<PAGE>
As filed with the Securities and Exchange Commission on February ___, 2000
Registration No. 333-69265
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
<TABLE>
<S> <C>
Southern States Cooperative,
Incorporated Southern States Capital Trust II
- -------------------------------------------------------- --------------------------------------------------------
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Virginia Delaware
- -------------------------------------------------------- --------------------------------------------------------
(State or other jurisdiction of incorporation or (State or other jurisdiction of incorporation or
organization) organization)
5191 5191
- -------------------------------------------------------- --------------------------------------------------------
(Primary Standard Industrial Classification Code (Primary Standard Industrial Classification Code
Number) Number)
54-0387200 54-6461763
- -------------------------------------------------------- --------------------------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
</TABLE>
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
Title of Each Class Maximum Proposed Proposed Maximum Amount of
of Securities to Amount to Maximum Aggregate Registration
be Registered be Registered (1) Offering Price Offering Price Fee (3) (4)
(2) Per Unit (1) (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Securities of Southern
States Capital Trust II $86,250,000 $25.00 $86,250,000 $23,978
- -------------------------------------------------------------------------------------------------------------
Junior Subordinated Debentures of
Southern States Cooperative, Inc. (7)
due _______ ___, 2030 (5)
- -------------------------------------------------------------------------------------------------------------
Guarantee of Capital Securities by
Southern States Cooperative, Inc. (7)
(6)
- -------------------------------------------------------------------------------------------------------------
Trust Agreement of Southern States
Capital Trust II (7)
- -------------------------------------------------------------------------------------------------------------
Expense Agreement between Southern
States Cooperative, Inc. and (7)
Southern States Capital Trust II
- -------------------------------------------------------------------------------------------------------------
Junior Subordinated Indenture of
Southern States Cooperative, Inc. (7)
- -------------------------------------------------------------------------------------------------------------
</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 II.
(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. The initial Registration Statement,
and Amendment Nos. 1 and 2 to the Registration Statement, were filed in the name
of Southern States Capital Trust I. The issuer of the capital securities being
registered hereby has been changed to Southern States Capital Trust II.
(5) The junior subordinated debentures will be purchased by Southern
States Capital Trust II 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 II 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 II under the trust
<PAGE>
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 II 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.
573108 v9
<PAGE>
PRELIMINARY PROSPECTUS
- ----------------------
$75,000,000 ___% Capital Securities
SOUTHERN STATES CAPITAL TRUST II
(Liquidation Amount $25 per Capital Security)
Guaranteed on an Irrevocable, Full, Unconditional and Subordinated Basis by
SOUTHERN STATES COOPERATIVE, INCORPORATED
--------------------
Southern States Capital Trust II is offering up to $75,000,000
aggregate liquidation amount of its ___% capital securities. If you purchase
these capital securities, you will be entitled to receive annual distributions
at a rate of __%. Southern States Capital Trust II will pay distributions on the
capital securities quarterly. Southern States Capital Trust II will use the
proceeds from the sale of these capital securities to buy a series of ___%
junior subordinated debentures due _____, 2030 issued by Southern States
Cooperative, Incorporated. Southern States Cooperative, Incorporated may defer
interest payments on the junior subordinated debentures for up to 20 consecutive
quarters (5 years). If Southern States Cooperative, Incorporated defers the
interest payments, Southern States Capital Trust II will also defer
distributions on the capital securities. See "Prospectus Summary."
We urge you to carefully read the "Risk Factors" section beginning on
page 11, where we describe specific risks associated with these capital
securities, along with the rest of this prospectus, before you make your
investment decision.
Southern States Cooperative, Incorporated plans to list the capital
securities on the New York Stock Exchange under the trading symbol __________.
The capital securities are expected to begin trading on the New York Stock
Exchange within 30 days after they are first issued.
--------------------
Per Capital
Security Total
-------- -----
Public Offering Price......... $25.00 $75,000,000
Proceeds to Southern States
Capital Trust II............ $25.00 $75,000,000
The underwriters may also purchase up to an additional $11,250,000
liquidation amount of capital securities at $25 per capital security within 30
days from the date of this prospectus to cover over-allotments. Southern States
Cooperative, Incorporated will pay an underwriting commission of $ _____ per
capital security, which will amount to $ ____ in total, or $ ______ if the
underwriters exercise the over-allotment option in full. Southern States Capital
Trust II will not pay any of the costs associated with this offering.
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 ___________, 2000.
<PAGE>
[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 Southern States, Southern States Capital Trust II,
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 II....................................... 18
Use of Proceeds........................................................ 20
Capitalization......................................................... 21
Unaudited Pro Forma Condensed Combined Financial Information........... 23
Selected Historical Consolidated Financial Information................. 28
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 32
Farm Cooperatives...................................................... 50
Southern States........................................................ 51
Business of Southern States............................................ 57
Management............................................................. 75
Description of the Capital Securities.................................. 86
Description of the Junior Subordinated Debentures...................... 105
The Guarantee.......................................................... 117
The Expense Agreement.................................................. 122
Effect of Obligations Under the Junior Subordinated Debentures,
the Guarantee and the Expense Agreement........................... 122
United States Federal Income Taxation.................................. 125
ERISA Considerations................................................... 132
Underwriting........................................................... 133
Legal Matters.......................................................... 135
Experts................................................................ 135
Available Information.................................................. 135
Disclosure Regarding Forward Looking Statements........................ 136
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 your
investment decision. Southern States Cooperative, Incorporated's fiscal year
ends on June 30.
In this prospectus, the term "Southern States" refers to Southern
States Cooperative, Incorporated. The term "Southern States Capital Trust"
refers to Southern States Capital Trust II, a subsidiary of Southern States. The
term "Gold Kist Inputs Business" refers to the agriservices business that
Southern States acquired in October 1998 from Gold Kist Inc., a large
agricultural cooperative headquartered in Atlanta, Georgia.
SOUTHERN STATES COOPERATIVE, INCORPORATED
Southern States is a regional farmers' supply and marketing
cooperative.
. As a supply cooperative, Southern Sates provides agricultural
supplies and services to its members and others through its crops,
feed, petroleum, retail farm supply, and farm and home divisions.
. As a marketing cooperative, Southern States provides marketing
services for its members through its grain marketing and livestock
marketing divisions.
For many years, Southern States has served a wide range of rural and
urban customers in its traditional Mid-Atlantic territory of Delaware, Maryland,
Virginia, West Virginia, Kentucky and North Carolina. As a result of the
acquisitions of Michigan Livestock Exchange in April 1998 and the Gold Kist
Inputs Business in October 1998, Southern States also currently operates in
Michigan, Ohio, Indiana, Alabama, Arkansas, Florida, Georgia, Louisiana,
Mississippi and South Carolina.
Southern States is owned by over 300,000 farmer and local cooperative
members. It is the principal cooperative in a cooperative distribution system
that encompassed over 700 retail locations as of December 31, 1999. Southern
States operates through several divisions:
. 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 284
company-owned and managed local cooperative retail farm supply
locations throughout the Mid-Atlantic, Southeast and South Central
regions of the United States.
. Farm and Home division -- distributes farm and home products at
wholesale to 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 -- operates 11 livestock auction
facilities and 19 swine buying stations in Michigan, Ohio, Indiana
and Kentucky.
Southern States' executive offices are located at 6606 West Broad
Street, Richmond, Virginia 23230, and the telephone number is 804-281-1000.
SOUTHERN STATES CAPITAL TRUST II
Southern States Capital Trust exists solely to:
. issue and sell capital securities to the public;
. issue and sell common securities to its parent company, Southern
States; and
. use the proceeds from the sale of its capital securities and its
common securities to purchase and hold ____% junior subordinated
debentures issued by Southern States.
The principal executive office of Southern States Capital Trust II is
located at 6606 West Broad Street, Richmond, Virginia 23230, Attention: Chief
Financial Officer. Its telephone number is (804) 281-1000.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
The Capital Securities to Be Offered
by Southern States Capital Trust ......................Southern States Capital Trust will sell its
capital securities to the public and its common securities to
its parent company, Southern States. The capital securities
sold to the public will aggregate $75 million in liquidation
amount (or $86.25 million if the underwriters exercise their
over-allotment option in full). The liquidation amount is $25
per capital security.
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
Southern States with the proceeds from the sale of its common
securities and capital securities. Unless Southern States
redeems them, the junior subordinated debentures will mature
on _______, 2030.
You Will Be Entitled to Receive
Quarterly Distributions on the
Capital Securities.....................................If you purchase the capital securities from Southern States
Capital Trust, 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,
2000.
Quarterly Distributions on the
Capital Securities May Be
Deferred for Up to 20 Consecutive
Quarters...............................................As long as Southern States is not in default with respect to
the junior subordinated debentures, it may defer interest
payments to Southern States Capital Trust on the junior
subordinated debentures for up to 20 consecutive quarterly
periods, but not beyond _______, 2030. There is no limitation
on the number of times that Southern States may begin an
interest deferral period if Southern States is not in default
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
with respect to the junior subordinated debentures. See
"Description of the Junior Subordinated Debentures--Option to
Extend Interest Payment Period."
If Southern States defers interest payments on the junior
subordinated debentures, Southern States Capital Trust will
defer distributions to you 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.............................Southern States may, at its option, redeem for the liquidation
amount plus any unpaid distributions:
. all or some of the junior subordinated debentures at any
time on or after ______, 2005, or
. all of the junior subordinated debentures at any time within
90 days of an unfavorable change in specific regulatory or
tax laws.
If Southern States redeems 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 of
your capital securities, 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 from Southern States
Capital Trust, you will have very limited voting rights. You
will have the right to vote:
. with respect to changes to the trust agreement and the
guarantee agreement that adversely affect your rights as a
holder of capital securities, and
. 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.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
See "Description of the Capital Securities--Voting Rights."
Southern States Has Fully, Irrevocably
and Unconditionally Guaranteed the
Capital Securities on a Subordinated
Basis..................................................Southern States has fully, irrevocably and unconditionally
guaranteed on a subordinated basis all of Southern States
Capital Trust's obligations under the capital securities.
This guarantee is based on:
. Southern States' obligation to make payments to Southern
States Capital Trust on the junior subordinated
debentures, and
. Southern States' obligations under the guarantee agreement,
expense agreement, trust agreement and indenture.
Southern States' obligation to make payments under the guarantee
will be junior to Southern States' obligation to make payments
on its senior indebtedness. Southern States' senior indebtedness
includes all of its obligations to current and future creditors
except for those liabilities incurred in the ordinary course of
business and those obligations specifically stating they are not
senior indebtedness. Senior indebtedness also includes any
subordinated debt securities issued by Southern States 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."
Southern States' guarantee is limited to the amount of funds held
by Southern States Capital Trust. If Southern States does not make
a payment to Southern States Capital Trust on the junior
subordinated debentures, Southern States Capital Trust will not
have sufficient funds available to make distributions to you 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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
enforce the rights of Southern States Capital Trust under the
junior subordinated debentures directly against Southern States.
The Junior Subordinated Debentures
Will Be Subordinate to Existing and
Future Senior Indebtedness of
Southern States........................................Southern States' obligations under the junior subordinated
debentures will be contingent upon payment of its senior
indebtedness, and will be effectively subordinated to all of
Southern States' existing secured and unsecured debt. The
junior subordinated debentures also will be subordinate to all
future debt of Southern States unless, by its terms, the
future debt ranks equally with or is subordinate to the junior
subordinated debentures. See "Description of the Junior
Subordinated Debentures--Subordination."
As of December 31, 1999, the aggregate amount of Southern
States' senior indebtedness and liabilities and obligations
that would effectively rank senior to the junior subordinated
debentures was approximately $188.3 million.
You Have Rights in the Event
of Default by Southern States..........................The following are events of default by Southern States under
both the indenture and the trust agreement:
. failure for 30 days or more to pay interest on the junior
subordinated debentures when due;
. failure to pay principal of or premium, if any, on the junior
subordinated debentures when due;
. failure for 60 days after written notice to perform any other
covenant in the indenture; and
. 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
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
debentures, the property trustee will have the authority to declare
the principal of and interest on the junior subordinated debentures
due and payable immediately.
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 Southern States to enforce the property trustee's
rights. In addition, if an event of default arises due to Southern
States' failure to pay principal of or interest on the junior
subordinated debentures, you may proceed directly against Southern
States to collect your proportionate share of unpaid principal and
interest. You have similar rights in the event of a default by
Southern States under the guarantee.
If an event of default has occurred or if Southern States has
defaulted on its obligations under the guarantee, Southern States
will not be permitted to:
. declare or pay any dividends or make any distributions with
respect to its capital stock or patrons' equity;
. redeem, purchase, acquire or make a liquidation payment with
respect to its capital stock or patrons' equity;
. redeem any patronage refund allocations; or
. 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.
Those limitations do not operate in some circumstances, however. See
"Description of the Junior Subordinated Debentures--Covenants and
Restrictions on Payments."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Southern States May Liquidate
Southern States Capital Trust
at Any Time............................................Southern States 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 as a liquidation payment.
If Southern States liquidates Southern States Capital Trust, after
Southern States has satisfied 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 made in the form of a distribution to you of the
junior subordinated debentures. See "Description of the Capital
Securities--Liquidation Amount Upon Dissolution" and "--Distribution
of the Junior Subordinated Debentures."
If the junior subordinated debentures are distributed this way,
Southern States will use its 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 you
purchase.
Southern States expects the capital securities to be ready for
delivery, in book-entry form only, through The Depository Trust
Company, on or about ____________, 2000.
</TABLE>
8
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data give
effect to:
. the acquisition of the Gold Kist Inputs Business using the purchase
method of accounting (this adjustment only impacts the pro forma
statement of operations for the year ended June 30, 1999), and
. 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 is qualified in its 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."
<TABLE>
<CAPTION>
Three Months Fiscal Year
Ended Ended
September 30, 1999 June 30, 1999
------------------ -------------
(amounts in thousands)
<S> <C> <C>
Statement of Operations Data:
Sales and other operating revenue .............. $287,005 $1,457,867
Cost of products purchased and marketed ........ 232,090 1,193,396
Selling, general and administrative expenses ... 62,017 269,689
-------- ----------
Loss on operations (1) ......................... $ (7,102) $ (5,218)
======== ==========
Interest expense ............................... 7,381 27,952
<CAPTION>
As of
September 30, 1999
------------------
<S> <C>
Balance Sheet Data:
Working capital................................ $157,279
Total assets................................... 695,076
Long-term debt................................. 215,513
<CAPTION>
As of
June 30, 1999
-------------
<S> <C> <C>
Other Data:
Cash flows from operations .................... $(26,534) $ 137,654
Cash flows used in investing activities ....... 15,967 (268,090)
Cash flows from financing activities .......... 12,061 127,562
Ratio of earnings to fixed charges (4) (5) .... N/A N/A
EBITDA (2) .................................... 7,365 42,189
EBITDA adjusted (3) ........................... 9,138 49,127
Ratio of EBITDA adjusted to interest expense .. 1.24x 1.78x
Current ratio (6) ............................. 1.73x N/A
Long-term debt to total capitalization (7) .... .47x N/A
</TABLE>
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 after the
cumulative effect of change in accounting method, net of tax. 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
$5.1 million and $10.9 million for the three months ended September 30,
1999 and the year ended June 30, 1999, 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.
SELECTED UNAUDITED HISTORICAL DATA
(in thousands)
Southern States:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Supply
Feed--tons ................ 1,276 917 924 895 875
Fertilizer--tons .......... 1,891 1,155 1,137 1,054 1,021
Seed--pounds, 100 wt ...... 1,948 1,673 1,384 1,305 1,412
Petroleum--gallons ........ 325,527 314,614 349,863 340,556 306,874
Marketing
Grain marketing--bushels .. 22,456 24,830 29,380 27,637 28,517
Livestock marketing--head
Cattle .................. 596 642 599 N/A N/A
Swine ................... 1,446 2,689 2,516 N/A N/A
Other ................... 136 136 120 N/A N/A
</TABLE>
Gold Kist Inputs Business:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
June 27, June 28, June 29,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
10
<PAGE>
RISK FACTORS
You should read carefully 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 Southern States' Senior Indebtedness Will Be Paid Before You Are Paid
Under the Guarantee, and as a Result, Southern States May Not Have Sufficient
Funds to Pay All Amounts Due to You
Southern States' obligations under the guarantee, the indenture, the trust
agreement and the expense agreement 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 to you on the
guarantee or to Southern States Capital Trust on the junior subordinated
debentures if Southern States defaults on a payment on any of its senior
indebtedness. In the event of the bankruptcy, liquidation or dissolution of
Southern States, its assets would be available to pay obligations under the
guarantee and under the junior subordinated debentures only after all payments
had been made on its senior indebtedness. At December 31, 1999, the aggregate
amount of senior indebtedness of Southern States was approximately $188.3
million.
The indenture, the guarantee and the trust agreement do not limit 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 Southern States Does Not Make Payments on the Junior Subordinated Debentures,
the Guarantee Will Not Apply Because Southern States Capital Trust Will Not Have
Funds Available to Pay Distributions or Other Payments on the Capital
Securities
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 you timely
distributions on the capital securities depends entirely upon Southern States'
ability to make 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 you distributions or the $25 per capital
security liquidation amount. In addition, you will not be able to rely upon
the guarantee for payment of these amounts because the guarantee only applies if
Southern States Capital Trust has funds available to make these payments.
Instead, the property trustee may enforce the rights of Southern States Capital
Trust under the junior subordinated debentures directly against Southern States.
You may also 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 Southern States Defers Interest Payments on the Junior Subordinated
Debentures, You Will Have to Include the Accrued Interest in Your Taxable Income
Before You Receive the Cash Distributions, and if You Sell Your Securities While
Southern States Is Deferring Interest Payments, You Will Forfeit Those Deferred
Interest Payments
You will not receive distributions on the capital securities if Southern
States defers interest payments to Southern States Capital Trust on the junior
subordinated debentures and Southern States in turn defers its distributions to
you. If this occurs, you will have to include the 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 Southern States Capital 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 Southern States is not in default on the payment of interest on the
junior subordinated debentures, Southern States may defer interest payments on
the junior subordinated debentures one or more times for up to 20 consecutive
quarters, but not beyond ______, 2030. During an interest deferral period,
Southern States Capital Trust would defer an equal amount of distributions on
the capital securities. 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 you sell your capital securities during an interest deferral period, you
must treat any accrued but unpaid interest on the junior subordinated debentures
as ordinary income. You can, however, add the amount of the accrued but unpaid
interest to your adjusted tax basis in the capital 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--U.S. Holders-- Sales of Capital Securities."
If Southern States Defers Interest Payments on the Junior Subordinated
Debentures, the Market Price of the Capital Securities May Decline
If Southern States exercises its right to defer interest payments on the
junior subordinated debentures, the market price of the capital securities is
likely to be affected. In addition to forfeiting the deferred interest
payments, if you sell the capital securities during an interest payment deferral
period, you may not receive the same return on your investment as someone who
continues to hold the capital securities until the interest payment deferral
period has ended and interest deferrals have been paid. During an interest
deferral period, the capital securities will likely trade at prices that do not
reflect the value of the accrued but unpaid interest related to the underlying
junior subordinated debentures. See "United States Federal Income Taxation--
U.S. Holders--Sales of Capital Securities."
12
<PAGE>
The Capital Securities May Be Redeemed Before Their Maturity if a Tax Event
Occurs; You May Be Taxed on the Proceeds, and You May Not Be Able to Reinvest
the Proceeds at an Equal or a Higher Rate of Return
Southern States has the right to redeem the junior subordinated debentures
in whole, but not in part, 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 Southern
States Capital Trust or Southern States. Examples of tax events include changes
making Southern States Capital Trust subject to federal income tax with respect
to income it receives 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."
Southern States' redemption of the junior subordinated debentures will cause a
mandatory redemption of Southern States Capital Trust's capital securities and
common securities within 90 days of the tax event. The redemption price will be
equal to the liquidation amount of $25 per capital security plus any unpaid
distributions accrued up to the redemption date.
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 Laws Could Eliminate Southern States' 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 in Congress that
would deny interest deductions to corporate issuers of debt instruments with
terms that include many of the terms of the junior subordinated debentures. To
date, these tax law change proposals have not been enacted. In addition, the
IRS has challenged corporate taxpayers' treating as indebtedness securities
issued by them with characteristics similar to the junior subordinated
debentures. The only known challenge that has advanced as far as litigation was
settled short of trial, with a resolution favorable to the corporate 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 that 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
At Southern States' option, Southern States may elect to terminate Southern
States Capital Trust at any time before its expiration. As a result, the
trustees may distribute the junior subordinated debentures to the holders of the
capital securities and common securities, according to the terms of the trust
agreement. See "Description of the Capital Securities--Liquidation Amount Upon
Dissolution."
13
<PAGE>
Under current United States federal income tax law and assuming that
Southern States Capital Trust will not be taxed as a corporation, a distribution
of the junior subordinated debentures upon a liquidation of Southern States
Capital 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 Southern States Capital Trust and to you. See "United States
Federal Income Taxation--U.S. Holders--Receipt of Junior Subordinated Debentures
or Cash Upon Liquidation of Southern States Capital Trust."
Southern States cannot predict the market prices of the capital securities
or the junior subordinated debentures that may be distributed in exchange for
the capital securities if Southern States Capital Trust is liquidated.
Accordingly, the capital securities or the junior subordinated debentures that
you receive upon a distribution may trade at a discount from the price that you
paid to purchase the capital securities. See "Description of the Capital
Securities--Distribution of the Junior Subordinated Debentures."
Liquidation payments on the capital securities may be made in the form of
junior subordinated debentures, causing you to receive junior subordinated
debentures upon dissolution of Southern States Capital Trust. Thus, your
investment decision with respect to the capital securities is also 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."
Southern States Will Control the Election of Trustees Because Your Voting Rights
Are Very Limited; Your Interests May Be Different From the Interests of Southern
States
As a holder of the capital securities, you will have limited voting rights.
These voting limitations could be significant when the interests of Southern
States are not the same as your interests as a holder of the capital securities.
For example, unless there is a continuing default under the trust agreement,
only Southern States can replace or remove any of the trustees. If there is a
continuing default, the holders of a majority in aggregate liquidation amount of
the capital securities may replace the property trustee and the Delaware
trustee.
In addition, Southern States and the trustees of Southern States Capital
Trust may amend the trust agreement without your consent to cure an ambiguity or
correct an inconsistency or to ensure that Southern States Capital Trust
maintains favorable tax treatment and will not be required to register as an
investment company. Your consent is required, however, for any amendment that
would change the amount or timing of any payment to you or that would restrict
your right to institute suit for the enforcement of any payment obligation. 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 Southern States' Net Savings in Fiscal 1998 and 1999
Southern States' recent operating results have been adversely affected by
significant declines in a wide range of agricultural commodity prices. Net
savings for the fiscal year ended
14
<PAGE>
June 30, 1998 were $10.7 million. Southern States experienced a loss for the
fiscal year ended June 30, 1999 of $2.1 million. These results were
significantly below the net savings of $27.5 million achieved for the year ended
June 30, 1997 and the $27.6 million achieved for the year ended June 30, 1996.
These reductions in net savings in fiscal 1998 and 1999 were 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 and flood conditions that adversely
affected grain harvests.
Southern States expects lower than usual commodity prices in many of its
product lines to continue for some time in the future. As a result, its
operating results in fiscal 2000 and future periods will continue to be
adversely affected until prices return to more normal levels.
The Cyclical and Often Unpredictable Nature of the Agriculture Business Can
Reduce Southern States' Revenues and Its Ability to Meet Its Payment Obligations
Under the Junior Subordinated Debentures
Agriculture is generally cyclical in nature. Agricultural commodities
experience wide fluctuations in price, based largely on the supply of farm
commodities and demand for raw or processed products.
The cyclical nature of the agriculture business is something over which
Southern States has no control; at times it negatively affects Southern States'
revenues and operating results. Currently, the agriculture industry is
experiencing a period of depressed prices for a wide variety of commodities.
This has affected Southern States' operating results in terms of lower sales,
lower net savings and increased credit risk among some of Southern States'
customers. In addition, a portion of Southern States' 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 Southern States' operations related to various
commodities can 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. These
variations could negatively affect Southern States' net income and reduce
Southern States' ability to meet its payment obligations with respect to the
junior subordinated debentures.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
If Southern States Ultimately Is Not Successful in Integrating the Gold Kist
Inputs Business With Its Other Business Operations, it Could Adversely Affect
Southern States' Overall Operating Results
The Gold Kist Inputs Business incurred net losses of $12.3 million for the
year ended June 27, 1998. A continuation of losses of this magnitude would
severely impact Southern States' operating results and could result in Southern
States' inability to achieve any net savings from operations for the next few
periods. See "Management's Discussion and Analysis
15
<PAGE>
of Financial Condition and Results of Operations--Acquisition and Integration of
the Gold Kist Inputs Business."
The acquisition of the Gold Kist Inputs Business increased Southern States'
total assets by approximately $220 million and significantly increased the
geographical scope of Southern States' business. This increase in size
increased the demands placed upon Southern States' management, including demands
resulting from the need to integrate operations of the Gold Kist Inputs Business
with those of Southern States' other business operations. Southern States has
experienced and may continue to experience unanticipated difficulties in
integrating the acquired operations with its existing operations. Southern
States also has not realized the benefits anticipated to be realized from this
integration as quickly as, or to the extent, anticipated. Difficulties could
still 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. Southern States' failure to achieve the desired level of integration
and resulting synergies could have a material adverse effect on Southern States'
business, results of operations, liquidity and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisition and Integration of the Gold Kist Inputs Business."
Weather Conditions Impact the Demand for Southern States' Products and
Services
Historically, weather conditions have had a significant impact on the farm
economy and, consequently, Southern States' operating results. Weather
conditions affect the demand for, and in some cases the supply of, 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 in turn 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.
Southern States faced power outages in Virginia and North Carolina caused by ice
last winter, and a summer dearth of water and pasture in Kentucky, West Virginia
and Maryland. Weather conditions also directly affect the demand for petroleum
products, particularly during the winter heating season. Adverse weather
conditions can also impact the financial position of agricultural producers who
do business with Southern States. This, in turn, may adversely affect the
ability of the producers to repay their obligations to Southern States in a
timely manner. Accordingly, the weather can have a material effect on Southern
States' business, financial condition, and results of operations.
Competition in the Agribusiness Industry Could Materially Adversely Affect
Southern States' Business and Operating Results
Southern States competes against large national and regional manufacturers
and suppliers as well as small independent businesses operating in Southern
States' territory for sales of feed, fertilizer, seed, grain, livestock,
petroleum and farm supplies. Competition with other suppliers is based
primarily on price and service. Agriculture, and the entire food industry, is
consolidating rapidly. The potential inability to compete successfully would
result in a loss of customers, which could have a material adverse effect on
Southern States' business, financial condition, and results of operations. For
example, some of Southern States' competitors 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 that
of
16
<PAGE>
Southern States. See "Business of Southern States--Other Factors Affecting the
Business of Southern States--Competition."
Exposure to Environmental Liabilities Could Materially Adversely Affect Southern
States' Business
The use and handling of fertilizer, crop protectants and petroleum products
sometimes results in environmental contamination. Southern States is 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 impose liability
for the cleanup of environmental contamination. Because Southern States uses
and handles hazardous substances in its business, changes in environmental
requirements or an unanticipated significant adverse environmental event could
have a material adverse effect on Southern States' business, financial condition
and results of operations. See "Business of Southern States--Other Factors
Affecting the Business of Southern States--Matters Involving the
Environment."
17
<PAGE>
SOUTHERN STATES CAPITAL TRUST II
General
Southern States Capital Trust II is a statutory business trust created
under Delaware law pursuant to a certificate of trust filed with the Delaware
Secretary of State on December 1, 1999. Southern States Capital Trust is
governed by a trust agreement. The trust agreement will be qualified as an
indenture under the Trust Indenture Act.
Southern States Capital Trust exists for the exclusive purposes of:
. issuing and selling the trust securities, consisting of the capital
securities and the common securities;
. using the proceeds from the sale of the trust securities to acquire
the junior subordinated debentures from Southern States; and
. engaging in only those other activities necessary or incidental to
the purposes just stated, such as registering the transfer of the
trust securities.
First Union National Bank will serve as the property trustee under the
trust agreement, as the debenture trustee under the indenture and as the
guarantee trustee under the guarantee. In each of these capacities, First Union
National Bank is an independent trustee qualified under the Trust Indenture Act.
First Union Trust Company, National Association is the Delaware trustee and will
be independent and qualified under the Trust Indenture Act.
The administrative trustees, Jonathan A. Hawkins and Leslie T. Newton,
are employees and officers of Southern States, which will be the sole holder of
the common securities of Southern States Capital Trust. The administrative
trustees will not be independent and will not be qualified under the Trust
Indenture Act. See "Description of The Capital Securities--Miscellaneous."
The junior subordinated debentures will be the sole asset of Southern
States Capital Trust. Payments under the junior subordinated debentures from
Southern States will be the sole source of revenue of Southern States Capital
Trust.
Southern States will own all of the common securities issued by
Southern States Capital Trust. The common securities will rank equal with, and
payments on the common securities will be made proportionately with, the capital
securities. If, however, there is a debenture event of default due to Southern
States' failure to pay any amounts due with respect to the junior subordinated
debentures, the rights of the holders of the common securities to receive
payment 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 the common securities for an aggregate
liquidation price equal to approximately 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
18
<PAGE>
be $77.32 million (or $88.92 million if the underwriters exercise their
over-allotment option in full). Approximately $2.32 million (or $2.67 million if
the underwriters exercise their over-allotment option in full) of the principal
amount of the junior subordinated debentures will be purchased with the proceeds
from the issuance of common securities to Southern States.
No separate financial statements of Southern States Capital Trust are
included in this prospectus. Southern States and Southern States Capital Trust
do not believe that the financial statements of Southern States Capital Trust
would be material to holders of the capital securities, because:
. 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 in the junior subordinated debentures
of the net proceeds from the sale of the trust securities;
. Southern States owns, directly or indirectly, all of the voting
securities of Southern States Capital Trust; and
. under the guarantee, Southern States will guarantee the payment of
distributions and amounts on liquidation and redemption of the
capital securities to the extent described in this prospectus.
Southern States Capital Trust has a term of 50 years, but it may
dissolve earlier as provided in the trust agreement.
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 show that the sole asset of Southern States Capital
Trust is approximately $77.32 million principal amount of junior subordinated
debentures (or approximately $88.92 million if the underwriters exercise their
over-allotment option in full), bearing interest at ___% and maturing on
________ __, 2030.
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,
. Southern States' obligations under the trust agreement, and
. Southern States' obligations under the expense agreement, including
Southern States' obligations to pay costs, expenses, debts and
liabilities of Southern States Capital Trust other than with respect
to the trust securities,
provides a full, irrevocable and unconditional guarantee of amounts due on the
capital securities.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to Southern States Capital Trust from the sale of the
capital securities to the public are expected to be $75 million, or $86.25
million if the underwriters exercise their over-allotment option in full. The
net proceeds to Southern States Capital Trust from the sale of the common
securities to Southern States are expected to be $2.32 million, or $2.67 million
if the underwriters exercise their over-allotment option in full.
Southern States Capital Trust will use the proceeds from the sale of the
capital and common securities to purchase junior subordinated debentures issued
by Southern States under the indenture. Southern States expects to receive
$77.32 million principal amount (or approximately $88.92 million if the
underwriters exercise the over allotment option in full) in net proceeds from
the sale of junior subordinated debentures to Southern States Capital Trust.
Southern States will first use proceeds from its sale of the junior
subordinated debentures to pay all of the expenses associated with the current
offering, including the commissions paid to the underwriters.
Southern States will use the net proceeds from the sale of the junior
subordinated debentures to redeem from Gold Kist Inc. up to $60 million of
capital securities issued by Southern States Capital Trust I and will use the
remaining net proceeds to redeem shares of Southern States' preferred stock
purchased by Gold Kist in October 1999, in each case to the extent those
securities are still held by Gold Kist Inc. The purchase of the $60 million of
capital securities and $40 million of preferred stock was made under the terms
of an agreement entered into between Southern States and Gold Kist in October,
1998 to facilitate Southern States' acquisition of the Gold Kist Inputs
Business. To the extent that the capital securities and preferred stock sold to
Gold Kist Inc. are no longer held by Gold Kist Inc., any net proceeds not used
to redeem such securities will be used for general corporate purposes. See
"Business of Southern States--Acquisition of the Gold Kist Inputs Business--
Financing Commitment."
20
<PAGE>
CAPITALIZATION
The following table sets forth Southern States' historical consolidated
capitalization at October 31, 1999, and Southern States' pro forma consolidated
capitalization at October 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 asset 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 __________, 2030, if not earlier
redeemed. The capitalization of Southern States at October 31, 1999, reflects
the issuance to Gold Kist on October 5, 1999, of $59.4 million Step-Up Rate
Capital Securities, Series A, of Southern States Capital Trust I, net of
issuance costs of $600,000, and $40 million of Southern States Step-Up Rate
Series B Cumulative Redeemable Preferred Securities. The proceeds from the
issuance of mandatorily redeemable trust preferred securities are to be used to
redeem shares, to the extent they remain held by Gold Kist, the Step-Up Rate
Capital Securities, Series A and shares of the Step-Up Rate Series B Cumulative
Redeemable Preferred Securities that were issued to Gold Kist. The table should
be read in conjunction with Southern States' consolidated financial statements
and accompanying notes included in this prospectus.
<TABLE>
<CAPTION>
At October 31, 1999
Actual
Southern States Pro forma
---------------- -------------
(Amounts in thousands)
<S> <C> <C>
Short-term notes payable......................................... $ 4,800 $ 4,800
======== ========
Long-term debt:
Term notes, 6.99%, due 2005.................................. $ 34,000 $ 34,000
Notes payable -- syndicated loans 170,228 157,378
Industrial revenue financings................................ 11,820 11,820
Capitalized lease obligations................................ 2,767 2,767
Other debt................................................... 93 93
-------- --------
Total long-term debt (including current maturities).......... 218,908 218,908
Less current maturities...................................... 4,839 4,839
-------- --------
Total long-term debt (excluding current maturities).......... 214,069 214,069
-------- --------
Step-Up Rate Capital Securities, Series A of Southern
States Capital Trust I........................................ 59,400 --
Company-obligated mandatorily redeemable capital
securities of trust subsidiary (3)............................ 72,250
Redeemable preferred stock....................................... 2,114 2,114
Capital stock:
Preferred stock.............................................. 1,449 1,449
Step-Up Rate Series B Cumulative Redeemable
Preferred Securities..................................... 40,000 27,150
Common stock................................................. 12,109 12,109
Patrons' equity:
Patronage refund allocations (1)............................ 67,531 67,531
Operating capital (2)....................................... 86,070 86,070
-------- --------
Total patrons' equity.................................. 153,601 153,601
-------- --------
Total capitalization.............................. $482,742 $482,742
======== ========
</TABLE>
21
<PAGE>
(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) The trust subsidiary is Southern States Capital Trust II. The sole asset of
Southern States Capital Trust II 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 __________, 2030, if
not earlier redeemed. See "Use of Proceeds." The amount shown 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.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
have been prepared from and should be read in conjunction with, the historical
financial statements and the related notes of Southern States and the Gold Kist
Inputs Business included elsewhere in this prospectus.
The unaudited pro forma condensed balance sheet has been prepared to give
effect to the offering of the company-obligated mandatorily redeemable capital
securities of Southern States Capital Trust II, as though this transaction
occurred on September 30, 1999. The unaudited pro forma condensed combined
statements of operations for the year ended June 30, 1999 and the interim period
ended September 30, 1999, have been prepared to give effect to the foregoing
transaction as well as the acquisition of the Gold Kist Inputs Business as if
these transactions occurred on July 1, 1998. For further information concerning
this acquisition, see "Business of Southern States--Acquisition of the Gold Kist
Inputs Business."
On October 5, 1999, Southern States exercised its rights under contract to
require Gold Kist to purchase $60 million of Step-Up Rate Capital Securities,
Series A of Southern States Capital Trust I and $40 million of Southern States
Step-Up Rate Series B Cumulative Redeemable Preferred Securities. To the extent
the net proceeds from the issuance of the capital securities by Southern States
Capital Trust II are used to redeem from Gold Kist Inc. up to $60 million of
capital securities issued by Southern States Capital Trust I and shares of the
$40 million of Southern States preferred stock sold (to the extent these
securities remain held by Gold Kist Inc.,) Southern States will recapture,
without interest, a proportionate amount of the $600,000 and $800,000,
respectively, in issuance costs paid to Gold Kist in connection with the
issuance of the securities to Gold Kist Inc. Because Southern States cannot be
sure that Gold Kist Inc. will continue to hold the securities issued by Southern
States Capital Trust I at the time of the offering of the capital securities of
Southern States Capital Trust II, no benefit has been recorded for the recapture
of these issuance costs.
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, 1998. 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.
23
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
September 30, 1999
<TABLE>
<CAPTION>
Historical
Southern Pro Forma
States Adjustments Pro Forma
---------- ----------- ---------
(amounts in thousands)
<S> <C> <C> <C>
Assets
Cash ............................................... $ 20,901 $ 72,250 (1) $ 20,901
(72,250)(1)
Accounts receivable, net ........................... 108,377 108,377
Inventories ........................................ 224,693 224,693
Other .............................................. 21,142 21,142
--------- ---------- ---------
Total current assets ........................ 375,113 375,113
Investments
Statesman Financial Corporation ................. 23,627 23,627
Michigan Livestock Credit
Corporation ................................. 12,622 12,622
Other companies (principally
cooperatives) ............................... 82,172 82,172
Receivables ........................................ 1,179 1,179
Other assets ....................................... 12,472 12,472
Property plant and equipment, net .................. 187,891 187,891
--------- ---------- ---------
$ 695,076 $ $ 695,076
========= ========== =========
<CAPTION>
<S> <C> <C> <C>
Liabilities and Stockholders' and
Patrons' Equity
Short term notes payable ........................... $ 1,800 $ 1,800
Current portion of long-term debt .................. 8,803 8,803
Accounts payable ................................... 139,970 139,970
Accrued expenses ................................... 49,360 49,360
Advances from managed member coops ................. 17,522 17,522
Other current liabilities .......................... 379 379
--------- ---------- ---------
Total current liabilities ................... 217,834 217,834
Bridge loan facility ............................... 74,119 (72,250)(1) 1,869
Long-term debt ..................................... 213,644 213,644
Other non-current liabilities ...................... 13,627 13,627
Deferred income tax liabilities .................... 2,932 2,932
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 .................................... 1,459 1,459
Common stock ....................................... 12,114 12,114
Patrons' equity ....................................... 157,233 157,233
--------- ---------- ---------
$ 695,076 $ $ 695,076
========= ========== =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
24
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1999
<TABLE>
<CAPTION>
Historical
Southern Pro Forma
States Adjustments Pro Forma
------ ----------- ---------
(amounts in thousands)
<S> <C> <C>
Net sales........................................ $ 287,005 $ 287,005
Cost of sales.................................... 232,090 232,090
--------- ---------- ---------
Gross margin................................ 54,915 54,915
Selling, general and administrative.............. 62,017 62,017
--------- ---------- ---------
Loss on operations.......................... (7,102) (7,102)
Other deductions (income):
Interest expense............................ (8,488) $1,107 (3) (7,381)
Interest income and service charges......... 3,948 3,948
Miscellaneous income, net................... 1,578 (1,578)
--------- ---------- ---------
(2,962) 1,107 (1,855)
Loss before income taxes, distributions on
mandatorily redeemable capital securities
of trust subsidiary, undistributed loss of
Statesman Financial Corporation and
cumulative effect of change in method of
accounting.................................. (10,064) 1,107 (8,957)
Income tax benefit............................... (3,977) (706)(5) (4,242)
441 (4)
--------- ---------- ---------
Loss (savings) before distributions on
mandatorily redeemable capital securities
of trust subsidiary, undistributed loss of
Statesman Financial Corporation and
cumulative effect of change in method of
accounting.................................. (6,087) 842 (4,715)
Distributions on capital securities of trust (1,773)(5) (1,787)
subsidiary.................................... (14)(5)
Undistributed loss in Statesman Financial
Corporation, net of tax....................... (107) (107)
Cumulative effect of change in accounting method,
net of tax.................................... 1,590 1,590
--------- ---------- ---------
Net loss.................................... $ (4,604) $ (945) $ (5,019)
========= ========== =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
25
<PAGE>
SOUTHERN STATES COOPERATIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1999
<TABLE>
<CAPTION>
Historical
---------------------------
Gold Kist
Southern Inputs Pro Forma Pro Forma
States Business Adjustments Combined
---------- -------- ----------- ---------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net sales........................................ $1,366,359 $91,508 $1,457,867
Cost of sales.................................... 1,114,782 78,506 $ 108 (2) 1,193,396
---------- ------- --------- ----------
Gross margin................................ 251,577 13,002 (108) 264,471
Selling, general and administrative.............. 247,635 22,054 269,689
---------- ------- --------- ----------
Savings (loss) on operations................ 3,942 (9,052) (108) (5,218)
Other income (deductions):
Interest expense............................ (28,413) (3,994) (3,768)(3)
8,223 (3) (27,952)
Interest income and service charges......... 11,209 3,209 14,418
Miscellaneous income, net................... 11,812 171 11,983
---------- ------- --------- ----------
(5,392) (614) 4,455 (1,551)
---------- ------- --------- ----------
(Loss) savings before income tax,
distributions on capital securities of
trust subsidiary and undistributed loss in
Statesman Financial Corporation............. (1,450) (9,666) 4,347 (6,769)
Income tax expense (benefit)..................... (597) (3,625) (2,762)(5)
1,731 (4) (5,253)
---------- ------- ------- ----------
(Loss) savings before distributions on
capital securities of trust subsidiary and
undistributed loss in Statesman Financial
Corporation................................. (853) (6,041) 5,378 (1,516)
Distributions on capital securities of trust
subsidiary.................................... (6,938)(5) (6,938)
(56)(5) (56)
Undistributed loss in Statesman Financial
Corporation, net of tax ...................... (1,222) (1,222)
---------- ------- ------- ----------
Net loss.................................... $ (2,075) $(6,041) $(1,616) $ (9,732)
========== ======= ======= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
26
<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 the 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 year ended June 30, 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 13 day period is not considered material for
this presentation.
Southern States' fiscal year is based upon a 12 calendar month year
ended June 30, 1999. 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 by Southern
States Capital Trust II, net of related issuance costs of $2,750 and the
retirement of $72,250 of outstanding debt under the bridge loan facility.
(2) 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.
(3) To reflect increased interest expense of $3,768 on borrowings utilizing
the bridge loan facility with a weighted average borrowing rate of
approximately 6.00% for 105 days for the period ended June 30, 1999. Also,
to reflect elimination of $3,888 of interest expense on liabilities not
assumed by Southern States as well as reduced interest expense of $1,107
and $4,335, for the three months ended September 30, 1999 and the year
ended June 30, 1999, respectively, due to the issuance of the
company-obligated mandatorily redeemable capital securities of Southern
States Capital Trust II.
(4) To record the income tax effect of the pro forma adjustments affecting
income at the applicable income tax rate, including the elimination if
interest expense allocated by Gold Kist Inc. to the Gold Kist Inputs
Business based on assets employed.
(5) To reflect dividends ($6,938 and $1,773, 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 $2,762 and $706, respectively as these dividends are deductible
as interest for income tax purposes. Also, to reflect accretion of $56 and
$14 for the year ended June 30, 1999 and the three months ended September
30, 1999, respectively, of the difference between the face amount of the
securities and the net proceeds over 30 years utilizing the effective
interest method.
27
<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 three months ended
September 30, 1999, 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, 1999. The
selected historical financial data for the Gold Kist Inputs Business are derived
from the audited statements of operations and cash flows of the Gold Kist Inputs
Business for the two years ended June 27, 1998, and June 28, 1997. As of October
1998, the Gold Kist Inputs Business has been operated as part of and
incorporated into the financial statements of Southern States. The following
selected historical financial data should be read together with information
appearing in the respective consolidated financial statements and accompanying
notes included in prospectus.
Southern States Cooperative, Incorporated
<TABLE>
<CAPTION>
As of and for the
Three Months Ended
September 30 As of and for the Fiscal Year Ended June 30
---------------------- ---------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited) (Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Net purchases by patrons............. $274,588 $196,641 $1,286,224 $1,026,630 $1,097,174 $1,008,841 $ 911,449
Net marketings for patrons........... 11,728 12,912 76,541 92,863 115,972 110,667 99,185
Other operating revenue.............. 689 1,353 3,595 3,793 2,954 3,141 3,093
-------- -------- ---------- ---------- ---------- ---------- ----------
Total revenue................ $287,005 $210,906 $1,366,360 $1,123,287 $1,216,100 $1,122,649 $1,013,727
Cost of products purchased and
marketed...................... 232,090 175,934 1,114,783 931,436 1,014,440 926,753 835,139
-------- -------- ---------- ---------- ---------- ---------- ----------
Gross margin......................... 54,915 34,972 251,577 191,851 201,659 195,896 178,588
Selling, general & administrative.... 62,017 46,001 247,635 175,784 166,132 157,809 150,678
-------- -------- ---------- ---------- ---------- ---------- ----------
(Loss) savings on operations.. (7,102) (11,029) 3,942 16,067 35,527 38,087 27,910
Other deductions (net)............... 2,962 (219) 5,392 2,496 2,025 3,483 4,780
-------- -------- ---------- ---------- ---------- ---------- ----------
(Loss) savings before
income taxes.................. (10,064) (10,810) (1,450) 13,571 33,502 34,604 23,130
Income taxes (benefit)............... (3,977) (2,684) (597) 2,961 6,036 7,049 4,926
Undistributed (loss) earnings of
Statesman Financial
Corporation, net of tax....... (107) 44 (1,222) 57 35 39 39
Cumulative effect of change in
accounting method, net of tax. 1,590 --- --- --- --- --- ---
-------- -------- ---------- ---------- ---------- ---------- ----------
Net (loss) savings $ (4,604) $ (8,081) $ (2,075) $ 10,667 $ 27,501 $ 27,594 $ 18,243
======== ======== ========== ========== ========== ========== ==========
Distribution of Net Savings (Loss):
Dividends on stock................... $ --- $ --- $ 1,008 $ 961 $ 805 $ 989 $ 1,108
Patronage refunds payable in cash.... --- --- --- 2,379 6,884 6,669 3,812
Patronage refund allocations......... --- --- --- 3,703 10,591 10,306 5,961
Retained in the business............. (4,604) (8,081) (3,083) 3,624 9,221 9,630 7,362
-------- -------- ---------- ---------- ---------- ---------- ----------
Net savings (loss)............ $ (4,604) $ (8,081) $ (2,075) $ 10,667 $ 27,501 $ 27,594 $ 18,243
======== ======== ========== ========== ========== ========== ==========
Statement of Cash Flows and
Other Statement of Operations Data:
Cash flow from operating activities.. $(25,869) $ 12,346 $ 143,917 $ 33,602 $ 31,430 $ 25,631 $ 19,560
Cash flow used by investing
activities...................... 15,967 (12,930) (268,090) (43,833) (20,981) (19,690) (21,537)
Cash flow from (used by) financing
activities ..................... 12,061 1,006 127,563 8,730 (11,881) (141) 4,859
EBITDA (1) .......................... $ 7,365 $ (1,408) $ 47,969 $ 48,104 $ 65,704 $ 66,150 $ 53,297
Interest expense..................... 8,488 4,684 28,413 16,859 15,566 15,237 14,798
Depreciation and amortization........ 6,446 4,673 22,394 17,612 16,598 16,267 15,327
CF Industries, Inc.
patronage dividend (2).......... --- --- --- 5,513 13,128 12,729 4,846
Capital expenditures................. 5,296 11,305 46,603 33,905 19,945 18,529 17,333
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
As of and for the
Three Months Ended As of and for the Fiscal Year Ended June 30
September 30 -------------------------------------------
------------------
1999 1998 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited) (Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital...................... $157,279 $ 79,690 $ 153,507 $ 90,098 $108,682 $103,911 $ 92,154
Property, plant and equipment (net).. 187,891 135,277 189,118 129,193 104,002 101,549 99,535
Investments.......................... 118,421 105,777 114,786 103,874 82,369 71,549 63,849
Total assets......................... 695,076 481,537 681,748 462,296 409,160 385,551 343,173
Long-term debt....................... 287,763 142,278 276,562 136,041 109,902 107,523 99,580
Selected Ratios:
Ratio of earnings to combined
fixed charges and preferred
stock dividends (3)............... --- --- --- 1.63x 2.76x 2.89x 2.30x
Ratio of EBITDA to interest expense.. .87x N/A 1.69x 2.85x 4.22x 4.34x 3.60x
Long-term debt/EBITDA................ 39.07x N/A 5.77x 2.83x 1.67x 1.63x 1.87x
Current ratio (4).................... 1.72x 1.54x 1.73x 1.71x 2.00x 2.00x 2.11x
Long-term debt to total
capitalization (5)............... .63x .45x .61x 0.43x 0.38x 0.40x 0.40x
Wholesale Volume Data ('000's):
Supply
Feed--tons....................... 327 240 1,276 917 924 895 875
Fertilizer--tons................. 212 111 1,891 1,155 1,137 1,054 1,021
Seed--pounds, 100 wt............ 495 376 1,948 1,673 1,384 1,305 1,412
Petroleum--gallons............... 83,434 73,012 325,527 314,614 349,863 340,556 306,874
Marketing
Grain marketing-bushels......... 4,351 4,942 22,456 24,830 29,380 27,637 28,517
Livestock marketing-head
Cattle....................... 116 159 596 642 599 N/A N/A
Swine........................ 404 609 1,466 2,689 2,516 N/A N/A
Other........................ 39 37 136 136 120 N/A N/A
Statesman Financial Corporation (6):
Total assets........................... $253,218 $224,991 $287,559 $236,143 $152,400 $168,971 $144,384
Receivables financed................... 217,683 191,310 252,312 202,908 127,717 140,158 97,167
Debt................................... 220,901 126,954 250,452 200,795 133,230 150,024 126,409
Total equity........................... 38,574 31,074 35,541 31,574 18,349 18,078 17,050
Net interest income (expense) and
fee income .......................... 780 1,439 (397) 4,152 3,793 3,560 2,980
Net (loss) income ..................... (318) 105 (3,611) 134 85 86 84
</TABLE>
29
<PAGE>
Gold Kist Inputs Business
For the Fiscal Year Ended
----------------------------------
June 27, June 28,
1998 1997
---- ----
(Amounts in thousands)
Summary of Operations:
Net sales .................................. $480,542 $488,409
Cost of sales............................... 393,711 389,798
--------- ---------
Gross margin........................... 86,831 98,611
Distribution, administrative and general.... 105,291 98,456
--------- ---------
Savings (loss) on operations........... (18,460) 155
Other deductions (net)...................... 1,465 2,746
--------- ---------
Loss before income taxes............... (19,925) (2,591)
Income tax benefit ......................... (7,576) (972)
--------- ---------
Net loss .............................. $(12,349) $ (1,619)
========= =========
Other Data:
EBITDA (1) ................................. $ (1,062) $ 14,877
Interest expense............................ 12,675 11,282
Depreciation and amortization............... 6,188 6,186
CF Industries, Inc. patronage dividend (2).. 3,696 10,108
Capital expenditures........................ 4,729 9,375
For the Fiscal Year Ended
----------------------------------
June 27, June 28,
1998 1997
---- ----
Selected Ratio:
Ratio of EBITDA/interest expense............ (0.08)x 1.32x
Wholesale Volume Data (`000's):
Supply
Feed--tons............................. 272 279
Fertilizer--tons....................... 1,126 1,127
Grain--bushels handled................. 10,563 13,862
Cotton--bales ginned................... 102 110
Peanut--tons handled................... 35 57
30
<PAGE>
- ---------------
(1) EBITDA is defined as savings (loss) before income tax plus interest,
depreciation and amortization expenses after the cumulative effect of
change in accounting method, net of tax. 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.
(2) For further information concerning Southern States' relationship to CF
Industries, Inc., see "Business of Southern States--Investments in Other
Companies and Cooperatives."
(3) 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 $4.7 million and $ 8.2 million for
the three months ended September 30, 1999 and 1998, respectively.
(4) Current ratio is defined as total current assets divided by total current
liabilities.
(5) Total capitalization is defined as the total of long-term debt,
mandatorily redeemable preferred stock, capital stock and patrons' equity.
(6) 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."
31
<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
three month periods ended September 30, 1999 and 1998 and during the fiscal
years ended June 30, 1999, 1998 and 1997, is based upon the following tables.
Operating margins, as utilized in the tables below, consist of divisional
(segment) operating results, including an allocation of interest expense based
upon divisional assets employed and excluding any allocation of general
corporate overhead.
Divisional Sales and Operating Margins
(in thousands)
<TABLE>
<CAPTION>
Sales for Operating Margins for
the fiscal year ended the fiscal year ended
----------------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Crops $ 193,745 $ 154,825 $ 160,448 $12,422 $16,866 $26,609
Feed 181,287 145,582 161,940 11,826 6,121 6,302
Petroleum 165,645 193,098 250,260 6 1,650 7,108
Retail Farm Supply 532,287 336,260 336,044 (519) 4,855 5,855
Farm and Home 209,564 196,116 188,426 8,326 5,967 7,173
Marketing 79,637 94,517 116,211 (380) 1,782 3,585
Other 4,194 2,889 2,771 (1,169) (527) (198)
---------- ---------- ---------- -------- ------- -------
Total $1,366,359 $1,123,287 $1,216,100 30,512 36,714 56,434
========== ========== ==========
General corporate overhead (31,962) (23,143) (22,894)
Income tax benefit (expense) 597 (2,961) (6,039)
Undistributed (loss) earnings of Statesman Financial Corp.,
net of tax (1,222) 57 35
-------- ------- -------
Net (loss) savings $(2,075) $10,667 $27,501
======== ======= =======
<CAPTION>
Sales for the Operating Margins for the
three months ended September 30, three months ended September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Crops $ 25,004 $ 17,806 $ 1,074 $ (1,069)
Feed 44,806 36,517 2,431 1,304
Petroleum 54,325 36,817 1,432 (1,012)
Retail Farm Supply 106,447 58,942 (6,361) (4,293)
Farm and Home 43,614 46,113 1,138 389
Marketing 12,233 14,084 (400) 291
Other 576 628 (504) (137)
---------- ---------- ------- ----------
Total $ 287,005 $ 210,907 (1,190) (4,527)
========== ==========
General corporate overhead (8,874) (6,282)
Undistributed (loss) earnings of Statesman Financial Corp., net (107) 44
of tax
Cumulative effect of change in accounting method, net of tax 1,590 ---
Income tax benefit 3,977 2,684
------- ---------
Net loss $(4,604) $ (8,081)
======= =========
</TABLE>
32
<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.
Acquisition and Integration of the Gold Kist Inputs Business
Effective October 1998, Southern States acquired the agriservices (or
"inputs") business formerly operated by Gold Kist Inc., a major southeastern
agricultural cooperative organization. Through this acquisition, Southern States
acquired an inputs business that was very similar to its own agricultural supply
operations, enabling it to:
. expand its agricultural supply activities and services into the
geographically contiguous, eight-state Gold Kist territory;
. increase its purchasing power with vendors;
. distribute its products through expanded distribution channels;
. increase the opportunity to provide livestock marketing services in
the area served; and
. achieve efficiencies and economies of scale, capitalizing on its
operating expertise as it combines the Gold Kist Inputs Business
with Southern States' operations.
The acquisition of the Gold Kist Inputs Business significantly enlarged
Southern States' operations, increasing its assets at the date of acquisition by
approximately $220 million and its membership base by approximately 29,000, and
on a pro forma basis, its sales by more than 40% at that time. This acquisition
solidified Southern States' position as a principal supplier of agricultural
inputs east of the Mississippi River.
Prior to the acquisition, Southern States developed a business plan to
improve the operating performance and reduce the operating losses the Gold Kist
Inputs Business had experienced in recent years under Gold Kist's management.
This plan contemplated that Southern States would:
. substantially reduce unprofitable business locations, particularly
in the West Texas and Mississippi Delta regions, through
divestiture, closure or other appropriate remedial steps;
. implement Southern States' credit underwriting standards and
practices, which require more stringent policies and controls over
the approval and monitoring of credit transactions;
33
<PAGE>
. implement Southern States' commodity price risk management policies;
. reduce administrative costs through centralization of procurement,
accounting and administration; and
. develop and expand the Southern States private dealer network in the
Gold Kist territory.
The Gold Kist Inputs Business is now operated as an integral part of
Southern States, and separate financial statements are no longer produced.
Southern States believes it has made substantial progress toward achieving a
number of its objectives, even though its operations in the former Gold Kist
territory for the year ended June 30, 1999 were still disappointing.
Consistent with Southern States' business plan for reducing the
pre-acquisition losses of the Gold Kist Inputs Business, at September 30, 1999,
it had closed or otherwise disposed of 23 store locations acquired as part of
the Gold Kist Inputs Business, including three of its seven retail location in
West Texas. At the same date it had plans to close an additional six locations,
which included its remaining four Texas locations. Costs to exit these
businesses were approximately $1.3 million. Pursuant to EITF 95-3, these costs
were charged to the opening balance sheet. Southern States recorded
approximately $200,000 of this total in the year ended June 30, 1999, and
approximately $1.1 million in the quarter ended September 30, 1999. The exit
costs for these stores is included in the aforementioned reserve. Effective
February 1, 2000, Southern States consummated the disposition of all seven of
its Texas locations to an unrelated third-party under a three year lease with an
option to purchase.
Southern States anticipated that the implementation of more stringent
credit underwriting standards, although beneficial in the long run, initially
would adversely impact sales in the former Gold Kist territory because a number
of patrons would no longer qualify for credit approval. For this reason,
Southern States had anticipated an approximate 10% reduction in sales in the
former Gold Kist territory from those in the same period for the prior year.
Actual sales in the former Gold Kist territory for the year ended June 30, 1999,
were 30% lower (by approximately $70 million) than sales during the same period
in the prior year.
This decline was attributable to several factors, as drought conditions
impacting crop yields and low commodity prices resulted in loss of sales to a
degree much greater than originally anticipated. Although it is difficult to
separate the impact of weather, low prices and more stringent credit standards,
Southern States believes that the imposition of tougher credit standards was the
predominant reason for the lower than expected sales in this territory. Southern
States believes that it will recoup these lost sales over time. Indeed, some
lost sales were immediately replaced with sales to patrons of higher credit
quality, although these customers typically yield lower margins.
Southern States anticipates that the remainder of the lost sales in the
former Gold Kist territory will be regained as leased land is turned over to
financially stronger farmers, as sales to existing customers are expanded
through cross-selling techniques available through new computer systems and as
Southern States achieves an increasing market share through expanded product
offerings expected to be available in the former Gold Kist territory in the
spring season of 2000 through a distribution facility in central Alabama. In
addition, there is substantial sales potential with the addition of many private
dealers and independent cooperatives in the former Gold Kist territory, most of
whom were signed up after the 1999 selling season ended.
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While it is still too early to draw conclusions on the performance of the
receivables portfolio under Southern States' ownership that originated in the
former Gold Kist territory, Southern States believes these receivables will
perform at delinquency rates similar to Southern States' historical standards.
Losses in the Gold Kist Inputs Business from unfavorable commodity futures
contracts were eliminated for the year ended June 30, 1999 through the
implementation of Southern States' commodity price risk management policies
concurrent with the date of acquisition. Losses from such transactions in the
former Gold Kist Inputs Business were $4.1 million for the year ended June 27,
1998.
In addition, Southern States achieved savings of approximately $7.0
million as of June 30, 1999 in procurement, accounting and administration
functions through the immediate consolidation of these functions into Southern
States' existing operations resulting in reduced employment levels as compared
to historical. The consolidation of these functions resulted in reducing the
number of employees in these areas from approximately 1,450 which were employed
at Gold Kist just prior to the purchase to approximately 900 as of June 30,
1999.
Southern States has rapidly expanded its private dealer network into the
former Gold Kist territory. As of December 31, 1999, 107 new private dealer
locations in this new territory, including 30 independent cooperative locations,
had completed the Southern States certification process and were purchasing
product from Southern States. Five others, including two independent
cooperatives, were in various stages of that process. Approximately 40 other
private dealers and independent cooperatives 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 former Gold Kist territory for the year
ended June 30, 1999, it continues to believe that the acquisition of the Gold
Kist Inputs Business 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. Through savings in employee costs,
avoided credit losses and savings in other areas such as shrinkage, insurance
expenses and the use of precision ag (which is the use of satellite technology
to map areas for the application of fertilizer), Southern States made
substantial progress in reducing the Gold Kist Inputs Business operating losses
of $20 million in 1998 to less than $10 million in 1999.
Historical Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
While sales and operating margins are typically weak during the first
three months of the fiscal year, they are usually mitigated by sales of
petroleum products. In 1999, sales and operating margins in petroleum products
were greatly improved due to overall net increases in worldwide petroleum
prices. This improvement partially reduced exposure to operating losses within
other segments (particularly the Retail Farm Supply division which includes the
Gold Kist Inputs Business) at a time when results are typically weak.
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Net sales of $287.0 million for the three months ended September 30, 1999,
reflected a 36.1% increase of $76.1 million from $210.9 million for the
comparative 1998 period. Despite the inclusion of the net sales of the Gold Kist
Inputs Business since its October, 1998 acquisition, net sales were lower than
anticipated primarily as a result of lower Fertilizer, Feed and Marketing
volumes. These volumes have continued to be impacted negatively by worldwide
supply and demand factors for fertilizer and grain products. Average unit price
varied from an 11.6% decrease in Fertilizer to an increase of 41.2% in
Petroleum.
The net loss for the three months ended September 30, 1999 of $4.6 million
was $3.5 million lower than the $8.1 million loss for the corresponding three
months ended September 30, 1998. The reduction in net loss is in large part due
to a $7.6 million increase in chemical supplier rebates recorded in the first
quarter of this year as compared to the first quarter of last year. Based on
historical volume rebate percentages, approximately 54% of the rebate increase
was attributable to additional rebates resulting from the acquisition of Gold
Kist Inputs Business. The remaining approximate 46% of the increase resulted
from timing differences. In addition, the net loss was also partially offset by
an approximate $1.8 million gain resulting from the cumulative effect of an
accounting change. Effective July 1, 1999, Southern States changed its method of
accounting for its investment in the Southern States Insurance Exchange.
Crops
Sales of the Crops division increased $7.2 million (40.5%) from $17.8
million for the three months ended September 30, 1998 to $25.0 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 products primarily in the acquired Gold Kist Inputs Business
territory. Fertilizer sales, which approximated 63% of total Crops division
sales through September 30, 1999, increased approximately 86%, while crop
protection product sales, which approximate 16.7% of total Crops division sales
at September 30, 1999, decreased approximately 1.4% over the same period. Seed
sales increased approximately 4.5% as compared to the same period in the prior
year.
Operating margin for the Crops division increased from a $2.3 million loss
for the three months ended September 30, 1998 to a $1.1 million profit for the
comparative 1999 period. The increased profit was primarily attributable to
increased rebates from chemical suppliers that totalled $3.4 million. The
increase is largely due to rebates from additional volume resulting from the
acquisition of the Gold Kist Inputs Business and to timing differences.
Operating costs rose due to higher salaries and related expenses, increased
allocated interest expense and higher merchandising and promotional expenses
relating to the acquired Gold Kist Inputs Business. The increased expenses were
partially offset by an improved margin primarily in the crop protection product
line.
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Feed
Feed division sales increased $8.3 million (22.7%) from $36.5 million for
the three months ended September 30, 1998, to $44.8 million for the comparative
1999 period. The increase was caused primarily by a 36% increase in tonnage,
partially offset by a 7.1% decrease in average unit selling price. The majority
of the increased tonnage is attributable to the acquisition of the Gold Kist
Inputs Business in October 1998.
The operating margin for the Feed division increased approximately $1.1
million from $1.3 million for the three months ended September 30, 1998, to $2.4
million for the comparative 1999 period. The increase in operating profit
primarily resulted from the increase in tonnage and an improved gross margin
resulting from lower raw material costs. This was partially offset by lower
selling prices and increased employee expenses resulting from the acquisition of
the Gold Kist Inputs Business.
Petroleum
Petroleum division sales increased $17.5 million (47.6%) from $36.8
million for the three months ended September 30, 1998, to $54.3 million for the
comparative 1999 period. The overall sales revenue increase resulted from a
41.2% average unit price increase and a 14.2% increase in gallons sold.
The Petroleum division's operating margin increased $2.4 million from a
loss of $1.0 million for the three months ended September 30, 1998, to a profit
of $1.4 million for the 1999 period. The increase in operating margin resulted
from overall net increases in worldwide petroleum prices compared to the
corresponding 1998 period. Margin improvements were realized in gasoline and
fuel oil operations. Lower operating expenses also contributed to the improved
operating margin.
Retail Farm Supply
Sales of the Retail Farm Supply division increased $47.5 million (80.6%)
from $58.9 million for the three months ended September 30, 1998, to $106.4
million for the comparative 1999 period. The increase in sales is primarily
attributable to sales in the acquired Gold Kist Inputs Business territory of
approximately $53.5 million. However, sales in the acquired Gold Kist territory
did not meet Southern States' expectations. While the imposition of Southern
States' more stringent credit standards was expected to have a negative impact
on sales in former Gold Kist territory, the impact was greater than expected due
to continued price deflation and drought conditions in portions of the Southeast
that adversely affected patrons' ability to obtain credit.
Retail Farm Supply's operating loss increased $2.1 million from a loss of
$4.3 million for the three months ended September 30, 1998, to a loss of $6.4
million for the 1999 period. The increase in operating losses is primarily
attributable to losses incurred in the acquired Gold Kist Inputs Business
territory of approximately $7.6 million. Higher salaries and related
compensation costs, as well as additional expenses for leased equipment and
higher depreciation expenses coupled with lower than expected volume in the Gold
Kist territory, caused the losses in these locations. Gross margin decreases in
seed and fertilizer products also contributed to the decreased profitability.
The higher losses were partially offset by increased rebates from chemical
suppliers that totaled $4.3 million. In addition, the operating loss was also
partially offset by an approximate $.8 million gain resulting from the
cumulative effect of an accounting change.
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The increase is primarily attributable to rebates from
additional volume resulting from the acquisition of the Gold Kist Inputs
Business and to timing differences.
Farm and Home
Sales of the Farm and Home division decreased $2.5 million (5.4%) from
$46.1 million for the three months ended September 30, 1998, to $43.6 million
for the 1999 period. This decrease is primarily the result of a $1.4 million
(4.5%) decrease in sales in the metropolitan and Farm and Home locations and a
$1.1 million (9.3%) decrease in the sales of Wetsel, Inc., an
independently-operated wholly-owned subsidiary of Southern States.
Operating margin for the Farm and Home division increased $.7 million
(175.0%) from $.4 million for the three months ended September 30, 1998, to $1.1
million for the 1999 period. The increased operating margin resulted from a gain
from the disposal of fixed assets, improved gross margins for both Farm and Home
and Wetsel and reduced operating expenses at Wetsel.
Marketing
Sales of the Marketing division, including Michigan Livestock Exchange,
decreased $1.9 million (13%) from $14.1 million for the three months ended
September 30, 1998, to $12.2 million for the 1999 period. This decrease is
attributable to a decline in grain marketing partially offset by an increase in
livestock marketing revenue attributable to Michigan Livestock Exchange. The
decline in grain marketing revenue resulted from a combination of influences.
Drought conditions in the summer of 1999 impacted the quality and the quantity
of wheat and corn produced in Southern States' Mid-Atlantic territory and
resulted in an 11.9% decline in bushels marketed. In addition, a strong western
United States harvest caused a $.05 (1.7%) reduction in the average unit price
per bushel for grain marketed.
Operating margin for the Marketing division decreased $.7 million from $.3
million for the three months ended September 30, 1998, to a $.4 million loss for
the 1999 period. The decrease in operating margin is primarily attributable to
the closure of operations of a significant customer of Michigan Livestock
Exchange, as well as reduced bushel volume and pricing.
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 $2.6 million, from $6.3 million for the
three months ended September 30, 1998, to $8.9 million for the comparative 1999
period. The increase was from higher compensation expenses related to the
acquired Gold Kist Inputs Business. Additionally, unallocated net interest
expense increased due to increased levels of borrowings to finance the
acquisition of the Gold Kist Inputs Business.
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 $3.8 million (55%) from $4.7 million
for the three months ended September 30, 1998, to $8.5 million for the 1999
period. Of the increase, $1.4 million (36%) resulted from borrowings on the
bridge loan facility to fund the acquisition of the Gold Kist Inputs Business
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with the remaining increase attributable to additional borrowings to fund
increased working capital needs.
Miscellaneous Income, net
Miscellaneous income, net decreased $.9 million from $2.5 million for the
three months ended September 30, 1998 to $1.6 million for the comparative 1999
period. The decrease primarily reflects a $.3 million loss on discontinued
programs 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 three months of fiscal year 2000
increased to $4.0 million from the income tax benefit of $2.7 million in fiscal
year 1999, an increase of $1.3 million. Because the Company does not intend to
pay patronage refunds during fiscal year 2000, the effective tax rate increased
to 39.3% from 24.9% for the same period in fiscal year 1999.
Fiscal 1999 Compared to Fiscal 1998
Net sales of $1.4 billion increased approximately $243 million (21.6%)
from $1.1 billion in 1998. The higher net sales, which is reflected in the
Retail Farm Supply, Feed and Crops divisions, were due to the additional volume
from the acquisition of the Gold Kist Inputs Business in October, 1998. These
increases were partially offset in the Petroleum, Marketing and Feed divisions
which experienced decreases in average commodity prices ranging from 4.9% in
fertilizer to 20.6% in petroleum. Net loss for 1999 amounted to $2.1 million, a
decrease of approximately $12.8 million from a net savings of $10.7 million in
1998. Petroleum and grain prices in particular were related to world-wide supply
and demand factors.
Crops
Sales of the Crops division increased $38.9 million (25.1%) from $154.8
million in 1998 to $193.7 million in 1999. Fertilizer sales, which comprise
approximately 68.6% of Crops division sales, increased approximately 45.6%. A
63.8% increase in fertilizer tonnage was partially offset by a 4.9% decline in
selling prices. The majority of this increase in tonnage resulted from increased
sales of fertilizer and crop protection products primarily in the former Gold
Kist Inputs Business territory. Sales of seed, which comprise approximately
12.8% of Crops division sales, were flat. Sales of crop protection products,
which comprise approximately 18.6% of Crops division sales, increased by 14.7%
from 1998 to 1999.
Operating margin for the Crops division decreased by $4.4 million from
$16.9 million in 1998 to $12.4 million in 1999. The decrease was the result of
higher employee costs and increased allocated interest and lease expense in the
seed and crop protection areas and are attributable to the acquisition of the
Gold Kist Inputs Business in October, 1998.
Feed
Sales of the Feed division increased $35.7 million (24.5%) from $145.6
million in 1998 to $181.3 million in 1999. This increase resulted primarily from
a 39.2% increase in tonnage, partially offset by a 13% decrease in the average
unit-selling price. The majority of the
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increased tonnage is attributable to the acquisition of the Gold Kist Inputs
Business in October, 1998.
Operating margin for the Feed division increased $5.7 million from $6.1
million in 1998 to $11.8 million in 1999. The increase in operating profit
primarily resulted from the increase in tonnage. This was partially offset by
the 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 1999 fiscal year increased from 4.2% for the prior
period to 6.5% for the comparative 1999 period. This increase in profit
primarily resulted from a 16% decrease in the cost of raw materials which was
partially offset by a 13% reduction in average selling prices.
Petroleum
Sales of the Petroleum division decreased $27.5 million (16.6%) from
$193.1 million in 1998 to $165.6 million in 1999. The overall sales revenue
decline resulted from the net impact of an average unit selling price decrease
of approximately 20.6%. In addition, the decrease in heating degree-days in 1999
led to significantly less demand for heating oil. This was partially offset by a
volume increase of 3.5%. Higher gasoline sales produced most of this increase.
The Petroleum division's operating margin decreased from $1.7 million for
1998 to break even ($0 operating margin) for 1999. 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 an operating site.
Offsetting this were improvements in the gross margin due to favorable purchase
variances when compared to the prior year as well as a reduction in retail
operating expenses.
Retail Farm Supply
Sales of the Retail Farm Supply division increased $196 million (36.8%)
from $336.3 million in 1998 to $532.3 million in 1999. The increase in sales was
primarily attributable to sales in the former Gold Kist Inputs Business of
approximately $206 million in revenue since its acquisition in October, 1998.
The addition of the Gold Kist Inputs Business increased unit volume in seed,
fertilizer and crop protection products. These increases were slightly offset by
a decrease in petroleum revenues due to the net decline in worldwide petroleum
pricing compared to the corresponding 1998 period.
Operating margin for the Retail Farm Supply division decreased $5.4
million from $4.9 million for 1998 to a loss of $.5 million for 1999. The
increase in operating losses was primarily attributable to losses in the
acquired Gold Kist Inputs Business territory of approximately $5 million since
its acquisition in October, 1998. These increased losses mainly resulted from
increased employee related costs, additional operating lease expense and
depreciation resulting from the acquisition.
Farm and Home
Including sales of Wetsel, Inc., sales of the Farm and Home division
increased $13.5 million (6.9%) from $196.1 million for 1998 to $209.6 million
for 1999. This increase resulted from the higher sales volume of Wetsel, Inc.,
which grew by $2.3 million (4.0%), as well as higher sales in the metropolitan
area stores over the same period.
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Farm and Home operating margin increased by $2.3 million from $6.0 million
in 1998 to $8.3 million in 1999. The increase in operating profit primarily
resulted from higher sales volume at a flat margin percentage in both the
metropolitan stores and at Wetsel, Inc.
Marketing
Sales of the Marketing division decreased $14.9 million (15.8%) from $94.5
million in 1998 to $79.6 million in 1999. Livestock marketing revenues of $10.9
million, attributable to the acquisition of Michigan Livestock Exchange on April
1, 1998, served to partially offset the decrease. Grain bushels marketed
decreased 9.6% from 1998 to 1999 with large decreases in wheat, corn and barley
bushels marketed, which were partially offset by an increase in soybean bushels
marketed.
Operating margin for the Marketing division decreased $2.2 million, from
$1.8 million in 1998 to a loss of $.4 million in 1999. Decreased profitability
primarily resulted from lower grain marketing volume and a relative increase in
the cost of marketing which combined to produce a $1.3 million decrease in the
gross margin. In addition, increased employee related expenses and
administrative expenses unfavorably impacted the results for the Michigan
Livestock Exchange.
General Corporate Overhead
General corporate overhead increased approximately 37.3% from $23.3
million for 1998 to $32.0 million for 1999. 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 $11.6 million (68.6%) from $16.9 million in 1998
to $28.4 million in 1999. This was primarily as a result of higher borrowing
levels to finance the acquisition of the Gold Kist Inputs Business.
Miscellaneous Income, net
Miscellaneous income, net increased from $5.2 million to $6.6 million in
fiscal 1998 to $11.8 million in 1999. The increase reflects changes in a number
of non-operating accounts, none of which is material in either period.
Provision for Income Tax Expense (Benefit)
Income taxes in 1999 were a benefit of $.6 million, a decrease of $3.6
million from $3.0 million expense in 1998 primarily due to a $15.0 million
decrease in pretax net savings. The effective income tax rate was 41.2% in 1999
versus 21.8% in 1998. Because the Company did not pay patronage refunds during
fiscal year 1999, the effective tax rate increased from the corresponding period
in 1998. Also, 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.
Undistributed (Loss) Earnings of Statesman Financial Corporation
During 1999, Southern States' undistributed loss from its interest in
Statesman Financial Corporation, net of income taxes, was $1.2 million as
compared to a small gain on its investment
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in 1998 of $56,721, net of taxes. The primary reasons for the drop in Southern
States' equity earnings in Statesman Financial Corporation are a decrease in net
interest income, including the provision for credit losses, and an increase in
general and administrative expenses.
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 $9.7 million from
$26.6 million in 1997 to $16.9 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.
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
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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.
Provision for 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.
Liquidity and Capital Resources at September 30, 1999
In January, 1999, Southern States entered into a new $200 million three-
year revolving credit facility with various commercial banks that matures in
January, 2002. This facility replaced the $140 million in short-term and long-
term facilities with CoBank, ACB 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 September
30, 1999, Southern States had $165.7 million outstanding under this facility.
At September 30, 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.
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. On September 7, 1999, this facility was further paid down by $25.9
million. On October 5, 1999, the remaining outstanding balance of approximately
$74 million was paid off through the sale of securities by Southern States and
Southern States Capital Trust I
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pursuant to the financing commitment with Gold Kist described in "Business of
Southern States--Acquisition of the Gold Kist Inputs Business--Financing
Commitment."
At September 30, 1999, Southern States also had outstanding balances of
approximately $12.6 million in three industrial revenue bonds. These bonds carry
variable rates of interest that at September 30, 1999 ranged from 3.8% to 3.9%.
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.
Southern States' wholly-owned subsidiary, Wetsel, Inc., maintains separate
credit facilities. Wetsel has a uncommitted short term credit facility with
CoBank that fluctuates from $4 million in amount during the period from July 1
to December 31, 1999, to $8 million from January 1 through February 28, 2000.
The facility matures on February 28, 2000. This facility had a $1.8 million
outstanding balance at September 30, 1999 and an interest rate of 5.92%. On July
1, 1999, Wetsel's credit facilities were revised. 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 5.63% to 7.05%.
