engages in non-cooperative activities through several subsidiaries.
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In October 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 Southern States presented below in
"--The Southern States Distribution System" and "The Business of Southern
States" does not reflect the acquisition of the Gold Kist Inputs Business. For a
description of the Gold Kist Inputs Business and its integration with Southern
States' 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:
>> 131 company-owned retail farm supply and petroleum outlets and 26
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 28 locations, and
>> A network of 239 private dealers operating approximately 256 locations
who sell Southern States supplies and products at retail under retail
distribution agreements with Southern States.
In the aggregate, this distribution system operates through more
than 500 retail locations in Southern States' 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,
Southern States sells a significant portion of its product and service volume
through Southern States' 113 retail farm supply locations, its 26 metropolitan
retail locations and its 18 retail petroleum facilities in its Mid-Atlantic
territory. To support this retail distribution network, Southern States operates
a number of owned and leased bulk manufacturing and distribution facilities. See
"Business of Southern States--Petroleum," "--Retail Farm Supply" and "--Farm and
Home." In fiscal 1998, Southern States sold approximately 42% of its total
product and service volume through these company-owned facilities in its
Mid-Atlantic territory.
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
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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 239 independent, privately-owned dealers,
operating a total of approximately 256 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
28 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,
Southern States sells products to over 1,000 commercial and other accounts,
including other cooperatives located outside its Mid-Atlantic territory, who
purchase supplies from Southern States. Commercial accounts include resellers
who do not have a private dealer agreement with Southern States, 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 Southern States' total product and
service volume.
Cooperative Structure
For additional information concerning the nature of farm
cooperatives generally, see "Farm Cooperatives" on page 46.
Members and Membership Stock. Members of Southern States must be
agricultural producers or agricultural cooperative associations comprised of
agricultural producers. Members must own at least one share of membership stock.
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. Pursuant to Virginia law and the
Southern States articles of incorporation and bylaws, the issuance or transfer
of Southern States' membership common stock is limited to bona fide agricultural
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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 Southern States 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 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 Southern States' Mid-Atlantic territory. Public
directors need not be members or stockholders of Southern States. See
"Management--Directors."
The bylaws of Southern States 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 Southern States' 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
Southern States only permit voting in person at election district meetings.
The officers of Southern States are elected by the Board of
Directors to serve on a full-time salaried basis.
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Patronage Refunds. As a cooperative, Southern States 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 Southern
States' supply business was with members and subject to patronage refunds.
Southern States 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, Southern States 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%. Southern States believes its policy of paying a higher cash component than
is required by law contributes to continued patronage. See "Description of the
Capital Securities--Distributions; Option to Extend Interest Payment Period,"
"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 Southern States 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 Southern States.
In February 1996, Southern States redeemed its 1974 PRAs, which
totaled slightly over $6 million. In February 1997, Southern States redeemed its
1975 PRAs, which also totaled approximately $6 million. In March 1998, Southern
States redeemed its 1976 PRAs, which totaled approximately $4.6 million. In
order to provide continued support to Southern States equity base, in 1996, 1997
and 1998, a number of Southern States' 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 Southern States' membership
common stock.
The bylaws require that all debts of Southern States 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. Southern States is deemed to
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have a lien upon and security interest in PRAs as collateral for any
indebtedness owed to Southern States by the holder. See "Description of Capital
Securities--Distributions; Option to Extend Interest Payment Period,"
"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 Southern States, and the
bylaws provide that in the event the Board of Directors determines these
reserves have served their purpose and any balance remains, the same shall be
returned to the member patrons in proportion to their interests therein.
Otherwise, these reserves will be returned to the member patrons only upon
dissolution of Southern States.
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. Southern States' Board of Directors determines the
amount and form in which the company pays its patronage refunds. See
"--Patronage Refunds" above.
To the extent that Southern States 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. Southern States has subsidiaries which
are not cooperatives, and all the income of these subsidiaries is subject to
corporate income taxes.
BUSINESS OF SOUTHERN STATES
Southern States is both a supply and a marketing cooperative.
Southern States 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. Southern States 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, Southern States provides products and services to
its managed local cooperatives and to numerous independent dealers and
cooperatives.
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Business Strategy
As a farmer-owned agricultural cooperative, Southern States' primary
function is to enhance its members' economic welfare and bargaining power. To
fulfill this function, Southern States 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. Southern States' 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, Southern
States seeks to:
>> Offer a Full Line of Superior Products and Services:
Southern States 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, Southern States 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, Southern States'
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: Southern States 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 Southern States to
reach many different types of customers and maximize
market penetration.
>> Access State-of-the-Art Products and Technology through
Partnerships and Strategic Alliances: Southern States
seeks to access products and technology through
partnerships and strategic alliances, thereby
significantly expanding Southern States' scope with
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minimal additional capital requirements. Investments with
other interregional cooperatives in the U.S. and abroad
afford Southern States access to world class sources of
fertilizer products, seeds, animal genetics, and other
ingredients required for Southern States' operations. The
recent acquisition of Michigan Livestock Exchange 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:
Southern States 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, Southern States 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 Michigan Livestock Exchange,
Southern States became the largest cooperative marketer
of livestock in the United States and now is able to
offer Michigan Livestock Exchange's marketing and other
value-added services, such as genetics, specialized
financing programs and feeding and animal health
programs, to Southern States' 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. Southern States 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 Southern
States' agricultural operations.
Agricultural Inputs and Services
Crops
Through its Crops division, Southern States procures, manufactures,
processes and distributes fertilizer, seed, and crop protectants to its members
and others through the Southern States distribution system. Southern States
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.
Southern States distributes granular, blended and liquid fertilizer
and fertilizer materials in bagged and bulk form. Southern States' 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 "Southern States--The Southern States
Distribution System."
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Southern States has an annual production capacity of approximately
500,000 tons of fertilizer at six strategically located production and
distribution facilities. Southern States procures the balance of the fertilizer
it sells from CF Industries, Inc., a cooperative owned by 11 regional
cooperatives including Southern States, which produces and supplies fertilizer
materials to its members. See "--Investments in Other Companies and
Cooperatives" below. CF Industries is one of North America's largest commercial
fertilizer manufacturers and distributors. CF Industries also supplies most of
Southern States' nitrogen and phosphate and some potash requirements, providing
approximately 50% of Southern States' total volume of fertilizer materials and
products in fiscal 1998. Southern States purchased the remainder of its
fertilizer materials from more than 40 other suppliers.
Through its Crops division, Southern States produces and sells field
and vegetable seeds, including small grains, soybeans, grasses, and legumes.
Southern States 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 Southern States' 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 Southern
States' extensive and diverse distribution system, makes Southern States an
attractive partner for bio-tech firms. For instance, Southern States is a
member-owner of Farmers Forage Research, Incorporated, which is operated by
Southern States and two other regional cooperatives. Farmers Forage Research,
Incorporated 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.
Feed
Through its Feed division, Southern States procures and manufactures
dairy, livestock, equine, poultry, pet and aquacultural feeds. Southern States'
feed products are manufactured in ten feed mills and are distributed at
wholesale and retail. See "Southern States--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. Southern States believes that it is the largest feed company in
its Mid-Atlantic territory.
Southern States' 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, a network
of five research farms, each devoted to a specified branch of animal husbandry.
Cooperative Research Farms provides extensive feed research permitting its
members to formulate improved feeds and feeding programs.
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Petroleum
Through its Petroleum division, Southern States 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. Southern States' 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. Southern States manages the throughput of its
products at 27 dedicated storage terminals.
Southern States also owns and operates 18 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
Southern States 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
Southern States' crops, feed and petroleum divisions.
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 Southern
States' members, other farmers and to a lesser extent to contractors and home
owners. Southern States 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 Southern States'
retail farm supply operations from other options available to its customer base.
The Retail Farm Supply division accounts for approximately 30% of
Southern States' total product and service volume. Sales through these
facilities in fiscal 1998 were $336.3 million.
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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 Southern States'
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 26 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 Southern States' Farm and Home retail
operations from its competitors.
Wetsel. Wetsel, Inc., an independently-operated, wholly-owned
subsidiary of Southern States, 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.
Marketing Services
Grain Marketing
Through its Grain Marketing division, Southern States 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 Southern States' 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.
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Livestock Marketing
Effective April 1, 1998, Southern States acquired, through merger,
Michigan Livestock Exchange, 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 Michigan Livestock
Exchange provides Southern States with an expanded membership base and
cross-selling opportunities for its other farm products in a territory outside,
but contiguous to Southern States' Mid-Atlantic territory. Moreover, as a
supplier of agricultural inputs to farmers, Southern States 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 Michigan Livestock Exchange, which has become the Livestock
Marketing division, Southern States operates 11 traditional livestock auction
facilities and 28 swine buying stations (10 of which are also livestock auction
facilities) 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,
Michigan Livestock Exchange marketed approximately 2.7 million hogs and 600,000
head of cattle.
Properties
Southern States' 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 Southern States' various operating divisions. See "--Agricultural
Inputs and Services" and "--Marketing Services" above.
Southern States' 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 Southern States 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 Southern States' lease arrangement for its corporate headquarters and
for other operating leases.
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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 Southern States' business
operations consist of a number of networked computer components running a
mixture of internally developed and purchased software applications. Southern
States' 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 Southern States the flexibility
to tailor computing needs to the application, and ultimately to the needs of the
business units such technology supports. This strategy permits Southern States
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 Southern States 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 within the next year.
Southern States 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 Southern States. Other integrated computer systems
support Southern States' distribution and manufacturing functions, its feed,
fertilizer, petroleum, grain and related functions, and financial, payroll and
human relations systems.
Southern States believes that its information systems are sufficient
to meet its current needs and future expansion plans. For information concerning
Southern States' efforts to assure that its business is not adversely affected
by the so-called "Year 2000" problem, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000."
Affiliated Financing Services
Through two affiliated entities, Statesman Financial Corporation
("Statesman") and Statesman's wholly-owned subsidiary, Michigan Livestock Credit
Corporation ("Michigan Livestock Credit"), Southern States provides a variety of
financing programs to its members and other customers. These programs, which are
intended to enhance "one-stop-shopping" services, support Southern States'
ability to sell its products, generate profits and provide an important source
of liquidity through the purchase of significant amounts of receivables from
Southern States. Through Southern States' direct investments in Statesman and
Michigan Livestock Credit and its financing services agreements with each of
them, Southern States is exposed to credit and interest rate risk resulting from
the ongoing operations of Statesman and Michigan Livestock Credit.
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Statesman Financial Corporation
Statesman Financial Corporation is owned 38.4% by Southern States
and 36.1% by 66 of the managed local cooperatives. The remaining 25.5% is owned
by Countrymark Inc., a regional farm-supply cooperative headquartered in
Indianapolis, Indiana, and MFA, Incorporated and MFA Oil Company, regional
farm-supply organizations headquartered in Columbia, Missouri. Southern States
accounts for its ownership in Statesman by the equity method.
Statesman is engaged in a variety of financing programs with
Southern States 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 Southern
States. See Note 5 of the Notes to the Southern States Consolidated Financial
Statements included in this prospectus.
Accounts Receivable Financing
Statesman purchases, without recourse, Grain Marketing division
accounts receivable, advances to managed member cooperatives and selected retail
location receivables. On September 16, 1991, Statesman and Southern States
entered into an agreement, amended effective November 1, 1997, under which
Statesman purchases from Southern States certain receivables without recourse.
Under the terms of the agreement, Southern States pays certain fees on
receivables sold to Statesman. In addition, certain receivables are discounted
to provide Statesman with revenues sufficient to cover anticipated interest
charges and average historical charge-offs. Receivables purchased by Statesman
totaled approximately $996.7 million and $991.5 million for the years ended June
30, 1998 and 1997, respectively. Volume incentive fees paid to Southern States
related to this program were approximately $605,000 and $488,000 for the years
ended June 30, 1998 and 1997, respectively.
Under the terms of the agreement, Southern States is obligated to
maintain a computed minimum investment in Statesman's Class A noncumulative
preferred stock, based on the average daily balances of receivables sold to
Statesman. The amount of this Class A preferred stock held by Southern States
was $17,918,000 for the years ended June 30, 1998 and 1997. Upon written notice,
the agreement may be terminated by either party at any time.
Consumer Retail Financing
Statesman purchases installment sales financing contracts from
Southern States, the managed member cooperatives, private dealers and
independent cooperatives. These contracts are purchased on both a recourse and
nonrecourse basis and have terms ranging from three months to sixty months. As
of January 1994, the consumer retail financing program was enhanced to add a
private label credit card program. Finance charges are either precomputed at an
annual percentage rate or computed monthly on an average daily balance.
Statesman's consumer retail financing income was approximately $1,424,000 and
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$1,503,000 for the years ended June 30, 1998 and 1997, respectively. In
addition, Statesman's interest and fee income includes amounts received
primarily from Southern States of approximately $218,000 and $219,000 for the
years ended June 30, 1998 and 1997, respectively. Volume incentive fees were not
paid to Southern States related to this program for the years ended June 30,
1998 and 1997.
Leasing Services
Statesman, as lessor, has entered into operating leases with
Southern States and its patrons for computer equipment, liquid propane tanks,
credit bureau terminals and agricultural equipment. The net book value of the
equipment was approximately $7,005,000 and $7,971,000 as of June 30, 1998 and
1997, respectively. This program generated revenues of approximately $2,460,000
and $2,663,000 for the years ended June 30, 1998 and 1997, respectively. Volume
incentive fees paid to Southern States related to this program were
approximately $295,000 and $392,000 for the years ended June 30, 1998 and 1997,
respectively.
Asset Based Financing
Statesman offers working capital financing to credit-approved
private dealers of Southern States' products and independent cooperatives
through a revolving line of credit program collateralized by the debtor's
accounts receivable and inventories. Interest is charged on a floating interest
rate basis with contract maturities subject to periodic renewal. This program
generated revenues of approximately $1,034,000 and $1,122,000 for the years
ended June 30, 1998 and 1997, respectively.
Agrifinancing
Statesman offers nonrecourse extended crop, livestock and feed
financing for one to five year periods to selected customers of Southern States.
The notes are collateralized by the debtor's real estate, livestock or other
tangible holdings. This program generated revenues of approximately $123,000 and
$199,000 for the years ended June 30, 1998 and 1997, respectively.
Michigan Livestock Credit Corporation
Effective April 1, 1998, Michigan Livestock Credit, all of whose
shares of common stock were owned by Michigan Livestock Exchange, was merged
into a wholly-owned subsidiary of Statesman coincident with the merger of
Michigan Livestock Exchange with Southern States. Upon the effective date of the
merger, the name of the Statesman subsidiary was changed to Michigan Livestock
Credit Corporation.
Michigan Livestock Credit was organized in 1989 for the purpose of
assuming various lending operations previously conducted by Michigan Livestock
Exchange. 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 Michigan
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Livestock Credit's total portfolio. The Livestock Feeding Program is a bailment
program in which the livestock are owned by Michigan Livestock Credit and the
farmer/producers house and feed the animals in their facilities. Livestock
Feeding Program 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.
Southern States has a financing support agreement with Michigan
Livestock Credit similar to the agreement it has with Statesman. Under the terms
of the agreement, Southern States is obligated to maintain a computed minimum
investment in Michigan Livestock Credit preferred stock, based on the average
balance of receivables outstanding at Michigan Livestock Credit. Under the
agreement, Southern States' required minimum investment in Michigan Livestock
Credit at June 30, 1998 was $8.6 million. Southern States' investment in
Michigan Livestock Credit at that date was $10.2 million in order to assure
Michigan Livestock Credit'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,
Southern States has substantial investments, totaling approximately $75.5
million as of December 31, 1998, in other companies and cooperatives. Its
largest investments are in other cooperatives from which it purchases supplies
or services and from which Southern States 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.
Southern States' largest single investment is in CF Industries. See
"--Agricultural Inputs and Services--Crops" above. At June 30, 1998, Southern
States' investment in CF Industries was $43.5 million, represented by ownership
of preferred stock issued to Southern States (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. Southern States'
preferred stock ownership represented approximately 5.6% of the outstanding
preferred stock of CF Industries at June 30, 1998. The patronage refund paid to
Southern States 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.
Southern States' second largest investment in other companies and
cooperatives, apart from its affiliated financing companies, is in Southern
States Insurance Exchange. The Insurance Exchange is a Virginia-domiciled
insurance reciprocal licensed to write certain lines of insurance in Southern
States' Mid-Atlantic territory and Pennsylvania. The Insurance Exchange provides
a wide-range of property and casualty coverages for its subscribers
(policyholders). Subscribers of the Insurance Exchange include Southern States,
the managed local cooperatives, private dealers and other parties. Subject to
certain limitations, the Insurance 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 Insurance Exchange returns certain prior years' subscriber savings
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when, in the judgment of its Board of Directors, circumstances make it prudent
to do so. At June 30, 1998, Southern States' investment in the Exchange was
$11.3 million, representing the accumulated unreturned savings in Southern
States' subscriber account. Southern States 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 Insurance Exchange is operated by its attorney-in-fact and manager, Southern
States Underwriters, Inc., an indirect subsidiary of Southern States. The
Insurance Exchange carries an A.M. Best's highest rating of A+ Superior.
As of June 30, 1998, Southern States reported total investments in
other companies and cooperatives (including CF Industries and the Insurance
Exchange) of $75.6 million. Southern States' 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 in this
prospectus.
Other Factors Affecting the Business of Southern States
Seasonality
The business of Southern States 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 Southern States' agricultural operations occur in late
winter and spring, which represents the prime planting season for Southern
States' 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 Southern States' sales in its Crops division occurs in the spring.
Offsetting such seasonal effects to some degree, sales related to
Southern States' grain and feed operations tend to be highest during fall and
winter. In addition, Southern States 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.
Competition
Southern States 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 Southern States'
territory. However, major competitors vary from area to area. No single
competitor competes throughout Southern States' entire territory. Southern
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States 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 Southern States'
competitive position.
Employee Relations
Southern States employs approximately 5,600 persons, including
approximately 1,100 who were formerly employed by Gold Kist and who became
employees of Southern States in October, 1998, in connection with Southern
States' 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. Southern States considers its relationship with
employees to be good.
Matters Involving the Environment
Southern States 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. Southern States believes that its
operations are in substantial compliance with all applicable environmental laws
and regulations as currently interpreted and that it has obtained or applied for
the necessary permits to conduct its business. Because Southern States 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 Southern States'
business, financial condition or results of operations.
As of April 30, 1999, Southern States had three sites at which
environmental investigation and remediation is ongoing and costs may be
significant. At one such site, Southern States 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, Southern States believes that future investigation and
remediation costs will be between $3.1 million and $4.6 million. At a second
site, Southern States continues to monitor nitrate contamination of the soil and
groundwater pursuant to a consent agreement under the Virginia Voluntary
Remediation Program. Southern States 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, Southern States believes that future monitoring and
remediation costs will be in the range of $100,000 to $300,000. At the third
site, Southern States 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.
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During fiscal 1996, 1997 and 1998, Southern States 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 December 31, 1998, Southern States had reserved approximately $3.8 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,
Southern States believes that the accruals established for environmental
expenditures are adequate.
In addition, as a result of off-site disposal activities, Southern
States 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. Southern States has executed de minimis settlement agreements for both
of these sites. The de minimis agreements provide Southern States with
statutorily authorized protection from private actions by third parties seeking
to recover site clean-up costs, and further provide that the EPA will not
institute proceedings against Southern States relating to the clean-up of the
sites. The agreement can be set aside by the EPA only if Southern States failed
to disclose material facts with respect to its involvement in the sites or if
aggregate site clean-up costs exceed a dollar threshold specified in the
agreements, which is ordinarily set at a multiple of anticipated clean-up costs.
Under our agreement to purchase the Gold Kist Input Business, we
acquired 20 properties specifically identified as being subject to potential
environmental liabilities. Gold Kist has agreed to assume responsibility for any
such liabilities, and has agreed, during the 10 years following the acquisition,
to indemnify Southern States for any loss (subject to a $15,000 "deductible" on
each such property) it might suffer on account of such environmental obligations
up to a maximum limit of $35 million in the aggregate. Southern States does not
consider its risk of incurring material environmental costs with respect to such
properties to be significant in light of its indemnification agreement with Gold
Kist.
Southern States has expended, and expects in the future to
expend, funds for compliance with environmental laws and regulations, which
expenditures may impact Southern States' future net income. Southern States 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, Southern States had environmental capital
expenditures of approximately $1.02 million. Southern States estimates that its
environmental capital expenditures for fiscal 1999 will be in the range of $1.0
million to $2.0 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.
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Government Regulation
Southern States' business is impacted by numerous federal, state and
local laws which have been enacted to promote fair trade practices, safety,
health and welfare. Southern States believes that its operating procedures
conform to the intent of these laws and that it currently is in substantial
compliance with all such laws, the violation of which could have a material
adverse effect on it.
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 Southern States' products
or which may impact the methods by which certain of its operations are
conducted. Such policies may impact Southern States' 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. Southern States 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 Southern States'
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. Southern States is not
able to predict how this most recent legislation might affect its business.
Commodity Price Hedging Activities
Southern States 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. Southern States maintains
hedged positions on its petroleum products on a periodic basis. With respect to
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<PAGE>
grain, however, Southern States' strategy is to maintain fully hedged positions
to the extent possible. Southern States' 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 in this prospectus.
Southern States maintains hedged positions on its petroleum products
inventory to protect against price declines from the time it purchases product
to the time the product is sold. Southern States perceives its risk from a
decrease in market prices as being greater as the level of market price
increases. For that reason, Southern States seeks to hedge a larger proportion
of product "imbalance" (i.e., the difference between the inventory owned and
product sold or owed to third parties) as the level of current market prices
increases. For example, at a price level below $.50/gal., Southern States
typically hedges only 10%-20% of the product imbalance; at a price level of
$.75/gal., Southern States ordinarily hedges approximately 80% of the imbalance.
The hedge is usually a contract to sell either #2 heating oil or gasoline. The
term of the contract is usually 30 to 60 days. Average inventory held by
Southern States is approximately 15 million gallons. Company policy limits the
maximum number of gallons that can be hedged at any one time to 12.6 million
gallons (300 contracts).
Southern States also seeks to minimize price risks inherent in its
grain marketing operations by engaging in hedging activities in which grain
futures are bought and sold to protect the value of grain inventory and open
purchase contracts from adverse price changes in the corn, wheat and soybean
markets. During harvest periods when deliveries are at their heaviest volume,
Southern States will "pre-hedge" the day's projected receipts to avoid large
unhedged overnight positions. Company policy limits the aggregate unhedged
position in wheat, corn and soybeans to a maximum of 100,000 bushels. Commodity
futures and options are only traded on regulated exchanges such as the Chicago
Board of Trade.
Southern States also is a purchaser of agricultural commodities used
for the manufacture of feeds. Southern States uses commodity futures and options
for hedging purposes to reduce the effect of changing commodity prices on a
portion of its commodity inventories and related purchase and sale contracts.
Feed ingredients futures contracts, primarily corn and soybean meal, are
recognized when closed and option contracts are accounted for at market. Gains
and losses on the transactions are recorded as a component of product cost. At
June 30, 1998, the fair value of Southern States' outstanding commodity futures
and options positions for feed ingredients was not material.
Legal Proceedings
Southern States is involved in various legal proceedings that arise
in the normal course of its business. Based upon its evaluation of the
information currently available, Southern States believes that the ultimate
resolution of such proceedings will not have a material adverse effect on its
financial position, liquidity or results of operations.
Southern States 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, Southern States 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 Southern States are underwritten by Southern States
Insurance Exchange. See "--Investments in Other Companies and Cooperatives"
above.
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ACQUISITION OF THE GOLD KIST INPUTS BUSINESS
Under an Asset Purchase Agreement dated July 23, 1998 (the
"Agreement"), Southern States 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.
Under the Agreement, Southern States 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:
o four fertilizer plants, one of which is leased,
o four crop protectant distribution centers, one of which is leased,
o 23 grain elevators, five of which are leased,
o 15 peanut buying stations, six of which are leased,
o five cotton gins, two of which are leased,
o four feed mills,
o one seed processing plant, and
o approximately 100 retail farm supply stores and branch facilities.
The acquisition also included a number of owned and leased
distribution and storage facilities and substantially all inventory and accounts
receivable and certain other assets associated with the Gold Kist Inputs
Business. Southern States 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. Southern States paid a cash purchase price of
$218.3 million at closing, exclusive of certain trade payables and other
specified liabilities assumed by Southern States. 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.
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Through the acquisition of the Gold Kist Inputs Business, Southern
States acquired a business that is very similar to its own agricultural supply
operations, enabling it to:
o expand its agricultural supply activities and services into a contiguous
geographic territory;
o increase its purchasing power with vendors;
o distribute its products through expanded distribution channels;
o increase the opportunity to provide livestock marketing services in the
area served; and
o achieve efficiencies and economies of scale, capitalizing on its operating
expertise as it combines the Gold Kist Inputs Business with Southern
States' operations.
In an era of industry consolidation among both agricultural
producers and suppliers, the acquisition of the Gold Kist Inputs Business
significantly enlarges Southern States' operations, increasing its assets by
over $200 million and its membership base by approximately 29,000, and on a pro
forma basis, its sales by more than 40%, thereby solidifying 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, Southern States has closed six
retail locations (one of which was leased) in the Gold Kist territory. Southern
States also is undertaking to expand its private dealer system into the Gold
Kist territory. As of April 9, 1999, 51 new private dealer locations in the Gold
Kist territory, including eight independent cooperative locations, had completed
Southern States' certification process and were purchasing product from Southern
States. Twenty others, including 10 independent cooperatives, were in various
stages of that process and are expected to be purchasing product by May 1999.
Approximately 55 other private dealers throughout the Gold Kist territory have
been identified as prospective private dealers for Southern States.
Gold Kist Inputs Business
As a result of its acquisition of the Gold Kist Inputs Business,
Southern States 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 Southern States as part of
the Gold Kist Inputs Business and at wholesale to national accounts and
independent dealers.
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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.
Southern States 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.
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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 Southern States 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.
Southern States 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.
Southern States operates these store locations as a part of its
Retail Farm Supply division.
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.
Southern States 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 assumed
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liabilities and an agreed-upon "holdback" of $10 million, the Estimated Purchase
Price paid to Gold Kist at closing was $218.3 million. Under the Agreement, the
final purchase price (the "Final Purchase Price") was to be calculated by
Southern States 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.
On December 24, 1998, Southern States delivered to Gold Kist a
Post-Closing Statement of Net Asset Value (the "Post-Closing Valuation")
prepared pursuant to the terms of the Agreement. The Final Purchase Price as
determined by Southern States pursuant to the Post-Closing Valuation was $202.8
million compared to an Estimated Purchase Price (after deducting the $10 million
hold-back provided for in the Agreement) of $218.3 million. Taking into account
certain agreed upon adjustments, Southern States' Post-Closing Valuation would
result in a repayment by Gold Kist to Southern States of $16.0 million, with
interest from the date of closing. The difference between the Estimated Purchase
Price as determined by the Pre-Closing Valuation and Southern States'
determination of the Final Purchase Price as shown by the Post-Closing Valuation
was principally due to a material increase in the reserve for bad debts
applicable to the accounts receivable purchased pursuant to the Agreement as a
result of Southern States' post-closing evaluation and analysis of the
receivables. Gold Kist subsequently objected to Southern States' Post-Closing
Valuation, and asserted that Southern States owed Gold Kist an additional $6.0
million. Southern States and Gold Kist have been working together since
February, 1999, to resolve their differences. 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 Southern
States 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 Southern States for
losses arising out of 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 Southern States 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.
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The Financing Commitment
In connection with the closing of Southern States' purchase of the
Gold Kist Inputs Business, Southern States and Gold Kist entered into a separate
agreement pursuant to which Gold Kist agreed, subject to certain conditions, to
purchase up to $100 million of preferred stock or other specified equity-type
securities from Southern States or an affiliated entity of Southern States. The
purchase agreement was subsequently amended to extend the date on which Gold
Kist will purchase securities from Southern States to October 5, 1999. 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
Southern States. As described in "Use of Proceeds", Southern States also is
undertaking to place up to $50 million liquidation amount of its Series A
Preferred Stock with institutional investors. To the extent Southern States
sells all or a portion of the Series A Preferred Stock as contemplated, the
purchase obligation of Gold Kist will be similarly reduced.
The purchase commitment of Gold Kist is secured by an irrevocable
direct pay letter of credit in favor of Southern States 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 Southern States.
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 Southern States' traditional Mid-Atlantic
territory. Public directors need not be members of Southern States.
The Directors of Southern States are as follows:
<TABLE>
<CAPTION>
Expiration Years
Age as of of Present Served
March 31, Term as as
Name 1999 Position(s) Held irector Director Residence
- - - - ---- --------- ---------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Earl L. Campbell 58 Chairman of the Board; Executive Committee 2000 13 Danville, Kentucky
John Henry Smith 48 Vice Chairman of the Board; Executive Committee, 2000 7 Rosedale, Virginia
Chairman
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Michael W. Beahm 47 Member & Institutional Relations Committee 1999 2 Roanoke, Virginia
Cecil D. Bell, Jr.* 58 Audit Committee, Chairman 2001 9 Georgetown, Kentucky
Floyd K. Blessing 71 Executive and Budget Committees 2001 14 Houston, Delaware
Jere L. Cannon 57 Audit Committee 1999 23 Flemingsburg, Kentucky
William F. Covington* 73 Member & Institutional Relations Committee, 2000 12 Mebane, North Carolina
Chairman; Executive Committee
George E. Fisher 66 Member & Institutional Relations Committee 1999 11 Gordonsville, Virginia
R. Bruce Johnson 47 Budget Committee 2000 4 West Point, Virginia
James A. Kinsey* 49 Executive and Audit Committees 2000 7 Flemington, West Virginia
J. Wayne McAtee 54 Budget Committee 2000 16 Cadiz, Kentucky
Richard F. Price 68 Executive and Member & Institutional Relations 2001 30 Phoenix, Maryland
Committees
William Pridgeon 47 Member & Institutional Relations Committee 2000 Elected April 1, Montgomery, Michigan
1998
Curry A. Roberts* 41 Audit Committee 2001 6 Charlottesville, Virginia
James A. Stonesifer* 55 Budget Committee 1999 2 Union Bridge, Maryland
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 41 Member & Institutional Relations Committee 2001 3 Dunmore, West Virginia
Fred K. Norris, Jr. 71 Member & Institutional Relations Committee 1999 ** Eutawville, South Carolina
Phil Ogletree, Jr. 66 Budget Committee 1999 ** Orchard Hill, Georgia
H. Michael Davis 48 Member & Institutional Relations Committee 2000 ** Valdosta, Georgia
Herbert A. Daniel, Jr. 47 Audit Committee 2001 ** Claxton, Georgia
James E. Brady, Jr. 63 Audit Committee 2001 ** Marion, Alabama
</TABLE>
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* Messrs. Bell (Kentucky), Covington (North Carolina), Kinsey
(West Virginia), Roberts (Virginia), Stonesifer (Maryland) and Vanderwende
(Delaware) are designated public directors.
** 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, which expanded the operations of Southern States 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
Michigan Livestock Exchange, was designated by the membership of Michigan
Livestock Exchange to represent the Michigan Livestock Exchange 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 Southern
States' 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, 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 Southern States 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.
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 Southern States. 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 Southern States. 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.
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Compensation Committee Interlocks and Insider Participation
Messrs. J. H. Smith (Chairman), Campbell, Blessing, Covington,
Kinsey and Price serve as members of Southern States' Executive Committee which
functions as Southern States' compensation committee. None of these directors,
nor any of Southern States' executive officers, has any of the relationships to
Southern States 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. 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 Southern States.
Executive Officers
The Executive Officers of Southern States are as follows:
<TABLE>
<CAPTION>
Age as of March
Name 31, 1999 Positions and Offices Held
- - - - ---- --------------- ---------------------------
<S> <C> <C>
Wayne A. Boutwell 55 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.
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K. Gene McClung 54 Group Vice President, Marketing & Logistical Services -- Mr. McClung commenced
his career with Southern States 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 Southern States for
a number of years as Director, Credit and Financial Services and as President of
Statesman Financial Corporation.
George W. Winstead 56 Group Vice President, Ag Inputs & Services -- Mr. Winstead began his career with
Southern States 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. He joined Southern States 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.
Gene R. Anderson 59 Senior Vice President, Corporate and Member Services -- Mr. Anderson joined
Southern States 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 Southern States,
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 60 Senior Vice President, Corporate Information and Support Services -- Mr. Miller
joined Southern States 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 Southern States, 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.
N. Hopper Ancarrow, Jr. 53 Vice President, General Counsel and Secretary -- Mr. Ancarrow joined Southern
States' legal staff in 1971 and from 1972 until 1987 served as Assistant Secretary
of Southern States. 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.
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Richard G. Sherman 52 Vice President, Human Resources -- Mr. Sherman joined Southern States 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 Southern
States, 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 Southern States 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 Southern
States.
Executive Compensation
The following table shows, for the fiscal years ended June 30, 1998,
1997 and 1996, all compensation paid or accrued by Southern States and its
subsidiaries to its 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 Officer (4) 1997 278,250 --- --- ---
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>
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(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 Southern States' payment of certain taxes on their
behalf. In the case of Mr. Winstead, the amount shown reflects the payment by
Southern States 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 Southern States 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 Southern States during fiscal year 1996. Reflects $3,934 contributed
or matched by Southern States or its subsidiaries for fiscal year 1998, under
the Southern States Thrift Plan. The remaining amount shown was paid by Southern
States for life insurance premiums under a split dollar life insurance
agreement. Southern States will recover the cost of premium payments from the
cash value of the policies.
(5) Mr. Ragsdale retired from Southern States effective June 30,
1998. Subsequent to his retirement, Mr. Ragsdale has been engaged by Southern
States 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 Southern States 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 Southern States for life insurance premiums under a split dollar life
insurance agreement.
(6) Reflects $2,465, $3,859 and $4,461 contributed or matched by
Southern States 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 Southern States for life insurance premiums
under a split dollar life insurance agreement.
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(7) Reflects $2,481, $4,147 and $3,673 contributed or matched by
Southern States 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 Southern States for life insurance premiums
under a split dollar life insurance agreement.
(8) Reflects $2,134, $3,746 and $3,912 contributed or matched by
Southern States 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 Southern States 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 Southern States.
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 Southern States for the fiscal year. The Earnings Fund
includes only certain amounts by which Southern States 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.
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
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<PAGE>
award is placed in an incentive account established on the books of Southern
States 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 Southern States 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 Southern States'
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 Earnings 10 15 20 25 30 or more
--- -- -- -- ----------
- - - - ---------------------------------------------
<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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Security Ownership of Certain Beneficial Owners and Management
Southern States' stockholder equity consists of its membership
common stock and its preferred stock. Only the shares of membership common stock
have voting rights.
Under Southern States' articles of incorporation and under
applicable Virginia law, each member of Southern States has only one vote in the
business affairs of Southern States, regardless of the number of shares of
common stock owned. See "Southern States--Cooperative Structure."
At March 31, 1999, none of the directors of Southern States 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
Southern States' equity. At March 31, 1999, no person or entity was known by
Southern States to be the beneficial owner of more than five percent of Southern
States' common shares.
Certain Relationships and Related Transactions
Southern States' members, including its directors, are customers of
Southern States and/or of its affiliated financing companies. They purchase
products from Southern States in the normal course of operating their farm
businesses and may sell certain agricultural products to Southern States at
market price. The prices, terms and conditions of any purchase or sale
transaction are on the same basis for all Southern States' members.
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DESCRIPTION OF THE CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, which will be
qualified as an indenture under the Trust Indenture Act, the trustees, on behalf
of the Trust, will issue the Capital Securities and the Common Securities. The
property trustee will act as the debenture trustee for purposes of compliance
with the provisions of the Trust Indenture Act. The terms of the Capital
Securities will include those stated in the Trust Agreement, including those
required to be made part of the Trust Agreement by the Trust Indenture Act. The
following discussion is a summary of the material terms and provisions of the
Capital Securities that will be issued by the Trust.
General
The Trust Agreement authorizes the administrative trustees to cause
the Trust to issue the Capital Securities and the Common Securities (together,
the "Trust Securities") which represent undivided beneficial interests in the
Trust. All Common Securities will be owned directly or indirectly by Southern
States. The Capital Securities will be limited to $75,000,000 aggregate
liquidation amount outstanding. The Trust reserves the right to increase the
aggregate liquidation amount outstanding by not more than $11,250,000. The
Capital Securities will rank equal with, and payments will be made thereon
ratably with, the Common Securities issued by the Trust except as described
under "--Subordination of Common Securities." The property trustee will hold the
junior subordinated debentures in trust for the benefit of the holders of the
Trust Securities.
The payment of distributions out of money held by the Trust, and
payments upon redemption of the Capital Securities or liquidation of the Trust,
are guaranteed by Southern States to the extent described under the "The
Guarantee." The guarantee, when taken together with the back-up undertakings,
consisting of obligations of Southern States as set forth in the Trust
Agreement, the Expense Agreement, the Indenture and any applicable supplemental
indentures and the junior subordinated debentures issued to the Trust, provide a
full and unconditional guarantee by Southern States of the amounts due on the
Capital Securities. The guarantee will be held by the guarantee trustee for the
benefit of the holders of the Capital 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 the Capital
Securities when the Trust does not have funds on hand available to make such
payments. See "The Guarantee." The guarantee only covers payment of
distributions when Southern States has made the corresponding payment of
interest or principal on the junior subordinated debentures held by the Trust.
In the absence of such payment of interest or principal, the remedy of any
holder of Capital Securities is to direct the property trustee to enforce
against Southern States the property trustee's rights as the holder of the
junior subordinated debentures, except in the limited circumstances where the
holder may take direct action against Southern States. See "--Voting Rights."
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Distributions; Option to Extend Interest Payment Period
Rate
Distributions on the Capital Securities will be fixed at a rate per
annum of ___ % of the stated liquidation amount of $25 per Capital Security.
Distributions in arrears for more than one quarter will (to the extent permitted
by applicable law) accrue interest at the rate per annum of ___ % thereof
compounded quarterly. The term "distributions" as used in this prospectus
includes any such interest payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarter, on
the basis of the actual number of days elapsed in such 90-day quarter.
Dates
Distributions on the Capital Securities will be cumulative, will
accrue from ________, 1999 and will be payable quarterly in arrears on January
1, April 1, July 1 and October 1 of each year, commencing ________, 1999 when,
as and if available for payment by the property trustee, except as otherwise
described below. The initial cash distribution payable on _______, 1999, will
equal $______ for each $25 Capital Security. Subsequent cash distributions will
equal $______ for each $25 Capital Security.
Right to Defer
Southern States has the right under the Indenture to defer payments
of interest on the junior subordinated debentures by extending the interest
payment period from time to time on the junior subordinated debentures, which,
if exercised, would automatically defer quarterly distributions on the Capital
Securities. However, during any such extension period (each, an "extension
period"), interest would continue to accrue on the junior subordinated
debentures and, to the extent permitted by law, on the deferred interest
payments distributions on the Capital Securities likewise would continue to
accrue with interest. Such right to extend the interest payment period for the
junior subordinated debentures is limited to a period not exceeding 20
consecutive quarters or extending beyond the Maturity Date of the junior
subordinated debentures.
If Southern States exercises this right, then during any extension
period Southern States may not:
o declare or pay dividends on, make distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock or patron's equity,
o redeem any patronage refund allocations,
o make any payment of interest, principal or premium, if any, on, or repay,
repurchase or redeem, any debt securities issued by Southern States that
rank equal with or junior to the junior subordinated debentures, or
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These restrictions do not apply to:
o repurchases, redemptions or other acquisitions of shares of Southern
States' capital stock 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 Southern States, if the Board of Directors approves such
repurchase or redemption pursuant to a policy of assuring that Southern
States operates as a cooperative in compliance with Subchapter T of the
Internal Revenue Code,
o an exchange or conversion of capital stock or debt of Southern States (or
any capital stock of an affiliate of Southern States) for any other
capital stock of Southern States,
o the declaration or payment of patronage refunds, provided that not more
than 40% of 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,
o any declaration of a dividend in connection with any shareholder's rights
plan, or the issuance of rights, stock or other property under any
shareholders' rights plan, or the redemption or repurchase of rights
pursuant to such a plan, or
o 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 equal with or junior to such stock.
Prior to the termination of any such extension period, Southern
States may further extend the interest payment period; provided that the total
extension period, together with all previous and further extensions thereof, may
not exceed 20 consecutive quarters and may not extend beyond the maturity date
of the junior subordinated debentures.
Upon the termination of any extension period and the payment of all
amounts then due, Southern States may commence a new extension period, subject
to the above requirements. See "Description of the Junior Subordinated
Debentures--Interest" and "--Option to Extend Interest Payment Period." Southern
States has no present intention of exercising its right to defer payments of
interest by extending the interest payment date of the junior subordinated
debentures.
Availability of Funds
Distributions on the Capital Securities must be paid on the dates
payable only to the extent that the Trust has funds available for the payment of
such distributions. The Trust's funds available for distribution to the holders
of the Capital Securities will be limited to payments received from Southern
States under the junior subordinated debentures. See "Description of the Junior
Subordinated Debentures" and "Risk Factors--The Ability of the Trust to Make
Timely Distributions Is Dependent on Southern States Making Payments on the
Junior Subordinated Debentures; The Guarantee Covers Payments Only if the Trust
Has Available Funds."
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Record Holders
Distributions on the Capital Securities will be payable to the
holders of the Capital Securities as they appear on the books and records of the
Trust on the relevant record dates, which will be on the fifteenth day (whether
or not a Business Day (as defined below)) prior to the relevant payment dates.
If distributions are deferred, the deferred distributions and accrued interest
thereon shall be paid to holders of record of the Capital Securities as they
appear on the books and records of the Trust on the record date for
distributions due at the end of such deferral period. Such distributions will be
paid through the property trustee, who will hold amounts received in respect of
the junior subordinated debentures for the benefit of the holders of the Capital
Securities.
In the event that any date on which distributions are to be made 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 which is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the scheduled distribution date.
A "Business Day" means a day other than:
o a Saturday or Sunday,
o a day on which banks in New York City are authorized or required by law
or executive order to remain closed, or
o a day on which the property trustee's corporate trust office or the
corporate trust office of the debenture trustee is closed for business.
Subordination of Common Securities
Payment of distributions on, and the redemption price of, the
Capital Securities and Common Securities, as applicable, shall be made ratably
based on the Liquidation Amount of the Capital Securities and Common Securities;
provided, however, that if on any payment date for distributions or the
redemption price a debenture event of default (as defined under "--Events of
Default; Notice") shall have occurred and be continuing, no payment of any
distribution on, or applicable redemption price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of the 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 to that
date, or in the case of payment of the redemption price, the full amount of such
redemption price, 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 the redemption price of, the Capital Securities then
due and payable.
In the case of any Event of Default (as defined below) 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
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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.
Redemption
Upon the repayment, in whole or in part, of the junior subordinated
debentures, whether at maturity or upon redemption, the proceeds from such
repayment or redemption shall simultaneously be applied to redeem Capital
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the junior subordinated debentures so repaid or redeemed at
the Redemption Price; provided that, holders of Capital Securities shall be
given not less than 30 nor more than 60 days' notice of such redemption. See
"--Tax Event Redemption." The junior subordinated debentures will mature on
__________, 2029, and may be redeemed, in whole or in part, at any time on or
after ________, 2004 or at any time, in whole but not in part, upon the
occurrence of a Tax Event. See "Description of the Junior Subordinated
Debentures--Optional Redemption."
Tax Event Redemption
If, at any time, a Tax Event (as defined below) shall occur and be
continuing, Southern States shall have the right, upon not less than 30 nor more
than 60 days' notice, to redeem the junior subordinated debentures, in whole but
not in part, for cash within 90 days following the occurrence of such Tax Event,
and, following such redemption, the Trust Securities shall be redeemed by the
Trust at the redemption price.
"Tax Event" means the receipt by the Trust of an opinion of counsel
to Southern States 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 risk that:
o 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,
o interest payable by Southern States on the junior subordinated debentures
is not, or within 90 days of the delivery of such opinion, will not be,
deductible by Southern States, in whole or in part, for United States
federal income tax purposes or
o 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.
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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" above.
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 of the
Capital Securities 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 Southern States 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
rice is actually paid, in which case the actual payment date will be the date
fixed for redemption for purposes of calculating the redemption price.
Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), Southern States or its
affiliates may at any time, and from time to time, purchase outstanding Capital
Securities by tender offer, in the open market or by private agreement.
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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
ratably 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 proportional 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 certificate
(as defined below), in accordance with DTC's customary procedures. The property
trustee shall promptly notify the securities registrar for the Capital
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 of the Capital Securities 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 Capital Securities. Unless Southern States 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 Southern States pursuant to the guarantee, distributions will cease
to accumulate on the Capital Securities or portions thereof) called for
redemption.
Distribution of the 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.
Under current United States federal income tax law and
interpretations and assuming, as expected, the Trust is treated as a grantor
trust, a distribution of the junior subordinated debentures should not be a
taxable event to holders of the Capital Securities. Should there be a change in
such law, a change in the legal interpretation of such law, a Tax Event or other
circumstances, however, the distribution of the junior subordinated debentures
could be a taxable event to the holders of the Capital Securities. In addition,
a dissolution of the Trust in which holders of the Capital Securities receive
cash would be a taxable event to such holders. See "United States Federal Income
Taxation--US Holders--Receipt of Junior Subordinated Debentures or Cash Upon
Liquidation of the Trust."
If the junior subordinated debentures are distributed to the holders
of the Capital Securities, Southern States will use its best efforts to cause
the junior subordinated debentures to be listed on the NYSE or on such other
exchange, interdealer quotation system or other organization as the Capital
Securities are then listed.
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After the date for any distribution of junior subordinated debentures
upon dissolution of the Trust,
o the Capital Securities will no longer be deemed to be outstanding,
o DTC or its nominee, as the record holder of the Capital Securities, will
receive a registered global certificate or certificates representing the
junior subordinated debentures to be delivered upon such distribution and
o any certificates representing Capital Securities not held by DTC or its
nominee will be deemed to represent junior subordinated debentures having
an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of,
and accrued and unpaid interest equal to accrued and unpaid distributions
on, such Capital Securities until such certificates are presented for
transfer or reissuance.
There can be no assurance as to the market prices for either the
Capital Securities or the junior subordinated debentures that may be distributed
in exchange for the Capital Securities if a dissolution and liquidation of the
Trust were to occur. Accordingly, the Capital Securities that an investor may
purchase, whether pursuant to the offer made by this prospectus or in the
secondary market, or the junior subordinated debentures that an investor may
receive if a dissolution and liquidation of the Trust were to occur, may trade
at a discount to the price that the investor paid to purchase the Capital
Securities offered by this prospectus.
Liquidation Amount Upon Dissolution
In the event of any voluntary or involuntary liquidation,
dissolution, winding-up or termination of the Trust (each, a "Liquidation"), the
then holders of the Capital Securities will be entitled to receive on a ratable
basis solely out of the assets of the Trust, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, a liquidation
distribution in an amount equal to the aggregate of the stated liquidation
amount of $25 per Capital Security plus accrued and unpaid distributions,
subject to certain exceptions, which may be in the form of a distribution of
such amount in junior subordinated debentures. See "--Distribution of the Junior
Subordinated Debentures."
If, upon any such Liquidation, the 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 the Capital Securities shall be paid on a ratable basis. The
holders of the Common Securities will be entitled to receive distributions upon
any such dissolution ratably with the holders of the Capital Securities, except
that if an Debenture Event of Default has occurred and is continuing as a result
of any failure by Southern States to pay any amount in respect of the junior
subordinated debentures when due, the Capital Securities shall have a preference
over the Common Securities with respect to such distributions.
Termination
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:
o certain events of bankruptcy, dissolution or liquidation of Southern
States,
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o the distribution of a like amount of the junior subordinated debentures to
the holders of the Capital 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),
o redemption of all of the Capital Securities as described under
"--Redemption" above, and
o the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
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 Capital
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 Southern States 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 of such bankruptcy or insolvency events.
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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 Capital Securities,
the Administrative trustees and Southern States, unless such Event of Default
has been cured or waived. Southern States, 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.
If a Debenture Event of Default has occurred and is continuing as a
result of any failure by Southern States 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" and "--Liquidation Amount Upon Dissolution" above, 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 of the Capital Securities.
Removal of Trustees; Appointment of Successors
Unless a Debenture Event of Default has occurred and is continuing,
Southern States, as the holder of all the Common Securities, can replace or
remove any trustee at any time. If a Debenture Event of Default has occurred and
is continuing, the property trustee and the Delaware trustee may be removed or
replaced 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 such trustee 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.
Voting Rights
Except as described in this prospectus or under "The
Guarantee--Modification of the Guarantee; Assignment," as otherwise provided
under the Trust Indenture Act or as otherwise required by law or the Trust
Agreement, the holders of the Capital Securities will have no voting rights.
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Subject to the requirement of the property trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority of the Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the property trustee, or direct the exercise of any trust or power
conferred upon the property trustee under the Trust Agreement, including the
right to direct the property trustee, as holder of the junior subordinated
debentures, to:
(i) direct the debenture trustee in the exercise of the remedies available
under the Indenture with respect to the junior subordinated debentures,
(ii) waive any past default and its consequences that is waivable under the
Indenture,
(iii) exercise any right to rescind or annul a declaration that the principal of
all the junior subordinated debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
the junior subordinated debentures, where such consent would be required;
provided, however, that, if consent under the Indenture would require the
consent of each holder of junior subordinated debentures affected by such
consent, no such consent will be given by the property trustee without the
prior consent of each holder of the Capital Securities.
Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the property trustee shall not take any of
the actions described in (i), (ii), (iii) or (iv) unless the property trustee
has obtained an opinion of counsel to the effect that, as a result of such
action, the Trust will not be classified as other than a grantor trust for
United States federal income tax purposes.
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.
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.
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 Southern States, the trustees or any
affiliate of Southern States or any trustee, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
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Modification of the Trust Agreement
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.
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.
Mergers, Consolidations or Amalgamations
The Trust may not 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 entity, except as described below. 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, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided that,
o such successor entity either (a) expressly assumes all of the obligations
of the Trust under 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 rank the same as the Capital Securities rank with
respect to distributions and payments upon liquidation, redemption and
otherwise,
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o a trustee of such successor entity, possessing the same powers and duties
as the property trustee, is appointed to hold the junior subordinated
debentures,
o 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,
o 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,
o such successor entity has a purpose substantially identical to that of the
Trust,
o 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, and
o Southern States 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 shall not, except with the
consent of all holders of the Capital Securities, consolidate, amalgamate, merge
with or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if such
consolidation, amalgamation, merger or replacement would cause the Trust or the
successor entity to be taxable as a corporation or classified as other than a
grantor trust for United States federal income tax purposes.
Book-Entry Issuance--The Depository Trust Company
DTC will act as securities 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 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 Capital
Securities as represented by a global certificate.
DTC has advised Southern States and the Trust that DTC is:
o a limited-purpose trust company organized under the New York Banking Law,
o a "banking organization" within the meaning of the New York Banking Law,
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o a member of the Federal Reserve System,
o a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and
o a "clearing agency" registered pursuant to the provisions of Section 17A
of 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,
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 NYSE, 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 SEC.
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.
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 on a ratable basis
the amount of the interest of each Direct Participant in such Capital Securities
to be redeemed in accordance with its procedures.
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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). Southern States 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 Southern States, 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 disbursement of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
Except as provided in this prospectus, a Beneficial Owner 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.
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 would be required to
be printed and delivered. Additionally, the trustees (with the consent of
Southern States) 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 would be
printed and delivered.
Southern States has been informed by DTC that its management is
aware that some computer applications, systems, and the like for processing data
("Systems") that are dependent upon calendar dates, including dates before, on,
and after January 1, 2000, may encounter "Year 2000 problems." We have also been
informed by DTC that it has informed its Participants and other members of the
financial community (the "Industry") that it has developed and is implementing a
program so that its Systems, as the same relate to the timely payments of
distributions (including principal and income payments) to security holders,
book-entry deliveries, and settlement of trades within DTC ("DTC Services"),
continue to function appropriately. According to DTC, this program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC has informed Southern States that its plan includes a testing
phase, which is expected to be completed within appropriate time frames.
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However, Southern States has been informed by DTC that its ability
to perform properly its services is also dependent upon other parties, including
but not limited to issuers and their agents, as well as third party vendors from
whom DTC licenses software and hardware, and third party vendors on whom DTC
relies for information or the provision of services, including
telecommunications and electrical utility service providers, among others. DTC
has informed us that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (1) impress upon them the importance
of such services being Year 2000 compliant; and (2) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC has informed us that it is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Southern States and the Trust believe
to be reliable, but neither Southern States nor the Trust takes responsibility
for the accuracy of this information.
Information Concerning the Property Trustee
The property trustee, prior to the occurrence of an Event of Default
with respect to the Capital Securities, undertakes to perform only those duties
that are specifically set forth in the Trust Agreement, in the terms of the
Capital Securities or in the Trust Indenture Act and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provisions, 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
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred by such exercise. 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 is 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. The property trustee also serves as guarantee
trustee.
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 Southern States or its affiliates relating to other issues of
their securities. In addition, Southern States and certain of its affiliates
have and in the future may have other customary commercial banking relationships
with First Union National Bank. See "Underwriting" for additional information
concerning the relationship of the property trustee to the Underwriters.
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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.
Governing Law
The Trust Agreement and the Capital Securities will be governed by,
and construed in accordance with, the internal laws of the State of Delaware.
Miscellaneous
The administrative trustees are authorized and directed to operate
the Trust in such a way so that the Trust will not be required to register as an
"investment company" under the Investment Company Act or be characterized as
other than a grantor trust for United States federal income tax purposes.
Southern States is authorized and directed to conduct its affairs so that the
junior subordinated debentures will be treated as indebtedness of Southern
States 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
Set forth below is a summary of the material terms of the junior
subordinated debentures in which the Trust will invest the proceeds from the
issuance and sale of the Capital Securities.
At any time, Southern States will have the right to liquidate the
Trust and cause the junior subordinated debentures to be distributed to the
holders of the Capital Securities in liquidation of the Trust. See "Description
of the Capital Securities--Distribution of the Junior Subordinated Debentures."
If the junior subordinated debentures are distributed to the holders
of the Capital Securities, Southern States will use its best efforts to have the
junior subordinated debentures listed on the NYSE or on such other exchange on
which the Capital Securities are then listed.
General
The junior subordinated debentures:
o will be issued as unsecured subordinated debt securities under the
Indenture;
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o will be limited in aggregate principal amount to approximately $____
million, such amount being the sum of the aggregate stated liquidation
amount of the Capital Securities and the capital contributed by Southern
States in exchange for the Common Securities; and
o will mature and become due and payable, together with any accrued and
unpaid interest including Compounded Interest (as defined under "--Option
to Extend Interest Payment Period" below), if any, on , _________ 2029.
If junior subordinated debentures are distributed to holders of
Capital Securities in liquidation of such holders' interests in the Trust, such
junior subordinated debentures will initially be issued in the form of one or
more Global Capital Securities (as defined under "--Book-Entry Issuance--The
Depository Trust Company" above). As described in this prospectus, under certain
limited circumstances, junior subordinated debentures may be issued in
definitive certificated form in exchange for a Global Capital Security. See
"--Book-Entry Issuance--The Depository Trust Company" above.
The Indenture does not contain provisions that afford holder(s) of
the junior subordinated debentures protection in the event of a highly leveraged
transaction involving Southern States or other similar transaction that may
adversely affect such holders. The junior subordinated debentures are not
entitled to the benefit of any sinking fund provisions.
Subordination
The Indenture provides that the junior subordinated debentures are
subordinated and junior in right of payment to the prior payment in full of all
Senior Indebtedness (defined below) of Southern States whether now existing or
hereafter incurred. In the event and during the continuation of any default by
Southern States in the payment of principal, premium, interest or any other
payment due on any Senior Indebtedness of Southern States, or in the event that
the maturity of any Senior Indebtedness of Southern States has been accelerated
because of a default, then in either case, no payment will be made by Southern
States with respect to the principal (including redemption payments) of or
interest on the junior subordinated debentures.
Upon any distribution of assets of Southern States to creditors upon
any dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest due or to become due on all Senior
Indebtedness of Southern States must be paid in full before the holders of
junior subordinated debentures are entitled to receive or retain any payment.
The term "Senior Indebtedness" means any obligation of Southern
States 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 Southern States in the future, but does not include the junior subordinated
debentures or any junior subordinated debt securities issued by Southern States
in the future with subordination terms substantially similar to those of the
junior subordinated debentures. Substantially all of the existing indebtedness
of Southern States constitutes Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by Southern States. At December 31, 1998, the
aggregate amount of Senior Indebtedness and liabilities and obligations of
Southern States that would have effectively ranked senior to the junior
subordinated debentures was approximately $331.8 million. Southern States
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
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Optional Redemption
The junior subordinated debentures are redeemable prior to maturity
at the option of Southern States (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.
