As filed with the Securities and Exchange Commission on August 9, 1999
Registration No. 333-69265
- - - - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
AMENDMENT NO. 2
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.
<PAGE>
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 Proposed
Maximum Maximum Maximum
Title of Each Class Amount to Offering Aggregate Amount of
of Securities to be Registered Price Offering Price Registration
be Registered (1) (2) Per Unit (1) (2) Fee (3) (4)
- - - - ---------------------------------------------------------------------------------
<S> <C>
Capital Securities of
Southern States $86,250,000 $25.00 $86,250,000 $23,978
Capital Trust I
- - - - ---------------------------------------------------------------------------------
Junior Subordinated
Debentures of (7)
Southern States
Cooperative, Inc. due
_______ ___, 2029 (5)
- - - - ---------------------------------------------------------------------------------
Guarantee of Capital
Securities by (7)
Southern States
Cooperative, Inc. (6)
- - - - ---------------------------------------------------------------------------------
Trust Agreement of
Southern States (7)
Capital Trust I
- - - - ---------------------------------------------------------------------------------
Expense Agreement
between Southern (7)
States Cooperative,
Inc. and Southern
States Capital Trust I
- - - - ---------------------------------------------------------------------------------
Junior Subordinated
Indenture of Southern (7)
States Cooperative,
Inc.
- - - - ---------------------------------------------------------------------------------
</TABLE>
(1) Includes $11,250,000 liquidation amount of capital securities 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 that may be distributed to holders of capital
securities upon any liquidation of Southern States Capital Trust.
(3) The registration fee was 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 Southern States
Capital 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 Southern States
Capital 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.
(7) This Registration Statement is deemed to cover the junior subordinated
debentures of Southern States, and the obligations of Southern States with
respect to the junior subordinated debentures under the junior subordinated
indenture (as defined herein), the capital securities of Southern States Capital
Trust under the trust agreement (as defined herein), the expense agreement and
the guarantee issued by Southern States with respect to the capital securities,
which, taken together, constitute a full, irrevocable and unconditional
guarantee by Southern States of the obligations of Southern States Capital Trust
with respect to 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)
Guaranteed on an Irrevocable, Full, Unconditional and Subordinated Basis by
SOUTHERN STATES COOPERATIVE, INCORPORATED
--------------------
Southern States Capital Trust I is offering up to $75,000,000 aggregate
liquidation amount of its ___% capital securities. Southern States Capital Trust
will use the proceeds from the sale of these capital securities 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 __%. Southern States
Capital Trust will pay distributions on the capital securities quarterly.
Southern States may defer interest payments on the junior subordinated
debentures for up to 20 consecutive quarters (5 years). If Southern States
defers the interest payments, Southern States Capital Trust 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.
--------------------
Southern States Cooperative, Incorporated will pay all underwriting
commissions in connection with this offering of capital securities.
Per Capital
Security Total
-------- -----
Public Offering Price................. $25.00 $75,000,000
Proceeds to Southern States
Capital 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.
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 BANC OF AMERICA SECURITIES LLC
--------------------
The date of this preliminary prospectus is ___________, 1999.
<PAGE>
BLACKINED COPY
[To follow front cover for EDGAR filing only]
You should rely only on the information contained in this document or to which
we have referred you. Neither we, the trust nor any underwriter has authorized
anyone to provide you with information that is different. This document may only
be used where it is legal to sell these securities. The information in this
document may only be accurate on the date of this document.
TABLE OF CONTENTS
Page
Prospectus Summary................................................ 1
Risk Factors...................................................... 11
Southern States Capital Trust I................................... 17
Use of Proceeds................................................... 19
Capitalization.................................................... 20
Unaudited Pro Forma Condensed Combined Financial Information...... 21
Selected Historical Consolidated Financial Information............ 26
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 30
Farm Cooperatives................................................. 49
Southern States................................................... 50
Business of Southern States....................................... 55
Acquisition of the Gold Kist Inputs Business...................... 70
Management........................................................ 76
Description of the Capital Securities............................. 86
Description of the Junior Subordinated Debentures.................104
The Guarantee.....................................................115
The Expense Agreement.............................................119
Effect of Obligations Under the Junior Subordinated Debentures,
the Guarantee and the Expense Agreement......................119
United States Federal Income Taxation.............................122
ERISA Considerations..............................................129
Underwriting......................................................129
Legal Matters.....................................................129
Experts...........................................................132
Available Information.............................................132
Disclosure Regarding Forward Looking Statements...................133
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
Southern States is a regional farmers' supply and marketing
cooperative.
>> As a supply cooperative, we provide agricultural supplies 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.
Our executive offices are located at 6606 West Broad Street, Richmond,
Virginia 23230, and our telephone number is 804-281-1000.
Service Area. We serve a wide range of rural and urban customers in our
Mid-Atlantic territory of Delaware, Maryland, Virginia, West Virginia, Kentucky
and North Carolina, plus Michigan, Ohio and Indiana and, as of the fall of 1998,
the Southeastern and South Central states.
Our Business. We are owned by over 300,000 farmer and local cooperative
members. We are the principal cooperative in a cooperative distribution system
that encompasses almost 700 retail locations.
>> Crops division -- procures, manufactures and distributes fertilizer,
seed and crop protectants to members and other customers.
>> Feed division -- procures, manufactures and distributes a wide range
of dairy, livestock, equine, poultry, pet and aquaculture feeds.
>> Petroleum division -- sells petroleum products, including all grades
of gasoline, kerosene, fuel oil, diesel fuel and propane, as well as
petroleum equipment.
1
<PAGE>
>> Retail Farm Supply division -- operates approximately 200
company-owned and managed local cooperative retail farm supply
locations in our Mid-Atlantic territory.
>> 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.
>> Grain Marketing division -- operates a year-round market for produced
grains, primarily corn, soybeans, wheat and barley.
>> Livestock Marketing division -- in Michigan, Ohio, Indiana and
Kentucky, operates 11 livestock auction facilities and 28 swine
buying stations, 10 of which are also livestock auction facilities.
>> Gold Kist Inputs Business -- acquired in October 1998, purchases,
manufactures and processes fertilizers, crop protectants, seed, pet
food, livestock feed and other farm supply items for distribution and
sale in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi,
South Carolina and Texas.
We are making this offering of capital securities to raise additional
capital to support the continued growth of our business.
SOUTHERN STATES CAPITAL TRUST I
Southern States Capital Trust exists to:
>> issue and sell capital securities to the public;
>> issue and sell common securities to us; and
>> use the proceeds of the sale of its capital securities and its common
securities to purchase ____% junior subordinated debentures from us.
The principal executive office of Southern States Capital Trust I is 6606
West Broad Street, Richmond, Virginia 23230, Attention: Chief Financial Officer.
Its telephone number is (804) 281-1000.
2
<PAGE>
THE OFFERING
The Capital Securities to Be Offered
by Southern States
Capital Trust I.... Southern States Capital Trust will sell
its capital securities to the public and
its common securities to us. The capital
securities sold to the public will
aggregate $75 million in liquidation
amount ($86.25 million if the
underwriters exercise their over
allotment option in full).
Use of Proceeds from the Sale of the
Common and Capital Securities to
Purchase Junior Subordinated
Debentures from Southern States.... Southern States Capital Trust will
purchase a series of ____% deferrable
interest junior subordinated debentures
from us with the proceeds from the sale
of its common securities and capital
securities. Unless we redeem them, the
junior subordinated debentures will
mature on _______, 2029.
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 $25
liquidation amount per capital security.
Distributions will accumulate from the
date Southern States Capital Trust
issues the capital securities. Southern
States Capital Trust will pay
distributions 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 we are not in default
regarding the junior subordinated
debentures , we may defer interest
payments on the junior subordinated
debentures for up to 20 consecutive
quarterly periods, but not beyond
_______, 2029. There is no limitation on
the number of times that we may begin an
interest deferral period, if we are not
in default with respect to the junior
subordinated debentures. See
"Description of the Junior Subordinated
Debentures--Option to Extend Interest
Payment Period."
3
<PAGE>
If we defer interest payments on the
junior subordinated debentures, Southern
States Capital Trust will also defer
distributions on the capital securities.
During this deferral period, you will
still accumulate 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........ We may, at our option, redeem for the
liquidation amount plus any unpaid
distributions:
o all or some of the junior subordinated
debentures at any time on or after ___,
2004, or
o all of the junior subordinated
debentures at any time within 90 days if
there are unfavorable changes in
regulatory or tax laws.
If we redeem some or all of the junior
subordinated debentures, Southern States
Capital Trust must redeem the same
dollar amount of its capital securities.
Upon any redemption, you will receive
the $25 liquidation amount 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............................ If you purchase the capital securities,
you will have very limited voting
rights. You will have the right to vote:
o with respect to changes to the
guarantee agreement that adversely
affect your rights as a holder of
capital securities, and
o 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. See "Description of
the Capital Securities--Voting Rights."
4
<PAGE>
Southern States Has Fully, Irrevocably
and Unconditionally Guaranteed the
Capital Securities on a Subordinated
Basis............................. We have fully, irrevocably and
unconditionally guaranteed all of
Southern States Capital Trust's
obligations under the capital securities
based on:
o our obligation to make payments on
the junior subordinated
debentures; and
o our obligations under the guarantee
agreement, expense agreement, trust
agreement and indenture.
Our obligation to make payments under
the guarantee will be junior to our
obligation to make payments on our
senior indebtedness. Our senior
indebtedness includes all obligations to
current and future creditors other than
liabilities incurred in the ordinary
course of business and those obligations
stating they are not senior
indebtedness. Senior indebtedness also
includes any subordinated debt
securities issued by us in the future
other than junior subordinated debt
securities or debentures with
subordination terms substantially
similar to those of the junior
subordinated debentures involved in this
offering. See "The Guarantee" and
"Effect of Obligations Under the Junior
Subordinated Debentures, the Guarantee
and the Expense Agreement."
Our guarantee is limited to the amount
of funds held by Southern States Capital
Trust. If we do not make a payment on
the junior subordinated debentures,
Southern States Capital Trust will not
have sufficient funds available to make
distributions on the capital securities
and will not make those 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 Southern States Capital Trust under
the junior subordinated debentures
directly against us.
5
<PAGE>
The Junior Subordinated Debentures
Will Be Subordinate to Existing and
Future Senior Indebtedness of
Southern States................... Our obligations under the junior
subordinated debentures will be
contingent upon payment on/of our senior
indebtedness, and will be effectively
subordinate to all of our existing
secured and unsecured debt. See
"Description of the Junior Subordinated
Debentures--Subordination."
The junior subordinated debentures also
will be subordinate to all future debt
of Southern States unless, by its terms,
the future debt is on a parity with or
subordinate to the junior subordinated
debentures. As of June 30, 1999 the
aggregate amount of our senior
indebtedness and liabilities and
obligations that would have effectively
ranked senior to the junior subordinated
debentures was approximately $279.9
million.
You Have Rights in the Event
of Default by Southern States... The following are events of default
under both the indenture and the trust
agreement:
o our failure for 30 days or more to pay
interest on the junior subordinated
debentures when due;
o our failure to pay principal of or
premium, if any, on the junior
subordinated debentures when due;
o our 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.
6
<PAGE>
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, you may proceed directly
against us to enforce the property
trustee's rights. In addition, if an
event of default arises due to our
failure to pay principal or interest on
the junior subordinated debentures, you
may proceed directly against us to
collect your proportionate share of
unpaid principal and interest. You have
similar rights in the event of a default
by us under the guarantee.
If an event of default has occurred or
if we have defaulted on our obligations
under the guarantee, we will not be
permitted to:
o declare or pay any dividends or
make any distributions with respect to
our capital stock or patrons' equity;
o redeem, purchase, acquire or make a
liquidation payment with respect to our
capital stock or patrons' equity;
o redeem any patronage refund
allocations; 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
Southern States Capital Trust
at Any Time....................... We may liquidate Southern States Capital
Trust at any time and cause the junior
subordinated debentures to be
distributed to the holders of the
capital securities and common securities
of Southern States Capital Trust.
7
<PAGE>
If we liquidate Southern States Capital
Trust, after it satisfies its creditors,
you will be entitled to receive the
liquidation amount of $25 per capital
security plus accumulated and unpaid
distributions to the date of payment.
This payment may be in the form of a
distribution of the junior subordinated
debentures. See "Description of the
Junior Subordinated Debentures--Option
to Extend Interest Payment Period."
If the junior subordinated debentures
are so distributed, we will use our best
efforts to list them on the New York
Stock Exchange or 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.
8
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data give
effect to:
o the acquisition of the Gold Kist Inputs Business using the purchase
method of accounting, and
o 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, included elsewhere in this prospectus,
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Nine
Months
Ended Fiscal Year
March 31, Ended
1999 June 30, 1998
-------- -------------
(amounts in thousands)
Statement of Operations Data:
Sales and other operating revenue............ $943,518 $1,600,045
Cost of products purchased and marketed...... 767,485 1,322,131
Selling, general and administrative expenses. 196,964 281,075
---------- ----------
Loss on operations (1)....................... $(20,931) $ (3,161)
Interest expense........................... 24,590 26,876
Ratio of earnings to fixed charges (4) (5)... -- --
As of
March 31, 1999
--------------
Balance Sheet Data:
Working capital.............................. $168,904
Total assets................................. 780,764
Long-term debt............................... 222,235
As of
June 30, 1998
-------------
Other Data:
Cash flows from operations................... $88,587 $22,129
Cash flows used in investing activities...... (242,524) (246,938)
Cash flows from financing activities 146,803 108,730
EBITDA (2)................................... 9,625 39,846
EBITDA adjusted (3) ......................... 16,133 46,784
Ratio of EBITDA adjusted to interest expense. .66x 1.74x
Current ratio (6)............................ 1.56x
Long-term debt to total capitalization (7)... .48x
9
<PAGE>
(1)Loss on operations represents loss before other deductions, other income,
income taxes and distributions on capital securities of trust subsidiary.
(2)EBITDA is defined as savings (loss) before income tax and after
distributions on mandatorily redeemable capital securities of trust
subsidiary plus interest, depreciation and amortization expenses. EBITDA
adjusted 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.
(3)EBITDA adjusted is defined as EBITDA prior to distributions on mandatorily
redeemable capital securities of trust subsidiary.
(4)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.
(5)On a pro forma basis, earnings were insufficient to cover fixed charges by
$26.9 million and $5.1 million for the nine months ended March 31, 1999 and
the year ended June 30, 1998, respectively.
(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,
company-obligated mandatorily redeemable capital securities of trust
subsidiary, net, mandatorily redeemable preferred stock, capital stock and
patrons' equity.
<TABLE>
<CAPTION>
SELECTED HISTORICAL DATA
(in thousands)
Southern States:
Nine Months
Ended March 31 Fiscal Year Ended June 30
-------------- -----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C>
Supply
Feed--tons................... 961 701 917 924 895 875 834
Fertilizer--tons............. 967 621 1,155 1,137 1,054 1,021 1,057
Seed--pounds, 100 wt 1,372 1,280 1,673 1,384 1,305 1,412 1,051
Petroleum--gallons........... 255,004 251,409 314,614 349,863 340,556 306,874 287,958
Marketing
Grain marketing--bushels..... 15,732 18,594 24,830 29,380 27,637 28,517 20,543
Livestock marketing--head
Cattle.................. 447 N/A 642 599 N/A N/A N/A
Swine................... 1,159 N/A 2,689 2,516 N/A N/A N/A
Other................... 111 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
10
<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
Holders of Our Senior Indebtedness Will Be Paid Before You Are Paid Under
the Guarantee
Southern States' obligations under the guarantee and the junior subordinated
debentures are unsecured and will rank junior to all of Southern States' present
and future senior indebtedness.
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. 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. At June 30, 1999, the aggregate amount of
senior indebtedness of Southern States was approximately $279.9 million.
Neither the indenture, the guarantee nor the trust agreement limits the
ability of Southern States or any of its subsidiaries to incur additional senior
indebtedness at any time in the future. See "Description of the Junior
Subordinated Debentures--Subordination" and "The Guarantee--Status of the
Guarantee."
If We Do Not Make Payments on the Junior Subordinated Debentures, the Trust Will
Not Be Able to Pay Distributions and Other Payments on the Capital Securities,
and the Guarantee Will Not Apply
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 Southern States Capital Trust to pay timely
distributions on the capital securities depends entirely upon Southern States
making timely payments on the junior subordinated debentures.
If Southern States defaults on its obligation to pay principal of or
interest on the junior subordinated debentures, Southern States Capital 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>
If We Defer Interest Payments on the Junior Subordinated Debentures, You Will
Have to Include Taxable Income Before You Receive Cash
You will not receive distributions on the capital securities if we defer
interest payments on the junior subordinated debentures. If this occurs, you
will have to include accrued interest in your income for United States federal
income tax purposes before you actually receive the cash distributions. In
addition, if you sell your capital securities before the record date for the
payment of any deferred distribution, you would not receive the cash related to
that income from the Trust, even if you held the capital securities on the date
that the payments would normally have been paid. See "United States Federal
Income Taxation" and "Description of the Capital Securities--Distributions;
Option to Extend Interest Payment Period--Record Holders."
If we are not in default on the payment of interest on the junior
subordinated debentures, we may defer interest payments on the junior
subordinated debentures one or more times for up to 20 consecutive quarters, but
not beyond ______, 2029. During an interest deferral period, the Trust would
defer distributions on the capital securities in the same amount. 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."
If we defer any interest payment on the junior subordinated debentures, the
capital securities will likely trade at prices that do notfully reflect the
value of accrued but unpaid interest related to the underlying junior
subordinated debentures. If you sell your preferred securities during an
interest deferral period, you must treat any accrued but unpaid interest on the
junior subordinated debentures as ordinary income. You must also add the amount
of the accrued but unpaid interest to your adjusted tax basis in the preferred
securities. You will recognize a capital loss if the selling price is less than
your adjusted tax basis. Generally, you cannot apply capital losses to offset
ordinary income for United States federal income tax purposes. See "United
States Federal Income Taxation--US Holders--Sales of Capital Securities."
If We Defer Interest Payments on the Junior Subordinated Debentures, the Market
Price of the Capital Securities May Decline
If Southern States exercises its right in the future to defer interest on
the junior subordinated debentures, 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. See "United States
Federal Income Taxation--US Holders--Sales of Capital Securities."
The Capital Securities May Be Redeemed Prior to Maturity if a Tax Event Occurs;
You May Be Taxed on the Proceeds and You May Not Be Able to Reinvest the
Proceeds at the Same or a Higher Rate of Return
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 a change in the regulatory or tax laws that is unfavorable to the
Trust or Southern States, such as a change making the Trust subject to federal
income tax with respect to income received on the junior subordinated debentures
or making non-deductible the interest Southern States pays on the junior
subordinated debentures. See "Description of the Capital Securities--Tax Event
Redemption." The redemption of the junior subordinated debentures will cause a
mandatory redemption of the Trust's 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 to the redemption date.
12
<PAGE>
Under current United States federal income tax law, the redemption of the
capital securities would be a taxable event for you. In addition, you may not be
able to reinvest the money you receive in the redemption at a rate that is equal
to or higher than the rate of return you received on the capital securities. See
"Description of the Capital Securities--Tax Event Redemption" and "United States
Federal Income Taxation--Potential Tax Law Changes."
Changes in the Tax Law Could Eliminate Our Ability to Deduct Interest on the
Junior Subordinated Debentures, Thereby Causing a Redemption of the Capital
Securities
From time to time, 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,
these tax law change proposals have not been enacted. 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 similar challenge by the IRS were upheld, that could
give rise to a tax event which could result in an early redemption of the
capital securities. See "United States Federal Income Taxation - Potential Tax
Law Changes."
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 our option. As a result, the trustees may distribute the junior
subordinated debentures to the holders of the capital securities and common
securities, consistent with the terms of the trust agreement. See "Description
of the Capital Securities--Liquidation Amount Upon Dissolution."
Under current United States federal income tax law and assuming that
Southern States Capital 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 you. 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 you. See "United States Federal Income Taxation--US
Holders--Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
Southern States Capital Trust."
13
<PAGE>
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. See "Description of the Capital Securities--Distribution of
the Junior Subordinated Debentures."
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. Therefore, you
should carefully review all the information regarding the junior subordinated
debentures. See "Description of the Junior Subordinated Debentures."
We Will Control the Election of Trustees Because Your Voting Rights Are Very
Limited; Your Interests May Be Different From Our Interests
Holders of the capital securities will have limited voting rights. As a
result, only Southern States can replace or remove any of the trustees, except
that in the event of a continuing default under the trust agreement, the holders
of a majority in aggregate liquidation amount of the capital securities may
replace the property trustee and the Delaware trustee. Southern States and the
trustees of Southern States Capital Trust may amend the trust agreement without
your consent, even if it adversely affects your interests. See "Description of
the Capital Securities--Modification of the Trust Agreement."
Risk Factors Relating to Southern States
Declining Commodity Prices Have Resulted in Lower Revenues and Significant
Reductions in Our Net Savings in Fiscal 1998 and in Our Current Fiscal Year
Our recent operating results have been adversely affected by declines in a
wide range of agricultural commodity prices. Our net savings from operations for
the fiscal year ended June 30, 1998, were $10.7 million. This was significantly
below the net savings of $27.5 million we achieved for the year ended June 30,
1997 and the $27.6 million we achieved 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.
The decline in commodity prices that affected Southern States in fiscal
1998 continued to impact us adversely in the nine-month period ended March 31,
1999. We expect lower than usual commodity prices to continue for some time in
the future. As a result, our operating results will continue to be adversely
affected in future periods until prices return to more normal levels.
14
<PAGE>
The Cyclical Nature of the Agriculture Business, Over Which We Have No
Control, Can and Does Impact Us Adversely
Agriculture is generally cyclical in nature. Agricultural commodities
experience wide fluctuations in price, based on the supply of farm commodities
and demand for raw or processed products.
The cyclical nature of the agriculture business is something over which we
have no control; at times it can and does affect us adversely. Currently, the
agriculture industry is experiencing a period of depressed prices for a wide
variety of commodities. This has affected our operating results in terms of
lower sales, lower net savings and increased credit risk among some of our
customers. In addition, a portion of our business is dependent on the demand of
farmers for 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 significant variations from year to
year and over a period of years in sales volume, cost of goods, and cost of raw
materials. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Gold Kist Inputs Business Was Not Profitable Prior to Our Acquisition and
Continued Losses in That Portion of Our Business Could Have a Material Adverse
Effect on Our Overall Operating Results
The Gold Kist Inputs Business incurred operating losses of $12.3 million
for the year ended June 27, 1998. A continuation of losses of that magnitude
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 subsequent periods. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Integration of
the Gold Kist Inputs Business."
If We Are Not Successful in Integrating the Gold Kist Inputs Business With Our
Other Business Operations, It Could Adversely Affect Our Operating
Results
The acquisition of the Gold Kist Inputs Business increased our total assets
by approximately $225 million and significantly increased the geographical scope
of our business. 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 our other business operations. We
could encounter unanticipated difficulties in integrating the acquired
operations with our operations and we might not realize the benefits anticipated
to be realized from this integration as quickly as, or to the extent,
anticipated. These difficulties may arise from the necessity of coordinating
geographically separated personnel, integrating different strategies and
business practices 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."
15
<PAGE>
The Demand for Our Products and Services Is Impacted by Weather Conditions Over
Which We Have No Control
Historically, weather conditions have 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, that affect 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 over which we
have no control 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. This may, as a
result, adversely affect the ability of the producers to repay their obligations
to Southern States in a timely manner.
Competition in the Agribusiness Industry Could Adversely Affect Our Business and
Our Operating Results
We compete for sales of 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. We compete with other suppliers primarily on the basis of price and
service. Our potential inability to compete successfully could result in a loss
of customers which could have a material adverse effect on Southern States'
business, financial condition, and results of operations. Some of the companies
we compete with may offer supplies or services on more favorable terms, and some
may have capital resources, research and development staffs, facilities, or name
recognition that may be greater than ours. See "Business of Southern
States--Other Factors Affecting the Business of Southern States--Competition."
We Have Exposure to Environmental Liabilities That Could Materially Adversely
Affect Our Business
The use and handling of fertilizer, crop protectants and petroleum products
can and does result in environmental contamination. We are governed by 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 and handle hazardous
substances in our business, 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."
16
<PAGE>
First Union Capital Markets Corp. and Banc of America 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 two of the underwriters are creditors of Southern States and
expect to be repaid from the sale of the capital securities. The net proceeds to
Southern States from 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, Bank of America, N.A. and First Union National Bank. Bank of
America is an affiliate of Banc of America 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 Banc of America Securities may have a further interest in
the successful completion of the offering in addition to the underwriting fees
they would receive . See "Underwriting" for a description of the independent
underwriting procedures that are being utilized in connection with the offering.
SOUTHERN STATES CAPITAL TRUST I
General
Southern States Capital 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. It will be governed by the trust
agreement. First Union National Bank is the property trustee. First Union Trust
Company, National Association is the Delaware trustee. The trust agreement will
be qualified as an indenture under the Trust Indenture Act, and the property
trustee will be independent and qualified under the Trust Indenture Act.
Wayne A. Boutwell and Jonathan A. Hawkins, the administrative trustees, will
not be independent and will not be qualified under the Trust Indenture Act.
The 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."
Southern States Capital Trust exists for the exclusive purposes of:
o issuing and selling the trust securities, consisting of the capital
securities and the related common 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 Southern States Capital Trust, and payments under the
junior subordinated debentures will be the sole source of revenue of
Southern States Capital Trust.
17
<PAGE>
All of the common securities will initially be owned by Southern States.
The common securities will rank equal to, and payments will be made
proportionately, with the capital securities. However, 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 Southern States Capital Trust. The
aggregate liquidation amount of junior subordinated debentures held by Southern
States Capital Trust will include approximately $2.32 million ($2.67 million if
the underwriters exercise their over-allotment option in full) principal amount
of junior subordinated debentures purchased by Southern States Capital Trust
with the proceeds from the issuance of its common securities to Southern States.
Southern States Capital Trust has a term of 50 years, but may dissolve earlier
as provided in the trust agreement.
No separate financial statements of Southern States Capital Trust are
included in this prospectus. Southern States and Southern States Capital Trust
do not consider that the financial statements of Southern States Capital Trust
would be material to holders of the capital securities because:
o Southern States Capital Trust is a special purpose entity, with 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;
o Southern States owns, directly or indirectly, all of the voting
securities of Southern States Capital Trust; and
o 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 Southern States Capital 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 sole assets of Southern States
Capital Trust are approximately $77.32 million principal amount junior
subordinated debentures (approximately $88.92 million if the underwriters
exercise their over-allotment option in full), 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 Southern States Capital Trust,
18
<PAGE>
other than with respect to the trust securities, provide a full, irrevocable and
unconditional guarantee of amounts due on the capital securities.
USE OF PROCEEDS
The net proceeds to Southern States Capital Trust from the sale of the
capital securities are expected to be $75 million, or $86.25 million if the
underwriters exercise their over-allotment option in full. Southern States
Capital Trust will invest these proceeds, along with the proceeds from the sale
of its common securities, in junior subordinated debentures issued by Southern
States under the indenture. Ultimately, Southern States will use the net
proceeds from the sale of the capital securities to reduce bank indebtedness
incurred as part of 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 January, 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 may not 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 June 30, 1999, and which bears interest at LIBOR plus variable increments, is
repayable in full on or before October 8, 1999. The effective rate of this loan
at June 30, 1999 was 5.46%. Southern States intends to repay the remaining
balance of the bridge loan facility in part from the net proceeds of the sale of
$75 million of junior subordinated debentures to Southern States Capital Trust,
which will purchase those securities with the net proceeds of the offering of
capital securities made by this prospectus. Southern States intends to repay any
remaining balance of the bridge loan facility with the proceeds of a
contemplated sale of shares of 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 equally with Southern
States' other preferred stock.
In the event the offering of capital securities made by this prospectus is
not completed before October 5, 1999, and the sale of the preferred stock is not
completed by that date, Southern States may elect, under 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 these 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.
19
<PAGE>
CAPITALIZATION
The following table sets forth our historical consolidated capitalization
at March 31, 1999, and our pro forma consolidated capitalization at March 31,
1999, adjusted to reflect the application of the proceeds from the sale of the
capital securities by Southern States Capital Trust. In that connection, as
described in this prospectus, the sole assets of Southern States Capital Trust
will be the junior subordinated debentures with a principal amount of $77.32
million (approximately $88.92 million if the underwriters exercise their
over-allotment option in full), 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 our consolidated financial
statements and accompanying notes included in this prospectus.
<TABLE>
<CAPTION>
At March 31, 1999
-----------------
Actual
Southern States Pro forma
--------------- ---------
(Amounts in thousands)
<S> <C>
Short-term notes payable............................ $ 7,700 $ 7,700
========== ==========
Long-term debt:
Term notes, 6.99%, due 2005..................... 37,000 37,000
Notes payable - syndicated loans 146,200 146,200
Industrial revenue financings................... 12,570 12,570
Bridge loan facility ........................... 100,000 27,750
Capitalized lease obligations................... 2,336 2,336
Other debt...................................... 215 215
---------- ----------
Total long-term debt (including current
maturities)................................... 298,321 226,071
Less current maturities......................... 3,836 3,836
---------- ----------
Total long-term debt (excluding
current maturities)........................... 294,485 222,235
---------- ----------
Company-obligated mandatorily redeemable capital
securities of trust subsidiary (3)............... 72,250
Redeemable preferred stock.......................... 2,114 2,114
Capital stock:
Preferred stock................................. 1,464 1,464
Common stock.................................... 12,158 12,158
Patrons' equity:
Patronage refund allocations (1)............... 67,791 67,791
Operating capital (2).......................... 85,325 85,325
---------- ----------
Total patrons' equity..................... 153,116 153,116
---------- ----------
Total capitalization ................ $ 463,337 $ 463,337
========== ==========
</TABLE>
(1)Represents retained earnings, which may be redeemed in the discretion of the
board of directors of Southern States.
(2)Represents retained earnings from non-member sourced income that is retained
as permanent capital.
(3)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.
20
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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 company-obligated mandatorily redeemable
capital securities of trust subsidiary, as though these transactions occurred on
March 31, 1999. The unaudited pro forma condensed combined statements of
operations for the year ended June 30, 1998 and the interim period ended March
31, 1999, have been prepared to give effect to the aforementioned transaction as
well as the acquisition of the Gold Kist Inputs Business as if these
transactions occurred on July 1, 1997. Management has allocated the estimated
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. In both the March 31, 1999 historical
financial statements and in the pro forma financial statements Southern States
has, on a preliminary basis, recorded the disputed accounts receivable net of a
$30.5 million reserve because Southern States does not believe that such
receivables were collectible at the date of the acquisition of the Gold Kist
Inputs Business. In addition, Southern States has in turn recorded a receivable
due from Gold Kist Inc. of $16 million as well as not paid a $10 million
hold-back provided for in the asset purchase agreement. Southern States and Gold
Kist Inc. have been working together since February, 1999, to resolve their
differences. 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
"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
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.
21
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1999
<TABLE>
<CAPTION>
Historical
Southern Pro Forma Pro Forma
States Adjustments Combined
------ ----------- --------
<S> <C>
Assets
Cash............................... $ 12,026 $ 72,250 (1)
(72,250) (1) $ 12,026
Accounts receivable, net........... 148,260 148,260
Inventories........................ 288,614 288,614
Other.............................. 19,857 19,857
--------- ------------ ----------
Total current assets........ 468,757 -- 468,757
Investments
Statesman Financial Corporation. 19,910 19,910
Michigan Livestock Credit
Corporation................. 12,142 12,142
Other companies (principally
cooperatives).............. 77,865 77,865
Receivables........................ 1,496 1,496
Other assets....................... 12,597 12,597
Property plant and equipment, net.. 187,997 187,997
--------- ------------ ----------
$780,764 $ -- $ 780,764
======== ============ ==========
Liabilities and Stockholders' and
Patrons' Equity
Short term notes payable........... $ 7,700 $ 7,700
Current portion of long-term debt.. 3,836 3,836
Accounts payable................... 217,476 217,476
Accrued expenses................... 53,610 53,610
Advances from managed member coops. 16,876 16,876
Other current liabilities.......... 355 355
--------- ------------ ----------
Total current liabilities... 299,853 -- 299,853
Bridge loan facility............... 100,000 (72,250) (1) 27,750
Long-term debt..................... 194,485 194,485
Other non-current liabilities...... 14,039 14,039
Deferred income tax liabilities.... 3,535 3,535
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................. 1,464 1,464
Common stock.................... 12,158 12,158
Patrons' equity.................... 153,116 153,116
--------- ------------ ----------
$ 780,764 $ -- $ 780,764
========= ============ ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
22
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended March 31, 1999
<TABLE>
<CAPTION>
Historical
-----------------------------
Gold Kist
Southern Inputs Pro Forma Pro Forma
States Business Adjustments Combined
------ -------- ----------- --------
(amounts in thousands)
<S> <C>
Net sales........................................ $852,010 $ 91,508 $943,518
Cost of sales.................................... 688,898 78,506 $ 81 (3) 767,485
--------- ---------- ------- ---------
Gross margin................................ 163,112 13,002 (81) 176,033
Selling, general and administrative.............. 174,910 22,054 196,964
--------- ---------- -------- ---------
Loss on operations.......................... (11,798) (9,052) (81) (20,931)
Other income (deductions):
Interest income and service charges......... 10,899 3,209 14,108
Interest expense............................ (20,593) (3,994) (3,891)(4)
3,888 (4) (24,590)
Miscellaneous income, net................... 4,608 171 4,779
--------- ---------- ----------
(5,086) (614) (3) (5,703)
---------- ---------- -------- ----------
Loss before income tax and distributions on
manditorily redeemable capital securities of
trust subsidiary............................ (16,884) (9,666) (84) (26,634)
Income tax benefit............................... (5,057) (3,625) (2,071)(6)
(33)(5) (10,787)
Distributions on capital securities of trust
subsidiary..................................... 5,204 (6)
42 (6) 5,246
---------- ---------- -------- ----------
Net loss.................................... $(11,827) $ (6,041) $(3,225) $ (21,093)
========== ========== ======== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
23
<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>
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 service charges......... 7,800 10,041 17,841
Interest expense............................ (16,859) (12,675) (9,583) (4)
(26,876)
12,241 (4)
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 trust
subsidiary....................................... 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
24
<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 nine months ended March 31, 1999. 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 6.60%
and 6.11% for the periods ended June 30, 1998 and March 31, 1999,
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 $5,204, 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 $2,071, respectively as these dividends are deductible as
interest for income tax purposes. Also, to reflect accretion of $55 and $42
for the year ended June 30, 1998, and nine months ended March 31, 1999,
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
Following 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.
25
<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 nine months ended
March 31, 1999 and 1998, which only include adjustments of a normal and
recurring nature, and from the audited financial statements of Southern States
as of and for each of the years in the five-year period ended June 30, 1998. The
selected historical financial data for the Gold Kist Inputs Business are derived
from the audited financial statements of the Gold Kist Inputs Business as of and
for the years ended June 27, 1998, June 28, 1997, and June 29, 1996. The
following selected historical financial data should be read together with
information appearing in the respective consolidated financial statements and
accompanying notes included in this prospectus.
Southern States Cooperative, Incorporated
<TABLE>
<CAPTION>
Nine Months Ended
March 31 As of and for the Fiscal Year Ended June 30
-------- ----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(unaudited) (Amounts in thousands)
<S> <C>
Summary of Operations:
Net purchases by patrons. $787,708 $681,109 $1,022,847 $1,097,174 $1,008,841 $ 911,449 $870,032
Net marketings for
patrons................ 61,567 78,477 92,863 115,972 110,667 99,185 77,476
Other operating revenue.. 2,735 2,108 3,793 2,954 3,141 3,093 2,824
-------- -------- --------- --------- --------- --------- -------
Total revenue....... $852,010 $761,694 $1,119,503 $1,216,100 $1,122,649 $1,013,727 $950,332
Cost of products
purchased and
marketed............... 688,898 634,870 927,652 1,014,440 926,753 835,139 786,354
------- ------- ---------- --------- --------- --------- -------
Gross margin............ 163,112 126,824 191,851 201,659 195,896 178,588 163,978
Selling, general &
administrative......... 174,910 123,999 175,784 166,132 157,809 150,678 149,256
------- ------- ---------- --------- --------- --------- -------
Savings (loss)
on operations... (11,798) 2,825 16,067 35,527 38,087 27,910 14,722
Other deductions (net)... (5,086) (2,417) 2,434 1,987 3,441 4,738 2,992
------- ------- --------- --------- --------- --------- -------
Savings (loss)
before income
taxes.......... (16,884) 409 13,633 33,540 34,646 172 11,730
Income taxes (benefit)... (5,057) 89 2,966 6,039 7,052 4,929 3,646
Cumulative effect of
change in accounting
principle (1).......... --- --- --- --- --- --- (909)
------- ------ -------- --------- --------- -------- --------
Net savings (loss) $ (11,828) $ 319 $ 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. (11,828) 319 3,624 9,221 9,630 7,362 3,069
-------- -------- -------- -------- --------- --------- -------
Net savings (loss).. $(11,828) $ 319 $ 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... $ 90,032 $30,257 $ 33,602 $ 31,430 $ 25,631 $ 19,560 $ 21,243
Cash flow used by
investing activities... (242,524) (28,058) (43,833) (20,981) (19,690) (21,537) (20,002)
Cash flow from (used
by)financing
activities............. 149,166 (8,197) 8,730 (11,881) (141) 4,859 (1,125)
EBITDA (2) .............. $ 20,213 $ 25,024 $ 48,104 $ 65,704 $ 66,150 $ 53,297 $ 38,085
Interest expense......... 20,593 11,900 16,859 15,566 15,237 14,798 12,258
Depreciation and
amortization........... 16,584 12,715 17,612 16,598 16,267 15,327 14,097
CF Industries, Inc.
patronage dividend (3) --- --- 5,513 13,128 12,729 4,846 ---
Capital expenditures..... 38,114 27,230 33,905 19,945 18,529 17,333 18,424
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
Balance Sheet Data:
Working capital.......... $ 168,904 $ 77,027 $ 90,098 $ 108,682 $ 103,911 $ 92,154 $ 75,913
Property, plant and
equipment (net)........ 187,996 116,179 129,193 104,002 101,549 99,535 98,409
Investments.............. 109,917 90,135 103,874 82,369 71,549 63,849 59,747
Total assets............. 780,764 471,841 462,296 409,160 385,551 343,173 323,888
Long-term debt........... 294,485 107,935 136,041 109,902 107,523 99,580 89,011
Selected Ratios:
Ratio of earnings to
combined fixed
charges and preferred
stock dividends (4).... --- --- 1.63x 2.76x 2.89x 2.30x 1.76x
Ratio of EBITDA to
interest expense....... .98x 2.10x 2.85x 4.22x 4.34x 3.60x 3.11x
Long-term debt/EBITDA.... 14.57x 5.68x 2.83x 1.67x 1.63x 1.87x 2.34x
Current ratio (5)........ 1.56x 1.43x 1.71x 2.00x 2.00x 2.11x 1.88x
Long-term debt to total
capitalization (6)... .64x .40x 0.43x 0.38x 0.40x 0.40x 0.39x
Wholesale Volume Data
(`000's):
Supply
Feed--tons.......... 961 701 917 924 895 875 834
Fertilizer--tons.... 967 621 1,155 1,137 1,054 1,021 1,057
Seed -pounds, 100
wt................. 1,372 1,280 1,673 1,384 1,305 1,412 1,051
Petroleum--gallons.. 255,004 251,409 314,614 349,863 340,556 306,874 287,958
Marketing
Grain
marketing-bushels.. 15,732 18,594 24,830 29,380 27,637 28,517 20,543
Livestock
marketing-head
Cattle........... 447 N/A 642 599 N/A N/A N/A
Swine............ 1,159 N/A 2,689 2,516 N/A N/A N/A
Other............ 111 N/A 136 120 N/A N/A N/A
Statesman Financial
Corporation (7):
Total assets..............$ 227,661 $ 143,603 $ 236,143 $ 152,400 $ 168,971 $ 144,384 $ 138,139
Receivables financed....... 108,037 100,440 202,908 127,717 140,158 97,167 92,763
Debt....................... 194,845 123,480 200,795 133,230 150,024 126,409 122,383
Total equity............... 32,398 18,863 31,574 18,349 18,078 17,050 15,025
</TABLE>
27
<PAGE>
Gold Kist Inputs Business
As of and for the Fiscal Year Ended
-----------------------------------
June 27, June 28, June 29,
1998 1997 1996
------- ------- -------
(Amounts in thousands)
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 (2)................... $ (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 (3)............... 3,696 10,108 8,938
Capital expenditures......... 4,729 9,375 16,322
As of and for the Fiscal Year Ended
-----------------------------------
June 27, June 28, June 29,
1998 1997 1996
---- ---- ----
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 (5).................. 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
28
<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) EBITDA is defined as savings (loss) 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.
(3) For further information concerning Southern States' relationship to
CF Industries, Inc., see "Business of Southern States--Investments in
Other Companies and Cooperatives." 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."
(4) 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. Earnings were
insufficient to cover fixed charges by $17.1 million and $0.2 million for
the nine months ended March 31, 1999 and 1998, respectively.
(5) Current ratio is defined as total current assets divided by total
current liabilities.
(6) Total capitalization is defined as the total of long-term debt,
mandatorily redeemable preferred stock, capital stock and patrons' equity.
(7) 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."
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion and analysis should be read together with
the consolidated financial statements and accompanying notes 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 nine month periods ended March 31, 1999 and 1998 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>
Operating
Sales for Margins for
the fiscal year ended the fiscal year ended
------------------------------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <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
======= ======= =======
Sales for the Operating Margins for the
nine months ended March 31, nine months ended March 31,
--------------------------- ---------------------------
1999 1998 1999 1998
==== ==== ==== ====
Crops $ 113,358 $ 88,315 $ 3,973 $ 8,112
Feed 135,662 112,076 9,428 5,500
Petroleum 124,187 156,348 (1,715) 2,239
Retail Farm Supply 269,586 188,768 (9,689) (1,957)
Farm and Home 143,693 134,704 2,476 2,097
Marketing 63,867 78,652 576 1,600
Other 1,657 2,831 (550) (454)
------------ ------------ --------- --------
Total $ 852,010 $ 761,694 $ 4,499 $ 17,137
============ ============ ======== ========
General corporate overhead (21,383) (16,729)
Income tax expense (benefit) (5,057) 89
---------- ---------
Net savings (loss) $ (11,827) $ 319
========= =========
</TABLE>
30
<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 fluctuate in price, based on the supply of such commodities and
the demand for the raw or processed products.
Integration of the Gold Kist Inputs Business
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
divestiture, closure or other appropriate remedial steps;
o implement Southern States' credit underwriting standards and
practices which require more stringent policies and controls over
the approval and monitoring of credit transactions,
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.
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 through the
implementation of Southern States' commodity price risk management policies
concurrent with the date of acquisition. Losses from such transactions in the
Inputs Business were $4.1 million for the year ended June 27, 1998. Also,
Southern States achieved significant savings in procurement, accounting and
administration functions through the immediate consolidation of such
functions into Southern States' existing operations resulting in reduced
employment levels as compared to historical. Southern States incurred only
minimal severance costs associated with this administrative consolidation
because the majority of the Gold Kist, Inc. employees performing such
activities were never employed by Southern States. Southern States
anticipated that the implementation of stricter credit underwriting standards
would likely adversely impact sales in the former Gold Kist territory
because a number of patrons would no longer qualify for credit approval.
However, the impact of these changes in credit underwriting standards
31
<PAGE>
appears to have had a greater impact than 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, Gold Kist territory
sales revenue since the acquisition date was more severely impacted than
originally anticipated.
Subsequent to the acquisition of the Inputs Business, and as part
of Southern States' business plan for improving the overall financial
performance of the Inputs Business, Southern States has sold, closed or
otherwise disposed of eleven locations in the Gold Kist territory. It has
been in discussions with several parties with respect to a possible sale of
its seven wholesale and retail locations in west Texas. Management of
Southern States has underway plans relating to the consolidation, sale,
closure or other disposition of approximately 20 to 25 other retail
locations throughout the former Gold Kist territory in order to further
improve the financial performance of the Inputs Business. In most cases,
Southern States will attempt to effect these dispositions in a manner
that preserves sales revenues and customers while eliminating unnecessary
costs.
Southern States has rapidly expanded its private dealer network into
the Gold Kist territory. As of June 30, 1999, 76 new private dealers
locations in this new territory, including 14 independent cooperative
locations, had completed the Southern States certification process and were
purchasing product from Southern States. Fourteen others, including eight
independent cooperatives, were in various stages of that process and are
expected to be purchasing product by the end of August 1999. Approximately 54
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 March 31, 1999, 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.
Historical Results of Operations
Nine Months Ended March 31, 1999 Compared to Nine Months Ended March 31,
1998
While 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. Our third quarter is typically strong. However, this
year continuing declines in commodity prices caused sales results to be
disappointing.
Net sales of $852.0 million for the nine months ended March 31,
1999, reflected a 11.9% increase of $90.3 million from $761.7 million
for the comparative 1998 period. Despite the inclusion of the net sales of the
Gold Kist Inputs Business since its October 13, 1998 acquisition, net sales
were lower than anticipated primarily as a result of lower Petroleum and
Marketing volumes, which have continued to be impacted negatively by
worldwide supply and demand
32
<PAGE>
factors for petroleum and grain products, respectively. Average unit
price varied from no change in Fertilizer to a decrease of 26.7% in
Petroleum. The loss for the nine months ended March 31, 1999, of $11.8
million was $12.1 million higher than the $0.3 million net income for the
corresponding nine months ended March 31, 1998.
Crops
Sales of the Crops division increased $25.1 million (28.4%) from
$88.3 million for the nine months ended March 31, 1998 to $113.4 million
for the comparative 1999 period primarily as a result of the inclusion of Crops
division sales from the acquired Gold Kist Inputs Business since its
acquisition. By product line, the majority of this increase resulted from
increased sales of fertilizer and crop protection products primarily in
the acquired Gold Kist Inputs Business territories, offset by reduced seed
sales. Fertilizer sales, which approximated 68% of total Crops division
sales through March 31, 1999, increased approximately 45%, on fertilizer
tonnage increases of approximately 55%, while crop protection product sales,
which approximate 14% of total Crops division sales at March 31, 1999,
increased approximately 17% over the same period. Seed sales decreased
approximately 7% as compared to the same period in the prior year.
Operating margin for the Crops division decreased by $4.1 million from
$8.1 million for the nine months ended March 31, 1998 to $4.0 million
for the comparative 1999 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 $23.6 million (21%) from $112.1 million
for the nine months ended March 31, 1998, to $135.7 million for the comparative
1999 period. The increase resulted primarily from a 37.1% increase in
tonnage from 701,000 to 961,000 tons, partially offset by a 13.8% 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.
The operating margin for the Feed division increased approximately
$3.9 million from $5.5 million for the nine months ended March 31, 1998, to
$9.4 million for the comparative 1999 period. The increase in operating
profit primarily resulted from the increases in tonnage partially offset
by lower selling prices and increased employee expenses resulting from the
acquisition of the Gold Kist Inputs Business. Feed division operating margin as
a percentage of sales for the nine months ended March 31, 1999 increased from
6.2% for the nine months ended March 31, 1998 to 7.0% for the comparative 1999
period despite a 13.8% decrease in average unit selling price primarily
because of an approximate 17% decrease in the cost of raw materials purchased
over the same period.
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Petroleum
Petroleum division sales decreased $32.1 million (20.6%) from $156.3
million for the nine months ended March 31, 1998, to $124.2 million for the
comparative 1999 period. The overall sales revenue decline resulted from the
net impact of price declines offset by a nominal increase in gallons sold. More
specifically, pricing declines were the result of a 15.0% decrease in
average unit pricing from the prior period caused by the effects of
worldwide petroleum pricing declines.
The Petroleum division's operating margin decreased $3.9 million from
a profit of $2.2 million for the nine months ended March 31, 1998, to a loss
of $1.7 million for the 1999 period. The decline in operating margin resulted
from overall net decreases in worldwide petroleum prices compared to
the corresponding 1998 period, which led to inventory write-downs pursuant
to Southern States' inventory policy which requires that petroleum products
be stated at the lower of cost or market. As such, inventory write-downs
pursuant to this policy were approximately $4.1 million and $3.1 at March
31, 1999 and 1998, respectively. In addition, in the second quarter of
fiscal 1999 the petroleum division recorded a $3.0 million provision
related to the estimated cost to remediate ground water contamination at a
operating site. These funds are anticipated to be expended over a twenty year
period with approximately $1.1 million expected to be expended by December
2000 and the remaining portion spread over the remaining 19 years.
Anticipated expenditures for the first ten years are primarily for capital
equipment and site remediation with expenditures after year ten expected to be
for site monitoring and reporting.
Retail Farm Supply
Sales of the Retail Farm Supply division increased $80.8 million
(42.8%) from $188.8 million for the nine months ended March 31, 1998, to
$269.6 million for the comparative 1999 period. The increase in sales
can be primarily attributed to sales in the acquired Gold Kist Inputs
Business territories of approximately $86 million in revenue since its
acquisition. These sales increases were partially offset by lower retail
petroleum service sales due to the net decline in worldwide petroleum pricing
compared to the corresponding 1998 period. 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 that resulted in increased difficulty in patrons obtaining credit.
Retail Farm Supply operating losses increased $7.7 million from a loss
of $2.0 million for the nine months ended March 31, 1998, to a loss of $9.7
million for the 1999 period. The increase in operating losses can be
primarily attributed to losses incurred in the acquired Gold Kist Inputs
Business territories of approximately $7.8 million since its acquisition. These
increased losses mainly resulted from increased employee related costs,
additional operating lease expense and depreciation resulting from the
acquisition of the Gold Kist Inputs Business on October 13, 1998.
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Farm and Home
Sales of the Farm and Home division increased $9.0 million (6.7%)
from $134.7 million for the nine months ended March 31, 1998, to $143.7
million for the 1999 period. This increase in sales is primarily the result a
$7.3 million (7.6%) increase in sales in the metropolitan area stores and a
$1.7 million (4.3%) increase in the sales of Wetsel, Inc.
Operating margin for the Farm and Home division increased $0.4
million (19.1%) from $2.1 million for the nine months ended March 31, 1998,
to $2.5 million for the 1999 period. The increased operating margin
resulted from increased operating margins in the metropolitan stores
offset by increased expenses at Wetsel, which were attributable to the
acquisition of a distribution warehouse.
Marketing
Sales of the Marketing division decreased $14.8 million (18.8%) from
$78.7 million for the nine months ended March 31, 1998, to $63.9 million for
the 1999 period. This decrease is attributable to a decline of $22.4
million in grain marketing partially offset by $7.6 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 15.4% while a strong
western United States harvest caused a $0.70 (16.6%) reduction in the average
per bushel unit price for grain marketed.
Operating margin for the Marketing division decreased $1.0 million from
$1.6 million for the nine months ended March 31, 1998, to $0.6 million for
the 1999 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 $4.7 million, from $16.7
million for the nine months ended March 31, 1998, to $21.4 million for the
comparative 1999 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 $8.7 million (73.1%) from $11.9
million for the nine months ended March 31, 1998, to $20.6 million for the
1998 period. The majority of the increase (53%) results from borrowings
on the bridge loan facility to fund the acquisition of the Gold Kist Inputs
Business with the remaining increase attributable to additional borrowings
to fund increased working capital needs.
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Miscellaneous Income, net
Miscellaneous income, net increased $1.1 million from $3.5 million for
the nine months ended March 31, 1998 to $4.6 million for the comparative
1999 period. The increase primarily reflects a $1.2 million long-term
contract settlement gain and changes in a number of non-operating accounts,
none of which was individually material.
Provision for Income Tax Benefit
The income tax benefit for the first nine months of fiscal year 1999 of
$5.1 million increased $5.2 million from the income tax expense of $.09
million in fiscal year 1998 primarily due to a 98% increase in pretax net
losses. The forecasted effective tax rate was approximately 24.9% and
21.8% for 1999 and 1998, respectively.
Liquidity and Capital Resources at March 31, 1999
On January 12, 1999, Southern States entered into a new $200
million three-year revolving credit facility with various commercial banks
that matures January 11, 2002. 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 not more than
.50 to 1, have tangible net worth of at least $256 million plus 25% of net
income in each 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 of LIBOR plus .95%. There is also a facility
fee of .30% on this revolver. Amounts are drawn under this facility to fund
general working capital needs. On March 31, 1999 there was $146.2 million
outstanding under this facility.
At March 31, 1999, 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. Amortization on this term loan is $2 million
due on November 1, 1999 and November 1, 2000, $7 million due on November 1,
2001 and November 1, 2002, $9 million due November 1, 2003 and $8 million
due November 1, 2004. Interest on this term loan is at quoted rates or at a
LIBOR-based maximum rate of LIBOR plus .95%. Interest rates on this term
loan vary from 5.6% to 7.5%. Proceeds of this term loan were used for general
working capital purposes and the financial covenants are the same as those
under the three-year revolving credit facility discussed above.
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 three-year revolving credit
facility discussed above. The outstanding balance is $100 million at March 31,
1999. Repayment of
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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 now
at a fixed spread of .50% over LIBOR and the financial covenants are the
same as those under the three-year syndicated revolver.
Southern States also has outstandings of approximately $12.6 million
in three industrial revenue bonds. These bonds carry variable rates of
interest that at March 31, 1999 ranged from 3.15% to 3.25%. A $2.4 million
bond has a final maturity date of August 1, 2004, a $3.5 million bond has a
final maturity date of September 1, 2005 and the $6.7 million bond has a final
maturity date of January 1, 2016. Financial covenants apply only at fiscal
year end and, as of March 31, 1999, include a minimum net worth of $115
million, working capital of $65 million, a current ratio of greater than 1.6
to 1, a ratio of long term debt to equity of .775 to 1 and a ratio of tangible
net worth to total assets of 39%. As of June 30, 1999, these covenants will
be eliminated and new covenants will be in effect for these bond issues. The
new covenants will conform to those contained in Southern States' new
three-year revolving credit facility as described above.