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 $242.3 million and $225.3 million for three months ended September
30, 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 $23.4 million and $17.9 million at September 30, 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 September 30, 1999 were $20.9 million, which
represents an increase of $5.1 million from $15.8 million at September 30, 1998.
Net cash (used) provided by operating activities for the three months ended
September 1999 and 1998 amounted to $(25.9) million and $12.3 million,
respectively. The decrease in net cash provided by operating activities resulted
from increases in receivables, inventories and prepaid expenses offset by an
increase in accrued expenses. Undistributed earnings of finance companies and
joint ventures also negatively impacted cash flow from operating activities. Net
cash provided by investing activities for the three months ended September 30,
1999, amounted to $16.0 million, an increase of $28.9 million from cash used in
investing activities in the corresponding 1998 period. This increase was due
primarily to a $19.9 million purchase price adjustment relating to the return of
accounts receivable to Gold Kist and to a $6.0 million decrease in capital
expenditures. Net cash provided by financing activities for the three months
ended September 30, 1999, of $12.1 million and net cash used by financing
activities for the three months ended September 30, 1998, of $1.0 million were
primarily the result of net borrowing activities.
Cash and cash equivalents at June 30, 1999 were $18.7 million, which
represents a decrease of $3.4 million from $15.4 million at June 30, 1998. Net
cash provided by operating activities for the year ended June 30, 1999 and 1998
amounted to $143.9 million and $33.6 million,
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<PAGE>
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, 1999 amounted to $268.1 million, an increase of $224.3
million from cash used in investing activities in the corresponding 1998 period.
This increase resulted primarily from investment in Gold Kist ($218.3 million)
and a $12.7 million increase in capital expenditures over the prior year. Net
cash provided by financing activities for the year ended June 30, 1999, of
$127.6 million and net cash used by financing activities for the year ended June
30, 1998, were primarily the result of net borrowing activities.
Capital expenditures for the three months ended September 30, 1999,
totaled $5.3 million. Southern States had outstanding commitments for the
construction and acquisition of property, plant and equipment totaling
approximately $3.5 million at September 30, 1999. Southern States also maintains
a reserve for environmental expenditures which totaled $2.4 million at September
30, 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, 1999, totaled $46.6
million which compares to $33.9 million in capital expenditures for the year
ended June 30, 1998. Of this 1999 amount, approximately $1.02 million related to
compliance with environmental regulations. Southern States had outstanding
commitments for the construction and acquisition of property, plant and
equipment totaling approximately $2.2 million at June 30, 1999 and approximately
$7.1 million at June 30, 1998. Southern States also maintains a reserve for
environmental expenditures which totaled $3.2 million at June 30, 1999 and $2
million at June 30, 1998.
Southern States anticipates capital expenditures of approximately $42.5
million in the fiscal year ending June 30, 2000. Also, included in projected
capital expenditures is $1.0 to $2.0 million in anticipated costs for
environmental remediation projects in the year ending June 30, 2000.
Management believes that Southern States' cash on hand, anticipated funds
from operations, and amounts currently available under its various credit
facilities will be sufficient to cover its working capital needs, capital
expenditures, debt service requirements and tax obligations. Southern States
intends to maintain and further strengthen its financial condition and, in 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.
New Accounting Standards
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.
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Year 2000
The Year 2000, or Y2K, issue was the result of some computer programs
using a two-digit format, as opposed to four digits, to indicate the year. A
second related issue is that some computer systems may not recognize Year 2000
as a leap year. Such computer systems will be unable to properly interpret
dates, 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 were potentially vulnerable to the Y2K issue and
could be affected by the leap year event.
Compliance Priorities
Southern States' compliance efforts consisted of analysis, remediation and
testing phases, and covered information technology commonly known as IT systems,
non-IT systems and vendor relationships. 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 wholesale, financial and human resources systems were
vendor-certified Y2K compliant. The system supporting retail functions was
written by Southern States. All were tested for post-2000 dates and no Y2K
issues emerged.
As a result of extensive analysis, remediation and testing already done,
only a few such Y2K-related problems were encountered, none considered
significant, and none affecting Southern States' ability to continue its
operations effectively.
Southern States will continue to monitor all phases of its systems and
operations for leap year compliance at the end of February, and will ensure that
appropriate personnel are again available to respond to any identified problems.
Costs and Completion Date
Southern States' total cost of achieving Y2K compliance was estimated to
be in the range of $850,000 to $1 million, excluding normal software upgrades
and replacements and other previously scheduled systems changes. Southern States
spent a total of approximately $ 1 million toward compliance, and substantially
all costs incurred were paid by December 31, 1999. 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.
All scheduled system replacements were completed by year end. Amounts
required to fix Y2K problems were funded from operations. Southern States does
not anticipate that any remaining expenditures will be material to its
consolidated financial position or results of operations.
The costs of, and the date by which Southern States planned to complete
its anticipated Y2K modifications were based on management's best estimates,
which were derived utilizing
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numerous assumptions of future events including the continued availability of
necessary resources, third party modification plans and other factors.
Market Risks from Changing Commodity Prices and Interest Rates
The principal market risks affecting Southern States are exposure to
changes in commodity prices and changes to interest rates on borrowings.
Although Southern States has international net sales volume and related accounts
receivable for foreign customers, Southern States 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 September 30, 1999,
Southern States had outstanding seven variable to fixed interest rate swaps with
a $155 million notional amount and a fair market value of $(2.4) million with
terms ranging from three to seven years. The swaps carried coupons with a
weighted average rate of 5.92% and 6.55% at September 30, 1999 and 1998,
respectively. See Note 15 of Notes to the Southern States Consolidated Financial
Statements. Assuming September 30, 1999 variable rates and borrowings, a
one-hundred-basis-point change in interest rates would impact Southern States'
net interest expense by approximately $400,000 on an annualized basis, net of
the effect of the swaps.
Commodities Risk. The 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 September
30, 1999. For 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
-----------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1999
------------------
Balance Sheet Position Carrying Amount Fair Value
- ---------------------- --------------- ----------
<S> <C> <C>
Petroleum............................ $ 9,831,710 $ 7,918,102
Grain................................ 11,525,549 11,525,549
Feed................................. 7,073,433 8,119,607
Expected Maturity
Futures Contracts (Short) Year 2000 Fair Value
- -------------------------
Petroleum Contract - Gallons......... 1,428,000 N/A
Petroleum Contract Amount............ $ 992,460 $ 955,046
Grain Contract - Bushels............. 6,756,110 N/A
Grain Contract Amount................ $ 18,637,276 $18,172,400
Agriculture Commodities - Bushels
Agriculture Commodities Contract
Amount............................
Expected Maturity
Futures Contracts (Long) Year 2000 Fair Value
- ------------------------
Petroleum Contract - Gallons......... 966,000 N/A
Petroleum Contract Amount............ $ 472,227 $ 469,098
Grain Contract - Bushels............. 2,596,879 N/A
Grain Contract Amount................ $ 7,637,975 $ 6,996,600
Agriculture Commodities - Bushels 187,393 N/A
Agriculture Commodities Contract
Amount............................ $ 447,401 $ 400,553
</TABLE>
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 1999 sales of $1.4 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. Southern
States also expanded its operations in October, 1998 into the Southeastern and
South Central states through the acquisition of the Gold Kist Inputs Business.
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 over 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 "--The Southern States
Distribution System" below.
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, primarily in its traditional 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 believes it 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.
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 and the
Southeastern and South Central states through:
. 220 company-owned retail farm supply and petroleum outlets and 26
company-owned metropolitan retail locations,
. 70 local agricultural or petroleum cooperatives operating at 87
locations under standardized management contracts with Southern
States,
. 47 independently owned and operated local retail cooperatives that
distribute Southern States supplies and products at 73 locations,
and
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. A network of 314 private dealers operating approximately 333
locations who sell Southern States supplies and products at retail
under retail distribution agreements with Southern States.
Unless specifically noted otherwise, all location numbers are given as of
December 31, 1999.
Company-Owned Facilities. As described in greater detail below, Southern
States sells a significant portion of its product and service volume through its
retail farm supply locations, its metropolitan retail locations and its retail
petroleum facilities in its 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 1999, Southern States sold approximately 54% of its total
product and service volume through these company-owned facilities.
As part of Southern States' business plan for improving the overall
financial performance of the Gold Kist Inputs Business, Southern States either
has leased, sold or expects to sell, close or otherwise dispose of approximately
two dozen locations. In most cases, Southern States has effected or will attempt
to effect these dispositions in a manner that preserves sales revenues and
customers while eliminating unnecessary costs.
Managed Local Cooperatives. The 70 managed local cooperatives, usually
organized on a county level, are a significant component of Southern States'
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 16% of Southern States' total product
and service volume in fiscal 1999.
Southern States has no equity interest in the managed local cooperatives
and no representation on the boards of directors, but manages day to day
operations and recommends policies to their boards of directors. The
standardized management agreements are renewed annually, and may be canceled by
either party at the end of any year provided there is no outstanding
indebtedness owed Southern States. Southern States assesses a management,
accounting and administrative fee which approximates the actual cost of service.
No management agreements with local cooperatives have been canceled in Southern
States' history other than as a result of mergers of local cooperatives into
Southern States or, in a few cases, liquidation of a local managed cooperative.
Private Dealers. Southern States also distributes supplies and products
through a network of 314 independent, privately-owned dealers, operating a total
of approximately 333 dealer locations. 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 10% of Southern States' total product and service volume in fiscal
1999.
Southern States is undertaking to expand its private dealer system into
the former Gold Kist territory. As of December 31, 1999, 77 new private dealer
locations in the former Gold Kist territory had completed Southern States'
certification process and were purchasing product from
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Southern States. Two others were in various stages of that process.
Approximately 40 other private dealers and independent cooperatives throughout
the Gold Kist territory have been identified as prospective dealers for Southern
States.
Independent Cooperatives. Southern States also distributes supplies and
products to 47 independently owned and operated local cooperatives operating 73
locations. 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 1999. As a result of the acquisition of the
Gold Kist Inputs Business, there are, as of December 31, 1999, 30 new
independent cooperative locations and three others were in various stages of the
certification process.
Commercial and Other Accounts. In addition to the component parts of the
Southern States distribution system within its territory, Southern States sells
products to over 4,000 commercial and other accounts, including other
cooperatives located outside its 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 1999
accounted for approximately 17% of Southern States' total product and service
volume.
Cooperative Structure
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:
. bona fide agricultural producers who use the services or supplies of
Southern States, and
. 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
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.
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<PAGE>
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' traditional 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. It 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 the 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 1999, approximately two-thirds of Southern States' supply
business was with members and subject to patronage refunds. Southern States also
engages in supply and marketing transactions with other customers who are not
eligible for membership and who therefore do not qualify for and do not receive
patronage refunds. In addition, through several subsidiaries, Southern States
engages in non-cooperative activities that do not generate patronage refunds.
Patronage refunds are normally paid partially in cash and partially in the
form of non-interest bearing patronage refund allocations. Beginning with the
fiscal year ended June 30, 1974, the policy of the board of directors regarding
patronage refunds changed from payment of
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<PAGE>
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. To
provide continued support to Southern States equity base, in 1997 and 1998, a
number of Southern States' managed local cooperatives exchanged approximately
$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. In fiscal 1999, Southern States did not redeem any patronage
refund allocations.
Southern States' 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
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.
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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.
For additional information concerning the nature of farm cooperatives
generally, see "Farm Cooperatives" on page 50.
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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.
. 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'
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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
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Acquisition and Integration 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 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
Southern States operates its agricultural inputs and services business
through six operating divisions: Crops, Feed, Petroleum, Retail Farm Supply,
Farm and Home, and Marketing. Southern States purchase of the Gold Kist Inputs
Business has significantly bolstered these operating divisions. Southern States
has integrated the Gold Kist Inputs Business into Southern States' pre-existing
operating divisions as described below. The results for each division below
include each division's allocated portion of the Gold Kist Inputs Business for
the period from October 13, 1998 to June 30, 1999. Southern States no longer
compiles separate financial statements for the Gold Kist Inputs Business.
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
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custom-produce fertilizer, seed and crop protectant products and its extensive
and diverse distribution system. Sales of the Crops division in fiscal 1999 were
$193.7 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 1.9 million tons, with approximately 1.3 million
tons sold through company-owned retail facilities and the managed local
cooperatives. The remainder is shipped directly to private dealers, independent
cooperatives and commercial accounts. See "Southern States--The Southern States
Distribution System."
The Crops division has an annual production capacity of approximately
500,000 tons of fertilizer at 10 strategically located production, storage and
distribution facilities. Southern States procures the balance of the fertilizer
it sells from CF Industries, Inc., a cooperative owned by 10 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 at market prices in fiscal 1999. 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.
As a result of the acquisition of the Gold Kist Inputs Business, the Crops
division now operates two bulk crop protectant storage facilities in the former
Gold Kist territory and distributes agricultural and specialty crop protectants,
including pesticides, growth regulators and surface-active agents that it
purchases from approximately 15 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 Crops division also provides aerial application of fertilizer
for forestry customers and ground application of fertilizer and crop protectants
for turf customers.
The Crops division has successfully applied licensed genetic technology to
finished products, for example, by incorporating the Roundup(R) resistant gene
into its soybean seed products so that Roundup(R) destroys weeds but not the
grain. This ability, coupled with the division's access to Southern States'
extensive and diverse distribution system, makes Southern States an attractive
partner for bio-tech firms. For instance, Southern States is a member-owner of
Farmers Forage Research, Incorporated, which is operated by Southern States and
two other regional cooperatives. Farmers Forage Research, Incorporated employs
skilled plant breeders who use various facilities and regional test stations to
develop improved varieties of corn, soybeans, alfalfa, clover, grass and
sorghum-sudan.
Feed
Through its Feed division, Southern States procures and manufactures
dairy, livestock, equine, poultry, pet and aquacultural feeds. Southern States'
feed products are manufactured in
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15 feed mills, four of which were acquired in the purchase of the Gold Kist
Inputs Business. Feed products are distributed at wholesale and retail
throughout Southern States' territory. See "Southern States--The Southern States
Distribution System." Approximately 65% of the feed distributed in fiscal 1999
was delivered in bulk form directly from the feed mill to the farm with the
remainder sold in bag form.
Fiscal 1999 production of the mills was approximately 1.3 million tons,
with resulting sales of $181.3 million. Southern States believes that it is the
largest feed company in its Mid-Atlantic territory.
Southern States' feed mills are batch process mills in which ingredients
are weighed. These mills are capable of precision feed mixing. Southern States'
mill operations produce and market approximately 7,500 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. 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. In February, 1998, Southern States 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 eight other
cooperatives in Cooperative Research Farms, a network of two 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.
As a result of the acquisition of the Gold Kist Inputs Business, the Feed
division 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 company-owned 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,
company-owned retail stores and grocery wholesalers and retail chain stores. Pro
Balanced, Pay Day, Gold Kist, Top Notch, and Performance Plus were registered
trademarks of Gold Kist, all of which, except for the name Gold Kist, were
purchased by Southern States under the asset purchase agreement.
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 in fiscal 1999 were
made to non-members of the cooperative. 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 were purchased on a
contract basis, with the balance purchased on the spot market. Southern States
owns two bulk terminals
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with aggregate storage capacity of approximately 155,000 barrels of product.
Southern States manages the throughput of its products at 26 dedicated storage
terminals.
Southern States also owns and operates 19 retail petroleum distribution
locations and distributes petroleum products through four managed local
cooperatives. Current sales volume for the division approximates 326 million
gallons annually. Petroleum sales for fiscal 1999 were $165.6 million.
Retail Farm Supply
Southern States distributes agricultural supplies through its Retail Farm
Supply division, which in fiscal 1999, operated over 200 company-owned and
managed local cooperative retail farm supply locations in its Mid-Atlantic
territory and, as of October 31, 1999, an additional 96 retail locations in its
Southeastern and South Central territory, but concentrated in South Carolina,
Georgia and Alabama. 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 the 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, precision
farming, customized fertilizer spreading, field mapping, 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.
As a result of the acquisition of the Gold Kist Inputs Business and as of
June 30, 1999, the Retail Farm Supply division operates 32 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 of these storage facilities are licensed by the federal
or state government and can issue negotiable warehouse receipts.
In addition, as a result of the acquisition of the Gold Kist Inputs
Business, the Retail Farm Supply division now operates five cotton ginning and
storage facilities at various locations in the former Gold Kist territory
through which Southern States provides ginning and storage services to members
and non-members.
The Retail Farm Supply division accounts for approximately 39% of Southern
States' total product and service volume at June 30, 1999. Sales through these
facilities in fiscal 1999 were $532.3 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 1999 were $209.6
million.
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Wholesale. The division provides wholesale purchasing and distribution of
farm and home products through centralized purchasing and three distribution
centers. In fiscal 1999, approximately 40% of the Farm and Home division's sales
volume was generated through its distribution centers, with the remaining 60% of
its sales volume attributed 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 43% of Farm and
Home sales volume in fiscal 1999, and the independent private dealers, which
accounted for approximately 32% 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 under the trade name of Garden South. 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 in fiscal 1999 accounted for approximately 49%
of Wetsel's sales, with the balance of its sales made to the turf industry
(22%), greenhouse industry (15%) and farms (14%). Wetsel also operates one
retail store in Harrisonburg, Virginia.
Marketing Services
Grain Marketing
Through its Grain Marketing division, Southern States purchases corn,
soybean, wheat and barley from its members and markets these grain products,
assuming all risks related to selling such grain. Grain is priced in the United
States principally through bids based on organized commodity markets.
The Grain Marketing division, centrally managed from Richmond, Virginia,
consists of 13 grain elevators located primarily along the eastern seaboard and
at a single location in central Kentucky. Storage capacity for those grain
elevators as of October 31, 1999 was approximately 10.1 million bushels. The
division markets approximately 25 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 1999
were $68.7 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,
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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 operated 11 traditional livestock auction
facilities and 19 swine buying stations as of December 31, 1999. Southern States
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 three months ended September 30,
1999, Michigan Livestock Exchange marketed approximately 404,000 hogs and
116,000 head of cattle.
Acquisition of the Gold Kist Inputs Business
In October 1998, Southern States purchased 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. The assets acquired in October 1998
included:
. four fertilizer plants, one of which is leased;
. four crop protectant distribution centers, one of which is leased;
. 23 grain elevators, five of which are leased;
. 15 peanut buying stations, six of which are leased;
. five cotton gins, two of which are leased;
. four feed mills;
. one seed processing plant; and
. 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 other agreed upon
assets associated with the Gold Kist Inputs Business. The purchased assets did
not involve the existing Gold Kist poultry, pork, acquaculture, seed marketing,
cotton marketing and other businesses.
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As described above, the Gold Kist Inputs Business has been integrated
into Southern States' various operating divisions. Southern States does not
compile separate financial statements for the Gold Kist Inputs Business. For a
discussion of Southern States' efforts to integrate the Gold Kist Inputs
Business, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Acquisition and Integration of the Gold Kist Inputs
Business."
Purchase Price Adjustment. Under the asset purchase agreement between
Southern States and Gold Kist Inc., the cash portion of the purchase price paid
at closing (which was 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. On this basis, the pre-closing valuation was $236.7
million. After deducting assumed liabilities and an agreed-upon "holdback" of
$10 million, the initial estimated purchase price paid to Gold Kist at closing
was $218.3 million.
Under the asset purchase agreement, Southern States was to calculate
the final purchase price within 75 days of the closing. The final purchase price
was to be 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. This process resulted in
extended discussions between Southern States and Gold Kist over the post-closing
valuation of accounts receivable.
In order to resolve all outstanding valuation issues under the asset
purchase agreement, in September 1999, Southern States agreed to reassign to
Gold Kist, as of July 31, 1999, accounts receivable that had been acquired
pursuant to the asset purchase agreement. The parties agreed that interest
and/or service charges paid to or accrued by Southern States on any reassigned
accounts receivable would be reversed, and amounts collected on any of the
accounts after July 31, 1999, by Southern States would be returned to Gold Kist.
The parties also agreed that the purchase price adjustment would be included in
the determination of the final purchase price under the asset purchase
agreement.
As a result of this reassignment of accounts receivable to Gold Kist,
the parties agreed that the final purchase price for the Gold Kist Inputs
Business was $198.4 million. Accordingly, Gold Kist repaid to Southern States
$19.9 million, representing the difference between the final purchase price and
the estimated purchase price of $218.3 million paid by Southern States in
October 1998, together with interest of $1.3 million as provided for in the
asset purchase agreement.
Representations and Warranties. The asset purchase agreement contains
customary representations and warranties concerning the status of the Gold Kist
Inputs Business and the assets purchased. Most representations and warranties
survived the closing and do not expire 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. 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.
Also, in connection with the final resolution of the valuation issues,
Southern States and Gold Kist agreed to amend the asset purchase agreement to
provide that the requirement for Gold
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Kist indemnity for environmental claims will be effective only when the
aggregate amount of Southern States' losses for each individual claim exceeds
$25,000 up to a maximum limit of $35 million in the aggregate. The asset
purchase agreement originally provided that Southern States must incur losses
exceeding $15,000 per claim before Gold Kist's indemnity obligations would be
triggered.
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.
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 (later extended to October 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 had not been able
to sell an equal amount of similar securities by that date. As described in "Use
of Proceeds," on October 5, 1999, Southern States sold to Gold Kist pursuant to
this commitment $40 million liquidation amount of preferred stock and $60
million of capital securities issued by Southern States Capital Trust I.
Properties
Southern States' principal operating facilities are its feed mills,
fertilizer plants, petroleum storage and distribution facilities, its other farm
supply storage and distribution facilities and its retail store facilities.
These facilities are described elsewhere in this prospectus in the sections
describing Southern States' various operating divisions. See "--Agricultural
Inputs and Services" and "--Marketing Services" above.
Southern States' corporate headquarters building, containing approximately
200,000 square feet of office space, is located on 11.8 acres in Richmond,
Virginia. An unrelated third-party constructed the headquarters building on land
owned by Southern States and leased to the owner of the building for a 70-year
period expiring in 2048. Southern States leases approximately 170,000 square
feet of the building. See Note 13 of the Notes to the Southern States
Consolidated Financial Statements for additional information concerning Southern
States' lease arrangement for its corporate headquarters and for other operating
leases.
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
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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.
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
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 $23.4 million for the
three months ended September 30, 1999. 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
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financing than if it held these obligations for its own account and financed
those additional assets itself.
Accounts Receivable Financing. From time to time and subject to acceptance
by Statesman, Statesman purchases the following types of receivables from
Southern States:
. retail branch customer accounts receivable;
. grain marketing customer accounts receivable;
. advances that Southern States makes to managed member cooperatives
under the management agreement between Southern States and each
managed member cooperative; and
. wholesale customer accounts receivable.
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 three month period ended September 30, 1999, these discounts ranged from
.05% to .35% of the receivables purchased.
Receivables purchased by Statesman totaled approximately $1.2 billion and
$996.7 million for the years ended June 30, 1999 and 1998, respectively.
Statesman paid volume incentive fees to Southern States related to this program
of approximately$765,000 and $605,000 for the years ended June 30, 1999 and
1998, 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 $1.4 million for the years ended June 30, 1999 and 1998,
respectively. In addition, Statesman's merchant discount and late payment fee
income totaled approximately $255,000 and $224,000 for the years ended June 30,
1999 and 1998, respectively. Statesman paid no volume incentive fees to Southern
States related to this program for the years ended June 30, 1999 and 1998.
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<PAGE>
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 $5.1 million and $7.0 million as of June 30,
1999 and 1998, respectively. This program generated revenues for Statesman of
approximately $2.1 million and $2.5 million for the years ended June 30, 1999
and 1998, respectively. Southern States' payments to Statesman for leasing
services amounts to approximately 97% of Statesman's total leasing revenue.
Statesman paid volume incentive fees to Southern States related to this program
of approximately $175,000 and $295,000 for the years ended June 30, 1999 and
1998, 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 $748,000 million and
$1.0 million for the years ended June 30, 1999 and 1998, 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
$157,000 and $123,000 for the years ended June 30, 1999 and 1998, 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, 1999, the building loan
portion of the portfolio was approximately $20 million, or 34% 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 $11.7 million at June 30, 1999. Operating loans
are loans made directly to farmer producers to support day to day operating
needs. At June 30, 1999, these loans totaled $4.8 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, 1999 was $14.2 million. Southern States' investment in
Michigan Livestock Credit at that date was $14.2 million in order to assure
Michigan Livestock Credit's compliance with covenants in its bank loan
agreement.
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<PAGE>
Investments in Other Companies and Cooperatives
Apart from its interest in its affiliated financing companies, Southern
States has substantial investments, totaling approximately $82.2 million as of
September 30, 1999, 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, 1999, 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, 1999. There was no patronage refund
paid to Southern States by CF Industries for the fiscal year ended June 30,
1999. The patronage refund paid to Southern States by CF Industries was $5.5
million and $13.1 million for each of the fiscal years ended June 30, 1998 and
1997, 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, 1999, Southern States' investment in the Exchange was $12.5
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 $2.8 million, $3.4 million and $2.9 million
for each of the fiscal years ended June 30, 1999, 1998 and 1997, 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, 1999, Southern States reported total investments in other
companies and cooperatives including CF Industries and the Insurance Exchange,
of $78.4 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
As of December 31, 1999, Southern States employed approximately 5,500
persons, including approximately 1,050 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 employed approximately 900 persons. Approximately 60
company employees at two locations are members of labor unions. There have been
no work stoppages in the past 16 years. Southern States considers its
relationship with employees to be good.
Matters Involving the Environment
Southern States is subject to stringent and changing federal, state and
local environmental laws and regulations, including those governing the
labeling, use, storage, discharge, disposal
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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 December 31, 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. All necessary permits have been
obtained and the remediation plan has been implemented, Southern States believes
that future investigation and remediation costs will be between $1.7 million and
$3.8 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 1997, 1998 and 1999, Southern States incurred expenditures
of approximately $477,447, $872,306 and $2,247,512, respectively, for
environmental investigation and remediation at all owned or leased properties.
As of December 31, 1999, Southern States had reserved $2.21 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
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 agreements 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
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<PAGE>
costs exceed a dollar threshold specified in the agreements, which is ordinarily
set at a multiple of anticipated clean-up costs.
Under the agreement to purchase the Gold Kist Input Business, Southern
States 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 environmental claims when the
aggregate amount of Southern States' losses for each individual claim exceeds
$25,000, 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 1999, Southern States had environmental capital expenditures
of approximately $1.02 million. Southern States estimates that its environmental
capital expenditures for fiscal 2000 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
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
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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.
In late 1999, Congress enacted legislation providing $8.7 billion in
emergency relief for farmers impacted by low commodity prices and natural
disasters. This legislation further undercut the philosophy that motivated
passage of the FAIR legislation in 1996.
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
open purchase contracts, open sales contracts and grain inventory from
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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 management decision to sell short in the market in
anticipation of overnight purchases. 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, 1999, 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.
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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 Years
Age as of of Present Served
September 30, Term as as
Name 1999 Position(s) Held Director Director Residence
- ---- ---- ---------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Earl L. Campbell 58 Chairman of the Board; 2000 14 Danville, Kentucky
Executive Committee
John Henry Smith 49 Vice Chairman of the 2000 8 Rosedale, Virginia
Board; Executive
Committee, Chairman
Michael W. Beahm 48 Member & Institutional 2002 13 Roanoke, Virginia
Relations Committee
Cecil D. Bell, Jr.* 59 Audit Committee, 2001 10 Georgetown,
Chairman Kentucky
Floyd K. Blessing 72 Executive and Budget 2001 15 Houston, Delaware
Committees
Jere L. Cannon 58 Audit Committee 2002 24 Flemingsburg,
Kentucky
William F. Covington* 74 Member & Institutional 2000 13 Mebane, North
Relations Committee, Carolina
Chairman; Executive
Committee
George E. Fisher 67 Member & Institutional 2002 12 Gordonsville,
Relations Committee Virginia
R. Bruce Johnson 47 Budget Committee 2000 5 West Point,
Virginia
James A. Kinsey* 49 Executive and Audit 2000 8 Flemington, West
Committees Virginia
J. Wayne McAtee 55 Budget Committee 2000 17 Cadiz, Kentucky
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Richard F. Price 69 Executive and Member & 2001 31 Phoenix, Maryland
Institutional Relations
Committees
William Pridgeon 47 Member & Institutional 2000 1 Montgomery,
Relations Committee Michigan
Curry A. Roberts* 42 Audit Committee 2001 7 Charlottesville,
Virginia
James A. Stonesifer* 56 Budget Committee 2002 3 Union Bridge,
Maryland
William W. Vanderwende* 66 Budget Committee, 2002 18 Bridgeville,
Chairman Delaware
Wilbur C. Ward 61 Audit Committee 2001 6 Clarkton, North
Carolina
Charles A. Wilfong 41 Member & Institutional 2001 4 Dunmore, West
Relations Committee Virginia
John B. East 48 Member & Institutional 2002 Elected Leesburg, Alabama
Relations Committee Nov. 1999
Raleigh O. Ward, Jr. 48 Member & Institutional 2002 Elected Effingham, South
Relations Committee Nov. 1999 Carolina
H. Michael Davis 48 Budget Committee 2000 1 Valdosta, Georgia
Herbert A. Daniel, Jr. 48 Audit Committee 2001 1 Claxton, Georgia
James E. Brady, Jr. 64 Executive and Audit 2001 1 Marion, Alabama
Committees
</TABLE>
* Messrs. Bell (Kentucky), Covington (North Carolina), Kinsey (West
Virginia), Roberts (Virginia), Stonesifer (Maryland) and Vanderwende (Delaware)
are designated public directors.
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, the board of directors was expanded 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 initially will serve for one
year, two for two years, and two for three years. Upon the expiration of these
terms, two directors from the Gold Kist territory will be elected annually for
three-year terms. Messrs. Davis, Daniel, and Ward each of
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whom previously served as and will continue to serve as a director of Gold Kist,
and Messrs. Brady and East, 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, Brady and
Pridgeon, 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
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
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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.
Transactions With Directors Who Are Members and Customers
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.
Executive Officers
The executive officers of Southern States are as follows:
<TABLE>
<CAPTION>
Age as of
Name Sept. 30, Positions and Offices Held
- ---- 1999 --------------------------
----
<S> <C> <C>
Wayne A. Boutwell 55 President and Chief Executive Officer--
Mr. Boutwell began his career in 1970
with the USDA in Washington, D.C. He
served as President and CEO of the
National Council of Farmer Cooperatives
from 1983 until 1996. In September 1996,
Mr. Boutwell was named President and
Chief Executive Officer - Elect of
Southern States. Mr. Boutwell serves on
the board of CF Industries, Inc., the
National Council of Farmer Cooperatives,
Mississippi State University
Agribusiness Institute, and the
International Food and Agribusiness
Management Association. Mr. Boutwell
received his B.S. and M.S. degrees in
Agricultural Economics from Mississippi
State University and his Ph.D. from
Virginia Tech.
K. Gene McClung 56 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 57 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.
</TABLE>
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<TABLE>
<S> <C> <C>
Jonathan A. Hawkins 60 Senior Vice President and Chief
Financial Officer -- Mr. Hawkins was
named to his current position in 1990.
He joined Southern States in 1980 and
was promoted to Vice President and
Treasurer in 1983. He currently serves
as Chairman of the Board of the
Institute of Cooperative Financial
Officers. Mr. Hawkins received his B.A.
in Mathematics from the University of
Richmond.
Gene R. Anderson 59 Senior Vice President, Corporate and
Member Services -- Mr. Anderson joined
Southern States on May 1, 1986, as Vice
President for Human Resources. He was
promoted to his present position on
October 15, 1998, having previously
served in several headquarters
managerial capacities. Before joining
Southern States, Mr. Anderson worked for
23 years for E.I. Du Pont de Nemours &
Co. Mr. Anderson has a B.A. in
Industrial Relations from the University
of North Carolina.
C.A. Miller 60 Senior Vice President, Corporate
Information and Support Services -- Mr.
Miller joined Southern States as
Director of Information Systems in 1979
and was later promoted to Vice
President. Mr. Miller was promoted to
his current position on October 15,
1998. Prior to joining Southern States,
Mr. Miller served as Vice President of
Deposit Guaranty National Bank in
Jackson, Mississippi, and then as Senior
Vice President of the First National
Bank of Birmingham, Alabama. Mr. Miller
has a B.A. in Banking and Finance and an
M.B.A. in Finance and Economics from the
University of Mississippi.
N. Hopper Ancarrow, Jr. 54 Vice President, General Counsel and
Secretary -- Mr. Ancarrow joined
Southern States' legal staff in 1971 and
from 1972 until 1987 served as Assistant
Secretary of Southern States. In 1987,
he was named Vice President, General
Counsel and Secretary. Mr. Ancarrow
earned his B.A. from the University of
North Carolina and his J.D. from the
College of William & Mary - Marshall
Wythe School of Law.
Richard G. Sherman 52 Vice President, Human Resources -- Mr.
Sherman joined Southern States in June
1988 as Director of Human Resources at
the central office in Richmond,
Virginia. He was promoted to his current
position in August 1989. Before joining
Southern States, Mr. Sherman worked for
Texas City Refining Inc. and Agway Inc.
He has a B.A. in Economics and Business
from Rider College, an M.A. in Human
Resources from the University of Houston
and holds a Senior Professional in Human
Resources designation.
</TABLE>
The officers of Southern States serve for a term of one year and until
their successors are elected by the board of directors. During the past five
years the principal occupation of each of the above named executive officers,
other than Mr. Boutwell, has been as an officer or employee of Southern States.
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Executive Compensation
----------------------
The following table shows, for the fiscal years ended June 30, 1999,
1998 and 1997, 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:
. "Salary" reflects salary before pretax contributions under the
Southern States thrift plan and before pretax contributions under the
Southern States flexible benefits plan.
. "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 years
ended June 30, 1999 and 1998, $286,714 and $61,115 was subtracted from
Mr. Boutwell's incentive account as a result of incentive shortfalls
for the respective years. However, the balance is not reduced below
$0. Any balance in the incentive account is subject to forfeiture. See
"--Bonus Compensation--CEO Incentive Program" below.
. "Other Annual Compensation" reflects, in the case of Messrs. 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. Other than such amounts, for
the fiscal years ended June 30, 1999, 1998 and 1997 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.
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<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------
Year
Ending Other Annual All Other
Name and Principal Position June 30 Salary Bonus Compensation Compensation
--------------------------- ------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Wayne A. Boutwell 1999 $419,910 $ --- --- $11,500(1)
President and Chief Executive Officer 1998 381,429 29,615 --- 13,033(1)
(1) 1997 278,250 --- --- ---
George W. Winstead 1999 $180,512 $ --- --- $ 7,873(2)
Group Vice President 1998 169,778 15,826 --- 7,471(2)
Ag Inputs & Services 1997 160,116 46,495 --- 8,865(2)
K. Gene McClung 1999 $166,292 $ --- --- $7,152(3)
Group Vice President 1998 133,428 17,712 --- 6,877(3)
Marketing & Logistical Services 1997 109,080 26,343 --- 8,035(3)
Jonathan A. Hawkins 1999 $172,008 $ --- $2,150 $9,208(4)
Senior Vice President and 1998 154,591 25,630 1,924 9,168(4)
Chief Financial Officer 1997 139,784 43,430 1,733 10,834(4)
N. Hopper Ancarrow, Jr. 1999 $150,128 $24,986 $1,160 $5,937(5)
Vice President, General Counsel 1998 144,409 22,731 1,046 5,853(5)
and Secretary 1997 138,229 41,262 954 7,465(5)
</TABLE>
(1) Mr. Boutwell became president and chief executive officer effective
February 1, 1997. Reflects $2,400 and $3,934 contributed or matched by Southern
States or its subsidiaries for fiscal years 1999 and 1998, 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. Southern States will recover the cost of premium
payments from the cash value of the policies.
(2) Reflects $2,867, $2,465 and $3,859 contributed or matched by
Southern States or its subsidiaries for fiscal years 1999, 1998 and 1997,
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. Southern States will recover the
cost of premium payments from the cash value of the policies.
(3) Reflects $2,644, $2,369 and $3,528 contributed or matched by
Southern States or its subsidiaries for fiscal years 1999, 1998 and 1997,
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. Southern States will recover the
cost of premium payments from the cash value of the policies.
(4) Reflects $2,520, $2,481 and $4,147 contributed or matched by
Southern States or its subsidiaries for fiscal years 1999, 1998 and 1997,
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. Southern States will recover the
cost of premium payments from the cash value of the policies.
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(5) Reflects $2,218, $2,134 and $3,746 contributed or matched by
Southern States or its subsidiaries for fiscal years 1999, 1998 and 1997,
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. Southern States will recover the
cost of premium payments from the cash value of the policies.
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, or upon election, not later than that executive's
65th birthday. 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, 1997, 1998 and 1999 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 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. One-third of the balance in the
incentive account is distributed as of the end of each fiscal year. Shortfalls
equal to 1.5% of the amount by which earnings fall short of 10% of such equity
are subtracted from the incentive account. 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
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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 each fiscal year,
beginning July 1, 1998, the Company's chief financial officer (Mr. Hawkins) and
its two group vice presidents (Messrs. Winstead and McClung), 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:
Estimated Annual Benefits For Years of Service Indicated
--------------------------------------------------------
Highest 36 Month
Average Earnings 10 15 20 25 30 or more
- ---------------- --- -- -- -- ----------
$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
450,000 90,000 135,000 180,000 225,000 270,000
500,000 100,000 150,000 200,000 250,000 300,000
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, 1998, under the retirement income plan for the five
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executive officers listed in the summary compensation table are as follows: Mr.
Boutwell (2); Mr. Winstead (30); Mr. McClung (30); Mr. Hawkins (18); and Mr.
Ancarrow (27).
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 September 30, 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 September 30, 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.
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DESCRIPTION OF THE CAPITAL SECURITIES
The trustees will issue the capital securities and the common securities
on behalf of Southern States Capital Trust under the terms of the trust
agreement. The trust agreement is qualified as an indenture under the Trust
Indenture Act. The property trustee will also be the debenture trustee.
Here is a summary of some of terms and provisions of the capital
securities. The actual terms are set forth in full in the trust agreement.
General
The administrative trustees are authorized in the trust agreement to cause
Southern States Capital Trust to issue the trust securities. The trust
securities represent undivided beneficial interests in Southern States Capital
Trust. The trust securities are made up of two types of securities: the capital
securities and the common securities. Southern States Capital Trust will sell to
Southern States (or one of its subsidiaries) all of the common securities.
Southern States Capital Trust is selling the capital securities to the public in
this offering. Southern States Capital Trust will use the proceeds from the sale
of the common securities and the capital securities to purchase the junior
subordinated debentures from Southern States. The property trustee will hold the
junior subordinated debentures in trust for the benefit of the holders of all of
the trust securities.
The capital securities are limited to $75,000,000 aggregate liquidation
amount outstanding at any time. Southern States Capital Trust does have the
right to increase the aggregate liquidation amount outstanding by not more than
$11,250,000, which is also known as the over-allotment option.
The capital securities will rank equal in seniority with the common
securities. Southern States Capital Trust will make payments on the capital
securities proportionately with the payments it makes on the common securities
except as described under "--Subordination of Common Securities" below.
Southern States has guaranteed 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, to the
extent described below under "The Guarantee." In addition, Southern States has
other obligations, which are those contained in the trust agreement, the expense
agreement, the indenture and any applicable supplemental indentures. The
guarantee, the other obligations and the junior subordinated debentures issued
to Southern States Capital Trust, all taken together, provide a full,
irrevocable and unconditional guarantee by Southern States of the amounts due on
the capital securities. The guarantee trustee will hold the guarantee 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. However, the guarantee will not guarantee payment of
distributions or amounts payable on redemption or liquidation of the capital
securities if it happens that Southern States
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Capital Trust does not have funds on hand available to make those payments. See
"The Guarantee." The guarantee only applies if Southern States has made the
corresponding payment of interest or principal on the junior subordinated
debentures held by Southern States Capital Trust.
If the holder of a capital security has not been paid interest or
principal, then the holder's remedy is to direct the property trustee to enforce
against Southern States the property trustee's rights as the holder of the
junior subordinated debentures. There are also the limited circumstances where
the holder may take direct action against Southern States. See "--Voting Rights"
below.
Distributions; Option to Extend Interest Payment Period
Rate
Distributions on the capital securities will be fixed at a yearly rate of
___ % of the stated liquidation amount of $25 for each capital security.
Distributions will be made on the trust securities at the same rate and on the
same dates that payments of interest, including interest on accrued interest as
provided for in the indenture, are made on the junior subordinated debentures.
Interest will be compounded quarterly. The term "distributions" as used in this
prospectus includes any interest payable unless we state otherwise. Our
computations will always be based on 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 using a 90-day quarter.
Dates
Distributions on the capital securities will be cumulative. They will
accrue from ________, 2000, and will be payable quarterly in arrears on January
1, April 1, July 1 and October 1 of each year, commencing ________, 2000.
Distributions will be paid on these days when, as and if there are funds
available for payment by the property trustee, except as otherwise described
below. The initial cash distribution payable on _______, 2000, 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 to Southern States Capital Trust
by extending the interest payment period. If Southern States exercises this
right, then Southern States Capital Trust will automatically defer quarterly
distributions on the capital securities. However, during any extension period,
interest, including any additional interest as provided for in the indenture,
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.
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If Southern States exercises its right to defer payments of interest on
the junior subordinated debentures, then during this extension period Southern
States may not:
. declare or pay dividends or distributions on or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its
capital stock or patron's equity,
. redeem any patronage refund allocations, or
. 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.
However, these extension period restrictions do not apply to:
. Southern States' repurchase, redemption or other acquisition of
shares of its capital stock from a member of Southern States upon
either the death or dissolution of this member or because this
member has ceased to be eligible for membership in Southern States,
as long as the board of directors approves the 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;
. as a result of an exchange or conversion of any class of capital
stock or indebtedness of Southern States (or capital stock of any
affiliate of Southern States) for any other class of capital stock
of Southern States;
. the declaration or payment of patronage refunds, as long as not more
than 40% of the aggregate patronage refunds for any fiscal year will
be in cash and the remainder will be paid in common stock or
patronage refund allocations;
. any declaration of a dividend in connection with any shareholders'
rights plan, or the issuance of rights, stock or other property
under a shareholders' rights plan, or the redemption or repurchase
of these rights; or
. 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.
Southern States may extend an extension period further before it ends. It
can only do this as long as the total extension period, together with all
previous and further extensions, does not exceed 20 consecutive quarters and
does not extend beyond the maturity date of the junior subordinated debentures.
In addition, after the end of an extension period and after Southern States has
paid the amounts 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."
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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
Southern States Capital Trust must pay distributions on the capital
securities, but this is only to the extent that it has funds available for the
payment. Southern States Capital Trust's available funds will be limited to the
payments it has received from Southern States for or on the junior subordinated
debentures. See "Description of the Junior Subordinated Debentures" and "Risk
Factors-- If Southern States Does Not Make Payments on the Junior Subordinated
Debentures, the Guarantee Will Not Apply Because Southern States Capital Trust
Will Not Have Funds Available to Pay Distributions or Other Payments on the
Capital Securities."
Record Holders
Distributions on the capital securities will be payable to the holders of
the capital securities as their names appear on Southern States Capital Trust's
books and records on the relevant record dates. The record date for each
distribution will be the fifteenth day, whether or not this is a business day as
defined below, before the relevant payment date. If these distributions are
deferred, the deferred distributions and their accrued interest will be paid to
holders of record of the capital securities as they appear on Southern States
Capital Trust's books and records on the record date for distributions due at
the end of the deferral period.
The property trustee will be the entity to pay these distributions to the
holders of the capital securities. The property trustee will also hold amounts
received from Southern States for the junior subordinated debentures for the
benefit of the holders of the capital securities.
Payment Date of Distributions
If the date for making distributions is not a business day, then the
payment date will be the next succeeding day that is a business day. In this
case, there will not be 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 will be made on the business day that immediately precedes the date for
making distributions.
Under the trust agreement, a "business day" means a day other than:
. a Saturday or Sunday,
. a day on which banks in New York City are authorized or required by
law or executive order to remain closed, or
. a day on which either the property trustee's or the debenture
trustee's corporate trust office is closed for business.
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Subordination of Common Securities
Southern States Capital Trust will pay distributions on, and the
redemption price of, both the capital securities and common securities. The
payments will be made proportionately based on the liquidation amount of the
capital securities and common securities.
However, if a debenture event of default has occurred and is continuing
on any payment date, Southern States Capital Trust may not make payment of any
distribution on, or applicable redemption price of, or liquidation distribution
in respect of any of the common securities, or any other payment on account of
the redemption, liquidation, or other acquisition of the common securities
unless certain things are true. A debenture event of default is defined under
"--Events of Default; Notice" below. Southern States Capital Trust can only make
payments on the common securities if it has provided for payment in full in cash
of all accumulated and unpaid distributions on all of the outstanding capital
securities for all distribution periods which end on or before that date. In
that case, the property trustee will first apply all funds available 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 resulting from a debenture event of
default, the holders of the common securities are deemed to have waived any
right to act with respect to any event of default under the trust agreement.
This waiver remains in effect 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" below and "Description of the
Junior Subordinated Debentures--Debenture Events of Default."
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 under the trust agreement relating to the capital
securities have been cured, waived or otherwise eliminated. In addition, only
the holders of the capital securities will have the right to direct the property
trustee to act on their behalf until all events of default have been cured,
waived or otherwise eliminated.
Redemption
Southern States will repay the junior subordinated debentures, in whole or
in part, either at maturity or upon redemption by Southern States. The proceeds
from this repayment will be applied to redeem the trust securities having an
aggregate liquidation amount which is equal to the aggregate principal amount of
the junior subordinated debentures which were 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.
The junior subordinated debentures will mature on __________, 2030.
Southern States can redeem them, in whole or in part, at any time on or after
________, 2005. See "Description of the Junior Subordinated Debentures--Optional
Redemption." They can be redeemed at any time if they are redeemed in whole but
not in part upon the occurrence of a tax event. See "--Tax Event Redemption"
below.
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Tax Event Redemption
Southern States has the right to redeem the junior subordinated debentures
at any time when there is a tax event occurring and continuing. Southern States
must give Southern States Capital Trust not less than 30 nor more than 60 days'
notice to redeem if this happens. This redemption must be for the entire issue
of the junior subordinated debentures and must be made for cash within 90 days
following the occurrence of such tax event.
After this type of redemption of the junior subordinated debentures, the
trust securities must be redeemed by Southern States Capital Trust at the
redemption price.
A "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:
. 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;
. 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
. 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, change or announced proposed
change in or to 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 the capital securities or which are
pronounced, decided or announced on or after the date of issuance of the capital
securities.
Redemption Procedures
Southern States Capital Trust will redeem the capital securities on the
redemption date at the redemption price. Southern States Capital Trust will pay
for the redemption with the proceeds from Southern States' redemption of the
junior subordinated debentures, which will be happening at the same time. The
actual redemption, the date of redemption and the price payable will only be to
the extent that Southern States Capital Trust has funds on hand available for
the payment. See also "--Subordination of Common Securities" above.
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Deposit of Funds for Redeemed Securities
If the capital securities are held in book-entry form, then the
property trustee will deposit irrevocably with the Depository Trust Company
funds sufficient to pay the applicable redemption price. It will also 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.
If the capital securities are not held in book-entry form, then the
property trustee will deposit irrevocably with the paying agent for the capital
securities funds sufficient to pay the applicable redemption price. The property
trustee will also give the paying agent irrevocable instructions and authority
to pay the redemption price. The deposit must be made to the extent funds are
available. The payment will be made to the holders of the capital securities
upon surrender of their certificates evidencing the capital securities.
After the property trustee has given the notice of redemption and
deposited the funds, those capital securities will no longer be outstanding.
This means that all holders' rights will cease to exist except for the holders'
right to receive the redemption price without interest.
Distributions will be payable to the holders of the capital securities on
the relevant record dates. If the date fixed for this redemption is not a
business day, then payment of the redemption price will be made on the next
succeeding business day. Payment will be made without any interest or other
payment for this delay. And, 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
Distributions will continue to accumulate if Southern States Capital Trust
or Southern States (pursuant to its guarantee) improperly refuses to pay. The
distributions will grow at the then applicable rate. This growth will be from
the redemption date originally established by Southern States Capital Trust, and
will continue until the date the redemption price is actually paid. The actual
payment date will be the date fixed for redemption for purposes of calculating
the redemption price.
Repurchases of Capital Securities
Southern States or its affiliates may purchase outstanding capital
securities by tender offer, in the open market or by private agreement. This is
subject to applicable law including, without limitation, United States federal
securities laws.
Partial Redemptions of the Capital Securities
Southern States Capital Trust can also redeem a portion of the capital
securities and common securities it sells. The procedure for redeeming less than
all of the capital securities and all of the common securities is as
follows:
. The aggregate liquidation amount of the capital securities and
common securities being redeemed will be allocated proportionately
to the capital securities and the common
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securities, based upon the relative liquidation amounts of these
classes.
. The particular capital securities to be redeemed will be selected on
a proportional basis not more than 60 days prior to the redemption
date. The property trustee will make the selection from the
outstanding capital securities that have not previously been called
for redemption. If the capital securities are held in the form of a
global capital security certificate, as this is explained below,
then the selection of those capital securities which will be
redeemed will be made in accordance with DTC's customary
procedures.
. The property trustee will promptly notify the securities registrar
for the capital securities in writing of the capital securities that
have been selected for redemption. This notice will include the
liquidation amount of the capital securities being redeemed and if
any capital securities are selected for partial redemption.
Please note that all of the provisions in the trust agreement which relate to
the redemption of the capital securities should be read as relating to the
portion of the aggregate liquidation amount of capital securities partially
redeemed, unless the context otherwise requires.
Notice of Redemption
The trust agreement contains requirements for Southern States Capital
Trust's notice to the holders that it will redeem the capital securities:
. Notice of any redemption will be mailed by the property trustee at
least 30 days but not more than 60 days before the redemption
date.
. The notice will be mailed to each registered holder of capital
securities to be redeemed at the address appearing on the securities
register for the capital securities.
Distributions will cease to accumulate on the capital securities or any portions
called for redemption, unless payment of the redemption for the capital
securities is withheld or refused and not paid either by Southern States Capital
Trust or Southern States under the guarantee. In addition, interest ceases to
accrue on the junior subordinated debentures or any portion called for
redemption on and after the redemption date. This is not the case, however if
Southern States defaults in payment of the redemption price on the junior
subordinated debentures.
Distribution of the Junior Subordinated Debentures
There is a procedure for forcing a distribution of the junior subordinated
debentures to the holders of the capital securities and the common securities.
Holders of all of the outstanding common securities have the right at any time
to dissolve Southern States Capital Trust. Upon that dissolution, Southern
States Capital Trust must satisfy its liabilities to creditors as provided by
applicable law. After that has been done, the holders of the outstanding common
securities can cause the junior subordinated debentures to be distributed to the
holders of the capital securities and common securities and liquidate Southern
States Capital Trust.
Currently, Southern States Capital Trust does not believe that a
distribution of the junior subordinated debentures would be considered a taxable
event to holders of the capital securities.
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This, however, is based on current United States federal income tax law and
interpretations, as well as our assumption and expectation that Southern States
Capital Trust will be treated as a grantor trust. It is important to understand
that if there is a change in applicable law, a change in the legal
interpretation of applicable law, a tax event or other circumstance, that the
distribution of the junior subordinated debentures could be a taxable event to
the holders of the capital securities.
In addition, it would be considered a taxable event if the holders of the
capital securities receive cash (instead of the junior subordinated debentures)
in a dissolution of Southern States Capital Trust. 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 list the
junior subordinated debentures 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 (and
upon the dissolution of Southern States Capital Trust), the following will be
effective:
. The capital securities will no longer be deemed to be
outstanding.
. If DTC or its nominee is the record holder of the capital
securities, it will receive a registered global certificate or
certificates representing the junior subordinated debentures to be
delivered upon such distribution.
. If DTC or its nominee is not the record holder of the capital
securities, these capital securities will be treated as if they
represent junior subordinated debentures. Southern States Capital
Trust will deem these to have an aggregate principal amount equal to
the aggregate stated liquidation amount of the capital securities,
and an interest rate identical to the distribution rate of the
capital securities. In addition, accrued and unpaid interest will be
deemed to be equal to accrued and unpaid distributions on the
capital securities. This will be the case until the certificates are
presented for transfer or reissuance.
No one can assure the market prices for either the capital securities
or the junior subordinated debentures that may be distributed in exchange for
the capital securities if a dissolution and liquidation of Southern States
Capital Trust were to occur. In addition, the capital securities or junior
subordinated debentures that an investor may purchase in the secondary market
may trade at a price less than that paid by an investor who bought the capital
securities pursuant this prospectus.
Liquidation Amount Upon Dissolution
The holders of the capital securities will receive a liquidation amount
in the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of Southern States
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Capital Trust. The liquidation amount will be proportional and will come out of
the assets of Southern States Capital Trust. This will be known as a liquidation
distribution.
The amount of the liquidation distribution will be the same as the
stated liquidation amount of $25 per capital security, plus accrued and unpaid
interest. Under law, Southern States Capital Trust must satisfy its liabilities
to creditors before the holders may receive this liquidation distribution.
However, there may be exceptions to this liquidation distribution for instances
where the distribution of this amount takes the form of a distribution in junior
subordinated debentures. See "--Distribution of the Junior Subordinated
Debentures" above.
If Southern States Capital Trust has insufficient assets available to pay
the liquidation distribution in full, it can pay the distribution in part. In
this case, Southern States Capital Trust will pay the distribution amount on a
proportionate basis.
Generally, the holders of the common securities will be entitled to
receive distributions upon any such dissolution proportionately with the holders
of the capital securities. This will not be the case, however, 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. In that case, holders of the capital securities will have a
preference over holders of 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. It will dissolve earlier, on
the first of the following events to occur:
. the bankruptcy, dissolution or liquidation of Southern States,
. 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 (note that this
direction is optional and wholly within the discretion of the
holders of common securities),
. redemption of all of the capital securities as described under
"--Redemption" above, and
. 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" with
respect to the capital securities under the trust agreement:
. the occurrence of a debenture event of default (see "Description of
the Junior Subordinated Debentures--Debenture Events of
Default");
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. 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;
. default by Southern States Capital Trust in the payment of any
redemption price of any capital security when it becomes due and
payable;
. 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 default on a warranty or covenant which is dealt with
in the two preceding bullet points), noting that:
. there must be a continuation of this default or breach for a
period of 60 days after there has been given proper notice,
and
. there must be proper notice 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 which states in writing the specific default or breach
and require it to be remedied and state that the notice is a
"Notice of Default" under the trust agreement;
. the property trustee's bankruptcy or insolvency and the fact that a
successor property trustee has not been appointed within 90 days of
the bankruptcy or insolvency events.
The property trustee will notify the holders of capital securities, the
administrative trustees and Southern States within five business days after the
occurrence of any event of default actually known to the property trustee. This
notice must be given 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.
The capital securities will have a preference over the common securities
for payments of any amounts due and payable on the capital securities if a
debenture event of default has occurred and is continuing and this is a result
of any failure by Southern States to pay any amounts due and payable on the
junior subordinated debentures. 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
Southern States, as the holder of all the common securities, can replace
or remove any trustee at any time unless a debenture event of default has
occurred and is continuing. If a debenture event of default has occurred and is
continuing, the property trustee and the Delaware
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trustee may only be removed or replaced by the holders of a majority in
liquidation amount of the outstanding capital securities.
The holders of the capital securities will never have the right to vote to
appoint, remove or replace the administrative trustees. Voting rights as to the
administrative trustees 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
A successor trustee to either the property trustee or the Delaware trustee
can be:
. any entity into which either trustee may be merged, converted, or
consolidated;
. 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.
In any of these circumstances, the successor trustee will be bound by the
trust agreement so long as 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.
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. No consent of the holders is required, however, for any
changes that do not adversely affect the rights of holders of capital
securities.
The 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. They also have the right to direct the
exercise of any power of the property trustee under the trust agreement. This
includes the right to direct the property trustee, as holder of the junior
subordinated debentures, to:
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. direct the debenture trustee in the exercise of the remedies available
under the indenture with respect to the junior subordinated debentures,
. waive any past default and its consequences that is waivable under the
indenture,
. exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures shall be due and payable, or
. 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 capital securities 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 must have obtained an opinion of counsel before the
property trustee takes any of the actions described above. This opinion must
state that Southern States Capital Trust will not be classified as something
other than a grantor trust for United States federal income tax purposes as a
result of taking this action.
The property trustee may not revoke any action previously authorized or
approved by a vote of the holders of the capital securities except by a later
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 this meeting to
be given to each registered holder of capital securities in the manner stated in
the trust agreement. The property trustee will give a similar notice for any
matter or action that is to be achieved by written consent of the holders.
No actual vote or consent of the holders of capital securities will be
required to redeem and cancel capital securities in accordance with the trust
agreement.
When or if Southern States, or any Southern States entity, holds any of
the capital securities, it will be treated differently than other holders of
capital securities who are entitled to vote or consent under any of the
circumstances described above. When Southern States, the trustees or any
affiliate of Southern States or any trustee, own any of the capital securities,
these securities will be treated as if they were not outstanding for purposes of
this vote or consent.
Modification of the Trust Agreement
The trustees and Southern States may amend the trust agreement without the
consent of holders of the capital securities for the following purposes:
. to cure any ambiguity,
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. to make provisions not inconsistent with other provisions under the
trust agreement,
. to ensure that Southern States Capital Trust will not be taxable as a
corporation or as other than a grantor trust for United States federal
income tax purposes, or
. to ensure that Southern States Capital Trust will not be required to
register as an investment company under the Investment Company Act.
These amendments can be made only if the change does not adversely affect in any
material respect the interests of any holder of capital securities. See
"--Voting Rights," and "--Removal of Trustees; Appointment of Successors" above.
The trust agreement may also be amended by the trustees when they have the
consent of the holders of a majority of the capital securities. To make an
amendment this way, the trustees must also have:
. the consent of holders representing not less than a majority in
aggregate liquidation amount of the outstanding capital securities; and
. receipt of an opinion of counsel that states that the amendment or
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 anything other than a grantor trust for United
States federal income tax purposes, or will not affect Southern States
Capital Trust's exemption from status as an investment company under
the Investment Company Act.
However, the consent of each and every holder of trust securities is
required for any of the following amendments:
. to change the amount or timing of any distribution on the trust
securities,
. to otherwise adversely affect the amount of any distribution required
to be made in respect of the trust securities as of a specified date,
or
. to 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 or Consolidations
Generally, the trust agreement says that Southern States Capital Trust may
not consolidate, merge with or into or be replaced by, or convey, transfer or
lease its properties and assets substantially as an entirety to any entity,
unless all of the following are true:
. the consolidation, merger or replacement is to take place at the
request of the holders of the common securities and with the consent of
the administrative trustees (without needing the consent of the holders
of the outstanding capital securities), and the successor entity will
be organized under the laws of any state;
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. the 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;
. a trustee of the successor entity, possessing the same powers and
duties as the property trustee, is appointed to hold the junior
subordinated debentures;
. the merger, consolidation, 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;
. the merger, consolidation, 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;
. the successor entity has a purpose substantially identical to that of
Southern States Capital Trust;
. prior to the merger, consolidation, 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, 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,
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
. 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 must have
the consent of all of the holders of the trust securities for certain events.
Unanimous consent is required to consolidate, merge with or into, or be replaced
by any other entity or permit any other entity to consolidate, merge with or
into, or replace it, if any of those acts 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.
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Book-Entry Issuance--The Depository Trust Company
The Depository Trust Company will act as the 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 represented by a global certificate.
DTC has advised Southern States and Southern States Capital Trust that DTC
is:
. a limited-purpose trust company organized under the New York Banking
Law,
. a "banking organization" within the meaning of the New York Banking
Law,
. a member of the Federal Reserve System,
. a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and
. a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
Services Provided by DTC
DTC is an entity 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. Its function is to hold securities that its
participants deposit with DTC. DTC also facilitates the settlement of securities
transactions among participants. This includes transfers and pledges in
deposited securities through electronic computerized book-entry changes in
participants' accounts. This eliminates the need for physical movement of
securities certificates.
DTC's direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and other types of organizations.
Indirect participants also have access to the DTC system. These include
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
filed with the SEC.
All 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
(the actual purchaser of each capital security) is in turn recorded on the
direct and indirect participants' records. Beneficial owners will not receive
written confirmation from DTC of their purchases.
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However, beneficial owners do receive written confirmations and 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 done 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 unless the use of the
book-entry system for the capital securities is discontinued.
All the capital securities deposited by participants with DTC are
registered in the name of DTC's nominee, Cede & Co. to facilitate subsequent
transfers. The deposit of capital securities with DTC and their registration in
the name of Cede & Co. do not effect any change in beneficial ownership. DTC
does not know 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 remain responsible for keeping all account of their
holdings on behalf of their customers.
Notices by and to DTC
Arrangements between the parties govern 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
These will be subject to any statutory or regulatory requirements that may be in
effect from time to time.
Redemption notices will 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 the 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 consent or
vote with respect to capital securities. Instead, DTC will follow its usual
procedures, which is to 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 these
arrangements will enable the beneficial owners to exercise the same rights as
those that can be directly exercised by a holder of a beneficial interest in
Southern States Capital Trust.
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Distribution Payments to and by DTC
Southern States Capital Trust will make distribution payments on the
capital securities to DTC. DTC's usual practice is to credit direct
participants' accounts on the relevant payment date in accordance with DTC's
records unless DTC has reason to believe that it will not receive payments on
the payment date. Standing instructions and customary practices govern payments
by participants to beneficial owners.
In other words, Southern States Capital Trust (or Southern States, subject
to any statutory or regulatory requirements) is responsible for payment of
distributions to DTC. DTC is responsible for the disbursement of the payments to
direct participants. And the direct and indirect participants are responsible
for the disbursement of the payments to the beneficial owners.
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 its services as depository for the capital securities
at any time by giving reasonable notice to Southern States Capital Trust. If
this happens and a successor securities depository is not obtained, capital
securities certificates will be printed and delivered. In addition, the trustees
may decide to discontinue use of the system of book-entry transfers through DTC
or any successor depository for the capital securities. In that event,
certificates for the capital securities will be printed and delivered to the
holders.
Impact of Year 2000 on DTC
DTC has informed Southern States 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." DTC states that it has informed its
participants and other members of the financial community that it developed and
implemented a program so that its information systems, 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.
However, DTC also states that its ability to perform properly its services
is dependent upon other parties. These include but are not limited to issuers
and their agents, 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. DTC has stated that it is contacting, and will continue to
contact, third party vendors from whom DTC acquires services. DTC continues to
impress upon them the importance of such services being Year 2000 compliant and
determines the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services.
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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
If no event of default has occurred and is continuing with respect to the
capital securities, the property trustee will perform only those duties that are
specifically provided for in the trust agreement or in the Trust Indenture Act.
If the property trustee is required to decide between alternative courses of
action, it will take action that it decides is advisable and in the best
interests of the holders of the trust securities.
The holders of the capital securities can ask the property trustee to
construe ambiguous provisions found in the trust agreement. The property trustee
will also construe provisions if it 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. In these
situations, as long as there has not been an event of default which is
continuing, the property trustee will have no liability except for its own bad
faith, negligence or willful misconduct.
After an event of default, the property trustee is required to exercise
the same degree of care as a prudent individual would exercise in the conduct of
his or her own affairs.
Subject to 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. This is the case unless the holder offers
the property trustee reasonable indemnity against the costs, expenses and
liabilities which might be incurred by the exercise.
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.
There will not be a charge for Southern States Capital Trust to register
the transfers of capital securities. However, Southern States Capital Trust must
pay any tax or other governmental charges that may be imposed in connection with
any transfer or exchange.
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Southern States 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 laws of the State of Delaware.
Miscellaneous
The administrative trustees are authorized and directed to operate
Southern States Capital Trust so that it 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. Toward this end, the
administrative trustees are authorized to take any action that is not
inconsistent with applicable law, the certificate of trust of Southern States
Capital Trust, or the trust agreement. The property trustee and the
administrative trustees must have determined in their discretion that the action
is necessary or desirable. The action also can not materially adversely affect
the interests of the holders of the capital securities.
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. Southern States Capital Trust will be investing the
proceeds from its issuance and sale of the capital securities and the common
securities in the purchase of junior subordinated debentures from Southern
States.
The junior subordinated debentures will be issued by Southern States
pursuant to an indenture. The indenture will be qualified under the Trust
Indenture Act.
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. See "Description of the
Capital Securities--Distribution of the Junior Subordinated Debentures." If this
occurs, 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.
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General
The junior subordinated debentures have the following general terms:
. Type: They will be issued as unsecured subordinated debt securities
under the indenture.
. Amount: They will be limited in aggregate principal amount to
approximately $77.32 million, which is 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
(or approximately $88.92 million if the underwriters exercise their
over-allotment option in full).
. Maturity: They 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 , _________ 2030.
. Ranking: They will rank junior to all of Southern States' senior
indebtedness. This includes senior indebtedness existing now or
incurred in the future. See "--Subordination" below. But the junior
subordinated debentures will rank senior in liquidation and in
dividends to Southern States' preferred stock and membership common
stock.
The junior subordinated debentures may be distributed to the holders of
capital securities during any liquidation of the holders' interests in Southern
States Capital Trust. In this case, 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"). There are limited circumstances that are described
in this prospectus when 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.
The indenture does not contain any provisions that protect the holders as
a group, or any individual holder, of the junior subordinated debentures 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.
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
of Southern States' senior indebtedness, which we define below. The junior
subordinated debentures are junior to senior indebtedness in existence now or
that which Southern States incurs in the future.
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Southern States will not make any payment on the principal (including
redemption payments) of, or interest on, the junior subordinated debentures:
. 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.
In addition, all of Southern States' senior indebtedness must be paid in
full before the holders of junior subordinated debentures are entitled to
receive or retain any payment in the following circumstances:
. upon any distribution of assets of Southern States to creditors upon
any dissolution, winding-up, liquidation or reorganization, whether
voluntary or involuntary, or
. during bankruptcy, insolvency, receivership or other proceedings.
The term "senior indebtedness" means any obligation of Southern States to
its creditors, whether now outstanding or incurred in the future, which does not
specifically say in the instrument creating or evidencing the obligation, or
under which the obligation is outstanding, that it is not senior indebtedness.
Substantially all of the existing indebtedness of Southern States, other than
trade accounts payable and accrued liabilities arising in the ordinary course of
business, is included in the definition of senior indebtedness.
Senior indebtedness generally includes any subordinated debt securities
issued by Southern States now or in the future. It does not, however, include
the junior subordinated debentures or any junior subordinated debt securities
issued by Southern States in the future when those securities have subordination
terms which are substantially similar to those of these junior subordinated
debentures. Senior indebtedness also does not include trade accounts payable and
accrued liabilities arising in the ordinary course of business.
The indenture does not limit the aggregate amount of senior indebtedness
that may be issued by Southern States. At December 31, 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 $188.3 million. Southern States expects from time to time in
the future to incur additional senior indebtedness.
Optional Redemption
Southern States may redeem the junior subordinated debentures before they
mature:
. in whole or in part, at any time after _______, 2005, or
. 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").
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In each case, the redemption price will be equal to the principal amount of
junior subordinated debentures called for redemption plus with accrued interest
to, but excluding, the date fixed for redemption.
Interest
Generally speaking, each junior subordinated debenture shall bear interest
under the following terms:
. a yearly rate of ___ %,
. payable from either the original date of issuance or from the most
recent interest payment date to which interest has been paid or
provided for, and
. payable quarterly in arrears on January 1, April 1, July 1 and October
1 of each year commencing _______, 2000.
Normally, interest is payable to the person in whose name the junior
subordinated debenture is registered at the close of business on the fifteenth
day, whether or not a business day, next preceding the interest payment date.
However, Southern States has the right to select new record dates if the capital
securities are no longer in book-entry only form or if the junior subordinated
debentures are distributed to the holders of the capital securities and are not
in book-entry form. The selected record dates will conform to the rules of any
securities exchange on which the junior subordinated debentures are then listed
and will be between ten and 60 business days before the interest payment date.
Any installment of interest not paid on its due date is defaulted interest
and is no longer payable to the holders of the junior subordinated debentures on
the regular record date. Instead, it 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.
The debenture trustee will fix the special record date for the payment of
defaulted interest. Notice of payment of defaulted interest will 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 which is not inconsistent with the
requirements of any securities exchange, interdealer quotation system or other
organization on which the junior subordinated debentures may be listed. In this
case, the notice requirements are those of the appropriate 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 during this period.
If the interest payment date is not a business day, then payment will be
made on the next succeeding business day. Payment will not include any interest
or other payment because of the delay. And, if the next succeeding business day
is in the next succeeding calendar year, then payment shall be made on the
immediately preceding business day.
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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. At the end of this extension period,
Southern States will pay all interest then accrued and unpaid. It will also pay
interest on the accrued interest compounded quarterly at the rate specified for
the junior subordinated debentures to the extent permitted by applicable
law.
During any extension period, Southern States may not:
. declare or pay dividends or distributions or redeem, purchase, acquire
or make a liquidation payment with respect to, any of its capital stock
or patron's equity,
. redeem any patronage refund allocations, or
. 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.
However, these extension period restrictions do not apply to:
. Southern States' repurchase, redemption or other acquisition of shares
of its capital stock from a member of Southern States upon either the
death or dissolution of this member or because such member has ceased
to be eligible for membership in Southern States, as long as the board
of directors approves the 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;
. as a result of an exchange or conversion of any class of capital stock
or indebtedness of Southern States (or capital stock of any affiliate
of Southern States) for any other class of capital stock of Southern
States;
. the declaration or payment of patronage refunds, as long as not more
than 40% of the aggregate patronage refunds for any fiscal year will be
in cash and the remainder will be paid in common stock or patronage
refund allocations;
. any declaration of a dividend in connection with any shareholders'
rights plan, or the issuance of rights, stock or other property under a
shareholders' rights plan, or the redemption or repurchase of these
rights; or
. 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 ending any extension period, Southern States may further extend the
interest payment period. The total extension period, however, together with all
previous and further
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extension periods, may not exceed 20 consecutive quarters. The total period also
may not extend beyond the maturity date of the junior subordinated
debentures.
Upon the end of any extension period and Southern States' payment of all
amounts then due, Southern States may elect to begin a new extension period
subject to the above conditions.
Interest is not 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 for an extension period. This notice must be given at
least one business day before the earlier of:
. the date the distributions on the capital securities would have been
payable but for the election to begin the extension period, and
. 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 the holders of the capital securities
notice of Southern States' election to begin a new extension period. There is no
limitation on the number of times that Southern States may elect to begin an
extension period.
Holders of the capital securities are still required to accrue income for
federal income tax purposes if Southern States exercises its option to defer
interest payments. This is the case regardless of the timing of the interest
payments on the junior subordinated debentures and the holder's method of
accounting for income taxes purposes. This is 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 will pay enough additional sums on the junior subordinated
debentures so the distributions payable by Southern States Capital Trust will
not be reduced because of additional taxes, duties or other governmental
charges. Southern States will pay these additional sums as long as:
. Southern States Capital Trust is the holder of all junior subordinated
debentures, and
. Southern States Capital Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a tax event.
See "Description of the Capital Securities--Redemption."
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Other Covenants
Southern States also has promised:
. to continue to hold, directly or indirectly, 100% of the common
securities, as long as permitted successors under the indenture may
succeed to Southern States' ownership of the common securities,
. not to, as holder of the common securities, 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 or consolidations
permitted by the trust agreement, and
. 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 has covenanted that it will not do certain things, nor
permit one of its subsidiaries to do certain things, in the following
situations:
. if there has been an event of which Southern States has actual
knowledge that, with the giving of notice or the lapse of time, or
both, would be a debenture event of default and that Southern States
has not taken reasonable steps to cure;
. the junior subordinated debentures are held by Southern States Capital
Trust and Southern States is in default with respect to its payment of
any obligations under the guarantee relating to the capital securities;
or
. Southern States has given notice of its election to begin an extension
period as provided in the indenture and has not rescinded such notice,
or such extension period.
If any of the above events occur, then Southern States cannot do any of the
following:
. 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,
. redeem any patronage refund allocations, or
. 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.
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These restrictions, however, do not apply to:
. 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 because the member has ceased to be eligible for
membership in Southern States, as long as 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,
. 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,
. 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
. 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
The holders of a majority of the outstanding junior subordinated
debentures may waive any default under the terms of the indenture, unless it
is:
. a default in the payment of principal or interest, and any additional
sum (but only if the default has not been cured); or
. a default on a covenant that cannot be modified or amended under the
indenture 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, the holders of a majority in aggregate liquidation
amount of the outstanding capital securities may waive the default. See
"--Debenture Events of Default--Parties Who May Act in or Waive a Debenture
Event of Default" below.
Consolidation, Merger, Conveyance, Transfer or Lease
The indenture provides that Southern States generally 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. It also provides that
generally, 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.
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These prohibitions, however, do not apply 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;
. 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
. other conditions as prescribed in the indenture are satisfied.
Debenture Events of Default
The indenture defines an "event of default" with respect to the junior
subordinated debentures to be any one or more of the following:
. 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
. 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
. failure to observe or perform in any material respect other covenants
contained in the indenture for 90 days after the debenture trustee's,
or the holders' of at least 25% in aggregate outstanding principal
amount of the outstanding junior subordinated debentures, written
notice to Southern States; or
. 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 for the capital
securities.
Parties Who May Act in or Waive a 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. If
either fail to make this declaration, then the
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holders of at least 25% in aggregate liquidation amount of the outstanding
capital securities will 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;
. a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with
the debenture trustee; and
. it is not a default 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.
Should the holders of a majority of the 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 same right.
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.
Enforcement of Rights by the Property Trustee
The property trustee has certain rights if a debenture event of default
occurs and is continuing. The property trustee can:
. 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
. enforce its other rights as a creditor with respect to the junior
subordinated debentures.
Enforcement of Rights by Holders of Capital Securities
A registered holder of capital securities also has certain rights if a
debenture event of default has occurred and is continuing. However, the event of
default must be attributable to the failure of Southern States to pay any
amounts payable on the junior subordinated debentures on the date those amounts
are otherwise payable. In that case, the registered holder of the capital
securities may institute a legal proceeding directly against Southern
States.
This proceeding will be to enforce payment to the holder of an amount
equal to the amount payable in respect of junior subordinated debentures which
will have 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 unless it has the prior written consent of the
holders of all of the capital securities.
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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 directly
exercise any remedies available to the holders of the junior subordinated
debentures except under those circumstances just described in the preceding
paragraph. See "Description of the Capital Securities--Events of Default;
Notice."
Satisfaction and Discharge
The indenture ceases to be effective if all of the junior subordinated
debentures which were not previously delivered to the debenture trustee for
cancellation have become due and payable, or will become due and payable, at the
stated maturity within one year. The indenture is still effective, however, for
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. This obligation will end when Southern States deposits or causes
to be deposited with the debenture trustee, certain funds. These funds will be
deposited in trust for the purpose of paying and discharging the entire
indebtedness on the junior subordinated debentures not previously delivered to
the debenture trustee for cancellation.
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. For
example, Southern States may take these actions to cure ambiguities, defects or
inconsistencies or to qualify, or maintain the qualification of, the indenture
under the Trust Indenture Act.
Southern States may not take action alone, 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 does contain provisions permitting Southern States and the
debenture trustee to modify the indenture in a manner which does affect the
rights of the holders of the junior subordinated debentures as long as all of
the following are true:
. the holders of not less than a majority in principal amount of the
junior subordinated debentures affected give their consent;
. the modification does not 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 amount is payable
or impair the right to institute suit for the enforcement of any junior
subordinated debenture; and
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. the modification does not reduce the percentage of principal amount of
junior subordinated debentures, which would require the holders of the
junior subordinated debentures to consent to any modification of the
indenture.
Furthermore, the indenture cannot be modified to adversely affect the
holders of the capital securities in any material respect if any of the capital
securities remain outstanding.
The indenture cannot be terminated without the prior consent of the
holders of at least a majority of the aggregate liquidation amount of the
outstanding capital securities. The same consent is required to waive any
debenture event of default or compliance with any covenant under the indenture.
However, there is an exception to the general requirement for the consent of the
holders of a majority of the outstanding capital securities if the principal of,
and premium, if any, on, the junior subordinated debentures and all accrued and
unpaid interest have been paid in full and other conditions 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, we believe that the depository arrangements for the junior
subordinated debentures will be similar to those in effect for the capital
securities. See "Description of the Capital Securities--Book-Entry Issuance--The
Depository Trust Company."
Although DTC has agreed to these procedures, it is under no obligation to
perform or continue to perform these procedures and they 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.
If the junior subordinated debentures are represented by a global
certificate, payments will be made to Cede & Co., the nominee for DTC, as the
registered holder of the junior subordinated debentures. This is described under
"Description of the Capital Securities-- Book-Entry Issuance--The Depository
Trust Company."
If the junior subordinated debentures are issued in certificated form,
principal and interest will be payable at the corporate trust office of the
debenture trustee or at the offices of any paying agent or transfer agent
appointed by Southern States. This will also be the place for the registration
of the transfer of the junior subordinated debentures, and the exchange of the
junior subordinated debentures for junior subordinated debentures of other
authorized denominations of a like aggregate principal amount. In addition,
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
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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 at the
corporate trust office of the debenture trustee or at the offices of any paying
agent or transfer agent appointed by Southern States. They also 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. There will be no service charge for this
registration but payment of any taxes and other governmental charges as
described in the indenture is required. The presentation for registration of
transfer must have 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 in 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 is required to:
. 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
. 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.
Southern States is entitled to keep unclaimed moneys which were deposited
with the debenture trustee or any paying agent, or then held by Southern States
in trust, for the payment of moneys due on any junior subordinated debenture.