Interest
Each junior subordinated debenture shall bear interest at the rate
of ___ % per annum from the original date of issuance, or from the most recent
interest payment date to which interest has been paid or provided for, payable
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year
(each an "Interest Payment Date"), commencing _______, 1999, to the person in
whose name such junior subordinated debenture is registered, subject to certain
exceptions, at the close of business on the fifteenth day (whether or not a
Business Day) next preceding such Interest Payment Date. In the event the
Capital Securities are no longer in book-entry only form, or if the junior
subordinated debentures shall be distributed to the holders of the Capital
Securities and shall not be in book-entry form, Southern States shall have the
right to select record dates, which shall conform to the rules of any securities
exchange on which the junior subordinated debentures are then listed and shall
be at least ten Business Days but less than 60 Business Days prior to the
Interest Payment Date. Any installment of interest not punctually paid will
cease to be payable to the holders of the junior subordinated debentures on the
regular record date and may be paid to the person in whose name the junior
subordinated debentures are registered at the close of business on a special
record date to be fixed by the debenture trustee for the payment of such
defaulted interest, notice of which shall be given to the holders of the junior
subordinated debentures not less than ten days prior to such special record
date, or may be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange, interdealer quotation system
or other organization on which the junior subordinated debentures may be listed,
and upon such notice as may be required by such exchange, system or
organization.
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The amount of interest payable for any 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. In the event that 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
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, then such payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such date.
Option to Extend Interest Payment Period
Southern States has the right at any time, and from time to time,
during the term of the junior subordinated debentures to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive quarters, at the end of which extension period, Southern States
shall pay all interest then accrued and unpaid, together with interest thereon
compounded quarterly at the rate specified for the junior subordinated
debentures to the extent permitted by applicable law ("Compounded Interest");
provided that no extension period shall extend beyond the Maturity Date; and
provided further that, during any such extension period, Southern States may
not:
o declare or pay dividends on, make distributions with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock or patron's equity,
o redeem any patronage refund allocations,
o make any payment of interest, principal or premium, if any, on, or repay,
repurchase or redeem, any debt securities issued by Southern States that
rank equal with or junior to the junior subordinated debentures, or
These restrictions do not apply to:
o repurchases, redemptions or other acquisitions of shares of Southern
States' capital stock 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 Southern States, if the Board of Directors approves such
repurchase or redemption pursuant to a policy of assuring that Southern
States operates as a cooperative in compliance with Subchapter T of the
Internal Revenue Code,
o an exchange or conversion of capital stock or debt of Southern States (or
any capital stock of an affiliate of Southern States) for any other
capital stock of Southern States,
o the declaration or payment of patronage refunds, provided that not more
than 40% of 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,
o any declaration of a dividend in connection with any shareholder's rights
plan, or the issuance of rights, stock or other property under any
shareholders' rights plan, or the redemption or repurchase of rights
pursuant to such a plan, or
o 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 equal with or junior to such stock.
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Prior to the termination of any such extension period, Southern
States may further extend the interest payment period; provided that the total
extension period, together with all previous and further extensions thereof, may
not exceed 20 consecutive quarters and may not extend beyond the maturity date
of the junior subordinated debentures.
Upon the termination of any such extension period and the payment of
all amounts then due, Southern States 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 of such extension period. Southern States
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 Southern States'
election to begin a new extension period to the holders of the Capital
Securities. There is no limitation on the number of times that Southern States
may elect to begin an extension period.
If Southern States exercises its option to defer interest payments,
holders of the Capital Securities would still be required to accrue income for
federal income tax purposes, regardless of the timing of the interest payments
on the junior subordinated debentures and the holder's method of accounting for
income taxes purposes, as described more fully in "United States Federal Income
Taxation--US Holders--Interest Income and Original Issue Discount."
Additional Sums
Southern States has covenanted in the 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, Southern States 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."
Certain Covenants
Southern States has covenanted in the Indenture:
o to continue to hold, directly or indirectly, 100% of the Common
Securities, provided that certain successors that are permitted pursuant
to the Indenture may succeed to Southern States' ownership of the Common
Securities,
o 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
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o 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.
Consolidation, Merger, Conveyance, Transfer or Lease
The Indenture provides that Southern States 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 Southern States or convey, transfer or lease its properties
and assets substantially as an entirety to Southern States, unless
o if Southern States 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 Southern States' obligations in respect
of the junior subordinated debentures;
o immediately after giving effect to such merger or consolidation, 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
o certain other conditions as prescribed in the Indenture are satisfied.
Debenture Events of Default
The 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":
o 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
o 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
o failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
Southern States from the debenture trustee or the holders of at least 25%
in aggregate outstanding principal amount of the outstanding junior
subordinated debentures; or
o certain events of bankruptcy, insolvency or reorganization of Southern
States.
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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 Capital
Securities.
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 by any default 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 Indenture cannot be modified
or amended without the consent of the holder of each outstanding junior
subordinated debenture. See "--Modification and Waiver" below. Southern States
is required to file annually with the debenture trustee a certificate as to
whether or not Southern States is in compliance with all the conditions and
covenants applicable to it under the 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 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 Southern States for enforcement of
payment to such holder of an amount equal to the amount payable in respect of
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junior subordinated debentures having a principal amount equal to the aggregate
liquidation amount of the Capital Securities held by such holder (a "Direct
Action"). Southern States may not amend the 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. Southern States will have the right under the
Indenture to set-off any payment made to such holder of Capital Securities by
Southern States in connection with a Direct Action.
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."
Satisfaction and Discharge
The 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 Southern States 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
Indenture will cease to be of further effect (except as to Southern States'
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described in the Indenture),
and Southern States will be deemed to have satisfied and discharged the
Indenture.
Modification and Waiver
From time to time Southern States and the debenture trustee may,
without the consent of the holders of the junior subordinated debentures, amend,
waive or supplement the provisions of the 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 Indenture under the Trust Indenture Act.
The Indenture contains provisions permitting Southern States 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 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, or reduce the principal amount, the rate of interest on
or any premium payable upon the redemption of, the junior subordinated
debentures, 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
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consent to any such modification of the 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 Indenture may occur, and no waiver of any
Debenture Event of Default or compliance with any covenant under the 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 Indenture will be qualified under the Trust Indenture Act.
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 Issuance--The
Depository Trust Company."
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
Southern States within 90 days of receipt of notice from DTC to such effect,
Southern States will cause the junior subordinated debentures to be issued in
definitive form.
Payments on junior subordinated debentures represented by a global
certificate 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 Issuance--The Depository Trust Company." 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
Southern States, provided that payment of interest may be made at the option of
Southern States by check mailed to the address of the persons entitled to such
payment 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.
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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
Indenture or at the office of any transfer agent designated by Southern States
for such purpose without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. Southern States will appoint
the debenture trustee as securities registrar under the Indenture. Southern
States may at any time designate additional transfer agents with respect to the
junior subordinated debentures.
In the event of any redemption, neither Southern States 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 of such junior subordinated debentures not to be redeemed.
Any moneys deposited with the debenture trustee or any paying agent,
or then held by Southern States 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 Southern States, be
repaid to Southern States and the holder of such junior subordinated debenture
shall thereafter look, as a general unsecured creditor, only to Southern States
for payment of such monies.
Restrictions on Certain Payments
Southern States has covenanted that (i) there has occurred any event
(a) of which Southern States 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 Southern States has not taken reasonable steps to cure, (ii) if the
junior subordinated debentures are held by the Trust, Southern States is in
default with respect to its payment of any obligations under the guarantee or
(iii) Southern States has given notice of its selection of an Extension Period
as provided in the Indenture and has not rescinded such notice, or such
Extension Period, or any extension thereof, is continuing, it will not:
o declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of Southern
States' capital stock or patrons' equity,
o redeem any patronage refund allocations or
o make any payment of interest, principal or premium, if any, on, or repay,
repurchase or redeem, any debt securities issued by Southern States that
rank equal with or junior to the junior subordinated debentures, or
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These restrictions do not apply to:
o repurchases, redemptions or other acquisitions of shares of Southern
States' capital stock 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 Southern States, if the Board of Directors approves such
repurchase or redemption pursuant to a policy of assuring that Southern
States operates as a cooperative in compliance with Subchapter T of the
Internal Revenue Code,
o an exchange or conversion of capital stock or debt of Southern States (or
any capital stock of an affiliate of Southern States) for any other
capital stock of Southern States,
o the declaration or payment of patronage refunds, provided that not more
than 40% of 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,
o any declaration of a dividend in connection with any shareholder's rights
plan, or the issuance of rights, stock or other property under any
shareholders' rights plan, or the redemption or repurchase of rights
pursuant to such a plan, or
o 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 equal with or junior to such stock.
Southern States has covenanted in the Indenture:
o to continue to hold, directly or indirectly, 100% of the Common
Securities, provided that certain successors that are permitted pursuant
to the Indenture may succeed to Southern States' ownership of the Common
Securities,
o 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
o 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.
Information Concerning the Debenture Trustee
First Union National Bank, or certain of its affiliates, may serve
from time to time as trustee under other indentures or trust agreements with
Southern States or its affiliates relating to other issues of their securities.
In addition, Southern States 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
"Underwriting" for additional information concerning the relationship of the
debenture trustee to Southern States and the Underwriters.
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First Union National Bank, the debenture trustee, shall have and be
subject to all the duties and responsibilities specified with respect to a
debenture trustee under the Trust Indenture Act. Subject to such provisions, the
debenture trustee, other than during the occurrence and continuance of a default
by Southern States in performance of its obligations under the Indenture, is
under no obligation to exercise any of the powers vested in it by the 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 by such exercise of power. 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.
Governing Law
The Indenture and the junior subordinated debentures will be
governed by, and construed in accordance with, the laws of the State of New
York.
Miscellaneous
Southern States will pay all fees and expenses related to (i) the
offering of the Capital Securities and the junior subordinated debentures, (ii)
the organization, maintenance and dissolution of the Trust, (iii) the retention
of the trustees and (iv) the enforcement by the property trustee of the rights
of the holders of the Capital Securities.
THE GUARANTEE
Set forth below is a summary of the material terms of the guarantee
that will be executed and delivered by Southern States for the benefit of the
holders of Capital Securities. The guarantee will be qualified as an indenture
under the Trust Indenture Act. First Union National Bank will act as guarantee
trustee under the guarantee. The terms of the guarantee will be those set forth
in the guarantee itself and those made part of such guarantee by the Trust
Indenture Act.
The following summary does not purport to be complete and is subject
to and qualified in its entirety by reference to the provisions of the
guarantee, a copy of which has been filed as an exhibit to the Registration
Statement of which this prospectus forms a part, and the Trust Indenture Act.
The guarantee will be held by the guarantee trustee for the benefit of the
holders of the Capital Securities.
General
Pursuant to the guarantee, Southern States will agree, to the extent
set forth in the guarantee, to pay in full to the holders of the Capital
Securities, the guarantee payments (as defined below) (except to the extent paid
by the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The following payments or
distributions with respect to the Capital Securities (the "guarantee payments"),
to the extent not paid by the Trust, will be subject to the guarantee (without
duplication):
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o any accrued and unpaid distributions that are required to be paid on such
Capital Securities, to the extent the Trust shall have funds available to
make such payments,
o the redemption price, to the extent the Trust has funds available to make
such payment, with respect to any Capital Securities called for redemption
by the Trust, and
o upon a voluntary or involuntary dissolution, winding-up or termination of
the Trust (other than in connection with a distribution of the junior
subordinated debentures to the holders of Capital Securities or the
redemption of all of the Capital Securities upon maturity or redemption of
the junior subordinated debentures) the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on such
Capital Securities to the date of payment, to the extent the Trust has
funds available to make such payment or (b) the amount of assets of the
Trust remaining for distribution to holders of such Capital Securities in
liquidation of the Trust.
Southern States' obligation to make a guarantee payment may be
satisfied by direct payment of the required amounts by Southern States to the
holders of Capital Securities or by causing the Trust to pay such amounts to
such holders.
The guarantee will not apply to any payment of distributions except
to the extent the Trust shall have funds available to make such payments. If
Southern States does not make interest or principal payments on the junior
subordinated debentures, the Trust will not pay distributions on the Capital
Securities issued by the Trust and will not have funds available to make such
payments. As a result, holders of Capital Securities will not be able to rely
upon the guarantee for payment of these amounts. Instead, holders of Capital
Securities or the property trustee may enforce the rights of the Trust under the
junior subordinated debentures directly against Southern States.
Southern States has, through the guarantee, the Trust Agreement, the
junior subordinated debentures, the 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."
Modification of the Guarantee; Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of Capital Securities (in which case no consent of such
holders will be required), the guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding Capital Securities. All guarantees and agreements contained in the
guarantee shall bind the successors, assigns, receivers, trustees and
representatives of Southern States and shall inure to the benefit of the holders
of the Capital Securities then outstanding.
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Events of Default
An event of default under the guarantee will occur upon the failure
of Southern States to perform any of its payment or other obligations under the
guarantee, or to perform any nonpayment obligation if such nonpayment default
remains unremedied for 30 days. The holders of a majority in 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 Southern States to enforce the guarantee trustee's
rights under the guarantee without first instituting a legal proceeding against
the Trust, the guarantee trustee or any other person or entity.
The rights of the holders of Capital Securities and the guarantee
trustee upon the occurrence of an event of default under the guarantee are
subject to the subordination provisions of the guarantee, as described under
"--Status of the Guarantee" below.
Southern States will be required to provide annually to the
guarantee trustee a statement as to the performance by Southern States of
certain of its obligations under the guarantee and as to any default in such
performance.
Termination
The guarantee will terminate as to the Capital Securities issued by
the Trust upon (i) full payment of the redemption price of all Capital
Securities, (ii) distribution of the junior subordinated debentures to the
holders of all of the Capital Securities or (iii) full payment of the amounts
payable in accordance with the Trust Agreement upon liquidation of the Trust.
Notwithstanding the foregoing, the guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of Capital
Securities issued by the Trust must restore payment of any sums paid under the
Capital Securities or the guarantee.
Status of the Guarantee
The guarantee will constitute an unsecured obligation of Southern
States and will rank subordinate and junior in right of payment to all Senior
Indebtedness of Southern States in the same manner as the junior subordinated
debentures.
The guarantee will constitute a guarantee of payment and not of
collection (that is, 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.
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Information Concerning the Guarantee Trustee
The guarantee trustee, prior to the occurrence of an event of
default with respect to the guarantee, undertakes to perform only such duties as
are specifically set forth in the guarantee and, after an event of default with
respect to the guarantee, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such 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 Capital
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred by such exercise of its powers.
For information concerning the relationship between First Union
National Bank, the guarantee trustee, and Southern States, see "Description of
the Junior Subordinated Debentures--Information Concerning the Debenture
Trustee."
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 Southern States under the Trust Agreement (as amended or supplemented from
time to time, the "Expense Agreement"), Southern States 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 Capital
Securities the amounts due such holders pursuant to the terms of the Capital
Securities. The Expense Agreement will constitute an unsecured obligation of
Southern States and will rank subordinate and junior in right of payment to all
senior indebtedness of Southern States in the same manner as the guarantee and
the junior subordinated debentures.
EFFECT OF OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES, THE
GUARANTEE AND THE EXPENSE AGREEMENT
Limited Purpose of the Trust
As set forth in the Trust Agreement, the sole purpose of the Trust
is to (i) issue the Capital Securities and Common Securities evidencing
undivided beneficial interests in the assets of the Trust, (ii) invest the
proceeds from such issuance and sale in the junior subordinated debentures and
(iii) engage in only those other activities necessary or incidental thereto.
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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 Southern States as and to the extent set forth under
"The Guarantee." Taken together, Southern States' obligations under the junior
subordinated debentures, the 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 Southern States 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 Southern States for enforcement of payment of
Southern States' 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 Southern States under the junior subordinated debentures, the
guarantee and the expense agreement are subordinate and junior in right of
payment to all Senior Indebtedness. At December 31, 1998, the aggregate amount
of Senior Indebtedness and liabilities and obligations of Southern States that
would have effectively ranked senior to the junior subordinated debentures was
approximately $331.8 million.
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:
o 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;
o 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;
o Southern States will pay for all and any costs, expenses and liabilities
of the Trust except the trust's obligations to holders of the Capital
Securities and Common Securities; and
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o 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 Indenture, Southern
States has the right to set-off any payment it is otherwise required to make
under the Indenture against and to the extent Southern States has already made,
or is concurrently on the date of such payment making, a payment under the
guarantee.
Enforcement Rights of Holders of Capital Securities
A holder of any Capital Security may institute a legal proceeding
directly against Southern States 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
Southern States 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 Southern States, the subordination
provisions of the 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 under such Senior Indebtedness has been cured or
waived. See "Description of the Junior Subordinated Debentures--Subordination."
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 Amount Upon
Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of
Southern States, the property trustee, as registered holder of the junior
subordinated debentures, would be a subordinated creditor of Southern States,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the Indenture, but entitled to receive payment in full of all amounts
payable with respect to the junior subordinated debentures before any holders of
preferred stock or membership common stock of Southern States receive payments
or distributions. Since Southern States 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 Capital Securities and Common Securities), the positions of a holder of the
Capital Securities and a holder of such junior subordinated debentures relative
to other creditors and to holders of preferred stock or membership common stock
of Southern States in the event of liquidation or bankruptcy of Southern States
are expected to be substantially the same.
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UNITED STATES FEDERAL INCOME TAXATION
General
This general summary is based on the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations thereunder, and administrative and
judicial interpretations thereof, each as of the date of this prospectus, all of
which are subject to change, possibly on a retroactive basis. The authorities on
which this general summary is based are subject to various interpretations, and
the opinions expressed in this prospectus are not binding on the IRS or the
courts, either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the IRS with respect to the transactions
described in this prospectus. Accordingly, there can be no assurance that the
IRS will not challenge the opinions expressed in this prospectus or that a court
would not sustain such a challenge.
Except as otherwise stated, this general summary deals only with
Capital Securities held as a capital asset (within the meaning of section 1221
of the Code) by a holder who or which (i) purchased the Capital Securities upon
original issuance at their original offering price and (ii) is a US Holder (as
defined below).
This summary does not address all the tax consequences that may be
relevant to a US Holder, nor does it address the tax consequences, except as
stated below, to holders that are not US Holders ("Non-US Holders") or to
holders that may be subject to special tax treatment (such as banks, thrift
institutions, real estate investment trusts, regulated investment companies,
insurance companies, brokers and dealers in securities or currencies, other
financial institutions, tax-exempt organizations, persons holding the Capital
Securities as a position in a "straddle," or as part of a "synthetic security,"
"hedge," as part of a "conversion" transaction or other integrated investment,
persons having a functional currency other than the U.S. Dollar, and certain
United States expatriates).
Further, this summary does not address (a) the income tax
consequences to shareholders in, or partners or beneficiaries of, a holder of
the Capital Securities, (b) the United States federal alternative minimum tax
consequences of the purchase, ownership or disposition of the Capital
Securities, or (c) any state, local or foreign tax consequences of the purchase,
ownership and disposition of Capital Securities.
A "US Holder" is a holder of the Capital Securities who or which is
(i)a citizen or individual resident (or is treated as a citizen or individual
resident under the Code) of the United States for income tax purposes, (ii) a
corporation or partnership created or organized (or treated as created or
organized for federal income tax purposes) in or under the laws of the United
States or any political subdivision thereof (other than any such partnership
treated as foreign under U.S. Treasury regulations which may be issued under a
recently enacted amendment to the Code), (iii) an estate the income of which is
includible in its gross income for United States federal income tax purposes
without regard to its source, or (iv) a trust if (a) a court within the United
States is able to exercise primary supervision over the administration of the
Trust and (b) one or more United States persons have the authority to control
all substantial decisions of the Trust.
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Prospective investors should consult their own 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.
Classification of the Junior Subordinated Debentures
In the opinion of Mays & Valentine, L.L.P., legal counsel for
Southern States and the Trust, the junior subordinated debentures will be
classified for United States federal income tax purposes as indebtedness of
Southern States under current law. By acceptance of Capital Securities, each
holder covenants to treat the junior subordinated debentures as indebtedness and
the Capital Securities as evidence of an indirect beneficial ownership interest
in the junior subordinated debentures.
No assurance can be given, however, that the classification of the
junior subordinated debentures as debt will not be challenged by the IRS or, if
challenged, that such a challenge will not be successful. A successful IRS
challenge to the classification of the junior subordinated debentures as debt
would prevent Southern States from deducting the interest paid or accrued on the
junior subordinated debentures for United States federal income tax purposes and
could constitute a Tax Event. Additionally, if the interest on the junior
subordinated debentures is not deductible it could adversely affect Southern
States' ability to make payments on the junior subordinated debentures. The
remainder of this discussion assumes that the junior subordinated debentures
will be classified as indebtedness of Southern States for United States federal
income tax purposes.
Classification of the Trust
In the opinion of Mays & Valentine, L.L.P., legal counsel for
Southern States and the Trust, 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 under current law and assuming full compliance with the terms
of the Trust Agreement. Accordingly, for United States federal income tax
purposes, each holder of Capital Securities generally will be considered the
owner of an undivided interest in the junior subordinated debentures and each US
Holder will be required to include in gross income all interest on (including
OID accrued, if any) or gain recognized for United States federal income tax
purposes with respect to its allocable share of the junior subordinated
debentures.
US Holders
Interest Income and Original Issue Discount
Under applicable Treasury regulations (the "Regulations"), remote
contingencies that stated interest will not be timely paid are ignored in
determining whether a debt instrument is issued with OID. If the junior
subordinated debentures are treated as issued with OID, such OID must be
included in income by all holders as it accrues economically on a daily basis,
without regard to when it is paid in cash or whether a particular holder
generally uses the cash method of accounting. Southern States has concluded that
the likelihood of its exercising its option to defer payments of interest is
remote. This conclusion is based on Southern States' analysis, as of the date of
issue of the junior subordinated debentures, of various facts and circumstances
deemed relevant to exercising such deferral option, including, among other
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things, the inability of Southern States (a) to declare or pay a dividend, or
engage in certain other capital transactions, with respect to its capital stock
or patron's equity, or (b) to make any payment of principal of or interest or
premium, if any, on, or repay, repurchase or redeem, any debt of Southern States
that ranks equal with or junior to the junior subordinated debentures if the
deferral option is exercised. Based upon this conclusion and in the absence of
any specific definition of "remote" in the applicable Regulations, in the
opinion of Mays & Valentine, L.L.P., although the matter is not entirely free
from doubt, the junior subordinated debentures will not be subject to the OID
rules unless Southern States exercises its option to extend the interest payment
period. As a consequence, holders of the Capital Securities should report
interest under their own methods of accounting (e.g., cash or accrual) instead
of under the daily economic accrual rules for OID instruments.
Under the Regulations, if Southern States exercises its option to
defer payments of interest, the junior subordinated debentures would be treated
as redeemed and reissued for OID purposes and the sum of the remaining interest
payments on the junior subordinated debentures would thereafter be treated as
OID, which would accrue, and be includible in a US Holder's taxable income, on
an economic accrual basis (regardless of the US Holder's method of accounting
for income tax purposes) over the remaining term of the junior subordinated
debentures (including any period of interest deferral), without regard to the
timing of payments under the junior subordinated debentures.
The IRS could take the position that the likelihood that Southern
States would exercise its right to defer payments of interest is not a "remote"
contingency for purposes of the OID rules, in which case, the junior
subordinated debentures would be treated as initially issued with OID in an
amount equal to the aggregate stated interest over the term of the junior
subordinated debentures. That OID would generally be includible in a US Holder's
taxable income, over the term of the junior subordinated debentures, on an
economic accrual basis.
Characterization of Income
Because the income underlying the Capital Securities will not be
classified as dividends for income tax purposes, corporate US Holders of Capital
Securities will not be entitled to a dividends-received deduction for any income
recognized with respect to the Capital Securities.
Sales of Capital Securities
A US Holder that sells Capital Securities will recognize gain or
loss equal to the difference between the amount realized on the sale of the
Capital Securities and such holder's adjusted tax basis in such Capital
Securities. To the extent of any accrued but unpaid interest, the amount
realized on the sale of such Capital Securities will be treated as ordinary
income. Assuming Southern States does not defer interest on the junior
subordinated debentures by extending the interest payment period, a US Holder's
"adjusted tax basis" in the Capital Securities generally will equal its initial
purchase price.
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If Southern States elects to defer interest payments, a US Holder's
adjusted tax basis in the Capital Securities generally will be its initial
purchase price increased by any OID previously included in such holder's gross
income to the date of disposition and decreased by payments received on the
Capital Securities after Southern States exercises its option to extend the
current interest payment period and prior to the date of disposition. Any gain
or loss recognized generally will be a capital gain or loss. The highest
marginal individual federal income tax rate (which applies to ordinary income
and gain from sales or exchanges of capital assets held for one year or less) is
39.6%. The maximum regular federal income tax rate on capital gains derived by
individual taxpayers is 20% for sales and exchanges of capital assets held for
more than one year. All net capital gain of a corporate taxpayer is subject to
tax at ordinary corporate income tax rates of up to 35%.
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 Capital Securities
between record dates for payments of distributions on the Capital Securities
will be required to include in income (to the extent not previously included in
income) as ordinary income amounts attributable to accrued and unpaid interest
on the junior subordinated debentures through the date of disposition and the
amount realized in disposition excludes the portion of the sales price treated
as interest. To the extent the selling price is less than the holder's adjusted
tax basis, 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.
If Southern States elects to defer payments of interest, the market
value of the Capital Securities will likely fall. Furthermore, the market value
of the Capital Securities may not reflect the accumulated distribution that will
be paid at the end of the extension period. A US Holder who disposes of Capital
Securities during an extension period will be required to include as ordinary
income the accrued OID on the junior subordinated debentures through the date of
disposition as ordinary income and add such amount to the US Holder's adjusted
basis in the ratable share of Capital Securities disposed of. To the extent the
selling price is less than the US Holder's adjusted tax basis, the US Holder
will recognize capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the Trust
Under certain circumstances described in this prospectus (see
"Description of the Capital Securities--Distribution of the Junior Subordinated
Debentures"), the Trust may distribute the junior subordinated debentures to
holders in exchange for the Capital Securities and in liquidation of the Trust.
Except as discussed below, such a distribution would not be a taxable event for
United States federal income tax purposes, and each US Holder would have an
aggregate adjusted basis in its junior subordinated debentures for United States
federal income tax purposes equal to such holder's aggregate adjusted basis in
its Capital Securities. (For a description of adjusted basis in the Capital
Securities, see the discussion in "--Sales of Capital Securities" above.) For
United States federal income tax purposes, a US Holder's holding period in the
junior subordinated debentures received in such a liquidation of the Trust would
include the period during which the Capital Securities were held by the holder.
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Under certain circumstances described in this prospectus (see
"Description of the Capital Securities" and "Description of the Junior
Subordinated Debentures"), the junior subordinated debentures may be redeemed
for cash and the proceeds of such redemption distributed to holders in
redemption of their Capital Securities. Such a redemption would be taxable for
United States federal income tax purposes, and a US Holder would recognize gain
or loss as if it had sold the Capital Securities for cash. See "--Sales of
Capital Securities" above.
Potential Tax Law Changes
From time to time, certain tax law changes have been proposed that
would deny interest deductions to corporate issuers of debt instruments with
terms that include certain of the terms of the junior subordinated debentures.
In addition, the IRS has challenged taxpayers' treatment as indebtedness of
securities issued with characteristics similar to the junior subordinated
debentures. To date, such tax law change proposals have not been enacted and the
only known challenge that has advanced as far as litigation was settled short of
trial, with a resolution favorable to the taxpayer's position. However, if any
similar tax law change were enacted or any such challenge by the IRS were
upheld, such event could give rise to a Tax Event which could result in an early
redemption of the Capital Securities. See "Description of the Capital
Securities--Tax Event Redemption."
Non-US Holders
Payments to a Non-US holder will generally not be subject to
withholding of income tax, provided that such holder of the Capital Securities
(a) does not (directly or indirectly, actually or constructively) own 10% or
more of the total combined voting power of all classes of stock of Southern
States entitled to vote, (b) is not a controlled foreign corporation that is
related to Southern States through stock ownership and (c) is not a bank
receiving interest described in section 881(c)(3)(A) of the Code. To qualify for
this exemption from withholding taxation, the last United States pay or in the
chain of payment prior to payment to a Non-US Holder (the "Withholding Agent")
must have received in the year in which a payment of interest or principal
occurs prior to such payment, or in either of the two preceding calendar years,
a statement that (a) is signed by the holder of the Capital Securities under
penalties of perjury, (b) certifies that such holder is not a US Holder and (c)
provides the name and address of the holder. The statement may be made on an IRS
Form W-8 or a substantially similar form, and the holder must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If the Capital Securities are held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent. However,
in such case, the signed statement must be accompanied by a copy of the IRS Form
W-8 or the substitute form provided by the holder to the organization or
institution.
As discussed above in "--Potential Tax Law Changes", changes in
legislation, if any, affecting the income tax consequences of the junior
subordinated debentures could adversely affect the ability of Southern States to
deduct the interest payable on the junior subordinated debentures. Moreover, any
such legislation could adversely affect Non-US Holders by characterizing income
derived from the junior subordinated debentures as dividends, generally subject
to a 30% income tax (on a withholding basis) when paid to a Non-US Holder,
rather than as interest which, as discussed above, is generally exempt from
income tax in the hands of a Non-US Holder.
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A Non-US Holder of a Capital Security will generally not be subject
to withholding of income tax on any gain realized upon the sale or other
disposition of Capital Securities.
A Non-US Holder that holds Capital Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the junior subordinated debentures.
Backup Withholding
Backup withholding of United States federal income tax at a rate of
31% may apply to payments made in respect of the Capital Securities to
registered owners who are not "exempt recipients" and who fail to provide
certain identifying information (such as the registered owner's taxpayer
identification number) in the required manner. Generally, individuals are not
exempt recipients, whereas corporations and certain other entities generally are
exempt recipients. Payments made in respect of the Capital Securities to a US
Holder must be reported to the IRS, unless the US Holder is an exempt recipient
or establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those Non-US Holders who are not exempt recipients.
In addition, upon the sale of the Capital Securities to (or through)
a broker, the broker must withhold 31% of the entire purchase price, unless
either (i) the broker determines that the seller is a corporation or other
exempt recipient or (ii) the seller provides, in the required manner, certain
identifying information and, in the case of a Non-US Holder, certifies that such
seller is a Non-US Holder (and certain other conditions are met). Such a sale
must also be reported by the broker to the IRS, unless either (i) the broker
determines that the seller is an exempt recipient or (ii) the seller certifies
its Non-U.S. status (and certain other conditions are met).Certification of the
registered owner's Non-U.S. status would be made normally on an IRS Form W-8
under penalties of perjury, although in certain cases it maybe possible to
submit other documentary evidence.
Final Withholding Regulations
Recently promulgated Treasury regulations (the "Final
Regulations"),effective for payments made after December 31, 1999, provide
alternative methods for satisfying the certification requirements described
above under "--Non-US Holders" and "--Backup Withholding." The Final Regulations
also will require, in the case of Capital Securities held by foreign
partnerships, that (i) the certification described above be provided by the
partners rather than the foreign partnership (unless the foreign partnership
agrees to become a "withholding foreign partnership") and (ii) the partnership
provides certain information, including a US taxpayer identification number. A
look-through rule will apply in the case of tiered partnerships. Prospective
investors are urged to consult their own tax advisors regarding the Final
Regulations.
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.
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ERISA CONSIDERATIONS
Southern States, 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 ("ERISA")) or a "disqualified person"
(within the meaning of Section 4975 of the Internal Revenue Code) with respect
to many employee benefit plans that are subject to ERISA. Any purchaser
proposing to acquire Capital Securities with assets of any employee benefit plan
should consult with its counsel. The purchase or holding of Capital Securities
by an employee benefit plan that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of Section 4975 of
the Internal Revenue Code (including individual retirement arrangements and
other plans described in Section 4975(e)(1) of the Code) and with respect to
which Southern States, 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 Internal Revenue 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, an employee benefit 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, such a 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, an employee benefit 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, Southern States 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> <C>
First Union Capital Markets Corp................................ $
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 by this prospectus, 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
Underwriters propose to offer the Capital Securities at such 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
Southern States, the underwriting agreement provides that Southern States will
pay as compensation for the Underwriters' arranging the investment in _______ of
such proceeds an amount of $____ per Capital Security and will reimburse the
Underwriters for ____________ of expenses.
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, Southern States 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 by
this prospectus. 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.
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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. Southern States 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.
Southern States 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 Southern States, the Trust or
any other trust the common securities of which are held by Southern States, 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.
Southern States 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
Southern States 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 in this prospectus, securities of Southern States, the
Trust or any other trust the common securities of which are held by Southern
States that are substantially similar to the Capital Securities without the
prior written consent of the Underwriters.
Southern States 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 Southern States 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 Corp.
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
Southern States under the bridge loan facility utilized by Southern States 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 by this prospectus and conducting "due diligence" in respect to this
offering. 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.
123
<PAGE>
LEGAL MATTERS
Potter Anderson & Corroon LLP, Wilmington, Delaware, will issue an
opinion on behalf of the Trust concerning the legality of the Capital
Securities. Mays & Valentine, L.L.P., Richmond Virginia, will issue an opinion
for Southern States concerning the validity of the junior subordinated
debentures and the guarantee, and on the United States federal income taxation
of the Capital Securities. Sullivan & Cromwell, New York, New York, will issue
an opinion for the underwriters.
EXPERTS
The consolidated balance sheet as of June 30, 1998 and 1997 and the
consolidated statements of operations, patrons' equity and cash flows for each
of the three years in the period ended June 30, 1998, included in this
prospectus, have been included in this prospectus in reliance on the report,
which includes an explanatory paragraph that Southern States 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 LLP, independent certified public
accountants, appearing elsewhere in this prospectus, and upon the authority of
said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Following the offering of the Capital Securities, Southern States
will file annual, quarterly and other periodic reports with the Securities and
Exchange Commission as required by the Securities Exchange Act of 1934. Although
Southern States 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 SEC will contain
audited consolidated financial statements of Southern States. Such reports and
other materials filed with the SEC 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. Southern States' filings will also be
available to the public at the SEC Internet site (http://www.sec.gov).
124
<PAGE>
Southern States and the Trust have filed a registration statement on
Form S-1 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933. 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 Southern States and the Capital Securities offered
by this prospectus. While statements contained in this prospectus concerning the
provisions of documents are necessarily summaries, Southern States believes that
all material terms of these documents have been provided in the prospectus.
Statements contained in this prospectus are qualified in their entirety by
reference to the copy of the applicable document filed with the SEC.
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 Southern States expected financial position,
business and financing plans. These forward-looking statements reflect Southern
States views with respect to future events and financial performance. The words
"believe," "expect," "plans" and "anticipate" and similar expressions as used
with respect to the operations of the Gold Kist Inputs Business following our
acquisition of that business, and otherwise, identify forward-looking
statements. Although Southern States believes that the expectations reflected in
such forward-looking statements are reasonable, Southern States 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 Southern States or persons
acting on Southern States behalf are expressly qualified in their entirety by
the Cautionary Statements. Southern States cautions you not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this prospectus. Southern States is 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 Southern States in connection with
its 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.
125
<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-32
Statements of Assets to be Acquired and Liabilities to be Assumed at
June 28, 1997 and June 27, 1998.............................................................F-33
Statements of Operations for the Years Ended June 29, 1996, June 28, 1997
and June 27, 1998...........................................................................F-34
Statements of Cash Flows for the Years Ended June 29, 1996, June 28, 1997
and June 27, 1998...........................................................................F-35
Notes to Financial Statements....................................................................F-36
UNAUDITED INTERIM FINANCIAL STATEMENTS
SOUTHERN STATES COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheet at December 31, 1998 and June 30, 1998................................F-42
Consolidated Statement of Operations for the Six Months Ended
December 31, 1998 and 1997..................................................................F-44
Consolidated Statement of Patrons' Equity for the Six Months Ended
December 31, 1998 and June 30, 1998.........................................................F-45
Consolidated Statement of Cash Flows for the Six Months Ended
December 31, 1998 and 1997..................................................................F-46
Notes to Consolidated Financial Statements.......................................................F-47
INPUTS BUSINESS OF GOLD KIST INC.
Statements of Assets to be Acquired and Liabilities to be Assumed at
September 26, 1998 and June 27, 1998.........................................................F-51
Statements of Operations for the Three Months Ended
September 26, 1998 and September 27, 1997....................................................F-52
Statements of Cash Flows for the Three Months Ended
September 26, 1998 and September 27, 1997....................................................F-53
Notes to Financial Statements....................................................................F-54
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
SOUTHERN STATES COOPERATIVE, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Balance Sheet at
December 31, 1998...........................................................................20
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Six Months Ended December 31, 1998..........................................................21
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended June 30, 1998....................................................................22
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.........................23
</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 1h 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
==================== =====================
F-3
<PAGE>
LIABILITIES AND STOCKHOLDERS' AND
PATRONS' EQUITY 1998 1997
---- ----
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 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 in other cooperatives are stated at cost (cash
invested) plus unpaid qualified written notices of allocation, less
redemptions. The equity method of accounting is used for investments in
other companies in which Southern States' voting interest is 20 to 50
percent.
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. Revenue Recognition - Revenue from the sale of goods is recognized when
title and risk of loss have transferred to the buyer, which is generally
when product is delivered. Service revenue is recognized upon completion
of the rendered service.
F-9
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
m. Reclassifications - Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation.
n. 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.
o. 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.
p. 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.
q. 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:
During 1998, 1997 and 1996 certain managed member cooperatives chose to
reinvest approximately $1.2 million, $1.2 million and $800,000,
respectively, of their revolved patronage refund allocations in an
equivalent amount of $1 par value shares of the Company's membership common
stock.
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
================= =================
</TABLE>
4. Inventories:
Inventories at year end consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
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, which are recorded as interest expense in the
statement of operations, for 1998, 1997 and 1996 were $9,500,000,
$8,200,000 and $8,400,000, respectively. SFC paid volume incentive fees,
which are recorded as miscellaneous income in the statement of operations,
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
Variable-rate 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 variable-rate 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 5% to 6% Preferred Stock is redeemable at par value
plus declared and unpaid dividends, if any, and redemption 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:
Patronage refund allocations represent allocated undistributed member
margins. Patronage refund allocations do not bear interest and are
subordinated to all common and preferred shares outstanding and
indebtedness of the Company. Patronage refund allocations may be redeemed
at the discretion of the Board of Directors.
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
------------------------------------------
1998 1997
---- ----
<S> <C> <C>
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>
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>
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. Amounts accrued do
not take into consideration claims for recovery from insurance or state
underground storage tank remediation trust funds. When specific amounts
within a range cannot be determined, the Company has accrued the minimum
amount within that range. 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. As the scope of the
Company's environmental contingencies becomes more clearly defined, it
is possible that expenditures in excess of those amounts already accrued
may be necessary. However, management believes that these overall costs
are expected to be incurred over an extended period of time and, as a
result, such contingencies are not anticipated to have a material impact
on the consolidated financial position or liquidity, but could have a
material adverse effect on future quarterly or annual operating result.
F-24
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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.
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.
F-25
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. Derivative Financial Instruments, continued:
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.
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.
F-26
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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
acquisition of MLE was completed for approximately $3.5. In that
connection, 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.
The fair value of the assets acquired and liabilities assumed is
summarized as follows (in thousands):
--------------------------------------------------------------
Current assets $23,290
--------------------------------------------------------------
Investments 10,352
--------------------------------------------------------------
Property, plant and equipment 6,680
--------------------------------------------------------------
Other non-current assets 5,389
--------------------------------------------------------------
Current liabilities (33,251)
--------------------------------------------------------------
Long-term liabilities (8,963)
--------------------------------------------------------------
--------------------------------------------------------------
$ 3,497
--------------------------------------------------------------
F-27
<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
<CAPTION>
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-28
<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
<CAPTION>
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
<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
<CAPTION>
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-29
<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>
Profit
<S> <C> <C> <C>
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-30
<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
Fiscal 1998 Quarters
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
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-31
<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 LLP
Atlanta, Georgia
August 26, 1998
F-32
<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
ASSETS
<S> <C> <C> <C> <C> <C> <C>
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-33
<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-34
<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
------------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
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-35
<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-36
<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. The increase in
the bad debts provision on crop notes receivable for the year ended June 27,
1998 allowed for the possibility of the impact of low commodity prices and poor
crop yields on certain farm operations. An allowance for doubtful notes has been
recorded, the activity of which is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
JUNE 29, 1996 JUNE 28, 1997 JUNE 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
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
===== ======= =======
</TABLE>
(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
====== ======
F-37
<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. Cost of sales for
the fiscal years ended June 28, 1997 and June 27, 1998 include losses on futures
and options transactions of $465 thousand and $4.1 million, respectively. Cost
of sales for the fiscal year ended June 29, 1996 includes gains of $2.7 million
on futures and options transactions. There were no significant unrealized
futures gains or losses included in the statements of assets to be acquired and
liabilities to be assumed as of June 28, 1997 and June 27, 1998. At June 27,
1998, Gold Kist had no significant positions in agricultural futures or options
contracts on behalf of the Inputs Business.
(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
======= =======
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)
(6) OTHER ASSETS
Other assets are summarized as follows:
JUNE 28, 1997 JUNE 27, 1998
------------- -------------
Goodwill.................................. $395 367
Other assets.............................. 105 444
--- ---
$500 811
=== ===
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
<TABLE>
<CAPTION>
Long-term debt is summarized as follows:
JUNE 28, 1997 JUNE 27, 1998
------------- -------------
<S> <C> <C>
Taxexempt 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
F-39
<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)
(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
=====
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' structure and tax strategies.
F-40
<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)
The components of the income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
JUNE 29, 1996 JUNE 28, 1997 JUNE 27, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $ 1,880 (222) (5,007)
State 308 (12) (698)
------- ----- -------
2,188 (234) (5,705)
------- ----- -------
Deferred:
Federal 62 (671) (1,701)
State 6 (67) (170)
68 (738) (1,871)
------- ----- -------
$ 2256 (972) (7,576)
======= ===== =======
The effective tax rates were different from the United States statutory
rates for the reasons set forth below:
JUNE 29, 1996 JUNE 28, 1997 JUNE 27, 1998
------------- ------------- -------------
Computed expected income tax expense (benefit)
$ 2,130 (881) (6,974)
Effect of state income taxes 203 (8) (433)
Other (77) (83) (169)
------- ----- -------
$ 2,256 (972) (7,576)
======= ===== =======
</TABLE>
(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-41
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of December 31, 1998 and June 30, 1998
<TABLE>
<CAPTION>
December 31,
1998
ASSETS (Unaudited) June 30, 1998
----------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 54,601,368 $ 15,352,446
Receivables, net 129,640,121 55,329,766
Inventories 245,328,311 133,167,494
Prepaid expenses 9,337,553 7,325,862
Deferred income taxes 6,712,247 4,989,913
Deferred charges 1,062,407 960,334
---------------------- ---------------------
Total current assets 446,682,007 217,125,815
---------------------- ---------------------
Investments and other assets:
Investments:
Statesman Financial Corporation 18,172,205 18,144,573
Michigan Livestock Credit Corporation 12,878,032 10,156,000
Other companies (principally cooperatives) 75,732,129 75,573,146
Receivables 1,510,521 1,316,515
Other assets 10,965,465 10,787,753
---------------------- ---------------------
Total investments and other assets 119,258,352 115,977,987
---------------------- ---------------------
Property, plant and equipment 366,276,887 304,577,628
Less accumulated depreciation 183,195,209 175,384,990
---------------------- ---------------------
Property, plant and equipment, net 183,081,678 129,192,638
---------------------- ---------------------
$ 749,022,037 $ 462,296,440
====================== =====================
</TABLE>
See accompanying notes
F-42
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of December 31, 1998 and June 30, 1998
<TABLE>
<CAPTION>
December 31,
LIABILITIES AND STOCKHOLDERS' AND 1998
PATRONS' EQUITY (Unaudited) June 30, 1998
--------------------- ---------------------
<S> <C> <C>
Current liabilities:
Short-term notes payable $ 2,400,000 $ 7,100,000
Current maturities of long term debt 63,809,088 1,833,434
Accounts payable 158,028,909 71,235,641
Accrued expenses:
Environmental remediation 1,664,398 429,649
Payrolls, employee benefits, related taxes and other 46,053,946 34,398,390
Accrued income taxes 724,816 2,380,815
Dividends payable 478,855 341,450
Patronage refunds payable in cash 1,802,728 2,378,378
Advances from managed member cooperatives 21,496,855 6,929,943
--------------------- ---------------------
Total current liabilities 296,459,595 127,027,700
--------------------- ---------------------
Bridge loan facility 218,313,467
Long-term debt 49,210,602 136,041,301
--------------------- ---------------------
Total long term debt 267,524,069 136,041,301
Other noncurrent liabilities:
Employee benefits 7,054,106 6,936,519
Deferred income taxes 4,129,741 4,745,538
Environmental remediation 2,101,094 746,498
Miscellaneous 5,249,307 5,403,204
--------------------- ---------------------
Total other noncurrent liabilities 18,534,248 17,831,759
--------------------- ---------------------
Redeemable preferred stock 2,114,100 2,114,100
Capital stock:
Preferred 1,465,400 1,494,200
Common - $1 par value; 12,166,244 and 12,195,018 shares
outstanding at September 30, 1998 and June 30, 1998,
respectively 12,166,244 12,195,018
Patrons' equity 150,758,381 165,592,362
--------------------- ---------------------
$ 749,022,037 $ 462,296,440
===================== =====================
</TABLE>
See accompanying notes
F-43
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the six months ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Sales and other operating revenue:
Net purchases by patrons $ 438,108,984 $ 420,396,937
Net marketing for patrons 42,773,380 57,738,498
Other operating revenue 2,092,136 1,439,129
-------------------- --------------------
482,974,500 479,574,564
Cost of products purchased and marketed 392,567,340 405,669,870
-------------------- --------------------
Gross margin 90,407,160 73,904,694
Selling, general and administrative expenses 108,578,082 81,850,223
-------------------- --------------------
Loss on operations (18,170,922) (7,945,529)
-------------------- --------------------
Other deductions (income):
Interest expense 13,356,897 8,523,699
Interest income and service charges (8,736,765) (4,775,519)
Miscellaneous income, net (3,535,790) (1,945,723)
-------------------- --------------------
1,084,342 1,802,457
-------------------- --------------------
Loss before income tax benefit (19,255,264) (9,747,986)
Income tax benefit 4,794,561 2,125,061
-------------------- --------------------
Net loss $ (14,460,703) $ (7,622,925)
==================== ====================
</TABLE>
See accompanying notes
F-44
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PATRONS' EQUITY
as of December 31, 1998 and June 30, 1998
<TABLE>
<CAPTION>
December 31,
1998
(Unaudited) June 30, 1998
------------------- -------------------
<S> <C> <C>
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 (211,555) (5,955,206)
------------------- -------------------
Balance, end of quarter 67,939,569 68,151,124
------------------- -------------------
Operating capital:
Balance, beginning of year 97,441,238 93,948,702
Net (loss) savings from operations (14,460,703) 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 (138,952) (279,407)
Common, $.06 per share (681,536)
Other reductions (22,771) 5(8,188)
------------------- -------------------
Balance, end of period 82,818,812 97,441,238
------------------- -------------------
Total patrons' equity $ 150,758,381 $ 165,592,362
=================== ===================
</TABLE>
See accompanying notes
F-45
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net loss from operations $ (14,460,703) $ (5,906,209)
Adjustments to reconcile net savings to cash provided by
operating activities:
Dividend declared 137,405 138,723
Depreciation and amortization 10,374,180 8,397,061
Deferred income taxes (615,797)
Gain on sale of property and equipment 228,536 92,216
Undistributed earnings of finance company and joint ventures 449,428 (536,955)
Noncash patronage refunds received (2,529) (674)
Redemption of noncash patronage refunds received 86,124 3,308
Cash provided by current assets and liabilities 94,689,635 43,147,590
----------------- --------------------
Cash from operating activities 90,886,279 45,337,240
----------------- --------------------
Investing activities:
Additions to property, plant and equipment (24,529,052) (17,268,500)
Proceeds from disposal of property, plant and equipment 626,112 861,521
Additional investments in other companies (3,441,670) (1,332,265)
Net cash paid for acquisition (203,105,507)
----------------- --------------------
Cash used in investing activities (230,450,117) (17,739,244)
----------------- --------------------
Financing activities:
Net decrease in short-term notes payable (4,700,000) (2,125,000)
Proceeds from bridge loan facility 218,313,467
Proceeds from long term debt 7,000,000 6,000,000
Repayment of long-term debt (40,794,205) (20,524,648)
Patronage refunds paid in cash (575,650)
Net redemption of stockholders' and patrons' equity (430,852) (624,669)
----------------- --------------------
Cash provided (used) in financing activities 178,812,760 (19,549,219)
----------------- --------------------
Increase (decrease) in cash and cash equivalents 39,248,922 (8,048,777)
Balance at beginning of year 15,352,446 16,853,790
----------------- --------------------
Balance at end of period $ 54,601,368 $ 8,805,013
================= ====================
</TABLE>
See accompanying notes
F-46
<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 December 31, 1998 and the
consolidated results of operations and cash flows for the six month periods
ended December 31, 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 six months ended
December 31, 1998 and 1997 are not indicative of the results to be expected
for the full year.
On October 13, 1998, the Company purchased the agricultural farm supply
inputs business ("Inputs Business") of Gold Kist Inc. (the "Gold Kist
Inputs Business"), a Georgia cooperative marketing association. The Gold
Kist Inputs Business' results of operations have been included in the
Company's consolidated statement of operations since the date of
acquisition (See Note 7).
2. INVENTORY
Inventories at December 31, 1998 and June 30, 1998 consisted of the
following:
December 31, 1998 June 30, 1998
----------------- -------------
Finished goods:
Purchased for resale $201,739,231 $115,667,733
Manufactured 7,807,983 4,384,872
------------ ------------
209,547,214 120,052,605
Materials and supplies 35,781,097 13,114,889
------------ ------------
Totals $245,328,311 $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, results of operations or cash flows.
<PAGE>
In early January of 1999 the Company received additional information and
revised estimates of the cost of containment, remediation and monitoring
activities at one of the Company's environmental sites. Based upon this
additional information the Company accrued $3.0 million for the estimated
cost of remediating this site.
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. As the scope of the Company's
environmental contingencies becomes more clearly defined, it is possible
that expenditures in excess of these amounts already accrued may be
necessary. However, management believes that these overall costs are
expected to be incurred over an extended period of time and, as a result,
such contingencies are not anticipated to have a material impact on
consoldated financial position or liquidity, but could have a material
adverse effect on future quarterly or annual operating results.
F-47
<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 $33,736,221 $43,137,839
Inventories (36,901,730) (42,187,653)
Prepaid expenses (603,851) (2,209,089)
Accounts payable 73,898,941 47,403,486
Accrued expenses 11,655,556 (3,590,664)
Other, net 12,904,498 593,671
----------- ------------
$94,689,635 $43,147,590
=========== ============
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 six months ended December 31, 1998 and 1997, respectively.
F-48
<PAGE>
<TABLE>
<CAPTION>
REVENUES FROM INTERSEGMENT SEGMENT
EXTERNAL CUSTOMERS REVENUES PROFIT
----------------------------------------- ---------------------------------- ------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------------------------- ---------------------------------- ------------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Retail Farm Supply 145,660,417 118,123,384 0 0 (5,618,493) (2,854,329)
Feed 84,536,467 75,063,368 32,660,337 31,041,209 5,864,444 4,094,325
Crops 44,809,535 37,543,608 50,377,109 42,117,572 (1,071,968) (306,836)
Farm and Home 85,922,994 79,326,261 18,677,222 17,127,339 76,351 55,654
Petroleum 76,319,727 110,268,198 6,981,099 10,425,408 (5,403,341) 631,126
Marketing 44,624,623 57,867,126 3,469,108 5,923,818 122,639 958,805
Other 1,100,740 1,382,619 296,775 231,414 (533,628) (420,809)
----------------------------------------- ---------------------------------- ------------------------------
Total 482,974,503 479,574,564 112,461,650 106,866,760 (6,563,996) 2,157,936
General corporate overhead (12,691,268) (11,905,922)
Income tax benefit 4,794,561 2,125,061
--------------------------------
Net loss ($14,460,703) $7,622,925
===============================
</TABLE>
6. NEW ACCOUNTING STANDARDS
During the Company's fiscal year ended June 30, 1998, the Financial
Accounting Standards Board ("FASB") issued several new pronouncements,
including Statement of Financial Accounting Standards ("SFAS") No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits",
which standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable and eliminates certain
disclosures that are no longer useful. Both of these standards are
effective for the year ended June 30, 1999. The adoption of these
standards will result only in additional disclosure and are not expected
to have an impact on the financial position or results of operations. In
addition in June of 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which is effective for
fiscal quarters beginning after June 15, 1999. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments including
certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives
as assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company will adopt SFAS No.
133 in fiscal year 2000. The Company is currently evaluating any impact of
the derivatives standard.
7. ACQUISITION OF GOLD KIST, INC. OPERATIONS
On October 13, 1998, the Company purchased the Gold Kist Inputs Business.
The net assets purchased included certain inventory, real property,
personal property, and certain accounts receivable, other assets, and
certain liabilities. The net purchase price of $218.3 million, (net of
liabilities assumed of approximately $21.5 million and subject to a final
purchase price adjustment) was financed utilizing a bridge loan facility.
This acquisition has been accounted for under the purchase method of
accounting. The purchase price has been preliminarily allocated to
inventory, accounts receivables and property plant and equipment based on
estimated fair values at the date of acquisition, pending final
F-49
<PAGE>
determination of certain acquired balances. The Inputs Business' results of
operations have been included in the Company's consolidated statement of
operations since the date of acquisition.
In connection with the purchase transaction, the Company delivered to Gold
Kist a post-closing statement of net asset value (the "Post-Closing
Valuation") prepared pursuant to the terms of the purchase agreement (the
"Agreement"). The final purchase price as determined by the Company
pursuant to the Post-Closing Valuation was approximately $202.8 million
compared to an estimated purchase price (after deducting the $10 million
hold back provided for in the Agreement) of $218.3 million. Taking into
account certain agreed upon adjustments, the Company's Post-Closing
Valuation would result in a repayment by Gold Kist to the Company of
approximately $16 million, with interest from the closing date. The
difference between the estimated purchase price as determined by the
pre-closing valuation and the Company's determination of the final purchase
price as shown by the Post-Closing Valuation was principally due to a
material increase in the reserve for bad debts applicable to the accounts
receivable purchased pursuant to the Agreement as a result of the Company's
post-closing evaluation and analysis of the receivables. Gold Kist
subsequently objected to the Company's Post-Closing Valuation, and asserted
that the Company owed Gold Kist an additional $6 million. Currently, the
Company and Gold Kist have been working together to resolve their
differences. If these differences cannot be mutually resolved, the matter
will be submitted to a mutually agreed upon nationally recognized
independent certified public accounting firm who shall act as arbitrator.
Upon conclusion of the arbitration procedure, any difference between the
estimated purchase price and the final purchase, will be paid by the
Company or Gold Kist, as the case may be, including interest.
8. SUBSEQUENT EVENTS
On January 12, 1999, Southern States entered into a new $200 million
three-year revolving credit facility with various commercial banks,
including NationsBank, N.A., First Union National Bank and CoBank. This
facility replaced the $140 million in short-term facilities with CoBank
that were in place at December 31, 1998 and the $92 million in uncommitted
facilities with various commercial banks. Under the terms of this facility,
Southern States must maintain a ratio of funded indebtedness to
capitalization of less than or equal to .50 to 1, have tangible net worth
of at least $256 million plus 25% of net income in a fiscal year and
maintain a ratio of consolidated cash flow to consolidated interest expense
and distribution of greater than 1.50 to 1. Interest rates under this
facility are determined on a competitive bid basis or at a LIBOR-based
maximum rate.
F-50
<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 JUNE 27, 1998
------------------ -------------
ASSETS
<S> <C> <C>
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-51
<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-52
<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-53
<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 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.