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 $7.7 million
outstanding balance at March 31, 1999 and an interest rate of 5.5% On July
1, 1999, Wetsel's credit facilities were revised. The subsidiary now has an
uncommitted short term credit facility with CoBank that fluctuates from $4
million in amount during the period from July 1 to December 31 to $8 million
from January 1 through February 28, 2000. The facility matures on February
28, 2000. In addition, the subsidiary has a committed $5 million long-term
revolver that matures February 28, 2002. This revolver carries a facility fee
of .30%. Interest rates on these lines are, at the subsidiary's option, at
quoted rates or at a preset rate of LIBOR plus 1.05%. Wetsel also has a $2
million term note with CoBank with $1 million maturing January 15, 2000
and $1 million maturing January 15, 2001. Interest rates on this term loan
vary from 5.6% to 6.9%.
Southern States and Statesman Financial Corporation are parties to
an agreement under which Statesman purchases receivables from Southern
States without recourse. Under the terms of the agreement, Southern States pays
fees on receivables sold to Statesman. Receivables sold to Statesman
totaled approximately $820 million and $653 million for nine months ended March
31, 1999 and 1998, respectively. Statesman pays volume incentive fees to
Southern States at the end of the fiscal year in connection with the purchase
of receivables. In addition, under the terms of the agreement, Southern
States was obligated to maintain a computed minimum investment in Statesman's
preferred stock of $17.8 million and $16.5 million at March 31, 1999 and 1998,
respectively. See Note 5 of the Notes to the Southern States Consolidated
Financial Statements included in this prospectus.
Cash and cash equivalents at March 31, 1999 were $12.0 million,
which represents a increase of $1.1 million from $10.9 million at March 31,
1998. Net cash provided by operating activities for the nine months ended
March 31, 1999 and 1998 amounted to $90.0 million and $30.3 million,
respectively. The increase
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in net cash provided by operating activities resulted from increases in
accounts payable and advances from managed local cooperatives partially
offset by increases in inventory and a higher net loss. Net cash used in
investing activities for the nine months ended March 31, 1999, amounted to
$242.5 million, an increase of $214.4 million from cash used in investing
activities in the corresponding 1998 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 nine months ended
March 31, 1999, of $149.2 million and net cash used by financing activities
for the year ended March 31, 1998, of $8.2 million were primarily the result of
net borrowing activities.
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.
Capital expenditures, exclusive of fixed assets acquired from Gold
Kist Inc., for the nine months ended March 31, 1999, totaled $38.1 million.
Southern States had outstanding commitments for the construction and
acquisition of property, plant and equipment totaling approximately $3.4
million at March 31, 1999. Southern States also maintains a reserve for
environmental expenditures which totaled $3.6 million at March 31, 1999. See
Note 13 of the Notes to the Southern States Consolidated Financial Statements
included in this prospectus.
Capital expenditures for the year ended June 30, 1998, totaled $33.9
million which compares to $19.9 million in capital expenditures for the year
ended June 30, 1997. Of this 1998 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 and
approximately $1.5 million at June 30, 1997. Southern States also maintains
a reserve for environmental expenditures which totaled $1.2 million at
June 30, 1998 and $1.1 million at June 30, 1997.
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.
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
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expenditures, debt service requirements and tax obligations. Southern
States intends to maintain and further strengthen its financial condition
and, in its efforts to do so, 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 related 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.
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.
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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
Including sales of Wetsel, Inc., sales of the Farm and Home
division 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 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.
Miscellaneous Income, net
Miscellaneous income, net increased $0.7 million from to $5.9 million
in fiscal 1997 to $6.6 million in 1998. The increase reflects changes in a
number of non-operating accounts, none of which are material in either period.
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
Including sales of Wetsel, Inc., sales of the Farm and Home
division 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.
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
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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.
Miscellaneous Income, net
Miscellaneous income, net increased $1.0 million from to $4.9 million
in fiscal 1996 to $5.9 million in 1997. The increase primarily reflects
$0.7 million of non-recurring gains on the disposal of fixed assets and
changes in a number of other non-operating accounts, none of which are
material in either period.
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.
New Accounting Standards
During Southern States' fiscal year ended June 30, 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards 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. This standard is
effective for the year ended June 30, 1999. The adoption of this standard
will result only in
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additional disclosure and is 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,
2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments including 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 2001. Southern States is currently
evaluating any impact of the derivatives standard.
Year 2000
The Year 2000, or Y2K, issue is the result of some 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.
Compliance Priorities
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 commonly known as 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,
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responsible for all phases of the compliance effort as they relate to
the supported systems.
IT 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 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.
Non-IT Systems
Non-IT systems identified by Southern States that could be impacted by
Y2K include:
o voice telephone service/leased telephone lines
o electricity and other utility services
o fuel or natural gas supplies
o elevator equipment
o security systems/fire alarms
o scales/flow meters
o computer equipment and software not supported by the Company's
information systems personnel.
Most compliance activity for non-IT systems has been undertaken by managers
of individual plant or store facilities, with support from Southern States'
senior management when necessary. As of June 30, 1999, approximately 50% of
Southern States' facilities had notified senior management that they had
completed a survey of compliance for non-IT systems. No non-compliant
business-critical suppliers have been identified to date. Southern States
is still awaiting an analysis by the Federal Reserve of Y2K readiness for
small bank vendors in remote locations. Southern States will repair or
replace non-compliant systems where it is able to do so; in the case of
some suppliers such as public utilities and banks, it will not be able to
control repair or replacement efforts.
Compliance by Third-Party Vendors
Southern States surveyed over 400 of its most significant vendors
seeking information concerning the effect of Y2K on these vendors. Types
of vendors surveyed include manufacturers and sellers of products
Southern States distributes, including feed, fertilizer, petroleum and
other agri-business suppliers. In excess of 75% of these vendors surveyed
responded that they were Y2K compliant. Southern States purchasing agents
and buyers are required to obtain evidence by September 30, 1999 that
vendors' systems will be Y2K compliant or 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. Southern
States had completed the most significant
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portion of its vendor assessments by June 30, 1999. It will continue
to follow-up as appropriate with selected vendors.
Contingency Plans
The most critical information systems in Southern States' business are
those supporting its retail business, those supporting its wholesale
business, and those supporting its financial and human resources
operations. The systems supporting financial and human resources operations
are installed and tested Y2K certified systems. The system supporting its
wholesale business is a newly-installed system and is certified Y2K
compliant. The system supporting retail functions has been tested for
post-2000 dates and no Y2K issue has emerged. Management has contingency
plans developed and in place. These plans require, among other things, that
critical information system personnel be available for immediate response
at year-end and in early 2000 to address any identified Y2K problems. In
addition, as noted in the preceding paragraph, Southern States' buyers and
purchasing agents are required to develop a contingency plan including
alternative sources or stocks of supplies as necessary.
Worst-Case Y2K Scenario
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.
Costs and Anticipated Completion Date
As of June 30, 1999, Southern States' total cost of achieving Y2K
compliance is estimated to be in the range of $850,000 to $1 million,
excluding normal software upgrades and replacements and other previously
scheduled systems changes. As of June 30, 1999, approximately 90% of these
incremental costs had already been incurred. Previously scheduled replacements
of one major system and several minor systems, involving aggregate costs of
approximately $600,000, were accelerated in order to resolve Y2K issues. These
scheduled system replacements were essentially completed by July 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 a variety of 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 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 necessary 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.
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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, some 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 continuing to evaluate its
contingency plans.
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 March 31,
1999, Southern States had $65 million notional value of interest rate
swaps outstanding. The swaps carried coupons with a weighted average rate of
5.74% and 6.50% at March 31, 1999 and 1998, respectively. See Note 15 of
Notes to the Southern States Consolidated Financial Statements. Assuming
March 31, 1999 variable rates and borrowings, a one-hundred-basis-point
change in interest rates would impact Southern States' net interest expense by
approximately $1.3 million on an annualized basis, net of the effect of the
swaps.
Commodities Risk. This table below provides information about
Southern States petroleum, grain and agricultural commodity inventories
and related futures contracts that are sensitive to changes in commodity
prices. For inventories, the table presents the carrying amount and fair
value at March 31, 1999. For the futures contracts, the table presents the
notional amounts in the unit of measure for the particular item that is
being hedged, the weighted average of the contract prices and the fair value
of those contracts. Contract amounts are used to calculate the contractual
payments and quantity of commodity to be exchanged under the futures contracts.
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On-Balance Sheet Commodity Position and Related Derivatives
March 31, 1999
Balance Sheet Position Carrying Amount Fair Value
- - - - ---------------------- --------------- ----------
Petroleum..................... $ 3,130,588 $ 4,144,754
Grain......................... 6,938,655 6,938,655
Agricultural commodities: feed 7,599,584 8,682,352
Expected Maturity
Futures Contracts (Short) Year 2000 Fair Value
- - - - ------------------------- --------------- ----------
Petroleum Contract - Gallons.. 2,310,000 N/A
Petroleum Contract Amount..... $ 1,077,510 $ 1,215,900
Grain Contract - Bushels...... 5,175,800 N/A
Grain Contract Amount......... $ 15,133,525 $ 15,137,669
Agriculture Commodities - Bushels N/A
Agriculture Commodities Contract
Amount.....................
Expected Maturity
Futures Contracts (Long) Year 2000 Fair Value
- - - - ------------------------ ----------------- ----------
Petroleum Contract - Gallons.. 210,000 N/A
Petroleum Contract Amount..... $ 90,993 $ 98,679
Grain Contract - Bushels...... 4,570,307 N/A
Grain Contract Amount......... $ 13,696,860 $ 11,934,388
Agriculture Commodities
- Bushels................... 396,219 N/A
Agriculture Commodities
Contract Amount............ $ 924,015 $ 930,670
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.
* * * * * * *
Subchapter T of the Internal Revenue Code of 1986, as amended,
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
and other matters relating to Southern States' organization and operation as a
cooperative.
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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.
In 1998, 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 their 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.
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."
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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--Agricultural
Inputs and Services--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 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.
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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 49.
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. Under
Virginia law and the Southern States articles of incorporation and bylaws,
the issuance or transfer of Southern States' membership common stock is limited
to:
o bona fide agricultural producers who use the services or supplies of
Southern States, and
o cooperatives whose membership is comprised of such persons.
Each member, regardless of the number of shares of membership common
stock registered in the member's name, is entitled to only one vote in the
affairs of Southern States. Under various circumstances, like the death of a
stockholder, Southern States repurchases common stock from its members at par
value ($1 per
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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 the $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 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.
These election districts are 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, it 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 , elected at an election district meeting by delegates
to the 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 then 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.
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.
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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, which are participations not
bearing interest or paying dividends. Since 1974, patronage refunds have been
paid 40% in cash and 60% in patronage refund allocations. The Internal
Revenue 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 "--Covenants and Restrictions on
Payments--Restrictions on Payments" for restrictions on the redemption of
patronage refund allocations in the event of deferral of interest on the
junior subordinated debentures, or in the event of a default.
The bylaws of Southern States further require that issuance of
patronage refund allocations be in annual series, and identified by year
issued. The bylaws require that the redemption of patronage refund
allocations take place proportionately 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 patronage
refund allocations, which totaled slightly over $6 million. In February 1997,
Southern States redeemed its 1975 patronage refund allocations, which
also totaled approximately $6 million. In March 1998, Southern States
redeemed its 1976 patronage refund allocations, 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 patronage refund allocations 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 patronage refund allocations and that in the event of
operating losses, such losses may be charged in the order of issuance
by years to patronage refund allocations and to operating capital reserves.
Southern States is deemed to have a lien upon and security interest in
patronage refund allocations 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 "--Covenants and Restrictions on
Payments--Restrictions on Payments" for restrictions on the redemption of
patronage refund allocations in the event of deferral of interest on the
junior subordinated debentures, or in the event of a default.
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. Further,
the bylaws
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provide that in the event the board of directors determines these reserves
have served their purpose, if any balance remains, it shall be returned
to the member patrons in proportion to their interests. 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. It 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, which are 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 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 that are not cooperatives; 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.
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.
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>> 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 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 Southern States anticipates 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
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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."
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
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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.
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.
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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.
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 a number of diversified 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.
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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.
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.
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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.
For a description of the Gold Kist properties acquired by Southern States
as part of its 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 a variety of 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
and Statesman's wholly-owned subsidiary, Michigan Livestock Credit
Corporation, 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
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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.
Statesman Financial Corporation
Statesman Financial Corporation is owned 38.4% by Southern States and
36.1% by 62 of the managed local cooperatives. The remaining 25.5% is owned
by Land O'Lakes, Inc., a regional farm supply cooperative headquartered in
Minneapolis, Minnesota; MFA, Incorporated, a regional farm supply organization
headquartered in Columbia, Missouri; and MFA Oil Company, a regional
petroleum cooperative headquartered in Columbia, Missouri. Southern States
accounts for its ownership in Statesman by the equity method.
Statesman engages 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.
Statesman and Southern States have entered into a financing services
and contributed capital agreement setting forth the terms under which
Statesman purchases accounts receivable from Southern States and defining
other financing programs that Statesman may provide to the customers of
Southern States. 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 $19.4 million and $17.9 million for the nine months
ended March 31, 1999 and 1998, respectively. Upon written notice, the
agreement may be terminated by either party at any time.
The parties have entered into this financing services and
contributed capital agreement so that, by selling these receivables to
Statesman, Southern States is able to obtain more favorable financing
than if it held these obligations for its own account and financed those
additional assets itself.
Accounts Receivable Financing
If deemed acceptable by Statesman, from time to time, Statesman
purchases the following receivables from Southern States:
o retail branch customer accounts receivable;
o grain marketing customer accounts receivable;
o advances that Southern States makes to managed member cooperatives
under the management agreement between Southern States and each managed
member cooperative; and
o wholesale customer accounts receivable.
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Under the terms of the financing services and contributed capital
agreement, Southern States sells these receivables to Statesman on a
discounted basis. These discounts provide Statesman with revenues sufficient
to cover anticipated interest charges and average historical charge-offs.
These discounts are calculated based on historical credit losses, current
delinquency status and the anticipated cost of carrying the purchased
accounts receivable. The credit losses component of the discount rate has a
minimum percentage provision that may be modified from time to time as
agreed by Statesman and Southern States. For the nine month period ended
March 31, 1999, these discounts ranged from .621% to 1.035% of the
receivables purchased.
Receivables purchased by Statesman totaled approximately $996.7 million
and $991.5 million for the years ended June 30, 1998 and 1997,
respectively. Statesman paid volume incentive fees to Southern States related
to this program of approximately $605,000 and $488,000 for the years ended
June 30, 1998 and 1997, respectively.
Consumer Retail Financing
Through its consumer retail financing arm, Statesman provides a
private label credit card program for retail customers who may present
their credit cards at retail branch locations of Southern States, managed
member cooperative locations, and participating independent market locations.
Statesman assesses a merchant discount ranging from 1.25% to 1.75% of the
transaction amount. Customers may elect to revolve their balances and pay
finance charges at an APR no greater than 18% based on the average daily
balance. Statesman assesses late payment fees of up to $14.50 each month
against customers who fail to make payments within the terms of the
program. All merchant discounts, finance charges and late payment fees
constitute income to Statesman.
Statesman also offers an installment sales financing program for
retail customers who wish to finance single purchase transactions over a period
ranging from three to sixty months. These transactions are documented on
installment sales contracts that are offered to Statesman for purchase.
Finance charges do not exceed 24% APR. This is a seldom used program. The
volume outstanding under this program at any one time rarely exceeds $250,000.
Statesman's consumer retail finance charge income was approximately
$1.4 million and $1.5 million for the years ended June 30, 1998 and
1997, respectively. In addition, Statesman's merchant discount and late
payment fee income totaled approximately $224,000 and $219,000 for the years
ended June 30, 1998 and 1997, respectively. Approximately 50% of this
merchant discount and late payment fee income came from Southern States.
Statesman paid no volume incentive fees 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 $7.0 million and $8.0 million as of June 30,
1998 and 1997, respectively. This program generated revenues for Statesman
of approximately
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$2.5 million and $2.7 million for the years ended June 30, 1998 and
1997, respectively. Southern States' payments to Statesman for leasing
services amounts to approximately 70% of Statesman's total leasing revenue.
Statesman paid volume incentive fees to Southern States related to this
program of 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 and these contract maturities are periodically reviewed
for renewal. This program generated revenues of approximately $1.0 million
and $1.1 million 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 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 covenants in its bank loan agreement.
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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 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. At the discretion of the Advisory Board, 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 prior years' subscriber savings 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.
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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 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.
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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 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 its
business, 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 site, Southern States is investigating and remediating
soil and groundwater petroleum contamination under 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 under 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.
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 March 31, 1999, Southern States had reserved approximately $3.6
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 at two sites that are listed on the Superfund National Priorities
List. CERCLA imposes joint and several liability on specified parties
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
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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 having potential
environmental liabilities. Gold Kist has agreed to assume responsibility
for these liabilities, and has agreed, during the 10 years following the
acquisition, to indemnify Southern States for any loss, above 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 these 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. These expenditures
may impact Southern States' future net income. Southern States does not
anticipate, however, that its competitive position will be adversely
affected by these expenditures or by new environmental laws and
regulations. Environmental expenditures are capitalized when the
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.
Government Regulation
Southern States' business is impacted by numerous federal, state and
local laws that 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, 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 its operations are conducted. These
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, which is 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
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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 grain, however, Southern States' strategy is
to maintain fully hedged positions to the greatest 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. Due to historical
market behavior, which results in high market prices eventually returning
to more normalized levels, 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" when prices are high. A product imbalance occurs when
Southern States has entered into an agreement to sell more product (inventory)
than it has purchased (i.e., a short position) or when Southern States has
purchased more product (inventory) than it has agreements to sell (i.e., a
long position). 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 ranges from approximately 10 to 12
million gallons. Company policy limits the maximum number of gallons that can
be hedged at any one time to 12.6 million gallons or 300 contracts.
Southern States also seeks to minimize price risks inherent in its
grain marketing operations by engaging in hedging activities in which Southern
States enters into obligations to both purchase grain for a set price on a
specific date and to sell grain at a set price on a specific date to protect
the value of
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open purchase contracts, open sales contracts and grain inventory 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. A pre-hedge contract is a futures contract to sell product
anticipated to be received after the close of the futures market on a given
day but prior to the opening of the market for the next day. Receipts are
anticipated based upon discussions with local growers about their anticipated
delivery date and time and also based upon specific crop harvest knowledge
in a given region. Any imbalance resulting from the receipt of more or less
grain than anticipated is hedged the day immediately following receipt
through the use of additional futures contracts or through balancing against
other receipts or sales. Company policy limits the aggregate unhedged
position in wheat, corn and soybeans to a maximum of 100,000 bushels.
Commodity futures are traded only 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 for
hedging purposes to reduce the effect of changing commodity prices on a
portion of its commodity inventories and related purchase and sale contracts.
Southern States typically enters into contracts to sell 30% to 35% of its
feed inventory at a future date for a set price. Feed ingredients futures
contracts, primarily corn and soybean meal, are recognized when closed and
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 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. Several
insurance coverages carried by Southern States are underwritten by
Southern States Insurance Exchange. See "--Investments in Other Companies
and Cooperatives" above.
ACQUISITION OF THE GOLD KIST INPUTS BUSINESS
Under an asset purchase agreement dated July 23, 1998, 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
completed on October 13, 1998.
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Under the asset purchase agreement, Southern States purchased
substantially all the assets, and assumed agreed upon liabilities, of the
Agri-Services division, the Fertilizer and Crop Protectant division, and
the Pet Food and Animal Health division, except for the 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 other agreed upon 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 an estimated cash
purchase price of $218.3 million at closing, and assumed agreed upon trade
payables and other specified liabilities assumed by Southern States. The
final purchase price is contingent upon a post-closing adjustment based upon
an audit of purchased inventory and a post-closing valuation process for
purchased receivables. See "--The Asset Purchase Agreement--Purchase Price
Adjustment" below.
Through the acquisition of the Gold Kist Inputs Business, 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
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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 Inputs Business, and as part
of Southern States' business plan for improving the overall financial
performance of the Inputs Business, Southern States has sold, closed or
otherwise disposed of eleven locations in the Gold Kist territory. It has
been in discussions with several parties with respect to a possible sale of
its seven wholesale and retail locations in west Texas. Management of
Southern States has underway plans relating to the consolidation, sale,
closure or other disposition of approximately 20 to 25 other retail
locations throughout the former Gold Kist territory in order to further
improve the financial performance of the Inputs Business. In most cases,
Southern States will attempt to effect these dispositions in a manner
that preserves sales revenues and customers while eliminating unnecessary
costs.
Southern States also is undertaking to expand its private dealer system
into the Gold Kist territory. As of June 30, 1999, 76 new private dealer
locations in the Gold Kist territory, including 14 independent cooperative
locations, had completed Southern States' certification process and were
purchasing product from Southern States. Fourteen others, including eight
independent cooperatives, were in various stages of that process and are
expected to be purchasing product by the end of August, 1999. Approximately
54 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.
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
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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, thus
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.
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, except
for the name Gold Kist, were purchased by Southern States under the
asset purchase 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.
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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 asset purchase 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 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 asset purchase agreement, 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 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 according to the terms of the asset purchase agreement. The final
purchase price as determined by Southern States in accordance with the
post-closing valuation was $202.8 million compared to an estimated purchase
price of $218.3 million, after deducting the $10 million hold-back
provided for in the asset purchase agreement. Taking into account
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 and Southern States' determination of the
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final purchase price was principally due to a material increase in the
reserve for bad debts applicable to the accounts receivable purchased under
the asset purchase agreement. This material increase resulted from
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 asset purchase 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, up
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 other than environmental loss arising from breaches of the
representations and warranties to the extent that such losses do not exceed
$10 million. There is a $500,000 threshold for losses other than environmental
losses before a claim may be asserted against Gold Kist.
Non-Competition. Under the asset purchase agreement, Gold Kist agreed to
a five-year non-competition agreement within the territory in which Gold
Kist presently does business.
The Financing Commitment
In connection with the closing of Southern States' purchase of the Gold
Kist Inputs Business, Southern States and Gold Kist entered into a separate
agreement under which Gold Kist agreed to purchase on or before April 5, 1999,
up to $100 million of preferred stock or other specified equity-type
securities from Southern States or an affiliated entity of Southern States
if Southern States has not been able to sell an equal amount of similar
securities by that date. 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 in this
prospectus 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 in the amount of $100 million. The Rabobank letter of credit expires by
its terms on October 11, 1999.
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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
of Years
Age as Present Served
of March Term as as
Name 31, 1999 Position(s) Held Director Director Residence
- - - - ---- -------- ---------------- -------- -------- ---------
<S> <C>
Earl L. Campbell 58 Chairman of the 2000 13 Danville,
Board; Executive Kentucky
Committee
John Henry Smith 48 Vice Chairman of 2000 7 Rosedale,
the Board; Virginia
Executive
Committee,
Chairman
Michael W. Beahm 47 Member & 1999 2 Roanoke,
Institutional Virginia
Relations
Committee
Cecil D. Bell, Jr.* 58 Audit Committee, 2001 9 Georgetown,
Chairman Kentucky
Floyd K. Blessing 71 Executive and 2001 14 Houston,
Budget Committees Delaware
Jere L. Cannon 57 Audit Committee 1999 23 Flemingsburg,
Kentucky
William F. Covington* 73 Member & 2000 12 Mebane,
Institutional North
Relations Carolina
Committee,
Chairman;
Executive
Committee
George E. Fisher 66 Member & 1999 11 Gordonsville,
Institutional Virginia
Relations
Committee
R. Bruce Johnson 47 Budget Committee 2000 4 West Point,
Virginia
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James A. Kinsey* 49 Executive and 2000 7 Flemington,
Audit Committees West
Virginia
J. Wayne McAtee 54 Budget Committee 2000 16 Cadiz,
Kentucky
Richard F. Price 68 Executive and 2001 30 Phoenix,
Member & Maryland
Institutional
Relations
Committees
William Pridgeon 47 Member & 2000 1 Montgomery,
Institutional Michigan
Relations
Committee
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, 1999 17 Bridgeville,
Chairman Delaware
Wilbur C. Ward 60 Audit Committee 2001 5 Clarkton,
North
Carolina
Charles A. Wilfong 41 Member & 2001 3 Dunmore,
Institutional West
Relations Virginia
Committee
Fred K. Norris, Jr. 71 Member & 1999 ** Eutawville,
Institutional South
Relations Carolina
Committee
Phil Ogletree, Jr. 66 Budget Committee 1999 ** Orchard
Hill,
Georgia
H. Michael Davis 48 Member & 2000 ** Valdosta,
Institutional Georgia
Relations
Committee
Herbert A. Daniel, Jr. 47 Audit Committee 2001 ** Claxton,
Georgia
James E. Brady, Jr. 63 Audit Committee 2001 ** Marion,
Alabama
</TABLE>
* Messrs. Bell (Kentucky), Covington (North Carolina), Kinsey (West
Virginia), Roberts (Virginia), Stonesifer (Maryland) and Vanderwende
(Delaware) are designated public directors.
** Elected October 30, 1998, following 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
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by six additional seats. Under the terms of the agreement for the purchase
of the Gold Kist Inputs Business, Southern States amended its bylaws 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 for staggered terms from among the new members in
the Gold Kist territory. Under the staggered terms, two directors will serve
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 CoBank's commitments under Southern States' revolving credit
facility. 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.
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 by 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
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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:
Age as
of March
Name 31, 1999 Positions and Offices Held
- - - - ---- -------- --------------------------
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.
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.
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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 53 Vice President, General Counsel and
Ancarrow, Jr. 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.
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.
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.
You should read the following information with the data in the table below:
o "Salary" reflects salary before pretax contributions under the
Southern States thrift plan and before pretax contributions under
the Southern States flexible benefits plan.
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o "Bonus" reflects share of earnings fund and executive bonus, if any,
accrued for each of the fiscal years under the Southern States deferred
compensation plan, including 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.
o "Other Annual Compensation" reflects, in the case of Messrs. Ragsdale,
Hawkins and Ancarrow, 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 executive officers listed in the table, 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.
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------
Year
Name and Ending Other Annual All Other
Principal Position June 30 Salary Bonus Compensation Compensation
- - - - ------------------ ------- ------ ----- ------------ ------------
<S> <C>
Wayne A. Boutwell 1998 $381,429 $29,615 --- $13,033(1)
President and 1997 278,250 --- --- ---
Chief Executive 1996 --- --- --- ---
Officer (1)
M. Terry Ragsdale 1998 $300,799 $50,265 $3,790 $39,103(2)
Chief Operating 1997 259,394 91,000 3,412 14,745(2)
Officer (2) 1996 245,367 83,400 6,078 14,955(2)
George W. Winstead 1998 $169,778 $15,826 --- $7,471(3)
Group Vice 1997 160,116 46,495 --- 8,865(3)
President, 1996 150,616 43,138 695 9,468(3)
Ag Inputs &
Services
Jonathan A. Hawkins 1998 $154,591 $25,630 $1,924 $9,168(4)
Senior Vice 1997 139,784 43,430 1,733 10,834(4)
President and 1996 125,282 36,980 1,462 10,361(4)
Chief Financial
Officer
N. Hopper Ancarrow, Jr. 1998 $144,409 $22,731 $1,046 $5,853(5)
Vice President, 1997 138,229 41,262 954 7,465(5)
General 1996 132,366 39,499 775 7,631(5)
Counsel and
Secretary
</TABLE>
(1) 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.
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(2) Mr. Ragsdale retired from Southern States effective June 30,
1998. Subsequent to his retirement, Mr. Ragsdale has been engaged by Southern
States to perform 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.
(3) 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.
(4) 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.
(5) 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 before 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, the chief financial officer and the two group vice
presidents, 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
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position, the employee's fiscal year end salary and the performance of
Southern States for the fiscal year. The earnings fund includes 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 savings before taxes exceeds 10% of the total
stockholders' and patrons' equity determined at the end of the prior year.
Each award is placed in an incentive account established on the books of
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. No
distribution, however, will be made for any fiscal year in which Southern
States incurs a loss. Any positive balance in the incentive account is
forfeited 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.
CFO and Group Vice Presidents Incentive Program. For fiscal years
beginning July 1, 1998, the Company's chief financial officer (Mr. Hawkins)
and its two group vice presidents (Messrs. McClung and Winstead), will be
granted incentive awards equal to.40% of the amount by which savings before
taxes exceeds a 4% return on total assets as determined at the end of the
preceding fiscal year. Each award is placed in an incentive account
established on the books of Southern States. One-half of the balance in the
incentive account is distributed at the end of each fiscal year. The
accumulated balance in the executive's incentive account will be paid at
the end of the fiscal year following the executive's termination of
employment for any reason. The board retains the right to adjust earnings
used for determining the award for 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 is in place under the plan.
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:
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Estimated Annual Benefits For Years of Service Indicated
---------------------------------------------------------
Highest 36 10 15 20 25 30 or more
Month Average --- -- -- -- ----------
Earnings
- - - - ----------------
$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
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).
Security Ownership of 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
Under the terms of the trust agreement, which will be qualified as an
indenture under the Trust Indenture Act, the trustees, will issue the capital
securities and the common securities on behalf of Southern States Capital
Trust. 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 Southern States Capital Trust will issue.
General
The trust agreement authorizes the administrative trustees to cause
Southern States Capital Trust to issue the trust securities, consisting of the
capital securities and the common securities, which represent undivided
beneficial interests in Southern States Capital Trust. Southern States will
own, directly or indirectly, all of the common securities. The capital
securities will be limited to $75,000,000 aggregate liquidation amount
outstanding. Southern States Capital 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 on the capital securities
will be made proportionately with payments made on the common securities issued
by Southern States Capital 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 Southern States Capital
Trust, and payments upon redemption of the capital securities or liquidation of
Southern States Capital Trust, are guaranteed by Southern States to the extent
described in "The Guarantee." The guarantee, when taken together with the
back-up obligations, consisting of obligations of Southern States contained in
the trust agreement, the expense agreement, the indenture and any applicable
supplemental indentures and the junior subordinated debentures issued to
Southern States Capital Trust, provide a full, irrevocable 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
Southern States Capital Trust does not have funds on hand available to make
those 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 Southern
States Capital Trust. In the absence of the 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 ___ % compounded
quarterly. The term "distributions" as used in this prospectus includes any
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 a 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. If
Southern States exercises this right, quarterly distributions on the capital
securities automatically would be deferred. However, during any extension
period, interest would continue to accrue on the junior subordinated
debentures. Likewise, during an extension period, to the extent permitted by
law, the deferred interest payment distributions on the capital securities
would continue to accrue with interest. Southern States' 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,
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, 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. 87
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These extension period restrictions, however, do not apply to:
o Southern States' repurchase, redemption or other acquisition of
shares of its capital stock from a member, on the death or
dissolution of such member or 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 capital stock of any 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, 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 the
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.
Before the termination of any extension period, Southern States may further
extend the interest payment period so long as the total extension period,
together with all previous and further extensions, does not exceed 20
consecutive quarters. The extension period may not extend beyond the maturity
date of the junior subordinated debentures.
Upon the termination of an extension period and the payment of all amounts
then due, Southern States may commence a new extension period under the same
limitations described above. 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 Southern States Capital Trust has funds available for
the payment of these distributions. Southern States Capital Trust's funds
available for distribution to the holders of the capital securities will be
limited to payments received from Southern States for/on the junior
subordinated debentures. See "Description of the Junior Subordinated
Debentures" and "Risk Factors--If We Do Not Make Payments on the Junior
Subordinated Debentures, the Trust Will Not Be Able to Pay Distributions and
Other Payments on the Capital Securities, and the Guarantee Will Not Apply."
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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 Southern
States Capital Trust on the relevant record dates. The record date for each
distribution will be the fifteenth day, whether or not a business day as
defined below, before the relevant payment date. If distributions on the
capital securities are deferred, the deferred distributions and their accrued
interest will be paid to holders of record of the capital securities as they
appear on the books and records of Southern States Capital Trust on the record
date for distributions due at the end of the deferral period. These
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.
Payment Date of Distributions
If any date on which distributions on the capital securities are to be made
is not a business day, then payment of the distributions payable on that date
will be made on the next succeeding day that is a business day without any
interest or other payment as a result of the delay. However, if the next
business day is in the next succeeding calendar year, the payment shall be made
on the immediately preceding business day.
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 either the property trustee's or the debenture trustee's
corporate trust office is closed for business.
Subordination of Common Securities
Payment of the distributions on, and the redemption price of, the capital
securities and common securities, as applicable, shall be made proportionately
based on the liquidation amount of the capital securities and common
securities.
Nevertheless, if on any payment date for distributions or for the
redemption price, a debenture event of default shall have occurred and be
continuing, then the Trust may not make payment of any distribution on, or
applicable redemption price of, any of the common securities, or any other
payment on account of the redemption, liquidation, or other acquisition of the
common securities.
A debenture event of default is defined under "--Events of Default;
Notice" below.
There is, however, an exception to this prohibition on payment for
accumulated and unpaid distributions and for the redemption price on the common
securities. The exception permits payments on the common securities if 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
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before that date shall have been made or provided for. In that case, all funds
available to the property trustee shall first be applied to the payment in full
in cash of all distributions on 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 event of default under the
trust agreement until the effects of all events of default with respect to the
capital securities have been cured, waived or otherwise eliminated. See
"--Events of Default; Notice" and "Description of the Junior Subordinated
Debentures--Debenture Events of Default." Until all events of default under the
trust agreement relating to the capital securities have been 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. Until all events of default have been cured, waived or
otherwise eliminated, 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 the
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. Holders of capital securities must be given not less than
30 nor more than 60 days' notice of the 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 has the right, upon not less than 30 nor more than
60 days' notice, to redeem the junior subordinated debentures. A redemption in
these circumstances must be for the entire issue of capital securities and must
be made for cash within 90 days following the occurrence of such tax event.
Following this redemption, the trust securities must be redeemed by Southern
States Capital Trust at the redemption price.
The term "tax event" means the receipt by Southern States Capital Trust of
an opinion of counsel to Southern States experienced in such matters that there
is a risk that:
o Southern States Capital Trust is, or will be within 90 days of the
delivery of the opinion, subject to United States federal income tax
with respect to income received or accrued on the junior subordinated
debentures,
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o interest payable by Southern States on the junior subordinated
debentures is not, or within 90 days of the delivery of the opinion,
will not be, deductible by Southern States, in whole or in part, for
United States federal income tax purposes, or
o Southern States Capital Trust is, or will be within 90 days of the
delivery of the opinion, obligated for more than a de minimis amount
of other taxes, duties or other governmental charges.
The opinion may be based on any amendment to, change in or any announced
proposed change in the laws or the regulations of the United States or any
political subdivision or taxing authority of or in the United States.
This opinion may also be based on any official administrative
pronouncement or judicial decision interpreting or applying these laws or
regulations.
This opinion must be based on amendments or changes which are effective
on or after the date of issuance of capital securities or which are pronounced,
decided or announced on or after the date of issuance of the capital
securities.
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 Southern States Capital Trust has funds
on hand available for the payment of such redemption price. See also
"--Subordination of Common Securities" above.
Deposit of Funds for Redeemed Securities
If Southern States Capital Trust gives a notice of redemption of the
capital securities, then in the case of capital securities held in book-entry
form, the property trustee will deposit irrevocably with the Depository Trust
Company 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. This deposit must be made by 12:00 noon, New
York City time, on the redemption date, to the extent funds are available. With
respect to capital securities not held in book-entry form, to the extent funds
are available, the property trustee 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.
Nevertheless, 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 has been given and the funds deposited as required,
then on the date of the deposit, the relevant capital securities will cease to
be outstanding and all rights of the holders of the redeemed capital securities
will cease, except for the right to receive the redemption price without
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interest. If any date fixed for redemption of capital securities is not a
business day, then payment of the redemption price payable on that 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 the business day
falls in the next calendar year, the payment will be made on the immediately
preceding business day.
Failure to Make Redemption Payments
In the event that payment of the redemption price for capital securities
called for redemption is improperly withheld or refused and not paid either by
Southern States Capital Trust or by Southern States pursuant to the guarantee
as described under "The Guarantee," distributions on the capital securities
will continue to accumulate at the then applicable rate. In these
circumstances, distributions will accumulate from the redemption date
originally established by Southern States Capital Trust for the capital
securities to the date the 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.
Repurchases of Capital Securities
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.
Partial Redemptions of the Capital Securities
If less than all of the capital securities and common securities are to be
redeemed on a particular redemption date, then the aggregate liquidation amount
of the capital securities and common securities to be redeemed shall be
allocated proportionately to the capital securities and the common securities
based upon the relative liquidation amounts of these 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 Redemption
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
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redemption price on the junior subordinated debentures, on and after the
redemption date interest will cease to accrue on the junior subordinated
debentures or any portion called for redemption. Unless payment of the
redemption price in respect of the capital securities is withheld or refused
and not paid either by Southern States Capital Trust or Southern States under
the guarantee, distributions will cease to accumulate on the capital securities
or any portions 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 Southern States Capital Trust and, after satisfaction of
liabilities to creditors of Southern States Capital 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
Southern States Capital Trust.
Under current United States federal income tax law and interpretations and
assuming, as expected, Southern States Capital 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
applicable law, a change in the legal interpretation of applicable 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 Southern States Capital Trust in
which holders of the capital securities receive cash would be a taxable event
to the holders. See "United States Federal Income Taxation--U.S.
Holders--Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
Southern States Capital 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 the exchange,
interdealer quotation system or other organization as the capital securities
are then listed.
After the date for any distribution of junior subordinated debentures upon
dissolution of Southern States Capital 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, the capital
securities until the 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
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exchange for the capital securities if a dissolution and liquidation of
Southern States Capital Trust were to occur. Accordingly, the capital
securities that an investor may purchase, whether made in the offering 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
Southern States Capital 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 proportional basis
solely out of the assets of the Trust, a liquidation distribution.
This liquidation distribution shall be in an amount equal to the
aggregate of the stated liquidation amount of $25 per capital security, plus
accrued and unpaid interest. The holders may receive this liquidation
distribution only after satisfaction of liabilities to creditors of the Trust
as provided by applicable law. There may be exceptions to this liquidation
distribution, which may take the form of a distribution of this amount in
junior subordinated debentures. See "--Distribution of the Junior Subordinated
Debentures."
If, upon any liquidation, the liquidation distribution can be paid only in
part because Southern States Capital Trust has insufficient assets available to
pay in full the aggregate liquidation distribution, then the amounts payable
directly by Southern States Capital Trust on the capital securities shall be
paid on a proportionate basis. The holders of the common securities will be
entitled to receive distributions upon any such dissolution proportionately
with the holders of the capital securities, except that if a debenture event of
default has occurred and is continuing as a result of any failure by Southern
States to pay any amount in respect of the junior subordinated debentures when
due, the capital securities will have a preference over the common securities
with respect to such distributions.
Termination
Under the trust agreement, Southern States Capital Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of:
o the bankruptcy, dissolution or liquidation of Southern States,
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 Southern States Capital Trust; this 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
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o the entry of an order for the dissolution of Southern States Capital
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 with respect to the capital securities:
o the occurrence of a debenture event of default (see "Description of
the Junior Subordinated Debentures--Debenture Events of Default"); or
o default by Southern States Capital 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
o default by Southern States Capital Trust in the payment of any
redemption price of any capital security when it becomes due and
payable; or
o 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 the two preceding
clauses above, and continuation of the 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 the default or
breach and requiring it to be remedied and stating that the notice
is a "Notice of Default" under the trust agreement; or
o the bankruptcy or insolvency of the property trustee if a successor
property trustee has not been appointed within 90 days of such
bankruptcy or insolvency events.
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 the event of default to the holders of capital securities, the
administrative trustees and Southern States, unless the 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
stating 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 due and payable on the
junior subordinated debentures, the capital securities will have a preference
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over the common securities with respect to payments of any amounts due and
payable on 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 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. Voting rights as to the administrative trustee 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 either trustee may be consolidated, or any
entity resulting from any merger, conversion or consolidation to which either
trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of either trustee, will be the successor of the
trustee under the trust agreement, provided the surviving entity is otherwise
qualified and eligible.
Voting Rights
Generally, holders of capital securities will have voting rights only in
the limited circumstances described in this section or as otherwise provided
under the Trust Indenture Act. These voting rights will relate only to
modification of the capital securities and the trust agreement and the exercise
of Southern States Capital Trust's rights as holder of the junior subordinated
debentures and the guarantee. Also, except with respect to any changes that do
not adversely affect the rights of holders of capital securities, in which case
no consent of the 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.
Right to Give Directions to the Property Trustee
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:
o direct the debenture trustee in the exercise of the remedies
available under the indenture with respect to the junior subordinated
debentures,
o waive any past default and its consequences that is waivable under
the indenture,
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o exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debentures shall be due and
payable, or
o consent to any amendment, modification or termination of the
indenture or the junior subordinated debentures, where this consent
would be required; however, if consent under the indenture would
require the consent of each holder of junior subordinated debentures
affected by this consent, the consent will not be given by the
property trustee without the prior consent of each holder of the
capital securities.
The property trustee shall not take any of the actions described above
unless the property trustee has obtained an opinion of counsel to the effect
that, as a result of this action, Southern States Capital 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.
Procedures for Approvals by Holders of Capital Securities
Any required approval of holders of capital securities may be given at a
meeting of holders of capital securities convened for that 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 the holders is to be taken, to be given to
each registered holder of capital securities in the manner stated 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 this vote or consent, be
treated as if they were not outstanding.
Modification of the Trust Agreement
The trustees and Southern States may 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 Southern States Capital 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,
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provided that any such amendment does not adversely affect in any material
respect the interests of any holder of trust securities.
See "Description of the Capital Securities--Voting Rights", "--Modification of
the Trust Agreement" and "--Removal of Trustees; Appointment of Successors."
The trust agreement may be amended by the holders of a majority of the
common securities and the trustees with:
o the consent of holders representing not less than a majority in
aggregate liquidation amount of the outstanding capital securities;
and
o receipt by the trustees of an opinion of counsel.
The opinion shall be to the effect that such amendment or the exercise of
any power granted to the trustees in accordance with such amendment will not
cause Southern States Capital 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 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 restrict the right of a holder of trust securities to institute suit for the
enforcement of any payment on or after the specified date.
Mergers, Consolidations or Amalgamations
Southern States Capital 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.
Southern States Capital 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 Southern States Capital Trust under the capital
securities or (b) substitutes for the capital securities other
securities having substantially the same terms as the capital
securities, so long as these successor securities rank the same as
the capital securities with respect to distributions and payments
upon liquidation, redemption and otherwise,
o a trustee of the successor entity, possessing the same powers and
duties as the property trustee, is appointed to hold the junior
subordinated debentures,
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o the 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 the 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 the successor entity has a purpose substantially identical to that of
Southern States Capital Trust,
o prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, Southern States Capital Trust has
received an opinion from independent counsel experienced in such
matters to the effect that (a) the 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 the merger,
consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither Southern States Capital Trust nor the 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 the successor entity and guarantees the
obligations of the successor entity under the successor securities at
least to the extent provided by the guarantee.
Notwithstanding these limitations, Southern States Capital 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 the consolidation, amalgamation, merger or replacement would cause Southern
States Capital 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
The Depository Trust Company 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 DTC's nominee, Cede & Co.
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 some types of purchasers of
securities take physical delivery of securities in definitive form. These 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 Southern States Capital Trust that DTC
is:
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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,
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.
Services Provided by DTC
DTC holds securities that its 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 other types of organizations. 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 indirect participants, 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. 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 beneficial owner,
that is, the actual purchaser of each capital security, 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.
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Notices by and to DTC
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 proportionate basis
the amount of the interest of each direct participant in such capital
securities to be redeemed in accordance with its procedures.
Voting of Capital Securities Held by DTC
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 Southern States Capital 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 Southern States Capital
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 Southern States Capital
Trust.
Distribution Payments to and by DTC
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 the 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." Payments will be the responsibility of the participant and not of DTC,
Southern States Capital 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 Southern States Capital Trust,
disbursement of the payments to direct participants is the responsibility of
DTC, and disbursement of the 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.
Discontinuance of Services by DTC
DTC may discontinue providing its services as depository with respect to
the capital securities at any time by giving reasonable notice to Southern
States
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Capital Trust. Under these 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.
Impact of Year 2000 on DTC
Southern States has been informed by DTC that its management is aware that
some computer applications, systems, and the like for processing data that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." Southern States also has been
informed by DTC that it has informed its participants and other members of the
financial community that it has developed and is implementing a program so that
its information systems, as they relate to the timely payments of
distributions, including principal and income payments, to security holders,
book-entry deliveries, and settlement of trades within DTC, 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.
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: impress upon them the
importance of such services being Year 2000 compliant; and 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 those contingency plans it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community 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 Southern States Capital
Trust believe to be reliable, but neither Southern States nor Southern States
Capital Trust takes responsibility for the accuracy of this information.
Information Concerning the Property Trustee
The property trustee, before the occurrence of an event of default with
respect to the capital securities, undertakes to perform only those duties that
are specifically provided for in the trust agreement, in the terms of the
capital securities or in the Trust Indenture Act. After an event of default,
the property trustee shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
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these 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 the holder
against the costs, expenses and liabilities which might be incurred by the
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 action it may deem 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 one or more 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 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.
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 Southern States Capital Trust, but only upon payment
of any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. Southern State Capital 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 Southern
States Capital Trust so that Southern States Capital 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 Southern States
Capital Trust or the trust agreement, that the property trustee and the
administrative trustees determine in their discretion to be necessary or
desirable for these purposes, as long as this action does not materially
adversely affect the interests of the holders of the capital securities.
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Holders of the capital securities have no preemptive or similar rights.
Southern States Capital Trust may not borrow money or issue debt or
mortgage or pledge any of its assets.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The following is a summary of the material terms of the junior subordinated
debentures in which Southern States Capital 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 Southern
States Capital Trust and cause the junior subordinated debentures to be
distributed to the holders of the capital securities in liquidation of Southern
States Capital 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 any 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;
o will be limited in aggregate principal amount to approximately $77.32
million, this 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;
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; and
o will rank subordinate to all senior indebtedness of Southern States
whether now existing or incurred in the future--see "Subordination"
below--but will rank senior in liquidation and in dividends to the
preferred stock and membership common stock of Southern States.
If junior subordinated debentures are distributed to holders of capital
securities in liquidation of the holders' interests in Southern States Capital
Trust, the junior subordinated debentures will initially be issued in the form
of one or more global capital securities (as defined under "Description of the
Capital Securities--Book-Entry Issuance--The Depository Trust Company" above).
As described in this prospectus, under limited circumstances, junior
subordinated debentures may be issued in definitive certificated form in
exchange for a global capital security. See " Description of the Capital
Securities--Book-Entry Issuance--The Depository Trust Company" above.
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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 these holders. The junior subordinated debentures are not
entitled to the benefit of any sinking fund provisions.
The indenture will be qualified under the Trust Indenture Act.
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
incurred in the future. 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, 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 under which the obligation is outstanding, it is provided that the
obligation is not senior indebtedness. Senior indebtedness 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 other than trade accounts payable and accrued
liabilities arising in the ordinary course of business constitutes senior
indebtedness.
The indenture does not limit the aggregate amount of senior indebtedness
that may be issued by Southern States. At June 30, 1999, 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 $279.9 million. Southern States expects from time to time in the
future to incur additional indebtedness constituting senior indebtedness.
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Optional Redemption
The junior subordinated debentures are redeemable before maturity at the
option of Southern States.
o at any time, in whole or in part, from time to time, after _______,
2004, or
o 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 the redemption would be made 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 commencing
_______, 1999. Interest is payable to the person in whose name the junior
subordinated debenture is registered. Generally speaking, interest is payable
at the close of business on the fifteenth day, whether or not a business day,
next preceding the 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 applicable
record dates. The record dates so selected 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 before
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 defaulted
interest. Notice of payment of defaulted interest shall be given to the holders
of the junior subordinated debentures not less than ten days prior to this
special record date. Alternatively, any installment of interest not punctually
paid 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.
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 this period. In the event that any date on which interest is
payable on the junior subordinated debentures is not a business day, then
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payment of the interest payable on such date will be made on the next
succeeding business day, and without any interest or other payment because or
in respect of the delay, except that, if the next succeeding business day is in
the next succeeding calendar year, then payment shall be made on the
immediately preceding business day, in each case with the same force and effect
as if made on the original scheduled interest payment 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 this extension period, Southern States shall pay all
interest then accrued and unpaid, together with interest on the accrued
interest compounded quarterly at the rate specified for the junior subordinated
debentures to the extent permitted by applicable law. No extension period,
however, shall extend beyond the maturity date. 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.
These restrictions, however, 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 the member has ceased to be
eligible for membership in Southern States, if the board of directors
approves the repurchase or redemption under 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, however,
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, 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 the
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 the
stock.
Before the termination of any extension period, Southern States may further
extend the interest payment period. The total extension period, however,
together with all previous and further extension periods, may not exceed 20
consecutive quarters and may not extend beyond the maturity date of the junior
subordinated debentures.
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Upon the termination of any 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 the extension period. Southern States must give
the property trustee notice of its election of such extension period at least
one business day before the earlier of:
o the date the distributions on the capital securities would have been
payable but for the election to begin the extension period, and
o the date the property trustee is required to give notice to holders
of the capital securities of the record date or the date the
distributions are payable, but in any event not less than one
business day prior to the 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--U.S. Holders--Interest Income and Original Issue Discount."
Covenants and Restrictions on Payments
Additional Sums
Southern States has covenanted in the indenture that, if and for so long
as:
o Southern States Capital Trust is the holder of all junior
subordinated debentures, and
o Southern States Capital 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 any amounts that may be required so that the distributions payable
by Southern States Capital 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."
Other Covenants
Southern States also has covenanted in the indenture:
o to continue to hold, directly or indirectly, 100% of the common
securities, so long as successors that are permitted under the
indenture may succeed to Southern States' ownership of the common
securities,
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o as holder of the common securities, not to voluntarily dissolve,
wind-up or liquidate Southern States Capital Trust, other than (a) in
connection with a distribution of junior subordinated debentures to
the holders of the capital securities in liquidation of Southern
States Capital Trust or (b) in connection with 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 Southern States Capital
Trust to continue not to be taxable as a corporation for United
States federal income tax purposes.
Restrictions on Payments
Southern States also has covenanted that there has not occurred any event
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
that Southern States has not taken reasonable steps to cure. Southern States
also has covenanted that if the junior subordinated debentures are held by
Southern States Capital Trust, or if Southern States is in default with respect
to its payment of any obligations under the guarantee or if 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.
These restrictions, however, 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 the member or otherwise because the member has ceased to be
eligible for membership in Southern States, if the board of directors
approves the repurchase or redemption under 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, or
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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.
Waiver of Compliance with Covenants
Under the terms of the indenture, the holders of a majority of the
outstanding junior subordinated debentures may waive any default under the
indenture other than:
o a default in the payment of principal or interest, and any additional
sum, unless the default has been cured; or
o a default in respect of a covenant that under the indenture cannot be
modified or amended without the consent of the holder of each affected
junior subordinated debenture.
If the holders of the junior subordinated debentures do not waive a
default under the indenture as permitted, the holders of a majority in
aggregate liquidation amount of the outstanding capital securities may do so.
See "--Debenture Events of Default--Parties Who May Act In Debenture Event of
Default."
Consolidation, Merger, Conveyance, Transfer or Lease
The indenture provides that Southern States may not consolidate with or
merge into any other entity or convey, transfer or lease its properties and
assets substantially as an entirety to any entity, and no entity 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 entity or
conveys or transfers its properties and assets substantially as an
entirety to any entity, the successor entity is organized under the
laws of the United States or any state or the District of Columbia,
and the successor entity expressly assumes Southern States'
obligations in respect of the junior subordinated debentures;
o immediately after giving effect to the 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 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":
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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 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 the bankruptcy, insolvency or reorganization of Southern States.
For purposes of the trust agreement and this prospectus, each event of
default under the junior subordinated indenture 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.
Parties Who May Act in Debenture Event of Default
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. Should the debenture trustee or the 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
this 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 the 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 the declaration and waive the default, the holders of
a majority in aggregate liquidation amount of the outstanding capital
securities shall have that right.
Waivers of Debenture Event of Default
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. However, the holders may not waive a default in the payment of
principal, or premium if any, or interest unless the 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.
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Enforcement of Rights by the Property Trustee
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 immediately due and payable and to enforce its other rights as
a creditor with respect to the junior subordinated debentures.
Enforcement of Rights by Holders of Capital Securities
If a debenture event of default has occurred and is continuing and that
event is attributable to the failure of Southern States to pay any amounts
payable on 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. This proceeding shall be for
enforcement of payment to the holder of an amount equal to the amount payable
in respect of junior subordinated debentures having a principal amount equal to
the aggregate liquidation amount of the capital securities held by the holder.
Southern States may not amend the indenture to remove the right of a holder 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 a 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, 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.
For the indenture to cease to be of further effect, however, Southern
States must deposit or cause 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.
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Once Southern States deposits those funds, 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. These
actions may be taken for the purpose of, among other things, curing
ambiguities, defects or inconsistencies and qualifying, or maintaining the
qualification of, the indenture under the Trust Indenture Act. No action may be
taken, however, if it would 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.
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. However, no such modification may, without the consent
of the holder of each outstanding junior subordinated debenture so affected:
o 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
o reduce the percentage of principal amount of junior subordinated
debentures, the holders of which are required to consent to any
modification of the indenture.
Furthermore, so long as any of the capital securities remain outstanding,
no modification may be made that adversely affects the holders of such capital
securities in any material respect. In addition, 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. An exception to the
general requirement for the consent of the holders exists if 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 other conditions are
satisfied.
Registration, Denomination and Transfer
The junior subordinated debentures will initially be registered in the name
of the property trustee, as trustee of Southern States Capital 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."