The money must remain unclaimed for two years after the principal and premium,
if any, or interest has become due and payable. The holder of the junior
subordinated debenture can then only look, as a general unsecured creditor, to
Southern States for payment of monies due and owing on the junior subordinated
debenture.
Information Concerning the Debenture Trustee
First Union National Bank is the debenture trustee. It is important to
note that it, 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 in the future, other customary
commercial banking relationships with First Union National Bank. For example,
First Union Trust Company, National Association, an affiliate of the debenture
trustee, is serving as Delaware trustee under the trust agreement. See
"Underwriting" for information concerning the relationship of the debenture
trustee to Southern States and the underwriters.
First Union National Bank is obligated to perform all of the duties and
responsibilities of a debenture trustee under the Trust Indenture Act.
Generally, the debenture trustee is under no obligation to exercise any of its
powers at the request of any holder of junior subordinated
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debentures other than during the occurrence and continuance of a default by
Southern States in the performance of its obligations under the indenture.
The debenture trustee is, however, obligated to exercise its powers if it
is 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 is a summary of the material terms of the guarantee that
will be executed and delivered by Southern States for the benefit of the holders
of capital securities. The guarantee will be qualified as an indenture under the
Trust Indenture Act. 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.
The guarantee trustee will hold the guarantee for the benefit of the
holders of the capital securities.
First Union National Bank will act as guarantee trustee.
General
Generally speaking, the guarantee provides that Southern States will agree
to pay the holders of the capital securities the guarantee payments (as defined
below) except to the extent that the guarantee payments are paid by Southern
States Capital Trust, as and when due,
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regardless of any defense, right of set-off or counterclaim which Southern
States Capital Trust may have or assert.
The guarantee covers the following payments or distributions with respect
to the capital securities (which are the "guarantee payments") to the extent not
paid by Southern States Capital Trust:
. any accrued and unpaid distributions that are required to be paid on
the capital securities, but only to the extent Southern States Capital
Trust has funds available to make these payments,
. the redemption price, but only to the extent Southern States Capital
Trust has funds available to make payment for any capital securities it
has called for redemption, and
. 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,
. a redemption of all of the capital securities upon maturity, or
. a 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 its direct payment of the required amounts to the holders of capital
securities. The obligation may also be satisfied by Southern States causing
Southern States Capital Trust to pay the amounts due to the holders.
The guarantee will not apply to any payment of distributions unless and to
the extent Southern States Capital Trust has 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 be able
pay distributions on the capital securities it issued because it 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. If
this happens, 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 Southern
States Capital 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
all these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of Southern States Capital 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 for any changes that
do not adversely affect the rights of holders of capital securities.
All guarantees and agreements contained in the guarantee bind the
successors, assigns, receivers, trustees and representatives of Southern States
and shall be for the benefit of the holders of the capital securities then
outstanding.
Events of Default; Rights of Holders of Capital Securities
The following are events of default under the guarantee:
. the failure of Southern States to perform any of its payment
obligations under the guarantee, or
. the failure of Southern States 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. These holders also have the right to direct the exercise of any trust
or power conferred upon the guarantee trustee under the guarantee.
In addition, 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. The holder can do this without first
instituting a legal proceeding against Southern States Capital Trust, the
guarantee trustee or any other person or entity.
Southern States will be required to provide to the guarantee trustee an
annual 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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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.
Termination
The guarantee effectively terminates with respect to the capital
securities issued by Southern States Capital Trust when there has been:
. full payment of the redemption price of all capital securities,
. distribution of the junior subordinated debentures to the holders of
all of the capital securities, or
. 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 undertakes to perform only those duties that are
specifically required in the guarantee unless there is an event of default with
respect to 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 generally under no
obligation to exercise any of the powers vested in it by the guarantee at the
request of any holder of capital securities. This is the case unless the
guarantee trustee is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred by the exercise of its powers.
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For information concerning the relationship between First Union National
Bank, the guarantee trustee, and Southern States, see "Description of the Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
Governing Law
The guarantee will be governed by, and construed in accordance with, the
laws of the State of New York.
THE EXPENSE AGREEMENT
Southern States has entered into an agreement for the payment of expenses
and liabilities of Southern States Capital Trust. Southern States agrees to
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. This excludes, however, Southern States
Capital Trust's obligations to pay the holders of the capital securities the
amounts due under the terms of the capital securities.
The expense agreement will constitute an unsecured obligation of Southern
States. It 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:
. issue the capital securities and common securities evidencing undivided
beneficial interests in the assets of Southern States Capital Trust,
. invest the proceeds from such issuance and sale in the junior
subordinated debentures, and
. engage in only those other activities necessary or incidental to these
purposes.
Full, Irrevocable and Unconditional Guarantee
Southern States has irrevocably guaranteed payments of distributions and
other amounts due on the capital securities to the extent Southern States
Capital Trust has funds available for payment. This is described above under
"The Guarantee."
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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 Southern States Capital Trust's
obligations in respect of the capital securities.
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 and payable 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. If this should happen, the holders of the
capital securities can 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 December
31, 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 $188.3 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. This happens primarily
because:
. 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;
. the interest rate and the interest and other payment dates on the
junior subordinated debentures will match the distribution rate and the
distribution dates and other payment dates for the capital
securities;
. Southern States will pay for all and any costs, expenses and
liabilities Southern States Capital Trust except its obligations to
holders of the capital securities and common securities; and
. the trust agreement provides that Southern States Capital Trust will
not engage in any activity that is not consistent with its limited
purposes.
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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 bring a legal proceeding directly
against Southern States to enforce its rights under the guarantee. It can do
this without first 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
The holders of the capital securities are entitled to receive, out of
assets held by Southern States Capital Trust, the liquidation distribution in
cash upon any voluntary or involuntary dissolution, winding-up or liquidation of
Southern States Capital Trust. This is the case unless there is a dissolution,
winding-up or liquidation involving the distribution of the junior subordinated
debentures. In addition, the holders do not receive payment until after
satisfaction of liabilities to creditors of Southern States Capital Trust as
required by applicable law. See "Description of the Capital
Securities--Liquidation Amount Upon Dissolution."
The property trustee, as registered holder of the junior subordinated
debentures, becomes a subordinated creditor of Southern States upon any
voluntary or involuntary liquidation or bankruptcy 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. However,
the property trustee is 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 is a discussion of the material U.S. federal income tax
consequences of the purchase, ownership and disposition of capital securities.
It 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.
The following discussion is the opinion of Mays & Valentine, L.L.P.,
special tax counsel to Southern States and to Southern States Capital Trust II.
This opinion is based in part upon factual assumptions and upon certain factual
representations made by Southern States, which representations Mays & Valentine,
L.L.P. has relied upon and assumed to be true. The opinion is also based on the
assumption that the capital securities will be issued as contemplated and that
the indenture and the trust agreement will be complied with, as is set forth in
particular paragraphs dealing with those matters.
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:
. the income tax consequences to shareholders in, or partners or
beneficiaries of, a holder of the capital securities,
. the United States federal alternative minimum tax consequences of
the purchase, ownership or disposition of the capital securities, or
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. 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:
. 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,
. a domestic corporation or partnership,
. an estate whose income is subject to United States federal income tax
without regard to its source, or
. a trust if a U.S. court is able to exercise primary supervision over
Southern States Capital Trust's administration and one or more United
States persons have the authority to control all substantial decisions
of Southern States Capital Trust.
Classification of the Junior Subordinated Debentures
In connection with and at the time of the issuance of the capital
securities, Mays & Valentine, L.L.P. will render its opinion. The opinion will
be to the effect that, under the then current law and assuming compliance with
the indenture, and based on certain facts and assumptions contained in such
opinion, the junior subordinated debentures will be classified for United States
federal income tax purposes as indebtedness of Southern States. 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 connection with and at the time of the issuance of the capital
securities, Mays & Valentine, L.L.P. will render its opinion. The opinion will
be to the effect that, under the then current law and assuming compliance with
the trust agreement, and based on certain facts and assumptions contained in
such opinion, 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
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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.
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, the advice of its counsel, and in the absence of any specific
definition of "remote" in the applicable Treasury regulations, and although the
matter is not entirely free from doubt, Southern States believes 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.
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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.
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.
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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.
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
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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.
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:
. 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,
. is not a controlled foreign corporation that is related to Southern
States through stock ownership, and
. 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:
. is signed by the holder of the capital securities under penalties of
perjury,
. certifies that the holder is not a U.S. holder, and
. 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
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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
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:
. the broker determines that the seller is a corporation or other exempt
recipient, or
. 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.
130
<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.
131
<PAGE>
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:
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 of the
proceeds therein in 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.
132
<PAGE>
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
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., Banc of America Securities LLC and
Lehman Brothers Inc. 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.
133
<PAGE>
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, 1999 and 1998 and for
each of the three years in the period ended June 30, 1999, included in this
prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The statements of operations and cash flows of the Gold Kist Inputs
Business for the two years ended June 27, 1998 and June 28, 1997 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, 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).
134
<PAGE>
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. Roundup(R) is a registered
trademark of the Monsanto Company.
135
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements
Page
Southern States Cooperative, Inc. and Subsidiaries
Report of Independent Accountants...........................................F-3
Consolidated Balance Sheet at June 30, 1999 and 1998........................F-4
Consolidated Statement of Operations for the Years Ended
June 30, 1999, 1998, and 1997..........................................F-6
Consolidated Statement of Patrons' Equity for the Years Ended
June 30, 1999, 1998, and 1997..........................................F-7
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1999, 1998, and 1997..........................................F-8
Notes to Consolidated Financial Statements..................................F-9
Inputs Business of Gold Kist Inc.
Independent Auditors' Report................................................F-32
Statements of Operations for the Years Ended June 28, 1997
and June 27, 1998......................................................F-33
Statements of Cash Flows for the Years Ended June 28, 1997
and June 27, 1998......................................................F-34
Notes to Financial Statements...............................................F-35
Unaudited Interim Financial Statements
Southern States Cooperative, Inc. and Subsidiaries
Consolidated Balance Sheet at September 30, 1999 and June 30, 1999..........F-39
Consolidated Statement of Operations for the Three Months Ended
September 30, 1999 and 1998............................................F-41
Consolidated Statement of Patrons' Equity for the Three Months Ended
September 30, 1999 and 1998............................................F-42
Consolidated Statement of Cash Flows for the Three Months Ended
September 30, 1999 and 1998............................................F-43
Notes to Consolidated Financial Statements..................................F-44
Inputs Business of Gold Kist Inc.
Statements of Operations for the Three Months Ended
September 26, 1998 and September 27, 1997..............................F-49
Statements of Cash Flows for the Three Months Ended
September 26, 1998 and September 27, 1997..............................F-50
Notes to Financial Statements...............................................F-51
F-1
<PAGE>
Pro Forma Financial Statements
Southern States Cooperative, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Balance Sheet at
September 30, 1999.....................................................24
Unaudited Pro Forma Condensed Statement of Operations for the
Three Months Ended September 30, 1999..................................25
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended June 30, 1999...............................................26
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements....27
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, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years then ended, 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.
/s/ PricewaterhouseCoopers LLP
October 29, 1999
Richmond, Virginia
F-3
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, June 30, 1999 and 1998
_______________
<TABLE>
<CAPTION>
ASSETS 1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1k) $ 18,742,408 $ 15,352,446
Receivables, net (Notes 3 and 5) 117,375,357 55,329,766
Inventories (Notes 1c and 4) 213,141,319 133,167,494
Prepaid expenses 7,241,450 7,325,862
Deferred income taxes (Notes 1h and 12) 6,689,496 4,989,913
Deferred charges 840,022 960,334
------------------- -------------------
Total current assets 364,030,052 217,125,815
------------------- -------------------
Investments and other assets:
Investments:
Statesman Financial Corporation (Notes 1a and 5) 23,651,051 18,144,573
Michigan Livestock Credit Corporation (Notes 1a and 5) 12,718,722 10,156,000
Other companies (principally cooperatives) (Notes 1f and 6) 78,416,407 75,573,146
Receivables (Notes 3 and 5) 1,544,553 1,316,515
Other assets 12,269,263 10,787,753
------------------- -------------------
Total investments and other assets 128,599,996 115,977,987
------------------- -------------------
Property, plant and equipment (Notes 1d and 7) 378,196,657 304,577,628
Less accumulated depreciation 189,079,016 175,384,990
------------------- -------------------
Property, plant and equipment, net 189,117,641 129,192,638
------------------- -------------------
$681,747,689 $462,296,440
=================== ===================
</TABLE>
F-4
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, June 30, 1999 and 1998
----------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' AND
PATRONS' EQUITY 1999 1998
---- ----
<S> <C> <C>
Current liabilities:
Short-term notes payable (Note 8) $ 5,600,000 $ 7,100,000
Current maturities of long-term debt (Note 9) 3,836,938 1,833,434
Accounts payable 138,486,921 71,235,641
Accrued expenses:
Environmental remediation (Note 1g and 13b) 972,477 429,649
Payrolls, employee benefits, related taxes and other 39,801,159 34,398,390
Accrued income taxes 2,050,129 2,380,815
Dividends payable 380,106 341,450
Patronage refunds payable in cash 2,378,378
Advances from managed member cooperatives (Note 2) 19,395,311 6,929,943
------------------- -------------------
Total current liabilities 210,523,041 127,027,700
------------------- -------------------
Long-term debt:
Bridge loan facility (Note 9) 100,000,000
Long-term debt (Note 9) 176,562,296 136,041,301
------------------- -------------------
Total long-term debt 276,562,296 136,041,301
------------------- -------------------
Other noncurrent liabilities:
Employee benefits 7,070,509 6,936,519
Deferred income taxes (Notes 1h and 12) 2,969,365 4,745,538
Environmental remediation (Note 1g and 13b) 2,218,664 746,498
Miscellaneous 4,538,213 5,403,204
------------------- -------------------
Total other noncurrent liabilities 16,796,751 17,831,759
------------------- -------------------
Redeemable preferred stock (Note 10) 2,114,100 2,114,100
------------------- -------------------
Stockholders' and patrons' equity:
Stockholders' equity:
Capital stock (Note 10):
Preferred 1,485,000 1,494,200
Common 12,147,082 12,195,018
------------------- -------------------
Total stockholders' equity 13,632,082 13,689,218
Patrons' equity 162,119,419 165,592,362
------------------- -------------------
Total stockholders' and patrons' equity 175,751,501 179,281,580
------------------- -------------------
$681,747,689 $462,296,440
=================== ===================
</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, 1999, 1998 and 1997
----------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales and other operating revenue:
Net purchases by patrons (Note 2) $1,286,224,242 $1,026,630,260 $1,097,173,192
Net marketing for patrons 76,540,489 92,862,915 115,972,257
Other operating revenue 3,594,761 3,793,343 2,954,306
----------------- ----------------- -----------------
1,366,359,492 1,123,286,518 1,216,099,755
Cost of products purchased and marketed and other operating costs
(Notes 1c, 6 and 13b) 1,114,782,525 931,435,923 1,014,440,358
----------------- ----------------- ----------------
Gross margin 251,576,967 191,850,595 201,659,397
Selling, general and administrative expenses 247,634,813 175,783,844 166,132,518
----------------- ----------------- ----------------
Savings on operations 3,942,154 16,066,751 35,526,879
----------------- ----------------- -----------------
Other deductions (income):
Interest expense (Notes 5, 8, and 9) 28,413,129 16,859,373 15,565,523
Interest income and service charges (Note 2) (11,209,244) (7,800,390) (7,660,693)
Miscellaneous income, net (11,812,081) (6,562,688) (5,879,437)
----------------- ----------------- -----------------
5,391,804 2,496,295 2,025,393
----------------- ----------------- -----------------
(Loss) Savings before income taxes and undistributed
(loss) earnings in Statesman Financial Corporation (1,449,650) 13,570,456 33,501,486
Income taxes (Notes 1h and 12) (596,570) 2,960,539 6,035,412
----------------- ----------------- -----------------
(Loss) Savings before undistributed earnings in
Statesman Financial Corporation (853,080) 10,609,917 27,466,074
Undistributed (loss) earnings of Statesman Financial Corporation,
net of income taxes (1,221,685) 56,721 35,367
----------------- ----------------- -----------------
Net (loss) savings $ (2,074,765) $ 10,666,638 $ 27,501,441
================= ================= =================
</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, 1999, 1998 and 1997
----------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Patronage refund allocations:
Balance, beginning of year $ 68,151,124 $ 67,566,625 $ 63,445,207
Allocation from net savings for the year 3,702,869 10,590,586
Allocations assumed in merger (Note 17) 2,683,000
Adjustments to prior year's allocation 74,627 153,836 102,104
Redemptions (381,552) (5,955,206) (6,571,272)
------------------- ------------------- ---------------------
Balance, end of year 67,844,199 68,151,124 67,566,625
------------------- ------------------- ---------------------
Operating capital:
Balance, beginning of year 97,441,238 93,948,702 84,653,534
Net (loss) savings (2,074,765) 10,666,638 27,501,441
Patronage refunds payable in:
Cash (2,378,378) (6,884,321)
Patronage refund allocations (3,702,869) (10,590,586)
Adjustments to prior year's estimated patronage refunds,
net of income taxes (71,790) (123,724) 82,219
Dividends on capital stock declared:
Preferred (278,419) (279,407) (283,808)
Common, $.06 per share (729,551) (681,536) (521,439)
Other reductions (11,493) (8,188) (8,338)
------------------- ------------------- ---------------------
Balance, end of year 94,275,220 97,441,238 93,948,702
------------------- ------------------- ---------------------
Total patrons' equity $ 162,119,419 $ 165,592,362 $ 161,515,327
=================== =================== =====================
</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, 1999, 1998 and 1997
----------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net (loss) savings $ (2,074,765) $ 10,666,638 $ 27,501,441
Adjustments to reconcile net (loss) savings to cash
provided by
Operating activities:
Depreciation 22,129,980 17,256,620 16,302,811
Amortization 264,036 355,252 295,558
Deferred income taxes (3,475,756) 274,611 (392,258)
Gain on sale of property and equipment (1,822,468) (510,695) (927,289)
Undistributed loss (earnings) of finance company and 1,168,609 (289,720) (189,019)
joint ventures
Noncash patronage refunds received (4,746,591) (6,764,372) (9,855,976)
Redemption of noncash patronage refunds received 2,763,912 2,335,408 2,148,256
Cash provided by current assets and liabilities (Note 16) 129,710,351 10,277,837 (3,453,180)
-------------------- ------------------- -------------------
Cash from operating activities 143,917,308 33,601,579 31,430,344
-------------------- ------------------- -------------------
Investing activities:
Additions to property, plant and equipment (46,602,932) (33,904,668) (19,944,578)
Proceeds from disposal of property, plant and equipment 7,017,655 1,743,604 1,820,230
Additional investments in affiliates and other companies (10,224,875) (10,430,352) (2,856,293)
Net cash paid for acquisitions (Notes 17 and 18) (218,279,732) (1,241,347)
-------------------- ------------------- -------------------
Cash used in investing activities (268,089,884) (43,832,763) (20,980,641)
-------------------- ------------------- -------------------
Financing activities:
Net increase (decrease) in short-term notes payable (1,500,000) 4,725,000 2,200,000
Proceeds from long-term debt 584,234,093 49,172,487 7,000,000
Repayment of long-term debt (551,502,998) (31,594,763) (7,969,689)
Proceeds from bridge loan facility 218,313,467
Repayment of bridge loan facility (118,313,467)
Net redemptions of equities required by lender (Note 9) 126,480 42,160 (67,009)
Dividends on capital stock paid (969,314) (1,022,041) (958,265)
Patronage refunds paid in cash (2,378,378) (6,884,321) (6,668,809)
Redemption of stockholders' and patrons' equity (537,929) (6,630,611) (6,631,292)
Proceeds from issuance of capital stock 90,584 921,929 1,214,365
-------------------- ------------------- -------------------
Cash provided by financing activities 127,562,538 8,729,840 (11,880,699)
-------------------- ------------------- -------------------
Increase (decrease) in cash and cash equivalents 3,389,962 (1,501,344) (1,430,996)
Balance at beginning of year 15,352,446 16,853,790 18,284,786
-------------------- ------------------- -------------------
Balance at end of year $18,742,408 $15,352,446 $16,853,790
==================== =================== ===================
</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. Southern States' investment in
Statesman Financial Corporation ("SFC" or the "Corporation") is
accounted for by the equity method (see Note 5). Michigan Livestock
Credit Corporation ("MLCC") is a wholly owned subsidiary of SFC.
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.
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 18).
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 Alabama,
Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland,
Mississippi, North Carolina, South Carolina, Texas, 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, Equipment and Software - 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.
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, software -- 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
----------------------
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 are 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 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 and 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
----------------------
1. Summary of Significant Accounting Policies, continued:
------------------------------------------
l. 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.
m. 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.
Transactions between SFC and Southern States met SFAS 125's conditions
for sale accounting, consistent with prior years; accordingly, the
finance receivables sold to SFC were recorded as sales of financial
assets and all related discounts were expensed as incurred.
n. 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 was
effective for the year ended June 30, 1999. The adoption of the
standard resulted only in additional disclosure and did not 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", as amended, 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 its fiscal year 2001. The Company
is currently evaluating any impact of the derivatives standard.
o. 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 the product is delivered. Service revenue is recognized
upon completion of the rendered service.
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. Reclassifications - Certain reclassifications have been made to the
-----------------
1998 and 1997 financial statements to conform to the 1999
presentation.
F-11
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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, 70 and 72 such cooperatives
at June 30, 1999, 1998 and 1997, 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
$4,162,656 in 1999, $3,947,069 in 1998 and $3,795,021 in 1997.
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 expense incurred by Southern States on
net advances totaled $199,837 in 1999. Net interest income charged by
Southern States to Managed Member Cooperatives on net advances totaled
$296,423 in 1998 and $647,554 in 1997.
During 1999, 1998 and 1997 certain managed member cooperatives chose to
reinvest approximately $0, $1.2 million and $1.2 million, 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 $195,312,918 in 1999, $209,833,488 in 1998 and
$218,673,169 in 1997.
3. Receivables:
-----------
The Company grants credit to farmers and other retail and wholesale
purchasers of agricultural production supplies primarily in Alabama,
Arkansas, Delaware, Florida, Georgia, Indiana, Kentucky, Louisiana,
Maryland, Michigan, Mississippi, North Carolina, Ohio, South Carolina,
Texas, Virginia and West Virginia. Receivables at year-end were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
Trade:
Accounts $251,925,304 $149,625,090
Notes 11,433,076 5,034,802
Advances to managed member cooperatives (Note 2) 27,398,280 24,644,909
Less receivables sold to SFC (Note 5) (169,177,100) (121,331,851)
---------------- ----------------
121,579,560 57,972,950
Less allowance for doubtful accounts (4,204,203) (2,643,184)
---------------- ----------------
Total current receivables $117,375,357 $ 55,329,766
================ ================
Noncurrent:
Trade notes $ 1,544,553 $ 1,316,515
---------------- ----------------
Total noncurrent receivables $ 1,544,553 $ 1,316,515
================ ================
</TABLE>
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 account receivable.
F-12
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------
4. Inventories:
-----------
Inventories at year-end consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Finished goods:
Purchased for resale $183,115,888 $115,667,733
Manufactured 5,902,728 4,384,872
---------------- ----------------
189,018,616 120,052,605
Materials and supplies 24,122,703 13,114,889
---------------- ----------------
Totals $213,141,319 $133,167,494
================ ================
</TABLE>
5. Investments in Finance Companies:
--------------------------------
SFC and Southern States are parties to an agreement dated September 16,
1991, and amended effective January 12, 1999, 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 $1,194,700,000,
$996,700,000, and $991,500,000 for 1999, 1998 and 1997, respectively. The
related fees and discounts for 1999, 1998 and 1997 were $10,600,000,
$9,500,000 and $8,200,000, 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 $1,875,000, $1,320,000,
and $1,375,000 for 1999, 1998 and 1997, 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 $23,418,000 and $17,918,000 at June 30, 1999 and 1998,
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 $5,100,000 and $7,005,000 as of June 30, 1999 and
1998, respectively. Total operating lease expenses incurred by Southern
States under the lease agreements totaled approximately $2,100,000,
$2,460,000 and $2,663,000 in 1999, 1998 and 1997 respectively. SFC paid
volume incentive fees to Southern States for operating lease agreements
totaling $175,000, $295,000 and $392,000 in 1999, 1998 and 1997,
respectively.
As of April 1, 1998, MLCC became a wholly owned subsidiary of SFC. 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 $14,156,000 and $10,156,000 at June 30, 1999 and 1998,
respectively.
F-13
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------------
5. Investment in Finance Companies, continued:
-------------------------------
The following unaudited proforma results of operations, assume that the
purchase of MLCC had occurred on July 1, 1997. The unaudited proforma
results of operations are presented for informational purposes only and do
not purport to be indicative of SFC's future consolidated results of
operations.
Year ended June 30, 1998
------------------------
Interest and service fee income $24,791,835
=================
Net loss $ (2,026,773)
=================
A consolidated condensed balance sheet and statement of operations for SFC
as of June 30, 1999 and 1998, and for the years then ended, are as follows:
<TABLE>
<CAPTION>
Balance Sheet
-------------
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Cash $ 8,221,133 $ 3,917,971
Notes receivable, net of allowance for credit losses of $3,941,274 for 1999
and $4,394,408 for 1998 42,357,610 51,122,515
Notes receivable-livestock feeding program, net of allowance
for credit losses of $1,674,722 for 1999 and $1,802,789 for 1998 10,030,885 12,297,639
Dairy leases and beef improvement program, net of allowance
for credit losses of $297,819 for 1999 and $113,525 for 1998 369,268 1,163,952
Finance receivables, net of allowance for credit losses of
$3,611,470 for 1999 and $3,152,085 for 1998 185,628,609 138,323,980
Crop time financing receivables 13,925,948
Due from Southern States 757,673 6,094,171
Deferred income taxes 5,337,791 3,266,169
Other 4,128,061 1,832,193
Investments in other cooperatives 11,341,183 10,922,574
Property, plant and equipment, including equipment leased to others, net 5,460,541 7,201,610
------------------ ------------------
Total assets $287,558,702 $236,142,774
================== ==================
Liabilities and Stockholders' Equity
------------------------------------
Notes payable:
Short-term lines of credit $219,702,000 $166,545,000
Term loans 30,750,000 34,250,000
Accounts payable, deferred credit, and accrued expenses 1,439,065 3,710,416
Due to Southern States 126,930
Dividends payable 63,277
Preferred stock 38,574,000 31,074,000
Stockholders' equity (3,033,293) 500,081
------------------ ------------------
Total liabilities and stockholders' equity $287,558,702 $236,142,774
================== ==================
</TABLE>
F-14
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------------
5. Investment in Finance Companies, continued:
-------------------------------
<TABLE>
<CAPTION>
Statement of Operations 1999 1998 1997
----------------------- ---- ---- ----
<S> <C> <C> <C>
Net interest income (expense) and fee income $ (397,166) $ 4,152,215 $ 3,793,217
General and administrative expenses 5,452,660 3,932,000 3,652,292
------------------ ------------------ ------------------
Income (loss) before provision for income taxes (5,849,826) 220,215 140,925
Provision (benefit) for income taxes (2,238,622) 86,318 55,703
------------------ ------------------ ------------------
Net (loss) income $ (3,611,204) $ 133,897 $ 85,222
================== ================== ==================
Southern States' equity interest, net of income taxes $ (1,221,685) $ 56,721 $ 38,368
================== ================== ==================
</TABLE>
SFC has a Master Loan Agreement with CoBank, ACB ("CoBank") that provides
for a $25,000,000 term loan payable due November 6, 2000 plus interest at
an average interest rate of 6.80%. No borrowings were outstanding at June
30, 1999.
On January 12, 1999, SFC renewed an agreement for a syndicated bank lending
facility providing for line of credit borrowings totaling $250 million.
This agreement is renewable annually and is administered by CoBank. The
line of credit borrowings of $168,183,000 at June 30, 1999 bear interest at
varying rates (approximately 5.97% at June 30, 1999). As of June 30, 1999,
the balance of the amortizing term loan was $4 million payable $2 million
annually in fiscal 2000 and 2001 plus interest at varying interest rates
(approximately 7.69% at June 30, 1999). 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 terminated its Loan Agreement with Crestar Bank ("Crestar") that
provided for a $10 million line of credit (subject to certain net worth
restrictions), with a balance of $75,000 at May 31, 1999. The line of
credit bore interest at varying rates established by Crestar (approximately
5.69% at May 31, 1999).
On April 8, 1999, the Corporation entered into a credit agreement with
Wachovia Bank ("Wachovia") that provides for a $5 million line of credit
($1,819,000 borrowed at June 30, 1999) which is utilized to manage the
Corporation's daily cash requirements. The line of credit bears interest at
varying rates established by Wachovia (approximately 6.18% at June 30,
1999). Since inception, the average daily borrowing under the line of
credit was approximately $213,000.
MLCC has an agreement for a syndicated bank lending facility that provides
for a line of credit totaling $80 million that is renewable annually and is
administered by CoBank. The line of credit borrowings of $49,700,000 at
June 30, 1999 bore interest at varying rates (approximately 6.02% at June
30, 1999).
MLCC terminated its loan agreement with Crestar that provided for a
$5,000,000 line of credit with a balance of $855,000 at May 31, 1999. The
line of credit bore interest at varying rates established by Crestar
(approximately 5.69% at May 31, 1999).
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. Investment in Finance Company, continued:
-----------------------------
Under the most restrictive debt agreement, SFC cannot exceed a debt to net
worth ratio of 7.5 to 1 at the end of each month. SFC plans to repay
certain borrowings by August 31, 1999 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. The
Defaulted Receivable Ratio is calculated on a rolling 12 month average, the
ratio actual monthly retail and wholesale write-offs (net of recoveries),
plus the monthly change in retail and wholesale accounts over 90 days past
due to the previous month-end accounts receivable (net of unearned finance
charges).
On August 1, 1996, SFC entered into a Financing Services and Contributed
Capital Agreement (the "Agreement") with Land O'Lakes, Inc., successor to
Countrymark Cooperative, Inc. ("Land O'Lakes"), whereby SFC extends
revolving credit to customers of Land O'Lakes through the issuance of
credit cards. Under the terms of the Agreement, Land O'Lakes is obligated
to maintain a computed minimum investment in SFC's Class A noncumulative
preferred stock. At June 30, 1999 and 1998 pursuant to the Agreement, Land
O'Lakes had no investment in the Corporation's Class A preferred stock. In
connection with this transaction, SFC and Land O'Lakes reentered into a
Common Stock Subscription and Redemption Agreement (the "Common Stock
Agreement"). Additionally, for as long as Land O'Lakes maintains at least
8.0% ownership in SFC's common stock, Land O'Lakes is entitled to maintain
one representative on the Board of Directors of SFC. The termination of the
Common Stock Agreement is contingent upon the termination of participation
under the Financing Services and Contributed Capital Agreement. If Land
O'Lakes terminates the Common Stock Agreement, the Corporation is then
obligated to repurchase all shares of common stock owned by Land O'Lakes at
the par value.
On December 3, 1998, the Corporation entered into a Financing Services and
Contributed Capital Agreement (the "MFA Agreement") with MFA Oil Company
("MFA Oil") and on December 16, 1998 with MFA Incorporated ("MFA") whereby
the Corporation is allowed to extend revolving credit to customers of MFA
Oil and MFA through the issuance of credit cards. Under the terms the MFA
Agreement, MFA and MFA Oil are obligated to maintain a computed minimum
investment in the Corporation's Class A noncumulative preferred stock. At
June 30, 1999 pursuant to the MFA agreement, MFA and MFA Oil had no
investment in SFC's Class A preferred stock. If the actual investment
exceeds the computed minimum, the Corporation will, upon written request
from MFA and MFA Oil, redeem the excess number of shares. Upon written
notice, the MFA Agreement may be terminated by either party.
In connection with this transaction, the Corporation and MFA and MFA Oil
also entered into a Common Stock Subscription and Redemption Agreement (the
"Common Stock Agreement"). As part of the Common Stock Agreement, MFA and
MFA Oil each purchased 73 shares of the Corporation's common stock
(approximately 8.5% of the Corporation's authorized common stock) for
$60,444 each. Additionally, for as long as MFA and MFA Oil maintain at
least an 8% ownership in the Corporation's common stock, MFA and MFA Oil
are entitled to maintain one representative each on the Board of Directors
of the Corporation. The termination of the Common Stock Agreement is
contingent upon the termination of participation under the Financing
Services and Contributed Capital Agreement. If MFA or MFA Oil terminates
the Common Stock Agreement, the Corporation is then obligated to repurchase
all shares of common stock owned by MFA or MFA Oil at the par value.
As a result of the Common Stock Agreement, the 859 shares of outstanding
common stock are owned 38.42% by Southern States, 36.08% by 62
independently owned agriculture cooperatives, 8.5% by Land O'Lakes, 8.5% by
MFA and 8.5% by MFA Oil.
F-16
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------------
6. Investments in Other Companies:
------------------------------
Investments in other companies consisted of the following at year end:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CF Industries, Inc. $ 43,473,877 $ 43,473,877
CoBank, ACB 7,964,176 7,479,858
St. Paul Bank 1,474,092 1,470,947
Southern States Insurance Exchange 12,474,193 11,266,484
Universal Cooperatives, Inc. 3,339,991 3,216,156
Other cooperatives and companies 2,804,363 2,772,154
Joint ventures 6,885,715 5,893,670
------------------ ------------------
Totals $ 78,416,407 $ 75,573,146
================== ==================
</TABLE>
At June 30, 1999 and 1998, the Company's aggregate equity in the net assets
of these investees exceeded the carrying value of such investments by
approximately $31,500,000 and $15,650,000, respectively. Patronage refunds
received for 1999 and 1998 are detailed in the table below. The cash
portion of patronage refunds totaled $403,809 and $2,918,799 for 1999 and
1998, respectively.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CF Industries, Inc. $ - $ 5,512,596
CoBank, ACB 872,568 477,526
Southern States Insurance Exchange 3,969,818 3,407,439
Universal Cooperatives, Inc. 247,670 232,667
Other cooperatives 60,344 52,943
------------------ ------------------
Totals $ 5,150,400 $ 9 ,683,171
================== ==================
</TABLE>
Purchases by Southern States from CF Industries, Inc. and Universal
Cooperatives, Inc. were approximately $121 million and $88 million in 1999
and 1998, respectively.
7. Property, Plant and Equipment:
-----------------------------
Property, plant and equipment at year end is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 21,687,177 $ 16,496,766
Buildings and improvements 122,791,864 90,332,409
Machinery and equipment 129,660,133 100,032,931
Furniture and fixtures 35,464,195 28,667,191
Automotive equipment 53,867,421 53,307,919
Construction in progress 14,725,867 15,740,412
------------------ ------------------
Totals $378,196,657 $304,577,628
================== ==================
</TABLE>
F-17
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------------
7. Property, Plant and Equipment, continued:
-----------------------------
At June 30, 1999 and 1998, property, plant and equipment, having an
aggregate book value of $11,160,153 and $6,990,070, 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 $901,701, $451,478 and $164,506 in 1999, 1998 and 1997,
respectively; and capitalized software in the amount of $14,618,592 and
$9,610,641 at June 30, 1999 and 1998, respectively. Depreciation expense
associated with capitalized software was $408,577, $234,027 and $237,251 in
1999, 1998 and 1997, respectively.
8. Short-Term Notes Payable:
------------------------
At June 30, 1999, short-term notes of $5,600,000 bearing interest at rates
of 7.50% and 8.00% were payable to CoBank. At June 30, 1998, short-term
notes of $7,100,000 bearing interest at 7.75% and 8.00% were payable to
CoBank. At June 30, 1999, the Company had short-term lines of credit with
other institutions totaling $7,000,000 which do not require the maintenance
of compensating balances because generally credit extension is subject to
availability of funds. At June 30, 1999 and 1998, there were no borrowings
under these lines of credit.
During 1999, average daily short-term borrowings were approximately
$21,203,150 (maximum outstanding - $66,500,000) at a weighted average
interest rate approximating 7.65%. During 1998, such borrowings averaged
approximately $47,636,986 (maximum outstanding - $81,300,000) at a weighted
average interest rate approximating 5.77%. 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>
1999 1998
---- ----
<S> <C> <C>
Term notes - CoBank due 2005, 6.82% and 6.99% per annum at
June 30, 1999 and 1998, respectively (a) $ 37,000,000 $ 38,000,000
Revolving term loan - CoBank due 2001, 6.11%-6.31% and 6.12%
per annum at June 30, 1998 and 1997, respectively (a) 93,000,000
Syndicated line of credit (expires January 11, 2002) 127,600,000
Industrial revenue financings (b) 12,570,000 6,620,000
Notes due through 2003 (maximum rate 10%) 174,163 254,735
Liability under lease 3,055,071
---------------- ----------------
Total long-term debt 180,399,234 137,874,735
Less current maturities 3,836,938 1,833,434
---------------- ----------------
Long-term debt due after one year 176,562,296 136,041,301
Bridge loan facility (c) 100,000,000
---------------- ----------------
$276,562,296 $136,041,301
================ ================
</TABLE>
F-18
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------------
9. Long-Term Debt, continued:
--------------
(a) The term notes with CoBank are payable $3,000,000 in 2000,
$3,000,000 in 2001, $7,000,000 annually in 2002 and 2003,
$9,000,000 in 2004, and $8,000,000 in 2005. The credit facilities
include a syndicated bank line of credit agreement totaling, in
aggregate, $200,000,000. This agreement, which expires in 2002,
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, 1999
and 1998, such investments in the amounts of $7,964,176 and
$7,479,858, respectively, were pledged as collateral for
indebtedness to CoBank.
(b) Three 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 2000 through 2004, $1,620,000 in 2005,
$500,000 in 2006, and 6,700,000 in 2016. The obligations bear
interest at rates ranging from 3.65% to 3.85%.
(c) In October 1998, Southern States borrowed $218.3 million under a
180-day "bridge" loan facility with NationsBank, N.A., First Union
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 from the Southern States syndicated
three year facility. The bridge loan facility has been classified
as long term debt since the Company had the ability and intent to
refinance the debt. The weighted average interest rate on this
loan was 5.99%.
Long-term debt maturing within each of the four fiscal years after June 30,
2000 is as follows: 2001 - $232,520,207; 2002 - $8,068,573; 2003 -
$8,050,159; 2004 - $10,066,286; thereafter - $17,857,071.
The Company had outstanding letters of credit in the amount of $15,000,000
and $20,000,000 at June 30, 1999 and 1998 to collateralize certain
liabilities.
Under the most restrictive outstanding debt agreement, the Company is
required to maintain, at fiscal year end and at the end of each fiscal
quarter, on a consolidated basis: (a) the ratio of consolidated outstanding
debt to capitalization not to exceed .50 to 1.00, (b) tangible net worth
not to be less than the sum of $256,000,000 plus twenty-five percent of the
net income (no reduction for net losses) of the Company for each such
fiscal year and, (c) the ratio of consolidated cash flow for four
consecutive fiscal quarters to consolidated interest expense plus
distributions during such period not to be less than 1.5 to 1.00.
See Note 15, Derivative Financial Instruments for information relating to
interest swaps.
On October 5, 1999, Southern States Capital Trust I, a trust subsidiary of
Southern States, issued to Gold Kist $59.4 million Step-Up Rate Capital
Securities, Series A ("Series A"), net of issuance costs of $600,000.
Distributions are cumulative relating to the Series A securities at a rate
of 8% per annum, increasing to 8.5% on July 5, 2000 and 8.75% on July 5,
2001. The Series A securities mature on October 5, 2029. Also on October 5,
1999, Southern States issued to Gold Kist $40 million Step-Up Rate Series B
Cumulative Redeemable Preferred Stock, $100 par value per share ("Series
B"). Issuance costs incurred with respect to the Series B securities
totaled $800,000. Cash dividends are cumulative at an initial rate of 7.5%,
increasing to 8% per annum 9 months after the date of issuance and
increasing to 8.25% per annum twenty-one months after the issuance of the
Series B securities. Dividends are payable quarterly, in arrears on January
5, April 5, July 5 and October 5 of each year. The proceeds from the sale
of both the Series A securities and the Series B securities were used to
reduce Company debt and pay off the bridge loan facility which had been
utilized to finance the Gold Kist acquisition.
F-19
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------------
10. Capital Stock:
-------------
At June 30, 1999, Southern States' authorized capital stock consisted of
20,000,000 shares of common stock ($1 par value) and 1,000,000 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 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, 1999 and 1998, Wetsel had 21,141 shares ($2,114,000) of 9% Series 1,
Class A cumulative redeemable preferred stock ("9% Redeemable Preferred
Stock") outstanding. 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.
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
----------------------
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 ("the 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, information
relating specifically to Southern States is not available. For 1999, 1998
and 1997, Southern States' expenses, including administrative expenses,
were $1,210,865, $3,004,146 and $3,899,638, respectively. A comparison of
accumulated benefits, as estimated by the Plan's actuary, and net assets of
the Plan is presented below.
<TABLE>
<CAPTION>
July 1
-----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Actuarial present value of plan benefits:
Vested $ 122,399,788 $ 98,115,602
Nonvested 3,929,335 2,834,524
----------------- ------------------
Total benefits $ 126,329,123 $ 100,950,126
================= ==================
Net assets available for benefits $ 154,922,073 $ 148,571,687
================= ==================
</TABLE>
The discount rates used in computing the present value of plan benefits
were 6.95%, 7.34% and 7.47% for the years ended June 30, 1999, 1998 and
1997, respectively. Also, the method of calculating ages as of the
valuation dates was changed from age last birthday for June 30, 1998 to age
nearest birthday for June 30, 1999.
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 $278,334, $232,755 and
$$422,530 in 1999, 1998 and 1997, respectively. The accumulated benefit
obligation recognized in the Company's consolidated balance sheet at June
30, 1999 and 1998 was $1,551,912 and $1,115,854 respectively.
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.
Costs for postretirement benefits other than pensions, primarily medical
benefit costs, are accrued during the employee's period of service. In
connection with the July 1, 1993 adoption of SFAS No. 106, "Postretirement
Benefits Other Than Pensions," the Company recognized accumulated
postretirement benefit obligation ("APBO") (the "transition obligation") of
$5,043,773. The transition obligation 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.
F-21
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------------
11. Employee Benefit and Compensation Plans, continued:
---------------------------------------
<TABLE>
<CAPTION>
Summary postretirement plan information is as follows: June 30, June 30,
1999 1998
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated postretirement benefit obligation:
Retirees $ 2,508,512 $ 2,732,229
Fully eligible, active plan participants 957,117 621,812
Other active plan participants 2,119,157 585,216
------------------ ------------------
5,584,786 3,939,257
Unrecognized prior service cost (1,186,007) (551,158)
Unrecognized net gain 15,101 1,076,486
Transition obligation being recognized over 20 years (3,530,639) (3,782,828)
------------------ ------------------
Accrued postretirement benefit cost $ 883,241 $ 681,757
================== ==================
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net periodic postretirement benefit cost:
Service cost $ 86,209 $ 80,194 $ 116,692
Interest cost 277,853 285,888 339,746
Amortization of unrecognized prior service cost 61,240 61,240
Amortization of net gain (45,504) (47,960)
Amortization of transition obligation 252,189 252,189 252,189
----------------- ------------------ ------------------
$ 631,987 $ 631,551 $ 708,627
================= ================== ==================
</TABLE>
Because the Company has established a maximum amount it will pay per
retiree under the plan, health care cost trends do not affect the
calculation of the accumulated benefit obligation or the net postretirement
benefit cost. The discount rate used to determine the APBO was 7.0% at June
30, 1999 and 7.5% at June 30, 1998. 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, and from a 1999
amendment that changed the benefit eligibility for employees retiring under
65 from age 55 with 20 years of service to the earlier of 1) age 55 with 20
years of service, 2) age 60 with 15 years of service, or 3) age 62 with 10
years of service.
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 1999, 1998 and 1997 were $1,292,942,
$1,001,382 and $865,909, respectively. The Company did not make a
discretionary contribution in fiscal 1999 or 1998. The Company provided for
an additional contribution of $672,136 for 1997.
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 $3,273,819 in 1999, and
$1,793,045 in 1998 and $2,488,144 in 1997.
F-22
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------------
12. Income Taxes:
------------
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 2,035,460 $ 2,123,899 $ 5,297,003
State 466,283 567,276 1,130,667
----------------- ----------------- -----------------
Total current 2,501,743 2,691,175 6,427,670
Deferred federal and state (3,098,313) 274,611 (392,258)
----------------- ----------------- -----------------
Total $ (596,570) $ 2,965,786 $ 6,035,412
================= ================= =================
</TABLE>
The significant differences between the U.S. federal statutory income tax
rate and the effective income tax rate are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Patronage refund deduction 0.0 (15.6) (18.2)
State income taxes, net of federal benefit 5.8 3.0 2.1
Other, net .4 (0.6) (0.9)
----------- ---------- ----------
Effective income tax rate 41.2% 21.8% 18.0%
=========== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts $ 962,542 $ 1,058,273
Inventory costs 1,314,607 935,034
Uninsured losses 1,410,054 512,983
Accrued vacation pay 3,002,293 2,062,041
Other, net 421,582
---------------- ----------------
Net current deferred income tax asset 6,689,496 4,989,913
---------------- ----------------
Noncurrent deferred tax assets (liabilities):
Deferred compensation 2,607,410 2,603,258
Non-qualified patronage refund allocations:
Issued 1,417,560 1,419,261
Received (980,160) (1,001,333)
Property, plant and equipment (9,399,969) (7,933,404)
Net operating loss carryforward 2,529,530 0
Other, net 856,264 166,680
---------------- ----------------
Net noncurrent deferred income tax liability (2,969,365) (4,745,538)
---------------- ----------------
Net deferred income tax asset $ 3,720,131 $ 244,375
================ ================
</TABLE>
F-23
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Commitments 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 $18,058,165 in 1999,
$8,700,650 in 1998 and $8,109,700 in 1997.
The Company's approximate minimum lease commitments under noncancellable
leases, less noncancelable subleases, are as follows:
<TABLE>
<CAPTION>
Office Building
--------------------------------------------
Year Equipment Lease Sublease Totals
---- --------- ----- -------- ------
<S> <C> <C> <C> <C>
2000 $11,874,346 $ 742,538 $(571,479) $12,045,405
2001 8,090,227 742,538 (594,338) 8,238,427
2002 5,594,652 742,538 (618,112) 5,719,078
2003 3,647,547 742,538 (208,713) 4,181,372
2004 2,296,880 742,538 3,039,418
Thereafter 2,875,708 3,155,786 6,031,494
</TABLE>
b. Other Matters - The Company's 1999, 1998 and 1997 consolidated
--------------
statement of operations includes a provision in cost of products
purchased and marketed and other operating costs of $4,204,456,
$872,306, and $477,447, 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 $0, $100,000 and $41,415 in 1999, 1998 and 1997,
respectively. The unpaid portion of such costs totaled $3,191,141 and
$1,176,147 at June 30, 1999 and 1998, 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 annual operating results.
F-24
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------------------
13. Commitments and Other Matters, continued:
-----------------------------
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 liability accrual and remediation methodology has been
developed by a third party environmental consultant and is based on known
remediation methodologies and techniques.
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, liquidity or results of operations.
At June 30, 1999 and 1998, commitments for the construction and acquisition
of plant and equipment totaled approximately $2.2 million and $7.1 million,
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, 1999, the estimated fair value of the long-term debt totaling
$280,399,234 was $262,474,093. At June 30, 1998, the estimated fair
value of the long-term debt totaling $137,874,735 was $134,290,704.
F-25
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------
15. Derivative Financial Instruments:
--------------------------------
As part of its' asset/liability management program, the Company utilizes
financial derivatives to reduce the Company's sensitivity to interest rate
fluctuations. At June 30, 1999, the Company had outstanding seven variable
to fixed interest rate swaps with a notional amount of $140,000,000 and
fair market value of $1,777,395 with terms ranging from three to seven
years. Under terms of these agreements, the company is paying fixed
interest rates ranging from 4.930% to 6.420% and receiving a variable rate
based on 3-month London Interbank offered rates ("LIBOR") of 5.368% at
June 30, 1999. 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 $(1,216,369) with terms ranging from two to five
years. Under the terms of these agreements, the Company was paying fixed
interest rates ranging from 6.335% to 6.760% and receiving a variable rate
based on 3-month LIBOR of 5.719% at June 30, 1998. These interest rate
swaps are being used to convert certain floating rate debt to fixed rates.
Net receipts or payments under the agreements are being recognized as
adjustments to interest expense. The Company is exposed to credit losses
in the event of counterparty nonperformance, but does not anticipate any
such losses.
The Company uses futures contracts to protect purchase and sales contract
prices from directly related fluctuations in the market price of grains
and petroleum products. Those futures contracts are commitments to either
purchase or sell designated amounts and varieties of grain and petroleum
products at a future date, generally not exceeding a period of six months,
for a specified price, and may be settled in cash or through delivery. The
Company hedges purchases and sales with the sole purpose of eliminating
the risk of market price fluctuations. No futures contracts are purchased
or sold for purely speculative purposes. The Company is exposed to credit
losses in the event of counterparty nonperformance, but does not
anticipate any such losses.
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 $1,210,383, $1,016,672 and $2,417,602 for 1999, 1998 and 1997
respectively. Since these net realized gains were the result of hedging
transactions, they were substantially offset by net losses realized on
cash transactions. New crop grain futures are futures contracts to hedge
fixed purchase price commitments with grain producers to purchase set
volumes of grain at set prices with set delivery dates. Deferred gains on
open and closed new crop grain futures reported in the balance sheet under
accrued expenses were $543,343 and $274,802 for 1999 and 1998,
respectively. Deferred losses on open and closed new crop grain futures
reported in the balance sheet under other assets were $830,390 and
$1,144,721 for 1999 and 1998, respectively.
At June 30, 1999 the Company's open and closed new crop grain futures were
as follows:
<TABLE>
<CAPTION>
Weighted Average
Bushels Contract Amount Price/Bushel Terms
------- --------------- ---------------- -----
<S> <C> <C> <C> <C>
Corn 1,955,000 $4,513,688 $2.2625 Dec. 99
70,000 $ 164,850 $2.3550 Mar. 00
Soybeans 215,000 $ 990,613 $4.6075 Nov. 99
Corn (for wheat) 195,000 $ 411,938 $2.1125 Jul. 99
--------- ---------- -------
Total 2,475,000 $6,081,088 $2.4570
</TABLE>
The carrying value for these contracts at June 30, 1999 was an unrealized
gain of $274,205, which was substantially hedged or offset by an unrealized
loss of approximately the same amount on the matching open forward purchase
commitments to acquire grains.
F-26
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------------
16. Supplemental Disclosures of Cash Flow Information:
-------------------------------------------------
The components of cash provided by current assets and liabilities, net of
the effect of balances acquired from the acquisition of the Gold Kist
Inputs Business on October 13, 1998 and MLE on April 1, 1998, follow:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Receivables $ 61,950,915 $ 27,870,279 $ (3,475,635)
Inventories (4,776,701) (6,476,370) (7,664,598)
Prepaid expenses 1,492,252 (1,173,102) 840,253
Accounts payable 65,855,438 (29,534,741) 6,738,389
Accrued expenses 8,138,855 20,838,166 1,335,287
Other, net (2,950,408) (1,246,395) (1,226,876)
------------------ ----------------- ------------------
$ 129,710,351 $ 10,277,837 $ (3,453,180)
================== ================= ==================
</TABLE>
16. Supplemental Disclosures of Cash Flow Information, continued:
-------------------------------------------------
Cash payments for interest were $20,758,285, $17,145,980 and $15,316,454
for 1999, 1998 and 1997, respectively. Cash payments for income taxes were
$2,719,806, 2,533,809 and $6,463,517 for 1999, 1998 and 1997,
respectively.
During fiscal 1999, non-cash transactions included the assumption of
liabilities totaling $9,793,404. During fiscal 1998, non-cash transactions
included the assumption of patronage refund allocations from Michigan
Livestock Exchange ("MLE") totaling $2,683,000.
17. Merger:
------
On April 1, 1998, Southern States completed a merger with MLE Marketing, a
livestock marketing cooperative headquartered in East Lansing, Michigan.
MLE operates livestock dealer and auction markets in Indiana, Kentucky,
Michigan and Ohio. The merger constituted a tax-free reorganization and
has been accounted for using the purchase method under Accounting
Principles Board Opinion No. 16 ("APB 16"). The acquisition of MLE was
completed for approximately $3.5 million. In that connection, the Company
issued 60,664 shares (par value $60,664) 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. Pro forma results of
operations for the year ended June 30, 1998 as if the acquisition of MLE
occurred as of the beginning of the respective period is not presented, as
the effect is not material.
The fair value of the assets acquired and liabilities assumed is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets $23,290
Investments 10,352
Property, plant and equipment 7,680
Other non-current assets 4,389
Current liabilities (33,251)
Long-term liabilities (8,963)
---------
$ 3,497
=========
</TABLE>
F-27
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
18. Acquisition of Gold Kist, Inc.:
------------------------------
On October 13, 1998, the Company purchased the Gold Kist Inputs Business
of Gold Kist Inc. ("Gold Kist"), a Georgia cooperative marketing
association. The net assets purchased included certain inventory, real
property, personal property, and certain accounts receivable, other
assets, and certain liabilities. The initial estimated net purchase price
of $218 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 receivable and property
plant and equipment based on estimated fair values at the date of
acquisition, pending final determination of certain acquired balances.
The Gold Kist 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 adjusted Post-Closing Valuation was approximately $198
million compared to an initial estimated purchase price (after deducting
the $10 million hold back provided for in the Agreement) of $218 million.
Taking into account certain agreed upon adjustments, the Company's
Post-Closing Valuation resulted in a repayment by Gold Kist to the
Company of approximately $21 million on September 3, 1999, with interest
from the closing date. The difference between the initial estimated
purchase price as determined by the pre-closing valuation and the
Company's determination of the final purchase price as shown by the
adjusted Post-Closing Valuation was principally due to the Company not
purchasing certain accounts receivable that were included in the initial
purchase price.
The following unaudited pro forma consolidated results of operations
assumes that the purchase of Gold Kist had occurred at the beginning of
each respective year. The unaudited pro forma consolidated results are
presented for informational purposes only and do not purport to be
indicative of the Company's future consolidated results of operations.
Year Ended Year Ended
June 30,1999 June 30,1998
------------ ------------
Revenues $1,457,867,492 $1,603,828,518
============== ==============
Loss on operations $ (5,190,846) $ (3,161,249)
================ ==============
Net loss $ (6,997,336) $ (544,363)
================ ==============
F-28
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------
19. Quarterly Results of Operations:
-------------------------------
The Company's unaudited quarterly results of operations were as follows:
<TABLE>
<CAPTION>
Fiscal 1999 Quarters
September 30 December 31 March 31 June 30
------------- ----------- -------- -------
<S> <C> <C> <C> <C>
Sales and other operating revenue $210,892,909 $227,216,075 $ 413,901,376 $ 514,349,132
Gross margin 55,436,515 72,705,734 88,464,073
34,970,645
Net Savings (8,081,367) (7,510,864) 2,663,564 10,853,902
<CAPTION>
Fiscal 1998 Quarters
September 30 December 31 March 31 June 30
------------- ----------- -------- -------
<S> <C> <C> <C> <C>
Sales and other operating revenue $234,836,414 $244,613,823 $282,240,987 $ 361,595,294
Gross margin 34,115,913 39,788,781 52,918,937 65,026,964
Net Savings (5,501,643) (2,029,222) 7,885,182 10,312,321
</TABLE>
F-29
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
20. 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 300
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 segment assets employed and
excluding the allocation of general overhead. The Company accounts for
intersegment sales at current market prices.
The following table presents 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>
1999 Retail Farm
Crops Feed Petroleum Farm Supply and Home
----- ---- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $193,745,243 $181,287,240 $ 165,645,121 $532,287,286 $209,563,533
Intersegment revenues 285,085,607 70,473,727 13,663,909 -- 51,301,878
Interest expense 4,175,956 2,676,378 1,218,823 11,747,410 3,046,888
Depreciation and amortization 1,821,066 2,984,380 1,985,752 9,080,996 2,011,605
Profit 12,422,440 11,825,694 5,867 (518,604) 8,326,288
Assets 119,567,826 47,542,388 36,378,354 197,754,505 69,022,499
Capital expenditures 3,774,689 3,695,269 35,209 21,574,003 345,728
<CAPTION>
Marketing Other Total
--------- ----- -----
<S> <C> <C> <C>
Revenues from external customers $ 79,637,454 $ 4,193,615 $1,366,359,492
Intersegment revenues 6,871,948 794,754 428,191,823
Interest expense 1,220,555 4,327,119 28,413,129
Depreciation and amortization 1,371,066 3,139,151 22,394,016
Profit (380,799) (1,169,078) 30,511,808
Assets 46,421,387 166,923,095 683,610,054
Capital expenditures 2,354,457 14,824,577 46,603,932
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
1998 Retail Farm
Crops Feed Petroleum Farm Supply and Home
----- ---- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $154,825,265 $145,581,994 $193,097,559 $336,259,693 $196,116,317
Intersegment revenues 156,898,258 62,314,122 17,555,622 -- 40,404,007
Interest expense 2,461,380 1,805,800 1,488,294 6,570,858 2,965,678
Depreciation and amortization 1,315,274 2,107,916 2,057,166 6,594,762 1,844,868
Profit 16,865,664 6,120,676 1,650,180 4,855,530 5,966,802
Assets 55,508,563 34,270,787 35,634,480 104,946,956 69,168,805
Capital expenditures 1,102,859 3,046,937 2,499,106 14,372,371 2,380,587
<CAPTION>
Marketing Other Total
--------- ----- -----
<S> <C> <C> <C>
Revenues from external customers $ 94,516,837 $2,888,853 $ 1,123,286,518
Intersegment revenues 8,876,637 711,122 286,759,768
Interest expense (191,898) 1,759,261 16,859,373
Depreciation and amortization 910,256 2,781,630 17,611,872
Profit 1,781,884 (526,980) 36,713,756
Assets 51,698,503 111,068,346 462,296,440
Capital expenditures 820,786 9,682,022 33,904,668
<CAPTION>
1997 Retail Farm
Crops Feed Petroleum Farm Supply and Home
----- ---- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $160,448,334 $161,939,799 $250,260,067 $336,043,632 $188,425,641
Intersegment revenues 152,832,784 65,124,073 21,514,906 -- 40,531,928
Interest expense 1,911,693 1,711,774 1,078,107 6,376,174 2,963,301
Depreciation and amortization 1,253,195 2,118,456 1,946,686 6,220,394 1,721,362
Profit 26,609,406 6,301,755 7,106,830 5,854,165 7,172,649
Assets 50,852,032 32,269,622 36,414,775 106,164,547 64,464,842
Capital expenditures 1,363,892 2,481,491 2,280,690 7,368,498 1,947,395
<CAPTION>
Marketing Other Total
--------- ----- -----
<S> <C> <C> <C>
Revenues from external customers $116,211,167 $2,771,115 $1,216,099,755
Intersegment revenues 20,572,748 781,968 301,358,407
Interest expense 1,989 1,522,485 15,565,523
Depreciation and amortization 756,392 2,581,947 16,598,432
Profit 3,585,102 (197,898) 56,432,009
Assets 15,487,755 103,506,540 409,160,113
Capital expenditures 1,104,470 3,398,142 19,944,578
</TABLE>
The following is a reconciliation of reportable segment profit to the Company's
consolidated totals.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Total profit for reportable segments $ 30,511,808 $ 36,713,756 $ 56,432,009
General corporate overhead (31,961,458) (23,143,300) (22,930,523)
------------------ ----------------- --------------
(Loss) savings before income taxes and undistributed
(loss) earnings in Statesman Financial Corporation $ (1,449,650) $ 13,570,456 $ 33,501,486
================== ================= ==============
</TABLE>
F-31
<PAGE>
Independent Auditors' Report
The Board of Directors
Gold Kist Inc.:
Southern States Cooperative, Incorporated:
We have audited the accompanying statements of operations and cash flows of
the Inputs Business (as defined in Note 1) of Gold Kist Inc. and subsidiaries
(the "Company") for each of the years in the two-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 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 results of operations and the cash flows of the
Inputs Business of Gold Kist Inc. and subsidiaries for each of the years in the
two-year period ended June 27, 1998, pursuant to the Asset Purchase Agreement
described in Note 1, in conformity with generally accepted accounting
principles.
KPMG LLP
Atlanta, Georgia
August 26, 1998
F-32
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF OPERATIONS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------------
June 28, 1997 June 27, 1998
------------- -------------
<S> <C> <C>
Net Sales............................................. $488,409 $480,542
Cost of sales......................................... 389,798 393,711
-------- --------
Gross margin...................................... 98,611 86,831
Distribution, administrative and general expenses..... 98,456 105,291
-------- --------
Net operating margin (loss)....................... 155 (18,460)
-------- --------
Other income (deductions):............................
Interest income................................... 8,448 10,041
Interest expense.................................. (11,282) (12,675)
Miscellaneous, net................................ 88 1,169
-------- --------
Total other deductions........................ (2,746) (1,465)
-------- --------
Loss before income taxes.......................... (2,591) (19,925)
Income tax benefit (note 6)........................... 972 7,576
-------- --------
Net loss.......................................... $ (1,619) $(12,349)
======== ========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
June 28, 1997 June 27, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(1,619) $(12,349)
Non-cash items included in net loss:
Depreciation and amortization............................ 6,186 6,188
Allowance for doubtful accounts.......................... 2,282 5,773
Gains on sales of assets................................. (23) (475)
Equity in loss of limited liability corporation.......... -- 481
Other.................................................... (82) (34)
Changes in operating assets and liabilities:
Receivables.............................................. 2,831 (8,334)
Crop notes receivable.................................... (8,479) (10,746)
Inventories.............................................. (1,678) (7,623)
Other current assets..................................... 447 564
Accounts payable and accrued expenses.................... 4,909 9,166
------- --------
Net cash provided by (used in) operating activities... 4,774 (17,389)
------- --------
Cash flows from investing activities:
Acquisitions of investments.............................. -- (1,673)
Acquisitions of property, plant and equipment............ (9,375) (4,729)
Proceeds from disposals of property, plant and equipment. 404 871
Other.................................................... (101) (367)
------- --------
Net cash used in investing activities................. (9,072) (5,898)
------- --------
Cash flows from financing activities:
Principal payments of long-term debt..................... (270) (232)
Net transfers form Gold Kist Inc......................... 4,568 23,519
------- --------
Net cash provided by financing activities............. 4,298 23,287
------- --------
Net change in cash and cash equivalents............... 0 0
Cash and cash equivalents at beginning of year.............. 0 0
------- --------
Cash and cash equivalents at end of year.................... $ 0 $ 0
======= ========
Supplemental disclosure of cash flow data:
Cash paid during the years for:
Interest paid to third parties........................... $ 510 $ 468
======= ========
Income taxes (note 6).................................... $ -- $ --
======= ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS
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 results of operations and cash flows as if the Inputs Business had operated
as a stand-alone company. Intercompany transactions within the Inputs Business
have been eliminated. The accompanying financial statements present 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 $5.8 million and $5.4 million in 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 1997 and 1998 was
$10.8 million and $12.2 million, respectively.
Sales of animal feeds from the Inputs Business to Gold Kist approximated
$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.
Significant accounting policies are designated below as an integral part of
the notes to financial statements to which the policies relate.
F-35
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 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) Depreciation
Depreciation of plant and equipment is calculated by the straight-line
method over the estimated useful lives of the respective assets
(buildings and improvement--10 to 25 years, machinery and equipment--4
to 10 years).
(d) Goodwill
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.
(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 28, 1997 June 27, 1998
------------- -------------
<S> <C> <C>
Allowance for doubtful notes -
beginning of the fiscal year... $ 2,193 $ 2,706
Bad debts provisions on crop
notes receivable.............. 1,528 6,798
Write-off of crop notes receivable.. (1,015) (2,688)
------- -------
Allowance for doubtful notes -
end of the fiscal year......... $ 2,706 $ 6,816
======= =======
</TABLE>
F-36
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 28, 1997 and June 27, 1998
(Dollar Amounts in Thousands)
(3) Futures and Options Transactions
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.
(4) Investments
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 $10.1 million and $3.7 million,
respectively, for 1997 and 1998. These patronage refunds are reflected as a
reduction in cost of sales.
(5) Rent Expense
Total rental expense on operating leases was $12.4 million and $12.0
million in 1997 and 1998, respectively.
(6) 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. 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.
The components of the income tax benefit were as follows:
June 28, 1997 June 27, 1998
------------- -------------
Current:
- --------
Federal $(222) $(5,007)
State (12) (698)
----- -------
(234) (5,705)
----- -------
Deferred:
- ---------
Federal (671) (1,701)
State (67) (170)
(738) (1,871)
----- -------
$(972) $(7,576)
===== =======
The effective tax rates were different from the United States statutory
rates for the reasons set forth below:
June 28, 1997 June 27, 1998
------------- -------------
Computed expected income tax benefit
$(881) $(6,974)
Effect of state income taxes (8) (433)
Other (83) (169)
----- -------
$(972) $(7,576)
===== =======
F-37
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 28, 1997 and June 27, 1998
(Dollar Amounts in Thousands)
(7) 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 $1.5 million for 1997 and $1.1 million for 1998.
556074v5
F-38
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of September 30, 1999 and June 30, 1999
---------------------
<TABLE>
<CAPTION>
September 30,
1999
ASSETS (Unaudited) June 30, 1999
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,901,429 $ 18,742,408
Receivables, net 108,377,283 117,375,357
Inventories 224,692,942 213,141,319
Prepaid expenses 14,408,786 7,241,450
Deferred income taxes 6,497,119 6,689,496
Deferred charges 235,633 840,022
--------------- -------------
Total current assets 375,113,192 364,030,052
--------------- -------------
Investments and other assets:
Investments:
Statesman Financial Corporation 23,626,489 23,651,051
Michigan Livestock Credit Corporation 12,622,290 12,718,722
Other companies (principally cooperatives) 82,172,318 78,416,407
Receivables 1,178,608 1,544,553
Other assets 12,472,280 12,269,263
--------------- -------------
Total investments and other assets 132,071,985 128,599,996
--------------- -------------
Property, plant and equipment 381,945,264 378,196,657
Less accumulated depreciation 194,054,566 189,079,016
--------------- -------------
Property, plant and equipment, net 187,890,698 189,117,641
--------------- -------------
$695,075,875 $681,747,689
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements
F-39
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of September 30, 1999 and June 30, 1999
---------------------
<TABLE>
<CAPTION>
September 30,
LIABILITIES AND STOCKHOLDERS' AND 1999
PATRONS' EQUITY (Unaudited) June 30, 1999
-------------- -------------
<S> <C> <C>
Current liabilities:
Short-term notes payable $ 1,800,000 $ 5,600,000
Current maturities of long-term debt 8,802,678 3,836,938
Accounts payable 139,969,761 138,486,921
Accrued expenses:
Environmental remediation 837,854 972,477
Payrolls, employee benefits, related taxes and other 45,603,107 39,801,159
Accrued income taxes 2,919,913 2,050,129
Dividends payable 379,438 380,106
Advances from managed member cooperatives 17,521,699 19,395,311
--------------- -------------
Total current liabilities 217,834,450 210,523,041
--------------- -------------
Long-term debt
Bridge loan facility 74,119,316 100,000,000
Long-term debt 213,644,033 176,562,296
--------------- -------------
Total long term debt 287,763,349 276,562,296
--------------- -------------
Other noncurrent liabilities:
Employee benefits 7,231,949 7,070,509
Deferred income taxes 2,932,479 2,969,365
Environmental remediation 1,672,618 2,218,664
Miscellaneous 4,720,548 4,538,213
--------------- -------------
Total other noncurrent liabilities 16,557,594 16,796,751
--------------- -------------
Redeemable preferred stock 2,114,100 2,114,100
Capital stock:
Preferred 1,459,300 1,485,000
Common - $1 par value; 12,113,596 and 12,147,082 shares
outstanding at September 30, 1999 and June 30, 1999,
respectively 12,113,596 12,147,082
Patrons' equity 157,233,486 162,119,419
--------------- -------------
$695,075,875 $681,747,689
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements
F-40
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the three months ended September 30, 1999 and 1998
(Unaudited)
---------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Sales and other operating revenue:
Net purchases by patrons $ 274,587,467 $ 196,640,934
Net marketing for patrons 11,728,449 12,912,545
Other operating revenue 689,037 1,353,456
---------------- ----------------
287,004,953 210,906,935
Cost of products purchased and marketed and other operating costs 232,090,418 175,934,455
---------------- ----------------
Gross margin 54,914,535 34,972,480
Selling, general and administrative expenses 62,016,560 46,001,194
---------------- ----------------
Loss on operations (7,102,025) (11,028,714)
---------------- ----------------
Other deductions (income):
Interest expense 8,487,985 4,684,437
Interest income and service charges (3,948,036) (2,393,856)
Miscellaneous income, net (1,578,028) (2,509,720)
---------------- ----------------
2,961,921 (219,139)
---------------- ----------------
Loss before income taxes and undistributed (loss)
earnings in Statesman Financial Corporation and
cumulative effect of change in accounting method (10,063,946) (10,809,575)
Income tax benefit (3,977,153) (2,684,092)
---------------- ----------------
Loss before undistributed (loss) earnings in
Statesman Financial Corporation and cumulative
effect of change in accounting method (6,086,793) (8,125,483)
Undistributed (loss) earnings of Statesman Financial Corporation,
net of tax (107,701) 44,116
Cumulative effect of change in accounting method, net of tax 1,589,996
---------------- ----------------
Net loss $ (4,604,498) $ (8,081,367)
================ ================
</TABLE>
See accompanying notes to consolidated financial statements
F-41
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PATRONS' EQUITY
as of September 30, 1999 and June 30, 1999
---------------------
<TABLE>
<CAPTION>
September 30,
1999
(Unaudited) June 30, 1999
----------------- -----------------
<S> <C> <C>
Patronage refund allocations:
Balance, beginning of year $ 67,844,199 $ 68,151,124
Adjustments to prior year's allocation 74,627
Redemptions (281,435) (381,552)
----------------- -----------------
Balance, end of quarter 67,562,764 67,844,199
----------------- -----------------
Operating capital:
Balance, beginning of year 94,275,220 97,441,238
Net loss from operations (4,604,498) (2,074,765)
Adjustments to prior year's estimated patronage refunds,
net of income taxes (71,790)
Dividends on capital stock declared:
Preferred (278,419)
Common, $.06 per share (729,551)
Other reductions (11,493)
----------------- -----------------
Balance, end of period 89,670,722 94,275,220
----------------- -----------------
Total patrons' equity $ 157,233,486 $ 162,119,419
================= =================
</TABLE>
See accompanying notes to consolidated financial statements
F-42
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ended September 30, 1999 and 1998
(Unaudited)
---------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net loss from continuing operations $ (4,604,498) $ (8,081,367)
Adjustments to reconcile net loss to cash (used) provided by
Operating activities:
Depreciation and amortization 6,446,080 4,672,767
Deferred income taxes 155,491 (150,505)
Gain on sale of property and equipment (1,082,730) (58,213)
Undistributed (earnings) loss of finance company and joint ventures (3,629,913) 379,905
Noncash patronage refunds received (2,529)
Redemption of noncash patronage refunds received 43,967
Cash provided by current assets and liabilities (23,153,122) 15,541,506
-------------- -------------
Cash (used) provided in operating activities (25,868,692) 12,345,531
-------------- -------------
Investing activities:
Additions to property, plant and equipment (5,295,763) (11,305,282)
Proceeds from disposal of property, plant and equipment 1,340,443 699,767
Additional investments in other companies (5,000) (2,324,707)
Proceeds from purchase price adjustment 19,927,176
-------------- -------------
Cash provided (used) in investing activities 15,966,856 (12,930,222)
-------------- -------------
Financing activities:
Net decrease in short-term notes payable (3,800,000) (5,100,000)
Proceeds from long-term debt 265,166,335 7,000,000
Repayment of long-term debt, including capital leases (248,964,189) (763,578)
Net redemption of stockholders' and patrons' equity (341,289) (130,239)
-------------- -------------
Cash provided in financing activities 12,060,857 1,006,183
-------------- -------------
Increase in cash and cash equivalents 2,159,021 421,492
Balance at beginning of year 18,742,408 15,352,446
-------------- -------------
Balance at end of period $ 20,901,429 $ 15,773,938
============== =============
</TABLE>
See accompanying notes to consolidated financial statements
F-43
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
---------------------
1. Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements of Southern States Cooperative, Inc. ("Southern
States") and its wholly owned subsidiaries (collectively the "Company")
contain all adjustments necessary to present fairly, in all material
respects, the Company's consolidated financial position as of September 30,
1999 and the consolidated results of operations and cash flows for the
three month periods ended September 30, 1999 and 1998. All adjustments are
of a normal, recurring nature. These financial statements should be read in
conjunction with the June 30, 1999 consolidated financial statements and
notes thereto included herein. The results of operations for the three
months ended September 30, 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).
Certain amounts in the accompanying unaudited consolidated financial
statements for the three month period September 30, 1998 have been
reclassified to conform to the current presentation.
2. Inventory
---------
Inventories at September 30, 1999 and June 30, 1999 consisted of the
following:
September 30, 1999 June 30, 1999
------------------ -------------
Finished goods:
Purchased for resale $ 191,800,901 $ 183,115,888
Manufactured 5,242,374 5,902,728
--------------- ---------------
197,043,275 189,018,616
Materials and Supplies 27,649,667 24,122,703
--------------- ---------------
Totals $ 224,692,942 $ 213,141,319
=============== ===============
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-44
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
---------------------
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 ten-year period with
approximately $1.1 million to be expended by December 31, 2000 and the
remaining portion spread over the remaining 9 years. Expenditures for the
first 5 years are for capital equipment and site remediation and expenditures
after year 5 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:
2000 1999
---- ----
Receivables $(10,563,157) $(3,010,942)
Inventories (11,551,623) (6,553,259)
Prepaid expenses (7,167,336) (1,739,326)
Accounts payable (65,766) 16,836,731
Accrued expenses 5,862,393 772,158
Other, net 332,367 9,236,144
------------ -----------
$(23,153,122) $15,541,506
============ ===========
There were no non-cash transactions during the three-month periods ended
September 30, 1999 and 1998, respectively.
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 300 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-45
<PAGE>
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 three months ended September 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Revenues from Intersegment Segment
External Customers Revenues Profit (Loss)
------------------------------ ------------------------------ ------------------------------
Three months ended Three months ended Three months ended
September 30, September 30, September 30,
------------------------------ ------------------------------ ------------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Retail Farm Supply $106,447,777 $ 58,942,352 $ 0 $ 0 $(6,361,449) $(4,293,079)
Feed 44,806,485 36,516,880 17,722,619 14,139,287 2,431,341 1,304,032
Crops 25,003,984 17,806,319 55,028,042 20,692,353 1,073,797 (1,068,872)
Farm and Home 43,611,235 46,113,046 14,281,955 9,948,392 1,137,595 388,651
Petroleum 54,325,390 36,817,123 4,409,442 3,168,060 1,432,653 (1,011,611)
Marketing 12,233,305 14,083,725 1,930,603 1,774,377 (400,229) 291,475
Other 576,777 627,490 0 150,782 (503,577) (137,115)
------------------------------ ------------------------------ ------------------------------
Total $287,004,953 $210,906,935 $93,372,661 $49,873,251 $(1,189,869) $(4,526,519)
General corporate expenses (8,874,077) (6,283,056)
------------------------------
(Loss) before income tax benefit,
undistributed earnings in Statesman
Financial Corporation and cumulative
effect in accounting method. $(10,063,946) $(10,809,575)
------------------------------
</TABLE>
6. New Accounting Standards
------------------------
In June of 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, 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-46
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
---------------------
7. Acquisition of Gold Kist, Inc.
------------------------------
On October 13, 1998, the Company purchased the Gold Kist Inputs Business of
Gold Kist Inc. ("Gold Kist"), a Georgia cooperative marketing association.
The net assets purchased included certain inventory, real property,
personal property, and certain accounts receivable, other assets, and
certain liabilities. The initial estimated net purchase price of $218
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 Gold Kist
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 $198 million
compared to an estimated purchase price (after deducting the $10 million
hold back provided for in the Agreement) of $218 million. Taking into
account certain agreed upon adjustments, the Company's Post-Closing
Valuation resulted in a repayment by Gold Kist to the Company of
approximately $21 million, including interest. The difference between the
initial 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 the Company not purchasing
certain accounts receivable that were included in the initial purchase
price.
Consistent with the Company's business plan for reducing the
pre-acquisition losses of the Gold Kist Inputs Business, the Company has
finalized its rationalization plan, which will result in the closure of 29
locations. Costs to exit these locations were approximately $1.3 million,
most of which represent severance and facility closure costs. These costs
were charged to the opening balance sheet. At September 30, 1999, the
Company had paid approximately $300,000, most of which related to severance
costs. The remaining portion of the reserve relates primarily to facility
closure costs, which are anticipated to be expended by June 2000.
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 September 30, 1999,
the bridge loan facility had an outstanding principal of $74.1 million.
F-47
<PAGE>
SOUTHERN STATES COOPERATIVE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
---------------------
9. Change in Accounting Method
---------------------------
Effective July 1, 1999, Southern States Cooperative changed its method of
accounting for its investment in the Southern States Insurance Exchange
("the Insurance Exchange") and began recognizing operating results on this
investment on a quarterly basis. Prior to the accounting change, Southern
States' portion of the annual earnings relating to the Insurance Exchange,
which year ends on December 31, were recognized in Southern States' third
quarter, which ends March 31. Although this method was acceptable under
accounting rules for agricultural cooperatives, Southern States believes
the new method is preferable because operating results relating to the
Insurance Exchange are more appropriately matched with the period in which
the revenue is earned.