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-54
<PAGE>
[Picture of tractor in field and Southern States logos]
<PAGE>
<TABLE>
================================================================ ============================================
================================================================ ============================================
<S> <C>
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 SOUTHERN STATES OR THE TRUST $75,000,000
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 [Southern States LOGO]
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
SOUTHERN STATES
TABLE OF CONTENTS CAPITAL TRUST I
PAGE
Prospectus Summary.................................. 2
Risk Factors........................................ 9
Southern States Capital Trust I..................... 15
Use of Proceeds..................................... 15 __% CAPITAL SECURITIES
Capitalization...................................... 18 (LIQUIDATION AMOUNT $25
Unaudited Pro Forma Condensed Combined Financial PER CAPITAL SECURITY)
Information...................................... 19 FULLY AND UNCONDITIONALLY
Selected Historical Consolidated Financial GUARANTEED BY
Information...................................... 24
Management's Discussion and Analysis of
Financial Condition and Results of Operations.....28
Farm Cooperatives................................... 45
Southern States..................................... 46 SOUTHERN STATES
Business of Southern States......................... 51 COOPERATIVE,
Acquisition of the Gold Kist Inputs Business........ 67 INCORPORATED
Management.......................................... 72
Description of the Capital Securities............... 82
Description of the Junior Subordinated Debentures... 98 --------------------------------
The Guarantee.......................................109 PROSPECTUS
The Expense Agreement...............................112 --------------------------------
Effect of Obligations Under the Junior Subordinated
Debentures, the Guarantee and the Expense
Agreement........................................112 FIRST UNION CAPITAL MARKETS CORP.
United States Federal Income Taxation...............115
ERISA Considerations................................121 LEHMAN BROTHERS
Underwriting........................................122
Legal Matters.......................................124 NATIONSBANC MONTGOMERY
Experts.............................................124 SECURITIES LLC
Available Information...............................124
Disclosure Regarding Forward Looking Statements.....125
Index to Financial Statements.......................F-1
_______ __, 1999
================================================================ ============================================
================================================================ ============================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses (excluding
underwriting commissions) to be incurred by Southern States in connection with
the issuance and distribution of the [capital and common] securities to be
offered. All amounts are estimates except for the SEC registration fee:
Registration under the Securities Act of 1933,
as amended............................................ $ 23,978
New York Stock Exchange Listing Fee..................... 77,033
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.
<PAGE>
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
II-2
<PAGE>
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
"Southern States--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 "Southern States--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. The offer and sale of shares exchanged with
the managed local cooperatives was made exclusively to a limited and clearly
defined class of offerees, namely the 70 managed local cooperatives who operate
under a management agreement with Southern States and who, by virtue of their
relationship with Southern States, are familiar with and have access to complete
II-3
<PAGE>
information concerning the business and financial position of Southern States.
The offer and sale was not made through any general advertisement or
solicitation.
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. In no year during the three year period ending
June 30, 1998, did the issuance of shares of membership common stock by the
Company pursuant to Section 3(b) or in violation of Section 5(a) of the
Securities Act exceed the aggregate $1 million limitation of Rule 504. The
Company believes it complied with the requirements of Rule 504 in all material
respects with respect to the issuance of these shares.
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. The
II-4
<PAGE>
aggregate dollar amount of this offering, based upon the par value of the shares
of membership common stock issued, was under $5,000. The Company believes all
applicable requirements of Rule 504 were met. The Company filed a Form D with
respect to these two transactions under cover of letter dated February 17, 1998.
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. The Company believes all requirements of Rule 504 were
met. The Company filed a Form D with respect to this transaction under cover of
letter dated February 17, 1998.
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<PAGE>
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).
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<PAGE>
(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-11 and is incorporated herein by
reference.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts was previously filed.
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,
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<PAGE>
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.
(c) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Southern
States Cooperative, Incorporated has duly caused this Amendment No. 1 to the
Registration Statement on Form S-1
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<PAGE>
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
County of Henrico, State of Virginia on May 6, 1999.
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
Amendment No. 1 to the Registration Statement on Form S-1 has been signed for
the following persons in the capacities indicated on May 6, 1999.
/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 Pridgeon, Curry A. Roberts, John Henry
Smith, James A. Stonesifer, William W. Vanderwende, Wilbur C.
Ward, Charles A. Wilfong Directors
By: /s/ N. Hopper Ancarrow, Jr.
---------------------------------
N. Hopper Ancarrow, Jr.
Attorney-In-Fact
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<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Southern
States Capital Trust I has duly caused this Amendment No. 1 to the Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of Henrico, State of Virginia, on May 6, 1999.
SOUTHERN STATES CAPITAL TRUST I
BY: /s/ Jonathan A. Hawkins
-----------------------------
Jonathan A. Hawkins
Administrative Trustee
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<PAGE>
EXHIBIT INDEX
TO AMENDMENT NO. 1
TO REGISTRATION STATEMENT
ON FORM S-1
SOUTHERN STATES COOPERATIVE, INCORPORATED
SOUTHERN STATES CAPITAL TRUST I
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
UNDERWRITING AGREEMENT:
<S> <C>
1. Form of Underwriting Agreement between Southern States Capital Trust I, Southern States
Cooperative, Incorporated, First Union Capital Markets, Lehman Brothers and NationsBanc
Montgomery Securities LLC, dated __________, 1999
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
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
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
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(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
- - - - -----------------------
* Filed previously.
** To be filed by amendment.
</TABLE>
II-14
EXHIBIT 1
SOUTHERN STATES CAPITAL TRUST I
___% Capital Securities
(Liquidation Amount $25 Per Capital Security)
guaranteed to the extent set forth in the Guarantee by
SOUTHERN STATES COOPERATIVE, INCORPORATED
UNDERWRITING AGREEMENT
_________, 1999
First Union Capital Markets, Corp.
Lehman Brothers,
NationsBanc Montgomery Securities LLC,
c/o First Union Capital Markets,
One First Union Center, TW-10,
301 South College Street,
Charlotte, NC 28288-0604.
Ladies and Gentlemen:
Southern States Capital Trust I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), and Southern States
Cooperative, Incorporated, an agricultural cooperative corporation organized
under the laws of Virginia, as depositor of the Trust and as guarantor (the
"Guarantor"), propose, subject to the terms and conditions stated herein, that
the Trust issue and sell to the underwriters named in Schedule I hereto
(together with the Independent Underwriter, as defined below, the
"Underwriters") an aggregate of 3,000,000 of its ___% Capital Securities
(liquidation amount $25 per capital security) (the "Firm Securities") and, at
the election of the Underwriters, up to an aggregate of 450,000 additional
Capital Securities that the Underwriters elect to purchase (the "Optional
Securities", the Firm Securities and any Optional Securities being collectively
referred to as the"Securities") representing undivided beneficial interests in
the assets of the Trust, guaranteed on a subordinated basis by the Guarantor as
to the payment of distributions and as to payments on liquidation or redemption,
to the extent set forth in a guarantee agreement (the "Guarantee") between the
Guarantor and First Union National Bank, as trustee (the "Guarantee Trustee").
The Trust is to purchase, with the proceeds of the sale of the Firm Securities
and 92,784 of its Common Securities (liquidation amount $25 per common security)
(the "Common Securities" and together with the Securities, the "Trust
Securities"), $77,319,600 aggregate principal amount of ____% Junior
<PAGE>
Subordinated Debentures due _________, 2029 (the "Debentures") of the Guarantor
(and in the event the Underwriters purchase Optional Securities, a proportionate
additional principal amount of the Debentures), to be issued pursuant to a
Junior Subordinated Indenture (the "Indenture") between the Guarantor and First
Union National Bank, as trustee (the "Debenture Trustee").
The Guarantor will be the holder of 100% of the Common Securities. The
Trust will be subject to the terms of an Amended and Restated Trust Agreement
(the "Trust Agreement"), among the Guarantor, as depositor, First Union National
Bank, as Property Trustee ("Property Trustee"), First Union Trust Company,
National Association, as Delaware Trustee (the "Delaware Trustee"), and two
individual trustees who are employees or officers of or affiliated with the
Guarantor (the "Administrative Trustees"). The Property Trustee, the Delaware
Trustee and the Administrative Trustees are collectively referred to herein as
the "Trustees."
Lehman Brothers will act as a qualified independent underwriter (the
"Independent Underwriter") as defined in Rule 2720 of the Conduct Rules of the
National Association of Securities Dealers (the "NASD") in order to satisfy the
requirements of Rule 2710(c)(8) of the Conduct Rules of the NASD.
1. PURCHASE AND OFFERING OF THE SECURITIES. Subject to the terms and
conditions set forth herein, (a) the Trust agrees to issue and sell to each of
the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Trust, on __________, 1999 (the "Closing Date", at
the Closing Location and for the Purchase Price to the Underwriters set forth in
Schedule II hereto, the number of Firm Securities set forth opposite the name of
such Underwriter in Schedule I hereto and (b) in the event the Underwriters
shall exercise the election to purchase Optional Securities as provided below,
on __________, 1999 (the "Second Closing Date") the Trust shall issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase, at the purchase price set forth in Schedule II hereto,
that portion of the number of Optional Securities as to which such election
shall have been exercised (to be adjusted so as to eliminate fractional
Securities) determined by multiplying such number of additional Securities by a
fraction, the numerator of which is the maximum number of Firm Securities which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Firm Securities that all of the Underwriters are entitled to purchase
pursuant to clause (a) of this Section 1.
The Trust and the Guarantor hereby grant to the Underwriters the right
to purchase at their election up to 450,000 Optional Securities, at the purchase
price set forth in Schedule II hereto, for the sole purpose of covering
over-allotments in the sale of the Securities. The Underwriters may exercise
such right by giving written notice to the Guarantor no later than the ____ day
prior to the Second Closing Date, specifying the number of Optional Securities
to be purchased.
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<PAGE>
As compensation to the Underwriters for their commitments hereunder, and
in view of the fact that the proceeds of the sale of the Securities will be used
by the Trust to purchase the Debentures of the Guarantor, the Guarantor agrees
to pay on the Closing Date (as hereinafter defined) to the Underwriters the
amount specified in Schedule II hereto.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE GUARANTOR AND THE
TRUST. The Guarantor and the Trust, jointly and severally, represent and warrant
to, and agree with, the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-69265)
(the "Initial Registration Statement") in respect of the Securities, the
Debentures and the Guarantee has been filed with the Securities and
Exchange Commission (the "Commission"); the Initial Registration
Statement and any post-effective amendment thereto, each in the form
heretofore delivered or to be delivered to the Underwriters has been
declared effective by the Commission in such form; and no stop order
suspending the effectiveness of the Initial Registration Statement or
any post-effective amendment thereto has been issued and no proceeding
for that purpose has been initiated or threatened by the Commission. The
preliminary prospectus included in the Initial Registration Statement is
hereinafter called the "Preliminary Prospectus"; the various parts of
the Initial Registration Statement including (i) the information
contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act of 1933 (the "Act") and
deemed to be part of the Initial Registration Statement at the time it
was declared effective, (ii) all exhibits thereto and (iii) the
documents incorporated by reference in the prospectus contained in the
registration statement at the time the registration statement became
effective, are hereinafter collectively called the "Registration
Statement"; the prospectus relating to the Securities, the Debentures
and the Guarantees, in the form in which it has most recently been
filed, or transmitted for filing, with the Commission on or prior to the
date of this Agreement, is hereinafter called the "Prospectus"; any
reference herein to the Preliminary Prospectus or the Prospectus shall
be deemed to refer to and include the documents incorporated by
reference therein and any reference to any amendment or supplement to
the Preliminary Prospectus or the Prospectus shall be deemed to refer to
and include any documents filed after the date of such Preliminary
Prospectus or Prospectus, as the case may be, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated
by reference in the Preliminary Prospectus or Prospectus, as the case
may be.
(b) The Registration Statement and the Prospectus conform, and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and the rules and regulations of the
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<PAGE>
Commission thereunder and do not and will not, as of the applicable
effective date as to the Registration Statement and any amendment
thereto and as of the applicable filing date as to the Prospectus and
any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
PROVIDED, HOWEVER, that this representation and warranty shall not apply
to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Trust or the Guarantor by
an Underwriter expressly for use in the Prospectus as amended or
supplemented.
(c) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder
(d) The Guarantor and each of its Significant Subsidiaries (as
defined in Section 13) have been duly organized and are validly existing
and in good standing under the laws of their respective jurisdictions of
organization, are duly qualified to do business and are in good standing
in each jurisdiction in which their respective ownership or lease of
property or the conduct of their respective businesses requires such
qualification, save where the failure to be so qualified would not
reasonably be expected to have a material adverse effect on the business
or property of the Guarantor and its subsidiaries taken as a whole, and
each has all power and authority necessary to own or hold their
respective properties and to conduct the businesses in which they are
engaged.
(e) The Guarantor has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Guarantor have been duly and validly authorized and issued and are fully
paid and non-assessable.
(f) This Agreement has been duly authorized, executed and
delivered by the Guarantor and the Trust.
(g) Except where it would not reasonably be expected to have a
material adverse effect on the consolidated financial position,
stockholder's or patrons' equity, results of operations, business or
prospects of the Guarantor and its subsidiaries taken as a whole, (i)
issuance of the Securities, and the consummation by the Guarantor of the
transactions contemplated herein (the "Transactions") will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
the Guarantor or any of its Significant Subsidiaries is a party or by
which the Guarantor or any of its Significant Subsidiaries is bound or
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to which any of the properties or assets of the Guarantor or any of its
Significant Subsidiaries is subject, (ii) nor will such actions result
in any violation of the provisions of the Amended and Restated Articles
of Incorporation or by-laws of the Guarantor or any of its Significant
Subsidiaries or any statute or order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Guarantor, any
of its Significant Subsidiaries or any of their properties or assets;
and (iii) except for the registration of the Securities, the Debentures
and the Guarantee under the Act, the qualification of the Indenture
under the Trust Indenture Act, the listing of the Securities on the New
York Stock Exchange (the "NYSE") and such consents, approvals,
authorizations, registrations or qualifications as may be required under
applicable state securities laws in connection with the purchase and
distribution of the Securities by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with, any
such court or governmental agency or body is required for the
Transactions.
(h) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Business Trust Act
of the State of Delaware (the "Delaware Business Trust Act") with the
trust power and authority to own its property and conduct its business
as described in the Prospectus, and has conducted and will conduct no
business other than the transactions contemplated by this Agreement and
described in the Prospectus; and the Securities will conform in all
material respects to the description thereof contained in the
Prospectus.
(i) At the Closing Date and the Second Closing Date, the
Securities will have been duly and validly authorized by the Trust, and,
when issued and delivered to the Underwriters against payment therefor
as provided herein, will be duly and validly issued and fully paid and
non-assessable undivided beneficial interests in the assets of the Trust
and will conform in all material respects to the description thereof
contained in the Prospectus; the issuance of the Securities is not
subject to preemptive or other similar rights; the Securities will have
the rights set forth in the Trust Agreement, and the terms of the
Securities are valid and binding on the Trust; the holders of the
Securities (the "Securityholders") will be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of
the State of Delaware.
(j) The Guarantee, the Debentures, the Trust Agreement and the
Indenture (collectively, the "Guarantor Agreements") have each been duly
authorized by the Guarantor and when validly executed and delivered by
the Guarantor and, in the case of the Guarantee, by the Guarantee
Trustee, in the case of the Trust Agreement, by the Trustees, in the
case of the Indenture, by the Debenture Trustee, and, in the case of the
Debentures, when validly authenticated and delivered by the Debenture
Trustee, will constitute valid and legally binding obligations of the
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Guarantor, enforceable in accordance with their respective terms,
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (whether
considered in a proceeding in equity or at law); and the Guarantor
Agreements conform to the descriptions thereof in the Prospectus; and
the Trust Agreement, the Indenture and the Guarantee have each been duly
qualified under the Trust Indenture Act.
(k) Neither the Guarantor nor any of its Significant Subsidiaries
has sustained, since the date of the latest financial statements
included in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus; and, since such date, there has not been any change in
the capital stock, allocated patrons' equity or long-term debt of the
Guarantor or any of its Significant Subsidiaries or any material adverse
change, or any development involving a prospective material adverse
change, in or affecting the consolidated financial position,
stockholders' or patrons' equity or results of operations of the
Guarantor and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus.
(l) The consolidated financial statements of the Guarantor and
its consolidated subsidiaries and of the agricultural inputs business
which the Guarantor acquired from Gold Kist Inc. (the "Gold Kist Inputs
Business") (including the related notes and supporting schedules)
incorporated in the Prospectus present fairly the financial condition
and results of operations of the entities purported to be shown thereby,
at the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(m) PricewaterhouseCoopers LLP and KPMG Peat Marwick LLP, who
have certified certain financial statements of the Guarantor and of the
Gold Kist Inputs Business, respectively, whose reports are incorporated
in the Prospectus and who have delivered the initial letters referred to
in Section 6(e) hereof, are independent public accountants as required
by the Act during the periods covered by the financial statements on
which they reported contained in the Prospectus.
(n) There are no legal or governmental proceedings pending to
which the Guarantor or any of its Significant Subsidiaries is a party or
of which any property or asset of the Guarantor or any of its
Significant Subsidiaries is the subject which, if determined adversely
to the Guarantor or such Significant Subsidiary, might have a material
adverse effect on the consolidated financial position, stockholders' or
patrons' equity, results of operations, business or prospects of the
Guarantor and its subsidiaries taken as a whole; and to the best of the
Guarantor's knowledge, no such proceedings are threatened or
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contemplated by governmental authorities or threatened by others that is
required to be disclosed in the Prospectus which is not so disclosed.
(o) No relationship, direct or indirect, exists between or among
the Guarantor on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Guarantor on the other hand,
which is required to be disclosed in the Prospectus which is not so
disclosed.
(p) Since the date as of which information is given in the
Prospectus, and except as may otherwise be disclosed in the Prospectus,
the Guarantor and the Trust have not (i) issued or granted any
securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred
in the ordinary course of business, or (iii) entered into any
transaction not in the ordinary course of business.
(q) Neither the Guarantor nor any of the Guarantor's Significant
Subsidiaries (i) is in violation of its articles of incorporation or
by-laws, (ii) is in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term,
covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
it is a party or by which it is bound or to which any of its properties
or assets is subject except where it would not reasonably be expected to
have a material adverse effect on the consolidated financial position,
stockholder's or patrons' equity, results of operations, business or
prospects of the Guarantor and its subsidiaries taken as a whole, or
(iii) is in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
properties or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its properties or
assets or to the conduct of its business.
(r) Neither the Trust, the Guarantor nor any Significant
Subsidiary of the Guarantor is, and after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus neither of them will be, an "investment
company" within the meaning of such term under the Investment Company
Act of 1940, as amended, and the rules and regulations of the Commission
thereunder.
3. DELIVERY OF AND PAYMENT FOR THE SECURITIES.
(a) The Securities to be purchased by each Underwriter shall be
delivered by or on behalf of the Trust through the facilities of The
Depository Trust Guarantor ("DTC") against payment by or on behalf of
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such Underwriter of the purchase price therefor by certified or official
bank check or checks, payable to the order of the Trust in immediately
available funds. The Trust will cause the certificates representing the
Securities to be made available for checking and packaging at least one
day prior to the Closing Date (as defined below) at the office of DTC or
its designated custodian. The Securities to be purchased by each
Underwriter hereunder will be represented by one or more definitive
global Securities in book-entry form which will be deposited by or on
behalf of the Trust with DTC or its designated custodian. The time and
date of such delivery payment shall be 9:30 a.m., New York City time, on
the Closing Date or the Second Closing Date, as the case may be, or such
other time and date as the Underwriters and the Guarantor may agree upon
in writing.
On the Closing Date or the Second Closing Date, as the case may
be, the Guarantor will pay, or cause to be paid, the commission payable
to the Underwriters under Section 1 hereof in immediately available
funds.
(b) The documents to be delivered on the Closing Date or the
Second Closing Date, as the case may be, by or on behalf of the parties
hereto pursuant to Section 6 hereof will be delivered at such time and
date at the offices of Sullivan & Cromwell, 125 Broad Street, New York,
New York 10004 .
4. FURTHER AGREEMENTS OF THE GUARANTOR AND THE TRUST. The
Guarantor and the Trust, jointly and severally, further agree:
(a) To furnish to the Underwriters, without charge, as many
copies of the Prospectus and any supplements and amendments thereto as
the Underwriters may reasonably request.
(b) To advise the Underwriters promptly of any proposal to amend
or supplement the Registration Statement or the Prospectus and to afford
the Underwriters a reasonable opportunity to comment on any such
proposed amendment or supplement; and the Guarantor will also advise the
Underwriters promptly of the filing of any such amendment or supplement
and of the institution by the Commission of any stop order proceedings
in respect of the Registration Statement or of any part thereof and will
use its best efforts to prevent the issuance of any such stop order and
to obtain as soon as possible its lifting, if issued.
(c) If, at any time when Prospectus is required to be delivered
under the Act in connection with sales by an Underwriter or dealer, any
event occurs as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend the
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Prospectus to comply with the Act, to notify the Underwriters of such
event and to promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance.
(d) As soon as practicable, but not later than 18 months, after
the effective date of the Registration Statement, to make generally
available to its securityholders an earnings statement, which will
satisfy the provisions of Section 11(a) of the Act.
(e) Promptly from time to time to take such action as the
Underwriters may reasonably request to qualify the Securities for
offering and sale under the securities laws of such jurisdictions as the
Underwriters may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the
Securities.
(f) Not to offer, sell, contract to sell or otherwise dispose of
any additional securities of the Guarantor, the Trust or any other trust
the common securities of which are held by the Guarantor, that are
substantially similar to the Securities or any securities convertible
into or exchangeable for or that represent the right to receive any such
similar securities, without the consent (which consent shall not be
unreasonably withheld) of the Underwriters during the period beginning
from the date of this Agreement and continuing for 180 days following
the Closing Date.
(g) To use their best efforts to cause the Securities to be
listed on the NYSE.
(h) To take such steps as shall be necessary to ensure that
neither the Trust, the Guarantor nor any subsidiary of the Guarantor
shall become an "investment company" within the meaning of such term
under the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder.
5. EXPENSES. The Guarantor and the Trust, jointly and severally,
agree to pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Guarantor's counsel and accountants in connection with the
registration of the Securities, the Guarantee and the Debentures under the Act
and all other expenses in connection with the preparation, printing and filing
of the Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters; (ii) the cost of printing or producing this
Agreement, the Securities and the Debentures, any Blue Sky Memorandum, closing
documents (including any compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Securities;
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(iii) all expenses in connection with the qualification of the Securities, the
Guarantee and the Subordinated Debentures for offering and sale under state
securities laws as provided in Section 4(e) hereof, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey(s); (iv) any fees
charged by securities rating services for rating the Securities and the
Debentures; (v) any filing fees incident to, and the fees and disbursements of
counsel for the Underwriters in connection with, any required reviews by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Securities and the issuance of the Guarantee and the Debentures; (vi) the cost
of preparing the Securities and the Debentures; (vii) the fees and expenses of
any Trustee, the Debenture Trustee and the Guarantee Trustee, and any agent of
any trustee and the fees and disbursements of counsel for any trustee in
connection with the Guarantor Agreements and the Securities; (viii) the cost of
qualifying the Securities with The Depository Trust Company; (ix) any fees and
expenses in connection with listing the Securities on the NYSE and the cost of
registering the Securities under Section 12 of the Exchange Act; and (x) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Sections 7
and 9 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, transfer taxes on resale of any of the
Securities by them, and any advertising expenses connected with any offers they
may make.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations
of the Underwriters hereunder are subject to the accuracy, when made and on the
Closing Date or the Second Closing Date, as the case may be, of the
representations and warranties of the Guarantor and the Trust contained herein,
to the performance by the Guarantor and the Trust of their obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Underwriters shall not have discovered and disclosed to
the Guarantor and the Trust on or prior to the Closing Date or the
Second Closing Date, as the case may be, that the Prospectus or any
amendment or supplement thereto contains any untrue statement of a fact
which, in the opinion of Sullivan & Cromwell, counsel for the
Underwriters, is material or omits to state any fact which, in the
opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(b) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Guarantor
Agreements, the Securities, the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby
shall be satisfactory in all respects to counsel for the Underwriters,
and the Guarantor and the Trust shall have furnished to such counsel all
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documents and information that they may reasonably request to enable
them to pass upon such matters.
(c) Mays & Valentine, L.P. shall have furnished to the
Underwriters their written opinion, as counsel to the Guarantor and the
Trust, addressed to the Underwriters and dated the Closing Date, in form
and substance reasonably satisfactory to the Underwriters, to the effect
set forth in Exhibit A hereto and to such further effect as counsel to
the Underwriters may reasonably request.
(d) Potter Anderson & Corroon LLP shall have furnished to the
Underwriters their written opinion, as Delaware counsel to the Guarantor
and the Trust, addressed to the Underwriters and dated the Closing Date,
in form and substance reasonably satisfactory to the Underwriters, to
the effect set forth in Exhibit B hereto and to such further effect as
counsel to the Underwriters may reasonably request.
(e) The Underwriters shall have received on the Closing Date
letters, dated the Closing Date in form and substance satisfactory to
the Underwriters, from PricewaterhouseCoopers LLP and KPMG Peat Marwick
LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information, including the financial information
contained in the Prospectus as identified by the Underwriters.
(f) The Guarantor and the Trust shall have furnished to the
Underwriters a Certificate, dated the Closing Date or the Second Closing
Date, as the case may be, of the President and the Chief Financial
Officer of the Guarantor stating that:
(i) The representations, warranties and agreements of the
Guarantor and the Trust in Section 2 hereof are true and correct
as of the Closing Date and each of the Guarantor and the Trust
has complied with all of its agreements contained herein;
(ii) (A) Neither the Guarantor nor any of its Significant
Subsidiaries has sustained since the date of the latest quarterly
financial statements included in the Prospectus any material loss
or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus or
(B) since such date there has not been any change in the capital
stock, allocated patrons' equity or long-term debt of the
Guarantor or any of its Significant Subsidiaries or any material
adverse change, or any development involving a prospective
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material adverse change, in or affecting the general affairs,
management, financial position, stockholders' or patrons' equity
or results of operations of the Guarantor and its subsidiaries
taken as a whole, otherwise than as set forth or contemplated in
the Prospectus; and
(iii) They have carefully examined the Prospectus and, in
their opinion (A) the Prospectus, as of its date, did not include
any untrue statement of a material fact and did not omit to state
any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, and (B) since the date of the Prospectus no event has
occurred which should have been set forth in a supplement or
amendment to the Prospectus.
(g) (i) Neither the Guarantor nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus or (ii) since such date there
shall not have been any change in the capital stock, allocated patrons'
equity or long-term debt of the Guarantor or any of its subsidiaries or
any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' or patrons' equity or results of operations of the
Guarantor and its subsidiaries taken as a whole, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any
such case described in clause (i) or (ii), is, in the judgment of the
Underwriters, so material and adverse as to make it impracticable or
inadvisable to proceed with the offering or the delivery of the
Securities on the terms and in the manner contemplated in the
Prospectus.
(h) Subsequent to the execution and delivery of this Agreement
(i) no downgrading shall have occurred in the rating accorded the
Securities by any "nationally recognized statistical rating
organization", as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Act and (ii) no such rating organization shall
have publicly announced that it has under surveillance or review, with
possible negative implications, its rating of the Securities.
(i) The Underwriters shall have received from Sullivan &
Cromwell, counsel for the Underwriters, such opinion or opinions, dated
the Closing Date, with respect to such matters as the Underwriters may
reasonably require, and the Guarantor shall have furnished to such
counsel such documents and information as they may reasonably request
for the purpose of enabling them to pass upon such matters.
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All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Guarantor and the Trust, jointly and severally, shall
indemnify and hold harmless each Underwriter, its officers, employees
and directors and each person, if any, who controls either of the
Underwriters within the meaning of Section 15 of the Act, from and
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss,
claim, damage, liability or action relating to purchases and sales of
Securities), to which such Underwriter, officer, employee, director or
controlling person may become subject, under the Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of,
or is based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in the Preliminary Prospectus, the
Prospectus or in any amendment or supplement thereto, or (B) in any Blue
Sky application or other document prepared or executed by the Guarantor
and the Trust (or based upon any written information furnished by the
Guarantor and the Trust) specifically for the purpose of qualifying any
or all of the Securities under the securities laws of any state or other
jurisdiction (any such application, document or information being
hereinafter called a "Blue Sky Application"), (ii) the omission or
alleged omission to state in the Preliminary Prospectus, the Prospectus
or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary
to make the statements therein not misleading or (iii) any act or
failure to act, or any alleged act or failure to act, by such
Underwriter in connection with, or relating in any manner to, the
Securities or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability or action
arising out of or based upon matters covered by clause (i) or (ii) above
(PROVIDED that the Guarantor and the Trust shall not be liable in the
case of any matter covered by this clause (iii) to the extent that it is
determined in a final judgment by a court of competent jurisdiction that
such loss, claim, damage, liability or action resulted directly from any
such act or failure to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or wilful misconduct), and
shall reimburse such Underwriter and each officer, employee, director
and controlling person promptly upon demand for any legal or other
expenses reasonably incurred by such Underwriter, officer, employee,
director or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred; PROVIDED, HOWEVER,
that the Guarantor and the Trust shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue
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statement or omission or alleged omission made in the Preliminary
Prospectus, the Prospectus or in any such amendment or supplement, or in
any Blue Sky Application in reliance upon and in conformity with the
written information furnished to the Guarantor and the Trust by or on
behalf of such Underwriter specifically for inclusion therein and
described in Section 7(e) and PROVIDED FURTHER that as to the
Preliminary Prospectus or the Prospectus this indemnity agreement shall
not inure to the benefit of an Underwriter, its officers, employees,
directors or controlling persons on account of any loss, claim damage,
liability or action arising from the sale of Securities to any person by
such Underwriter if such Underwriter failed to send or give a copy of
the Prospectus as the same may be amended or supplemented and provided
to such Underwriter by the Trust or the Guarantor, to that person, and
the untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact in the Preliminary
Prospectus was corrected in the Prospectus, or a supplement or amendment
thereto, as the case may be. The foregoing indemnity agreement is in
addition to any liability which the Guarantor and the Trust may
otherwise have to the Underwriters or to any officer, employee, director
or controlling person of the Underwriters.
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Guarantor, the Trust and the officers, employees
and directors of the Guarantor, and each person, if any, who controls
the Guarantor, within the meaning of Section 15 of the Act, from and
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Guarantor, the Trust, any such
officer, employee, director or controlling person may become subject,
under the Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained (A)
in the Preliminary Prospectus, the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the
omission or alleged omission to state in the Preliminary Prospectus, the
Prospectus or in any amendment or supplement thereto or in any Blue Sky
Application any material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to
the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with the written information furnished to the Guarantor by or on behalf
of such Underwriter specifically for inclusion therein and described in
Section 7(e), and shall reimburse the Guarantor, the Trust, and any such
officer, employee or director or controlling person for any legal or
other expenses reasonably incurred by the Guarantor, the Trust, or any
such officer, employee, director, or controlling person in connection
with investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action as such expenses are incurred.
The foregoing indemnity agreement is in addition to any liability which
the Underwriters may otherwise have to the Guarantor, the Trust, or any
such officer, employee, director or controlling person.
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(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 7, notify the
indemnifying party in writing of the claim or the commencement of that
action; PROVIDED, HOWEVER, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under
this Section 7 except to the extent it has been materially prejudiced by
such failure and, PROVIDED FURTHER, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may
have to an indemnified party otherwise than under this Section 7. If any
such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party
of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under
this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; PROVIDED, HOWEVER, that the
indemnified party shall have the right to employ counsel to represent
jointly the indemnified party and its respective officers, employees and
controlling persons who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the indemnified
party against the indemnifying party under this Section 7 if, in the
reasonable judgment of the indemnified party, it is advisable for the
indemnified party and those officers, employees, directors and
controlling persons to be jointly represented by separate counsel, and
in that event the fees and expenses of such separate counsel shall be
paid by the indemnifying party. It is understood that the indemnifying
party shall not be liable for the fees and expenses of more than one
separate firm (in addition to local counsel in each jurisdiction) for
all indemnified parties in connection with any proceeding or related
proceedings. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of
any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such
settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim,
action, suit or proceeding, or (ii) be liable for any settlement of any
such action effected without its written consent (which consent shall
not be unreasonably withheld), but if settled with its written consent
or if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss of liability by reason of such
settlement or judgment.
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(d) If the indemnification provided for in this Section 7 shall
for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 7(a) or 7(b) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred
to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability,
or action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the Guarantor
and the Trust on the one hand and each of the Underwriters on the other
from the offering of the Securities or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Guarantor and the Trust on the one hand and each of the Underwriters on
the other with respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action in respect thereof, as
well as any other relevant equitable considerations. The relative
benefits received by the Guarantor and the Trust on the one hand and
each of the Underwriters on the other with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Securities purchased under this Agreement
(before deducting expenses) received by the Guarantor and the Trust on
the one hand, and the total fees received by such Underwriter with
respect to the Securities purchased under this Agreement, on the other
hand, bear to the total gross proceeds from the offering of the
Securities under this Agreement, in each case as set forth under
"Underwriting" in the Prospectus. The relative fault shall be determined
by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
relates to information supplied by the Guarantor and the Trust on the
one hand or such Underwriter, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Guarantor, the Trust and the
Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 7(d) were to be determined by pro
rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in
this Section 7(d) shall be deemed to include, for purposes of this
Section 7(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7(d),
each Underwriter shall not be required to contribute any amount in
excess of the amount by which the total price at which the Securities
sold and distributed by it was offered to the purchasers exceeds the
-16-
<PAGE>
amount of any damages which such Underwriter has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 1l(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The Underwriters confirm that the statements with respect to
the offering of the Securities set forth in the bottom paragraph on the
cover page of, and under the caption "Underwriting" in the Preliminary
Prospectus and the Prospectus are correct and constitute the only
information furnished in writing to the Guarantor and the Trust by or on
behalf of the Underwriters specifically for inclusion in the Prospectus.
8 TERMINATION. The obligations of either Underwriter hereunder
may be terminated by it by notice given to and received by the Guarantor and the
Trust prior to delivery of and payment for the Securities if, prior to that
time, (i) trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market, or trading in any
securities of the Guarantor or the Trust on any exchange or in the
over-the-counter market, shall have been suspended or minimum prices shall have
been established on any such exchange or such market by the Commission, by such
exchange or by any other regulatory body or governmental authority having
jurisdiction, (ii) a banking moratorium shall have been declared by Federal or
New York State authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving the
United States or there shall have been a declaration of a national emergency or
war by the United States or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of such Underwriter, impracticable
or inadvisable to proceed with the offering or delivery of the Securities on the
terms and in the manner contemplated in the Prospectus.
9 REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 8 hereof or because of any
refusal, inability or failure on the part of the Guarantor and the Trust to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by the Underwriters, the Guarantor and the Trust shall
reimburse the Underwriters for the reasonable fees and expenses of their counsel
and for such other out-of-pocket expenses as shall have been incurred by them in
connection with this Agreement and the proposed purchase of the Securities, and
upon demand the Guarantor and the Trust shall pay the full amount thereof to the
Underwriters.
-17-
<PAGE>
10 NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to First Union Capital Markets, One
First Union Center, TW-10, 301 South College Street, Charlotte, North
Carolina 28288-0604 Attention: _______________ (Fax:____________);
(b) if to the Guarantor shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Guarantor set
forth in the Prospectus, Attention: Chief Financial Officer (Fax:
(804) 281-1650));
(c) if to the Trust shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Trust set forth in the
Prospectus, Attention: ____________________(Fax:
----------------).
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof.
11 PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Guarantor, the
Trust and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(x) the representations, warranties, indemnities and agreements of the Guarantor
and the Trust contained in this Agreement shall also be deemed to before the
benefit of the officers, employees and directors of the Underwriters and the
person or persons, if any, who control the Underwriters within the meaning of
Section 15 of the Act and (y) the indemnity agreement of the Underwriters
contained in Section 7(b) of this Agreement shall be deemed to be for the
benefit of officers, employees and directors of the Guarantor and any person
controlling the Guarantor within the meaning of Section 15 of the Act. Nothing
in this Agreement is intended or shall be construed to give any person, other
than the persons referred to in this Section 11, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
12 SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Guarantor, the Trust and the Underwriters
contained in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Securities and shall remain in full force and effect, regardless of any
investigation made by or on behalf of any of them or any person controlling any
of them.
13 DEFINITION OF THE TERMS "BUSINESS DAY" AND "SIGNIFICANT
SUBSIDIARY". For purposes of this Agreement, (a) "business day" means any day on
which the New York Stock Exchange, Inc. is open for trading and (b) "Significant
Subsidiary" has the meaning set forth in Rule 1-02 of Regulation S-X.
-18-
<PAGE>
14 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK.
15 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
16 HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
-19-
<PAGE>
If the foregoing correctly sets forth the agreement between the
Guarantor, the Trust and the Underwriters, please indicate your acceptance in
the space provided for that purpose below.
Very truly yours,
SOUTHERN STATES CAPITAL TRUST I
By: _______________________________________
Name:
Title: Administrative Trustee
SOUTHERN STATES COOPERATIVE INC.
By:________________________________________
Name:
Title:
Accepted:
FIRST UNION CAPITAL MARKETS CORP.
By: _____________________________
Name:
Title:
LEHMAN BROTHERS
By: _____________________________
Name:
Title:
NATIONSBANC MONTGOMERY SECURITIES LLC
By: _____________________________
Name:
Title:
-20-
<PAGE>
EXHIBIT A
FORM OF OPINION OF
COUNSEL TO THE GUARANTOR TO BE DELIVERED
PURSUANT TO SECTION 6(c)
(i) The Guarantor and each of its subsidiaries have been duly formed and
are validly existing as corporations, limited partnerships or limited liability
companies, as the case may be, in good standing under the laws of their
respective jurisdictions of organization, are duly qualified to do business and
are in good standing as foreign corporations, limited partnerships or limited
liability companies, as the case may be, in each jurisdiction in which their
respective ownership or lease of property or the conduct of their respective
businesses (as set forth in certificates of officers of the Guarantor upon which
such counsel is relying without independent investigation) requires such
qualification and have all corporate, partnership or limited liability company,
as the case may be, power and authority necessary to own or hold their
respective properties and conduct the businesses in which they are engaged as
described in the Prospectus;
(ii) The Guarantor has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Guarantor have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; and all of
the issued shares of capital stock, partnership interests or limited liability
company membership interests, as the case may be, of each subsidiary of the
Guarantor have been duly and validly authorized and issued and (except for
partnership interests of general partners and except to the extent the limited
liability company agreements governing the respective limited liability
companies provide otherwise) are fully paid, non-assessable and are owned
directly or indirectly by the Guarantor, to such counsel's knowledge free and
clear of all liens, encumbrances, or claims;
(iii) To the best of such counsel's knowledge, based solely on inquiry
of the Guarantor's General Counsel, and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to which the
Guarantor or any of its subsidiaries is a party or of which any property or
assets of the Guarantor or any of its subsidiaries is the subject which could be
expected to have a Material Adverse Effect; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(iv) The execution and delivery of the Guarantor Agreements have been
duly authorized by all necessary corporate action of the Guarantor, and the
Guarantor Agreements and the Trust Securities conform to the description thereof
in the Prospectus;
A-1
<PAGE>
(v) The Underwriting Agreement has been duly authorized, executed and
delivered by the Guarantor and the Trust and constitutes a valid and binding
agreement of the Guarantor and the Trust enforceable against the Guarantor and
the Trust in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, liquidation, moratorium or other similar laws affecting the
rights and remedies of creditors generally and except as may be subject to
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law), and except as rights to indemnity and
contribution thereunder may be limited by applicable law and public policy, and
except that no opinion is expressed as to the enforceability of the choice of
law provision thereof;
(vi) The issue and sale of the Securities, the compliance by the
Guarantor with all of the provisions of the Underwriting Agreement, and the
consummation of the transactions contemplated thereby, will not conflict with or
result in a material breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which the
Guarantor or any of its subsidiaries is a party or by which the Guarantor or any
of its subsidiaries is bound or to which any of the property or assets of the
Guarantor or any of its subsidiaries is subject which breach is reasonably
likely to have a Material Adverse Effect, nor will such actions result in any
violation of the provisions of the articles of incorporation, by-laws of the
Guarantor or any of its subsidiaries or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or body of
the United States or the State of Virginia having jurisdiction over the
Guarantor or any of its subsidiaries or any of their properties or assets;
except for such consents, approvals, authorizations, registrations or
qualifications as may be required under applicable state securities laws in
connection with the purchase and distribution of the Securities by the
Underwriters, no consent approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is required for
the execution, delivery and performance of the Underwriting Agreement by the
Guarantor and the consummation of the transactions contemplated thereby;
(vii) Neither the Guarantor, any of its subsidiaries nor the Trust is an
"investment company" as such term is defined in the Investment Company Act of
1940, as amended;
(viii) The statements set forth in the Prospectus under the captions
"Description of the Capital Securities", "The Guarantee", "Description of the
Junior Subordinated Debentures" and "Effect of Obligations under the Junior
Subordinated Debentures, the Guarantee and the Expense Agreement" insofar as
such statements constitute a summary of legal matters, documents or proceedings
referred to therein are correct in all material respects;
A-2
<PAGE>
(ix) The Registration Statement and the Prospectus as amended or
supplemented prior to Closing Date (other than the financial statements and
related schedules therein, as to which such counsel need express no opinion),
comply as to form in all material respects with the requirements of the Act and
the rules and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (viii) above, they have no reason to
believe that, as of its effective date and as of the Closing Date, the
Registration Statement or any amendment thereto made by the Trust or the
Guarantor prior to the Closing Date (other than the financial statements and
related schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date and as of the Closing Date, the
Prospectus as amended or supplemented prior to the Closing Date (other than the
financial statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement required to be
filed or any contracts or other documents of a character required to be filed as
an exhibit to the Registration Statement or required to be incorporated by
reference into the Prospectus as amended or supplemented or required to be
described in the Registration Statement or the Prospectus as amended or
supplemented which are not filed or incorporated by reference or described as
required to be described in the Registration Statement or the Prospectus as
amended or, supplemented which are not so filed.
In rendering such opinion, such counsel may (i) state that their opinion
is limited to matters governed by the Federal laws of the United States of
America and the laws of the State of Virginia; and (ii) in giving the opinions
referred to in Section (i) above (solely with regard to organization and
qualification of the Guarantor's subsidiaries) and Section (ii) above (solely
with regard to capital stock of subsidiaries of the Guarantor being duly and
validly authorized and issued and fully paid and non-assessable), state that
they are relying on an opinion or opinions of other counsel as to such matters,
provided that the Underwriters shall have received such opinion or opinions, in
form and substance satisfactory to Underwriters' counsel, of other counsel.
A-3
<PAGE>
EXHIBIT B
FORM OF OPINION OF DELAWARE COUNSEL
TO THE GUARANTOR AND THE TRUST
TO BE DELIVERED PURSUANT TO SECTION 6(d)
(i) The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, and all
filings required under the laws of the State of Delaware with respect to the
creation and valid existence of the Trust as a business trust have been made;
(ii) Under the Delaware Business Trust Act and the Trust Agreement, the
Trust has the trust power and authority (a) to own its properties (including,
without limitation, the Debentures) and conduct its business, (b) to execute and
to deliver, and to perform its obligations under, the agreements to which it is
a party, and (c) to issue and perform its obligations under the Trust
Securities, all as described in the Trust Agreement;
(iii) The Trust Agreement constitutes a valid and binding obligation of
the Guarantor and the Trustees, enforceable against the Guarantor and the
Trustees, respectively, in accordance with its terms;
(iv) Under the Delaware Business Trust Act and the Trust Agreement, the
execution and delivery by the Trust of the agreements to which it is a party,
and the performance by the Trust of its obligations thereunder, have been duly
authorized by all necessary trust action on the part of the Trust;
(v) The Securities (a) have been duly authorized by the Trust Agreement,
and (b) once duly and validly issued in accordance with the Trust Agreement,
will represent valid and fully paid and, subject to the qualifications set forth
in (viii) below, non-assessable undivided beneficial interests in the assets of
the Trust;
(vi) Once duly and validly issued in accordance with the Trust
Agreement, the Securities will entitle the holders thereof to the benefits of
the Trust Agreement;
(vii) The Common Securities (a) have been duly authorized by the Trust
Agreement, and (b) once duly and validly issued in accordance with the Trust
Agreement, will represent valid and fully paid undivided beneficial interests in
the assets of the Trust;
B-1
<PAGE>
(viii) The holders of Securities will be entitled to the same limitation
of personal liability extended to stockholders of private corporations for
profit organized under the General Corporation Law of the State of Delaware,
except that the holders of Securities may be obligated to (a) provide indemnity
and/or security in connection with and pay taxes or governmental charges arising
from transfers or exchanges of certificates representing Securities and the
issuance of replacement certificates representing Securities to the extent
provided in the Trust Agreement, (b) provide security or indemnity in connection
with requests of or directions to the Property Trustee to exercise its rights
and powers under the Trust Agreement, and (c) provide indemnity in connection
with violations of the Trust Agreement or U.S. Federal or state securities laws
arising from transfers or exchanges of certificates representing Securities and
the issuance of replacement certificates representing Securities;
(ix) Under the Delaware Business Trust Act and the Trust Agreement, the
issuance of the Securities is not subject to preemptive rights;
(x) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body of the State of
Delaware known by counsel to have jurisdiction over the Trust is required for
the issuance and sale of the Securities or the consummation by the Trust of the
transactions contemplated by the Trust Agreement;
(xi) The (a) purchase of the Debentures by the Trust, (b) distribution
of the Debentures by the Trust in the circumstances contemplated by the Trust
Agreement, and (c) execution, delivery and performance by the Trust of the
agreements to which it is a party and the consummation of the transactions
contemplated thereunder, will not conflict with or result in a breach or
violation of any of the terms or provisions of the Certificate of Trust or the
Trust Agreement or any statute, rule or regulation of the State of Delaware or
any governmental agency or body of the State of Delaware known by counsel to
have jurisdiction over the Trust;
(xii) Assuming that the Trust is treated as a grantor trust or
partnership for Federal income tax purposes, the holders of the Securities
(other than those holders of the Securities who reside or are domiciled in the
State of Delaware) will have no liability for income taxes imposed by the State
of Delaware solely as a result of their participation in the Trust, and the
Trust will not be liable for any income tax imposed by the State of Delaware.
In rendering such opinion, such counsel may (a) state that their
opinion is limited to matters governed by the laws of the State of Delaware,
excluding the securities laws thereof; and (b) in giving the opinions referred
to in paragraphs (iii) and (vi) above, qualify the same by stating that they are
subject to (1) applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, fraudulent transfer and similar law relating to or affecting
creditors rights generally including, without limitation, the Delaware Uniform
Fraudulent Conveyance Act, the provisions of the United States Bankruptcy Code
and the Delaware insolvency statutes, (2) principles of equity including,
without limitation, concepts of materiality, good faith, fair dealing,
conscionability and reasonableness (regardless of whether such enforceability is
considered in a proceeding in equity or at law), (3) applicable laws relating to
fiduciary duties, (4) public policy limitations with respect to exculpation,
contribution and indemnity provisions, and (5) the limitation that a court
applying Delaware law will enforce a liquidated damages provision in a contract
B-2
<PAGE>
only where, at the time of contract, actual damages may be difficult to
determine and the stipulated sum is not so grossly disproportionate to the
probable anticipated loss as to be a penalty. Such counsel may also state that
such opinion is subject to reasonable and customary exceptions and is based on
factual assumptions stated therein.
B-3
<PAGE>
SCHEDULE I
NUMBER OF
SECURITIES
TO BE
UNDERWRITER PURCHASED
- - - - ----------- ----------
First Union Capital Markets Corp. ................................
Lehman Brothers...................................................
NationsBanc Montgomery Securities LLC.............................
Total.........................................................
==========
<PAGE>
SCHEDULE II
TITLE OF SECURITIES:
[___%] Capital Securities, Series __
PRICE TO PUBLIC:
100% of the liquidation amount of the Securities
PURCHASE PRICE TO UNDERWRITERS:
100% of the liquidation amount of the Securities
UNDERWRITERS' COMPENSATION:
As compensation to the Underwriters for their commitments hereunder, and
in view of the fact that the proceeds of the sale of the Securities will
be used by the Trust to purchase the Debentures of the Company, the
Company hereby agrees to pay at the Closing Date to the several
Underwriters, an amount equal to $________ per capital security for the
Firm Securities to be delivered on the Closing Date and any Optional
Securities to be delivered on the Second Closing Date.
SPECIFIED FUNDS FOR PAYMENT OF PURCHASE PRICE:
Federal (same day) Funds
CLOSING LOCATION:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
EXHIBIT 4.3
================================================================================
AMENDED AND RESTATED TRUST AGREEMENT
AMONG
SOUTHERN STATES COOPERATIVE, INCORPORATED,
AS DEPOSITOR
FIRST UNION NATIONAL BANK,
AS PROPERTY TRUSTEE
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
AS DELAWARE TRUSTEE
and
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
----------
Dated as of ________, 1999
----------
SOUTHERN STATES CAPITAL TRUST I
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I DEFINED TERMS
<S> <C> <C>
SECTION 1.1. DEFINITIONS......................................................................1
ARTICLE II CONTINUATION OF THE ISSUER TRUST
SECTION 2.1. NAME............................................................................11
SECTION 2.2. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS.....................11
SECTION 2.3. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES.................11
SECTION 2.4. ISSUANCE OF THE CAPITAL SECURITIES..............................................11
SECTION 2.5. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF DEBENTURES......12
SECTION 2.6. CONTINUATION OF TRUST...........................................................12
SECTION 2.7. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS................................13
SECTION 2.8. ASSETS OF TRUST.................................................................17
SECTION 2.9. TITLE TO TRUST PROPERTY.........................................................17
ARTICLE III PAYMENT ACCOUNT
SECTION 3.1. PAYMENT ACCOUNT.................................................................17
ARTICLE IV DISTRIBUTIONS; REDEMPTION
SECTION 4.1. DISTRIBUTIONS...................................................................17
SECTION 4.2. REDEMPTION......................................................................18
SECTION 4.3. SUBORDINATION OF COMMON SECURITIES..............................................20
SECTION 4.4. PAYMENT PROCEDURES..............................................................21
SECTION 4.5. TAX RETURNS AND REPORTS.........................................................21
SECTION 4.6. PAYMENT OF TAXES, DUTIES, ETC. OF THE ISSUER TRUST..............................22
SECTION 4.7. PAYMENTS UNDER INDENTURE OR PURSUANT TO DIRECT ACTIONS..........................22
ARTICLE V TRUST SECURITIES CERTIFICATES
SECTION 5.1. INITIAL OWNERSHIP..............................................................22
SECTION 5.2. THE TRUST SECURITIES CERTIFICATES..............................................22
SECTION 5.3. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES........................23
SECTION 5.4. BOOK-ENTRY CAPITAL SECURITIES..................................................23
SECTION 5.5. REGISTRATION OF TRANSFER AND EXCHANGE OF
CAPITAL SECURITIES CERTIFICATES........................................25
SECTION 5.6. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES.............27
SECTION 5.7. PERSONS DEEMED HOLDERS.........................................................27
SECTION 5.8. ACCESS TO LIST OF HOLDERS'NAMES AND ADDRESSES..................................27
SECTION 5.9. MAINTENANCE OF OFFICE OR AGENCY................................................28
SECTION 5.10. APPOINTMENT OF PAYING AGENTS...................................................28
SECTION 5.11. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR....................................28
SECTION 5.12. NOTICES TO CLEARING AGENCY.....................................................29
SECTION 5.13. RIGHTS OF HOLDERS; WAIVERS OF PAST DEFAULTS....................................29
-i-
<PAGE>
ARTICLE VI ACTS OF HOLDERS; MEETINGS; VOTING
SECTION 6.1. LIMITATIONS ON VOTING RIGHTS....................................................31
SECTION 6.2. NOTICE OF MEETINGS..............................................................32
SECTION 6.3. MEETINGS OF HOLDERS OF THE CAPITAL SECURITIES...................................32
SECTION 6.4. VOTING RIGHTS...................................................................33
SECTION 6.5. PROXIES, ETC....................................................................33
SECTION 6.6. HOLDER ACTION BY WRITTEN CONSENT................................................33
SECTION 6.7. RECORD DATE FOR VOTING AND OTHER PURPOSES.......................................34
SECTION 6.8. ACTS OF HOLDERS.................................................................34
SECTION 6.9. INSPECTION OF RECORDS...........................................................35
ARTICLE VII REPRESENTATIONS AND WARRANTIES
SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE
AND THE DELAWARE TRUSTEE.................................................35
SECTION 7.2. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.....................................36
ARTICLE VIII THE ISSUER TRUSTEES
SECTION 8.1. CERTAIN DUTIES AND RESPONSIBILITIES............................................37
SECTION 8.2. CERTAIN NOTICES................................................................39
SECTION 8.3. CERTAIN RIGHTS OF PROPERTY TRUSTEE.............................................40
SECTION 8.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.........................42
SECTION 8.5. MAY HOLD SECURITIES............................................................42
SECTION 8.6. COMPENSATION; INDEMNITY; FEES..................................................42
SECTION 8.7. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF ISSUER TRUSTEES............44
SECTION 8.8. CONFLICTING INTERESTS..........................................................44
SECTION 8.9. CO-TRUSTEES AND SEPARATE TRUSTEE...............................................44
SECTION 8.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR..............................46
SECTION 8.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.........................................47
SECTION 8.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS....................48
SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR ISSUER TRUST............48
SECTION 8.14. PROPERTY TRUSTEE MAY FILE PROOFS OF CLAIM......................................48
SECTION 8.15. REPORTS BY PROPERTY TRUSTEE....................................................49
SECTION 8.16. REPORTS TO THE PROPERTY TRUSTEE................................................50
SECTION 8.17. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT...............................50
SECTION 8.18. NUMBER OF ISSUER TRUSTEES......................................................50
SECTION 8.19. DELEGATION OF POWER............................................................50
SECTION 8.20. APPOINTMENT OF ADMINISTRATIVE TRUSTEES.........................................51
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<PAGE>
ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER
SECTION 9.1. DISSOLUTION UPON EXPIRATION DATE................................................52
SECTION 9.2. EARLY DISSOLUTION...............................................................52
SECTION 9.3. TERMINATION.....................................................................52
SECTION 9.4. LIQUIDATION.....................................................................52
SECTION 9.5. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF ISSUER TRUST..........54
ARTICLE X MISCELLANEOUS PROVISIONS
SECTION 10.1. LIMITATION OF RIGHTS OF HOLDERS.............................................55
SECTION 10.2. AMENDMENT...................................................................55
SECTION 10.3. SEPARABILITY................................................................57
SECTION 10.4. GOVERNING LAW...............................................................57
SECTION 10.5. PAYMENTS DUE ON NON-BUSINESS DAY............................................57
SECTION 10.6. SUCCESSORS..................................................................57
SECTION 10.7. HEADINGS....................................................................58
SECTION 10.8. REPORTS, NOTICES AND DEMANDS................................................58
SECTION 10.9. AGREEMENT NOT TO PETITION...................................................59
SECTION 10.10. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT......................60
SECTION 10.11. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE
AGREEMENT AND INDENTURE..................................................60
SECTION 10.12. SUBMISSION TO JURISDICTION; SERVICE OF PROCESS..............................60
SECTION 10.13. COUNTERPARTS................................................................60
</TABLE>
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Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depository Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Capital Securities Certificate
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AMENDED AND RESTATED TRUST AGREEMENT, dated as of _________, 1999, among
(i) SOUTHERN STATES COOPERATIVE, INCORPORATED, an agricultural cooperative
corporation organized under the laws of Virginia (including any successors or
assigns, the "DEPOSITOR"), (ii) FIRST UNION NATIONAL BANK, a national banking
association, as property trustee (in such capacity, the "PROPERTY TRUSTEE" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "BANK"), (iii) FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national
banking association, as Delaware trustee (in such capacity, the "DELAWARE
TRUSTEE"), and (iv) WAYNE A. BOUTWELL, an individual, and JONATHAN A. HAWKINS,
an individual, each of whose address is c/o Southern States Cooperative,
Incorporated, 6606 West Broad Street, Richmond, Virginia 23260 (each an
"ADMINISTRATIVE TRUSTEE"), (the Property Trustee, the Delaware Trustee and the
Administrative Trustees being referred to collectively as the "ISSUER
TRUSTEES").