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Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform these procedures, and these
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, 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. However, payment of interest may
be made at the option of Southern States by check mailed to the address of the
persons entitled to 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 of that
amount. Junior subordinated debentures will be exchangeable for other junior
subordinated debentures of like tenor, of any authorized denominations, and of
an equal aggregate principal amount.
Junior subordinated debentures may be presented for exchange as provided
above, and may be presented for registration of transfer 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. Any presentation for registration of transfer shall
be made with the form of transfer endorsed thereon, or a satisfactory written
instrument of transfer duly executed. 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:
o 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
o 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 the 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 the junior subordinated debenture shall
thereafter look, as a general unsecured creditor, only to Southern States for
payment of monies due and owing on the junior subordinated debenture.
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Information Concerning the Debenture Trustee
First Union National Bank, or one or more 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 its affiliates have 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.
First Union National Bank, the debenture trustee, is obligated to perform
all the duties and responsibilities specified with respect to a debenture
trustee under the Trust Indenture Act. Generally, the debenture trustee, other
than during the occurrence and continuance of a default by Southern States in
the 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 the holder against the costs, expenses and liabilities that might
be incurred by the exercise of any of its powers. 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 the offering of
the capital securities and the junior subordinated debentures, the
organization, maintenance and dissolution of Southern States Capital Trust, the
retention of the trustees and the enforcement by the property trustee of the
rights of the holders of the capital securities.
THE GUARANTEE
The following sections provide 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 contained in the guarantee itself and those made part of the guarantee
by the Trust Indenture Act.
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The guarantee will be held by the guarantee trustee for the benefit of the
holders of the capital securities.
General
The terms of the guarantee provide that Southern States will agree, to the
extent described 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 Southern States Capital Trust, as and when due, regardless of any
defense, right of set-off or counterclaim which Southern States Capital 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
Southern States Capital Trust, will be covered by the guarantee:
o any accrued and unpaid distributions that are required to be paid on
the capital securities, to the extent Southern States Capital Trust
shall have funds available to make these payments,
o the redemption price, to the extent Southern States Capital Trust has
funds available to make payment, with respect to any capital
securities called for redemption by Southern States Capital Trust,
and
o upon a voluntary or involuntary dissolution, winding-up or
termination of Southern States Capital Trust the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid
distributions on the capital securities to the date of payment, to
the extent Southern States Capital Trust has funds available to make
payment or (b) the amount of assets of Southern States Capital Trust
remaining for distribution to holders of the capital securities in
liquidation of Southern States Capital Trust.
The guarantee does not apply in the case of 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.
Circumstances in Which Southern States is Obligated to Make Guarantee Payments
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 Southern States Capital Trust to pay these
amounts to the holders.
The guarantee will not apply to any payment of distributions except to the
extent Southern States Capital Trust shall have funds available to make the
payments. If Southern States does not make interest or principal payments on
the junior subordinated debentures, Southern States Capital Trust will not pay
distributions on the capital securities issued by Southern States Capital Trust
and will not have funds available to make the 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 Southern States Capital Trust under the junior
subordinated debentures directly against Southern States.
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Full, Irrevocable and Unconditional Obligation of 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
the 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
Generally, 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. However, this approval is not required with respect to any
changes that do not adversely affect the rights of holders of 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.
Events of Default; Rights of Holders of Capital Securities
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 the 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 under 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
Southern States Capital 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 governed by
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 its obligations
under the guarantee and as to any default in such performance.
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Termination
The guarantee will terminate as to the capital securities issued by
Southern States Capital Trust upon:
o full payment of the redemption price of all capital securities,
o distribution of the junior subordinated debentures to the holders of
all of the capital securities, or
o full payment of the amounts payable in accordance with the trust
agreement upon liquidation of Southern States Capital Trust.
Nevertheless, 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 Southern States Capital 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 present and
future 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.
This means that 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 Southern
States Capital Trust or distribution to the holders of the capital securities
of the junior subordinated debentures.
Information Concerning the Guarantee Trustee
The guarantee trustee, before the occurrence of an event of default with
respect to the guarantee, undertakes to perform only those duties that are
specifically required in the guarantee. After an event of default with respect
to the guarantee, the guarantee trustee shall exercise the same degree of care
as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to this provision, the guarantee trustee is under no
obligation to exercise any of the powers vested in it by the guarantee at the
request of any holder of capital securities unless the guarantee trustee is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred by the 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."
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Governing Law
The guarantee will be governed by, and construed in accordance with, the
laws of the State of New York.
THE EXPENSE AGREEMENT
Southern States has entered into an agreement for the payment of expenses
and liabilities of the Trust. This agreement provides that Southern States will
irrevocably and unconditionally guarantee to each person or entity to whom
Southern States Capital Trust becomes indebted or liable, the full payment of
any costs, expenses or liabilities of Southern States Capital Trust, other than
obligations of Southern States Capital Trust to pay to holders of the capital
securities the amounts due such holders under 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
present and future 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 Southern States Capital Trust
The sole purpose of Southern States Capital Trust is to:
o issue the capital securities and common securities evidencing
undivided beneficial interests in the assets of Southern States
Capital Trust,
o invest the proceeds from such issuance and sale in the junior
subordinated debentures, and
o engage in only those other activities necessary or incidental to
these purposes.
Full, Irrevocable and Unconditional Guarantee
Payments of distributions and other amounts due on the capital securities,
to the extent Southern States Capital Trust has funds available for payment,
are irrevocably guaranteed by Southern States to the extent described above
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 the
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.
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Limitations on the Guarantee
To the extent that Southern States does not make payments on the junior
subordinated debentures, Southern States Capital 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 Southern States Capital Trust does not have sufficient funds to
pay these amounts. In that 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 the 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 present and future senior indebtedness. At June 30,
1999, the aggregate amount of senior indebtedness of Southern States and its
subsidiaries that would have effectively ranked senior to the junior
subordinated debentures was approximately $279.9 million.
Sufficiency of Payments
As long as payments are made when due on the junior subordinated
debentures, the 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 Southern States Capital Trust except the Trust's
obligations to holders of the capital securities and common
securities; and
o the trust agreement further provides that Southern States Capital
Trust will not engage in any activity that is not consistent with the
limited purposes of Southern States Capital Trust.
In all events, however, 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
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instituting a legal proceeding against the guarantee trustee, Southern States
Capital 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 the senior indebtedness has been paid
in full or any payment default under the 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
Southern States Capital Trust, other than any dissolution, winding-up or
liquidation involving the distribution of the junior subordinated debentures,
after satisfaction of liabilities to creditors of Southern States Capital Trust
as required by applicable law, the holders of the capital securities will be
entitled to receive, out of assets held by Southern States Capital 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. In these
circumstances, the property trustee would be subordinated and junior in right
of payment to all senior indebtedness as provided for 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.
Because Southern States is the guarantor under the guarantee and has agreed
under the expense agreement to pay for all costs, expenses and liabilities of
Southern States Capital 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 the 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
The following discussion of the material U.S. federal income tax
consequences to the purchase, ownership and disposition of capital securities
is based on the Internal Revenue Code of 1986, as amended, Treasury regulations
and administrative and judicial interpretations, all as currently in effect,
all of which are subject to change, possibly on a retroactive basis. The
authorities on which this general summary is based may be interpreted in
varying ways, 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 the challenge.
This general summary deals only with capital securities held as a capital
asset for tax purposes by a U.S. holder that purchased the capital securities
on their original issue date at their original offering price.
This summary does not address all the tax consequences that may be relevant
to a U.S. holder, nor does it address the tax consequences, except as stated
below, to holders that are not U.S. holders or to holders that may be subject
to special tax treatment. Holders subject to the special treatment include
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 United States expatriates.
Further, this summary does not address:
o the income tax consequences to shareholders in, or partners or
beneficiaries of, a holder of the capital securities,
o the United States federal alternative minimum tax consequences of the
purchase, ownership or disposition of the capital securities, or
o any state, local or foreign tax consequences of the purchase,
ownership and disposition of capital securities.
A U.S. holder is a holder of the capital securities who or which is:
o a citizen or individual resident, or is treated as a citizen or
individual resident under the Internal Revenue Code, of the United
States for income tax purposes,
o a domestic corporation or partnership,
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o an estate whose income is subject to United States federal income tax
without regard to its source, or
o a trust if a U.S. court is able to exercise primary supervision over
the trust's administration and one or more United States persons have
the authority to control all substantial decisions of the trust.
The statements of law or legal conclusions set forth in this section
constitute the opinion of Mays & Valentine, L.L.P., tax counsel to Southern
States and to Southern States Capital Trust I.
Classification of the Junior Subordinated Debentures
In the opinion of Mays & Valentine, L.L.P., 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 the 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 the 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 Southern States Capital Trust
In the opinion of Mays & Valentine, L.L.P., Southern States Capital 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 U.S. holder will be required to
include in gross income all interest on, including original issue discount
accrued, if any, or gain recognized for United States federal income tax
purposes with respect to its allocable share of the junior subordinated
debentures.
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U.S. Holders
Interest Income and Original Issue Discount
Under applicable Treasury regulations, remote contingencies that stated
interest will not be timely paid are ignored in determining whether a debt
instrument is issued with original issue discount. If the junior subordinated
debentures are treated as issued with original issue discount, the original
issue discount 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
the deferral option. These facts and circumstances include, among other things,
the inability of Southern States to declare or pay a dividend, or redeem or
repurchase shares of its capital stock or patron's equity, or 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 Treasury 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 original
issue discount 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 original issue
discount instruments.
Under the Treasury regulations, if Southern States exercises its option to
defer payments of interest, the junior subordinated debentures would be treated
as redeemed and reissued for original issue discount purposes. In that case,
the sum of the remaining interest payments on the junior subordinated
debentures would thereafter be treated as original issue discount, which would
accrue, and be includible in a U.S. holder's taxable income, on an economic
accrual basis. This rule would apply regardless of the U.S. 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 original issue discount rules. In that case,
the junior subordinated debentures would be treated as initially issued with
original issue discount in an amount equal to the aggregate stated interest
over the term of the junior subordinated debentures. That original issue
discount would generally be includible in a U.S. holder's taxable income, over
the term of the junior subordinated debentures, on an economic accrual basis.
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Characterization of Income
Because the income underlying the capital securities will not be classified
as dividends for income tax purposes, corporate U.S. 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 U.S. 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 the holder's adjusted tax basis in the capital securities. To
the extent of any accrued but unpaid interest, the amount realized on the sale
of the 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 U.S. holder's "adjusted tax basis" in
the capital securities generally will equal its initial purchase price.
If Southern States elects to defer interest payments, a U.S. holder's
adjusted tax basis in the capital securities generally will be its initial
purchase price increased by any original issue discount previously included in
the 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 before 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 taxed 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. Generally, 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 U.S. holder who disposes of
capital securities during an extension period will be required to include as
ordinary income the accrued original issue discount on the junior subordinated
debentures through the date of disposition as ordinary income and add such
amount to the U.S. holder's adjusted basis in the ratable share of capital
securities disposed of. To the extent the selling price is less than the U.S.
holder's adjusted tax basis, the U.S. holder will recognize capital loss.
Generally, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
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Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
Southern States Capital Trust
Under circumstances described in this prospectus (see "Description of the
Capital Securities--Distribution of the Junior Subordinated Debentures"),
Southern States Capital Trust may distribute the junior subordinated debentures
to holders in exchange for the capital securities and in liquidation of
Southern States Capital Trust. Generally, such a distribution would not be a
taxable event for United States federal income tax purposes, and each U.S.
holder would have an aggregate adjusted basis in its junior subordinated
debentures for United States federal income tax purposes equal to the 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
U.S. holder's holding period in the junior subordinated debentures received in
a liquidation of Southern States Capital Trust would include the period during
which the Capital Securities were held by the holder.
Under circumstances described in this prospectus, including a tax event
(see "Description of the Capital Securities--Redemption" and "--Tax Event
Redemption" and "Description of the Junior Subordinated Debentures--Optional
Redemption"), the junior subordinated debentures may be redeemed for cash and
the proceeds of the redemption distributed to holders in redemption of their
capital securities. This type of redemption would be taxable for United States
federal income tax purposes, and a U.S. 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, tax law changes have been proposed that would deny
interest deductions to corporate issuers of debt instruments with terms that
include terms similar to those 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, these tax law change proposals have not been enacted.
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."
Southern States is aware of at least one case, involving Enron Corporation,
now pending before the United States Tax Court where the IRS initially sought
to disallow the deduction for interest expense on securities that are similar
to, although different in a number of respects from, the junior subordinated
debentures. Such securities were issued in 1993 and 1994 to partnerships that,
in turn, issued "monthly income preferred securities." In a recently filed
stipulation in the United States Tax Court, the IRS conceded that Enron was
entitled to deduct its interest expense on the securities. Although the IRS has
apparently conceded the interest deductibility issue in the Enron case, there
can be no assurance that the IRS will not challenge the interest deductions of
other taxpayers, such as Southern States, which issue similar types of
securities.
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Non-U.S. Holders
Payments to a non-U.S. holder will generally not be subject to withholding
of income tax, provided that the holder of the capital securities:
o 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,
o is not a controlled foreign corporation that is related to Southern
States through stock ownership, and
o is not a bank receiving interest described in section 881(c)(3)(A) of
the Internal Revenue Code.
To qualify for this exemption from withholding taxation, the last United
States payor in the chain of payment before payment to a non-U.S. 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:
o is signed by the holder of the capital securities under penalties of
perjury,
o certifies that the holder is not a U.S. holder, and
o 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 the change. If the capital
securities are held through a securities clearing organization or other types
of financial institutions, the organization or institution may provide a signed
statement to the withholding agent. However, in that 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 tax legislation could adversely affect non-U.S. 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-U.S.
holder, rather than as interest which, as discussed above, is generally exempt
from income tax in the hands of a non-U.S. holder.
A non-U.S. holder of a capital security will generally not be subject to
127
<PAGE>
withholding of income tax on any gain realized upon the sale or other
disposition of capital securities.
A non-U.S. 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 identifying
information, such as the registered owner's taxpayer identification number, in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and various other entities generally are exempt recipients.
Payments made in respect of the capital securities to a U.S. holder must be
reported to the IRS, unless the U.S. 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-U.S. 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:
o the broker determines that the seller is a corporation or other
exempt recipient, or
o the seller provides, in the required manner, required identifying
information and, in the case of a non-U.S. holder, certifies that
such seller is a non-U.S. holder and various other conditions are
met.
In that case, a sale must also be reported by the broker to the IRS, unless
either the broker determines that the seller is an exempt recipient or the
seller certifies its non-U.S. status and other required 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 some cases it may be
possible to submit other documentary evidence.
Final Withholding Regulations
Recently promulgated Treasury regulations, effective for payments made
after December 31, 1999, provide alternative methods for satisfying the
certification requirements described above under "--non-U.S. Holders" and
"--Backup Withholding." These regulations also will require, in the case of
capital securities held by foreign partnerships, that 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 the partnership provides required information,
including a U.S. 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 these regulations.
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<PAGE>
ERISA CONSIDERATIONS
Southern States, the obligor with respect to the junior subordinated
debentures held by Southern States Capital 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 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. If the capital securities are acquired in accordance with an applicable
exemption, the prohibited transaction rules would not apply. These exemptions
include Prohibited Transaction Class Exemption ("PTCE") 84-14, which is an
exemption for transactions determined by an independent qualified professional
asset manager; PTCE 91-38, which is an exemption for transactions involving
bank collective investment funds; PTCE 90-1, which is an exemption for
transactions involving insurance company pooled separate accounts; PTCE 95-60,
which is an exemption for transactions involving insurance company general
accounts; and PTCE 95-23, which is an exemption for 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 Southern States Capital
Trust may be considered "plan assets" for ERISA purposes. Therefore, the
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 that 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 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 Southern States Capital Trust.
UNDERWRITING
Under the terms and conditions of the underwriting agreement, Southern
States and Southern States Capital Trust have agreed that Southern States
Capital Trust will sell to each of the underwriters named below, and each of
the underwriters has agreed to purchase from Southern States Capital Trust, the
respective liquidation amount of capital securities set forth opposite its
name:
129
<PAGE>
Liquidation Amount
of
Underwriters Capital Securities
------------ ---------------------
First Union Capital Markets Corp................. $
Lehman Brothers Inc..............................
Banc of America Securities LLC.................
----------
Total....................................... $
==========
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 shown on the cover page of this prospectus. The underwriters
propose to offer the capital securities at the 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 therein
of the proceeds an amount of $____ per capital security and will reimburse the
underwriters for $__________ of expenses.
Southern States Capital 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
Southern States Capital Trust for $25 per capital security. If the underwriters
exercise this option, Southern States will pay as compensation to the
underwriters an amount of $____ per capital security purchased under the
option. 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, under the terms of the underwriting
agreement, to purchase a liquidation amount of capital securities proportionate
to each underwriter's initial commitment as indicated in the table above.
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 application is made, trading of
the capital securities on the New York Stock Exchange would be expected to
130
<PAGE>
commence within a 30-day period after the initial delivery of the capital
securities. Southern States and Southern States Capital 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 any market
making activities may be interrupted or discontinued without notice.
Southern States and Southern States Capital Trust have agreed in the
underwriting agreement that, generally speaking, 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, Southern
States Capital 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 similar securities.
Southern States and Southern States Capital 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, Southern States Capital 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 Southern States Capital Trust have agreed to indemnify
the underwriters and other persons affiliated with the underwriters against
specified liabilities, including liabilities under the Securities Act.
First Union Capital Markets Corp. and Banc of America Securities LLC 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 trustee and Delaware
trustee under the trust agreement and as debenture trustee and guarantee
trustee under the indenture and guarantee. First Union National Bank, an
affiliate of First Union Capital Markets, and Bank of America, an affiliate of
Banc of America 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 that 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. who are participating in the
offering, the offering is being made pursuant to Rule 2710(c)(8) of the NASD
Rules of Conduct, which requires the use of a "qualified independent
underwriter" in an offering in these circumstances. Lehman Brothers will serve
as the qualified independent underwriter and has assumed the responsibilities
of acting as the qualified independent underwriter with respect to pricing the
capital securities offered
131
<PAGE>
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 qualified independent
underwriter.
LEGAL MATTERS
Potter Anderson & Corroon LLP, Wilmington, Delaware, will issue an opinion
on behalf of Southern States Capital 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 financial statements as of June 30, 1998 and 1997 and for
each of the three years in the period ended June 30, 1998, included in this
prospectus, have been so included in reliance on the report (which contains an
explanatory paragraph discussing that the Company changed its method of
accounting for costs of computer software developed or obtained for internal
use) of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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 that firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
Southern States and Southern States Capital Trust have filed a registration
statement on Form S-1 under the Securities Act of 1933. This prospectus does
not contain all of the information set forth in the registration statement,
parts of which are omitted in accordance with the rules and regulations of the
Commission. Reference is made to the 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 those documents have been provided in the
prospectus.
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. These 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,
132
<PAGE>
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 this 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).
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains 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, 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 these 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.
133
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements
Page
Southern States Cooperative, Inc. and Subsidiaries
Consent of Independent Accountants................................ F-3
Consolidated Balance Sheet at June 30, 1998 and 1997.............. F-4
Consolidated Statement of Operations for the Years Ended
June 30, 1998, 1997, and 1996................................ F-6
Consolidated Statement of Patrons' Equity for the Years Ended
June 30, 1998, 1997, and 1996................................ F-7
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1998, 1997, and 1996................................. F-8
Notes to Consolidated Financial Statements........................ F-9
Inputs Business of Gold Kist Inc.
Independent Auditors' Report...................................... F-33
Statements of Assets to be Acquired and Liabilities to be Assumed
at June 28, 1997 and June 27, 1998........................... F-34
Statements of Operations for the Years Ended June 29, 1996,
June 28, 1997 and June 27, 1998.............................. F-35
Statements of Cash Flows for the Years Ended June 29, 1996,
June 28, 1997 and June 27, 1998.............................. F-36
Notes to Financial Statements..................................... F-37
Unaudited Interim Financial Statements
Southern States Cooperative, Inc. and Subsidiaries
Consolidated Balance Sheet at March 31, 1999...................... F-43
Consolidated Statement of Operations for the Nine Months Ended
March 31, 1999............................................... F-45
Consolidated Statement of Patrons' Equity for the Nine Months
Ended March 31, 1999......................................... F-46
Consolidated Statement of Cash Flows for the Nine Months Ended
March 31, 1999............................................... F-47
Notes to Consolidated Financial Statements........................ F-48
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-52
Statements of Operations for the Three Months Ended
September 26, 1998 and September 27, 1997...................... F-53
Statements of Cash Flows for the Three Months Ended
September 26, 1998 and September 27, 1997...................... F-54
Notes to Financial Statements..................................... F-55
F-1
<PAGE>
Pro Forma Financial Statements
Southern States Cooperative, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet at
March 31, 1999............................................... 22
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Nine Months Ended March 31, 1999..................... 23
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended June 30, 1998............................. 24
Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements................................................... 25
F-2
<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-3
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, June 30, 1998 and 1997
-----------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <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
============== ==============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' AND
PATRONS' EQUITY 1998 1997
---- ----
<S> <C>
Current liabilities:
Short-term notes payable (Note 8) $ 7,100,000 $ 2,375,000
Current maturities of long-term debt (Note 9) 1,833,434 1,420,725
Accounts payable 71,235,641 64,957,946
Accrued expenses:
Environmental remediation (Note 13b) 429,649 387,215
Payrolls, employee benefits, related taxes and
other 34,398,390 17,561,093
Accrued income taxes 2,380,815 2,223,732
Dividends payable 341,450 402,548
Patronage refunds payable in cash 2,378,378 6,884,321
Advances from managed member cooperatives (Note 2) 6,929,943 12,605,601
-------------- --------------
Total current liabilities 127,027,700 108,818,181
-------------- --------------
Long-term debt (Note 9) 136,041,301 109,902,250
-------------- --------------
Other noncurrent liabilities:
Employee benefits 6,936,519 5,404,808
Deferred income taxes (Notes 1h and 12) 4,745,538 4,060,766
Environmental remediation (Note 13b) 746,498 752,864
Miscellaneous 5,403,204 3,127,195
-------------- --------------
Total other noncurrent liabilities 17,831,759 13,345,633
-------------- --------------
Redeemable preferred stock (Note 10) 2,114,100 2,114,100
Capital stock (Note 10):
Preferred 1,494,200 1,543,200
Common - $1 par value; 12,195,018 and 11,921,422
shares outstanding at June 30, 1998 and 1997, respectively 12,195,018 11,921,422
Patrons' equity 165,592,362 161,515,327
-------------- --------------
$ 462,296,440 $ 409,160,113
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<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>
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-6
<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>
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-7
<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>
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-8
<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 capitalized
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-9
<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. The Company will reduce or write-off the carrying value of an
investment when events indicate that the investment is impaired and the
Company will not be able to recover the full carrying value of the
investment.
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.
F-10
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------------
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.
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-11
<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>
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
============ ============
Interest is earned and recognized on accounts receivable based on average
outstanding balances beginning either from account inception or after 30-day
interest free periods dependent upon the type and anticipated duration of the
accounts receivable.
4. Inventories:
Inventories at year end consisted of the following:
1998 1997
---- ----
Finished goods:
Purchased for resale $115,667,733 $109,516,828
Manufactured 4,384,872 3,556,316
------------ ------------
120,052,605 113,073,144
Materials and supplies 13,114,889 11,831,691
Totals $133,167,494 $124,904,835
============ ============
</TABLE>
F-12
<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. In addition, pursuant
to the aforementioned contractual arrangement between Southern States and
SFC, Southern States services certain accounts receivable sold to SFC.
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-13
<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:
Balance Sheet
-------------
Assets 1998 1997
------ ---- ----
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>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C>
Statement of Operations
-----------------------
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-14
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------------
5. Investments in Finance Companies, continued:
---------------------------------
The following unaudited pro forma results of operations, assumes that the
purchase of MLCC had occurred on July 1, 1996. The unaudited pro forma
results of operations are presented for informational purposes only and do
not purport to be indicative of SFC's future consolidated results of
operations.
Year ended June, 30
1998 1997
---- ----
Interest and service fee income $24,791,835 $20,684,915
============ ============
Net loss $ 2,026,773 $ 41,565
============ ============
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-15
<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:
1998 1997
---- ----
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
============== =============
F-16
<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. Total patronage
refunds received for 1998 and 1997 are detailed in the table below. The
cash portion of these patronage refunds totalled $2,918,799 and $6,883,386
for 1998 and 1997, respectively.
1998 1997
---- ----
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
============= =============
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:
1998 1997
---- ----
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
============== =============
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-17
<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>
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-18
<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-19
<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-20
<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>
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-21
<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.
July 1
-----------------------------
1998 1997
---- ----
Actuarial present value of plan benefits:
Vested $ 98,115,602 $ 86,795,627
Nonvested 2,834,524 2,452,758
------------ ------------
Total benefits $100,950,126 $ 89,248,385
============ ============
Net assets available for benefits $148,571,687 $122,878,661
============ ============
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-22
<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:
June 30, 1998 June 30, 1997
------------- -------------
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
=========== ==========
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
1998 1997 1996
---- ---- ----
<S> <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-23
<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>
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
=========== =========== ===========
The significant differences between the U.S. federal statutory income tax
rate and the effective income tax rate are as follows:
1998 1997 1996
---- ---- ----
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%
==== ==== ====
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:
1998 1997
---- ----
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-24
<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:
Office Building
---------------
Year Equipment Lease Subleases Totals
---- --------- ----- --------- ------
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
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-25
<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-26
<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:
1998 1997 1996
---- ---- ----
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)
============ ============ ============
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-27
<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. Pro forma
results of operations for the years ended June 30, 1998 and 1997 as if the
acquisition of MLE occurred as of the beginning of the respective periods
are not presented, as the effects are not material.
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-28
<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 Marketing Other Total
----- ---- --------- ----------- -------- --------- ----- -----
<S> <C>
Revenues from external
customers $151,041,777 $145,581,994 $193,097,559 $336,259,693 $196,116,317 $94,516,837 $2,888,853 $1,119,503,030
Intersegment revenues 156,898,258 62,314,122 17,555,622 --- 40,404,007 8,876,637 711,122 286,759,768
Interest expense 2,461,380 1,805,800 1,488,294 6,570,858 2,965,678 (191,898) 1,759,261 16,859,373
Depreciation and
amortization 1,315,274 2,107,916 2,057,166 6,594,762 1,844,868 910,256 2,781,630 17,611,872
Profit 16,865,664 6,120,876 1,650,180 4,855,530 5,966,802 1,781,884 (526,980) 36,713,756
Assets 55,508,563 34,270,787 35,634,480 104,946,956 69,168,805 51,698,503 111,068,346 462,296,440
Capital expenditures 1,102,859 3,046,937 173,721 18,086,655 991,688 820,786 9,682,022 33,904,668
</TABLE>
F-29
<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 Marketing Other Total
----- ---- --------- ----------- -------- --------- ----- -----
<S> <C>
Revenues from external
customers $160,448,334 $161,939,799 $250,260,067 $336,043,632 $188,425,64 $116,211,167 $ 2,771,115 $1,216,099,755
Intersegment revenues 152,832,784 65,124,073 21,514,906 --- 40,531,928 20,572,748 781,968 301,358,407
Interest expense 1,911,693 1,711,774 1,078,107 6,376,174 2,963,301 1,989 1,522,485 15,565,523
Depreciation and
amortization 1,253,195 2,118,456 1,946,686 6,220,394 1,721,362 756,392 2,581,884 16,598,369
Profit 26,609,406 6,301,755 7,106,830 5,854,165 7,172,649 3,585,102 (197,898) 56,432,009
Assets 50.852,032 32,269,622 36,414,775 106,164,547 64,464,842 15,487,755 103,506,540 409,160,113
Capital expenditures 1,363.892 2,481,491 20,468 10,558,910 1,017,205 1,104,470 3,398,142 19,944,578
1996 Retail Farm
Crops Feed Petroleum Farm Supply and Home Marketing Other Total
----- ---- --------- ----------- -------- --------- ----- -----
Revenues from external
customers $148,597,613 $147,420,122 $219,607,207 $317,920,739 $175,826,722 $110,731,601 $2,544,855 $1,122,648,859
Intersegment revenues 145,140,890 59,673,434 18,095,863 --- 39,959,963 19,278,730 241,545 282,390,425
Interest expense 1,960,080 1,710,515 1,222,895 6,331,607 2,852,076 778,599 381,215 15,236,987
Depreciation and
amortization 1,166,721 2,282,108 1,845,856 6,146,954 1,675,101 769,842 2,380,414 16,266,996
Profit 24,360,025 6,922,153 8,719,018 5,427,573 7,811,436 2,268,773 237,947 55,746,925
Assets 47,868,106 30,397,519 32,914,630 106,619,166 60,291,080 18,850,103 88,610,024 385,550,628
Capital expenditures 1,417,489 997,917 (22,783) 11,208,338 669,820 684,008 3,574,249 18,529,038
</TABLE>
F-30
<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>
<S> <C>
Profit
Total profit for reportable segments $ 36,713,756 $ 56,432,009 $ 55,746,925
General corporate overhead (23,081,332) (22,892,157) (21,100,931)
------------- ------------- ------------
Net savings before income taxes $ 13,632,424 $ 33,539,852 $ 34,645,994
============ ============= =============
</TABLE>
F-31
<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>
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) 7,850,182 10,312,321
</TABLE>
F-32
<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-33
<PAGE>
<TABLE>
<CAPTION>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF ASSETS TO BE ACQUIRED
AND LIABILITIES TO BE ASSUMED
(Amounts in Thousands)
June 28, 1997 June 27, 1998
------------- -------------
<S> <C>
ASSETS
Current assets:
Receivables, principally trade, less allowance for doubtful accounts
of $4,830 in 1997 and $6,493 in 1998...................................... $ 70,540 $ 77,205
Crop notes receivable, less allowance for doubtful notes of $2,706
in 1997 and $6,816 in 1998 (note 2)....................................... 64,431 71,073
Inventories (note 3)....................................................... 81,594 89,218
Other current assets....................................................... 1,680 1,116
------- -------
Total current assets...................................................... 218,245 238,612
Investments (note 4)......................................................... 310 1,535
Property, plant and equipment, net (note 5).................................. 49,984 48,185
Other assets (note 6)........................................................ 500 811
------- -------
Total assets.............................................................. $269,039 $289,143
======= =======
LIABILITIES
Current liabilities:
Current maturities of long-term debt (note 7).............................. $ 232 $ 235
Accounts payable........................................................... 49,453 59,134
Accrued compensation and related expenses.................................. 1,922 1,251
Other current liabilities.................................................. 2,382 2,538
------- -------
Total current liabilities................................................. 53,989 63,158
Long-term debt, excluding current maturities (note 7)........................ 8,863 8,628
------- -------
Total liabilities......................................................... 62,852 71,786
------- -------
Net assets................................................................ $206,187 $217,357
======= =======
</TABLE>
See accompanying notes to financial statements.
F-34
<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>
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-35
<PAGE>
<TABLE>
<CAPTION>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended
-----------
June 29, 1996 June 28, 1997 June 27, 1998
------------- ------------- -------------
<S> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 4,009 $ (1,619) $ (12,349)
Non-cash items included in net income (loss):
Depreciation and amortization........................... 5,855 6,186 6,188
Allowance for doubtful accounts......................... 678 2,282 5,773
Gains on sales of assets................................ (243) (23) (475)
Equity in loss of limited liability corporation......... - - 481
Other................................................... 59 (82) (34)
Changes in operating assets and liabilities:
Receivables............................................. (13,385) 2,831 (8,334)
Crop notes receivable................................... (24,811) (8,479) (10,746)
Inventories............................................. 282 (1,678) (7,623)
Other current assets.................................... (78) 447 564
Accounts payable and accrued expenses................... (81) 4,909 9,166
------- ------ -------
Net cash provided by (used in) operating activities.... (27,715) 4,774 (17,389)
------- ------ -------
Cash flows from investing activities:
Acquisitions of investments.............................. - - (1,673)
Acquisitions of property, plant and equipment............ (16,322) (9,375) (4,729)
Proceeds from disposals of property, plant and equipment. 2,930 404 871
Other.................................................... - (101) (367)
------- ------ ------
Net cash used in investing activities.................. (13,392) (9,072) (5,898)
------- ------ ------
Cash flows from financing activities:
Proceeds from long-term borrowings....................... 6,905 - -
Principal payments of long-term debt..................... (329) (270) (232)
Net transfers from Gold Kist Inc......................... 34,531 4,568 23,519
------- ------ ------
Net cash provided by financing activities............. 41,107 4,298 23,287
------- ------ ------
Net change in cash and cash equivalents............... 0 0 0
Cash and cash equivalents at beginning of year............. 0 0 0
------- ------ ------
Cash and cash equivalents at end of year.................. $ 0 $ 0 $ 0
======= ====== ======
Supplemental disclosure of cash flow data:
Cash paid during the years for:
Interest paid to third parties......................... $ 268 $ 510 $ 468
======= ====== ======
Income taxes (note 9).................................. $ - $ - $ -
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
F-36
<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-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)
(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
reflects the increase in the age of outstanding crop notes and a deterioration
in the credit quality of specific crop notes. These factors were primarily the
result of poor crop yields and low farm commodity prices during 1998. 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>
Allowance for doubtful notes -
beginning of the fiscal year..... $ 2,118 $ 2,193 $ 2,706
Bad debts provisions on crop
notes receivable................ 379 1,528 6,798
Write-off of crop notes receivable.... (304) (1,015) (2,688)
------- ------- -------
Allowance for doubtful notes -
end of the fiscal year........... $ 2,193 $ 2,706 $ 6,816
======= ======= =======
(3) Inventories
Inventories are summarized as follows:
June 28, 1997 June 27, 1998
------------- -------------
Merchandise for sale.................. $79,358 $87,428
Raw materials and supplies............ 2,236 1,790
------ ------
$81,594 $89,218
======= ======
</TABLE>
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)
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:
<TABLE>
<CAPTION>
June 28, 1997 June 27, 1998
------------- -------------
<S> <C>
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
======= =======
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
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
------------- -------------
<S> <C>
Goodwill.......................................... $ 395 $ 367
Other assets...................................... 105 444
----- -----
$ 500 $ 811
===== =====
</TABLE>
In 1997, Gold Kist acquired a cotton gin at Morven, Georgia that is included
in the Inputs Business. The cash purchase price totaled $1.7 million. Of this
amount, $423 of goodwill was recorded to reflect the excess of cash prices for
these businesses over the fair values of their net assets. The goodwill for
this acquisition is being amortized on a straight-line basis over a 15 year
period.
(7) Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
June 28, 1997 June 27, 1998
------------- -------------
<S> <C>
Tax exempt industrial revenue bonds due in 2016, secured by property,
plant and equipment (weighted average interest rate of 3.7% at
June 28, 1997 and 3.8% at June 27, 1998)............................... $ 6,700 $ 6,700
Capitalized lease obligation at 8.0% interest, due in monthly
installments to December 31, 2004, secured by real property............ 2,174 1,980
Capitalized lease obligation at 8.25% interest, due in annual
installments to March 25, 2005......................................... 206 183
Other.................................................................... 15 -
------- -------
9,095 8,863
Less current maturities.................................................. 232 235
------- -------
$ 8,863 $ 8,628
======= =======
</TABLE>
Annual required principal repayments on long-term debt for the five years
subsequent to June 27, 1998 are as follows:
Year:
1999.................................................... $235
2000.................................................... 255
2001.................................................... 276
2002.................................................... 299
2003.................................................... 323
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)
(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-41
<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:
June 29, 1996 June 28, 1997 June 27, 1998
------------- ------------- -------------
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)
------- ------- -------
$2,256 $ (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)
======= ====== =======
(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-42
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of March 31, 1999 and June 30, 1998
---------------
<TABLE>
<CAPTION>
March 31,
1999
ASSETS (Unaudited) June 30, 1998
----------- -------------
<S> <C>
Current assets:
Cash and cash equivalents $ 12,026,263 $ 15,352,446
Receivables, net 148,260,349 55,329,766
Inventories 288,613,821 133,167,494
Prepaid expenses 14,294,976 7,325,862
Deferred income taxes 4,989,913 4,989,913
Deferred charges 572,149 960,334
-------------- --------------
Total current assets 468,757,471 217,125,815
-------------- --------------
Investments and other assets:
Investments:
Statesman Financial Corporation 19,910,296 18,144,573
Michigan Livestock Credit Corporation 12,141,916 10,156,000
Other companies (principally
cooperatives) 77,865,167 75,573,146
Receivables 1,496,148 1,316,515
Other assets 12,596,731 10,787,753
-------------- --------------
Total investments and other assets 124,010,258 115,977,987
-------------- --------------
Property, plant and equipment 372,259,888 304,577,628
Less accumulated depreciation 184,263,535 175,384,990
-------------- --------------
Property, plant and equipment, net 187,996,353 129,192,638
-------------- --------------
$ 780,764,082 $ 462,296,440
============== ==============
</TABLE>
F-43
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of March 31, 1999 and June 30, 1998
---------------
March 31,
LIABILITIES AND STOCKHOLDERS' AND 1999
PATRONS' EQUITY (Unaudited) June 30, 1998
----------- -------------
Current liabilities:
Short-term notes payable $ 7,700,000 $ 7,100,000
Current maturities of long-term debt 3,836,008 1,833,434
Accounts payable 217,475,989 71,235,641
Accrued expenses:
Environmental remediation 1,613,507 429,649
Payrolls, employee benefits, related taxes
and other 51,996,309 34,398,390
Accrued income taxes 2,380,815
Dividends payable 339,439 341,450
Patronage refunds payable in cash 15,417 2,378,378
Advances from managed member cooperatives 16,876,435 6,929,943
-------------- --------------
Total current liabilities 299,853,104 127,027,700
-------------- --------------
Bridge loan facility 100,000,000
Long-term debt 194,484,971 136,041,301
-------------- --------------
Total long term debt 294,484,971 136,041,301
Other noncurrent liabilities:
Employee benefits 7,145,186 6,936,519
Deferred income taxes 3,534,739 4,745,538
Environmental remediation 1,982,350 746,498
Miscellaneous 4,912,128 5,403,204
-------------- --------------
Total other noncurrent liabilities 17,574,403 17,831,759
-------------- --------------
Redeemable preferred stock 2,114,100 2,114,100
Capital stock:
Preferred 1,463,700 1,494,200
Common - $1 par value; 12,157,858 and
12,195,018 shares outstanding at March
31, 1999 and June 30, 1998, respectively 12,157,858 12,195,018
Patrons' equity 153,115,946 165,592,362
-------------- --------------
$ 780,764,082 $ 462,296,440
============== ==============
See accompanying notes
F-44
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the nine months ended March 31, 1999 and 1998
(Unaudited)
Nine Months Ended
March 31,
-----------------------------
1999 1998
---- ----
Sales and other operating revenue:
Net purchases by patrons $ 787,708,144 $ 681,109,710
Net marketing for patrons 61,567,462 78,477,167
Other operating revenue 2,734,754 2,107,347
------------- --------------
852,010,360 761,694,224
Cost of products purchased and
marketed 688,897,466 634,870,593
------------- --------------
Gross margin 163,112,894 126,823,631
Selling, general and administrative
expenses 174,910,033 123,998,833
------------- --------------
Savings (loss) on
operations (11,797,139) 2,824,798
------------- --------------
Other deductions (income):
Interest expense 20,593,415 11,900,193
Interest income and service charges (10,899,360) (6,015,417)
Miscellaneous income, net (4,607,432) (3,468,262)
------------- --------------
5,086,623 2,416,514
------------- --------------
Savings (loss) before
income tax benefit (16,883,762) 408,284
------------- --------------
Income tax (expense) benefit 5,056,744 (89,006)
------------- --------------
Net loss $(11,827,018) $ 319,278
============= ==============
See accompanying notes
F-45
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PATRONS' EQUITY
as of March 31, 1999 and June 30, 1998
---------------
March 31,
1999
(Unaudited) June 30, 1998
----------- -------------
Patronage refund allocations:
Balance, beginning of year $ 68,151,124 $ 67,566,625
Allocation from net savings for the year 3,702,869
Allocations assumed in merger 2,683,000
Adjustments to prior year's allocation 153,836
Redemptions (360,020) (5,955,206)
-------------- -------------
Balance, end of quarter 67,791,104 68,151,124
-------------- -------------
Operating capital:
Balance, beginning of year 97,441,238 93,948,702
Net (loss) savings from operations (11,827,018) 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 (150,426) (8,188)
-------------- -------------
Balance, end of period 85,324,842 97,441,238
-------------- -------------
Total patrons' equity $ 153,115,946 $ 165,592,362
============== =============
See accompanying notes
F-46
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS for the nine months
ended March 31, 1999 and 1998
(Unaudited)
----------------
Nine Months Ended
March 31,
------------------------------
<S> <C>
1999 1998
---- ----
Operating activities:
Net savings (loss) from continuing operations $(11,827,018) $ 319,278
Adjustments to reconcile net savings (loss) to cash
provided by Operating activities:
Dividend declared (138,953) (140,105)
Depreciation and amortization 16,503,514 12,715,203
Deferred income taxes (1,210,799)
Gain on sale of property and equipment 18,676 (285,576)
Undistributed earnings of finance company and
joint ventures 590,762 (2,933,135)
Noncash patronage refunds received (3,972,347) (6,648,121)
Redemption of noncash patronage refunds received 2,890,393 2,335,409
Cash provided by current assets and liabilities 87,177,303 24,896,099
------------- --------------
Cash from operating activities 90,031,531 30,259,052
------------- --------------
Investing activities:
Additions to property, plant and equipment (38,114,083) (27,229,939)
Proceeds from disposal of property, plant and
equipment 4,248,326 2,623,220
Additional investments in other companies (5,552,468) (3,451,774)
Net cash paid for acquisition (203,105,507)
------------- --------------
Cash used in investing activities (242,523,731) (28,058,493)
------------- --------------
Financing activities:
Net increase in short-term notes payable 600,000 5,125,000
Proceeds from long-term debt 372,433,762 21,000,000
Proceeds from bridge loan facility 218,313,467
Repayment of long-term debt (320,926,678)
Repayment of bridge loan facility (118,313,467) (21,092,390)
Patronage refunds paid in cash (2,362,962) (6,770,972)
Redemption of stockholders' and patrons' equity (578,105) (6,458,933)
------------- --------------
Cash provided (used) in financing activities 149,166,017 (8,197,295)
------------- --------------
Decrease in cash and cash equivalents (3,326,183) (5,996,736)
Balance at beginning of year 15,352,446 16,853,790
------------- --------------
Balance at end of period $ 12,026,263 $ 10,857,054
============= ==============
</TABLE>
See accompanying notes
F-47
<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 March 31, 1999 and the
consolidated results of operations and cash flows for the nine month periods
ended March 31, 1999 and 1998. 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 nine months ended March 31, 1999
and 1998 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 marketing cooperative. The Gold Kist Inputs
Business' results of operations have been included in the Company's
consolidated results of operations since the date of acquisition (See Note
7).
2. Inventory
---------
Inventories at March 31, 1999 and June 30, 1998 consisted of the
following:
March 31, 1999 June 30, 1998
Finished goods:
Purchased for resale $241,698,508 $115,667,733
Manufactured 8,731,493 4,384,872
------------ ------------
250,430,001 120,052,605
Materials and supplies 38,183,820 13,114,889
------------ ------------
Totals $288,613,821 $133,167,494
============ ============
3. Other Information
-----------------
The Company is a defendant in several lawsuits arising in the ordinary
course of business. While the outcome of any litigation cannot be predicted
with certainty, the Company believes that the ultimate disposition of these
matters will not have a material adverse effect on its consolidated
financial position or results of operations.
The Company's accrued environmental costs represents the cost to cover
estimated environmental remediation costs. The remaining actual
environmental remediation liability may be different from management's
estimates due to uncertainty of the extent of the pollution, the complexity
of laws and government regulations and their interpretation, the varying
costs and effectiveness of alternative cleanup technologies and methods,
the uncertain level of insurance or other types of recovery, and the
uncertain level of the Company's involvement.
F-48
<PAGE>
In early January of 1999, the Company received additional information and
revised estimates of the cost of containment, remediation and monitoring
activities related to environmental contamination at one of the Company's
past operating sites. Based upon this additional information the Company
accrued $3.0 million for the additional estimated cost of remediating this
site. These costs are expected to be expended over a twenty-year period with
approximately $1.1 million to be expended by December 31, 2000 and the
remaining portion spread over the remaining 19 years. Expenditures for the
first ten years are for capital equipment and site remediation and
expenditures after year ten are expected to be for site monitoring and
reporting. The accrued and remediation methodology have been developed by a
third party environmental consultant and are based on known remediation
methodologies and techniques.
4. Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
The components of cash provided by (used in) current assets and liabilities:
1999 1998
---- ----
Receivables $ 15,115,993 $ 7,618,180
Inventories (80,187,240) (50,143,905)
Prepaid expenses (5,561,274) (2,981,541)
Accounts payable 133,346,021 67,097,600
Accrued expenses 18,808,124 2,638,954
Other, net 5,655,679 666,811
------------ ------------
$ 87,177,303 $ 24,896,099
============ ============
Non-cash transactions during the nine months ended March 31, 1999, included
the assumption of liabilities totaling $8,939,160 in connection with the
acquisition of the Gold Kist Inputs Business. There were no non-cash
transactions during the nine month period ended March 31, 1998.
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.
F-49
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
---------------
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 nine months ended March 31, 1999 and 1998, respectively.
Revenues from Intersegment Segment
External Customers Revenues Profit (Loss)
------------------------ ----------------------- ----------------------
Nine months ended Nine months ended Nine months ended
March 31, March 31, March 31,
------------------------ ----------------------- ----------------------
<S> <C>
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Retail Farm Supply $269,585,616 $188,768,381 $ 0 $ 0 $(9,688,902) $(1,956,618)
Feed 135,661,960 112,075,806 52,661,908 47,645,499 9,428,428 5,499,710
Crops 113,357,687 88,315,283 137,807,773 85,657,331 3,973,071 8,112,102
Farm and Home 143,693,522 134,703,444 36,063,451 29,995,732 2,475,646 2,096,788
Petroleum 124,187,401 156,347,806 11,472,580 15,407,906 (1,714,948) (2,238,617)
Marketing 63,867,063 78,652,405 5,459,526 7,432,227 575,688 1,600,103
Other 1,657,111 2,831,099 863,895 238,980 (550,127) (453,609)
------------------------ ------------------------- ------------------------
Total $852,010,360 $761,694,224 $244,329,133 $186,377,675 $ 4,498,856 $17,137,093
General corporate expenses $(21,382,618) (16,728,809)
Income tax benefit (expense) 5,056,744 (89,006)
---------------------------
Net (loss) savings before income tax benefit $(11,827,018) $ 319,278
---------------------------
</TABLE>
6. New Accounting Standards
------------------------
During the Company's fiscal year ended June 30, 1998, the Financial
Accounting Standards Board issued 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. This standard is
effective for the year ended June 30, 1999. The adoption of this standard
will result only in additional disclosure and is 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, 2000. 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 the fiscal year 2001. The
Company is currently evaluating any impact of the derivatives standard.
F-50
<PAGE>
7. Acquisition of Gold Kist, Inc.
------------------------------
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 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 $203 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. Financing Agreements
--------------------
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.
In January 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 March 31, 1999, the bridge loan
facility had an outstanding principal of $100 million.
F-51
<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
------------------ -------------
<S> <C>
ASSETS
Current assets:
Receivables, principally trade, less allowance for doubtful accounts of
$5,481 as of September 26, 1998 and $6,493
as of June 27, 1998............................................................... $ 52,516 $ 77,205
Crop notes receivable, less allowance for doubtful notes of $7,000
as of September 26, 1998 and $6,816 as of June 27, 1998........................... 77,893 71,073
Inventories (note 2)................................................................. 75,378 89,218
Other current assets................................................................. 708 1,116
------- -------
Total current assets.............................................................. 206,495 238,612
Investments............................................................................. 391 1,535
Property, plant and equipment, net...................................................... 46,614 48,185
Other assets............................................................................ 826 811
------- -------
Total assets...................................................................... $254,326 $289,143
======= =======
LIABILITIES
Current liabilities:
Current maturities of long-term debt................................................. $ 235 $ 235
Accounts payable..................................................................... 23,292 59,134
Accrued compensation and related expenses............................................ 1,251
Other current liabilities............................................................ 1,096 2,538
------- -------
Total current liabilities......................................................... 24,623 63,158
Long-term debt, excluding current maturities............................................ 8,576 8,628
------- -------
Total liabilities................................................................. 33,199 71,786
------- -------
Net assets........................................................................ $221,127 $217,357
======= =======
</TABLE>
See accompanying notes to financial statements.
F-52
<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>
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-53
<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>
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-54
<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:
Sept. 26, 1998 June 27, 1998
------------- -------------
Merchandise for sale............. $ 73,781 $ 87,428
Raw materials and supplies....... 1,597 1,790
-------- --------
$ 75,378 $ 89,218
======== ========
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-55
<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:
<TABLE>
<S> <C>
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.............................................. $
==========
</TABLE>
Item 16. Exhibits, Financial Statement Schedules
(A) EXHIBITS
An index of exhibits appears at page II-4 and is incorporated herein by
reference.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or related notes included herein.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Southern
States Cooperative, Incorporated has duly caused this Amendment No. 2 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 August 9, 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. 2 to the Registration Statement on Form S-1 has been signed for the
following persons in the capacities indicated on August 9, 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
II-2
<PAGE>
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
Pursuant to the requirements of the Securities Act of 1933, Southern
States Capital Trust I has duly caused this Amendment No. 2 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 August 9,
1999.
SOUTHERN STATES CAPITAL TRUST I
BY: /s/ Jonathan A. Hawkins
-----------------------------------
Jonathan A. Hawkins
Administrative Trustee
II-3
<PAGE>
EXHIBIT INDEX
to Amendment No. 2
to Registration Statement
on Form S-1
SOUTHERN STATES COOPERATIVE, INCORPORATED
SOUTHERN STATES CAPITAL TRUST I
Exhibit No. Description of Exhibit
UNDERWRITING AGREEMENT:
1.* Form of Underwriting Agreement between Southern States Capital
Trust I, Southern States Cooperative, Incorporated, First Union
Capital Markets, Lehman Brothers and Banc of America
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
II-4
<PAGE>
4.4* Form of Junior Subordinated Indenture between Southern States
Cooperative, Incorporated and First Union National Bank, as
Indenture Trustee, dated ____________, 1999
4.5* Form of Capital Securities Certificate for Southern States Capital
Trust I (included as Exhibit E to Exhibit 4.3 above)
4.6* Form of Junior Subordinated Debenture
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 12,
1999, as amended February 3, 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
II-5
<PAGE>
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
II-6
<PAGE>
(b) Lease and Agreement between Gold Bond Stamp Company of
Georgia, as Lessor, and Southern States Cooperative,
Incorporated, as Lessee, dated as of July 15, 1977
10.11* Lease Agreement with Purchase Option by and between Scott
Petroleum Corporation and Gold Kist Inc., dated January 5, 1995
MANAGEMENT REMUNERATION PLANS:
10.12* Southern States Supplemental Retirement Plan, effective November 11,
1987, as amended and restated through Fourth Amendment, effective
July 1, 1995
10.13* Southern States Deferred Compensation Plan, effective July 1, 1995,
as amended and restated through Fourth Amendment, effective July 1,
1998
10.14* Southern States Directors Deferred Compensation Plan, effective July
1, 1989, as amended and restated through First Amendment, effective
July 1, 1995
10.15* Form of Executive Split Dollar Agreement between Southern States
Cooperative, Incorporated and certain executive officers (listed in
Attachment A to Exhibit 10.15)
12. Computation of Ratios
21.* List of Subsidiaries
CONSENTS OF EXPERTS AND COUNSEL:
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG 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.