Pro forma amounts assuming the change in application of accounting method
applied retroactively (unaudited):
Three Months Ended
------------------
September 30, 1999 September 30, 1998
------------------ ------------------
Net loss $6,194,494 $7,621,748
10. Subsequent Event
----------------
On October 5, 1999, Southern States Capital Trust I, a trust subsidiary of
Southern States, issued to Gold Kist $59.4 million Step-Up Rate Capital
Securities, Series A ("Series A"), net of issuance costs of $600,000.
Distributions are cumulative relating to the Series A securities at a rate
of 8% per annum, increasing to 8.5% on July 5, 2000 and 8.75% on July 5,
2001. The Series A securities mature on October 5, 2029. Also on October 5,
1999, Southern States issued to Gold Kist $40 million Step-Up Rate Series B
Cumulative Redeemable Preferred Stock, $100 par value per share ("Series
B"). Issuance costs incurred with respect to the Series B securities
totaled $800,000. Cash dividends are cumulative at an initial rate of 7.5%,
increasing to 8% per annum 9 months after the date of issuance and
increasing to 8.25% per annum twenty-one months after the issuance of the
Series B securities. Dividends are payable quarterly, in arrears on January
5, April 5, July 5 and October 5 of each year. The proceeds from the sale
of both the Series A securities and the Series B securities were used to
reduce Company debt and pay off the bridge loan facility which had been
utilized to finance the Gold Kist acquisition.
F-48
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF OPERATIONS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
September 26, 1998 September 27, 1997
------------------- -------------------
<S> <C> <C>
Net sales............................ $91,508 $104,735
Cost of sales........................ 78,506 91,495
------- --------
Gross margin........................ 13,002 13,240
Distribution, administrative and
general expenses.................... 22,054 22,444
------- --------
Net operating loss.................. (9,052) (9,204)
Other income (deductions):
Interest income..................... 3,209 2,972
Interest expense.................... (3,994) (3,168)
Miscellaneous, net.................. 171 753
------- --------
Total other deductions.......... (614) 557
------- --------
Loss before income taxes............ (9,666) (8,647)
Income tax benefit (note 3).......... 3,625 3,288
------- --------
Net loss............................ $(6,041) $ (5,359)
======= ========
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
September 26, 1998 September 27, 1997
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ (6,041) $ (5,359)
Non-cash items included in net income (loss):
Depreciation and amortization.................... 1,592 1,520
Allowance for doubtful accounts.................. (828) 292
(Gains) losses on sales of assets................ 11 (396)
Other............................................ 1,062 30
Changes in operating assets and liabilities:
Receivables...................................... 25,692 17,428
Crop notes receivable............................ (6,996) (7,017)
Inventories...................................... 13,840 8,233
Other current assets............................. 408 (3,068)
Accounts payable and other current liabilities... (38,535) (24,348)
-------- --------
Net cash used in operating activities........... (9,795) (12,685)
-------- --------
Cash flows from investing activities:
Acquisitions of investments....................... - -
Acquisitions of property, plant and equipment..... (21) (2,270)
Proceeds from disposals of property, plant and
equipment....................................... 56 594
-------- --------
Net cash provided by (used in) investing
activities................................... 35 (1,676)
-------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings................ - -
Principal payments of long-term debt.............. (52) (47)
Net transfers from Gold Kist Inc.................. 9,812 14,409
-------- --------
Net cash provided by financing activities...... 9,760 14,362
-------- --------
Net change in cash and cash equivalents........ - -
Cash and cash equivalents at beginning of year..... - -
-------- --------
Cash and cash equivalents at end of year........... $ - $ -
======== ========
Supplemental disclosure of cash flow data:
Cash paid during the years for:
Interest paid to third parties................... $ 87 $ 117
======== ========
Income taxes (note 3)............................ $ - $ -
======== ========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
INPUTS BUSINESS OF GOLD KIST INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
(Unaudited)
1. Gold Kist Inc. ("Gold Kist" or "Company") and Southern States Cooperative,
Incorporated ("Southern States") have entered into an Asset Purchase
Agreement (the "Agreement"), dated as of July 23, 1998, pursuant to which
the Company has agreed to sell and assign, and Southern States has agreed
to purchase and assume, the assets and certain of the liabilities of the
Company's 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 results of operations and cash flows as if the Inputs Business had
operated as a stand-alone company. Intercompany transactions within the
Inputs Business have been eliminated. The accompanying financial statements
present 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 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 results of operations and cash
flows.
2. 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. 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 statements of
operations. The Inputs Business's future effective tax rate will largely
depend on Southern States's structure and tax strategies.
#588520v3
F-51
<PAGE>
[picture of tractor in field and Southern States logos]
<PAGE>
================================================================================
You should rely only on the information contained in this prospectus or other
information to which this prospectus refers. Neither we Southern States nor
Southern States Capital Trust II has authorized anyone to provide you with
information that is different. Neither we Southern States nor Southern States
Capital Trust II is making an offer of these securities in any state where the
offer is not permitted. This prospectus is not an offer to sell, and it is not
soliciting an offer to buy, any securities other than the registered securities
to which this prospectus relates. You should not assume that the information in
this prospectus is accurate as of any date other than the date of this
prospectus.
TABLE OF CONTENTS
Page
----
Prospectus Summary..................................................... 1
Risk Factors........................................................... 11
Southern States Capital Trust II....................................... 18
Use of Proceeds........................................................ 20
Capitalization......................................................... 21
Unaudited Pro Forma Condensed Combined
Financial Information............................................... 23
Selected Historical Consolidated Financial
Information......................................................... 28
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 32
Farm Cooperatives...................................................... 50
Southern States........................................................ 51
Business of Southern States............................................ 57
Management............................................................. 75
Description of the Capital Securities.................................. 85
Description of the Junior Subordinated
Debentures.......................................................... 104
The Guarantee.......................................................... 117
The Expense Agreement.................................................. 121
Effect of Obligations Under the Junior
Subordinated Debentures, the Guarantee
and the Expense Agreement 121
United States Federal Income Taxation.................................. 124
ERISA Considerations................................................... 131
Underwriting........................................................... 132
Legal Matters.......................................................... 134
Experts................................................................ 134
Available Information.................................................. 134
Disclosure Regarding Forward Looking
Statements.......................................................... 135
Index to Financial Statements.......................................... F-1
================================================================================
================================================================================
$75,000,000
[Southern States Logo]
SOUTHERN STATES
CAPITAL TRUST II
__% Capital Securities
(Liquidation Amount $25
per Capital Security)
Fully, Irrevocably
and Unconditionally Guaranteed
on a Subordinated Basis
by
SOUTHERN STATES
COOPERATIVE, INCORPORATED
-------------------------
Prospectus
-------------------------
FIRST UNION CAPITAL
MARKETS CORP.
LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC
____________ __, 2000
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses (excluding
underwriting commissions) to be incurred by Southern States in connection with
the issuance and distribution of the capital and common securities to be
offered. All amounts are estimates except for the SEC registration fee:
Registration under the Securities Act of 1933, as amended .......$ 23,978
New York Stock Exchange Listing Fee ............................. 77,033
Accounting Fees and Expenses ....................................
Blue Sky Fees and Expenses ......................................
Legal Fees and Expenses .........................................
Trustee and Transfer Agent Fees .................................
Printing and Engraving Expenses .................................
Miscellaneous ...................................................
----------
Total ......................................................$
==========
Item 15. Recent Sales of Unregistered Securities
During the three fiscal years ended June 30, 1999, the Company issued the
following:
A. Southern States Membership Common Stock. Southern States' common stock
---------------------------------------
is membership common stock, issued at a price equal to its $1.00 par value per
share. Southern States' membership common stock, notwithstanding a 6% dividend
feature, does not have characteristics typical of an investment security. As an
agricultural cooperative, voting rights in the Company are per capita,
regardless of the number of shares of membership common stock held; there is no
opportunity for capital appreciation, as shares are issued at par ($1.00 per
share) and are redeemable at par; there is no trading market in such shares as
they are subject to significant transfer restrictions. Pursuant to the
requirements of the Agricultural Cooperative Association Act of Virginia and the
Articles of Incorporation and Bylaws of Southern States, its issuance and
transfer is limited to bona fide producers of agricultural products and
cooperative associations that are owned and controlled by such producers who use
the services or supplies of Southern States. An agricultural producer who
qualifies for membership but is not already a member will automatically receive
the first $1.00 of any patronage refund in the form of one share of membership
common stock. Southern States is of the opinion that its membership common stock
should not be considered a security within the meaning of the federal securities
laws, but is nevertheless providing the information below to comply with the
requirements of this Item 15 under a contrary view.
<PAGE>
1. Issuance of Shares of Membership Common Stock to Managed Local
--------------------------------------------------------------
Cooperatives in Lieu of Cash Refunds of Patronage Refund Allocations.
- --------------------------------------------------------------------
(a) Securities Issued. During the fiscal years ended June 30, 1997,
-----------------
1998 and 1999, the Company issued an aggregate of 1,179,265 shares, 803,329
shares and no shares of its membership common stock, respectively, to 66
managed local cooperatives, all of which are managed by the Company under
uniform management contracts and all of which operate as an integral part
of the Southern States cooperative distribution system. See "Southern
States--The Southern States Distribution System--Managed Local
Cooperatives" in the Prospectus included as Part I of this Registration
Statement. The shares of membership stock issued in 1997 and 1998 were
issued in lieu of cash payments made on the Company's patronage refund
allocations previously distributed to patrons for the fiscal years ended
June 30, 1975 and 1976, respectively. See "Southern States--Cooperative
Structure--Patronage Refunds" in the Prospectus included as Part I of this
Registration Statement.
(b) Underwriters and Other Purchasers. No underwriters were involved.
---------------------------------
See (a) above.
(c) Consideration. The shares were issued at par value ($1.00 per
-------------
share) in lieu of an equivalent dollar amount otherwise payable in cash
upon revolvement of the Company's patronage refund allocations for the
years in question.
(d) Exemption from Registration Claimed. The Company is of the opinion
-----------------------------------
that even if its shares of membership common stock are considered to be
securities for purposes of the Securities Act of 1933, the issuance of such
shares was exempt from registration pursuant to Section 4(2) of the
Securities Act in the circumstances described.
2. Issuance of Shares of Membership Common Stock to Agricultural Producers
-----------------------------------------------------------------------
Who Wish to Qualify to Do Business with the Company on a Cooperative Basis.
- --------------------------------------------------------------------------
(a) Securities Issued. During each of the fiscal years ended June 30,
-----------------
1997, 1998 and 1999, the Company issued one (1) share of its membership
common stock, $1.00 par value per share, to each of approximately 200
agricultural producers who purchased one share each in order to qualify for
membership in the Company. Such transactions usually involved agricultural
producers who did not wish to wait to receive a share of membership common
stock in connection with a future patronage refund based upon business done
with the Company.
(b) Underwriters and Other Purchasers. No underwriters were involved.
---------------------------------
See (a) above.
(c) Consideration. $1.00 per share. See (a) above.
-------------
(d) Exemption from Registration Claimed. The Company is of the opinion
-----------------------------------
that the issuance of one (1) share of its membership common stock, at a
purchase price of $1.00, to persons wishing to qualify to do business with
the Company on a cooperative basis, does not involve the issuance of a
security for purposes of the Securities Act of 1933, and that even if
II-2
<PAGE>
such transactions are viewed as involving the issuance of a security, such
transactions were exempt under Rule 504 of Regulation D.
3. Issuance of Shares in Connection with Mergers of Managed Local
--------------------------------------------------------------
Cooperatives into the Company.
- -----------------------------
(a) Securities Issued. In the fiscal year ended June 30, 1998, the
-----------------
Company issued approximately 4,120 shares of its membership common stock to
members of two managed local cooperatives that were merged into the Company
during that period.
(b) Underwriters and Other Purchasers. No underwriters were involved.
---------------------------------
See (a) above.
(c) Consideration. $1.00 per share. See (a) above.
-------------
(d) Exemption from Registration Claimed. The Company is of the opinion
-----------------------------------
that even if its shares of membership common stock are considered to be
securities for purposes of the Securities Act of 1933, the issuance of such
shares was exempt from registration under Rule 504 of Regulation D.
4. Issuance of Shares in Connection with Merger of Michigan Livestock
------------------------------------------------------------------
Exchange with and into the Company.
- ----------------------------------
(a) Securities Issued. The Company has issued or will issue a maximum
-----------------
of approximately 78,000 shares of its membership common stock to members of
Michigan Livestock Exchange ("MLE"), a Michigan cooperative, in connection
with the merger of MLE into the Company effective April 1, 1998. The merger
agreement specified that each active member of MLE who held allocated
equities of MLE at the time of the merger would receive one share of the
Company's membership common stock in exchange for, and in lieu of, the
first $1.00 of allocated equity held in MLE, which allocated equity was
assumed by the Company in the merger.
(b) Underwriters and Other Purchasers. No underwriters were involved.
---------------------------------
See (a) above.
(c) Consideration.
-------------
(i) One share of membership common stock, $1.00 par value, was
issued or will be issued to each of approximately 38,000 members of MLE as
described in (a) above as part of the consideration for the merger; there were
no discounts or commissions. Members of MLE are required by law to own one share
of the Company's membership common stock in order to be a member of the Company.
Each share issued represents, and will be issued in lieu of, the first $1.00 of
any allocated equity due to such member of MLE, which allocated equities were
assumed by the Company in the merger.
II-3
<PAGE>
(ii) A maximum of approximately 40,000 of the shares referenced in
(a) above will be issued on the basis of one share per member, to MLE members
who were not due any allocated equity from MLE at the time of merger, in order
to qualify such members of MLE for membership in the Company. The consideration
is $1.00 per share which was deemed by the parties to the merger to have been
paid as part of the merger consideration.
(d) Exemption from Registration Claimed. The Company is of the opinion
-----------------------------------
that even if its shares of membership common stock are considered to be
securities for purposes of the Securities Act of 1933, the issuance of such
shares was exempt from registration under Rule 504 of Regulation D, as the
consideration for such shares was limited to $1.00 per share, or a maximum of
approximately $78,000.
B. Southern States 6% Cumulative Preferred Stock. Southern States' 6%
---------------------------------------------
cumulative preferred stock is issued at a price equal to its $100.00 par value.
(a) Securities Issued. During its fiscal years ended June 30, 1997, 1998
-----------------
and 1999, the Company issued 349, 424 and 507 shares, respectively, of its 6%
cumulative preferred stock to existing holders of such securities, in lieu of
cash dividends thereon, pursuant to prior elections made by such holders to
receive additional shares in lieu of cash dividends.
(b) Underwriters and Other Purchasers. No underwriters were involved.
---------------------------------
See (a) above.
(c) Consideration. Each of the shares referenced in (a) above was issued
-------------
at par value, for $100.00 per share, in lieu of cash dividends in like amount.
(d) Exemption from Registration Claimed. The Company's 6% cumulative
-----------------------------------
preferred stock was initially sold in 1970 pursuant to the exemption in Section
3(a)(5)(B) of the Securities Act. At that time, purchasers were given the option
of electing to receive future dividends, if declared, in the form of cash or in
additional shares of the same issue. The Company is of the opinion that the
issuance of additional shares of its 6% cumulative preferred stock pursuant to
such elections is not a sale of such securities within the meaning of Section
2(3) of the Securities Act. The Company relies on the interpretive ruling of the
General Counsel of the SEC listed at 17 C.F.R. Section 231.929 (par. 1121 of the
CCH Federal Securities Law Reports) in support of this position.
C. "Payment Plus" Debt Obligations.
-------------------------------
(a) Securities Issued. On April 1, 1998, Michigan Livestock Exchange
-----------------
("MLE"), a Michigan cooperative, merged into the Company. MLE has, for a number
of years, operated a "Payment Plus" program under which farmers and other
members of MLE who sell livestock to or through MLE, can elect to receive sales
proceeds on a deferred basis. Such proceeds are payable upon demand of the MLE
member, and are paid with interest at a specified rate. If not earlier paid,
such obligations are paid 12 months after the date of the livestock sale
transaction that gave rise to such proceeds. The Payment Plus obligations of
MLE, at the time of its merger into the Company, were secured by an irrevocable
stand-by letter of credit issued by
II-4
<PAGE>
the St. Paul Bank for Cooperatives. MLE had outstanding Payment Plus
indebtedness of approximately $14,000,000 at April 1, 1998, held by
approximately 550 members of MLE. Payment Plus obligations became obligations of
the Company upon the effective date of the merger. At June 30, 1998 and June 30,
1999, respectively, the Company had outstanding Payment Plus indebtedness of
approximately $14 million held by approximately 520 and 500 patrons,
respectively.
(b) Underwriters and Other Purchasers. No underwriters were involved.
---------------------------------
See (a) above.
(c) Consideration. Payment Plus obligations are interest-bearing debt
-------------
obligations for livestock sales proceeds owed by MLE (now the Company) to
members as a result of commercial transactions handled by MLE (now the Company).
(d) Exemption from Registration Claimed. Prior to its merger into the
-----------------------------------
Company, MLE was a farmers' cooperative organization exempt from tax under
section 521 of the Internal Revenue Code of 1954. Accordingly, if the Payment
Plus obligations of MLE are viewed as securities, the Company is of the view
they were exempt from registration pursuant to section 3(a)(5)(B) of the
Securities Act of 1933. Upon the merger of MLE into the Company effective April
1, 1998, the Payment Plus obligations became obligations of the Company.
Although the Payment Plus obligations (as obligations of the Company) no longer
qualify for the exemption in section 3(a)(5)(B) of the 1933 Act, the Company has
continued to maintain the bank letter of credit securing such obligations and,
accordingly, is of the opinion that if such obligations constitute securities,
they are exempt from registration by virtue of the exemption from registration
provided by section 3(a)(2) of the 1933 Act.
D. Step-Up Rate Series B Cumulative Redeemable Preferred Stock and Step-Up
-----------------------------------------------------------------------
Rate Capital Securities.
- -----------------------
(a) Securities Issued. On October 5, 1999, the Company issued and sold
-----------------
to Gold Kist Inc. ("Gold Kist") $40,000,000 aggregate liquidation amount of its
Step-Up Rate Series B Cumulative Redeemable Preferred Securities. As part of the
same transaction, Gold Kist purchased $60,000,000 aggregate liquidation amount
of Step-Up Rate Capital Securities issued by Southern States Capital Trust I, a
trust subsidiary of the Company.
(b) Underwriters and Other Purchasers. No underwriters were involved.
---------------------------------
Gold Kist was the sole purchaser of the preferred securities and the capital
securities.
(c) Consideration. Gold Kist paid the Company and Southern States
-------------
Capital Trust I a total of $100 million for the preferred securities and capital
securities (or $98.6 million, net of a commitment fee Southern States paid to
Gold Kist in connection with the sale).
II-5
<PAGE>
(d) Exemption from Registration Claimed. The sale of securities to Gold
-----------------------------------
Kist in October, 1999, was made pursuant to a fixed price commitment letter,
dated October 13, 1998, between the Company and Gold Kist. The parties entered
into the commitment letter in connection with the Company's acquisition from
Gold Kist of its agriservices (or "inputs") business. See "Business of Southern
States--Acquisition of the Gold Kist Inputs Business--Financing Commitment" in
the prospectus constituting Part I of this registration statement. In entering
into this commitment letter and making this sale of securities to Gold Kist, the
Company relied on the exemption from federal registration contained in (S) 4(2)
of the Securities Act of 1933.
Item 16. Exhibits, Financial Statement Schedules
(A) EXHIBITS
An index of exhibits appears at page II-8 and is incorporated herein by
reference.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts and Report of Independent
Public Accountants on Schedule II
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Southern States
Cooperative, Incorporated has duly caused this Amendment No. 3 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 February __, 2000.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
BY: /s/ Wayne A. Boutwell
------------------------------
Wayne A. Boutwell
President and Chief Executive Officer
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-1 has been signed for the
following persons in the capacities indicated on February __, 2000.
/s/ Wayne A. Boutwell President and Chief
- -------------------------- Executive Officer
Wayne A. Boutwell
/s/ Jonathan A. Hawkins Senior Vice President and
- -------------------------- Chief Financial Officer
Jonathan A. Hawkins
/s/ Robert W. Taylor Controller and
- -------------------------- Principal Accounting Officer
Robert W. Taylor
Michael W. Beahm, Cecil D. Bell, Jr., Floyd K. Blessing, James E. Brady, Jr.,
Earl L. Campbell, Jere L. Cannon, William F. Covington, Herbert A. Daniel, Jr.,
H. Michael Davis, John B. East, George E. Fisher, R. Bruce Johnson, James A.
Kinsey, J. Wayne McAtee, Richard F. Price, William Pridgeon, Curry A. Roberts,
John Henry Smith, James A. Stonesifer, William W. Vanderwende, Raleigh O. Ward,
Jr., 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 II has duly caused this Amendment No. 3 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 February __,
2000.
SOUTHERN STATES CAPITAL TRUST II
BY: /s/ Jonathan A. Hawkins
--------------------------
Jonathan A. Hawkins
Administrative Trustee
II-7
<PAGE>
EXHIBIT INDEX
to Amendment No. 3
to Registration Statement
on Form S-1
SOUTHERN STATES COOPERATIVE, INCORPORATED
SOUTHERN STATES CAPITAL TRUST II
Exhibit No. Description of Exhibit
- ----------- ----------------------
UNDERWRITING AGREEMENT:
1. Form of Underwriting Agreement between Southern States Capital
Trust II, Southern States Cooperative, Incorporated, First Union
Capital Markets, Lehman Brothers and Banc of America Securities
LLC, dated __________, 2000
ARTICLES OF INCORPORATION AND BYLAWS:
3.1 * Restated Articles of Incorporation of Southern States
Cooperative, Incorporated, effective July 30, 1998
(a) Articles of Amendment, effective October 1, 1999, to Restated
Articles of Incorporation of Southern States Cooperative,
Incorporated
3.2 Bylaws of Southern States Cooperative, Incorporated, amended as of
March 29, 1999
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 1, 1999
4.2 Trust Agreement among Southern States Cooperative, Incorporated
and First Union Trust Company, National Association, dated as of
December 1, 1999
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 ___________, 2000
II-8
<PAGE>
4.4* Form of Junior Subordinated Indenture between Southern States
Cooperative, Incorporated and First Union National Bank, dated
____________, 2000
4.5 Form of Capital Securities Certificate for Southern States Capital
Trust II (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 ____________,
2000
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
(b)(i) Amendment to Asset Purchase Agreement, dated September 7,
1999, between Gold Kist Inc. and Southern States
Cooperative, Inc.
(c)* Commitment Letter between Gold Kist Inc. and Southern
States Cooperative, Inc., dated October 13, 1998
(d) Letter Agreement between Gold Kist Inc. and Southern
States Cooperative, Inc., dated as of March 25, 1999,
amending the Commitment Letter
(e) Purchase Agreement among Southern States Capital Trust I,
Southern States Cooperative, Inc. and Gold Kist Inc.,
dated October 5, 1999
II-9
<PAGE>
10.3 * Revolving Credit 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
(a) Consent Agreement between Southern States Cooperative,
Incorporated and CoBank, ACB, First Union National Bank,
NationsBank, N.A. and various other lenders, dated as of
March 25, 1999, relating to the Revolving Credit Agreement,
as amended February 3, 1999
(b) Second Amendment to Revolving Credit Agreement and Consent
Agreement between Southern States Cooperative, Incorporated
and CoBank, ACB, First Union National Bank, Bank of America,
N.A. and various other lenders, dated December 22, 1999
(c) Third Amendment to Revolving Credit Agreement Southern
States Cooperative, Incorporated and CoBank, ACB, First
Union National Bank, Bank of America, N.A. and various other
lenders, dated January 31, 2000
10.4 Fourth Amended and Restated Financing Services and Contributed
Capital Agreement between Southern States Cooperative,
Incorporated and Statesman Financial Corporation, dated January
12, 2000
10.5 * Financing Services and Contributed Capital Agreement between
Southern States Cooperative, Incorporated and Michigan
Livestock Credit Corporation, dated April 1, 1998
(a)* Amendment to Financing Services and Contributed Capital
Agreement between Southern States Cooperative, Incorporated
and Michigan Livestock Credit Corporation, dated November 6,
1998 (included as Exhibit I to Exhibit 10.3 above)
(b) Second Amendment to Financing Services and Contributed
Capital Agreement between Southern States Cooperative,
Incorporated and Michigan Livestock Credit Corporation,
dated March 25, 1999
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
II-10
<PAGE>
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
(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 Fifth Amendment,
effective July 1, 1999
II-11
<PAGE>
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
(a) Additional Powers of Attorney (for individuals who became
directors subsequent to the previous filing)
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-12
<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> <C> <C> <C> <C>
Year ended 6-30-99
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful accounts $2,643 $246 $1,832 (1) $517 (2) $4,204
Allowance for discounts and
other deductions 0 0 0 0
------------ ----------- ----------- ----------- ------------
$2,643 $246 $ 1,832 $517 $4,204
============ =========== =========== =========== ============
Year ended 6-30-98
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful accounts $2,237 $100 $1,233 (3) $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
============= ============= ============== ============
</TABLE>
(1) Allowance balance of Inputs Business at acquisition
(2) Accounts charged off, net of recoveries
(3) Allowance balance of Michigan Livestock Exchange at acquisition.
#590180v2
S-2
<PAGE>
Report of Independent Public Accountants on Schedule II
Southern States Cooperative, Incorporated
To the Board of Directors of
Southern States Cooperative, Incorporated
In connection with our audits of the consolidated financial statements of
Southern States Cooperative, Incorporated and Subsidiaries as of June 30, 1999
and 1998, and for each of the three years in the period ended June 30, 1999,
which financial statements are included in the Prospectus, we have also audited
the financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
February 4, 2000
<PAGE>
EXHIBIT 1
SOUTHERN STATES CAPITAL TRUST II
___% Capital Securities
(Liquidation Amount $25 Per Capital Security)
guaranteed to the extent set forth in the Guarantee by
SOUTHERN STATES COOPERATIVE, INCORPORATED
_______________________________
Underwriting Agreement
----------------------
_________, 2000
First Union Capital Markets Corp.,
Lehman Brothers,
Banc of America Securities LLC,
c/o First Union Capital Markets,
One First Union Center, TW-10,
301 South College Street,
Charlotte, NC 28288-0604.
Ladies and Gentlemen:
Southern States Capital Trust II, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), and Southern States
-----
Cooperative, Incorporated, an agricultural cooperative corporation organized
under the laws of Virginia, as depositor of the Trust and as guarantor (the
"Guarantor"), propose, subject to the terms and conditions stated herein, that
- ----------
the Trust issue and sell to the underwriters named in Schedule I hereto
(together with the Independent Underwriter, as defined below, the
"Underwriters") an aggregate of 3,000,000 of its ___% Capital Securities
------------
(liquidation amount $25 per capital security) (the "Firm Securities") and, at
---------------
the election of the Underwriters, up to an aggregate of 450,000 additional
Capital Securities that the Underwriters elect to purchase (the "Optional
--------
Securities", the Firm Securities and any Optional Securities being collectively
- ----------
referred to as the"Securities") representing undivided beneficial interests in
----------
the assets of the Trust, guaranteed on a subordinated basis by the Guarantor as
to the payment of distributions and as to payments on liquidation or redemption,
to the extent set forth in a guarantee agreement (the "Guarantee") between the
---------
Guarantor and First Union National Bank, as trustee (the "Guarantee Trustee").
-----------------
The Trust is to purchase, with the proceeds of the sale of the Firm Securities
and 92,784 of its Common Securities (liquidation amount $25 per common security)
(the "Common Securities" and together with the Securities, the
-----------------
<PAGE>
"Trust Securities"), $77,319,600 aggregate principal amount of ____% Junior
----------------
Subordinated Debentures due _________, 2030 (the "Debentures") of the Guarantor
----------
(and in the event the Underwriters purchase Optional Securities, a proportionate
additional principal amount of the Debentures), to be issued pursuant to a
Junior Subordinated Indenture (the "Indenture") between the Guarantor and First
---------
Union National Bank, as trustee (the "Debenture Trustee").
-----------------
The Guarantor will be the holder of 100% of the Common Securities. The
Trust will be subject to the terms of an Amended and Restated Trust Agreement
(the "Trust Agreement"), among the Guarantor, as depositor, First Union National
---------------
Bank, as Property Trustee ("Property Trustee"), First Union Trust Company,
----------------
National Association, as Delaware Trustee (the "Delaware Trustee"), and two
----------------
individual trustees who are employees or officers of or affiliated with the
Guarantor (the "Administrative Trustees"). The Property Trustee, the Delaware
-----------------------
Trustee and the Administrative Trustees are collectively referred to herein as
the "Trustees."
--------
1. Purchase and Offering of the Securities. Subject to the terms and
conditions set forth herein, (a) the Trust agrees to issue and sell to each of
the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Trust, on __________, 2000 (the "Closing Date", at
------------
the Closing Location and for the Purchase Price to the Underwriters set forth in
Schedule II hereto, the number of Firm Securities set forth opposite the name of
such Underwriter in Schedule I hereto and (b) in the event the Underwriters
shall exercise the election to purchase Optional Securities as provided below,
on __________, 2000 (the "Second Closing Date") the Trust shall issue and sell
-------------------
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase, at the purchase price set forth in Schedule II hereto,
that portion of the number of Optional Securities as to which such election
shall have been exercised (to be adjusted so as to eliminate fractional
Securities) determined by multiplying such number of additional Securities by a
fraction, the numerator of which is the maximum number of Firm Securities which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Firm Securities that all of the Underwriters are entitled to purchase
pursuant to clause (a) of this Section 1.
The Trust and the Guarantor hereby grant to the Underwriters the right to
purchase at their election up to 450,000 Optional Securities, at the purchase
price set forth in Schedule II hereto, for the sole purpose of covering over-
allotments in the sale of the Securities. The Underwriters may exercise such
right by giving written notice to the Guarantor no later than the ____ day prior
to the Second Closing Date, specifying the number of Optional Securities to be
purchased.
As compensation to the Underwriters for their commitments hereunder, and in
view of the fact that the proceeds of the sale of the Securities will be used by
the Trust to
-2-
<PAGE>
purchase the Debentures of the Guarantor, the Guarantor agrees to pay on the
Closing Date (as hereinafter defined) to the Underwriters the amount specified
in Schedule II hereto.
2. Representations, Warranties and Agreements of the Guarantor and the
Trust. The Guarantor and the Trust, jointly and severally, represent and warrant
to, and agree with, the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-69265) (the
"Initial Registration Statement") in respect of the Securities, the
-------------------------------
Debentures and the Guarantee has been filed with the Securities and
Exchange Commission (the "Commission"); the Initial Registration Statement
----------
and any post-effective amendment thereto, each in the form heretofore
delivered or to be delivered to the Underwriters has been declared
effective by the Commission in such form; and no stop order suspending the
effectiveness of the Initial Registration Statement or any post-effective
amendment thereto has been issued and no proceeding for that purpose has
been initiated or threatened by the Commission. The preliminary prospectus
included in the Initial Registration Statement is hereinafter called the
"Preliminary Prospectus"; the various parts of the Initial Registration
-----------------------
Statement including (i) the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act of 1933 (the "Act") and deemed to be part of the Initial
---
Registration Statement at the time it was declared effective, (ii) all
exhibits thereto and (iii) the documents incorporated by reference in the
prospectus contained in the registration statement at the time the
registration statement became effective, are hereinafter collectively
called the "Registration Statement"; the prospectus relating to the
----------------------
Securities, the Debentures and the Guarantees, in the form in which it has
most recently been filed, or transmitted for filing, with the Commission on
or prior to the date of this Agreement, is hereinafter called the
"Prospectus"; any reference herein to the Preliminary Prospectus or the
-----------
Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein and any reference to any amendment or
supplement to the Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include any documents filed after the date of such
Preliminary Prospectus or Prospectus, as the case may be, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
------------
incorporated by reference in the Preliminary Prospectus or Prospectus, as
the case may be.
(b) The Registration Statement and the Prospectus conform, and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the Trust Indenture Act of 1939, as amended (the "Trust
-----
Indenture Act"), and the rules and regulations of the Commission thereunder
-------------
and do not and will not, as of the applicable effective date as to the
Registration Statement and any amendment
-3-
<PAGE>
thereto and as of the applicable filing date as to the Prospectus and any
amendment or supplement thereto, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Trust or the Guarantor by an Underwriter
expressly for use in the Prospectus as amended or supplemented.
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder
(d) The Guarantor and each of its Significant Subsidiaries (as defined
in Section 13) have been duly organized and are validly existing and in
good standing under the laws of their respective jurisdictions of
organization, are duly qualified to do business and are in good standing in
each jurisdiction in which their respective ownership or lease of property
or the conduct of their respective businesses requires such qualification,
save where the failure to be so qualified would not reasonably be expected
to have a material adverse effect on the business or property of the
Guarantor and its subsidiaries taken as a whole, and each has all power and
authority necessary to own or hold their respective properties and to
conduct the businesses in which they are engaged.
(e) The Guarantor has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Guarantor
have been duly and validly authorized and issued and are fully paid and
non-assessable.
(f) This Agreement has been duly authorized, executed and delivered by
the Guarantor and the Trust.
(g) Except where it would not reasonably be expected to have a
material adverse effect on the consolidated financial position,
stockholder's or patrons' equity, results of operations, business or
prospects of the Guarantor and its subsidiaries taken as a whole, (i)
issuance of the Securities, and the consummation by the Guarantor of the
transactions contemplated herein (the "Transactions") will not conflict
------------
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Guarantor or
any of its Significant Subsidiaries is a party or by which the Guarantor or
any of its Significant Subsidiaries is bound or to which any of the
properties or assets of the Guarantor or any of its Significant
Subsidiaries is
-4-
<PAGE>
subject, (ii) nor will such actions result in any violation of the
provisions of the Amended and Restated Articles of Incorporation or by-laws
of the Guarantor or any of its Significant Subsidiaries or any statute or
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Guarantor, any of its Significant Subsidiaries
or any of their properties or assets; and (iii) except for the registration
of the Securities, the Debentures and the Guarantee under the Act, the
qualification of the Indenture under the Trust Indenture Act, the listing
of the Securities on the New York Stock Exchange (the "NYSE") and such
----
consents, approvals, authorizations, registrations or qualifications as may
be required under applicable state securities laws in connection with the
purchase and distribution of the Securities by the Underwriters, no
consent, approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required for the
Transactions.
(h) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Business Trust Act of
the State of Delaware (the "Delaware Business Trust Act") with the trust
---------------------------
power and authority to own its property and conduct its business as
described in the Prospectus, and has conducted and will conduct no business
other than the transactions contemplated by this Agreement and described in
the Prospectus; and the Securities will conform in all material respects to
the description thereof contained in the Prospectus.
(i) At the Closing Date and the Second Closing Date, the Securities
will have been duly and validly authorized by the Trust, and, when issued
and delivered to the Underwriters against payment therefor as provided
herein, will be duly and validly issued and fully paid and non-assessable
undivided beneficial interests in the assets of the Trust and will conform
in all material respects to the description thereof contained in the
Prospectus; the issuance of the Securities is not subject to preemptive or
other similar rights; the Securities will have the rights set forth in the
Trust Agreement, and the terms of the Securities are valid and binding on
the Trust; the holders of the Securities (the "Securityholders") will be
---------------
entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
(j) The Guarantee, the Debentures, the Trust Agreement and the
Indenture (collectively, the "Guarantor Agreements") have each been duly
--------------------
authorized by the Guarantor and when validly executed and delivered by the
Guarantor and, in the case of the Guarantee, by the Guarantee Trustee, in
the case of the Trust Agreement, by the Trustees, in the case of the
Indenture, by the Debenture Trustee, and, in the case of the Debentures,
when validly authenticated and delivered by the Debenture Trustee, will
constitute valid and legally binding
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<PAGE>
obligations of the Guarantor, enforceable in accordance with their
respective terms, subject, as to enforcement, to bankruptcy, insolvency,
moratorium, reorganization and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles
(whether considered in a proceeding in equity or at law); and the Guarantor
Agreements conform to the descriptions thereof in the Prospectus; and the
Trust Agreement, the Indenture and the Guarantee have each been duly
qualified under the Trust Indenture Act.
(k) Neither the Guarantor nor any of its Significant Subsidiaries has
sustained, since the date of the latest financial statements included in
the Prospectus, any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus;
and, since such date, there has not been any change in the capital stock,
allocated patrons' equity or long-term debt of the Guarantor or any of its
Significant Subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
consolidated financial position, stockholders' or patrons' equity or
results of operations of the Guarantor and its subsidiaries, otherwise than
as set forth or contemplated in the Prospectus.
(l) The consolidated financial statements of the Guarantor and its
consolidated subsidiaries and of the agricultural inputs business which the
Guarantor acquired from Gold Kist Inc. (the "Gold Kist Inputs Business")
-------------------------
(including the related notes and supporting schedules) incorporated in the
Prospectus present fairly the financial condition and results of operations
of the entities purported to be shown thereby, at the dates and for the
periods indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved.
(m) PricewaterhouseCoopers LLP and KPMG Peat Marwick LLP, who have
certified certain financial statements of the Guarantor and of the Gold
Kist Inputs Business, respectively, whose reports are incorporated in the
Prospectus and who have delivered the initial letters referred to in
Section 6(e) hereof, are independent public accountants as required by the
Act during the periods covered by the financial statements on which they
reported contained in the Prospectus.
(n) There are no legal or governmental proceedings pending to which
the Guarantor or any of its Significant Subsidiaries is a party or of which
any property or asset of the Guarantor or any of its Significant
Subsidiaries is the subject which, if determined adversely to the Guarantor
or such Significant Subsidiary, might have a material adverse effect on
the consolidated financial position, stockholders' or patrons' equity,
results of operations, business or
-6-
<PAGE>
prospects of the Guarantor and its subsidiaries taken as a whole; and to
the best of the Guarantor's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others that is
required to be disclosed in the Prospectus which is not so disclosed.
(o) No relationship, direct or indirect, exists between or among the
Guarantor on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Guarantor on the other hand, which is
required to be disclosed in the Prospectus which is not so disclosed.
(p) Since the date as of which information is given in the Prospectus,
and except as may otherwise be disclosed in the Prospectus, the Guarantor
and the Trust have not (i) issued or granted any securities, (ii) incurred
any liability or obligation, direct or contingent, other than liabilities
and obligations which were incurred in the ordinary course of business, or
(iii) entered into any transaction not in the ordinary course of business.
(q) Neither the Guarantor nor any of the Guarantor's Significant
Subsidiaries (i) is in violation of its articles of incorporation or by-
laws, (ii) is in default in any material respect, and no event has occurred
which, with notice or lapse of time or both, would constitute such a
default, in the due performance or observance of any term, covenant or
condition contained in any material indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which it is a party or
by which it is bound or to which any of its properties or assets is subject
except where it would not reasonably be expected to have a material adverse
effect on the consolidated financial position, stockholder's or patrons'
equity, results of operations, business or prospects of the Guarantor and
its subsidiaries taken as a whole, or (iii) is in violation in any material
respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its properties or assets may be subject or has failed
to obtain any material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of its
properties or assets or to the conduct of its business.
(r) Neither the Trust, the Guarantor nor any Significant Subsidiary of
the Guarantor is, and after giving effect to the offering and sale of the
Securities and the application of the proceeds thereof as described in the
Prospectus neither of them will be, an "investment company" within the
------------------
meaning of such term under the Investment Company Act of 1940, as amended,
and the rules and regulations of the Commission thereunder.
3. Delivery of and Payment for the Securities.
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<PAGE>
(a) The Securities to be purchased by each Underwriter shall be
delivered by or on behalf of the Trust through the facilities of The
Depository Trust Guarantor ("DTC") against payment by or on behalf of such
---
Underwriter of the purchase price therefor by certified or official bank
check or checks, payable to the order of the Trust in immediately available
funds. The Trust will cause the certificates representing the Securities
to be made available for checking and packaging at least one day prior to
the Closing Date (as defined below) at the office of DTC or its designated
custodian. The Securities to be purchased by each Underwriter hereunder
will be represented by one or more definitive global Securities in book-
entry form which will be deposited by or on behalf of the Trust with DTC or
its designated custodian. The time and date of such delivery payment shall
be 9:30 a.m., New York City time, on the Closing Date or the Second Closing
Date, as the case may be, or such other time and date as the Underwriters
and the Guarantor may agree upon in writing.
On the Closing Date or the Second Closing Date, as the case may be,
the Guarantor will pay, or cause to be paid, the commission payable to the
Underwriters under Section 1 hereof in immediately available funds.
(b) The documents to be delivered on the Closing Date or the Second
Closing Date, as the case may be, by or on behalf of the parties hereto
pursuant to Section 6 hereof will be delivered at such time and date at the
offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004.
4. Further Agreements of the Guarantor and the Trust. The Guarantor
and the Trust, jointly and severally, further agree:
(a) To furnish to the Underwriters, without charge, as many copies of
the Prospectus and any supplements and amendments thereto as the
Underwriters may reasonably request.
(b) To advise the Underwriters promptly of any proposal to amend or
supplement the Registration Statement or the Prospectus and to afford the
Underwriters a reasonable opportunity to comment on any such proposed
amendment or supplement; and the Guarantor will also advise the
Underwriters promptly of the filing of any such amendment or supplement and
of the institution by the Commission of any stop order proceedings in
respect of the Registration Statement or of any part thereof and will use
its best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible its lifting, if issued.
(c) If, at any time when Prospectus is required to be delivered under
the Act in connection with sales by an Underwriter or dealer, any event
occurs as a result of which the Prospectus as then amended or supplemented
would include an
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<PAGE>
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any
time to amend the Prospectus to comply with the Act, to notify the
Underwriters of such event and to promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance.
(d) As soon as practicable, but not later than 18 months, after the
effective date of the Registration Statement, to make generally available
to its securityholders an earnings statement, which will satisfy the
provisions of Section 11(a) of the Act.
(e) Promptly from time to time to take such action as the Underwriters
may reasonably request to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as the Underwriters may
request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Securities.
(f) Not to offer, sell, contract to sell or otherwise dispose of any
additional securities of the Guarantor, the Trust or any other trust the
common securities of which are held by the Guarantor, that are
substantially similar to the Securities or any securities convertible into
or exchangeable for or that represent the right to receive any such similar
securities, without the consent (which consent shall not be unreasonably
withheld) of the Underwriters during the period beginning from the date of
this Agreement and continuing for 180 days following the Closing Date.
(g) To use their best efforts to cause the Securities to be listed on
the NYSE.
(h) To take such steps as shall be necessary to ensure that neither
the Trust, the Guarantor nor any subsidiary of the Guarantor shall become
an "investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
5. Expenses. The Guarantor and the Trust, jointly and severally,
agree to pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Guarantor's counsel and accountants in connection with the
registration of the Securities, the Guarantee and the Debentures under the Act
and all other expenses in connection with the preparation, printing and filing
of the Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing
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<PAGE>
and delivering of copies thereof to the Underwriters; (ii) the cost of printing
or producing this Agreement, the Securities and the Debentures, any Blue Sky
Memorandum, closing documents (including any compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Securities; (iii) all expenses in connection with the qualification of the
Securities, the Guarantee and the Subordinated Debentures for offering and sale
under state securities laws as provided in Section 4(e) hereof, including the
fees and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey(s); (iv) any fees
charged by securities rating services for rating the Securities and the
Debentures; (v) any filing fees incident to, and the fees and disbursements of
counsel for the Underwriters in connection with, any required reviews by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Securities and the issuance of the Guarantee and the Debentures; (vi) the cost
of preparing the Securities and the Debentures; (vii) the fees and expenses of
any Trustee, the Debenture Trustee and the Guarantee Trustee, and any agent of
any trustee and the fees and disbursements of counsel for any trustee in
connection with the Guarantor Agreements and the Securities; (viii) the cost of
qualifying the Securities with The Depository Trust Company; (ix) any fees and
expenses in connection with listing the Securities on the NYSE and the cost of
registering the Securities under Section 12 of the Exchange Act; and (x) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Sections 7
and 9 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, transfer taxes on resale of any of the
Securities by them, and any advertising expenses connected with any offers they
may make.
6. Conditions to the Underwriters' Obligations. The obligations of
the Underwriters hereunder are subject to the accuracy, when made and on the
Closing Date or the Second Closing Date, as the case may be, of the
representations and warranties of the Guarantor and the Trust contained herein,
to the performance by the Guarantor and the Trust of their obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Underwriters shall not have discovered and disclosed to the
Guarantor and the Trust on or prior to the Closing Date or the Second
Closing Date, as the case may be, that the Prospectus or any amendment or
supplement thereto contains any untrue statement of a fact which, in the
opinion of Sullivan & Cromwell, counsel for the Underwriters, is material
or omits to state any fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
(b) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Guarantor
Agreements, the Securities, the Prospectus, and all other legal matters
relating to this Agreement
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<PAGE>
and the transactions contemplated hereby shall be satisfactory in all
respects to counsel for the Underwriters, and the Guarantor and the Trust
shall have furnished to such counsel all documents and information that
they may reasonably request to enable them to pass upon such matters.
(c) Mays & Valentine, L.P. shall have furnished to the Underwriters
their written opinion, as counsel to the Guarantor and the Trust, addressed
to the Underwriters and dated the Closing Date, in form and substance
reasonably satisfactory to the Underwriters, to the effect set forth in
Exhibit A hereto and to such further effect as counsel to the Underwriters
may reasonably request.
(d) Potter Anderson & Corroon LLP shall have furnished to the
Underwriters their written opinion, as Delaware counsel to the Guarantor
and the Trust, addressed to the Underwriters and dated the Closing Date, in
form and substance reasonably satisfactory to the Underwriters, to the
effect set forth in Exhibit B hereto and to such further effect as counsel
to the Underwriters may reasonably request.
(e) The Underwriters shall have received on the Closing Date letters,
dated the Closing Date in form and substance satisfactory to the
Underwriters, from PricewaterhouseCoopers LLP and KPMG Peat Marwick LLP,
independent public accountants, containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information, including the financial information contained in the
Prospectus as identified by the Underwriters.
(f) The Guarantor and the Trust shall have furnished to the
Underwriters a Certificate, dated the Closing Date or the Second Closing
Date, as the case may be, of the President and the Chief Financial Officer
of the Guarantor stating that:
(i) The representations, warranties and agreements of the
Guarantor and the Trust in Section 2 hereof are true and correct as of
the Closing Date and each of the Guarantor and the Trust has complied
with all of its agreements contained herein;
(ii) (A) Neither the Guarantor nor any of its Significant
Subsidiaries has sustained since the date of the latest quarterly
financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (B) since such
date there has not been any change in the
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<PAGE>
capital stock, allocated patrons' equity or long-term debt of the
Guarantor or any of its Significant Subsidiaries or any material
adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management,
financial position, stockholders' or patrons' equity or results of
operations of the Guarantor and its subsidiaries taken as a whole,
otherwise than as set forth or contemplated in the Prospectus; and
(iii) They have carefully examined the Prospectus and, in their
opinion (A) the Prospectus, as of its date, did not include any untrue
statement of a material fact and did not omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (B)
since the date of the Prospectus no event has occurred which should
have been set forth in a supplement or amendment to the Prospectus.
(g) (i) Neither the Guarantor nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock, allocated patrons' equity or
long-term debt of the Guarantor or any of its subsidiaries or any change,
or any development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' or patrons'
equity or results of operations of the Guarantor and its subsidiaries taken
as a whole, otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i) or (ii), is,
in the judgment of the Underwriters, so material and adverse as to make it
impracticable or inadvisable to proceed with the offering or the delivery
of the Securities on the terms and in the manner contemplated in the
Prospectus.
(h) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Securities by
any "nationally recognized statistical rating organization", as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the Act
and (ii) no such rating organization shall have publicly announced that it
has under surveillance or review, with possible negative implications, its
rating of the Securities.
(i) The Underwriters shall have received from Sullivan & Cromwell,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to such matters as the Underwriters may reasonably
require, and the
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<PAGE>
Guarantor shall have furnished to such counsel such documents and
information as they may reasonably request for the purpose of enabling them
to pass upon such matters.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
7. Indemnification and Contribution.
(a) The Guarantor and the Trust, jointly and severally, shall
indemnify and hold harmless each Underwriter, its officers, employees and
directors and each person, if any, who controls either of the Underwriters
within the meaning of Section 15 of the Act, from and against any loss,
claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability
or action relating to purchases and sales of Securities), to which such
Underwriter, officer, employee, director or controlling person may become
subject, under the Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in
the Preliminary Prospectus, the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky application or other document
prepared or executed by the Guarantor and the Trust (or based upon any
written information furnished by the Guarantor and the Trust) specifically
for the purpose of qualifying any or all of the Securities under the
securities laws of any state or other jurisdiction (any such application,
document or information being hereinafter called a "Blue Sky Application"),
--------------------
(ii) the omission or alleged omission to state in the Preliminary
Prospectus, the Prospectus or in any amendment or supplement thereto, or in
any Blue Sky Application any material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any act
or failure to act, or any alleged act or failure to act, by such
Underwriter in connection with, or relating in any manner to, the
Securities or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability or action
arising out of or based upon matters covered by clause (i) or (ii) above
(provided that the Guarantor and the Trust shall not be liable in the case
of any matter covered by this clause (iii) to the extent that it is
determined in a final judgment by a court of competent jurisdiction that
such loss, claim, damage, liability or action resulted directly from any
such act or failure to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or wilful misconduct), and shall
reimburse such Underwriter and each officer, employee, director and
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by such Underwriter, officer, employee, director or
controlling
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<PAGE>
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Guarantor and the Trust shall not
be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement
or alleged untrue statement or omission or alleged omission made in the
Preliminary Prospectus, the Prospectus or in any such amendment or
supplement, or in any Blue Sky Application in reliance upon and in
conformity with the written information furnished to the Guarantor and the
Trust by or on behalf of such Underwriter specifically for inclusion
therein and described in Section 7(e) and provided further that as to the
Preliminary Prospectus or the Prospectus this indemnity agreement shall not
inure to the benefit of an Underwriter, its officers, employees, directors
or controlling persons on account of any loss, claim damage, liability or
action arising from the sale of Securities to any person by such
Underwriter if such Underwriter failed to send or give a copy of the
Prospectus as the same may be amended or supplemented and provided to such
Underwriter by the Trust or the Guarantor, to that person, and the untrue
statement or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact in the Preliminary Prospectus was
corrected in the Prospectus, or a supplement or amendment thereto, as the
case may be. The foregoing indemnity agreement is in addition to any
liability which the Guarantor and the Trust may otherwise have to the
Underwriters or to any officer, employee, director or controlling person of
the Underwriters.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Guarantor, the Trust and the officers, employees and
directors of the Guarantor, and each person, if any, who controls the
Guarantor, within the meaning of Section 15 of the Act, from and against
any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Guarantor, the Trust, any such officer,
employee, director or controlling person may become subject, under the Act
or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Preliminary Prospectus,
the Prospectus or in any amendment or supplement thereto, or (B) in any
Blue Sky Application or (ii) the omission or alleged omission to state in
the Preliminary Prospectus, the Prospectus or in any amendment or
supplement thereto or in any Blue Sky Application any material fact
required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with the written information
furnished to the Guarantor by or on behalf of such Underwriter specifically
for inclusion therein and described in Section 7(e), and shall reimburse
the Guarantor, the Trust, and any such officer, employee or director or
controlling person for any legal or other expenses reasonably incurred by
the Guarantor, the Trust, or any
-14-
<PAGE>
such officer, employee, director, or controlling person in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which the
Underwriters may otherwise have to the Guarantor, the Trust, or any such
officer, employee, director or controlling person.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Section 7 except to the extent
it has been materially prejudiced by such failure and, provided further,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have to an indemnified party otherwise than
under this Section 7. If any such claim or action shall be brought against
an indemnified party, and it shall notify the indemnifying party thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel satisfactory
to the indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 7 for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that the indemnified
party shall have the right to employ counsel to represent jointly the
indemnified party and its respective officers, employees and controlling
persons who may be subject to liability arising out of any claim in respect
of which indemnity may be sought by the indemnified party against the
indemnifying party under this Section 7 if, in the reasonable judgment of
the indemnified party, it is advisable for the indemnified party and those
officers, employees, directors and controlling persons to be jointly
represented by separate counsel, and in that event the fees and expenses of
such separate counsel shall be paid by the indemnifying party. It is
understood that the indemnifying party shall not be liable for the fees and
expenses of more than one separate firm (in addition to local counsel in
each jurisdiction) for all indemnified parties in connection with any
proceeding or related proceedings. No indemnifying party shall (i) without
the prior written consent of the indemnified parties (which consent shall
not be unreasonably withheld), settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may
be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement,
-15-
<PAGE>
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or
proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there
be a final judgment of the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss of liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 7 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 7(a) or 7(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein,
then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Guarantor and the Trust on
the one hand and each of the Underwriters on the other from the offering of
the Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Guarantor and the Trust on the one hand and
each of the Underwriters on the other with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Guarantor and the
Trust on the one hand and each of the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Securities purchased under
this Agreement (before deducting expenses) received by the Guarantor and
the Trust on the one hand, and the total fees received by such Underwriter
with respect to the Securities purchased under this Agreement, on the other
hand, bear to the total gross proceeds from the offering of the Securities
under this Agreement, in each case as set forth under "Underwriting" in the
Prospectus. The relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied
by the Guarantor and the Trust on the one hand or such Underwriter, the
intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Guarantor, the Trust and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 7(d) were to be
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of
the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section 7(d) shall be deemed to include, for
purposes of this Section
-16-
<PAGE>
7(d), any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7(d), each
Underwriter shall not be required to contribute any amount in excess of the
amount by which the total price at which the Securities sold and
distributed by it was offered to the purchasers exceeds the amount of any
damages which such Underwriter has otherwise paid or become liable to pay
by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 1l(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(e) The Underwriters confirm that the statements with respect to the
offering of the Securities set forth in the bottom paragraph on the cover
page of, and under the caption "Underwriting" in the Preliminary Prospectus
and the Prospectus are correct and constitute the only information
furnished in writing to the Guarantor and the Trust by or on behalf of the
Underwriters specifically for inclusion in the Prospectus.
8 Termination. The obligations of either Underwriter hereunder may
be terminated by it by notice given to and received by the Guarantor and the
Trust prior to delivery of and payment for the Securities if, prior to that
time, (i) trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market, or trading in any
securities of the Guarantor or the Trust on any exchange or in the over-the-
counter market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by such
exchange or by any other regulatory body or governmental authority having
jurisdiction, (ii) a banking moratorium shall have been declared by Federal or
New York State authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving the
United States or there shall have been a declaration of a national emergency or
war by the United States or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of such Underwriter, impracticable
or inadvisable to proceed with the offering or delivery of the Securities on the
terms and in the manner contemplated in the Prospectus.
9 Reimbursement of Underwriters' Expenses. If the sale of
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 8 hereof or because of any
refusal, inability or failure on the part of the Guarantor and the Trust to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by the Underwriters, the Guarantor and the Trust shall
reimburse the Underwriters for the reasonable fees and expenses of their
-17-
<PAGE>
counsel and for such other out-of-pocket expenses as shall have been incurred by
them in connection with this Agreement and the proposed purchase of the
Securities, and upon demand the Guarantor and the Trust shall pay the full
amount thereof to the Underwriters.
10 Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to First Union Capital Markets, One First Union
Center, TW-10, 301 South College Street, Charlotte, North Carolina 28288-
0604 Attention: _______________ (Fax:____________);
(b) if to the Guarantor shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Guarantor set forth in the
Prospectus, Attention: Chief Financial Officer (Fax: (804) 281-1650));
(c) if to the Trust shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Trust set forth in the
Prospectus, Attention: ____________________(Fax: ________________).
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof.
11 Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Guarantor, the
Trust and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(x) the representations, warranties, indemnities and agreements of the Guarantor
and the Trust contained in this Agreement shall also be deemed to before the
benefit of the officers, employees and directors of the Underwriters and the
person or persons, if any, who control the Underwriters within the meaning of
Section 15 of the Act and (y) the indemnity agreement of the Underwriters
contained in Section 7(b) of this Agreement shall be deemed to be for the
benefit of officers, employees and directors of the Guarantor and any person
controlling the Guarantor within the meaning of Section 15 of the Act. Nothing
in this Agreement is intended or shall be construed to give any person, other
than the persons referred to in this Section 11, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
12 Survival. The respective indemnities, representations,
warranties and agreements of the Guarantor, the Trust and the Underwriters
contained in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Securities and shall remain in full force and effect,
-18-
<PAGE>
regardless of any investigation made by or on behalf of any of them or any
person controlling any of them.
13 Definition of the Terms "Business Day" and "Significant
Subsidiary". For purposes of this Agreement, (a) "business day" means any day
------------
on which the New York Stock Exchange, Inc. is open for trading and (b)
"Significant Subsidiary" has the meaning set forth in Rule 1-02 of Regulation S-
- -----------------------
X.
14 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
15 Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
16 Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
-19-
<PAGE>
If the foregoing correctly sets forth the agreement between the
Guarantor, the Trust and the Underwriters, please indicate your acceptance in
the space provided for that purpose below.
Very truly yours,
SOUTHERN STATES CAPITAL TRUST II
By:_______________________________
Name:
Title: Administrative Trustee
SOUTHERN STATES COOPERATIVE INC.
By:_______________________________
Name:
Title:
Accepted:
FIRST UNION CAPITAL MARKETS CORP.
By:_________________________
Name:
Title:
LEHMAN BROTHERS
By:_________________________
Name:
Title:
BANC OF AMERICA SECURITIES LLC
By:_________________________
Name:
Title:
-20-
<PAGE>
EXHIBIT A
FORM OF OPINION OF
COUNSEL TO THE GUARANTOR TO BE DELIVERED
PURSUANT TO SECTION 6(c)
(i) The Guarantor and each of its subsidiaries have been duly formed and
are validly existing as corporations, limited partnerships or limited liability
companies, as the case may be, in good standing under the laws of their
respective jurisdictions of organization, are duly qualified to do business and
are in good standing as foreign corporations, limited partnerships or limited
liability companies, as the case may be, in each jurisdiction in which their
respective ownership or lease of property or the conduct of their respective
businesses (as set forth in certificates of officers of the Guarantor upon which
such counsel is relying without independent investigation) requires such
qualification and have all corporate, partnership or limited liability company,
as the case may be, power and authority necessary to own or hold their
respective properties and conduct the businesses in which they are engaged as
described in the Prospectus;
(ii) The Guarantor has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Guarantor have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; and all of
the issued shares of capital stock, partnership interests or limited liability
company membership interests, as the case may be, of each subsidiary of the
Guarantor have been duly and validly authorized and issued and (except for
partnership interests of general partners and except to the extent the limited
liability company agreements governing the respective limited liability
companies provide otherwise) are fully paid, non-assessable and are owned
directly or indirectly by the Guarantor, to such counsel's knowledge free and
clear of all liens, encumbrances, or claims;
(iii) To the best of such counsel's knowledge, based solely on inquiry of
the Guarantor's General Counsel, and other than as set forth in the Prospectus,
there are no legal or governmental proceedings pending to which the Guarantor or
any of its subsidiaries is a party or of which any property or assets of the
Guarantor or any of its subsidiaries is the subject which could be expected to
have a Material Adverse Effect; and, to the best of such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(iv) The execution and delivery of the Guarantor Agreements have been duly
authorized by all necessary corporate action of the Guarantor, and the Guarantor
Agreements and the Trust Securities conform to the description thereof in the
Prospectus;
A-1
<PAGE>
(v) The Underwriting Agreement has been duly authorized, executed and
delivered by the Guarantor and the Trust and constitutes a valid and binding
agreement of the Guarantor and the Trust enforceable against the Guarantor and
the Trust in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, liquidation, moratorium or other similar laws affecting the
rights and remedies of creditors generally and except as may be subject to
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law), and except as rights to indemnity and
contribution thereunder may be limited by applicable law and public policy, and
except that no opinion is expressed as to the enforceability of the choice of
law provision thereof;
(vi) The issue and sale of the Securities, the compliance by the
Guarantor with all of the provisions of the Underwriting Agreement, and the
consummation of the transactions contemplated thereby, will not conflict with or
result in a material breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which the
Guarantor or any of its subsidiaries is a party or by which the Guarantor or any
of its subsidiaries is bound or to which any of the property or assets of the
Guarantor or any of its subsidiaries is subject which breach is reasonably
likely to have a Material Adverse Effect, nor will such actions result in any
violation of the provisions of the articles of incorporation, by-laws of the
Guarantor or any of its subsidiaries or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or body of
the United States or the State of Virginia having jurisdiction over the
Guarantor or any of its subsidiaries or any of their properties or assets;
except for such consents, approvals, authorizations, registrations or
qualifications as may be required under applicable state securities laws in
connection with the purchase and distribution of the Securities by the
Underwriters, no consent approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is required for
the execution, delivery and performance of the Underwriting Agreement by the
Guarantor and the consummation of the transactions contemplated thereby;
(vii) Neither the Guarantor, any of its subsidiaries nor the Trust is an
"investment company" as such term is defined in the Investment Company Act of
1940, as amended;
(viii) The statements set forth in the Prospectus under the captions
"Description of the Capital Securities", "The Guarantee", "Description of the
Junior Subordinated Debentures" and "Effect of Obligations under the Junior
Subordinated Debentures, the Guarantee and the Expense Agreement" insofar as
such statements constitute a summary of legal matters, documents or proceedings
referred to therein are correct in all material respects;
A-2
<PAGE>
(ix) The Registration Statement and the Prospectus as amended or
supplemented prior to Closing Date (other than the financial statements and
related schedules therein, as to which such counsel need express no opinion),
comply as to form in all material respects with the requirements of the Act and
the rules and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (viii) above, they have no reason to
believe that, as of its effective date and as of the Closing Date, the
Registration Statement or any amendment thereto made by the Trust or the
Guarantor prior to the Closing Date (other than the financial statements and
related schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date and as of the Closing Date, the
Prospectus as amended or supplemented prior to the Closing Date (other than the
financial statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement required to be
filed or any contracts or other documents of a character required to be filed as
an exhibit to the Registration Statement or required to be incorporated by
reference into the Prospectus as amended or supplemented or required to be
described in the Registration Statement or the Prospectus as amended or
supplemented which are not filed or incorporated by reference or described as
required to be described in the Registration Statement or the Prospectus as
amended or, supplemented which are not so filed.
In rendering such opinion, such counsel may (i) state that their opinion is
limited to matters governed by the Federal laws of the United States of America
and the laws of the State of Virginia; and (ii) in giving the opinions referred
to in Section (i) above (solely with regard to organization and qualification of
the Guarantor's subsidiaries) and Section (ii) above (solely with regard to
capital stock of subsidiaries of the Guarantor being duly and validly authorized
and issued and fully paid and non-assessable), state that they are relying on an
opinion or opinions of other counsel as to such matters, provided that the
Underwriters shall have received such opinion or opinions, in form and substance
satisfactory to Underwriters' counsel, of other counsel.
A-3
<PAGE>
EXHIBIT B
FORM OF OPINION OF DELAWARE COUNSEL
TO THE GUARANTOR AND THE TRUST
TO BE DELIVERED PURSUANT TO SECTION 6(d)
(i) The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, and all
filings required under the laws of the State of Delaware with respect to the
creation and valid existence of the Trust as a business trust have been made;
(ii) Under the Delaware Business Trust Act and the Trust Agreement, the
Trust has the trust power and authority (a) to own its properties (including,
without limitation, the Debentures) and conduct its business, (b) to execute and
to deliver, and to perform its obligations under, the agreements to which it is
a party, and (c) to issue and perform its obligations under the Trust
Securities, all as described in the Trust Agreement;
(iii) The Trust Agreement constitutes a valid and binding obligation of
the Guarantor and the Trustees, enforceable against the Guarantor and the
Trustees, respectively, in accordance with its terms;
(iv) Under the Delaware Business Trust Act and the Trust Agreement, the
execution and delivery by the Trust of the agreements to which it is a party,
and the performance by the Trust of its obligations thereunder, have been duly
authorized by all necessary trust action on the part of the Trust;
(v) The Securities (a) have been duly authorized by the Trust Agreement,
and (b) once duly and validly issued in accordance with the Trust Agreement,
will represent valid and fully paid and, subject to the qualifications set forth
in (viii) below, non-assessable undivided beneficial interests in the assets of
the Trust;
(vi) Once duly and validly issued in accordance with the Trust Agreement,
the Securities will entitle the holders thereof to the benefits of the Trust
Agreement;
(vii) The Common Securities (a) have been duly authorized by the Trust
Agreement, and (b) once duly and validly issued in accordance with the Trust
Agreement, will represent valid and fully paid undivided beneficial interests in
the assets of the Trust;
(viii) The holders of Securities will be entitled to the same limitation
of personal liability extended to stockholders of private corporations for
profit organized under the General Corporation Law of the State of Delaware,
except that the holders of Securities may be obligated to (a) provide indemnity
and/or security in connection with and pay taxes or governmental charges arising
from transfers or exchanges of certificates representing Securities and the
issuance of replacement certificates representing Securities to the extent
provided in the Trust Agreement, (b) provide security or indemnity in
B-1
<PAGE>
connection with requests of or directions to the Property Trustee to exercise
its rights and powers under the Trust Agreement, and (c) provide indemnity in
connection with violations of the Trust Agreement or U.S. Federal or state
securities laws arising from transfers or exchanges of certificates representing
Securities and the issuance of replacement certificates representing Securities;
(ix) Under the Delaware Business Trust Act and the Trust Agreement, the
issuance of the Securities is not subject to preemptive rights;
(x) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body of the State of
Delaware known by counsel to have jurisdiction over the Trust is required for
the issuance and sale of the Securities or the consummation by the Trust of the
transactions contemplated by the Trust Agreement;
(xi) The (a) purchase of the Debentures by the Trust, (b) distribution of
the Debentures by the Trust in the circumstances contemplated by the Trust
Agreement, and (c) execution, delivery and performance by the Trust of the
agreements to which it is a party and the consummation of the transactions
contemplated thereunder, will not conflict with or result in a breach or
violation of any of the terms or provisions of the Certificate of Trust or the
Trust Agreement or any statute, rule or regulation of the State of Delaware or
any governmental agency or body of the State of Delaware known by counsel to
have jurisdiction over the Trust;
(xii) Assuming that the Trust is treated as a grantor trust or partnership
for Federal income tax purposes, the holders of the Securities (other than those
holders of the Securities who reside or are domiciled in the State of Delaware)
will have no liability for income taxes imposed by the State of Delaware solely
as a result of their participation in the Trust, and the Trust will not be
liable for any income tax imposed by the State of Delaware.
In rendering such opinion, such counsel may (a) state that their
opinion is limited to matters governed by the laws of the State of Delaware,
excluding the securities laws thereof; and (b) in giving the opinions referred
to in paragraphs (iii) and (vi) above, qualify the same by stating that they are
subject to (1) applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, fraudulent transfer and similar law relating to or affecting
creditors rights generally including, without limitation, the Delaware Uniform
Fraudulent Conveyance Act, the provisions of the United States Bankruptcy Code
and the Delaware insolvency statutes, (2) principles of equity including,
without limitation, concepts of materiality, good faith, fair dealing,
conscionability and reasonableness (regardless of whether such enforceability is
considered in a proceeding in equity or at law), (3) applicable laws relating to
fiduciary duties, (4) public policy limitations with respect to exculpation,
contribution and indemnity provisions, and (5) the limitation that a
B-2
<PAGE>
court applying Delaware law will enforce a liquidated damages provision in a
contract only where, at the time of contract, actual damages may be difficult to
determine and the stipulated sum is not so grossly disproportionate to the
probable anticipated loss as to be a penalty. Such counsel may also state that
such opinion is subject to reasonable and customary exceptions and is based on
factual assumptions stated therein.
B-3
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Securities
to be
Underwriter Purchased
- ----------- ---------
<S> <C>
First Union Capital Markets Corp............................
Lehman Brothers.............................................
Banc of America Securities LLC..............................
Total.....................................................
-------
</TABLE>
<PAGE>
SCHEDULE II
Title of Securities:
[___%] Capital Securities, Series __
Price to Public:
100% of the liquidation amount of the Securities
Purchase Price to Underwriters:
100% of the liquidation amount of the Securities
Underwriters' Compensation:
As compensation to the Underwriters for their commitments hereunder, and in
view of the fact that the proceeds of the sale of the Securities will be
used by the Trust to purchase the Debentures of the Company, the Company
hereby agrees to pay at the Closing Date to the several Underwriters, an
amount equal to $________ per capital security for the Firm Securities to
be delivered on the Closing Date and any Optional Securities to be
delivered on the Second Closing Date.
Specified funds for payment of purchase price:
Federal (same day) Funds
Closing Location:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
<PAGE>
EXHIBIT 3.1(a)
SOUTHERN STATES COOPERATIVE, INCORPORATED
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
Pursuant to the provisions of Virginia Code Sections 13.1-318 and
13.1-639, Southern States Cooperative, Incorporated, a Virginia
agricultural cooperative corporation (the "Association"), desires to amend
its Articles of Incorporation to the extent and in the manner hereinafter
set forth and states the following in connection therewith:
1. Name of Association. The name of the Association is Southern
-------------------
States Cooperative, Incorporated.
2. Text of Amendment. The Restated Articles of Incorporation of the
-----------------
Association shall be amended by the addition of a new Article C-1.(c) to
the Restated Articles of Incorporation, which amendment shall be in the
form as set forth in Exhibit A attached hereto (the "Amendment").
3. Adoption by Board of Directors. The Amendment was duly adopted by
------------------------------
the Board of Directors of the Association on September 28, 1999. No action
on the Amendment by the shareholders of the Association was required.
4. Effective Date of Amendment. The Amendment shall become effective
---------------------------
on October 1, 1999.
Dated: September 28, 1999
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By: /s/ N. Hopper Ancarrow, Jr.
---------------------------
N. Hopper Ancarrow, Jr.
Vice President and Secretary
<PAGE>
EXHIBIT A
---------
Southern States Cooperative, Inc.
Amendment to Restated Articles of Incorporation
to Create a New Series of Preferred Stock
Designated as
Step-Up Rate Series B Cumulative Redeemable Preferred Stock
_______________________________________________________________
The following shall be inserted as a new subsection (c) to Article C,
Section 1. of the Association's Restated Articles of Incorporation:
(c). Step-Up Rate Series B Cumulative Redeemable Preferred Stock.
1. Designation and Amount; No Fractional Shares. The series of
--------------------------------------------
preferred stock shall be designated as the "Step-Up Rate Series B Cumulative
Redeemable Preferred Stock" (the "Series B Preferred Stock"). The Series B
Preferred Stock shall be perpetual and the authorized number of shares of Series
B Preferred Stock shall be 40,000 shares. The Series B Preferred Stock is
issuable in whole shares only.
2. Dividends. (A) (i) Holders of shares of Series B Preferred Stock
---------
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds of the Association legally available for payment, cumulative cash
dividends at the initial rate of 7.5% per annum per share on the liquidation
preference of $1000 per share; such initial rate to be increased to 8.0% per
annum per share effective 9 months after the date of the initial issuance of the
Series B Preferred Shares; and to 8.25% per annum 21 months after the date of
the initial issuance of the Series B Preferred Shares. Dividends on the Series B
Preferred Stock shall be payable quarterly, in arrears, on January 5, April 5,
July 5, and October 5 of each year, commencing January 5, 2000 (each a "Dividend
Payment Date"). If any date on which dividends would otherwise be payable shall
be or be declared a national or New York State holiday, or if banking
institutions in the State
<PAGE>
of New York shall be closed because of a banking moratorium or otherwise on such
date, then the Dividend Payment Date shall be the next succeeding day on which
such banks shall be open. Dividends on shares of the Series B Preferred Stock
shall be fully cumulative and shall accumulate (whether or not earned or
declared), on a daily basis, without interest, from the previous Dividend
Payment Date, except that the first dividend shall accrue, without interest,
from the date of initial issuance of the Series B Preferred Stock. Accumulated
and unpaid dividends shall not bear interest. Dividends shall be payable, in
arrears, to holders of record as they appear on the stock transfer records of
the Association on each record date, which shall be the 15th day immediately
preceding each such Dividend Payment Date (each of which dates being a "Dividend
Payment Record Date"). Dividends payable on the Series B Preferred Stock for any
full quarterly period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months and, for any period shorter than a full
quarter, on the basis of the actual number of days elapsed in such a 90-day
quarter. For example, the period from October 5 to but excluding January 5 will
be considered a full quarterly period. Dividends shall cease to accrue on the
Series B Preferred Stock on the date of their earlier redemption pursuant to
Section 6, unless the Association shall default in providing funds for the
payment of the redemption price on the shares called for redemption pursuant
thereto.
(ii) If, prior to 18 months after the date of the
original issuance of the Series B Preferred Stock, one or more amendments to the
Internal Revenue Code of 1986, as amended (the "Code"), are enacted that reduce
the percentage of the dividends-received deduction (currently 70%) as specified
in section 243(a)(1) of the Code or any successor provision (the "Dividends-
Received Percentage"), the amount of each dividend payable (if declared) per
share of Series B Preferred Stock for dividend payments made on or after the
<PAGE>
effective date of such change in the Code will be adjusted by multiplying the
amount of the dividend payable described above (before adjustment) by the
following fraction (the "DRD Formula"), and rounding the result to the nearest
cent (with one-half cent rounded up):
1-.35(1-.70)
------------
1-.35(1-DRP)
(iii) For the purposes of the DRD Formula, "DRP" means
the Dividends-Received Percentage (expressed as a decimal) applicable to the
dividend in question; provided, however, that if the Dividends-Received
Percentage applicable to the dividend in question shall be less than 50%, then
the DRP shall equal .50. Notwithstanding the foregoing provisions, if, with
respect to any such amendment, the Association received either an unqualified
opinion of independent tax counsel selected by the Association or a private
letter ruling or similar form of authorization from the Internal Revenue Service
("IRS") to the effect that such amendment does not apply to a dividend payable
on the Series B Preferred Stock, then such amendment will not result in the
adjustment provided for pursuant to the DRD Formula with respect to such
dividend. Such opinion shall be based upon the legislation amending or
establishing the DRP or upon a published pronouncement of the IRS addressing
such legislation.
(iv) If any such amendment to the Code is enacted after
the dividend payable on a Dividend Payment Date has been declared, the amount of
the dividend payable on such Dividend Payment Date will not be increased;
instead, additional dividends (the "Post Declaration Date Dividends") equal to
the excess, if any, of (x) the product of the dividend paid by the Association
on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD
Formula would be equal to the greater of the Dividend Received Percentage
applicable to the dividend in question and .50) over (y) the dividend paid by
the Association on
<PAGE>
such Dividend Payment Date, will be payable (if declared) to holders of Series B
Preferred Stock on the Dividend Payment Record Date applicable to the next
succeeding Dividend Payment Date or, if the Series B Preferred Stock is called
for redemption prior to such Dividend Payment Record Date, to holders of Series
B Preferred Stock on the applicable redemption date, as the case may be, in
addition to any other amounts payable on such date. Notwithstanding the
foregoing provisions, if with respect to any such amendment, the Association
receives either an unqualified opinion of independent tax counsel selected by
the Association or a private letter ruling or similar form of authorization from
the IRS to the effect that such amendment does not apply to a dividend so
payable on the Series B Preferred Stock, then such amendment will not result in
the payment of Post Declaration Date Dividends. The opinion referenced in the
previous sentence shall be based upon the legislation amending or establishing
the DRP or upon a published pronouncement of the IRS addressing such
legislation.
(v) If any such amendment to the Code is enacted and
the reduction in the Dividends-Received Percentage retroactively applies to a
Dividend Payment Date as to which the Association previously paid dividends on
the Series B Preferred Stock (each, an "Affected Dividend Payment Date"), the
Association will pay (if declared) additional dividends (the "Retroactive
Dividends") to holders of Series B Preferred Stock on the Dividend Payment
Record Date applicable to the next succeeding Dividend Payment Date (or, if such
amendment is enacted after the dividend payable on such Dividend Payment Date
has been declared, to holders of Series B Preferred Stock on the Dividend
Payment Record Date following the date of enactment), or, if the Series B
Preferred Stock is called for redemption prior to such Dividend Payment Record
Date, to holders of Series B Preferred Stock on the applicable redemption date,
as the case may be, in an aggregate amount equal to the excess of (x) the
product of the dividend paid by the
<PAGE>
Association on each Affected Dividend Payment Date and the DRD Formula (where
the DRP used in the DRD Formula would be equal to the greater of the Dividends-
Received Percentage and .50 applied to each Affected Dividend Payment Date over
(y) the sum of the dividend paid by the Association on each Affected Dividend
Payment Date. The Association will only make one payment of Retroactive
Dividends for any such amendment. Notwithstanding the foregoing provisions, if,
with respect to any such amendment, the Association receives either an
unqualified opinion of independent tax counsel selected by the Association or a
private letter ruling or similar form of authorization from the IRS to the
effect that such amendment does not apply to a dividend payable on an Affected
Dividend Payment Date for the Series B Preferred Stock, then such amendment will
not result in the payment of Retroactive Dividends with respect to such Affected
Dividend Payment Date. The opinion referenced in the previous sentence shall be
based upon the legislation amending or establishing the DRP or upon a published
pronouncement of the IRS addressing such legislation.