WITNESSETH
WHEREAS, the Depositor and the Delaware Trustee have heretofore duly
declared and created a business trust pursuant to the Delaware Business Trust
Act by entering into the Trust Agreement, dated as of December __, 1998 (the
"ORIGINAL TRUST AGREEMENT"), and by the execution and filing by the Delaware
Trustee with the Secretary of State of the State of Delaware of the Certificate
of Trust, filed on December __, 1998, attached as EXHIBIT A (the "Certificate of
Trust"); and
WHEREAS, the Depositor and the Issuer Trustees desire to amend and
restate the Original Trust Agreement in its entirety as set forth herein to
provide for, among other things, (i) the issuance of the Common Securities by
the Issuer Trust to the Depositor, (ii) the issuance and sale of the Capital
Securities by the Issuer Trust pursuant to the Underwriting Agreement, (iii) the
acquisition by the Issuer Trust from the Depositor of all of the right, title
and interest in the Debentures, and (iv) the appointment of the Property Trustee
and the Administrative Trustees;
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Holders, hereby amends and restates the
Original Trust Agreement in its entirety and agrees as follows:
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ARTICLE I
DEFINED TERMS
SECTION I.1. DEFINITIONS
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(b) All other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";
(d) All accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles;
(e) Unless the context otherwise requires, any reference to an
"Article", a "Section" or an "Exhibit" refers to an Article, a Section or an
Exhibit, as the case may be, of or to this Trust Agreement; and
(f) The words "hereby", "herein", "hereof" and "hereunder" and other
words of similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"ACT" has the meaning specified in Section 6.8.
"ADDITIONAL DISTRIBUTIONS" means, with respect to Trust Securities of a
given Liquidation Amount and/or a given period, the amount of Additional
Interest (as defined in the Indenture) paid by the Depositor on a Like Amount of
Debentures for such period.
"ADDITIONAL SUMS" has the meaning specified in Section 10.6 of the
Indenture.
"ADMINISTRATIVE TRUSTEE" means each Person appointed in accordance with
Section 8.20 solely in such Person's capacity as Administrative Trustee of the
Issuer Trust heretofore created and continued hereunder and not in such Person's
individual capacity, or any successor Administrative Trustee appointed as herein
provided.
<PAGE>
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such 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.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
transaction involving a Book-Entry Capital Security, the rules and procedures of
the Clearing Agency for such Book-Entry Capital Security, in each case to the
extent applicable to such transaction and as in effect from time to time.
"BANK" has the meaning specified in the preamble to this Trust
Agreement.
"BANKRUPTCY EVENT" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises judging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"BANKRUPTCY LAWS" has the meaning specified in Section 10.9.
"BOARD OF DIRECTORS" means the board of directors of the Depositor or
the Executive Committee of the board of directors of the Depositor (or any other
committee of the board of directors of the Depositor performing similar
functions) or a committee designated by the board of directors of the Depositor
(or any such committee), comprised of two or more members of the board of
directors of the Depositor or officers of the Depositor, or both.
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"BOOK-ENTRY CAPITAL SECURITIES CERTIFICATE" means a Capital Securities
Certificate evidencing ownership of Book-Entry Capital Securities.
"BOOK-ENTRY CAPITAL SECURITY" means a Capital Security, the ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 5.4.
"BUSINESS DAY" means a day other than (a) a Saturday or Sunday, (b) 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 (c) a day on which the
Property Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"CAPITAL SECURITY" means an undivided beneficial interest in the assets
of the Issuer Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution to the extent provided herein, and
designated as _____% Capital Securities, Series A.
"CAPITAL SECURITIES CERTIFICATE" means a certificate evidencing
ownership of Capital Securities, substantially in the form attached as
Exhibit E.
"CERTIFICATE DEPOSITORY AGREEMENT" means the agreement among the Issuer
Trust, the Depositor and DTC, as the initial Clearing Agency, dated as of the
Closing Date, substantially in the form attached as EXHIBIT B, as the same may
be amended and supplemented from time to time.
"CLEARING AGENCY" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC will be the initial Clearing Agency.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"CLOSING DATE" means the Time of Delivery, which date is also the date
of execution and delivery of this Trust Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Securities and Exchange Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"COMMON SECURITIES CERTIFICATE" means a certificate evidencing ownership
of Common Securities, substantially in the form attached as EXHIBIT C.
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<PAGE>
"COMMON SECURITY" means an undivided beneficial interest in the assets
of the Issuer Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution to the extent provided herein.
"CORPORATE TRUST OFFICE" means (i) when used with respect to the
Property Trustee, the principal office of the Property Trustee located in
Richmond, Virginia, and (ii) when used with respect to the Debenture Trustee,
the principal office of the Debenture Trustee located in Richmond, Virginia.
"DEBENTURE EVENT OF DEFAULT" means any "EVENT OF DEFAULT" specified in
Section 5.1 of the Indenture.
"DEBENTURE REDEMPTION DATE" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption of such Debentures
under the Indenture.
"DEBENTURE TRUSTEE" means the Person identified as the "TRUSTEE" in the
Indenture, solely in its capacity as Trustee pursuant to the Indenture and not
in its individual capacity, or its successor in interest in such capacity, or
any successor Trustee appointed as provided in the Indenture.
"DEBENTURES" means the Depositor's _____% Junior Subordinated Deferrable
Interest Debentures, Series A, issued pursuant to the Indenture.
"DEFINITIVE CAPITAL SECURITIES CERTIFICATES" means either or both (as
the context requires) of (i) Capital Securities Certificates issued as
Book-Entry Capital Securities Certificates as provided in Section 5.2 or 5.4,
and (ii) Capital Securities Certificates issued in certificated, fully
registered form as provided in Section 5.2, 5.4 or 5.5.
"DELAWARE BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss. 3801 ET SEQ., or any successor statute thereto,
in each case as amended from time to time.
"DELAWARE TRUSTEE" means the Person identified as the "DELAWARE TRUSTEE"
in the preamble to this Trust Agreement, solely in its capacity as Delaware
Trustee of the Issuer Trust heretofore created and continued hereunder and not
in its individual capacity, or its successor in interest in such capacity, or
any successor Delaware trustee appointed as herein provided.
"DEPOSITOR" has the meaning specified in the preamble to this Trust
Agreement.
"DISTRIBUTION DATE" has the meaning specified in Section 4.1(a).
"DISTRIBUTIONS" means amounts payable in respect of the Trust Securities
as provided in Section 4.1.
"DTC" means The Depository Trust Company.
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"EARLY TERMINATION EVENT" has the meaning specified in Section 9.2.
"EVENT OF DEFAULT" means any one of the following events (whatever the
reason for such event and whether it shall be voluntary or involuntary or be
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):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Issuer 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
(c) default by the Issuer Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Issuer Trustees in this
Trust Agreement (other than those specified in clause (b) or (c) 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 Issuer
Trustees and to the Depositor 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"
hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the
Property Trustee if a successor Property Trustee has not been appointed
within 90 days thereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and any
successor statute thereto, in each case as amended from time to time.
"EXPENSE AGREEMENT" means the Agreement as to Expenses and Liabilities,
dated as of the Closing Date, between Southern States Cooperative, Incorporated
and the Issuer Trust, substantially in the form attached as EXHIBIT D, as
amended from time to time.
"EXPIRATION DATE" has the meaning specified in Section 9.1.
"FUTC" means First Union Trust Company, National Association, a national
banking association.
"GUARANTEE AGREEMENT" means the Guarantee Agreement executed and
delivered by the Depositor and First Union National Bank, as guarantee trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Capital Securities, as amended from time to
time.
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<PAGE>
"HOLDER" means a Person in whose name a Trust Security or Trust
Securities are registered in the Securities Register; any such Person shall be a
beneficial owner within the meaning of the Delaware Business Trust Act.
"INDENTURE" means the Junior Subordinated Indenture, dated as of
_________, 1999, between the Depositor and the Debenture Trustee, as trustee, as
amended or supplemented from time to time.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, or
any successor statute thereto, in each case as amended from time to time.
"ISSUER TRUST" means the Delaware business trust known as "Southern
States Capital Trust I", which was created on __________, 1999, under the
Delaware Business Trust Act pursuant to the Original Trust Agreement and is
continued pursuant to this Trust Agreement.
"ISSUER TRUSTEES" means, collectively, the Property Trustee, the
Delaware Trustee and the Administrative Trustees.
"LIEN" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"LIKE AMOUNT" means (a) with respect to a redemption of any Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Debentures to be contemporaneously redeemed in accordance with the
Indenture, the proceeds of which will be used to pay the Redemption Price of
such Trust Securities, (b) with respect to a distribution of Debentures to
Holders of Trust Securities in connection with a dissolution or liquidation of
the Issuer Trust, Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the Holder to whom such Debentures are
distributed, and (c) with respect to any distribution of Additional
Distributions to Holders of Trust Securities, Debentures having a principal
amount equal to the Liquidation Amount of the Trust Securities in respect of
which such distribution is made.
"LIQUIDATION AMOUNT" means the stated amount of $25 per Trust Security.
"LIQUIDATION DATE" means the date of the dissolution, winding-up or
termination of the Issuer Trust pursuant to Section 9.4.
"LIQUIDATION DISTRIBUTION" has the meaning specified in Section 9.4(d).
"MAJORITY IN LIQUIDATION AMOUNT OF THE CAPITAL SECURITIES" means, except
as provided by the Trust Indenture Act, Capital Securities representing more
than 50% of the aggregate Liquidation Amount of all then Outstanding Capital
Securities.
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<PAGE>
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the President or one of the Executive
Vice Presidents, and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary, of the Depositor, and delivered to the Issuer Trustees.
Any Officers' Certificate delivered with respect to compliance with a condition
or covenant provided for in this Trust Agreement shall include:
(a) a statement by each officer signing the Officers' Certificate
that such officer has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by such officer in rendering the Officers'
Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of such officer,
such condition or covenant has been complied with.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for or an employee of the Depositor or any Affiliate of the Depositor.
"OPTIONAL SECURITIES" has the meaning specified in the Underwriting
Agreement.
"ORIGINAL TRUST AGREEMENT" has the meaning specified in the recitals to
this Trust Agreement.
"OUTSTANDING", when used with respect to Trust Securities, means, as of
the date of determination, all Trust Securities theretofore executed and
delivered under this Trust Agreement, EXCEPT:
(a) Trust Securities theretofore canceled by the Property Trustee
or delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose redemption money in the necessary
amount has been theretofore deposited with the Property Trustee or any
Paying Agent; PROVIDED that, if such Trust Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Trust Agreement; and
(c) Trust Securities in exchange for or in lieu of which other
Capital Securities have been executed and delivered pursuant to Sections
5.4, 5.5, 5.6 and 5.11;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Capital Securities have given any request,
demand, authorization, direction, notice,
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<PAGE>
consent or waiver hereunder, Capital Securities owned by the Depositor, any
Issuer Trustee or any Affiliate of the Depositor or any Issuer Trustee shall be
disregarded and deemed not to be Outstanding, except that (a) in determining
whether any Issuer Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Capital
Securities that such Issuer Trustee knows to be so owned shall be so
disregarded, and (b) the foregoing clause (a) shall not apply at any time when
all of the Outstanding Capital Securities are owned by the Depositor, one or
more of the Issuer Trustees and/or any such Affiliate. Capital Securities so
owned that have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Administrative Trustees the
pledgee's right so to act with respect to such Capital Securities and that the
pledgee is not the Depositor or any Affiliate of the Depositor.
"OWNER" means each Person who is the beneficial owner of Book-Entry
Capital Securities as reflected in the records of the Clearing Agency or, if a
Clearing Agency Participant is not the Owner, then as reflected in the records
of a Person maintaining an account with such Clearing Agency (directly or
indirectly, in accordance with the rules of such Clearing Agency).
"PAYING AGENT" means any paying agent or co-paying agent appointed
pursuant to Section 5.10 and shall initially be the Bank.
"PAYMENT ACCOUNT" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Bank in its trust
department for the benefit of the Holders in which all amounts paid in respect
of the Debentures will be held and from which the Property Trustee, through the
Paying Agent, shall make payments to the Holders in accordance with Sections 4.1
and 4.2.
"PERSON" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, company,
limited liability company, trust, unincorporated association, or government or
any agency or political subdivision thereof, or any other entity of whatever
nature.
"PROPERTY TRUSTEE" means the Person identified as the "PROPERTY TRUSTEE"
in the preamble to this Trust Agreement, solely in its capacity as Property
Trustee of the Issuer Trust heretofore created and continued hereunder and not
in its individual capacity, or its successor in interest in such capacity, or
any successor property trustee appointed as herein provided.
"REDEMPTION DATE" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; PROVIDED that each Debenture Redemption Date and the stated maturity
of the Debentures shall be a Redemption Date for a Like Amount of Trust
Securities.
"REDEMPTION PRICE" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the
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related amount of the premium, if any, paid by the Depositor upon the concurrent
redemption of a Like Amount of Debentures.
"RELEVANT TRUSTEE" has the meaning specified in Section 8.10.
"SECURITIES ACT" means the Securities Act of 1933, and any successor
statute thereto, in each case as amended from time to time.
"SECURITIES REGISTER" and "SECURITIES REGISTRAR" have the respective
meanings specified in Section 5.5.
"SUCCESSOR CAPITAL SECURITIES" of any particular Capital Securities
Certificate means every Capital Securities Certificate issued after, and
evidencing all or a portion of the same beneficial interest in the Issuer Trust
as that evidenced by, such particular Capital Securities Certificate; and, for
the purposes of this definition, any Capital Securities Certificate executed and
delivered under Section 5.6 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Capital Securities Certificate shall be deemed to
evidence the same beneficial interest in the Issuer Trust as the mutilated,
destroyed, lost or stolen Capital Securities Certificate.
"TIME OF DELIVERY" has the meaning specified in the Underwriting
Agreement.
"TRUST AGREEMENT" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including (i) all Exhibits, and (ii) for all
purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Trust Agreement and any such modification, amendment or
supplement, respectively.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; PROVIDED, HOWEVER, that if
the Trust Indenture Act of 1939 is amended after such date, "TRUST INDENTURE
ACT" means, to the extent required by any such amendment, the Trust Indenture
Act of 1939 as so amended.
"TRUST PROPERTY" means (a) the Debentures, (b) any cash on deposit in,
or owing to, the Payment Account, and (c) all proceeds and rights in respect of
the foregoing and any other property and assets for the time being held or
deemed to be held by the Property Trustee pursuant to the trusts of this Trust
Agreement.
"TRUST SECURITY" means any one of the Common Securities or the Capital
Securities.
"TRUST SECURITIES CERTIFICATE" means any one of the Common Securities
Certificates or the Capital Securities Certificates.
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"UNDERWRITING AGREEMENT" means the Underwriting Agreement, dated as of
_________, 1999, among the Issuer Trust, the Depositor and the Underwriters, as
the same may be amended from time to time.
"UNDERWRITERS" has the meaning specified in the Underwriting Agreement
and Schedule I thereto.
ARTICLE II
CONTINUATION OF THE ISSUER TRUST
SECTION II.1. NAME.
The trust continued hereby shall be known as "Southern States Capital
Trust I", as such name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust Securities and the
other Issuer Trustees, in which name the Issuer Trustees may conduct the
business of the Issuer Trust, make and execute contracts and other instruments
on behalf of the Issuer Trust and sue and be sued.
SECTION II.2. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF
BUSINESS.
The address of the Delaware Trustee in the State of Delaware is One
Rodney Square, First Floor, 920 King Street, Wilmington, Delaware 19801,
Attention: Corporate Trust Administration, or such other address in the State of
Delaware as the Delaware Trustee may designate by written notice to the Holders,
the Depositor, the Property Trustee and the Administrative Trustees. The
principal executive office of the Issuer Trust is c/o Southern States
Cooperative, Incorporated, 6606 West Broad Street, Richmond, Virginia 23260,
Attention: _____________.
SECTION II.3. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES.
The Property Trustee acknowledges receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Issuer Trust as they arise or shall, upon request of any Issuer
Trustee, promptly reimburse such Issuer Trustee for any such expenses paid by
such Issuer Trustee. The Depositor shall make no claim upon the Trust Property
for the payment of such expenses.
SECTION II.4. ISSUANCE OF THE CAPITAL SECURITIES.
As of __________, 1999, the Depositor, both on its own behalf and on
behalf of the Issuer Trust pursuant to the Original Trust Agreement, executed
and delivered the Underwriting Agreement. Contemporaneously with the execution
and delivery of this Trust Agreement, an Administrative Trustee, on behalf of
the Issuer Trust, shall manually execute in accordance with Sections 5.2 and
5.3, and the Property Trustee shall deliver to the Underwriters, Capital
Securities
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Certificates, registered in the name of the nominee of the initial Clearing
Agency, evidencing an aggregate of 3,000,000 Capital Securities having an
aggregate Liquidation Amount of $75,000,000, against receipt of the aggregate
purchase price of such Capital Securities of $75,000,000 (plus accrued
Distributions, if any) by the Property Trustee. If the Underwriters purchase any
Optional Securities in accordance with the second paragraph of Section 1(a) of
the Underwriting Agreement, on the Second Clearing Date (as defined in the
Underwriting Agreement), an Administrative Trustee, on behalf of the Issuer
Trust, shall execute in accordance with Sections 5.2 and 5.3, and the Property
Trustee shall deliver to the Underwrites, deliver to the Underwriters, Capital
Securities Certificates, registered in the name of the nominee of the initial
Clearing Agency, evidencing an aggregate amount of up to 450,000 Capital
Securities having an aggregate Liquidation Amount of up to $11,250,000, against
receipt of the aggregate purchase price of such Capital Securities [of ____% of]
[equal to] the Liquidation Amount thereof [(plus accrued Distributions)] by the
Property Trustee.
SECTION II.5. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND
PURCHASE OF DEBENTURES.
Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Issuer Trust, shall
execute in accordance with Sections 5.2 and 5.3, and the Property Trustee shall
deliver to the Depositor, Common Securities Certificates registered in the name
of the Depositor, evidencing an aggregate of 92,784 Common Securities having an
aggregate Liquidation Amount of $2,319,600, against receipt of the aggregate
purchase price of such Common Securities of $2,319,600 (plus accrued
Distributions, if any) by the Property Trustee. Contemporaneously therewith, the
Depositor shall issue and sell to the Issuer Trust, and the Issuer Trust shall
purchase from the Depositor, Debentures having an aggregate principal amount
equal to $77,319,600 registered in the name of the Property Trustee on behalf of
the Issuer Trust and, in satisfaction of the purchase price for such Debentures,
the Property Trustee, on behalf of the Issuer Trust, shall deliver to the
Depositor the sum of $77,319,600 (plus accrued Distributions, if any) (being the
sum of the amounts delivered to the Property Trustee pursuant to (i) the second
sentence of Section 2.4, and (ii) the first sentence of this Section 2.5). If
the Underwriters purchase any Optional Securities in accordance with Section
1(a) of the Underwriting Agreement, an Administrative Trustee, on behalf of the
Issuer Trust, shall execute in accordance with Sections 5.2 and 5.3, and the
Property Trustee shall deliver to the Depositor, Common Securities Certificates,
registered in the name of the Depositor, evidencing Common Securities having an
aggregate Liquidation Amount of up to $347,940, against receipt of the aggregate
purchase price therefor by the Property Trustee. Contemporaneously therewith, an
Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase
from the Depositor Debentures, registered in the name of the Trust and having an
aggregate principal amount of up to $11,597,940, and, in satisfaction of the
purchase price for such Debentures, the Property Trustee, on behalf of the
Trust, shall deliver to the Depositor the amount received by it pursuant to the
last sentence of Section 2.4 and the third sentence of this Section 2.5.
SECTION II.6. CONTINUATION OF TRUST.
The exclusive purposes and functions of the Issuer Trust are (a) to
issue and sell Trust Securities and use the proceeds from such sale to acquire
the Debentures, (b) to make Distributions
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to holders, and (c) to engage in only those activities necessary or incidental
thereto. The Depositor hereby appoints the Issuer Trustees as trustees of the
Issuer Trust, to have all the rights, powers and duties to the extent set forth
herein, and the respective Issuer Trustees hereby accept such appointment. The
Property Trustee hereby declares that it will hold the Trust Property in trust
upon and subject to the conditions set forth herein for the benefit of the
Issuer Trust and the Holders. The Administrative Trustees shall have all rights,
powers and duties set forth herein and in accordance with applicable law. The
Delaware Trustee shall not be entitled to exercise any powers, nor shall the
Delaware Trustee have any of the duties and responsibilities, of the Property
Trustee or the Administrative Trustees set forth herein, except as required by
the Delaware Business Trust Act. The Delaware Trustee shall be one of the
trustees of the Issuer Trust for the sole and limited purpose of fulfilling the
requirements of Section 3807 of the Delaware Business Trust Act and for taking
such actions as are required to be taken by a Delaware trustee under the
Delaware Business Trust Act.
SECTION II.7. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Issuer Trustees shall conduct the affairs of the Issuer Trust in
accordance with the terms of this Trust Agreement. Subject to the limitations
set forth in paragraph (b) of this Section 2.7, and in accordance with the
following provisions (i) and (ii), the Property Trustee and the Administrative
Trustees shall have the authority to enter into all transactions and agreements
determined by the Property Trustee and Administrative Trustees to be appropriate
in exercising the authority, express or implied, otherwise granted to such
Issuer Trustees, as the case may be, under this Trust Agreement, and to perform
all acts in furtherance thereof, including the following:
(i) As among the Issuer Trustees, each Administrative Trustee,
acting individually or jointly, shall have the power and authority to
act on behalf of the Issuer Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) causing the Issuer Trust to enter into, and to
execute, deliver and perform on behalf of the Issuer Trust, the
Expense Agreement and the Certificate Depository Agreement and
such other agreements as may be necessary or desirable in
connection with the purposes and function of the Issuer Trust;
(C) assisting in compliance with the registration of the
Capital Securities under the Securities Act and under applicable
state securities or blue sky laws and the qualification of this
Trust Agreement as a trust indenture under the Trust Indenture
Act;
(D) assisting in listing the Capital Securities on the New
York Stock Exchange and such other securities exchange or
exchanges as shall be determined by the Depositor, in the
registration of the Capital Securities under the Exchange Act,
and with the preparation and in the filing of all periodic and
other reports and other documents pursuant to the foregoing;
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(E) assisting in the sending of notices (other than
notices of default) and other information regarding the Trust
Securities and the Debentures to the Holders in accordance with
this Trust Agreement;
(F) consenting to the appointment of a Paying Agent,
authenticating agent and Securities Registrar in accordance with
this Trust Agreement (which consent shall not be unreasonably
withheld);
(G) executing the Trust Securities on behalf of the Issuer
Trust in accordance with this Trust Agreement;
(H) executing and delivering closing certificates, if any,
pursuant to the Underwriting Agreement and an application for a
taxpayer identification number for the Issuer Trust;
(I) unless otherwise determined by the Property Trustee or
Holders of at least a Majority in Liquidation Amount of the
Capital Securities or as otherwise required by the Delaware
Business Trust Act or the Trust Indenture Act, executing on
behalf of the Issuer Trust (either acting alone or together with
any other Administrative Trustee) any documents that the
Administrative Trustees have the power to execute pursuant to
this Trust Agreement; and
(J) taking any action incidental to the foregoing as the
Issuer Trustees may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement.
(ii) The Property Trustee shall have the power, duty and
authority to act on behalf of the Issuer Trust with respect to the
following matters:
(A) establishing the Payment Account;
(B) receiving the Debentures;
(C) collecting interest, principal and any other payments
made in respect of the Debentures and the holding of such amounts
in the Payment Account;
(D) distributing through any Paying Agent amounts
distributable to the Holders in respect of the Trust Securities;
(E) exercising all of the rights, powers and privileges of
a holder of the Debentures;
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(F) sending notices of default and other information
regarding the Trust Securities and the Debentures to the Holders
in accordance with this Trust Agreement;
(G) distributing the Trust Property in accordance with the
terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement,
winding up the affairs of and liquidating the Issuer Trust and
preparing, executing and filing the certificate of cancellation
with the Secretary of State of the State of Delaware;
(I) after an Event of Default (other than under paragraph
(b), (c), (d) or (e) of the definition of such term if such Event
of Default is by or with respect to the Property Trustee) taking
of any action incidental to the foregoing as the Property Trustee
may from time to time determine is necessary or advisable to give
effect to the terms of this Trust Agreement and to protect and
conserve the Trust Property for the benefit of the Holders
(without consideration of the effect of any such action on any
particular Holder); and
(J) performing any of the duties, liabilities, powers or
the authority of the Administrative Trustees set forth in Section
2.7(a)(i)(E), (F) and (J).
(b) So long as this Trust Agreement remains in effect, the Issuer Trust
(or the Issuer Trustees acting on behalf of the Issuer Trust) shall not
undertake any business, activities or transaction except as expressly provided
herein or contemplated hereby. In particular, the Issuer Trustees, acting in
their capacity as such, shall not (i) acquire any investments or engage in any
activities not authorized by this Trust Agreement, (ii) sell, assign, transfer,
exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust
Property or interests therein, including to Holders, except as expressly
provided herein, (iii) take any action that would reasonably be expected to
cause the Issuer Trust to become taxable as a corporation or classified as other
than a grantor trust for United States Federal income tax purposes, (iv) incur
any indebtedness for borrowed money or issue any other debt, or (v) take or
consent to any action that would result in the placement of a Lien on any of the
Trust Property. The Administrative Trustees shall defend all claims and demands
of all Persons at any time claiming any Lien on any of the Trust Property
adverse to the interest of the Issuer Trust or the Holders in their capacity as
Holders.
(c) In connection with the issue and sale of the Capital Securities, the
Depositor shall have the right and responsibility to assist the Issuer Trust
with respect to, or effect on behalf of the Issuer Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the date
of this Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Issuer Trust with the
Commission and the execution on behalf of the Issuer Trust of a
registration statement on the appropriate form in relation to the
Capital Securities, including any amendments thereto and the taking of
any
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action necessary or desirable to sell the Capital Securities in a
transaction or a series of transactions pursuant thereto;
(ii) the determination of the States, or other jurisdictions, if
any, in which to take appropriate action to qualify or register for sale
all or part of the Capital Securities and the determination of any and
all such acts, other than actions that must be taken by or on behalf of
the Issuer Trust, and the advice to the Issuer Trustees of actions they
must take on behalf of the Issuer Trust, and the preparation for
execution and filing of any documents to be executed and filed by the
Issuer Trust or on behalf of the Issuer Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of
any such States in connection with the sale of the Capital Securities;
(iii) the preparation for filing by the Issuer Trust and
execution on behalf of the Issuer Trust of any application to the New
York Stock Exchange or any other national stock exchange or the Nasdaq
National Market for listing upon notice of issuance of any Capital
Securities;
(iv) the preparation for filing by the Issuer Trust with the
Commission and the execution on behalf of the Issuer Trust of any
registration statement on Form 8-A relating to Capital Securities under
Section 12(b) or 12(g) of the Exchange Act, including any amendments
thereto;
(v) the negotiation of the terms of, and the execution and
delivery of, the Underwriting Agreement; and
(vi) the taking of any other actions necessary or desirable to
carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustees are authorized and directed to conduct the affairs of the Issuer Trust
and to operate the Issuer Trust so that the Issuer Trust will not be deemed to
be an "investment company" required to be registered under the Investment
Company Act, and will not be taxable as a corporation or classified as other
than a grantor trust for United States Federal income tax purposes and so that
the Debentures will be treated as indebtedness of the Depositor for United
States Federal income tax purposes. In this connection, each Administrative
Trustee and the Holder of the Common Securities are authorized to take any
action, not inconsistent with applicable law, the Certificate of Trust or this
Trust Agreement, that such Administrative Trustee or Holder of the Common
Securities determines in its discretion to be necessary or desirable for such
purposes, as long as such action does not adversely affect in any material
respect the interests of the Holders of the Outstanding Capital Securities. In
no event shall the Issuer Trustees be liable to the Issuer Trust or the Holders
for any failure to comply with this section that results from a change in law or
regulation or in the interpretation thereof.
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SECTION II.8. ASSETS OF TRUST.
The assets of the Issuer Trust shall consist of the Trust Property.
SECTION II.9. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee in trust for the benefit of the Issuer Trust and the
Holders in accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION III.1. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and its agents shall have
exclusive control and sole right of withdrawal with respect to the Payment
Account for the purpose of making deposits in and withdrawals from the Payment
Account in accordance with this Trust Agreement. All monies and other property
deposited or held from time to time in the Payment Account shall be held by the
Property Trustee in the Payment Account for the exclusive benefit of the Holders
and for distribution as herein provided, including (and subject to) any priority
of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION IV.1. DISTRIBUTIONS.
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including any Additional Distributions) will
be made on the Trust Securities at the rate and on the dates that payments of
interest (including any Additional Interest, as defined in the Indenture) are
made on the Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative,
and shall accumulate whether or not there are funds of the Issuer Trust
available for the payment of Distributions. Distributions shall
accumulate from __________, 1999, and, except in the event (and to the
extent) that the Depositor exercises its right to defer the payment of
interest on the
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Debentures pursuant to the Indenture, shall be payable quarterly in
arrears on January 1, April 1, July 1 and October 1 of each year,
commencing on April 1, 1999. If any date on which a Distribution is
otherwise payable on the Trust Securities is not a Business Day, then
the payment of such Distribution shall be made on the next succeeding
day that is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such next succeeding
Business Day falls within the next calendar year, such payment will be
made on the immediately preceding Business Day, in each case, with the
same force and effect as if made on the date on which such payment was
originally payable (each date on which distributions are payable in
accordance with this Section 4.1(a), a "DISTRIBUTION DATE").
(ii) The Trust Securities shall be entitled to Distributions
payable at a rate, not including Additional Distributions, of _____% per
annum of the Liquidation Amount of the Trust Securities. The amount of
Distributions payable for any period less than a full Distribution
period shall be computed on the basis of a 360-day year of twelve 30-day
months and the actual number of days elapsed in a partial month in a
period. Distributions payable for each full Distribution period will be
computed by dividing the rate per annum by four. The amount of
Distributions payable for any period shall include any Additional
Distributions in respect of such period.
(iii) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Issuer Trust has funds
then on hand and available in the Payment Account for the payment of
such Distributions.
(b) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities at the close of business on the relevant
record date, which shall be at the close of business on the fifteenth day
(whether or not a Business Day) next preceding the relevant Distribution Date.
SECTION IV.2. REDEMPTION.
(a) On each Debenture Redemption Date and on the stated maturity of the
Debentures, the Issuer Trust will be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number or CUSIP numbers of the Capital Securities
affected;
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(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price will become
due and payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after such date,
except as provided in Section 4.2(d) below; and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Issuer Trust in issuing the Trust Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Property Trustee shall indicate the
"CUSIP" numbers of the Trust Securities in notices of redemption and related
materials as a convenience to Holders; PROVIDED that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Trust Securities or as contained in any notice of redemption and
related materials.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Issuer Trust has funds then on hand and available in the Payment
Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of
any Capital Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, subject to Section 4.2(c), the Property Trustee will, with
respect to Book-Entry Capital Securities, irrevocably deposit with the Clearing
Agency for such Book-Entry Capital Securities, to the extent available therefor,
funds sufficient to pay the applicable Redemption Price and will give such
Clearing Agency irrevocable instructions and authority to pay the Redemption
Price to the Holders of the Capital Securities. With respect to Capital
Securities that are not Book-Entry Capital Securities, the Property Trustee,
subject to Section 4.2(c), will irrevocably deposit with the Paying Agent or
Paying Agents, to the extent available therefor, funds sufficient to pay the
applicable Redemption Price and will give the Paying Agent or Paying Agents
irrevocable instructions and authority to pay the Redemption Price to the
Holders of the Capital Securities upon surrender of their Capital Securities
Certificates. Notwithstanding the foregoing, Distributions payable on or prior
to the Redemption Date for any Trust Securities called for redemption shall be
payable to the Holders of such Trust Securities as they appear on the Securities
Register 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 Holders holding Trust Securities so
called for redemption will cease, except the right of such Holders to receive
the Redemption Price and any Distribution payable in respect of the Trust
Securities on or prior to the Redemption Date, but without interest, and such
Securities will cease to be Outstanding. In the event that any date on which any
Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date will
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be made on the next succeeding day that 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 each case, with the same force and effect
as if made on such date. In the event that payment of the Redemption Price in
respect of any Trust Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer Trust or by the Depositor pursuant to
the Guarantee Agreement, Distributions on such Trust Securities will continue to
accumulate, as set forth in Section 4.1, from the Redemption Date originally
established by the Issuer Trust for such Trust 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.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated PRO
RATA to the Common Securities and the Capital Securities based upon the relative
aggregate Liquidation Amounts of such classes. The particular Capital Securities
to be redeemed shall be selected on a PRO RATA basis based upon their respective
aggregate Liquidation Amounts not more than 60 days prior to the Redemption Date
by the Property Trustee from the Outstanding Capital Securities not previously
called for redemption, PROVIDED that so long as the Capital Securities are in
book-entry-only form, such selection shall be made in accordance with the
customary procedures for the Clearing Agency for the Capital Securities. The
Property Trustee shall promptly notify the Securities Registrar 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 this 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
that has been or is to be redeemed.
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SECTION IV.3. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including any Additional Distributions)
on, the Redemption Price of, and the Liquidation Distribution in respect of the
Trust Securities, as applicable, shall be made, subject to Section 4.2(e), PRO
RATA among the Common Securities and the Capital Securities based on the
Liquidation Amount of the Trust Securities; PROVIDED, HOWEVER, that if on any
Distribution Date, Redemption Date or Liquidation Date any Event of Default
resulting from a Debenture Event of Default specified in Section 5.1(1) or
5.1(2) of the Indenture shall have occurred and be continuing, no payment of any
Distribution (including any Additional Distributions) on, Redemption Price of,
or Liquidation Distribution in respect of any Common Security, and no other
payment on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions (including any Additional Distributions) on all 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 Outstanding Capital Securities then called for
redemption, or in the case of payment of the Liquidation Distribution the full
amount of such Liquidation Distribution on all Outstanding Capital Securities,
shall have been made or provided for, and all funds immediately available to the
Property Trustee shall first be applied to the payment in full in cash of all
Distributions (including any Additional Distributions) on, the Redemption Price
of or the Liquidation Distribution in respect of the Capital Securities then due
and payable.
(b) In the case of the occurrence of any Event of Default resulting from
any Debenture Event of Default, the Holder of the Common Securities shall have
no right to act with respect to any such Event of Default under this Trust
Agreement until the effects of all such Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated. Until all
such Events of Default under this Trust Agreement with respect to the Capital
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Capital Securities and
not on behalf of the Holder 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.
SECTION IV.4. PAYMENT PROCEDURES.
Payments of Distributions (including any Additional Distributions) or of
the Redemption Price, Liquidation Amount or any other amounts in respect of the
Capital Securities shall be made by check mailed to the address of the Person
entitled thereto as such address shall appear on the Securities Register or, if
the Capital Securities are held by a Clearing Agency, such Distributions shall
be made to the Clearing Agency in immediately available funds. Payments in
respect of the Common Securities shall be made in such manner as shall be
mutually agreed between the Property Trustee and the Holder of all the Common
Securities.
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SECTION IV.5. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared), at
the Depositor's expense, and file all United States Federal, state and local tax
and information returns and reports required to be filed by or in respect of the
Issuer Trust. In this regard, the Administrative Trustees shall (a) prepare and
file (or cause to be prepared and filed) all Internal Revenue Service forms
required to be filed in respect of the Issuer Trust in each taxable year of the
Issuer Trust, and (b) prepare and furnish (or cause to be prepared and
furnished) to each Holder all Internal Revenue Service forms required to be
provided by the Issuer Trust. The Administrative Trustees shall provide the
Depositor and the Property Trustee with a copy of all such returns and reports
promptly after such filing or furnishing. The Issuer Trustees shall comply with
United States Federal withholding and backup withholding tax laws and
information reporting requirements with respect to any payments to Holders under
the Trust Securities.
SECTION IV.6. PAYMENT OF TAXES, DUTIES, ETC. OF THE ISSUER TRUST.
Upon receipt under the Debentures of Additional Sums, the Property
Trustee shall promptly pay any taxes, duties or governmental charges of
whatsoever nature (other than withholding taxes) imposed on the Issuer Trust by
the United States or any other taxing authority with respect to which such
Additional Sums were paid.
SECTION IV.7. PAYMENTS UNDER INDENTURE OR PURSUANT TO DIRECT ACTIONS.
Any amount payable hereunder to any Holder of Capital Securities
shall be reduced by the amount of any corresponding payment such Holder has
directly received pursuant to Section 5.8 of the Indenture or Section 5.13 of
this Trust Agreement.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION V.1. INITIAL OWNERSHIP.
Upon the creation of the Issuer Trust and the contribution by the
Depositor pursuant to Section 2.3 and until the issuance of the Trust
Securities, and at any time during which no Trust Securities are Outstanding,
the Depositor shall be the sole beneficial owner of the Issuer Trust.
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SECTION V.2. THE TRUST SECURITIES CERTIFICATES.
(a) The Capital Securities Certificates shall be issued in fully
registered form in minimum denominations of $25 Liquidation Amount and integral
multiples thereof, and the Common Securities Certificates shall be issued in
denominations of $25 Liquidation Amount and integral multiples thereof. The
Trust Securities Certificates shall be executed on behalf of the Issuer Trust by
manual signature of at least one Administrative Trustee. Trust Securities
Certificates bearing the manual signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Issuer Trust, shall be validly issued and entitled to the benefits of this
Trust Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Holder, and shall be entitled to the rights and subject to the
obligations of a Holder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Capital Securities Certificates shall
be issued in the form of one or more Book-Entry Capital Securities Certificates
registered in the name of DTC, as Clearing Agency, or its nominee and deposited
with DTC or a custodian for DTC for credit by DTC to the respective accounts of
the Owners thereof (or such other accounts as they may direct).
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
SECTION V.3. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.
At the Time of Delivery, the Administrative Trustees shall cause Trust
Securities Certificates, in an aggregate Liquidation Amount as provided in
Sections 2.4 and 2.5, to be executed on behalf of the Issuer Trust and delivered
to or upon the written order of the Depositor, executed by an authorized officer
thereof, without further corporate action by the Depositor, in authorized
denominations.
SECTION V.4. BOOK-ENTRY CAPITAL SECURITIES.
(a) Each Book-Entry Capital Securities Certificate issued under this
Trust Agreement shall be registered in the name of the Clearing Agency or a
nominee thereof and delivered to such Clearing Agency or a nominee thereof or
custodian therefor, and each such Book-Entry Capital Securities Certificate
shall constitute a single Capital Securities Certificate for all purposes of
this Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, no
Book-Entry Capital Securities Certificate may be exchanged in whole or in part
for Capital Securities Certificates registered, and no transfer of a Book-Entry
Capital Securities Certificate in whole or in part may be registered, in the
name of any Person other than the Clearing Agency or a nominee thereof unless
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(i) the Clearing Agency advises the Property Trustee in writing that the
Clearing Agency is no longer willing or able to properly discharge its
responsibilities with respect to the Book-Entry Capital Securities Certificates,
and the Property Trustee is unable to locate a qualified successor, (ii) the
Issuer Trust at its option advises the Clearing Agency in writing that it elects
to terminate the book-entry system through the Clearing Agency, or (iii) a
Debenture Event of Default has occurred and is continuing. Upon the occurrence
of any event specified in clause (i), (ii) or (iii) above, the Property Trustee
shall notify the Clearing Agency and instruct the Clearing Agency to notify all
Owners of Book-Entry Capital Securities and the Administrative Trustees of the
occurrence of such event and of the availability of the Definitive Capital
Securities Certificates to Owners of the Capital Securities requesting the same.
(c) If any Book-Entry Capital Securities Certificate is to be exchanged
for other Capital Securities Certificates or canceled in part, or if any other
Capital Securities Certificate is to be exchanged in whole or in part for
Book-Entry Capital Securities represented by a Book-Entry Capital Securities
Certificate, then either (i) such Book-Entry Capital Securities Certificate
shall be so surrendered for exchange or cancellation as provided in this Article
V or (ii) the aggregate Liquidation Amount represented by such Book-Entry
Capital Securities Certificate shall be reduced, subject to Section 5.2, or
increased by an amount equal to that portion of the Liquidation Amount
represented by the Book-Entry Capital Securities Certificate to be so exchanged
or canceled, or equal to that portion of the Liquidation Amount represented by
such other Capital Securities Certificates to be so exchanged for Book-Entry
Capital Securities represented thereby, as the case may be, by means of an
appropriate adjustment made on the records of the Securities Registrar with
notice to the Property Trustee, whereupon the Property Trustee, in accordance
with the Applicable Procedures, shall instruct the Clearing Agency or its
authorized representative to make a corresponding adjustment to its records.
Upon any such surrender or adjustment of a Book-Entry Capital Securities
Certificate by the Clearing Agency, accompanied by registration instructions,
the Administrative Trustees, or any one of them, shall, subject to Section
5.5(b) and as otherwise provided in this Article V, execute the Definitive
Capital Securities Certificates issuable in exchange for such Book-Entry Capital
Securities Certificate (or any portion thereof) in accordance with the
instructions of the Clearing Agency. None of the Securities Registrar or the
Property Trustee or the Administrative Trustees shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Capital Securities Certificates, the Issuer Trustees shall recognize the Holders
of the Definitive Capital Securities as Holders. The Definitive Capital
Securities Certificates shall be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the Administrative
Trustees, as evidenced by the execution thereof by the Administrative Trustees
or any one of them.
(d) Every Capital Securities Certificate executed and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Book-Entry
Capital Securities Certificate or any portion thereof, whether pursuant to this
Article V or Section 4.2 or otherwise, shall be executed and delivered in the
form of, and shall be, a Book-Entry Capital Securities Certificate, unless such
Capital Securities Certificate is registered in the name of a Person other than
the Clearing Agency or a nominee thereof.
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(e) The Clearing Agency or its nominee, as registered owner of a
Book-Entry Capital Securities Certificate, shall be the Holder of such
Book-Entry Capital Securities Certificate for all purposes under this Trust
Agreement and the Capital Securities, and Owners with respect to a Book-Entry
Capital Securities Certificate shall hold such interests pursuant to the
Applicable Procedures. The Securities Registrar and the Property Trustee or the
Administrative Trustees shall be entitled to deal with the Clearing Agency for
all purposes of this Trust Agreement relating to the Book-Entry Capital
Securities Certificates (including the payment of the Liquidation Amount of and
Distributions on the Book-Entry Capital Securities represented thereby and the
giving of instructions or directions by or to Owners of Book-Entry Capital
Securities represented thereby) as the sole Holder of the Book-Entry Capital
Securities represented thereby and shall have no obligations to the Owners
thereof. None of the Depositor, the Issuer Trustees nor the Securities Registrar
shall have any liability in respect of any transfers effected by the Clearing
Agency.
(f) The rights of the Owners of the Book-Entry Capital Securities shall
be exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such Owners
and the Clearing Agency and/or the Clearing Agency Participants. Solely for the
purposes of determining whether the Holders of the requisite amount of Capital
Securities have voted on any matter provided for in this Trust Agreement, so
long as Definitive Capital Securities Certificates have not been issued in
certificated fully registered form, the Property Trustee and the Administrative
Trustees may conclusively rely on, and shall be protected in relying on, any
written instrument (including a proxy) delivered to such Issuer Trustees by the
Clearing Agency setting forth the Holders' votes or assigning the right to vote
on any matter to any other Persons either in whole or in part. Pursuant to the
Certificate Depository Agreement, unless and until Definitive Capital Securities
Certificates are issued pursuant to Section 5.4(b), the initial Clearing Agency
will make book-entry transfers among the Clearing Agency Participants and
receive and transmit payments on the Capital Securities to such Clearing Agency
Participants, and neither of the Depositor nor the Issuer Trustees shall have
any responsibility or obligation with respect thereto.
SECTION V.5. REGISTRATION OF TRANSFER AND EXCHANGE OF CAPITAL SECURITIES
CERTIFICATES.
(a) The Property Trustee shall keep or cause to be kept, at the office
or agency maintained pursuant to Section 5.9, a register or registers (the
"SECURITIES REGISTER") in which the registrar and transfer agent with respect to
the Trust Securities (the "SECURITIES REGISTRAR"), subject to such reasonable
regulations as it may prescribe, shall provide for the registration of Capital
Securities Certificates and (subject to Section 5.11) Common Securities
Certificates and of transfers and exchanges of Capital Securities Certificates
as herein provided. The Property Trustee is hereby appointed Securities
Registrar for the purpose of registering Capital Securities Certificates and
(subject to Section 5.11) Common Securities and transfers and exchanges thereof
as provided herein.
Upon surrender for registration of transfer of any Capital Securities
Certificate at the office or agency maintained pursuant to Section 5.9, the
Administrative Trustees or any one of them shall execute and deliver to the
Property Trustee, and the Property Trustee shall deliver, in the name of the
designated transferee or transferees, one or more new Capital Securities
Certificates in authorized
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denominations of a like aggregate Liquidation Amount, dated the date of
execution by such Administrative Trustee or Trustees.
At the option of the Holder, Capital Securities Certificates may be
exchanged for other Capital Securities Certificates of the same series of any
authorized denominations, of like tenor and aggregate Liquidation Amount, and
bearing a number not contemporaneously Outstanding, upon surrender of the
Capital Securities Certificates to be exchanged at such office or agency.
Whenever any Capital Securities Certificates are so surrendered for exchange,
the Administrative Trustees or any one of them shall execute and deliver to the
Property Trustee, and the Property Trustee shall deliver, the Capital Securities
Certificates that the Holder making the exchange is entitled to receive.
All Capital Securities issued upon any transfer or exchange of Capital
Securities shall evidence the same interest in the assets of the Issuer Trust,
and be entitled to the same benefits under this Trust Agreement, as the Capital
Securities surrendered upon such transfer or exchange.
The Securities Registrar shall not be required, (i) to issue, register
the transfer of or exchange any Capital Security during a period beginning at
the opening of business 15 days before the day of selection for redemption of
such Capital Securities pursuant to Article IV and ending at the close of
business on the day of mailing of the notice of redemption, or (ii) to register
the transfer of or exchange any Capital Security so selected for redemption in
whole or in part, except, in the case of any such Capital Security to be
redeemed in part, any portion thereof not to be redeemed.
Every Capital Securities Certificate presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to an Administrative
Trustee and the Securities Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Capital Securities
Certificate surrendered for registration of transfer or exchange shall be
canceled and subsequently disposed of by the Property Trustee in accordance with
its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Capital Securities Certificates, but the Issuer Trust may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Capital Securities
Certificates.
(b) Notwithstanding any other provision of this Trust Agreement,
transfers and exchanges of Capital Securities Certificates and Book-Entry
Capital Securities shall be made only in accordance with this Section 5.5(b).
(i) Non-Book-Entry Capital Securities Certificate to Book-Entry
Capital Securities Certificate. If the Holder of a Capital Securities
Certificate (other than a Book-Entry Capital Securities Certificate)
wishes at any time to transfer all or any portion of such Capital
Securities Certificate to a Person who wishes to take delivery thereof
in the form of a beneficial interest in a Book-Entry Capital Securities
Certificate, such transfer may be effected only in accordance with the
provisions of this Clause (b)(i) and subject to the
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Applicable Procedures. Upon receipt by the Securities Registrar of such
Capital Securities Certificate as provided in Section 5.5(a) and
instructions satisfactory to the Securities Registrar directing that a
specified number of Book-Entry Capital Securities to be represented by
such Book-Entry Capital Securities Certificate not greater than the
number of Capital Securities represented by such Capital Securities
Certificate be credited to a specified Clearing Agency Participant's
account, then the Securities Registrar shall cancel such Capital
Securities Certificate (and issue a new Capital Securities Certificate
in respect of any untransferred portion thereof) as provided in Section
5.5(a) and increase the aggregate Liquidation Amount of the Book-Entry
Capital Securities Certificate by the Liquidation Amount of such Capital
Securities so transferred as provided in Section 5.4(c).
(ii) Non-Book-Entry Capital Securities Certificate to
Non-Book-Entry Capital Securities Certificate. A Capital Securities
Certificate that is not a Book-Entry Capital Securities Certificate may
be transferred, in whole or in part, to a Person who takes delivery in
the form of another Capital Securities Certificate that is not a
Book-Entry Capital Securities Certificate as provided in Section 5.5(a).
(iii) Book-Entry Capital Securities Certificate to Non-Book-Entry
Capital Securities Certificate. A beneficial interest in a Book-Entry
Capital Securities Certificate may be exchanged for a Capital Securities
Certificate that is not a Book-Entry Capital Securities Certificate as
provided in Section 5.4.
SECTION V.6. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES.
If (a) any mutilated Trust Securities Certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Securities Certificate, and (b) there shall be delivered to the Securities
Registrar and the Administrative Trustees such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Trust Securities Certificate shall have been acquired by a protected
purchaser, the Administrative Trustees, or any one of them, on behalf of the
Issuer Trust shall execute and make available for delivery, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Trust Securities
Certificate, a new Trust Securities Certificate of like class, tenor and
denomination. In connection with the issuance of any new Trust Securities
Certificate under this Section 5.6, the Administrative Trustees or the
Securities Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Securities Certificate issued pursuant to this Section 5.6
shall constitute conclusive evidence of an undivided beneficial interest in the
assets of the Issuer Trust corresponding to that evidenced by the lost, stolen
or destroyed Trust Securities Certificate, as if originally issued, whether or
not the lost, stolen or destroyed Trust Securities Certificate shall be found at
any time.
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SECTION V.7. PERSONS DEEMED HOLDERS.
The Issuer Trustees and the Securities Registrar shall each treat the
Person in whose name any Trust Securities Certificate shall be registered in the
Securities Register as the owner of such Trust Securities Certificate for the
purpose of receiving Distributions and for all other purposes whatsoever, and
none of the Issuer Trustees and the Securities Registrar shall be bound by any
notice to the contrary.
SECTION V.8. ACCESS TO LIST OF HOLDERS' NAMES AND ADDRESSES.
Each Holder and each Owner shall be deemed to have agreed not to hold
the Depositor or the Issuer Trustees accountable by reason of the disclosure of
its name and address, regardless of the source from which such information was
derived.
SECTION V.9. MAINTENANCE OF OFFICE OR AGENCY.
The Property Trustee shall designate, with the consent of the
Administrative Trustees, which consent shall not be unreasonably withheld, an
office or offices or agency or agencies where Capital Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates the
Corporate Trust Office, Attention: Corporate Trust Group, as its office and
agency for such purposes. The Property Trustee shall give prompt written notice
to the Depositor, the Administrative Trustees and to the Holders of any change
in the location of the Securities Register or any such office or agency.
SECTION V.10. APPOINTMENT OF PAYING AGENTS.
The Paying Agent or Agents shall make Distributions to Holders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account solely for the
purpose of making the Distributions referred to above. The Administrative
Trustees may revoke such power and remove the Paying Agent in its sole
discretion. The Paying Agent shall initially be the Bank and any co-paying agent
chosen by the Property Trustee and acceptable to the Administrative Trustees and
the Depositor. Any Person acting as Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustees and the
Property Trustee. If the Bank shall no longer be the Paying Agent or a successor
Paying Agent shall resign or its authority to act be revoked, the Administrative
Trustees shall appoint a successor (which shall be a bank or trust company) that
is reasonably acceptable to the Depositor to act as Paying Agent. Such successor
Paying Agent or any additional Paying Agent shall execute and deliver to the
Issuer Trustees an instrument in which such successor Paying Agent or additional
Paying Agent shall agree with the Issuer Trustees that as Paying Agent, such
successor Paying Agent or additional Paying Agent will hold all sums, if any,
held by it for payment to the Holders in trust for the benefit of the Holders
entitled thereto until such sums shall be paid to such Holders. The Paying Agent
shall return all unclaimed funds to the Property Trustee and upon removal of a
Paying Agent such Paying Agent shall also return all funds in its possession to
the Property Trustee. The
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provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Bank also in
its role as Paying Agent, for so long as the Bank shall act as Paying Agent and,
to the extent applicable, to any other paying agent appointed hereunder. Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise.
SECTION V.11. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
At the Time of Delivery, the Depositor shall acquire, and thereafter
shall retain, beneficial and record ownership of the Common Securities. Neither
the Depositor nor any successor Holder of the Common Securities may transfer
less than all the Common Securities (except in connection with a redemption
thereof), and the Depositor or any such successor Holder may transfer the Common
Securities only (i) in connection with a consolidation or merger of the
Depositor into another corporation, or any conveyance, transfer or lease by the
Depositor of its properties and assets substantially as an entirety to any
Person, pursuant to Section 8.1 of the Indenture, or (ii) to the Depositor or an
Affiliate of the Depositor in compliance with applicable law (including the
Securities Act and applicable state securities and blue sky laws). To the
fullest extent permitted by law, any attempted transfer of the Common Securities
other than as set forth in the next proceeding sentence shall be void. The
Administrative Trustees shall cause each Common Securities Certificate issued to
the Depositor to contain a legend stating substantially "THIS CERTIFICATE IS NOT
TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN
COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF THE TRUST AGREEMENT."
SECTION V.12. NOTICES TO CLEARING AGENCY.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Capital Securities are
represented by a Book-Entry Capital Securities Certificate, the Issuer Trustees
shall give all such notices and communications specified herein to be given to
the Clearing Agency, and shall have no obligations to the Owners.
SECTION V.13. RIGHTS OF HOLDERS; WAIVERS OF PAST DEFAULTS.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Holders shall not have any right or title therein other than the undivided
beneficial interest in the assets of the Issuer Trust conferred by their Trust
Securities and they shall have no right to call for any partition or division of
property, profits or rights of the Issuer Trust except as described below. The
Trust Securities shall be personal property giving only the rights specifically
set forth therein and in this Trust Agreement. The Trust Securities shall have
no preemptive or similar rights and when issued and delivered to Holders against
payment of the purchase price therefor will be fully paid and nonassessable by
the Issuer Trust. The Holders of the Trust Securities, in their capacities as
such, shall be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
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(b) For so long as any Capital Securities remain Outstanding, if, upon a
Debenture Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Capital Securities then
Outstanding shall have the right to make such declaration by a notice in writing
to the Property Trustee, the Depositor and the Debenture Trustee.
At any time after a declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as provided in the
Indenture, if the Property Trustee fails to annul any such declaration and waive
such default, the Holders of at least a Majority in Liquidation Amount of the
Capital Securities, by written notice to the Property Trustee, the Depositor and
the Debenture Trustee, may rescind and annul such declaration and its
consequences if:
(i) the Depositor has paid or deposited with the Debenture
Trustee a sum sufficient to pay
(A) all overdue installments of interest on all of the
Debentures,
(B) any accrued Additional Interest (as defined in the
Indenture) on all of the Debentures,
(C) the principal of (and premium, if any, on) any
Debentures that have become due otherwise than by such
declaration of acceleration and interest and Additional Interest
thereon at the rate borne by the Debentures, and
(D) all sums paid or advanced by the Debenture Trustee
under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee and the
Property Trustee, their agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other
than the non-payment of the principal of the Debentures that has become
due solely by such acceleration, have been cured or waived as provided
in Section 5.13 of the Indenture.
The Holders of at least a Majority in Liquidation Amount of the Capital
Securities may, on behalf of the Holders of all the Trust Securities, waive any
past default or Event of Default under the Indenture, except a default or Event
of Default in the payment of principal or interest (unless such default or Event
of 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 or Event of Default in respect of a
covenant or provision that under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Debenture. No such
rescission shall affect any subsequent default or impair any right consequent
thereon.
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Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of any part of the
Capital Securities, a record date shall be established for determining Holders
of Outstanding Capital Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; PROVIDED, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day that is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice that has been
canceled pursuant to the proviso to the preceding sentence, in which event a new
record date shall be established pursuant to the provisions of this Section
5.13(b).
(c) For so long as any Capital Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1)
or 5.1(2) of the Indenture, any Holder of Capital Securities shall have the
right to institute a proceeding directly against the Depositor, pursuant to
Section 5.8 of the Indenture, for enforcement of payment to such Holder of any
amounts payable in respect of Debentures having an aggregate principal amount
equal to the aggregate Liquidation Amount of the Capital Securities of such
Holder (a "DIRECT ACTION"). Except as set forth in Section 5.13(b) and this
Section 5.13(c), the Holders of Capital Securities shall have no right to
exercise directly any right or remedy available to the holders of, or in respect
of, the Debentures.
(d) Except as otherwise provided in paragraphs (a), (b) and (c) of this
Section 5.13, the Holders of at least a Majority in Liquidation Amount of the
Capital Securities may, on behalf of the Holders of all the Trust Securities,
waive any past default or Event of Default and its consequences. Upon such
waiver, any such default or Event of Default shall cease to exist, and any
default or Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Trust Agreement, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.
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ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING
SECTION VI.1. LIMITATIONS ON VOTING RIGHTS.
(a) Except as expressly provided in this Trust Agreement and in the
Indenture and as otherwise required by law, no Holder of Capital Securities
shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Issuer Trust or the obligations
of the parties hereto, nor shall anything herein set forth, or contained in the
terms of the Trust Securities Certificates, be construed so as to constitute the
Holders from time to time as partners or members of an association.