II-7
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SOUTHERN STATES COOPERATIVE, INCORPORATED
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
Balance Charged Balance
at Beginning to Costs and Charged to at End of
of the Period Expenses Other Accounts Deductions Period
------------- -------- -------------- ---------- ------
<S> <C>
Year ended 6-30-98
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts $ 2,237 $ 100 $ 1,233 (1) $ 927 (2) $ 2,643
Allowance for discounts
and other deductions 0 0 0 0
--------- -------- -------- ------- --------
$ 2,237 $ 100 $ 1,233 $ 927 $ 2,643
========= ======== ======== ======= ========
Year ended 6-30-97
Reserve and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $ 2,217 $ 93 $ 73 (2) $ 2,237
Allowance for discounts
and other deductions 0 0 0 0
--------- ------- ------- -------
$ 2,217 $ 93 $ 73 $ 2,237
========= ======= ======= =======
Year ended 6-30-96
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts
Allowance for discounts $ 1,644 $ 643 $ 70 (2) $ 2,217
and other deductions 0 0 0 0
-------- ------- ------- -------
$ 1,644 $ 643 $ 70 $ 2,217
======== ======= ======= =======
</TABLE>
(1) Allowance balance of subsidiary at acquisition
(2) Accounts charged off, net of recoveries
S-2
EXHIBIT 10.3
REVOLVING CREDIT AGREEMENT
DATED AS OF JANUARY 12, 1999
by and among
SOUTHERN STATES COOPERATIVE, INCORPORATED
as Borrower,
the Banks referred to herein,
as Lenders,
COBANK, ACB,
as Administrative Agent and Documentation Agent
FIRST UNION NATIONAL BANK and NATIONSBANK, N.A.,
as Syndication Agents,
CRESTAR BANK and WACHOVIA BANK, N.A., as Co-Agents
and
NATIONSBANC MONTGOMERY SECURITIES LLC,
as Lead Arranger
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.......................................................1
SECTION 1.01. Definitions..............................................1
SECTION 1.02. Accounting Terms........................................13
ARTICLE II AMOUNT AND TERMS OF LOANS.......................................13
SECTION 2.01. The Commitments........................................13
SECTION 2.02. Notice and Manner of Borrowing.........................15
SECTION 2.03. Interest...............................................17
SECTION 2.04. Conversions and Renewals...............................18
SECTION 2.05. Minimum Amounts........................................19
SECTION 2.06. Principal Payments.....................................19
SECTION 2.07. Fees...................................................20
SECTION 2.08. Notes..................................................20
SECTION 2.09. Use of Proceeds........................................20
SECTION 2.10. Method of Payment; Limitation on Set Off and Tax
Withholding............................................21
SECTION 2.11. Indemnity..............................................22
SECTION 2.12. Additional Costs.......................................22
SECTION 2.13. Limitation on Types of Advances........................23
SECTION 2.14. Illegality.............................................24
SECTION 2.15. Treatment of Affected Loans............................24
SECTION 2.16. Capital Adequacy.......................................24
SECTION 2.17. Investment in CoBank...................................25
SECTION 2.18. Reduction of Commitments...............................25
ARTICLE III CONDITIONS PRECEDENT...........................................26
SECTION 3.01. Conditions Precedent to Initial Use of the Commitments
on and after the Closing Date..........................26
SECTION 3.02. Conditions Precedent to Each Loan......................29
SECTION 3.03. Deemed Representation..................................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES..................................30
SECTION 4.01. Incorporation, Good Standing, and Due Qualification....30
SECTION 4.02. Corporate Power and Authority..........................30
SECTION 4.03. Legally Enforceable Agreement..........................30
SECTION 4.04. Financial Statements...................................30
SECTION 4.05. Labor Disputes and Acts of God.........................31
SECTION 4.06. Other Agreements.......................................31
i
<PAGE>
SECTION 4.07. Litigation.............................................31
SECTION 4.08. No Defaults on Outstanding Judgments or Orders.........31
SECTION 4.09. Ownership and Liens....................................32
SECTION 4.10. Subsidiaries, Affiliates, and Ownership of Stock.......32
SECTION 4.11. ERISA..................................................32
SECTION 4.12. Operation of Business..................................32
SECTION 4.13. Taxes..................................................32
SECTION 4.14. Compliance With Laws...................................32
SECTION 4.15. Existing Obligors; Existing Debt and Guarantees........33
SECTION 4.16. Directors, Executive Officers, Principal Shareholders..33
SECTION 4.17. Year 2000 Compliance...................................33
SECTION 4.18. Margin Stock...........................................33
SECTION 4.19. Government Regulation..................................34
ARTICLE V AFFIRMATIVE COVENANTS............................................34
SECTION 5.01. Maintenance of Existence...............................34
SECTION 5.02. Maintenance of Records.................................34
SECTION 5.03. Maintenance of Properties..............................34
SECTION 5.04. Conduct of Business....................................34
SECTION 5.05. Maintenance of Insurance...............................34
SECTION 5.06. Compliance with Laws...................................35
SECTION 5.07. Right of Inspection....................................35
SECTION 5.08. Employee Benefit Plans.................................35
SECTION 5.09. Eligibility, Etc.......................................35
SECTION 5.10. Reporting Requirements.................................35
SECTION 5.11. Year 2000 Preparation..................................37
ARTICLE VI NEGATIVE COVENANTS..............................................37
SECTION 6.01. Liens..................................................37
SECTION 6.02. Mergers, Etc...........................................39
SECTION 6.03. Sale of Assets.........................................39
SECTION 6.04. Investments............................................40
SECTION 6.05. Guarantees, Etc........................................40
SECTION 6.06. Transactions with Affiliates...........................40
SECTION 6.07. Financing Services and Contributed Capital Agreements..40
SECTION 6.08. Fiscal Year............................................41
SECTION 6.09. Leases.................................................41
SECTION 6.10. Prohibition on Amendment of Certain Agreements, etc....41
ii
<PAGE>
ARTICLE VII FINANCIAL COVENANTS 41
SECTION 7.01. Maximum Consolidated Funded Debt to Capitalization.....41
SECTION 7.02. Minimum Tangible Net Worth.............................41
SECTION 7.03. Consolidated Cash Flow to Consolidated Interest Expense
and Distributions......................................42
ARTICLE VIII EVENTS OF DEFAULT.............................................42
SECTION 8.01. Events of Default......................................42
SECTION 8.02. Remedies...............................................44
ARTICLE IX AGENTS..........................................................45
SECTION 9.01. Authorization and Action...............................45
SECTION 9.02. Liability of Agent.....................................45
SECTION 9.03. Rights of Each Agent as a Bank.........................46
SECTION 9.04. Independent Credit Decisions...........................46
SECTION 9.05. Indemnification........................................46
SECTION 9.06. Successor Agents.......................................47
SECTION 9.07. Sharing of Payments, Etc...............................47
SECTION 9.08. Liability of Agents....................................48
SECTION 9.09. Notices to Agent.......................................48
SECTION 9.10. Defaults...............................................48
SECTION 9.11. Monthly Reports........................................48
SECTION 9.12. Withholding Taxes......................................48
ARTICLE X MISCELLANEOUS....................................................49
SECTION 10.01. Amendments, Etc.......................................49
SECTION 10.02. Notices, Etc..........................................49
SECTION 10.03. No Waiver.............................................49
SECTION 10.04. Assignment; Participation.............................50
SECTION 10.05. Costs, Expenses and Taxes.............................51
SECTION 10.06. Integration...........................................52
SECTION 10.07. Indemnity.............................................52
SECTION 10.08. Governing Law.........................................52
SECTION 10.09. Consent to Jurisdiction...............................52
SECTION 10.10. Severability of Provisions............................53
SECTION 10.11. Usury.................................................53
SECTION 10.12. Counterparts..........................................53
SECTION 10.13. Headings..............................................53
SECTION 10.14. Jury Trial Waiver.....................................54
SECTION 10.15. Consents; Terminations, etc...........................54
iii
<PAGE>
Exhibits
Exhibit A - Form of Revolving Credit Borrowing Notice
Exhibit B - Form of Bid Rate Loan Quote
Exhibit C - Form of Bid Rate Loan Notice of Borrowing
Exhibit D - Form of Notice of Rescission
Exhibit E - Bank Notice Profile
Exhibit F-1 - Form of Note for Base Rate Loans and LIBOR Loans
Exhibit F-2 - Form of Note for Bid Rate Loans
Exhibit G - Form of Opinion of Company Counsel
Exhibit H - Form of Assignment and Assumption Agreement
Exhibit I - Financing Services and Contributed Capital Agreements
Schedules
Schedule 3.01(M) - Other Credit Facilities
Schedule 4.10 - Subsidiaries, Affiliates, and Ownership of Stock
Schedule 4.15 - Existing Obligors; Existing Debt
Schedule 6.01 - Existing Liens
Schedule 6.04 - Permitted Investments
iv
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT is entered into as of January 12, 1999, among
SOUTHERN STATES COOPERATIVE, INCORPORATED, a Virginia agricultural cooperative
corporation ("Company"), CoBANK, ACB in its individual capacity ("CoBank"), as
Bank and in its capacity as Administrative Agent and Documentation Agent, FIRST
UNION NATIONAL BANK ("First Union"), as Bank and in its capacity as Syndication
Agent, NATIONSBANK, N.A. ("NationsBank"), as Bank and in its capacity as
Syndication Agent, NATIONSBANC MONTGOMERY SECURITIES LLC, in its capacity as
Lead Arranger, and FMB BANK, as Bank, COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, as Bank,
BANQUE NATIONALE de PARIS (CHICAGO Branch), as Bank, CRESTAR BANK, as Bank and
in its capacity as Co-Agent, DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG CAYMAN
ISLANDS BRANCH, as Bank, WACHOVIA BANK, N.A., as Bank and in its capacity as
Co-Agent.
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. For purposes of this Agreement:
"Additional Costs" has the meaning specified in Section 2.12.
"Administrative Agent" shall mean CoBank or any successor appointed
pursuant to Section 9.06 hereof.
"Affected Loans" has the meaning specified in Section 2.15.
"Affiliate" shall mean any Person: (1) directly or indirectly controlling,
controlled by, or under common control with, the Company; (2) which directly or
indirectly beneficially owns or holds five percent (5%) or more of any class of
voting stock of the Company; or (3) five percent (5%) or more of whose voting
stock, membership interest or other equity interest is directly or indirectly
beneficially owned or held by the Company; but managed local cooperatives are
not Affiliates of the Company. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Agents" shall mean, collectively, the Administrative Agent, the
Documentation Agent and the Syndication Agents.
<PAGE>
"Agreement" shall mean this Revolving Credit Agreement, as amended,
supplemented or modified from time to time.
"Aggregate Commitments" shall mean the aggregate amount of the Banks'
Commitments hereunder, as such amount may be reduced at any time or from time to
time pursuant to this Agreement. On the Closing Date, the Aggregate Commitments
shall be Two Hundred Million Dollars ($200,000,000.00).
"Applicable Lending Office" shall mean, for each Bank and for each type of
Loan, the lending office of such Bank designated as such for such type of Loan
on the signature pages hereof or in the applicable Assignment and Assumption
Agreement or such other office of such Bank as such Bank may from time to time
specify to the Administrative Agent and the Company as the office by which its
Loans of such type are to be made and maintained.
"Applicable Margin" shall mean, for any day, the rate per annum set forth
below, it being understood that the Applicable Margin for (i) Base Rate Loans
shall be the percentage set forth under the column "Base Rate Applicable
Margin", and (ii) LIBOR Loans shall be the percentage set forth under the column
"LIBOR Applicable Margin".
The Applicable Margin shall be determined by reference to the Company's
corporate ratings provided by Standard & Poor's and Moody's as set forth below:
- - - - -------------------------------------------------------------------------------
Pricing Standard & Poor's/Moody's LIBOR Applicable Base Rate
Level Corporate Ratings* Margin Applicable Margin
- - - - -------------------------------------------------------------------------------
I BBB+/Baa1 or higher 0.450% 0.000%
- - - - -------------------------------------------------------------------------------
II BBB/Baa2 0.575% 0.000%
- - - - -------------------------------------------------------------------------------
III BBB-/Baa3 0.800% 0.000%
- - - - -------------------------------------------------------------------------------
IV BB+/Ba1 0.950% 0.250%
- - - - -------------------------------------------------------------------------------
V BB/Ba2 or lower 1.000% 0.375%
- - - - -------------------------------------------------------------------------------
*In the event of a split rating between Standard & Poor's and Moody's, the lower
rating will determine the Applicable Margin.
The Applicable Margin shall be determined and adjusted on the date of each
change in the Company's corporate rating. Adjustments in the Applicable Margin
shall be effective as to all Base Rate Loans and LIBOR Loans, existing and
3
<PAGE>
prospective, from the date of adjustment. The Company shall provide the
Administrative Agent with written notice of any change in the corporate ratings
of the Company within ten (10) Business Days after the Company becomes aware of
or receives notice of such change.
"Assignee" has the meaning specified in Section 10.04 hereof.
"Assignment and Assumption Agreement" shall mean an agreement in the form
attached hereto as Exhibit H acceptable to the Company and the Administrative
Agent pursuant to which a Bank assigns and an Assignee assumes rights and
obligations in accordance with Section 10.04.
"Bank" or "Banks" shall mean one or more of the banks listed in the first
paragraph of this Agreement and all Assignees which qualify as a "Bank" under
Section 10.04 hereof.
"Base Rate" shall mean, for any day, the higher of (a) the Federal Funds
Rate plus one half of one percent (0.50%), or (b) the Prime Rate.
"Base Rate Loan" shall mean a Loan bearing interest with reference to the
Base Rate.
"Bid Rate Loan" shall mean a Loan bearing interest at a specified fixed
rate quoted by a Bank pursuant to Section 2.02(C) hereof.
"Bid Rate Maturity Date" has the meaning specified in Section 2.02(C)
hereof.
"Bridge Loan Agreement" shall mean the Term Loan Credit Agreement dated as
of October 9, 1998, by and among the Company, the lenders identified therein and
NationsBank, as administrative agent for the lenders, and First Union and
CoBank, as co-agents.
"Bridge Loan Facility" shall mean the $225,000,000 term loan credit
facility made available to the Company pursuant to the Bridge Loan Agreement.
"Business Day" shall mean: (1) any day other than a Saturday, Sunday, or
other day on which commercial banks are not authorized to do business or are
required to close in Denver, Colorado, New York, New York, or Richmond,
Virginia; and (2) whenever such day relates to a LIBOR Loan, LIBOR Interest
Period, or notice with respect to a LIBOR Loan, a day on which dealings in U.S.
dollar deposits are also carried out in the London interbank market.
"Capital Lease" shall mean all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Capitalization" shall mean Consolidated Funded Debt plus Tangible Net
Worth.
4
<PAGE>
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States or any agency or instrumentality
thereof with maturities of not more than twelve months from the date of
acquisition, (b) U.S. dollar time deposits, certificates of deposit, "money
market" accounts or money market mutual funds, and repurchase agreements
relating to direct obligations of the United States with, and commercial paper,
fixed rate notes and loan participations (with maturities of up to 270 days for
any such loan participations) issued by, either (i) a Lender or (ii) a domestic
commercial bank with a short term commercial paper rating of at least A-1 by S&P
or P-1 by Moody's, (c) commercial paper and fixed rate notes issued by a
domestic commercial bank that does not have ratings required under clause (b) of
this definition with maturities of up to 60 days in an aggregate amount not to
exceed $7,500,000, (e) obligations of any domestic Governmental Authority with
respect to which interest is exempt from federal income tax with a long term
rating of at least AA- by S&P or Aa-3 by Moody's, and (f) "low floaters"
(industrial revenue bonds issued as floating rate notes or bonds and backed by a
stand-by letter of credit issued by a Lender or a domestic commercial bank
having the ratings required under clause (b) of this definition).
"Closing Date" shall mean the date of this Agreement.
"CoBank" has the meaning set forth in the preamble hereto.
"Code" shall mean the Internal Revenue Code of 1986 as amended from time
to time, and the regulations and published interpretations promulgated
thereunder.
"Commitment" shall mean each Bank's obligation to make Loans to the
Company pursuant to Section 2.01 hereof, as modified as provided in Section
10.04 hereof or as may be reduced as provided in Section 2.18.
"Company" shall mean Southern States Cooperative, Incorporated.
"Consolidated Cash Flow" shall mean, for any period, the sum of:
(a) savings before income taxes of the Company and its consolidated
Subsidiaries, calculated in accordance with GAAP; plus
(b) Consolidated Interest Expense paid or accrued during such period, to
the extent and only to the extent that such amount was deducted in determining
savings before income taxes of the Company and its consolidated Subsidiaries
calculated in accordance with GAAP; plus
(c) the aggregate amount of Depreciation and amortization during such
period, to the extent and only to the extent that such amount was deducted in
5
<PAGE>
determining savings before income taxes of the Company and its consolidated
Subsidiaries calculated in accordance with GAAP; minus
(d) one-time gains of greater than $1,000,000 during such period of four
consecutive fiscal quarters; minus
(e) extraordinary income during such period, to the extent and only to the
extent that such income was included in determining savings before income taxes
of the Company and its consolidated Subsidiaries calculated in accordance with
GAAP.
"Consolidated Funded Debt" shall mean at any time, without duplication,
(1) all indebtedness or liability for borrowed money, or for the deferred
purchase price of property or services (excluding trade obligations and accrued
expenses), of the Company and its consolidated Subsidiaries; (2) all obligations
of the Company and its consolidated Subsidiaries as lessee under Capital Leases;
(3) all obligations of the Company and its consolidated Subsidiaries under
letters of credit; (4) all obligations of the Company and its consolidated
Subsidiaries arising under bankers' or trade acceptance facilities; (5) all
obligations of the Company and its consolidated Subsidiaries secured by any Lien
on property owned by such Person, whether or not the obligations have been
assumed, and (6) all obligations of the Company and its consolidated
Subsidiaries under Guarantees. "Consolidated Funded Debt" shall not include (i)
any obligations of the Company to any of its customers under any of the
following programs of the Company, in each case, as in effect on the date hereof
(the "Programs"): "Payment Plus"; "Preferred Payment Plan"; "Deferred Payment
Plan"; and "Prepayment Bonus Credit", provided, however, that any reimbursement
obligations of the Company or any of its consolidated Subsidiaries in respect of
any letters of credit issued in connection with, or in support of the Company's
obligations under, any of the Programs, shall be included as "Consolidated
Funded Debt" hereunder, or (ii) any junior subordinated debentures issued by the
Company in connection with the issuance of any Junior Preferred Securities.
"Consolidated Interest Expense" shall mean, for any period, all interest
expense of the Company and its consolidated Subsidiaries (net of any CoBank
patronage refunds), as determined in accordance with GAAP.
"Continuing Credit Facilities" has the meaning specified in Section
3.01(M) hereof.
"Credit Facility" shall mean the revolving loan credit facility extended
to the Company pursuant to Section 2.01 hereof in the aggregate principal amount
not to exceed the Aggregate Commitments.
"Debt" shall mean without duplication (1) indebtedness or liability for
borrowed money, or for the deferred purchase price of property or services
6
<PAGE>
(excluding trade obligations and accrued expenses); (2) obligations as lessee
under Capital Leases; (3) obligations under letters of credit; (4) all
obligations arising under bankers' or trade acceptance facilities; (5) all
obligations secured by any Lien on property owned by such Person, whether or not
the obligations have been assumed, and (6) obligations under Guarantees. "Debt"
shall not include any obligations of the Company to any of its customers under
any of the following programs of the Company, in each case, as in effect on the
date hereof (the "Programs"): "Payment Plus"; "Preferred Payment Plan";
"Deferred Payment Plan"; and "Prepayment Bonus Credit", provided, however, that
any reimbursement obligations of the Company in respect of any letters of credit
issued in connection with, or in support of the Company's obligations under, any
of the Programs, shall be included as "Debt" hereunder.
"Depreciation" shall mean, for any period, total depreciation of the
Company and its consolidated Subsidiaries, as determined in accordance with
GAAP.
"Distributions" shall mean, for any period, all distributions made on all
issues of common stock, preferred stock and Junior Preferred Securities.
"Documentation Agent" shall mean CoBank or any successor appointed
pursuant to Section 9.06 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
promulgated thereunder.
"ERISA Affiliate" shall mean any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company; provided, however,
that for purposes of provisions herein concerning minimum funding obligations
(imposed under Section 412 of the Code or Section 302 of ERISA), the term "ERISA
Affiliate" shall also include any entity required to be aggregated with the
Company under Section 414(m) or 414 (o) of the Code.
"Event of Default" shall mean any of the events specified in Section
8.01 hereof.
"Existing Obligor" shall mean a Person as of the Closing Date in which the
Company has an Investment or is obligated or committed to make an Investment, or
which has obligations which are, in whole or part, guaranteed by the Company or
which the Company is obligated or committed, in whole or part, to guarantee.
"Facility Fee Percentage" shall mean, for any day, the rate per annum
determined by reference to the Company's corporate ratings provided by Standard
& Poor's and Moody's as set forth below:
7
<PAGE>
- - - - -------------------------------------------------------------
Pricing Standard & Poor's/Moody's Facility Fee
Level Corporate Ratings* Percentage
- - - - -------------------------------------------------------------
I BBB+/Baa1 or higher 0.150%
- - - - -------------------------------------------------------------
II BBB/Baa2 0.175%
- - - - -------------------------------------------------------------
III BBB-/Baa3 0.200%
- - - - -------------------------------------------------------------
IV BB+/Ba1 0.300%
- - - - -------------------------------------------------------------
V BB/Ba2 or lower 0.375%
- - - - -------------------------------------------------------------
*In the event of a split rating between Standard & Poor's and Moody's, the lower
rating will determine the Facility Fee Percentage.
The Facility Fee Percentage shall be determined and adjusted on the date
of each change in the Company's corporate rating. Adjustments in the Facility
Fee Percentage shall be effective from the date of any adjustment in rating. The
Company shall provide the Administrative Agent with written notice of any change
in the corporate ratings of the Company within ten (10) Business Days after the
Company becomes aware of or receives notice of such change.
"Federal Funds Rate" shall mean, for any day, the rate of interest per
annum (rounded upward, if necessary, to the nearest whole multiple of 1/100 of
1%) equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published by the Federal Reserve Bank of New York on the
Business Day next succeeding such day, provided that (A) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day and (B) if no such rate is so
published on the next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to the Administrative Agent on such day on
such transactions as determined by the Administrative Agent.
"Financing Services and Contributed Capital Agreements" shall mean (a) the
Fourth Amended and Restated Financing Services and Contributed Capital Agreement
dated as of January 12, 1999, between the Company and Statesman, attached hereto
as Exhibit I, and (b) the Financing Services and Contributed Capital Agreement
dated as of April 1, 1998, between the Company and MLCC, attached hereto as
Exhibit I, in each case, as such agreements may be amended, supplemented,
restated or otherwise modified from time to time upon the prior written consent
of the Banks in accordance herewith.
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<PAGE>
"First Union" has the meaning set forth in the preamble hereto.
"GAAP" means generally accepted accounting principles in the United
States.
"GoldKist" shall mean Gold Kist Inc.
"GoldKist Acquisition Agreement" shall mean that certain Asset Purchase
Agreement dated as of July 23, 1998, between the Company and GoldKist, as
amended, supplemented or otherwise modified prior to the date of this Agreement.
"GoldKist Commitment Letter" shall mean that certain Commitment Letter and
related term sheet dated as of October 13, 1998, between the Company and
GoldKist.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantees" shall have the meaning set forth in Section 6.05 hereof.
"Interest Period" shall mean, with respect to any LIBOR Loan, the period
commencing on the date such Loan is made and ending, as the Company may select
pursuant to either Section 2.02(B) or 2.04 hereof, on the numerically
corresponding day in the first, second, third, or sixth calendar month
thereafter, except that (1) if the Interest Period would end on a day that is
not a Business Day, then such Interest Period shall be extended to the next
Business Day unless such Business Day would fall in the next calendar month, in
which case the Interest Period shall end on the immediately preceding Business
Day; and (2) each such Interest Period that commences on the last Business Day
of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month.
"Investment" shall have the meaning set forth in Section 6.04 hereof.
"Junior Preferred Securities" shall mean mandatorily redeemable capital
securities or preferred securities issued by the Company, any Subsidiary of the
Company or any other Person whose financial statements are consolidated with
those of the Company from time to time, in each case, upon terms and conditions
satisfactory to the Agents, the Lead Arranger and their respective counsel.
"Law" means any applicable foreign, federal, state or local statute, law,
rule, regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and any judicial or administrative interpretation thereof
by a Governmental Authority, including any judicial or administrative order,
consent decree or judgment.
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<PAGE>
"Lead Arranger" shall mean NationsBanc Montgomery Securities LLC in its
capacity as sole and exclusive lead arranger for the Credit Facility.
"LIBOR Base Rate" shall mean a rate for deposits in U.S. dollars, with
maturities comparable to the selected LIBOR Interest Period, that appears on the
display designated as page "3750" of the Telerate Service (or such other page as
may replace page 3750 of that service or such other service or services as may
be nominated by the British Bankers' Association for the purpose of displaying
London interbank offered rates for U.S. dollar deposits), determined as of 1:00
p.m. (New York time), two (2) Business Days prior to the commencement of such
Interest Period.
"LIBOR Loan" shall mean a Loan bearing interest with reference to the
LIBOR Rate.
"LIBOR Rate" shall mean, for each LIBOR Loan, the rate per annum (rounded
upwards, if necessary, to the nearest 1/1000 of 1%) determined by the
Administrative Agent to be equal to the quotient of (1) the LIBOR Base Rate for
such LIBOR Loan for such Interest Period divided by (2) one minus the LIBOR
Reserve Requirement for such Interest Period.
"LIBOR Reserve Requirement" means, for any LIBOR Loan, the average actual
rate at which reserves (including any marginal, supplemental, or emergency
reserves) are required to be maintained during the Interest Period for such
LIBOR Loan under Regulation D by member banks of the Federal Reserve System in
New York City with deposits exceeding One Billion Dollars ($1,000,000,000)
against "Eurocurrency Liabilities" (as such term is used in Regulation D).
Without limiting the effect of the foregoing, but without duplication, the LIBOR
Reserve Requirement shall also reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against (1)
any category of liabilities which includes deposits by reference to which the
LIBOR Base Rate is to be determined; or (2) any category of extensions of credit
or other assets which include LIBOR Loans.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment for security purposes, deposit arrangement,
encumbrance, lien (statutory or other), or other security agreement, charge, or
encumbrance of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable Law
of any jurisdiction to evidence any of the foregoing).
"Loan Documents" shall mean this Agreement, the Notes, and any other
(present or future) documentation as may be executed by the parties with respect
to this transaction all as may be amended or restated from time to time.
10
<PAGE>
"Loans" shall mean the loans made by the Banks pursuant to this
Agreement.
"Master Loan Agreement" shall mean that certain Master Loan Agreement
dated as of February 1, 1997, between the Company and CoBank, as amended,
supplemented or otherwise modified from time to time.
"Material Adverse Effect" means a material adverse effect on the
properties, business, assets, prospects, operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, or the ability
of the Company to perform its obligations under the Loan Documents to which it
is a party.
"MLCC" shall mean Michigan Livestock Credit Corporation.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a Plan described in Section 4001(a)(3)
of ERISA.
"NationsBank" has the meaning set forth in the preamble hereto.
"Net Income" shall mean, with respect to the Company, for any period and
without duplication, net income (or loss) for such period determined in
accordance with GAAP, currently reported as "net savings" in the Company's
financial statements.
"Notes" shall mean the promissory notes described in Section 2.08
hereof.
"Pay Proceeds Letter" has the meaning specified in Section 3.01(R)
hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" means (i) cash and Cash Equivalents, (ii)
investments and loans existing on the Closing Date identified on Schedule 6.04,
(iii) investments, loans and advances in wholly-owned Subsidiaries of the
Company, (iv) loans and advances to officers and directors (other than loans
described in clause (ix)) in an aggregate amount up to $2,000,000 at any time
outstanding, (v) loans and investments made pursuant to the requirements of the
Financing Services and Contributed Capital Agreements, (vi) investments in
CoBank, (vii) investments in Southern States Insurance Exchange, Inc., suppliers
11
<PAGE>
or lenders, in each case, solely as a result of volume or patronage refunds
arising in the ordinary course of business, (viii) investments in or received
from customers in connection with collection of amounts owing to the Company or
its Subsidiaries so long as the aggregate amount of all such investments does
not at any time exceed $7,500,000 and (ix) loans to customers in the ordinary
course of business.
"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
Governmental Authority, or other entity of whatever nature.
"Plan" shall mean a pension plan which is covered by Title IV of ERISA and
in respect of which the Company or an ERISA Affiliate is an "employer" as
defined in Section 3(5) of ERISA.
"Potential Default" shall mean the occurrence of an event which, with the
giving of notice and/or the passage of time, would become an Event of Default.
"Prime Rate" means, for any day, the rate defined as the "prime rate," as
published from time to time in the Eastern Edition of the Wall Street Journal as
the base rate on corporate loans posted by at least seventy-five percent (75%)
of the United States' thirty (30) largest banks, or if the Wall Street Journal
shall cease publication or cease publishing the "prime rate" on a regular basis,
such other regularly published average prime rate applicable to such commercial
banks as is acceptable to the Administrative Agent in its reasonable discretion.
"Prohibited Transaction" shall mean any transaction set forth in Section
406 of ERISA or Section 4975 of the Code, as each may be amended from time to
time.
"Rabobank Letter of Credit" shall mean that certain Irrevocable Letter of
Credit No. SB14112, dated October 13, 1998, issued by Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch in favor
of the Company in the amount of $100,000,000.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as amended from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any change after
the date of this Agreement in any Law (including Regulation D), including any
change resulting from the adoption or making after such date of any
interpretations, directives, or requests applying to a class of banks including
such Bank, of or under Law (whether or not having the force of law) by any court
or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reportable Event" shall mean any of the events set forth in Section
4043 of ERISA.
"Requisite Banks" shall mean Banks holding at least 66_% of the aggregate
Commitments made by the Banks hereunder, provided however that if (1) there are
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<PAGE>
at least three Banks and (2) the Requisite Banks is composed only of the
Administrative Agent then one additional Bank will also be required to
constitute the Requisite Banks.
"Standard & Poor's" shall mean Standard & Poor's Ratings Group, a division
of McGraw Hill, Inc.
"Statesman" shall mean Statesman Financial Corporation.
"Statesman Credit Facility" shall mean a syndicated revolving credit
facility in the aggregate principal amount of up to $250,000,000.00 for
Statesman which one or more Banks are party to as lenders.
"Statesman Term Sheet" shall mean the Commitment Letter and Summary of
Terms and Conditions dated November 20, 1998, by and among Statesman, the Agents
and the Lead Arranger in connection with the Statesman Credit Facility.
"Subsidiary" shall mean, as to any Person, any corporation, partnership,
limited liability company, association or other business entity of which shares
of stock (or equivalent ownership or controlling interest) having ordinary
voting power to elect a majority of the board of directors or other managers
thereof are at the time owned, or the management of which is otherwise
controlled, directly, or indirectly through one or more intermediaries, or both,
by such Person.
"Syndication Agents" shall mean First Union and NationsBank or any
successors appointed pursuant to Section 9.06 hereof.
"Tangible Net Worth" shall mean at any time the sum, without duplication,
of the following for the Company:
(a) Redeemable preferred stock as reflected on Company's consolidated
balance sheet prepared in accordance with GAAP; plus
(b) Capital stock as reflected on Company's consolidated balance sheet
prepared in accordance with GAAP; plus
(c) patrons' equity as reflected on Company's consolidated balance sheet
prepared in accordance with GAAP; plus
(d) the amount available for drawing under the Rabobank Letter of Credit;
plus
(e) the net cash proceeds received by the Company from any issuance of
Junior Preferred Securities; minus
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<PAGE>
(f) the sum of the following (without duplication of deductions in respect
of items already deducted in arriving at stockholders' and patrons' equity): (i)
the book value of all assets which would be treated as intangibles under GAAP,
including without limitation trademarks, trade names, copyrights, and patents
and unamortized debt discount and expense, to the extent that the aggregate book
value of all such assets exceeds $150,000; (ii) any goodwill; and (iii) any
write-up in book value of assets resulting from a revaluation thereof, not in
accordance with GAAP, subsequent to the Closing Date.
"Term Sheet" has the meaning specified in Section 2.07 hereof.
"Termination Date" shall mean January 11, 2002 or such later date as may
otherwise be agreed to by the Company, the Agents and each of the Banks
(provided, however, that none of the Agents or the Banks shall be under any
obligation to extend the Termination Date).
"Total Exposure" shall mean, as to any Person and at any point in time,
the sum of: (1) all Investments made by the Company in such Person; (2) the
amount of any additional Investments which the Company is obligated or committed
to make in such Person; (3) the amount of all obligations of such Person which
the Company has guaranteed; and (4) the amount of any additional obligations of
such Person which the Company is obligated or committed to guarantee.
"Unused Commitment" shall mean at any time, with respect to any Bank, the
amount by which such Bank's Commitment exceeds the sum of the total aggregate
outstanding principal amount of such Bank's Loans, but in any event not less
than zero.
SECTION 1.02 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with those
applied in the preparation of the annual financial statements referred to in
Section 4.04, and all financial data submitted pursuant to this Agreement shall
be prepared in accordance with such principles.
ARTICLE II
AMOUNT AND TERMS OF LOANS
SECTION 2.01. The Commitments. On the terms and conditions set forth in
this Agreement, each Bank severally agrees to make Loans to the Company from
time to time during the period commencing on the date hereof and ending on (but
not including) the Termination Date, in an aggregate principal amount not to
exceed, at any one time outstanding, the amount set forth opposite such Bank's
name below (such Bank's "Commitment"):
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<PAGE>
Name of Bank Amount
------------ ------
CoBank, ACB $62,222,222.22
First Union National Bank $26,666,666.67
NationsBank, N.A. $27,777,777.78
FMB Bank $5,555,555.55
Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A., "Rabobank Nederland",
New York Branch $11,111,111.11
Banque Nationale de Paris (Chicago Branch) $11,111,111.11
Crestar Bank $26,666,666.67
DG Bank Deutsche Genossenschaftsbank
AG Cayman Islands Branch $6,666,666.67
Wachovia Bank, N.A. $22,222,222.22
TOTAL $200,000,000.00
===============
Provided, however, with respect to Bid Rate Loans each Bank may, but is not
required to, make a Loan in excess of its Commitment. In no event will the
aggregate amount of Loans outstanding, including Bid Rate Loans, at any one time
exceed the Aggregate Commitments.
Within the limits of each Bank's Commitment, and in the case of Bid Rate Loans
for amounts exceeding each Bank's Commitment, the Company may borrow, prepay
pursuant to Section 2.06 hereof, and reborrow. Loans may be outstanding
hereunder as Base Rate Loans, LIBOR Loans, or Bid Rate Loans, or any combination
thereof, as selected by the Company pursuant to Section 2.02 hereof. Base Rate
Loans and LIBOR Loans shall be made by the Banks ratably in proportion to their
projected Unused Commitments as of the date such Loans are to be made. For the
purposes of this Section 2.01 and Section 2.02(C), such Unused Commitments shall
be projected by determining the Unused Commitment of each Bank as of 12:00 noon,
Eastern time on the Business Day on which the Company delivers its notice
requesting a Loan and (x) reducing the amount of such Bank's Unused Commitment
by the sum of (i) the amount if any of any Bid Rate Loans which it has offered
to make on or before the date such new Loan is to be made and which offer the
Company has accepted plus (ii) the amount if any of Base Rate Loans and LIBOR
Loans which the Company has requested and which such Bank will be obligated to
fund on or before the date such new Loan is to be made and (y) increasing the
amount of such Bank's Unused Commitment by the sum of (i) the amount, if any, of
any Base Rate Loans or LIBOR Loans owing to such Bank for which the Company has
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<PAGE>
given notice that it will prepay on or before the date such new Loan is to be
made, plus (ii) the amount if any of any Bid Rate Loans owing to such Bank which
are payable on or before the date such new Loan is to be made. A Bank with
Loans, including Bid Rate Loans, equal to or exceeding its Commitment will be
deemed to have no available Unused Commitment for purposes of ratably
apportioning Base Rate Loans and LIBOR Loans. Bid Rate Loans shall be made by
the applicable Banks in the amount of their respective bids, which may exceed
each respective Bank's Commitment, that are accepted by the Company pursuant to
Section 2.02(C) hereof. The obligations of each Bank hereunder are several (and
not joint and several) and the failure of any Bank to perform hereunder shall
not result in liability to any other Bank or increase the Commitment of any
other Bank.
SECTION 2.02 Notice and Manner of Borrowing. The Company shall give notice
of its intent to borrow hereunder in accordance with the following procedures:
(A) Base Rate Loans. In the event the Company desires a Base Rate
Loan, it shall furnish to the Administrative Agent notice of that fact and of
the amount of the Loan no later than 12:30 p.m. Eastern time on the date such
Loan is to be made. Such notice shall be in the form attached hereto as Exhibit
A.
(B) LIBOR Loans. In the event the Company desires a LIBOR Loan, it
shall furnish notice of that fact to the Administrative Agent no later than
12:30 p.m. Eastern time three Business Days prior to the date such Loan is to be
made. Such notice shall be in the form of Exhibit A hereto and shall specify the
amount of the Loan, the date the Loan is to be made, and the Interest Period
applicable thereto. The Interest Period may, at the Company's option, be either
one month, two months, three months, or six months. If on any given day the
Company desires more than one LIBOR Loan having different Interest Periods, it
may so specify in its notice. The Interest Period may, at the Company's option,
extend beyond the Termination Date provided that (i) no Bank is thereby required
to extend the Termination Date or renew this Agreement and (ii) if any Bank does
not, in its sole discretion, extend, renew, or otherwise continue its commitment
on or before the Termination Date then the balance of all LIBOR Loans made by
the terminating Bank will be due and payable on the Termination Date and the
Company will pay all costs relating to prepayment of LIBOR Loans as set forth in
Section 2.11.
(C) Bid Rate Loans. In the event the Company desires a Bid Rate
Loan, it shall notify each of the Banks of such fact by 11:00 a.m. Eastern time
on the date such Loan is proposed to be made. Such notice shall be in the form
of Exhibit A or by telephone confirmed in writing in the form of Exhibit A and
shall specify the amount of the Loan and the proposed maturity date for such
Loan, which maturity date shall not in any event exceed the date which is two
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<PAGE>
hundred seventy (270) days from the date of the making of such Bid Rate Loan
(the "Bid Rate Maturity Date"). If the Company desires more than one Bid Rate
Loan with different Bid Rate Maturity Dates, it may so request in its notice.
However, the maximum number of amounts and Bid Rate Maturities for which bids
may be sought on any day may not exceed five and the Company may not solicit
bids from the Banks for Bid Rate Loans more than three times per week. In the
event a Bank, in its sole discretion in each instance, desires to bid on one or
more of the Bid Rate Loans or on a part of one or more of such Loans, it shall,
on or before 11:45 a.m. Eastern time on the day that a Bid Rate Loan is to be
made notify the Company of such fact in the form attached hereto as Exhibit B or
by telephone confirmed in writing in the form of Exhibit B. No Bank may bid more
than three times per week. With respect to Bid Rate Loans, no Bank may bid an
amount which exceeds the projected aggregate Unused Commitments of all of the
Banks, calculated as provided in Section 2.01. The Company shall disregard any
quote which is received late. If the Company desires to accept one or more of
the bids, it shall furnish notice of such fact to the Bank or Banks that made
the bids that were accepted by the Company by 12:30 p.m. Eastern time on the day
the bids were made. Such notice shall be in the form of Exhibit C hereto or by
telephone confirmed in writing in the form of Exhibit C, and a copy thereof
shall be provided to the Administrative Agent provided that the copy submitted
to the Administrative Agent shall not include bid rates or loan pricing
information. The Interest Period may, at the Company's option, extend beyond the
Termination Date provided that (i) no Bank is thereby required to extend the
Termination Date or renew this Agreement and (ii) if any Bank does not, in its
sole discretion, extend, renew, or otherwise continue its commitment on or
before the Termination Date then the balance of all Bid Rate Loans made by the
terminating Bank will be due and payable on the Termination Date and the Company
will pay all costs relating to prepayment of Bid Rate Loans as set forth in
Section 2.11.
Notwithstanding the above, if any Bank gives the Company notice that the Bank
does not intend to make Bid Rate Loans in excess of the Bank's Commitment then,
until such time as the Bank rescinds such notice, the Company will not be
required to notify the subject Bank with respect to Bid Rate Loans that would
exceed the Bank's Commitment. The notice and rescission described in this
paragraph must be in writing, substantially in the form of Exhibit D, and will
be effective three (3) Business Days after receipt.
All notices by the Company to any Bank provided for above shall be sent by
facsimile or if agreed to by the recipient Bank, by e-mail to the e-mail address
specified by such Bank, and shall be effective only upon receipt. Notices to the
Banks shall be directed as provided in the Bank notice profile attached as
Exhibit E. All notices by any Bank to the Company provided for above shall be
sent by facsimile or by e-mail to the Company at the e-mail address specified on
the signature page for the Company, and shall be effective only upon receipt.
Not later than 3:00 p.m. Eastern time on the date (which must be a Business Day)
a Loan is to be made: (i) each Bank, in the case of a Base Rate or LIBOR Loan,
shall make available directly to the Company its share of the Loan; and (ii) the
Bank or Banks whose bid(s) were accepted shall, in the case of Bid Rate Loans,
make available directly to the Company the principal amount of the Bid Rate Loan
which such Bank or Banks agreed to make. The Administrative Agent shall notify
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<PAGE>
each Bank of its pro rata share of each Base Rate or LIBOR Loan. Such notice
shall be given by facsimile no later than 1:00 p.m. Eastern time on, in the case
of each Base Rate Loan, the date such Loan is to be made and, in the case of
each LIBOR Loan, the date that is three Business Days prior to the date such
Loan is to be made. Loans will be made available either by credit to an account
maintained by the Company with the Bank or by wire transfer to: (a) such account
or accounts as may be authorized on forms supplied by the Bank; or (b) in the
absence of such authorization, to Crestar Bank, ABA No. 051000020, account of
Southern States Cooperative, Incorporated Account No. 1000780 or such
replacement account as the Company shall specify by notice to each of the Banks.
SECTION 2.03 Interest.
(A) Rates. The Company agrees to pay interest to each Bank on the
outstanding principal balance of such Bank's Loans at a rate per annum as
follows:
(1) For a Base Rate Loan, at a rate equal at all times to the
Base Rate plus the Applicable Margin. Any change in the Base Rate shall be
effective as of the opening of business on the day on which such change in the
Base Rate becomes effective.
(2) For a LIBOR Loan, at a rate equal to the LIBOR Rate plus
the Applicable Margin.
(3) For a Bid Rate Loan, at the specified fixed rate quoted by
the Bank making such Loan and accepted by the Company.
(B) Calculation and Payment. Interest shall be calculated on the
actual number of days each Loan is outstanding on the basis of a year consisting
of 360 days. In calculating interest, the date each Loan is made shall be
included and the date each Loan is repaid shall, if received before 3:00 p.m.
Eastern time, be excluded. Interest shall be payable in immediately available
funds directly to each Bank as follows:
(1) For each Base Rate Loan, monthly in arrears on the 10th
calendar day of the following month and on the Termination Date.
(2) For each LIBOR Loan, on the last day of the Interest
Period applicable thereto and, in the case of an Interest Period greater than
three months, at three-month intervals after the first day of such Interest
Period.
(3) For each Bid Rate Loan on the Bid Rate Maturity Date.
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<PAGE>
(C) Default Rate. Any principal, interest or other amounts not paid
when due (whether at maturity, by acceleration, or otherwise) shall bear
interest thereafter until paid in full, payable on demand, at a rate per annum
equal to:
(1) For any such amount payable in respect of a Base Rate Loan
and for all other amounts payable hereunder other than in respect of a LIBOR
Loan or a Bid Rate Loan from the time of default in payment of such amount and
thereafter at a rate equal to the Base Rate plus the Applicable Margin plus 1
and 50/100ths of 1%;
(2) For any such amount payable in respect of a LIBOR Loan, at
a rate equal to the LIBOR Rate plus the Applicable Margin plus 2% from the time
of default in payment of such amount until the end of the then current Interest
Period therefor, and thereafter at a rate equal to the Base Rate plus 1 and
50/100ths of 1%;
(3) For any such amount payable in respect of a Bid Rate Loan,
at a rate equal to the rate quoted by the Bank making such Loan and accepted by
the Company plus 2% from the time of default in payment of such amount until the
Bid Rate Maturity Date, and thereafter at a rate equal to the Base Rate plus 1
and 50/100ths of 1%.
SECTION 2.04 Conversions and Renewals. Subject to Section 2.05 hereof and
provided no Potential Default or Event of Default has occurred and is
continuing, the Company shall have the right, on three Business Day's prior
notice to the Administrative Agent (which notice shall be sent by facsimile and
shall be effective upon receipt), to convert any Base Rate Loan into a LIBOR
Loan or to continue any LIBOR Loan. Such notice must be received by the
Administrative Agent no later than 12:30 p.m. Eastern time and shall state (i)
the amount to be converted or continued; (ii) the date the conversion is to be
effective (which date must be a Business Day); and (iii) the Interest Period
applicable thereto (which period must expire on or prior to the Termination
Date; provided, however, that such Interest Period may, at the Company's option,
extend beyond the Termination Date provided further that (i) no Bank is thereby
required to extend the Termination Date or renew this Agreement and (ii) if any
Bank does not, in its sole discretion, extend, renew, or otherwise continue its
commitment on or before the Termination Date then the balance of all LIBOR Loans
made by the terminating Bank will be due and payable on the Termination Date and
the Company will pay all costs relating to prepayment of LIBOR Loans as set
forth in Section 2.11.). The Administrative Agent shall promptly send a copy of
such notice to each Bank. Any LIBOR Loan which is not continued as provided
above shall, on the last day of the Interest Period applicable thereto,
automatically be converted to a Base Rate Loan. Bid Rate Loans may not be
converted and may not be continued unless; (a) the Company requests bids
pursuant to Section 2.02(C) hereof; (b) the Bank that made the Bid Rate Loan
bids on the new Loan request; and (c) the Company accepts such bid. Unless
continued in that manner, each Bid Rate Loan shall be repaid on the Bid Rate
Maturity Date; and if for any reason such Loan is not repaid on such date, then
such Loan shall bear interest until repaid at the rate set forth in Section
2.03(C) hereof.
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SECTION 2.05 Minimum Amounts. Each Loan and each conversion or
continuation thereof shall be in an amount at least equal to $3,000,000 and in
integral multiples of $1,000,000; provided, however, that Bid Rate Loans made by
any Bank may be in an amount equal to the lesser of $3,000,000 or that Bank's
Unused Commitment at the time that Bank furnishes its bid.
SECTION 2.06 Principal Payments.
(A) Voluntary Prepayments. The Company may prepay Base Rate or LIBOR
Loans, but not Bid Rate Loans. In the event the Company desires to prepay any
LIBOR or Base Rate Loan, it shall furnish to each Bank written or facsimile
notice of that fact (which notice shall be effective upon receipt and
irrevocable) by: (i) in the case of Base Rate Loans, 11:30 a.m. Eastern time on
the date such Loan is to be prepaid; and (ii) in the case of LIBOR Loans, 11:30
a.m. Eastern time two Business Days prior to the date such Loan is to be
prepaid. To the extent so authorized, prepayments may be made in whole (with
accrued interest to the date of prepayment), or in part (without accrued
interest); provided, however, that: (i) partial prepayments must be in a minimum
amount of $1,000,000 with amounts in excess thereof in increments of $100,000,
and the portion of the Loan not prepaid must meet the minimum requirements of
Section 2.05 hereof; and (ii) in the event the Company prepays any LIBOR Loan
prior to the last day of the Interest Period applicable thereto, the Company
must compensate the Bank receiving the prepayment in the manner set forth in
Section 2.11 hereof. All payments of principal and fees contemplated herein
shall be made directly to each Bank in the same proportion that each Bank
contributed to the Loan when it was made.
(B) Mandatory Payments. The Company shall repay the outstanding principal
amount of all Loans in full, together with all accrued but unpaid interest
thereon and all other amounts due and owing hereunder and under the other Loan
Documents, on the Termination Date, provided, however that the Company shall not
be obligated to pay on the Termination Date the principal of, or any accrued and
unpaid interest on, any LIBOR Loan or Bid Rate Loan, the Interest Period of
which extends beyond the Termination Date, made by any Bank that has extended,
renewed or otherwise continued its commitment as provided in Section 2.02(B),
Section 2.02(C) or Section 2.04 hereof. If at any time the outstanding principal
amount of all Loans exceeds the Aggregate Commitments, the Company shall repay
such excess, provided, that any repayment of outstanding Bid Rate Loans shall be
made after the Company has first repaid any and all outstanding LIBOR Loans and
Base Rate Loans. Each repayment pursuant to the immediately preceding sentence
shall be accompanied by any amount required to be paid pursuant to Section 2.11.
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SECTION 2.07 Fees.
(A) In order to compensate the Administrative Agent and the
Documentation Agent for its obligations hereunder, the Company agrees to pay to
(i) the Administrative Agent, for its own account, the annual administration
fees set forth in the Commitment Letter and Summary of Terms and Conditions
dated November 20, 1998 (collectively, the "Term Sheet"), by and among the
Company, Statesman, the Agents and the Lead Arranger, which fees shall be
payable in equal quarterly installments at the end of each fiscal quarter of the
Company, with the first such installment due and payable on March 31, 1999, and
(ii) the Lead Arranger, for its own account, the fees set forth in the fee
letter dated November 20, 1998 (the "Lead Arranger Fee Letter"), between Lead
Arranger and the Company at the times specified therein for payment; provided
that the terms of the Term Sheet and the Lead Arranger Fee Letter shall not be
incorporated herein except as to the amount of fees payable to the Agent and the
Lead Arranger and the time of payment as contemplated herein and therein.
(B) The Company shall pay to each Bank a facility fee in an amount
equal to, for each Bank, the Facility Fee Percentage of the amount of that
Bank's Commitment from and after the Closing Date to the Termination Date
whether or not there is usage under the facility. The facility fee will be
accrued and payable quarterly in arrears (calculated on a 360-day basis), with
the first such payment due and payable on March 31, 1999.
SECTION 2.08. Notes. All Loans made by each Bank under this Agreement
shall be evidenced by, and repaid with interest in accordance with a promissory
note of the Company in substantially the form of Exhibit F-1 attached hereto for
Base Rate Loans and LIBOR Loans and a promissory note in substantially the form
of Exhibit F-2 attached hereto for Bid Rate Loans, in each case, duly completed,
dated the date such Bank becomes a Bank, in the amount of such Bank's
Commitment, and payable to such Bank (collectively, the "Notes"). Each Bank is
hereby authorized to endorse on the schedule attached to the Note held by it the
date and amount of each Loan, the type of Loan, the applicable Interest Period,
and, in the case of Bid Rate Loans, the interest rate on and the Bid Rate
Maturity Date of the Loan, and each conversion, continuation, and payment of
principal amount received by such Bank, provided, however, that the failure to
make such notation shall not limit or otherwise affect the obligations of the
Company under this Agreement or the Note held by such Bank. Each Bank agrees
that prior to the assignment of any Note, it will endorse the schedule attached
to its Note. The records of the Bank reflecting such endorsements shall, in the
absence of manifest error, be conclusive as to the outstanding principal amount
of all Loans owed to the Bank.
SECTION 2.09. Use of Proceeds. The proceeds of the Loans will be used by
the Company (a) on the Closing Date to refinance up to (but not more than)
$118,313,487 in aggregate principal amount of indebtedness incurred by the
Company under the Bridge Loan Facility (the "Bridge Loan Refinancing"), (b)
refinance certain other existing indebtedness of the Company, and (c) to provide
financing for working capital and permitted capital expenditures of the Company,
including the payment of consideration for acquisitions permitted by this
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Agreement and the payment of fees and expenses incurred in connection with the
transactions contemplated hereby. The Company shall not, directly or indirectly,
use any part of the proceeds of any Loan to: (i) refinance or repay all or any
portion of principal indebtedness incurred by the Company under the Bridge Loan
Facility other than in connection with (I) the Bridge Loan Refinancing, and (II)
the repayment of principal under the Bridge Loan Facility in an amount equal to
the lesser of (x) the actual amount of all underwriting discounts, fees and
commissions, if any, paid in cash by the Company after the Closing Date from the
gross proceeds of any and all issuances of Junior Preferred Securities occurring
after the Closing Date, and (y) an amount equal to the product of 0.035 times
the gross proceeds of any and all issuances of Junior Preferred Securities
occurring after the Closing Date; or (ii) for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any Person for
the purpose of purchasing or carrying any such margin stock, or for any purpose
which violates, or is inconsistent with, Regulation X of such Board of
Governors.
SECTION 2.10 Method of Payment; Limitation on Set Off and Tax
Withholding.
(A) Method of Payment. The Company shall make each payment under
this Agreement and the Notes not later than 3:00 p.m. Eastern time on the date
when due in lawful money of the United States and in immediately available
funds. The Company hereby authorizes each Bank, if and to the extent payment is
not made when due, to charge from time to time against any account of the
Company with such Bank any amount so due. If any payment date is stated to be
due on a day which is not a Business Day, then such payment shall be made on the
next succeeding Business Day, and such extension of time shall be included in
the computation of the payment of interest.
(B) Limitation on Set Off and Tax Withholding. Without limiting any
other provision of this Agreement, all payments (including, without limitation,
principal, interest and/or fees) made under or pursuant to this Agreement or any
Note shall be made by the Company without regard to any rights of set off or
counterclaim and in such amounts as may be necessary in order that all such
payments (after deduction or withholding for or on account of any present or
future taxes, levies, imposts, duties or other charges of whatsoever nature
imposed by any governmental authority, other than any tax on or measured by the
net income of a Bank pursuant to the income tax laws of the United States or of
the jurisdictions where such Bank's principal office is located (collectively,
"Taxes")) shall not be less than the amounts otherwise specified to be paid
under this Agreement and/or the Notes. If the Company is required by law to make
any deduction or withholding on account of Taxes from any payment due hereunder
(principal, interest or otherwise), then the amount payable will be increased to
such amount which, after deduction from such increased amount of all amounts
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required to be deducted or withheld therefrom, will not be less than the amount
otherwise due and payable. Without prejudice to the foregoing, if any Bank or
the Administrative Agent is required to make any payment on account of Taxes,
the Company will, upon notification by the Bank or the Administrative Agent,
promptly indemnify such person against such Taxes together with any interest,
penalties and expenses payable or incurred in connection therewith.
SECTION 2.11. Indemnity. The Company shall indemnify each Bank against any
loss, cost or expense which such Bank may sustain or incur as a consequence of
(a) any failure by the Company to borrow or to continue, convert or extend any
Loan hereunder after notice of such borrowing, continuing, conversion or
extension has been given pursuant to Section 2.02, or 2.04, or (b) any payment,
prepayment or conversion by the Company of a LIBOR Loan or Bid Rate Loan
required by any other provision of this Agreement or otherwise made or deemed
made on a date other than the last day of the Interest Period or the Bid Rate
Maturity Date applicable thereto. In the case of any such event, the Company
shall, upon demand by such Bank (with a copy of such demand to the
Administrative Agent), pay to such Bank any amounts required to compensate such
Bank for any reasonable loss, cost or expense which such Bank may incur as a
result of such action or inaction by the Company, including, without limitation,
any reasonable loss, cost, or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Bank to fund or maintain
such Loan or proposed Loan. Each determination by a Bank under this Section 2.11
shall be in good faith and shall be conclusive absent manifest error.