(vi) Notwithstanding the foregoing, no adjustment in
the dividends payable by the Association shall be made and no Post Declaration
Date Dividends or Retroactive Dividends shall be payable by the Association in
respect of the enactment of any amendment to the Code 18 months or more after
the date of original issuance of the Series B Preferred Stock to which the
reduced Dividends-Received Percentage applies.
(vii) In the event that the amount of dividends payable
per share of the Series B Preferred Stock is adjusted pursuant to the DRD
Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to
be paid, the Association will give notice of each such adjustment and, if
applicable, any Post Declaration Date Dividends and Retroactive Dividends to the
holders of Series B Preferred Stock.
<PAGE>
(B) No dividends may be declared or paid or set apart for payment
on any Parity Preferred Stock (as defined in Section 8 below), unless there
shall also be or have been declared and paid or set apart for payment on the
Series B Preferred Stock dividends for all dividend payment periods of the
Series B Preferred Stock ending on or before the dividend payment date of such
Parity Preferred Stock, ratably in proportion to the respective amounts of
dividends (x) accumulated and unpaid on such Parity Preferred Stock, on the one
hand, and (y) accumulated and unpaid through the dividend payment period or
periods of the Series B Preferred Stock next preceding such dividend payment
date, on the other hand.
(C) Except as set forth in the preceding sentence or as provided
in the immediately following paragraph, unless full cumulative dividends on the
Series B Preferred Stock have been paid through the most recently completed
quarterly dividend period of the Series B Preferred Stock,(i) no dividends may
be paid or declared and set aside for payment or other distribution made with
respect to the common stock or on any other stock or patrons' equity of the
Association ranking junior to or on a parity with the Series B Preferred Stock
as to dividends, nor (ii) may any common stock or any other stock of the
Association ranking junior to or on a parity with the Series B Preferred Stock
as to dividends, or any outstanding patrons' equity (whether in the form of
patronage refund allocations or otherwise), be redeemed, purchased or otherwise
acquired for any consideration by the Association or any payment be made to or
available for a sinking fund for the redemption of any shares of such stock or
patrons' equity; provided, however, that any moneys deposited before the
prohibition in this sentence against such a deposit takes effect in any sinking
fund with respect to any preferred stock of the Association in compliance with
the provisions of such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the terms of such sinking
fund, regardless
<PAGE>
of whether at the time of such application full cumulative dividends upon shares
of the Series B Preferred Stock outstanding to the last Dividend Payment Date
shall have been paid or declared and set apart for payment; provided further
that any such junior or parity stock or common stock may be converted into or
exchanged for stock of the Association ranking junior to the Series B Preferred
Stock as to dividends and upon liquidation; and provided further that the
limitations of this paragraph (C) shall not operate to prohibit the repurchase
of common stock held by a member, upon the death or dissolution of such member
or otherwise because such member has ceased to be eligible for membership in the
Association, if the Board of Directors of the Association approves such
repurchase or redemption pursuant to a policy of assuring that the Association
operates as a cooperative in compliance with Subchapter T of the Code.
(D) Notwithstanding the foregoing paragraph, the Association shall
be permitted to declare and pay or set apart for payment patronage dividends or
refunds, subject to the limitation that, whenever the terms described in the
foregoing paragraph would operate to restrict dividends, not more than 40% of
such aggregate patronage dividends or refunds for any fiscal year (exclusive of
patronage dividends or refunds not individually exceeding $25.00 paid solely in
cash under the Company's policy governing the all-cash payment of de minimis
patronage dividends or refunds, as such policy shall exist from time to time)
shall be in cash, with the remainder to be paid in the form of common stock or
patronage refund allocations or other non-cash consideration as permitted by
Subchapter T of the Code.
(E) Any dividend payment made on the Series B Preferred Stock
shall first be credited against the earliest accumulated but unpaid dividend due
with respect to such shares which remains payable.
<PAGE>
3. Liquidation Preference. The shares of Series B Preferred Stock shall
----------------------
rank, upon the liquidation, dissolution or winding up of the Association, prior
to the shares of common stock and any other stock or patrons' equity of the
Association ranking junior to the Series B Preferred Stock as to rights upon
liquidation, dissolution or winding up of the Association, so that in the event
of any liquidation, dissolution or winding up of the Association, whether
voluntary or involuntary, the holders of the Series B Preferred Stock shall be
entitled to receive out of the assets of the Association available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of shares of common stock or any
other such junior stock or patrons' equity or to members of the Association, an
amount equal to $1000 per share plus an amount equal to all dividends (whether
or not earned or declared) accumulated and unpaid on the shares of Series B
Preferred Stock to the date of final distribution. The holders of the Series B
Preferred Stock shall not be entitled to receive the preferential amounts as
aforesaid until the liquidation preference of any other stock of the Association
issued with the affirmative vote of the holders of at least a majority of the
shares of such Series B Preferred Stock and ranking senior to the Series B
Preferred Stock as to rights upon liquidation, dissolution or winding up shall
have been paid (or a sum set aside therefor sufficient to provide for payment)
in full. After payment to the holders of the Series B Preferred Stock of the
full amount of the preferential amounts as aforesaid, the holders of shares of
Series B Preferred Stock will not be entitled to any further participation in
any distribution of assets by the Association. If, upon any liquidation,
dissolution or winding up of the Association, the assets of the Association, or
proceeds thereof, distributable among the holders of shares of Parity Preferred
Stock and Series B Preferred Stock shall be insufficient to pay in full the
preferential amounts payable thereon, then such assets, or the proceeds thereof,
shall be distributable among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all
<PAGE>
amounts payable thereon were paid in full. For the purposes of the preceding
sentence, neither a consolidation nor merger of the Association with or into any
other corporation, nor a merger of any other corporation with or into the
Association, nor a sale, lease, exchange or transfer of all or substantially all
of the Association's assets shall, without further action by the Association, be
considered a liquidation, dissolution or winding up of the Association.
4. Conversion. The Series B Preferred Stock is not convertible into, or
----------
exchangeable for, other securities or property.
5. Voting Rights. The Series B Preferred Stock, except as provided
-------------
herein or as otherwise from time to time required by law, shall have no voting
rights.
So long as any shares of any Series B Preferred Stock remain
outstanding, the Association shall not, without the affirmative vote of the
holders of at least a majority of the shares of such Series B Preferred Stock
(i) authorize, create or issue any capital stock of the Association ranking, as
to dividends or upon liquidation, dissolution or winding up, prior to such
Series B Preferred Stock, or reclassify any authorized capital stock of the
Association into any such shares of such capital stock or issue any obligation
or security convertible into or evidencing the right to purchase any such shares
of capital stock, or (ii) amend, alter or repeal, whether by merger,
consolidation or otherwise, the articles of amendment creating this Series B
Preferred Stock or the Restated Articles of Incorporation of the Association so
as to adversely affect the powers, preferences or special rights of such Series
B Preferred Stock. Any increase in the amount of authorized common stock or
other authorized preferred stock, or any increase or decrease in the number of
shares of any series of preferred stock other than the Series B Preferred Stock
or the authorization, creation and issuance of other classes or series of common
stock or other stock, in each case ranking on a parity with or junior to the
shares of Series B Preferred
<PAGE>
Stock with respect to the payment of dividends and the distribution of assets
upon liquidation, dissolution or winding up, shall not be deemed to adversely
affect such powers, preferences or special rights.
The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required or upon which the holders of Series B Preferred Stock shall be entitled
to vote shall be effected, all outstanding shares of Series B Preferred Stock
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption as provided in Section 6
hereof.
6. Redemption.
----------
(A) The shares of Series B Preferred Stock shall not be redeemable
prior to January 1, 2010. On and after such date, the Association, at its
option, may redeem shares of the Series B Preferred Stock as a whole or in part,
at any time or from time to time, at a redemption price equal to $1000 per
share, plus, in each case, an amount equal to all dividends (whether or not
earned or declared) accumulated and unpaid to, but excluding, the date fixed for
redemption.
(B) The holders of shares of Series B Preferred Stock at the close
of business on a Dividend Payment Record Date shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding (1) the call for redemption thereof (except that holders of
shares having a redemption date occurring between such Record Date and the
Dividend Payment Date shall not be entitled to receive such dividend on such
Dividend Payment Date) or (2) the Association's default in payment of the
dividend due on such Dividend Payment Date.
(C) If fewer than all the outstanding shares of Series B Preferred
Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors
<PAGE>
and the shares to be redeemed shall be selected by lot or shall be pro rata as
determined by the Board of Directors in its sole discretion.
(D) If full cumulative dividends on the Series B Preferred Stock
have not been paid or set apart for payment with respect of all prior dividend
periods, the Series B Preferred Stock may not be redeemed in part and the
Association may not purchase or acquire any shares of the Series B Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Series B Preferred Stock.
(E) In the event the Association shall redeem shares of Series B
Preferred Stock, written notice of such redemption shall be given by first class
mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior
to the redemption date, to each holder of record of the shares to be redeemed at
such holder's address as the same appears on the stock books of the Association;
provided, however, that no failure to give the notice of redemption as required
by this subparagraph 6(E) nor any defect therein shall affect the validity of
the proceeding for the redemption of any shares of Series B Preferred Stock to
be redeemed except as to the holder to whom the Association has failed to mail
said notice or except as to the holder whose notice was defective. Each such
notice shall state: (a) the redemption date; (b) the number of shares of Series
B Preferred Stock to be redeemed and, if less than all the shares held by such
holder are to be redeemed from such holder, the number of shares to be redeemed
from such holder; (c) the redemption price and any accumulated and unpaid
dividends to the redemption date; (d) the place or places where certificates for
such shares are to be surrendered for payment of the redemption price; and (e)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date (unless the Association shall default in providing funds for the
payment of the
<PAGE>
redemption price of the shares called for redemption at the time and place
specified in such notice).
(F) If a notice of redemption has been given pursuant to this
Section 6 and if, on or before the date fixed for redemption, the funds
necessary for such redemption shall have been set aside by the Association,
separate and apart from its other funds, in trust for the pro rata benefit of
the holders of the shares of Series B Preferred Stock so called for redemption,
then, notwithstanding that any certificates for such shares have not been
surrendered for cancellation, on the redemption date dividends shall cease to
accrue on the shares to be redeemed, and at the close of business on the
redemption date the holders of such shares shall cease to be stockholders with
respect to such shares and shall have no interest in or claims against the
Association by virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive the moneys payable upon
surrender (and endorsement, if required by the Association) of their
certificates (including through the Depository Trust Company or other securities
depository, if applicable), and the shares evidenced thereby shall no longer be
outstanding. The Association's obligation to provide funds for the payment of
the redemption price (and any accumulated and unpaid dividends to the redemption
date) of the shares called for redemption shall be deemed fulfilled if, on or
before a redemption date, the Association shall deposit, with a bank or trust
company, or an affiliate of a bank or trust company, having an office or agency
in New York City and having a capital and surplus of at least $500,000,000, such
funds sufficient to pay the redemption price (and any accumulated and unpaid
dividends to the redemption date) of the shares called for redemption, in trust
for the account of the holders of the shares to be redeemed (and so as to be and
continue to be available therefor), with irrevocable instructions and authority
<PAGE>
to such bank or trust company that such funds be delivered upon redemption of
the shares of Series B Preferred Stock so called for redemption.
(G) Subject to applicable escheat laws, any moneys so set aside by
the Association and unclaimed at the end of two years from the redemption date
shall revert to the general funds of the Association, after which reversion the
holders of such shares so called for redemption shall look only to the general
funds of the Association for the payment of the amounts payable upon such
redemption. Any interest accrued on funds so deposited shall be paid to the
Association from time to time.
(H) Shares of Series B Preferred Stock that have been issued and
reacquired in any manner, including shares purchased or redeemed, shall (upon
compliance with any applicable provisions of the laws of the Commonwealth of
Virginia) have the status of authorized and unissued shares of the class of
Preferred Stock undesignated as to series and may be redesignated and reissued
as part of any series of the preferred stock except Series B Preferred Stock.
7. Amendment of Resolution. The Board shall have the right from time to
-----------------------
time to amend this resolution within the limitations provided by law, subject in
all cases to the limitations and restrictions of Section 5 above.
8. Rank. Any stock of any class or classes or series of the Association
----
shall be deemed to rank:
(a) prior to shares of the Series B Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if the
holders of stock of such class or classes or series shall be entitled by the
terms thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of the Series B Preferred Stock;
<PAGE>
(b) on a parity with shares of the Series B Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up, or both,
whether or not the dividend rates, dividend payment dates, or redemption or
liquidation prices per share thereof be different from those of the Series B
Preferred Stock, if the holders of stock of such class or classes or series
shall be entitled by the terms thereof to the receipt of dividends or of amounts
distributed upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices, without
preference or priority of one over the other as between the holders of such
stock and the holders of shares of Series B Preferred Stock (the term "Parity
Preferred Stock" being used to refer to any stock ranking on a parity with the
shares of Series B Preferred Stock, either as to dividends or upon liquidation,
dissolution or winding up, or both, as the context may require, so that, for
example, a particular stock may be Parity Preferred Stock when dealing with
dividends but may not be a Parity Preferred Stock when dealing with liquidation,
dissolution or winding up of the Association); and
(c) junior to shares of the Series B Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or both, if such class
or classes shall be common stock or if the holders of the Series B Preferred
Stock shall be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of stock of such class or classes.
The Series B Preferred Stock shall rank, as to dividends and upon
liquidation, dissolution or winding up, on a parity with the Association's 5%
Series Cumulative Preferred Stock and the Association's 6% Series Cumulative
Preferred Stock, and senior to the Association's common stock and any patrons'
equity of the Association.
<PAGE>
9. Restrictions on Transfer.
------------------------
(A) The shares of Series B Preferred Stock have not been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and, until the earlier of two years (or such shorter period as is prescribed by
paragraph (k) of Rule 144 under the Securities Act as then in effect) after the
issuance of such shares or the registration of the shares, may not be offered or
sold except (i) to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) in reliance upon the exemption from the registration
requirements of the Securities Act provided by Rule 144A, or (ii) in other
transactions exempt from the registration requirements of the Securities Act.
(B) Until the earlier of two years (or such shorter period as is
prescribed by paragraph (k) of Rule 144 under the Securities Act as then in
effect) after the issuance of such shares or the registration of the share under
the Securities Act, the Series B Preferred Stock may not be sold or otherwise
transferred in an amount that is less than $100,000 in aggregate liquidation
preference. Any such transfer of Series B Preferred Stock in an amount less than
$100,000 in aggregate liquidation preference shall be deemed to be void and of
no legal effect whatsoever. Any such transferee shall be deemed not to be the
holder of such Series B Preferred Stock for any purpose, including, but not
limited to, the receipt of dividends on such Series B Preferred Stock, and such
transferee shall be deemed to have no interest whatsoever in such Series B
Preferred Stock.
(C) Until the earlier of two years (or such shorter period as is
prescribed by paragraph (k) of Rule 144 under the Securities Act as then in
effect) after the issuance of such shares or the time when the shares of Series
B Preferred Stock are registered under the Securities
<PAGE>
Act, all certificates representing such Series B Preferred Stock will bear a
legend referring to the restrictions described above.
<PAGE>
EXHIBIT 3.2
(March 29, 1999)
THE BYLAWS OF
SOUTHERN STATES COOPERATIVE, INCORPORATED
ARTICLE I - PURPOSES AND POWERS
The purposes for which this Association is formed are set forth in the
Articles of Incorporation.
ARTICLE II - MEMBERSHIP
Section 1. Eligibility. Bona fide producers of agricultural products
(including tenants and landlords receiving a share of the crop) and cooperative
associations owned and controlled by bona fide producers of agricultural
products which comply with the provisions of the Agricultural Marketing Act, [12
USCA Section 1141j(a)] may become members of the Association by complying with
the membership requirements.
Section 2. Membership Requirements. Any person or association eligible for
membership, upon the acquisition of one (1) or more shares of the common capital
stock of the Association shall be deemed a lawful member entitled to vote.
Section 3. Voting. Each member shall be entitled to one (1) and only one
(1) vote regardless of the number of shares or amount of the common capital
stock of the Association owned by such member.
Section 4. Dismissal of Members. The Board of Directors shall have the
right to dismiss any member or members who have been adjudged by the Board of
Directors to have violated any of the membership requirements as provided in
these Bylaws; or to be acting contrary to the aims and purposes, or the best
interests of the Association, or has failed to patronize the Association for a
period of three (3) years or longer, provided, however, that any such member or
members shall have an opportunity to appear in his or their own behalf before
the next regular or special meeting of the membership, whose decision in all
such matters shall be final. The Board of Directors shall repurchase at par
value, plus any accrued and unpaid dividends, the common capital stock of any
member or members dismissed hereunder within a reasonable time after such
dismissal.
Section 5. Subsequent Ineligibility. In the event any member shall cease
to be eligible to hold membership in the Association, such member may be
required to surrender said common stock at par value, plus any declared and
unpaid dividends.
<PAGE>
Section 6. Death of Members. The Board of Directors may repurchase at par
value, plus any declared and unpaid dividends, the common capital stock of any
deceased member. Should the Association not desire to repurchase such stock of a
deceased member it may be sold or transferred to any other person eligible for
membership in the Association as set forth in Section 1 of this Article. An
association of producers shall be deemed deceased when it is no longer eligible
for membership in the Association.
Section 7. Roll. A roll of the members and their addresses shall be kept
by the Association. Each member shall notify the Association of any change of
address within fifteen (15) days of any such change. The Board of Directors may
suspend the voting rights of any member who fails to give such notice of any
change of address and withhold dividends on any membership stock registered in
such member's name and notice of any membership meetings until his new address
can be ascertained and his eligibility to continue his membership in this
Association can be determined.
Section 8. Annual Meetings. The annual meeting of the members of this
Association shall be held at such time and place in the State of Virginia or in
any other State as may be allowed by law, as the Board of Directors may
determine.
Section 9. Special Meetings. Special meetings of the members may be held
at any place within the State of Virginia or in any other State as may be
allowed by law, at any time upon the call of the Board of Directors, or at least
ten percent (10%) of the members of the Association.
Section 10. Notice of Meetings. Written or printed notice of all meetings
of the members, annual or special, setting forth the time and place together
with a statement of purposes thereof and containing any other information that
may be required by law, shall be mailed to each member eligible to vote at his
address as the same appears on the records of the Association not less than
fifteen (15) days prior to the date of such meeting. In lieu of notice given in
any other manner, all or any meetings of members, annual or special, may, if the
Board of Directors so directs as to any or all such meetings, be held after
notice by publication in a periodical published by or for the Association which
substantially all the members of the Association receive, or in a newspaper or
newspapers, whose combined circulation is general in the territory in which the
Association operates.
Section 11. Quorum at Meetings for All Members. A quorum at any meeting of
the members (except local membership meetings which shall be governed by Section
3 of Articles IV and V and Section 4 of Article VI) shall consist of fifty (50)
members, represented in person, or by proxy. A majority of such quorum shall
decide any question that may come before the meeting, except as otherwise
provided by law, the Articles of Incorporation, or these Bylaws.
2
<PAGE>
Section 12. Quorum at Election District Meetings. A quorum at any Election
District Meeting shall consist of ten (10) delegates or alternates present in
person. A majority of such quorum shall decide any question that may come before
the meeting.
Section 13. Proxy Voting. Absent members may vote at all meetings of the
members by proxy in writing.
Section 14. Order of Business. The order of business at the annual meetings
and, as far as possible, at all other meetings of the members shall be
determined by the Board of Directors.
Section 15. Voting by Mail. The Board of Directors may, if it deems it
necessary or desirable, submit amendments to the Bylaws or other matters to the
members for their determination by mail ballot. Printed copies of proposed Bylaw
amendments or other questions so submitted and an appropriate mail ballot shall
be mailed to each and every member eligible to vote at his address as the same
appears on the records of the Association, not less than fifteen (15) days prior
to the date when said ballots must be returned by mail in order to be counted.
ARTICLE III - CAPITAL STOCK
Section 1. Certificates. Certificates of stock may be issued and shall be
signed by either the President and Chairman of the Board of Directors, Vice
President and Vice Chairman of the Board of Directors, Treasurer, or Assistant
Treasurer, and the Secretary or Assistant Secretary or any two (2) officers
authorized by the Board of Directors, under the corporate seal, and on the
record of each certificate shall be entered the name of the person owning the
shares, represented thereby, the number of such shares and the date of issue.
Facsimile signatures of such officers and a facsimile of the seal of the
Association may be used. The Board of Directors may elect to adopt the
provisions of the Virginia Code permitting shares to be issued without
certificates.
Section 2. Payment for Stock. (a) Except as may be limited by the Articles
of Incorporation, preferred capital stock may be issued for not less than its
par value for cash, or in exchange for real, personal or other property at
valuations determined by the Board of Directors and may be issued and held by
any person, firm or corporation.
(b) Common capital stock, including fractional shares, may be issued for
not less than its par value for cash, or in payment of patronage refunds as
provided in the Bylaws, or for the promissory notes of the members. The
Association shall hold the common capital stock as security for the payment of
said notes, but such retention shall not affect the members' right to vote. In
the event any such notes be not paid at maturity, the Board of Directors may
return to the member the amount paid by him and cancel his membership. The said
common capital
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stock shall be issued to and held by only such persons as are eligible for
membership in the Association.
Section 3. Repurchase of Common Capital Stock. (a) Whenever any member
desires to sell his common capital stock he shall first offer it to the
Association for purchase by the Association, or by a person or persons
designated by the Board of Directors of the Association, at its par value plus
declared and unpaid dividends, if any. In the event such stock is not purchased
by the Association, or by a person or persons designated as aforesaid, within
thirty (30) days after the receipt of a written notice by the Association
offering the said stock for sale, then the member may sell the said common
capital stock to any person eligible for membership in the Association. This
restriction on the transfer of common capital stock shall be printed upon every
common stock certificate, or in the disclosure statement issued in lieu of a
certificate.
(b) If the Board of Directors decides to repurchase such common capital
stock, the Association shall have the right to apply any sum or sums of money
for which the member may be indebted to the Association on the payment therefor.
This section shall also govern the repurchase of the common capital stock in
case of the death, dismissal, expulsion, or withdrawal of any member or members.
Section 4. Transfers. Transfers of shares shall be made only on the
records of the Association by the holder in person or under power of attorney
duly executed, witnessed and filed with the Association, and upon surrender of
any outstanding certificates of such shares. Transfers will be made only when
the stockholder is not delinquent in his indebtedness to the Association.
Transfers of the common capital stock shall be made only after the requirements
of Article III, Section 3, of these Bylaws have been satisfied.
Section 5. Dividends. The Board of Directors may declare dividends on
common capital stock not to exceed six percent (6%) per annum and on the
preferred capital stock of the Association at a rate per annum to be fixed by
the Board of Directors not to exceed the maximum rate permitted by law, together
with any dividends in arrears on shares of preferred capital stock.
ARTICLE IV - PRIVATE DEALERS AND ADVISORY BOARDS
Section 1. Establishment of Private Dealers. Distribution of supplies and
services may be provided through Private Dealers that agree to resell the
Association's products and services to members of the Association and others.
Each Private Dealer must agree to operate in a manner that reflects the
cooperative nature of transactions in the Association's goods with Members and
Patrons entitled to patronage refunds under Article XII of these Bylaws. Unless
otherwise agreed, Members and Patrons entitled to patronage refunds under
Article XII who acquire goods and services offered by the Association through
such Private Dealers shall be
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deemed patrons of the Association for patronage refund purposes with respect to
such goods and services.
Nothing herein shall prevent the establishment of distribution through
other types of non-cooperative outlets when deemed beneficial to the overall
economic well being of the Association.
Section 2. Establishment and Election of Advisory Boards. Where in the
judgment of Management factors such as, among others, the number of members
served by a Private Dealer and the volume of transactions in the Association's
goods and services handled by a Private Dealer justify the creation of a local
Advisory Board to serve as a liaison between the members patronizing one (1) or
more of such Private Dealers, the local members shall elect, from their own
number, at their local annual meeting, an Advisory Board. Each Advisory Board
shall consist of six (6) members whose terms of office shall be three (3) years.
A member of an Advisory Board shall only be eligible to be elected to succeed
himself for one (1) additional term before going off the Advisory Board for at
least one (1) year. All vacancies on the Advisory Board shall be filled by the
remaining members of the said Advisory Board, subject to confirmation by the
local members of the Association served by the Private Dealer at their next
local annual meeting. The Advisory Board shall elect a Chairman, a Vice
Chairman, and a Secretary for terms of one (1) year.
Section 3. Quorum. At all local meetings of the members as provided for in
this Article a quorum shall consist of ten (10) members then having voting
power. A majority of such quorum shall decide any question that may come before
the meeting. At all meetings of the Advisory Board a majority of the Advisory
Board shall constitute a quorum. A majority of such quorum shall decide any
questions that may come before the meeting.
Section 4. Cancellation of Private Dealer Agreement. In the event of the
cancellation of such Private Dealer Agreement, the Advisory Board for such
Private Dealer shall continue in office until a new Private Dealer shall be
appointed. In the event it shall not prove practical or feasible to so appoint
another Private Dealer, such Advisory Board shall be deemed to have resigned as
Advisory Board members and the members of the Association served by such Private
Dealer shall be invited to participate in membership activities of the nearest
retail distribution point serving members of the Association.
ARTICLE V - STOCKHOLDER ADVISORY BOARDS
Section 1. Election of Stockholder Advisory Board. The local members of
the Association, served by a retail service of the Association, shall elect from
their own number a Stockholder Advisory Board at their local annual meeting.
Each Stockholder Advisory Board shall consist of six (6) members, whose terms of
office shall be for three (3) years. The terms of office shall be so arranged
that the terms of two (2) members shall expire each year. A member of an
Advisory Board shall only be eligible to be elected to succeed himself for one
(1)
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additional term before going off the Advisory Board for at least one (1) year.
All vacancies on the Stockholder Advisory Board shall be filled by the remaining
members of said Advisory Board, subject to confirmation by the local members of
the Association served by the retail service at their next local annual meeting.
The Stockholder Advisory Board shall elect a Chairman, Vice Chairman and a
Secretary for terms of one (1) year. Management shall determine which retail
locations shall be grouped together as a retail service having a Stockholder
Advisory Board; and where two (2) or more Stockholder Advisory Boards are
grouped together to form one (1) Advisory Board, management may provide for such
combined Advisory Board to have more than six (6) members in situations where it
is deemed necessary to do so to adequately represent Members. Nothing herein
shall prevent the establishment of a retail service without a Stockholder
Advisory Board where circumstances warrant that decision. But the Members at
such a retail service shall be provided an opportunity to participate in nearby
local membership activities designated by Management.
Section 2. Duties of Stockholder Advisory Board. Each Stockholder Advisory
Board shall serve in an advisory capacity with respect to operation of the
retail service it serves and shall make recommendations to the Board of
Directors of the Association on matters referred to the Advisory Board by the
Directors and may make recommendations to the Directors on policies affecting
the retail service.
Section 3. Quorum. At all local meetings of the members as provided for in
this Article a quorum shall consist of ten (10) members then having voting
power. A majority of such quorum shall decide any questions that may come before
the meeting. At all meetings of the Stockholder Advisory Board a majority of the
Advisory Board shall constitute a quorum. The majority of such quorum shall
decide any questions that may come before the meeting.
ARTICLE VI - MARKETING
(A)
GRAIN MARKETING
Section 1A. Grain Producers Advisory Board Election. The Grain Producers
Advisory Board shall consist of as many eligible members elected by the
membership in each region for terms of three (3) years each as may, from time to
time, be established by the Board of Directors. If more than one (1) member
represents a region, the terms shall be staggered. The Advisory Board shall also
have one (1) at-large member as provided in Section 2A of this Article. Each
member of the Advisory Board shall serve until the election and acceptance of
his duly qualified successor. Vacancies, other than from the expiration of a
term of office, shall be filled from the region in which the vacancy occurs, by
a majority vote of the remaining Advisory Board members. The Board of Directors
shall divide the territory served by Grain Marketing into at least four (4)
geographic regions so that as far as practical, each area of such territory
shall be represented on the Grain Producers Advisory Board. Changes in the
number
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and boundaries of these regions may be made by the Board from time to time as
circumstances require.
Elections for members of the Grain Producers Advisory Board shall be held
in accordance with procedures not inconsistent with these Bylaws. The chairmen
of the Elevator Advisory Boards in each region shall each appoint a nominating
committee consisting of one (1) member from their respective Elevator Advisory
Board and two (2) grain producer members from the area served by such Elevator.
These nominating committees shall nominate at least two (2) members from the
region for each position on the Grain Producers Advisory Board to be filled. In
the event there shall be more than one (1) Elevator Advisory Board in a region,
there shall be a nominee from the area served by each Elevator.
Grain producer members who have failed to use the grain marketing services
of the Association within the three (3) fiscal years immediately preceding any
election held under this Article, shall be ineligible to vote in such election.
The nominee in each region receiving the highest number of votes from the
region shall be deemed elected to the Grain Producers Advisory Board. The term
of office shall begin on December 1 in the year of election and shall end on
December 1 three (3) years thereafter, or until the election and acceptance of a
duly qualified successor, whichever is later, unless duly terminated at an
earlier date. In the event of a tie, the winner shall be determined by lot.
The mailing address of each grain producer member shall determine the
region in which the member shall vote. Members of the Grain Producers Advisory
Board may succeed themselves.
The Grain Producers Advisory Board shall elect a Chairman, Vice Chairman,
and a Secretary for terms of one (1) year.
Section 2A. The At-Large Grain Producers Advisory Board Member. In addition
to the elected members of the Grain Producers Advisory Board, one (1) at-large
Member shall be appointed by the Board of Directors for a term of three (3)
years, or until his successor is appointed. The at-large Member shall have the
same powers and rights as other members of the Advisory Board. Any vacancy
occurring in the office of at-large Advisory Board Member shall be filled in the
same manner as the original appointment was made.
Section 3A. Duties of the Grain Producers Advisory Board. The Grain
Producers Advisory Board shall serve in an advisory capacity to the Board of
Directors with respect to the operation of the Grain Marketing Division, and
shall make recommendations to the Board of Directors of the Association on
matters referred to the Grain Producers Advisory Board by the Board of Directors
and may make recommendations to the Board on policies affecting Grain Marketing
operations.
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Section 4A. Quorum. At all local membership meetings of Grain Marketing
members as provided for in this Article, a quorum shall consist of ten (10)
grain producer members then having voting power. A majority of such quorum shall
decide any question that may come before the meeting. At all meetings of the
Grain Producers Advisory Board or Elevator Advisory Boards, a majority of the
Grain Producers Advisory Board or Elevator Advisory Boards shall constitute a
quorum. A majority of such quorum shall decide any questions that may come
before the meeting.
Section 5A. Elevator Advisory Boards. The Board of Directors shall
establish the duties, method of selection, terms of office and the number of
Advisory Boards established in the various regions in which Grain Marketing has
patrons. It shall be the purpose of these Advisory Boards to serve as the
community liaison between the Grain Producers Advisory Board and communities
where Grain Marketing operations are substantial enough to warrant the creation
of such a local Advisory Board. It shall be an express responsibility of the
Grain Producers Advisory Board to make recommendations to the Board of Directors
with regard to the specific responsibilities of the Board of Directors under
this section.
(B)
LIVESTOCK MARKETING
Section 1B. Livestock Divisional Board Election. The Livestock Divisional
Board shall consist of as many eligible members in each region for terms of
three (3) years each as may, from time to time, be established by the Board of
Directors. If more than one (1) member represents a region, the terms shall be
staggered. The Livestock Divisional Board shall also have one (1) at-large
member as provided in Section 2B of this Article. The initial Livestock
Divisional Board shall be appointed by the Board of Directors and shall
thereafter be self perpetuating with all vacancies, whether from the expiration
of term of office or otherwise, to be filled by a majority vote of the remaining
Livestock Divisional Board from eligible members from the region in which the
vacancy occurs. Each member of the Livestock Divisional Board shall serve until
the appointment and acceptance of his duly qualified successor. The Board of
Directors shall divide the territory served by the Livestock Marketing Division
into at least four (4) geographic regions so that as far as practical, each area
of such territory shall be represented on the Livestock Divisional Board.
Changes in the number and boundaries of these regions may be made from time to
time as circumstances require.
The Livestock Divisional Board shall elect a Chairman, Vice Chairman, and a
Secretary for terms of one (1) year.
Section 2B. The At-Large Livestock Divisional Board Member. In addition to
the appointed members of the Livestock Divisional Board, one (1) at-large Member
shall be appointed by the Board of Directors for a term of three (3) years, or
until his successor is appointed. The at-large Member shall have the same powers
and rights as other members of the Livestock Divisional Board. Any vacancy
occurring in the office of at-large Livestock
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Divisional Board member shall be filled in the same manner as the original
appointment was made.
Section 3B. Duties of the Livestock Divisional Board. The Livestock
Divisional Board shall serve in an advisory capacity to the Board of Directors
with respect to the operation of the Livestock Marketing Division, and shall
make recommendations to the Board of Directors on matters referred to the
Livestock Divisional Board, and may make recommendations to the Board of
Directors on policies affecting Livestock Marketing Division operations.
ARTICLE VII - ELECTION DISTRICTS
The Board of Directors shall divide the territory in which the Association
operates into nine (9) or more Election Districts on the basis of the annual
volume of business done with the Association, with proper consideration being
given to the member patronage and geographical area of each. The Board of
Directors may modify and redistrict the territory whenever advisable in order to
maintain substantial equality in the volume of business done in the different
districts.
ARTICLE VIII - DIRECTORS
Section 1. Powers. The business of the Association shall be managed under
the direction of the Board of Directors.
Section 2. Number of Directors. The Board of Directors shall consist of
one (1) Director elected from the membership in each Election District and up to
a maximum of six (6) Public Directors residing within the operating territory of
the Association.
Section 3. Term of Office. Directors representing Election Districts and
Public Directors shall serve a term of three (3) years and thereafter until
their successors are elected or appointed.
Section 4. Election District Meetings. Each Election District shall be
represented by one (1) Director who shall be elected at an Election District
Meeting of the delegates from the respective districts. Delegates shall be
elected by the members served by the Association through its retail distribution
system, its grain elevators, its livestock marketing system, and its member
cooperatives in each Election District. The number of delegates and the
procedure for selecting them shall be determined from time to time in a manner
that provides all members in good standing an opportunity to vote for at least
one (1) delegate to such Election District Meeting. Such delegates shall be
elected by the members of the Association and the member
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retail cooperatives. In addition to a delegate or delegates, an alternate or
alternates shall also be elected by such members to serve in the event the
delegate or delegates shall be unable or unwilling to serve. The time and place
of an Election District Meeting in each Election District shall be determined by
the Board of Directors of the Association and at least ten (10) days' written
notice of the time and place of said meeting shall be mailed by the Secretary of
the Election District to each delegate elected in each Election District. If any
delegate shall be unable or unwilling to attend such Election District Meeting,
his alternate shall serve in his place. A quorum at such meeting shall consist
of the lessor of (i) 50% of the eligible delegates, or alternates, present in
person or (ii) ten (10) delegates or alternates in person. All matters,
including the election of a Director, shall be decided by majority vote of the
delegates or alternates present. Proxy voting shall not be permitted in such
Election District Meetings. The nominating committee selected under Section 5 by
the delegates shall choose a Chairman and Secretary to serve until the
adjournment of the next Election District Meeting. Vacancies in those offices
shall be filled in the same manner. Complete records of the Election District
proceedings shall be recorded by the Secretary of the Election District. The due
election of the Director by the Election District Meeting shall be final.
Section 4A. Initial Election of Directors Representing the Gold Kist
Territory. Notwithstanding anything to the contrary in these Bylaws, the members
served by the Association as a result of the acquisition of the inputs business
assets (the "Inputs Business") of Gold Kist Inc. ("Gold Kist") pursuant to an
Asset Purchase Agreement dated July 23, 1998, shall be initially represented on
the Board of Directors by six (6) additional Directors from such new members
residing in the states of Georgia, Florida, South Carolina, Alabama,
Mississippi, Tennessee, Louisiana, Texas, and Arkansas (the "Gold Kist Operating
Territory") who shall be elected for staggered terms (two serving for one year,
two for two years, and two for three years, in each case such period to be
measured from the date of the next annual meeting of members of the Association
following the closing date of the purchase of the Gold Kist Inputs Business) by
the Gold Kist Board of Directors sitting as delegates to a Special Election
district Meeting convened for such election. Such Special Election District
Meeting shall be held as promptly as practicable following the closing date of
the purchase of the Gold Kist Inputs Business. For the purposes of this Section
4A, the Election District shall be defined as the Gold Kist operating territory.
Subsequent representation on the Board of Directors for the Gold Kist operating
territory commencing at the November 1999 annual meeting of the members of the
Association shall be from new Election Districts to be equitably established by
the Board of Directors pursuant to Article VII of these Bylaws.
Section 5. Nominating Committee. The delegates to an Election District
Meeting may elect for the next Election District Meeting a nominating committee
consisting of not less than three (3) nor more than five (5) members, who shall
either be members of the Association or members of a retail member cooperative
whose duty it shall be, prior to such next Election District Meeting, to
nominate one (1) or more persons to serve as Director and to advise delegates in
the district prior to such Election District Meeting the names and
qualifications of such nominees. In the event any member of a nominating
committee shall be unable or unwilling to serve, the remaining members, so long
as they shall not be less than three (3) in
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number, shall have full power to act. In the event the members of the nominating
committee remaining shall be less than three (3), the additional members
necessary to bring the total to three (3) shall be selected by the member or
members able and willing to serve.
Section 6. Eligibility. Only members of the Association residing in the
Election District or members of a retail member cooperative residing in such
district shall be eligible to serve on the Board of Directors of the
Association. Provided, however, that for the purpose of determining eligibility
for election to the Board of Directors, a member who does not reside in any
Election District, but does reside in the Association's trading area, as
determined by the Board of Directors, in a state contiguous to an Election
District, shall be eligible for election to the Board of Directors in such
Election District. No private dealer, or person having a financial interest in
such dealer, or employee of such dealer, or any person who is or has been an
employee of the Association, or any association affiliated with the Association,
at any time during the ten (10) year period immediately prior to the Election
District Meeting at which such person stands for election, shall be eligible for
nomination for, or service on, the Board of Directors of the Association; nor
shall any such person be eligible to be a delegate to, or to vote in, any
Election District Meeting.
Section 7. Vacancies. Any vacancy, other than from the expiration of a
term of office, in the office of elected director shall be filled for the
unexpired term by the delegates last elected in the election district which the
director represented, at a special Election District Meeting called by the Board
of Directors of the Association. Wide discretion shall be vested in the Board of
Directors in the matter of calling a special Election District Meeting when such
vacancy shall occur within the year in which a regular Election District Meeting
is scheduled to be called in such district.
Section 8. Public Director. Public Directors shall be appointed each for a
term of three (3) years, on a staggered basis, by the Director of the State
Agricultural Extension Service of the Commonwealth of Virginia. In the case of
any vacancy in the office of Public Director such vacancy shall be filled by the
person named by the public official mentioned herein. In the event of any delay
in the appointment of a Public Director, the incumbent shall hold office until
the new appointment is made. In the event the addition or deletion of a Public
Director is made necessary, the term of any appointment may be adjusted in order
to provide for the expiration of about one-third (1/3) of the terms of all
Public Directors each year.
Section 9. Compensation. Subject to applicable law and amendments thereof
from time to time, compensation and expense reimbursement policies in respect to
Directors shall be established periodically by the Board of Directors.
Section 10. Meetings. Regular meetings of the Board of Directors shall be
held at least once each quarter at such time and place as may be determined by
the Board of Directors. Special meetings of the Board of Directors shall be held
upon call of the President and Chairman of the Board of Directors or upon
written request of a majority of the Directors.
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Section 11. Notice of Meetings. Notice of both regular and special meetings
shall be mailed by the Secretary to each member of the board at his last known
post office address not less than five (5) days before any such meeting, and
notice of special meetings shall state the purpose thereof.
Section 12. Quorum. A majority of the Board of Directors shall constitute a
quorum at any meeting.
ARTICLE IX - EXECUTIVE COMMITTEE
Section 1. Election. The Board of Directors may elect from their own
number an Executive Committee of not less than three (3) members. A majority of
the members of the Committee shall constitute a quorum for the transaction of
any business that may come before any meeting thereof and a majority of the
members of the Committee present shall decide any question that may come before
such meeting. Two (2) days oral or written notice shall be given before each
meeting.
Section 2. Powers and Duties. The Executive Committee shall have such
powers and duties as may, from time to time, be prescribed by the Board of
Directors and as may be consistent with law. Minutes of all meetings of the
Executive Committee shall be kept by the Secretary and submitted to the Board of
Directors.
ARTICLE X - OFFICERS AND AGENTS
Section 1. Election of Officers. The officers of the Association shall be
a President and Chairman of the Board of Directors, a Vice President and Vice
Chairman of the Board of Directors, a President and Chief Executive Officer, a
Secretary, a Treasurer, and such other officers as may from time to time be
elected or appointed by the Board of Directors, all of whom shall be elected for
one (1) year terms and shall hold office until their successors are elected and
qualified. The President and Chairman of the Board of Directors and the Vice
President and Vice Chairman of the Board of Directors shall be elected by the
Board of Directors from their own number. The President and Chief Executive
Officer, Secretary and Treasurer and other officers as may be elected or
appointed shall be elected or appointed by the Board of Directors, but need not
be Directors or members of the Association.
Section 2. President and Chairman of the Board of Directors. The President
and Chairman of the Board of Directors shall preside at all meetings, shall have
general supervision of the affairs of the Association, sign all certificates of
stock and may sign and countersign all contracts and other instruments of the
Association; shall make reports to the Board of Directors and members, and
perform all such other duties as are incident to this office or are properly
required of this officer by the Board of Directors.
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Section 3. Vice President and Vice Chairman of the Board of Directors. The
Vice President and Vice Chairman of the Board of Directors shall exercise all
functions of the President and Chairman of the Board of Directors in the absence
or disability of the latter, and such officer may with the Secretary or any
Assistant Secretary sign certificates of stock.
Section 4. The President and Chief Executive Officer. The President and
Chief Executive Officer shall carry out the policies of the Association
established from time to time by the Board of Directors and shall be the General
Manager of its operations, including all purchasing, marketing, manufacturing,
processing, distribution, and service activities required to effectuate the
Association's purposes as outlined in its Articles of Incorporation and the
policies of the Board of Directors enacted in furtherance thereof. The President
and Chief Executive Officer shall have authority to sign checks, drafts, notes,
and all other orders for the payment of money and to sign the corporate name to
all deeds, contracts, leases, and other documents of every nature and
description. Such officer may delegate the authority vested in this office, or
any portion of it, to subordinate agents and employees.
Section 5. Subordinate Agents and Employees. Subject to the policies
established by the Board of Directors, the President and Chief Executive Officer
shall have the authority to employ, fix the compensation of, supervise, and
terminate the employment of all agents and employees of the Association except
as otherwise provided. If the President and Chief Executive Officer deems it to
be in the best interests of the Association, such officer may, from time to
time, confer upon such subordinate agents of the Association such operational
titles and designations (including those of Vice President with appropriate
indication of such agents' areas of operation) as the President and Chief
Executive Officer may determine, provided that any title or designation so
conferred shall not constitute such agent an officer of the Association.
Section 6. Secretary. The Secretary shall issue notices for all meetings,
of the Board of Directors and members, except Election District Meetings, shall
keep the minutes of the meetings of the Directors, Executive Committee, and the
Annual and Special Meetings of all the members, shall have charge of the seal
and corporate books, shall sign with the President and Chairman of the Board of
Directors, such instruments as require such signature and may sign certificates
of stock. The Secretary shall make such reports and perform such other duties as
are incident to this office or properly required of the Secretary by the Board
of Directors or the President and Chief Executive Officer. The Secretary may
delegate the performance of any of his or her duties to one (1) or more
Assistant Secretaries.
Section 7. Treasurer. The Treasurer shall have the custody of all the
funds and securities of the Association, and shall deposit the same in the name
of the Association in such bank or banks as the Directors may select. The
Treasurer shall have authority to sign all checks, drafts, notes, and orders for
the payment of money and to sign the corporate name to deeds, contracts, and
leases and other documents of every nature and description. The Treasurer shall
at all reasonable times exhibit his or her books and accounts to any Director
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upon application at the office of the Association during business hours. He or
she shall give bond with sufficient surety in such amounts as the Board of
Directors may require, the premium for which shall be paid by the Association.
The Treasurer may delegate the performance of any of his or her official duties
to one (1) or more Assistant Treasurers, provided they give bond with surety
approved by the President and Chief Executive Officer.
Section 8. Removal. Any officer may be removed at any time by the Board of
Directors.
ARTICLE XI
PATRONAGE REFUND ALLOCATIONS AND SIMILAR INTERESTS
The Board of Directors may elect to satisfy any patronage refund wholly or
partially in Patronage Refund Allocations or any other non-cash form which shall
be paid in such manner and on such terms and conditions as may be approved by
the Board of Directors from time to time not inconsistent with these Bylaws. The
following terms and conditions shall apply to Patronage Refund Allocations:
(a) All debts of the Association shall be entitled to priority over all
Patronage Refund Allocations.
(b) Retirement of Patronage Refund Allocations and similar interests shall
take place pro rata in the order of issuance when the Board of Directors
determines there are funds available for that purpose.
(c) The Association shall have a right to apply such Patronage Refund
Allocations to any indebtedness owed to the Association by the holder thereof
after maturity and shall be deemed to have a lien thereon as security for such
indebtedness.
(d) In order to contribute to the liquidity of estates of owners of
Patronage Refund Allocations, the Board of Directors may establish a policy of
redeeming such Patronage Refund Allocations upon the owner's death.
The Board of Directors is not prohibited from adding such additional terms
and conditions as may be deemed appropriate.
ARTICLE XII- DISPOSITION OF NET EARNINGS
Section 1. (a) As used in this Article, the term "Member" shall be deemed
to include any person, firm, or corporation owning at least one (1) share of the
common stock of the
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Association; the term "Patron" shall include (i) any person, firm, or
corporation which is eligible for membership in the Association but is not a
Member of the Association, and (ii) any person, firm, or corporation, which is
not a Member of the Association, with whom the Association has in effect an
Agreement in writing pursuant to which it has agreed to pay patronage refunds to
such person on the basis of the quantity or value of the Association's business
done with or for such person during the fiscal year.
(b) The Board of Directors may set aside each fiscal year, from the net
earnings, such amounts as the Board of Directors in its discretion deems
necessary for the efficient prosecution of the Association's business, provided,
however, that no amounts shall be so set aside which are not reasonable in
amount, giving due regard to the purposes thereof (such amounts being sometimes
hereinafter referred to as "reasonable reserves"). Such reasonable reserves may
be used for such proper corporate purposes as shall be determined by the Board
of Directors, including, but not limited to the accumulation of working capital,
contributions to sinking funds to meet future indebtedness, payment of federal
income taxes, acquisition of funds for expansion or replacement, payment of
dividends on capital stock or accumulations of reserves to offset price
declines. Such unallocated reserves shall either be apportioned on the books of
the Association on a patronage basis to Members and Patrons who were or became
such during the fiscal year, or else the books and records of the Association
shall afford a means for doing so at any time.
Section 2. (a) This Association shall be operated upon the cooperative
basis in carrying out its business within the scope of the objects and purposes
defined in Article B of the Articles of Incorporation. It shall be operated in
such manner as to qualify this Association as a farmers cooperative association
as defined in the Agricultural Marketing Act [12 USCA, Section 1141j(a)], and
the Capper-Volstead Act [7 USCA, Section 291]. The Association shall annually
determine its net earnings (loss), including the appropriate portions thereof
constituting net earnings for patronage refunds, and with respect to such net
earnings, it shall then allocate and distribute patronage refunds to its Members
and Patrons determined on the basis of their patronage with the Association
during such year. The Association shall be absolutely liable for the payment of
patronage refunds as provided herein without further action on the part of any
officer or of the Board of Directors. The Association shall pay such patronage
refunds as soon as practicable after the close of the fiscal year and in no
event later than eight and one-half (8 1/2) months after the close thereof. Each
transaction between this Association and each Member and Patron shall be subject
to and include as a part of its terms, whether or not the same shall be
expressly referred to in said transaction, the provisions of this Article XII.
(b) The Association's overall net earnings (loss) shall first be
determined using generally accepted accounting principles. The overall net
amount thereof applicable to the Association's marketing, supply and/or service
operating functions, including their respective allocation units, shall then be
increased or decreased, as the case may be, in accordance with the applicable
rules and regulations for computing income taxes in order to determine the
overall net earnings (loss) of the Association.
15
<PAGE>
(c) From the amount of total net earnings so determined, there shall then
be transferred to and credited to reserves created under 1 (b) of this Article
such net amounts of extraneous income and/or expense which are unrelated to the
marketing, purchasing and/or service operations carried on by the Association
for its Members and Patrons on a cooperative basis.
(d) The Association's remaining net earnings (loss) shall then be divided
into two (2) parts on the basis of the quantity or value of business done by the
Association with or for persons acquiring supplies or services from, or
marketing products through the Association. These parts shall consist of (i) a
non-patronage-sourced portion determined on the basis of the quantity or value
of business done with or for persons who are not eligible to receive patronage
refunds from the Association, and (ii) a remaining patronage-sourced portion
attributable to the quantity or value of business done with or for Members
and/or Patrons who are eligible to receive patronage refunds from the
Association. These parts shall then be handled or adjusted as follows.
(e) The non-patronage-sourced portion of net earnings (loss) as defined in
2 (d) (i) above, shall be retained and credited to the Association's reserves or
deficit as the case may be. The patronage-sourced portion of an overall net
loss, as defined in 2 (d) (ii) above shall be retained and handled in accordance
with Section 4.
(f) There shall then be deducted and recouped, from the patronage-sourced
amount of net earnings still remaining, in accordance with 4 (a) below, the
accumulated amount of patronage-sourced losses from prior year(s) then
remaining, but only to the extent such prior year(s)' loss(es) have not
otherwise been disposed of by the Board of Directors. The amount to be deducted
hereunder shall be further limited to an amount which does not exceed the lesser
of (i) the current year's patronage-sourced net earnings amount before such
deduction, or (ii) the amount of any available, patronage sourced net operating
loss carry-overs or carry-forwards from the current or prior year(s).
(g) Any remaining patronage-sourced, net earnings shall be further reduced
(but not below zero) by the ratably-determined portion of dividends on stock
paid or payable for the fiscal year. The amount of this reduction shall not
exceed the lesser of (i) the amount by which current or accumulated earnings and
profits of the Association would be reduced (but not below zero) by reason of
payment or accrual of such dividends or (ii) the current year(s)' patronage-
sourced, remaining net earnings to which this adjustment applies.
(h) Any remaining patronage-sourced net earnings shall be further reduced
(but not below zero) by any additional appropriations to the reserves created
under 1 (b) from patronage-sourced net earnings.
(i) Any amount then remaining, shall constitute the net earnings of the
Association from which Member(s) and Patron(s) patronage refunds shall be paid,
and such amount shall be apportioned among the Member(s) and Patron(s) of the
allocation units on any equitable
16
<PAGE>
patronage basis(es) approved by the Board of Directors, and the amount so
determined, shall be paid as patronage refunds in the form of qualified or of
non-qualified written notices of allocation, provided, however, that a payment
by a qualified, written notice of allocation shall be accompanied by not less
than twenty percent (20%) of the stated dollar amount thereof in cash with the
balance in such form as may be determined by the Board of Directors not
inconsistent with other provisions of these Bylaws.
(j) If the net earnings in any allocation unit is insufficient to pay a
patronage refund of at least one-half of one percent (1/2 of 1%) of the total
dollar volume of business with Members and Patrons for each fiscal year in a
purchasing allocation unit, or the Livestock Marketing Allocation Unit, or one-
half (1/2) cent per bushel in Grain Marketing, then such net earnings, in the
discretion of the Board of Directors, may be carried by the Association in the
reserve established under 1 (b) of this Article.
Section 3. Patronage refunds may be distributed in cash, credits,
Patronage Refund Allocations, revolving fund certificates, capital equity
certificates, preferred or common stock, certificates of indebtedness, letters
of advice, or any combination thereof designated by the Board of Directors and
in accordance with these Bylaws. By entering into a business transaction with
this Association, the Members and Patrons agree to accept a distribution of the
patronage refund under these Bylaws, in such form or forms as are hereinabove
provided in this Section, in satisfaction of the obligation of this Association
to make the patronage refund; and the Members and Patrons shall be deemed to
have received the amount of such patronage refund and reinvested the same in
whatever non-cash allocation or allocations may be established pursuant to this
provision. The books and records of this Association shall show the interest of
each Member and Patron which shall be credited on this Association's books to
the respective Member and/or Patron.
Section 4. The Board of Directors of this Association shall have complete
discretion to determine the handling and ultimate disposition of the
Association's loss(es) and the form, priority and manner in which such loss(es)
or portion(s) thereof shall be taken into account, retained, and ultimately
recouped. The Board may retain loss(es) of the Association and subsequently (a)
recoup and dispose of them by offset against the net earnings of the Association
of subsequent year(s), or (b) may apply such loss(es) to prior year(s)'
patronage allocations at any time in order to recoup and dispose of them by
means of offset and cancellation against Member(s) and Patron(s)' allocations or
book credits; or the Board of Directors may select and use any other method of
disposition as the Board of Directors, in its sole discretion, shall from time
to time determine.
Section 5. In the discretion of the Board of Directors, no patronage
refund or dividend on capital stock shall be paid to any Member or Patron who is
indebted to the Association until such debt has been paid, or the said patronage
refund or dividend may be offset against such Member's or Patron's indebtedness,
and the balance, if any, remitted to such Member or Patron. The Association
shall be deemed to have a security interest in such patronage refund to secure
such indebtedness. The Board of Directors may require that the first dollar of
any cash patronage refund to any Patron who is not a Member, but who is
qualified for
17
<PAGE>
membership in the Association, shall be applied to the purchase of one (1) share
of the Association's membership capital stock.
Section 6. Notwithstanding any contrary provisions in these Bylaws, the
Board of Directors shall fix and/or amend from time to time the minimum amount
which shall be paid as a patronage refund and any amount less than that so fixed
shall not be distributed to the Member or Patron entitled thereto (unless he
claims it in cash) but shall be retained by the Association as though it were
part of a reasonable reserve set aside pursuant to Section 1 (b) of this
Article.
Section 7. Each person who hereafter applies for and is accepted to
membership in this Association shall, by such act alone, consent that the amount
of any distributions with respect to his patronage which are made in written
notices of allocation (as defined in 26 U.S.C. (S)1388) and which are received
by him from the Association, will be taken into account by him at their stated
dollar amounts in the manner provided in 26 U.S.C. (S)1385(a) in the taxable
year in which such written notices of allocation are received by him, provided,
however, that this consent will not extend to written notices of allocation
clearly denominated on their face to be "nonqualified."
ARTICLE XIII - DISSOLUTION
In the event of any liquidation or dissolution or winding up (whether
voluntary or involuntary) of the Association, then, after the payment of its
debts, including all outstanding debentures, the holders of the outstanding
Preferred Stock shall have a preference on the assets of the Association, and
shall be entitled to be paid therefrom in full both the par value of their
shares and the unpaid dividends accrued thereon before any amount shall be paid
to the holders of the Common Stock. After the holders of the Preferred Stock
shall have been paid par value for their Preferred Stock, plus all accrued and
unpaid cumulative dividends thereon, the holders of Common Stock shall be
entitled to be paid the par value of such stock, plus declared and unpaid
dividends thereon. After said Common Stock has received its par value, plus
declared and unpaid dividends thereon, any balance in or unused portion of
Patronage Refund Allocations, capital book equities, or other allocations, and
capital reserves shall be returned to members and other patrons on a pro rata
basis of their respective interest therein.
Any assets and funds then remaining shall be distributed to the patrons of
the Association on the basis of the ratio the patronage of each patron bears to
the total patronage of the Association during the period of its operation. As
used in this Article, patronage refers to business done with or through the
Association on a cooperative basis.
ARTICLE XIV - AUDITING
18
<PAGE>
At least once each year, the Board of Directors shall secure the services
of a certified public accountant, who shall make a proper audit of the records
and accounts of the Association and render a comprehensive report in writing
thereof, which report shall be submitted to and considered by the Board of
Directors in executive session. Special audits shall be made upon order of the
Board of Directors or upon a majority vote of the members at any regular or
special meeting.
ARTICLE XV - MISCELLANEOUS
Section 1. Fiscal Year. The Fiscal Year of the Association shall begin on
July 1 of each year and shall end on the 30th day of June of the following year.
Section 2. Seal. The seal of the Association shall consist of two (2)
concentric circles between which shall be written the name of the Association
and in the center of which shall be the word, "Seal."
Section 3. Limitation of Liability and Indemnification of Directors and
Others. The Association shall indemnify any person who was or is a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative by reason of the fact
that he is or was a director, officer, or employee of the Association, or is or
was serving at the request of the Association as a director, officer, or
employee of another corporation, partnership, joint venture, trust or other
enterprise, or as a "fiduciary" (as defined by Section 3[21](A) of the Employee
Retirement Income Security Act of 1974, and as the same shall be from time to
time amended, called the "act") with regard to any "employee benefit plan" (as
defined in Section 3(3) of the Act), in which employees of the Association, or
any subsidiary, affiliate, or managed cooperative are participants because of
such employment.
The indemnification shall be against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding to the full
extent permitted under Title 13.1 of the Code of Virginia, as the same may be
amended from time to time, and under any other controlling statutes or
regulations whether Federal or State. Such indemnification shall be in addition
to, and not in limitation of, any other indemnity required by law or agreement.
If in order to be entitled to indemnity an affirmative determination must
be made that the indemnitee has met some standard of conduct under applicable
law, indemnification to which the indemnitee is entitled shall be made promptly
upon the determination by independent legal counsel in a written opinion, which
counsel shall be acceptable to indemnitee and a disinterested quorum of the
Board of Directors, or, at the option of the indemnitee, shall be selected by
the Chief Judge of the U.S. District Court for the Eastern District of Virginia.
19
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Section 4. Service Charges. A service charge may be assessed on any checks
issued in payment of dividends on capital stock, interest on debentures,
redemptions of capital stock, debentures or patronage refund allocations, and
patronage refunds paid wholly in cash that are not presented for payment within
120 days of the date of issuance (the "stale date"). The service charge will be
assessed at the stale date and annually on the anniversary date of the check
issuance date. The amount of the service charge will approximate the cost of
special handling and maintaining the account on the Association's records. This
charge will be determined by and reviewed periodically by management. Mailings
other than checks related to patron equities that are returned unclaimed may
initiate annual service charge assessments on accounts that are not otherwise
being assessed service charges. The Association shall through appropriate means
endeavor to communicate with members and patrons to advise them of this Bylaw
and the rules and regulations established hereunder.
Section 5. Forfeiture and Insufficient Mailing Addresses. In addition to
the service charges provided for in Section 4. above, any check issued as
described in Section 4. that is not presented for payment within 120 days of the
date of issuance because of the payee's failure to maintain a proper mailing
address will result in a cessation of future mailings related to such payee's
equity account. On the third anniversary of the check issuance date, if no
correct mailing address for the payee has been located or provided, the payee's
entire account balance shall be forfeited to the Association. The amounts
forfeited will include, but not be limited to, common stock, accumulated
dividends on common stock, patronage refund allocations (even if not yet called
by the Board for revolvement), capital book equities or any similar credit
reflected on the records of the Association. These forfeiture rules do not apply
to debentures or preferred stock.
ARTICLE XVI - AMENDMENTS
These Bylaws may be amended, altered, repealed, added to, or revised by a
majority vote of the Board of Directors, or by the vote of two-thirds (2/3) of
the members voting thereon at any regular or special meeting of the members, or
by the written assent of two-thirds (2/3) of the members voting thereon by mail
ballot, provided that written notice of the proposed Bylaw amendments or
revisions shall have been delivered to each member or mailed to his last known
address as shown by the records of the Association, at least fifteen (15) days
prior to such meeting or the date on which the mail ballots must be returned to
be counted. Any modification of the Bylaws made by the Board of Directors shall
be reported at the next Annual Meeting of the Association and may be repealed or
changed by the members in any manner authorized by applicable law.
20
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF TRUST
OF
SOUTHERN STATES CAPITAL TRUST II
This Certificate of Trust is being duly executed and filed on behalf
of the business trust formed hereby by the undersigned, being the sole initial
trustee of the Trust, to form a business trust pursuant to the Delaware Business
Trust Act (12 Del. C.(S)(S) 3801 et seq.).
1. Name. The name of the business trust formed hereby is "Southern
----
States Capital Trust II."
2. Delaware Trustee. The name and business address of the trustee
----------------
of the Trust with a principal place of business in the State of Delaware is
First Union Trust Company, National Association, One Rodney Square, 920 King
Street, 1/st/ Floor, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration
3. Effective Date. This Certificate of Trust shall become
--------------
effective as of December 1, 1999.
IN WITNESS WHEREOF, the undersigned, as sole initial trustee, has
executed this Certificate of Trust as of this 1st day of December, 1999.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION
as Delaware Trustee
By: /s/ Edward L. Truitt,
-----------------------------
Name: Edward L. Truitt, Jr.
Title: Vice President
<PAGE>
EXHIBIT 4.2
TRUST AGREEMENT
---------------
TRUST AGREEMENT, dated as of December 1, 1999 (this "Trust
Agreement"), among Southern States Cooperative, Incorporated, an agricultural
cooperative corporation organized under the laws of Virginia, as depositor (the
"Depositor"), and First Union Trust Company, National Association, as trustee
(the "Delaware Trustee").
The Depositor and the Delaware Trustee hereby agree as follows:
Section 1. The Trust. The trust created hereby shall be known as
---------
SOUTHERN STATES CAPITAL TRUST II (the "Trust"), in which name the Delaware
Trustee or the Depositor, to the extent provided herein, may conduct the
business of the Trust, make and execute contracts, and sue and be sued.
Section 2. The Trust Estate. The Depositor hereby assigns,
----------------
transfers, conveys and sets over to the Trust the sum of $10. The Delaware
Trustee hereby acknowledges receipt of such amount in trust from the Depositor,
which amount shall constitute the initial trust estate. It is the intention of
the parties hereto that the Trust created hereby constitute a business trust
under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. (S) 3801 et seq.
(the "Business Trust Act") and that this document constitute the governing
instrument of the Trust. The Delaware Trustee is hereby authorized and directed
to execute and file a certificate of trust with the Secretary of State of the
State of Delaware in accordance with the provisions of the Business Trust Act.
Section 3. Amended and Restated Trust Agreement. The Depositor, the
------------------------------------
Delaware Trustee and certain other parties will enter into an Amended and
Restated Trust Agreement, satisfactory to each such party, to provide for the
contemplated operation of the Trust created hereby and the issuance of the
Capital Securities (as defined below) and the Common Securities (as defined
below) of the Trust. Prior to the execution and delivery of such Amended and
Restated Trust Agreement, the Delaware Trustee shall not have any duty or
obligation hereunder or with respect to the trust estate, except as otherwise
required by applicable law or as may be necessary to obtain, prior to such
execution and delivery, licenses, consents or approvals required by applicable
law or otherwise.
Section 4. Certain Authorizations. In connection with the issuance
----------------------
and sale of the Trust Securities (as defined below) and the purchase of the
Debentures (as
<PAGE>
defined below), the Depositor and the Delaware Trustee hereby authorize and
direct the Depositor, acting on its own behalf and on behalf of the Trust, and
the Depositor shall have the exclusive power and authority to cause the Trust
to:
(i) to enter into an Underwriting Agreement in such form as approved
by the Depositor among the Depositor, each of the underwriters
listed on Schedule A thereto (the "Underwriters") and certain
other parties, pursuant to which the Trust will issue and sell
to the Underwriters certain of its Capital Securities
representing undivided beneficial interests in the assets of the
Trust (the "Capital Securities") having certain preferences over
the common securities (as defined below) as more particularly
described in the Amended and Restated Trust Agreement and such
Capital Securities,
(ii) to sell to the Depositor certain of its Common Securities
representing undivided beneficial interests in the assets of the
Trust (the "Common Securities)" being subordinate in certain
respects to the Capital Securities as more particularly
described in the Amended and Restated Trust Agreement and such
Common Securities (the Common Securities and, together with the
Capital Securities, being the "Trust Securities"),
(iii) to purchase with the proceeds from the issuance and sale of the
Trust Securities certain Junior Subordinated Deferrable Interest
Debentures to be issued by the Depositor (the "Debentures"),
(iv) to prepare and file with the Securities and Exchange Commission
a registration statement, in preliminary and final form, with
respect to the issuance and sale of the Capital Securities and
such other filings in connection therewith as may be required by
the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the Trust Indenture Act of 1939, as
amended, and
(v) to execute and be bound by all documents or instruments, perform
all duties and powers, and do all things for and on behalf of
the Trust in all matters necessary or incidental to the
foregoing.
Section 5. Trustees. The number of trustees shall initially be one
--------
and thereafter shall be such number as shall be fixed from time to time by a
written instrument signed by the Depositor, which may increase or decrease the
number of Trustees; provided, however, that to the extent required by the
Business Trust Act, one Trustee shall either be a natural person who is a
resident of the State of Delaware or, if not a natural person, an entity which
has its principal place of business in the State of Delaware and otherwise meets
the requirements of applicable Delaware law. Subject to the foregoing, the
Depositor is entitled to appoint or remove without cause any Trustee at
-2-
<PAGE>
any time. Any Trustee may resign upon 30 days prior notice to the Depositor;
provided, however, that such notice shall not be required if it is waived by the
- -------- -------
Depositor.
Section 6. Limitation Applicable to the Delaware Trust. First Union
-------------------------------------------
Trust Company, National Association, in its capacity as Delaware Trustee, shall
not have any of the powers or duties of the Depositor created hereby, except as
expressly provided in Section 4 hereof or as required by the Business Trust Act
and shall be a Trustee of the Trust for the sole purpose of satisfying the
requirements of Section 3807 of the Business Trust Act.
Section 7. Compensation; Expenses; Indemnity. The Depositor agrees:
---------------------------------
(a) to pay to the Delaware Trustee from time to time such reasonable
compensation for all services rendered by it hereunder as may be agreed by the
Depositor and the Delaware Trustee from time to time (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) to reimburse the Delaware Trustee upon request for all reasonable
expenses, disbursements and advances incurred or made by the Delaware Trustee in
accordance with any provision of this Trust Agreement (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence, bad faith or wilful misconduct; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) the Delaware Trustee (individually and as Delaware Trustee),
(ii) of any affiliate of the Delaware Trustee (individually and as Delaware
Trustee) and (iii) any officer, director, shareholder, employee, representative
or agent of the Delaware Trustee (individually and as Delaware Trustee)
(referred to herein as an "Indemnified Person") from and against any loss,
damage, liability, tax, penalty, expense or claim of any kind or nature
whatsoever incurred by such Indemnified Person by reason of the creation,
operation or termination of the Trust or any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Trust Agreement, except
that no Indemnified Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Person by reason of its own
negligence, bad faith or wilful misconduct with respect to such acts or
omissions.
Section 8. Governing Law. This Trust Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State of Delaware, without
regard for
-3-
<PAGE>
the conflicts of laws provisions thereof; provided, however, that the provisions
of 12 Del. C. (S) 3540 shall not apply to the Trust.
Section 9. Consent to Jurisdiction; Service of Process. Each of the
-------------------------------------------
parties hereto hereby consents to (i) the non-exclusive jurisdiction of courts
of the State of Delaware or any federal court sitting in Wilmington, Delaware
for the purpose of any suit, action or proceeding relating to or arising out of
this Trust Agreement and (ii) service of process in connection therewith by
mail. The foregoing shall not be construed to prevent any party from bringing
any suit, action or proceeding in any other jurisdiction or from serving process
by any other means.
Section 10. Counterparts. This Trust Agreement may be executed in
------------
one or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first written above.
SOUTHERN STATES COOPERATIVE,
INCORPORATED, as Depositor
By: /s/ Jonathan A. Hawkins
------------------------
Name: Jonathan A. Hawkins
Title: Senior Vice President &
Chief Financial Officer
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION,
as Delaware Trustee
By: /s/ Edward L. Truitt
-----------------------
Name: Edward L. Truitt, Jr.
Title: Vice President
5
<PAGE>
EXHIBIT 4.3
================================================================================
AMENDED AND RESTATED TRUST AGREEMENT
among
SOUTHERN STATES COOPERATIVE, INCORPORATED,
as Depositor
FIRST UNION NATIONAL BANK,
as Property Trustee
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
as Delaware Trustee
and
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
_________________________
Dated as of ________, 2000
_________________________
SOUTHERN STATES CAPITAL TRUST II
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Defined Terms
Section 1.1. Definitions...................................................... 2
ARTICLE II
Continuation of the Issuer Trust
Section 2.1. Name............................................................. 11
Section 2.2. Office of the Delaware Trustee; Principal Place of Business...... 11
Section 2.3. Initial Contribution of Trust Property; Organizational Expenses.. 12
Section 2.4. Issuance of the Capital Securities............................... 12
Section 2.5. Issuance of the Common Securities; Subscription
and Purchase of Debentures..................................... 12
Section 2.6. Continuation of Trust............................................ 13
Section 2.7. Authorization to Enter into Certain Transactions................. 13
Section 2.8. Assets of Trust.................................................. 17
Section 2.9. Title to Trust Property.......................................... 17
ARTICLE III
Payment Account
Section 3.1. Payment Account.................................................. 18
ARTICLE IV
Distributions; Redemption
Section 4.1. Distributions.................................................... 18
Section 4.2. Redemption....................................................... 19
Section 4.3. Subordination of Common Securities............................... 21
Section 4.4. Payment Procedures............................................... 22
Section 4.5. Tax Returns and Reports.......................................... 22
Section 4.6. Payment of Taxes, Duties, Etc. of the Issuer Trust............... 23
Section 4.7. Payments under Indenture or Pursuant to Direct Actions........... 23
ARTICLE V
Trust Securities Certificates
Section 5.1. Initial Ownership................................................ 23
Section 5.2. The Trust Securities Certificates................................ 23
Section 5.3. Execution and Delivery of Trust Securities Certificates.......... 24
Section 5.4. Book-Entry Capital Securities.................................... 24
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 5.5. Registration of Transfer and Exchange of
Capital Securities Certificates..................................... 26
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates... 28
Section 5.7. Persons Deemed Holders............................................... 28
Section 5.8. Access to List of Holders' Names and Addresses....................... 29
Section 5.9. Maintenance of Office or Agency...................................... 29
Section 5.10. Appointment of Paying Agents......................................... 29
Section 5.11. Ownership of Common Securities by Depositor.......................... 30
Section 5.12. Notices to Clearing Agency........................................... 30
Section 5.13. Rights of Holders; Waivers of Past Defaults.......................... 30
ARTICLE VI
Acts of Holders; Meetings; Voting
Section 6.1. Limitations on Voting Rights......................................... 32
Section 6.2. Notice of Meetings................................................... 33
Section 6.3. Meetings of Holders of the Capital Securities........................ 34
Section 6.4. Voting Rights........................................................ 34
Section 6.5. Proxies, etc......................................................... 34
Section 6.6. Holder Action by Written Consent..................................... 35
Section 6.7. Record Date for Voting and Other Purposes............................ 35
Section 6.8. Acts of Holders...................................................... 35
Section 6.9. Inspection of Records................................................ 36
ARTICLE VII
Representations and Warranties
Section 7.1. Representations and Warranties of the Property Trustee
and the Delaware Trustee............................................ 36
Section 7.2. Representations and Warranties of Depositor.......................... 38
ARTICLE VIII
The Issuer Trustees
Section 8.1. Certain Duties and Responsibilities.................................. 39
Section 8.2. Certain Notices...................................................... 41
Section 8.3. Certain Rights of Property Trustee................................... 42
Section 8.4. Not Responsible for Recitals or Issuance of Securities............... 44
Section 8.5. May Hold Securities.................................................. 44
Section 8.6. Compensation; Indemnity; Fees........................................ 44
Section 8.7. Corporate Property Trustee Required; Eligibility of Issuer Trustees.. 45
</TABLE>
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<TABLE>
<S> <C>
Section 8.8. Conflicting Interests................................................. 46
Section 8.9. Co-Trustees and Separate Trustee...................................... 46
Section 8.10. Resignation and Removal; Appointment of Successor..................... 48
Section 8.11. Acceptance of Appointment by Successor................................ 49
Section 8.12. Merger, Conversion, Consolidation or Succession to Business........... 50
Section 8.13. Preferential Collection of Claims Against Depositor or Issuer Trust... 50
Section 8.14. Property Trustee May File Proofs of Claim............................. 50
Section 8.15. Reports by Property Trustee........................................... 51
Section 8.16. Reports to the Property Trustee....................................... 52
Section 8.17. Evidence of Compliance with Conditions Precedent...................... 52
Section 8.18. Number of Issuer Trustees............................................. 52
Section 8.19. Delegation of Power................................................... 52
Section 8.20. Appointment of Administrative Trustees................................ 53
ARTICLE IX
Dissolution, Liquidation and Merger
Section 9.1. Dissolution Upon Expiration Date...................................... 53
Section 9.2. Early Dissolution..................................................... 54
Section 9.3. Termination........................................................... 54
Section 9.4. Liquidation........................................................... 54
Section 9.5. Mergers, Consolidations, Amalgamations or
Replacements of Issuer Trust......................................... 56
ARTICLE X
Miscellaneous Provisions
Section 10.1. Limitation of Rights of Holders....................................... 57
Section 10.2. Amendment............................................................. 57
Section 10.3. Separability.......................................................... 58
Section 10.4. Governing Law......................................................... 58
Section 10.5. Payments Due on Non-Business Day...................................... 59
Section 10.6. Successors............................................................ 59
Section 10.7. Headings.............................................................. 59
Section 10.8. Reports, Notices and Demands.......................................... 60
Section 10.9. Agreement Not to Petition............................................. 60
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act................ 61
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee
Agreement and Indenture............................................. 61
Section 10.12. Submission to Jurisdiction; Service of Process........................ 62
Section 10.13. Counterparts.......................................................... 62
</TABLE>
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Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depository Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Capital Securities Certificate
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AMENDED AND RESTATED TRUST AGREEMENT, dated as of _________, 2000, among
(i) SOUTHERN STATES COOPERATIVE, INCORPORATED, an agricultural cooperative
corporation organized under the laws of Virginia (including any successors or
assigns, the "Depositor"), (ii) FIRST UNION NATIONAL BANK, a national banking
association, as property trustee (in such capacity, the "Property Trustee" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "Bank"), (iii) FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national
banking association, as Delaware trustee (in such capacity, the "Delaware
Trustee"), and (iv) LESLIE T. NEWTON, an individual, and JONATHAN A. HAWKINS, an
individual, each of whose address is c/o Southern States Cooperative,
Incorporated, 6606 West Broad Street, Richmond, Virginia 23260 (each an
"Administrative Trustee"), (the Property Trustee, the Delaware Trustee and the
Administrative Trustees being referred to collectively as the "Issuer
Trustees").
Witnesseth
Whereas, the Depositor and the Delaware Trustee have heretofore duly
declared and created a business trust pursuant to the Delaware Business Trust
Act by entering into the Trust Agreement, dated as of December __, 1999 (the
"Original Trust Agreement"), and by the execution and filing by the Delaware
Trustee with the Secretary of State of the State of Delaware of the Certificate
of Trust, filed on December __, 1999, attached as Exhibit A (the "Certificate of
Trust"); and
Whereas, the Depositor and the Issuer Trustees desire to amend and restate
the Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities by the Issuer
Trust to the Depositor, (ii) the issuance and sale of the Capital Securities by
the Issuer Trust pursuant to the Underwriting Agreement, (iii) the acquisition
by the Issuer Trust from the Depositor of all of the right, title and interest
in the Debentures, and (iv) the appointment of the Property Trustee and the
Administrative Trustees;
Now Therefore, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Holders, hereby amends and restates the
Original Trust Agreement in its entirety and agrees as follows:
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ARTICLE I
Defined Terms
Section 1. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(b) All other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation";
(d) All accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles;
(e) Unless the context otherwise requires, any reference to an "Article", a
"Section" or an "Exhibit" refers to an Article, a Section or an Exhibit, as the
case may be, of or to this Trust Agreement; and
(f) The words "hereby", "herein", "hereof" and "hereunder" and other words
of similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 6.8.
"Additional Distributions" means, with respect to Trust Securities of a
given Liquidation Amount and/or a given period, the amount of Additional
Interest (as defined in the Indenture) paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrative Trustee" means each Person appointed in accordance with
Section 8.20 solely in such Person's capacity as Administrative Trustee of the
Issuer Trust heretofore created and continued hereunder and not in such Person's
individual capacity, or any successor Administrative Trustee appointed as herein
provided.
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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Book-Entry Capital Security, the rules and procedures of the
Clearing Agency for such Book-Entry Capital Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises judging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Board of Directors" means the board of directors of the Depositor or the
Executive Committee of the board of directors of the Depositor (or any other
committee of the board of directors of the Depositor performing similar
functions) or a committee designated by the board of directors of the Depositor
(or any such committee), comprised of two or more members of the board of
directors of the Depositor or officers of the Depositor, or both.
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<PAGE>
"Book-Entry Capital Securities Certificate" means a Capital Securities
Certificate evidencing ownership of Book-Entry Capital Securities.
"Book-Entry Capital Security" means a Capital Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 5.4.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in The City of New York are authorized or required
by law or executive order to remain closed, or (c) a day on which the Property
Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture
Trustee is closed for business.
"Capital Security" means an undivided beneficial interest in the assets of
the Issuer Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution to the extent provided herein, and
designated as _____% Capital Securities.