(b) So long as any Debentures are held by the Property Trustee on behalf
of the Issuer Trust, the Property Trustee shall 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 Debentures, (ii) waive any past default that may be waived under
Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Debentures shall be due and payable,
or (iv) consent to any amendment, modification or termination of the Indenture
or the Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of at least a Majority in
Liquidation Amount of the Capital Securities, PROVIDED, HOWEVER, that where a
consent under the Indenture would require the consent of each Holder of
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior written consent of each Holder of Capital Securities.
The Property Trustee shall not revoke any action previously authorized or
approved by a vote of the Holders of the Capital Securities, except by a
subsequent vote of the Holders of the Capital Securities. The Property Trustee
shall notify all Holders of the Capital Securities of any notice of default
received with respect to the Debentures. In addition to obtaining the foregoing
approvals of the Holders of the Capital Securities, prior to taking any of the
foregoing actions, the Issuer Trustees shall, at the expense of the Depositor,
obtain an Opinion of Counsel experienced in such matters to the effect that such
action shall not cause the Issuer Trust to be taxable as a corporation or
classified as other than a grantor trust for United States Federal income tax
purposes.
(c) If any proposed amendment to this Trust Agreement provides for, or
the Issuer Trustees otherwise propose to effect, (i) any action that would
adversely affect in any material respect the powers, preferences or special
rights of the Capital Securities, whether by way of amendment to this Trust
Agreement or otherwise, or (ii) the dissolution, winding-up or termination of
the Issuer Trust, other than pursuant to the terms of this Trust Agreement, then
the Holders of Outstanding Capital Securities as a class will be entitled to
vote on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of the Holders of at least a Majority in
Liquidation Amount of the Capital Securities. Notwithstanding any other
provision of this Trust Agreement, no amendment to this Trust Agreement may be
made if, as a result of such amendment, it would cause the Issuer Trust to be
taxable as a corporation or classified as other than a grantor trust for United
States Federal income tax purposes.
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SECTION VI.2. NOTICE OF MEETINGS.
Notice of all meetings of the Holders of the Capital Securities, stating
the time, place and purpose of the meeting, shall be given by the Property
Trustee pursuant to Section 10.8 to each Holder of Capital Securities, at such
Holder's registered address, at least 15 days and not more than 90 days before
the meeting. At any such meeting, any business properly before the meeting may
be so considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
SECTION VI.3. MEETINGS OF HOLDERS OF THE CAPITAL SECURITIES.
No annual meeting of Holders is required to be held. The Administrative
Trustees, however, shall call a meeting of the Holders of the Capital Securities
to vote on any matter upon the written request of the Holders of at least 25% in
aggregate Liquidation Amount of the Outstanding Capital Securities and the
Administrative Trustees or the Property Trustee may, at any time in their
discretion, call a meeting of the Holders of the Capital Securities to vote on
any matters as to which such Holders are entitled to vote.
The Holders of at least a Majority in Liquidation Amount of the Capital
Securities, present in person or by proxy, shall constitute a quorum at any
meeting of the Holders of the Capital Securities.
If a quorum is present at a meeting, an affirmative vote by the Holders
present, in person or by proxy, holding Capital Securities representing at least
a majority of the aggregate Liquidation Amount of the Capital Securities held by
the Holders present, either in person or by proxy, at such meeting shall
constitute the action of the Holders of the Capital Securities, unless this
Trust Agreement requires a greater number of affirmative votes.
SECTION VI.4. VOTING RIGHTS.
Holders shall be entitled to one vote for each $25 of Liquidation Amount
represented by their Outstanding Trust Securities in respect of any matter as to
which such Holders are entitled to vote.
SECTION VI.5. PROXIES, ETC.
At any meeting of Holders, any Holder entitled to vote thereat may vote
by proxy, PROVIDED that no proxy shall be voted at any meeting unless it shall
have been placed on file with the Administrative Trustees, or with such other
officer or agent of the Issuer Trust as the Administrative Trustees may direct,
for verification prior to the time at which such vote shall be taken. Pursuant
to a resolution of the Property Trustee, proxies may be solicited in the name of
the Property Trustee or one or more officers of the Property Trustee. Only
Holders of record shall be entitled to vote. When Trust Securities are held
jointly by several persons, any one of them may vote at any meeting in person or
by proxy in respect of such Trust Securities, but if more than one of them shall
be
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present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Holder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
SECTION VI.6. HOLDER ACTION BY WRITTEN CONSENT.
Any action that may be taken by Holders of Capital Securities at a
meeting may be taken without a meeting if Holders holding at least a Majority in
Liquidation Amount of the Capital Securities entitled to vote in respect of such
action (or such larger proportion thereof as shall be required by any other
provision of this Trust Agreement) shall consent to the action in writing. Any
action that may be taken by the Holder of all the Common Securities may be taken
if such Holder shall consent to the action in writing.
SECTION VI.7. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Holders who are entitled to notice
of and to vote at any meeting or by written consent, or to participate in any
distribution on the Trust Securities in respect of which a record date is not
otherwise provided for in this Trust Agreement, or for the purpose of any other
action, the Administrative Trustees may from time to time fix a date, not more
than 90 days prior to the date of any meeting of Holders or the payment of a
distribution or other action, as the case may be, as a record date for the
determination of the identity of the Holders of record for such purposes.
SECTION VI.8. ACTS OF HOLDERS.
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as otherwise expressly provided herein,
such action shall become effective when such instrument or instruments are
delivered to an Administrative Trustee. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "ACT" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Trust Agreement and (subject to Section
8.1) conclusive in favor of the Issuer Trustees, if made in the manner provided
in this Section 6.8.
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than such signer's individual capacity, such
certificate or affidavit
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shall also constitute sufficient proof of such signer's authority. The fact and
date of the execution of any such instrument or writing, or the authority of the
Person executing the same, may also be proved in any other manner that any
Issuer Trustee receiving the same deems sufficient.
The ownership of Trust Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Trust Security shall bind every future Holder
of the same Trust Security and the Holder of every Trust Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Issuer
Trustees, the Depositor or the Issuer Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise among the Holders or the Issuer Trustees with
respect to the authenticity, validity or binding nature of any request, demand,
authorization, direction, consent, waiver or other Act of such Holder or Issuer
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.
SECTION VI.9. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Issuer Trust shall be open to inspection by Holders
(and other Issuer Trustees) during normal business hours for any purpose
reasonably related to such Holder's interest as a Holder (or such Issuer
Trustee's service as a Trustee hereunder).
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION VII.1. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE
AND THE DELAWARE TRUSTEE.
The Property Trustee and the Delaware Trustee, each severally on behalf
of and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Holders that:
(a) the Property Trustee is a national banking association, duly
organized, validly existing and in good standing under the laws of the United
States;
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(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) FUTC is a national banking association, duly formed and validly
existing under the laws of the United States and satisfies for the Issuer Trust
the requirements of Section 3807(a) of the Delaware Business Trust Act;
(d) FUTC has full corporate power, authority and legal right to execute,
deliver and perform its obligations under this Trust Agreement and has taken all
necessary action to authorize the execution, delivery and performance by it of
this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and the Delaware Trustee and constitutes the
valid and legally binding agreement of each of the Property Trustee and the
Delaware Trustee enforceable against each of them in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (regardless of whether
considered in a proceeding at law or in equity);
(f) the execution, delivery and performance of this Trust Agreement have
been duly authorized by all necessary corporate or other action on the part of
the Property Trustee and the Delaware Trustee and do not require any approval of
stockholders of the Property Trustee and the Delaware Trustee and such
execution, delivery and performance will not (i) violate the Charter or By-laws
of the Property Trustee or the Delaware Trustee, (ii) violate any provision of,
or constitute, with or without notice or lapse of time, a default under, or
result in the creation or imposition of, any Lien on any properties included in
the Trust Property pursuant to the provisions of, any indenture, mortgage,
credit agreement, license or other agreement or instrument to which the Property
Trustee or the Delaware Trustee is a party or by which it is bound, or (iii)
violate any law, governmental rule or regulation of the United States or the
State of Delaware, as the case may be, governing the banking, trust or general
powers of the Property Trustee or the Delaware Trustee (as appropriate in
context) or any order, judgment or decree applicable to the Property Trustee or
the Delaware Trustee;
(g) none of the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee, as
appropriate in context, contemplated herein requires the consent or approval of,
the giving of notice to, the registration with or the taking of any other action
with respect to any governmental authority or agency under any existing law of
the United States or the State of Delaware governing the banking, trust or
general powers of the Property Trustee or the Delaware Trustee, as the case may
be; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal that,
individually or in the aggregate, would materially and adversely affect the
Issuer Trust or would
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question the right, power and authority of the Property Trustee or the Delaware
Trustee, as the case may be, to enter into or perform its obligations as one of
the Issuer Trustees under this Trust Agreement.
SECTION VII.2. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Holders that:
(a) the Trust Securities Certificates issued on behalf of the Issuer
Trust have been duly authorized and will have been duly and validly executed,
issued and delivered by the Issuer Trustees pursuant to the terms and provisions
of, and in accordance with the requirements of, this Trust Agreement and the
Holders will be, as of such date, entitled to the benefits of this Trust
Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Issuer Trust (or the Issuer Trustees on behalf of the Issuer Trust) under
the laws of the State of Delaware or any political subdivision thereof in
connection with the execution, delivery and performance by either Issuer Trustee
of this Trust Agreement.
ARTICLE VIII
THE ISSUER TRUSTEES
SECTION VIII.1. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Issuer Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, but subject to Section
8.1(c), no provision of this Trust Agreement shall require any of the Issuer
Trustees to expend or risk its or their own funds or otherwise incur any
financial liability in the performance of any of its or their duties hereunder,
or in the exercise of any of its or their rights or powers, if it or they shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it or
them. Whether or not therein expressly so provided, every provision of this
Trust Agreement relating to the conduct or affecting the liability of or
affording protection to the Issuer Trustees shall be subject to the provisions
of this Section 8.1. Nothing in this Trust Agreement shall be construed to
release an Administrative Trustee from liability for his or her own gross
negligent action, his or her own gross negligent failure to act, or his or her
own wilful misconduct. To the extent that, at law or in equity, an Issuer
Trustee has duties and liabilities relating to the Issuer Trust or to the
Holders, such Issuer Trustee shall not be liable to the Issuer Trust or to any
Holder for such Issuer Trustee's good faith reliance on the provisions of this
Trust Agreement. The provisions of this Trust Agreement, to the extent that they
restrict the duties and liabilities of the Issuer Trustees otherwise existing at
law or in equity, are agreed by the Depositor and the Holders to replace such
other duties and liabilities of the Issuer Trustees.
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(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. Each Holder,
by its acceptance of a Trust Security, agrees that it will look solely to the
revenue and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Issuer Trustees are not
personally liable to it for any amount distributable in respect of any Trust
Security or for any other liability in respect of any Trust Security. This
Section 8.1(b) does not limit the liability of the Issuer Trustees expressly set
forth elsewhere in this Trust Agreement or, in the case of the Property Trustee,
in the Trust Indenture Act.
(c) If an Event of Default has occurred and is continuing, the Property
Trustee shall enforce this Trust Agreement for the benefit of the Holders.
(d) The Property Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Trust Agreement (including pursuant to Section 10.10), and no implied covenants
shall be read into this Trust Agreement against the Property Trustee. If an
Event of Default has occurred (that has not been cured or waived pursuant to
Section 5.13), the Property Trustee shall exercise such of the rights and powers
vested in it by this Trust Agreement, and use the same degree of care and skill
in its exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(e) No provision of this Trust Agreement shall be construed to relieve
the Property Trustee or the Delaware Trustee from liability for its own
negligent action, its own negligent failure to act, or its own wilful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions of this
Trust Agreement (including pursuant to Section 10.10), and the
Property Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in
this Trust Agreement (including pursuant to Section 10.10); and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely, as
to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Property Trustee and conforming to the
requirements of this Trust Agreement; but in the case of any such
certificates or opinions that by any provision hereof or of the
Trust Indenture Act are specifically required to be furnished to
the
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Property Trustee, the Property Trustee shall be under a duty
to examine the same to determine whether or not they conform to
the requirements of this Trust Agreement.
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of at least a Majority in
Liquidation Amount of the Capital Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Property Trustee, or exercising any trust or power conferred upon
the Property Trustee under this Trust Agreement;
(iv) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and
the Payment Account shall be to deal with such Property in a similar
manner as the Property Trustee deals with similar property for its own
account, subject to the protections and limitations on liability
afforded to the Property Trustee under this Trust Agreement and the
Trust Indenture Act;
(v) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree with the
Depositor; and money held by the Property Trustee need not be segregated
from other funds held by it except in relation to the Payment Account
maintained by the Property Trustee pursuant to Section 3.1 and except to
the extent otherwise required by law;
(vi) the Property Trustee shall not be responsible for monitoring
the compliance by the Administrative Trustees or the Depositor with
their respective duties under this Trust Agreement, nor shall the
Property Trustee be liable for the default or misconduct of any other
Issuer Trustee or the Depositor; and
(vii) No provision of this Trust Agreement shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers, if the Property Trustee
shall have reasonable grounds for believing that the repayment of such
funds or liability is not reasonably assured to it under the terms of
this Trust Agreement or adequate indemnity against such risk or
liability is not reasonably assured to it.
(f) The Administrative Trustees shall not be responsible for monitoring
the compliance by the Issuer Trustees or the Depositor with their respective
duties under this Trust Agreement, nor shall either Administrative Trustee be
liable for the default or misconduct of any other Issuer Trustee or the
Depositor. The Delaware Trustee shall not be responsible for monitoring
compliance by the Property Trustee, the Administrative Trustees or the Depositor
with their respective duties under this
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Trust Agreement, nor shall the Delaware Trustee be liable for the default or
misconduct of any other Issuer Trustee or the Depositor.
SECTION VIII.2. CERTAIN NOTICES.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit, in
the manner and to the extent provided in Section 10.8, notice of such Event of
Default to the Holders and the Administrative Trustee, unless such Event of
Default shall have been cured or waived.
Within five Business Days after the receipt of notice of the Depositor's
exercise of its right to defer the payment of interest on the Debentures
pursuant to the Indenture, the Property Trustee shall transmit, in the manner
and to the extent provided in Section 10.8, notice of such exercise to the
Holders and the Administrative Trustees, unless such exercise shall have been
revoked.
The Property Trustee shall not be deemed to have knowledge of any Event
of Default unless the Property Trustee shall have received written notice, or an
officer of the Property Trustee charged with the administration of this Trust
Agreement shall have obtained actual knowledge, of such Event of Default.
SECTION VIII.3. CERTAIN RIGHTS OF PROPERTY Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action,
(ii) in construing any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or inconsistent with any other provisions
contained herein, or (iii) the Property Trustee is unsure of the application of
any provision of this Trust Agreement, then, except as to any matter as to which
the Holders of the Capital Securities are entitled to vote under the terms of
this Trust Agreement, the Property Trustee shall deliver a notice to the
Depositor requesting the Depositor's opinion as to the course of action to be
taken and the Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; PROVIDED, HOWEVER, that if the
Property Trustee does not receive such instructions of the Depositor within ten
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than two Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust
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Agreement as it shall deem advisable and in the best interests of the Holders,
in which event the Property Trustee shall have no liability except for its own
bad faith, negligence or wilful misconduct;
(c) any direction or act of the Depositor contemplated by this Trust
Agreement shall be sufficiently evidenced by an Officers' Certificate;
(d) any direction or act of an Administrative Trustee contemplated by
this Trust Agreement shall be sufficiently evidenced by a certificate executed
by such Administrative Trustee and setting forth such direction or act;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or re-registration thereof;
(f) the Property Trustee may consult with counsel (which counsel may be
counsel to the Depositor or any of its Affiliates, and may include any of its
employees) and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon and in accordance with
such advice; the Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust Agreement from any
court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Holders pursuant to this Trust Agreement, unless such
Holders shall have offered to the Property Trustee reasonable security or
indemnity against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction; PROVIDED that, nothing
contained in this Section 8.3(g) shall be taken to relieve the Property Trustee,
upon the occurrence of an Event of Default, of its obligation to exercise the
rights and powers vested in it by this Trust Agreement;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Holders, but the Property
Trustee may make such further inquiry or investigation into such facts or
matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, PROVIDED that the Property Trustee shall be responsible for
its own negligence, bad faith or wilful misconduct with respect to selection of
any agent or attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (i) may request instructions from the Holders (which instructions may
only be given by the Holders of the same proportion in Liquidation Amount of the
Trust Securities as would be entitled to direct the Property Trustee under the
terms of the Trust
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Securities in respect of such remedy, right or action), (ii) may refrain from
enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in acting in accordance
with such instructions; and
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement.
No provision of this Trust Agreement shall be deemed to impose any duty
or obligation on any Issuer Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which it shall be unqualified or incompetent
in accordance with applicable law, to perform any such act or acts, or to
exercise any such right, power, duty or obligation. No permissive power or
authority available to any Issuer Trustee shall be construed to be a duty.
SECTION VIII.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Depositor and the Issuer Trust, and the
Issuer Trustees do not assume any responsibility for their correctness. The
Issuer Trustees shall not be accountable for the use or application by the
Depositor of the proceeds of the Debentures.
The Property Trustee may conclusively assume that any funds held by it
hereunder are legally available unless an officer of the Property Trustee
assigned to its Corporate Trust division shall have received written notice from
the Depositor, any Holder or any other Issuer Trustee that such funds are not
legally available.
SECTION VIII.5. MAY HOLD SECURITIES.
Any Issuer Trustee or any agent of any Issuer Trustee or the Issuer
Trust, in its individual or any other capacity, may become the owner or pledgee
of Trust Securities and, subject to Sections 8.8 and 8.13 and, except as
provided in the definition of the term "OUTSTANDING" in Article I, may otherwise
deal with the Issuer Trust with the same rights it would have if it were not an
Issuer Trustee or such agent.
SECTION VIII.6. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to each Issuer Trustee and Paying Agent from time to time
such reasonable compensation for all services rendered by it hereunder as may be
agreed by the Depositor and such Issuer Trustee or Paying Agent, as the case may
be, 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);
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(b) except as otherwise expressly provided herein, to reimburse each
Issuer Trustee and Paying Agent upon request for all reasonable expenses,
disbursements and advances incurred or made by it 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 own negligence, bad faith
or wilful misconduct; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Issuer Trustee (individually and as an Issuer Trustee),
(ii) each Paying Agent, (iii) any Affiliate of any Issuer Trustee (individually
and as an Issuer Trustee), (iv) any officer, director, shareholder, employee,
representative or agent of any Issuer Trustee (individually and as an Issuer
Trustee) and (v) any employee or agent of the Issuer Trust (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
Issuer Trust or any act or omission performed or omitted by such Indemnified
Person in good faith on behalf of the Issuer Trust and in a manner such
Indemnified Person believed in good faith 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.
(d) to the fullest extent permitted by applicable law, the parties
intend that Section 3561 of Title 12 of the Delaware Code shall not apply to the
Issuer Trust and that compensation payable to any Issuer Trustee pursuant to
this Section 8.6 not be subject to review by any court under Section 3560 of
Title 12 of the Delaware Code or otherwise.
The provisions of this Section 8.6 shall survive the termination of this
Trust Agreement and the resignation or removal of any Issuer Trustee.
No Issuer Trustee or Paying Agent may claim any Lien on any Trust
Property as a result of any amount due pursuant to this Section 8.6.
The Depositor, any Issuer Trustee (subject to Section 8.8(a)) and any
Paying Agent may engage in or possess an interest in other business ventures of
any nature or description, independently or with others, similar or dissimilar
to the business of the Issuer Trust, and the Issuer Trust and the Holders of
Trust Securities shall have no rights by virtue of this Trust Agreement in and
to such independent ventures or the income or profits derived therefrom, and the
pursuit of any such venture, even if competitive with the business of the Issuer
Trust, shall not be deemed wrongful or improper. Neither the Depositor, any
Paying Agent nor any Issuer Trustee shall be obligated to present any particular
investment or other opportunity to the Issuer Trust even if such opportunity is
of a character that, if presented to the Issuer Trust, could be taken by the
Issuer Trust, and the Depositor, any Issuer Trustee or any Paying Agent shall
have the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment or other
opportunity. Any Issuer Trustee or Paying Agent may engage or be interested in
any
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financial or other transaction with the Depositor or any Affiliate of the
Depositor, or may act as depository for, trustee or agent for, or act on any
committee or body of holders of, securities or other obligations of the
Depositor or its Affiliates.
SECTION VIII.7. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF
ISSUER TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
a national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such, and that has at the time of such appointment securities
rated in one of the three highest rating categories by a nationally recognized
statistical rating organization and a combined capital and surplus of at least
$50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this Section 8.7 and to the extent permitted
by the Trust Indenture Act, the combined capital and surplus of such Person
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Property Trustee
with respect to the Trust Securities shall cease to be eligible in accordance
with the provisions of this Section 8.7, it shall resign immediately in the
manner and with the effect hereinafter specified in this Article. At the time of
appointment, the Property Trustee must have securities rated in one of the three
highest rating categories by a nationally recognized statistical rating
organization.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee hereunder with
respect to the Trust Securities. The Delaware Trustee shall either be (i) a
natural person who is at least 21 years of age and a resident of the State of
Delaware, or (ii) a legal entity with its principal place of business in the
State of Delaware and that otherwise meets the requirements of applicable
Delaware law and that shall act through one or more persons authorized to bind
such entity.
SECTION VIII.8. CONFLICTING INTERESTS.
(a) If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
(b) The Guarantee Agreement and the Indenture shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
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SECTION VIII.9. CO-TRUSTEES AND SEPARATE TRUSTEE.
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, Depositor and the Administrative Trustees, by agreed
action of the majority of them shall have power to appoint, and upon the written
request of the Administrative Trustee and the Depositor shall for such purpose
join with the Administrative Trustees in the execution, delivery, and
performance of all instruments and agreements necessary or proper to appoint,
one or more Persons approved by the Property Trustee either to act as
co-trustee, jointly with the Property Trustee, of all or any part of such Trust
Property, or to the extent required by law to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section 8.9. Any co-trustee or separate
trustee appointed pursuant to this Section 8.9 shall either be (i) a natural
person who is at least 21 years of age and a resident of the United States, or
(ii) a legal entity with its principal place of business in the United States
that shall act through one or more persons authorized to bind such entity. If an
Event of Default under the Indenture shall have occurred and be continuing, the
Property Trustee alone shall have the power to make such appointment.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged and delivered
by the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(a) The Trust Securities shall be executed by one or more Administrative
Trustees, and the Trust Securities shall be delivered by the Property Trustee,
and all rights, powers, duties, and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or required to
be deposited or pledged with, the Property Trustee specified hereunder shall be
exercised solely by the Property Trustee and not by such co-trustee or separate
trustee.
(b) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
co-trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.
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(c) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may accept the
resignation of or remove any co-trustee or separate trustee appointed under this
Section 8.9, and, in case a Debenture Event of Default has occurred and is
continuing, the Property Trustee shall have power to accept the resignation of,
or remove, any such co-trustee or separate trustee without the concurrence of
the Depositor. Upon the written request of the Property Trustee, the Depositor
shall join with the Property Trustee in the execution, delivery and performance
of all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate trustee so
resigning or removed may be appointed in the manner provided in this Section
8.9.
(d) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any other
trustee hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be deemed
to have been delivered to each such co-trustee and separate trustee.
SECTION VIII.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
No resignation or removal of any Issuer Trustee (the "RELEVANT TRUSTEE")
and no appointment of a successor Issuer Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor Issuer
Trustee in accordance with the applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, the Relevant Trustee may
resign at any time by giving written notice thereof to the Holders. If the
instrument of acceptance by the successor Issuer Trustee required by Section
8.11 shall not have been delivered to the Relevant Trustee within 60 days after
the giving of such notice of resignation, the Relevant Trustee may petition, at
the expense of the Depositor, any court of competent jurisdiction for the
appointment of a successor Relevant Trustee.
Unless a Debenture Event of Default shall have occurred and be
continuing, any Issuer Trustee may be removed at any time by Act of the Holder
of the Common Securities. If a Debenture Event of Default shall have occurred
and be continuing, the Property Trustee or the Delaware Trustee, or both of
them, may be removed at such time by Act of the Holders of a Majority in
Liquidation Amount of the Capital Securities, delivered to the Relevant Trustee
(in its individual capacity and, in the case of the Property Trustee, on behalf
of the Issuer Trust). An Administrative Trustee may only be removed by the
Holder of the Common Securities and may be so removed at any time.
If any Issuer Trustee shall resign, be removed or become incapable of
acting as Issuer Trustee, or if a vacancy shall occur in the office of any
Issuer Trustee for any cause, at a time when
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no Debenture Event of Default shall have occurred and be continuing, the Holder
of the Common Securities, by Act delivered to the retiring Issuer Trustee, shall
promptly appoint a successor Issuer Trustee or Issuer Trustees, and such
successor Issuer Trustee shall comply with the applicable requirements of
Section 8.11. If the Property Trustee or the Delaware Trustee shall resign, be
removed or become incapable of continuing to act as the Property Trustee or the
Delaware Trustee, as the case may be, at a time when a Debenture Event of
Default shall have occurred and be continuing, the Holders of Capital
Securities, by Act of the Holders of a Majority in Liquidation Amount of the
Capital Securities delivered to the retiring Relevant Trustee, shall promptly
appoint a successor Relevant Trustee or Trustees, and such successor Issuer
Trustee shall comply with the applicable requirements of Section 8.11. If an
Administrative Trustee shall resign, be removed or become incapable of acting as
Administrative Trustee, at a time when a Debenture Event of Default shall have
occurred and be continuing, the Holder of the Common Securities by Act delivered
to the Administrative Trustee shall promptly appoint a successor Administrative
Trustee or Administrative Trustees and such successor Administrative Trustee or
Trustees shall comply with the applicable requirements of Section 8.11. If no
successor Relevant Trustee shall have been so appointed by the Holder of the
Common Securities or the Holders of a Majority in Liquidation Amount of the
Capital Securities, as the case may be, and accepted appointment in the manner
required by Section 8.11, any Holder who has been a Holder of Trust Securities
for at least six months may, on behalf of such Holder and all others similarly
situated, or any other Issuer Trustee, may petition any court of competent
jurisdiction for the appointment of a successor Relevant Trustee.
The Property Trustee shall give notice of each resignation and each
removal of an Issuer Trustee and each appointment of a successor Issuer Trustee
to all Holders in the manner provided in Section 10.8 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust Office if it is the Property
Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, if any Delaware Trustee who is a natural person dies or becomes, in
the opinion of the Depositor, incompetent or incapacitated, the vacancy created
by such death, incompetence or incapacity may be filled by (a) the unanimous act
of the remaining Administrative Trustees if there are at least two of them or
(b) otherwise by the Depositor (with the successor in either case being a Person
who satisfies the eligibility requirement for the Delaware Trustee set forth in
Section 8.7).
SECTION VIII.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
In case of the appointment hereunder of a successor Relevant Trustee,
the retiring Relevant Trustee and each successor Relevant Trustee with respect
to the Trust Securities shall execute and deliver an amendment hereto wherein
each successor Relevant Trustee shall accept such appointment and which (a)
shall contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Issuer Trust, and (b) shall add to or change any of the
provisions of this Trust Agreement as shall be necessary to provide for or
facilitate the administration of the Issuer Trust by more than one Relevant
Trustee, it being understood that nothing herein or in such amendment shall
constitute such Relevant Trustees co-
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trustees and upon the execution and delivery of such amendment the resignation
or removal of the retiring Relevant Trustee shall become effective to the extent
provided therein and each such successor Relevant Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Relevant Trustee; but, on request of the Issuer Trust
or any successor Relevant Trustee such retiring Relevant Trustee shall duly
assign, transfer and deliver to such successor Relevant Trustee all Trust
Property, all proceeds thereof and money held by such retiring Relevant Trustee
hereunder with respect to the Trust Securities and the Issuer Trust.
Upon request of any Issuer Trustee or any such successor Relevant
Trustee, the retiring Relevant Trustee or the Issuer Trust, as the case may be,
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Relevant Trustee all such rights, powers and
trusts referred to in the first or second preceding paragraph, as the case may
be.
No successor Relevant Trustee shall accept its appointment unless at the
time of such acceptance such successor Relevant Trustee shall be qualified and
eligible under this Article.
SECTION VIII.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any Person into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person, succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, PROVIDED that such Person shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.
SECTION VIII.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR
ISSUER TRUST.
If and when the Property Trustee shall be or become a creditor of the
Depositor or the Issuer Trust (or any other obligor upon the Capital
Securities), the Property Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of claims against the Depositor or
the Issuer Trust (or any such other obligor).
SECTION VIII.14. PROPERTY TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Issuer Trust or any other obligor upon the Trust
Securities or the property of the Issuer Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Trust Securities shall then be due and payable and irrespective of whether
the Property Trustee shall have made any demand on the Issuer Trust for the
payment of any past due Distributions) shall be entitled and empowered, to the
fullest extent permitted by law, by intervention in such proceeding or
otherwise:
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(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement adjustment or compensation affecting the
Trust Securities or the rights of any Holder thereof or to authorize the
Property Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION VIII.15. REPORTS BY PROPERTY TRUSTEE.
(a) Not later than 60 days following December 31 of each year commencing
with December 31, 1999 the Property Trustee shall transmit to all Holders in
accordance with Section 10.8, and to the Depositor, a brief report dated as of
the immediately preceding December 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to
the best of its knowledge it has continued to be eligible under said
Section, a written statement to such effect;
(ii) a statement that the Property Trustee has complied with all
of its obligations under this Trust Agreement during the twelve-month
period (or, in the case of the initial report, the period since the
Closing Date) ending with such December 31 or, if the Property Trustee
has not complied in any material respect with such obligations, a
description of such noncompliance; and
(iii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken
by the Property Trustee in the performance of its duties hereunder which
it has not previously reported and which in its opinion materially
affects the Trust Securities.
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(b) In addition the Property Trustee shall transmit to Holders such
reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with each national stock exchange,
the Nasdaq National Market or such other interdealer quotation system or
self-regulatory organization upon which the Trust Securities are listed or
traded, with the Commission and with the Depositor.
SECTION VIII.16. REPORTS TO THE PROPERTY TRUSTEE.
Each of the Depositor and the Administrative Trustees on behalf of the
Issuer Trust shall provide to the Property Trustee such documents, reports and
information as required by Section 314 of the Trust Indenture Act (if any) and
the compliance certificate required by Section 314(a) of the Trust Indenture Act
in the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act. The Depositor and the Administrative Trustees on behalf of the
Issuer Trust shall annually file with the Property Trustee a certificate
specifying whether such Person is in compliance with all of the terms and
covenants applicable to such Person hereunder.
SECTION VIII.17. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of the
Issuer Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Trust Agreement that
relate to any of the matters set forth in Section 314(c) of the Trust Indenture
Act. Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
SECTION VIII.18. NUMBER OF ISSUER TRUSTEES.
(a) The number of Issuer Trustees shall be four, PROVIDED that the
Property Trustee and the Delaware Trustee may be the same Person.
(b) If an Issuer Trustee ceases to hold office for any reason, a vacancy
shall occur. The vacancy shall be filled with an Issuer Trustee appointed in
accordance with Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of an Issuer Trustee shall not
operate to annul, dissolve or terminate the Issuer Trust.
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SECTION VIII.19. DELEGATION OF POWER.
(a) Any Administrative Trustee, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 such
Administrative Trustee's power for the purpose of executing any documents
contemplated in Section 2.7(a), including any registration statement or
amendment thereto filed with the Commission, or making any other governmental
filing; and
(b) The Administrative Trustees shall have power to delegate from time
to time to such of their number or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Issuer Trust or the
names of the Administrative Trustees or otherwise as the Administrative Trustees
may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of this Trust Agreement.
SECTION VIII.20. APPOINTMENT OF ADMINISTRATIVE TRUSTEES.
(a) The Administrative Trustees shall initially be _____________and
____________, and their successors shall be appointed by the Holder of all the
Common Securities. The Administrative Trustees may resign or be removed by the
Holder of all the Common Securities at any time. Upon any resignation or removal
of an Administrative Trustee, the Depositor shall appoint a successor
Administrative Trustee. If at any time there is no Administrative Trustee, the
Property Trustee or any Holder who has been a Holder of Trust Securities for at
least six months may petition any court of competent jurisdiction for the
appointment of one or more Administrative Trustees.
(b) Whenever a vacancy in the number of Administrative Trustees shall
occur, until such vacancy is filled by the appointment of an Administrative
Trustee in accordance with this Section 8.20, the Administrative Trustees in
office, regardless of their number (and notwithstanding any other provision of
this Agreement), shall have all the powers granted to the Administrative
Trustees and shall discharge all the duties imposed upon the Administrative
Trustees by this Trust Agreement.
(c) Notwithstanding the foregoing or any other provision of this Trust
Agreement, if any Administrative Trustee who is a natural person dies or
becomes, in the opinion of the Holder of all the Common Securities, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by the unanimous act of the remaining Administrative Trustees, if
there were at least two of them prior to such vacancy, and by the Depositor, if
there were not two such Administrative Trustees immediately prior to such
vacancy (with the successor being a Person who satisfies the eligibility
requirement for Administrative Trustees set forth in Section 8.7).
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ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION IX.1. DISSOLUTION UPON EXPIRATION DATE.
Unless earlier dissolved, the Issuer Trust shall automatically dissolve
on _________, 2049 (the "EXPIRATION DATE"), and shall thereafter be terminated
by filing a Certificate of Cancellation with the Secretary of State of the State
of Delaware, following the distribution of the Trust Property in accordance with
Section 9.4.
SECTION IX.2. EARLY DISSOLUTION.
The first to occur of any of the following events is an "EARLY
TERMINATION EVENT" upon the occurrence of which the Trust shall be dissolved:
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Holder of all the Common Securities;
(b) the written direction to the Property Trustee from the Holder of all
the Common Securities at any time to dissolve the Issuer Trust and to distribute
the Debentures to Holders in exchange for the Capital Securities (which
direction is optional and wholly within the discretion of the Holder of all the
Common Securities);
(c) the redemption of all of the Capital Securities in connection with
the redemption of all the Debentures; and
(d) the entry of an order for dissolution of the Issuer Trust by a court
of competent jurisdiction.
SECTION IX.3. TERMINATION.
The respective obligations and responsibilities of the Issuer Trustees
and the Issuer Trust created and continued hereby shall terminate upon the
latest to occur of the following: (a) the distribution by the Property Trustee
to Holders of all amounts required to be distributed hereunder upon the
liquidation of the Issuer Trust pursuant to Section 9.4, or upon the redemption
of all of the Trust Securities pursuant to Section 4.2; (b) the payment of any
expenses owed by the Issuer Trust; and (c) the discharge of all administrative
duties of the Administrative Trustees, including the performance of any tax
reporting obligations with respect to the Issuer Trust or the Holders and (d)
the filing with the Secretary of State of the State of Delaware of a certificate
of cancellation for the Issuer Trust upon the completion of winding up following
the dissolution of the Issuer Trust.
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SECTION IX.4. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b) or (d) of
Section 9.2 occurs or upon the Expiration Date, the Issuer Trust shall be
liquidated by the Issuer Trustees as expeditiously as the Issuer Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by Section 3808(e) of the Delaware
Business Trust Act and any other applicable law, to each Holder a Like Amount of
Debentures, subject to Section 9.4(d). Notice of liquidation shall be given by
the Property Trustee by first-class mail, postage prepaid mailed not less than
30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust
Securities at such Holder's address appearing in the Securities Register. All
such notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for Debentures,
or if Section 9.4(d) applies receive a Liquidation Distribution, as the
Property Trustee and the Administrative Trustees shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect
the liquidation of the Issuer Trust and distribution of the Debentures to
Holders, the Property Trustee, either itself acting as exchange agent or through
the appointment of a separate exchange agent, shall establish a record date for
such distribution (which shall be not more than 45 days prior to the Liquidation
Date) and establish such procedures as it shall deem appropriate to effect the
distribution of Debentures in exchange for the Outstanding Trust Securities
Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation
Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii)
certificates representing a Like Amount of Debentures will be issued to Holders
of Trust Securities Certificates, upon surrender of such Trust Securities
Certificates to the exchange agent for exchange, (iii) any Trust Securities
Certificates not so surrendered for exchange will be deemed to represent a Like
Amount of Debentures bearing accrued and unpaid interest in an amount equal to
the accumulated and unpaid Distributions on such Trust Securities Certificates
until such certificates are so surrendered (and until such certificates are so
surrendered, no payments of interest or principal will be made to Holders of
Trust Securities Certificates with respect to such Debentures), and (iv) all
rights of Holders holding Trust Securities will cease, except the right of such
Holders to receive Debentures upon surrender of Trust Securities Certificates.
(d) If, upon dissolution of the Trust, notwithstanding the other
provisions of this Section 9.4, whether because of an order for dissolution
entered by a court of competent jurisdiction or otherwise,
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distribution of the Debentures in the manner provided herein is determined by
the Property Trustee not to be practical, or if an Early Termination Event
specified in clause (c) of Section 9.2 occurs, the Trust Property shall be
liquidated by the Property Trustee in such manner as the Property Trustee
determines. In such event, in connection with the winding-up of the Issuer
Trust, Holders will be entitled to receive out of the assets of the Issuer Trust
available for distribution to Holders, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by Section 3808(e) of the Delaware
Business Trust Act and other applicable law, an amount equal to the Liquidation
Amount per Trust Security plus accumulated and unpaid Distributions thereon to
the date of payment (such amount being the "LIQUIDATION DISTRIBUTION"). If, upon
any such winding up, the Liquidation Distribution can be paid only in part
because the Issuer Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Issuer Trust on the Trust Securities shall
be paid on a PRO RATA basis (based upon Liquidation Amounts). The Holder of all
the Common Securities will be entitled to receive Liquidation Distributions upon
any such winding-up PRO RATA (determined as aforesaid) with Holders of Capital
Securities, except that, if a Debenture Event of Default specified in Section
5.1(1) or 5.1(2) of the Indenture has occurred and is continuing, the Capital
Securities shall have a priority over the Common Securities as provided in
Section 4.3.
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SECTION IX.5. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF
ISSUER TRUST.
The Issuer 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 corporation or other body, except pursuant
to this Section 9.5. At the request of the Holder of all the Common Securities,
with the consent of the Administrative Trustees, but without the consent of the
Holders of the Outstanding Capital Securities, the Property Trustee and the
Delaware Trustee, the Issuer Trust may 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; PROVIDED, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Issuer 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
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 that then assigns a rating to the Capital
Securities, (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 Issuer Trust, (vi) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Depositor has received an Opinion of Counsel 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 Issuer Trust nor such successor
entity will be required to register as an "investment company" under the
Investment Company Act, and (vii) the Depositor or its permitted transferee 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 Agreement. Notwithstanding the foregoing,
the Issuer Trust shall not, except with the consent of holders of all 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
Issuer Trust or the successor entity to be taxable as a corporation or
classified as other than a grantor trust for United States Federal income tax
purposes.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION X.1. LIMITATION OF RIGHTS OF HOLDERS.
Except as set forth in Section 9.2, the death, incapacity, dissolution,
termination or bankruptcy of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to annul, dissolve or terminate
this Trust Agreement, nor entitle the legal representatives, successors or heirs
of such Person or any Holder for such person, to claim an accounting, take any
action or bring any proceeding in any court for a partition or winding up of the
arrangements contemplated hereby, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them.
SECTION X.2. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the
Property Trustee, the Administrative Trustees and the Holder of the Common
Securities, without the consent of the Delaware Trustee or any Holder of the
Capital Securities, (i) to cure any ambiguity, correct or supplement any
provision herein that may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Trust Agreement, which shall not be inconsistent with the other provisions
of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions
of this Trust Agreement to such extent as shall be necessary to ensure that the
Issuer Trust will not be taxable as a corporation or will be classified as a
grantor trust for United States Federal income tax purposes at all times that
any Trust Securities are Outstanding or to ensure that the Issuer Trust will not
be required to register as an "investment company" under the Investment Company
Act; PROVIDED, HOWEVER, that in either case (i) or (ii) such action shall not
adversely affect in any material respect the interests of the Delaware Trustee
or any Holder.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Property Trustee, the Administrative
Trustees and the Holder of the Common Securities, without the consent of the
Delaware Trustee, and with (i) the consent of Holders of at least a Majority in
Liquidation Amount of the Capital Securities, and (ii) receipt by the Issuer
Trustees of an Opinion of Counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not cause the Issuer Trust to be taxable as a corporation or as
other than a grantor trust for United States Federal income tax purposes or
affect the Issuer Trust's exemption from status as an "INVESTMENT COMPANY" under
the Investment Company Act; provided, however, that such action shall not
adversely affect in any material respect the interests of the Delaware Trustee.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Holder, this 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
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date, or (ii) restrict the right of a Holder to institute suit for the
enforcement of any such payment on or after such date; and notwithstanding any
other provision herein, without the unanimous consent of the Holders, this
paragraph (c) of this Section 10.2 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Issuer Trustee shall enter into or consent to any amendment to this Trust
Agreement that would cause the Issuer Trust to fail or cease to qualify for the
exemption from status as an "investment company" under the Investment Company
Act or to be taxable as a corporation or to be classified as other than a
grantor trust for United States Federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
(i) without the consent of the Depositor and the Administrative Trustees, this
Trust Agreement may not be amended in a manner that imposes any additional
obligation on the Depositor or the Administrative Trustees, and (ii) without the
consent of the Delaware Trustee, this Trust Agreement may not be amended in a
manner that imposes any additional obligation on the Delaware Trustee.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrative Trustees or the Property Trustee shall promptly provide to the
Depositor and the Delaware Trustee a copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement that affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee and the Delaware Trustee shall be entitled to receive an Opinion of
Counsel and an Officers' Certificate stating that any amendment to this Trust
Agreement is in compliance with this Trust Agreement.
SECTION X.3. SEPARABILITY.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION X.4. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
HOLDERS, THE ISSUER TRUST, THE DEPOSITOR AND THE ISSUER TRUSTEES WITH RESPECT TO
THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS. THE PROVISIONS OF SECTION 3540 OF TITLE 12 OF THE
DELAWARE CODE SHALL NOT APPLY TO THIS TRUST.
To the fullest extent permitted by Delaware law, there shall not be
applicable to the Issuer Trust, the Issuer Trustees or this Trust Agreement any
provisions of law (whether statutory or common) of the State of Delaware
pertaining to trusts (other than the Delaware Business Trust Act)
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that relate to or regulate in a manner inconsistent with the terms hereof (a)
the filing with any court or governmental body or agent of trustee accounts or
schedules of trustee fees and charges, (b) affirmative requirements to post
bonds for trustees, officers, agents or employees of a trust, (c) the
acquisition, holding or disposition of any property, (d) the allocation of
receipts and expenditures between income and principal, (e) restrictions or
limitation on the permissible nature, amount or concentration of trust
investment or requirements relating to the titling, storage or other manner of
holding or investing trust assets, or (f) the establishment of fiduciary or
other standards of responsibility or limitations on the acts or powers of
trustees that are inconsistent (whether more or less restrictive) with this
provision.
SECTION X.5. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day that is a Business Day (except as
otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and
effect as though made on the date fixed for such payment, and no Distributions
shall accumulate on such unpaid amount for the period after such date.
SECTION X.6. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Issuer Trust and any Issuer
Trustee, including any successor by operation of law. Except in connection with
a consolidation, merger or sale involving the Depositor that is permitted under
Article VIII of the Indenture and pursuant to which the assignee agrees in
writing to perform the Depositor's obligations hereunder, the Depositor shall
not assign its obligations hereunder.
SECTION X.7. HEADINGS.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
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<PAGE>
SECTION X.8. REPORTS, NOTICES AND DEMANDS.
(a) Any report, notice, demand or other communication that by any
provision of this Trust Agreement is required or permitted to be given or served
to or upon any Holder or the Depositor may be given or served in writing by
deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
a Holder of Capital Securities, to such Holder as such Holder's name and address
may appear on the Securities Register; and (b) in the case of the Holder of the
Common Securities or the Depositor, to Southern States Cooperative,
Incorporated., 6606 West Broad Street, Richmond, Virginia 23260, Attention:
Chief Financial Officer, Facsimile no.: (804 ) 281-1650, or to such other
address as may be specified in a written notice by the Holder of the Common
Securities or the Depositor, as the case may be, to the Property Trustee. Such
notice, demand or other communication to or upon a Holder shall be deemed to
have been sufficiently given or made, for all purposes, upon hand delivery,
mailing or transmission. Such notice, demand or other communication to or upon
the Depositor shall be deemed to have been sufficiently given or made only upon
actual receipt of the writing by the Depositor.
(b) Any notice, demand or other communication that by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Issuer Trust or any Issuer Trustee may be given or served in writing by
deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
the Property Trustee to First Union National Bank, 800 East Main Street, Lower
Mezzanine, Richmond, Virginia 23219, Attention: Corporate Trust Group; (b) with
respect to the Delaware Trustee, to First Union Trust Company, National
Association, One Rodney Square, 920 King Street, 1st Floor, Wilmington, Delaware
19801, Attention: Corporate Trust Administration; (c) in the case of the
Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention: Administrative Trustees of Southern States Capital
Trust I"; and (d) in the case of the Issuer Trust, to its principal executive
office specified in Section 2.2, with a copy to each of the Property Trustee,
the Delaware Trustee and the Administrative Trustees, or, in each such case, to
such other address as may be specified in a written notice by the applicable
Person to the Property Trustee, the Depositor and the Holders. Such notice,
demand or other communication to or upon the Property Trustee, the Delaware
Trustee, the Administrative Trustees or the Issuer Trust shall be deemed to have
been sufficiently given or made only upon actual receipt of the writing by the
Property Trustee, the Delaware Trustee, such Administrative Trustees or the
Issuer Trust, as the case may be.
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<PAGE>
SECTION X.9. AGREEMENT NOT TO PETITION.
Each of the Issuer Trustees and the Depositor agree for the benefit of
the Holders that, until at least one year and one day after the Issuer Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Issuer Trust under any bankruptcy,
insolvency, reorganization or other similar law (including the United States
Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in the
commencement of any proceeding against the Issuer Trust under any Bankruptcy
Law. The Property Trustee and the Depositor agree, for the benefit of Holders,
that if the Depositor or any Issuer Trustee takes action in violation of this
Section 10.9, then at the expense of the Depositor, the Property Trustee or
Depositor, as the case may be, shall file an answer with the bankruptcy court or
otherwise properly contest the filing of such petition by the Depositor against
the Issuer Trust or the commencement of such action and raise the defense that
the Depositor has agreed in writing not to take such action and should be
estopped and precluded therefrom and such other defenses, if any, as counsel for
the Issuer Trustees or the Issuer Trust may assert.
SECTION X.10. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions of the Trust Indenture
Act.
(b) The Property Trustee shall be the only Issuer Trustee that is a
trustee for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act
through operation of Section 318(c) thereof, such imposed duties shall control.
If any provision of this Trust Agreement modifies or excludes any provision of
the Trust Indenture Act which may be so modified or excluded, the latter
provision shall be deemed to apply to this Trust Agreement as so modified or
excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Issuer Trust.
SECTION X.11. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE
AGREEMENT AND INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR
FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE
BY THE HOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY
OF ALL THE TERMS AND
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<PAGE>
PROVISIONS OF THIS TRUST AGREEMENT, THE GUARANTEE AGREEMENT AND THE INDENTURE,
AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE
AGREEMENT AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE ISSUER
TRUST, SUCH HOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE ISSUER TRUST
AND SUCH HOLDER AND SUCH OTHERS.
SECTION X.12. 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 X.13. COUNTERPARTS.
This Trust Agreement may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Trust Agreement as of the day and year first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED, as Depositor
By:
---------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
as Property Trustee
By:
---------------------------------
Name:
Title:
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION
as Delaware Trustee
By:
---------------------------------
Name:
Title:
---------------------------------
Name: Wayne A. Boutwell
as Administrative Trustee
---------------------------------
Name: Jonathan A. Hawkins
as Administrative Trustee
<PAGE>
Exhibit A
CERTIFICATE OF TRUST
OF SOUTHERN STATES CAPITAL TRUST I
THIS Certificate of Trust of Southern States Capital Trust I (the
"Trust"), dated ________, 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 ________, 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:
---------------------------------
Name:
Title:
A-1
<PAGE>
Exhibit B
[CERTIFICATE DEPOSITORY AGREEMENT]
The Depository Trust Company
55 Water Street, 49th Floor,
New York, New York 10041-0099.
Attention: General Counsel's Office
Re: Southern States Capital Trust I
____% Capital Securities, Series A
CUSIP No.
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters
relating to the issuance and deposit with The Depository Trust Company ("DTC")
of the book-entry-only portion of the ___% Capital Securities, Series A (the
"Capital Securities") of Southern States Capital Trust I, a statutory business
trust formed under the laws of the State of Delaware (the "Issuer"), governed by
the Amended and Restated Trust Agreement, dated as of ___________, 1999 (the
"Amended and Restated Trust Agreement"), between Southern States Cooperative,
Incorporated (the "Corporation"), as Depositor, First Union National Bank, as
Property Trustee, First Union Trust Company, National Association, as Delaware
Trustee, and the Administrative Trustees named therein. The payment of
distributions on the Capital Securities and payments due upon liquidation of the
Issuer or redemption of the Capital Securities, to the extent the Issuer has
funds available for the payment thereof, are guaranteed by the Corporation to
the extent set forth in a Guarantee Agreement, dated as of ___________, 1999,
between the Corporation and First Union National Bank, as Guarantee Trustee with
respect to the Capital Securities. The Corporation and the Issuer propose to
sell the Capital Securities to the Underwriters (the "Underwriters") pursuant to
an Underwriting Agreement, dated as of _____________, 1999, by and among the
Underwriters, the Issuer and the Corporation, and the Underwriters wish to take
delivery of the Capital Securities through DTC. First Union National Bank is
acting as transfer agent and registrar with respect to the Capital Securities
(the "Transfer Agent and Registrar").
To induce DTC to accept the Capital Securities as eligible for
deposit at DTC, and to act in accordance with DTC's rules with respect to the
Capital Securities, the Issuer and the Transfer Agent and Registrar make the
following representations to DTC:
1. Prior to the closing of the sale of the Capital Securities to
the Underwriters on ____________, 1999, there shall be deposited with, or held
by the Transfer Agent and Registrar as custodian for, DTC one or more global
certificates (individually and collectively, the "Global
<PAGE>
Certificate") registered in the name of DTC's nominee, Cede & Co., representing
an aggregate of _________ Capital Securities and bearing the following legend:
Unless this Capital Security Certificate is presented by an
authorized representative of The Depository Trust Company, a New York
corporation ("DTC"), to Southern States Capital Trust I or its agent for
registration of transfer, exchange, or payment, and any Capital Security
Certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
2. The Amended and Restated Trust Agreement of the Issuer
provides for the voting by holders (with no provision for revocation of consents
or votes by subsequent holders) of the Capital Securities under certain limited
circumstances. The Issuer shall establish a record date for such purposes and
shall, to the extent possible, give DTC notice of such record date not less than
15 calendar days in advance of such record date.
3. In the event of a stock split, conversion, recapitalization,
reorganization or any other similar transactions resulting in the cancellation
of all or any part of the Capital Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall sent DTC a notice of such event as soon as
possible but, at least 5 business days prior to the effective date of such
event.
4. In the event of any distribution on, or an offering or
issuance of rights with respect to, the Capital Securities outstanding, the
Issuer or the Transfer Agent and Registrar shall send DTC a notice specifying:
(a) the amount of and conditions, if any, applicable to the payment of any such
distribution or any such offering or issuance of rights; (b) any applicable
expiration or deadline date, or any date by which any action on the part of the
holders of Capital Securities is required; and (c) the date any required notice
is to be mailed by or on behalf of the Issuer to holders of Capital Securities
or published by or on behalf of the Issuer (whether by mail or publication, the
"Publication Date"). Such notice shall be sent to DTC by a secure means (e.g.,
legible telecopy, registered or certified mail, overnight delivery) in a timely
manner designed to assure that such notice is in DTC's possession no later than
the close of business on the business day before the Publication Date. The
Issuer or the Transfer Agent and Registrar will forward such notice either in a
separate secure transmission for each CUSIP number or in a secure transmission
of multiple CUSIP numbers (if applicable) that includes a manifest or list of
each CUSIP number submitted in that transmission. (The party sending such notice
shall have a method to verify subsequently the use of such means and the
timeliness of such notice.) The Publication Date shall be not less than 30
calendar days nor more than 60 calendar days prior to the payment of any such
distribution or any such offering or issuance of rights with respect to the
Capital Securities. After establishing the amount of payment to be made on the
Capital Securities, the Issuer or the Transfer Agent and Registrar will notify
DTC's Dividend Department of such payment 5 business days prior to payment
B-2
<PAGE>
date. Notices to DTC's Dividend Department by telecopy shall be sent to (212)
709-1723. Such notices by mail or by any other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
The Issuer or the Transfer Agent and Registrar shall confirm
DTC's receipt of such telecopy by telephoning the Dividend Department at (212)
709-1270.
5. In the event of a redemption by the Issuer of the Capital
Securities, notice specifying the terms of the redemption and the Publication
Date of such notices shall be sent by the Issuer or the Transfer Agent and
Registrar to DTC not less than 30 calendar days prior to such event by a secure
means in the manner set forth in paragraph 4. Such redemption notice shall be
sent to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190,
and receipt of such notice shall be confirmed by telephoning (516) 227-4070.
Notice by mail or by any other means shall be sent to:
Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4179
6. In the event of any invitation to tender the Capital
Securities, notice specifying the terms of the tender and the Publication Date
of such notice shall be sent by the Issuer or the Transfer Agent and Registrar
to DTC by a secure means and in a timely manner as described in paragraph 4.
Notices to DTC pursuant to this paragraph and notices of other corporate actions
(including mandatory tenders, exchanges and capital changes), shall be sent,
unless notification to another department is expressly provided for herein, by
telecopy to DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094
and receipt of such notice shall be confirmed by telephoning (212) 709-6884), or
by mail or any other means to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
7. All notices and payment advices sent to DTC shall contain the
CUSIP number or numbers of the Capital Securities and the accompanying
designation of the Capital Securities, which, as of the date of this letter, is
"Southern States Capital Trust I, ___% Capital Securities".
B-3
<PAGE>
8. Distribution payments or other cash payments with respect to
the Capital Securities shall be governed by DTC's current Principal and Income
Payments Rider, a copy of which is attached hereto as Annex I. For purposes of
this letter, the term "Agent" used in Annex I shall be deemed to refer to First
Union National Bank or any successor Property Trustee under the Amended and
Restated Trust Agreement.
9. DTC may direct the Issuer and the Transfer Agent and Registrar
to use any other telecopy number or address of DTC as the number or address to
which notices or payments may be sent.
10. In the event of a conversion, redemption, or any other
similar transaction (e.g., tender made and accepted in response to the Issuer's
or the Transfer Agent and Registrar's invitation) necessitating a reduction in
the aggregate number of Capital Securities outstanding evidenced by the Global
Certificate, DTC, in its discretion: (a) may request the Issuer or the Transfer
Agent and Registrar to issue and countersign a new Global Certificate; or (b)
may make an appropriate notation on the Global Certificate indicating the date
and amount of such reduction.
11. DTC may discontinue its services as a securities depositary
with respect to the Capital Securities at any time by giving reasonable prior
written notice to the Issuer and the Transfer Agent and Registrar (at which time
DTC will confirm with the Issuer or the Transfer Agent and Registrar the
aggregate number of Capital Securities deposited with it) and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Issuer may determine to make alternative arrangements for
book-entry settlement for the Capital Securities, make available one or more
separate global certificates evidencing Capital Securities to any Participant
having Capital Securities credited to its DTC account, or issue definitive
Capital Securities to the beneficial holders thereof, and in any such case, DTC
agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar
and to return the Global Certificate, duly endorsed for transfer as directed by
the Issuer or the Transfer Agent and Registrar, together with any other
documents of transfer reasonably requested by the Issuer or the Transfer Agent
and Registrar.
12. In the event that the Issuer determines that beneficial
owners of Capital Securities shall be able to obtain definitive Capital
Securities, the Issuer or the Transfer Agent and Registrar shall notify DTC of
the availability of certificates. In such event, the Issuer or the Transfer
Agent and Registrar shall issue, transfer and exchange certificates in
appropriate amounts, as required by DTC and others, and DTC agrees to cooperate
fully with the Issuer and the Transfer Agent and Registrar and to return the
Global Securities, duly endorsed for transfer as directed by the Issuer or the
Transfer Agent and Registrar, together with any other documents of transfer
reasonably requested by the Issuer or the Transfer Agent and Registrar.
13. This letter may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
B-4
<PAGE>
Nothing herein shall be deemed to require the Transfer Agent and
Registrar to advance funds on behalf of Southern States Capital Trust I.