SECTION 2.12. Additional Costs. The Company shall pay directly to each
Bank within fifteen (15) days of a request for payment under this Section 2.12,
such amounts as such Bank may determine in good faith to be necessary to
compensate it for any increased costs which such Bank determines are
attributable to its making or maintaining any LIBOR Loan, or its obligation to
convert any Base Rate Loan to a LIBOR Loan hereunder, or any reduction in any
amount receivable by such Bank hereunder in respect of any such LIBOR Loan or
such obligation (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), resulting from any Regulatory Change
which:
(A) Changes the basis of taxation of any amounts payable to such
Bank under this Agreement or the Notes in respect of any such LIBOR Loan (other
than changes in the rate of income tax imposed on such Bank or its Applicable
Lending Office by the jurisdiction in which such Bank has its principal office
or such Applicable Lending Office); or
(B) Imposes or modifies any reserve, special deposit, deposit
insurance or assessment, minimum capital, capital ratio or similar requirements
relating to any extensions of credit of the type specified herein which is not
included in the computation of "LIBOR Rate" provided that the Company shall have
no obligation to pay any such amount to any Bank unless such Bank shall have
provided the Company with written notice of such Regulatory Change and a
detailed computation of the interest rate change within thirty (30) days of when
the Bank becomes aware of such Regulatory Change.
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Without limiting the effect of the provisions of the first paragraph of
this Section 2.12, in the event that, by reason of any Regulatory Change, any
Bank either (1) incurs Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other liabilities
of such Bank which includes deposits by reference to which the LIBOR Loan is
determined as provided in this Agreement or a category of extensions of credit
or other assets of such Bank which includes loans based on the LIBOR Loan; or
(2) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so elects by notice
to the Company (with a copy to the Administrative Agent), the obligation of such
Bank to make or continue, or to convert Base Rate Loans into LIBOR Loans, shall
be suspended until such Regulatory Change ceases to be in effect (in which case
the provisions of Section 2.15 hereof shall be applicable).
Each Bank agrees to allocate increased costs charged to the Company pursuant to
this Section 2.12 among its similarly situated borrowers in good faith and on an
equitable basis.
Determinations and allocations by such Bank for purposes of this Section
2.12 of the effect of any Regulatory Change pursuant to the first or second
paragraph of this Section 2.12, on its costs or rate of return of maintaining
the LIBOR Loans or on amounts receivable by it in respect of the LIBOR Loans,
and the amounts required to compensate such Bank under this Section 2.12, shall
be conclusive absent manifest error.
SECTION 2.13. Limitation on Types of Advances. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of the LIBOR
Rate for any Interest Period:
(A) The Administrative Agent determines (which determination shall
be conclusive) that quotations of interest rates in the definition of "LIBOR
Base Rate" in Section 1.01 hereof are not being provided for the relevant
maturities for purposes of determining rates of interest for LIBOR Loans, as
provided in this Agreement; or
(B) Any Bank determines (which determination shall be conclusive)
that the relevant rates of interest referred to in the definition of "LIBOR Base
Rate" in Section 1.01 hereof, upon the basis of which the rate of interest for
LIBOR Loans for such Interest Period is to be determined, do not adequately
cover all the LIBOR funding costs to such Bank of making or maintaining such
LIBOR Loan for such Interest Period (and such Bank shall provide written notice
and justification of its determination to Administrative Agent which can be
shared with the Company);
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then the Administrative Agent shall give the Company prompt notice thereof, and
so long as such condition remains in effect, in the case of subsection (A)
above, the Banks, and in the case of subsection (B) above, the Bank that makes
the determination, shall be under no obligation to make LIBOR Loans, convert
Base Rate Loans into LIBOR Loans, or continue LIBOR Loans, and the Company
shall, without penalty, on the last day of the then current applicable Interest
Period for each outstanding LIBOR Loan, either prepay such LIBOR Loan owing to
such Bank, or convert such LIBOR Loan into a Base Rate Loan in accordance with
Section 2.04.
SECTION 2.14. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder
or convert Base Rate Loans into LIBOR Loans, then such Bank shall promptly
notify the Administrative Agent and the Company thereof and such Bank's
obligation to make or continue, or to convert Base Rate Loans into, LIBOR Loans,
shall be suspended until such time as such Bank may again make and maintain
LIBOR Loans (in which case the provisions of Section 2.15 hereof shall be
applicable).
SECTION 2.15. Treatment of Affected Loans. If the obligations of any Bank
to make or continue LIBOR Loans, or to convert Base Rate Loans into LIBOR Loans
are suspended pursuant to Sections 2.12, 2.13 or 2.14 hereof (Loans so affected
being herein called "Affected Loans"), such Bank's Affected Loans shall be
automatically converted into Base Rate Loans on the last day(s) of then current
Interest Period(s) for the Affected Loans (or, in the case of a conversion
required as a result of Section 2.14, on such earlier date as such Bank may
specify to the Company if in such Bank's judgment such conversion is necessary
to comply with such change in Law).
To the extent that such Bank's Affected Loans have been so converted, all
payments and prepayments of principal which would otherwise be applied to such
Bank's Affected Loans shall be applied instead to its Base Rate Loans. All Loans
which would otherwise be made or continued by such Bank as LIBOR Loans shall be
made or continued instead as Base Rate Loans and, all Base Rate Loans of such
Bank which would otherwise be converted into LIBOR Loans shall remain as Base
Rate Loans.
SECTION 2.16. Capital Adequacy. If any Bank shall have determined that,
after the date hereof, the adoption of any applicable Law regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
any request or directive regarding capital adequacy (whether or not having the
force of Law) of any such Governmental Authority, central bank, or comparable
agency, has or would have the effect of reducing the rate of return on capital
of such Bank (or its parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its parent) could have
achieved but for such adoption, change, request, or directive (taking into
consideration its policies with respect to capital adequacy existing on the date
of this Agreement) by an amount deemed by such Bank to be material, then from
time to time, within fifteen (15) days after written demand by such Bank (with a
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copy to the Administrative Agent), the Company shall pay to such Bank such
additional amount or amounts as will compensate such Bank (or its parent) for
such reduction. A certificate of any Bank claiming compensation under this
Section shall be conclusive in the absence of manifest error.
SECTION 2.17. Investment in CoBank. The Company agrees to make such
investment in CoBank as may from time to time be required in accordance with the
Farm Credit Act of 1971, as amended, the regulations of the Farm Credit
Administration, the bylaws of CoBank, and the capital plan of CoBank as adopted
by CoBank's board of directors, all as may be amended from time to time.
CoBank's pro rata share of the Loans and other obligations due to CoBank shall
be secured by a statutory first lien on all equity which the Company may now own
or hereafter acquire in CoBank. Such equity shall not, however, constitute
security for the obligations due to any other Bank. CoBank shall not be
obligated to set off or otherwise apply such equities to the Company's
obligations to CoBank.
SECTION 2.18. Reduction of Commitments. Upon at least five (5) calendar
days prior written notice to the Administrative Agent, the Company shall have
the right, without premium or penalty, to terminate the Commitments, in whole or
in part, provided that:
(A) (i) Any such termination shall apply to ratably and permanently
reduce the Commitment of each Bank, (ii) no voluntary prepayment of Bid Rate
Loans will be permitted, (iii) any partial termination shall be in an aggregate
amount of at least $10,000,000 and integral multiples of $5,000,000 in excess
thereof, (iv) after a partial termination of Commitments, any Bank with Bid Rate
Loans outstanding in excess of its reduced Commitment will be deemed to have
made a Bid Rate Loan in excess of its Commitment as provided in Section 2.01,
(v) to the extent a prepayment results from a whole or partial termination of
the Commitments, the Company will pay all costs relating to prepayment of a
LIBOR Loan as set forth in Section 2.11 and (vi) the Company shall comply with
the provisions of Section 2.06(B); and
(B) If after a partial termination of the Commitments, one or more
Banks has outstanding Base Rate Loans and LIBOR Loans, in the aggregate, in
excess of the such Bank's reduced Commitment then the Company shall reduce, by
prepayment, the subject Base Rate Loans and LIBOR Loans to the amount of such
Bank's Commitment on the effective date of any such partial termination; and
(C) If after a partial termination of the Commitments, no Bank has
outstanding Base Rate Loans and LIBOR Loans, in the aggregate, in excess of the
Bank's reduced Commitment, then, unless otherwise required under Section
2.06(B), no prepayment shall be required by the Company in connection with such
partial termination of the Commitments.
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(D) Upon a reduction in the Commitments, the facility fee, as
described in Section 2.07, will be determined based on the reduced Commitments
and, accordingly, the facility fee for each Bank will be reduced.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. Conditions Precedent to Initial Use of the Commitments on
and after the Closing Date. The obligation of the Banks on or after the Closing
Date to make the initial Loans is subject to the conditions precedent that the
Administrative Agent shall have received on or before the Closing Date each of
the following documents, in form and substance satisfactory to the
Administrative Agent, each Bank and their respective counsel, and each of the
following requirements shall have been fulfilled:
(A) Evidence of Due Organization and all Corporate Actions by the
Company. A certificate of the Secretary or Assistant Secretary of the Company
dated the Closing Date, attesting to the certificate of incorporation of the
Company and all amendments thereto, to the amended bylaws of the Company, and to
all corporate actions taken by the Company, including resolutions of its board
of directors, authorizing the execution, delivery, and performance of the Loan
Documents, and each document to be delivered pursuant to the Loan Documents.
(B) Incumbency and Signature Certificate of the Company. A
certificate of the Secretary or Assistant Secretary of the Company, dated the
Closing Date, certifying the names and true signatures of the officers of the
Company authorized to sign the Loan Documents, and any documents to be delivered
pursuant to the Loan Documents.
(C) Good Standing Certificate of the Company. A certificate, dated
within ten (10) Business Days of the Closing Date, from the Secretary of State
(or other appropriate official) of the jurisdiction of incorporation of the
Company certifying as to the due incorporation and good standing of the Company.
(D) Notes. The Notes for each Bank, duly executed by the Company.
(E) Opinion of Counsel for Company. A favorable opinion of Mays &
Valentine, L.L.P., counsel for the Company, dated the Closing Date substantially
in the form of Exhibit G.
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(F) Payment of Fees. Payment in full to the Agents of all fees
required to be paid as of such date pursuant to the terms of the Term Sheet,
this Agreement and any other Loan Document. Payment in full to the Lead
Arranger, for its own account, of all fees required to be paid as of such date
pursuant to the terms of the Lead Arranger Fee Letter at the times specified
therein for payment.
(G) Officer's Certificate. The following statements shall be true
and the Administrative Agent shall have received a certificate signed by a duly
authorized officer of the Company dated the Closing Date stating that:
(1) The representations and warranties contained in this
Agreement are, as of the Closing Date, as though made on and as of such date,
correct in all material respects; and
(2) No Potential Default or Event of Default has occurred and
is continuing.
(H) Due Diligence and Additional Documentation. The Agents shall
have received and reviewed all requested information and documents necessary for
the completion of their due diligence review of the Company, and the results of
such due diligence review shall be satisfactory to each of the Agents. The
Company shall have obtained and executed and delivered to the Administrative
Agent, such other approvals, opinions, or documents as any Bank may reasonably
request.
(I) No Material Adverse Change. Since June 30, 1998, there shall not
have occurred any material adverse change in the condition (financial or
otherwise), operations, properties, assets, business, liabilities (actual or
contingent) or prospects of the Company or any of its Subsidiaries, taken as a
whole, or any event or condition that has had or could be reasonably expected to
have a Material Adverse Effect. There shall not have occurred any material
disruption of or material adverse change in financial, banking or capital market
conditions that, in the sole judgment of the Agents or the Lead Arranger, could
materially impair the syndication of the Credit Facility.
(J) Absence of Litigation. No litigation by any Person or
Governmental Authority shall be pending or threatened against the Company (i)
with respect to the Credit Facility or any of the Loan Documents executed in
connection therewith or the transactions contemplated thereby, or (ii) which
could reasonably be expected to have a Material Adverse Effect.
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(K) Minimum Rating. The Company shall have achieved a corporate
rating of BB+ or better from Standard & Poor's and Ba1or better from Moody's,
such rating shall then be in effect and no downgrading shall have occurred in
such rating by either of such rating agencies.
(L) Additional Documentation; Financial Statements. Such other
approvals, opinions, or documents as the Agents or any Bank may reasonably
request. The Agents and each Bank shall have received recent annual and interim
financial statements and other financial information with respect to the Company
and its consolidated Subsidiaries, in each case, prepared in accordance with
GAAP. Without limitation of the foregoing, the Agents and each Bank shall have
received (A) audited consolidated financial statements for the Company and its
consolidated Subsidiaries for the fiscal year ended June 30, 1998, and (B)
unaudited consolidated financial statements for the Company and its consolidated
Subsidiaries for the fiscal quarter ended September 30, 1998 and the five-month
period ended November 30, 1998.
(M) Other Credit Facilities. The Company shall have terminated the
line of credit facilities in place prior to the Closing Date as set forth on
Schedule 3.01(M) hereto and all obligations of the Company under such line of
credit facilities shall have been paid in full, except for the following line of
credit facilities which shall not be terminated, but shall remain outstanding in
accordance with their terms (the "Continuing Credit Facilities"): (i) that the
line of credit provided by CoBank to the Company pursuant to that certain
Consolidating Supplement (designated as Loan No. E131TO2) to the Master Loan
Agreement dated February 1, 1997, by and between CoBank and the Company; (ii)
that certain Line of Credit Agreement No. S-4308 dated January 29, 1992,
provided by CoBank to the Company, in the amount of $10,000,000; (iii) that
certain Loan Agreement No. T-4391 dated January 18, 1994, provided by Wetsel,
Inc. to the Company, in the amount of $3,000,000; and (iv) the overnight line of
credit currently provided by Crestar Bank to the Company. Without limiting the
foregoing, prior to or simultaneously with any funding of the initial Loans, the
Administrative Agent shall have received evidence in form and substance
reasonably satisfactory to the Administrative Agent, that with the proceeds of
the initial Loans $118,313,487 in aggregate principal amount of indebtedness
incurred by the Company under the Bridge Loan Facility evidenced by the Bridge
Loan Agreement and any loan documents executed by the Company in connection
therewith has been paid.
(N) Amendment to Bridge Loan Agreement. The Company and the other
parties to the Bridge Loan Agreement shall have entered into an amendment, in
form and substance satisfactory to the Agents and the Banks (the "Bridge Loan
Amendment"), pursuant to which effective as of the Closing Date: (i) the
aggregate term loan commitment of the lenders thereunder shall be reduced to a
principal amount not to exceed the amount available for drawing under the
Rabobank Letter of Credit (after giving effect to the prepayment required to be
made on the Closing Date pursuant to Section 3.01(M) of this Agreement), and
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(ii) the Company shall be required to repay (without penalty) the principal
amount of any outstanding term loans under the Bridge Loan Agreement with the
entire proceeds from any draws at any time, and from time to time, made under
the Rabobank Letter of Credit. The Agents shall have received a copy of the
fully executed Bridge Loan Amendment.
(O) Financing Services and Contributed Capital Agreements. The
Financing Services and Contributed Capital Agreements shall be in full force and
effect and shall be in form and substance satisfactory to the Agents, the Lead
Arranger and their respective legal counsel.
(P) Satisfaction of Conditions to the Closing of the Statesman
Credit Facility. All of the conditions precedent to the closing of, and the
initial funding of any loans under, the Statesman Credit Facility as described
in the Statesman Term Sheet shall have been satisfied in full.
(Q) Lending Commitments. The Company and Statesman shall have
received lending commitments from financial institutions satisfactory to the
Agents of not less than $400,000,000 in the aggregate for this Credit Facility
and the Statesman Credit Facility.
(R) Pay Proceeds Letter. The Company shall have executed and
delivered to the Administrative Agent and each Bank a pay proceeds letter dated
the Closing Date (the "Pay Proceeds Letter"), in form and substance satisfactory
to the Administrative Agent and the Banks.
SECTION 3.02. Conditions Precedent to Each Loan. The obligations of
the Banks to make each Loan after the Closing Date shall be subject to the
further conditions precedent that on the date of providing such Loan;
(A) The following statements shall be true:
(1) All the representations and warranties contained in
Article IV of this Agreement, and each of the other Loan Documents are, as of
the date of such Loan, correct; and
(2) No Potential Default or Event of Default has occurred and
is continuing hereunder or would result from providing such Loan;
(B) Appropriate notices with respect to funding have been made to
either the Banks or the Administrative Agent as appropriate.
SECTION 3.03. Deemed Representation. Each request for a Loan and
acceptance by the Company of any proceeds of such Loan, as the case may be,
shall constitute a representation and warranty that on the date of each request
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and on the date each Loan is made or issued: (1) all of the representations and
warranties contained in Article IV of this Agreement and the other Loan
Documents are correct and (2) no Potential Default or Event of Default has
occurred and is continuing hereunder or would result from such Loan.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each Bank that:
SECTION 4.01. Incorporation, Good Standing, and Due Qualification. The
Company is duly incorporated, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation; has the corporate power and
authority to own its assets and to transact the business in which it is now
engaged or proposed to be engaged in; and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required.
SECTION 4.02. Corporate Power and Authority. The execution, delivery, and
performance by the Company of the Loan Documents have been duly authorized by
all necessary corporate action and do not and will not (1) require any consent
or approval of the stockholders of the Company, of any Governmental Authority or
of any other Person; (2) contravene the Company's charter or bylaws; (3) violate
any provision of any Law, order, writ, judgment, injunction, decree,
determination, or award presently in effect having applicability to the Company;
(4) result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease, or instrument to which the
Company is a party or by which it or its properties may be bound or affected;
(5) except as contemplated by this Agreement, result in or require the creation
or imposition of any Lien, upon or with respect to any of the properties now
owned or hereafter acquired by the Company; or (6) cause the Company to be in
default under any such Law, order, writ, judgment, injunction, decree,
determination, or award or any such indenture, agreement, lease, or instrument.
SECTION 4.03. Legally Enforceable Agreement. This Agreement and each of
the other Loan Documents are legal, valid, and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, and other similar laws affecting creditors' rights
generally.
SECTION 4.04. Financial Statements. The audited balance sheet of the
Company and its consolidated Subsidiaries as of June 30, 1998, and the related
statements of operations, patrons' equity, and cash flows of the Company and its
consolidated Subsidiaries for the fiscal year then ended, and the accompanying
footnotes, together with the opinion thereon, dated August 31, 1998 (except as
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to note 19, for which the date is October 13, 1998), of PricewaterhouseCoopers
LLP, independent certified public accountants, the unaudited balance sheet of
the Company and its consolidated Subsidiaries as of September 30, 1998 and
November 30, 1998, and the related statements of operations of the Company and
its consolidated Subsidiaries for the periods then ended, copies of which have
been furnished to each Bank, in each case, are complete and fairly present the
financial condition of the Company and its consolidated Subsidiaries as of such
date and the results of the operations of the Company and its consolidated
Subsidiaries for the period covered by such statements, all in accordance with
GAAP (except that the interim financial statements for the quarterly period
ending September 30, 1998 and for the five-month period ended November 30, 1998
are subject to year-end adjustments) consistently applied, and since June 30,
1998, there has been no material adverse change in the financial condition of
the Company and its consolidated Subsidiaries. There are no liabilities of the
Company and its consolidated Subsidiaries, fixed or contingent, which are
material but are not reflected in the financial statements or in the notes
thereto. No information, exhibit, or report furnished by the Company to any Bank
in connection with the negotiation of this Agreement contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statement contained therein not materially misleading.
SECTION 4.05. Labor Disputes and Acts of God. Neither the business nor the
properties of the Company are affected by any fire, explosion, accident, strike,
lockout, or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or of the public enemy, or other casualty (whether or not covered by
insurance), which has resulted in or might reasonably be expected to result in a
material adverse change in the business properties, assets, operations, or
condition, financial or otherwise, of the Company.
SECTION 4.06. Other Agreements. The Company is not a party to any
indenture, loan or credit agreement, or to any lease or other agreement or
instrument, or subject to any charter or corporate restriction, which could have
a Material Adverse Effect. The Company is not in default in any respect in the
performance, observance, or fulfillment of any of the obligations, covenants, or
conditions contained in any agreement or instrument material to its business to
which the Company is a party.
SECTION 4.07. Litigation. To the knowledge of the executive officers of
the Company, there are no pending or threatened actions or proceedings against
or affecting the Company before any court, governmental agency, or arbitrator,
which might reasonably be expected to, in any one case or in the aggregate,
materially adversely affect the financial condition of the Company or the
ability of the Company to perform its obligation under the Loan Documents.
SECTION 4.08. No Defaults on Outstanding Judgments or Orders. The Company
has satisfied all judgments in excess of $1,000,000 (not covered by insurance),
and the Company is not in default with respect to any judgment, writ,
injunction, decree, rule, or regulation of any court, arbitrator, or federal,
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state, municipal, or other Governmental Authority, commission, board, bureau,
agency, or instrumentality, domestic or foreign which might reasonably be
expected to result in a material adverse change in the business prospects or
financial condition of the Company.
SECTION 4.09. Ownership and Liens. The Company has title to, or valid
leasehold interests in, all of its properties and assets, real and personal,
including the properties and assets and leasehold interests reflected in the
financial statements referred to in Section 4.04 (other than any properties or
assets disposed of in the ordinary course of business), and none of the
properties and assets owned by the Company and none of its leasehold interests
are subject to any Lien, except such as may be permitted pursuant to Section
6.01 of this Agreement.
SECTION 4.10. Subsidiaries, Affiliates, and Ownership of Stock. On the
date hereof, the Company does not have any Subsidiaries other than as described
in Schedule 4.10. Set forth in Schedule 4.10 is a complete and accurate list of
the Subsidiaries and Affiliates of the Company, showing the jurisdiction of
incorporation or formation of each and showing the percentage of the Company's
ownership of the outstanding stock or other interest of each Subsidiary and
Affiliate. All of the outstanding capital stock or other ownership interest of
each Subsidiary and Affiliate owned by the Company has been validly issued, is
fully paid and nonassessable, and is owned by the Company free and clear of all
Liens except for those Liens permitted under Section 6.01 hereof.
SECTION 4.11. ERISA. The Company is in compliance in all material respects
with all applicable provisions of ERISA. Neither a Reportable Event nor a
Prohibited Transaction has occurred and is continuing with respect to any Plan;
no notice of intent to terminate a Plan has been filed, nor has any Plan been
terminated; no circumstances exist which constitute grounds entitling the PBGC
to institute proceedings to terminate, or appoint a trustee to administer, a
Plan, nor has the PBGC instituted any such proceedings; neither the Company nor
any ERISA Affiliate has any liability arising from the complete or partial
withdrawal from a Multiemployer Plan, the Company and each ERISA Affiliate have
met their minimum funding requirements under ERISA with respect to all of their
Plans and the present value of all vested benefits under each Plan does not
exceed the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA; and neither the Company nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA.
SECTION 4.12. Operation of Business. The Company possesses all material
licenses, permits, franchises, patents, copyrights, trademarks, and trade names,
or rights thereto, to conduct its business substantially as now conducted and as
presently proposed to be conducted, and the Company is not in violation of any
rights of others with respect to any of the foregoing.
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SECTION 4.13. Taxes. The Company has filed all tax returns (federal,
state, and local) required to be filed and has paid all taxes, assessments, and
governmental charges and levies shown thereon to be due, including interest and
penalties.
SECTION 4.14. Compliance With Laws. The Company has duly complied in all
material respects with all applicable Laws. Without limiting the foregoing, the
Company has duly complied in all material respects with, and its businesses,
operations, assets, equipment, property, leaseholds, or other facilities are in
compliance in all material respects with, the provisions of all federal, state,
and local environmental, health, and safety Laws. The Company has been issued
all federal, state, and local permits, licenses, certificates, and approvals
required in any material respect for the operation of its business.
SECTION 4.15. Existing Obligors; Existing Debt and Guarantees. Set forth
in Schedule 4.15 is a complete and accurate list of (i) all Existing Obligors
and the Total Exposure of the Company with respect to each such Obligor, (ii)
all Debt of the Company (which schedule shall identify the nature of such Debt,
the name of the lender, the principal amount outstanding and whether or not such
Debt is secured), and (iii) all Guarantees of the Company (which schedule shall
identify the nature of such Guarantees, the beneficiaries of such Guarantees,
the amount of the obligation guaranteed thereunder and whether or not the
obligations of the guarantors under such Guarantees are secured), in each case,
as of the date of this Agreement.
SECTION 4.16. Directors, Executive Officers, Principal Shareholders. No
director, executive officer or principal shareholder of the Company or any
Affiliate is a director, executive officer or principal shareholder of any Bank
except for Wayne Boutwell, who is a director of Crestar Bank, James A. Kinsey
who is a director of the Company and Richard Price who is a director of the
Company and CoBank. For the purposes hereof the terms "director", "executive
officer", and "principal shareholder" (when used with reference to any Bank)
have the respective meanings assigned thereto in Regulation O issued by the
Board of Governors of the Federal Reserve System.
SECTION 4.17. Year 2000 Compliance. The Company has (i) initiated a review
and assessment of all areas within its business and operations (including those
affected by suppliers, vendors and customers) that could be adversely affected
by the "Year 2000 Problem" (that is, the risk that computer applications used by
the Company (or its suppliers, vendors and customers) may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to,
on and after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with the timetable. Based on the foregoing,
the Company believes that all computer applications (including those of its
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suppliers, vendors and customers) that are material to its business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
(that is, be "Year 2000 compliant"), except to the extent that a failure to do
so could not reasonably be expected to have a Material Adverse Effect.
SECTION 4.18. Margin Stock. The Company is not engaged principally or as
one of its significant activities in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" (as each such term is
defined or used in Regulation U of the Board of Governors of the Federal Reserve
System). The Company will not, directly or indirectly, use any part of the
proceeds of the Loans for the purpose of purchasing or carrying any margin stock
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System or to extend credit to any Person for the purpose of purchasing
or carrying any such margin stock, or for any purpose which violates, or is
inconsistent with, Regulation X of such Board of Governors.
SECTION 4.19. Government Regulation. The Company is not an "investment
company" or a company "controlled" by an "investment company" (as each such term
is defined or used in the Investment Company Act of 1940, as amended) and the
Company is not, nor after giving effect to any Loan will it be, a "Holding
Company" or a "Subsidiary Company" of a "Holding Company" or an "Affiliate" of a
"Holding Company" within the respective meanings of each of the quoted terms of
the Public Utility Holding Company Act of 1935 as amended, or any other
applicable Law which materially limits its ability to incur or consummate the
transactions contemplated hereby.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any of the Notes shall remain unpaid, or any Bank shall have
any Commitment hereunder, or any other amount is owing by the Company to any
Bank hereunder, the Company will:
SECTION 5.01. Maintenance of Existence. Preserve and maintain its
corporate existence and good standing in the jurisdiction of its incorporation,
and qualify and remain qualified, as a foreign corporation in each jurisdiction
in which such qualification is required.
SECTION 5.02. Maintenance of Records. Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company.
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SECTION 5.03. Maintenance of Properties. Maintain and preserve all of its
properties (tangible and intangible) that are necessary or useful in the proper
conduct of its business in good working order and condition, ordinary wear and
tear excepted.
SECTION 5.04. Conduct of Business. Continue to engage in a business of the
same general type as conducted by it on the date of this Agreement, or
reasonably related thereto, or as contemplated by the Financing Services and
Contributed Capital Agreements.
SECTION 5.05 Maintenance of Insurance. Maintain insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated.
SECTION 5.06. Compliance with Laws. Comply in all material respects with
all applicable Laws. Without limiting the foregoing, the Company will: (i)
comply in all material respects, and cause all Persons occupying or present on
any of its properties to so comply, with all applicable environmental, health
and safety Laws; and (ii) pay before the same become delinquent all taxes,
assessments, and governmental charges imposed upon it or its property, except to
the extent provided in Section 6.01(C) hereof.
SECTION 5.07. Right of Inspection. At any reasonable time and from time to
time, upon reasonable notice, permit any Agent, any Bank or any agent or
representative thereof to examine and make copies of and abstracts from its
records and books of account, visit its properties and discuss its affairs,
finances, and accounts with any of its respective officers, directors and
independent accountants.
SECTION 5.08. Employee Benefit Plans. Make or cause to be made all
payments or contributions to all Plans covered by Title IV of ERISA which are
necessary to enable those Plans to continuously meet all minimum funding
standards or requirements.
SECTION 5.09. Eligibility, Etc. Maintain its eligibility to borrow
from CoBank and purchase such equity in CoBank as provided in Section 2.17
hereof.
SECTION 5.10. Reporting Requirements. Furnish to the Administrative
Agent for distribution to each of the Banks:
(A) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after each fiscal quarter end of the Company (other than
June), a balance sheet of the Company and its consolidated Subsidiaries as of
the end of such fiscal quarter, and related consolidated statements of
operations of the Company and its consolidated Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end of
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such fiscal quarter, all in reasonable detail and stating in comparative form
the respective figures for the corresponding date and period in the previous
fiscal year and all prepared in accordance with GAAP consistently applied and
certified by the chief financial officer of the Company (subject to year-end
adjustments).
(B) Annual Financial Statements. As soon as available and in any
event within 90 days after the end of each fiscal year of the Company, a balance
sheet of the Company and its consolidated Subsidiaries as of the end of such
fiscal year, and related consolidated statements of operations, patrons' equity,
and cash flows of the Company and its consolidated Subsidiaries for such fiscal
year, all in reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the prior fiscal year and all
prepared in accordance with GAAP consistently applied and, audited in accordance
with generally accepted auditing standards by, and accompanied by, an opinion
thereon acceptable to the Administrative Agent from independent accountants
selected by the Company and of recognized national standing.
(C) Certificate of No Default. Together with each of the statements
furnished under Subsection 5.10(A) and (B) hereof, a certificate of the chief
financial officer of the Company (a) certifying that to the best of such
officer's knowledge, no Potential Default or Event of Default has occurred and
is continuing, or if a Potential Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto; and (b) containing computations
demonstrating compliance with the covenants contained in Article VII hereof.
(D) Notice of Litigation. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any court or governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, affecting the Company which, if determined adversely to the Company,
might reasonably be expected to have a Material Adverse Effect.
(E) Notice of Environmental Matters. Promptly after receipt thereof,
notice of the receipt of all pleadings, orders, complaints, indictments, or any
other communications alleging a condition that may require the Company to
undertake or to contribute to a cleanup or other response under environmental
Laws, or which seeks penalties, damages, injunctive relief, or criminal
sanctions relating to alleged violations of such Laws, or which claims personal
injury or property damage to any person as a result of environmental factors or
conditions; provided, however, that the Company shall not be required to furnish
notice of any of the foregoing unless the allegation made, remedy sought, or
claim made, if determined adversely to the Company, might reasonably be expected
to have a Material Adverse Effect.
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(F) Notice of Potential Defaults and Events of Default. As soon as
possible and in any event within fifteen (15) days after the occurrence of each
Potential Default or Event of Default, a written notice setting forth the
details of such Potential Default or Event of Default and the action which is
proposed to be taken by the Company with respect thereto.
(G) Annual Budgets. Promptly upon becoming available, but in no
event later than 90 days after each fiscal year end, a copy of the Company's
annual operating budget approved by the Company's board of directors, together
with the assumptions and projections upon which the budget is based, in each
case, consistent with the form of annual operating budget for the Company
provided to the Administrative Agent prior to the date of this Agreement. In
addition, if any material changes are made to such budget during the year, then
the Company will furnish copies of any such changes promptly after such changes
have been approved by the Company's board of directors.
(H) General Information; SEC Filings. With reasonable promptness,
such other information and financial reports respecting the condition or
operations, financial or otherwise, of the Company as any Bank may from time to
time reasonably request. All filings of regular and special reports by the
Company with the Securities and Exchange Commission and all annual and quarterly
reports and notices of meetings and proxy information provided by the Company to
its equity holders.
(I) Management Reports, etc. Promptly after receipt thereof, copies
of any management report submitted to the Company or its board of directors by
its independent public accountants in connection with their auditing function
and any management responses thereto.
(J) Notice of Other Credit Arrangements. The Company will promptly,
and in any event within fifteen (15) days, notify the Administrative Agent of
the amount, terms, and conditions of any credit facilities extended or otherwise
made available to the Company that exceed $5,000,000 in the aggregate. Provided,
however, any such notice to the Administrative Agent will not include pricing
and interest rate terms with respect to the subject credit facilities. Notice
will not be required with respect to: (A) Debt of the Company under this
Agreement; (B) Debt incurred prior to the Closing Date and disclosed on Schedule
4.15; and (C) uncommitted short term debt of the Company in an amount not to
exceed $10,000,000 at any one time outstanding.
SECTION 5.11. Year 2000 Preparation. The Company shall take all action
necessary to assure that Company's computer-based systems are able to operate
and effectively process data including dates prior to, on and after December 31,
1999. At the request of the Administrative Agent, the Company shall provide the
Administrative Agent and the Banks assurances reasonably satisfactory to the
Administrative Agent and the Banks of the Company's compliance with this Section
5.11.
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ARTICLE VI
NEGATIVE COVENANTS
So long as any of the Notes shall remain unpaid, or any Bank shall have
any Commitment hereunder, or any other amount is owing by the Company to any
Bank hereunder, the Company will not:
SECTION 6.01. Liens. Create, incur, assume, or suffer to exist any
Lien upon or with respect to any or its properties now owned or hereafter
acquired, except:
(A) Liens existing on the date of this Agreement listed on Schedule
6.01.
(B) Liens in favor of CoBank on all equity which the Company may now
own or hereafter acquire in CoBank to secure obligations of the Company to
CoBank.
(C) Liens for taxes or assessments or other government charges or
levies if not yet delinquent or, if delinquent: (i) are being contested in good
faith by appropriate proceedings; (ii) for which appropriate reserves have been
established in accordance with GAAP; and (iii) the amount secured (including
interest and penalties) does not exceed $1,000,000.
(D) Liens imposed by Law in favor of mechanics, material suppliers,
landlords, warehouses, carriers, and similar entities, securing obligations
incurred in the ordinary course of business which are not past due for more than
30 days or which are being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established in accordance with
GAAP.
(E) Liens under workers' compensation, unemployment insurance,
Social Security, or similar legislation (other than ERISA).
(F) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), and like
obligations which arise in the ordinary course of business of the Company as
conducted on the date hereof.
(G) Judgment and other similar Liens not constituting an Event of
Default under Section 8.01(G) hereof.
(H) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
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occupation, use, and enjoyment by the Company of the property or assets
encumbered thereby in the normal course of its business and materially impair
the value of the property subject thereto.
(I) Purchase-money Liens on any real property, fixtures, and
equipment hereafter acquired or the assumption of any Lien on real property,
fixtures, and equipment existing at the time of such acquisition (and not
created in contemplation of such acquisition), or Liens incurred in connection
with any Capital Lease; provided that:
(1) Any property subject to any of the foregoing is acquired
by the Company in the ordinary course of its business and the Lien on any such
property attaches to such asset concurrently or within ninety (90) days after
the acquisition thereof or completion of construction thereof;
(2) The obligation secured by any such Lien shall not exceed
100% of the lesser of the cost or the fair market value of such property as of
the time of acquisition or construction of the property covered thereby;
(3) Each such Lien shall attach only to the property so
acquired or constructed and fixed improvements thereon; and
(4) Such acquisition is not prohibited under Section 6.02
hereof.
(J) Liens not otherwise permitted by clauses (A) through (I),
inclusive, of this Section 6.01, provided that the aggregate amount of
obligations secured by such Liens does not at any time exceed $2,500,000.
SECTION 6.02. Mergers, Etc. Wind up, liquidate or dissolve itself,
reorganize, merge or consolidate with or into, or convey, sell, assign,
transfer, lease, or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to any Person, or acquire all or substantially all
of the assets or the business of any Person, except (1) for capital expenditures
made in the ordinary course of business of the Company, and (2) for acquisitions
so long as the aggregate cash and non-cash consideration paid, directly or
indirectly, by the Company (including, without limitation, any indebtedness
assumed by the Company)for all such acquisitions in any fiscal year of the
Company does not exceed $10,000,000.
SECTION 6.03. Sale of Assets. Sell, lease, assign, transfer, or otherwise
dispose of any of its now owned or hereafter acquired assets (including, without
limitation, receivables, and leasehold interests), except (i) sales, leases or
other dispositions of assets in the ordinary course of its business, (ii) sales
and other dispositions of assets as provided in the Financing Services and
Contributed Capital Agreements, (iii) the sale of obsolete assets or assets no
longer used or useful in the business, provided that the net proceeds from any
and all such sales of assets are reinvested in assets of the Company that are
used or useful in the business of the Company as conducted in accordance with
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Section 5.04, (iv) sales of assets other than pursuant to clauses (i), (ii) and
(iii) above with an aggregate value not to exceed $10,000,000 in any year, and
(v) sales and other dispositions of certain assets acquired from GoldKist in an
aggregate amount not to exceed $30,000,000. In connection with any sale or other
disposition, or series of related sales or other dispositions, of assets of the
type referred to in clause (v) above in an aggregate amount of $10,000,000 or
more, the Company shall provide the Administrative Agent with a report
describing in reasonable detail the assets which are the subject of such sale or
other disposition (or series of related sales or other dispositions) by not
later than 30 days after the date of such sale or other disposition (or series
of related sales or dispositions).
SECTION 6.04. Investments. Except as otherwise provided herein, make loans
to, advances to, capital contributions or investments in any Person
("Investments") except Permitted Investments; provided, however, that
transactions contemplated under the Financing Services and Contributed Capital
Agreements and transactions in the normal course of business of the Company as
currently conducted shall not be deemed to be, or be deemed to result in,
Investments.
SECTION 6.05. Guarantees, Etc. Assume, guarantee, endorse, or otherwise be
or become directly or contingently responsible or liable (including, but not
limited to, by an agreement to purchase any obligation, stock, assets, goods, or
services, or to supply or advance any funds, assets, goods, or services, or an
agreement to maintain or cause such Person to maintain a minimum working capital
or net worth or otherwise to assure the creditors of any Person against loss),
for obligations of any Person (collectively, "Guarantees"), except: (1) by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; (2) Guarantees of the
obligations of any Person, provided that the Total Exposure of the Company in
respect of all such Guarantees may not exceed $7,500,000 at any one time in the
aggregate; (3) any liability contemplated by the Financing Services and
Contributed Capital Agreements; (4) any Guarantee of the payment of any capital
securities constituting Junior Preferred Securities out of funds held by the
issuer of such capital securities, provided that such Guarantee is subordinated
in right of payment to the Loans and all other obligations of the Company
hereunder and upon terms and conditions satisfactory to the Agents and their
respective counsel.
SECTION 6.06. Transactions with Affiliates. Enter into any transaction,
including, without limitation, the making of any Investments or Guarantees, the
purchase, sale, or exchange of property or the rendering of any service, with
any Affiliate, except for (1) transactions in the ordinary course of business of
the Company with one or more of Statesman, MLCC and Wetsel, Inc., and pursuant
to the reasonable requirements of its business and upon fair and reasonable
terms no less favorable to the Company than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate and (2) transactions
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involving the purchase or placement of insurance with Southern States Insurance
Exchange, Inc. Provided, however, the Company may engage in transactions in the
normal course of business as contemplated by the Financing Services and
Contributed Capital Agreements.
SECTION 6.07. Financing Services and Contributed Capital Agreements.
Without the prior written consent of Banks holding at least 75% of the aggregate
Commitments (provided, however, that if (1) there are at least three Banks and
(2) the Administrative Agent holds 75% of the aggregate Commitments then the
consent of one additional Bank will also be required), the Company shall not
modify, amend, terminate, fail to maintain, breach, waive, or otherwise make any
change to or fail to comply with the terms of the Financing Services and
Contributed Capital Agreements.
SECTION 6.08. Fiscal Year. Change its current fiscal year end date.
SECTION 6.09. Leases. Become a lessee under any operating lease if, after
giving effect thereto, the total lease expenses of the Company thereunder,
together with the total lease expenses of the Company, as lessee, under all
other operating leases then in effect, would exceed $30,000,000 in the aggregate
for any fiscal year of the Company.
SECTION 6.10. Prohibition on Amendment of Certain Agreements, etc. (a)
Consent to, or enter into, any instrument, document or agreement which would
result in the amendment, modification, waiver or termination of all or any of
the provisions of the GoldKist Commitment Letter, the GoldKist Acquisition
Agreement or the Rabobank Letter of Credit, (b) release GoldKist from any of its
material obligations under the GoldKist Commitment Letter and the GoldKist
Acquisition Agreement, nor shall the Company fail to perform any of its material
obligations under the GoldKist Commitment Letter and the GoldKist Acquisition
Agreement, or (c) consent to, or enter into, any instrument or agreement (other
than the Bridge Loan Amendment) which would result in the amendment,
modification, waiver or termination of all or any of the provisions of the
Bridge Loan Agreement, without the prior written consent of Banks, provided that
nothing in this Section 6.10 shall be construed as prohibiting (i) the required
repayment of the Company's obligations pursuant to the terms of Sections 2.09
and 3.01(M) or (N) hereof and the Bridge Loan Agreement as amended by the Bridge
Loan Amendment, or making of any draw requests by the Company under the Rabobank
Letter of Credit, or (ii) any reduction in the face amount of the Rabobank
Letter of Credit so long as after giving effect to any such reduction the face
amount of such Letter of Credit available for drawing is not less than (x) an
amount equal to the purchase price of the Junior Preferred Securities which
Goldkist is then or thereafter obligated to purchase pursuant to the Goldkist
Commitment Letter as in effect on the date hereof, or (y) the aggregate term
loan commitment of the lenders under the Bridge Loan Agreement as of the date of
any such proposed reduction.
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ARTICLE VII
FINANCIAL COVENANTS
So long as any of the Notes shall remain unpaid, or any Bank shall have
any Commitment hereunder, or any other amount is owing by the Company to any
Bank hereunder:
SECTION 7.01. Maximum Consolidated Funded Debt to Capitalization. The
Company shall not permit at any time, and as determined at the end of each
fiscal quarter, the ratio of Consolidated Funded Debt to Capitalization as of
such date to exceed 0.50 to 1.00.
SECTION 7.02. Minimum Tangible Net Worth. The Company shall not
permit at any time, and as determined at the end of each fiscal quarter,
Tangible Net Worth to be less than the sum of:
(a) $256,000,000; plus
(b) an amount equal to the sum, for each fiscal year of the Company ending
subsequent to the Closing Date, of the greater of:
(i) zero dollars ($0); and
(ii) twenty-five percent (25%) of the Net Income of the
Company for each such fiscal year.
SECTION 7.03. Consolidated Cash Flow to Consolidated Interest Expense and
Distributions. As determined at the end of each fiscal quarter, the Company
shall not permit the ratio of (a) Consolidated Cash Flow for the period of four
(4) consecutive fiscal quarters ending on or immediately prior to such date to
(b) Consolidated Interest Expense paid or accrued during such period plus
Distributions made during such period, to be less than 1.50 to 1.00.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. Each of the following events shall
be an "Event of Default":
(A) The Company shall fail to make any payment of principal when due
and payable. The Company shall fail to make any payment of interest, fees or any
other amounts hereunder or under any other Loan Document and such failure shall
not be cured within five (5) days of the applicable due date.
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(B) Any representation or warranty made or deemed made by the
Company in this Agreement, any other Loan Document, or any certificate,
document, opinion, or financial or other statement furnished at any time under
or in connection with any Loan Document, shall prove to have been incorrect,
incomplete, or misleading in any material respect on or as of the date made or
deemed made.
(C) The Company shall fail to perform or observe any term, covenant,
or agreement contained in Article V hereof (other than Sections 5.05 or 5.10(F))
and such failure continues for 15 calendar days after the occurrence thereof,
provided that no Event of Default shall occur as a result of any failure of the
Company to qualify or to maintain its qualification as a foreign corporation as
required by Section 5.01 or as a result of any failure of the Company to comply
with applicable Laws as required by Section 5.06 until 15 days after an
executive officer of the Company has knowledge of such failure.
(D) The Company shall fail to comply with Sections 5.05 or 5.10(F)
hereof or shall fail to perform or observe any other term, covenant, or
agreement contained herein or in any Loan Document to which it is a party.
(E) The Company shall: (a) fail to pay any Debt (other than Debt
arising hereunder) to CoBank or any other Bank, or any interest or premium
thereon, when due (after giving effect to any applicable grace period); (b) fail
to pay any Debt (other than Debt arising hereunder or to CoBank or any other
Bank) in excess of $5,000,000 of the Company , or any interest or premium
thereon, when due (after giving effect to any applicable grace period); or (c)
fail to perform or observe any term, covenant, or condition on its part to be
performed or observed under any agreement or instrument relating to any Debt
referred to in (a) or (b) above when required to be performed or observed, if
the effect of such failure to perform or observe is to accelerate, or to permit
the acceleration of the maturity of such Debt (with respect to (b) above Debt
must exceed $5,000,000), whether or not such Debt is actually accelerated.
(F) The Company (a) shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as such debts become due;
or (b) shall make an assignment for the benefit of creditors, or petition or
apply to any tribunal for the appointment of a custodian, receiver, or trustee
for it or a substantial part of its assets; or (c) shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution, or liquidation law or statute of any jurisdiction; or (d) shall
have had any such petition or application filed or any such proceeding commenced
against it in which an order for relief is entered or an adjudication or
appointment is made, and which remains undismissed for a period of 60 days or
more; or (e) shall take any corporate action indicating its consent to, approval
of, or acquiescence in any such petition, application, proceeding, or order for
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relief or the appointment of a custodian, receiver, or trustee for all or any
substantial part of its properties; or (f) shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged for a period of 60 days or
more.
(G) One or more judgments, decrees, or orders for the payment of
money in excess of $2,500,000 in the aggregate (not covered by insurance) shall
be rendered against the Company, and such judgments, decrees, or orders shall
continue unsatisfied and in effect for a period of 30 consecutive days without
being vacated, discharged, satisfied, or stayed or bonded pending appeal.
(H) Any of the following events shall occur or exist with respect to
the Company and any ERISA Affiliate under ERISA: any Reportable Event shall
occur; complete or partial withdrawal from any Multiemployer Plan shall take
place; any Prohibited Transaction shall occur; a notice of intent to terminate a
Plan shall be filed, or a Plan shall be terminated; or circumstances shall exist
which constitute grounds entitling the PBGC to institute proceedings to
terminate a Plan, or the PBGC shall institute such proceedings; and in each case
above, such event or condition, together with all other events or conditions, if
any, could subject the Company or any ERISA Affiliate to any tax, penalty, or
other liability which in the aggregate may exceed $1,000,000.
(I) The Financing Services and Contributed Capital Agreements shall,
at any time after execution, cease to be in full force and effect, or shall be
revoked or declared null and void, or the validity or enforceability thereof
shall be contested by the Company, or the Company shall deny any further
liability or obligation thereunder, or shall breach or otherwise fail to
perform its obligations thereunder, or any representation or warranty set forth
therein shall be breached.
(J) If there is a material adverse change in the financial
condition of the Company or the ability of the Company to carry out its
obligations under the Loan Documents.
(K) If the Company fails to promptly use one hundred percent (100%)
of the net proceeds received from the issuance of any Junior Preferred
Securities to repay the principal of any outstanding loans made to the Company
under the Bridge Loan Facility in accordance with Section 3.3(b)(ii) of the
Bridge Loan Agreement as in effect on the date hereof.
(L) The Company shall fail to maintain its existence as a Virginia
agricultural cooperative corporation.
SECTION 8.02. Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent shall upon the request of the Requisite
Banks, by notice to the Company; (1) declare the Commitments to be terminated,
whereupon the same shall forthwith terminate; (2) declare the outstanding Notes,
all interest thereon, and all other amounts payable under this Agreement and all
other Loan Documents to be forthwith due and payable, whereupon the Notes, all
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such interest, and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest, or further notice of any kind,
all of which are hereby expressly waived by the Company; (3) exercise any
remedies provided in any of the Loan Documents; and/or (4) exercise any rights
and remedies provided by Law; provided, however, that upon the occurrence of an
Event of Default referred to in Section 8.01(F), the Commitments shall
automatically terminate and the outstanding Notes and any other amounts payable
under this Agreement or any of the Loan Documents, and all interest on any of
the foregoing, shall be forthwith due and payable without presentment, demand,
protest, or further notice of any kind, all of which are hereby expressly waived
by the Company. The parties hereto agree that all payments made by the Company
after the occurrence of an Event of Default which is not expressly waived in
accordance with the terms of this Agreement will be applied ratably to each Bank
based on the proportion that each Bank's outstanding Loans bears to the total of
such Loans.
ARTICLE IX
AGENTS
SECTION 9.01. Authorization and Action. Each Bank hereby irrevocably
appoints and authorizes (a) the Administrative Agent to act as its agent
hereunder and under any other Loan Document with such powers as are specifically
delegated to the Administrative Agent by the terms of this Agreement and any
other Loan Document together with such other powers as are reasonably incidental
thereto, (b) the Documentation Agent to act as its agent hereunder and under any
other Loan Document with such powers as are specifically delegated to the
Documentation Agent by the terms of this Agreement and any other Loan Document
together with such other powers as are reasonably incidental thereto, and (c)
the Syndication Agents to act as its agents hereunder and under any other Loan
Document with such powers as are specifically delegated to the Syndication
Agents by the terms of this Agreement and any other Loan Document together with
such other powers as are reasonably incidental thereto. The duties of the Agents
and the Lead Arranger shall be mechanical and administrative in nature and none
of the Agents or the Lead Arranger shall by reason of this Agreement be a
trustee or fiduciary for any Bank. The Agents and the Lead Arranger shall have
no duties or responsibilities except those expressly set forth herein. As to any
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes), none of the Agents or the
Lead Arranger shall be required to exercise any discretion or take any action,
but shall be required to act or to refrain from acting (and shall be fully
protected in so acting or so refraining from acting) upon the instructions of
the Requisite Banks, and such instructions shall be binding upon all Banks and
all holders of Notes; provided, however, that none of the Agents or the Lead
Arranger shall be required to take any action which exposes the Agents or the
Lead Arranger to personal liability or which is contrary to this Agreement or
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applicable Law. The Company shall pay any fees agreed to by the Company and the
Agents and the Company and the Lead Arranger with respect to the Agents' or Lead
Arranger's services hereunder and in connection with the syndication of this
Credit Facility.
SECTION 9.02. Liability of Agent. Neither the Agents, the Lead Arranger
nor any of their respective directors, officers, agents or employees shall be
liable for any action taken or omitted to be taken by them under or in
connection with this Agreement in the absence of their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent: (1) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to the
Administrative Agent; (2) may consult with legal counsel (including counsel for
the Company), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants, or
experts; (3) makes no warranty or representation to any Bank and shall not be
responsible to any Bank for any recitals, statements, warranties, or
representations made in this Agreement and any other Loan Document or in any
certificate or other document or instrument referred to or provided for in, or
received under, this Agreement or any other Loan Document; (4) shall not have
any duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants, or conditions of this Agreement on the part of the
Company, or to inspect the property (including the books and records) of the
Company; (5) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, perfection, sufficiency, or
value of this Agreement or any other instrument or document furnished pursuant
thereto or for the failure of the Company to comply with the terms hereof or any
other Loan Document; and (6) shall incur no liability under or in respect of
this Agreement by acting upon any notice, consent, certificate, or other
instrument or writing (which may be sent by telegram, telex, or facsimile
transmission) believed by it to be genuine and signed or sent by the proper
parties.
SECTION 9.03. Rights of Each Agent as a Bank. With respect to its
Commitment, the Loans made by it and the Note issued to it, each Agent shall
have the same rights and powers under this Agreement as any other Bank and may
exercise the same as though it were not an Agent hereunder; and the term "Bank"
or "Banks" shall, unless otherwise expressly indicated, include each Agent in
its individual capacity. Each Agent and its affiliates may accept deposits from,
lend money to, act as trustee under the indentures of, and generally engage in
any kind of business with the Company, and any Person who may do business with
or own securities of the Company or any of its Subsidiaries or Affiliates, all
as if such Agent was not an Agent and without any duty to account therefor to
the Banks.
SECTION 9.04. Independent Credit Decisions. Each Bank acknowledges that it
has, independently and without reliance upon the Agents, the Lead Arranger or
any other Bank and based on such documents and information as it has deemed
appropriate, conducted its own investigation into the affairs of the Company and
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Agents, the Lead Arranger or any other Bank and based on such documents and
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information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Administrative Agent hereunder, the Agents shall
have no duty or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of the
Company (or any of its Affiliates) which may come into the possession of any
Agent or any of its Affiliates.
SECTION 9.05. Indemnification. The Banks agree to indemnify each Agent and
the Lead Arranger (to the extent not reimbursed by the Company), ratably
according to the respective amounts of their Commitments, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against any Agent
or the Lead Arranger in any way relating to or arising out of this Agreement,
any Loan Document, or any action taken or omitted by any Agent or the Lead
Arranger under this Agreement or any Loan Document, provided that no Bank shall
be liable for any portion of any of the foregoing resulting from any Agent's or
the Lead Arranger's gross negligence or willful misconduct. Without limitation
of the foregoing, each Bank agrees to reimburse the Administrative Agent (to the
extent not reimbursed by the Company) promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by the
Administrative Agent in connection with the preparation, administration, or
enforcement of, or legal advice in respect of rights or responsibilities under,
this Agreement. Provided however, the Banks will not be required to reimburse
the Administrative Agent for: (1) the initial costs associated with the loan
closing, including preparation of documentation; and (2) routine administrative
duties.
SECTION 9.06. Successor Agents. The Administrative Agent may resign at any
time by giving at least 60 days' prior written notice thereof to the Banks and
the Company and may be removed at any time with cause by the Requisite Banks.
The Agents (other than the Administrative Agent) may resign at any time by
giving notice thereof to the Banks and the Company and may be removed at any
time with cause by the Requisite Banks. Upon any such resignation or removal of
the Administrative Agent, the Requisite Banks shall have the right, with the
approval of the Company, which approval will not be unreasonably withheld, to
appoint a successor Administrative Agent which shall be a commercial bank or
member of the Farm Credit System organized under the laws of the United States
or any state thereof and have equity capital of at least $500,000,000. If no
successor Administrative Agent shall have been so appointed by the Requisite
Banks, and shall have accepted such appointment, within 30 days after the
Administrative Agent shall have given notice of resignation or the Requisite
Banks' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Banks, appoint a successor
Administrative Agent, which must be located within the United States. Upon the
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acceptance of any appointment as the Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations under this Agreement.
After the resignation or removal of any Agent hereunder, the provisions of this
Article IX shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was an Agent under this Agreement.