"Capital Securities Certificate" means a certificate evidencing ownership
of Capital Securities, substantially in the form attached as Exhibit E.
"Certificate Depository Agreement" means the agreement among the Issuer
Trust, the Depositor and DTC, as the initial Clearing Agency, dated as of the
Closing Date, substantially in the form attached as Exhibit B, as the same may
be amended and supplemented from time to time.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC
will be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the Time of Delivery, which date is also the date of
execution and delivery of this Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Securities and Exchange Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
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<PAGE>
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit C.
"Common Security" means an undivided beneficial interest in the assets of
the Issuer Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution to the extent provided herein.
"Corporate Trust Office" means (i) when used with respect to the Property
Trustee, the principal office of the Property Trustee located in Richmond,
Virginia, and (ii) when used with respect to the Debenture Trustee, the
principal office of the Debenture Trustee located in Richmond, Virginia.
"Debenture Event of Default" means any "Event of Default" specified in
Section 5.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption of such Debentures
under the Indenture.
"Debenture Trustee" means the Person identified as the "Trustee" in the
Indenture, solely in its capacity as Trustee pursuant to the Indenture and not
in its individual capacity, or its successor in interest in such capacity, or
any successor Trustee appointed as provided in the Indenture.
"Debentures" means the Depositor's _____% Junior Subordinated Deferrable
Interest Debentures, Series A, issued pursuant to the Indenture.
"Definitive Capital Securities Certificates" means either or both (as the
context requires) of (i) Capital Securities Certificates issued as Book-Entry
Capital Securities Certificates as provided in Section 5.2 or 5.4, and (ii)
Capital Securities Certificates issued in certificated, fully registered form as
provided in Section 5.2, 5.4 or 5.5.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code (S) 3801 et seq., or any successor statute thereto, in each
case as amended from time to time.
"Delaware Trustee" means the Person identified as the "Delaware Trustee" in
the preamble to this Trust Agreement, solely in its capacity as Delaware Trustee
of the Issuer Trust heretofore created and continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor Delaware trustee appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.1(a).
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<PAGE>
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4.1.
"DTC" means The Depository Trust Company.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (whatever the
reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(c) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in this Trust Agreement
(other than those specified in clause (b) or (c) above) and continuation of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Issuer Trustees and to the
Depositor by the Holders of at least 25% in aggregate Liquidation Amount of
the Outstanding Capital Securities a written notice specifying such default
or breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee if a successor Property Trustee has not been appointed within 90
days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, and any successor
statute thereto, in each case as amended from time to time.
"Expense Agreement" means the Agreement as to Expenses and Liabilities,
dated as of the Closing Date, between Southern States Cooperative, Incorporated
and the Issuer Trust, substantially in the form attached as Exhibit D, as
amended from time to time.
"Expiration Date" has the meaning specified in Section 9.1.
"FUTC" means First Union Trust Company, National Association, a national
banking association.
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<PAGE>
"Guarantee Agreement" means the Guarantee Agreement executed and delivered
by the Depositor and First Union National Bank, as guarantee trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Capital Securities, as amended from time to
time.
"Holder" means a Person in whose name a Trust Security or Trust Securities
are registered in the Securities Register; any such Person shall be a beneficial
owner within the meaning of the Delaware Business Trust Act.
"Indenture" means the Junior Subordinated Indenture, dated as of _________,
2000, between the Depositor and the Debenture Trustee, as trustee, as amended or
supplemented from time to time.
"Investment Company Act" means the Investment Company Act of 1940, or any
successor statute thereto, in each case as amended from time to time.
"Issuer Trust" means the Delaware business trust known as "Southern States
Capital Trust II", which was created on December 1, 1999, under the Delaware
Business Trust Act pursuant to the Original Trust Agreement and is continued
pursuant to this Trust Agreement.
"Issuer Trustees" means, collectively, the Property Trustee, the Delaware
Trustee and the Administrative Trustees.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of any Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Debentures to be contemporaneously redeemed in accordance with the
Indenture, the proceeds of which will be used to pay the Redemption Price of
such Trust Securities, (b) with respect to a distribution of Debentures to
Holders of Trust Securities in connection with a dissolution or liquidation of
the Issuer Trust, Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the Holder to whom such Debentures are
distributed, and (c) with respect to any distribution of Additional
Distributions to Holders of Trust Securities, Debentures having a principal
amount equal to the Liquidation Amount of the Trust Securities in respect of
which such distribution is made.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date of the dissolution, winding-up or
termination of the Issuer Trust pursuant to Section 9.4.
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
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<PAGE>
"Majority in Liquidation Amount of the Capital Securities" means, except as
provided by the Trust Indenture Act, Capital Securities representing more than
50% of the aggregate Liquidation Amount of all then Outstanding Capital
Securities.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or one of the Executive Vice
Presidents, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Depositor, and delivered to the Issuer Trustees.
Any Officers' Certificate delivered with respect to compliance with a condition
or covenant provided for in this Trust Agreement shall include:
(a) a statement by each officer signing the Officers' Certificate that
such officer has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by such officer in rendering the Officers'
Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for or an employee of the Depositor or any Affiliate of the Depositor.
"Optional Securities" has the meaning specified in the Underwriting
Agreement.
"Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.
"Outstanding", when used with respect to Trust Securities, means, as of the
date of determination, all Trust Securities theretofore executed and delivered
under this Trust Agreement, except:
(a) Trust Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose redemption money in the necessary
amount has been theretofore deposited with the Property Trustee or any
Paying Agent; provided that, if such Trust Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this Trust
Agreement; and
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<PAGE>
(c) Trust Securities in exchange for or in lieu of which other
Capital Securities have been executed and delivered pursuant to Sections
5.4, 5.5, 5.6 and 5.11;
provided, however, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Capital Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Capital
Securities owned by the Depositor, any Issuer Trustee or any Affiliate of the
Depositor or any Issuer Trustee shall be disregarded and deemed not to be
Outstanding, except that (a) in determining whether any Issuer Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Capital Securities that such Issuer Trustee
knows to be so owned shall be so disregarded, and (b) the foregoing clause (a)
shall not apply at any time when all of the Outstanding Capital Securities are
owned by the Depositor, one or more of the Issuer Trustees and/or any such
Affiliate. Capital Securities so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Administrative Trustees the pledgee's right so to act with respect to such
Capital Securities and that the pledgee is not the Depositor or any Affiliate of
the Depositor.
"Owner" means each Person who is the beneficial owner of Book-Entry Capital
Securities as reflected in the records of the Clearing Agency or, if a Clearing
Agency Participant is not the Owner, then as reflected in the records of a
Person maintaining an account with such Clearing Agency (directly or indirectly,
in accordance with the rules of such Clearing Agency).
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 5.10 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Holders in which all amounts paid in respect of the
Debentures will be held and from which the Property Trustee, through the Paying
Agent, shall make payments to the Holders in accordance with Sections 4.1 and
4.2.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, company,
limited liability company, trust, unincorporated association, or government or
any agency or political subdivision thereof, or any other entity of whatever
nature.
"Property Trustee" means the Person identified as the "Property Trustee" in
the preamble to this Trust Agreement, solely in its capacity as Property Trustee
of the Issuer Trust heretofore created and continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture
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Redemption Date and the stated maturity of the Debentures shall be a Redemption
Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium, if
any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures.
"Relevant Trustee" has the meaning specified in Section 8.10.
"Securities Act" means the Securities Act of 1933, and any successor
statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Successor Capital Securities" of any particular Capital Securities
Certificate means every Capital Securities Certificate issued after, and
evidencing all or a portion of the same beneficial interest in the Issuer Trust
as that evidenced by, such particular Capital Securities Certificate; and, for
the purposes of this definition, any Capital Securities Certificate executed and
delivered under Section 5.6 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Capital Securities Certificate shall be deemed to
evidence the same beneficial interest in the Issuer Trust as the mutilated,
destroyed, lost or stolen Capital Securities Certificate.
"Time of Delivery" has the meaning specified in the Underwriting Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including (i) all Exhibits, and (ii) for all purposes of this
Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that if
the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture
Act" means, to the extent required by any such amendment, the Trust Indenture
Act of 1939 as so amended.
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"Trust Property" means (a) the Debentures, (b) any cash on deposit in, or
owing to, the Payment Account, and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Capital
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Capital Securities Certificates.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
_________, 2000, among the Issuer Trust, the Depositor and the Underwriters, as
the same may be amended from time to time.
"Underwriters" has the meaning specified in the Underwriting Agreement and
Schedule I thereto.
ARTICLE II
Continuation of the Issuer Trust
Section 2.0. Name.
The trust continued hereby shall be known as "Southern States Capital Trust
II", as such name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust Securities and the
other Issuer Trustees, in which name the Issuer Trustees may conduct the
business of the Issuer Trust, make and execute contracts and other instruments
on behalf of the Issuer Trust and sue and be sued.
Section 2.1. Office of the Delaware Trustee; Principal Place of Business.
The address of the Delaware Trustee in the State of Delaware is One Rodney
Square, First Floor, 920 King Street, Wilmington, Delaware 19801, Attention:
Corporate Trust Administration, or such other address in the State of Delaware
as the Delaware Trustee may designate by written notice to the Holders, the
Depositor, the Property Trustee and the Administrative Trustees. The principal
executive office of the Issuer Trust is c/o Southern States Cooperative,
Incorporated, 6606 West Broad Street, Richmond, Virginia 23260, Attention:
Chief Financial Officer.
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Section 2.2. Initial Contribution of Trust Property; Organizational
Expenses.
The Property Trustee acknowledges receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Issuer Trust as they arise or shall, upon request of any Issuer
Trustee, promptly reimburse such Issuer Trustee for any such expenses paid by
such Issuer Trustee. The Depositor shall make no claim upon the Trust Property
for the payment of such expenses.
Section 2.3. Issuance of the Capital Securities.
As of __________, 2000, the Depositor, both on its own behalf and on behalf
of the Issuer Trust pursuant to the Original Trust Agreement, executed and
delivered the Underwriting Agreement. Contemporaneously with the execution and
delivery of this Trust Agreement, an Administrative Trustee, on behalf of the
Issuer Trust, shall manually execute in accordance with Sections 5.2 and 5.3,
and the Property Trustee shall deliver to the Underwriters, Capital Securities
Certificates, registered in the name of the nominee of the initial Clearing
Agency, evidencing an aggregate of 3,000,000 Capital Securities having an
aggregate Liquidation Amount of $75,000,000, against receipt of the aggregate
purchase price of such Capital Securities of $75,000,000 (plus accrued
Distributions, if any) by the Property Trustee. If the Underwriters purchase
any Optional Securities in accordance with the second paragraph of Section 1(a)
of the Underwriting Agreement, on the Second Clearing Date (as defined in the
Underwriting Agreement), an Administrative Trustee, on behalf of the Issuer
Trust, shall execute in accordance with Sections 5.2 and 5.3, and the Property
Trustee shall deliver to the Underwrites, deliver to the Underwriters, Capital
Securities Certificates, registered in the name of the nominee of the initial
Clearing Agency, evidencing an aggregate amount of up to 450,000 Capital
Securities having an aggregate Liquidation Amount of up to $11,250,000, against
receipt of the aggregate purchase price of such Capital Securities [of ____% of]
[equal to] the Liquidation Amount thereof [(plus accrued Distributions)] by the
Property Trustee.
Section 2.4. Issuance of the Common Securities; Subscription and Purchase
of Debentures.
Contemporaneously with the execution and delivery of this Trust Agreement,
an Administrative Trustee, on behalf of the Issuer Trust, shall execute in
accordance with Sections 5.2 and 5.3, and the Property Trustee shall deliver to
the Depositor, Common Securities Certificates registered in the name of the
Depositor, evidencing an aggregate of 92,784 Common Securities having an
aggregate Liquidation Amount of $2,319,600, against receipt of the aggregate
purchase price of such Common Securities of $2,319,600 (plus accrued
Distributions, if any) by the Property Trustee. Contemporaneously therewith,
the Depositor shall issue and sell to the Issuer Trust, and the Issuer Trust
shall purchase from the Depositor, Debentures having an aggregate principal
amount equal to $77,319,600 registered in the name of the Property Trustee on
behalf of the Issuer Trust and, in satisfaction of the purchase price for such
Debentures, the Property Trustee, on behalf of the Issuer Trust, shall deliver
to the Depositor the sum of
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$77,319,600 (plus accrued Distributions, if any) (being the sum of the amounts
delivered to the Property Trustee pursuant to (i) the second sentence of Section
2.4, and (ii) the first sentence of this Section 2.5). If the Underwriters
purchase any Optional Securities in accordance with Section 1(a) of the
Underwriting Agreement, an Administrative Trustee, on behalf of the Issuer
Trust, shall execute in accordance with Sections 5.2 and 5.3, and the Property
Trustee shall deliver to the Depositor, Common Securities Certificates,
registered in the name of the Depositor, evidencing Common Securities having an
aggregate Liquidation Amount of up to $347,940, against receipt of the aggregate
purchase price therefor by the Property Trustee. Contemporaneously therewith, an
Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase
from the Depositor Debentures, registered in the name of the Trust and having an
aggregate principal amount of up to $11,597,940, and, in satisfaction of the
purchase price for such Debentures, the Property Trustee, on behalf of the
Trust, shall deliver to the Depositor the amount received by it pursuant to the
last sentence of Section 2.4 and the third sentence of this Section 2.5.
Section 2.5. Continuation of Trust.
The exclusive purposes and functions of the Issuer Trust are (a) to issue
and sell Trust Securities and use the proceeds from such sale to acquire the
Debentures, (b) to make Distributions to holders, and (c) to engage in only
those activities necessary or incidental thereto. The Depositor hereby appoints
the Issuer Trustees as trustees of the Issuer Trust, to have all the rights,
powers and duties to the extent set forth herein, and the respective Issuer
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it will hold the Trust Property in trust upon and subject to the conditions
set forth herein for the benefit of the Issuer Trust and the Holders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law. The Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities, of the Property Trustee or the Administrative
Trustees set forth herein, except as required by the Delaware Business Trust
Act. The Delaware Trustee shall be one of the trustees of the Issuer Trust for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Delaware Business Trust Act and for taking such actions as are required to
be taken by a Delaware trustee under the Delaware Business Trust Act.
Section 2.6. Authorization to Enter into Certain Transactions.
(a) The Issuer Trustees shall conduct the affairs of the Issuer Trust in
accordance with the terms of this Trust Agreement. Subject to the limitations
set forth in paragraph (b) of this Section 2.7, and in accordance with the
following provisions (i) and (ii), the Property Trustee and the Administrative
Trustees shall have the authority to enter into all transactions and agreements
determined by the Property Trustee and Administrative Trustees to be appropriate
in exercising the authority, express or implied, otherwise granted to such
Issuer Trustees, as the case may be, under this Trust Agreement, and to perform
all acts in furtherance thereof, including the following:
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(i) As among the Issuer Trustees, each Administrative Trustee, acting
individually or jointly, shall have the power and authority to act on
behalf of the Issuer Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) causing the Issuer Trust to enter into, and to execute,
deliver and perform on behalf of the Issuer Trust, the Expense
Agreement and the Certificate Depository Agreement and such other
agreements as may be necessary or desirable in connection with the
purposes and function of the Issuer Trust;
(C) assisting in compliance with the registration of the Capital
Securities under the Securities Act and under applicable state
securities or blue sky laws and the qualification of this Trust
Agreement as a trust indenture under the Trust Indenture Act;
(D) assisting in listing the Capital Securities on the New York
Stock Exchange and such other securities exchange or exchanges as
shall be determined by the Depositor, in the registration of the
Capital Securities under the Exchange Act, and with the preparation
and in the filing of all periodic and other reports and other
documents pursuant to the foregoing;
(E) assisting in the sending of notices (other than notices of
default) and other information regarding the Trust Securities and the
Debentures to the Holders in accordance with this Trust Agreement;
(F) consenting to the appointment of a Paying Agent,
authenticating agent and Securities Registrar in accordance with this
Trust Agreement (which consent shall not be unreasonably withheld);
(G) executing the Trust Securities on behalf of the Issuer Trust
in accordance with this Trust Agreement;
(H) executing and delivering closing certificates, if any,
pursuant to the Underwriting Agreement and an application for a
taxpayer identification number for the Issuer Trust;
(I) unless otherwise determined by the Property Trustee or
Holders of at least a Majority in Liquidation Amount of the Capital
Securities or as otherwise required by the Delaware Business Trust Act
or the Trust Indenture Act, executing on behalf of the Issuer Trust
(either acting alone or together with any other Administrative
Trustee) any documents that the Administrative Trustees have the power
to execute pursuant to this Trust Agreement; and
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(J) taking any action incidental to the foregoing as the Issuer
Trustees may from time to time determine is necessary or advisable to
give effect to the terms of this Trust Agreement.
(ii) The Property Trustee shall have the power, duty and authority to
act on behalf of the Issuer Trust with respect to the following matters:
(A) establishing the Payment Account;
(B) receiving the Debentures;
(C) collecting interest, principal and any other payments made in
respect of the Debentures and the holding of such amounts in the
Payment Account;
(D) distributing through any Paying Agent amounts distributable
to the Holders in respect of the Trust Securities;
(E) exercising all of the rights, powers and privileges of a
holder of the Debentures;
(F) sending notices of default and other information regarding
the Trust Securities and the Debentures to the Holders in accordance
with this Trust Agreement;
(G) distributing the Trust Property in accordance with the terms
of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, winding up
the affairs of and liquidating the Issuer Trust and preparing,
executing and filing the certificate of cancellation with the
Secretary of State of the State of Delaware;
(I) after an Event of Default (other than under paragraph (b),
(c), (d) or (e) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee) taking of any
action incidental to the foregoing as the Property Trustee may from
time to time determine is necessary or advisable to give effect to the
terms of this Trust Agreement and to protect and conserve the Trust
Property for the benefit of the Holders (without consideration of the
effect of any such action on any particular Holder); and
(J) performing any of the duties, liabilities, powers or the
authority of the Administrative Trustees set forth in Section
2.7(a)(i)(E), (F) and (J).
(b) So long as this Trust Agreement remains in effect, the Issuer Trust (or
the Issuer Trustees acting on behalf of the Issuer Trust) shall not undertake
any business, activities or
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transaction except as expressly provided herein or contemplated hereby. In
particular, the Issuer Trustees, acting in their capacity as such, shall not (i)
acquire any investments or engage in any activities not authorized by this Trust
Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or
otherwise dispose of any of the Trust Property or interests therein, including
to Holders, except as expressly provided herein, (iii) take any action that
would reasonably be expected to cause the Issuer Trust to become taxable as a
corporation or classified as other than a grantor trust for United States
Federal income tax purposes, (iv) incur any indebtedness for borrowed money or
issue any other debt, or (v) take or consent to any action that would result in
the placement of a Lien on any of the Trust Property. The Administrative
Trustees shall defend all claims and demands of all Persons at any time claiming
any Lien on any of the Trust Property adverse to the interest of the Issuer
Trust or the Holders in their capacity as Holders.
(c) In connection with the issue and sale of the Capital Securities, the
Depositor shall have the right and responsibility to assist the Issuer Trust
with respect to, or effect on behalf of the Issuer Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the date
of this Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Issuer Trust with the
Commission and the execution on behalf of the Issuer Trust of a
registration statement on the appropriate form in relation to the Capital
Securities, including any amendments thereto and the taking of any action
necessary or desirable to sell the Capital Securities in a transaction or a
series of transactions pursuant thereto;
(ii) the determination of the States, or other jurisdictions, if any,
in which to take appropriate action to qualify or register for sale all or
part of the Capital Securities and the determination of any and all such
acts, other than actions that must be taken by or on behalf of the Issuer
Trust, and the advice to the Issuer Trustees of actions they must take on
behalf of the Issuer Trust, and the preparation for execution and filing of
any documents to be executed and filed by the Issuer Trust or on behalf of
the Issuer Trust, as the Depositor deems necessary or advisable in order to
comply with the applicable laws of any such States in connection with the
sale of the Capital Securities;
(iii) the preparation for filing by the Issuer Trust and execution on
behalf of the Issuer Trust of any application to the New York Stock
Exchange or any other national stock exchange or the Nasdaq National Market
for listing upon notice of issuance of any Capital Securities;
(iv) the preparation for filing by the Issuer Trust with the
Commission and the execution on behalf of the Issuer Trust of any
registration statement on Form 8-A relating to Capital Securities under
Section 12(b) or 12(g) of the Exchange Act, including any amendments
thereto;
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(v) the negotiation of the terms of, and the execution and delivery
of, the Underwriting Agreement; and
(vi) the taking of any other actions necessary or desirable to carry
out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustees are authorized and directed to conduct the affairs of the Issuer Trust
and to operate the Issuer Trust so that the Issuer Trust will not be deemed to
be an "investment company" required to be registered under the Investment
Company Act, and will not be taxable as a corporation or classified as other
than a grantor trust for United States Federal income tax purposes and so that
the Debentures will be treated as indebtedness of the Depositor for United
States Federal income tax purposes. In this connection, each Administrative
Trustee and the Holder of the Common Securities are authorized to take any
action, not inconsistent with applicable law, the Certificate of Trust or this
Trust Agreement, that such Administrative Trustee or Holder of the Common
Securities determines in its discretion to be necessary or desirable for such
purposes, as long as such action does not adversely affect in any material
respect the interests of the Holders of the Outstanding Capital Securities. In
no event shall the Issuer Trustees be liable to the Issuer Trust or the Holders
for any failure to comply with this section that results from a change in law or
regulation or in the interpretation thereof.
Section 2.7. Assets of Trust.
The assets of the Issuer Trust shall consist of the Trust Property.
Section 2.8. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee in trust for the benefit of the Issuer Trust and the
Holders in accordance with this Trust Agreement.
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ARTICLE III
Payment Account
Section 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and its agents shall have exclusive
control and sole right of withdrawal with respect to the Payment Account for the
purpose of making deposits in and withdrawals from the Payment Account in
accordance with this Trust Agreement. All monies and other property deposited or
held from time to time in the Payment Account shall be held by the Property
Trustee in the Payment Account for the exclusive benefit of the Holders and for
distribution as herein provided, including (and subject to) any priority of
payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
Distributions; Redemption
Section 4.1. Distributions.
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including any Additional Distributions) will
be made on the Trust Securities at the rate and on the dates that payments of
interest (including any Additional Interest, as defined in the Indenture) are
made on the Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative, and
shall accumulate whether or not there are funds of the Issuer Trust
available for the payment of Distributions. Distributions shall accumulate
from __________, 2000, and, except in the event (and to the extent) that
the Depositor exercises its right to defer the payment of interest on the
Debentures pursuant to the Indenture, shall be payable quarterly in arrears
on January 1, April 1, July 1 and October 1 of each year, commencing on
______ 1, 2000. If any date on which a Distribution is otherwise payable on
the Trust Securities is not a Business Day, then the payment of such
Distribution shall be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such
delay), except that, if such next succeeding Business Day falls within the
next calendar year, such payment will be made on the immediately preceding
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Business Day, in each case, with the same force and effect as if made on
the date on which such payment was originally payable (each date on which
distributions are payable in accordance with this Section 4.1(a), a
"Distribution Date").
(ii) The Trust Securities shall be entitled to Distributions payable
at a rate, not including Additional Distributions, of _____% per annum of
the Liquidation Amount of the Trust Securities. The amount of Distributions
payable for any period less than a full Distribution period shall be
computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed in a partial month in a period. Distributions
payable for each full Distribution period will be computed by dividing the
rate per annum by four. The amount of Distributions payable for any period
shall include any Additional Distributions in respect of such period.
(iii) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Issuer Trust has funds then
on hand and available in the Payment Account for the payment of such
Distributions.
(b) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities at the close of business on the relevant
record date, which shall be at the close of business on the fifteenth day
(whether or not a Business Day) next preceding the relevant Distribution Date.
Section 4.2. Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of the
Debentures, the Issuer Trust will be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by first-
class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior
to the Redemption Date to each Holder of Trust Securities to be redeemed, at
such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number or CUSIP numbers of the Capital Securities
affected;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed;
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(v) that on the Redemption Date the Redemption Price will become due
and payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after such date,
except as provided in Section 4.2(d) below; and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Issuer Trust in issuing the Trust Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Property Trustee shall indicate the
"CUSIP" numbers of the Trust Securities in notices of redemption and related
materials as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Trust Securities or as contained in any notice of redemption and
related materials.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Issuer Trust has funds then on hand and available in the Payment
Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Capital Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, subject to Section 4.2(c), the Property Trustee will, with respect to
Book-Entry Capital Securities, irrevocably deposit with the Clearing Agency for
such Book-Entry Capital Securities, to the extent available therefor, funds
sufficient to pay the applicable Redemption Price and will give such Clearing
Agency irrevocable instructions and authority to pay the Redemption Price to the
Holders of the Capital Securities. With respect to Capital Securities that are
not Book-Entry Capital Securities, the Property Trustee, subject to Section
4.2(c), will irrevocably deposit with the Paying Agent or Paying Agents, to the
extent available therefor, funds sufficient to pay the applicable Redemption
Price and will give the Paying Agent or Paying Agents irrevocable instructions
and authority to pay the Redemption Price to the Holders of the Capital
Securities upon surrender of their Capital Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Securities
Register on the relevant record dates for the related Distribution Dates. If
notice of redemption shall have been given and funds deposited as required, then
upon the date of such deposit, all rights of Holders holding Trust Securities so
called for redemption will cease, except the right of such Holders to receive
the Redemption Price and any Distribution payable in respect of the Trust
Securities on or prior to the Redemption Date, but without interest, and such
Securities will cease to be Outstanding. In the event that any date on which any
Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next
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calendar year, such payment will be made on the immediately preceding Business
Day, in each case, with the same force and effect as if made on such date. In
the event that payment of the Redemption Price in respect of any Trust
Securities called for redemption is improperly withheld or refused and not paid
either by the Issuer Trust or by the Depositor pursuant to the Guarantee
Agreement, Distributions on such Trust Securities will continue to accumulate,
as set forth in Section 4.1, from the Redemption Date originally established by
the Issuer Trust for such Trust Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated pro
rata to the Common Securities and the Capital Securities based upon the relative
aggregate Liquidation Amounts of such classes. The particular Capital Securities
to be redeemed shall be selected on a pro rata basis based upon their respective
aggregate Liquidation Amounts not more than 60 days prior to the Redemption Date
by the Property Trustee from the Outstanding Capital Securities not previously
called for redemption, provided that so long as the Capital Securities are in
book-entry-only form, such selection shall be made in accordance with the
customary procedures for the Clearing Agency for the Capital Securities. The
Property Trustee shall promptly notify the Securities Registrar in writing of
the Capital Securities selected for redemption and, in the case of any Capital
Securities selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of this Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Capital Securities shall
relate, in the case of any Capital Securities redeemed or to be redeemed only in
part, to the portion of the aggregate Liquidation Amount of Capital Securities
that has been or is to be redeemed.
Section 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including any Additional Distributions) on,
the Redemption Price of, and the Liquidation Distribution in respect of the
Trust Securities, as applicable, shall be made, subject to Section 4.2(e), pro
rata among the Common Securities and the Capital Securities based on the
Liquidation Amount of the Trust Securities; provided, however, that if on any
Distribution Date, Redemption Date or Liquidation Date any Event of Default
resulting from a Debenture Event of Default specified in Section 5.1(1) or
5.1(2) of the Indenture shall have occurred and be continuing, no payment of any
Distribution (including any Additional Distributions) on, Redemption Price of,
or Liquidation Distribution in respect of any Common Security, and no other
payment on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions (including any Additional Distributions) on all Outstanding
Capital Securities for all Distribution periods terminating on or prior thereto,
or in the case of payment of the Redemption Price the full amount of such
Redemption Price on all Outstanding Capital Securities then called for
redemption, or in the case of payment of the Liquidation Distribution the full
amount of such Liquidation Distribution on all Outstanding Capital Securities,
shall have been made or provided for, and all funds immediately available to the
Property Trustee shall first
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be applied to the payment in full in cash of all Distributions (including any
Additional Distributions) on, the Redemption Price of or the Liquidation
Distribution in respect of the Capital Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting from
any Debenture Event of Default, the Holder of the Common Securities shall have
no right to act with respect to any such Event of Default under this Trust
Agreement until the effects of all such Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated. Until all
such Events of Default under this Trust Agreement with respect to the Capital
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Capital Securities and
not on behalf of the Holder of the Common Securities, and only the Holders of
the Capital Securities will have the right to direct the Property Trustee to act
on their behalf.
Section 4.4. Payment Procedures.
Payments of Distributions (including any Additional Distributions) or of
the Redemption Price, Liquidation Amount or any other amounts in respect of the
Capital Securities shall be made by check mailed to the address of the Person
entitled thereto as such address shall appear on the Securities Register or, if
the Capital Securities are held by a Clearing Agency, such Distributions shall
be made to the Clearing Agency in immediately available funds. Payments in
respect of the Common Securities shall be made in such manner as shall be
mutually agreed between the Property Trustee and the Holder of all the Common
Securities.
Section 4.5. Tax Returns and Reports.
The Administrative Trustees shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States Federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Issuer Trust. In this regard, the Administrative Trustees shall (a) prepare and
file (or cause to be prepared and filed) all Internal Revenue Service forms
required to be filed in respect of the Issuer Trust in each taxable year of the
Issuer Trust, and (b) prepare and furnish (or cause to be prepared and
furnished) to each Holder all Internal Revenue Service forms required to be
provided by the Issuer Trust. The Administrative Trustees shall provide the
Depositor and the Property Trustee with a copy of all such returns and reports
promptly after such filing or furnishing. The Issuer Trustees shall comply with
United States Federal withholding and backup withholding tax laws and
information reporting requirements with respect to any payments to Holders under
the Trust Securities.
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Section 4.6. Payment of Taxes, Duties, Etc. of the Issuer Trust.
Upon receipt under the Debentures of Additional Sums, the Property Trustee
shall promptly pay any taxes, duties or governmental charges of whatsoever
nature (other than withholding taxes) imposed on the Issuer Trust by the United
States or any other taxing authority with respect to which such Additional Sums
were paid.
Section 4.7. Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Capital Securities shall
be reduced by the amount of any corresponding payment such Holder has directly
received pursuant to Section 5.8 of the Indenture or Section 5.13 of this Trust
Agreement.
ARTICLE V
Trust Securities Certificates
Section 5.1. Initial Ownership.
Upon the creation of the Issuer Trust and the contribution by the Depositor
pursuant to Section 2.3 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are Outstanding, the Depositor shall
be the sole beneficial owner of the Issuer Trust.
Section 5.2. The Trust Securities Certificates.
(a) The Capital Securities Certificates shall be issued in fully registered
form in minimum denominations of $25 Liquidation Amount and integral multiples
thereof, and the Common Securities Certificates shall be issued in denominations
of $25 Liquidation Amount and integral multiples thereof. The Trust Securities
Certificates shall be executed on behalf of the Issuer Trust by manual signature
of at least one Administrative Trustee. Trust Securities Certificates bearing
the manual signatures of individuals who were, at the time when such signatures
shall have been affixed, authorized to sign on behalf of the Issuer Trust, shall
be validly issued and entitled to the benefits of this Trust Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the delivery of such Trust Securities Certificates or did
not hold such offices at the date of delivery of such Trust Securities
Certificates. A transferee of a Trust Securities Certificate shall become a
Holder, and shall be entitled to the rights and subject to the obligations of a
Holder hereunder, upon due registration of such Trust Securities Certificate in
such transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Capital Securities Certificates shall be
issued in the form of one or more Book-Entry Capital Securities Certificates
registered in the name of DTC, as Clearing Agency, or its nominee and deposited
with DTC or a custodian for DTC for credit by
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DTC to the respective accounts of the Owners thereof (or such other accounts as
they may direct).
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
Section 5.3. Execution and Delivery of Trust Securities Certificates.
At the Time of Delivery, the Administrative Trustees shall cause Trust
Securities Certificates, in an aggregate Liquidation Amount as provided in
Sections 2.4 and 2.5, to be executed on behalf of the Issuer Trust and delivered
to or upon the written order of the Depositor, executed by an authorized officer
thereof, without further corporate action by the Depositor, in authorized
denominations.
Section 5.4. Book-Entry Capital Securities.
(a) Each Book-Entry Capital Securities Certificate issued under this Trust
Agreement shall be registered in the name of the Clearing Agency or a nominee
thereof and delivered to such Clearing Agency or a nominee thereof or custodian
therefor, and each such Book-Entry Capital Securities Certificate shall
constitute a single Capital Securities Certificate for all purposes of this
Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, no Book-
Entry Capital Securities Certificate may be exchanged in whole or in part for
Capital Securities Certificates registered, and no transfer of a Book-Entry
Capital Securities Certificate in whole or in part may be registered, in the
name of any Person other than the Clearing Agency or a nominee thereof unless
(i) the Clearing Agency advises the Property Trustee in writing that the
Clearing Agency is no longer willing or able to properly discharge its
responsibilities with respect to the Book-Entry Capital Securities Certificates,
and the Property Trustee is unable to locate a qualified successor, (ii) the
Issuer Trust at its option advises the Clearing Agency in writing that it elects
to terminate the book-entry system through the Clearing Agency, or (iii) a
Debenture Event of Default has occurred and is continuing. Upon the occurrence
of any event specified in clause (i), (ii) or (iii) above, the Property Trustee
shall notify the Clearing Agency and instruct the Clearing Agency to notify all
Owners of Book-Entry Capital Securities and the Administrative Trustees of the
occurrence of such event and of the availability of the Definitive Capital
Securities Certificates to Owners of the Capital Securities requesting the same.
(c) If any Book-Entry Capital Securities Certificate is to be exchanged for
other Capital Securities Certificates or canceled in part, or if any other
Capital Securities Certificate is to be exchanged in whole or in part for Book-
Entry Capital Securities represented by a Book-Entry Capital Securities
Certificate, then either (i) such Book-Entry Capital Securities Certificate
shall be so surrendered for exchange or cancellation as provided in this Article
V or (ii) the aggregate Liquidation Amount represented by such Book-Entry
Capital Securities Certificate shall be reduced, subject to Section 5.2, or
increased by an amount equal to that portion of the
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Liquidation Amount represented by the Book-Entry Capital Securities Certificate
to be so exchanged or canceled, or equal to that portion of the Liquidation
Amount represented by such other Capital Securities Certificates to be so
exchanged for Book-Entry Capital Securities represented thereby, as the case may
be, by means of an appropriate adjustment made on the records of the Securities
Registrar with notice to the Property Trustee, whereupon the Property Trustee,
in accordance with the Applicable Procedures, shall instruct the Clearing Agency
or its authorized representative to make a corresponding adjustment to its
records. Upon any such surrender or adjustment of a Book-Entry Capital
Securities Certificate by the Clearing Agency, accompanied by registration
instructions, the Administrative Trustees, or any one of them, shall, subject to
Section 5.5(b) and as otherwise provided in this Article V, execute the
Definitive Capital Securities Certificates issuable in exchange for such Book-
Entry Capital Securities Certificate (or any portion thereof) in accordance with
the instructions of the Clearing Agency. None of the Securities Registrar or the
Property Trustee or the Administrative Trustees shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Capital Securities Certificates, the Issuer Trustees shall recognize the Holders
of the Definitive Capital Securities as Holders. The Definitive Capital
Securities Certificates shall be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the Administrative
Trustees, as evidenced by the execution thereof by the Administrative Trustees
or any one of them.
(d) Every Capital Securities Certificate executed and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Book-Entry
Capital Securities Certificate or any portion thereof, whether pursuant to this
Article V or Section 4.2 or otherwise, shall be executed and delivered in the
form of, and shall be, a Book-Entry Capital Securities Certificate, unless such
Capital Securities Certificate is registered in the name of a Person other than
the Clearing Agency or a nominee thereof.
(e) The Clearing Agency or its nominee, as registered owner of a Book-Entry
Capital Securities Certificate, shall be the Holder of such Book-Entry Capital
Securities Certificate for all purposes under this Trust Agreement and the
Capital Securities, and Owners with respect to a Book-Entry Capital Securities
Certificate shall hold such interests pursuant to the Applicable Procedures. The
Securities Registrar and the Property Trustee or the Administrative Trustees
shall be entitled to deal with the Clearing Agency for all purposes of this
Trust Agreement relating to the Book-Entry Capital Securities Certificates
(including the payment of the Liquidation Amount of and Distributions on the
Book-Entry Capital Securities represented thereby and the giving of instructions
or directions by or to Owners of Book-Entry Capital Securities represented
thereby) as the sole Holder of the Book-Entry Capital Securities represented
thereby and shall have no obligations to the Owners thereof. None of the
Depositor, the Issuer Trustees nor the Securities Registrar shall have any
liability in respect of any transfers effected by the Clearing Agency.
(f) The rights of the Owners of the Book-Entry Capital Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable
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Procedures and agreements between such Owners and the Clearing Agency and/or the
Clearing Agency Participants. Solely for the purposes of determining whether the
Holders of the requisite amount of Capital Securities have voted on any matter
provided for in this Trust Agreement, so long as Definitive Capital Securities
Certificates have not been issued in certificated fully registered form, the
Property Trustee and the Administrative Trustees may conclusively rely on, and
shall be protected in relying on, any written instrument (including a proxy)
delivered to such Issuer Trustees by the Clearing Agency setting forth the
Holders' votes or assigning the right to vote on any matter to any other Persons
either in whole or in part. Pursuant to the Certificate Depository Agreement,
unless and until Definitive Capital Securities Certificates are issued pursuant
to Section 5.4(b), the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and transmit payments on the
Capital Securities to such Clearing Agency Participants, and neither of the
Depositor nor the Issuer Trustees shall have any responsibility or obligation
with respect thereto.
Section 5.5. Registration of Transfer and Exchange of Capital Securities
Certificates.
(a) The Property Trustee shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 5.9, a register or registers (the
"Securities Register") in which the registrar and transfer agent with respect to
the Trust Securities (the "Securities Registrar"), subject to such reasonable
regulations as it may prescribe, shall provide for the registration of Capital
Securities Certificates and (subject to Section 5.11) Common Securities
Certificates and of transfers and exchanges of Capital Securities Certificates
as herein provided. The Property Trustee is hereby appointed Securities
Registrar for the purpose of registering Capital Securities Certificates and
(subject to Section 5.11) Common Securities and transfers and exchanges thereof
as provided herein.
Upon surrender for registration of transfer of any Capital Securities
Certificate at the office or agency maintained pursuant to Section 5.9, the
Administrative Trustees or any one of them shall execute and deliver to the
Property Trustee, and the Property Trustee shall deliver, in the name of the
designated transferee or transferees, one or more new Capital Securities
Certificates in authorized denominations of a like aggregate Liquidation Amount,
dated the date of execution by such Administrative Trustee or Trustees.
At the option of the Holder, Capital Securities Certificates may be
exchanged for other Capital Securities Certificates of the same series of any
authorized denominations, of like tenor and aggregate Liquidation Amount, and
bearing a number not contemporaneously Outstanding, upon surrender of the
Capital Securities Certificates to be exchanged at such office or agency.
Whenever any Capital Securities Certificates are so surrendered for exchange,
the Administrative Trustees or any one of them shall execute and deliver to the
Property Trustee, and the Property Trustee shall deliver, the Capital Securities
Certificates that the Holder making the exchange is entitled to receive.
All Capital Securities issued upon any transfer or exchange of Capital
Securities shall evidence the same interest in the assets of the Issuer Trust,
and be entitled to the same benefits
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under this Trust Agreement, as the Capital Securities surrendered upon such
transfer or exchange.
The Securities Registrar shall not be required, (i) to issue, register the
transfer of or exchange any Capital Security during a period beginning at the
opening of business 15 days before the day of selection for redemption of such
Capital Securities pursuant to Article IV and ending at the close of business on
the day of mailing of the notice of redemption, or (ii) to register the transfer
of or exchange any Capital Security so selected for redemption in whole or in
part, except, in the case of any such Capital Security to be redeemed in part,
any portion thereof not to be redeemed.
Every Capital Securities Certificate presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to an Administrative
Trustee and the Securities Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Capital Securities
Certificate surrendered for registration of transfer or exchange shall be
canceled and subsequently disposed of by the Property Trustee in accordance with
its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Capital Securities Certificates, but the Issuer Trust may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Capital Securities
Certificates.
(b) Notwithstanding any other provision of this Trust Agreement, transfers
and exchanges of Capital Securities Certificates and Book-Entry Capital
Securities shall be made only in accordance with this Section 5.5(b).
(i) Non-Book-Entry Capital Securities Certificate to Book-Entry
-----------------------------------------------------------
Capital Securities Certificate. If the Holder of a Capital Securities
------------------------------
Certificate (other than a Book-Entry Capital Securities Certificate) wishes
at any time to transfer all or any portion of such Capital Securities
Certificate to a Person who wishes to take delivery thereof in the form of
a beneficial interest in a Book-Entry Capital Securities Certificate, such
transfer may be effected only in accordance with the provisions of this
Clause (b)(i) and subject to the Applicable Procedures. Upon receipt by the
Securities Registrar of such Capital Securities Certificate as provided in
Section 5.5(a) and instructions satisfactory to the Securities Registrar
directing that a specified number of Book-Entry Capital Securities to be
represented by such Book-Entry Capital Securities Certificate not greater
than the number of Capital Securities represented by such Capital
Securities Certificate be credited to a specified Clearing Agency
Participant's account, then the Securities Registrar shall cancel such
Capital Securities Certificate (and issue a new Capital Securities
Certificate in respect of any untransferred portion thereof) as provided in
Section 5.5(a) and increase the aggregate Liquidation Amount of the Book-
Entry Capital Securities Certificate by the Liquidation Amount of such
Capital Securities so transferred as provided in Section 5.4(c).
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(ii) Non-Book-Entry Capital Securities Certificate to Non-Book-Entry
---------------------------------------------------------------
Capital Securities Certificate. A Capital Securities Certificate that is
------------------------------
not a Book-Entry Capital Securities Certificate may be transferred, in
whole or in part, to a Person who takes delivery in the form of another
Capital Securities Certificate that is not a Book-Entry Capital Securities
Certificate as provided in Section 5.5(a).
(iii) Book-Entry Capital Securities Certificate to Non-Book-Entry
-----------------------------------------------------------
Capital Securities Certificate. A beneficial interest in a Book-Entry
------------------------------
Capital Securities Certificate may be exchanged for a Capital Securities
Certificate that is not a Book-Entry Capital Securities Certificate as
provided in Section 5.4.
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate, and (b) there shall be delivered to the Securities Registrar and
the Administrative Trustees such security or indemnity as may be required by
them to save each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a protected purchaser,
the Administrative Trustees, or any one of them, on behalf of the Issuer Trust
shall execute and make available for delivery, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new
Trust Securities Certificate of like class, tenor and denomination. In
connection with the issuance of any new Trust Securities Certificate under this
Section 5.6, the Administrative Trustees or the Securities Registrar may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith. Any duplicate Trust Securities
Certificate issued pursuant to this Section 5.6 shall constitute conclusive
evidence of an undivided beneficial interest in the assets of the Issuer Trust
corresponding to that evidenced by the lost, stolen or destroyed Trust
Securities Certificate, as if originally issued, whether or not the lost, stolen
or destroyed Trust Securities Certificate shall be found at any time.
Section 5.7. Persons Deemed Holders.
The Issuer Trustees and the Securities Registrar shall each treat the
Person in whose name any Trust Securities Certificate shall be registered in the
Securities Register as the owner of such Trust Securities Certificate for the
purpose of receiving Distributions and for all other purposes whatsoever, and
none of the Issuer Trustees and the Securities Registrar shall be bound by any
notice to the contrary.
Section 5.8. Access to List of Holders' Names and Addresses.
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Each Holder and each Owner shall be deemed to have agreed not to hold the
Depositor or the Issuer Trustees accountable by reason of the disclosure of its
name and address, regardless of the source from which such information was
derived.
Section 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrative Trustees, which consent shall not be unreasonably withheld, an
office or offices or agency or agencies where Capital Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates the
Corporate Trust Office, Attention: Corporate Trust Group, as its office and
agency for such purposes. The Property Trustee shall give prompt written notice
to the Depositor, the Administrative Trustees and to the Holders of any change
in the location of the Securities Register or any such office or agency.
Section 5.10. Appointment of Paying Agents.
The Paying Agent or Agents shall make Distributions to Holders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account solely for the
purpose of making the Distributions referred to above. The Administrative
Trustees may revoke such power and remove the Paying Agent in its sole
discretion. The Paying Agent shall initially be the Bank and any co-paying agent
chosen by the Property Trustee and acceptable to the Administrative Trustees and
the Depositor. Any Person acting as Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustees and the
Property Trustee. If the Bank shall no longer be the Paying Agent or a successor
Paying Agent shall resign or its authority to act be revoked, the Administrative
Trustees shall appoint a successor (which shall be a bank or trust company) that
is reasonably acceptable to the Depositor to act as Paying Agent. Such successor
Paying Agent or any additional Paying Agent shall execute and deliver to the
Issuer Trustees an instrument in which such successor Paying Agent or additional
Paying Agent shall agree with the Issuer Trustees that as Paying Agent, such
successor Paying Agent or additional Paying Agent will hold all sums, if any,
held by it for payment to the Holders in trust for the benefit of the Holders
entitled thereto until such sums shall be paid to such Holders. The Paying Agent
shall return all unclaimed funds to the Property Trustee and upon removal of a
Paying Agent such Paying Agent shall also return all funds in its possession to
the Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall
apply to the Bank also in its role as Paying Agent, for so long as the Bank
shall act as Paying Agent and, to the extent applicable, to any other paying
agent appointed hereunder. Any reference in this Agreement to the Paying Agent
shall include any co-paying agent unless the context requires otherwise.
Section 5.11. Ownership of Common Securities by Depositor.
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At the Time of Delivery, the Depositor shall acquire, and thereafter shall
retain, beneficial and record ownership of the Common Securities. Neither the
Depositor nor any successor Holder of the Common Securities may transfer less
than all the Common Securities (except in connection with a redemption thereof),
and the Depositor or any such successor Holder may transfer the Common
Securities only (i) in connection with a consolidation or merger of the
Depositor into another corporation, or any conveyance, transfer or lease by the
Depositor of its properties and assets substantially as an entirety to any
Person, pursuant to Section 8.1 of the Indenture, or (ii) to the Depositor or an
Affiliate of the Depositor in compliance with applicable law (including the
Securities Act and applicable state securities and blue sky laws). To the
fullest extent permitted by law, any attempted transfer of the Common Securities
other than as set forth in the next proceeding sentence shall be void. The
Administrative Trustees shall cause each Common Securities Certificate issued to
the Depositor to contain a legend stating substantially "THIS CERTIFICATE IS NOT
TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN
COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF THE TRUST AGREEMENT."
Section 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Capital Securities are
represented by a Book-Entry Capital Securities Certificate, the Issuer Trustees
shall give all such notices and communications specified herein to be given to
the Clearing Agency, and shall have no obligations to the Owners.
Section 5.13. Rights of Holders; Waivers of Past Defaults.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Holders shall not have any right or title therein other than the undivided
beneficial interest in the assets of the Issuer Trust conferred by their Trust
Securities and they shall have no right to call for any partition or division of
property, profits or rights of the Issuer Trust except as described below. The
Trust Securities shall be personal property giving only the rights specifically
set forth therein and in this Trust Agreement. The Trust Securities shall have
no preemptive or similar rights and when issued and delivered to Holders against
payment of the purchase price therefor will be fully paid and nonassessable by
the Issuer Trust. The Holders of the Trust Securities, in their capacities as
such, shall be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
(b) For so long as any Capital Securities remain Outstanding, if, upon a
Debenture Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Capital Securities then
Outstanding shall have the right to make such declaration by a notice in writing
to the Property Trustee, the Depositor and the Debenture Trustee.
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At any time after a declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as provided in the
Indenture, if the Property Trustee fails to annul any such declaration and waive
such default, the Holders of at least a Majority in Liquidation Amount of the
Capital Securities, by written notice to the Property Trustee, the Depositor and
the Debenture Trustee, may rescind and annul such declaration and its
consequences if:
(i) the Depositor has paid or deposited with the Debenture Trustee a
sum sufficient to pay
(A) all overdue installments of interest on all of the
Debentures,
(B) any accrued Additional Interest (as defined in the Indenture)
on all of the Debentures,
(C) the principal of (and premium, if any, on) any Debentures
that have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at the rate
borne by the Debentures, and
(D) all sums paid or advanced by the Debenture Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Debenture Trustee and the Property Trustee, their
agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other than
the non-payment of the principal of the Debentures that has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.
The Holders of at least a Majority in Liquidation Amount of the Capital
Securities may, on behalf of the Holders of all the Trust Securities, waive any
past default or Event of Default under the Indenture, except a default or Event
of Default in the payment of principal or interest (unless such default or Event
of Default has been cured and a sum sufficient to pay all matured installments
of interest and principal due otherwise than by acceleration has been deposited
with the Debenture Trustee) or a default or Event of Default in respect of a
covenant or provision that under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Debenture. No such
rescission shall affect any subsequent default or impair any right consequent
thereon.
Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of any part of the
Capital Securities, a record date shall be established for determining Holders
of Outstanding Capital Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only
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such Persons, shall be entitled to join in such notice, whether or not such
Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day that is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice that has been
canceled pursuant to the proviso to the preceding sentence, in which event a new
record date shall be established pursuant to the provisions of this Section
5.13(b).
(c) For so long as any Capital Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1)
or 5.1(2) of the Indenture, any Holder of Capital Securities shall have the
right to institute a proceeding directly against the Depositor, pursuant to
Section 5.8 of the Indenture, for enforcement of payment to such Holder of any
amounts payable in respect of Debentures having an aggregate principal amount
equal to the aggregate Liquidation Amount of the Capital Securities of such
Holder (a "Direct Action"). Except as set forth in Section 5.13(b) and this
Section 5.13(c), the Holders of Capital Securities shall have no right to
exercise directly any right or remedy available to the holders of, or in respect
of, the Debentures.
(d) Except as otherwise provided in paragraphs (a), (b) and (c) of this
Section 5.13, the Holders of at least a Majority in Liquidation Amount of the
Capital Securities may, on behalf of the Holders of all the Trust Securities,
waive any past default or Event of Default and its consequences. Upon such
waiver, any such default or Event of Default shall cease to exist, and any
default or Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Trust Agreement, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.
ARTICLE VI
Acts of Holders; Meetings; Voting
Section 6.1. Limitations on Voting Rights.
(a) Except as expressly provided in this Trust Agreement and in the
Indenture and as otherwise required by law, no Holder of Capital Securities
shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Issuer Trust or the obligations
of the parties hereto, nor shall anything herein set forth, or contained in the
terms of the Trust Securities Certificates, be construed so as to constitute the
Holders from time to time as partners or members of an association.
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(b) So long as any Debentures are held by the Property Trustee on behalf of
the Issuer Trust, the Property Trustee shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee, or execute any trust or power conferred on the Property Trustee with
respect to the Debentures, (ii) waive any past default that may be waived under
Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Debentures shall be due and payable,
or (iv) consent to any amendment, modification or termination of the Indenture
or the Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of at least a Majority in
Liquidation Amount of the Capital Securities, provided, however, that where a
consent under the Indenture would require the consent of each Holder of
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior written consent of each Holder of Capital Securities.
The Property Trustee shall not revoke any action previously authorized or
approved by a vote of the Holders of the Capital Securities, except by a
subsequent vote of the Holders of the Capital Securities. The Property Trustee
shall notify all Holders of the Capital Securities of any notice of default
received with respect to the Debentures. In addition to obtaining the foregoing
approvals of the Holders of the Capital Securities, prior to taking any of the
foregoing actions, the Issuer Trustees shall, at the expense of the Depositor,
obtain an Opinion of Counsel experienced in such matters to the effect that such
action shall not cause the Issuer Trust to be taxable as a corporation or
classified as other than a grantor trust for United States Federal income tax
purposes.
(c) If any proposed amendment to this Trust Agreement provides for, or the
Issuer Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of the
Capital Securities, whether by way of amendment to this Trust Agreement or
otherwise, or (ii) the dissolution, winding-up or termination of the Issuer
Trust, other than pursuant to the terms of this Trust Agreement, then the
Holders of Outstanding Capital Securities as a class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a Majority in Liquidation
Amount of the Capital Securities. Notwithstanding any other provision of this
Trust Agreement, no amendment to this Trust Agreement may be made if, as a
result of such amendment, it would cause the Issuer Trust to be taxable as a
corporation or classified as other than a grantor trust for United States
Federal income tax purposes.
Section 6.2. Notice of Meetings.
Notice of all meetings of the Holders of the Capital Securities, stating
the time, place and purpose of the meeting, shall be given by the Property
Trustee pursuant to Section 10.8 to each Holder of Capital Securities, at such
Holder's registered address, at least 15 days and not more than 90 days before
the meeting. At any such meeting, any business properly before the meeting may
be so considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
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Section 6.3. Meetings of Holders of the Capital Securities.
No annual meeting of Holders is required to be held. The Administrative
Trustees, however, shall call a meeting of the Holders of the Capital Securities
to vote on any matter upon the written request of the Holders of at least 25% in
aggregate Liquidation Amount of the Outstanding Capital Securities and the
Administrative Trustees or the Property Trustee may, at any time in their
discretion, call a meeting of the Holders of the Capital Securities to vote on
any matters as to which such Holders are entitled to vote.
The Holders of at least a Majority in Liquidation Amount of the Capital
Securities, present in person or by proxy, shall constitute a quorum at any
meeting of the Holders of the Capital Securities.
If a quorum is present at a meeting, an affirmative vote by the Holders
present, in person or by proxy, holding Capital Securities representing at least
a majority of the aggregate Liquidation Amount of the Capital Securities held by
the Holders present, either in person or by proxy, at such meeting shall
constitute the action of the Holders of the Capital Securities, unless this
Trust Agreement requires a greater number of affirmative votes.
Section 6.4. Voting Rights.
Holders shall be entitled to one vote for each $25 of Liquidation Amount
represented by their Outstanding Trust Securities in respect of any matter as to
which such Holders are entitled to vote.
Section 6.5. Proxies, etc.
At any meeting of Holders, any Holder entitled to vote thereat may vote by
proxy, provided that no proxy shall be voted at any meeting unless it shall have
been placed on file with the Administrative Trustees, or with such other officer
or agent of the Issuer Trust as the Administrative Trustees may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of the Property Trustee, proxies may be solicited in the name of the
Property Trustee or one or more officers of the Property Trustee. Only Holders
of record shall be entitled to vote. When Trust Securities are held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Holder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
Section 6.6. Holder Action by Written Consent.
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Any action that may be taken by Holders of Capital Securities at a meeting
may be taken without a meeting if Holders holding at least a Majority in
Liquidation Amount of the Capital Securities entitled to vote in respect of such
action (or such larger proportion thereof as shall be required by any other
provision of this Trust Agreement) shall consent to the action in writing. Any
action that may be taken by the Holder of all the Common Securities may be taken
if such Holder shall consent to the action in writing.
Section 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Holders who are entitled to notice of
and to vote at any meeting or by written consent, or to participate in any
distribution on the Trust Securities in respect of which a record date is not
otherwise provided for in this Trust Agreement, or for the purpose of any other
action, the Administrative Trustees may from time to time fix a date, not more
than 90 days prior to the date of any meeting of Holders or the payment of a
distribution or other action, as the case may be, as a record date for the
determination of the identity of the Holders of record for such purposes.
Section 6.8. Acts of Holders.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Trust Agreement to be given, made or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as otherwise expressly provided herein, such
action shall become effective when such instrument or instruments are delivered
to an Administrative Trustee. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Trust Agreement and (subject to Section 8.1)
conclusive in favor of the Issuer Trustees, if made in the manner provided in
this Section 6.8.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than such signer's individual capacity, such
certificate or affidavit shall also constitute sufficient proof of such signer's
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner that any Issuer Trustee receiving the same deems sufficient.
The ownership of Trust Securities shall be proved by the Securities
Register.
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Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Trust Security shall bind every future Holder of
the same Trust Security and the Holder of every Trust Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Issuer Trustees,
the Depositor or the Issuer Trust in reliance thereon, whether or not notation
of such action is made upon such Trust Security.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise among the Holders or the Issuer Trustees with
respect to the authenticity, validity or binding nature of any request, demand,
authorization, direction, consent, waiver or other Act of such Holder or Issuer
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.
Section 6.9. Inspection of Records.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Issuer Trust shall be open to inspection by Holders
(and other Issuer Trustees) during normal business hours for any purpose
reasonably related to such Holder's interest as a Holder (or such Issuer
Trustee's service as a Trustee hereunder).
ARTICLE VII
Representations and Warranties
Section 7.1. Representations and Warranties of the Property Trustee and
the Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on behalf of
and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Holders that:
(a) the Property Trustee is a national banking association, duly organized,
validly existing and in good standing under the laws of the United States;
(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
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(c) FUTC is a national banking association, duly formed and validly
existing under the laws of the United States and satisfies for the Issuer Trust
the requirements of Section 3807(a) of the Delaware Business Trust Act;
(d) FUTC has full corporate power, authority and legal right to execute,
deliver and perform its obligations under this Trust Agreement and has taken all
necessary action to authorize the execution, delivery and performance by it of
this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and delivered
by the Property Trustee and the Delaware Trustee and constitutes the valid and
legally binding agreement of each of the Property Trustee and the Delaware
Trustee enforceable against each of them in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles (regardless of whether considered in a
proceeding at law or in equity);
(f) the execution, delivery and performance of this Trust Agreement have
been duly authorized by all necessary corporate or other action on the part of
the Property Trustee and the Delaware Trustee and do not require any approval of
stockholders of the Property Trustee and the Delaware Trustee and such
execution, delivery and performance will not (i) violate the Charter or By-laws
of the Property Trustee or the Delaware Trustee, (ii) violate any provision of,
or constitute, with or without notice or lapse of time, a default under, or
result in the creation or imposition of, any Lien on any properties included in
the Trust Property pursuant to the provisions of, any indenture, mortgage,
credit agreement, license or other agreement or instrument to which the Property
Trustee or the Delaware Trustee is a party or by which it is bound, or (iii)
violate any law, governmental rule or regulation of the United States or the
State of Delaware, as the case may be, governing the banking, trust or general
powers of the Property Trustee or the Delaware Trustee (as appropriate in
context) or any order, judgment or decree applicable to the Property Trustee or
the Delaware Trustee;
(g) none of the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee, as
appropriate in context, contemplated herein requires the consent or approval of,
the giving of notice to, the registration with or the taking of any other action
with respect to any governmental authority or agency under any existing law of
the United States or the State of Delaware governing the banking, trust or
general powers of the Property Trustee or the Delaware Trustee, as the case may
be; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal that,
individually or in the aggregate, would materially and adversely affect the
Issuer Trust or would question the right, power and authority of the Property
Trustee or the Delaware
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Trustee, as the case may be, to enter into or perform its obligations as one of
the Issuer Trustees under this Trust Agreement.
Section 7.2. Representations and Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the Holders
that:
(a) the Trust Securities Certificates issued on behalf of the Issuer Trust
have been duly authorized and will have been duly and validly executed, issued
and delivered by the Issuer Trustees pursuant to the terms and provisions of,
and in accordance with the requirements of, this Trust Agreement and the Holders
will be, as of such date, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Issuer Trust (or the Issuer Trustees on behalf of the Issuer Trust) under the
laws of the State of Delaware or any political subdivision thereof in connection
with the execution, delivery and performance by either Issuer Trustee of this
Trust Agreement.
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ARTICLE VIII
The Issuer Trustees
Section 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Issuer Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, but subject to Section
8.1(c), no provision of this Trust Agreement shall require any of the Issuer
Trustees to expend or risk its or their own funds or otherwise incur any
financial liability in the performance of any of its or their duties hereunder,
or in the exercise of any of its or their rights or powers, if it or they shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it or
them. Whether or not therein expressly so provided, every provision of this
Trust Agreement relating to the conduct or affecting the liability of or
affording protection to the Issuer Trustees shall be subject to the provisions
of this Section 8.1. Nothing in this Trust Agreement shall be construed to
release an Administrative Trustee from liability for his or her own gross
negligent action, his or her own gross negligent failure to act, or his or her
own wilful misconduct. To the extent that, at law or in equity, an Issuer
Trustee has duties and liabilities relating to the Issuer Trust or to the
Holders, such Issuer Trustee shall not be liable to the Issuer Trust or to any
Holder for such Issuer Trustee's good faith reliance on the provisions of this
Trust Agreement. The provisions of this Trust Agreement, to the extent that they
restrict the duties and liabilities of the Issuer Trustees otherwise existing at
law or in equity, are agreed by the Depositor and the Holders to replace such
other duties and liabilities of the Issuer Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. Each Holder, by its
acceptance of a Trust Security, agrees that it will look solely to the revenue
and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Issuer Trustees are not
personally liable to it for any amount distributable in respect of any Trust
Security or for any other liability in respect of any Trust Security. This
Section 8.1(b) does not limit the liability of the Issuer Trustees expressly set
forth elsewhere in this Trust Agreement or, in the case of the Property Trustee,
in the Trust Indenture Act.
(c) If an Event of Default has occurred and is continuing, the Property
Trustee shall enforce this Trust Agreement for the benefit of the Holders.
(d) The Property Trustee, before the occurrence of any Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Trust Agreement (including pursuant to Section 10.10), and no implied covenants
shall be read into this Trust Agreement against the Property Trustee. If an
Event of Default has occurred (that has not been cured or waived pursuant to
Section 5.13),
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the Property Trustee shall exercise such of the rights and powers vested in it
by this Trust Agreement, and use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(e) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee or the Delaware Trustee from liability for its own negligent
action, its own negligent failure to act, or its own wilful misconduct, except
that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee shall be
determined solely by the express provisions of this Trust Agreement
(including pursuant to Section 10.10), and the Property Trustee shall
not be liable except for the performance of such duties and
obligations as are specifically set forth in this Trust Agreement
(including pursuant to Section 10.10); and
(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property
Trustee and conforming to the requirements of this Trust Agreement;
but in the case of any such certificates or opinions that by any
provision hereof or of the Trust Indenture Act are specifically
required to be furnished to the Property Trustee, the Property Trustee
shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Trust Agreement.
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of at least a Majority in Liquidation Amount
of the Capital Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee,
or exercising any trust or power conferred upon the Property Trustee under
this Trust Agreement;
(iv) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Debentures and the Payment
Account shall be to deal with such Property in a similar manner as the
Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust Indenture Act;
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(v) the Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree with the Depositor;
and money held by the Property Trustee need not be segregated from other
funds held by it except in relation to the Payment Account maintained by
the Property Trustee pursuant to Section 3.1 and except to the extent
otherwise required by law;
(vi) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property
Trustee be liable for the default or misconduct of any other Issuer Trustee
or the Depositor; and
(vii) No provision of this Trust Agreement shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if the Property Trustee shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this Trust
Agreement or adequate indemnity against such risk or liability is not
reasonably assured to it.
(f) The Administrative Trustees shall not be responsible for monitoring the
compliance by the Issuer Trustees or the Depositor with their respective duties
under this Trust Agreement, nor shall either Administrative Trustee be liable
for the default or misconduct of any other Issuer Trustee or the Depositor. The
Delaware Trustee shall not be responsible for monitoring compliance by the
Property Trustee, the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Delaware Trustee be
liable for the default or misconduct of any other Issuer Trustee or the
Depositor.
Section 8.2. Certain Notices.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit, in
the manner and to the extent provided in Section 10.8, notice of such Event of
Default to the Holders and the Administrative Trustee, unless such Event of
Default shall have been cured or waived.
Within five Business Days after the receipt of notice of the Depositor's
exercise of its right to defer the payment of interest on the Debentures
pursuant to the Indenture, the Property Trustee shall transmit, in the manner
and to the extent provided in Section 10.8, notice of such exercise to the
Holders and the Administrative Trustees, unless such exercise shall have been
revoked.
The Property Trustee shall not be deemed to have knowledge of any Event of
Default unless the Property Trustee shall have received written notice, or an
officer of the Property Trustee charged with the administration of this Trust
Agreement shall have obtained actual knowledge, of such Event of Default.
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Section 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action, (ii) in
construing any of the provisions of this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with any other provisions contained
herein, or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, except as to any matter as to which the
Holders of the Capital Securities are entitled to vote under the terms of this
Trust Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting the Depositor's opinion as to the course of action to be taken and
the Property Trustee shall take such action, or refrain from taking such action,
as the Property Trustee shall be instructed in writing to take, or to refrain
from taking, by the Depositor; provided, however, that if the Property Trustee
does not receive such instructions of the Depositor within ten Business Days
after it has delivered such notice, or such reasonably shorter period of time
set forth in such notice (which to the extent practicable shall not be less than
two Business Days), it may, but shall be under no duty to, take or refrain from
taking such action not inconsistent with this Trust Agreement as it shall deem
advisable and in the best interests of the Holders, in which event the Property
Trustee shall have no liability except for its own bad faith, negligence or
wilful misconduct;
(c) any direction or act of the Depositor contemplated by this Trust
Agreement shall be sufficiently evidenced by an Officers' Certificate;
(d) any direction or act of an Administrative Trustee contemplated by this
Trust Agreement shall be sufficiently evidenced by a certificate executed by
such Administrative Trustee and setting forth such direction or act;
(e) the Property Trustee shall have no duty to see to any recording, filing
or registration of any instrument (including any financing or continuation
statement or any filing under tax or securities laws) or any rerecording,
refiling or re-registration thereof;
(f) the Property Trustee may consult with counsel (which counsel may be
counsel to the Depositor or any of its Affiliates, and may include any of its
employees) and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon and in accordance with
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such advice; the Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust Agreement from any
court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Holders pursuant to this Trust Agreement, unless such
Holders shall have offered to the Property Trustee reasonable security or
indemnity against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction; provided that, nothing
contained in this Section 8.3(g) shall be taken to relieve the Property Trustee,
upon the occurrence of an Event of Default, of its obligation to exercise the
rights and powers vested in it by this Trust Agreement;
(h) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Holders, but the Property
Trustee may make such further inquiry or investigation into such facts or
matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys, provided that the Property Trustee shall be responsible for its own
negligence, bad faith or wilful misconduct with respect to selection of any
agent or attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (i) may request instructions from the Holders (which instructions may
only be given by the Holders of the same proportion in Liquidation Amount of the
Trust Securities as would be entitled to direct the Property Trustee under the
terms of the Trust Securities in respect of such remedy, right or action), (ii)
may refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be protected in acting in
accordance with such instructions; and
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement.
No provision of this Trust Agreement shall be deemed to impose any duty or
obligation on any Issuer Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which it shall be unqualified or incompetent
in accordance with applicable law, to perform any such act or acts, or to
exercise any such right, power, duty or obligation. No permissive power or
authority available to any Issuer Trustee shall be construed to be a duty.
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Section 8.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Depositor and the Issuer Trust, and the
Issuer Trustees do not assume any responsibility for their correctness. The
Issuer Trustees shall not be accountable for the use or application by the
Depositor of the proceeds of the Debentures.
The Property Trustee may conclusively assume that any funds held by it
hereunder are legally available unless an officer of the Property Trustee
assigned to its Corporate Trust division shall have received written notice from
the Depositor, any Holder or any other Issuer Trustee that such funds are not
legally available.
Section 8.5. May Hold Securities.
Any Issuer Trustee or any agent of any Issuer Trustee or the Issuer Trust,
in its individual or any other capacity, may become the owner or pledgee of
Trust Securities and, subject to Sections 8.8 and 8.13 and, except as provided
in the definition of the term "Outstanding" in Article I, may otherwise deal
with the Issuer Trust with the same rights it would have if it were not an
Issuer Trustee or such agent.
Section 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to each Issuer Trustee and Paying Agent from time to time such
reasonable compensation for all services rendered by it hereunder as may be
agreed by the Depositor and such Issuer Trustee or Paying Agent, as the case may
be, from time to time (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse each Issuer
Trustee and Paying Agent upon request for all reasonable expenses, disbursements
and advances incurred or made by it in accordance with any provision of this
Trust Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its own negligence, bad faith or wilful
misconduct; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Issuer Trustee (individually and as an Issuer Trustee),
(ii) each Paying Agent, (iii) any Affiliate of any Issuer Trustee (individually
and as an Issuer Trustee), (iv) any officer, director, shareholder, employee,
representative or agent of any Issuer Trustee (individually and as an Issuer
Trustee) and (v) any employee or agent of the Issuer Trust (referred to herein
as an "Indemnified Person") from and against any loss, damage, liability, tax,
penalty, expense or claim of any kind or nature whatsoever incurred by such
Indemnified Person by reason of the
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creation, operation or termination of the Issuer Trust or any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Issuer Trust and in a manner such Indemnified Person believed in good faith to
be within the scope of authority conferred on such Indemnified Person by this
Trust Agreement, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such Indemnified
Person by reason of its own negligence, bad faith or wilful misconduct with
respect to such acts or omissions.
(d) to the fullest extent permitted by applicable law, the parties intend
that Section 3561 of Title 12 of the Delaware Code shall not apply to the Issuer
Trust and that compensation payable to any Issuer Trustee pursuant to this
Section 8.6 not be subject to review by any court under Section 3560 of Title 12
of the Delaware Code or otherwise.
The provisions of this Section 8.6 shall survive the termination of this
Trust Agreement and the resignation or removal of any Issuer Trustee.
No Issuer Trustee or Paying Agent may claim any Lien on any Trust Property
as a result of any amount due pursuant to this Section 8.6.
The Depositor, any Issuer Trustee (subject to Section 8.8(a)) and any
Paying Agent may engage in or possess an interest in other business ventures of
any nature or description, independently or with others, similar or dissimilar
to the business of the Issuer Trust, and the Issuer Trust and the Holders of
Trust Securities shall have no rights by virtue of this Trust Agreement in and
to such independent ventures or the income or profits derived therefrom, and the
pursuit of any such venture, even if competitive with the business of the Issuer
Trust, shall not be deemed wrongful or improper. Neither the Depositor, any
Paying Agent nor any Issuer Trustee shall be obligated to present any particular
investment or other opportunity to the Issuer Trust even if such opportunity is
of a character that, if presented to the Issuer Trust, could be taken by the
Issuer Trust, and the Depositor, any Issuer Trustee or any Paying Agent shall
have the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment or other
opportunity. Any Issuer Trustee or Paying Agent may engage or be interested in
any financial or other transaction with the Depositor or any Affiliate of the
Depositor, or may act as depository for, trustee or agent for, or act on any
committee or body of holders of, securities or other obligations of the
Depositor or its Affiliates.
Section 8.7. Corporate Property Trustee Required; Eligibility of Issuer
Trustees.
(a) There shall at all times be a Property Trustee hereunder with respect
to the Trust Securities. The Property Trustee shall be a Person that is a
national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such, and that has at the time of such appointment securities
rated in one of the three highest rating categories by a nationally recognized
statistical rating organization and a combined capital and surplus of at least
$50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this
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Section 8.7 and to the extent permitted by the Trust Indenture Act, the combined
capital and surplus of such Person shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published. If
at any time the Property Trustee with respect to the Trust Securities shall
cease to be eligible in accordance with the provisions of this Section 8.7, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article. At the time of appointment, the Property Trustee must have
securities rated in one of the three highest rating categories by a nationally
recognized statistical rating organization.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee hereunder with respect
to the Trust Securities. The Delaware Trustee shall either be (i) a natural
person who is at least 21 years of age and a resident of the State of Delaware,
or (ii) a legal entity with its principal place of business in the State of
Delaware and that otherwise meets the requirements of applicable Delaware law
and that shall act through one or more persons authorized to bind such entity.
Section 8.8. Conflicting Interests.
(a) If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
(b) The Guarantee Agreement and the Indenture shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
Section 8.9. Co-Trustees and Separate Trustee.
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, Depositor and the Administrative Trustees, by agreed
action of the majority of them shall have power to appoint, and upon the written
request of the Administrative Trustee and the Depositor shall for such purpose
join with the Administrative Trustees in the execution, delivery, and
performance of all instruments and agreements necessary or proper to appoint,
one or more Persons approved by the Property Trustee either to act as co-
trustee, jointly with the Property Trustee, of all or any part of such Trust
Property, or to the extent required by law to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section 8.9. Any co-trustee
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or separate trustee appointed pursuant to this Section 8.9 shall either be (i) a
natural person who is at least 21 years of age and a resident of the United
States, or (ii) a legal entity with its principal place of business in the
United States that shall act through one or more persons authorized to bind such
entity. If an Event of Default under the Indenture shall have occurred and be
continuing, the Property Trustee alone shall have the power to make such
appointment.
Should any written instrument from the Depositor be required by any co-
trustee or separate trustee so appointed for more fully confirming to such co-
trustee or separate trustee such property, title, right, or power, any and all
such instruments shall, on request, be executed, acknowledged and delivered by
the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms, namely:
(a) The Trust Securities shall be executed by one or more Administrative
Trustees, and the Trust Securities shall be delivered by the Property Trustee,
and all rights, powers, duties, and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or required to
be deposited or pledged with, the Property Trustee specified hereunder shall be
exercised solely by the Property Trustee and not by such co-trustee or separate
trustee.
(b) The rights, powers, duties, and obligations hereby conferred or imposed
upon the Property Trustee in respect of any property covered by such appointment
shall be conferred or imposed upon and exercised or performed by the Property
Trustee or by the Property Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee or
separate trustee, except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Property Trustee shall be
incompetent or unqualified to perform such act, in which event such rights,
powers, duties and obligations shall be exercised and performed by such co-
trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing executed
by it, with the written concurrence of the Depositor, may accept the resignation
of or remove any co-trustee or separate trustee appointed under this Section
8.9, and, in case a Debenture Event of Default has occurred and is continuing,
the Property Trustee shall have power to accept the resignation of, or remove,
any such co-trustee or separate trustee without the concurrence of the
Depositor. Upon the written request of the Property Trustee, the Depositor shall
join with the Property Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such resignation or
removal. A successor to any co-trustee or separate trustee so resigning or
removed may be appointed in the manner provided in this Section 8.9.
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Property Trustee or any other trustee
hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a co-
trustee or separate trustee.
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(f) Any Act of Holders delivered to the Property Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
Section 8.10. Resignation and Removal; Appointment of Successor.
No resignation or removal of any Issuer Trustee (the "Relevant Trustee")
and no appointment of a successor Issuer Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor Issuer
Trustee in accordance with the applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, the Relevant Trustee may
resign at any time by giving written notice thereof to the Holders. If the
instrument of acceptance by the successor Issuer Trustee required by Section
8.11 shall not have been delivered to the Relevant Trustee within 60 days after
the giving of such notice of resignation, the Relevant Trustee may petition, at
the expense of the Depositor, any court of competent jurisdiction for the
appointment of a successor Relevant Trustee.
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by Act of the Holder of the Common
Securities. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a Majority in Liquidation
Amount of the Capital Securities, delivered to the Relevant Trustee (in its
individual capacity and, in the case of the Property Trustee, on behalf of the
Issuer Trust). An Administrative Trustee may only be removed by the Holder of
the Common Securities and may be so removed at any time.
If any Issuer Trustee shall resign, be removed or become incapable of
acting as Issuer Trustee, or if a vacancy shall occur in the office of any
Issuer Trustee for any cause, at a time when no Debenture Event of Default shall
have occurred and be continuing, the Holder of the Common Securities, by Act
delivered to the retiring Issuer Trustee, shall promptly appoint a successor
Issuer Trustee or Issuer Trustees, and such successor Issuer Trustee shall
comply with the applicable requirements of Section 8.11. If the Property Trustee
or the Delaware Trustee shall resign, be removed or become incapable of
continuing to act as the Property Trustee or the Delaware Trustee, as the case
may be, at a time when a Debenture Event of Default shall have occurred and be
continuing, the Holders of Capital Securities, by Act of the Holders of a
Majority in Liquidation Amount of the Capital Securities delivered to the
retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee
or Trustees, and such successor Issuer Trustee shall comply with the applicable
requirements of Section 8.11. If an Administrative Trustee shall resign, be
removed or become incapable of acting as Administrative Trustee, at a time when
a Debenture Event of Default shall have occurred and be continuing, the Holder
of the Common Securities by Act delivered to the Administrative Trustee shall
promptly appoint a successor Administrative Trustee or Administrative Trustees
and such successor Administrative Trustee or Trustees shall comply with the
applicable requirements of Section
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8.11. If no successor Relevant Trustee shall have been so appointed by the
Holder of the Common Securities or the Holders of a Majority in Liquidation
Amount of the Capital Securities, as the case may be, and accepted appointment
in the manner required by Section 8.11, any Holder who has been a Holder of
Trust Securities for at least six months may, on behalf of such Holder and all
others similarly situated, or any other Issuer Trustee, may petition any court
of competent jurisdiction for the appointment of a successor Relevant Trustee.
The Property Trustee shall give notice of each resignation and each removal
of an Issuer Trustee and each appointment of a successor Issuer Trustee to all
Holders in the manner provided in Section 10.8 and shall give notice to the
Depositor. Each notice shall include the name of the successor Relevant Trustee
and the address of its Corporate Trust Office if it is the Property Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, if any Delaware Trustee who is a natural person dies or becomes, in
the opinion of the Depositor, incompeent or incapacitated, the vacancy created
by such death, incompetence or incapacity may be filled by (a) the unanimous act
of the remaining Administrative Trustees if there are at least two of them or
(b) otherwise by the Depositor (with the successor in either case being a Person
who satisfies the eligibility requirement for the Delaware Trustee set forth in
Section 8.7).