Very truly yours,
SOUTHERN STATES CAPITAL TRUST I
(As Issuer)
By_________________________________
(Administrative Trustee)
FIRST UNION NATIONAL BANK
(As Transfer Agent and Registrar)
By__________________________________
Name:
Title:
RECEIVED AND ACCEPTED:
THE DEPOSITORY TRUST COMPANY
By_________________________________
Authorized Officer
B-5
<PAGE>
Exhibit C
[Form of Common Securities Certificate]
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN
AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF
THE TRUST AGREEMENT.
CERTIFICATE NUMBER AGGREGATE LIQUIDATION AMOUNT
C-__ $________
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
SOUTHERN STATES CAPITAL TRUST I
___% COMMON SECURITIES
(LIQUIDATION AMOUNT $25 PER COMMON SECURITY)
Southern States Capital Trust I, a statutory business trust created
under the laws of the State of Delaware (the "Issuer Trust"), hereby certifies
that [NAME OF HOLDER] (the "Holder") is the registered owner of __________
(____) common securities (aggregate Liquidation Amount ______________________
($__________) of the Issuer Trust representing common undivided beneficial
interests in the assets of the Issuer Trust and designated the ___% Common
Securities (liquidation amount $25 per Common Security) (the "Common
Securities"). Except in accordance with Section 5.11 of the Trust Agreement (as
defined below) the Common Securities are not transferable and any attempted
transfer hereof other than in accordance therewith shall be void. The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities are set forth in, and this certificate and
the Common Securities represented hereby are issued and shall in all respects be
subject to the terms and provisions of, the Amended and Restated Trust Agreement
of the Issuer Trust, dated as of ________, 1999, as the same may be amended from
time to time (the "Trust Agreement"), among Southern States Cooperative,
Incorporated, an agricultural cooperative corporation organized under the laws
of Virginia, as Depositor, First Union National Bank, as Property Trustee, First
Union Trust Company, National Association, as Delaware Trustee, and the
Administrative Trustees named therein, including the designation of the terms of
the Common Securities as set forth therein. The Issuer Trust will furnish a copy
of the Trust Agreement to the Holder without charge upon written request to the
Issuer Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
Terms used but not defined herein have the meanings set forth in the
Trust Agreement.
<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees of the Issuer
Trust has executed this certificate this _____ day of _______, 1999.
SOUTHERN STATES CAPITAL TRUST I
By:_________________________________
Name:
ADMINISTRATIVE TRUSTEE
C-2
<PAGE>
Exhibit D
[Form of Expense Agreement]
AGREEMENT AS TO EXPENSES AND LIABILITIES, dated as of ________, 1999 (as
modified, amended or supplemented, this "AGREEMENT"), between Southern States
Cooperative, Incorporated, an agricultural cooperative corporation organized
under the laws of Virginia (the "Corporation"), and Southern States Capital
Trust I, a Delaware business trust (the "ISSUER TRUST").
WHEREAS, the Issuer Trust intends to issue its Common Securities (the
"COMMON SECURITIES") to and acquire the Debentures from the Corporation, and to
issue and sell _____% Capital Securities, Series A (the "CAPITAL SECURITIES")
with such powers, preferences and special rights and restrictions as are set
forth in the Amended and Restated Trust Agreement of the Issuer Trust, dated as
of _________, 1999, among the Corporation, as Depositor, First Union National
Bank, as Property Trustee, First Union Trust Company, National Association, as
Delaware Trustee, and the Administrative Trustees named therein, as the same may
be amended from time to time (the "TRUST AGREEMENT"); and
WHEREAS, the Corporation will own all of the Common Securities of the
Issuer Trust and will issue the Debentures; and
WHEREAS, capitalized terms used but not defined herein have the meanings
set forth in the Trust Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Corporation and the Issuer
Trust hereby agree as follows:
ARTICLE I
SECTION 1.1. GUARANTEE BY CORPORATION. Subject to the terms and
conditions hereof, the Corporation hereby irrevocably and unconditionally
guarantees to each person or entity to whom the Issuer Trust is now or hereafter
becomes indebted or liable (the "BENEFICIARIES") the full payment, when and as
due, of any and all Obligations (as hereinafter defined) to such Beneficiaries.
As used herein, "OBLIGATIONS" means any costs, expenses or liabilities of the
Issuer Trust, other than obligations of the Issuer Trust to pay to holders of
any Trust Securities the amounts due such holders pursuant to the terms of the
Trust Securities. This Agreement is intended to be for the benefit of, and to be
enforceable by, all such Beneficiaries, whether or not such Beneficiaries have
received notice hereof.
SECTION 1.2. SUBORDINATION OF GUARANTEE. The guarantee and other
liabilities and obligations of the Corporation under this Agreement shall
constitute unsecured obligations of the Corporation and shall rank subordinate
and junior in right of payment to all Senior Indebtedness (as defined in the
Indenture) of the Corporation to the extent and in the manner set forth in the
Indenture with respect to the Debentures, and the provisions of Article XIII of
the Indenture will apply, MUTATIS
<PAGE>
MUTANDIS, to the obligations of the Corporation hereunder. The obligations of
the Corporation hereunder do not constitute Senior Indebtedness (as defined in
the Indenture) of the Corporation.
SECTION 1.3. TERM OF AGREEMENT. This Agreement shall terminate and be of
no further force and effect upon the dissolution of the Issuer Trust; PROVIDED,
HOWEVER, that this Agreement shall continue to be effective or shall be
reinstated, as the case may be, if at any time any holder of Capital Securities
or any Beneficiary must restore payment of any sums paid under the Capital
Securities, under any Obligation, under the Guarantee Agreement dated the date
hereof by the Corporation, as guarantor, and First Union National Bank, as
guarantee trustee, or under this Agreement for any reason whatsoever. This
Agreement is continuing, irrevocable, unconditional and absolute.
SECTION 1.4. WAIVER OF NOTICE. The Corporation hereby waives notice of
acceptance of this Agreement and of any Obligation to which it applies or may
apply, and the Corporation hereby waives presentment, demand for payment,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
SECTION 1.5. NO IMPAIRMENT. The obligations, covenants, agreements and
duties of the Corporation under this Agreement shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the extension of time for the payment by the Issuer Trust of
all or any portion of the Obligations or for the performance of any
other obligation under, arising out of, or in connection with, the
Obligations;
(b) any failure, omission, delay or lack of diligence on the part
of the Beneficiaries to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Beneficiaries with respect
to the Obligations or any action on the part of the Issuer Trust
granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale
of any collateral, receivership, insolvency, bankruptcy, assignment for
the benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the
Issuer Trust or any of the assets of the Issuer Trust (other than the
dissolution of the Issuer Trust in accordance with the terms thereof).
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, the Corporation with respect to the happening of any of the
foregoing.
SECTION 1.6. ENFORCEMENT. A Beneficiary may enforce this Agreement
directly against the Corporation and the Corporation waives any right or remedy
to require that any action be brought against the Issuer Trust or any other
person or entity before proceeding against the Corporation.
SECTION 1.7. SUBROGATION. The Corporation shall be subrogated to all
rights (if any) of any Beneficiary against the Issuer Trust in respect of any
amounts paid to the Beneficiaries by the
D-2
<PAGE>
Corporation under this Agreement; PROVIDED, HOWEVER, that the Corporation shall
not (except to the extent required by mandatory provisions of law) be entitled
to enforce or exercise any rights that it may acquire by way of subrogation or
any indemnity, reimbursement or other agreement, in all cases as a result of
payment under this Agreement, if, at the time of any such payment, any amounts
are due and unpaid under this Agreement.
ARTICLE II
SECTION 2.1. ASSIGNMENT. This Agreement may not be assigned by either
party hereto without the consent of the other, and any purported assignment
without such consent shall be void.
SECTION 2.2. BINDING EFFECT. All guarantees and agreements contained in
this Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Corporation and shall inure to the benefit of the
Beneficiaries.
SECTION 2.3. AMENDMENT. So long as there remains any Beneficiary or any
Capital Securities are Outstanding, this Agreement shall not be modified or
amended in any manner adverse to such Beneficiary or to the Holders of the
Capital Securities without the consent of such Beneficiary or the Holders of the
Capital Securities, as the case may be.
SECTION 2.4. NOTICES. Any notice, request or other communication
required or permitted to be given hereunder shall be given in writing by
delivering the same against receipt therefor by facsimile transmission
(confirmed by mail), telex or by registered or certified mail, addressed as
follows (and if so given, shall be deemed given when mailed or upon receipt of
an answer-back, if sent by telex):
If given to the Corporation:
Southern States Cooperative, Incorporated
6606 West Broad Street
Richmond, Virginia 23260
Facsimile No.: (804) 281-1650
Attention: Chief Financial Officer
D-3
<PAGE>
If given to the Issuer Trust:
Southern States Capital Trust I
6606 West Broad Street
Richmond, Virginia 23260
Facsimile No.:
Attention:
With a copy to:
First Union National Bank
800 East Main Street, Lower Mezzanine
Richmond, Virginia 23219
Facsimile No.: (804) 343-6699
Attention: Corporate Trust Group
D-4
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SECTION 2.4. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, this Agreement as to Expenses and Liabilities is
executed as of the day and year first above written.
SOUTHERN STATES COOPERATIVE, INCORPORATED
By:
----------------------------
Name:
Title:
SOUTHERN STATES CAPITAL TRUST I
By:
----------------------------
Name:
ADMINISTRATIVE TRUSTEE
D-5
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Exhibit E
[Form of Capital Securities Certificate]
[IF THE CAPITAL SECURITIES CERTIFICATE IS TO BE A BOOK-ENTRY CAPITAL
SECURITIES CERTIFICATE, insert--This Capital Securities Certificate is a
Book-Entry Capital Securities Certificate within the meaning of the Trust
Agreement hereinafter referred to and is registered in the name of a Clearing
Agency or a nominee of a Clearing Agency. This Capital Securities Certificate is
exchangeable for Capital Securities Certificates registered in the name of a
person other than the Clearing Agency or its nominee only in the limited
circumstances described in the Trust Agreement and may not be transferred except
as a whole by the Clearing Agency to a nominee of the Clearing Agency or by a
nominee of the Clearing Agency to the Clearing Agency or another nominee of the
Clearing Agency, except in the limited circumstances described in the Trust
Agreement.
Unless this Capital Security Certificate is presented by an authorized
representative of The Depository Trust Company, a New York Corporation ("DTC"),
to Southern States Capital Trust I or its agent for registration of transfer,
exchange or payment, and any Capital Security Certificate issued is registered
in the name of Cede & Co. or such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]
<PAGE>
CERTIFICATE NUMBER AGGREGATE LIQUIDATION AMOUNT
P-__ $_______
CUSIP NO. ________
CERTIFICATE EVIDENCING CAPITAL SECURITIES
OF
SOUTHERN STATES CAPITAL TRUST I
_____% CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT $25 PER CAPITAL SECURITY)
Southern States Capital Trust I, a statutory business trust created under
the laws of the State of Delaware (the "ISSUER TRUST"), hereby certifies that
_____________________________ (the "HOLDER") is the registered owner of
_________________ (____) capital securities (aggregate Liquidation Amount
____________________ ($________)) of the Issuer Trust representing a preferred
undivided beneficial interest in the assets of the Issuer Trust and designated
the _____% Capital Securities, Series A (liquidation amount $25 per Capital
Security) (the "CAPITAL SECURITIES"). The Capital Securities are transferable on
the books and records of the Issuer Trust, in person or by a duly authorized
attorney, upon surrender of this certificate duly endorsed and in proper form
for transfer as provided in Section 5.5 of the Trust Agreement (as defined
below). The designations, rights, privileges, restrictions, preferences and
other terms and provisions of the Capital Securities are set forth in, and this
certificate and the Capital Securities represented hereby are issued and shall
in all respects be subject to the terms and provisions of, the Amended and
Restated Trust Agreement of the Issuer Trust, dated as of __________, 1999, as
the same may be amended from time to time (the "TRUST AGREEMENT"), among
Southern States Cooperative, Incorporated, an agricultural cooperative
corporation organized under the laws of Virginia, as Depositor, First Union
National Bank, as Property Trustee, First Union Trust Company, National
Association, as Delaware Trustee, and the Administrative Trustees named therein,
including the designation of the terms of the Capital Securities as set forth
therein. The Holder is entitled to the benefits of the Guarantee Agreement,
dated as of ____________, 1999 (the "GUARANTEE AGREEMENT"), entered into by
Southern States Cooperative, Incorporated and First Union National Bank, as
guarantee trustee, to the extent provided therein. The Issuer Trust will furnish
a copy of the Trust Agreement and the Guarantee Agreement to the Holder without
charge upon written request to the Issuer Trust at its principal place of
business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust Agreement
and is entitled to the benefits thereunder.
E-2
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IN WITNESS WHEREOF, one of the Administrative Trustees of the Issuer Trust
has executed this certificate this _____ day of __________, ____.
SOUTHERN STATES CAPITAL TRUST I
By:
-----------------------------
Name:
ADMINISTRATIVE TRUSTEE
E-3
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital
Security to:
- - - - --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- - - - --------------------------------------------------------------------------------
- - - - --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
--------------------------------------------------------
- - - - --------------------------------------------------------------------------------
agent to transfer this Capital Securities Certificate on the books of the Issuer
Trust. The agent may substitute another to act for him or her.
Date:
------------------
Signature:
----------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Capital Security Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
E-4
EXHIBIT 4.4
SOUTHERN STATES COOPERATIVE, INCORPORATED
TO
FIRST UNION NATIONAL BANK,
AS TRUSTEE
JUNIOR SUBORDINATED INDENTURE
Dated as of _________, 1999
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TABLE OF CONTENTS
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PAGE
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ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. DEFINITIONS.............................................................1
SECTION 1.2. COMPLIANCE CERTIFICATE AND OPINIONS.....................................9
SECTION 1.3. FORMS OF DOCUMENTS DELIVERED TO TRUSTEE................................10
SECTION 1.4. ACTS OF HOLDERS........................................................11
SECTION 1.5. NOTICES, ETC. TO TRUSTEE AND CORPORATION...............................13
SECTION 1.6. NOTICE TO HOLDERS; WAIVER..............................................13
SECTION 1.7. CONFLICT WITH TRUST INDENTURE ACT......................................14
SECTION 1.8. EFFECT OF HEADINGS AND TABLE OF CONTENTS...............................14
SECTION 1.9. SUCCESSORS AND ASSIGNS.................................................14
SECTION 1.10. SEPARABILITY CLAUSE....................................................14
SECTION 1.11. BENEFITS OF INDENTURE..................................................14
SECTION 1.12. GOVERNING LAW..........................................................14
SECTION 1.13. NON-BUSINESS DAYS......................................................14
ARTICLE II SECURITY FORMS
SECTION 2.1. FORMS GENERALLY........................................................15
SECTION 2.2. FORM OF FACE OF SECURITY...............................................15
SECTION 2.3. FORM OF REVERSE OF SECURITY............................................19
SECTION 2.4. ADDITIONAL PROVISIONS REQUIRED IN GLOBAL SECURITY......................22
SECTION 2.5. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION........................22
ARTICLE III THE SECURITIES
SECTION 3.1. TITLE AND TERMS........................................................23
SECTION 3.2. DENOMINATIONS..........................................................26
SECTION 3.3. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.........................26
SECTION 3.4. TEMPORARY SECURITIES...................................................28
SECTION 3.5. GLOBAL SECURITIES......................................................28
SECTION 3.6. REGISTRATION, TRANSFER AND EXCHANGE GENERALLY..........................30
SECTION 3.7. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.......................31
SECTION 3.8. PAYMENT OF INTEREST AND ADDITIONAL INTEREST
INTEREST RIGHTS PRESERVED............................................32
SECTION 3.9. PERSONS DEEMED OWNERS..................................................33
SECTION 3.10. CANCELLATION...........................................................33
SECTION 3.11. COMPUTATION OF INTEREST................................................34
SECTION 3.12. DEFERRALS OF INTEREST PAYMENT DATES....................................34
SECTION 3.13. RIGHT OF SET-OFF.......................................................35
SECTION 3.14. AGREED TAX TREATMENT...................................................36
SECTION 3.15. SHORTENING OF STATED MATURITY..........................................36
SECTION 3.16. CUSIP NUMBERS..........................................................36
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ARTICLE IV SATISFACTION AND DISCHARGE
SECTION 4.1. SATISFACTION AND DISCHARGE OF INDENTURE................................36
SECTION 4.2. APPLICATION OF TRUST MONEY.............................................38
ARTICLE V REMEDIES
SECTION 5.1. EVENTS OF DEFAULT......................................................38
SECTION 5.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.....................39
SECTION 5.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE........40
SECTION 5.4. TRUSTEE MAY FILE PROOFS OF CLAIM.......................................41
SECTION 5.5. TRUSTEE MAY ENFORCE CLAIM WITHOUT POSSESSION OF SECURITIES.............42
SECTION 5.6. APPLICATION OF MONEY COLLECTED.........................................42
SECTION 5.7. LIMITATION ON SUITS....................................................43
SECTION 5.8. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST; DIRECT ACTION BY HOLDERS OF CAPITAL SECURITIES.........43
SECTION 5.9. RESTORATION OF RIGHTS AND REMEDIES.....................................44
SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE.........................................44
SECTION 5.11. DELAY OR OMISSION NOT WAIVER...........................................44
SECTION 5.12. CONTROL BY HOLDERS.....................................................45
SECTION 5.13. WAIVER OF PAST DEFAULTS................................................45
SECTION 5.14. UNDERTAKING FOR COSTS..................................................46
SECTION 5.15. WAIVER OF USURY, STAY OR EXTENSION LAWS................................46
ARTICLE VI THE TRUSTEE
SECTION 6.1. CERTAIN DUTIES AND RESPONSIBILITIES....................................46
SECTION 6.2. NOTICE OF DEFAULTS.....................................................47
SECTION 6.3. CERTAIN RIGHTS OF TRUSTEE..............................................48
SECTION 6.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.................49
SECTION 6.5. MAY HOLD SECURITIES....................................................49
SECTION 6.6. MONEY HELD IN TRUST....................................................49
SECTION 6.7. COMPENSATION AND REIMBURSEMENT.........................................49
SECTION 6.8. DISQUALIFICATION; CONFLICTING INTERESTS................................50
SECTION 6.9. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY................................50
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR......................51
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.................................52
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS............53
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST CORPORATION..................54
SECTION 6.14. APPOINTMENT OF AUTHENTICATING AGENT....................................54
ARTICLE VII HOLDER'S LISTS AND REPORTS BY TRUSTEE AND CORPORATION
SECTION 7.1. CORPORATION TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS..........55
SECTION 7.2. PRESERVATION OF INFORMATION, COMMUNICATIONS TO HOLDERS.................56
SECTION 7.3. REPORTS BY TRUSTEE.....................................................56
SECTION 7.4. REPORTS BY CORPORATION.................................................57
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ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. CORPORATION MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS...............57
SECTION 8.2. SUCCESSOR CORPORATION SUBSTITUTED......................................58
ARTICLE IX SUPPLEMENTAL INDENTURES
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.....................58
SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS........................60
SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES...................................61
SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURES......................................61
SECTION 9.5. CONFORMITY WITH TRUST INDENTURE ACT....................................61
SECTION 9.6. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.....................62
ARTICLE X COVENANTS
SECTION 10.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.............................62
SECTION 10.2. MAINTENANCE OF OFFICE OR AGENCY........................................62
SECTION 10.3. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST........................63
SECTION 10.4. STATEMENT AS TO COMPLIANCE.............................................64
SECTION 10.5. WAIVER OF CERTAIN COVENANTS............................................64
SECTION 10.6. ADDITIONAL SUMS........................................................65
SECTION 10.7. ADDITIONAL COVENANTS...................................................65
SECTION 10.8. ORIGINAL ISSUE DISCOUNT. ..............................................66
ARTICLE XI REDEMPTION OF SECURITIES
SECTION 11.1. APPLICABILITY OF THIS ARTICLE..........................................67
SECTION 11.2. ELECTION TO REDEEM; NOTICE TO TRUSTEE..................................67
SECTION 11.3. SELECTION OF SECURITIES TO BE REDEEMED.................................67
SECTION 11.4. NOTICE OF REDEMPTION...................................................68
SECTION 11.5. DEPOSIT OF REDEMPTION PRICE............................................69
SECTION 11.6. PAYMENT OF SECURITIES CALLED FOR REDEMPTION............................69
SECTION 11.7. RIGHT OF REDEMPTION OF SECURITIES INITIALLY ISSUED TO AN
ISSUER TRUST.........................................................70
ARTICLE XII SINKING FUNDS
SECTION 12.1. APPLICABILITY OF ARTICLE...............................................70
SECTION 12.2. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES..................70
SECTION 12.3. REDEMPTION OF SECURITIES FOR SINKING FUND..............................71
ARTICLE XIII SUBORDINATION OF SECURITIES
SECTION 13.1. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS..........................72
SECTION 13.2. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT;
PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.......................73
SECTION 13.3. PAYMENT PERMITTED IF NO DEFAULT........................................74
SECTION 13.4. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS................75
SECTION 13.5. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS............................75
SECTION 13.6. TRUSTEE TO EFFECTUATE SUBORDINATION....................................75
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SECTION 13.7. NO WAIVER OF SUBORDINATION PROVISIONS..................................76
SECTION 13.8. NOTICE TO TRUSTEE......................................................76
SECTION 13.9. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.........77
SECTION 13.10. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS...............77
SECTION 13.11. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS;
PRESERVATION OF TRUSTEE'S RIGHTS.....................................77
SECTION 13.12. ARTICLE APPLICABLE TO PAYING AGENTS....................................78
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v
<PAGE>
JUNIOR SUBORDINATED INDENTURE, dated as of ___________, 1999, between
SOUTHERN STATES COOPERATIVE, INCORPORATED, an agricultural corporation organized
under the laws of Virginia (the "CORPORATION"), having its principal office at
6606 West Broad Street, Richmond, Virginia, and FIRST UNION NATIONAL BANK, a
national banking association, as Trustee (the "TRUSTEE").
RECITALS OF THE CORPORATION
WHEREAS, the Corporation has duly authorized the execution and delivery
of this Indenture to provide for the issuance from time to time of its unsecured
junior subordinated debt securities in series (the "SECURITIES") of
substantially the tenor hereinafter provided, including Securities issued to
evidence loans made to the Corporation of the proceeds from the issuance from
time to time by one or more business trusts (each an "ISSUER TRUST") of
preferred undivided beneficial interests in the assets of such Issuer Trusts
(the "CAPITAL SECURITIES") and common undivided interests in the assets of such
Issuer Trusts (the "COMMON SECURITIES"), and to provide the terms and conditions
upon which the Securities are to be authenticated, issued and delivered; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Corporation, in accordance with its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of any
series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. DEFINITIONS
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;
(b) All other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
<PAGE>
(c) The words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation";
(d) All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles;
(e) Whenever the context may require, any gender shall be deemed
to include the others;
(f) Unless the context otherwise requires, any reference to
an "Article" or a "Section" refers to an Article or a Section, as the
case may be, of this Indenture; and
(g) The words "hereby", "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not
to any particular Article, Section or other subdivision.
"ACT" when used with respect to any Holder has the meaning specified in
Section 1.4.
"ADDITIONAL INTEREST" means the interest, if any, that shall accrue on
any interest on the Securities of any series the payment of which has not been
made on the applicable Interest Payment Date or that has been deferred during an
Extension Period, and that shall accrue at the rate per annum specified or
determined as specified in such Security.
"ADDITIONAL SUMS" has the meaning specified in Section 10.6.
"ADDITIONAL TAXES" means any additional taxes, duties and other
governmental charges to which an Issuer Trust has become subject from time to
time as a result of a Tax Event.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any specified Person means the power to
direct the management and policies of such 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.
"AGENT MEMBER" means any member of, or participant in, the Depositary.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, in each case to the
extent applicable to such transaction and as in effect from time to time.
"AUTHENTICATING AGENT" means any Person authorized by the Trustee
pursuant to Section 6.14 to act on behalf of the Trustee to authenticate
Securities of one or more series.
1
<PAGE>
"BANKRUPTCY CODE" means Title 11 of the United States Code or any
successor statute thereto, in each case as amended from time to time.
"BOARD OF DIRECTORS" means the board of directors of the Corporation or
the Executive Committee of the board of directors of the Corporation (or any
other committee of the board of directors of the Corporation performing similar
functions) or a committee designated by the board of directors of the
Corporation (or such committee), comprised of two or more members of the board
of directors of the Corporation or officers of the Corporation, or both.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Corporation to have been duly adopted
by the Board of Directors, or officers of the Corporation to which authority to
act on behalf of the Board of Directors has been delegated, and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"BUSINESS DAY" means any 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
Corporate Trust Office of the Trustee, or, with respect to Securities of a
series initially issued to an Issuer Trust for so long as such Securities are
held by such Issuer Trust, the Corporate Trust Office (as defined in the related
Trust Agreement) of the Property Trustee or the Delaware Trustee under the
related Trust Agreement, is closed for business.
"CAPITAL SECURITIES" has the meaning specified in the first recital of
this Indenture.
"COMMISSION" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or if at any time after the
execution of this instrument such Securities and Exchange Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties on such date.
"COMMON SECURITIES" has the meaning specified in the first recital of
this Indenture.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered.
"CORPORATION" includes a corporation, association, company, limited
liability company, joint-stock company or business trust.
"CORPORATION" means the Person named as the "CORPORATION" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"CORPORATION" shall mean such successor corporation.
"CORPORATION REQUEST" and "CORPORATION ORDER" mean, respectively, a
written request or order signed in the name of the Corporation by its Chairman
of the Board of Directors, its Vice Chairman of the Board of Directors, its
President one of its Executive Vice Presidents, and by its Treasurer, an
Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to
the Trustee.
2
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"DEBT" means, with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent and without
duplication, (i) every obligation of such Person for money borrowed; (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses; (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person; (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such Person;
(vi) all indebtedness of the Corporation, whether incurred on or prior to the
date of this Indenture or thereafter incurred, for claims in respect of
derivative products, including interest rate, foreign exchange rate and
commodity forward contracts, options and swaps and similar arrangements; and
(vii) every obligation of the type referred to in clauses (i) through (vi) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor or otherwise.
"DEFAULTED INTEREST" has the meaning specified in Section 3.8.
"DELAWARE TRUSTEE" means, with respect to any Issuer Trust, the Person
identified as the "DELAWARE TRUSTEE" in the related Trust Agreement, solely in
its capacity as Delaware Trustee of such Issuer Trust under such Trust Agreement
and not in its individual capacity, or its successor in interest in such
capacity, or any successor Delaware trustee appointed as therein provided.
"DEPOSITARY" means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more Global
Securities, the Person designated as Depositary by the Corporation pursuant to
Section 3.1 with respect to such series (or any successor thereto).
"DISCOUNT SECURITY" means any security that provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
"DISTRIBUTIONS", with respect to the Trust Securities issued by an
Issuer Trust, means amounts payable in respect of such Trust Securities as
provided in the related Trust Agreement and referred to therein as
"DISTRIBUTIONS".
"DOLLAR" OR "$" means the currency of the United States of America that,
as at the time of payment, is legal tender for the payment of public and private
debts.
"EVENT OF DEFAULT", unless otherwise specified with respect to a series
of Securities as contemplated by Section 3.1, has the meaning specified in
Article V.
3
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934 or any
successor statute thereto, in each case as amended from time to time.
"EXPIRATION DATE" has the meaning specified in Section 1.4.
"EXTENSION PERIOD" has the meaning specified in Section 3.12.
"GLOBAL SECURITY" means a Security in the form prescribed in Section 2.4
evidencing all or part of a series of Securities, issued to the Depositary for
such series or its nominee, and registered in the name of such Depositary or its
nominee.
"GUARANTEE AGREEMENT" means, with respect to any Issuer Trust, the
Guarantee Agreement executed by the Corporation for the benefit of the Holders
of the Capital Securities issued by such Issuer Trust, as modified, amended or
supplemented from time to time.
"HOLDER" means a Person in whose name a Security is registered in the
Securities Register.
"INDENTURE" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of each particular series of Securities established
as contemplated by Section 3.1.
"INTEREST PAYMENT DATE" means, as to each series of Securities, the
Stated Maturity of an installment of interest on such Securities.
"ISSUER TRUST" has the meaning specified in the first recital of this
Indenture.
"MATURITY" when used with respect to any Security means the date on
which the principal of such Security or any installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"NOTICE OF DEFAULT" means a written notice of the kind specified in
Section 5.1(3).
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the President or an Executive Vice
President, and by the Treasurer or the Secretary, of the Corporation and
delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for or an employee of the Corporation or any Affiliate of the
Corporation.
"ORIGINAL ISSUE DATE" means the date of issuance specified as such in
each Security.
4
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"OUTSTANDING" means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment money in the necessary amount
has been theretofore deposited with the Trustee or any Paying Agent in
trust for the Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other
Securities have been authenticated and delivered or that have been paid
pursuant to Section 3.7, unless proof satisfactory to the Trustee is
presented that any such Securities are held by Holders in whose hands
such Securities are valid, binding and legal obligations of the
Corporation;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Corporation or any other obligor upon the Securities or any Affiliate of
the Corporation or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities that the Trustee knows to be so owned shall
be so disregarded. Securities so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Corporation or any other obligor upon the Securities or
any Affiliate of the Corporation or such other obligor. Upon the written request
of the Trustee, the Corporation shall furnish to the Trustee promptly an
Officers' Certificate listing and identifying all Securities, if any, known by
the Corporation to be owned or held by or for the account of the Corporation or
any other obligor on the Securities, or any Affiliate of the Corporation or such
obligor, and subject to the provisions of Section 6.1, the Trustee shall be
entitled to accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination. Notwithstanding
anything herein to the contrary, Securities of any series initially issued to an
Issuer Trust that are owned by such Issuer Trust shall be deemed to be
Outstanding notwithstanding the ownership by the Corporation or an Affiliate of
any beneficial interest in such Issuer Trust.
"PAYING AGENT" means the Trustee or any Person authorized by the
Corporation to pay the principal of (or premium, if any) or interest on, or
other amounts in respect of, any Securities on behalf of the Corporation.
"PERSON" means a legal person, including any individual, corporation,
estate, partnership, joint venture, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
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"PLACE OF PAYMENT" means, with respect to the Securities of any series,
the place or places where the principal of (and premium, if any) and interest
(including any Additional Interest) on the Securities of such series are payable
pursuant to Section 3.1.
"PREDECESSOR SECURITY" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security. For the purposes of this definition, any security
authenticated and delivered under Section 3.7 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"PROCEEDING" has the meaning specified in Section 13.2.
"PROPERTY TRUSTEE" means, with respect to any Issuer Trust, the Person
identified as the "PROPERTY TRUSTEE" in the related Trust Agreement, solely in
its capacity as Property Trustee of such Issuer Trust under such Trust Agreement
and not in its individual capacity, or its successor in interest in such
capacity, or any successor property trustee appointed as therein provided.
"REDEMPTION DATE", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture or the terms of such Security.
"REDEMPTION PRICE", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture or the terms of such Security.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment
Date with respect to the Securities of a series means, unless otherwise provided
pursuant to Section 3.1 with respect to Securities of such series, the day that
is fifteen days next preceding such Interest Payment Date (whether or not a
Business Day).
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular matter, any other officer
to whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"SECURITY" means any debt security authenticated and delivered under
this Indenture.
"SECURITIES ACT" means the Securities Act of 1933 or any successor
statute thereto, in each case as amended from time to time.
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"SECURITIES REGISTER" and "SECURITIES REGISTRAR" have the
respective meanings specified in Section 3.6.
"SENIOR INDEBTEDNESS" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Corporation whether
or not such claim for post-petition interest is allowed in such proceeding), on
Debt of the Corporation, whether incurred on or prior to the date of this
Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are not superior in right of payment to the Securities or
to other Debt that is PARI PASSU with, or subordinated to, the Securities,
PROVIDED, HOWEVER, that Senior Indebtedness shall not be deemed to include (a)
any Debt of the Corporation that, when incurred and without respect to any
election under Section 1111(b) of the Bankruptcy Reform Act of 1978, was without
recourse to the Corporation, (b) any Debt of the Corporation to any of its
Subsidiaries, (c) any Debt of the Corporation to any Person who is an employee
of the Corporation in such Person's capacity as such, (d) any Securities, (e)
trade accounts payable of the Corporation, and (f) accrued liabilities arising
in the ordinary course of business of the Corporation.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.8.
"STATED MATURITY", when used with respect to any Security or any
installment of principal thereof (or premium, if any) or interest (including any
Additional Interest) thereon, means the date specified pursuant to the terms of
such Security as the fixed date on which the principal of such Security or such
installment of principal (or premium, if any) or interest (including any
Additional Interest) is due and payable, as such date may be shortened as
provided pursuant to the terms of such Security and this Indenture, in the case
of the Stated Maturity of any Security, and subject to the deferral of any such
date during any Extension Period, in the case of any instalment of interest.
"SUBSIDIARY" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Corporation or by one or
more other Subsidiaries, or by the Corporation and one or more other
Subsidiaries. For purposes of this definition, "VOTING STOCK" means stock that
ordinarily has voting power for the election of directors, whether at all times
or only so long as no senior class of stock has such voting power by reason of
any contingency.
"SUCCESSOR SECURITY" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that evidenced
by, such particular Security. For the purposes of this definition, any Security
authenticated and delivered under Section 3.7 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"TAX EVENT" means the receipt by an Issuer Trust of an Opinion of
Counsel 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
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which pronouncement or decision is announced on or after the date of issuance of
the Capital Securities of such Issuer Trust, there is more than an insubstantial
risk that (i) such Issuer Trust is, or within 90 days of the delivery of such
Opinion of Counsel will be, subject to United States federal income tax with
respect to income received or accrued on the corresponding series of Securities
issued by the Corporation to such Issuer Trust, (ii) interest payable by the
Corporation on such corresponding series of Securities is not, or within 90 days
of the delivery of such Opinion of Counsel will not be, deductible by the
Corporation, in whole or in part, for United States federal income tax purposes,
or (iii) such Issuer Trust is, or within 90 days of the delivery of such Opinion
of Counsel will be, subject to more than a DE MINIMIS amount of other taxes,
duties or other governmental charges.
"TRUST AGREEMENT" means, with respect to any Issuer Trust, the trust
agreement or other governing instrument of such Issuer Trust.
"TRUSTEE" means the Person named as the "TRUSTEE" in the first paragraph
of this instrument, solely in its capacity as such Trustee and not in its
individual capacity, until a successor Trustee shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "TRUSTEE" shall
mean or include each Person who is then a Trustee hereunder and, if at any time
there is more than one such Person, "TRUSTEE" as used with respect to the
Securities of any series shall mean the Trustee with respect to Securities of
that series.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; PROVIDED, HOWEVER, that if
the Trust Indenture Act of 1939 is amended after such date, "TRUST INDENTURE
ACT" means the Trust Indenture Act of 1939 as so amended.
"TRUST SECURITIES" means the Common Securities and the Capital
Securities.
"VICE PRESIDENT," when used with respect to the Corporation, means any
duly appointed vice president, whether or not designated by a number or a word
or words added before or after the title "vice president."
SECTION 1.2. COMPLIANCE CERTIFICATE AND OPINIONS.
Upon any application or request by the Corporation to the Trustee to
take any action under any provision of this Indenture, the Corporation shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent (including covenants compliance with which constitutes a condition
precedent), if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent (including covenants
compliance with which constitutes a condition precedent), if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
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Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than the certificates provided
pursuant to Section 10.4) shall include:
(1) a statement by each individual signing such certificate or
opinion that such individual has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions of
such individual contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of such individual,
such condition or covenant has been complied with.
SECTION 1.3. FORMS OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons may certify or give an opinion as to other matters,
and any of such Persons may certify or give an opinion as to such matters
contained in one or several documents.
Any certificate or opinion of an officer of the Corporation may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate, opinion or representations
with respect to matters upon which his or her certificate or opinion is based
are erroneous. Any such certificate or Opinion of Counsel may be based, insofar
as it relates to factual matters, upon a certificate or opinion of, or
representations by, one or more officers of the Corporation stating that the
information with respect to such factual matters is in the possession of the
Corporation, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate, opinion or representations with respect to
matters upon which his or her certificate or opinion is based are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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SECTION 1.4. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given to or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments is or are
delivered to the Trustee, and, where it is hereby expressly required, to the
Corporation. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.1) conclusive in favor of
the Trustee and the Corporation, if made in the manner provided in this Section
1.4.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to such notary the execution thereof.
Where such execution is by a Person acting in other than such Persons's
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of such Person's authority.
(c) The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner that the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or suffered to be done by the Trustee or the Corporation in
reliance thereon, whether or not notation of such action is made upon such
Security.
(f) The Corporation may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, PROVIDED that the
Corporation may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next succeeding paragraph.
If any record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
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shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, PROVIDED that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities of such
series on such record date. Nothing in this paragraph shall be construed to
prevent the Corporation from setting a new record date for any action for which
a record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be canceled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Corporation, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(2), or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date, PROVIDED that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Corporation's expense, shall
cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Corporation in writing and to each
Holder of Securities of the relevant series in the manner set forth in Section
1.6.
With respect to any record date set pursuant to this Section 1.4, the
party hereto that sets such record date may designate any day as the "EXPIRATION
DATE" and from time to time may change the Expiration Date to any earlier or
later day, PROVIDED that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities of the relevant series in the manner set forth in
Section 1.6, on or prior to the existing Expiration Date. If an Expiration Date
is not designated with respect to any record date set pursuant to this Section
1.4, the party hereto that set such record date shall be deemed to have
initially designated the 180th day after such record date as the Expiration Date
with respect thereto, subject to its right to change the Expiration Date as
provided in this paragraph. Notwithstanding the foregoing, no Expiration Date
shall be later than the 180th day after the applicable record date.
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(g) Without limiting the foregoing, a Holder entitled hereunder to take
any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
SECTION 1.5. NOTICES, ETC. TO TRUSTEE AND CORPORATION.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, any holder of Capital Securities
or the Corporation shall be sufficient for every purpose hereunder if
made, given, furnished or filed in writing to or with the Trustee at its
Corporate Trust office, or
(2) the Corporation by the Trustee, any Holder or any holder of
Capital Securities shall be sufficient for every purpose (except as
otherwise provided in Section 5.1) hereunder if in writing and mailed,
first-class postage prepaid, to the Corporation addressed to it at the
address of its principal office specified in the first paragraph of this
Indenture or at any other address previously furnished in writing to the
Trustee by the Corporation.
SECTION 1.6. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. If, by reason of the suspension
of or irregularities in regular mail service or for any other reason, it shall
be impossible or impracticable to mail notice of any event to Holders when said
notice is required to be given pursuant to any provision of this Indenture or of
the relevant Securities, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
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SECTION 1.7. CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by any of Sections 310 to 317, inclusive, of the Trust
Indenture Act through operation of Section 318(c) thereof, such imposed duties
shall control. If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or to
be excluded, as the case may be.
SECTION 1.8. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.9. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Corporation shall
bind its successors and assigns, whether so expressed or not.
SECTION 1.10. SEPARABILITY CLAUSE.
If any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Indebtedness, the Holders of the Securities and,
to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and
9.2 the holders of Capital Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.12. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 1.13. NON-BUSINESS DAYS.
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If any Interest Payment Date, Redemption Date or Stated Maturity shall
not be a Business Day, then (notwithstanding any other provision of this
Indenture or the Securities) payment of principal of (and premium, if any) or
interest (including any Additional Interest) or other amounts in respect of such
Security need not be made on such date, but may be made on the next succeeding
Business Day (and no interest shall accrue in respect of the amounts whose
payment is so delayed for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be, until such next
succeeding Business Day) except that, if such Business Day falls in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day (in each case with the same force and effect as if made
on the Interest Payment Date or Redemption Date or at the Stated Maturity).
ARTICLE II
SECURITY FORMS
SECTION 2.1. FORMS GENERALLY.
The Securities of each series and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article, or
in such other form or forms as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with applicable tax laws or the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Corporation and delivered to the Trustee at or prior to the delivery of the
Corporation Order contemplated by Section 3.3 with respect to the authentication
and delivery of such Securities.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such securities.
SECTION 2.2. FORM OF FACE OF SECURITY.
SOUTHERN STATES COOPERATIVE, INCORPORATED
[Title of Security]
No. _____________ $__________
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SOUTHERN STATES COOPERATIVE, INCORPORATED, an agricultural cooperative
corporation organized under the laws of Virginia (hereinafter called the
"CORPORATION", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_______________, or registered assigns, the principal sum of __________ Dollars
on _________, ____ [IF THE SECURITY IS A GLOBAL SECURITY, THEN INSERT, IF
APPLICABLE--, or such other principal amount represented hereby as may be set
forth in the records of the Securities Registrar hereinafter referred to in
accordance with the Indenture] [; PROVIDED that the Corporation may shorten the
Stated Maturity of the principal of this Security to a date not earlier than
__________, in the circumstances described on the reverse hereof]. The
Corporation further promises to pay interest on said principal sum from
___________, ____ or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, [quarterly][semi-annually] [IF
APPLICABLE, INSERT-(subject to deferral as set forth herein)] in arrears on
[INSERT APPLICABLE INTEREST PAYMENT DATES] of each year, commencing ________,
____, at the rate of ___% per annum, [IF APPLICABLE insert--together with
Additional Sums, if any, as provided in Section 10.6 of the Indenture] until the
principal hereof is paid or duly provided for or made available for payment [IF
APPLICABLE, INSERT-- ; PROVIDED that any overdue principal, premium or
Additional Sums and any overdue installment of interest shall bear Additional
Interest at the rate of ___% per annum (to the extent that the payment of such
interest shall be legally enforceable), compounded [quarterly][semi-annually],
from the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand]. The amount of interest
payable for any period less than a full interest period shall 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 shall be computed by dividing the applicable rate per annum by
[four/two]. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
installment [IF APPLICABLE INSERT--, which shall be the [____________ or
____________] (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date]. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
[IF APPLICABLE, INSERT--So long as no Event of Default has occurred and
is continuing, the Corporation shall have the right, at any time during the term
of this Security, from time to time to defer the payment of interest on this
Security for up to ____ consecutive [quarterly][semi-annual] interest payment
periods with respect to each deferral period (each an "EXTENSION PERIOD") [IF
APPLICABLE, INSERT--, during which Extension Periods the Corporation shall have
the right to make partial payments of interest on any Interest Payment Date,
and] at the end of which the Corporation shall pay all interest then accrued and
unpaid (including any Additional Interest, as provided below); PROVIDED,
HOWEVER, that no Extension Period shall extend beyond the Stated Maturity of the
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principal of this Security [IF STATED MATURITY CAN BE SHORTENED OR EXTENDED,
INSERT--, as then in effect,] and no such Extension Period may end on a date
other than an Interest Payment Date; and PROVIDED FURTHER, HOWEVER, that during
any such Extension Period, the Corporation shall 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 Corporation'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 Corporation that rank PARI PASSU in all
respects with or junior in interest to this Security (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Corporation 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
Corporation, if the Board of Directors approves such repurchase or redemption
pursuant to a policy of assuring that the Corporation operates as a cooperative
in compliance with Subchapter T of the Internal Revenue Code, (b) as a result of
an exchange or conversion of any class or series of the Corporation's capital
stock (or any capital stock of an affiliate of the Corporation) for any class or
series of the Corporation's capital stock or of any class or series of the
Corporation's indebtedness for any class or series of the Corporation'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 Corporation may further defer the payment of interest, PROVIDED that no
Extension Period shall exceed ____ consecutive [quarterly][semi-annual] interest
payment periods, extend beyond the Stated Maturity of the principal of this
Security or end on a date other than an Interest Payment Date. Upon the
termination of any such Extension Period and upon the payment of all accrued and
unpaid interest and any Additional Interest then due on any Interest Payment
Date, the Corporation 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, but each installment of interest that would
otherwise have been due and payable during such Extension shall bear Additional
Interest (to the extent that the payment of such interest shall be legally
enforceable) at the rate of ____% per annum, compounded
[quarterly][semi-annually] and calculated as set forth in the first paragraph of
this Security, from the dates on which amounts would otherwise have been due and
payable until paid or made available for payment. The Corporation shall give the
Holder of this Security and the Trustee notice of its election to begin any
Extension Period at least one Business Day prior to the next succeeding Interest
Payment Date on which interest on this Security would be payable but for such
deferral [IF APPLICABLE, INSERT--or so long as such Securities are held by
[INSERT NAME Of APPLICABLE ISSUER TRUST], at least one Business Day prior to the
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earlier of (i) the next succeeding date on which Distributions on the Capital
Securities of such Issuer Trust would be payable but for such deferral, and (ii)
the date on which the Property Trustee of such Issuer Trust is required to give
notice to holders of such Capital Securities of the record date or the date such
Distributions are payable].
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Corporation maintained for
that purpose in [INSERT PLACE OF PAYMENT], in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts [IF APPLICABLE, INSERT--; PROVIDED, HOWEVEr, that at
the option of the Corporation payment of interest may be made (i) by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Securities Register, or (ii) by wire transfer in immediately
available funds at such place and to such account as may be designated by the
Person entitled thereto as specified in the Securities Register].
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on such Holder's behalf to
take such actions as may be necessary or appropriate to effectuate the
subordination so provided, and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each Holder hereof, by such
Holder's acceptance hereof, waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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IN WITNESS WHEREOF, the Corporation has caused this instrument to be
duly executed under its corporate seal.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By: ___________________________________
Name:
Title:
Attest:
__________________________________
[SECRETARY OR ASSISTANT SECRETARY]
SECTION 2.3. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of the
Corporation (herein called the "SECURITIES"), issued and to be issued in one or
more series under the Junior Subordinated Indenture, dated as of __________,
1999 (herein called the "INDENTURE"), between the Corporation and First Union
National Bank, as Trustee (herein called the "TRUSTEE", which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the
Corporation, the Trustee, the holders of Senior Indebtedness and the Holders of
the Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof [IF APPLICABLE, INSERT--, limited in aggregate principal amount
to $ -----------].
All terms used in this Security that are defined in the Indenture [IF
APPLICABLE, INSERT--or in the Amended and Restated Trust Agreement, dated as of
_________, 1999 (as modified, amended or supplemented from time to time, the
"TRUST AGREEMENT"), relating to [insert name of Issuer Trust] (the "ISSUER
TRUST") among the Corporation, as Depositor, the Trustees named therein and the
Holders from time to time of the Trust Securities issued pursuant thereto,]
shall have the meanings assigned to them in the Indenture [IF APPLICABLE,
INSERT--or the Trust Agreement, as the case may be].
[IF APPLICABLE, INSERT--The Corporation may at any time, at its option,
on or after _______, __ and subject to the terms and conditions of Article XI of
the Indenture, redeem this Security in whole at any time or in part from time to
time, at the following Redemption Prices (expressed as percentages of the
principal amount hereof): If redeemed during the 12-month period beginning
__________,
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Redemption
Year Price
- - - - --------------------- -------------------
and thereafter at a Redemption Price equal to 100% of the principal amount
hereof, together, in the case of any such redemption, with accrued interest [IF
APPLICABLE, INSERT-- (including any Additional Interest)] to but excluding the
date fixed for redemption.]
[IF APPLICABLE, INSERT--In addition, upon the occurrence and during the
continuation of a Tax Event in respect of the Issuer Trust, the Corporation may,
at its option, at any time within 90 days of the occurrence and during the
continuation of such Tax Event, redeem this Security, in whole but not in part,
subject to the terms and conditions of Article XI of the Indenture, at a
Redemption Price equal to [insert formula].
[IF THE SECURITY IS SUBJECT TO REDEMPTION OF ANY KIND, INSERT--In the
event of redemption of this Security in part only, a new Security or Securities
of this series for the unredeemed portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.]
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Corporation with
certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Corporation and the Trustee at any time to enter into a supplemental indenture
or indentures for the purpose of modifying in any manner the rights and
obligations of the Corporation and of the Holders of the Securities, with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities of each series to be affected by such supplemental
indenture. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Corporation with certain provisions of the Indenture
and certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
[IF THE SECURITY IS NOT A DISCOUNT SECURITY, INSERT--As provided in and
subject to the provisions of the Indenture, if an Event of Default with respect
to the Securities of this series at the time Outstanding occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Outstanding Securities of this
series may declare the principal amount of all the Outstanding Securities of
this series to be due and payable immediately, by a notice in writing to the
Corporation (and to the Trustee if given by Holders) [IF APPLICABLE, INSERT--,
PROVIDED that, if upon an Event of Default, the Trustee or such Holders fail to
declare the principal of all the Outstanding Securities of this series to be
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immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Capital Securities then Outstanding shall have the
right to make such declaration by a notice in writing to the Corporation and the
Trustee]; and upon any such declaration the principal of and the accrued
interest (including any Additional Interest) on all the Securities of this
series shall become immediately due and payable, PROVIDED that the payment of
such principal and interest (including any Additional Interest) on such
Securities shall remain subordinated to the extent provided in Article XIII of
the Indenture.]
[IF THE SECURITY IS A DISCOUNT SECURITY, INSERT--As provided in and
subject to the provisions of the Indenture, if an Event of Default with respect
to the Securities of this series at the time Outstanding occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Outstanding Securities of this
series may declare an amount of principal of the Outstanding Securities of this
series to be due and payable immediately, by a notice in writing to the
Corporation (and to the Trustee if given by Holders) [IF APPLICABLE, INSERT--,
PROVIDEd that, if upon an Event of Default, the Trustee or such Holders fail to
declare such principal amount of the Outstanding Securities of this series to be
immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Capital Securities then Outstanding shall have the
right to make such declaration by a notice in writing to the Corporation and the
Trustee]. The principal amount payable upon such acceleration shall be equal to
[INSERT FORMULA FOR DETERMINING THE AMOUNT]. Upon any such declaration, such
amount of the principal of and the accrued interest (including any Additional
Interest) on such Securities shall become immediately due and payable, PROVIDED
that the payment of such principal and interest (including any Additional
Interest) on such Securities shall remain subordinated to the extent provided in
Article XIII of the Indenture. Upon payment (i) of the amount of principal so
declared due and payable and (ii) of interest on any overdue principal, premium
and interest (in each case to the extent that the payment of such interest shall
be legally enforceable), all of the Corporation's obligations in respect of the
payment of the principal of and premium and interest, if any, on this Security
shall terminate.]
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Corporation,
which is absolute and unconditional, to pay the principal of (and premium, if
any) and interest [IF APPLICABLE, INSERT--(including any Additional Interest)]
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Corporation maintained under Section 10.2 of the
Indenture for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Corporation and the
Securities Registrar duly executed by, the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Securities of
this series, of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
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The Securities of this series are issuable only in registered form
without coupons in denominations of $_______ and any integral multiple of $_____
in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are exchangeable for a
like aggregate principal amount of Securities of this series and of like tenor
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Corporation may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Corporation, the Trustee and any agent of the Corporation or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither the
Corporation, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Corporation and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that for United States Federal, state and local
tax purposes it is intended that this Security constitute indebtedness.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
SECTION 2.4. ADDITIONAL PROVISIONS REQUIRED IN GLOBAL SECURITY.
Unless otherwise specified as contemplated by Section 3.1, any Global
Security issued hereunder shall, in addition to the provisions contained in
Sections 2.2 and 2.3, bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR
A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND
MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
SECTION 2.5. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificates of authentication shall be in substantially
the following form:
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<PAGE>
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
Dated:
FIRST UNION NATIONAL BANK,
AS TRUSTEE
By: ___________________________________
AUTHORIZED OFFICER
ARTICLE III
THE SECURITIES
SECTION 3.1. TITLE AND TERMS.
The aggregate principal amount of Securities that may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 3.3,
set forth or determined in the manner provided in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the issuance
of Securities of a series:
(a) the title of the securities of such series, which shall
distinguish the Securities of that series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the
Securities of such series that may be authenticated and delivered under
this Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of such series pursuant to Section 3.4, 3.5, 3.6, 3.7, 9.6 or
11.6 and except for any Securities that, pursuant to Section 3.3, are
deemed never to have been authenticated and delivered hereunder);
PROVIDED, HOWEVER, that the authorized aggregate principal amount of
such series may be increased above such amount by a Board Resolution to
such effect;
(c) the Person to whom any interest (including any Additional
Interest) on the Securities of such series shall be payable, if other
than the Person in whose name the Securities (or one or more Predecessor
Securities) are registered at the close of business on the Regular
Record Date for such interest;
(d) the Stated Maturity or Maturities on which the principal of
the Securities of such series is payable or the method of determination
thereof, and any dates on which or circumstances under which, the
Corporation shall have the right to shorten such Stated Maturity or
Maturities;
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<PAGE>
(e) the rate or rates, if any, at which the Securities of such
series shall bear interest, if any, the rate or rates at which and
extent to which Additional Interest, if any, shall be payable in respect
of the Securities of such series, the date or dates from which any such
interest or Additional Interest shall accrue, the Interest Payment Dates
on which such interest shall be payable, the right, pursuant to Section
3.12 or as otherwise set forth therein, of the Corporation to defer or
extend an Interest Payment Date, and the Regular Record Date for the
interest payable on any Interest Payment Date or the method by which any
of the foregoing shall be determined;
(f) the place or places where the principal of (and premium, if
any) and interest (including any Additional Interest) on the Securities
of such series shall be payable, the place or places where the
Securities of such series may be presented for registration of transfer
or exchange, any restrictions that may be applicable to any such
transfer or exchange in addition to or in lieu of those set forth
herein, and the place or places where notices and demands to or upon the
Corporation in respect of the Securities of such series may be made;
(g) the period or periods within or the date or dates on which,
the price or prices at which and the terms and conditions upon which, if
any, the Securities of such series may be redeemed, in whole or in part,
at the option of the Corporation, and if other than by a Board
Resolution, the manner in which any election by the Corporation to
redeem the Securities of such series shall be evidenced;
(h) the obligation or the right, if any, of the Corporation to
redeem, repay or purchase the Securities of such series pursuant to any
sinking fund, amortization or analogous provisions, or at the option of
a Holder thereof, and the period or periods within which, the price or
prices at which, the currency or currencies (including currency unit or
units) in which and the other terms and conditions upon which the
Securities of such series shall be redeemed, repaid or purchased, in
whole or in part, pursuant to such obligation;
(i) the denominations in which the Securities of such series
shall be issuable, if other than denominations of $25 and any integral
multiple thereof;
(j) if other than Dollars, the currency or currencies (including
any currency unit or units) in which the principal of (and premium, if
any) and interest (including any Additional Interest) on the Securities
of such series shall be payable, or in which the Securities of such
series shall be denominated and the manner of determining the equivalent
thereof in Dollars for purposes of the definition of Outstanding;
(k) the additions, modifications or deletions, if any, in the
covenants of the Corporation set forth herein with respect to the
Securities of such series;
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<PAGE>
(l) if other than the principal amount thereof, the portion of
the principal amount of Securities of such series that shall be payable
upon declaration of acceleration of the Maturity thereof;
(m) if the principal amount payable at the Stated Maturity of the
Securities of such series will not be determinable as of any one or more
dates prior to the Stated Maturity, the amount that shall be deemed to
be the principal amount of the Securities of such series as of any such
date for any purpose thereunder or hereunder, including the principal
amount thereof that shall be due and payable upon any Maturity other
than the Stated Maturity or that shall be deemed to be Outstanding as of
any date prior to the Stated Maturity (or, in any such case, the manner
in which such amount deemed to be the principal amount shall be
determined);
(n) the additions or changes, if any, to this Indenture with
respect to the Securities of such series as shall be necessary to permit
or facilitate the issuance of the Securities of such series in bearer
form, registrable or not registrable as to principal, and with or
without interest coupons;
(o) any index or indices used to determine the amount of payments
of principal of and premium, if any, on the Securities of such series or
the manner in which such amounts will be determined;
(p) if applicable, that the Securities of such series shall be
issuable in whole or in part in the form of one or more Global
Securities and, in such case, the respective Depositories for such
Global Securities, the form of any legend or legends that shall be borne
by any such Global Security in addition to or in lieu of that set forth
in Section 2.4 and any circumstances in addition to or in lieu of those
set forth in Section 3.5 in which any such Global Security may be
exchanged in whole or in part for Securities registered, and any
transfer of such Global Security in whole or in part may be registered,
in the name or names of Persons other than the Depositary for such
Global Security or a nominee thereof;
(q) the appointment of any Paying Agent or Agents for the
Securities of such series;
(r) the terms of any right to convert or exchange Securities of
such series into any other securities or property of the Corporation,
and the additions or changes, if any, to this Indenture with respect to
the Securities of such series to permit or facilitate such conversion or
exchange;
(s) if the Securities of such series are to be issued to an
Issuer Trust, the form or forms of the Trust Agreement and Guarantee
Agreement relating thereto;
(t) if other than as set forth herein, the relative degree, if
any, to which the Securities of such series shall be senior to or be
subordinated to of Securities of other series in right of payment,
whether such Securities of other series are Outstanding or not;
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<PAGE>
(u) the additions, modifications or deletions, if any, in the
Events of Default that apply to the Securities of such series and any
change in the right of the Trustee or the requisite Holders of the
Securities of such series to declare the principal amount thereof due
and payable pursuant to Section 5.2 and
(v) any other terms of the Securities of such series (which terms
shall not be inconsistent with the provisions of this Indenture, except
as permitted by Section 9.1(6)).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided herein or in or
pursuant to such Board Resolution and set forth, or determined in the manner
provided, in such Officers' Certificate or in any indenture supplemental hereto.