SECTION 9.07. Sharing of Payments, Etc. If any Bank shall obtain any
payment in respect of the obligations of the Company under this Agreement and
the other Loan Documents (whether voluntary, involuntary, through the exercise
of any right of setoff, or otherwise) in excess of its ratable share of payments
obtained by all the Banks, such Bank shall purchase from the other Banks such
participations in the Loans as shall be necessary to cause such purchasing Bank
to share the excess payment ratably with each of the other Banks; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Bank, such purchase of Loans from each Bank
shall, to the extent necessary to ratably share the amount recovered, be
rescinded and each Bank shall repay to the purchasing Bank the purchase price of
any interest or other amount paid or payable by the purchasing Bank in respect
of the total amount so recovered. The Company agrees that any Bank so purchasing
a participation from another Bank pursuant to this Section 9.07 may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of setoff) with respect to such participation as fully as if such Bank
were the direct creditor of the Company in the amount of such participation.
SECTION 9.08. Liability of Agents. None of the Agents or the Lead Arranger
shall have any liabilities or responsibilities to the Company or any of its
Affiliates on account of the failure of any Bank to perform its obligations
hereunder or to any Bank on account of the failure of the Company or any of its
Affiliates to perform their respective obligations hereunder or any other Loan
Document.
SECTION 9.09. Notices to Agent. On or prior to 4:00 p.m. Eastern time on
each Business Day, each Bank will notify the Administrative Agent of each Loan
made by such Bank on such day and all payments or prepayments of Loans received
by such Bank on such day.
SECTION 9.10. Defaults. None of the Agents shall be deemed to have
knowledge of the occurrence of a Potential Default or Event of Default (except
with respect to a default in payment of principal, interest, and fees required
to be paid to an Agent in its individual capacity as a Bank or for the account
of the Banks) unless an Agent has received notice from a Bank or the Company
specifying such Potential Default or Event of Default and stating that such
notice is a "Notice of Default." In the event that an Agent receives such a
Notice of Default, such Agent shall give prompt notice thereof to the Banks. The
Administrative Agent shall take such action with respect to such Potential
Default or Event of Default which is continuing as shall be directed by the
Requisite Banks; provided that, unless and until the Administrative Agent shall
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have received such directions, the Administrative Agent may take such action, or
refrain from taking such action, with respect to such Potential Default or Event
of Default as it shall deem advisable and in the best interest of the Banks; and
provided further that the Administrative Agent shall not be required to take any
such action which it determines to be contrary to Law.
SECTION 9.11. Monthly Reports. Within fifteen (15) days of the end of each
month the Administrative Agent will send to the Company and each Bank a report
for the prior month indicating as of the end of such month all Loans provided by
the Banks.
SECTION 9.12. Withholding Taxes. Each Bank represents that it is entitled
to receive any payments to be made to it hereunder without the withholding of
any tax and will furnish to the Administrative Agent and to the Company such
forms, certifications, statements, and other documents as the Administrative
Agent or the Company may request from time to time to evidence such Bank's
exemption from the withholding of any tax imposed by any jurisdiction or to
enable the Administrative Agent or the Company, as the case may be, to comply
with any applicable Laws relating thereto. Without limiting the effect of the
foregoing, if any Bank is not created or organized under the Laws of the United
States of America or any state thereof, such Bank will furnish to the
Administrative Agent and the Company Form 4224 or Form 1001 of the Internal
Revenue Service, or such other forms, certifications, statements, or documents,
duly executed and completed by such Bank as evidence of such Bank's exemption
from the withholding of United States tax with respect thereto.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. No amendment, modification, termination,
or waiver of any provision of this Agreement or of any other Loan Document nor
consent to any departure by the Company herefrom or therefrom shall in any event
be effective unless the same shall be in writing and signed by the
Administrative Agent and the Requisite Banks (provided that the required consent
or approval of the Administrative Agent may not be unreasonably withheld), and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all the Banks, do any
of the following: (1) waive any of the conditions precedent specified in Section
3.01 hereof; (2) increase the Commitment of any Bank; (3) reduce the principal
of, or interest on, the Notes, or the facility fees or any other amount due
hereunder or under any Loan Document; (4) postpone any date fixed for any
payment of principal of, or interest on, the Notes, or the facility fees or any
other amount due hereunder or under any Loan Document; (5) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the Notes or
the number of Banks which shall be required for the Banks or any of them to act
hereunder; or (6) amend, modify or waive any provision of this Section 10.01.
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SECTION 10.02. Notices, Etc. All notices and other communications provided
for under this Agreement and under the other Loan Documents shall be in writing
(including facsimile transmissions) and mailed, transmitted or delivered to the
parties at the addresses shown next to each party's signature hereto or, as to
each party, at such other address as shall be designated by such party in a
written notice to all other parties complying as to delivery with the terms of
this Section 10.02. Except as is otherwise provided in this Agreement, all such
notices and communications shall be effective when deposited in the mail or,
with respect to any facsimile transmission, when sent with confirmation of
transmission received by the sending party, addressed as aforesaid, except that
notices to the Administrative Agent shall not be effective until received.
SECTION 10.03. No Waiver. No failure or delay on the part of any Bank or
the Administrative Agent in exercising any right, power, or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power, or remedy preclude any other or further exercise thereof
or the exercise of any other right, power, or remedy hereunder. The rights and
remedies provided herein are cumulative, and are not exclusive of any other
rights, powers, privileges, or remedies, now or hereafter existing, at law or in
equity or otherwise.
SECTION 10.04. Assignment; Participation. This Agreement shall be binding
upon, and shall inure to the benefit of, the Company, the Administrative Agent,
the Banks and their respective successors and permitted assigns. The Company may
not assign or transfer its rights or obligations hereunder. Any Bank may at any
time grant to one or more banks or other Persons (each a "Participant")
participating interests in its portion of the Loans. In no event shall a
Participant constitute a Bank for purposes hereof, except that any Participant
that is chartered under the Farm Credit Act of 1971, as amended, shall be deemed
to be a Bank hereunder solely for purposes of voting rights. In the event of any
such grant by a Bank of a participating interest to a Participant, whether or
not upon notice to the Company and the Administrative Agent, such Bank shall
remain responsible for the performance of its obligations hereunder, and the
Company and the Administrative Agent shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations hereunder.
Any agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Company hereunder and under any other Loan
Document including, without limitation, the right to approve any amendment,
modification, or waiver of any provision of this Agreement or any other Loan
Document; provided that such participation agreement may provide that such Bank
will not agree to any modification, amendment, or waiver of this Agreement
described in the proviso in Section 10.01 without the consent of the
Participant. All Loans that are made by CoBank and that are retained for its own
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account and are not included in any grants of participation interests shall be
entitled to patronage distributions in accordance with the bylaws of CoBank and
its practices and procedures related to patronage distributions. Accordingly,
all Loans that are included in a grant of participation interest of CoBank shall
not be entitled to patronage distributions.
Any Bank may at any time assign to one or more banks or other Persons
(each an "Assignee") a proportionate part of all of its rights and obligations
under this Agreement and its Note, and such Assignee shall assume such rights
and obligations, pursuant to an Assignment and Assumption Agreement executed by
such Assignee and the Bank, in substantially the form of Exhibit H, with and
subject to the consent of the Administrative Agent and the Company (which
consent of the Company and the Administrative Agent will not be unreasonably
withheld or delayed) provided, that: (1) during the occurrence and continuance
of any Potential Default or Event of Default neither the consent of the
Administrative Agent nor the consent of the Company shall be required for such
assignment; (2) if the Assignee of any Bank is an affiliate of such Bank,
neither the consent of the Administrative Agent nor the consent of the Company
shall be required for such assignment; (3) the minimum amount that may be
assigned shall be $10,000,000, except in the case of any assignment of a Bank's
entire Commitment or in the case of any assignment from one Bank to another
Bank; (4) the assigning Bank or Assignee shall pay the Administrative Agent a
processing and recordation fee of Three Thousand Five Hundred Dollars ($3,500),
except in the case of any assignment from one Bank to another Bank; and (5) no
assignment shall be made hereunder unless in conjunction therewith the assigning
Bank shall have assigned a proportionate part (based upon the percentage of the
assigning Bank's aggregate Commitment being assigned hereunder) of all of its
rights and obligations as lender under the Statesman Credit Facility. Upon
execution and delivery of such instrument and payment by such Assignee to the
assigning Bank of an amount equal to the purchase price agreed between the Bank
and such Assignee, such Assignee shall be a Bank under this Agreement and shall
have all the rights and obligations of a Bank with the Commitments as set forth
in such Assignment and Assumption Agreement, and the assigning Bank shall be
released from its obligations hereunder to a corresponding extent, and no
further consent or action by any party shall be required. Upon the consummation
of any assignment pursuant to this paragraph, a new Note or Notes shall be
issued by the Company. If the Assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall, prior to the first date
on which interest or fees are payable hereunder for its account, deliver to the
Company and the Administrative Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in accordance
with Section 9.12.
Any Bank may at any time assign all or any portion of its rights under
this Agreement and its Note to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
The Company agrees to provide all assistance reasonably requested by a
Bank to enable such Bank either to sell participations in or make assignments of
its portion of the Loans as permitted by this Section 10.04. The Banks will not
disclose any confidential information about the Company to any potential
assignee or participant without the consent of the Administrative Agent and the
Company, which consent will not be unreasonably withheld by the Company.
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SECTION 10.05. Costs, Expenses and Taxes. The Company agrees to pay on
demand all costs and expenses incurred by the Agents and the Lead Arranger in
connection with the preparation, execution, delivery and filing of the Loan
Documents, and of any amendment, modification, or supplement to the Loan
Documents, Agents' and Lead Arranger's due diligence review of the Company, and
the syndication of this Credit Facility, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel (including, without
duplication, the allocated cost of any internal legal counsel used by such
Persons in lieu of outside counsel) for each Agent and the Lead Arranger
incurred in connection with advising the Agents, the Lead Arranger or any of the
Banks as to their rights and responsibilities hereunder or under any Loan
Document. The Company also agrees to pay all such costs and expenses, including
court costs and all reasonable fees and expenses of counsel (including, without
duplication, the allocated cost of internal legal counsel used by such Persons
in lieu of outside counsel), incurred by the Administrative Agent and the Banks
in connection with enforcement of the Loan Documents, or any amendment,
modification, or supplement thereto, whether by negotiation, legal proceedings,
or otherwise, and to pay after an Event of Default all reasonable fees and
expenses of counsel (including, without duplication, the allocated cost of
internal legal counsel used by such Persons in lieu of outside counsel) retained
by the Administrative Agent and each Bank incurred in connection with the
enforcement and collection of the Loan Documents. In addition, the Company shall
pay any and all stamp and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing, and recording of any
of the Loan Documents and the other documents to be delivered under any such
Loan Documents, and agrees to hold each Agent, the Lead Arranger and each of the
Banks harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or failing to pay such taxes and fees. The
provisions of this Section 10.05, Section 2.10, Section 2.12 and Section 2.16
shall survive the termination of this Agreement.
SECTION 10.06. Integration. This Agreement and the Loan Documents contain
the entire agreement between the parties relating to the subject matter hereof
and supersede all oral statements and prior writings with respect thereto.
SECTION 10.07. Indemnity. In addition to the payment of expenses pursuant
to Section 10.05 hereof, the Company hereby agrees to defend, indemnify and hold
each Agent, the Lead Arranger, each Bank and each of the respective officers,
directors, employees, agents and affiliates of each of them harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever (including, without duplication, attorney fees and the
allocated cost of internal legal counsel used by such Persons in lieu of outside
counsel) arising directly or indirectly from (a) the activities of the Company,
its predecessors in interest, (b) the exercise by the Agents, the Lead Arranger
53
<PAGE>
or the Banks of any right or remedy granted to them under this Agreement or any
of the other Loan Documents, (c) any claim, and the prosecution or defense
thereof, arising out of or in any way relating to or arising out of this
Agreement, any Loan Document, the Banks' agreement to make Loans or the use or
intended use of the proceeds of any of the Loans hereunder, (d) the collection
or enforcement of the obligations of the Company hereunder or under any other
Loan Document, or (e) arising directly or indirectly from the violation of any
environmental protection, health or safety Law, whether such claims are asserted
by any governmental agency or any other person. This indemnity shall survive
termination of this Agreement; provided, that the Company shall have no
obligation to indemnify any Person for losses, claims, damages, liabilities or
other expenses resulting from the gross negligence or willful misconduct of such
Person.
SECTION 10.08. Governing Law. Except to the extent governed by
applicable Federal Law, this Agreement and the Notes shall be governed by,
and construed in accordance with, the Laws of the Commonwealth of Virginia.
SECTION 10.09. Consent to Jurisdiction. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY COMMONWEALTH OF VIRGINIA OR UNITED STATES
FEDERAL COURT SITTING IN THE COMMONWEALTH OF VIRGINIA OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES, OR ANY OTHER
LOAN DOCUMENT, AND THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
COMMONWEALTH OF VIRGINIA OR FEDERAL COURT. THE COMPANY IRREVOCABLY CONSENTS TO
THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES OF SUCH PROCESS TO THE COMPANY AT ITS ADDRESSES SPECIFIED IN
SECTION 10.02. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE COMPANY FURTHER
WAIVES ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF
FORUM NON CONVENIENS. NOTHING IN THIS SECTION 10.09 SHALL AFFECT THE RIGHT OF
ANY BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE COMPANY OR
ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 10.10. Severability of Provisions. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
54
<PAGE>
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
SECTION 10.11. Usury. Anything herein to the contrary notwithstanding, the
obligations of the Company under this Agreement and the Notes to each Bank shall
be subject to the limitation that payments of interest shall not be required to
that Bank to the extent that receipt thereof would be contrary to provisions of
Law applicable to that Bank limiting rates of interest which may be charged or
collected by such Bank.
SECTION 10.12. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
SECTION 10.13. Headings. Article and Section headings in the Loan
Documents are included in such Loan Documents for the convenience of reference
only and shall not constitute a part of the applicable Loan Documents for any
other purpose.
SECTION 10.14. Jury Trial Waiver. THE COMPANY AND EACH BANK HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. NO OFFICER OF ANY BANK OR OF THE
AGENTS HAS AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
SECTION 10.15. Consents; Terminations, etc. Each Bank that is a party to
this Agreement hereby consents to the extent required under any agreement
between the Bank and the Company, to the Company entering into this Agreement
and obtaining the credit provided under this Agreement. The Company and each
Bank that is a party to any agreement (as amended or supplemented) listed in
Schedule 3.01(M) hereby agrees that all such agreements (other than any such
agreements evidencing the Continuing Credit Facilities and the Continuing Bid
Rate Loans (defined below)), will terminate upon the payment of the proceeds of
the initial Loan(s) funded on the Closing Date in accordance with the Pay
Proceeds Letter. Notwithstanding the foregoing, certain existing loans made by
CoBank to the Company and identified on Schedule 3.01(M) hereto (the "Continuing
Bid Rate Loans") shall remain outstanding and be deemed to be Bid Rate Loans
under this Agreement for all purposes, and shall be subject to all of the terms
and conditions of this Agreement and the other Loan Documents applicable to Bid
Rate Loans, except that each such Continuing Bid Rate Loan shall be deemed to be
55
<PAGE>
made solely by CoBank, shall bear interest at the interest rate applicable to
such loan immediately prior to the effectiveness of this Agreement until the end
of its stated interest period, and shall be due and payable on the date
specified as the maturity date for such loan.
[Remainder of page intentionally blank; next page is signature page]
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written.
THE COMPANY:
SOUTHERN STATES COOPERATIVE, INCORPORATED
6606 West Broad St.
By: /s/ Jonathan A. Hawkins Richmond, VA 23230
-------------------------- Fax: 804.281.1650
Title: Sr. Vice President & Treasurer P.O. Box 25567
------------------------------- Richmond, VA 23260
E-mail Address:[email protected]
(Signature Page 1 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
THE AGENTS, LEAD ARRANGER AND BANKS:
COBANK, ACB, as Administrative Agent,
Documentation Agent and Bank 5500 S. Quebec Street
Englewood, CO 80111
Fax: 303-694-5830
By: /s/ Lori O'Flaherty P.O. Box 5110
--------------------------------- Denver, CO 80217
Title: Vice President Attention: Lori O'Flaherty
-----------------------------
(Signature Page 2 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
FIRST UNION NATIONAL BANK,
as Syndication Agent and Bank 7 North 8th Street
Third Floor, Mail Code VA-3260
Richmond, VA 23219
By: /s/ Eileen McCuchard Fax: (804) 788-9673
--------------------------------
Title: Vice President
-----------------------------
(Signature Page 3 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
NATIONSBANK, N.A., as Syndication Agent
and Bank 101 North Tryon Street
15th Floor
Charlotte, NC 28255
By: /s/ William F. Sweney Fax: 704-409-0009
----------------------------------
William F. Sweeney
Title: Vice President
-------------------------------
(Signature Page 4 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
NATIONSBANC MONTGOMERY 231 South LaSalle Street
SECURITIES LLC, as Lead Arranger Chicago, IL 60697
Fax: 312-828-7448
By: /s/
-------------------------------------
Title: Vice President
----------------------------------
(Signature Page 5 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
FMB BANK, 25 South Charles Street
as Bank Mail Code 101-744
Baltimore, MD 21201
Fax: 410-244-4294
By: /s/ Susan Elliott Benninghoff
-----------------------------------
Susan Elliott Benninghoff
Title: Vice President
--------------------------------
(Signature Page 6 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH, as Bank
Funding and payment notices to:
By: /s/
--------------------------------- C/O Rabo Support Services, Inc.
Title: V.P. 10 Exchange Place, 16th Floor
----------------------------- Jersey City, NJ 07302
By: /s/ Attention: Corporate Services
--------------------------------- Fax:201.499.5329
Title:
------------------------------
All other notices:
245 Park Avenue
New York, NY 10167
Fax: 212.916.7880
(Signature Page 7 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
BANQUE NATIONALE de PARIS 209 South LaSalle Street
(CHICAGO BRANCH), as Bank Chicago, IL 60604
Fax: 312-977-1380
By: /s/ Arnaud Collin du Bocage
----------------------------------
Arnaud Collin du Bocage
Title: Executive Vice President & General Manager
--------------------------------------------
(Signature Page 8 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
CRESTAR BANK, 919 East Main Street, 22nd Floor
as Co-Agent and Bank Richmond, VA 23219
Fax: 804-782-5413
By: /s/
------------------------------------
Title: S.V.P.
---------------------------------
(Signature Page 9 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
AG CAYMAN ISLANDS BRANCH, as Bank
303 Peachtree Street, N.E. Suite 2900
By: /s/ Kurt A. Morris Atlanta, GA 30308
------------------------------- Fax: 404-524-4006
Kurt A. Morris
Title: Vice President
----------------------------
By: /s/ Bobby Ryan Oliver, Jr.
-------------------------------
Bobby Ryan Oliver, Jr.
Title: Vice President
----------------------------
(Signature Page 10 for Southern States Cooperative Revolving Credit Agreement)
<PAGE>
WACHOVIA BANK, N.A., 1021 East Cary Street, 3rd Floor
as Co-Agent and Bank Richmond, VA 23219
Fax: 804-697-7581
Attention: Chris Borin
By: /s/ Christopher C. Borin
----------------------------------
Christopher C. Borin
Title: Senior Vice President
--------------------------------
<PAGE>
Exhibit A
REVOLVING CREDIT BORROWING NOTICE
To: [Insert names of Banks and contact persons]
From: Southern States Cooperative, Incorporated (the "Company")
Date: _____________________________
Pursuant to Section 2.02 of the Revolving Credit Agreement dated as of January
___, 1999, the Company hereby gives notice of its intent to (1) borrow in
accordance with the terms set forth in A through C below; or (2) convert or
continue an existing Loan, as set forth in D below. Capitalized terms used
herein but not otherwise specifically defined shall have the meanings ascribed
to such terms in the Revolving Credit Agreement.
A. Base Rate Loan
Amount of Loan Date of Loan
-------------- ------------
$---------------------- ---------------------
B. LIBOR Loan(s)
Amount of Loan(s) Date of Loan(s) * Interest Period(s)**
----------------- ----------------- --------------------
$--------------------- -------------------- ------------------
$--------------------- -------------------- ------------------
* At least three Business Day's prior notice must be given.
** One month, two months, three months or six months
C. Bid Rate Loan
------------------------------------------------------------------------
Bid Rate Maturity
Amount of Loan(s) Date of Loan(s) Date(s)
----------------- --------------- ------------------
$------------------- ------------------- ---------------------
$------------------- ------------------- ---------------------
$------------------- ------------------- ---------------------
$------------------- ------------------- ---------------------
$------------------- ------------------- ---------------------
<PAGE>
D. Conversions and Continuations
Convert Base Rate Loan(s) Effective Interest
to LIBOR Loan(s) Continue LIBOR Loan(s) Date(s)* Period(s)**
- - - - ------------------------- ---------------------- --------- -----------
$--------------------- --------------------- --------- ---------
$---------------------- --------------------- --------- ---------
* At least three Business Day's prior notice must be given.
** One month, two months, three months or six months
The submission of this Notice is and shall be deemed a certification by the
Company that:
(a) The obligations of the Company as set forth in the Revolving
Credit Agreement and the other Loan Documents are valid, binding and enforceable
obligations of the Company as of the date hereof, both before and after giving
effect to the Loan requested herein, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar state
or federal debtor relief laws from time to time in effect which affect the
enforcement of creditors' rights in general and the availability of equitable
remedies;
(b) All of the conditions applicable to the Loan requested herein as
set forth in the Revolving Credit Agreement have been satisfied as of the date
hereof and will remain satisfied to the date of such Loan;
(c) All of the representations and warranties contained in Article
IV of the Revolving Credit Agreement and the other Loan Documents are correct;
and
(d) No Potential Default or Event of Default has occurred and is
continuing or would result from such Loan.
IN WITNESS WHEREOF, the undersigned has executed this Notice as of the
date first written.
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: ______________________________________________
Name: ______________________________________________
Title: ______________________________________________
<PAGE>
Exhibit B
BID RATE LOAN QUOTE
To: Southern States Cooperative, Incorporated (the "Company")
From: [Name of Bank]
Date: ________________________
In response to the Revolving Credit Borrowing Notice of the Company dated the
date hereof, and pursuant to Section 2.02 of the Revolving Credit Agreement,
dated as of January ___, 1999, we hereby make the following Bid Rate Loan
quote(s) on the following terms:
Bid Rate
Amount of Loan(s) Maturity Date(s) Bid Rate(s)*
----------------- ---------------- -----------
$------------------- --------------------- ------------------
$------------------- --------------------- ------------------
$------------------- --------------------- ------------------
$------------------- --------------------- ------------------
$------------------- --------------------- ------------------
* Specify rate of interest per annum (to the nearest 1/1000 of 1%).
This bid expires at 12:30 p.m. (Eastern time) if not accepted in whole or in
part by the Company on or before such time.
[NAME OF BANK]
By: ________________________________________
Name: ________________________________________
Title ________________________________________
1
<PAGE>
Exhibit C
BID RATE LOAN NOTICE OF BORROWING
To: [Name of Bank]
Attention:
From: Southern States Cooperative, Incorporated (the "Company")
Date: ________________________
Pursuant to Section 2.02 of the Revolving Credit Agreement dated as of January
___, 1999, the Company hereby accepts your offer, set forth in your Bid Rate
Loan Quote dated the date hereof, in the following principal amount(s) for the
following period(s) and at the following Rate(s):
Bid Rate Bid Rate(s)
Amount of Loan(s) Maturity Date(s) Quoted
----------------- ---------------- ------
$------------------- --------------------- ------------------
$------------------- --------------------- ------------------
$------------------- --------------------- ------------------
$------------------- --------------------- ------------------
$------------------- --------------------- ------------------
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: ________________________________________
Name: ________________________________________
Title ________________________________________
2
<PAGE>
Exhibit D
(Bid Rate Notices + Intentions Regarding Bids over Commitment)
[Bank Letterhead]
[Date]
Southern States Cooperative, Incorporated
6606 West Broad Street
Richmond, VA 23230
[Notice of intention not to bid over Commitment]
Gentlemen:
Please accept this letter as notice provided under Section 2.02 of the Revolving
Credit Agreement dated January ___, 1999. [Bank] does not intend to make Bid
Rate Loans in excess of its Commitment and, accordingly, Southern States is not
required to give [Bank] notice of such Bid Rate Loans.
This notice is effective three (3) days after receipt and will remain in effect
until it is rescinded.
[Signature]
******************************************************************************
[Date]
Southern States Cooperative, Incorporated
6606 West Broad Street
Richmond, VA 23230
[Rescission of notice]
Gentlemen:
Please accept this letter as a rescission of [Bank's] previous notice provided
under Section 2.02 of the Revolving Credit Agreement dated January ___, 1999.
[Bank] now intends to make Bid Rate Loans in excess of its Commitment and,
accordingly, Southern States is required to give [Bank] notice of such Bid Rate
Loans.
<PAGE>
This rescission is effective three (3) days after receipt.
[Signature]
<PAGE>
Exhibit E
Bank Notice Profile
(Information for contacting Banks relating to borrowing notices.)
Bank Name: CoBank, ACB
Address: 5500 S. Quebec St., Englewood, CO 80111
P.O. Box 5110, Denver, CO 80217
Attention: Lori O'Flaherty
Telephone Number: 303-740-4342
Fax: 303-694-5830
Backup for contact Person:
Special Instructions:
Bank Name: First Union National Bank
Address: 7 North 8th Street
3rd Floor, Mail Code VA-3260
Richmond, VA 23219
Telephone Number:
Fax: 804-788-9673
Contact Person:
Backup for contact Person:
Special Instructions:
Bank Name: NationsBank, N.A.
Address: 101 North Tryon Street
15th Floor
Charlotte, NC 28255
Telephone Number: 704-386-3781
Fax: 704-409-0009
Contact Person: Jacquetta Banks
Backup for contact Person:
Special Instructions:
Bank Name: FMB Bank
Address: 25 South Charles Street
Mail Code 101-744
Baltimore, MD 21201
Telephone Number:
Fax: 410-244-4294
Contact Person:
<PAGE>
Backup for contact Person:
Special Instructions:
Bank Name: Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland",
New York Branch
Address: c/o Rabo Support Services, Inc.
10 Exchange Place, 16th Floor
Jersey City, NJ 07302
Attention: Corporate Services
Telephone Number:
Fax: 201-499-5329
Backup for contact Person:
Special Instructions: For funding and payment notices forward correspondences
to the address above. For all other notices: 245 Park Avenue, New York, NY
10167, Fax: 212-916-7880.
Bank Name: Banque Nationale de Paris (Chicago Branch)
Address: 209 South LaSalle Street
Chicago, IL 60604
Telephone Number:
Fax: 312-977-1380
Contact Person:
Backup for contact Person:
Special Instructions:
Bank Name: Crestar Bank
Address: 919 East Main Street, 22nd Floor
Richmond, VA 23219
Telephone Number:
Fax: 804-782-5413
Contact Person:
Backup for contact Person:
Special Instructions:
Bank Name: DG Bank Deutsche Genossenschaftsbank, AG Cayman Islands Branch
Address: 303 Peachtree Street, N.E., Suite 2900
Atlanta, GA 30308
Telephone Number:
Fax: 404-524-4006
Contact Person:
Backup for contact Person:
Special Instructions:
<PAGE>
Bank Name: Wachovia Bank, N.A.
Address: 100 North Main Street
20th Floor
Winston-Salem, NC 27102
Attention: Melissa Fox
Telephone Number: 336-732-5182
Fax: 336-732-3257
E-mail address: [email protected]
Backup for contact Person: Chris Borin
1021 East Cary Street, 3rd Floor
Richmond, VA 23219
E-mail address: [email protected]
Telephone Number: 804-697-6820
Fax: 804-697-7581
Special Instructions:
<PAGE>
Exhibit F-1
REVOLVING CREDIT NOTE
$____________________________ Richmond, Virginia
January ___, 1999
FOR VALUE RECEIVED, Southern States Cooperative, Incorporated, a
Virginia agricultural cooperative corporation (the "Borrower"), HEREBY PROMISES
TO PAY to the order of ____________________ ____________________ ("Bank") at its
office, located at ____________________________________, for the account of its
appropriate Applicable Lending Office, the principal sum of __________________
Dollars ($_______________), or the aggregate unpaid principal amount of all
advances under all Loans (as defined in the Revolving Credit Agreement referred
to below) other than Bid Rate Loans made by Bank to the Borrower pursuant to
Sections 2.01 and 2.02 of the Revolving Credit Agreement (including amounts in
excess of the amount shown above), in lawful money of the United States of
America and in immediately available funds, on the Termination Date. The
Borrower also promises to pay interest on the unpaid principal balance of the
Loans for the period such balance is outstanding, at said office for the account
of said Applicable Lending Office, in like money, at the rates of interest
provided in the Revolving Credit Agreement, at the times and calculated in the
manner set forth in Section 2.03(B) of the Revolving Credit Agreement. Any
amount of principal hereof which is not paid when due, whether at stated
maturity, by acceleration, or otherwise, shall bear interest from the date when
due until said principal amount is paid in full, payable on demand, at a rate
per annum equal at all times to the rate set forth in Section 2.03(C) of the
Revolving Credit Agreement.
The Borrower hereby authorizes the Bank to endorse on the schedule
annexed to this Note: (i) the amount and type of all Loans; (ii) in the case of
LIBOR Loans, the applicable Interest Periods; and (iii) all continuations,
conversions and payments of principal amounts in respect of such Loans, provided
however, that the failure to make such notation with respect to any Loan or
payment shall not limit or otherwise affect the obligation of the Borrower under
the Revolving Credit Agreement or this Note. The records of the Bank reflecting
such endorsements shall, in the absence of manifest error, be conclusive as to
the outstanding principal amount of all Loans owed to the Bank.
This is one of the Notes referred to in that certain Revolving
Credit Agreement (as amended, restated or supplemented from time to time, the
"Revolving Credit Agreement") dated as of January ___, 1999, among the Borrower,
CoBank, ACB, as Bank and in its capacity as Administrative Agent and
<PAGE>
Documentation Agent, First Union National Bank, as Bank and in its capacity as
Syndication Agent, NationsBank, N.A., as Bank and in its capacity as Syndication
Agent, NationsBanc Montgomery Securities LLC, in its capacity as Lead Arranger,
and the financial institutions as are, or may from time to time become, parties
thereto as "Banks" (the "Banks"), to evidence the Loans (other than Bid Rate
Loans) made by the Bank thereunder.
All Capitalized terms used herein and not defined herein shall have
the meanings given to them in the Revolving Credit Agreement.
The Revolving Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of an Event of Default and for
prepayments on the terms and conditions specified therein.
The Borrower hereby waives presentment, notice of dishonor, protest
and any other notice with respect to this Note.
Subject to the terms and qualifications of the Revolving Credit
Agreement, the Borrower hereby agrees to pay on demand all reasonable costs and
expenses actually incurred in collecting the Borrower's obligations hereunder or
in enforcing or attempting to enforce any of the Bank's rights hereunder in each
case after the occurrence and during the continuance of an Event of Default,
including, but not limited to, reasonable attorneys' fees and expenses if
collected by or through an attorney, whether or not suit is filed.
This Note shall be governed by, and interpreted and construed in
accordance with, the laws of the Commonwealth of Virginia, provided, that, as to
the maximum rate of interest which may be charged or collected if the Laws
applicable to the Bank permit it to charge or collect a higher rate than the
Laws of the Commonwealth of Virginia, then such Laws applicable to the Bank
shall apply to the Bank under this Note.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed by its officer thereunto duly authorized, as of the date first written.
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
2
<PAGE>
SCHEDULE TO REVOLVING CREDIT NOTE
REVOLVING CREDIT LOANS (BASE Rate Loans and/or LIBOR Loans)
<TABLE>
<CAPTION>
Date
Revolving
Credit
Loan Unpaid
Made, Type of Amount of Principal Name of
Continued Revolving Revolving Applicable Amount of Balance of Person
Converted Credit Credit Interest Principal Revolving Making
or Paid Loan Loan Period Prepaid Credit Note Notation
<S> <C>
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
- - - - ---------- ----------- ----------- ------------ ----------- ----------- ---------
</TABLE>
<PAGE>
Exhibit F-2
REVOLVING CREDIT NOTE
Richmond, Virginia
January ___, 1999
FOR VALUE RECEIVED, Southern States Cooperative, Incorporated, a Virginia
agricultural cooperative corporation (the "Borrower"), HEREBY PROMISES TO PAY to
the order of ____________________ ____________________ ("Bank") at its office,
located at ____________________________________, for the account of its
appropriate Applicable Lending Office, the principal sum equal to the aggregate
unpaid principal amount of all advances under all Bid Rate Loans (as defined in
the Revolving Credit Agreement referred to below) made by Bank to the Borrower
pursuant to Sections 2.01 and 2.02 of the Revolving Credit Agreement (including
amounts in excess of the amount shown above), in lawful money of the United
States of America and in immediately available funds on such Loan's Bid Rate
Maturity Date. The Borrower also promises to pay interest on the unpaid
principal balance of the Loans for the period such balance is outstanding, at
said office for the account of said Applicable Lending Office, in like money, at
the rates of interest provided on the schedule annexed to this Note, at the
times and calculated in the manner set forth in Section 2.03(B) of the Revolving
Credit Agreement. Any amount of principal hereof which is not paid when due,
whether at stated maturity, by acceleration, or otherwise, shall bear interest
from the date when due until said principal amount is paid in full, payable on
demand, at a rate per annum equal at all times to the rate set forth in Section
2.03(C) of the Revolving Credit Agreement.
The Borrower hereby authorizes the Bank to endorse on the schedule
annexed to this Note: (i) the applicable rates and Bid Rate Maturity Dates; and
(ii) all continuations, conversions and payments of principal amounts in respect
of such Loans, provided however, that the failure to make such notation with
respect to any Loan or payment shall not limit or otherwise affect the
obligation of the Borrower under the Revolving Credit Agreement or this Note.
The records of the Bank reflecting such endorsements shall, in the absence of
manifest error, be conclusive as to the outstanding principal amount of all
Loans owed to the Bank.
This is one of the Notes referred to in that certain Revolving
Credit Agreement (as amended, restated or supplemented from time to time, the
"Revolving Credit Agreement") dated as of January ___, 1999, among the Borrower,
CoBank, ACB, as Bank and in its capacity as Administrative Agent and
Documentation Agent, First Union National Bank, as Bank and in its capacity as
Syndication Agent, NationsBank, N.A., as Bank and in its capacity as Syndication
1
<PAGE>
Agent, NationsBanc Montgomery Securities LLC, in its capacity as Lead Arranger,
and the financial institutions as are, or may from time to time become, parties
thereto as "Banks" (the "Banks"), to evidence the Bid Rate Loans made by the
Bank thereunder.
All Capitalized terms used herein and not defined herein shall have
the meanings given to them in the Revolving Credit Agreement.
The Revolving Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of an Event of Default and for
prepayments on the terms and conditions specified therein.
The Borrower hereby waives presentment, notice of dishonor, protest
and any other notice with respect to this Note.
Subject to the terms and qualifications of the Revolving Credit Agreement,
the Borrower hereby agrees to pay on demand all reasonable costs and expenses
actually incurred in collecting the Borrower's obligations hereunder or in
enforcing or attempting to enforce any of the Bank's rights hereunder in each
case after the occurrence and during the continuance of an Event of Default,
including, but not limited to, reasonable attorneys' fees and expenses if
collected by or through an attorney, whether or not suit is filed.
This Note shall be governed by, and interpreted and construed in
accordance with, the laws of the Commonwealth of Virginia, provided, that, as to
the maximum rate of interest which may be charged or collected if the Laws
applicable to the Bank permit it to charge or collect a higher rate than the
Laws of the Commonwealth of Virginia, then such Laws applicable to the Bank
shall apply to the Bank under this Note.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed by its officer thereunto duly authorized, as of the date first written.
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
2
<PAGE>
SCHEDULE TO REVOLVING CREDIT NOTE
BID RATE LOANS
Date
Bid Rate
Loan Amount Interest Name of
Made of Bid Rate for Bid Rate Amount of Person
Continued, Rate Bid Rate Maturity Principal Making
or Paid Loan Loan Date Repaid Notation
- - - - ---------- ----------- ----------- ------------ -----------
- - - - ---------- ----------- ----------- ------------ -----------
- - - - ---------- ----------- ----------- ------------ -----------
- - - - ---------- ----------- ----------- ------------ -----------
- - - - ---------- ----------- ----------- ------------ -----------
- - - - ---------- ----------- ----------- ------------ -----------
- - - - ---------- ----------- ----------- ------------ -----------
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3
<PAGE>
Exhibit G
FORM OF OPINION OF COMPANY COUNSEL
[Mays & Valentine, L.L.P. Letterhead]
January 12, 1999
TO THE PERSONS LISTED ON SCHEDULE 1
Re: $200,000,000 Revolving Credit Agreement with
Southern States Cooperative, Incorporated
Ladies and Gentlemen:
We have acted as counsel for Southern States Cooperative, Incorporated
(the "Company") in connection with the preparation, execution, and delivery of
the Revolving Credit Agreement dated as of January 12, 1999 (the "Credit
Agreement"), among the Company, CoBank, ACB, in its individual capacity, as Bank
and in its capacity as Administrative Agent and Documentation Agent, First Union
National Bank, as Bank and in its capacity as Syndication Agent, NationsBank,
N.A., as Bank and in its capacity as Syndication Agent, NationsBanc Montgomery
Securities LLC, in its capacity as Lead Arranger, and FMB Bank, as Bank,
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "RaboBank Nederland", New
York Branch, as Bank, Banque Nationale de Paris (Chicago Branch), as Bank,
Crestar Bank, as Bank and in its capacity as Co-Agent, DG Bank Deutsche
Genossenschaftsbank AG Cayman Islands Branch, as Bank, and Wachovia Bank, N.A.,
as Bank and in its capacity as Co-Agent. This opinion is being furnished to you
at the request of the Company pursuant to Section 3.01(E) of the Credit
Agreement. Capitalized terms used herein which are not defined herein shall have
the meanings assigned to such terms in the Credit Agreement.
For purposes of this opinion, we have examined, among other things:
(a) the Credit Agreement and the Notes, each dated the date hereof, issued
by the Company to the Banks (the "Notes");
(b) the Fourth Amended and Restated Financing Services and Contributed
Capital Agreement dated the date hereof between the Company and Statesman
Financial Corporation (together with the Credit Agreement and the Notes referred
to herein collectively as the "Financing Documents"); and
4
<PAGE>
(c) documents furnished by the Company pursuant to Section 3.01 of the
Credit Agreement, including the Articles of Incorporation and Bylaws of the
Company and all amendments thereto.
For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted as certified or photostatic copies
and the authenticity of the originals; (iii) the legal capacity of natural
persons, and (iv) the due authorization, execution and delivery of all documents
by all parties (other than the Company) and the validity and binding effect
thereof on such parties.
Based upon the foregoing and subject to the qualifications hereinafter set
forth, we are of the opinion that:
1. The Company is an agricultural cooperative corporation duly
incorporated and validly existing under the laws of the Commonwealth of Virginia
and has all corporate power required to carry on its business as now conducted.
2. The execution, delivery, and performance by the Company of the
Financing Documents are within the Company's corporate power and have been duly
authorized by all necessary corporate action.
3. The Financing Documents have been duly executed and delivered on behalf
of the Company, and constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally and by general equitable principles whether
enforcement is sought by proceedings in equity or at law.
4. The execution, delivery and performance by the Company of the Financing
Documents (i) require no action by or in respect of, or filing with, any
governmental body, agency or official; (ii) do not contravene or constitute
(with or without the giving of notice or lapse of time or both) a default under
any provision of applicable law or regulation, the Articles of Incorporation or
Bylaws of the Company, or to our knowledge, any agreement, judgment, injunction,
order, decree or other instrument known to us and binding upon the Company; and
(iii) to our knowledge do not result in the creation or imposition of any Lien
on any asset of the Company (other than Liens in favor of CoBank on any equity
interest of the Company in CoBank).
5. To our knowledge, there are no actions or proceedings against the
Company pending before any court, governmental authority, regulatory body, or
arbitrator: (a) with respect to the Financing Documents; (b) which could have a
material adverse effect on the ability of the Company to conduct its business as
presently conducted; or (c) which individually seeks or could reasonably be
expected to seek in excess of $1,000,000 from the Company.
We express no opinion as to those provisions of the Financing Documents
which purport to make oral amendments and waivers ineffective, and we express no
opinion as to those provisions of the Financing Documents which would waive the
right of the Company to object to venue.
5
<PAGE>
The opinion and statements expressed herein are subject to the following
qualifications:
The opinions and statements expressed herein are restricted to matters
governed by the laws of the United States of America and the laws of the
Commonwealth of Virginia.
We express no opinion with respect to any instrument or document other
than instruments or documents referred to above.
The opinions expressed herein are effective as of the date hereof. No
expansion of the opinions may be made by implication or otherwise. We express no
opinions other than as herein expressly set forth. We do not undertake to advise
you of any matter within the scope of this letter that comes to our attention
after the date of this letter and disclaim any responsibility to advise you of
any further changes in law or fact that may affect the opinions set forth
herein.
This letter is rendered to you in connection with the transactions
described above and may not be relied upon by any other person, or participant,
or by you in any other context or for any other purpose. It may not be referred
to in whole or in part nor may copies thereof be furnished or delivered to any
other person without our prior written consent, except that you may furnish
copies hereof: (i) to prospective and actual parties (including Participants and
Assignees) to the financing transactions contemplated by the Financing
Documents; (ii) to your respective independent auditors, attorneys, and other
advisors; (iii) to any governmental authority having jurisdiction over you; (iv)
pursuant to any order or legal process of any court of competent jurisdiction or
any governmental agency; and (v) in connection with any legal action arising out
of any of the Financing Documents or the transactions contemplated thereby.
Very truly yours,
6
<PAGE>
SCHEDULE 1
CoBank, ACB, as Administrative Agent, Cooperatieve Centrale Raiffeisen-
Documentation Agent and Bank Boerenleenbank B.A., "RaboBank
P.O. Box 5110 Nederland"
Denver, Colorado 80217 New York Branch
245 Park Avenue
New York, New York 10167
First Union National Bank, Banque Nationale de Paris (Chicago
as Syndication Agent and Bank Branch)
7 North 8th Street, 3rd Floor 209 South LaSalle Street
Mail Code VA-3260 Chicago, Illinois 60604
Richmond Virginia 23219
NationsBank, N.A., as Syndication Crestar Bank
Agent and Bank 919 East Main Street, 22nd Floor
101 North Tryon Street, 15th Floor Richmond, Virginia 23219
Charlotte, North Carolina 28255
NationsBanc Montgomery Securities LLC, DG Bank Deutsche Genossenschaftsbank
as Lead Arranger AG Cayman Islands Branch
4400 South LaSalle Street 303 Peachtree Street, N.E., Suite 2900
Chicago, Illinois 60605 Atlanta, Georgia 30308
FMB Bank Wachovia Bank, N.A.
25 South Charles Street 1021 East Cary Street, 3rd Floor
Mail Code 101-744 Richmond, Virginia 23219
Baltimore, Maryland 21201
<PAGE>
Exhibit H
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of _______ __, among
_______________, (the "Assignor"), _______________ (the "Assignee"), Southern
States Cooperative, Incorporated (the "Company"), and CoBank, ACB ("CoBank"), in
its capacity as Administrative Agent.
PRELIMINARY STATEMENTS
1. This Assignment and Assumption Agreement (the "Agreement") relates to
the Revolving Credit Agreement (as amended from time to time, the "Credit
Agreement") dated as of January ___, 1999, originally among the Company, CoBank,
First Union National Bank, NationsBank, N.A., _________ and each other lender
which may thereafter execute and deliver an Assignment and Assumption Agreement
pursuant to the Credit Agreement (each a "Bank" and, collectively, the "Banks"),
CoBank, as Administrative Agent and Documentation Agent, First Union National
Bank, as Syndication Agent, NationsBank, N.A., as Syndication Agent, and
NationsBanc Montgomery Securities LLC, as Lead Arranger. All capitalized terms
not otherwise defined herein shall have the respective meanings set forth in the
Credit Agreement.
2. Subject to the terms and conditions set forth in the Credit Agreement,
the Assignor (a) is required to make Base Rate Loans and LIBOR Loans from time
to time to the Company and (b) may in its sole discretion make Bid Rate Loans
from time to time to the Company.
3. Base Rate Loans made to the Company by the Assignor under the Credit
Agreement in the aggregate principal amount of ______________ Dollars
($_________) are outstanding at the commencement of business on the date hereof.
This Agreement shall become effective prior to any Base Rate Loans made on the
date hereof.
4. LIBOR Loans made to the Company by the Assignor under the Credit
Agreement in the aggregate principal amount of ______________ Dollars
($_________) are outstanding at the commencement of business on the date hereof.
This Agreement shall become effective prior to any LIBOR Loans made on the date
hereof.
5. Bid Rate Loans made to the Company by the Assignor under the Credit
Agreement in the aggregate principal amount of ______________ Dollars
($_________) are outstanding at the commencement of business on the date hereof.
The amount and Bid Rate Maturity Date for each of the Assignor's Bid Rate Loans
is set forth in Exhibit A attached hereto. This Agreement shall become effective
prior to any Bid Rate Loans made on the date hereof.
<PAGE>
6. The Assignor desires to assign to the Assignee a proportionate share of
all of the rights of the Assignor under the Credit Agreement as follows:
a) a __ % interest in all outstanding Base Rate Loans (such percentage
equaling $______ at the commencement of business on the date hereof) ;
b) a __ % interest in all outstanding LIBOR Loans (such percentage
equaling $______ at the commencement of business on the date hereof);
c) a __ % interest in all outstanding Bid Rate Loans (such
percentage equaling $______ at the commencement of business on the date
hereof); and
d) a __ % of the Assignor's Commitment ("Assigned Commitment") (such
percentage equaling $______ at the commencement of business on the date hereof).
The Assignee desires to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms. The assigned Loans
described in clause (a) through (c) above are, collectively, referred to as the
"Assigned Loans".
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
SECTION 1. Assignment. The Assignor hereby assigns to the Assignee all of
the rights of the Assignor under the Credit Agreement in and to the Assigned
Commitment and the Assigned Loans (together with interest accrued thereon to the
date of this Agreement), and the Assignee hereby accepts such assignment from
the Assignor and assumes all of the obligations of the Assignor under the Credit
Agreement in and to the Assigned Commitment. Upon the execution and delivery
hereof by the Assignor, the Assignee, the Company (to the extent required) and
the Administrative Agent (to the extent required) and the payment of the amount
specified in Section 2 required to be paid on the date hereof (a) the Assignee
shall, as of the commencement of business on the date hereof, succeed to the
rights and be obligated to perform the obligations of a Bank under the Credit
Agreement with a Commitment in an amount equal to the Assigned Commitment and
with Loans in a principal amount equal to the Assigned Loans, and (b) the
Commitment and the Loans of the Assignor shall, as of the commencement of
business on the date hereof, be reduced correspondingly and the Assignor
released from its obligations under the Credit Agreement to the extent such
obligations have been assumed by the Assignee. The assignment provided for
herein shall be without recourse to the Assignor, except that Assignor warrants
that it (i) is the legal and beneficial owner of the Assigned Loans, (ii) owns
the Assigned Loans free and clear of any Liens and (iii) has the right to make
the assignments contemplated by this Agreement.
<PAGE>
SECTION 2. Payments. As consideration for the assignment and sale
contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the
date hereof in immediately available funds an amount equal to ________________
Dollars ($__________) in principal. It is understood that interest and
commitment fees and other fees payable to the Assignor under the Credit
Agreement accrued to but not including the date hereof are for the account of
the Assignor and such interest and fees accruing from and including the date
hereof are for the account of the Assignee. Each of the Assignor and the
Assignee hereby agrees that if it receives any amount under the Credit Agreement
which is for the account of the other party hereto, it shall receive the same
for the account of such other party to the extent of such other party's interest
therein and shall promptly pay the same to such other party.
SECTION 3. Consent of the Company and the Administrative Agent. This
Agreement is conditioned upon the consent of the Company and the Administrative
Agent pursuant to Section 10.04 of the Credit Agreement (unless consent is not
required pursuant to Section 10.04). The execution of this Agreement by the
Company and the Administrative Agent is evidence of such consent. Pursuant to
Section 10.04 of the Credit Agreement, the Company has agreed to execute and
deliver (1) to the Assignee a new Note or Notes payable to the order of the
Assignee to evidence the assignment and assumption provided for herein and (2)
to the Assignor, in substitution for its existing Note or Notes, a new Note or
Notes resulting from the Assignment payable to the order of the Assignor to
evidence the assignment and assumption provided for herein.
SECTION 4. Non-Reliance on Assignor. The Assignor makes no representation
or warranty in connection with, and shall have no responsibility with respect
to, the solvency, financial condition, or statements of the Company or any other
party to any Loan Document, or the validity and enforceability of the
obligations of the Company or any other party to a Loan Document in respect of
the Credit Agreement, any Note, or any other Loan Document. The Assignee
acknowledges that it has, independently and without reliance on the Assignor,
the Agents or the Lead Arranger and based on such documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement and will continue to be responsible for making its own
independent appraisal of the business affairs and financial condition of the
Company and the other parties to the Loan Documents.
SECTION 5. Certification of Exemption. [For Banks not organized under the
Laws of the United States.] As soon as possible, but in any event prior to the
date on which interest or fees are payable under the Credit Agreement, Assignee
agrees to provide to the Administrative Agent and the Company Form 4224 or Form
1001 of the Internal Revenue Service, or such other forms, certifications,
statements or documents, duly executed and completed by the Assignee, as
evidence of Assignee's exemption from the withholding of United States tax with
respect thereto.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Virginia.
<PAGE>
SECTION 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered to by their duly authorized officers as of the date first above
written.
<PAGE>
Exhibit I
AMENDMENT TO FINANCING SERVICES AND
CONTRIBUTED CAPITAL AGREEMENT
This AMENDMENT TO FINANCING SERVICES AND CONTRIBUTED CAPITAL AGREEMENT
(the "Amendment") is made as of this 6th day of November, 1998, between SOUTHERN
STATES COOPERATIVE, INCORPORATED (the "Cooperative"), a Virginia corporation,
and MICHIGAN LIVESTOCK CREDIT CORPORATION ("MLCC"), a Virginia corporation.
The parties hereto are parties to a Financing Services and Contributed
Capital Agreement dated as of the 1st day of April, 1998 (the "Agreement") and
desire to amend the provisions of Section 13.03 of the Agreement.
Accordingly, the parties hereto agree that Section 13.03 is amended to
read as follows:
SECTION 13.03. REDEMPTION OF CLASS X PREFERRED STOCK.
MLCC covenants and agrees that if on any TAPOS
Determination Date the amount of MLCC Class X Preferred
Stock held by the Cooperative exceeds the Minimum Class
X Investment computed as of such date, it will, subject
to the provisions of Section 13.04, upon written demand
by the Cooperative redeem for cash at its par value those
shares held by the Cooperative which are in excess of the
Minimum Class X Investment determined as of such date,
provided that MLCC will not repurchase any MLCC Class X
Preferred Stock if at the time MLCC is indebted (as therein
defined) under the Revolving Credit Agreement (the "Credit
Agreement") dated as of November 6, 1998 by and among MLCC,
the Lenders identified therein and CoBank, as Agent or has
the right to borrow under the Credit Agreement, and if the
ratio of the total Debt of MLCC to the sum of its total Debt
and its Net Worth (as such terms are defined in the Credit
Agreement) is greater than 0.5 to 1 or if such ratio would
be greater than 0.5 to 1 after such repurchase.
PRIOR AGREEMENT
---------------
Except as otherwise expressly amended by this Amendment, the Agreement is
and shall continue to be in full force and effect in accordance with its terms.
<PAGE>
The Cooperative and MLCC further covenant and agree that each reference in any
agreement or other document to the Agreement shall be deemed to refer to the
Agreement as amended by this Amendment and as it may be amended from time to
time hereafter.
This Amendment shall be governed by and construed and be interpreted in
accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, SOUTHERN STATES COOPERATIVE, INCORPORATED and MICHIGAN
LIVESTOCK CREDIT CORPORATION have caused this Amendment to be executed by their
duly authorized officers all as of the date first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By:
---------------------------------------
Its:
---------------------------------------
MICHIGAN LIVESTOCK CREDIT CORPORATION
By:
---------------------------------------
Its:
---------------------------------------
<PAGE>
FOURTH AMENDED AND RESTATED
FINANCING SERVICES AND CONTRIBUTED CAPITAL AGREEMENT
FOURTH AMENDED AND RESTATED FINANCING SERVICES AND CONTRIBUTED CAPITAL
AGREEMENT ("Agreement") dated as of the _____ day of January, 1999, between
SOUTHERN STATES COOPERATIVE, INCORPORATED (the "Cooperative"), a Virginia
corporation, and STATESMAN FINANCIAL CORPORATION ("Statesman"), a Virginia
corporation.
Cooperative desires from time to time to sell to Statesman certain
accounts receivable owing to it, certain installment sales contracts and certain
Crop Time Notes, and Statesman is interested in purchasing such receivables,
installment sales contracts and Crop Time Notes. The parties desire to set forth
the terms and conditions upon which such sales may be made. The Cooperative also
desires to have Statesman issue from time to time credit cards to customers of
the Cooperative and its Local Cooperatives and Dealerships, to extend from time
to time asset based financing, agricultural production loans and term loans to
customers of the Cooperative pursuant to separate agreements to be entered into
between each such customer and Statesman and to lease personal property from
time to time to customers of the Cooperative, Local Cooperatives and
Dealerships. Therefore, the parties hereto agree as follows:
ARTICLE I
---------
DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
"Accounts Receivable - Local Cooperative" means the amounts advanced by
the Cooperative to a Local Cooperative and owing from time to time from such
Local Cooperative to the Cooperative.