Section 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Relevant Trustee, the
retiring Relevant Trustee and each successor Relevant Trustee with respect to
the Trust Securities shall execute and deliver an amendment hereto wherein each
successor Relevant Trustee shall accept such appointment and which (a) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Issuer Trust, and (b) shall add to or change any of the
provisions of this Trust Agreement as shall be necessary to provide for or
facilitate the administration of the Issuer Trust by more than one Relevant
Trustee, it being understood that nothing herein or in such amendment shall
constitute such Relevant Trustees co-trustees and upon the execution and
delivery of such amendment the resignation or removal of the retiring Relevant
Trustee shall become effective to the extent provided therein and each such
successor Relevant Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Relevant Trustee; but, on request of the Issuer Trust or any successor Relevant
Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver
to such successor Relevant Trustee all Trust Property, all proceeds thereof and
money held by such retiring Relevant Trustee hereunder with respect to the Trust
Securities and the Issuer Trust.
Upon request of any Issuer Trustee or any such successor Relevant Trustee,
the retiring Relevant Trustee or the Issuer Trust, as the case may be, shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such
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rights, powers and trusts referred to in the first or second preceding
paragraph, as the case may be.
No successor Relevant Trustee shall accept its appointment unless at the
time of such acceptance such successor Relevant Trustee shall be qualified and
eligible under this Article.
Section 8.12. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person, succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided that such Person shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.
Section 8.13. Preferential Collection of Claims Against Depositor or
Issuer Trust.
If and when the Property Trustee shall be or become a creditor of the
Depositor or the Issuer Trust (or any other obligor upon the Capital
Securities), the Property Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of claims against the Depositor or
the Issuer Trust (or any such other obligor).
Section 8.14. Property Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Issuer Trust or any other obligor upon the Trust
Securities or the property of the Issuer Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Trust Securities shall then be due and payable and irrespective of whether
the Property Trustee shall have made any demand on the Issuer Trust for the
payment of any past due Distributions) shall be entitled and empowered, to the
fullest extent permitted by law, by intervention in such proceeding or
otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement adjustment or compensation affecting the Trust
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 8.15. Reports by Property Trustee.
(a) Not later than 60 days following December 31 of each year commencing
with December 31, 2000 the Property Trustee shall transmit to all Holders in
accordance with Section 10.8, and to the Depositor, a brief report dated as of
the immediately preceding December 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to the
best of its knowledge it has continued to be eligible under said Section, a
written statement to such effect;
(ii) a statement that the Property Trustee has complied with all of
its obligations under this Trust Agreement during the twelve-month period
(or, in the case of the initial report, the period since the Closing Date)
ending with such December 31 or, if the Property Trustee has not complied
in any material respect with such obligations, a description of such
noncompliance; and
(iii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken by
the Property Trustee in the performance of its duties hereunder which it
has not previously reported and which in its opinion materially affects the
Trust Securities.
(b) In addition the Property Trustee shall transmit to Holders such reports
concerning the Property Trustee and its actions under this Trust Agreement as
may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with each national stock exchange, the
Nasdaq National Market or such other interdealer quotation system or self-
regulatory organization upon which the Trust Securities are listed or traded,
with the Commission and with the Depositor.
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Section 8.16. Reports to the Property Trustee.
Each of the Depositor and the Administrative Trustees on behalf of the
Issuer Trust shall provide to the Property Trustee such documents, reports and
information as required by Section 314 of the Trust Indenture Act (if any) and
the compliance certificate required by Section 314(a) of the Trust Indenture Act
in the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act. The Depositor and the Administrative Trustees on behalf of the
Issuer Trust shall annually file with the Property Trustee a certificate
specifying whether such Person is in compliance with all of the terms and
covenants applicable to such Person hereunder.
Section 8.17. Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrative Trustees on behalf of the
Issuer Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Trust Agreement that
relate to any of the matters set forth in Section 314(c) of the Trust Indenture
Act. Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
Section 8.18. Number of Issuer Trustees.
(a) The number of Issuer Trustees shall be four, provided that the Property
Trustee and the Delaware Trustee may be the same Person.
(b) If an Issuer Trustee ceases to hold office for any reason, a vacancy
shall occur. The vacancy shall be filled with an Issuer Trustee appointed in
accordance with Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence
or incapacity to perform the duties of an Issuer Trustee shall not operate to
annul, dissolve or terminate the Issuer Trust.
Section 8.19. Delegation of Power.
(a) Any Administrative Trustee, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 such
Administrative Trustee's power for the purpose of executing any documents
contemplated in Section 2.7(a), including any registration statement or
amendment thereto filed with the Commission, or making any other governmental
filing; and
(b) The Administrative Trustees shall have power to delegate from time to
time to such of their number or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Issuer Trust or the
names of the Administrative Trustees or otherwise as
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the Administrative Trustees may deem expedient, to the extent such delegation is
not prohibited by applicable law or contrary to the provisions of this Trust
Agreement.
Section 8.20. Appointment of Administrative Trustees.
(a) The Administrative Trustees shall initially be Jonathan A. Hawkins and
Leslie T. Newton, and their successors shall be appointed by the Holder of all
the Common Securities. The Administrative Trustees may resign or be removed by
the Holder of all the Common Securities at any time. Upon any resignation or
removal of an Administrative Trustee, the Depositor shall appoint a successor
Administrative Trustee. If at any time there is no Administrative Trustee, the
Property Trustee or any Holder who has been a Holder of Trust Securities for at
least six months may petition any court of competent jurisdiction for the
appointment of one or more Administrative Trustees.
(b) Whenever a vacancy in the number of Administrative Trustees shall
occur, until such vacancy is filled by the appointment of an Administrative
Trustee in accordance with this Section 8.20, the Administrative Trustees in
office, regardless of their number (and notwithstanding any other provision of
this Agreement), shall have all the powers granted to the Administrative
Trustees and shall discharge all the duties imposed upon the Administrative
Trustees by this Trust Agreement.
(c) Notwithstanding the foregoing or any other provision of this Trust
Agreement, if any Administrative Trustee who is a natural person dies or
becomes, in the opinion of the Holder of all the Common Securities, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by the unanimous act of the remaining Administrative Trustees, if
there were at least two of them prior to such vacancy, and by the Depositor, if
there were not two such Administrative Trustees immediately prior to such
vacancy (with the successor being a Person who satisfies the eligibility
requirement for Administrative Trustees set forth in Section 8.7).
ARTICLE IX
Dissolution, Liquidation and Merger
Section 9.1. Dissolution Upon Expiration Date.
Unless earlier dissolved, the Issuer Trust shall automatically dissolve on
_________, 2049 (the "Expiration Date"), and shall thereafter be terminated by
filing a Certificate of Cancellation with the Secretary of State of the State of
Delaware, following the distribution of the Trust Property in accordance with
Section 9.4.
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Section 9.2. Early Dissolution.
The first to occur of any of the following events is an "Early Termination
Event" upon the occurrence of which the Trust shall be dissolved:
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of, the Holder of all the Common Securities;
(b) the written direction to the Property Trustee from the Holder of all
the Common Securities at any time to dissolve the Issuer Trust and to distribute
the Debentures to Holders in exchange for the Capital Securities (which
direction is optional and wholly within the discretion of the Holder of all the
Common Securities);
(c) the redemption of all of the Capital Securities in connection with the
redemption of all the Debentures; and
(d) the entry of an order for dissolution of the Issuer Trust by a court of
competent jurisdiction.
Section 9.3. Termination.
The respective obligations and responsibilities of the Issuer Trustees and
the Issuer Trust created and continued hereby shall terminate upon the latest to
occur of the following: (a) the distribution by the Property Trustee to Holders
of all amounts required to be distributed hereunder upon the liquidation of the
Issuer Trust pursuant to Section 9.4, or upon the redemption of all of the Trust
Securities pursuant to Section 4.2; (b) the payment of any expenses owed by the
Issuer Trust; and (c) the discharge of all administrative duties of the
Administrative Trustees, including the performance of any tax reporting
obligations with respect to the Issuer Trust or the Holders and (d) the filing
with the Secretary of State of the State of Delaware of a certificate of
cancellation for the Issuer Trust upon the completion of winding up following
the dissolution of the Issuer Trust.
Section 9.4. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or (d) of
Section 9.2 occurs or upon the Expiration Date, the Issuer Trust shall be
liquidated by the Issuer Trustees as expeditiously as the Issuer Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by Section 3808(e) of the Delaware
Business Trust Act and any other applicable law, to each Holder a Like Amount of
Debentures, subject to Section 9.4(d). Notice of liquidation shall be given by
the Property Trustee by first-class mail, postage prepaid mailed not less than
30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust
Securities at such Holder's address appearing in the Securities Register. All
such notices of liquidation shall:
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(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for Debentures, or if
Section 9.4(d) applies receive a Liquidation Distribution, as the Property
Trustee and the Administrative Trustees shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the
liquidation of the Issuer Trust and distribution of the Debentures to Holders,
the Property Trustee, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish a record date for such
distribution (which shall be not more than 45 days prior to the Liquidation
Date) and establish such procedures as it shall deem appropriate to effect the
distribution of Debentures in exchange for the Outstanding Trust Securities
Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation
Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii)
certificates representing a Like Amount of Debentures will be issued to Holders
of Trust Securities Certificates, upon surrender of such Trust Securities
Certificates to the exchange agent for exchange, (iii) any Trust Securities
Certificates not so surrendered for exchange will be deemed to represent a Like
Amount of Debentures bearing accrued and unpaid interest in an amount equal to
the accumulated and unpaid Distributions on such Trust Securities Certificates
until such certificates are so surrendered (and until such certificates are so
surrendered, no payments of interest or principal will be made to Holders of
Trust Securities Certificates with respect to such Debentures), and (iv) all
rights of Holders holding Trust Securities will cease, except the right of such
Holders to receive Debentures upon surrender of Trust Securities Certificates.
(d) If, upon dissolution of the Trust, notwithstanding the other provisions
of this Section 9.4, whether because of an order for dissolution entered by a
court of competent jurisdiction or otherwise, distribution of the Debentures in
the manner provided herein is determined by the Property Trustee not to be
practical, or if an Early Termination Event specified in clause (c) of Section
9.2 occurs, the Trust Property shall be liquidated by the Property Trustee in
such manner as the Property Trustee determines. In such event, in connection
with the winding-up of the Issuer Trust, Holders will be entitled to receive out
of the assets of the Issuer Trust available for distribution to Holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
Section 3808(e) of the Delaware Business Trust Act and other applicable law, an
amount equal to the Liquidation Amount per Trust Security plus accumulated and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If, upon any such winding up, the Liquidation
Distribution can be paid only in part because the Issuer Trust has insufficient
assets available to pay in full the aggregate Liquidation Distribution, then,
subject to the next succeeding sentence, the amounts payable by
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the Issuer Trust on the Trust Securities shall be paid on a pro rata basis
(based upon Liquidation Amounts). The Holder of all the Common Securities will
be entitled to receive Liquidation Distributions upon any such winding-up pro
rata (determined as aforesaid) with Holders of Capital Securities, except that,
if a Debenture Event of Default specified in Section 5.1(1) or 5.1(2) of the
Indenture has occurred and is continuing, the Capital Securities shall have a
priority over the Common Securities as provided in Section 4.3.
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of
Issuer Trust.
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except pursuant
to this Section 9.5. At the request of the Holder of all the Common Securities,
with the consent of the Administrative Trustees, but without the consent of the
Holders of the Outstanding Capital Securities, the Property Trustee and the
Delaware Trustee, the Issuer Trust may merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to a trust organized as such under the laws
of any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Issuer Trust with respect to the Capital
Securities, or (b) substitutes for the Capital Securities other securities
having substantially the same terms as the Capital Securities (the "Successor
Securities") so long as the Successor Securities have the same priority as the
Capital Securities with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) a trustee of such successor entity possessing the
same powers and duties as the Property Trustee is appointed to hold the
Debentures, (iii) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Capital Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization that then assigns a rating to the Capital
Securities, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect, (v) such successor entity has a purpose
substantially identical to that of the Issuer Trust, (vi) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Depositor has received an Opinion of Counsel to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the Holders of the
Capital Securities (including any Successor Securities) in any material respect,
and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Issuer Trust nor such successor
entity will be required to register as an "investment company" under the
Investment Company Act, and (vii) the Depositor or its permitted transferee owns
all of the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee Agreement. Notwithstanding the foregoing,
the Issuer Trust shall not, except with the consent of holders of all of the
Capital Securities, consolidate, amalgamate, merge with or into, or be replaced
by or convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger,
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replacement, conveyance, transfer or lease would cause the Issuer Trust or the
successor entity to be taxable as a corporation or classified as other than a
grantor trust for United States Federal income tax purposes.
ARTICLE X
Miscellaneous Provisions
Section 10.1. Limitation of Rights of Holders.
Except as set forth in Section 9.2, the death, incapacity, dissolution,
termination or bankruptcy of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to annul, dissolve or terminate
this Trust Agreement, nor entitle the legal representatives, successors or heirs
of such Person or any Holder for such person, to claim an accounting, take any
action or bring any proceeding in any court for a partition or winding up of the
arrangements contemplated hereby, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them.
Section 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the Property
Trustee, the Administrative Trustees and the Holder of the Common Securities,
without the consent of the Delaware Trustee or any Holder of the Capital
Securities, (i) to cure any ambiguity, correct or supplement any provision
herein that may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this Trust
Agreement, which shall not be inconsistent with the other provisions of this
Trust Agreement, or (ii) to modify, eliminate or add to any provisions of this
Trust Agreement to such extent as shall be necessary to ensure that the Issuer
Trust will not be taxable as a corporation or will be classified as a grantor
trust for United States Federal income tax purposes at all times that any Trust
Securities are Outstanding or to ensure that the Issuer Trust will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in either case (i) or (ii) such action shall not
adversely affect in any material respect the interests of the Delaware Trustee
or any Holder.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Property Trustee, the Administrative
Trustees and the Holder of the Common Securities, without the consent of the
Delaware Trustee, and with (i) the consent of Holders of at least a Majority in
Liquidation Amount of the Capital Securities, and (ii) receipt by the Issuer
Trustees of an Opinion of Counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not cause the Issuer Trust to be taxable as a corporation or as
other than a grantor trust for United States Federal income tax purposes or
affect the Issuer Trust's exemption from status as an "investment company" under
the Investment Company Act; provided, however, that such action shall not
adversely affect in any material respect the interests of the Delaware Trustee.
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(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Holder, this Trust Agreement may
not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date,
or (ii) restrict the right of a Holder to institute suit for the enforcement of
any such payment on or after such date; and notwithstanding any other provision
herein, without the unanimous consent of the Holders, this paragraph (c) of this
Section 10.2 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no Issuer
Trustee shall enter into or consent to any amendment to this Trust Agreement
that would cause the Issuer Trust to fail or cease to qualify for the exemption
from status as an "investment company" under the Investment Company Act or to be
taxable as a corporation or to be classified as other than a grantor trust for
United States Federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary, (i)
without the consent of the Depositor and the Administrative Trustees, this Trust
Agreement may not be amended in a manner that imposes any additional obligation
on the Depositor or the Administrative Trustees, and (ii) without the consent of
the Delaware Trustee, this Trust Agreement may not be amended in a manner that
imposes any additional obligation on the Delaware Trustee.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrative Trustees or the Property Trustee shall promptly provide to the
Depositor and the Delaware Trustee a copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be required
to enter into any amendment to this Trust Agreement that affects its own rights,
duties or immunities under this Trust Agreement. The Property Trustee and the
Delaware Trustee shall be entitled to receive an Opinion of Counsel and an
Officers' Certificate stating that any amendment to this Trust Agreement is in
compliance with this Trust Agreement.
Section 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE HOLDERS,
THE ISSUER TRUST, THE DEPOSITOR AND THE ISSUER TRUSTEES WITH RESPECT TO THIS
TRUST AGREEMENT AND THE
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TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS.
THE PROVISIONS OF SECTION 3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY
TO THIS TRUST.
To the fullest extent permitted by Delaware law, there shall not be
applicable to the Issuer Trust, the Issuer Trustees or this Trust Agreement any
provisions of law (whether statutory or common) of the State of Delaware
pertaining to trusts (other than the Delaware Business Trust Act) that relate to
or regulate in a manner inconsistent with the terms hereof (a) the filing with
any court or governmental body or agent of trustee accounts or schedules of
trustee fees and charges, (b) affirmative requirements to post bonds for
trustees, officers, agents or employees of a trust, (c) the acquisition, holding
or disposition of any property, (d) the allocation of receipts and expenditures
between income and principal, (e) restrictions or limitation on the permissible
nature, amount or concentration of trust investment or requirements relating to
the titling, storage or other manner of holding or investing trust assets, or
(f) the establishment of fiduciary or other standards of responsibility or
limitations on the acts or powers of trustees that are inconsistent (whether
more or less restrictive) with this provision.
Section 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day that is a Business Day (except as otherwise
provided in Sections 4.1(a) and 4.2(d)), with the same force and effect as
though made on the date fixed for such payment, and no Distributions shall
accumulate on such unpaid amount for the period after such date.
Section 10.6. Successors.
This Trust Agreement shall be binding upon and shall inure to the benefit
of any successor to the Depositor, the Issuer Trust and any Issuer Trustee,
including any successor by operation of law. Except in connection with a
consolidation, merger or sale involving the Depositor that is permitted under
Article VIII of the Indenture and pursuant to which the assignee agrees in
writing to perform the Depositor's obligations hereunder, the Depositor shall
not assign its obligations hereunder.
Section 10.7. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
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Section 10.8. Reports, Notices and Demands.
(a) Any report, notice, demand or other communication that by any
provision of this Trust Agreement is required or permitted to be given or served
to or upon any Holder or the Depositor may be given or served in writing by
deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
a Holder of Capital Securities, to such Holder as such Holder's name and address
may appear on the Securities Register; and (b) in the case of the Holder of the
Common Securities or the Depositor, to Southern States Cooperative,
Incorporated., 6606 West Broad Street, Richmond, Virginia 23260, Attention:
Chief Financial Officer, Facsimile no.: (804 ) 281-1650, or to such other
address as may be specified in a written notice by the Holder of the Common
Securities or the Depositor, as the case may be, to the Property Trustee. Such
notice, demand or other communication to or upon a Holder shall be deemed to
have been sufficiently given or made, for all purposes, upon hand delivery,
mailing or transmission. Such notice, demand or other communication to or upon
the Depositor shall be deemed to have been sufficiently given or made only upon
actual receipt of the writing by the Depositor.
(b) Any notice, demand or other communication that by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Issuer Trust or any Issuer Trustee may be given or served in writing by
deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
the Property Trustee to First Union National Bank, 800 East Main Street, Lower
Mezzanine, Richmond, Virginia 23219, Attention: Corporate Trust Group; (b) with
respect to the Delaware Trustee, to First Union Trust Company, National
Association, One Rodney Square, 920 King Street, 1st Floor, Wilmington, Delaware
19801, Attention: Corporate Trust Administration; (c) in the case of the
Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention: Administrative Trustees of Southern States Capital
Trust II"; and (d) in the case of the Issuer Trust, to its principal executive
office specified in Section 2.2, with a copy to each of the Property Trustee,
the Delaware Trustee and the Administrative Trustees, or, in each such case, to
such other address as may be specified in a written notice by the applicable
Person to the Property Trustee, the Depositor and the Holders. Such notice,
demand or other communication to or upon the Property Trustee, the Delaware
Trustee, the Administrative Trustees or the Issuer Trust shall be deemed to have
been sufficiently given or made only upon actual receipt of the writing by the
Property Trustee, the Delaware Trustee, such Administrative Trustees or the
Issuer Trust, as the case may be.
Section 10.9. Agreement Not to Petition.
Each of the Issuer Trustees and the Depositor agree for the benefit of the
Holders that, until at least one year and one day after the Issuer Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Issuer Trust under any bankruptcy,
insolvency, reorganization or other similar law (including the United States
Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in the
commencement of any proceeding against the Issuer Trust under any Bankruptcy
Law. The Property Trustee and
60
<PAGE>
the Depositor agree, for the benefit of Holders, that if the Depositor or any
Issuer Trustee takes action in violation of this Section 10.9, then at the
expense of the Depositor, the Property Trustee or Depositor, as the case may be,
shall file an answer with the bankruptcy court or otherwise properly contest the
filing of such petition by the Depositor against the Issuer Trust or the
commencement of such action and raise the defense that the Depositor has agreed
in writing not to take such action and should be estopped and precluded
therefrom and such other defenses, if any, as counsel for the Issuer Trustees or
the Issuer Trust may assert.
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions of the Trust Indenture
Act.
(b) The Property Trustee shall be the only Issuer Trustee that is a trustee
for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with the duties
imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act through
operation of Section 318(c) thereof, such imposed duties shall control. If any
provision of this Trust Agreement modifies or excludes any provision of the
Trust Indenture Act which may be so modified or excluded, the latter provision
shall be deemed to apply to this Trust Agreement as so modified or excluded, as
the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Issuer Trust.
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee Agreement
and Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY
OR ON BEHALF OF A HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR
FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE
BY THE HOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY
OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT, THE GUARANTEE AGREEMENT
AND THE INDENTURE, AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS
OF THE GUARANTEE AGREEMENT AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT
OF THE ISSUER TRUST, SUCH HOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS
OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE
ISSUER TRUST AND SUCH HOLDER AND SUCH OTHERS.
61
<PAGE>
Section 10.12. Consent to Jurisdiction; Service of Process.
Each of the parties hereto hereby consents to (i) the non-exclusive
jurisdiction of courts of the State of Delaware or any federal court sitting in
Wilmington, Delaware for the purpose of any suit, action or proceeding relating
to or arising out of this Trust Agreement and (ii) service of process in
connection therewith by mail. The foregoing shall not be construed to prevent
any party from bringing any suit, action or proceeding in any other jurisdiction
or from serving process by any other means.
Section 10.13. Counterparts.
This Trust Agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
62
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Trust Agreement as of the day and year first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED, as Depositor
By:
Name:
Title:
FIRST UNION NATIONAL BANK,
as Property Trustee
By:
Name:
Title:
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION
as Delaware Trustee
By:
Name:
Title:
Name: Leslie T. Newton
as Administrative Trustee
Name: Jonathan A. Hawkins
as Administrative Trustee
63
<PAGE>
Exhibit A
---------
CERTIFICATE OF TRUST
OF SOUTHERN STATES CAPITAL TRUST II
THIS Certificate of Trust of Southern States Capital Trust II (the
"Trust"), dated ________, 1999, is being duly executed and filed by the
undersigned, as trustee, to form a business trust under the Delaware Business
Trust Act (12 Del. C.(S)(S) 3801 et seq.).
------- -- ---
1. Name. The name of the business trust being formed hereby is
----
"Southern States Capital Trust II."
2. Delaware Trustee. The name and business address of the trustee
----------------
of the Trust with a principal place of business in the State of Delaware is
First Union Trust Company, National Association, One Rodney Square, 920 King
Street, 1st Floor, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration.
3. Effective Date. The Certificate of Trust shall be effective as
--------------
of ________, 1999.
IN WITNESS WHEREOF, the undersigned, as the sole initial trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Delaware Trustee
By:_____________________________
Name:
Title:
A-1
<PAGE>
Exhibit B
---------
[CERTIFICATE DEPOSITORY AGREEMENT]
The Depository Trust Company
55 Water Street, 49th Floor,
New York, New York 10041-0099.
Attention: General Counsel's Office
Re: Southern States Capital Trust II
____% Capital Securities
CUSIP No.
---------------------------------
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters relating to
the issuance and deposit with The Depository Trust Company ("DTC") of the book-
entry-only portion of the ___% Capital Securities (the "Capital Securities") of
Southern States Capital Trust II, a statutory business trust formed under the
laws of the State of Delaware (the "Issuer"), governed by the Amended and
Restated Trust Agreement, dated as of ___________, 2000 (the "Amended and
Restated Trust Agreement"), between Southern States Cooperative, Incorporated
(the "Corporation"), as Depositor, First Union National Bank, as Property
Trustee, First Union Trust Company, National Association, as Delaware Trustee,
and the Administrative Trustees named therein. The payment of distributions on
the Capital Securities and payments due upon liquidation of the Issuer or
redemption of the Capital Securities, to the extent the Issuer has funds
available for the payment thereof, are guaranteed by the Corporation to the
extent set forth in a Guarantee Agreement, dated as of ___________, 2000,
between the Corporation and First Union National Bank, as Guarantee Trustee with
respect to the Capital Securities. The Corporation and the Issuer propose to
sell the Capital Securities to the Underwriters (the "Underwriters") pursuant to
an Underwriting Agreement, dated as of _____________, 2000, by and among the
Underwriters, the Issuer and the Corporation, and the Underwriters wish to take
delivery of the Capital Securities through DTC. First Union National Bank is
acting as transfer agent and registrar with respect to the Capital Securities
(the "Transfer Agent and Registrar").
To induce DTC to accept the Capital Securities as eligible for deposit
at DTC, and to act in accordance with DTC's rules with respect to the Capital
Securities, the Issuer and the Transfer Agent and Registrar make the following
representations to DTC:
1. Prior to the closing of the sale of the Capital Securities to the
Underwriters on ____________, 2000, there shall be deposited with, or held by
the Transfer Agent and Registrar as custodian for, DTC one or more global
certificates (individually and collectively, the
B-1
<PAGE>
"Global Certificate") registered in the name of DTC's nominee, Cede & Co.,
representing an aggregate of _________ Capital Securities and bearing the
following legend:
Unless this Capital Security Certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation
("DTC"), to Southern States Capital Trust II or its agent for registration
of transfer, exchange, or payment, and any Capital Security Certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
2. The Amended and Restated Trust Agreement of the Issuer provides
for the voting by holders (with no provision for revocation of consents or votes
by subsequent holders) of the Capital Securities under certain limited
circumstances. The Issuer shall establish a record date for such purposes and
shall, to the extent possible, give DTC notice of such record date not less than
15 calendar days in advance of such record date.
3. In the event of a stock split, conversion, recapitalization,
reorganization or any other similar transactions resulting in the cancellation
of all or any part of the Capital Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall sent DTC a notice of such event as soon as
possible but, at least 5 business days prior to the effective date of such
event.
4. In the event of any distribution on, or an offering or issuance
of rights with respect to, the Capital Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall send DTC a notice specifying: (a) the amount
of and conditions, if any, applicable to the payment of any such distribution or
any such offering or issuance of rights; (b) any applicable expiration or
deadline date, or any date by which any action on the part of the holders of
Capital Securities is required; and (c) the date any required notice is to be
mailed by or on behalf of the Issuer to holders of Capital Securities or
published by or on behalf of the Issuer (whether by mail or publication, the
"Publication Date"). Such notice shall be sent to DTC by a secure means (e.g.,
- -
legible telecopy, registered or certified mail, overnight delivery) in a timely
manner designed to assure that such notice is in DTC's possession no later than
the close of business on the business day before the Publication Date. The
Issuer or the Transfer Agent and Registrar will forward such notice either in a
separate secure transmission for each CUSIP number or in a secure transmission
of multiple CUSIP numbers (if applicable) that includes a manifest or list of
each CUSIP number submitted in that transmission. (The party sending such
notice shall have a method to verify subsequently the use of such means and the
timeliness of such notice.) The Publication Date shall be not less than 30
calendar days nor more than 60 calendar days prior to the payment of any such
distribution or any such offering or issuance of rights with respect to the
Capital Securities. After establishing the amount of payment to be made on the
Capital Securities, the Issuer or the Transfer Agent and Registrar will notify
DTC's Dividend Department of such payment 5 business days prior to payment date.
Notices to DTC's Dividend
B-2
<PAGE>
Department by telecopy shall be sent to (212) 709-1723. Such notices by mail or
by any other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
The Issuer or the Transfer Agent and Registrar shall confirm DTC's
receipt of such telecopy by telephoning the Dividend Department at (212) 709-
1270.
5. In the event of a redemption by the Issuer of the Capital
Securities, notice specifying the terms of the redemption and the Publication
Date of such notices shall be sent by the Issuer or the Transfer Agent and
Registrar to DTC not less than 30 calendar days prior to such event by a secure
means in the manner set forth in paragraph 4. Such redemption notice shall be
sent to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190,
and receipt of such notice shall be confirmed by telephoning (516) 227-4070.
Notice by mail or by any other means shall be sent to:
Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4179
6. In the event of any invitation to tender the Capital Securities,
notice specifying the terms of the tender and the Publication Date of such
notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC by
a secure means and in a timely manner as described in paragraph 4. Notices to
DTC pursuant to this paragraph and notices of other corporate actions (including
mandatory tenders, exchanges and capital changes), shall be sent, unless
notification to another department is expressly provided for herein, by telecopy
to DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094 and
receipt of such notice shall be confirmed by telephoning (212) 709-6884), or by
mail or any other means to:
B-3
<PAGE>
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
7. All notices and payment advices sent to DTC shall contain the
CUSIP number or numbers of the Capital Securities and the accompanying
designation of the Capital Securities, which, as of the date of this letter, is
"Southern States Capital Trust II, ___% Capital Securities".
8. Distribution payments or other cash payments with respect to the
Capital Securities shall be governed by DTC's current Principal and Income
Payments Rider, a copy of which is attached hereto as Annex I. For purposes of
this letter, the term "Agent" used in Annex I shall be deemed to refer to First
Union National Bank or any successor Property Trustee under the Amended and
Restated Trust Agreement.
9. DTC may direct the Issuer and the Transfer Agent and Registrar to
use any other telecopy number or address of DTC as the number or address to
which notices or payments may be sent.
10. In the event of a conversion, redemption, or any other similar
transaction (e.g., tender made and accepted in response to the Issuer's or the
- -
Transfer Agent and Registrar's invitation) necessitating a reduction in the
aggregate number of Capital Securities outstanding evidenced by the Global
Certificate, DTC, in its discretion: (a) may request the Issuer or the
Transfer Agent and Registrar to issue and countersign a new Global Certificate;
or (b) may make an appropriate notation on the Global Certificate indicating the
date and amount of such reduction.
11. DTC may discontinue its services as a securities depositary with
respect to the Capital Securities at any time by giving reasonable prior written
notice to the Issuer and the Transfer Agent and Registrar (at which time DTC
will confirm with the Issuer or the Transfer Agent and Registrar the aggregate
number of Capital Securities deposited with it) and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Issuer may determine to make alternative arrangements for
book-entry settlement for the Capital Securities, make available one or more
separate global certificates evidencing Capital Securities to any Participant
having Capital Securities credited to its DTC account, or issue definitive
Capital Securities to the beneficial holders thereof, and in any such case, DTC
agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar
and to return the Global Certificate, duly endorsed for transfer as directed by
the Issuer or the Transfer Agent and Registrar, together with any other
documents of transfer reasonably requested by the Issuer or the Transfer Agent
and Registrar.
12. In the event that the Issuer determines that beneficial owners of
Capital Securities shall be able to obtain definitive Capital Securities, the
Issuer or the Transfer Agent
B-4
<PAGE>
and Registrar shall notify DTC of the availability of certificates. In such
event, the Issuer or the Transfer Agent and Registrar shall issue, transfer and
exchange certificates in appropriate amounts, as required by DTC and others, and
DTC agrees to cooperate fully with the Issuer and the Transfer Agent and
Registrar and to return the Global Securities, duly endorsed for transfer as
directed by the Issuer or the Transfer Agent and Registrar, together with any
other documents of transfer reasonably requested by the Issuer or the Transfer
Agent and Registrar.
13. This letter may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Nothing herein shall be deemed to require the Transfer Agent and
Registrar to advance funds on behalf of Southern States Capital Trust II.
Very truly yours,
SOUTHERN STATES CAPITAL TRUST II
(As Issuer)
By_________________________________
(Administrative Trustee)
FIRST UNION NATIONAL BANK
(As Transfer Agent and Registrar)
By__________________________________
Name:
Title:
RECEIVED AND ACCEPTED:
THE DEPOSITORY TRUST COMPANY
By_________________________________
Authorized Officer
B-5
<PAGE>
[Form of Common Securities Certificate]
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN AFFILIATE OF
THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF THE TRUST
AGREEMENT.
Certificate Number Aggregate Liquidation Amount
C-__ $________
Certificate Evidencing Common Securities
of
Southern States Capital Trust II
___% Common Securities
(liquidation amount $25 per Common Security)
Southern States Capital Trust II, a statutory business trust created under
the laws of the State of Delaware (the "Issuer Trust"), hereby certifies that
[NAME OF HOLDER] (the "Holder") is the registered owner of __________ (____)
common securities (aggregate Liquidation Amount ______________________
($__________) of the Issuer Trust representing common undivided beneficial
interests in the assets of the Issuer Trust and designated the ___% Common
Securities (liquidation amount $25 per Common Security) (the "Common
Securities"). Except in accordance with Section 5.11 of the Trust Agreement (as
defined below) the Common Securities are not transferable and any attempted
transfer hereof other than in accordance therewith shall be void. The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities are set forth in, and this certificate and
the Common Securities represented hereby are issued and shall in all respects be
subject to the terms and provisions of, the Amended and Restated Trust Agreement
of the Issuer Trust, dated as of ________, 2000, as the same may be amended from
time to time (the "Trust Agreement"), among Southern States Cooperative,
Incorporated, an agricultural cooperative corporation organized under the laws
of Virginia, as Depositor, First Union National Bank, as Property Trustee,
First Union Trust Company, National Association, as Delaware Trustee, and the
Administrative Trustees named therein, including the designation of the terms of
the Common Securities as set forth therein. The Issuer Trust will furnish a copy
of the Trust Agreement to the Holder without charge upon written request to the
Issuer Trust at its principal place of business or registered office.
C-1
<PAGE>
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
Terms used but not defined herein have the meanings set forth in the Trust
Agreement.
In Witness Whereof, one of the Administrative Trustees of the Issuer Trust
has executed this certificate this _____ day of _______, 2000.
SOUTHERN STATES CAPITAL TRUST II
By:_________________________________
Name:
Administrative Trustee
C-2
<PAGE>
Exhibit D
---------
[Form of Expense Agreement]
AGREEMENT AS TO EXPENSES AND LIABILITIES, dated as of ________, 2000 (as
modified, amended or supplemented, this "Agreement"), between Southern States
Cooperative, Incorporated, an agricultural cooperative corporation organized
under the laws of Virginia (the "Corporation"), and Southern States Capital
Trust II, a Delaware business trust (the "Issuer Trust").
Whereas, the Issuer Trust intends to issue its Common Securities (the
"Common Securities") to and acquire the Debentures from the Corporation, and to
issue and sell _____% Capital Securities (the "Capital Securities") with such
powers, preferences and special rights and restrictions as are set forth in the
Amended and Restated Trust Agreement of the Issuer Trust, dated as of _________,
2000, among the Corporation, as Depositor, First Union National Bank, as
Property Trustee, First Union Trust Company, National Association, as Delaware
Trustee, and the Administrative Trustees named therein, as the same may be
amended from time to time (the "Trust Agreement"); and
Whereas, the Corporation will own all of the Common Securities of the
Issuer Trust and will issue the Debentures; and
Whereas, capitalized terms used but not defined herein have the meanings
set forth in the Trust Agreement;
Now, Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Corporation and the Issuer
Trust hereby agree as follows:
ARTICLE I
Section 1.1. Guarantee by Corporation. Subject to the terms and conditions
hereof, the Corporation hereby irrevocably and unconditionally guarantees to
each person or entity to whom the Issuer Trust is now or hereafter becomes
indebted or liable (the "Beneficiaries") the full payment, when and as due, of
any and all Obligations (as hereinafter defined) to such Beneficiaries. As used
herein, "Obligations" means any costs, expenses or liabilities of the Issuer
Trust, other than obligations of the Issuer Trust to pay to holders of any Trust
Securities the amounts due such holders pursuant to the terms of the Trust
Securities. This Agreement is intended to be for the benefit of, and to be
enforceable by, all such Beneficiaries, whether or not such Beneficiaries have
received notice hereof.
Section 1.2. Subordination of Guarantee. The guarantee and other
liabilities and obligations of the Corporation under this Agreement shall
constitute unsecured obligations of the Corporation and shall rank subordinate
and junior in right of payment to all Senior Indebtedness
D-1
<PAGE>
(as defined in the Indenture) of the Corporation to the extent and in the manner
set forth in the Indenture with respect to the Debentures, and the provisions of
Article XIII of the Indenture will apply, mutatis mutandis, to the obligations
of the Corporation hereunder. The obligations of the Corporation hereunder do
not constitute Senior Indebtedness (as defined in the Indenture) of the
Corporation.
Section 1.3. Term of Agreement. This Agreement shall terminate and be of no
further force and effect upon the dissolution of the Issuer Trust; provided,
however, that this Agreement shall continue to be effective or shall be
reinstated, as the case may be, if at any time any holder of Capital Securities
or any Beneficiary must restore payment of any sums paid under the Capital
Securities, under any Obligation, under the Guarantee Agreement dated the date
hereof by the Corporation, as guarantor, and First Union National Bank, as
guarantee trustee, or under this Agreement for any reason whatsoever. This
Agreement is continuing, irrevocable, unconditional and absolute.
Section 1.4. Waiver of Notice. The Corporation hereby waives notice of
acceptance of this Agreement and of any Obligation to which it applies or may
apply, and the Corporation hereby waives presentment, demand for payment,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
Section 1.5. No Impairment. The obligations, covenants, agreements and
duties of the Corporation under this Agreement shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the extension of time for the payment by the Issuer Trust of all
or any portion of the Obligations or for the performance of any other
obligation under, arising out of, or in connection with, the Obligations;
(b) any failure, omission, delay or lack of diligence on the part of
the Beneficiaries to enforce, assert or exercise any right, privilege,
power or remedy conferred on the Beneficiaries with respect to the
Obligations or any action on the part of the Issuer Trust granting
indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Issuer
Trust or any of the assets of the Issuer Trust (other than the dissolution
of the Issuer Trust in accordance with the terms thereof).
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, the Corporation with respect to the happening of any of the
foregoing.
Section 1.6. Enforcement. A Beneficiary may enforce this Agreement directly
against the Corporation and the Corporation waives any right or remedy to
require that any action be
D-2
<PAGE>
brought against the Issuer Trust or any other person or entity before proceeding
against the Corporation.
Section 1.7. Subrogation. The Corporation shall be subrogated to all rights
(if any) of any Beneficiary against the Issuer Trust in respect of any amounts
paid to the Beneficiaries by the Corporation under this Agreement; provided,
however, that the Corporation shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any rights that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Agreement, if, at the
time of any such payment, any amounts are due and unpaid under this Agreement.
ARTICLE II
Section 2.1. Assignment. This Agreement may not be assigned by either party
hereto without the consent of the other, and any purported assignment without
such consent shall be void.
Section 2.2. Binding Effect. All guarantees and agreements contained in
this Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Corporation and shall inure to the benefit of the
Beneficiaries.
Section 2.3. Amendment. So long as there remains any Beneficiary or any
Capital Securities are Outstanding, this Agreement shall not be modified or
amended in any manner adverse to such Beneficiary or to the Holders of the
Capital Securities without the consent of such Beneficiary or the Holders of the
Capital Securities, as the case may be.
Section 2.4. Notices. Any notice, request or other communication required
or permitted to be given hereunder shall be given in writing by delivering the
same against receipt therefor by facsimile transmission (confirmed by mail),
telex or by registered or certified mail, addressed as follows (and if so given,
shall be deemed given when mailed or upon receipt of an answer-back, if sent by
telex):
If given to the Corporation:
Southern States Cooperative, Incorporated
6606 West Broad Street
Richmond, Virginia 23260
Facsimile No.: (804) 281-1650
Attention: Chief Financial Officer
D-3
<PAGE>
If given to the Issuer Trust:
Southern States Capital Trust II
6606 West Broad Street
Richmond, Virginia 23260
Facsimile No.:
Attention:
With a copy to:
First Union National Bank
800 East Main Street, Lower Mezzanine
Richmond, Virginia 23219
Facsimile No.: (804) 343-6699
Attention: Corporate Trust Group
Section 2.4. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
In Witness Whereof, this Agreement as to Expenses and Liabilities is
executed as of the day and year first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By:
Name:
Title:
SOUTHERN STATES CAPITAL TRUST II
By:
Name:
Administrative Trustee
D-4
<PAGE>
Exhibit E
---------
[Form of Capital Securities Certificate]
[If the Capital Securities Certificate is to be a Book-Entry Capital
Securities Certificate, insert--This Capital Securities Certificate is a Book-
Entry Capital Securities Certificate within the meaning of the Trust Agreement
hereinafter referred to and is registered in the name of a Clearing Agency or a
nominee of a Clearing Agency. This Capital Securities Certificate is
exchangeable for Capital Securities Certificates registered in the name of a
person other than the Clearing Agency or its nominee only in the limited
circumstances described in the Trust Agreement and may not be transferred except
as a whole by the Clearing Agency to a nominee of the Clearing Agency or by a
nominee of the Clearing Agency to the Clearing Agency or another nominee of the
Clearing Agency, except in the limited circumstances described in the Trust
Agreement.
Unless this Capital Security Certificate is presented by an authorized
representative of The Depository Trust Company, a New York Corporation ("DTC"),
to Southern States Capital Trust II or its agent for registration of transfer,
exchange or payment, and any Capital Security Certificate issued is registered
in the name of Cede & Co. or such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]
E-1
<PAGE>
Certificate Number Aggregate Liquidation Amount
P-__ $_______
CUSIP NO. ________
Certificate Evidencing Capital Securities
of
Southern States Capital Trust II
_____% Capital Securities
(liquidation amount $25 per Capital Security)
Southern States Capital Trust II, a statutory business trust created under
the laws of the State of Delaware (the "Issuer Trust"), hereby certifies that
_____________________________ (the "Holder") is the registered owner of
_________________ (____) capital securities (aggregate Liquidation Amount
____________________ ($________)) of the Issuer Trust representing a preferred
undivided beneficial interest in the assets of the Issuer Trust and designated
the _____% Capital Securities (liquidation amount $25 per Capital Security) (the
"Capital Securities"). The Capital Securities are transferable on the books and
records of the Issuer Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer as
provided in Section 5.5 of the Trust Agreement (as defined below). The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Capital Securities are set forth in, and this certificate and
the Capital Securities represented hereby are issued and shall in all respects
be subject to the terms and provisions of, the Amended and Restated Trust
Agreement of the Issuer Trust, dated as of __________, 2000, as the same may be
amended from time to time (the "Trust Agreement"), among Southern States
Cooperative, Incorporated, an agricultural cooperative corporation organized
under the laws of Virginia, as Depositor, First Union National Bank, as Property
Trustee, First Union Trust Company, National Association, as Delaware Trustee,
and the Administrative Trustees named therein, including the designation of the
terms of the Capital Securities as set forth therein. The Holder is entitled to
the benefits of the Guarantee Agreement, dated as of ____________, 2000 (the
"Guarantee Agreement"), entered into by Southern States Cooperative,
Incorporated and First Union National Bank, as guarantee trustee, to the extent
provided therein. The Issuer Trust will furnish a copy of the Trust Agreement
and the Guarantee Agreement to the Holder without charge upon written request to
the Issuer Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
E-2
<PAGE>
In Witness Whereof, one of the Administrative Trustees of the Issuer Trust
has executed this certificate this _____ day of __________, ____.
SOUTHERN STATES CAPITAL TRUST II
By:
Name:
Administrative Trustee
E-3
<PAGE>
ASSIGNMENT
For Value Received, the undersigned assigns and transfers this Capital
Security to:
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints _______________________________________________________
________________________________________________________________________________
agent to transfer this Capital Securities Certificate on the books of the Issuer
Trust. The agent may substitute another to act for him or her.
Date: ________________
Signature: ___________________________________________________________________
(Sign exactly as your name appears on the other side of this Capital
Security Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
E-4
<PAGE>
EXHIBIT 4.6
SOUTHERN STATES COOPERATIVE, INCORPORATED.
_____% Junior Subordinated Deferrable Interest Debentures
No. A-1 $___________
SOUTHERN STATES COOPERATIVE, INCORPORATED, an agricultural cooperative
corporation organized and existing under the laws of Virginia (hereinafter
called the "Corporation", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to First Union National Bank, as Property Trustee for Southern States Capital
Trust II, a statutory business trust formed under the laws of the State of
Delaware, or registered assigns, the principal sum of _____________
(______________) Dollars on _________, 2030. The Corporation further promises to
pay interest on said principal sum from _________, 2000 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year,
commencing _______ 1, 2000, at the rate of ______% per annum, together with
Additional Sums, if any, as provided in Section 10.6 of the Indenture, until the
principal hereof is paid or duly provided for or made available for payment;
provided that any overdue principal, premium or Additional Sums and any overdue
installment of interest shall bear Additional Interest at the rate of _____% per
annum (to the extent that the payment of such interest shall be legally
enforceable), compounded quarterly, from the dates such amounts are due until
they are paid or made available for payment, and such interest shall be payable
on demand. The amount of interest payable for any period less than a full
interest period shall be computed on the basis of a 360-day year of twelve 30-
day months and the actual days elapsed in a partial month in such period. The
amount of interest payable for any full interest period shall be computed by
dividing the applicable rate per annum by four. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest installment which shall be the
fifteenth day (whether or not a Business Day), next preceding such Interest
Payment Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of
<PAGE>
this series may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the
Corporation shall have the right, at any time during the term of this Security,
from time to time to defer the payment of interest on this Security for up to 20
consecutive quarterly interest payment periods with respect to each deferral
period (each an "Extension Period") at the end of which the Corporation shall
pay all interest then accrued and unpaid (including any Additional Interest, as
provided below); provided, however, that no Extension Period shall extend beyond
the Stated Maturity of the principal of this Security and no such Extension
Period may end on a date other than an Interest Payment Date; provided, further,
however, that during any such Extension Period, the Corporation shall not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Corporation's capital
stock or patrons' equity, (ii) redeem any patronage refund allocations or (iii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Corporation that rank pari passu
in all respects with or junior in interest to this Security (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Corporation held by a member, upon the death or dissolution of such member or
otherwise because such member has ceased to be eligible for membership in the
Corporation, if the Board of Directors approves such repurchase or redemption
pursuant to a policy of assuring that the Corporation operates as a cooperative
in compliance with Subchapter T of the Internal Revenue Code, (b) as a result of
an exchange or conversion of any class or series of the Corporation's capital
stock (or any capital stock of an affiliate of the Corporation) for any class or
series of the Corporation's capital stock or of any class or series of the
Corporation's indebtedness for any class or series of the Corporation's capital
stock, (c) the declaration of, or any payment or setting aside for payment of,
patronage refunds, provided that not more than 40% of such aggregate patronage
refunds for any fiscal year shall be in cash, with the remainder to be paid in
the form of common stock or patronage refund allocations, (d) any declaration of
a dividend in connection with any shareholders' rights plan, or the issuance of
rights, stock or other property under any shareholders' rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Corporation may further defer the payment of interest; provided that no
Extension Period shall exceed 20 consecutive quarterly interest payment periods,
extend beyond the Stated Maturity of the principal of this Security or end on a
date other than an Interest Payment Date. Upon the termination of any such
Extension Period and
<PAGE>
upon the payment of all accrued and unpaid interest and any Additional Interest
then due on any Interest Payment Date, the Corporation may elect to begin a new
Extension Period, subject to the above conditions. No interest shall be due and
payable during an Extension Period, except at the end thereof, but each
installment of interest that would otherwise have been due and payable during
such Extension shall bear Additional Interest (to the extent that the payment of
such interest shall be legally enforceable) at the rate of _____% per annum,
compounded quarterly and calculated as set forth in the first paragraph of this
Security, from the dates on which amounts would otherwise have been due and
payable until paid or made available for payment. The Corporation shall give the
Holder of this Security and the Trustee notice of its election to begin any
Extension Period at least one Business Day prior to the next succeeding Interest
Payment Date on which interest on this Security would be payable but for such
deferral, or so long as this Security is held by the Issuer Trust, at least one
Business Day prior to the earlier of (i) the next succeeding date on which
Distributions on the Capital Securities of such Issuer Trust would be payable
but for such deferral, and (ii) the date on which the Property Trustee of such
Issuer Trust is required to give notice to holders of such Capital Securities of
the record date or the date such Distributions are payable.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Corporation maintained for
that purpose in Richmond, Virginia in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on such Holder's behalf to take such actions
as may be necessary or appropriate to effectuate the subordination so provided,
and (c) appoints the Trustee his or her attorney-in-fact for any and all such
purposes. Each Holder hereof, by such Holder's acceptance hereof, waives all
notice of the acceptance of the subordination provisions contained herein and in
the Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said
provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
-3-
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly
executed under its corporate seal.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By: ___________________________________
Name:
Title:
Attest:
______________________
(Secretary or Assistant Secretary)
-4-
<PAGE>
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
Dated: __________, 2000
FIRST UNION NATIONAL BANK,
as Trustee
By: __________________________________
(Authorized Officer)
[Reverse of Security]
This Security is one of a duly authorized issue of securities of the
Corporation (herein called the "Securities"), issued and to be issued in one or
more series under the Junior Subordinated Indenture, dated as of _________, 2000
(herein called the "Indenture"), between the Corporation and First Union
National Bank, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the
Corporation, the Trustee, the holders of Senior Indebtedness and the Holders of
the Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof, limited in aggregate principal amount to $_____________.
All terms used in this Security that are defined in the Indenture or in the
Amended and Restated Trust Agreement, dated as of __________, 2000 (as modified,
amended or supplemented from time to time, the "Trust Agreement"), relating to
Southern States Capital Trust II (the "Issuer Trust") among the Corporation, as
Depositor, and the Trustees named therein, shall have the meanings assigned to
them in the Indenture or the Trust Agreement, as the case may be.
The Corporation may at any time, at its option, on or after _____________,
2005 and subject to the terms and conditions of Article XI of the Indenture,
redeem this Security in whole at any time or in part from time to time, at a
Redemption Price equal to 100% of the principal amount hereof, together with
accrued interest (including any Additional Interest) to but excluding the date
fixed for redemption.
In addition, upon the occurrence and during the continuation of a Tax Event
in respect of the Issuer Trust, the Corporation may, at its option, at any time
within 90 days of the occurrence and during the continuation of such Tax Event
redeem this Security, in
-5-
<PAGE>
whole but not in part, subject to the terms and conditions of Article XI of the
Indenture, at a Redemption Price equal to 100% of the principal amount hereof,
together with accrued interest (including any Additional Interest) to but
excluding the date fixed for redemption.
"Business Day" means a day other than (i) a Saturday or Sunday, (ii) a day
on which banking institutions in The City of New York are authorized or required
by law or executive order to remain closed, or (iii) a day on which the Property
Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture
Trustee is closed for business.
In the event of redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Corporation with
certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Corporation and the Trustee at any time to enter into a supplemental indenture
or indentures for the purpose of modifying in any manner the rights and
obligations of the Corporation and of the Holders of the Securities, with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities of each series to be affected by such supplemental
indenture. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Corporation with certain provisions of the Indenture
and certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the Indenture, if an Event
of Default with respect to the Securities of this series at the time Outstanding
occurs and is continuing, then and in every such case the Trustee or the Holders
of not less than 25% in aggregate principal amount of the Outstanding Securities
of this series may declare the principal amount of all the Outstanding
Securities of this series to be due and payable immediately, by a notice in
writing to the Corporation (and to the Trustee if given by Holders); provided
that, if upon an Event of Default, the Trustee or such Holders fail to declare
the principal of all the Outstanding Securities of this series to be immediately
due and payable, the holders of at least 25% in aggregate Liquidation Amount of
the Capital
-6-
<PAGE>
Securities then Outstanding shall have the right to make such declaration by a
notice in writing to the Corporation and the Trustee; and upon any such
declaration the principal of and the accrued interest (including any Additional
Interest) on all the Securities of this series shall become immediately due and
payable, provided that the payment of such principal and interest (including any
Additional Interest) on such Securities shall remain subordinated to the extent
provided in Article XIII of the Indenture.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Corporation, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest (including any Additional Interest) on this Security at the times,
place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Corporation maintained under Section 10.2 of the Indenture for
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Corporation and the Securities Registrar
duly executed by, the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Securities of this series, of like tenor,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $25 and any integral multiple in excess thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Corporation may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Corporation, the Trustee and any agent of the Corporation or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither the
Corporation, the Trustee nor any such agent shall be affected by notice to the
contrary.
-7-
<PAGE>
The Corporation and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that for United States Federal, state and local
tax purposes it is intended that this Security constitute indebtedness.
This Security shall be governed by and construed in accordance with the
laws of the State of New York.
-8-
<PAGE>
Exhibit 4.7
================================================================================
GUARANTEE AGREEMENT
between
SOUTHERN STATES COOPERATIVE, INCORPORATED
as Guarantor
and
FIRST UNION NATIONAL BANK,
as Guarantee Trustee
relating to
Southern States Capital Trust II
_________________
Dated as of _________, 2000
_________________
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
Definitions
Section 1.1. Definitions.................................................. 1
ARTICLE II
Trust Indenture Act
Section 2.1. Trust Indenture Act; Application............................. 5
Section 2.2. List of Holders.............................................. 5
Section 2.3. Reports by the Guarantee Trustee............................. 6
Section 2.4. Periodic Reports to the Guarantee Trustee.................... 6
Section 2.5. Evidence of Compliance with Conditions Precedent............. 6
Section 2.6. Events of Default; Waiver.................................... 6
Section 2.7. Event of Default; Notice..................................... 7
Section 2.8. Conflicting Interests........................................ 7
ARTICLE III
Powers, Duties and Rights of the Guarantee Trustee
Section 3.1. Powers and Duties of the Guarantee Trustee................... 7
Section 3.2. Certain Rights of Guarantee Trustee.......................... 9
Section 3.3. Compensation; Indemnity; Fees................................ 10
ARTICLE IV
Guarantee Trustee
Section 4.1. Guarantee Trustee; Eligibility............................... 11
Section 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee...................................................... 12
ARTICLE V
Guarantee
Section 5.1. Guarantee.................................................... 13
Section 5.2. Waiver of Notice and Demand.................................. 13
Section 5.3. Obligations Not Affected..................................... 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 5.4. Rights of Holders............................................ 14
Section 5.5. Guarantee of Payment......................................... 14
Section 5.6. Subrogation.................................................. 15
Section 5.7. Independent Obligations...................................... 15
ARTICLE VI
Covenants and Subordination
Section 6.1. Subordination................................................ 15
Section 6.2. Pari Passu Guarantees........................................ 15
ARTICLE VII
Termination
Section 7.1. Termination.................................................. 16
ARTICLE VIII
Miscellaneous
Section 8.1. Successors and Assigns....................................... 16
Section 8.2. Amendments................................................... 17
Section 8.3. Notices...................................................... 17
Section 8.4. Benefit...................................................... 18
Section 8.5. Governing Law................................................ 18
Section 8.6. Counterparts................................................. 18
</TABLE>
<PAGE>
CROSS REFERENCE TABLE/*/
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Guarantee Agreement
- ------------------- -------------------
<S> <C>
310 (a)........................................... 4.1(a)
310 (b)........................................... 4.1(c), 2.8
310 (c)........................................... Inapplicable
311 (a)........................................... 2.2(b)
311 (b)........................................... 2.2(b)
311 (c)........................................... Inapplicable
312 (a)........................................... 2.2(a)
312 (b)........................................... 2.2(b)
313............................................... 2.3
314 (a)........................................... 2.4
314 (b)........................................... Inapplicable
314 (c)........................................... 2.5
314 (d)........................................... Inapplicable
314 (e)........................................... 1.1, 2.5, 3.2
314 (f)........................................... 2.1, 3.2
315 (a)........................................... 3.1(d)
315 (b)........................................... 2.7
315 (c)........................................... 3.1
315 (d)........................................... 3.1(d)
316 (a)........................................... 1.1, 2.6, 5.4
316 (b)........................................... 5.3
316 (c)........................................... 8.2
317 (a)........................................... Inapplicable
317(b)............................................ Inapplicable
318(a)............................................ 2.1
318(b)............................................ 2.1
318(b)............................................ 2.1
</TABLE>
______________________
/*/ This Cross Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.
<PAGE>
GUARANTEE AGREEMENT, dated as of __________, 2000, between SOUTHERN
STATES COOPERATIVE, INCORPORATED, an agricultural cooperative corporation
organized under the laws of Virginia (the "Guarantor"), having its principal
office at 6606 West Broad Street, Richmond, Virginia 23260 and FIRST UNION
NATIONAL BANK, a national banking association, as trustee (the "Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Capital Securities (as defined herein) of Southern States Capital Trust
II, a Delaware statutory business trust (the "Issuer Trust").
Recitals of the Corporation
Whereas, pursuant to an Amended and Restated Trust Agreement, dated as of
________, 2000, among Southern States Cooperative, Incorporated, as Depositor,
First Union National Bank, as Property Trustee, First Union Trust Company,
National Association, as Delaware Trustee, and the Administrative Trustees named
therein, the Issuer Trust is issuing up to $86,250,000 aggregate Liquidation
Amount (as defined in the Trust Agreement) of its _____% Capital Securities,
Series A (liquidation amount $25 per capital security) (the "Capital
Securities"), representing preferred undivided beneficial interests in the
assets of the Issuer Trust and having the terms set forth in the Trust
Agreement; and
Whereas, the Capital Securities will be issued by the Issuer Trust and the
proceeds thereof, together with the proceeds from the issuance of the Issuer
Trust's Common Securities (as defined herein), will be used to purchase the
Debentures (as defined in the Trust Agreement) of the Guarantor, which
Debentures will be deposited with First Union National Bank, as Property
Trustee under the Trust Agreement, as trust assets; and
Whereas, as an incentive for the Holders to purchase Capital Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth herein, to pay to the Holders of the Capital Securities the Guarantee
Payments (as defined herein) on the terms and conditions set forth herein.
Now, Therefore, in consideration of the purchase of Capital Securities by
each Holder, which purchase the Guarantor hereby acknowledges will benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time.
<PAGE>
ARTICLE I
Definitions
Section 1.1. Definitions.
For all purposes of this Guarantee Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(b) All other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation";
(d) All accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles;
(e) Unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this
Guarantee Agreement; and
(f) The words "hereby", "herein", "hereof" and "hereunder" and other words
of similar import refer to this Guarantee Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Board of Directors" means the board of directors of the Guarantor or the
Executive Committee of the board of directors of the Guarantor (or any other
committee of the board of directors of the Guarantor performing similar
functions) or a committee designated by the board of directors of the Guarantor
(or such committee), comprised of two or more members of the board of directors
of the Guarantor or officers of the Guarantor, or both.
"Capital Securities" has the meaning specified in the recitals to this
Guarantee Agreement.
<PAGE>
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer Trust.
"Event of Default" means (i) a default by the Guarantor in any of its
payment obligations under this Guarantee Agreement or (ii) a default by the
Guarantor in any other obligation hereunder that remains unremedied for 30 days.
"Guarantee Agreement" means this Guarantee Agreement, as modified, amended
or supplemented from time to time.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Capital Securities, to the extent not paid or
made by or on behalf of the Issuer Trust: (i) any accumulated and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Capital Securities, to the extent the Issuer Trust shall have funds on hand
available therefor at such time; (ii) the Redemption Price (as defined in the
Trust Agreement) with respect to any Capital Securities called for redemption by
the Issuer Trust, to the extent the Issuer Trust shall have funds on hand
available therefor at such time; and (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of the Issuer Trust, unless Debentures
are distributed to the Holders, the lesser of (a) the Liquidation Distribution
(as defined in the Trust Agreement) with respect to the Capital Securities, and
(b) the amount of assets of the Issuer Trust remaining available for
distribution to Holders on liquidation of the Issuer after satisfaction of
liabilities to creditors of the Issuer Trust as required by applicable law.
"Guarantee Trustee" means First Union National Bank, solely in its capacity
as Guarantee Trustee and not in its individual capacity, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement, and thereafter means each such
Successor Guarantee Trustee.
"Guarantor" has the meaning specified in the first paragraph of this
Guarantee Agreement.
"Holder" means any Holder (as defined in the Trust Agreement) of any
Capital Securities; provided, however, that in determining whether the holders
of the requisite percentage of Capital Securities have given any request,
notice, consent or waiver hereunder, "Holder" shall not include the Guarantor,
the Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee
Trustee.
"Indenture" means the Junior Subordinated Indenture, dated as of
__________, 2000, between Southern States Cooperative, Incorporated and First
Union National Bank, as trustee, as the same may be modified, amended or
supplemented from time to time.
"Issuer Trust" has the meaning specified in the first paragraph of this
Guarantee Agreement.
"List of Holders" has the meaning specified in Section 2.2(a).
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"Majority in Liquidation Amount of the Capital Securities" means, except as
provided by the Trust Indenture Act, Capital Securities representing more than
50% of the aggregate Liquidation Amount (as defined in the Trust Agreement) of
all Capital Securities then Outstanding (as defined in the Trust Agreement).
"Officers' Certificate" means a certificate signed by the Chairman or a
Vice Chairman of the Board of Directors of the Guarantor or the President or a
Vice President of the Guarantor, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Guarantor, and delivered to the
Guarantee Trustee. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Guarantee Agreement
shall include:
(a) a statement by each officer signing the Officers' Certificate that
such officer has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by such officer in rendering the Officers'
Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of such officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint-stock company, company,
limited liability company, trust, business trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Responsible Officer" means, with respect to the Guarantee Trustee, any
Senior Vice President, any Vice President, any Assistant Vice President, the
Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any
Trust Officer or Assistant Trust Officer or any other officer of the Corporate
Trust Department of the Guarantee Trustee and also means, with respect to a
particular matter, any other officer to whom such matter is referred because of
that officer's knowledge of and familiarity with the particular subject.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Agreement" means the Amended and Restated Trust Agreement of the
Issuer Trust referred to in the recitals to this Guarantee Agreement, as
modified, amended or supplemented from time to time.
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"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this Guarantee Agreement was executed; provided, however,
that if the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
ARTICLE II
Trust Indenture Act
Section 2.1. Trust Indenture Act; Application.
(a) This Guarantee Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Guarantee Agreement and
shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provisions of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act through operation of Section 318(c)
thereof, such imposed duties shall control. If any provision of this Guarantee
Agreement modifies or excludes any provision of the Trust Indenture Act which
may be so modified or excluded, the latter provision shall be deemed to apply to
this Guarantee Agreement as so modified or to be excluded, as the case may be.
Section 2.2. List of Holders.
(a) The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee (a) semiannually, on or before June 30 and December 31 of each year, a
list, in such form as the Guarantee Trustee may reasonably require, of the names
and addresses of the Holders (a "List of Holders") as of a date not more than 15
days prior to the delivery thereof, and (b) at such other times as the Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished, in each case to the extent such
information is in the possession or control of the Guarantor and has not
otherwise been received by the Guarantee Trustee in its capacity as such. The
Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with the requirements of Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
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Section 2.3. Reports by the Guarantee Trustee.
Not later than 60 days following December 31 of each year, commencing
December 31, 1999, the Guarantee Trustee shall provide to the Holders such
reports as are required by Section 313 of the Trust Indenture Act, if any, in
the form and in the manner provided by Section 313 of the Trust Indenture Act.
The Guarantee Trustee shall also comply with the requirements of Section 313(d)
of the Trust Indenture Act.
Section 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee and the Holders such
documents, reports and information, if any, as required by Section 314 of the
Trust Indenture Act and the compliance certificate required by Section 314 of
the Trust Indenture Act, in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act, provided that such documents, reports
and information shall not be required to be provided to the Securities and
Exchange Commission unless this Guarantee Agreement shall have been qualified
under the Trust Indenture Act.
Section 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer of the Guarantor pursuant to Section 314(c)(1) may be given
in the form of an Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of at least a Majority in Liquidation Amount of the Capital
Securities may, by vote, on behalf of the Holders of all the Capital Securities,
waive any past default or Event of Default and its consequences. Upon such
waiver, any such default or Event of Default shall cease to exist, and any
default or Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Guarantee Agreement, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.
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Section 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default known to it, transmit by mail, first class postage prepaid, to
the Holders, notice of any such Event of Default, unless such Event of Default
has been cured before the giving of such notice, provided that, except in the
case of a default in the payment of a Guarantee Payment, the Guarantee Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Guarantee Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of this
Guarantee Agreement shall have obtained actual knowledge, of such Event of
Default.
Section 2.8. Conflicting Interests.
The Trust Agreement and the Indenture shall be deemed to be specifically
described in this Guarantee Agreement for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
Powers, Duties and Rights of the Guarantee Trustee
Section 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for the
benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except to a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its appointment to act as
Guarantee Trustee hereunder. The right, title and interest of the Guarantee
Trustee, as such, hereunder shall automatically vest in any Successor Guarantee
Trustee, upon acceptance by such Successor Guarantee Trustee of its appointment
hereunder, and such vesting and cessation of title shall be effective whether or
not conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee Agreement (including pursuant to Section 2.1), and no implied
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covenants shall be read into this Guarantee Agreement against the Guarantee
Trustee. If an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Guarantee Agreement, and use the same
degree of care and skill in its exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from liability for its own negligent action, its own
negligent failure to act or its own wilful misconduct, except that:
(i) Prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee
Agreement (including pursuant to Section 2.1), and the Guarantee
Trustee shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Guarantee
Agreement (including pursuant to Section 2.1); and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Guarantee
Agreement; but in the case of any such certificates or opinions that
by any provision hereof or of the Trust Indenture Act are specifically
required to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Guarantee Agreement.
(ii) The Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was negligent
in ascertaining the pertinent facts upon which such judgment was made.
(iii) The Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in Liquidation
Amount of the Capital Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee, under this Guarantee Agreement.
(iv) Subject to Section 3.1(b), no provision of this Guarantee
Agreement shall require the Guarantee Trustee to expend or risk its own
funds or otherwise incur personal financial
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liability in the performance of any of its duties or in the exercise of any
of its rights or powers, if the Guarantee Trustee shall believe in good
faith that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Guarantee Agreement or adequate
indemnity against such risk or liability is not reasonably assured to it.
Section 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document reasonably believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee Agreement,
the Guarantee Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and rely upon an Officers' Certificate which, upon receipt of such
request from the Guarantee Trustee, shall be promptly delivered by the
Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel, and the
written advice or opinion of such legal counsel with respect to legal
matters shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by it hereunder in
good faith and in accordance with such advice or opinion. Such legal
counsel may be legal counsel to the Guarantor or any of its Affiliates and
may be one of its or their employees. The Guarantee Trustee shall have the
right at any time to seek instructions concerning the administration of
this Guarantee Agreement from any court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Guarantee Agreement at the
request or direction of any Holder unless such Holder shall have provided
to the Guarantee Trustee such adequate security and indemnity as would
satisfy a reasonable person in the position of the Guarantee Trustee
against the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee; provided that nothing contained in this Section
3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the
occurrence
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of an Event of Default, of its obligation to exercise the rights and powers
vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, and the Guarantee Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed by it with due care hereunder.
(viii) Whenever in the administration of this Guarantee Agreement the
Guarantee Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request instructions from the
Holders, (B) may refrain from enforcing such remedy or right or taking such
other action until such instructions are received, and (C) shall be
protected in acting in accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
Section 3.3 Compensation; Indemnity; Fees.
The Guarantor agrees:
(a) to pay to the Guarantee Trustee from time to time such reasonable
compensation for all services rendered by it hereunder as may be agreed by
the Guarantor and the Guarantee Trustee from time to time (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements
and advances incurred or made by the Guarantee Trustee in accordance with
any provision of this Guarantee Agreement (including the reasonable
compensation and the expenses and disbursements of its agents and
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counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(c) to indemnify the Guarantee Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence, wilful
misconduct or bad faith on the part of the Guarantee Trustee, arising out
of or in connection with the acceptance or administration of this Guarantee
Agreement, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
The Guarantee Trustee will not claim or exact any lien or charge on any
Guarantee Payments as a result of any amount due to it under this Guarantee
Agreement.
The provisions of this Section 3.3 shall survive the termination of this
Guarantee Agreement or the resignation or removal of the Guarantee Trustee.
ARTICLE IV
Guarantee Trustee
Section 4.1. Guarantee Trustee; Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is a national or state chartered bank and
eligible pursuant to the Trust Indenture Act to act as such, and that has
at the time of such appointment securities rated in one of the three
highest rating categories by a nationally recognized statistical rating
organization and a combined capital and surplus of at least $50,000,000,
and shall be a corporation meeting the requirements of Section 310(a) of
the Trust Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of its
supervising or examining authority, then, for the purposes of this Section
4.1 and to the extent permitted by the Trust Indenture Act, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2.
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(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
Section 4.2. Appointment, Removal and Resignation of the Guarantee Trustee.
(a) Subject to Section 4.2(c), the Guarantee Trustee may be appointed or
removed at any time by the Guarantor.
(b) Subject to Section 4.2(c), the Guarantee Trustee may resign from office
(without need for prior or subsequent accounting) by giving written notice
thereof to the Holders and the Guarantor and by appointing a successor Guarantee
Trustee.
(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed and shall have accepted
such appointment. No removal or resignation of a Guarantee Trustee shall be
effective until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by written instrument executed by such Successor
Guarantee Trustee and delivered to the Guarantor and, in the case of any
resignation, the resigning Guarantee Trustee.
(d) If the Guarantee Trustee shall resign, be removed or become incapable
of acting as Guarantee Trustee and a replacement shall not be appointed prior to
such resignation or removal, or if a vacancy shall occur in the office of
Guarantee Trustee for any reason, and no Successor Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section 4.2 within
60 days after delivery to the Holders and the Guarantor of a notice of
resignation, the resigning Guarantee Trustee may petition, at the expense of the
Guarantor, any court of competent jurisdiction for appointment of a Successor
Guarantee Trustee. Such court may thereupon, after prescribing such notice, if
any, as it may deem proper, appoint a Successor Guarantee Trustee.
ARTICLE V
Guarantee
Section 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by or on behalf of the Issuer Trust), as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer Trust may have or
assert, except the defense of payment. The Guarantor's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Guarantor to the Holders or by causing the Issuer Trust to pay such amounts
to the Holders.
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Section 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of this Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, the Issuer Trust or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice
of redemption and all other notices and demands.
Section 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise (other
than by Act (as defined in the Trust Agreement) of the Holders), of the
performance or observance by the Issuer Trust of any express or implied
agreement, covenant, term or condition relating to the Capital Securities
to be performed or observed by the Issuer Trust;
(b) the extension of time for the payment by the Issuer Trust of all
or any portion of the Distributions (other than an extension of time for
payment of Distributions that results from the extension of any interest
payment period on the Debentures as provided in the Indenture), Redemption
Price, Liquidation Distribution or any other sums payable under the terms
of the Capital Securities or the extension of time for the performance of
any other obligation under, arising out of, or in connection with, the
Capital Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Capital
Securities, or any action on the part of the Issuer Trust granting
indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Issuer Trust or any of the
assets of the Issuer Trust;
(e) any invalidity of, or defect or deficiency in, the Capital
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor (other than
payment of the underlying
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obligation), it being the intent of this Section 5.3 that the obligations
of the Guarantor hereunder shall be absolute and unconditional under any
and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
Section 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a Majority in
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust
or power conferred upon the Guarantee Trustee under this Guarantee Agreement;
and (iv) any Holder may institute a legal proceeding directly against the
Guarantor to enforce its rights under this Guarantee Agreement without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other Person.
Section 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer Trust) or upon the distribution of Debentures to Holders as
provided in the Trust Agreement.
Section 5.6. Subrogation.
The Guarantor shall be subrogated to all rights (if any) of the Holders
against the Issuer Trust in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement; provided, however, that the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any rights which it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Guarantee Agreement, if, at the time of any such
payment, any amounts are due and unpaid under this Guarantee Agreement. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Issuer Trust with respect to the Capital Securities
and that the Guarantor shall be liable as principal and as debtor hereunder to
make Guarantee Payments pursuant to the terms of this
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Guarantee Agreement notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
Covenants and Subordination
Section 6.1. Subordination.
The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Indebtedness (as defined in the
Indenture) of the Guarantor to the extent and in the manner set forth in the
Indenture with respect to the Debentures, and the provisions of Article XIII of
the Indenture will apply, mutatis mutandis, to the obligations of the Guarantor
hereunder. The obligations of the Guarantor hereunder do not constitute Senior
Indebtedness (as defined in the Indenture) of the Guarantor.
Section 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall rank
pari passu with the obligations of the Guarantor under (i) any similar guarantee
agreements issued by the Guarantor on behalf of the holders of preferred or
capital securities issued by any Issuer Trust (as defined in the Indenture);
(ii) the Indenture and the Securities (as defined therein) issued thereunder;
(iii) the Expense Agreement (as defined in the Trust Agreement) and any similar
expense agreements entered into by the Guarantor in connection with the offering
of Capital Securities (as defined in the Indenture) by any Issuer Trust (as
defined in the Indenture); and (iv) any other security, guarantee or other
agreement or obligation that is expressly stated to rank pari passu with the
obligations of the Guarantor under this Guarantee Agreement or with any
obligation that ranks pari passu with the obligations of the Guarantor under
this Guarantee Agreement.
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ARTICLE VII
Termination
Section 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price (as defined in the Trust
Agreement) of all Capital Securities, (ii) the distribution of Debentures to the
Holders in exchange for all of the Capital Securities, or (iii) full payment of
the amounts payable in accordance with Article IX of the Trust Agreement upon
liquidation of the Issuer Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder is required to repay any sums paid with respect to
Capital Securities or this Guarantee Agreement.
ARTICLE VIII
Miscellaneous
Section 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the successor or assignee agrees in writing to
perform the Guarantor's obligations hereunder, the Guarantor shall not assign
its obligations hereunder, and any purported assignment other than in accordance
with this provision shall be void.
Section 8.2. Amendments.
Except with respect to any changes that do not adversely affect the rights
of the Holders in any material respect (in which case no consent of the Holders
will be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in Liquidation Amount of the
Capital Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
Section 8.3. Notices.
(a) Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, by facsimile or first class mail as follows:
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(i) if given to the Guarantor, to the address or facsimile number
set forth below or such other address or facsimile number as the Guarantor
may give notice to the Guarantee Trustee and the Holders:
Southern States Cooperative, Incorporated
6606 West Broad Street
Richmond, Virginia 23260
Attention: ______________
Facsimile: _______________
(ii) if given to the Guarantee Trustee, at the address or facsimile
number set forth below or such other address or facsimile number as the
Guarantee Trustee may give notice to the Guarantor and the Holders:
First Union National Bank
800 East Main Street, Lower Mezzanine
Richmond, Virginia 23219
Attention: Corporate Trust Group
Facsimile: (804) 343-6699
(iii) if given to any Holder, in the manner set forth in Section 10.8
of the Trust Agreement.
(b) All notices hereunder shall be deemed to have been given when received
in person, by facsimile with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver, provided that any notice given
as provided in Section 8.3(a)(iii) shall be deemed to have been given at the
time specified in Section 10.8 of the Trust Agreement.
Section 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Capital Securities.
Section 8.5. Governing Law.
This Guarantee Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
-17-
<PAGE>
Section 8.6. Counterparts.
This Guarantee Agreement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Guarantee Agreement
to be duly executed, and their respective corporate seals to be hereunto
affixed, all as of the day and year first above written.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
[SEAL]
By: ________________________________
Name:
Title:
Attest: __________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
as Guarantee Trustee
[SEAL]
By: ________________________________
Name:
Title:
Attest: __________________________
Name:
Title:
<PAGE>
EXHIBIT 10.1(b)(i)
AMENDMENT TO
ASSET PURCHASE AGREEMENT
This Agreement made as of the 7 day of September, 1999, by and between Gold
Kist Inc., a Georgia cooperative marketing association ("GK"), and Southern
States Cooperative, Inc., a Virginia agricultural cooperative, a corporation
("Southern States").
WITNESSETH:
WHEREAS, GK and Southern States desire to amend the terms of the Asset
Purchase Agreement dated as of July 23, 1998 (the "Agreement") to change the
minimum amount of certain indemnifiable losses for which Gold Kist shall be
liable pursuant to the Asset Purchase Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and obligations contained herein, it is mutually agreed as follows:
1. The Agreement is incorporated herein by reference and is specifically
made a part hereof. All provisions, terms, covenants and conditions
set forth therein shall remain in full force and effect and shall
apply to this Agreement, except as specifically and expressly modified
herein.
2. GK and Southern States hereby agree that Section 15.3(b) of the
Agreement shall be amended to read as follows:
(b) Notwithstanding the provisions of Section 15.2, Gold Kist shall
have no liability to indemnify Southern States Indemnified
Persons hereunder with respect to the matters referenced in
clause (iii) of Section 15.3(a) above with respect to any
individual claim until the aggregate amount of Southern States
Indemnified Persons' indemnifiable losses exceed $25,000 for
such claims; provided, however, that if the aggregate amount of
any such losses with respect to a claim exceeds $25,000, Gold
<PAGE>
Kist shall indemnify Southern States for the entire amount of
such claim, including the initial $25,000 amount.
3. This amendment to the Agreement shall be deemed to be effective as of
October 13, 1998.
IN WITNESS WHEREOF, the parties have duly executed this amendment to
the Agreement as of the date first above written.
GOLD KIST INC.
By: /s/ M. A. Stimpert
-------------------------------
Title: Senior Vice President
---------------------------
SOUTHERN STATES COOPERATIVE, INC.
By:_______________________________
Title:____________________________
<PAGE>
EXHIBIT 10.1(d)
[Gold Kist stationery]
March 25, 1999
Southern States Cooperative, Inc.
6606 West Broad Street
Richmond, Virginia 23230-1717
SUBJECT: Amendment to Commitment Letter ("Commitment Letter") Dated October 13,
1998, Between Southern States Cooperative, Inc. ("Southern States")
and Gold Kist Inc. ("Gold Kist")
Ladies and Gentlemen:
This letter shall serve to amend the above-referenced Commitment Letter to
revise the Purchase Date and for other purposes. For purposes of this letter,
the capitalized terms used herein shall have the same definition as set forth in
the Commitment Letter, except as otherwise provided herein. Specifically, the
parties have agreed as follows:
1. The Commitment Letter and the Terms Sheet therefor shall be amended by
revising Section 1 of the Terms Sheet to provide that the Purchase Date
shall be extended from April 2, 1999 to October 5, 1999.