If any of the terms of the Securities of a series are established by
action taken pursuant to a Board Resolution, a copy of an appropriate record of
such action shall be certified by the Secretary or an Assistant Secretary of the
Corporation and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of such Securities.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
SECTION 3.2. DENOMINATIONS.
The Securities of each series shall be in registered form without
coupons and shall be issuable in denominations of $25 and any integral multiple
thereof, unless otherwise specified as contemplated by Section 3.1.
SECTION 3.3. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Corporation by its
Chairman of the Board, one of its Vice Chairman of the Board, its President or
one of its Executive Vice Presidents, under its corporate seal reproduced or
impressed thereon and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Corporation shall bind the
Corporation, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities. At any time and from
time to time after the execution and delivery of this Indenture, the Corporation
may deliver Securities of any series executed by the Corporation to the Trustee
for authentication, together with a Corporation Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Corporation
Order shall authenticate and deliver such Securities. If the form or terms of
the Securities of a series have been established by or pursuant to one or more
Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such
Securities, and accepting the additional responsibilities under this Indenture
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<PAGE>
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Opinion of
Counsel stating,
(1) if the form of such Securities has been established by or
pursuant to Board Resolution as permitted by Section 2.1, that such form
has been established in conformity with the provisions of this
Indenture;
(2) if the terms of such Securities have been established by or
pursuant to Board Resolution as permitted by Section 3.1, that such
terms have been established in conformity with the provisions of this
Indenture; and
(3) that such Securities, when authenticated and delivered by the
Trustee and issued by the Corporation in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid
and legally binding obligations of the Corporation, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issuance of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner that
is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding
paragraphs, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Corporation Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraphs at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder. Notwithstanding the foregoing, if any Security shall have
been authenticated and delivered hereunder but never issued and sold by the
Corporation, and the Corporation shall deliver such Security to the Trustee for
cancellation as provided in Section 3.10, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
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SECTION 3.4. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, the
Corporation may execute, and upon Corporation Order the Trustee shall
authenticate and deliver, temporary Securities that are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any denomination,
substantially of the tenor of the definitive Securities of such series in lieu
of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Corporation will
cause definitive Securities of such series to be prepared without unreasonable
delay. After the preparation of definitive Securities, the temporary Securities
shall be exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Corporation designated for that
purpose without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Corporation shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive
Securities of the same series of any authorized denominations, of like tenor and
aggregate principal amount, and bearing a number not contemporaneously
outstanding. Until so exchanged, the temporary Securities of any series shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities of such series.
SECTION 3.5. GLOBAL SECURITIES.
(a) Each Global Security issued under this Indenture shall be registered
in the name of the Depositary designated by the Corporation for such Global
Security or a nominee thereof and delivered to such Depositary or a nominee
thereof or custodian therefor, and each such Global Security shall constitute a
single Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary advises the Trustee in writing that such
Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Corporation is unable to locate a qualified successor, (ii) the Corporation
executes and delivers to the Trustee a Corporation Order stating that the
Corporation elects to terminate the book-entry system through such Depositary or
(iii) an Event of Default occurs and is continuing. Upon the occurrence of any
event specified in clause (i), (ii) or (iii) above, the Securities Registrar
shall notify the applicable Depositary and instruct such Depositary to notify
all beneficial owners of Global Securities of the occurrence of such event and
of the availability of the definitive Securities to beneficial owners of such
Securities requesting the same.
(c) If any Global Security is to be exchanged in whole for other
Securities or canceled in whole, it shall be surrendered by or on behalf of the
applicable Depositary or its nominee to the Securities Registrar for exchange or
cancellation as provided in this Article III. If any Global Security is to be
exchanged for other Securities or canceled in part, or if another Security is to
be exchanged in whole or in part for a beneficial interest in any Global
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Security, then either (i) such Global Security shall be so surrendered for
exchange or cancellation as provided in this Article III or (ii) the principal
amount thereof shall be reduced or increased by an amount equal to the portion
thereof to be so exchanged or canceled, or equal to the principal amount of such
other Security to be so exchanged for a beneficial interest therein, as the case
may be, by means of an appropriate adjustment made on the records of the
Securities Registrar with notice to the Trustee, whereupon the Trustee, in
accordance with the Applicable Procedures, shall instruct such Depositary or its
authorized representative to make a corresponding adjustment to its records.
Upon any such surrender or adjustment of a Global Security by the Depositary,
accompanied by registration instructions, the Trustee shall, subject to Section
3.5(b) and as otherwise provided in this Article III, authenticate and deliver
any Securities issuable in exchange for such Global Security (or any portion
thereof) in accordance with the instructions of the Depositary. Neither the
Securities Registrar nor the Trustee shall be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be fully protected
in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III, Section 9.6 or 11.6 or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof.
(e) Securities distributed to holders of Book-Entry Capital Securities
(as defined in the applicable Trust Agreement) upon the dissolution of an Issuer
Trust shall be distributed in the form of one or more Global Securities
registered in the name of a Depositary or its nominee, and deposited with the
Securities Registrar, as custodian for such Depositary, or with such Depositary,
for credit by the Depositary to the respective accounts of the beneficial owners
of the Securities represented thereby (or such other accounts as they may
direct). Securities distributed to holders of Capital Securities other than
Book-Entry Capital Securities upon the dissolution of an Issuer Trust shall not
be issued in the form of a Global Security or any other form intended to
facilitate book-entry trading in beneficial interests in such Securities.
(f) As provided in Section 3.9, the Depositary for a Global Security or
its nominee, as the registered owner of a Global Security, shall be the Holder
of such Global Security for all purposes under this Indenture and the
Securities, and owners of beneficial interests in a Global Security shall hold
such interests pursuant to the Applicable Procedures. The Securities Registrar
and the Trustee shall be entitled to deal with the Depositary for such Global
Security for all purposes of this Indenture relating to the Global Security
(including the payment of the principal amount of (and premium, if any) and
interest (including Additional Interest) on such Global Security and the giving
of instructions or directions by or to beneficial owners of the Securities
represented thereby) as the sole Holder of the Securities represented thereby
and shall have no obligation to such beneficial owners. Neither the Corporation,
the Trustee nor the Securities Registrar shall have any liability in respect of
any transfers effected by the Depositary.
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(g) The rights of owners of beneficial interests in a Global Security
shall be exercised only through the Depositary for such Global Security and
shall be limited to those established by law, the Applicable Procedures and
agreements between such beneficial owners and the Depositary and/or its Agent
Members.
SECTION 3.6. REGISTRATION, TRANSFER AND EXCHANGE GENERALLY.
The Corporation shall cause to be kept at the Corporate Trust Office of
the Trustee a register or registers (the "SECURITIES REGISTER") in which the
registrar and transfer agent with respect to the Securities (the "SECURITIES
REGISTRAR"), subject to such reasonable regulations as it may prescribe, shall
provide for the registration of Securities and of transfers and exchanges of
Securities as herein provided. The Trustee is hereby appointed Securities
Registrar for the purpose of registering Securities and transfers and exchanges
of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Corporation designated for that purpose, the Corporation
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of the same
series of any authorized denominations, of like tenor and aggregate principal
amount and bearing a number not contemporaneously outstanding.
At the option of the Holder, Securities may be exchanged for other
Securities of the same series of any authorized denominations, of like tenor and
aggregate principal amount, bearing a number not contemporaneously outstanding,
upon surrender of the Securities to be exchanged at such office or agency.
Whenever any Securities are so surrendered for exchange, the Corporation shall
execute, and the Trustee shall authenticate and deliver, the Securities that the
Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall
be the valid obligations of the Corporation, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Securities
surrendered upon such transfer or exchange.
Neither the Corporation, the Trustee nor the Securities Registrar shall
be required, pursuant to the provisions of this Section 3.6, (i) to issue,
register the transfer of or exchange any Security of any series during a period
beginning at the opening of business 15 days before the day of selection for
redemption of Securities of that series pursuant to Article XI and ending at the
close of business on the day of mailing of the notice of redemption, or (ii) to
register the transfer of or exchange any Security so selected for redemption in
whole or in part, except, in the case of any such Security to be redeemed in
part, any portion thereof not to be redeemed.
Every Security presented or surrendered for registration of transfer or
exchange shall (if so required by the Corporation or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Corporation and the Securities Registrar, duly executed by
the Holder thereof or such Holder's attorney duly authorized in writing.
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No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities, but the Corporation may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Securities.
SECTION 3.7. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee together with
such security or indemnity as may be required by the Corporation or the Trustee
to save each of them harmless, the Corporation shall execute and the Trustee
shall authenticate and deliver in exchange therefor a new Security of the same
series, of like tenor and aggregate principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Corporation and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security, and (ii) such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Corporation or the
Trustee that such Security has been acquired by a BONA FIDE purchaser, the
Corporation shall execute and upon its request the Trustee shall authenticate
and deliver, in lieu of any such destroyed, lost or stolen Security, a new
Security of the same series, of like tenor and aggregate principal amount as
such destroyed, lost or stolen Security, and bearing a number not
contemporaneously outstanding.
If any such mutilated, destroyed, lost or stolen Security has become or
is about to become due and payable, the Corporation in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section 3.7, the
Corporation may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Corporation, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to the same benefits of this Indenture equally and proportionately with
any and all other Securities of the same series duly issued hereunder.
The provisions of this Section 3.7 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
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SECTION 3.8. PAYMENT OF INTEREST AND ADDITIONAL INTEREST; INTEREST
RIGHTS PRESERVED.
Interest (including any Additional Interest) on any Security of any
series that is payable, and is punctually paid or duly provided for, on any
Interest Payment Date, shall be paid to the Person in whose name that Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest in respect of Securities of such
series, except that, unless otherwise provided in the Securities of such series,
interest (including any Additional Interest) payable on the Stated Maturity of
the principal of a Security shall be paid to the Person to whom principal is
paid. The initial payment of interest on any Security of any series that is
issued between a Regular Record Date and the related Interest Payment Date shall
be payable as provided in such Security or in the Board Resolution pursuant to
Section 3.1 with respect to the related series of Securities.
Any interest on any Security that is due and payable, but is not timely
paid or duly provided for, on any Interest Payment Date for Securities of such
series (herein called "DEFAULTED INTEREST"), shall forthwith cease to be payable
to the registered Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such Defaulted Interest may be paid by the Corporation, at
its election in each case, as provided in Clause (1) or (2) below:
(1) The Corporation may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities of such series in
respect of which interest is in default (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Corporation shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Corporation shall deposit with the Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as provided in this Clause (1). Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest, which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Corporation of such
Special Record Date and, in the name and at the expense of the
Corporation, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of a Security of such series
at the address of such Holder as it appears in the Securities Register
not less than 10 days prior to such Special Record Date. The Trustee
may, in its discretion, in the name and at the expense of the
Corporation, cause a similar notice to be published at least once in a
newspaper, customarily published in the English language on each
Business Day and of general circulation in the Borough of Manhattan, The
City of New York, but such publication shall not be a condition
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precedent to the establishment of such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the Persons in whose names the Securities of such
series (or their respective Predecessor Securities) are registered on
such Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Corporation may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of the series in respect of
which interest is in default may be listed and, upon such notice as may
be required by such exchange (or by the Trustee if the Securities are
not listed), if, after notice given by the Corporation to the Trustee of
the proposed payment pursuant to this Clause (2), such payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.8, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, that were carried by such other Security.
SECTION 3.9. PERSONS DEEMED OWNERS.
The Corporation, the Trustee and any agent of the Corporation or the
Trustee shall treat the Person in whose name any Security is registered as the
owner of such Security for the purpose of receiving payment of principal of and
(subject to Section 3.8) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Corporation, the Trustee nor any agent of the Corporation or the Trustee shall
be affected by notice to the contrary.
No holder of any beneficial interest in any Global Security held on its
behalf by a Depositary shall have any rights under this Indenture with respect
to such Global Security, and such Depositary may be treated by the Corporation,
the Trustee and any agent of the Corporation or the Trustee as the owner of such
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Corporation, the Trustee or any agent of the
Corporation or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by a Depositary or impair, as between a
Depositary and such holders of beneficial interests, the operation of customary
practices governing the exercise of the rights of the Depositary (or its
nominee) as Holder of any Security.
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SECTION 3.10. CANCELLATION.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Corporation
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder that the Corporation may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section 3.10,
except as expressly permitted by this Indenture. All canceled Securities shall
be destroyed by the Trustee and the Trustee shall deliver to the Corporation a
certificate of such destruction.
SECTION 3.11. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 3.1 for
Securities of any series, interest on the Securities of each series for any
partial period shall be computed on the basis of a 360-day year of twelve 30-day
months and the actual number of days elapsed in any partial month in such
period, and interest on the Securities of each series for a full period shall be
computed by dividing the rate per annum by the number of interest periods that
together constitute a full twelve months.
SECTION 3.12. DEFERRALS OF INTEREST PAYMENT DATES.
If specified as contemplated by Section 2.1 or Section 3.1 with respect
to the Securities of a particular series, so long as no Event of Default has
occurred and is continuing, the Corporation shall have the right, at any time
during the term of such Securities, from time to time to defer the payment of
interest on such Securities for such period or periods as may be specified as
contemplated by Section 3.1 (each, an "EXTENSION PERIOD"), during which
Extension Periods the Corporation shall, if so specified as contemplated by
Section 3.1, have the right to make partial payments of interest (including any
Additional Interest) on any Interest Payment Date. No Extension Period shall end
on a date other than an Interest Payment Date. At the end of any such Extension
Period the Corporation shall pay all interest then accrued and unpaid on such
Securities (together with Additional Interest thereon, if any, at the rate
specified for the Securities of such series, to the extent permitted by
applicable law); PROVIDED, HOWEVER, that no Extension Period shall extend beyond
the Stated Maturity of the principal of the Securities of such series; and
PROVIDED FURTHER, HOWEVER that during any such Extension Period, the Corporation
shall 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
Corporation'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 Corporation
that rank PARI PASSU in all respects with or junior in interest to the
Securities of such series (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Corporation 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 Corporation, if the Board of
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Directors approves such repurchase or redemption pursuant to a policy of
assuring that the Corporation operates as a cooperative in compliance with
Subchapter T of the Internal Revenue Code, (b) as a result of an exchange or
conversion of any class or series of the Corporation's capital stock (or any
capital stock of an affiliate of the Corporation) for any class or series of the
Corporation's capital stock or of any class or series of the Corporation's
indebtedness for any class or series of the Corporation'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 Corporation may further defer the payment of interest, PROVIDED that no
Event of Default has occurred and is continuing, and PROVIDED FURTHER that no
Extension Period shall exceed the period or periods specified in such
Securities, extend beyond the Stated Maturity of the principal of such
Securities or end on a date other than an Interest Payment Date. Upon the
termination of any such Extension Period and upon the payment of all accrued and
unpaid interest (including any Additional Interest) then due on any Interest
Payment Date, the Corporation may elect to begin a new Extension Period, subject
to the above conditions. No interest (including any Additional Interest) shall
be due and payable during an Extension Period, except at the end thereof, but
each installment of interest that would otherwise have been due and payable
during such Extension Period shall bear Additional Interest as and to the extent
as may be specified as contemplated by Section 3.1. The Corporation shall give
the Holders of the Securities of such series and the Trustee notice of its
election to begin any such Extension Period at least one Business Day prior to
the next succeeding Interest Payment Date on which interest on Securities of
such series would be payable but for such deferral or, with respect to any
Securities of a series issued to an Issuer Trust, so long as any such Securities
are held by such Issuer Trust, at least one Business Day prior to the earlier of
(i) the next succeeding date on which Distributions on the Capital Securities of
such Issuer Trust would be payable but for such deferral, and (ii) the date on
which the Property Trustee of such Issuer Trust is required to give notice to
holders of such Capital Securities of the record date or the date such
Distributions are payable.
The Trustee shall promptly give notice of the Corporation's election to
begin any such Extension Period to the Holders of the Outstanding Securities of
such series.
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SECTION 3.13. RIGHT OF SET-OFF.
With respect to the Securities of a series initially issued to an Issuer
Trust, notwithstanding anything to the contrary herein, the Corporation shall
have the right to set off any payment it is otherwise required to make in
respect of any such Security to the extent the Corporation has theretofore made,
or is concurrently on the date of such payment making, a payment under the
Guarantee Agreement relating to such Security or to a holder of Capital
Securities pursuant to an action undertaken under Section 5.8 of this Indenture.
SECTION 3.14. AGREED TAX TREATMENT.
Each Security issued hereunder shall provide that the Corporation and,
by its acceptance of a Security or a beneficial interest therein, the Holder of,
and any Person that acquires a beneficial interest in, such Security, agree to
treat such Security as indebtedness of the Corporation for United States
Federal, state and local tax purposes and, with respect to Securities of a
series issued to an Issuer Trust, to treat Capital Securities of such Issuer
Trust (including but not limited to all payments and proceeds with respect to
such Capital Securities) as an undivided beneficial ownership interest in the
Securities (and payments and proceeds therefrom, respectively) for United States
Federal, state and local tax purposes..
SECTION 3.15. SHORTENING OF STATED MATURITY.
If specified as contemplated by Section 2.1 or Section 3.1 with respect
to the Securities of a particular series, the Corporation shall have the right
to shorten the Stated Maturity of the principal of the Securities of such series
at any time to any date not earlier than the first date on which the Corporation
has the right to redeem the Securities of such series. In the event that the
Corporation elects to shorten the Stated Maturity of the Securities of such
series, it shall given written notice to the Trustee.
SECTION 3.16. CUSIP NUMBERS.
The Corporation in issuing the Securities may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption and other similar or related materials as a convenience to
Holders; PROVIDED that any such notice or other materials may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or other materials
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall, upon Corporation Request, cease to be of further
effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for and as otherwise provided
in this Section 4.1) and the Trustee, on demand of and at the expense of the
Corporation, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities that have been destroyed, lost or
stolen and that have been replaced or paid as provided in Section
3.7 and (ii) Securities for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the
Corporation and thereafter repaid to the Corporation or
discharged from such trust, as provided in Section 10.3) have
been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year of the date of deposit, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Corporation,
and the Corporation, in the case of subclause (B)(i), (ii) or (iii)
above, has deposited or caused to be deposited with the Trustee as trust
funds in trust for such purpose an amount in the currency or currencies
in which the Securities of such series are payable sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest (including any Additional Interest) to the date of
such deposit (in the case of Securities that have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may
be;
(2) the Corporation has paid or caused to be paid all other
sums payable hereunder by the Corporation; and
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(3) the Corporation has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Corporation to the Trustee under Section 6.7, the obligations
of the Trustee to any Authenticating Agent under Section 6.14 and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of Clause
(1) of this Section 4.1, the obligations of the Trustee under Section 4.2 and
the last paragraph of Section 10.3 shall survive.
SECTION 4.2. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by the Trustee, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Corporation acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest (including any Additional Interest) for the payment of which
such money or obligations have been deposited with or received by the Trustee.
ARTICLE V
REMEDIES
SECTION 5.1. EVENTS OF DEFAULT.
"EVENT OF DEFAULT", wherever used herein with respect to the Securities
of any series, means any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
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), except as may be specified pursuant to Section 3.1:
(1) default in the payment of any interest (including any
Additional Interest) upon any Security of that series when it becomes
due and payable, and continuance of such default for a period of 30 days
(subject to the deferral of any due date in respect of any interest
(including Additional Interest) in the case of an Extension Period); or
(2) default in the payment of the principal of (or premium, if
any, on) any Security of that series at its Maturity; or
(3) failure on the part of the Corporation duly to observe or
perform any other of the covenants or agreements on the part of the
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Corporation in the Securities of that series or in this Indenture for a
period of 90 days after the date on which written notice of such
failure, requiring the Corporation to remedy the same, shall have been
given to the Corporation by the Trustee by registered or certified mail
or to the Corporation and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities of that series;
or
(4) the entry of a decree or order by a court having jurisdiction
in the premises adjudging the Corporation a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization of the
Corporation under the Bankruptcy Code or any other similar applicable
Federal or State law, which decree or order shall have continued
undischarged and unstayed for a period of 60 days; or the entry of a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of the Corporation or of its property, or for
the winding up or liquidation of its affairs, which decree or order
shall have continued undischarged and unstayed for a period of 60 days;
or
(5) the commencement by the Corporation of voluntary proceedings
to be adjudicated a bankrupt, or the consent by the Corporation to the
filing of a bankruptcy proceeding against it, or the filing by the
Corporation of a petition or answer or consent seeking reorganization
under the Bankruptcy Code or any other similar Federal or State law, or
the consent by the Corporation to the filing of any such petition, or
the consent by the Corporation to the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of it or
of its property, or the making by the Corporation of an assignment for
the benefit of creditors, or the admission by the Corporation in writing
of its inability to pay its debts generally as they become due; or
(6) any other Event of Default provided with respect to
Securities of that series.
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SECTION 5.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 5.1(4) or 5.1(5)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities of that series may declare the principal amount (or, if
the Securities of that series are Discount Securities, such portion of the
principal amount as may be specified in the terms of that series) of all the
Securities of that series to be due and payable immediately, by a notice in
writing to the Corporation (and to the Trustee if given by Holders), PROVIDED
that, in the case of the Securities of a series issued to an Issuer Trust, if,
upon an Event of Default, the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities of such series fail to declare
the principal of all the Outstanding Securities of such series (or specified
portion thereof) to be immediately due and payable, the holders of at least 25%
in aggregate Liquidation Amount (as defined in the related Trust Agreement) of
the related series of Capital Securities issued by such Issuer Trust then
outstanding shall have the right to make such declaration by a notice in writing
to the Corporation and the Trustee; and upon any such declaration such principal
amount (or specified portion thereof) of and the accrued interest (including any
Additional Interest) on all the Securities of such series shall become
immediately due and payable. If an Event of Default specified in Section 5.1(4)
or 5.1(5) with respect to Securities of any series at the time Outstanding
occurs, the principal amount of all the Securities of such series (or, if the
Securities of such series are Discount Securities, such portion of the principal
amount of such Securities as may be specified by the terms of that series) and
the accrued interest (including any Additional Interest) on all the Securities
of such series shall automatically, and without any declaration or other action
on the part of the Trustee or any Holder, become immediately due and payable.
Payment of principal (and premium, if any) and interest (including any
Additional Interest) on such Securities shall remain subordinated to the extent
provided in Article XIII notwithstanding that such amount shall become
immediately due and payable as herein provided.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article V provided, the Holders of a majority in aggregate principal amount of
the Outstanding Securities of that series, by written notice to the Corporation
and the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Corporation has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest on all Securities
of such series,
(B) any accrued Additional Interest on all Securities of
such series,
(C) the principal of (and premium, if any, on) any
Securities of such series that have become due otherwise than by
such declaration of acceleration, and
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(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities of that
series, other than the non-payment of the principal of Securities of
that series that has become due solely by such acceleration, have been
cured or waived as provided in Section 5.13.
In the case of Securities of a series initially issued to an Issuer
Trust, if the Holders of such Securities fail to annul such declaration and
waive such default, the holders of a Majority in Liquidation Amount of the
Capital Securities (as defined in the related Trust Agreement) issued by such
Issuer Trust shall also have the right to rescind and annul such declaration and
its consequences by written notice to the Corporation and the Trustee, subject
to the satisfaction of the conditions set forth in Clauses (1) and (2) above of
this Section 5.2.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 5.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Corporation covenants that if:
(1) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security of any series when
such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Corporation will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal (and premium, if any), including any sinking
fund payment or analogous obligations, and interest (including any Additional
Interest), and, in addition thereto, all amounts owing to the Trustee under
Section 6.7.
If the Corporation fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Corporation or any other obligor upon such Securities and collect
the moneys adjudged or decreed to be payable in the manner provided by law out
of the property of the Corporation or any other obligor upon the Securities,
wherever situated.
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
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enforce its rights and the rights of the Holders of Securities of such series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
SECTION 5.4. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Corporation or any other obligor upon the Securities
or the property of the Corporation or of such other obligor or their creditors,
(a) the Trustee (irrespective of whether the principal of the
Securities of any series shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Corporation for the payment of
overdue principal (or premium, if any) or interest (including any
Additional Interest)) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest (including any
Additional Interest) owing and unpaid in respect of the
Securities and to file such other papers or documents as may be
necessary or advisable and to take any and all actions as are
authorized under the Trust Indenture Act in order to have the
claims of the Holders and any predecessor to the Trustee under
Section 6.7 allowed in any such judicial proceedings; and
(2) in particular, the Trustee shall be authorized to
collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same in
accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) in any such judicial proceeding
is hereby authorized by each Holder to make such payments to the Trustee
for distribution in accordance with Section 5.6, and in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it and any predecessor
Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
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SECTION 5.5. TRUSTEE MAY ENFORCE CLAIM WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, subject to
Article XIII and after provision for the payment of all the amounts owing the
Trustee and any predecessor Trustee under Section 6.7, its agents and counsel,
be for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 5.6. APPLICATION OF MONEY COLLECTED.
Any money or property collected or to be applied by the Trustee with
respect to a series of Securities pursuant to this Article V shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money or property on account of principal (or premium,
if any) or interest (including any Additional Interest), upon presentation of
the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts
then due and unpaid upon Securities of such series for principal (and
premium, if any) and interest (including any Additional Interest) in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such series of Securities
for principal (and premium, if any) and interest (including any
Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 5.7. LIMITATION ON SUITS.
Subject to Section 5.8, no Holder of any Securities of any series shall
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture or for the appointment of a receiver, assignee, trustee,
liquidator or sequestrator (or other similar official) or for any other remedy
hereunder, unless:
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities
of that series;
(2) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities of that series shall have made
written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder;
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(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities of
that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
SECTION 5.8. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST; DIRECT ACTION BY HOLDERS OF CAPITAL SECURITIES.
Notwithstanding any other provision in this Indenture, the Holder of any
Security of any series shall have the right, which is absolute and
unconditional, to receive payment of the principal of (and premium, if any) and
(subject to Sections 3.8 and 3.12) interest (including any Additional Interest)
on such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder. In the case of Securities of a series issued
to an Issuer Trust, any registered holder of the series of Capital Securities
issued by such Issuer Trust shall have the right, upon the occurrence of an
Event of Default described in Section 5.1(1) or 5.1(2), to institute a suit
directly against the Corporation for enforcement of payment to such holder of
principal of (premium, if any) and (subject to Sections 3.8 and 3.12) interest
(including any Additional Interest) on the Securities having a principal amount
equal to the aggregate Liquidation Amount (as defined in the related Trust
Agreement) of such Capital Securities held by such holder.
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SECTION 5.9. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee, any Holder or any holder of Capital Securities issued by
any Issuer Trust has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee, such Holder or such
holder of Capital Securities, then and in every such case the Corporation, the
Trustee, such Holders and such holder of Capital Securities shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee, such Holder and such holder of Capital Securities shall continue as
though no such proceeding had been instituted.
SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided in the last paragraph of Section 3.7, no
right or remedy herein conferred upon or reserved to the Trustee or the Holders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee, any Holder of any Security or any
holder of any Capital Security to exercise any right or remedy accruing upon any
Event of Default with respect to the Securities of the related series shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Trustee
or to the Holders and the right and remedy given to the holders of Capital
Securities by Section 5.8 may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee, the Holders or the holders of Capital
Securities, as the case may be.
SECTION 5.12. CONTROL BY HOLDERS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee, with
respect to the Securities of such series, PROVIDED that:
(1) such direction shall not be in conflict with any rule of law
or with this Indenture,
(2) the Trustee may take any other action deemed proper
by the Trustee that is not inconsistent with such direction, and
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(3) subject to the provisions of Section 6.1, the Trustee shall
have the right to decline to follow such direction if a Responsible
Officer or Officers of the Trustee shall, in good faith, determine that
the proceeding so directed would be unjustly prejudicial to the Holders
not joining in any such direction or would involve the Trustee in
personal liability.
SECTION 5.13. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities of any series affected thereby and, in the case of
any Securities of a series initially issued to an Issuer Trust, the holders of a
Majority in Liquidation Amount of the Capital Securities (as defined in the
related Trust Agreement) issued by such Issuer Trust may waive any past default
or Event of Default hereunder and its consequences with respect to such series
except a default:
(1) in the payment of the principal of (or premium, if any) or
interest (including any Additional Interest) on any Security of such
series (unless such default has been cured and the Corporation has paid
to or deposited with the Trustee a sum sufficient to pay all matured
installments of interest (including any Additional Interest) and all
principal of (and premium, if any, on) all Securities of that series due
otherwise than by acceleration), or
(2) in respect of a covenant or provision hereof that under
Article IX cannot be modified or amended without the consent of each
Holder of any Outstanding Security of such series affected.
Any such waiver shall be deemed to be on behalf of the Holders of all
the Securities of such series or, in the case of a waiver by holders of Capital
Securities issued by such Issuer Trust, by the holders of all the Capital
Securities issued by such Issuer Trust.
Upon any such waiver, such default or Event of Default shall cease to
exist, and any default or Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.
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SECTION 5.14. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security, by
its acceptance thereof, shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.14 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder or group of Holders holding in the
aggregate more than 10% in aggregate principal amount of the Outstanding
Securities of any series, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security on or after the respective
Stated Maturities expressed in such Security.
SECTION 5.15. WAIVER OF USURY, STAY OR EXTENSION LAWS.
The Corporation covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any usury, stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Corporation (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE VI
THE TRUSTEE
SECTION 6.1. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or opinions that by
any provisions hereof are specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture.
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(b) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct except that:
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section 6.1;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of Holders pursuant to Section 5.12 relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture with respect to the Securities of a
series.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 6.1.
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SECTION 6.2. NOTICE OF DEFAULTS.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities of any series, the Trustee shall transmit by mail to all Holders of
Securities of such series, as their names and addresses appear in the Securities
Register, notice of such default, unless such default shall have been cured or
waived; PROVIDED, HOWEVER, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest (including any Additional
Interest) on any Security of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of Securities of such series; and PROVIDED FURTHER,
HOWEVER, that, in the case of any default of the character specified in Section
5.1(3), no such notice to Holders of Securities of such series shall be given
until at least 30 days after the occurrence thereof. For the purpose of this
Section 6.2, the term "DEFAULT" means any event that is, or after notice or
lapse of time or both would become, an Event of Default with respect to
Securities of such series.
SECTION 6.3. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Corporation mentioned herein shall
be sufficiently evidenced by a Corporation Request or Corporation Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in complying with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit; and
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(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed by it with due care
hereunder.
SECTION 6.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Corporation, and neither the Trustee nor any Authenticating Agent assumes
any responsibility for their correctness. The Trustee makes no representations
as to the validity or sufficiency of this Indenture or of the Securities.
Neither the Trustee nor any Authenticating Agent shall be accountable for the
use or application by the Corporation of the Securities or the proceeds thereof.
SECTION 6.5. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Corporation, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Corporation with the same rights it
would have if it were not Trustee, Authenticating Agent, Paying Agent,
Securities Registrar or such other agent.
SECTION 6.6. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law (including the Trust Indenture
Act). The Trustee shall be under no liability for interest on any money received
by it hereunder except as otherwise agreed with the Corporation.
SECTION 6.7. COMPENSATION AND REIMBURSEMENT.
The Corporation agrees
(1) to pay to the Trustee from time to time such reasonable
compensation for all services rendered by it hereunder in such amounts
as the Corporation and the Trustee shall agree 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);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
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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 or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense (including the reasonable
compensation and the expenses and disbursements of its agents and
counsel) incurred without negligence, wilful misconduct or bad faith,
arising out of or in connection with the acceptance or administration of
this trust or the performance of its duties hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder. This indemnification shall survive the termination of
this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) or 5.1(5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Code.
SECTION 6.8. DISQUALIFICATION; CONFLICTING INTERESTS.
(a) The Trustee for the Securities of any series shall be subject to the
provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall
prevent the Trustee from filing with the Commission the application referred to
in the second to last paragraph of said Section 310(b).
(b) The Trust Agreement and the Guarantee Agreement with respect to each
Issuer Trust shall be deemed to be specifically described in this Indenture for
the purposes of clause (i) of the first proviso contained in Section 310(b) of
the Trust Indenture Act.
SECTION 6.9. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be:
(a) a corporation organized and doing business under the laws of
the United States of America or of any State or Territory thereof or the
District of Columbia, authorized under such laws to exercise corporate
trust powers and subject to supervision or examination by Federal,
State, Territorial or District of Columbia authority, or
(b) a corporation or other Person organized and doing business
under the laws of a foreign government that is permitted to act as
Trustee pursuant to a rule, regulation or order of the Commission,
authorized under such laws to exercise corporate trust powers, and
subject to supervision or examination by authority of such foreign
government or a political subdivision thereof substantially equivalent
to supervision or examination applicable to United States institutional
trustees,
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in either case having at the time of appointment securities rated in one of the
three highest rating categories by a nationally recognized statistical rating
organization and a combined capital and surplus of at least $50,000,000. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purposes of this Section 6.9 and to the extent permitted by the Trust
Indenture Act, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 6.9, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article VI. Neither the Corporation nor any Person directly or indirectly
controlling, controlled by or under common control with the Corporation shall
serve as Trustee for the Securities of any series issued hereunder.
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article VI shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Corporation. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of such series, delivered to the
Trustee and to the Corporation.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Corporation or by any Holder who has been a BONA FIDE
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall
fail to resign after written request therefor by the Corporation or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Corporation, acting pursuant to the authority of
a Board Resolution, may remove the Trustee with respect to the Securities of all
series issued hereunder, or (ii) subject to Section 5.14, any Holder who has
been a BONA FIDE Holder of a Security for at least six months may, on behalf of
such Holder and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to the Securities of
all series issued hereunder and the appointment of a successor Trustee or
Trustees.
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(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause with
respect to the Securities of one or more series, the Corporation, by a Board
Resolution, shall promptly appoint a successor Trustee with respect to the
Securities of that or those series. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in aggregate principal amount of the Outstanding
Securities of such series delivered to the Corporation and the retiring Trustee,
the successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to the Securities of such
series and supersede the successor Trustee appointed by the Corporation. If no
successor Trustee with respect to the Securities of any series shall have been
so appointed by the Corporation or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a BONA FIDE Holder of a
Security of such series for at least six months may, subject to Section 5.14, on
behalf of such Holder and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Securities of such series.
(f) The Corporation shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
by mailing written notice of such event by first-class mail, postage prepaid, to
the Holders of Securities of such series as their names and addresses appear in
the Securities Register. Each notice shall include the name of the successor
Trustee with respect to the Securities of such series and the address of its
Corporate Trust Office.
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Corporation and to the retiring Trustee
an instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on the
request of the Corporation or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Corporation,
the retiring Trustee and each successor Trustee with respect to the Securities
of one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
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(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Corporation or any successor Trustee,
such retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Corporation shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred to
in paragraph (a) or (b) of this Section 6.11, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article VI.
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article VI,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. If any Securities shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated, and if any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
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SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST CORPORATION.
If and when the Trustee shall be or become a creditor of the Corporation (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Corporation (or any such other obligor).
SECTION 6.14. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with respect to one or
more series of Securities, which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issue and
upon exchange, registration of transfer or partial redemption thereof or
pursuant to Section 3.7, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or to the Trustee's certificate of authentication, such reference shall
be deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent or the Authenticating Agent's certificate of authentication
set forth for this Section 6.14. Each Authenticating Agent shall be acceptable
to the Corporation and shall at all times be a corporation organized and doing
business under the laws of the United States of America or of any State or
Territory thereof or the District of Columbia, authorized under such laws to act
as Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section 6.14 and to the extent permitted by the Trust Indenture
Act, the combined capital and surplus of such Authenticating Agent shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time an Authenticating Agent shall
cease to be eligible in accordance with the provisions of this Section 6.14,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section 6.14.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent, shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
qualified and eligible under this Section 6.14, without the execution or filing
of any paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Corporation. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Corporation. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14, the Trustee may appoint a successor
Authenticating Agent, which shall be acceptable to the Corporation and shall
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give notice of such appointment in the manner provided in Section 1.6 to all
Holders of Securities of the series with respect to which such Authenticating
Agent will serve. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provision of this Section 6.14.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 6.14, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.7.
If an appointment with respect to one or more series is made pursuant to
this Section 6.14, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred
to in the within mentioned Indenture.
Dated: ___________________
FIRST UNION NATIONAL BANK,
AS TRUSTEE
By: _________________________________ ,
AS AUTHENTICATING AGENT
By: _________________________________
AUTHORIZED OFFICER
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND CORPORATION
SECTION 7.1. CORPORATION TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Corporation will furnish or cause to be furnished to the Trustee:
(a) semi-annually, on or before June 30 and December 31 of each
year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of a date not more than 15 days
prior to the delivery thereof, and
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(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Corporation of any such request,
a list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished,
in each case to the extent such information is in the possession or control of
the Corporation and has not otherwise been received by the Trustee in its
capacity as Securities Registrar.
SECTION 7.2. PRESERVATION OF INFORMATION, COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided in the
Trust Indenture Act.
(c) Every Holder of Securities, by its acceptance thereof, agrees with
the Corporation and the Trustee that neither the Corporation nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
SECTION 7.3. REPORTS BY TRUSTEE.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not
more than 12 months shall be transmitted no later than January 31 in each
calendar year, commencing with the first January 31 after the first issuance of
Securities under this Indenture.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each securities exchange upon which any
Securities are listed and also with the Commission. The Corporation will notify
the Trustee when any Securities are listed on any securities exchange.
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SECTION 7.4. REPORTS BY CORPORATION.
The Corporation shall file with the Trustee and with the Commission, and
transmit to the Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided in the Trust Indenture Act; PROVIDED that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with
the Trustee within 15 days after the same is required to be filed with the
Commission. Notwithstanding that the Corporation may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, upon the request of a Holder or beneficial owner of a Security, the
Corporation shall continue to file with the Commission and provide the Trustee
with the annual reports and the information, documents and other reports which
are specified in Section 13 and 15(d) of the Exchange Act. The Corporation also
shall comply with the other provisions of Trust Indenture Act Section 314(a).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. CORPORATION MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Corporation shall 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 shall consolidate with or merge into
the Corporation or convey, transfer or lease its properties and assets
substantially as an entirety to the Corporation, unless:
(1) if the Corporation shall consolidate with or merge into
another Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the corporation formed by
such consolidation or into which the Corporation is merged or the Person
that acquires by conveyance or transfer, or that leases, the properties
and assets of the Corporation substantially as an entirety shall be a
corporation, partnership or trust organized and existing under the laws
of the United States of America or any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest (including any Additional Interest) on all
the Securities of every series and the performance of every covenant of
this Indenture on the part of the Corporation to be performed or
observed;
(2) immediately after giving effect to such transaction, no Event
of Default, and no event that, after notice or lapse of time, or both,
would constitute an Event of Default, shall have occurred and be
continuing; and
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(3) the Corporation shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and any such
supplemental indenture comply with this Article VIII and that all
conditions precedent herein provided for relating to such transaction
have been complied with; and the Trustee, subject to Section 6.1, may
rely upon such Officers' Certificate and Opinion of Counsel as
conclusive evidence that such transaction complies with this Section
8.1.
SECTION 8.2. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger by the Corporation with or into any
other Person, or any conveyance, transfer or lease by the Corporation of its
properties and assets substantially as an entirety to any Person in accordance
with Section 8.1, the successor corporation formed by such consolidation or into
which the Corporation is merged or to which such conveyance, transfer or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Corporation under this Indenture with the same effect as if
such successor Person had been named as the Corporation herein; and in the event
of any such conveyance, transfer or lease, the Corporation shall be discharged
from all obligations and covenants under this Indenture and the Securities.
Such successor Person may cause to be executed, and may issue either in
its own name or in the name of the Corporation, any or all of the Securities
issuable hereunder that theretofore shall not have been signed by the
Corporation and delivered to the Trustee; and, upon the order of such successor
Person instead of the Corporation and subject to all the terms, conditions and
limitations of this Indenture, the Trustee shall authenticate and shall deliver
any Securities that previously shall have been signed and delivered by the
officers of the Corporation to the Trustee for authentication and any Securities
that such successor Person thereafter shall cause to be executed and delivered
to the Trustee on its behalf. All the Securities so issued shall in all respects
have the same legal rank and benefit under this Indenture as the Securities
theretofore or thereafter issued in accordance with the terms of this Indenture.
In case of any such consolidation, merger, conveyance, transfer or
lease, such changes in phraseology and form may be made in the Securities
thereafter to be issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Corporation, when authorized by
a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
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(1) to evidence the succession of another Person to the
Corporation, and the assumption by any such successor of the covenants
of the Corporation contained herein and in the Securities; or
(2) to convey, transfer, assign, mortgage or pledge any property
to or with the Trustee or to surrender any right or power herein
conferred upon the Corporation; or
(3) to establish the form or terms of Securities of any series
as permitted by Sections 2.1 or 3.1; or
(4) to add to the covenants of the Corporation for the benefit of
the Holders of all or any series of Securities (and if such covenants
are to be for the benefit of less than all series of Securities, stating
that such covenants are expressly being included solely for the benefit
of the series specified) or to surrender any right or power herein
conferred upon the Corporation; or
(5) to add any additional Events of Default for the benefit of
the Holders of all or any series of Securities (and if such additional
Events of Default are to be for the benefit of less than all series of
Securities, stating that such additional Events of Default are expressly
being included solely for the benefit of the series specified); or
(6) to change or eliminate any of the provisions of this
Indenture, PROVIDED that any such change or elimination shall (a) become
effective only when there is no Security Outstanding of any series
created prior to the execution of such supplemental indenture that is
entitled to the benefit of such provision or (b) not apply to any
Outstanding Securities; or
(7) to cure any ambiguity, to correct or supplement any provision
herein that may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, PROVIDED that such action
pursuant to this clause (7) shall not adversely affect the interest of
the Holders of Securities of any series in any material respect or, in
the case of the Securities of a series issued to an Issuer Trust and for
so long as any of the corresponding series of Capital Securities issued
by such Issuer Trust shall remain outstanding, the holders of such
Capital Securities; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one
or more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 6.11(b); or
(9) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act.
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SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Corporation and
the Trustee, the Corporation, when authorized by a Board Resolution, and the
Trustee may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the Holders of Securities of such series under this Indenture; PROVIDED,
HOWEVER, that no such supplemental indenture shall, without the consent of the
Holder of each Outstanding Security of each series affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest (including any Additional Interest) on, any
Security, or reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon the redemption thereof, or reduce
the amount of principal of a Discount Security that would be due and
payable upon a declaration of acceleration of the Maturity thereof
pursuant to Section 5.2, or change the place of payment where, or the
coin or currency in which, any Security or interest (including any
Additional Interest) thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) reduce the percentage in aggregate principal amount of the
Outstanding Securities of any series, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver (of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section 9.2, Section
5.13 or Section 10.5, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each Security
affected thereby;
PROVIDED FURTHER, HOWEVER, that, in the case of Securities of a series issued to
an Issuer Trust, so long as any of the corresponding series of Capital
Securities issued by such Issuer Trust remains outstanding, (i) no such
amendment shall be made that adversely affects the holders of such Capital
Securities in any material respect, and no termination of this Indenture shall
occur, and no waiver of any Event of Default or compliance with any covenant
under this Indenture shall be effective, without the prior consent of the
holders of at least a Majority in Liquidation Amount of such Capital Securities
(as defined in the related Trust Agreement) unless and until the principal of
(and premium, if any, on) the Securities of such series and all accrued and
(subject to Section 3.12) unpaid interest (including, subject to Section 3.12,
any Additional Interest) thereon have been paid in full, and (ii) no amendment
shall be made to Section 5.8 of this Indenture that would impair the rights of
the holders of Capital Securities issued by any Issuer Trust provided therein
without the prior consent of the holders of each such Capital Security then
outstanding unless and until the principal of (and premium, if any, on) the
Securities of such series and all accrued and (subject to Section 3.12) unpaid
interest (including, subject to Section 3.12, any Additional Interest) thereon
have been paid in full.
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A supplemental indenture that changes or eliminates any covenant or
other provision of this Indenture that has expressly been included solely for
the benefit of one or more particular series of Securities or any corresponding
series of Capital Securities of an Issuer Trust that holds the Securities of any
series, or that modifies the rights of the Holders of Securities of such series
or holders of such Capital Securities of such corresponding series with respect
to such covenant or other provision, shall be deemed not to affect the rights
under this Indenture of the Holders of Securities of any other series or holders
of Capital Securities of any other series.
It shall not be necessary for any Act of Holders under this Section 9.2
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article IX or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 6.1) shall be fully protected in relying upon,
an Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture, and
that all conditions precedent herein provided for relating to such action have
been complied with. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article IX,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.5. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
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SECTION 9.6. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required by
the Corporation, bear a notation in form approved by the Corporation as to any
matter provided for in such supplemental indenture. If the Corporation shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Corporation, to any such supplemental indenture may be prepared
and executed by the Corporation and authenticated and delivered by the Trustee
in exchange for Outstanding Securities of such series.
ARTICLE X
COVENANTS
SECTION 10.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Corporation covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest (including any Additional Interest) on the Securities of
that series in accordance with the terms of such Securities and this Indenture.
SECTION 10.2. MAINTENANCE OF OFFICE OR AGENCY.
The Corporation will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for payment, where Securities of that series may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Corporation in respect of the Securities of that series and this
Indenture may be served. The Corporation initially appoints the Trustee, acting
through its Corporate Trust Office, as its agent for said purposes. The
Corporation will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Corporation shall fail
to maintain such office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Corporation
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Corporation may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all of such purposes, and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Corporation of its obligation to maintain an office or agency in
each Place of Payment for Securities of any series for such purposes. The
Corporation will give prompt written notice to the Trustee of any such
designation and any change in the location of any such office or agency.
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SECTION 10.3. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Corporation shall at any time act as its own Paying Agent with
respect to any series of Securities, it will, on or before each due date of the
principal of (or premium, if any) or interest (including any Additional
Interest) on any of the Securities of such series, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal (or premium, if any) or interest (including any Additional Interest)
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
failure so to act.
Whenever the Corporation shall have one or more Paying Agents, it will,
prior to 10:00 a.m., New York City time, on each due date of the principal of
(or premium, if any) or interest (including any Additional Interest) on any
Securities, deposit with a Paying Agent a sum sufficient to pay the amount so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such amount, and (unless such Paying Agent is the Trustee) the
Corporation will promptly notify the Trustee of its failure so to act.
The Corporation will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 10.3,
that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) and interest (including any Additional Interest)
on the Securities of a series in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Corporation (or
any other obligor upon such Securities) in the making of any payment of
principal (or premium, if any) or interest (including any Additional
Interest) in respect of any Security of any series;
(3) at any time during the continuance of any default with
respect to a series of Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums so held in trust by such
Paying Agent with respect to such series; and
(4) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent.
The Corporation may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Corporation Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Corporation or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by the
Corporation or such Paying Agent; and, upon such payment by any Paying Agent to
the Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
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Any money deposited with the Trustee or any Paying Agent, or then held
by the Corporation in trust for the payment of the principal of (or premium, if
any) or interest (including any Additional Interest) on any Security and
remaining unclaimed for two years after such principal (or premium, if any) or
interest (including any Additional Interest) has become due and payable shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Corporation Request to the
Corporation, or (if then held by the Corporation) shall (unless otherwise
required by mandatory provision of applicable escheat or abandoned or unclaimed
property law) be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Corporation
for payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Corporation as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Corporation cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in the Borough of Manhattan, The City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the
Corporation.
SECTION 10.4. STATEMENT AS TO COMPLIANCE.
The Corporation shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Corporation ending after the date hereof, an
Officers' Certificate covering the preceding calendar year, stating whether or
not to the best knowledge of the signers thereof the Corporation is in default
in the performance, observance or fulfillment of or compliance with any of the
terms, provisions, covenants and conditions of this Indenture, and if the
Corporation shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge. For the purpose of this Section
10.4, compliance shall be determined without regard to any grace period or
requirement of notice provided pursuant to the terms of this Indenture.
SECTION 10.5. WAIVER OF CERTAIN COVENANTS.
Subject to the rights of holders of Capital Securities specified in
Section 9.2, if any, the Corporation may omit in any particular instance to
comply with any covenant or condition provided pursuant to Section 3.1, 9.1(3)
or 9.1(4) with respect to the Securities of any series, if before or after the
time for such compliance the Holders of at least a majority in aggregate
principal amount of the Outstanding Securities of such series shall, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the
Corporation in respect of any such covenant or condition shall remain in full
force and effect.
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SECTION 10.6. ADDITIONAL SUMS.
In the case of the Securities of a series initially issued to an Issuer
Trust, so long as no Event of Default has occurred and is continuing and except
as otherwise specified as contemplated by Section 2.1 or Section 3.1, if (i) an
Issuer Trust is the Holder of all of the Outstanding Securities of such series,
and (ii) a Tax Event has occurred and is continuing in respect of such Issuer
Trust, the Corporation shall pay to such Issuer Trust (or its permitted
successor under the related Trust Agreement) for so long as such Issuer Trust
(or its permitted successor) is the registered holder of the Outstanding
Securities of such series, together with any payment of principal of (or
premium, if any) or interest (including any Additional Interest) on such
Securities, such additional sums as may be necessary in order that the amount of
Distributions (including any Additional Amounts (as defined in such Trust
Agreement)) then payable by such Issuer Trust in respect of the related Capital
Securities and Common Securities in accordance with the terms thereof shall not
be reduced as a result of any Additional Taxes arising from such Tax Event (the
"ADDITIONAL SUMS"). Whenever in this Indenture or the Securities there is a
reference in any context to the payment of principal of (or premium, if any) or
interest (including any Additional Interest) on the Securities, such mention
shall be deemed to include mention of the payments of the Additional Sums
provided for in this paragraph to the extent that, in such context, Additional
Sums are, were or would be payable in respect thereof pursuant to the provisions
of this paragraph, and any express mention of the payment of Additional Sums (if
applicable) in any provision hereof shall not be construed as excluding
Additional Sums in those provisions hereof where such express mention is not
made; PROVIDED, HOWEVER, that the deferral of the payment of interest pursuant
to Section 3.12 or the terms of the Securities shall not defer the payment of
any Additional Sums that may be due and payable.
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SECTION 10.7. ADDITIONAL COVENANTS.
The Corporation covenants and agrees with each Holder of Securities of
each series that it shall not, and it shall not permit any Subsidiary of the
Corporation to, (x) declare or pay any dividends or distributions on, or redeem
purchase, acquire or make a liquidation payment with respect to, any shares of
the Corporation's capital stock or patrons' equity, (y) redeem any patronage
refund allocations or (z) make any payment of principal of or interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Corporation that rank PARI PASSU in all respects with or junior in interest to
the Securities of such series (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Corporation 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 Corporation, if the Board of
Directors approves such repurchase or redemption pursuant to a policy of
assuring that the Corporation operates as a cooperative in compliance with
Subchapter T of the Internal Revenue Code, (b) as a result of an exchange or
conversion of any class or series of the Corporation's capital stock (or any
capital stock of an affiliate of the Corporation) for any class or series of the
Corporation's capital stock or of any class or series of the Corporation's
indebtedness for any class or series of the Corporation'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 shall have occurred any event
(A) of which the Corporation has actual knowledge that with the giving of notice
or the lapse of time, or both, would constitute an Event of Default with respect
to the Securities of such series, and (B) which the Corporation shall not have
taken reasonable steps to cure, (ii) if the Securities of such series are held
by an Issuer Trust, the Corporation shall be in default with respect to its
payment of any obligations under the Guarantee Agreement relating to the Capital
Securities issued by such Issuer Trust, or (iii) the Corporation shall have
given notice of its election to begin an Extension Period with respect to the
Securities of such series as provided herein and shall not have rescinded such
notice, or such Extension Period, or any extension thereof, shall be continuing.
The Corporation also covenants with each Holder of Securities of a
series issued to an Issuer Trust (i) to hold, directly or indirectly, 100% of
the Common Securities of such Issuer Trust, PROVIDED that any permitted
successor of the Corporation hereunder may succeed to the Corporation's
ownership of such Common Securities, (ii) as holder of such Common Securities,
not to voluntarily terminate, wind-up or liquidate such Issuer Trust, other than
(a) in connection with a distribution of the Securities of such series to the
holders of the related Capital Securities in liquidation of such Issuer Trust,
or (b) in connection with certain mergers, consolidations or amalgamations
permitted by the related Trust Agreement, and (iii) to use its reasonable
efforts, consistent with the terms and provisions of such Trust Agreement, to
cause such Issuer Trust to continue to be classified as a grantor trust and not
to be taxable as a corporation for United States federal income tax purposes.
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SECTION 10.8. ORIGINAL ISSUE DISCOUNT.
For each year during which any Securities that were issued with original
issue discount are Outstanding, the Corporation shall furnish to each Paying
Agent in a timely fashion such information as may be reasonably requested by
each Paying Agent in order that such Paying Agent may prepare the information
that it is required to report for such year on Internal Revenue Service Forms
1096 and 1099 pursuant to Section 6049 of the Internal Revenue Code of 1986, as
amended. Such information shall include the amount of original issue discount
includable in income for each $25 of principal amount at Stated Maturity of
Securities Outstanding during such year.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. APPLICABILITY OF THIS ARTICLE.
Redemption of Securities of any series (whether by operation of a
sinking fund or otherwise) as permitted or required by the terms of any Security
issued pursuant to this Indenture shall be made in accordance with the terms of
such Security and this Article XI; PROVIDED, HOWEVER, that if any provision of
any such Security shall conflict with any provision of this Article XI, the
provision of such Security shall govern. Except as otherwise set forth in the
form of Security for such series, each Security of a series shall be subject to
partial redemption only in integral multiples of $25.
SECTION 11.2. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Corporation to redeem any Securities shall be
evidenced by or pursuant to a Board Resolution. In case of any redemption at the
election of the Corporation, the Corporation shall, not less than 45 nor more
than 60 days prior to the Redemption Date (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee and, in the case of Securities
of a series held by an Issuer Trust, the Property Trustee under the related
Trust Agreement, of such date and of the principal amount of Securities of the
applicable series to be redeemed and provide the additional information required
to be included in the notice or notices contemplated by Section 11.4; PROVIDED
that in the case of any series of Securities initially issued to an Issuer
Trust, for so long as such Securities are held by such Issuer Trust, such notice
shall be given not less than 45 nor more than 75 days prior to such Redemption
Date (unless a shorter notice shall be satisfactory to the Property Trustee
under the related Trust Agreement). In the case of any redemption of Securities
prior to the expiration of any restriction on such redemption provided in the
terms of such Securities, the Corporation shall furnish the Trustee with an
Officers' Certificate and an Opinion of Counsel evidencing compliance with such
restriction.
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SECTION 11.3. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of a portion of the principal amount of any Security of such series,
PROVIDED that the unredeemed portion of the principal amount of any Security
shall be in an authorized denomination (which shall not be less than the minimum
authorized denomination) for such Security.
The Trustee shall promptly notify the Corporation in writing of the
Securities selected for partial redemption and the principal amount thereof to
be redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security that has been or is to be
redeemed.
SECTION 11.4. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at the address of such Holder
as it appears in the Securities Register, PROVIDED that in the case of any
series of Securities initially issued to an Issuer Trust, for so long as such
Securities are held by such Issuer Trust, such notice shall be given not less
than 45 nor more than 75 days prior to such Redemption Date (unless a shorter
notice shall be satisfactory to the Property Trustee under the related Trust
Agreement).
With respect to Securities of each series to be redeemed, each notice of
redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price or, if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, an
estimate of the Redemption Price together with a statement that it is an
estimate and that the actual Redemption Price will be calculated on the
third Business Day prior to the Redemption Date (and, if such an
estimate of the Redemption Price is given, a subsequent notice shall be
given as set forth above on the date that such Redemption Price is
calculated setting forth the actual Redemption Price);
(c) if less than all Outstanding Securities of such particular
series are to be redeemed, the identification (and, in the case of
partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
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(d) that on the Redemption Date, the Redemption Price will become
due and payable upon each such Security or portion thereof, and that
interest (including any Additional Interest) thereon, if any, shall
cease to accrue on and after said date;
(e) the place or places where such Securities are to be
surrendered for payment of the Redemption Price;
(f) that the redemption is for a sinking fund, if such is the
case;
(g) such other provisions as may be required in respect of the
terms of a particular series of Securities.