"Agreement" means this Fourth Amended and Restated Financing Services and
Contributed Capital Agreement, as it may be amended, supplemented, or modified
from time to time.
"Agricultural Production Loan" means to loan for a term of not more than
one year, the proceeds of which are used to raise crops or livestock.
"Approved Contracts" means those Installment Sales Contracts arising out
of the sale of goods by a Retail Service or a customer of the Cooperative which
have been approved in advance by Statesman as evidenced by a Statesman Approval
Number.
<PAGE>
"Approved Notes" means those Crop Time Notes arising out of the sale of
goods and services by the Cooperative which have been approved in advance by
Statesman.
"Asset Based Financing" means financing of a Dealership by Statesman
secured by accounts receivable, inventory, equipment, including rolling stock,
real estate and other fixed assets, or any of such items.
"Average Total Delinquency Percentage" means with respect to each of
Retail Accounts, Grain Marketing Accounts and Accounts Receivable - Local
Cooperatives (each a "type" of Receivable) that percentage determined by
dividing the average total delinquent Receivables of that type (including any
Receivables of that type sold to Statesman which are delinquent), measured as of
the last day of each calendar month, for the twelve-month period ending on the
last Business Day of the calendar month preceding a settlement date by the
average total Receivables of that type owing the Cooperative (including those
sold to Statesman), measured as of the last day of each calendar month, for the
same twelve-month period. "Average Total Delinquency Percentage" means with
respect to Wholesale Accounts that percentage determined by dividing the average
total delinquent Wholesale Accounts (including any Wholesale Accounts sold to
Statesman which are delinquent), measured as of the last day of each calendar
month, for the twelve-month period ending on the last Business Day of the
calendar month preceding the date of determination by the average total
Wholesale Accounts owing the Cooperative (including those sold to Statesman),
measured as of the last day of each calendar month, for the same twelve-month
period.
"Average Total Delinquency Percentage Variance" means with respect to each
of Retail Accounts, Grain Marketing Accounts and Accounts Receivable Local
Cooperatives (each a "type" of Receivable) the difference, regardless of which
is greater, between (i) the Average Total Delinquency Percentage for that type
of Receivables computed as of the last Business Day of the calendar month
preceding any settlement date and (ii) the percentage obtained by dividing the
total delinquent Receivables of that type (including Receivables of that type
sold to Statesman which are delinquent) on such date by the total Receivables of
that type (including those sold to Statesman) on such date. "Average Total
Delinquency Percentage Variance" means with respect to Wholesale Accounts the
difference, regardless of which is greater, between (i) the Average Total
Delinquency Percentage for Wholesale Accounts computed as of the last Business
Day of the calendar month preceding the date of determination and (ii) the
percentage obtained by dividing the total delinquent Wholesale Accounts
(including Wholesale Accounts sold to Statesman which are delinquent) on such
date by the total Wholesale Accounts (including those sold to Statesman) on such
date.
"Balances Owed" means the net amount payable to the Cooperative on
Receivables as a result of goods sold or services performed, or both, after
adjustment for all rebates, credits and all other adjustments made by the
Cooperative on all Purchased Receivables.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in Richmond, Virginia, are authorized or required to
close under applicable law.
<PAGE>
"Collateral" means any property which is subject to a purchase money
security interest securing the obligations of the obligor on a Purchased
Contract or a Purchased Note.
"Crop Time Notes" means promissory notes of Customers of the Cooperative
evidencing amounts due for the purchase of goods and services from the
Cooperative, which are payable in one year or less.
"Customer of the Cooperative" means a member of the Cooperative or other
Person who purchases goods or services from the Cooperative.
"Dealership" means any wholesale customer of the Cooperative which has
purchased merchandise or products from the Cooperative for resale to its
customers and shall include a private dealer of the Cooperative but shall not
include a Retail Service or a Local Cooperative.
"Default" means any of the events specified in Article X, whether or not
any requirement for the giving of notice or the lapse of time, or both, has been
satisfied.
"Dispute" has the meaning set forth in Section 4.06.
"Eligible Contracts" means Installment Sales Contracts arising out of the
sale of goods by Retail Services or a customer of the Cooperative other than
Approved Contracts which Statesman has determined to purchase from the
Cooperative.
"Eligible Notes" means Crop Time Notes other than Approved Notes which
Statesman has determined to purchase from the Cooperative.
"Eligible Receivables" means Receivables which Statesman has determined to
purchase from the Cooperative.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
"Event of Default" means any of the events specified in Section 10.01,
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"GAAP" means generally accepted accounting principles consistently applied
with respect to a corporation conducting a business the same as or similar to
that of the Cooperative and its Subsidiaries, if any, as in effect from time to
time.
"Grain Marketing Accounts" means amounts owed to the Cooperative for the
purchase of grain commodities, whether evidenced by open account, note, or
otherwise or any combination thereof.
<PAGE>
"Headquarters" means the office of Statesman at 6606 West Broad Street,
Post Office Box 25567, Richmond, Virginia 23260.
"Historical Charge Off Percentage" means with respect to each of Retail
Accounts, Grain Marketing Accounts and Accounts Receivable - Local Cooperatives
(each a "type" of Receivable) that percentage which is obtained by dividing (a)
the sum of (i) gross bad debt expense of the Cooperative for Receivables of that
type for any fiscal year and (ii) the gross bad debt expense of Statesman for
such fiscal year for Receivables of that type purchased from the Cooperative by
(b) the total dollar volume for sales which generate Receivables of that type
(whether cash or non-cash) of the Cooperative for such fiscal year.
"Independent Cooperative" means a cooperative which is not a Local
Cooperative.
"Installment Sales Contract" means a written agreement providing for the
deferred payment of the purchase price of goods sold in the ordinary course of
business.
"Installment Sales Financing" means the purchasing by Statesman of chattel
paper (as defined in Article 9 of the Uniform Commercial Code of Virginia)
arising out of a sale of merchandise by a Retail Service, Local Cooperative or
Dealership.
"Leases" means contracts for the lease of personal property for a fixed
period of time by Statesman to the Cooperative, a Local Cooperative, a
Dealership or a customer of any.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), charge or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code of Virginia or comparable law of any jurisdiction to evidence
any of the foregoing).
"Local Cooperative" means any corporation which is managed by the
Cooperative under a management agreement or contract.
"Loan" means an Agricultural Production Loan, a Term Loan, an asset based
loan or any substantially similar extension of credit now or hereafter made by
Statesman to a Customer of the Cooperative or other Person.
"Manufacturer" means the original equipment manufacturer of goods
offered for sale by the Cooperative.
"Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA
which covers employees of the Cooperative or to which the Cooperative is or may
be required to make contributions under ERISA.
<PAGE>
"Net Balance" means with respect to an Installment Sales Contract, the
outstanding balance owing on such Installment Sales Contract including any
applicable late charges but exclusive of any unearned finance charges as
provided for in such Installment Sales Contract and means with respect to a Crop
Time Note, the outstanding principal balance owing on such Crop Time Note and
all accrued and unpaid interest thereon.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
"Plan" means any employee welfare plan established or maintained by the
Cooperative or to which the Cooperative has made contributions in the past or
may in the future be required to make contributions under ERISA.
"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time.
"Purchased Contracts" means Approved Contracts and Eligible Contracts
which have been purchased by Statesman from the Cooperative or a customer of the
Cooperative.
"Purchased Notes" means Approved Notes and Eligible Notes which have been
purchased by Statesman from the Cooperative.
"Purchased Receivables" means Eligible Receivables which have been
purchased by Statesman from the Cooperative.
"Purchased Wholesale Accounts" means Wholesale Accounts which have been
purchased by Statesman from the Cooperative.
"Receivables" means the amounts owing the Cooperative from time to time
for the sale of goods or the performance of services in the ordinary course of
business and shall include Retail Accounts, Grain Marketing Accounts, and
Accounts Receivable - Local Cooperatives.
"Receivables Certificate" means the certificate referred to in Section
2.03(1).
"Reserve Account" means the account established under the provisions of
Section 2.04.
"Retail Accounts" means amounts owing the Cooperative arising out of the
sale in the ordinary course of business of goods and services by Retail Services
<PAGE>
or by stores which were then owned and operated by Gold Kist Inc., which amounts
are not evidenced by Installment Sales Contracts.
"Retail Service" means any retail store owned and operated by the
Cooperative.
"Southern States Credit Card Program" means the program of Statesman to
approve revolving or open-end credit in specific amounts for individual
customers of the Cooperative, Local Cooperatives and Dealerships, to extend
credit to such customers for the purchase of goods from the Cooperative, Local
Cooperatives and Dealerships and to settle periodically with the Cooperative,
Local Cooperatives and Dealerships for purchases made by customers pursuant to
that program, as such program may exist from time to time.
"Statesman Approval Number" means a number given by Statesman to a Retail
Service to evidence that a particular Installment Sales Contract is an Approved
Contract.
"Subsidiary" means any corporation the majority of the voting shares of
which at the time are owned directly or indirectly by the Cooperative and/or by
one or more Subsidiaries of the Cooperative.
"Term Loan" means a secured loan with the principal amortized over a
period of 5 to 7 years, the proceeds of which are used for agricultural
production.
"Termination Date" means that date on which certain obligations of the
parties hereunder may be terminated as provided in Section 11.04.
"Wholesale Accounts" means any obligation arising out of the sale of goods
or the performance of services in the ordinary course of business which is not
an Account Receivable - Local Cooperative, Grain Marketing Account, or Retail
Account.
"Wholesale Reserve Account" means the account established under the
provisions of Section 4.04.
ARTICLE II
----------
ACCOUNTS RECEIVABLE FINANCING
-----------------------------
SECTION 2.01. PURCHASE OF RECEIVABLES. Statesman may from time to time, at
its option upon the terms and subject to the conditions contained in this
Agreement, purchase Receivables from the Cooperative, provided that Statesman
has determined in its sole and absolute discretion that such Receivables are
acceptable to it (which acceptable Receivables are herein referred to as the
"Eligible Receivables"), and in no event shall Statesman purchase Receivables if
<PAGE>
after such purchase the aggregate amount owing on all Receivables purchased by
Statesman from the Cooperative shall exceed TWO HUNDRED MILLION DOLLARS
($200,000,000). All such purchases shall be made without recourse to the
Cooperative except so far as Statesman shall have the right to make charges to
the Reserve Account as provided in Section 2.05, and nothing contained herein
shall obligate Statesman to purchase any Receivables.
SECTION 2.02. OFFER TO SELL. The Cooperative may from time to time offer
to sell Receivables to Statesman as herein provided, but, except as the parties
may otherwise agree, no Receivable from any obligor shall be sold unless all
accounts owing from such obligor to the Cooperative are sold, and no Retail
Account arising out of a sale at any Retail Service shall be sold unless all
Retail Accounts arising out of sales at such Retail Service are sold.
SECTION 2.03. PROCEDURES.
(1) Prior to 11:00 a.m. (Richmond, Virginia, time) on the tenth Business
Day of each month, or such later day as may be agreed to by Statesman, the
Cooperative shall deliver to Statesman by hand or send by telecopy a certificate
substantially in the form of Exhibit A attached hereto (a "Receivables
Certificate") with the blanks therein appropriately completed and reflecting the
following information for the preceding month:
(a) the amount of all Receivables arising out of sales of goods or
services during the preceding month, if any, which were sold by the Cooperative
to Statesman as of the end of such preceding month;
(b) Receivables which were previously sold to Statesman under the
provisions of this Article II showing the outstanding balances as of the last
day of the preceding month in the aggregate for Retail Accounts, Grain Marketing
Accounts and Accounts Receivable - Local Cooperatives;
(c) Receivables which were previously sold to Statesman pursuant to
this Article II upon which there was any change in the outstanding balance
during such month, and all debits and credits thereon, including without
limitation payments and other remittances by or on behalf of the account
obligor, credits, rebates and adjustments, showing in the aggregate for Retail
Accounts, Grain Marketing Accounts and Accounts Receivable - Local Cooperatives
the prior balance, the amount and nature of adjustments and the balance as of
the last day of the preceding month;
(d) the Cooperative shall promptly make available to Statesman, at
Statesman's request, listings of accounts with balances and other referenced
amounts by obligor that are referred to in Sections 2.03(1)(a), (b) and (c).
(2) Not later than 11:00 a.m. (Richmond, Virginia, time) on the fifth
Business Day after receipt by Statesman of the Receivables Certificate,
Statesman shall pay to the Cooperative the amount by which (a) the aggregate
outstanding balance on each Receivable it has purchased exceeds (b) the Purchase
Discount (as herein defined) and the amount, if any, to be placed in the Reserve
<PAGE>
Account pursuant to Section 2.04, provided, however, that Statesman may choose
not to pay for any Receivable evidenced by a promissory note or other instrument
unless such note or other instrument has been endorsed and delivered to
Statesman.
(3) Promptly upon delivery of the certificate described in Section
2.03(1), the Cooperative shall assign and transfer as provided in such
certificate those Receivables Statesman is purchasing and all proceeds thereof,
cash or non-cash.
(4) (a) For purposes of this Article II, the Purchase Discount for Retail
Accounts shall be the product obtained by multiplying the outstanding balance of
the Retail Accounts being purchased by (i) the average Historical Charge Off
Percentage of the Cooperative for Retail Accounts for the three preceding fiscal
years times (ii) the sum of 1 plus the Average Total Delinquency Percentage
Variance for Retail Accounts, plus the anticipated interest charges for the
current month relating to the outstanding purchased Retail Accounts. Such amount
shall be computed according to the following formula:
Discount = Retail Accounts being purchased x [(aHCO%) x (1 + ADV)] +
AIC
where
aHCO% = average Historical Charge Off Percentage for Retail Accounts
for the three preceding fiscal years which for purposes of
this calculation shall not be less than 0.35% or such other
percentage as may be from time to time agreed to by the
Cooperative and Statesman.
ADV = Average Total Delinquency Percentage Variance for Retail
Accounts.
AIC = the anticipated interest charges for the current month for
borrowings relating to outstanding Retail Accounts purchased
by Statesman.
(b) For purposes of this Article II, the Purchase Discount for Grain
Marketing Accounts shall be the product obtained by multiplying the outstanding
balance of the Grain Marketing Accounts being purchased by (i) the average
Historical Charge Off Percentage of the Cooperative for Grain Marketing Accounts
for the three preceding fiscal years times (ii) the sum of 1 plus the Average
Total Delinquency Percentage Variance for Grain Marketing Accounts, plus the
anticipated interest charges for the current month relating to the outstanding
purchased Grain Marketing Accounts. Such amount shall be computed according to
the following formula:
Discount = Grain Marketing Accounts being purchased x [(aHCO%) x (1 +
ADV)] + AIC
<PAGE>
where
aHCO% = average Historical Charge Off Percentage for Grain Marketing
Accounts for the three preceding fiscal years which for
purposes of this calculation shall not be less than 0.15% or
such other percentage as may be from time to time agreed to by
the Cooperative and Statesman.
ADV = Average Total Delinquency Percentage Variance for Grain
Marketing Accounts.
AIC = the anticipated interest charges for the current month for
borrowings relating to outstanding Grain Marketing Accounts
purchased by Statesman.
(c) For purposes of this Article II, the Purchase Discount for
Accounts Receivable - Local Cooperatives shall be the product obtained by
multiplying the outstanding balance of the Accounts Receivable - Local
Cooperatives being purchased by (i) the average Historical Charge Off Percentage
of the Cooperative for Accounts Receivable - Local Cooperatives for the three
preceding fiscal years times (ii) the sum of 1 plus the Average Total
Delinquency Percentage Variance for Accounts Receivable - Local Cooperatives,
plus the anticipated interest charges for the current month relating to the
outstanding purchased Accounts Receivable - Local Cooperatives. Such amount
shall be computed according to the following formula:
Discount = Accounts Receivable - Local Cooperatives being purchased x
[(aHCO%) x (1 + ADV)] + AIC
where
aHCO% = average Historical Charge Off Percentage for Accounts
Receivable - Local Cooperatives for the three preceding fiscal
years which for purposes of this calculation shall not be less
than .05% or such other percentage as may be from time to time
agreed to by the Cooperative and Statesman.
ADV = Average Total Delinquency Percentage Variance for Accounts
Receivable - Local Cooperatives.
AIC = the anticipated interest charges for the current month for
borrowings relating to outstanding Accounts Receivable Local
Cooperatives purchased by Statesman.
Notwithstanding anything to the contrary contained in this Agreement, a
portion of such purchase price shall be placed in the reserve account described
in Section 2.04.
<PAGE>
SECTION 2.04. RESERVE ACCOUNT. Statesman shall place in a reserve account
(the "Reserve Account") an amount not to exceed one-eighth of one percent
(0.125%) of the aggregate outstanding balance on each Receivable it elects to
purchase, provided, however, that in no event shall any additional amount be
deducted from the Purchase Price paid to the Cooperative or placed in the
Reserve Account if the aggregate amount in the Reserve Account is equal to or
greater than one quarter of one percent (0.25%) of the aggregate unpaid balance
of all Receivables which Statesman has purchased from the Cooperative (including
the Receivables being paid for on such date). Funds in the Reserve Account need
not be segregated from other funds of Statesman. If at the end of any fiscal
year of Statesman, the balance in the Reserve Account after charges to the
Reserve Account as permitted in Section 2.05 is greater than one-eighth of one
percent (0.125%) of the balance owing on Receivables which Statesman has
purchased from the Cooperative, no Event of Default shall have occurred and be
continuing and no obligation of the Cooperative to Statesman is then due and
payable, Statesman will upon request of the Cooperative remit such excess to the
Cooperative.
SECTION 2.05. CHARGES TO RESERVE ACCOUNT. Statesman may in its sole and
absolute discretion charge losses on Purchased Receivables related to Credit
Risk (as defined in Section 4.06) against the Reserve Account. Statesman agrees
to add to the Reserve Account the amount received as a recovery less associated
collection costs on any Purchased Receivables which were previously charged to
the Reserve Account. Statesman shall notify the Cooperative promptly in writing
of any such reduction in the Reserve Account. As of the end of each month,
Statesman will provide the Cooperative with a report of transactions in the
Reserve Account during such month showing the balance in such account as of the
end of such month.
SECTION 2.06. PAYMENTS FROM THE COOPERATIVE. Monthly with the delivery of
each Receivables Certificate the Cooperative shall remit to Statesman in
immediately available funds an amount equal to the sum of (i) all payments
received by the Cooperative during the preceding month on Purchased Receivables,
(ii) all rebates or credits on any Purchased Receivable allowed by the
Cooperative during the preceding month, and (iii) all other adjustments made by
the Cooperative on any Purchased Receivable during such month which resulted in
a reduction of the amount owing thereon, minus any proceeds the Cooperative has
collected on Purchased Receivables and paid to Statesman since the delivery of
the previous Receivables Certificate.
SECTION 2.07. METHOD OF PAYMENT. All payments from the Cooperative to
Statesman under the terms of this Agreement shall be made to Statesman in
immediately available funds in Richmond, Virginia. Whenever any payment is
scheduled to be made on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
SECTION 2.08. FACILITY FEES FOR PURCHASE OF RECEIVABLES. The Cooperative
will pay to Statesman by the tenth Business Day of each month, or such later day
as may be agreed to by Statesman, a Facility Fee in such amount as shall be
agreed upon from time to time by the Cooperative and Statesman.
<PAGE>
SECTION 2.09. COLLECTION OF RECEIVABLES. Statesman hereby authorizes the
Cooperative to collect Purchased Receivables, subject to direction and control,
but Statesman may, without cause or notice, curtail or terminate said authority
at any time. Upon receipt of all checks, drafts, cash and other remittance in
payments of or on account of the Purchased Receivables, the Cooperative will
account to Statesman for such proceeds as herein provided. The Cooperative will
endorse all checks, drafts and other items evidencing such proceeds where
necessary to permit collection of such items, which endorsement Statesman is
also hereby authorized to make, as attorney-in-fact on behalf of the
Cooperative.
The Cooperative will pay all proceeds it collects on Purchased Receivables
to Statesman monthly no later than the tenth Business Day of each month or at
such other intervals as Statesman may from time to time request.
If the Cooperative receives any promissory note or other instrument (other
than a check) in payment of or on account of any Purchased Receivable, it will
immediately endorse the same and deliver it to Statesman.
Within ten (10) days of receipt of a written request of Statesman, the
Cooperative will notify the obligor on each Purchased Receivable to make
payments to Statesman at its Headquarters or at such other address as Statesman
shall have furnished to the Cooperative in writing and shall promptly deliver to
Statesman all proceeds of any Purchased Receivables then held by the
Cooperative. From and after receipt of such request, the Cooperative will
promptly forward to Statesman all checks, drafts, cash and other remittances
received by it in payment of or on account of any Purchased Receivable.
If the Cooperative shall fail to notify account obligors to make payments
to Statesman as herein provided, and in any event upon the occurrence of an
Event of Default, Statesman may so notify such account obligors.
SECTION 2.10. REPURCHASE OF RECEIVABLES. If the Cooperative shall at any
time determine not to sell to Statesman the Retail Accounts arising out of sales
made at any Retail Service, the Cooperative will with the consent of Statesman
promptly repurchase from Statesman all Retail Accounts arising out of sales made
at such Retail Service which Statesman has previously purchased from it. The
purchase price for such Retail Accounts will be the Balances Owed on the Retail
Accounts giving credit for all payments received by Statesman to the date of
sale to the Cooperative.
<PAGE>
ARTICLE III
-----------
INSTALLMENT SALES FINANCING
---------------------------
SECTION 3.01. GENERAL. Statesman will from time to time, upon the terms
and subject to the conditions contained in this Agreement, purchase from the
Cooperative Approved Contracts. Statesman may from time to time, at its option,
purchase from the Cooperative other Installment Sales Contracts arising out of
the sale of goods by Retail Services as provided in Section 3.03. Nothing
contained herein shall obligate Statesman to purchase any Installment Sales
Contract other than those Installment Sales Contracts which have been approved
in advance by Statesman as evidenced by a Statesman Approval Number (which
contracts are herein referred to as "Approved Contracts").
SECTION 3.02. NON-RECOURSE PURCHASES. Statesman will from time to time
upon the terms and subject to the conditions contained in this Agreement,
purchase Approved Contracts from the Cooperative. Such purchases shall be
without recourse to the Cooperative except as specifically provided for herein.
SECTION 3.03. FULL RECOURSE OPTION.
(1) Statesman may from time to time, at its option upon the terms and
subject to the conditions contained in this Agreement, purchase from the
Cooperative Installments Sales Contracts arising out of the sales of goods by
Retail Services, which Installment Sales Contracts Statesman has determined in
its sole and absolute discretion to be acceptable (which contracts are herein
referred to as "Eligible Contracts"), notwithstanding the fact that such
contracts have not been previously approved by Statesman and do not bear an
appropriate Statesman Approval Number. All purchases of such contracts shall be
subject to full recourse to the Cooperative as provided in paragraph (2) of this
Section 3.03.
(2) If any installment on any Installment Sales Contract purchased under
the provisions of this Section 3.03 is not paid within ninety (90) days of the
date it is scheduled to be paid, upon written demand by Statesman, the
Cooperative will repurchase such contract immediately for its Net Balance.
SECTION 3.04. PURCHASE PRICE; DELIVERY OF PURCHASED CONTRACTS. The
purchase price for Approved Contracts and Eligible Contracts shall be the Net
Balance or such other amount as may from time to time be agreed to in writing by
the Cooperative and Statesman. Upon receipt of an Approved Contract or Eligible
Contract duly endorsed and all related credit information, and the satisfaction
of all the conditions set forth in Article VI hereof, provided no Event of
<PAGE>
Default shall have occurred and be continuing, and provided Statesman shall not
then be entitled to require that the Cooperative repurchase Purchased Contracts
under the provisions of Section 3.03 hereof, Statesman shall pay the Cooperative
in cash the purchase price for each such Approved Contract or Eligible Contract.
Promptly thereafter, the Cooperative will notify each obligor on each such
Purchased Contract to make all future payments to Statesman at its Headquarters.
The Cooperative authorizes Statesman to insert its name, or the name of any
other assignee, in the space provided therefor in the assignment clause of all
Purchased Contracts and to return to the Cooperative all Installment Sales
Contracts not purchased. Statesman will identify in writing those contracts it
agrees to purchase and will return those contracts it declines to purchase. The
Cooperative is authorized to cancel the endorsement on each Installment Sales
Contract which Statesman does not purchase.
SECTION 3.05. WARRANTIES.
(1) By the delivery and sale of each such Installment Sales Contract under
the provisions of Section 3.02 or Section 3.03, the Cooperative warrants to
Statesman that:
(a) It has good title to such Installment Sales Contract or is
authorized to obtain payment on behalf of one who has good title and the sale
and transfer thereof are otherwise rightful;
(b) Each such Installment Sales Contract is a binding obligation
arising from the sale of merchandise by a Retail Service in the ordinary course
of business as described in the contract to a person or entity specified therein
as the obligor and constitutes the valid and legally binding obligation of such
obligor enforceable in accordance with its terms; such contract states the full
agreement of the parties and arises out of legally sufficient consideration;
(c) All signatures on such Installment Sales Contract are genuine or
authorized and all obligors thereon have the capacity to execute such contract;
(d) Such Installment Sales Contract has not been materially
altered;
(e) No obligor on such Installment Sales Contract has any defense,
set off or counterclaim against the Cooperative which is good against it;
(f) The conduct of the Cooperative in making the sale out of which
each contract arose was in all material respects in compliance with all
applicable laws and was not induced by fraud, false or misleading
representations or any other manner of unfair or deceptive trade practices or
other unlawful conduct;
(g) All credit information concerning the obligors on such contracts
was obtained and recorded in strict compliance with all applicable state and
federal laws, and the Cooperative has no reason to believe that any such
information is false, misleading or incomplete in any respect;
(h) All current credit information with respect to such obligors has
been accurately reported to Statesman;
<PAGE>
(i) The Installment Sales Contract forms provided by Statesman have
not been altered, modified or supplemented in any respect;
(j) All information required to be disclosed in such forms has been
accurately recorded therein and the Cooperative has complied with the
Truth-in-Lending Act and all other applicable disclosure laws, federal and
state;
(k) No fee has been charged with respect to any contract and no such
contract includes any deferred payment price or other charge which violates any
applicable usury law or consumer protection law;
(l) Such Installment Sales Contract contains all of the terms and
conditions of the agreement between the Cooperative and the obligors with
respect to such purchase and the Cooperative has not entered into any other
agreement with any obligor with respect to such contract and has not waived or
agreed to waive any term or condition contained in the form or taken any other
action which might result in any constructive or implied waiver or modification
thereof;
(m) Each down payment shown in each Installment Sales Contract has
actually been received in cash from the obligors or a person paying such amount
on behalf of the obligors and no part thereof has been directly or indirectly
advanced by the Cooperative;
(n) Each trade-in shown in each Installment Sales Contract has
actually been delivered to the Cooperative and the amount recorded in the
contract accurately reflects the agreed value thereof;
(o) All aspects of the sale have been in strict compliance with all
applicable consumer protection acts and regulations, including without
limitation the Truth-in-Lending Act, the Equal Credit Opportunity Act and any
applicable state law;
(p) All applicants for credit have been given all notices required
by applicable law;
(q) The Cooperative has no knowledge of any insolvency proceeding
involving any party obligated on such Installment Sales Contract; and
(r) Such Installment Sales Contract is not subject to any claim,
lien, security interest, charge or other encumbrance in favor of any one other
than the Cooperative and Statesman, and the Cooperative has not offered such
Contract for sale to any purchaser other than Statesman.
(2) The Cooperative further represents and warrants that it is and shall
be solvent at the time of each sale of any Installment Sales Contract.
<PAGE>
SECTION 3.06. REMEDIES OF STATESMAN WITH RESPECT TO INSTALLMENT SALES
CONTRACTS PURCHASED UNDER THE PROVISIONS OF THIS ARTICLE THREE.
(1) Breach of Warranty. If any warranty made by the Cooperative under the
provisions of Section 3.05 of this Agreement shall prove to have been false in
any material respect as it relates to any Purchased Contract, the Cooperative
covenants and agrees promptly upon written demand by Statesman to purchase such
Purchased Contract for the Net Balance in immediately available funds. Statesman
covenants and agrees that upon receipt of such payment it will cancel the
endorsement and deliver such Purchased Contract to the Cooperative at the
address stated in Section 11.07 of this Agreement. Statesman represents and
warrants to the Cooperative with respect to each such Installment Sales Contract
that the Net Balance paid to it is the Net Balance of such contract and that
except as disclosed in a writing accompanying such contract, Statesman has not
released any party to such contract from its obligation thereunder, released any
security interest directly securing such contract or consented to any reduction
in the amount owing thereon or the extension of the due date for any payment or
installment thereunder. Such transfer from Statesman to the Cooperative will be
without recourse and except as provided in the immediately preceding sentence,
without representation or warranty of any nature or type.
(2) Determination of Breach. For the purpose of determining whether or not
any warranty made by the Cooperative under the provisions of Section 3.05 was
false and that the Cooperative is therefore obliged to repurchase any Purchased
Contract, the Cooperative shall be bound by a written statement of an officer of
Statesman that in the reasonable judgment of Statesman it has determined that
any obligor under any Purchased Contract has refused to make any scheduled
payment under such contract because of any fact which has been represented as
otherwise by the Cooperative to Statesman under the provisions of Section 3.05
hereof.
SECTION 3.07. CONTRACT FORMS. Statesman will provide and the Cooperative
will use forms of contracts and credit applications previously approved by
Statesman. In the event Statesman determines that any previously approved form
should not be used, it will so advise the Cooperative and the Cooperative will
discontinue any use of such form.
SECTION 3.08. PAYMENTS. The Cooperative will cause each Retail Service on
the day of receipt of any payment on any Purchased Contract to report such
payment to Statesman at its Headquarters. The Cooperative covenants and agrees
that all payments received by it on Purchased Contracts will be charged to the
Cooperative's intercompany accounts payable to Statesman and paid to Statesman
in collected funds no less frequently than every five (5) business days. In the
event the Cooperative shall fail to endorse any check or other item when
necessary to permit its collection, Statesman is authorized, as its
attorney-in-fact to make such endorsement on behalf of the Cooperative.
<PAGE>
SECTION 3.09. OBLIGOR COMPLAINTS AND RETURNED MERCHANDISE.
(1) The Cooperative shall, within three (3) Business Days of its receipt,
provide Statesman with a copy of any written complaint from any obligor(s)
relating to any Purchased Contract or any merchandise or service purchased
thereunder;
(2) If the purchaser under any Purchased Contract returns merchandise, for
any reason, within 10 days from the date of the sale, the Cooperative will fully
reimburse such purchaser for any down payment and immediately repurchase the
Purchased Contract from Statesman for its Net Balance.
SECTION 3.10. MODIFICATIONS, EXTENSIONS. Statesman may, without affecting
the agreements of the Cooperative herein, change, modify, extend or renew the
dates and amounts of the periodic installment payments in any Purchased
Contract.
SECTION 3.11. WARRANTY, SERVICE, OR SIMILAR AGREEMENTS. The Cooperative
covenants and agrees to indemnify and hold Statesman harmless from any and all
losses arising out of the breach of any performance or extended warranties and
all service or similar agreements made by Manufacturer, the Cooperative, or any
other Person relating to merchandise which is the subject of any Purchased
Contract, even if any such warranty, service, or similar agreements are not
immediately effective. Unless such agreement expressly provides otherwise, the
Cooperative agrees to provide repairs and service to the purchaser of the
merchandise at its usual rates of charge.
SECTION 3.12. REPOSSESSION.
(1) The Cooperative will, at Statesman's request, act as its agent in the
repossession of any property described in any Purchased Contract in accordance
with all applicable laws and in that capacity take certain actions, including
the transportation of the property from its location to the Cooperative's place
of business, repair and restoration of the property to a marketable condition,
and storage, without storage fee. Statesman will compensate the Cooperative for
its reasonable actual costs in such transportation, repair, and restoration,
except as covered by an extended warranty or service agreement. In the event
Statesman directs the Cooperative on its behalf to sell the property, it will
pay the Cooperative such commission as is agreed upon from time to time by the
Cooperative and Statesman and as evidenced by Statesman's letter. The
Cooperative agrees to sell said property in accordance with the applicable
provisions of the Uniform Commercial Code, as it may be amended from time to
time, and other applicable law.
(2) Where an extended warranty or service agreement is included in the
sales contract purchased, the Cooperative hereby agrees to perform at its
expense or have performed such warranty or service work under the terms of such
extended warranty or service agreement. A pro rata refund will be paid in cash
<PAGE>
to Statesman of the unearned identifiable charge assessed for the extended
warranty or service agreement, which will then be credited to any balance due on
such Purchased Contract.
ARTICLE IIIA
------------
CREDIT CARD FINANCING
---------------------
Section 3A.01. Approval of Customer's Credit. Statesman agrees to review
information on customers of the Cooperative, Local Cooperatives and Dealerships
recorded on its Statesman Revolving Credit Card Application and Agreement forms
and submitted to it by the Cooperative, a Local Cooperative or a Dealership and
to approve extending open-end or revolving credit to such customers in a
specific dollar amount or to deny such credit.
Section 3A.02. Purchases By Credit Card Customers. After Statesman has
approved the credit of a customer in the Southern States Credit Card Program, so
long as the customer pays his or her account in accordance with the terms
thereof established from time to time by Statesman and otherwise complies with
the terms thereof and is not bankrupt or insolvent, Statesman will extend credit
to such customer up to the preapproved dollar limit for the purchase of goods
and services from the Cooperative, a Local Cooperative or a Dealership.
Section 3A.03. Approval of Requests to Change Credit. Statesman agrees
upon request of the Cooperative, a Local Cooperative or a Dealership to review
information on customers of the Cooperative, such Local Cooperative or such
Dealership and to approve changing the amount of open-end or revolving credit
for such customers to a specific dollar amount or to deny such change.
Section 3A.04. Settlement for Purchases. Statesman will periodically
settle with the Cooperative and each Local Cooperative and Dealership for
purchases made from the Cooperative or such Local Cooperative or Dealership, as
the case may be, under the Southern States Credit Card Program by periodically
crediting to the Cooperative or such Local Cooperative or Dealership, as the
case may be, the aggregate amount of such purchases since the last settlement
date, net of the applicable merchant's discount as may be agreed to from time to
time by the Cooperative or such Local Cooperative or Dealership, as the case may
be, and Statesman. All sales under the Southern States Credit Card Program made
in accordance with the instructions provided from time to time by Statesman to
the Cooperative, the Local Cooperatives and the Dealerships will be without
recourse. Statesman may, however, require the Cooperative, a Local Cooperative
or a Dealership to reimburse it for certain purchases as may be agreed to from
time to time by Statesman and the Cooperative, such Local Cooperative or such
Dealership. The parties acknowledge and agree that in the event of any conflict
between the terms hereof and any other agreement between the parties or between
Statesman and a Local Cooperative or a Dealership with respect to such rights
and obligations, the terms of the other agreement shall govern.
<PAGE>
ARTICLE IIIB
------------
ASSET BASED FINANCING
---------------------
SECTION 3B.01. GENERAL. From time to time at the request of the
Cooperative, Statesman may extend asset based financing to customers of the
Cooperative. Such financing shall be extended pursuant to separate agreements to
be entered into between each such customer and Statesman.
SECTION 3B.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate Statesman to extend any asset based financing to any person. All
decisions with respect to asset based financing shall be made by Statesman in
its sole discretion, subject to such agreements as Statesman may enter into from
time to time with its asset based borrowers.
ARTICLE IIIC
------------
PERSONAL PROPERTY LEASING
-------------------------
SECTION 3C.01. LEASES TO THE COOPERATIVE. Statesman will from time to time
lease computers, computer equipment and other equipment to the Cooperative,
which equipment may be subleased by the Cooperative to others. Such leases shall
be on such terms and conditions as may be agreed to from time to time by
Statesman and the Cooperative and will be evidenced by lease agreements between
Statesman and the Cooperative.
SECTION 3C.02. APPROVAL OF CUSTOMER'S CREDIT. Statesman agrees to review
information on customers of the Cooperative, Local Cooperatives and Dealerships
recorded on its Statesman application forms for the lease of liquid propane
tanks (or other personal property then being leased by Statesman) and submitted
to it by the Cooperative, a Local Cooperative or a Dealership and to approve
leasing such property to such customers or to determine not to lease such
property.
SECTION 3C.03. PAYMENT FOR LEASED PROPERTY. If Statesman approves the
lease of personal property to customers of the Cooperative, a Local Cooperative
or a Dealer, it will promptly notify the Cooperative or the Local Cooperative or
Dealership which requested such lease, and if it has received a properly
completed Lease Agreement appropriately signed by the customer and the
Cooperative, the Local Cooperative or the Dealership, as the case may be, it
will remit to the Cooperative, or to the Local Cooperative or Dealership which
requested such lease the invoice price of the leased equipment.
<PAGE>
SECTION 3C.04. COLLECTION OF RENT. The Cooperative, or the Local
Cooperative or Dealership which requested the lease will serve as the agent of
Statesman in the collection of the monthly rent due under the lease and will
remit to Statesman monthly from the proceeds of liquid propane sold to the
lessee the monthly rentals due under the lease.
ARTICLE IIID
------------
AGRICULTURAL PRODUCTION LOANS
-----------------------------
SECTION 3D.01. GENERAL. Statesman may from time to time extend
Agricultural Production Loans to customers of the Cooperative and other Persons.
Such financing shall be extended pursuant to separate agreements to be entered
into between each such Person and Statesman.
SECTION 3D.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate Statesman to extend any Agricultural Production Loan to any person. All
decisions with respect to Agricultural Production Loans shall be made by
Statesman in its sole discretion, subject to such agreements as Statesman may
enter into from time to time with its Agricultural Production Loan borrowers.
ARTICLE IIIE
------------
CROP TIME NOTES
---------------
SECTION 3E.01. GENERAL. Statesman will from time to time, upon the terms
and subject to the conditions contained in this Agreement, purchase from the
Cooperative Crop Time Notes which have been approved by Statesman. Nothing
contained herein shall obligate Statesman to purchase any Crop Time Note other
than those Crop Time Notes which have been approved in advance by Statesman
(which Notes are herein referred to as "Approved Notes").
SECTION 3E.02. NON-RECOURSE PURCHASES. The purchase of Crop Time Notes
under this Agreement shall be without recourse to the Cooperative except as
specifically provided for herein.
SECTION 3E.03. FULL RECOURSE OPTION.
(1) Statesman may from time to time, at its option upon the terms and
subject to the conditions contained in this Agreement, purchase from the
Cooperative Crop Time Notes arising out of the sales of goods or the providing
of services by the Cooperative, which Crop Time Notes Statesman has determined
in its sole and absolute discretion to be acceptable (which Notes are herein
<PAGE>
referred to as "Eligible Notes"), notwithstanding the fact that such Notes have
not been previously approved by Statesman. All purchases of such Notes shall be
subject to full recourse to the Cooperative as provided in paragraph (2) of this
Section 3E.03.
(2) If any Crop Time Note purchased under the provisions of this Section
3E.03 is not paid within ninety (90) days of the date it is scheduled to be
paid, upon written demand by Statesman, the Cooperative will repurchase such
Note immediately for its Net Balance.
SECTION 3E.04 PURCHASE PRICE; DELIVERY OF PURCHASED NOTES. The purchase
price for Approved Notes and Eligible Notes shall be the Net Balance or such
other amount as may from time to time be agreed to in writing by the Cooperative
and Statesman. Upon receipt of an Approved Note or Eligible Note duly endorsed
and all related credit information, and the satisfaction of all the conditions
set forth in Article VI hereof, provided no Event of Default shall have occurred
and be continuing, and provided Statesman shall not then be entitled to require
that the Cooperative repurchase Eligible Notes under the provisions of Section
3E.03 hereof, Statesman shall pay the Cooperative in cash the purchase price for
each such Approved Note or Eligible Note. Promptly thereafter, the Cooperative
will notify each obligor on each such Crop Time Note to make all future payments
to Statesman at its Headquarters. The Cooperative authorizes Statesman to insert
its name, or the name of any other assignee, in the space provided therefor in
the assignment clause of all Crop Time Notes it has purchased and to return to
the Cooperative all Crop Time Notes not purchased. Statesman will identify in
writing those Notes it agrees to purchase and will return those Notes it
declines to purchase. The Cooperative is authorized to cancel the endorsement on
each Crop Time Note which Statesman does not purchase.
SECTION 3E.05. WARRANTIES.
(1) By the delivery and sale of each such Crop Time Note under the
provisions of Section 3E.02 or Section 3E.03, the Cooperative warrants to
Statesman that:
(a) It has good title to such Crop Time Note or is authorized to
obtain payment on behalf of one who has good title and the sale and transfer
thereof are otherwise rightful;
(b) Each such Crop Time Note is a binding obligation arising from
the sale of merchandise or services by the Cooperative in the ordinary course of
business as described in the Note to a person or entity specified therein as the
obligor and constitutes the valid and legally binding obligation of such obligor
enforceable in accordance with its terms; such Note states the full agreement of
the parties and arises out of legally sufficient consideration;
(c) All signatures on such Crop Time Note are genuine or authorized
and all obligors thereon have the capacity to execute such Note;
(d) Such Crop Time Note has not been materially altered;
<PAGE>
(e) No obligor on such Crop Time Note has any defense, set off or
counterclaim against the Cooperative which is good against it;
(f) The conduct of the Cooperative in making the sale out of which
each Note arose was in all material respects in compliance with all applicable
laws and was not induced by fraud, false or misleading representations or any
other manner of unfair or deceptive trade practices or other unlawful conduct;
(g) All credit information concerning the obligors on such Notes was
obtained and recorded in strict compliance with all applicable state and federal
laws, and the Cooperative has no reason to believe that any such information is
false, misleading or incomplete in any respect;
(h) All current credit information with respect to such obligors has
been accurately reported to Statesman;
(i) The Crop Time Note forms provided by Statesman have not been
altered, modified or supplemented in any respect;
(j) All information required to be disclosed in such forms has been
accurately recorded therein and to the extent applicable, the Cooperative has
complied with the Truth-in-Lending Act and all other applicable disclosure laws,
federal and state;
(k) No fee has been charged with respect to any Note and no such
Note includes any deferred payment price or other charge which violates any
applicable usury law or consumer protection law;
(l) Such Crop Time Note contains all of the terms and conditions of
the obligation of the obligors evidenced thereby and the Cooperative has not
entered into any other agreement with the obligor with respect to such Note and
has not waived or agreed to waive any term or condition contained in the form or
taken any other action which might result in any constructive or implied waiver
or modification thereof;
(m) All aspects of the sale out of which such Crop Time Note arose
have been in strict compliance with all applicable consumer protection acts and
regulations, including without limitation the Truth-in-Lending Act, the Equal
Credit Opportunity Act and any applicable state law;
(n) All applicants for credit have been given all notices required
by applicable law;
(o) The Cooperative has no knowledge of any insolvency proceeding
involving any party obligated on such Crop Time Note; and
(p) Such Crop Time Note is not subject to any claim, lien, security
interest, charge or other encumbrance in favor of any one other than the
<PAGE>
Cooperative and Statesman, and the Cooperative has not offered such Note for
sale to any purchaser other than Statesman.
(2) The Cooperative further represents and warrants that it is and shall
be solvent at the time of each sale of any Crop Time Note.
SECTION 3E.06. REMEDIES OF STATESMAN WITH RESPECT TO CROP TIME NOTES
PURCHASED UNDER THE PROVISIONS OF THIS ARTICLE THREE.
(1) Breach of Warranty. If any warranty made by the Cooperative under the
provisions of Section 3E.05 of this Agreement shall prove to have been false in
any material respect as it relates to any Purchased Note, the Cooperative
covenants and agrees promptly upon written demand by Statesman to purchase such
Purchased Note for the Net Balance in immediately available funds. Statesman
covenants and agrees that upon receipt of such payment it will cancel the
endorsement and deliver such Purchased Note to the Cooperative at the address
stated in Section 11.07 of this Agreement. Statesman represents and warrants to
the Cooperative with respect to each such Crop Time Note that the Net Balance
paid to it is the Net Balance of such Note and that except as disclosed in a
writing accompanying such Note, Statesman has not released any party to such
Note from its obligation thereunder, released any security interest directly
securing such Note or consented to any reduction in the amount owing thereon or
the extension of the due date for any payment or installment thereunder. Such
transfer from Statesman to the Cooperative will be without recourse and except
as provided in the immediately preceding sentence, without representation or
warranty of any nature or type.
(2) Determination of Breach. For the purpose of determining whether or not
any warranty made by the Cooperative under the provisions of Section 3E.05 was
false and that the Cooperative is therefore obliged to repurchase any Purchased
Note, the Cooperative shall be bound by a written statement of an officer of
Statesman that in the reasonable judgment of Statesman it has determined that
any obligor under any Purchased Note has refused to make any scheduled payment
under such Note because of any fact which has been represented as otherwise by
the Cooperative to Statesman under the provisions of Section 3E.05 hereof.
SECTION 3E.07. NOTE FORMS. Statesman will provide and the Cooperative will
use forms of Crop Time Notes and credit applications previously approved by
Statesman. In the event Statesman determines that any previously approved form
should not be used, it will so advise the Cooperative and the Cooperative will
discontinue any use of such form.
SECTION 3E.08. PAYMENTS. The Cooperative will on the day of receipt of any
payment on any Purchased Note forward such payment to Statesman at its
Headquarters. In the event the Cooperative shall fail to endorse any check or
other item when necessary to permit its collection, Statesman is authorized, as
its attorney-in-fact to make such endorsement on behalf of the Cooperative.
<PAGE>
SECTION 3E.09. OBLIGOR COMPLAINTS AND RETURNED MERCHANDISE.
(1) The Cooperative shall, within three (3) Business Days of its receipt,
provide Statesman with a copy of any written complaint from any obligor relating
to any Purchased Note or any merchandise or service purchased thereunder;
(2) If the obligor on any Purchased Note returns merchandise, for any
reason, within 10 days from the date of the sale, the Cooperative will fully
reimburse such obligor for any down payment and immediately repurchase the
Purchased Note from Statesman for its Net Balance.
SECTION 3E.10. MODIFICATIONS, EXTENSIONS. Statesman may, without
affecting the agreements of the Cooperative herein, change, modify, extend or
renew the dates and amounts of any scheduled payment on any Purchased Note.
SECTION 3E.11 REMEDIES.
Statesman may exercise such remedies with respect to the enforcement of
the Purchased Notes as it may deem appropriate. The Cooperative will cooperate
with Statesman in the enforcement of the Purchased Notes.
ARTICLE IIIF
------------
TERM LOANS
----------
SECTION 3F.01. GENERAL. Statesman may from time to time extend Term Loans
to Customers of the Cooperative and other Persons. Such loans shall be extended
pursuant to separate agreements to be entered into between each such Person and
Statesman.
SECTION 3F.02. TERMS AND CONDITIONS. Nothing contained herein shall
obligate Statesman to extend any Term Loan to any person. All decisions with
respect to Term Loans shall be made by Statesman in its sole discretion, subject
to such agreements as Statesman may enter into from time to time with its Term
Loan borrowers.
ARTICLE IV
----------
FINANCING WHOLESALE ACCOUNTS
----------------------------
SECTION 4.01. PURCHASE OF WHOLESALE ACCOUNTS. Statesman shall from time to
time, upon the terms and subject to the conditions contained in this Agreement,
purchase Wholesale Accounts from the Cooperative, provided that Statesman has
determined in its sole and absolute discretion that such Wholesale Accounts are
acceptable to it and as to which approval has not been withdrawn by Statesman as
provided below. All such purchases shall be made without recourse to the
Cooperative except as provided in Sections 4.09 and 4.11 and except so far as
Statesman shall have the right to make charges to the Wholesale Reserve Account
as provided in Section 4.05.
<PAGE>
SECTION 4.02. REPAYMENT TERMS OFFERED ON CREDIT SALES. The Cooperative
agrees to provide Statesman with a comprehensive list of all credit repayment
plans (the "Repayment Terms") which it plans to offer to Cooperative Wholesale
Account customers. Statesman will review the Repayment Terms to be offered prior
to their implementation by the Cooperative and will advise the Cooperative of
its acceptance of the proposed Repayment Terms. Statesman will purchase only
those invoices which are in conformity with the preestablished Repayment Terms
which have been approved by Statesman. The Cooperative will not make any changes
in the Repayment Terms offered to the Wholesale Account customers without first
obtaining Statesman's written approval.
The requested credit line, anticipated sales volume, financial
information, credit application and any other information which Statesman in its
sole discretion may request shall be obtained by the Cooperative, and each and
every sale to Wholesale Accounts shall be made only in accordance with the
Statesman approved Repayment Terms and the Statesman Approval, which may be
withdrawn at any time before actual delivery of merchandise or rendition of
services to the customer.
SECTION 4.03. PROCEDURES.
(1) Prior to the generation of new receivables, the Cooperative will
provide to Statesman information concerning customers to which the Cooperative
plans to sell merchandise or render a service which will result in the creation
of a Wholesale Account. Statesman will review the information and determine in
its sole and absolute discretion the terms under which the Cooperative may sell
to the customer such that Statesman will purchase the resulting Wholesale
Account (the "Statesman Approval"). Any customer which has been approved by
Statesman will hereinafter be referred to as an "Approved Wholesale Account."
Statesman will notify the Cooperative in writing of its decision.
(2) Not later than 10:00 a.m. (Richmond, Virginia, time) on each Business
Day, the Cooperative will provide to Statesman information on Approved Wholesale
Accounts being offered to Statesman for purchase. This information shall include
all information which Statesman may reasonably request and shall be in a form
satisfactory to Statesman.
(3) Not later than 12 noon (Richmond, Virginia, time) on the same Business
Day, Statesman will confirm to the Cooperative those Approved Wholesale Accounts
it is purchasing and will prepare and deliver its check drawn on Crestar Bank,
Richmond, Virginia, or other bank satisfactory to the Cooperative, or make an
ACH transfer or wire transfer, for the face amount of the Wholesale Accounts
<PAGE>
which Statesman is purchasing less any amount to be placed in the Wholesale
Reserve Account pursuant to Section 4.04 and less the Purchase Discount for
Wholesale Accounts. Statesman may choose not to pay for any Wholesale Account
evidenced by a promissory note or other instrument unless such note or other
instrument has been endorsed and delivered to Statesman.
(4) For purposes of this Article IV, the Purchase Discount for Wholesale
Accounts shall be the product obtained by multiplying the outstanding balance of
the Wholesale Accounts being purchased by (i) the average Historical Charge Off
Percentage of the Cooperative for Wholesale Accounts for the three preceding
fiscal years times (ii) the sum of 1 plus the Average Total Delinquency
Percentage Variance for Wholesale Accounts, plus the anticipated net interest
charges for the current month relating to the outstanding purchased Wholesale
Accounts. Such amount shall be computed according to the following formula:
Discount = Wholesale Accounts being purchased x [(aHCO%) x (1 + ADV)] +
AIC
where
aHCO% = average Historical Charge Off Percentage for Wholesale
Accounts for the three preceding fiscal years which for
purposes of this calculation shall not be less than .35% or
such other percentage as may be from time to time agreed to by
the Cooperative and Statesman.
ADV = Average Total Delinquency Percentage Variance for Wholesale
Accounts.
AIC = the amount by which the anticipated interest charges for the
current month for borrowings relating to outstanding Wholesale
Accounts purchased by Statesman exceed the finance charges
anticipated to be collected during such month by Statesman on
Wholesale Accounts.
(5) Upon receipt of such payment, the Cooperative shall sell, assign, and
convey to Statesman and without any further action on its part, shall be deemed
to have sold, assigned and conveyed to Statesman each such Approved Wholesale
Account, and all of the Cooperative's interest in the goods represented by such
Wholesale Accounts and in all goods that may be returned by customers obligated
on such Wholesale Accounts, all its rights as an unpaid vendor or lienor, all
its rights of stoppage in transit, replevin and reclamation relating thereto,
all its rights in and to all security therefor and guarantees thereof, and
guarantees thereto, all of its rights against third parties with respect
thereto, and all other proceeds thereof, cash or non-cash. Any goods so
recovered or returned shall be segregated in a manner acceptable to Statesman
and held for Statesman's account as owner. The Cooperative shall notify
Statesman promptly of all such returned or recovered goods.
(6) Statesman may at any time and from time to time revoke the Statesman
Approval with respect to any customer of the Cooperative or reduce the amount of
Wholesale Accounts owing from such customer which it will purchase from the
Cooperative or change the Repayment Term approved for such customer. It will
<PAGE>
promptly notify the Cooperative of its decision to revoke the Statesman Approval
for any Wholesale Account, or to reduce the amount of such Account or change
terms and Statesman shall not be obligated to purchase any Wholesale Account
arising out of the delivery of any merchandise to or the commencement of any
service for such obligor which occurs after such notice is given to the
Cooperative except as Statesman shall have otherwise agreed. The revocation or
alteration of the Statesman Approval with respect to a customer shall not affect
the right of the Cooperative to extend credit for merchandise or services to any
customer, but all payments received from such customer shall be applied to
earliest invoices first, and payments shall be applied to invoices included in
Wholesale Accounts purchased by Statesman before they are applied to invoices
arising after the revocation or alteration of the Statesman Approval with
respect to such customer or the reduction of the amount of credit approved for
such customer.
SECTION 4.04. WHOLESALE RESERVE ACCOUNT. Statesman shall place in a
reserve account (the "Wholesale Reserve Account") an amount not to exceed
one-eighth of one percent (0.125%) of the aggregate outstanding balance on each
invoice it elects to purchase, provided, however that in no event shall any
additional amount be deducted from the amount paid to the Cooperative under this
Article IV or placed in the Wholesale Reserve Account if the aggregate amount in
the Wholesale Reserve Account is equal to or greater than one quarter of one
percent (0.25%) of the aggregate unpaid balance of all Wholesale Accounts which
Statesman has purchased from the Cooperative (including the invoices being
purchased on such date). Funds in the Wholesale Reserve Account need not be
segregated from other funds of Statesman. If at the end of any fiscal year of
Statesman, the balance in the Wholesale Reserve Account after charges to the
Reserve Account as provided in Section 4.05 is greater than one-eighth of one
percent (0.125%) of the balance owing on Wholesale Accounts which Statesman has
purchased from the Cooperative, no Event of Default shall have occurred and be
continuing and no obligation of the Cooperative to Statesman is then due and
payable, Statesman will upon request of the Cooperative remit such excess to the
Cooperative.