Notice of redemption of Securities to be redeemed at the election of the
Corporation shall be given by the Corporation or, at the Corporation's request,
by the Trustee in the name and at the expense of the Corporation and shall be
irrevocable. The notice if mailed in the manner provided above shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice by mail or any
defect in the notice to the Holder of any Security designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
SECTION 11.5. DEPOSIT OF REDEMPTION PRICE.
Prior to 10:00 a.m., New York City time, on the Redemption Date
specified in the notice of redemption given as provided in Section 11.4, the
Corporation will deposit with the Trustee or with one or more Paying Agents (or,
if the Corporation is acting as its own Paying Agent, the Corporation will
segregate and hold in trust as provided in Section 10.3) an amount of money
sufficient to pay the Redemption Price of, and any accrued interest (including
any Additional Interest) on, all the Securities (or portions thereof) that are
to be redeemed on that date.
SECTION 11.6. PAYMENT OF SECURITIES CALLED FOR REDEMPTION.
If any notice of redemption has been given as provided in Section 11.4,
the Securities or portion of Securities with respect to which such notice has
been given shall become due and payable on the date and at the place or places
stated in such notice at the applicable Redemption Price, together with accrued
interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment in said
notice specified, the said Securities or the specified portions thereof shall be
paid and redeemed by the Corporation at the applicable Redemption Price,
together with accrued interest (including any Additional Interest) to the
Redemption Date; PROVIDED, HOWEVER, that, unless otherwise specified as
contemplated by Section 3.1, installments of interest (including any Additional
Interest) whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant record
dates according to their terms and the provisions of Section 3.8.
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Upon presentation of any Security redeemed in part only, the Corporation
shall execute and the Trustee shall authenticate and deliver to the Holder
thereof, at the expense of the Corporation, a new Security or Securities of the
same series, of authorized denominations, in aggregate principal amount equal to
the unredeemed portion of the Security so presented and having the same Original
Issue Date, Stated Maturity and terms.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal of (and premium, if any, on)
such Security shall, until paid, bear interest from the Redemption Date at the
rate prescribed therefor in such Security.
SECTION 11.7. RIGHT OF REDEMPTION OF SECURITIES INITIALLY ISSUED TO AN
ISSUER TRUST.
In the case of Securities of a series initially issued to an Issuer
Trust, except as otherwise specified as contemplated by Section 3.1, the
Corporation, at its option, may redeem such Securities (i) on or after the date
specified in such Security, in whole at any time or in part from time to time,
or (ii) upon the occurrence and during the continuation of a Tax Event, in whole
(but not in part) at any time within 90 days following the occurrence and during
the continuation of such Tax Event, at a Redemption Price specified in such
Security, together with accrued interest (including any Additional Interest) to
but excluding the Redemption Date.
If less than all the Securities of any such series are to be redeemed,
the aggregate principal amount of such Securities remaining Outstanding after
giving effect to such redemption shall be sufficient to satisfy any provisions
of the Trust Agreement related to the Issuer Trust to which such Securities were
issued, including any requirement in such Trust Agreement as to the minimum
Liquidation Amount (as defined in such Trust Agreement) of Capital Securities
that may be held by a holder of Capital Securities thereunder.
ARTICLE XII
SINKING FUNDS
SECTION 12.1. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of any series except as otherwise specified as
contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms
of any Securities of any series is herein referred to as a "MANDATORY SINKING
FUND PAYMENT", and any sinking fund payment in excess of such minimum amount
that is permitted to be made by the terms of such Securities of any series is
herein referred to as an "OPTIONAL SINKING FUND PAYMENT". If provided for by the
terms of any Securities of any series, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 12.2. Each sinking
fund payment shall be applied to the redemption of Securities of any series as
provided for by the terms of such Securities.
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SECTION 12.2. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
In lieu of making all or any part of a mandatory sinking fund payment
with respect to any Securities of a series in cash, the Corporation may at its
option, at any time no more than 16 months and no less than 45 days prior to the
date on which such sinking fund payment is due, deliver to the Trustee
Securities of such series (together with the unmatured coupons, if any,
appertaining thereto) theretofore purchased or otherwise acquired by the
Corporation, except Securities of such series that have been redeemed through
the application of mandatory or optional sinking fund payments pursuant to the
terms of the Securities of such series, accompanied by a Corporation Order
instructing the Trustee to credit such obligations and stating that the
Securities of such series were originally issued by the Corporation by way of
bona fide sale or other negotiation for value; PROVIDED that the Securities to
be so credited have not been previously so credited. The Securities to be so
credited shall be received and credited for such purpose by the Trustee at the
Redemption Price for such Securities, as specified in the Securities so to be
redeemed, for redemption through operation of the sinking fund and the amount of
such sinking fund payment shall be reduced accordingly.
SECTION 12.3. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 45 days prior to each sinking fund payment date for any
series of Securities, the Corporation will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
such Securities pursuant to the terms of such Securities, the portion thereof,
if any, that is to be satisfied by payment of cash in the currency in which the
Securities of such series are payable (except as provided pursuant to Section
3.1) and the portion thereof, if any, that is to be satisfied by delivering and
crediting Securities pursuant to Section 12.2, and will also deliver to the
Trustee any Securities to be so delivered. Such Officers' Certificate shall be
irrevocable and upon its delivery the Corporation shall be obligated to make any
cash payment or payments referred to therein, on or before the succeeding
sinking fund payment date. If the Corporation fails to deliver such Officers'
Certificate (or, as required by this Indenture, the Securities and coupons, if
any, specified in such Officers' Certificate) by the due date therefor, the
sinking fund payment due on the succeeding sinking fund payment date for such
series shall be paid entirely in cash and shall be sufficient to redeem the
principal amount of the Securities of such series subject to a mandatory sinking
fund payment without the right to deliver or credit securities as provided in
Section 12.2 and without the right to make the optional sinking fund payment
with respect to such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in
cash plus any unused balance of any preceding sinking fund payments made with
respect to the Securities of any particular series shall be applied by the
Trustee (or by the Corporation, if the Corporation is acting as its own Paying
Agent) on the sinking fund payment date on which such payment is made (or, if
such payment is made before a sinking fund payment date, on the sinking fund
payment date immediately following the date of such payment) to the redemption
of Securities of such series at the Redemption Price specified in such
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Securities with respect to the sinking fund. Any and all sinking fund moneys
with respect to the Securities of any particular series held by the Trustee (or,
if the Corporation is acting as its own Paying Agent, segregated and held in
trust as provided in Section 10.3) on the last sinking fund payment date with
respect to Securities of such series and not held for the payment or redemption
of particular Securities of such series shall be applied by the Trustee (or, by
the Corporation, if the Corporation is acting as its own Paying Agent), together
with other moneys, if necessary, to be deposited (or segregated) sufficient for
the purpose, to the payment of the principal of the Securities of such series at
Maturity. The Trustee shall select the Securities to be redeemed upon such
sinking fund payment date in the manner specified in Section 11.3 and cause
notice of the redemption thereof to be given in the name of and at the expense
of the Corporation in the manner provided in Section 11.4. Such notice having
been duly given, the redemption of such Securities shall be made upon the terms
and in the manner stated in Section 11.6. On or before each sinking fund payment
date, the Corporation shall pay to the Trustee (or, if the Corporation is acting
as its own Paying Agent, the Corporation shall segregate and hold in trust as
provided in Section 10.3) in cash a sum in the currency in which Securities of
such series are payable (except as provided pursuant to Section 3.1) equal to
the principal (and premium, if any) and any interest (including any Additional
Interest) accrued to the Redemption Date for the Securities or portions thereof
to be redeemed on such sinking fund payment date pursuant to this Section 12.3.
Neither the Trustee nor the Corporation shall redeem any Securities of a
series with sinking fund monies or mail any notice of redemption of Securities
of such series by operation of the sinking fund for such series during the
continuance of a default in payment of interest (including any Additional
Interest), if any, on any Securities of such series or of any Event of Default
(other than an Event of Default occurring as a consequence of this paragraph)
with respect to the Securities of such series, except that if the notice of
redemption shall have been provided in accordance with the provisions hereof,
the Trustee (or the Corporation, if the Corporation is acting as its own Paying
Agent) shall redeem such Securities if cash sufficient for that purpose shall be
deposited with the Trustee (or segregated by the Corporation) for that purpose
in accordance with the terms of this Article XII. Except as aforesaid, any
monies in the sinking fund for such series at the time when any such default or
Event of Default shall occur and any monies thereafter paid into such sinking
fund shall, during the continuance of such default or Event of Default, be held
as security for the payment of the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities of such series;
PROVIDED, HOWEVER, that if such default or Event of Default shall have been
cured or waived as provided herein, such monies shall thereafter be applied on
the next sinking fund payment date for the Securities of such series on which
such monies may be applied pursuant to the provisions of this Section 12.3.
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ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Corporation covenants and agrees, and each Holder of a Security, by
its acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article XIII, the payment of the
principal of (and premium, if any) and interest (including any Additional
Interest) on each and all of the Securities of each and every series are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness.
SECTION 13.2. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT;
PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
If the Corporation shall default in the payment of any principal of (or
premium, if any) or interest on any Senior Indebtedness when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or by
declaration of acceleration or otherwise, then, upon written notice of such
default to the Corporation by the holders of Senior Indebtedness or any trustee
therefor, unless and until such default shall have been cured or waived or shall
have ceased to exist, no direct or indirect payment (in cash, property or
securities, by set-off or otherwise) shall be made or agreed to be made on
account of the principal of (or premium, if any) or interest (including any
Additional Interest) on any of the Securities, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the Securities.
In the event of (a) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceedings relating to the Corporation, its creditors or its property, (b) any
proceeding for the liquidation, dissolution or other winding up of the
Corporation, voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings, (c) any assignment by the Corporation for the benefit of
creditors or (d) any other marshaling of the assets of the Corporation (each
such event, if any, herein sometimes referred to as a "PROCEEDING"), 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 to
any Holder of any of the Securities on account thereof. Any payment or
distribution, whether in cash, securities or other property (other than
securities of the Corporation or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
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thereof under any such plan of reorganization or readjustment), that would
otherwise (but for these subordination provisions) be payable or deliverable in
respect of the Securities of any series shall 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 Proceeding) shall have
been paid in full.
In the event of any Proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness, the Holders of the Securities, together
with the holders of any obligations of the Corporation ranking on a parity with
the Securities, shall be entitled to be paid from the remaining assets of the
Corporation the amounts at the time due and owing on account of unpaid principal
of (and premium, if any) and interest (including any Additional Interest) on the
Securities and such other obligations before any payment or other distribution,
whether in cash, property or otherwise, shall be made on account of any capital
stock or any obligations of the Corporation ranking junior to the Securities and
such other obligations.
If, notwithstanding the foregoing, any payment or distribution of any
character on any Security, whether in cash, securities or other property (other
than securities of the Corporation or any other corporation provided for by a
plan of reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in these subordination provisions with respect to
the indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), shall be
received by the Trustee or any Holder in contravention of any of the terms
hereof and before all Senior Indebtedness (including any interest thereon
accruing after the commencement of any Proceeding) shall have been paid in full,
such payment or distribution shall be received in trust for the benefit of, and
shall 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 (including any interest thereon accruing after the commencement of
any Proceeding) in full. If the Trustee or any Holder fails to endorse or assign
any such payment or distribution, each holder of Senior Indebtedness is hereby
irrevocably authorized to endorse or assign the same.
The Trustee and the Holders shall take such action (including the
delivery of this Indenture to an agent for the holders of Senior Indebtedness or
consent to the filing of a financing statement with respect hereto) as may, in
the opinion of counsel designated by the holders of a majority in principal
amount of the Senior Indebtedness at the time outstanding, be necessary or
appropriate to assure the effectiveness of the subordination effected by these
provisions.
The provisions of this Section 13.2 shall not impair any rights,
interests, remedies or powers of any secured creditor of the Corporation in
respect of any security interest the creation of which is not prohibited by the
provisions of this Indenture.
The securing of any obligations of the Corporation, otherwise ranking on
a parity with the Securities or ranking junior to the Securities, shall not be
deemed to prevent such obligations from constituting, respectively, obligations
ranking on a parity with the Securities or ranking junior to the Securities.
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SECTION 13.3. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article XIII or elsewhere in this Indenture or
in any of the Securities shall prevent (a) the Corporation, at any time, except
during the pendency of the conditions described in the first paragraph of
Section 13.2 or of any Proceeding referred to in Section 13.2, from making
payments at any time of principal of (and premium, if any) or interest
(including any Additional Interest) on the Securities, or (b) the application by
the Trustee of any moneys deposited with it hereunder to the payment of or on
account of the principal of (and premium, if any) or interest (including any
Additional Interest) on the Securities or the retention of such payment by the
Holders, if, at the time of such application by the Trustee, it did not have
knowledge that such payment would have been prohibited by the provisions of this
Article XIII.
SECTION 13.4. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full of all amounts due or to become due on
all Senior Indebtedness, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article XIII (equally and ratably with the
holders of all indebtedness of the Corporation that by its express terms is
subordinated to Senior Indebtedness of the Corporation to substantially the same
extent as the Securities are subordinated to the Senior Indebtedness and is
entitled to like rights of subrogation by reason of any payments or
distributions made to holders of such Senior Indebtedness) to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest (including any Additional
Interest) on the Securities shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled except for the provisions of this
Article XIII, and no payments over pursuant to the provisions of this Article
XIII to the holders of Senior Indebtedness by Holders of the Securities or the
Trustee, shall, as among the Corporation, its creditors other than holders of
Senior Indebtedness, and the Holders of the Securities, be deemed to be a
payment or distribution by the Corporation to or on account of such Senior
Indebtedness.
75
<PAGE>
SECTION 13.5. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article XIII are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article XIII or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as between the Corporation and
the Holders of the Securities, the obligations of the Corporation, which are
absolute and unconditional, to pay to the Holders of the Securities the
principal of (and premium, if any) and interest (including any Additional
Interest) on the Securities as and when the same shall become due and payable in
accordance with their terms; (b) affect the relative rights against the
Corporation of the Holders of the Securities and creditors of the Corporation
other than their rights in relation to the holders of Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Security (or to the extent
expressly provided herein, the holder of any Capital Security) from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, including filing and voting claims in any Proceeding, subject to the
rights, if any, under this Article XIII of the holders of Senior Indebtedness to
receive cash, property and securities otherwise payable or deliverable to the
Trustee or such Holder.
SECTION 13.6. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Security, by its acceptance thereof, authorizes and
directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination provided
in this Article XIII and appoints the Trustee such Holder's attorney-in-fact for
any and all such purposes.
SECTION 13.7. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the
Corporation or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Corporation with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof that any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior Indebtedness may, at any time and from to time,
without the consent of or notice to the Trustee or the Holders of the Securities
of any series, without incurring responsibility to such Holders and without
impairing or releasing the subordination as provided in this Article XIII or the
obligations hereunder of such Holders to the holders of Senior Indebtedness, do
any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Corporation and any other Person.
76
<PAGE>
SECTION 13.8. NOTICE TO TRUSTEE.
The Corporation shall give prompt written notice to the Trustee of any
fact known to the Corporation that would prohibit the making of any payment to
or by the Trustee in respect of the Securities. Notwithstanding the provisions
of this Article or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts that would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Corporation or a holder of Senior Indebtedness or from any trustee, agent or
representative therefor; PROVIDED, HOWEVER, that if the Trustee shall not have
received the notice provided for in this Section 13.8 at least two Business Days
prior to the date upon which by the terms hereof any monies may become payable
for any purpose (including the payment of the principal of (and premium, if any,
on) or interest (including any Additional Interest) on any Security), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such monies and to apply the same to
the purpose for which they were received and shall not be affected by any notice
to the contrary that may be received by it within two Business Days prior to
such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself or herself to be a holder of Senior Indebtedness (or a trustee or
attorney-in-fact therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee or attorney-in-fact therefor). If
the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article XIII, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article XIII, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
77
<PAGE>
SECTION 13.9. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.
Upon any payment or distribution of assets of the Corporation referred
to in this Article XIII, the Trustee, subject to the provisions of Section 6.1,
and the Holders of the Securities shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which any Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Corporation, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XIII.
SECTION 13.10. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee, in its capacity as trustee under this Indenture, shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and
shall not be liable to any such holders if it shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Corporation or to any
other Person cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article XIII or otherwise.
SECTION 13.11. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS;
PRESERVATION OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XIII with respect to any Senior Indebtedness
that may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder.
SECTION 13.12. ARTICLE APPLICABLE TO PAYING AGENTS.
If at any time any Paying Agent other than the Trustee shall have been
appointed by the Corporation and be then acting hereunder, the term "TRUSTEE" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee.
* * * *
This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
78
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
[SEAL]
By: ___________________________________
Name:
Title:
Attest: __________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
as Trustee
[SEAL]
By: ___________________________________
Name:
Title:
Attest: __________________________
Name:
Title:
EXHIBIT 4.6
SOUTHERN STATES COOPERATIVE, INCORPORATED.
_____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
No. A-1 $___________
SOUTHERN STATES COOPERATIVE, INCORPORATED, an agricultural cooperative
corporation organized and existing under the laws of Virginia (hereinafter
called the "CORPORATION", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to First Union National Bank, as Property Trustee for Southern States Capital
Trust I, a statutory business trust formed under the laws of the State of
Delaware, or registered assigns, the principal sum of _____________
(______________) Dollars on _________, 2029. The Corporation further promises to
pay interest on said principal sum from _________, 1999 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year,
commencing April 1, 1999, at the rate of ______% per annum, together with
Additional Sums, if any, as provided in Section 10.6 of the Indenture, until the
principal hereof is paid or duly provided for or made available for payment;
PROVIDED that any overdue principal, premium or Additional Sums and any overdue
installment of interest shall bear Additional Interest at the rate of _____% per
annum (to the extent that the payment of such interest shall be legally
enforceable), compounded quarterly, from the dates such amounts are due until
they are paid or made available for payment, and such interest shall be payable
on demand. The amount of interest payable for any period less than a full
interest period shall 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 shall be computed by
dividing the applicable rate per annum by four. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest installment which shall be the
fifteenth day (whether or not a Business Day), next preceding such Interest
Payment Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture.
<PAGE>
So long as no Event of Default has occurred and is continuing, the
Corporation shall have the right, at any time during the term of this Security,
from time to time to defer the payment of interest on this Security for up to 20
consecutive quarterly interest payment periods with respect to each deferral
period (each an "EXTENSION PERIOD") at the end of which the Corporation shall
pay all interest then accrued and unpaid (including any Additional Interest, as
provided below); PROVIDED, HOWEVER, that no Extension Period shall extend beyond
the Stated Maturity of the principal of this Security and no such Extension
Period may end on a date other than an Interest Payment Date; PROVIDED, FURTHER,
HOWEVER, that during any such Extension Period, the Corporation shall 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 Corporation'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 Corporation that rank PARI PASSU
in all respects with or junior in interest to this Security (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Corporation 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
Corporation, if the Board of Directors approves such repurchase or redemption
pursuant to a policy of assuring that the Corporation operates as a cooperative
in compliance with Subchapter T of the Internal Revenue Code, (b) as a result of
an exchange or conversion of any class or series of the Corporation's capital
stock (or any capital stock of an affiliate of the Corporation) for any class or
series of the Corporation's capital stock or of any class or series of the
Corporation's indebtedness for any class or series of the Corporation'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 Corporation may further defer the payment of interest; PROVIDED that no
Extension Period shall exceed 20 consecutive quarterly interest payment periods,
extend beyond the Stated Maturity of the principal of this Security or end on a
date other than an Interest Payment Date. Upon the termination of any such
Extension Period and upon the payment of all accrued and unpaid interest and any
Additional Interest then due on any Interest Payment Date, the Corporation 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, but each installment of interest that would otherwise have been due and
<PAGE>
payable during such Extension shall bear Additional Interest (to the extent that
the payment of such interest shall be legally enforceable) at the rate of _____%
per annum, compounded quarterly and calculated as set forth in the first
paragraph of this Security, from the dates on which amounts would otherwise have
been due and payable until paid or made available for payment. The Corporation
shall give the Holder of this Security and the Trustee notice of its election to
begin any Extension Period at least one Business Day prior to the next
succeeding Interest Payment Date on which interest on this Security would be
payable but for such deferral, or so long as this Security is held by the Issuer
Trust, at least one Business Day prior to the earlier of (i) the next succeeding
date on which Distributions on the Capital Securities of such Issuer Trust would
be payable but for such deferral, and (ii) the date on which the Property
Trustee of such Issuer Trust is required to give notice to holders of such
Capital Securities of the record date or the date such Distributions are
payable.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Corporation maintained for
that purpose in Richmond, Virginia in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on such Holder's behalf to
take such actions as may be necessary or appropriate to effectuate the
subordination so provided, and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each Holder hereof, by such
Holder's acceptance hereof, waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
3
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
duly executed under its corporate seal.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By: ___________________________________
Name:
Title:
Attest:
___________________________________
(SECRETARY OR ASSISTANT SECRETARY)
4
<PAGE>
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
Dated: __________, 1999
FIRST UNION NATIONAL BANK,
AS TRUSTEE
By: ______________________________
(AUTHORIZED OFFICER)
5
<PAGE>
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the
Corporation (herein called the "SECURITIES"), issued and to be issued in one or
more series under the Junior Subordinated Indenture, dated as of _________, 1999
(herein called the "INDENTURE"), between the Corporation and First Union
National Bank, as Trustee (herein called the "TRUSTEE", which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the
Corporation, the Trustee, the holders of Senior Indebtedness and the Holders of
the Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof, limited in aggregate principal amount to $_____________.
All terms used in this Security that are defined in the Indenture or in
the Amended and Restated Trust Agreement, dated as of __________, 1999 (as
modified, amended or supplemented from time to time, the "TRUST AGREEMENT"),
relating to Southern States Capital Trust I (the "ISSUER TRUST") among the
Corporation, as Depositor, and the Trustees named therein, shall have the
meanings assigned to them in the Indenture or the Trust Agreement, as the case
may be.
The Corporation may at any time, at its option, on or after
_____________, 2004 and subject to the terms and conditions of Article XI of the
Indenture, redeem this Security in whole at any time or in part from time to
time, at a Redemption Price equal to 100% of the principal amount hereof,
together with accrued interest (including any Additional Interest) to but
excluding the date fixed for redemption.
In addition, upon the occurrence and during the continuation of a Tax
Event in respect of the Issuer Trust, the Corporation may, at its option, at any
time within 90 days of the occurrence and during the continuation of such Tax
Event redeem this Security, in whole but not in part, subject to the terms and
conditions of Article XI of the Indenture, at a Redemption Price equal to 100%
of the principal amount hereof, together with accrued interest (including any
Additional Interest) to but excluding the date fixed for redemption.
"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.
6
<PAGE>
In the event of redemption of this Security in part only, a new Security
or Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Corporation with
certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Corporation and the Trustee at any time to enter into a supplemental indenture
or indentures for the purpose of modifying in any manner the rights and
obligations of the Corporation and of the Holders of the Securities, with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities of each series to be affected by such supplemental
indenture. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Corporation with certain provisions of the Indenture
and certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the Indenture, if an
Event of Default with respect to the Securities of this series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities of this series may declare the principal amount of all
the Outstanding Securities of this series to be due and payable immediately, by
a notice in writing to the Corporation (and to the Trustee if given by Holders);
PROVIDED that, if upon an Event of Default, the Trustee or such Holders fail to
declare the principal of all the Outstanding Securities of this series to be
immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Capital Securities then Outstanding shall have the
right to make such declaration by a notice in writing to the Corporation and the
Trustee; and upon any such declaration the principal of and the accrued interest
(including any Additional Interest) on all the Securities of this series shall
become immediately due and payable, PROVIDED that the payment of such principal
and interest (including any Additional Interest) on such Securities shall remain
subordinated to the extent provided in Article XIII of the Indenture.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Corporation,
which is absolute and unconditional, to pay the principal of (and premium, if
any) and interest (including any Additional Interest) on this Security at the
times, place and rate, and in the coin or currency, herein prescribed.
7
<PAGE>
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Corporation maintained under Section 10.2 of the
Indenture for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Corporation and the
Securities Registrar duly executed by, the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Securities of
this series, of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $25 and any integral multiple in excess
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Corporation may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Corporation, the Trustee and any agent of the Corporation or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither the
Corporation, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Corporation and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that for United States Federal, state and local
tax purposes it is intended that this Security constitute indebtedness.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
8
EXHIBIT 4.7
GUARANTEE AGREEMENT
BETWEEN
SOUTHERN STATES COOPERATIVE, INCORPORATED
AS GUARANTOR
and
FIRST UNION NATIONAL BANK,
AS GUARANTEE TRUSTEE
RELATING TO
SOUTHERN STATES CAPITAL TRUST I
Dated as of _________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS
SECTION 1.1. DEFINITIONS.....................................................................1
ARTICLE II TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION................................................5
SECTION 2.2. LIST OF HOLDERS.................................................................5
SECTION 2.3. REPORTS BY THE GUARANTEE TRUSTEE................................................5
SECTION 2.4. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE.......................................6
SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT................................6
SECTION 2.6. EVENTS OF DEFAULT; WAIVER.......................................................6
SECTION 2.7. EVENT OF DEFAULT; NOTICE........................................................6
SECTION 2.8. CONFLICTING INTERESTS...........................................................7
ARTICLE III POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 3.1. POWERS AND DUTIES OF THE GUARANTEE TRUSTEE......................................7
SECTION 3.2. CERTAIN RIGHTS OF GUARANTEE TRUSTEE.............................................8
SECTION 3.3. COMPENSATION; INDEMNITY; FEES..................................................10
ARTICLE IV GUARANTEE TRUSTEE
SECTION 4.1. GUARANTEE TRUSTEE; ELIGIBILITY.................................................11
SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF THE GUARANTEE TRUSTEE..................11
ARTICLE V GUARANTEE
SECTION 5.1. GUARANTEE......................................................................12
SECTION 5.2. WAIVER OF NOTICE AND DEMAND....................................................12
SECTION 5.3. OBLIGATIONS NOT AFFECTED.......................................................12
SECTION 5.4. RIGHTS OF HOLDERS..............................................................13
SECTION 5.5. GUARANTEE OF PAYMENT...........................................................14
SECTION 5.6. SUBROGATION....................................................................14
SECTION 5.7. INDEPENDENT OBLIGATIONS........................................................14
ARTICLE VI COVENANTS AND SUBORDINATION
SECTION 6.1. SUBORDINATION..................................................................14
SECTION 6.2. PARI PASSU GUARANTEES..........................................................15
<PAGE>
ARTICLE VII TERMINATION
SECTION 7.1. TERMINATION....................................................................15
ARTICLE VIII MISCELLANEOUS
SECTION 8.1. SUCCESSORS AND ASSIGNS.........................................................15
SECTION 8.2. AMENDMENTS.....................................................................16
SECTION 8.3. NOTICES........................................................................16
SECTION 8.4. BENEFIT........................................................................17
SECTION 8.5. GOVERNING LAW..................................................................17
SECTION 8.6. COUNTERPARTS...................................................................17
</TABLE>
<PAGE>
CROSS REFERENCE TABLE*
Section of
Trust Indenture Act Section of
of 1939, as amended Guarantee Agreement
310 (a).................................................................4.1(a)
310 (b)............................................................4.1(c), 2.8
310 (c)...........................................................Inapplicable
311 (a).................................................................2.2(b)
311 (b).................................................................2.2(b)
311 (c)...........................................................Inapplicable
312 (a).................................................................2.2(a)
312 (b).................................................................2.2(b)
313 ...................................................................2.3
314 (a)....................................................................2.4
314 (b)...........................................................Inapplicable
314 (c)....................................................................2.5
314 (d)...........................................................Inapplicable
314 (e)..........................................................1.1, 2.5, 3.2
314 (f)...............................................................2.1, 3.2
315 (a).................................................................3.1(d)
315 (b)....................................................................2.7
315 (c)....................................................................3.1
315 (d)..................................................................3.1(d)
316 (a)..........................................................1.1, 2.6, 5.4
316 (b)....................................................................5.3
316 (c)....................................................................8.2
317 (a)...........................................................Inapplicable
317 (b)...........................................................Inapplicable
318 (a)....................................................................2.1
318 (b)....................................................................2.1
318 (b)....................................................................2.1
- - - - -------------------
* This Cross Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms
or provisions.
<PAGE>
GUARANTEE AGREEMENT, dated as of __________, 1999, between
SOUTHERN STATES COOPERATIVE, INCORPORATED, an agricultural cooperative
corporation organized under the laws of Virginia (the "Guarantor"), having its
principal office at 6606 West Broad Street, Richmond, Virginia 23260 and FIRST
UNION NATIONAL BANK, a national banking association, as trustee (the "GUARANTEE
TRUSTEE"), for the benefit of the Holders (as defined herein) from time to time
of the Capital Securities (as defined herein) of Southern States Capital Trust
I, a Delaware statutory business trust (the "ISSUER TRUST").
RECITALS OF THE CORPORATION
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as
of ________, 1999, among Southern States Cooperative, Incorporated, as
Depositor, First Union National Bank, as Property Trustee, First Union Trust
Company, National Association, as Delaware Trustee, and the Administrative
Trustees named therein, the Issuer Trust is issuing up to $86,250,000 aggregate
Liquidation Amount (as defined in the Trust Agreement) of its _____% Capital
Securities, Series A (liquidation amount $25 per capital security) (the "CAPITAL
SECURITIES"), representing preferred undivided beneficial interests in the
assets of the Issuer Trust and having the terms set forth in the Trust
Agreement; and
WHEREAS, the Capital Securities will be issued by the Issuer Trust and
the proceeds thereof, together with the proceeds from the issuance of the Issuer
Trust's Common Securities (as defined herein), will be used to purchase the
Debentures (as defined in the Trust Agreement) of the Guarantor, which
Debentures will be deposited with First Union National Bank, as Property Trustee
under the Trust Agreement, as trust assets; and
WHEREAS, as an incentive for the Holders to purchase Capital Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth herein, to pay to the Holders of the Capital Securities the Guarantee
Payments (as defined herein) on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase of Capital Securities
by each Holder, which purchase the Guarantor hereby acknowledges will benefit
the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for
the benefit of the Holders from time to time.
ARTICLE I
DEFINITIONS
SECTION I.1. DEFINITIONS
For all purposes of this Guarantee Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE>
(a) The terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(b) All other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) The words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation";
(d) All accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles;
(e) Unless the context otherwise requires, any reference to an "Article"
or a "Section" refers to an Article or a Section, as the case may be, of this
Guarantee Agreement; and
(f) The words "hereby", "herein", "hereof" and "hereunder" and other
words of similar import refer to this Guarantee Agreement as a whole and not to
any particular Article, Section or other subdivision.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"CONTROL", when used with respect to any specified Person, means the power to
direct the management and policies of such 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.
"BOARD OF DIRECTORS" means the board of directors of the Guarantor or
the Executive Committee of the board of directors of the Guarantor (or any other
committee of the board of directors of the Guarantor performing similar
functions) or a committee designated by the board of directors of the Guarantor
(or such committee), comprised of two or more members of the board of directors
of the Guarantor or officers of the Guarantor, or both.
"CAPITAL SECURITIES" has the meaning specified in the recitals to this
Guarantee Agreement.
"COMMON SECURITIES" means the securities representing common undivided
beneficial interests in the assets of the Issuer Trust.
"EVENT OF DEFAULT" means (i) a default by the Guarantor in any of its
payment obligations under this Guarantee Agreement or (ii) a default by the
Guarantor in any other obligation hereunder that remains unremedied for 30 days.
"GUARANTEE AGREEMENT" means this Guarantee Agreement, as modified,
amended or supplemented from time to time.
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<PAGE>
"GUARANTEE PAYMENTS" means the following payments or distributions,
without duplication, with respect to the Capital Securities, to the extent not
paid or made by or on behalf of the Issuer Trust: (i) any accumulated and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Capital Securities, to the extent the Issuer Trust shall have funds on hand
available therefor at such time; (ii) the Redemption Price (as defined in the
Trust Agreement) with respect to any Capital Securities called for redemption by
the Issuer Trust, to the extent the Issuer Trust shall have funds on hand
available therefor at such time; and (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of the Issuer Trust, unless Debentures
are distributed to the Holders, the lesser of (a) the Liquidation Distribution
(as defined in the Trust Agreement) with respect to the Capital Securities, and
(b) the amount of assets of the Issuer Trust remaining available for
distribution to Holders on liquidation of the Issuer after satisfaction of
liabilities to creditors of the Issuer Trust as required by applicable law.
"GUARANTEE TRUSTEE" means First Union National Bank, solely in its
capacity as Guarantee Trustee and not in its individual capacity, until a
Successor Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Guarantee Agreement, and thereafter means each
such Successor Guarantee Trustee.
"GUARANTOR" has the meaning specified in the first paragraph of this
Guarantee Agreement.
"HOLDER" means any Holder (as defined in the Trust Agreement) of any
Capital Securities; PROVIDED, HOWEVER, that in determining whether the holders
of the requisite percentage of Capital Securities have given any request,
notice, consent or waiver hereunder, "HOLDER" shall not include the Guarantor,
the Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee
Trustee.
"INDENTURE" means the Junior Subordinated Indenture, dated as of
__________, 1999, between Southern States Cooperative, Incorporated and First
Union National Bank, as trustee, as the same may be modified, amended or
supplemented from time to time.
"ISSUER TRUST" has the meaning specified in the first paragraph of this
Guarantee Agreement.
"LIST OF HOLDERS" has the meaning specified in Section 2.2(a).
"MAJORITY IN LIQUIDATION AMOUNT OF THE CAPITAL SECURITIES" means, except
as provided by the Trust Indenture Act, Capital Securities representing more
than 50% of the aggregate Liquidation Amount (as defined in the Trust Agreement)
of all Capital Securities then Outstanding (as defined in the Trust Agreement).
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman or a
Vice Chairman of the Board of Directors of the Guarantor or the President or a
Vice President of the Guarantor, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Guarantor, and delivered to the
Guarantee Trustee. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Guarantee Agreement
shall include:
3
<PAGE>
(a) a statement by each officer signing the Officers' Certificate
that such officer has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by such officer in rendering the Officers'
Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of such officer,
such condition or covenant has been complied with.
"PERSON" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint-stock company, company,
limited liability company, trust, business trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"RESPONSIBLE OFFICER" means, with respect to the Guarantee Trustee, any
Senior Vice President, any Vice President, any Assistant Vice President, the
Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any
Trust Officer or Assistant Trust Officer or any other officer of the Corporate
Trust Department of the Guarantee Trustee and also means, with respect to a
particular matter, any other officer to whom such matter is referred because of
that officer's knowledge of and familiarity with the particular subject.
"SUCCESSOR GUARANTEE TRUSTEE" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"TRUST AGREEMENT" means the Amended and Restated Trust Agreement of the
Issuer Trust referred to in the recitals to this Guarantee Agreement, as
modified, amended or supplemented from time to time.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in force
at the date as of which this Guarantee Agreement was executed; PROVIDED,
HOWEVER, that if the Trust Indenture Act of 1939 is amended after such date,
"TRUST INDENTURE ACT" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
4
<PAGE>
ARTICLE II
TRUST INDENTURE ACT
SECTION II.1. TRUST INDENTURE ACT; APPLICATION
(a) This Guarantee Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Guarantee Agreement and
shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provisions of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act through operation of Section 318(c)
thereof, such imposed duties shall control. If any provision of this Guarantee
Agreement modifies or excludes any provision of the Trust Indenture Act which
may be so modified or excluded, the latter provision shall be deemed to apply to
this Guarantee Agreement as so modified or to be excluded, as the case may be.
SECTION II.2. LIST OF HOLDERSSECTION II.2. LIST OF HOLDERS.
(a) The Guarantor shall furnish or cause to be furnished to the
Guarantee Trustee (a) semiannually, on or before June 30 and December 31 of each
year, a list, in such form as the Guarantee Trustee may reasonably require, of
the names and addresses of the Holders (a "LIST OF HOLDERS") as of a date not
more than 15 days prior to the delivery thereof, and (b) at such other times as
the Guarantee Trustee may request in writing, within 30 days after the receipt
by the Guarantor of any such request, a List of Holders as of a date not more
than 15 days prior to the time such list is furnished, in each case to the
extent such information is in the possession or control of the Guarantor and has
not otherwise been received by the Guarantee Trustee in its capacity as such.
The Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with the requirements of Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION II.3. REPORTS BY THE GUARANTEE TRUSTEE
Not later than 60 days following December 31 of each year, commencing
December 31, 1999, the Guarantee Trustee shall provide to the Holders such
reports as are required by Section 313 of the Trust Indenture Act, if any, in
the form and in the manner provided by Section 313 of the Trust Indenture Act.
The Guarantee Trustee shall also comply with the requirements of Section 313(d)
of the Trust Indenture Act.
SECTION II.4. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE
The Guarantor shall provide to the Guarantee Trustee and the Holders
such documents, reports and information, if any, as required by Section 314 of
the Trust Indenture Act and the compliance certificate required by Section 314
of the Trust Indenture Act, in the form, in the manner and at the times required
by Section 314 of the Trust Indenture Act, PROVIDED that such documents, reports
and information shall not be required to be provided to the Securities and
Exchange Commission unless this Guarantee Agreement shall have been qualified
under the Trust Indenture Act.
5
<PAGE>
SECTION II.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer of the Guarantor pursuant to Section 314(c)(1) may be given
in the form of an Officers' Certificate.
SECTION II.6. EVENTS OF DEFAULT; WAIVER
The Holders of at least a Majority in Liquidation Amount of the Capital
Securities may, by vote, on behalf of the Holders of all the Capital Securities,
waive any past default or Event of Default and its consequences. Upon such
waiver, any such default or Event of Default shall cease to exist, and any
default or Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Guarantee Agreement, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.
SECTION II.7. EVENT OF DEFAULT; NOTICE
(a) The Guarantee Trustee shall, within 90 days after the occurrence of
an Event of Default known to it, transmit by mail, first class postage prepaid,
to the Holders, notice of any such Event of Default, unless such Event of
Default has been cured before the giving of such notice, PROVIDED that, except
in the case of a default in the payment of a Guarantee Payment, the Guarantee
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Guarantee Trustee in good faith determines
that the withholding of such notice is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of this
Guarantee Agreement shall have obtained actual knowledge, of such Event of
Default.
SECTION II.8. CONFLICTING INTERESTS
The Trust Agreement and the Indenture shall be deemed to be specifically
described in this Guarantee Agreement for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
6
<PAGE>
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION III.1. POWERS AND DUTIES OF THE GUARANTEE TRUSTEE
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for
the benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except to a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its appointment to act as
Guarantee Trustee hereunder. The right, title and interest of the Guarantee
Trustee, as such, hereunder shall automatically vest in any Successor Guarantee
Trustee, upon acceptance by such Successor Guarantee Trustee of its appointment
hereunder, and such vesting and cessation of title shall be effective whether or
not conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee Agreement (including pursuant to Section 2.1), and no implied
covenants shall be read into this Guarantee Agreement against the Guarantee
Trustee. If an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Guarantee Agreement, and use the same
degree of care and skill in its exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own wilful misconduct, except that:
(i) Prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee
shall be determined solely by the express provisions of this
Guarantee Agreement (including pursuant to Section 2.1), and the
Guarantee Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in
this Guarantee Agreement (including pursuant to Section 2.1); and
(B) in the absence of bad faith on the part of the
Guarantee Trustee, the Guarantee Trustee may conclusively rely,
as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Guarantee Trustee and conforming to the
requirements of this Guarantee Agreement; but in the case of any
7
<PAGE>
such certificates or opinions that by any provision hereof or of
the Trust Indenture Act are specifically required to be furnished
to the Guarantee Trustee, the Guarantee Trustee shall be under a
duty to examine the same to determine whether or not they conform
to the requirements of this Guarantee Agreement.
(ii) The Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment
was made.
(iii) The Guarantee Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a Majority
in Liquidation Amount of the Capital Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee, or exercising any trust or power conferred
upon the Guarantee Trustee, under this Guarantee Agreement.
(iv) Subject to Section 3.1(b), no provision of this Guarantee
Agreement shall require the Guarantee Trustee to expend or risk its own
funds or otherwise incur personal financial liability in the performance
of any of its duties or in the exercise of any of its rights or powers,
if the Guarantee Trustee shall believe in good faith that the repayment
of such funds or liability is not reasonably assured to it under the
terms of this Guarantee Agreement or adequate indemnity against such
risk or liability is not reasonably assured to it.
SECTION III.2. CERTAIN RIGHTS OF GUARANTEE TRUSTEE
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may rely and shall be fully protected
in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document reasonably believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting to take
any action hereunder, the Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its
part, request and rely upon an Officers' Certificate which, upon receipt
of such request from the Guarantee Trustee, shall be promptly delivered
by the Guarantor.
8
<PAGE>
(iv) The Guarantee Trustee may consult with legal counsel, and
the written advice or opinion of such legal counsel with respect to
legal matters shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in accordance with such advice or opinion.
Such legal counsel may be legal counsel to the Guarantor or any of its
Affiliates and may be one of its or their employees. The Guarantee
Trustee shall have the right at any time to seek instructions concerning
the administration of this Guarantee Agreement from any court of
competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holder unless such Holder
shall have provided to the Guarantee Trustee such adequate security and
indemnity as would satisfy a reasonable person in the position of the
Guarantee Trustee against the costs, expenses (including attorneys' fees
and expenses) and liabilities that might be incurred by it in complying
with such request or direction, including such reasonable advances as
may be requested by the Guarantee Trustee; PROVIDED that nothing
contained in this Section 3.2(a)(v) shall be taken to relieve the
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall not
be responsible for any misconduct or negligence on the part of any such
agent or attorney appointed by it with due care hereunder.
(viii) Whenever in the administration of this Guarantee Agreement
the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request instructions from the
Holders, (B) may refrain from enforcing such remedy or right or taking
such other action until such instructions are received, and (C) shall be
protected in acting in accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to impose
any duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
9
<PAGE>
SECTION III.3. COMPENSATION; INDEMNITY; FEES.
The Guarantor agrees:
(a) to pay to the Guarantee Trustee from time to time such
reasonable compensation for all services rendered by it hereunder as may
be agreed by the Guarantor and the Guarantee 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) except as otherwise expressly provided herein, to reimburse
the Guarantee Trustee upon request for all reasonable expenses,
disbursements and advances incurred or made by the Guarantee Trustee in
accordance with any provision of this Guarantee 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 or bad faith; and
(c) to indemnify the Guarantee Trustee for, and to hold it
harmless against, any loss, liability or expense incurred without
negligence, wilful misconduct or bad faith on the part of the Guarantee
Trustee, arising out of or in connection with the acceptance or
administration of this Guarantee Agreement, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
The Guarantee Trustee will not claim or exact any lien or charge on any
Guarantee Payments as a result of any amount due to it under this Guarantee
Agreement.
The provisions of this Section 3.3 shall survive the termination of this
Guarantee Agreement or the resignation or removal of the Guarantee Trustee.
ARTICLE IV
GUARANTEE TRUSTEE
SECTION IV.1. GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
10
<PAGE>
(ii) be a Person that is a national or state chartered bank and
eligible pursuant to the Trust Indenture Act to act as such, and that
has at the time of such appointment securities rated in one of the three
highest rating categories by a nationally recognized statistical rating
organization and a combined capital and surplus of at least $50,000,000,
and shall be a corporation meeting the requirements of Section 310(a) of
the Trust Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of
its supervising or examining authority, then, for the purposes of this
Section 4.1 and to the extent permitted by the Trust Indenture Act, the
combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent report
of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in
the manner and with the effect set out in Section 4.2.
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION IV.2. APPOINTMENT, REMOVAL AND RESIGNATION OF THE GUARANTEE
TRUSTEE
(a) Subject to Section 4.2(c), the Guarantee Trustee may be appointed or
removed at any time by the Guarantor.
(b) Subject to Section 4.2(c), the Guarantee Trustee may resign from
office (without need for prior or subsequent accounting) by giving written
notice thereof to the Holders and the Guarantor and by appointing a successor
Guarantee Trustee.
(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed and shall have accepted
such appointment. No removal or resignation of a Guarantee Trustee shall be
effective until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by written instrument executed by such Successor
Guarantee Trustee and delivered to the Guarantor and, in the case of any
resignation, the resigning Guarantee Trustee.
(d) If the Guarantee Trustee shall resign, be removed or become
incapable of acting as Guarantee Trustee and a replacement shall not be
appointed prior to such resignation or removal, or if a vacancy shall occur in
the office of Guarantee Trustee for any reason, and no Successor Guarantee
Trustee shall have been appointed and accepted appointment as provided in this
Section 4.2 within 60 days after delivery to the Holders and the Guarantor of a
notice of resignation, the resigning Guarantee Trustee may petition, at the
expense of the Guarantor, any court of competent jurisdiction for appointment of
a Successor Guarantee Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.
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ARTICLE V
GUARANTEE
SECTION V.1. GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by or on behalf of the Issuer Trust), as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer Trust may have or
assert, except the defense of payment. The Guarantor's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Guarantor to the Holders or by causing the Issuer Trust to pay such amounts
to the Holders.
SECTION V.2. WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, the Issuer Trust or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice
of redemption and all other notices and demands.
SECTION V.3. OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:
(a the release or waiver, by operation of law or otherwise (other
than by Act (as defined in the Trust Agreement) of the Holders), of the
performance or observance by the Issuer Trust of any express or implied
agreement, covenant, term or condition relating to the Capital
Securities to be performed or observed by the Issuer Trust;
(b the extension of time for the payment by the Issuer Trust of
all or any portion of the Distributions (other than an extension of time
for payment of Distributions that results from the extension of any
interest payment period on the Debentures as provided in the Indenture),
Redemption Price, Liquidation Distribution or any other sums payable
under the terms of the Capital Securities or the extension of time for
the performance of any other obligation under, arising out of, or in
connection with, the Capital Securities;
(c any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege,
power or remedy conferred on the Holders pursuant to the terms of the
Capital Securities, or any action on the part of the Issuer Trust
granting indulgence or extension of any kind;
12
<PAGE>
(d the voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of
debt of, or other similar proceedings affecting, the Issuer Trust or any
of the assets of the Issuer Trust;
(e any invalidity of, or defect or deficiency in, the Capital
Securities;
(f the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor
(other than payment of the underlying obligation), it being the intent
of this Section 5.3 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION V.4. RIGHTS OF HOLDERS.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a Majority in
Liquidation Amount of the 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 this Guarantee Agreement or exercising any trust
or power conferred upon the Guarantee Trustee under this Guarantee Agreement;
and (iv) any Holder may institute a legal proceeding directly against the
Guarantor to enforce its rights under this Guarantee Agreement without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other Person.
SECTION V.5. GUARANTEE OF PAYMENT.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer Trust) or upon the distribution of Debentures to Holders as
provided in the Trust Agreement.
13
<PAGE>
SECTION V.6. SUBROGATION.
The Guarantor shall be subrogated to all rights (if any) of the Holders
against the Issuer Trust in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement; PROVIDED, HOWEVER, that the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any rights which it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Guarantee Agreement, if, at the time of any such
payment, any amounts are due and unpaid under this Guarantee Agreement. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.
SECTION V.7. INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer Trust with respect to the Capital
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
COVENANTS AND SUBORDINATION
SECTION VI.1. SUBORDINATION.
The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Indebtedness (as defined in the
Indenture) of the Guarantor to the extent and in the manner set forth in the
Indenture with respect to the Debentures, and the provisions of Article XIII of
the Indenture will apply, MUTATIS MUTANDIS, to the obligations of the Guarantor
hereunder. The obligations of the Guarantor hereunder do not constitute Senior
Indebtedness (as defined in the Indenture) of the Guarantor.
SECTION VI.2. PARI PASSU GUARANTEES.
The obligations of the Guarantor under this Guarantee Agreement shall
rank PARI PASSU with the obligations of the Guarantor under (i) any similar
guarantee agreements issued by the Guarantor on behalf of the holders of
preferred or capital securities issued by any Issuer Trust (as defined in the
Indenture); (ii) the Indenture and the Securities (as defined therein) issued
thereunder; (iii) the Expense Agreement (as defined in the Trust Agreement) and
any similar expense agreements entered into by the Guarantor in connection with
the offering of Capital Securities (as defined in the Indenture) by any Issuer
14
<PAGE>
Trust (as defined in the Indenture); and (iv) any other security, guarantee or
other agreement or obligation that is expressly stated to rank PARI PASSU with
the obligations of the Guarantor under this Guarantee Agreement or with any
obligation that ranks PARI PASSU with the obligations of the Guarantor under
this Guarantee Agreement.
ARTICLE VII
TERMINATION
SECTION VII.1. TERMINATION.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price (as defined in the Trust
Agreement) of all Capital Securities, (ii) the distribution of Debentures to the
Holders in exchange for all of the Capital Securities, or (iii) full payment of
the amounts payable in accordance with Article IX of the Trust Agreement upon
liquidation of the Issuer Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder is required to repay any sums paid with respect to
Capital Securities or this Guarantee Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION VIII.1. SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the successor or assignee agrees in writing to
perform the Guarantor's obligations hereunder, the Guarantor shall not assign
its obligations hereunder, and any purported assignment other than in accordance
with this provision shall be void.
SECTION VIII.2. AMENDMENTS.
Except with respect to any changes that do not adversely affect the
rights of the Holders in any material respect (in which case no consent of the
Holders will be required), this Guarantee Agreement may only be amended with the
prior approval of the Holders of not less than a Majority in Liquidation Amount
of the Capital Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
15
<PAGE>
SECTION VIII.3. NOTICES.
(a) Any notice, request or other communication required or permitted to
be given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, by facsimile or first class mail as follows:
(i) if given to the Guarantor, to the address or facsimile number set forth
below or such other address or facsimile number as the Guarantor may give notice
to the Guarantee Trustee and the Holders:
Southern States Cooperative, Incorporated
6606 West Broad Street
Richmond, Virginia 23260
Attention: _______________
Facsimile: _______________
(ii) if given to the Guarantee Trustee, at the address or facsimile
number set forth below or such other address or facsimile number as the
Guarantee Trustee may give notice to the Guarantor and the Holders:
First Union National Bank
800 East Main Street, Lower Mezzanine
Richmond, Virginia 23219
Attention: Corporate Trust Group
Facsimile: (804) 343-6699
(iii) if given to any Holder, in the manner set forth in Section 10.8 of
the Trust Agreement.
(b) All notices hereunder shall be deemed to have been given when
received in person, by facsimile with receipt confirmed, or mailed by first
class mail, postage prepaid, except that if a notice or other document is
refused delivery or cannot be delivered because of a changed address of which no
notice was given, such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to deliver, PROVIDED that any
notice given as provided in Section 8.3(a)(iii) shall be deemed to have been
given at the time specified in Section 10.8 of the Trust Agreement.
SECTION 8.4. BENEFIT.
This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Capital Securities.
SECTION 8.5. GOVERNING LAW.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16
<PAGE>
SECTION 8.6. COUNTERPARTS.
This Guarantee Agreement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Guarantee
Agreement to be duly executed, and their respective corporate seals to be
hereunto affixed, all as of the day and year first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
[SEAL]
By: ________________________________
Name:
Title:
Attest: __________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
as Guarantee Trustee
[SEAL]
By: ________________________________
Name:
Title:
Attest: __________________________
Name:
Title:
<TABLE>
<CAPTION>
-
Southern States Cooperative
Ratios of earnings to fixed charges
Year ended June 30,
1998 1997 1996 1995
---- ---- ---- ----
<S> <C>
Earnings:
Income (loss) before income taxes, extraordinary charge,
cumulative effect of accounting changes and
and discontinued operations and trust preferred dividends 13,632,424 33,539,852 34,645,994 23,172,418
Interest expense, net of capitalized interest 16,859,373 15,565,523 15,236,987 14,797,975
Portion of rents representative of interest factor 2,900,188 2,703,206 2,423,809 2,393,876
Amortization of capitalized interest (a) 62,249 15,143 10,832 6,051
Distributions on trust preferred securities 0 0 0 0
=============== =============== =============== ===============
Total Earnings 33,454,234 51,823,724 52,317,622 40,370,320
=============== =============== =============== ===============
Fixed Charges:
Interest expense (before deducting capitalized interest) 17,310,851 15,730,029 15,352,563 14,876,278
Portion of rents representative of interest factor 2,900,188 2,703,206 2,423,809 2,393,876
Distributions on trust preferred capital securities 0 0 0 0
Preferred stock dividend requirements of majority-owned
subsidiaries grossed up for pre-tax effect 316,063 316,061 316,061 316,063
=============== =============== =============== ===============
Total Fixed Charges 20,527,102 18,749,297 18,092,434 17,586,217
=============== =============== =============== ===============
Ration of Earnings to Fixed Charges 1.63 2.76 2.89 2.30
=============== =============== =============== ===============
Insufficient to cover fixed charges by
</TABLE>
<TABLE>
<CAPTION>
Southern States Cooperative
Ratios of earnings to fixed charges Six Months Ended
December 31,
1994 1998 1997
---- ---- ----
<S> <C>
Earnings:
Income (loss) before income taxes, extraordinary charge,
cumulative effect of accounting changes and
and discontinued operations and trust preferred dividends 11,730,434 (19,255,264) (9,747,986)
Interest expense, net of capitalized interest 12,257,694 13,356,897 8,523,700
Portion of rents representative of interest factor 2,208,645 1,624,516 1,450,094
Amortization of capitalized interest (a) 6,764 31,125 7,572
Distributions on trust preferred securities 0
- -
============== =============== ================
Total Earnings 26,203,537 (4,242,726) 233,379
============== =============== ================
Fixed Charges:
Interest expense (before deducting capitalized interest) 12,337,035 13,366,435 8,540,205
Portion of rents representative of interest factor 2,208,645 1,624,516 1,450,094
Distributions on trust preferred capital securities 0 - -
Preferred stock dividend requirements of majority-owned
subsidiaries grossed up for pre-tax effect 336,154 158,032 158,032
============= =============== ================
Total Fixed Charges 14,881,834 15,148,983 10,148,330
============= =============== ================
Ration of Earnings to Fixed Charges 1.76 -0.28 0.02
============= =============== ================
Insufficient to cover fixed charges by 19,391,709 9,914,951
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
-----------------------------------
Southern States Cooperative Six
Ratios of earnings to fixed charges Year Months Ended
Ended December 31,
June 30, 1998 1998
------------- ----
<S> <C>
Earnings:
Income (loss) before income taxes, extraordinary charge,
cumulative effect of accounting changes and
and discontinued operations and trust preferred dividends (4,402,000) (29,139,000)
Interest expense, net of capitalized interest 26,876,000 17,487,000
Portion of rents representative of interest factor 6,900,148 2,880,833
Amortization of capitalized interest (a) 62,249 31,125
Distributions on trust preferred securities
6,993,000 3,496,500
============= ===============
Total Earnings 36,429,397 (5,243,542)
============= ===============
Fixed Charges:
Interest expense (before deducting capitalized interest) 27,327,478 17,496,538
Portion of rents representative of interest factor 6,900,148 2,880,833
Distributions on trust preferred capital securities 6,993,000 3,496,500
Preferred stock dividend requirements of majority-owned
subsidiaries grossed up for pre-tax effect 316,063 158,032
================ ===============
Total Fixed Charges 41,536,689 24,031,903
================ ===============
Ration of Earnings to Fixed Charges 0.88 -0.22
================ ===============
Insufficient to cover fixed charges by 5,107,292 29,275,445
</TABLE>
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 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
May 10, 1999
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.
KPMG LLP
Atlanta, Georgia
May 5, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS INCOME FILED AS
PART OF THE INTERIM REPORT INCLUDED IN THE COMPANY'S FORM S-1 FOR THE
QUARTER ENDED DECEMBER 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 54,601
<SECURITIES> 0
<RECEIVABLES> 129,640
<ALLOWANCES> 3,525
<INVENTORY> 245,328
<CURRENT-ASSETS> 446,682
<PP&E> 366,277
<DEPRECIATION> 183,195
<TOTAL-ASSETS> 749,022
<CURRENT-LIABILITIES> 296,460
<BONDS> 0
2,114
1,465
<COMMON> 12,166
<OTHER-SE> 150,758
<TOTAL-LIABILITY-AND-EQUITY> 749,022
<SALES> 482,975
<TOTAL-REVENUES> 495,247
<CGS> 392,567
<TOTAL-COSTS> 501,145
<OTHER-EXPENSES> 13,357
<LOSS-PROVISION> (19,255)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> (4,795)
<INCOME-CONTINUING> (14,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,461)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