SECTION 4.05. CHARGES TO WHOLESALE RESERVE ACCOUNT. Statesman may in its
sole and absolute discretion charge losses on Purchased Wholesale Accounts
related to Credit Risk as set forth in Section 4.06 against the Wholesale
Reserve Account. Statesman agrees to add to the Wholesale Reserve Account the
amount received as a recovery less associated collection costs on any purchased
Wholesale Accounts which were previously charged to the Wholesale Reserve
Account. Statesman shall notify the Cooperative promptly in writing of any such
reduction in the Wholesale Reserve Account. As of the end of each month,
Statesman will provide the Cooperative with a report of transactions in the
Wholesale Reserve Account during such month showing the balance in such account
as of the end of such month.
SECTION 4.06. CREDIT RISK. On all Purchased Wholesale Accounts, Statesman
agrees to assume any loss which is due solely to the financial inability of the
customer to pay at maturity (the "Credit Risk") unless the representation
contained in paragraph (l)(i) of Section 4.10 was not true at the time Statesman
purchased such Wholesale Account, provided the customer has received and
<PAGE>
accepted the goods and/or services which gave rise to such Purchased Wholesale
Account without any Dispute. The term "Dispute" shall mean any dispute,
deduction, claim, offset, defense or counterclaim of any kind, including,
without limitation, any dispute relating to goods or services already paid for
or relating to any obligation to the Cooperative other than the Wholesale
Account on which payment is being withheld.
SECTION 4.07. FACILITY FEE FOR PURCHASED WHOLESALE ACCOUNTS. The
Cooperative will pay to Statesman by the tenth Business Day of each month, or
such later day as may be agreed to by Statesman, a Facility Fee in such amount
as shall be agreed upon from time to time by the Cooperative and Statesman.
SECTION 4.08. PAYMENTS FROM THE COOPERATIVE. If any remittances on
Wholesale Accounts which have been purchased by Statesman are made directly to
the Cooperative, the Cooperative shall immediately deliver them to Statesman in
Richmond, Virginia, in precisely the form received, and until they are so
delivered they shall be held in trust by the Cooperative for the benefit of
Statesman.
SECTION 4.09. DISPUTES. The Cooperative will promptly notify Statesman of
and settle at the Cooperative's cost and expense, including attorneys' fees, all
Disputes relating to Wholesale Accounts which Statesman has purchased. However,
if any Dispute is not settled by the Cooperative within sixty days after the
invoice date or within such shorter period as Statesman may determine, Statesman
may settle, compromise or litigate such Dispute in Statesman's or the
Cooperative's name upon such terms as Statesman in Statesman's sole discretion
may deem advisable and for the Cooperative's account and risk. Statesman may
also at its discretion and without notice to the Cooperative take possession of
and sell any returned goods at such prices and upon such terms as Statesman
deems advisable. The Cooperative shall promptly pay to Statesman any deficiency,
and all costs and expenses, including attorneys' fees, resulting from any such
Dispute, and if the Cooperative fails to pay such amount, Statesman may deduct
it from any payment it is required to make to the Cooperative under the terms of
this Agreement.
SECTION 4.10. WARRANTIES.
(1) With respect to each Approved Wholesale Account which the Cooperative
offers to sell under this Article IV, the Cooperative warrants to Statesman
that:
(a) It has good title to such Wholesale Account, there is no
restriction on its sale and transfer and the sale and transfer thereof is
otherwise rightful;
(b) Such Wholesale Account is a binding obligation arising from the
sale of merchandise or the provision of a service by the Cooperative in the
ordinary course of business, as described in the invoice relating to such
transaction, to a person or entity specified therein as the obligor, arises out
of legally sufficient consideration, and constitutes the valid and legally
binding obligation of such obligor enforceable in accordance with its terms;
<PAGE>
(c) No invoice has been materially altered;
(d) The obligor on such Wholesale Account has no defense, set off or
counterclaim against the Cooperative which is good against it;
(e) The conduct of the Cooperative in making the sale or sales out
of which such Wholesale Account arose was in all material respects in compliance
with all applicable laws and was not induced by fraud, false or misleading
representations or any other manner of unfair or deceptive trade practices or
other unlawful conduct;
(f) All credit information concerning the obligor on such Wholesale
Account was obtained and recorded in strict compliance with all applicable state
and federal laws, and the Cooperative has no reason to believe that any such
information is false, misleading or incomplete in any respect;
(g) All current credit information with respect to such obligor has
been accurately reported to Statesman;
(h) The terms and conditions of the agreement between the
Cooperative and the obligor with respect to such Wholesale Account, including
the Repayment Terms, are not materially different from those approved by
Statesman for such obligor, and the Cooperative has not amended or waived or
agreed to amend or waive any such term or condition or taken any other action
which might result in any constructive or implied waiver or modification
thereof;
(i) The Cooperative has no knowledge of any insolvency proceeding
involving the obligor on such Wholesale Account; and
(j) Such Wholesale Account is not subject to any claim, lien,
security interest, charge or other encumbrance in favor of any one other than
the Cooperative and Statesman, and the Cooperative has not offered such
Wholesale Account for sale to any purchaser other than Statesman.
(2) The Cooperative further represents and warrants that it is and shall
be solvent at the time of each sale of Wholesale Accounts.
SECTION 4.11. REMEDIES OF STATESMAN WITH RESPECT TO WHOLESALE ACCOUNTS
PURCHASED UNDER THE PROVISIONS OF THIS ARTICLE FOUR.
(1) Breach of Warranty. If any warranty made by the Cooperative under the
provisions of Section 4.10 of this Agreement shall prove to have been false in
any material respect as it relates to any Wholesale Account purchased by
Statesman, the Cooperative covenants and agrees promptly upon written demand by
Statesman to purchase such Wholesale Account for the net balance owing thereon,
including accrued interest, in immediately available funds. Statesman covenants
<PAGE>
and agrees that upon receipt of such payment it will promptly transfer and
assign such Wholesale Account and all proceeds thereof to the Cooperative.
Statesman represents and warrants to the Cooperative with respect to each such
Wholesale Account it sells back to the Cooperative that the net balance paid to
it is the net balance owing on such Wholesale Account and that except as
disclosed in a writing at the time of such sale, Statesman has not released the
obligor thereon of its obligation thereunder, or consented to any reduction in
the amount owing thereon or the extension of the due date for any payment or
installment thereunder. Such transfer from Statesman to the Cooperative will be
without recourse and except as provided in the immediately preceding sentence,
without representation or warranty of any nature or type.
(2) Determination of Breach. For the purpose of determining whether or not
any warranty made by the Cooperative under the provisions of Section 4.10 was
false and that the Cooperative is therefore obliged to repurchase any Wholesale
Account, the Cooperative shall be bound by a written statement of an officer of
Statesman that in the reasonable judgment of Statesman it has determined that
any obligor under any Wholesale Account has refused to make any scheduled
payment under such contract because of any fact which has been represented as
otherwise by the Cooperative to Statesman under the provisions of Section 4.10
hereof.
SECTION 4.12. WHOLESALE ACCOUNTS WHICH ARE NOT APPROVED. Statesman may
from time to time purchase Wholesale Accounts other than Approved Wholesale
Accounts at such price as may from time to time be agreed to by the parties
hereto. Except for the price and the absence of any obligation of Statesman to
purchase such Wholesale Accounts, and to the extent the parties may otherwise
agree at the time of such sale, all aspects of such sales shall be similar to
the sales of Approved Wholesale Accounts.
SECTION 4.13. NOTICE TO OBLIGORS; STATEMENTS. Statesman may notify the
obligor on each Wholesale Account that Statesman purchases from the Cooperative
that such account has been purchased by Statesman and that all payments with
respect to such Wholesale Accounts and inquiries with respect thereto should be
addressed to Statesman at its address. Such notice may at the option of
Statesman be given in the name of the Cooperative or of Statesman. Thereafter,
Statesman will maintain the records with respect to each such account and send
appropriate statements to each obligor thereon.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Statesman to purchase Receivables, Installment Sales Contracts,
Wholesale Accounts and Crop Time Notes from it and to make Loans to Customers of
the Cooperative, the Cooperative represents and warrants to Statesman as
follows:
SECTION 5.01. SUBSIDIARIES. The Cooperative has the following
Subsidiaries and none others:
<PAGE>
Name of Subsidiary Percentage Owned by Cooperative
------------------ -------------------------------
AgriLand Exchange, Inc. 100%
Mountain State Greenhouses, Inc. 100%
SSC Insurance Agency, Inc. 100%
Southern States Holdings, Inc. 100%
Southern States Underwriters, Inc. 100%
Virginia Seed Service, Inc. 100%
Wetsel, Inc. 100%
SECTION 5.02. GOOD STANDING. Each of the Cooperative and its Subsidiaries
is a corporation organized and existing in good standing under the laws of its
respective jurisdiction of incorporation and each has the corporate power to own
its property and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned by it therein or in which the transaction
of its business makes such qualification necessary.
SECTION 5.03. CORPORATE AUTHORITY. The Cooperative has full power and
authority to enter into this Agreement, to sell Receivables, Approved Contracts,
Eligible Contracts, Wholesale Accounts and Crop Time Notes, to execute and
deliver Receivables Certificates and instruments conveying such Receivables,
contracts and notes, to endorse contracts and notes and to incur the obligations
provided for herein, all of which have been duly authorized by all proper and
necessary corporate action. No consent or approval of stockholders or of any
public authority is required as a condition to the validity of this Agreement or
the sale of any Receivable, Installment Sales Contract, Wholesale Account or
Crop Time Note.
SECTION 5.04. BINDING AGREEMENTS. This Agreement constitutes, and each
endorsement by the Cooperative of a Purchased Contract, when made and such
Purchased Contract is delivered pursuant hereto for value received, will
constitute, the valid and legally binding obligations of the Cooperative
enforceable against the Cooperative in accordance with its terms.
SECTION 5.05. LITIGATION. There are no proceedings pending or, so far as
the officers of the Cooperative know, threatened before any court or
administrative agency that, in the opinion of the officers of the Cooperative,
will materially adversely affect the financial condition or operations of the
Cooperative or any of its Subsidiaries.
SECTION 5.06. NO CONFLICTING AGREEMENTS. There is no charter, bylaw or
preference stock provision of the Cooperative or any of its Subsidiaries and no
provision of any existing mortgage, indenture, contract or agreement binding on
the Cooperative or any of its Subsidiaries or affecting their respective
properties that would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement or the sale or transfer
of any Receivable, Installment Sales Contract, Wholesale Account or Crop Time
Note.
<PAGE>
SECTION 5.07. BALANCE SHEET. The consolidated balance sheet of the
Cooperative and its Subsidiaries as of June 30, 1998, and the related
consolidated statements of operations, patrons' equity and of cash flows for the
period then ended certified by PricewaterhouseCoopers L.L.P., and the unaudited
consolidated balance sheet of the Cooperative and its Subsidiaries as of
September 30, 1998, and the related statement of operations for the period then
ended, heretofore delivered to Statesman, are complete and correct and fairly
present the financial condition of the Cooperative and its Subsidiaries and the
results of their operations and transactions in their surplus accounts as of the
dates and for the periods referred to therein and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the period involved. There are no liabilities, direct or
indirect, fixed or contingent of the Cooperative or any of its Subsidiaries as
of the dates of such balance sheets that are not reflected therein or in the
notes thereto. There has been no material adverse change in the financial
condition or operations of the Cooperative since the dates of those balance
sheets, and there has been no other material adverse change in the Cooperative.
SECTION 5.08. LICENSES. The Cooperative has all licenses necessary or
desirable for it to conduct its businesses as presently being conducted and
such businesses are in compliance with all applicable laws in all material
respects.
SECTION 5.09. EMPLOYEE BENEFIT PENSION PLANS. No fact, including but not
limited to, any Reportable Event as defined in Section 4043 of ERISA, exists in
connection with any employee benefit pension plan of the Cooperative covered by
said Act, which might constitute grounds for the termination of any such plan by
the PBGC or for the appointment of any trustee to administer any such plan by
the appropriate United States District Court.
SECTION 5.10. RECEIVABLES FREE OF LIENS. Except as the Cooperative has
expressly disclosed to Statesmen in writing, no Receivable is subject to any
mortgage, pledge, security interest or other lien or encumbrance of any kind.
ARTICLE VI
----------
CONDITIONS
----------
The Cooperative will not offer to sell any Receivables, Installment Sales
Contracts, Wholesale Accounts or Crop Time Notes to Statesman unless:
SECTION 6.01. LEGAL MATTERS. It shall have satisfied any legal concerns
reported to the Cooperative by Statesman or its counsel with respect to the
purchase of any Receivable, Installment Sales Contract, Wholesale Account or
Crop Time Note.
SECTION 6.02. EVIDENCE OF CORPORATE ACTION. Statesman shall have received
certified copies of papers evidencing all corporate action taken by the
<PAGE>
Cooperative to authorize this Agreement and the sale of Receivables, Installment
Sales Contracts, Wholesale Accounts and Crop Time Notes, and such other papers
as Statesman may reasonably require.
SECTION 6.03. REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties set forth in Article V hereof shall be true and correct as of the
date of such offer, except to the extent they relate solely to an earlier date.
SECTION 6.04. ABSENCE OF DEFAULTS. No Default or Event of Default
shall have occurred and be continuing.
SECTION 6.05. CERTIFICATE OF INCUMBENCY. The Cooperative shall have
delivered to Statesman in a form satisfactory to Statesman a list setting forth
the names and signatures of each officer or employee of the Cooperative who is
authorized to sign Receivables Certificates, to transfer Receivables and to
transfer and endorse Installment Sales Contracts and Crop Time Notes, together
with the signature of such person.
SECTION 6.06. FINANCING STATEMENTS. Statesman shall have received
receipted copies of financing statements in appropriate form and showing they
have been filed in the appropriate offices to satisfy the filing requirements of
the applicable Uniform Commercial Code relating to the sale of accounts.
SECTION 6.07. OPINION OF COUNSEL FOR THE COOPERATIVE. Statesman shall have
received a favorable written opinion of counsel for the Cooperative dated as of
the date of the first purchase of Receivables, Installment Sales Contracts or
Wholesale Accounts hereunder, and, if so requested by Statesman, annually
thereafter, as to all matters referred to in Article V, except Sections 5.07,
5.08 and 5.09, that financing statements in the appropriate form have been filed
in the appropriate offices in which to file financing statements for any
Receivables sold by the Cooperative and stating that as of the date of such
opinion the indices to financing statements in such offices do not disclose any
financing statements of record showing the Cooperative or any of its
Subsidiaries as debtor and including a description of any accounts, contract
rights, general intangibles or other rights to the payment of money of such
debtor.
SECTION 6.08. CREDIT STANDARDS. The Cooperative shall have delivered to
Statesman a written statement of its then current standards for extending credit
to its customers and its collection policy for Receivables, Installment Sales
Contracts, Wholesale Accounts and Crop Time Notes, together with any applicable
additions thereto, deletions therefrom or modifications thereof.
<PAGE>
ARTICLE VII
-----------
AFFIRMATIVE COVENANTS
---------------------
The Cooperative covenants and agrees with Statesman that so long as the
Cooperative may offer to sell Receivables, Installment Sales Contracts,
Wholesale Accounts or Crop Time Notes to Statesman hereunder and until payment
in full of all Purchased Receivables, Purchased Contracts, Purchased Wholesale
Accounts and Purchased Notes and performance of all other obligations of the
Cooperative hereunder, the Cooperative will:
SECTION 7.01. FINANCIAL STATEMENTS. Furnish to Statesman (i) as soon as
available, but in no event more than forty-five (45) days after the end of each
quarterly period in each of its fiscal years, a consolidated balance sheet of
the Cooperative and its Subsidiaries as of the close of such quarter and a
consolidated statement of operations to the close of such quarter, certified by
the chief financial officer of the Cooperative and accompanied by a certificate
of that officer stating whether any event has occurred that constitutes an Event
of Default hereunder or that would constitute such an Event of Default with the
giving of notice or the lapse of time, or both, and, if so, stating the facts
with respect thereto; (ii) as soon as available, but in no event more than
ninety (90) days after the close of each of the Cooperative's fiscal years, a
copy of the annual audit report of the Cooperative in reasonable detail,
substantially similar to the financial statements referred to in Section 5.07
above, prepared in accordance with generally accepted accounting principles
applied on a basis consistent with that of the preceding year and certified by
PricewaterhouseCoopers L.L.P. or other independent certified public accountants
of recognized national standing, which report shall include a consolidated
balance sheet of the Cooperative and its Subsidiaries as of the end of such
fiscal year, consolidated statements of operations, patrons' equity and of cash
flows for such fiscal year, accompanied by a certificate of said accountants
stating whether any event existed as of the end of such fiscal year that
constituted a Default or an Event of Default hereunder; (iii) promptly upon
their becoming available, copies of all financial statements, reports, notices,
and proxy statements sent by the Cooperative to patrons or stockholders and of
all regular, periodic and special reports or any registration statement filed by
the Cooperative or any of its Subsidiaries with any securities exchange or with
the Securities and Exchange Commission or any governmental authority succeeding
to any or all of the functions of the Securities and Exchange Commission; and
(iv) such additional information, reports, or statements, including interim
financial statements, as Statesman may from time to time reasonably request. The
Cooperative will also upon request permit Statesman and its agents to inspect
its books and records.
SECTION 7.02. TAXES. Pay and discharge all taxes, assessments, and
governmental charges upon it, its income, and its properties prior to the date
on which penalties are attached thereto, unless and to the extent only that such
taxes, assessments, and governmental charges shall be contested by it in good
faith and by appropriate proceedings, and the Cooperative shall have set aside
on its books adequate reserves with respect to any such tax, assessment or
charge so contested.
<PAGE>
SECTION 7.03. BUSINESS PLAN. Furnish to Statesman as soon as available,
but in any event within 120 days after the Cooperative's new fiscal year, a copy
of the Cooperative's new fiscal year business plan which will contain, but not
be limited to, projected balance sheets, profit and loss statements, changes in
cash flow each prepared in accordance with generally accepted accounting
principles consistently applied, estimated usage of indebtedness, and
assumptions utilized in preparing the business plan.
SECTION 7.04. PAYMENT OF OBLIGATIONS. Pay and discharge at or before their
maturity all its indebtedness and other obligations and liabilities, except when
the same may be contested in good faith and by appropriate proceedings, and the
Cooperative shall have set aside on its books adequate reserves with respect to
any such obligation or liability.
SECTION 7.05. INSURANCE. Maintain adequate insurance with responsible
companies satisfactory to Statesman in such amounts and against such risks as is
customarily carried by owners of similar businesses and property.
SECTION 7.06. CORPORATE EXISTENCE, LICENSES, PERMITS, ETC. Maintain
its corporate existence in good standing and maintain all permits and
licenses necessary or desirable for the conduct of its business.
SECTION 7.07. PROPERTIES. Maintain, preserve, and protect all franchises
and trade names and preserve all the remainder of its property used or useful in
the conduct of its business and keep the same in good repair, working order, and
condition, and from time to time make or cause to be made all necessary and
proper repairs, renewals, replacements, betterments, and improvements thereto so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times, and permit Statesman and its agents to
enter upon and inspect such properties.
SECTION 7.08. EMPLOYEE BENEFIT PENSION PLANS. Promptly during each year,
pay contributions that in the judgment of the chief executive and chief
financial officers of the Cooperative after reasonable inquiry are believed
adequate to meet at least the minimum funding standards set forth in Sections
302 through 305 of ERISA, with respect to each employee benefit plan of the
Cooperative, if any, covered by that Act; file each annual report required to be
filed pursuant to Section 103 of ERISA in connection with each such plan for
each year; and notify Statesman within ten (10) days of the occurrence of a
Reportable Event (as defined in Section 4043 of ERISA) that might constitute
grounds for termination of any such plan by PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer any such
plan, provided that nothing contained herein shall prohibit the Cooperative from
terminating any such plan if it has theretofore complied with the provisions of
this Section.
SECTION 7.09. COMPLIANCE WITH LAWS. The Cooperative shall not knowingly be
in violation of any laws, ordinances, governmental rules and regulations
(collectively "Laws") to which it is subject and will not knowingly fail to
obtain any licenses, permits, franchises or other governmental authorizations
<PAGE>
necessary to the ownership of its property or to the conduct of its business,
which violation or failure to obtain might materially adversely affect the
business, profit, operations, or condition (financial or otherwise) of the
Cooperative, provided, however, that the Cooperative shall be deemed to have
complied with this provision so long as it is contesting in good faith and by
the appropriate proceedings the violation of any such law and has set aside on
its books adequate reserves in respect thereof, if so required, in accordance
with generally accepted accounting principles. Without limiting the foregoing,
the Cooperative agrees to comply, and to cause all persons occupying, leasing or
renting any properties of the Cooperative to comply with all laws relating to
environmental protection.
SECTION 7.10. RECORD RETENTION. Retain records of compliance with all
applicable consumer protection laws and the log of any complaints for the longer
of twenty-five (25) months or any time period required by applicable law.
SECTION 7.11. BOOKS AND RECORDS. Maintain complete and accurate books and
records with respect to all transactions with all account obligors of Purchased
Receivables and Purchased Wholesale Accounts and all parties obligated on
Purchased Contracts and Purchased Notes, including without limitation records of
all sales, deliveries, charges, payments, discounts, allowances and other
credits, make such records available for inspection by Statesman and its agents
at all reasonable times and upon request of Statesman deliver the same to
Statesman at its Headquarters.
SECTION 7.12. COOPERATION. The Cooperative will cooperate with Statesman
in all reasonable respects in collecting any Receivables, Installment Sales
Contracts or Wholesale Accounts or Crop Time Notes which Statesman has acquired
from the Cooperative, but nothing contained herein shall obligate the
Cooperative to incur any out of pocket expenses.
ARTICLE VIII
------------
NEGATIVE COVENANTS
------------------
The Cooperative covenants and agrees with Statesman that so long as the
Cooperative may offer to sell Receivables, Installment Sales Contracts,
Wholesale Accounts or Crop Time Notes to Statesman hereunder and until payment
in full of all Purchased Receivables, Purchased Contracts, Purchased Wholesale
Accounts and Purchased Notes and performance of all other obligations of the
Cooperative hereunder, without the written consent of Statesman, the Cooperative
will not:
SECTION 8.01. MORTGAGES AND PLEDGES. Create, incur, assume, or suffer to
exist any mortgage, pledge, lien, or other encumbrance of any kind upon, or any
security interest in, any of its property or assets, whether now owned or
hereafter acquired, except (i) liens for taxes not yet delinquent or being
contested in good faith and by appropriate proceedings; (ii) liens in connection
with workers' compensation, unemployment insurance, or other social security
<PAGE>
obligations; (iii) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
or appeal bonds, and other obligations of like nature arising in the ordinary
course of business; (iv) mechanic's, workman's, materialman's, landlord's,
carrier's, or other like liens arising in the ordinary course of business with
respect to obligations that are not due or that are being contested in good
faith; (v) those mortgages, pledges, liens, and encumbrances reflected in the
financial statements referred to in Section 5.07 above; (vi) mortgages, pledges,
liens, and encumbrances in favor of Statesman; (vii) zoning restrictions,
easements, licenses, restrictions on the use of real property or minor
irregularities in the title thereto, which do not, in the opinion of the
Cooperative, materially impair the use of such property in the operation of the
business of the Cooperative or the value of such property for the purposes of
such business; and (viii) any mortgage, encumbrance or other lien upon, or
security interest in, any property hereafter acquired by the Cooperative created
contemporaneously with such acquisition to secure or provide for the payment or
financing of any part of the purchase price thereof, or the assumption of any
mortgage, encumbrance or lien upon, or security interest in, any such property
hereafter acquired existing at the time of such acquisition, or the acquisition
of any such property subject to any mortgage, encumbrance or other lien or
security interest without the assumption thereof, provided that each such
mortgage, encumbrance, lien or security interest shall attach only to the
property so acquired and fixed improvements thereon. Nothing contained in this
Section 8.01 shall prohibit the Cooperative from entering into any lease
required to be capitalized by generally accepted accounting principles in
accordance with the Financial Accounting Standards Board Statement No. 13
(Accounting for Leases) in effect on the date of this Agreement, provided such
lease is not otherwise prohibited by the terms of this Agreement.
SECTION 8.02. MERGER, ACQUISITION OR SALE OF ASSETS. (1) Enter into any
merger or consolidation with, or acquire all or substantially all of the assets
of, any person, firm, joint venture, or corporation, unless the Cooperative is
the surviving corporation and upon the consummation of its merger the net worth
of the surviving corporation is not less than the net worth of the Cooperative
prior to the merger and there shall exist no Event of Default, provided,
however, that in the case of any merger of a Local Cooperative, as defined in
Article I - Section 1.01, the Cooperative's Chief Financial Officer shall
certify to Statesman Financial Corporation that the Cooperative has Net Worth in
an amount not less than 95% of the Net Worth of the Cooperative immediately
prior to such merger and no event shall have occurred or condition exist which
with the giving of notice or lapse of time, or both, would constitute such an
Event of Default, or (2) sell, lease, or otherwise dispose of all or
substantially all of its assets except in the ordinary course of its business.
SECTION 8.03. CHANGES IN NAME; LOCATION. Without giving Statesman at least
sixty (60) days prior written notice, change its name, its principal place of
business or the place in which it may keep its records relating to Receivables,
Installment Sales Contracts and Wholesale Accounts.
<PAGE>
SECTION 8.04. AMENDMENT OF PAYMENT TERMS. Amend or modify any Purchased
Receivable, Purchased Contract or Purchased Wholesale Account or consent to the
extension of the time of any payment or release of any collateral securing the
obligation of the obligor or otherwise waive any term or condition of such
Purchased Receivable, Purchased Contract or Purchased Wholesale Account except
to the extent the Cooperative may deem appropriate to facilitate the ultimate
collection of such obligation.
SECTION 8.05. CREDIT STANDARDS; COLLECTION POLICY. Amend in any material
respect its standards for extending credit to its customers or its collection
policy for Receivables, Installment Sales Contracts, Wholesale Accounts and Crop
Time Notes; or make any other amendment or modification to such standards or
policy without having given Statesman not less than ten
(10) days prior written notice thereof.
ARTICLE IX
-----------
CONTRIBUTED CAPITAL PLAN
------------------------
SECTION 9.01. DEFINITIONS. As used in this Article the following
terms shall have the following definitions:
"Contributed Capital Rate" means the ratio of debt to tangible net worth
which institutional lenders extending credit to Statesman require it to maintain
from time to time, whether such ratio is stated as an affirmative or negative
covenant, and in the event Statesman is required to maintain different ratios on
different dates, "Contributed Capital Rate" means the ratio which is in effect
on the applicable TAPOS Determination Date.
"Determination Period" or "Determination Periods" means the calendar
month, the six calendar month period and the twelve calendar month period
immediately preceding the TAPOS Determination Date.
"Minimum Class A Investment" means the number of shares of Statesman Class
A Preferred Stock determined by Statesman as follows:
MI = (HT/(PV x R)) - RE
where
MI = Minimum Class A Investment (stated at the par value).
HT = the highest TAPOS computed for the Cooperative during any of
the three Determination Periods.
<PAGE>
PV = the par value of one share of the Statesman Class A
Preferred Stock.
R = the Contributed Capital Rate, expressed as a decimal.
RE = As of the TAPOS Determination Date (x) the product of (i)
the percentage of the total outstanding common stock of
Statesman held by the Cooperative and (ii) the sum of
Statesman's Retained Earnings and Paid In Capital divided by
(y) the par value of Class A Preferred Stock.
If the Minimum Class A Investment computed using this formula is a
fraction, it will be rounded upward to the next whole number of shares.
"TAPOS" means calculated total program outstanding as determined by
Statesman for each of the three Determination Periods according to the following
formula:
TAPOS = RPP + NR + ISF + PN + WA + LN + CCR + L + NBC - SAP
where
RPP = average Purchased Receivables previously purchased and
outstanding during such Determination Period.
NR = Eligible Receivables tendered for purchase subsequent to the
end of the previous Determination Period.
ISF = average net Purchased Contracts outstanding during such
Determination Period.
PN = average net Purchased Notes outstanding during such
Determination Period.
WA = average net Purchased Wholesale Accounts outstanding during
such Determination Period.
LN = average Loans outstanding during such Determination Period.
CCR = average amount outstanding on accounts of customers of the
Cooperative, Local Cooperatives and Dealerships under the
Southern States Credit Card Program during such
Determination Period.
L = average Leases outstanding to the Cooperative, Local
Cooperatives, Dealerships and customers of any of them during
such Determination Period.
NBC = average investment (stated at par value) which Statesman was
required to maintain in CoBank ACB (formerly the National Bank
for Cooperatives) during such Determination Period in support
of Cooperative related borrowings.
<PAGE>
SAP = average outstanding Class A Preferred Stock of Statesman
held by the Cooperative during such Determination Period
(stated at the par value).
In the computation for a Determination Period of one month, the amounts of
RPP, ISF, PN, WA, LN, CCR, L, NBC, TD and SAP as of the last Business Day of
such calendar month shall be used as the average for such month. In computations
for other Determination Periods, the average for each such amount shall be
computed using the outstanding amounts as of the last Business Day of each month
in such Determination Period.
"TAPOS Determination Date" means the date during each calendar month on
which the month-end calculation is made to determine the amount due.
SECTION 9.02. PURCHASE OF STOCK. Upon the delivery to Statesman of the
first Receivables Certificate hereunder the Cooperative will purchase Statesman
Class A Preferred Stock with such par value as will cause it to have a Minimum
Class A Investment in Statesman Class A Preferred Stock and on each TAPOS
Determination Date thereafter it will acquire such additional Statesman Class A
Preferred Stock if any as may be necessary for it to maintain a Minimum Class A
Investment.
SECTION 9.03. REDEMPTION OF CLASS A PREFERRED STOCK. Statesman covenants
and agrees that if on any TAPOS Determination Date the amount of Statesman Class
A Preferred Stock held by the Cooperative exceeds the Minimum Class A Investment
computed as of such date, it will, subject to the provisions of Section 9.04,
upon written demand by the Cooperative redeem for cash at its par value those
shares held by the Cooperative which are in excess of the Minimum Class A
Investment determined as of such date. The Cooperative covenants and agrees that
notwithstanding the provisions contained in paragraph (v) of subsection 5(b) of
Article II of the Articles of Incorporation of Statesman the Cooperative shall
not have any right to redeem shares held by it except as provided herein.
SECTION 9.04. CUMULATIVE OBLIGATIONS. The obligation of the Cooperative
hereunder to purchase Statesman Class A Preferred Stock shall be in addition to
any other undertaking the Cooperative may have entered into or may hereafter
enter into to purchase such stock as a result of Asset Based Financing or
Installment Sales Financing provided by Statesman to any Local Cooperative,
Independent Cooperative or Dealership of the Cooperative or any lease financing
by Statesman for the Cooperative, and the obligations of the Cooperative to
purchase Statesman Class A Preferred Stock under, or as a condition to, each
such financing arrangement shall be cumulative.
<PAGE>
ARTICLE X
---------
EVENTS OF DEFAULT
-----------------
SECTION 10.01. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Default shall be made in the payment of any amount payable
hereunder, when and as the same becomes due and payable, whether at the stated
maturity thereof or by acceleration or otherwise; or
(b) Default shall be made in the due observance or performance of
any other term, covenant, or agreement contained in this Agreement; or
(c) Any representation or warranty made by the Cooperative herein,
or in any Receivables Certificate or any statement or representation made in any
other certificate, report, or opinion delivered pursuant hereto shall prove to
have been incorrect in any material respect when made; or
(d) The Cooperative or any Subsidiary of the Cooperative shall
become insolvent or unable to meet its obligations as they mature, make an
assignment for the benefit of creditors, consent to the appointment of a trustee
or a receiver, or admit in writing its inability to pay its debts as they
mature; or
(e) A trustee or receiver shall be appointed for the Cooperative or
any Subsidiary of the Cooperative or for a substantial part of its properties
without the consent of the Cooperative or such Subsidiary and not be discharged
within thirty (30) days; or
(f) Bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings shall be instituted by or against the Cooperative or any
Subsidiary of the Cooperative, and, if instituted against it, be consented to by
the Cooperative or such Subsidiary or remain undismissed for a period of thirty
(30) days; or
(g) Any default shall be made with respect to any obligation for the
payment of borrowed money of the Cooperative or any Subsidiary of the
Cooperative when due or the performance of any other obligation incurred in
connection with any indebtedness for borrowed money of the Cooperative or any
Subsidiary of the Cooperative, if the effect of such default is to accelerate
the maturity of such indebtedness; or
(h) Any final judgment for the payment of money in excess of ONE
HUNDRED THOUSAND DOLLARS ($100,000.00) which in the opinion of Statesman is not
adequately insured or indemnified against shall be rendered against the
<PAGE>
Cooperative or any Subsidiary of the Cooperative and the same shall remain
undischarged for a period of thirty (30) days during which time execution shall
not be effectively stayed; or
(i) Any substantial part of the properties of the Cooperative or any
Subsidiary of the Cooperative shall be sequestered or attached and shall not
have been returned to the possession of the Cooperative or such Subsidiary or
released from such attachment within thirty (30) days; or
(j) The occurrence of a Reportable Event as defined in Section 4043
of ERISA which might constitute grounds for termination of any employee benefit
plan of the Cooperative or any Subsidiary of the Cooperative covered by ERISA by
PBGC or grounds for the appointment by the appropriate United States District
Court of a trustee to administer any such plan; or
(k) Complete or partial withdrawal under Section 4201 or 4204 of
ERISA from a Multiemployer Plan by any other party which is or may be required
under the provisions of ERISA to make a contribution to such Plan, except as a
result of the merger of such party with the Cooperative.
Upon the occurrence and continuation of any Event of Default, Statesman
may, by notice to the Cooperative take any or all of the following actions: (i)
terminate any obligation it may have to review any Receivables, Installment
Sales Contract, Wholesale Account or Crop Time Note tendered to it, (ii)
terminate any obligation it may otherwise have to purchase any Eligible
Receivable, any Approved Contract, any Eligible Contract, any Wholesale Account,
any Approved Note or any Eligible Note, (iii) terminate any obligation it may
have to repay to the Cooperative any part of the Reserve Account so long as any
Purchased Receivable shall remain unpaid, and (iv) terminate any obligation it
may have to repay to the Cooperative any part of the Wholesale Reserve Account
so long as any Purchased Wholesale Account shall remain unpaid.
ARTICLE XI
----------
MISCELLANEOUS
-------------
SECTION 11.01. INDEMNIFICATION.
(a) The Cooperative shall indemnify Statesman, its officers,
directors, agents and employees and hold them and each of them harmless from and
against all loss, cost, damage, and expense, including reasonable attorney fees,
at any time incurred:
(1) because of any liability of the Cooperative, Manufacturer,
or any other Person (other than Statesman) related to any merchandise which is
the subject of any sale or to any service performed or goods furnished by the
Cooperative, Manufacturer, or any other Person or entity in connection with any
<PAGE>
sale out of which any Purchased Receivable, Purchased Contract, Purchased
Wholesale Account or Purchased Note arose, including, but not limited to,
services performed under any warranty or other agreement obligating the
Cooperative, Manufacturer, or other Person or entity to perform such services or
furnish goods; or
(2) because of any liability of the Cooperative for any action
at any time taken or not taken by the Cooperative.
(b) The Cooperative covenants and agrees to indemnify Statesman, its
officers, directors, agent and employees and hold them and each of them harmless
from and against all loss, cost, damage, and expense, including reasonable
attorneys' fees, at any time incurred by them or any of them because of any
violation of state or Federal law or regulation by the Cooperative or other
illegal or actionable conduct resulting from acts or omissions by the
Cooperative or its agents in connection with the sale of merchandise, providing
of services or extension of credit.
SECTION 11.02. NOTICES.
(a) By Statesman. In consideration of the Agreement of the
Cooperative to make a capital investment in Statesman based upon the amount of
asset based loans made by Statesman to customers of the Cooperative, Statesman
covenants and agrees to use its best efforts to notify the Cooperative promptly
in the event it terminates its agreement to extend asset based financing to any
Dealership of the Cooperative (as defined in the Agreement), if it gives any
notice to any such Dealership of any event of default under the terms of any
financing agreement between such Dealership and Statesman, if any such
Dealership defaults in the payment of any obligation for principal or interest
owing to Statesman and such default continues for a period of ten (10) days or
more, or if any officer of Statesman has knowledge that any condition exists or
event has occurred with respect to such Dealership which constitutes grounds for
the termination by Statesman of its financing arrangements with such Dealership
or which would constitute such grounds with the giving of notice or lapse of
time or both.
(b) By Cooperative. In consideration of the agreement by Statesman
to provide the Cooperative with such notices, the Cooperative covenants and
agrees it will promptly notify Statesman upon the occurrence of any of the
following events: the Cooperative puts any such Dealership on C.O.D. or
otherwise limits sales to such Dealership, or terminates any existing agreement
between the Cooperative and any such Dealership; any such Dealership makes any
material misrepresentation to the Cooperative; there is a material change in the
management or ownership of such Dealership; any material adverse change occurs
in the financial condition or operations of such Dealership; or if to the
knowledge of any executive officer of the Cooperative an event of default has
occurred under any agreement between any such Dealership and the Cooperative or
any condition exists or event has occurred which with the giving of notice or
lapse of time or both would constitute such an Event of Default.
SECTION 11.03. FAILURE TO RECORD SECURITY INSTRUMENT. No failure
(intentional or inadvertent) by Statesman to file any financing statement
<PAGE>
relating to a security instrument (whether conditional sales contract, chattel
mortgage, or security agreement) contained in or arising out of any Eligible
Contract or any Receivable shall impair or void the obligations of the
Cooperative hereunder.
SECTION 11.04. TERMINATION. This Agreement may be terminated by either
party hereto by giving the other party ninety days (90) prior written notice of
such termination prior to any anniversary date of this Agreement. No such
termination shall affect any rights of the parties accruing up to the date of
final payment of all Purchased Contracts, Purchased Receivables, Purchased
Wholesale Accounts, Purchased Notes and Southern States Credit Card Program
outstandings previously purchased or relieve the Cooperative from ownership
requirements for Statesman Class A Preferred Stock as required in Section 9.02.
SECTION 11.05. SUCCESSORS. The covenants, representations, and
agreements herein set forth shall be binding upon the parties hereto and
their successors and assigns.
SECTION 11.06. AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of this Agreement shall in any event be effective
unless the same shall be in writing and signed by Statesman, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 11.07. NOTICES, ETC. All notices and other communications
provided for under this Agreement shall be in writing and mailed, faxed,
telegraphed or delivered, if to the Cooperative at its address at:
SOUTHERN STATES COOPERATIVE, INCORPORATED
6606 WEST BROAD STREET (ZIP 23230)
POST OFFICE BOX 26234
RICHMOND, VIRGINIA 23260
ATTENTION: MR. J. A. HAWKINS
and if to Statesman, at its address at
STATESMAN FINANCIAL CORPORATION
6606 WEST BROAD STREET (ZIP 23230)
POST OFFICE BOX 25567
RICHMOND, VIRGINIA 23260
ATTENTION: MR. JOHN C. FROMAN
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 11.07. All such notices and communications shall, when mailed,
be effective when deposited addressed as aforesaid.
<PAGE>
SECTION 11.08. SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 11.09. HEADINGS. Article and Section headings in this
Agreement are included in such Agreement for the convenience of reference
only and shall not constitute a part of the Agreement for any other purpose.
SECTION 11.10. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the Commonwealth of Virginia.
SECTION 11.11. SURVIVAL. All warranties, representations and covenants
made by the Cooperative herein, or in any agreement referred to herein or on any
certificate, document or other instrument delivered by it or on its behalf under
this Agreement, shall be considered to have been relied upon by Statesman and
shall survive the delivery to Statesman of the Receivables, Purchased Contracts,
Purchased Wholesale Accounts and Purchased Notes purchased pursuant hereto
regardless of any investigation made by Statesman or on its behalf. All
statements in any such certificate or other instrument shall constitute
warranties and representations by the Cooperative hereunder. Except as otherwise
expressly provided herein, all covenants made by the Cooperative hereunder or
under any other agreement or instrument shall be deemed continuing until the
Purchased Contracts, Purchased Receivables, Purchased Wholesale Accounts and
Purchased Notes and all other liabilities and obligations of the Cooperative to
Statesman are satisfied in full.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
ATTEST: By:
---------------------------------------
- - - - -------------------------- Title:
---------------------------------------
<PAGE>
STATESMAN FINANCIAL CORPORATION
ATTEST: By:
----------------------------------------
- - - - -------------------------- Title:
----------------------------------------
<PAGE>
FIRST AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT is made as of February
3, 1999 by and among SOUTHERN STATES COOPERATIVE, INCORPORATED (the "Company"),
COBANK, ACB in its individual capacity as a Bank and in its capacity as
Administrative Agent and Documentation Agent, FIRST UNION NATIONAL BANK, as a
Bank and in its capacity as Syndication Agent, NATIONSBANK, N.A., as a Bank and
in its capacity as Syndication Agent, FMB BANK, as a Bank, COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, as a
Bank, BANQUE NATIONALE de PARIS (CHICAGO Branch), as a Bank, CRESTAR BANK, as a
Bank and in its capacity as Co-Agent, DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG
CAYMAN ISLANDS BRANCH, as a Bank, WACHOVIA BANK, N.A., as a Bank and in its
capacity as Co-Agent.
RECITALS
A. As of January 12, 1999, the Banks entered into a Revolving Credit
Agreement ("Credit Agreement") with the Company.
B. The parties hereto desire to amend the Credit Agreement to provide (i)
that certain indebtedness of the Company be excluded from the definition of
"Consolidated Funded Debt" set forth in the Credit Agreement and (ii) that the
Company be permitted to amend or modify certain terms and conditions of the
Goldkist Acquisition Agreement (as defined in the Credit Agreement), all as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, the parties hereto hereby agree as follows:
1. Definition of Consolidated Funded Debt. The definition of "Consolidated
Funded Debt" set forth in Section 1.01 of the Credit Agreement is amended and
restated in its entirety as follows:
"Consolidated Funded Debt" shall mean at any time, without
duplication, (1) all indebtedness or liability for borrowed money, or for
the deferred purchase price of property or services (excluding trade
obligations and accrued expenses), of the Company and its consolidated
Subsidiaries; (2) all obligations of the Company and its consolidated
Subsidiaries as lessee under Capital Leases; (3) all obligations of the
<PAGE>
Company and its consolidated Subsidiaries under letters of credit; (4) all
obligations of the Company and its consolidated Subsidiaries arising under
bankers' or trade acceptance facilities; (5) all obligations of the
Company and its consolidated Subsidiaries secured by any Lien on property
owned by such Person, whether or not the obligations have been assumed,
and (6) all obligations of the Company and its consolidated Subsidiaries
under Guarantees. "Consolidated Funded Debt" shall not include (i) any
obligations of the Company to any of its customers under any of the
following programs of the Company, in each case, as in effect on the date
hereof (the "Programs"): "Payment Plus"; "Preferred Payment Plan";
"Deferred Payment Plan"; and "Prepayment Bonus Credit", provided, however,
that any reimbursement obligations of the Company or any of its
consolidated Subsidiaries in respect of any letters of credit issued in
connection with, or in support of the Company's obligations under, any of
the Programs, shall be included as "Consolidated Funded Debt" hereunder,
(ii) any junior subordinated debentures issued by the Company in
connection with the issuance of any Junior Preferred Securities, or (iii)
the principal balance outstanding under the Bridge Loan Agreement from
time to time."
2. Amendment to Section 6.10. Section 6.10 of the Credit Agreement
is amended and restated in its entirety as follows:
"SECTION 6.10. Prohibition on Amendment of Certain Agreements,
etc. (a) Consent to, or enter into, any instrument, document or agreement
which would result in the amendment, modification, waiver or termination
of all or any of the provisions of the GoldKist Commitment Letter, the
GoldKist Acquisition Agreement or the Rabobank Letter of Credit, provided,
that the Company may amend or modify those provisions of the Goldkist
Acquisition Agreement pertaining to the time periods and the methods for
resolving discrepancies in the final purchase price of the purchased
assets, (b) release GoldKist from any of its material obligations under
the GoldKist Commitment Letter and the GoldKist Acquisition Agreement (as
the same may be amended as permitted under subsection 6.10 (a) above), nor
shall the Company fail to perform any of its material obligations under
the GoldKist Commitment Letter and the GoldKist Acquisition Agreement (as
the same may be amended as permitted under subsection 6.10 (a) above), or
(c) consent to, or enter into, any instrument or agreement (other than the
Bridge Loan Amendment) which would result in the amendment, modification,
waiver or termination of all or any of the provisions of the Bridge Loan
Agreement, without the prior written consent of Banks, provided that
nothing in this Section 6.10 shall be construed as prohibiting (i) the
required repayment of the Company's obligations pursuant to the terms of
Sections 2.09 and 3.01(M) or (N) hereof and the Bridge Loan Agreement as
amended by the Bridge Loan Amendment, or making of any draw requests by
the Company under the Rabobank Letter of Credit, or (ii) any reduction in
the face amount of the Rabobank Letter of Credit so long as after giving
effect to any such reduction the face amount of such Letter of Credit
<PAGE>
available for drawing is not less than (x) an amount equal to the purchase
price of the Junior Preferred Securities which Goldkist is then or
thereafter obligated to purchase pursuant to the Goldkist Commitment
Letter as in effect on the date hereof, or (y) the aggregate term loan
commitment of the lenders under the Bridge Loan Agreement as of the date
of any such proposed reduction."
3. Effective Date of Amendment. This Amendment shall become effective on
the date the Administrative Agent receives an original or facsimile copy of this
Amendment (or original or facsimile counterparts thereof) duly executed by the
Company and the Requisite Banks. Upon this Amendment becoming effective, the
Administrative Agent will notify each party hereto in writing and will provide
copies of all documentation in connection herewith.
4. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
5. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties to this Amendment in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
6. Confirmation. To the extent not expressly modified hereby, all terms
and conditions of the Credit Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first written.
<PAGE>
THE COMPANY:
SOUTHERN STATES COOPERATIVE, INCORPORATED
6606 West Broad St.
By: /s/ Jonathan Hawkins Richmond, VA 23230
-------------------------- Fax: 804.281.1650
Title: Senior Vice President & Treasurer P.O. Box 25567
--------------------------------- Richmond, VA 23260
E-mail Address:
<PAGE>
THE AGENTS, LEAD ARRANGER AND BANKS:
COBANK, ACB, as Administrative Agent,
Documentation Agent and Bank 5500 S. Quebec Street
Englewood, CO 80111
Fax: 303-694-5830
By: /s/ Lori L. Flaherty P.O. Box 5110
----------------------------- Denver, CO 80217
Title: Vice President Attention: Lori O'Flaherty
--------------------------
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<PAGE>
FIRST UNION NATIONAL BANK,
as Syndication Agent and Bank 7 North 8th Street
Third Floor, Mail Code VA-3260
Richmond, VA 23219
By: /s/ Fax: (804) 788-9673
----------------------------------
Title: SVP
-------------------------------
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<PAGE>
NATIONSBANK, N.A., as Syndication Agent
and Bank
---------------
---------------
---------------
---------------
By: /s/ William F. Sweeney Fax:
--------------------------------- -----------
Title: Vice President
------------------------------
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<PAGE>
FMB BANK, 25 South Charles Street
as Bank Mail Code 101-744
Baltimore, MD 21201
Fax: 410-244-4294
By: /s/ Susan Elliot Benninghoff
----------------------------
Title: Vice President
--------------------------
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH, as Bank
Funding and payment notices to:
By:/s/ Hans F. Breckhoven
-----------------------
Title: Vice President C/O Rabo Support Services, Inc.
------------------- 10 Exchange Place, 16th Floor
Jersey City, NJ 07302
By: /s/ Attention: Corporate Services
---------------------- Fax:201.499.5329
Title:
----------------------
All other notices:
245 Park Avenue
New York, NY 10167
Fax: 212.916.7880
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<PAGE>
BANQUE NATIONALE de PARIS 209 South LaSalle Street
(CHICAGO BRANCH), as Bank Chicago, IL 60604
Fax: 312-977-1380
By: /s/
----------------------------------
Title: Executive Vice President & General Manager
------------------------------------------
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<PAGE>
CRESTAR BANK, 919 East Main Street, 22nd Floor
as Co-Agent and Bank Richmond, VA 23219
Fax: 804-782-5413
By: /s/
--------------------------
Title: S.V.P.
----------------------
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
AG CAYMAN ISLANDS BRANCH, as Bank
By: /s/ Kurt A. Morris 303 Peachtree Street, N.E. Suite 2900
------------------ Atlanta, GA 30308
Fax: 404-524-4006
Title: Vice President
--------------
By: /s/ James L. Yager, CPA
-----------------------
Title: Vice President
--------------------
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<PAGE>
WACHOVIA BANK, N.A., 1021 East Cary Street, 3rd Floor
as Co-Agent and Bank Richmond, VA 23219
Fax: 804-697-7581
Attention: Chris Borin
By: /s/ Christopher C. Borin
-----------------------------
Title: Senior Vice President
---------------------------
(Signature Page for First Amendment to Southern States Cooperative Revolving
Credit Agreement dated as of January 12, 1999)
<TABLE>
<CAPTION>
Southern States Cooperative
Ratios of earnings to fixed charges
Year ended June 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C>
Earnings:
Income (loss) before income taxes,
extraordinary charge,
cumulative effect of accounting changes and
and discontinued operations and distributions
on capital securities of trust subsidiary $13,632,424 $33,539,852 $34,645,994 $23,172,418 $11,730,434
Interest expense, net of capitalized interest 16,859,373 15,565,523 15,236,987 14,797,975 12,257,694
Portion of rents representative of interest
factor 2,900,188 2,703,206 2,423,809 2,393,876 2,208,645
Amortization of capitalized interest 62,249 15,143 10,832 6,051 6,764
Distributions on capital securities of trust 0 0 0 0 0
subsidiary
---------- ---------- ---------- ---------- ----------
Total Earnings $33,454,234 $51,823,724 $52,317,622 $40,370,320 $26,203,537
========== ========== ========== ========== ==========
Fixed Charges:
Interest expense (before deducting capitalized
interest) $17,310,851 $15,730,029 $15,352,563 $14,876,278 $12,337,035
Portion of rents representative of interest
factor 2,900,188 2,703,206 2,423,809 2,393,876 2,208,645
Distributions on capital securities of trust
subsidiary 0 0 0 0 0
Preferred stock dividend requirements of
majority-owned subsidiaries grossed up for
pre-tax effect 316,063 316,061 316,061 316,063 336,154
---------- ---------- ---------- ---------- ----------
Total Fixed Charges $20,527,102 $18,749,297 $18,092,434 $17,586,217 $14,881,834
========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges 1.63 2.76 2.89 2.30 1.76
========== ========== ========== ========== ==========
Insufficient to cover fixed charges by
Pro Forma
--------------------
Nine
Nine months ended Year Months
March 31, Ended Ended
------------------ June 30, March 31,
1999 1998 1998 1999
-------- ------ -------- ---------
Earnings:
Income (loss) before income taxes,
extraordinary charge, cumulative effect of
accounting changes and discontinued operations
and distributions on capital securities of
trust subsidiary $(16,883,762) $ 408,284 $(4,402,000) $(26,634,000)
Interest expense, net of capitalized interest 20,593,415 11,900,193 26,876,000 24,590,000
Portion of rents representative of interest
factor 2,436,774 2,175,141 6,900,148 3,693,091
Amortization of capitalized interest 46,687 11,357 62,249 46,687
Distributions on capital securities of trust
subsidiary - - 6,938,000 5,203,500
---------- ---------- ---------- ---------
Total Earnings $ 6,193,114 $14,494,975 $36,374,397 $ 6,899,278
========== ========== ========== =========
Fixed Charges:
Interest expense (before deducting capitalized $ 20,640,102 $11,911,550 $27,327,478 $24,636,687
interest)
Portion of rents representative of interest 2,436,774 2,175,141 6,900,148 3,693,091
factor
Distributions on capital securities of trust - - 6,938,000 5,203,500
subsidiary
Preferred stock dividend requirements of
majority-owned subsidiaries grossed up for
pre-tax effect 237,047 237,047 316,063 237,047
---------- ---------- ---------- ----------
Total Fixed Charges $23,313,923 $14,323,738 $41,481,689 $33,770,325
========== ========== ========== ==========
Ratio of Earnings to Fixed Charges 0.27 1.01 0.88 0.20
========== ========== ========== ==========
Insufficient to cover fixed charges by
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated August 31, 1998, except for the information in Note 19, for which
the date is October 13, 1998, relating to the consolidated financial statements
and financial statement schedule of Southern States Cooperative, Incorporated
and Subsidiaries, which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
August 6, 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
August 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000092298
<NAME> FINANCIAL DATA SCHEDULE
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 12,026
<SECURITIES> 0
<RECEIVABLES> 148,260
<ALLOWANCES> 4,811
<INVENTORY> 288,614
<CURRENT-ASSETS> 468,757
<PP&E> 372,260
<DEPRECIATION> 184,264
<TOTAL-ASSETS> 780,764
<CURRENT-LIABILITIES> 299,853
<BONDS> 0
2,114
1,464
<COMMON> 12,158
<OTHER-SE> 153,116
<TOTAL-LIABILITY-AND-EQUITY> 780,764
<SALES> 852,010
<TOTAL-REVENUES> 867,517
<CGS> 688,897
<TOTAL-COSTS> 863,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,593
<INCOME-PRETAX> (16,884)
<INCOME-TAX> (5,057)
<INCOME-CONTINUING> (11,827)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,827)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