2. The Commitment Letter and the Terms Sheet therefor shall be amended by
adding the following sentence at the end of section 3 of the Terms Sheet:
"The payment of the Purchase Price by Gold Kist for the Preferred
Securities purchased shall be made directly to NationsBank, N.A. as
Administrative Agent for the account of Southern States."
3. The letter of credit issued by Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A. - "Rabobank Nederland", New York Branch ("Rabobank")
pursuant to section 4 of the Terms Sheet is assignable and, with the
consent of Rabobank, Southern States rights thereunder shall be assigned to
NationsBank, N.A., as Administrative Agent, and payment thereunder shall be
made directly to NationsBank, N.A., as Administrative Agent for the account
of Southern States.
4. The parties agree that any costs incurred by Gold Kist in having the LOC
amended or assigned for the purposes of this agreement shall be borne by
Southern States.
<PAGE>
Southern States Cooperative
March 25, 1999
Page 2
5. Except as expressly amended herein, the terms and provisions of the
Commitment Letter and Terms Sheet and Annexes thereto shall remain
unchanged and in full force and effect.
If you are in agreement with the amendment of the Commitment Letter as stated
above, please signify by executing and returning a copy of this letter to the
undersigned.
Sincerely,
/s/ Stephen O. West
-------------------------------------
Stephen O. West
Chief Financial Officer and Treasurer
SOW:pf
Enc.
Agreed to by Southern States Cooperative, Inc.
By: /s/ Wayne A. Boutwell
-------------------------------------
Wayne A. Boutwell
President and Chief Executive Officer
<PAGE>
EXHIBIT 10.1(e)
SOUTHERN STATES CAPITAL TRUST I
Step-Up Rate Capital Securities, Series A
(Liquidation Amount $1,000 Per Capital Security)
guaranteed to the extent set forth in the Guarantee by
SOUTHERN STATES COOPERATIVE, INCORPORATED
and
Step-Up Rate Series B Cumulative Redeemable Preferred Securities
(Liquidation Amount $1,000 Per Preferred Security)
Issued by
SOUTHERN STATES COOPERATIVE, INCORPORATED
_____________________________________
Purchase Agreement
------------------
October 5, 1999
Gold Kist Inc.
244 Perimeter Center Parkway, N.E.
Atlanta, Georgia 30346-2397
Gentlemen:
Pursuant to the commitment letter dated October 13, 1998, by and
between Gold Kist Inc. ("Gold Kist") and Southern States Cooperative,
---------
Incorporated, and the Terms Sheet attached thereto, as amended by letter dated
March 29, 1999 (the "Commitment Letter"), Southern States Capital Trust I, a
-----------------
statutory business trust formed under the laws of the State of Delaware (the
"Trust"), and Southern States Cooperative, Incorporated, an agricultural
-----
cooperative corporation organized under the laws of Virginia, as depositor of
the Trust and as guarantor (the "Company"), agree, subject to terms and
-------
conditions stated herein, that the Trust will issue and sell to Gold Kist Inc.
(the "Purchaser") an aggregate of $60,000,000 liquidation amount of Step-Up Rate
---------
Capital Securities, Series A (liquidation amount $1,000 per capital security)
(the "Capital Securities") representing undivided beneficial interests in the
------------------
assets of the Trust, guaranteed on a subordinated basis by the Company as to the
payment of distributions and as to payments on liquidation or redemption, to the
extent set forth in a guarantee agreement (the "Guarantee") between the Company
---------
and First Union National Bank, as trustee (the "Guarantee Trustee"). The Trust
-----------------
is to purchase, with the proceeds of the sale of the Capital Securities and
$1,856,000 liquidation amount of its Common Securities (liquidation amount
$1,000 per common security) (the "Common Securities" and together with the
-----------------
Capital Securities, the "Trust Securities"), $61,856,000 aggregate principal
----------------
amount of Step-Up Rate Junior Subordinated Deferrable Interest Debentures due
September 30, 2029 (the "Debentures") of the Company, to be issued pursuant to a
----------
Junior Subordinated Indenture (the "Indenture") between the Company and First
---------
Union National Bank, as trustee (the "Debenture Trustee").
-----------------
<PAGE>
The Company will be the holder of 100% of the Common Securities. The
Trust will be subject to the terms of an Amended and Restated Trust Agreement
(the "Trust Agreement"), among the Company, as depositor, First Union National
---------------
Bank, as Property Trustee ("Property Trustee") and First Union Trust Company,
----------------
National Association, as Delaware Trustee (the "Delaware Trustee"), and two
----------------
individual trustees who are employees or officers of or affiliated with the
Company (the "Administrative Trustees"). The Property Trustee, the Delaware
-----------------------
Trustee and the Administrative Trustees are collectively referred to herein as
the "Trustees."
--------
Pursuant to the Commitment Letter, the Company and the Purchaser also
agree, subject to terms and conditions stated herein, that the Company will sell
to the Purchaser 40,000 shares (liquidation preference of $1,000 per share) of
its Step-Up Rate Series B Cumulative Redeemable Preferred Stock, $100 par value
per share (the "Preferred Securities" and together with the Capital Securities,
--------------------
the "Securities"). This Purchase Agreement is referred to herein as the
----------
"Agreement."
---------
The Securities have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and are being sold pursuant to this
--------------
Agreement in reliance on the exemption therefrom contained in Section 4(2) of
the Securities Act.
1. Representations, Warranties and Agreements of the Company and the
Trust. The Company and the Trust, jointly and severally, represent and warrant
to, and agree with the Purchaser that as of the date hereof:
(a) The Company has been duly organized and is validly existing and
in good standing under the laws of the Commonwealth of Virginia, is duly
qualified to do business and is in good standing in each jurisdiction in
which its ownership or lease of property or the conduct of its business
requires such qualification, save where the failure to be so qualified
would not reasonably be expected to have a material adverse effect on the
business or property of the Company, and has all power and authority
necessary to own or hold its properties and to conduct the business in
which it is engaged and the authorized capital stock of Company consists of
(i) 20,000,000 shares of common stock of which 12,057,177 were issued and
outstanding as of August 31, 1999, and (ii) 1,000,000 shares of preferred
stock, of which 271 shares of 5% Series Cumulative Preferred Stock were
issued and outstanding as of August 31, 1999, and of which 14,354 shares of
6% Series Cumulative Preferred Stock were issued and outstanding as of
August 31, 1999;
(b) This Agreement has been duly authorized, executed and delivered
by the Company and the Trust;
(c) The issuance of the Securities, and the consummation by the
Company and the Trust of the transactions contemplated herein (the
"Transactions") will not conflict with or result in a breach or violation
------------
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or the Trust is a party or by which the
2
<PAGE>
Company or the Trust is bound or to which any of the properties or assets
of the Company or the Trust is subject, and such actions will not result in
any violation of the provisions of the Amended and Restated Articles of
Incorporation or bylaws of the Company, the governing documents for the
Trust or any statute or order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or the
Trust or any of the properties or assets of either the Company or the
Trust;
(d) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Business Trust Act of
the State of Delaware (the "Delaware Business Trust Act") with the trust
---------------------------
power and authority to own its property and conduct its business as
contemplated by this Agreement, and has conducted and will conduct no
business other than the Transactions and has no liabilities other than its
obligations in connection with the Transactions;
(e) The Guarantee, the Debentures, the Trust Agreement, the expense
agreement referred to in the Trust Agreement, and the Indenture
(collectively, the "Guarantor Agreements") have each been duly authorized,
--------------------
as appropriate, by the Company and the Trust and when validly executed and
delivered by the Company and, in the case of the Guarantee, by the
Guarantee Trustee, in the case of the Trust Agreement, by the Trustees, and
in the case of the Indenture, by the Debenture Trustee, and, in the case of
the Debentures, when validly authenticated and delivered by the Debenture
Trustee, will constitute valid and legally binding obligations of the
Company and of the Trust as parties thereto, enforceable in accordance with
their respective terms, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles (whether considered in a proceeding in equity or at law);
(f) The Preferred Securities have been duly and validly authorized
and, when issued and delivered against payment of the consideration
specified in this Agreement, will be duly and validly issued and fully paid
and non-assessable cumulative redeemable preferred stock of the Company,
and will have the rights set forth in the Amendment to the Company's
Articles of Incorporation authorizing the Step-Up Rate Series B Cumulative
Redeemable Preferred Stock;
(g) The Capital Securities have been duly and validly authorized by
the Trust, and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued and fully paid and non-
assessable undivided beneficial interests in the assets of the Trust; the
issuance of the Capital Securities is not subject to preemptive or other
similar rights; the terms of the Capital Securities are valid and binding
on the Trust; and the holders of the Capital Securities will be entitled to
the same limitation of personal liability extended to stockholders of
private corporations for profit organized under the General Corporation Law
of the State of Delaware;
(h) The financial statements (including in each case the related
schedules and notes) of the Company issued in connection with the period
ending June 30, 1999 fairly
3
<PAGE>
present in all material respects the consolidated financial position of the
Company and its subsidiaries as of the dates specified therein and the
consolidated results of their operations and cash flows for the respective
periods so specified and have been prepared, in accordance with generally
accepted accounting principles ("GAAP"), consistently applied throughout
the periods involved except as set forth in the notes thereto; and
(i) Neither the Trust, the Company nor any subsidiary of the Company
is an "investment company" within the meaning of such term under the
------------------
Investment Company Act of 1940, as amended, and the rules and regulations
of the Securities and Exchange Commission (the "Commission") thereunder.
----------
2. Purchase of the Securities by the Purchaser. (a) On the basis of
the representations and warranties herein contained, and subject to the terms
and conditions herein set forth, the Trust agrees to sell to the Purchaser and
the Purchaser agrees to purchase from the Trust, $60,000,000 aggregate
liquidation amount of the Capital Securities at a purchase price equal to 100%
of the liquidation amount of such Capital Securities.
(b) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Purchaser and the Purchaser agrees to purchase from the
Company, $40,000,000 aggregate liquidation amount of the Preferred Securities at
a purchase price equal to 100% of the liquidation amount of such Preferred
Securities.
(c) The Trust shall not be obligated to deliver any of the
Securities, except upon payment for all of the Securities to be purchased as
hereinafter provided.
3. Sale and Resale of the Securities by the Purchaser.
(a) The Purchaser hereby represents and warrants to, and agrees with
the Company and the Trust that it (i) is not acquiring the Securities with
a view to the distribution thereof; (ii) is acquiring the Securities for
its own account and with its general corporate assets and not with the
assets of any separate account in which any employee benefit plan, as those
terms are used in ERISA, has any interest; and (iii) will, when permitted
by the terms of this Agreement and the Securities and if selling within two
years (or such shorter period as is prescribed by paragraph (k) of Rule 144
under the Securities Act as then in effect) after the issuance of the
Securities, sell the Securities only: (1) to persons whom it reasonably
believes to be qualified institutional buyers ("Qualified Institutional
-----------------------
Buyers") as defined in Rule 144A under the Securities Act, as such rule may
------
be amended from time to time ("Rule 144A") or, if any such person is buying
---------
for one or more institutional accounts for which such person is acting as
fiduciary or agent, only when such person has represented that each such
account is a Qualified Institutional Buyer, to whom notice has been given
that such sale is being made in reliance on Rule 144A or (2) in
transactions exempt from registration under the Securities Act with
purchasers who execute letters of representation in the form included as
Exhibit A to this Agreement.
4
<PAGE>
(b) The Purchaser shall hold any Securities purchased by it for a
period of at least nine (9) months from the Closing Date. Upon the
expiration of that period, and subject to Section 3 of this Agreement and
the provisions of the Securities, the Purchaser may, at its election, give
notice to the Company of its desire to sell the Securities, in whole or in
part. Delivery of notice shall commence a 120-day waiting period during
which the Purchaser may not sell or offer to sell the Securities or any
portion thereof without the consent of the Company. Within 10 business
days of the Purchaser giving notice of its desire to sell, the Company
shall advise the Purchaser of its intentions with respect to the placement
or sale of other securities similar to the Securities. If, during the
waiting period, the Company determines not to place or sell any such
similar securities, then the Company shall so advise the Purchaser and the
Company shall not unreasonably refuse to waive the remainder of the waiting
period. Upon the later of (1) expiration of the 120-day waiting period and
(2) termination of a placement of similar securities commenced by the
Company prior to the end of the waiting period, the Purchaser will be free
to transfer the Securities as permitted by law and subject to the transfer
restrictions set forth in the Securities.
(c) The Company will provide such financial and other information and
assistance as may reasonably be required by the Purchaser in its efforts to
resell the Securities.
4. Delivery of and Payment for the Securities.
(a) Payment of the purchase price for, and delivery of, the
Securities shall be made at the offices of the Company, Richmond, Virginia
or at such other place as shall be agreed upon by the Company, the Trust
and you, at 9:30 a.m. (E.D.S.T), on October 5, 1999 (such date and time of
payment and delivery being herein called the "Closing Date").
------------
(b) On the Closing Date, payment for the Capital Securities shall be
made to or for the account of the Company and the Trust and payment for the
Preferred Securities shall be made to Bank of America, N.A., as
Administrative Agent for the account of the Company, in immediately
available funds by wire transfer to such accounts as the Company shall
specify prior to the Closing Date or by such means as the parties hereto
shall agree prior to the Closing Date against delivery to you of the
certificates evidencing the Securities.
5. Commitment Fee.
(a) Simultaneously with the purchase of the Securities by the
Purchaser, the Company shall pay to the Purchaser a commitment fee equal to
two percent (2%) of the aggregate liquidation amount of the Preferred
Securities and to one percent (1%) of the aggregate liquidation amount of
the Capital Securities. At the Purchaser's request, the Company will apply
the commitment fee with respect to the Capital Securities against the
purchase price to be paid to the Trust for the Capital Securities and will
apply the
5
<PAGE>
commitment fee with respect to the Preferred Securities against the
purchase price to be paid for the Preferred Securities.
(b) The amount of the commitment fee paid to the Purchaser under
paragraph (a) above shall be refunded, without interest, to the Company on
a pro rata basis upon any redemption, in whole or in part, of the
Securities from the Purchaser so that, for example, if 10% of the Capital
Securities are redeemed, 10% of the commitment fee for the Capital
Securities will be refunded as part of the redemption by the Company.
6. Further Agreements of the Company and the Trust. The Company and
the Trust, jointly and severally, further agree:
(a) So long as the Securities are outstanding and during any period
in which the Company is not subject to and in compliance with Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), to furnish to you and any other holders of the Securities and
---
prospective purchasers of the Securities designated by such holders, upon
request of such holders or such prospective purchasers, the information
required to be delivered pursuant to Rule 144A(d)(4), as amended, or any
successor thereto, under the Securities Act, in order to permit compliance
by such holder with Rule 144A in connection with the resale of the
Securities by such holder.
(b) In addition to the foregoing obligation, so long as the
Securities are outstanding and during any period in which the Company is
not subject to and in compliance with Section 13 or 15(d) of the Exchange
Act, the Company will also deliver to each holder of Securities:
(i) within 45 days after the end of each quarterly fiscal period
in each fiscal year of the Company (other than the last
quarterly fiscal period of each such fiscal year), duplicate
copies of (A) the consolidated balance sheets of the Company
and its subsidiaries as at the end of such quarter, and (B)
the consolidated statements of income, changes in patrons'
equity and cash flows of the Company and its subsidiaries for
such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such
quarter setting forth in each case in comparative form the
figures for the corresponding periods in the previous fiscal
year, all in reasonable detail, prepared, in accordance with
GAAP in each case (provided, however, that such financial
statements shall not be required to contain notes to the
financial statements), and in each case, certified by a senior
financial officer as fairly presenting, in all material
respects, the financial position of the companies being
reported on and their results of operations and cash flows,
subject to changes resulting from audit and year-end
adjustments;
(ii) within 90 days after the end of each fiscal year of the
Company, duplicate copies of (A) the consolidated balance
sheets of the
6
<PAGE>
Company and its subsidiaries as at the end of such year, and
(B) the consolidated statements of income, changes in
patrons' equity and cash flows of the Company and its
subsidiaries for such year setting forth in comparative form
the figures for the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP (except as noted
therein) accompanied by an opinion thereon of independent
certified public accountants of recognized standing stating
that such financial statements present fairly, in all
material respects, the financial position of the companies
being reported upon and that their results of operations and
cash flows and have been prepared in conformity with GAAP,
and that the examination of such accountants in connection
with such financial statements has been made in accordance
with generally accepted auditing standards, and that such
audit provides a reasonable basis for such opinion in the
circumstances; and
(iii) promptly upon their becoming available, one copy of any (A)
financial statement, report, notice or proxy statement sent
by the Company to public securities holders generally, and
(B) regular or periodic report, registration statement
(without exhibits except as expressly requested by such
holder) and prospectus and all amendments thereto filed by
the Company with the Commission.
The Company agrees to acknowledge the obligation in this Section 6(b) in
writing to any proposed holder of Securities or to any holder of Securities
at any time and from time to time by a separate instrument in writing.
This provision is for the benefit of each holder of Securities and each
such holder shall be entitled to require compliance herewith.
(c) To permit the Purchaser and the representatives of each holder of
Securities that is an institutional investor at the expense of such holder
and upon reasonable prior notice to the Company to visit the principal
executive office of the Company to discuss the affairs, finances and
accounts of the Company and its subsidiaries with their officers, and (with
the consent of the Company which consent will not be unreasonably withheld)
independent public accountants, and to visit the other offices and
properties of the Company and each subsidiary, all at such reasonable times
and as often as may be reasonably requested in writing; and if a Default or
Event of Default then exists, at the expense of the Company to visit and
inspect any of the offices or properties of the Company or any subsidiary,
to examine all their respective books of account, records, reports and
other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers
and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and accounts
of the Company and its subsidiaries), all at such times and as often as may
be requested.
(d) Upon the request of the Purchaser or any other holder of the
Securities that is an institutional investor, to use their best efforts to
permit the Securities to be designated Private Offerings, Resales and
Trading through Automated Linkages Market
7
<PAGE>
("PORTAL") securities in accordance with the rules and regulations adopted
------
by the National Association of Securities Dealers, Inc. relating to trading
in the PORTAL Market and to permit the Securities to be eligible for
clearance and settlement through The Depository Trust Company (the "DTC").
---
(e) Not to, and the Company will cause its affiliates not to, solicit
any offer to buy or offer to sell the Securities by means of any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.
(f) To take such steps as shall be necessary to ensure that neither
the Trust, the Company nor any subsidiary of the Company shall become an
"investment company" within the meaning of such term under the Investment
------------------
Company Act of 1940 and the rules and regulations of the Commission
thereunder.
(g) To continue, for as long as Gold Kist holds any of the Securities
purchased hereunder, but in no event for more than 60 months from the date
of this Agreement, with all good faith reasonable efforts to place on terms
and conditions reasonably satisfactory to Company, through one or more of
the markets referenced below a minimum of $40 million of perpetual
preferred and a minimum of $60 million of capital securities substantially
similar to the Securities. The Company shall pursue its efforts through:
(A) the Rule 144A market, (B) the private placement market, and/or (C) one
or more registered public offerings of trust preferred and/or preferred
stock.
(h) Subject to the provisions of this subsection 6(h), to use
commercially reasonable efforts to seek and obtain an investment grade
rating (or, at the request of Gold Kist, a non-investment grade rating) of
the Securities from two or more nationally recognized statistical rating
organizations such as Standard & Poor's Rating Services, a division of
McGraw-Hill, Moody's Investor Service, Duff & Phelps Rating Co. and Fitch
Investor Services, and at the request of Gold Kist, to take all
commercially reasonable actions and make all filings and reports necessary
or appropriate to maintain a rating. In either case, however, if the
Company believes that obtaining a non-investment grade rating or
maintaining a rating (when the Company has been advised by the rating
agency that such rating will be downgraded to a non-investment grade
rating) would adversely affect the Company or its securities and advises
Gold Kist of the reasons for its belief, the Company has the right not to
pursue such a rating; provided, however, that if Gold Kist is of a contrary
opinion and advises the Company of the reasons for its belief, and the
Company does not concur with Gold Kist, then the Company will undertake to
secure an opinion of a nationally recognized investment banking firm not
otherwise then performing services for either the Company or Gold Kist with
respect to whether obtaining a non-investment grade rating or whether
maintaining a rating (when the Company has been advised that such rating
will be downgraded to a non-investment grade rating) would adversely affect
the Company or the Company's securities. In the event such an investment
banking firm concludes that obtaining a non-investment grade rating or
maintaining a rating that would be downgraded to a non-investment grade
rating
8
<PAGE>
would adversely affect the Company or its securities, then the Company
shall not be required to pursue such a rating at that time. If an
investment banking firm shall be engaged for the purpose of providing an
opinion referred to in this Section 6(h), the firm shall be mutually agreed
upon by the Company and Gold Kist. The Company shall pay the expense of
such opinion; provided, however, that Gold Kist shall reimburse the Company
for the costs incurred in securing such opinion unless the opinion of such
firm is to the effect that obtaining a non-investment grade rating or that
maintaining a rating (when the Company has been advised that such rating
will be downgraded to a non-investment grade rating) would not adversely
affect the Company or its securities. In no circumstances, however, shall
the Company be required to seek a rating more than once or an investment
banking opinion more than twice under this Section 6(h) in any rolling 12-
month period beginning July 1, 2000. For purposes of this Section 6(h), the
term "adversely affect" shall be construed to mean adverse effects having
more than an immaterial or insubstantial effect.
7. Expenses. The Company and the Trust, jointly and severally,
agree to pay (i) the costs incident to the sale and delivery of the Securities
and any taxes payable in that connection; (ii) all fees and expenses, if any,
incurred in connection with the admission of such Securities for trading in
PORTAL; and (iii) all other costs and expenses incident to the performance of
the obligations of the Company and the Trust, respectively.
8. Conditions to the Purchaser's Obligations. The obligations of the
Purchaser hereunder are subject to the accuracy, on the Closing Date, of the
representations and warranties of the Company and the Trust, contained herein,
to the performance by the Company and the Trust of their obligations hereunder,
and to each of the following additional terms and conditions:
(a) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Guarantor
Agreements, the Securities, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be satisfactory in
all respects to counsel for the Purchaser, and the Company and the Trust
shall have furnished to such counsel all documents and information that
they may reasonably request to enable them to pass upon such matters.
(b) Mays & Valentine, L.L.P. shall have furnished to the Purchaser
their written opinion, as counsel to the Company and the Trust, addressed
to the Purchaser and dated the Closing Date, in form and substance
reasonably satisfactory to the Purchaser, to the effect set forth in
Exhibit B hereto and to such further effect as counsel to the Purchaser may
reasonably request.
(c) Potter Anderson & Corroon LLP shall have furnished to the
Purchaser their written opinion, as Delaware counsel to the Company and the
Trust, addressed to the Purchaser and dated the Closing Date, in form and
substance reasonably satisfactory to the Purchaser, to the effect set forth
in Exhibit C hereto and to such further effect as counsel to the Purchaser
may reasonably request.
9
<PAGE>
9. Redemption.
(a) Mandatory Redemption. Notwithstanding any other provision of the
--------------------
Securities or the Guarantor Agreements, the Capital Securities and the
Preferred Securities shall be subject to mandatory redemption, at a
redemption price equal to the liquidation amount of the Securities redeemed
plus all unpaid and accumulated amounts distributable with respect to such
Securities, during the period and to the extent any such Securities are
held by Gold Kist, from the net proceeds of any placement by the Company of
any shares of preferred stock or any subordinated debt (any such placement
of securities being referred to herein as a "Mandatory Redemption Event").
--------------------------
In the event a Mandatory Redemption Event shall occur, the Company shall
have the obligation to redeem, to the full extent of any net proceeds
realized from such a placement or placements, all or any applicable portion
of any Capital Securities or Preferred Securities of the Company held by
Gold Kist, but the Company shall have the right to select for mandatory
redemption whichever type of Securities may be held by Gold Kist. In the
event the Company shall sell or otherwise place shares of its preferred
stock or its subordinated debt to any third-party or parties, it shall give
prompt written notification thereof to Gold Kist, which notice shall
specify a redemption date not more than [three (3)] business days after the
date of such notice at which time the mandatory redemption of all or a
specified portion of the Capital Securities and/or Preferred Securities
held by the Purchaser shall occur. For the avoidance of doubt, the Company
acknowledges that a Mandatory Redemption Event will not necessarily involve
securities having terms similar to the terms of Securities, but includes
all preferred stock and subordinated debt, whether such debt or stock ranks
prior to Securities or not, that any debt that is subordinated in the
payment of principal or interest to any other obligations of Company shall
be subordinated debt and that a sale of part of the Securities by Gold Kist
will have no effect on the Company's obligations upon a Mandatory
Redemption Event with respect to the Securities still held by Gold Kist.
(b) Optional Redemption. Notwithstanding any other provision of the
-------------------
Securities, this Agreement or the Guarantor Agreements and during the
period and to the extent such Securities are held by Gold Kist, the Capital
Securities and the Preferred Securities shall be subject to redemption
before maturity at the option of the Company at any time, in whole or in
part, at a redemption price equal to the liquidation amount of the
Securities redeemed plus all unpaid and accumulated amounts distributable
with respect to such Securities.
(c) Supplemental Redemption Notice. During the period that the
------------------------------
Capital Securities and the Preferred Securities are held by Gold Kist, the
Company agrees that, in addition to any other redemption notice required by
the terms of the Securities, this Agreement or the Guarantor Agreements to
be sent by or on behalf of the Company with respect to any redemption of
the Capital Securities or the Preferred Securities, the Company will send
such redemption notice to Gold Kist by facsimile or by e-mail at the
address specified in Section 11 below or as otherwise furnished to the
Company by Gold Kist in writing.
10
<PAGE>
10. Extinguishment of Commitment Letter. The closing of the sale and
purchase of Securities under this Agreement shall operate to extinguish and
terminate the Commitment Letter in all respects and the bank letter of credit
referred to therein. Company agrees to take any and all actions as may be
reasonably requested by the Purchaser to confirm to the bank the termination of
the letter of credit.
11. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Purchaser, shall be delivered or sent by certified
mail, courier or overnight carrier, hand or facsimile transmission to Gold
Kist Inc., 244 Perimeter Center Parkway, N.E., Atlanta, Georgia 30346-2397
Attention: Chief Financial Officer (Fax: (770) 393-5061); and with a copy
to the General Counsel at the same address (Fax: (770) 393-5421);
(b) if to the Company shall be delivered or sent by certified mail,
courier or overnight carrier, hand or facsimile transmission to the Company
at: 6606 West Broad Street, Richmond, Virginia 23230, Attention: Chief
Financial Officer (Fax: (804) 281-1383);
(c) if to the Trust shall be delivered or sent by certified mail,
courier or overnight carrier, hand or facsimile transmission to the Trust
at: 6606 West Broad Street, Richmond, Virginia 23230, Attention:
Administrative Trustees (Fax: (804) 281-1383).
Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Purchaser, the Company, the
Trust and their respective successors and assigns and the holders of the
Securities to the extent provided herein, except that the mandatory and optional
redemption and supplemental redemption notice provisions of Section 9 are
personal to Gold Kist and will not apply to any other holder of the Capital
Securities or the Preferred Securities. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons. Nothing in
this Agreement is intended or shall be construed to give any person, other than
the persons referred to in this Section 12, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein.
13. Survival. The respective representations, warranties and
agreements of the Company, the Trust and the Purchaser contained in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Securities and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any person controlling any of them.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Virginia.
11
<PAGE>
15. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
16. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement between the
Company, the Trust and Gold Kist, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
SOUTHERN STATES CAPITAL TRUST I
By: /s/ Leslie T. Newton
----------------------------------
Name: Leslie T. Newton
Title: Administrative Trustee
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: /s/ Jonathan A. Hawkins
----------------------------------
Name: Jonathan A. Hawkins
Title: Senior Vice President and Chief Financial
Officer
Accepted:
GOLD KIST INC.
By: /s/ M. A. Stimpert
-----------------------------
Name: M. A. Stimpert
Title: Senior Vice President
12
<PAGE>
EXHIBIT A
TRANSFEREE LETTER OF REPRESENTATION
Southern States Cooperative, Incorporated ________________________
6606 West Broad Street ________________________
Richmond, Virginia 23230 ________________________
Ladies and Gentlemen:
In connection with the proposed transfer to us of [Step-Up Rate
Capital Securities, Series A (the "Capital Securities")] [Step-Up Rate Series B
Cumulative Redeemable Preferred Stock (the "Preferred Stock")] of Southern
States Cooperative, Incorporated (the "Company"), we confirm that:
1. We understand that the [Capital Securities] [Preferred Stock] has
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or other applicable securities laws, and may not be
offered, sold, or otherwise transferred except as permitted in the
following sentence. We agree on our behalf and on behalf of any investor
account for which we are purchasing [Capital Securities] [Preferred Stock]
to offer, sell, or otherwise transfer such [Capital Securities] [Preferred
Stock] prior to the date that is two years after the later of the date of
original issue thereof and the last date on which the Company or any
"affiliate" of the Company was the owner of such [Capital Securities]
[Preferred Stock] (or any predecessor thereto) (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c)
so long as the [Capital Securities] [Preferred Stock] is eligible for
resale pursuant to Rule 144A under the Securities Act, to a person we
reasonably believe is a "qualified institutional buyer" (a "QIB") as
defined in Rule 144A of the Securities Act that purchases for its own
account or for the account of QIB to whom notice is given that the transfer
is being made in reliance on Rule 144A, (d) to an institutional "accredited
investor" (an "Institutional Accredited Investor") within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act
that is acquiring the [Capital Securities] [Preferred Stock] for its own
account or for the account of such an Institutional Accredited Investor not
with a view to, or for offer and sale in connection with, any distribution
in violation of the Securities Act, (e) pursuant to any other available
exemption from the registration requirements under the Securities Act,
subject to the right of the Company prior to any such offer, sale, or
transfer pursuant to clause (d) or (e) above to require the delivery of an
opinion of counsel, certifications, a letter from the transferee
substantially similar to this letter, or other information satisfactory to
them.
A-1
<PAGE>
2. We are purchasing the [Capital Securities] [Preferred Stock] for
our own account or for the account of another for whom we are acting and
not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act or any other applicable
securities laws, and we have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the [Capital Securities] [Preferred Stock], and we and any
accounts for which we are acting are each able to bear the economic risk of
our or its investment for an indefinite period.
3. You and the Company are entitled to rely upon this letter and you
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH ,
THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
___________________________________________
Name of Transferee (please print)
By: _______________________________________
Title: ____________________________________
Date: _____________________________________
Upon transfer, the [Capital Securities] [Preferred Stock] would be
registered in the name of the new beneficial owner as follows:
Name: __________________________________
Address: _______________________________
_______________________________
Taxpayer ID Number: ____________________
A-2
<PAGE>
EXHIBIT B
FORM OF OPINION OF
COUNSEL TO THE COMPANY TO BE DELIVERED
PURSUANT TO SECTION 7(b)
October 5, 1999
Gold Kist Inc.
244 Perimeter Center Parkway, NE
Atlanta, Georgia 30346-2397
Southern States Cooperative, Incorporated
Southern States Capital Trust I
Ladies and Gentlemen:
We have acted as counsel to Southern States Cooperative, Incorporated,
a Virginia agricultural cooperative association (the "Company"), and Southern
States Capital Trust I, a statutory business trust created under the laws of
Delaware (the "Trust"), in connection with the sale of $60,000,000 liquidation
amount of Step-Up Rate Capital Securities, Series A (the "Capital Securities")
of the Trust and $40,000,000 liquidation amount of Step-Up Rate Cumulative
Redeemable Preferred Stock (the "Preferred Stock," and together with the Capital
Securities, the "Securities") of the Company to you under the Purchase Agreement
of even date herewith between you and the Company. The Capital Securities will
be issued by the Trust, and the Guarantee and the Junior Subordinated Debentures
will be issued by the Company to the Trust in connection with the issuance of
the Capital Securities.
The Capital Securities will be issued under an Amended and Restated
Trust Agreement (the "Amended and Restated Trust Agreement") entered into by and
among the Company, the Delaware Trustee, the Property Trustee, and the
Administrative Trustees named therein; the Junior Subordinated Debentures will
be issued under a Junior Subordinated Indenture (the "Indenture") to be entered
into between the Company and the Debenture Trustee; and the Guarantee will be
issued under the Guarantee Agreement (the "Guarantee") between the Company and
the Guarantee Trustee. The Company and the Trust also will enter into an
Expense Agreement.
All capitalized terms not otherwise defined herein have the meanings set
forth in the Purchase Agreement.
In rendering this opinion, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of: (i) the Trust Agreement, dated
December 15, 1998 (the "Trust
B-1
<PAGE>
Agreement"), (ii) the Certificate of Trust of the Trust, filed on December 16,
1998, (iii) the Corrected Certificate of Trust of the Trust, filed on September
28, 1999, (iv) the form of Amended and Restated Trust Agreement pursuant to
which the Capital Securities are to be issued, (v) the form of Capital
Securities Certificate, (vi) the form of Guarantee entered into by and between
the Company and the Trust, pursuant to which the Company will guarantee certain
obligations of the Trust with respect to the Capital Securities, (vii) the form
of Indenture entered into by and between the Company and the Debenture Trustee,
which will govern the Junior Subordinated Debentures to be issued by the
Company, (viii) the form of Junior Subordinated Debenture and (ix) the Articles
of Amendment to the Restated Articles of Incorporation of the Company creating
the series of Step-Up Rate Series B Cumulative Redeemable Preferred Stock. We
have also examined originals or copies, certified or otherwise identified to our
satisfaction, of such other documents, certificates and records as we have
deemed necessary or appropriate for purposes of rendering this opinion. In
rendering this opinion, we have assumed that the Amended and Restated Trust
Agreement, the Guarantee, the Capital Securities, the Indenture and the
Debentures when executed, will be executed in substantially the form reviewed by
us. We have also assumed that the trustees will conduct the affairs of the Trust
in accordance with the Amended and Restated Trust Agreement.
Based upon the foregoing, we are of the following opinions:
1. The Company has been duly formed and is validly existing as a
corporation in good standing under the laws of the Commonwealth of Virginia, is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which its ownership or lease of property or the conduct
of its business requires such qualification, save where the failure to do so
would not reasonably be expected to have a material adverse effect on the
business or property of the Company and has all corporate power and authority
necessary to own or hold its properties and conduct the business in which it is
engaged.
2. The authorized capital stock of the Company consists of (a) 20,000,000
shares of membership common stock of which 12,057,177 were issued and
outstanding as of August 31, 1999, and (b) 1,000,000 shares of preferred stock,
of which 271 shares of 5% Series Cumulative Preferred Stock were issued and
outstanding as of August 31, 1999, and of which 14,354 shares of 6% Series
Cumulative Preferred Stock were issued and outstanding as of August 31, 1999,
all of which shares of stock were duly authorized, validly issued and fully paid
and non-assessable.
3. (a) The execution and delivery by the Company of each of the
Securities, the Trust Agreement, the Amended and Restated Trust Agreement, the
Indenture and the Guarantee has been duly and validly authorized, and when
issued in accordance with the Purchase Agreement, the Preferred Stock will be
duly authorized, validly issued and fully paid and non-assessable.
(b) The Subordinated Debentures to be issued by the Company to the
Trust will, when issued in accordance with the terms of the Indenture,
constitute valid and binding obligations of the Company.
(c) The Guarantee when provided by the Company and upon issuance of
the Capital Securities will constitute a valid and binding obligation of
the Company.
B-2
<PAGE>
4. The Purchase Agreement has been duly authorized, executed and delivered
by the Company and the Trust and constitutes a valid and binding agreement of
the Company and the Trust enforceable against the Company and the Trust in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization,
liquidation, moratorium or other similar laws affecting the rights and remedies
of creditors generally and except as may be subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or
at law), and except as rights to indemnity and contribution thereunder may be
limited by applicable law and public policy, and except that no opinion is
expressed as to the enforceability of the choice of law provision thereof;
5. To the best of our knowledge, the issue and sale of the Securities,
the compliance by the Company with all of the provisions of the Purchase
Agreement, and the consummation of the Transactions contemplated thereby, will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property or assets
of the Company is subject, nor will such actions result in any violation of the
provisions of the articles of incorporation or by-laws of the Company or, to our
knowledge, any statute or any order, rule or regulation of any court or
governmental agency or body of the United States or the State of Virginia having
jurisdiction over the Company or any of its properties or assets; and, except
for such consents, approvals, authorizations, registrations or qualifications as
may be required under applicable state securities laws in connection with the
purchase and distribution of the Securities by the Purchaser, no consent
approval, authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution, delivery and
performance of the Purchase Agreement by the Company and the consummation of the
transactions contemplated thereby;
6. Neither the Company, any of its subsidiaries nor the Trust is an
"investment company" as such term is defined in the Investment Company Act of
---------- -------
1940, as amended;
Our opinion is limited to matters governed by the Federal laws of the
United States of America and the laws of the Commonwealth of Virginia.
Where our opinion as to certain matters of fact is stated to be "to the
best of our knowledge," we have not undertaken any independent investigation or
examination of those matters as a basis for our opinion but have instead relied
solely upon such information as to those matters as is contained in our open
files in the name of the Company or has been provided to us in response to
inquiries made by us to officers of the Company or has otherwise come to our
attention in the course of our representation of the Company or the Trust in
connection with the preparation of the Securities, the Trust Agreement, the
Amended and Restated Trust Agreement, the Indenture, the Guarantee and the
Purchase Agreement and the consummation of the Transactions.
B-3
<PAGE>
For purposes of the opinion rendered in Paragraph 2 above, the statement
therein as to the number of shares of capital stock issued and outstanding on
the date referred to was based solely on information provided to us by the
Company.
In rendering the foregoing opinion, we have relied to the extent we deem
appropriate on the opinion of Potter Anderson & Corroon LLP, Delaware counsel to
the Trust.
Very truly yours,
MAYS & VALENTINE, L.L.P.
B-4
<PAGE>
EXHIBIT C
FORM OF OPINION OF DELAWARE COUNSEL
TO THE GUARANTOR AND THE TRUST
TO BE DELIVERED PURSUANT TO SECTION 7(c)
October 5, 1999
To Each of the Persons Listed
on Schedule I Attached Hereto
Re: Southern States Capital Trust I
-------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Southern States Capital
Trust I, a Delaware business trust (the "Trust") in connection with the issuance
of its Step-Up Rate Capital Securities, Series A on the date hereof (the
"Capital Securities") pursuant to the Purchase Agreement as defined in the
Amended and Restated Trust Agreement (the "Trust Agreement"), dated the date
hereof, by and among Southern States Cooperative, Incorporated, as Depositor,
First Union Trust Company, National Association, as Delaware Trustee, First
Union National Bank, as Property Trustee, and the Administrative Trustees named
therein. Initially capitalized terms used herein and not otherwise defined are
used herein as defined in the Trust Agreement.
For purposes of giving the opinions hereinafter set forth, we have
examined only the following documents and have conducted no independent factual
investigations of our own:
1. The Certificate of Trust for the Trust, dated as of December 15,
1998, as filed in the Office of the Secretary of State of the State of Delaware
(the "Secretary of State") on December 16, 1998;
2. The Corrected Certificate of Trust for the Trust, dated as of
September 28, 1999, as filed with the Secretary of State on September 28, 1999;
3. The original trust agreement of the Trust, dated as of December
15, 1998, by and between Southern States Cooperative, Incorporated, as
Depositor, and First Union Trust Company, National Association, as Delaware
Trustee (the "Original Agreement");
4. The Trust Agreement;
<PAGE>
To each of the person on
Schedule I attached hereto
October 5, 1999
Page 2
5. A Certificate of Good Standing for the Trust, dated October 5,
1999, obtained from the Secretary of State;
6. The Purchase Agreement; and
7. The Expense Agreement.
The documents referred to in (1) and (2) are collectively referred to
as the "Certificate." The documents referred to in (3), (4), (6) and (7) are
collectively referred to as the "Agreements" and individually as an "Agreement."
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in (1) through (7) above. In particular, we have
not reviewed any document (other than the documents listed in (1) through (7)
above) that is referred to or incorporated by reference into the documents
reviewed by us. We have assumed that there exists no provision in any document
that we have not reviewed that is inconsistent with the opinions stated herein.
In addition, we have conducted no independent factual investigation of
our own but rather have relied solely on the foregoing documents, the statements
and information set forth therein and the additional matters related or assumed
therein, all of which we have assumed to be true, complete and accurate.
Whenever a statement herein is qualified by the phrase "known by us" or a
correlative phrase, it is intended to indicate the current and actual knowledge
of the attorneys in the firm who have rendered legal services in connection with
the transactions described herein.
Based upon the foregoing, and subject to the assumptions,
qualifications, limitations and exceptions set forth herein, we are of the
opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act and all
filings required under the laws of the State of Delaware with respect to the
creation and valid existence of the Trust have been made.
2. Under the Delaware Business Trust Act and the Trust Agreement,
the Trust has the trust power and authority (a) to own its properties
(including, without limitation, the Debentures) and conduct its business, (b) to
execute and deliver, and to perform its obligations under, the Agreements to
which it is a party, and (c) to issue and perform its obligations under the
Capital Securities and Common Securities, all as described in the Trust
C-2
<PAGE>
To each of the person on
Schedule I attached hereto
October 5, 1999
Page 3
Agreement.
3. The Trust Agreement constitutes a valid and binding obligation of
the Depositor and the Trustees, enforceable against the Depositor and the
Trustees, respectively, in accordance with its terms.
4. Under the Delaware Business Trust Act and the Trust Agreement,
the execution and delivery by the Trust of the Agreements to which it is a
party, and the performance by the Trust of its obligations thereunder, have been
duly authorized by all necessary trust action on the part of the Trust.
5. The Capital Securities (a) have been duly authorized by the Trust
Agreement, and (b) once duly and validly issued in accordance with the Trust
Agreement, will represent valid and fully paid and, subject to the
qualifications set forth in number 8 below, non-assessable undivided beneficial
interests in the assets of the Trust.
6. Once duly and validly issued in accordance with the Trust
Agreement, the Capital Securities will entitle the Holders of the Capital
Securities to the benefits of the Trust Agreement.
7. The Common Securities (a) have been duly authorized by the Trust
Agreement, and (b) once duly and validly issued in accordance with the Trust
Agreement, will represent valid and fully paid undivided beneficial interests in
the assets of the Trust.
8. The Holders of Capital Securities will be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware, except that the Holders of Capital Securities may be obligated to
(a) provide indemnity and/or security in connection with and pay taxes or
governmental charges arising from transfers or exchanges of certificates
representing Capital Securities and the issuance of replacement certificates
representing Capital Securities to the extent provided in the Trust Agreement,
(b) provide security or indemnity in connection with requests of or directions
to the Property Trustee to exercise its rights and powers under the Trust
Agreement, and (c) provide indemnity in connection with violations of the Trust
Agreement or U.S. Federal or state securities laws arising from transfers or
exchanges of certificates representing Capital Securities and the issuance of
replacement certificates representing Capital Securities.
9. Under the Delaware Business Trust Act and the Trust Agreement,
the issuance of the Trust Securities is not subject to preemptive rights.
C-3
<PAGE>
To each of the person on
Schedule I attached hereto
October 5, 1999
Page 4
10. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body of the State of
Delaware known by us to have jurisdiction over the Trust is required for the
issuance and sale of the Securities or the consummation by the Trust of the
transactions contemplated by the Agreements to which it is a party.
11. The (a) purchase of the Debentures by the Trust, (b) distribution
of the Debentures by the Trust in the circumstances contemplated by the Trust
Agreement, and (c) execution, delivery and performance by the Trust of the
Agreements to which it is a party and the consummation of the transactions
contemplated thereunder, will not conflict with or result in a breach or
violation of any of the terms or provisions of the Certificate or the Trust
Agreement or any statute, rule or regulation of the State of Delaware or any
governmental agency or body of the State of Delaware known by us to have
jurisdiction over the Trust.
12. Assuming that the Trust is treated as a grantor trust or
partnership for federal income tax purposes, the Holders of Capital Securities
(other than those holders of Capital Securities who reside or are domiciled in
the State of Delaware) will have no liability for income taxes imposed by the
State of Delaware solely as a result of their participation in the Trust, and
the Trust will not be liable for any income tax imposed by the State of
Delaware.
All of the foregoing opinions contained herein are subject to the
following assumptions, qualifications, limitations and exceptions:
a. The foregoing opinions are limited to the laws of the State
of Delaware presently in effect, excluding the securities laws thereof. We have
not considered and express no opinion on the laws of any other jurisdiction,
including, without limitation, federal laws and rules and regulations relating
thereto.
b. The foregoing opinions in paragraphs 3 and 6 above are
subject to (i) applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, fraudulent transfer and similar laws relating to or affecting
creditors rights generally including, without limitation, the Delaware Uniform
Fraudulent Conveyance Act, the provisions of the United States Bankruptcy Code
and the Delaware insolvency statutes, (ii) principles of equity including,
without limitation, concepts of materiality, good faith, fair dealing,
conscionability and reasonableness (regardless of whether such enforceability is
considered in a proceeding in equity or at law), (iii) applicable law relating
to fiduciary duties, (iv) public policy limitations with respect to exculpation,
contribution and indemnity provisions, and (v) the limitation that a court
applying Delaware law will enforce a liquidated damages provision in a contract
only where, at the time of contract, actual damages may be difficult to
determine and the stipulated sum is not so grossly disproportionate to the
probable anticipated loss as to be a penalty.
C-4
<PAGE>
To each of the person on
Schedule I attached hereto
October 5, 1999
Page 5
c. We have assumed the due execution and delivery by each party
thereto of each document examined by us. In addition, we have assumed the due
authorization by each party thereto (exclusive of the Trust) of each document
examined by us, and that each of such parties (exclusive of the Trust and the
Administrative Trustees) has the full power, authority, and legal right to
execute, deliver and perform each such document. We also have assumed that each
of the parties (exclusive of the Trust and the Administrative Trustees) to each
of the Agreements is a corporation, bank, national banking association, limited
liability company or trust company duly formed, validly existing and in good
standing under the laws of their respective jurisdictions of organization and
that the Agreements to which each of the entities to each of the Agreements
(other than, in the case of the Trust, as expressly set forth in Paragraph 11)
is a party do not result in the breach of the terms of, and do not contravene
its constituent documents or any law, rule or regulation applicable to it. We
have also assumed that each of the Agreements to which each of the entities is a
party does not (x) result in the breach of the terms of, and does not
contravene, any contractual restriction binding upon such entities, or (y)
(other than, in the case of the Trust as expressly set forth in Paragraphs 10
and 11) require under any law, statute, rule, or regulation any filing with, or
any approval or consent of, any governmental authority. We have further assumed
the legal capacity of any natural persons who are signatories to any of the
Agreements or other documents examined by us.
d. We have assumed that all signatures on documents examined by
us are genuine, that all documents submitted to us as originals are authentic
and that all documents submitted to us as copies conform with the originals.
e. We have assumed that the Original Agreement and the Trust
Agreement collectively, constitute the entire agreement among each of the
respective parties thereto with respect to the subject matter thereof, including
with respect to the creation, operation, dissolution and winding up of the
Trust.
C-5
<PAGE>
To each of the person on
Schedule I attached hereto
October 5, 1999
Page 6
f. We have assumed that no event set forth in Article 9 of the
Trust Agreement has occurred.
g. We have assumed that the Trust derives no income from or
connected with sources within the State of Delaware and has no assets,
activities (other than having a Delaware trustee as required by the Delaware
Business Trust Act and the filing of documents with the Secretary of State) or
employees in the State of Delaware.
h. Notwithstanding any provision in the Trust Agreement to the
contrary, we note that upon the occurrence of an event set forth in Article 9
thereof, the Trust cannot make any payments or distributions to the Holders of
Securities until creditors' claims are either paid in full or reasonable
provision for payment thereof has been made.
i. With respect to the enforceability of any provision of the
Trust Agreement wherein the parties provide for the appointment of a liquidator,
we note that upon the application of any beneficial owner, the Delaware Court of
Chancery has the power, upon cause shown, to wind up the affairs of a Delaware
business trust and in connection therewith to appoint a liquidating trustee
other than the one agreed to by the beneficial owners thereof.
j. We have assumed that the only assets owned by the Trust are
the Debentures, cash on deposit in, or owing to, the Payment Account, and all
proceeds and rights in respect of the same.
k. We have assumed that all of the agreements that are not
governed by Delaware law constitute legal, valid, binding and enforceable
obligations of each of the parties thereto under the laws of the State of New
York.
l. We have assumed that the Trust Securities will be issued and
sold in accordance with the Trust Agreement and the Purchase Agreement. We have
further assumed that the purchase price for the Trust Securities has been paid,
that certificates representing the Trust Securities have been issued by the
Trust, and that such certificates representing Trust Securities have been
received by the Holders thereof, respectively, all in accordance with the Trust
Agreement and the Purchase Agreement.
m. We note that pursuant to the Expense Agreement the
Depositor, as Holder of the Common Securities, is liable for all of the debts
and obligations of the Trust (other than with respect to the Capital Securities)
to the extent not satisfied out of the Trust's assets.
This opinion is rendered solely for your benefit in connection with
the matters
C-6
<PAGE>
To each of the person on
Schedule I attached hereto
October 5, 1999
Page 7
set forth herein and, without our prior written consent, may not be
furnished or quoted to, or relied upon by, any other person or entity for any
purpose. Mays & Valentine, L.L.P. and Sullivan & Cromwell may rely on this
opinion in connection with any legal opinion being rendered by the same on the
date hereof with respect to the matters set forth herein.
Very truly yours,
POTTER ANDERSON & CORROON LLP
C-7
<PAGE>
Schedule I
SOUTHERN STATES COOPERATIVE, INCORPORATED
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
FIRST UNION NATIONAL BANK
GOLD KIST INC.
C-1
<PAGE>
EXHIBIT 10.3(a)
March 25, 1999
Southern States Cooperative, Incorporated
6606 West Broad Street
Richmond, Virginia 23230
Attention: Jonathan A. Hawkins
Senior Vice President and Chief Financial Officer
Re: Consent
Gentlemen:
Reference is made to the Revolving Credit Agreement, dated as of January
12, 1999, among Southern States Cooperative, Incorporated, a Virginia
agricultural cooperative corporation (the "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 ("Rabobank"), 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, as amended by
that certain First Amendment to Revolving Credit Agreement dated as of February
3, 1999 (as so amended, the "Credit Agreement"). Capitalized terms used herein
and not defined herein have the meanings ascribed thereto in the Credit
Agreement.
The Company has indicated that it will enter into (i) the Amendment No.2 to
the Bridge Loan Agreement dated as of March , 1999, by and among the
----
Company, NationsBank, N.A., as administrative agent, and First Union National
Bank and CoBank, as co-agents, substantially in the form attached hereto as
Exhibit A (the "Second Amendment"), pursuant to which, among other things, the
- ---------
maturity date of the term loan made by the lenders thereunder shall be extended
from April 7, 1999 to October 8, 1999, (ii) an amendment to the GoldKist
Commitment Letter dated March 25, 1999 by and between the Company and Gold Kist
Inc., substantially in the form attached hereto as Exhibit B (the "GoldKist
---------
Commitment Letter Amendment"), pursuant to which, among other things, the
obligation of GoldKist thereunder to purchase Junior Preferred Securities shall
be extended from April 2, 1999 to October 5, 1999 and the payment of the
purchase price for any Junior Preferred Securities shall be required to be made
directly to NationsBank in repayment of the outstanding principal amount under
the Bridge Loan Agreement, and (iii) a collateral assignment of rights under the
Rabobank Letter of Credit dated as of March , 1999 by the Company in favor of
--
NationsBank, N.A., as administrative agent
<PAGE>
Southern States Cooperative, Incorporated
March 25, 1999
Page 2
the form attached hereto as Exhibit C (the "Collateral Assignment"; together
---------
with the Second Amendment and the GoldKist Commitment Letter Amendment referred
to herein collectively as the "Amendment Documents"), pursuant to which, among
other things, the Company's rights to draw under such letter of credit shall be
assigned, and any payments thereunder shall be directed, to NationsBank to repay
the outstanding principal amount under the Bridge Loan Agreement.
The Company hereby represents and warrants to the Administrative Agent and
the Banks that, except for the items described in the next succeeding paragraph
for which a consent has been requested, the execution, delivery and performance
of the Amendment Documents, does not, and when consummated, will not, violate
any term or provision of the Credit Agreement or create a Potential Default or
Event of Default thereunder.
The Company has requested the written consent of the Administrative Agent
and Requisite Banks to the amendment of the Bridge Loan Agreement and the
GoldKist Commitment Letter and the assignment of the Rabobank Letter of Credit
in accordance with the terms of the Amendment Documents. In reliance upon the
representations and warranties provided by the Company to the Administrative
Agent and Banks by which the Company has requested such consent, the
Administrative Agent and each of the Banks signatory hereto, constituting
Requisite Banks, hereby consents to the amendment of the Bridge Loan Agreement
and the GoldKist Commitment Letter and the assignment of the Rabobank Letter of
Credit in accordance with the terms of the Amendment Documents. The consent in
the immediately preceding sentence applies solely to the Potential Default and
Event of Default under Section 6.01 and clauses (a) and (c) of Section 6.10 of
the Credit Agreement that otherwise would result from the amendment of the
Bridge Loan Agreement and the GoldKist Commitment Letter and the assignment of
the Rabobank Letter of Credit pursuant to the Amendment Documents. The consent
provided for above shall be void ab initio and of no force and effect whatsoever
--------------
if the form and substance of the final, fully executed, Amendment Documents are
not substantially the same as the form of such documents attached hereto as
Exhibits A, B and C. Without limiting the foregoing sentence, the Administrative
- -------------------
Agent and each of the Banks expressly reserves any and all rights it may have
under the Credit Agreement or any other Loan Documents arising out of or in
connection with any Potential Default or Event of Default thereunder and not
specifically waived herein.
Except as expressly modified by this consent agreement, the terms and
provisions of the Credit Agreement, are hereby ratified and confirmed and shall
continue in full force and effect. Without limiting any conditions to
effectiveness set forth above, the consent provided herein is to be effective
only upon receipt by the Administrative Agent of an execution counterpart of
this consent agreement signed by the Requisite Banks and the Company; and is
conditioned upon the correctness of all representations and warranties made by
the Company herein. This consent
<PAGE>
Southern States Cooperative, Incorporated
March 25, 1999
Page 3
agreement shall be governed by, construed and enforced in accordance with the
laws of the Commonwealth of Virginia, without reference to the conflicts or
choice of law principles thereof.
Please evidence your acknowledgment of and agreement to the foregoing by
executing this letter below in the place indicated.
Sincerely,
COBANK, ACB, as Administrative Agent
and Bank
/s/ Lori L. O'Flaherty
--------------------------------
Vice President
--------------------------------
Accepted and agreed to as of
the date first written above:
FIRST UNION NATIONAL BANK,
as Bank
By: /s/ Eileen McCushard
------------------------------
Title: Vice President
------------------------------
NATIONSBANK, N.A., as Bank
By: /s/ William F. Sweeney
------------------------------
Title: Vice President
------------------------------
<PAGE>
Southern States Cooperative, Incorporated
March 25, 1999
Page 4
FMB BANK,
as Bank
By: /s/ Susan Elliott Benninghoff
------------------------------------------
Title: Susan Elliott Benninghoff, Vice President
------------------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH, as Bank
By: /s/ Michiel V.M. Vandervoort
------------------------------------------
Title: Michiel V.M. Vandervoort
Vice President
------------------------------------------
By: /s/ W. Pieter C. Kodde
------------------------------------------
W. Pieter C. Kodde
Title: Vice President
------------------------------------------
BANQUE NATIONALE de PARIS
(CHICAGO BRANCH), as Bank
By: /s/ Arnaud Collin du Bocage
------------------------------------------
Title: Executive Vice President & General Manager
------------------------------------------
CRESTAR BANK,
as Bank
By: /s/
------------------------------------------
Title: Senior Vice President
------------------------------------------
<PAGE>
Southern States Cooperative, Incorporated
March 25, 1999
Page 5
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
AG CAYMAN ISLANDS BRANCH, as Bank
By: /s/ Kurt A. Morris
-----------------------------------
Kurt A. Morris
Title: Vice President
-----------------------------------
By: /s/ James I. Yager
-----------------------------------
Title: James I. Yager, CPA
-----------------------------------
Vice President
WACHOVIA BANK, N.A.,
as Bank
By: /s/ Christopher Barin
-----------------------------------
Title: Senior Vice President
-----------------------------------
SOUTHERN STATES COOPERATIVE, INCORPORATED
By: /s/ Jonathan Hawkins
-----------------------------------
Title: Senior Vice President and Treasurer
-----------------------------------
<PAGE>
EXHIBIT A
---------
[Bridge Loan Amendment to be attached]
EXHIBIT B
---------
[GoldKist Commitment Letter Amendment to be attached]
EXHIBIT C
---------
[Rabobank Letter of Credit Amendment to be attached]
<PAGE>
EXHIBIT A
AMENDMENT NO 2
THIS AMENDMENT NO.2 (the "Amendment"), dated as of March l999, to
--------- --
the Credit Agreement referenced below, is by and among SOUTHERN STATES
COOPERATIVE, INCORPORATED, a Virginia agricultural cooperative corporation, the
lenders identified herein, NATIONSBANK, N.A., as Administrative Agent, and FIRST
UNION NATIONAL BANK and COBANK, ACB, as Co-Agents. Terms used but not otherwise
defined shall have the meanings provided in the Credit Agreement.
WITNESSETH
WHEREAS, a $225 million credit facility has been established in favor
of Southern States Cooperative, Incorporated, a Virginia agricultural
cooperative corporation (the "Borrower"), pursuant to the terms of that Term
--------
Loan Credit Agreement dated as of October 9, 1998 (as amended and modified, the
"Credit Agreement") among the Borrower, the Lenders identified therein,
----------------
NationsBank, N.A., as Administrative Agent, and First Union National Bank and
CoBank, ACB, as Co-Agents;
WHEREAS, the Borrower has requested certain modifications to the
Credit Agreement;
WHEREAS, such modifications require the consent of all the Lenders;
WHEREAS, the Lenders have consented to the requested modifications on
the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. The Credit Agreement is amended in the following respects:
1.1 In Section 1.1, the following definitions are amended or added to read
as follows:
"Applicable Percentage" means, for any day, (a) in the case of
---------------------
Eurodollar Loans, a per annum rate equal to 0.50% and (b) in the case
of Base Rate Loans, a per annum rate equal to 0.0%; provided,
--------
however, upon the occurrence of a default with respect to any
-------
financial covenant under the Michigan Livestock Credit Agreement or
the Statesman Financial Corporation Credit Agreement, the Applicable
Percentage shall be, for any day, (a) in the case of Eurodollar Loans,
a per annum rate equal to 1.00% and (b) in the case of Base Rate
Loans, a per annum rate equal to 0.0%.
"Debt Transaction" means, with respect to the Borrower or any of
----------------
its
<PAGE>
Subsidiaries, any sale, issuance placement of Funded Debt, whether or
not evidenced by promissory note or other written evidence of
indebtedness.
"GoldKist Commitment Letter" means that certain commitment letter
--------------------------
dated as October 13, 1998 between GoldKist and the Borrower relating
to the commitment of GoldKist to purchase up to $100 million of
preferred securities from the Borrower, as amended and restated from
time to time.
"Michigan Livestock Credit Agreement" means that certain
-----------------------------------
Revolving Credit Agreement dated as of November 6,1998 among Michigan
Livestock Credit Corporation, the banks party thereto, and CoBank,
ACB, as agent for the Banks, as amended and restated from time to
time.
"Revolving Credit Agreement" means that certain Revolving Credit
--------------------------
Agreement dated as of January 12, 1999 by and among the Borrower, the
banks referred to therein, 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,
as amended and restated from time to time.
"Statesman Financial Corporation Credit Agreement" means that
------------------------------------------------
certain Revolving Credit Agreement dated as of January 12. 1999 by and
among Statesman Financial Corporation, the banks referred to therein,
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, as amended and restated
from time to time.
1.2 In Section 1.1 of the Credit Agreement, the definitions of
"Investment" and "Permitted Liens" are deleted in their entirety.
1.3 Section 2.1(c) of the Credit Agreement is amended to read as follows:
(c) Repayment. The Term Loans shall be duo and payable in full
---------
on October 8, 1999.
1.4 Section 6.1 through Section 6.18 of the Credit Agreement are deleted
in their entirety, and a new Section 6.1. is added to read as follows:
6.1 Incorporation of Covenants from Revolving Credit Agreement.
----------------------------------------------------------
The affirmative covenants contained in Article V, the negative
covenants contained in Article VI and the financial covenants
contained in Article VII, respectively, of the Revolving Credit
Agreement as in effect on the date of Amendment No. 2 (collectively,
the "Incorporated Covenants"), together with the related definitions
----------------------
set forth in Section 1.01 of the Revolving Credit Agreement as
<PAGE>
in effect on the date of Amendment No.2. are incorporated herein by
reference with the same effect as if stated at length herein; provided
--------
that references therein (a) to "this Agreement" or "the Credit
Agreement" shall be deemed to include this Credit Agreement, (b)
references therein to "Bank" or "Banks" shall be deemed to include the
Lenders under this Credit Agreement and (c) references to the
"Administrative Agent" shall be deemed to include the Administrative
Agent under this Credit Agreement. The Borrower covenants and agrees
that the Incorporated Covenants shall be as binding on the Borrower as
if set forth fully herein.
1.5 A new Section 6.2 is added to read as follows:
6.2 Placement of Preferred Securities. If the Borrower has not
---------------------------------
issued preferred securities in a registered public offering or in Rule
144A transaction by September 15, 1999, the Borrower shall immediately
begin the process required to complete the issuance and delivery of
preferred securities to GoldKist pursuant to the GoldKist Commitment
Letter. The Administrative Agent shall have the right to review and
approve the process.
1.6 Clause (c) of Section 7.1 of the Credit Agreement is amended to read
as follows:
(c) failure to observe or comply with (A) the financial covenants
in Article VII of the Incorporated Covenants or the negative covenants
in Article VI of the Incorporated Covenants (except in the case of
negative covenants contained in Article VI of the Incorporated
Covenants, those defaults which may occur or arise other than on
account of or by affirmative or intentional act of the Borrower or
Subsidiary or event or condition which the Borrower shall with
know1edge permit to exist, all of which shall be subject to the
provisions of clause (B) hereof), inclusive, or (B) any of the other
covenants or provisions contained herein or in any other Credit
Document and such failure to observe or comply shall continue for a
period of 30 days after the earlier of actual knowledge of a
responsible officer of the Borrower or notice to the Borrower thereof,
or
2. This Amendment shall be effective upon satisfaction of the following
conditions precedent:
(a) Execution of this Amendment by the Borrower and all of the
Lenders;
(b) Receipt by the Administrative Agent of an opinion of counsel
to the Borrower relating to this Amendment and the transactions
contemplated herein, which opinion shall be in form and substance
satisfactory to the Lenders;
(c) Receipt by the Administrative Agent of an opinion of counsel
to GoldKist relating to the GoldKist Commitment Letter, which opinion
shall be in form and substance satisfactory to the Lenders;
<PAGE>
(d) Receipt by the Administrative Agent of a certified copy of an
amendment to the GoldKist Commitment Letter which shall (i) extend the
Purchase Date (as defined in the GoldKist Commitment Letter) to
October 5, 1999 and (ii) provide that any payment made thereunder in
respect of the Preferred Securities (as defined in the GoldKist
Commitment Letter) shall be made directly to the Administrative Agent,
which amendment shall be in form and substance satisfactory to the
Lenders;
(e) Receipt by the Administrative Agent of certified copy of the
consent to the GoldKist Commitment Letter by (i) CoBank, ACB, (ii)
Prudential Insurance Company of America and (iii) RaboBank, as Agent
under that certain Credit Agreement dated as of August 4, 1998 by and
among GoldKist, as borrower, and various banks and lending
institutions, as lenders;
(f) Receipt by the Administrative Agent of a certified copy of an
amendment to the Revolving Credit Agreement to allow for this
Amendment, the amendment to the GoldKist Commitment Letter and the
collateral assignment of the RaboBank Letter of Credit, which
amendment shall be in form and substance satisfactory to the Lenders;
(g) Receipt by the Administrative Agent of certified copy of the
Michigan Livestock Credit Agreement and all amendments thereto (which
shall include an amendment extending the termination date to at least
October 8, 1999), which shall be in form and substance satisfactory to
the Lenders;
(h) Execution by the Borrower and the Administrative Agent, and
acknowledgment thereof by RaboBank, of a collateral assignment of the
Letter of Credit to the Administrative Agent, which shall be in form
and substance satisfactory to the Lenders;
(i) Receipt by the Administrative Agent of (i) the original
RaboBank Letter of Credit and (ii) an undated draw certificate
executed by Southern States relating to the RaboBank Letter of Credit;
and
(j) Receipt by the Administrative Agent, for the ratable benefit
of the Lenders, of a fee equal to 5 basis points (0.05%) on aggregate
outstanding principal amount of the Term Loan.
3. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (including Schedules and Exhibits) shall remain in
force and effect.
4. The Borrower agrees to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and
delivery of this Amendment, including without limitation the
reasonable fees and expenses of Moore & Van Allen, PLLC.
<PAGE>
5. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and
it shall not be necessary in making proof of this Amendment to produce
or account for more than one such counterpart.
6. This Amendment shall be deemed to be a contract made under, and for
all purposes shall be construed in accordance with the laws of the
Commonwealth of Virginia.
[Remainder of Page intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed end delivered as of the date
first above written.
BORROWER: SOUTHERN STATES COOPERATIVE, INCORPORATED,
- -------- a Virginia agricultural cooperative corporation
By:__________________________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A.,
- ------- as Administrative Agent and as a Lender
By:__________________________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
as Co-Agent and as a Lender
By:__________________________________________
Name:
Title:
COBANK, ACB,
as Co-Agent and as a Lender
By:__________________________________________
Name:
Title:
<PAGE>
EXHIBIT B
Draft 3/10/99
[GoldKist stationery]
March __, 1999
Southern States Cooperative, Inc.
6606 West Broad Street
P. O. Box 26234
Richmond, Virginia 23260
Amendment to Commitment Letter dated October 13, 1998
-----------------------------------------------------
Ladies and Gentlemen:
This letter will serve to amend our commitment letter to you dated
October 13, 1998, and the Terms Sheet attached thereto, in the following
respects:
1. The purchase date specified in section 1 of the Terms Sheet shall
be amended to delete "April 2, 1999" and to insert in lieu
thereof "[October 1], 1999"; and the words "175 days after
October 9, 1998" shall be amended to read "[358]" days after
October 9, 1998."
2. Payment by GoldKist Inc. for any securities of Southern States
Cooperative, Inc. ("Southern States") purchased under the
commitment letter dated October 13, 1998, as amended hereby,
shall [if requested by NationsBank, N.A.] be made directly to
NationsBank, N.A., as Administrative Agent for the account of
Southern States, in order to repay outstanding indebtedness under
Southern States' Senior Bridge Facilty.
<PAGE>
3. The letter of credit issued by Cooperative Centrale Raiffeisen-
BoerenleenBank, B.A.-"RaboBank Nederland", New York Branch
("RaboBank") pursuant to section 4 of the Terms Sheet shall, with
the consent of RaboBank, be amended to make Southern States'
rights thereunder assignable to NationsBank, N.A., as
Administrative Agent, and for payment thereunder to be made, [if
requested by NationsBank, N.A.,] directly to NationsBank, N.A.,
as Administrative Agent, for the account of Southern States.
In all other respects, the commitment letter dated October 13, 1998,
and the Terms Sheet attached thereto, shall remain unchanged and in full force
and effect.
Sincerely,
--------------------------------
M.A. Stimpert
Senior Vice President
Agreed to by Southern States Cooperative, Inc.
- ----------------------------------------------
Wayne A. Boutwell
President and Chief Executive Officer
<PAGE>
EXHIBIT C
COMMONWEALTH OF VIRGINIA COLLATERAL ASSIGNMENT OF RIGHTS
UNDER LETTER OF CREDIT AND
CITY OF RICHMOND DURABLE POWER OF ATTORNEY
THIS COLLATERAL ASSIGNMENT OF RIGHTS UNDER LETTER OF CREDIT AND
DURABLE POWER OF ATTORNEY (this "Assignment") is made as of March , 1999, by
---------- --
SOUTHERN STATES COOPERATIVE, INCORPORATED, a Virginia agricultural cooperative
corporation (the "Assignor" or "Southern States"), to NATIONSBANK, N.A., as
-------- ---------------
administrative agent for the holders of the Secured Obligations (the "Assignee"
--------
or the "Administrative Agent").
--------------------
WITNESSETH
WHEREAS, Southern States agreed to purchase the GoldKist Inputs
Business pursuant to the terms of that Asset Purchase Agreement dated as of July
23, 1998 (the "GKIB Purchase Agreement") between Southern States, as purchaser,
------------------------
and GoldKist, Inc. ("GoldKist"), as seller;
--------
WHEREAS, a $225 million bridge loan facility (the "Bridge Loan" or
-----------
"Bridge Loan Facility") was established in favor of Southern. States pursuant to
- ------- -------------
the terms of that Credit Agreement dated as of October 8,1998 (as amended and
modified, the "Bridge Credit Agreement") among Southern States, the lenders
-----------------------
identified therein (the "Lenders") and NationsBank, N.A., as Administrative
-------
Agent, for the purpose of, among other things, financing the acquisition of' the
GoldKist Inputs Business pursuant to the GKIB Purchase Agreement;
WHEREAS, in order to facilitate establishment of the Bridge Loan
Facility and the sale of the GoldKist Inputs Business, GoldKist agreed pursuant
to that Commitment Letter dated as of October 13, 1998 (as amended and modified,
the "GoldKist Preferred Securities Purchase Agreement") between Southern States
------------------------------------------------
and GoldKist to purchase from Southern States up to $100 million in preferred
securities in the event Southern States were not so issue at least $100 million
in publicly offered or privately placed preferred securities;
WHEREAS, the purchase obligations of GoldKist under the GoldKist
Preferred Securities Purchase Agreement were secured by an irrevocable standby
letter of credit no. SB 14112 dated October 13, 1998 issued by Cooperative
Centrale Raiffeisen-BoerenleenBank, B.A. - "RaboBank Nederland", New York Branch
(as amended and modified, the "Rabobank Letter of Credit') to Southern States,
------------------ -------
as beneficiary;
WHEREAS, Southern States has requested extension of the maturity date
of the Bridge Loan;
<PAGE>
WHEREAS, the lenders under the Bridge Loan Facility have required this
Collateral Assignment, among other things, as a condition to the extension of
the maturity date of the Bridge Loan;
NOW, THEREFORE, IN ORDER to secure the payment of the loans and
obligations owing under the Bridge Credit Agreement and the other Credit
Documents as referenced and defined therein (including interest accruing after
bankruptcy or insolvency, regardless of whether such interest is allowed as a
claim in the bankruptcy or insolvency proceeding) (collectively, the "Secured
-------
Obligations") and as an essential and integral part of the security therefor,
- -----------
and in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Assignor does
hereby immediately and absolutely sell, assign, transfer and set over to the
Administrative Agent, and its successors and assigns in such capacity, the
rights, interests and privileges which the Assignor has and may have in the
Rabobank Letter of Credit, any additional letters of credit issued in
replacement thereof or as additional security for the purchase obligations of
GoldKist under the GoldKist Preferred Securities Purchase Agreement, as such
additional letters of credit may be amended, modified, extended, renewed or
replaced from time to time (collectively, the "Subject Letters of Credit"), with
-------------------------
all proceeds, issues, income and profits due and becoming due therefrom, and
neither the acceptance of this Assignment nor collection of sums due under the
Subject Letters of Credit shall constitute a waiver of any rights of the holders
of the Secured Obligations under the Bridge Credit Agreement or other operative
documents relating thereto.
1. Payment of Proceeds Under the Subject Letters of Credit. For so
-------------------------------------------------------
long as this Assignment shall be in effect, any and all proceeds of any drawings
under the Subject Letters of Credit will be paid directly to the Administrative
Agent as follows (or pursuant to alternative written payment instructions
provided by the Administrative Agent to the issuer of the Subject Letter of
Credit):
NationsBank, N.A., as Administrative Agent
Charlotte, North Carolina
ABA no:
Acct. no.:
Attn: Agency Services
Phone: (312) 828-
Fax: (312) 828-
Reference: Southern States Cooperative, Incorporated
The Assignor will give notice to the issuers of the Subject Letters of Credit of
the payment instructions and other provisions of this Assignment and take such
other action as necessary or appropriate to give effect hereto.
2. Durable Power of Attorney. The Assignor hereby grants to the
-------------------------
Administrative Agent a durable power of attorney, and hereby designates the
Administrative
<PAGE>
Agent as its attorney-in-fact, to execute and deliver, for and on behalf of the
Assignor, all drafts, draw certificates, instruments, affidavits and
certificates as may be necessary or convenient to exercise the Assignor's rights
under the Letter of Credit. This durable power of attorney is coupled with an
interest and shall be irrevocable without the prior written consent of' the
Administrative Agent. So long as no Event of Default (as defined in the Bridge
Credit Agreement) shall exist under any of the Credit Documents, however, the
Administrative Agent agrees that it will not exercise this durable power of
attorney.
3. Delivery of' RaboBank Letter of Credit. Concurrently with the
--------------------------------------
Assignor's execution of this Assignment, the Assignor has delivered the original
RaboBank Letter of Credit to the Administrative Agent.
4. Indemnity. Neither the Administrative Agent nor any Lender shall
---------
be obligated to perform or discharge any obligation or duty to be performed or
discharged by the Assignor under the Subject Letters of Credit, and the Assignor
hereby agrees to indemnify the Administrative Agent and the Lenders for, and to
save them harmless from, any liability arising from the exercise of any rights
under the Subject Letter of Credit or from this Assignment, except in the event
of the Administrative Agent's gross negligence or willful misconduct
(specifically including the Administrative Agent's failure to keep the Letter of
Credit in its possession).
5. Representations and Warranties of the Assignor. The Assignor
----------------------------------------------
represents and warrants that (i) the Assignor has full right and title to assign
to the Administrative Agent its rights under the RaboBank Letter of Credit and
any payments, income, proceeds and profits due or to become due thereunder; (ii)
no prior assignment of any interest in the RaboBank Letter of Credit has been
made; (iii) the RaboBank Letter of Credit is in full force and effect, and (iv)
there are no existing defaults under the provisions of the RaboBank Letter of
Credit.
6. Covenants of the Assignor. The Assignor covenants and agrees that
-------------------------
(i) the Assignor shall promptly (but in any event within three (3) Business Days
after receipt thereof by the Borrower) deliver to the Administrative Agent any
additional letters of credit issued in replacement of the RaboBank Letter of
Credit or issued as additional security for the purchase obligations of GoldKist
under the GoldKist Preferred Securities Purchase Agreement; and (ii) without
the prior written consent of the Administrative Agent, the Assignor will not
hereafter cancel, surrender, terminate, or draw upon the Subject Letters of
Credit or materially change, alter or modify the same or execute any other
assignment of the Assignor's rights under the Subject Letters of Credit.
7. Governing Law. This Assignment shall be governed by, and
-------------
construed in accordance with, the laws of the Commonwealth of Virginia.
8. Duration of Assignment. This Assignment shall remain in full
----------------------
force and effect as until the Secured Obligations are paid in full and all
commitments relating thereto are terminated.
<PAGE>
9. Security Agreement. It is understood and acknowledged by the
------------------
parties that this Assignment shall constitute a security agreement as defined by
the Uniform Commercial Code in effect in the Commonwealth of Virginia granting a
security interest in all of Assignor's right, title and interest, whether now
existing or hereafter arising, in the Subject Letters of Credit to secure
repayment and performance of all of the Assignor's obligations to the
Administrative Agent including, without limitation, repayment of the Secured
Obligations and compliance with the Assignor's obligations under the Bridge
Credit Agreement.
10. Further Assurances. The Assignor shall take such further actions
------------------
and shall execute such other documents as may be necessary or as may be required
by the Administrative Agent to protect or perfect the liens and security
interests created or intended to be created hereby and otherwise to complete the
transactions contemplated hereby.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed under seal by authority duly given as of the date first above written.
SOUTHERN STATES COOPERATIVE, INCORPORATED
a Virginia agricultural cooperative corporation
By:________________________________________
Name:
Title:
ATTEST:
By:__________________________________
Name:
Title:
[CORPORATE SEAL]
ACCEPTED AND AGREED:
NATIONSBANK, N.A.
in its capacity as Administrative Agent
By:__________________________________
Name:
Title:
ACKNOWLEDGMENT:
COOPERATIVE CENTRALE RAIFFEISEN - BOERENLEENBANK B.A. - "RABOBANK NEDERLAND",
NEW YORK BRANCH, in its capacity as issuer of the RaboBank Letter of Credit
By:__________________________________
Name:
Title:
<PAGE>
COMMONWEALTH OF VIRGINIA
COUNTY OF ______________________
On this, the _________day of March, 1999, before me, the subscriber, a
notary public in and for the State and County aforesaid, personally appeared
_____________________, __________________________ of Southern States
Cooperative, Incorporated, a Virginia agricultural cooperative corporation, who
acknowledged that he, as such ___________________, being authorized to do so,
executed the foregoing instrument on behalf of said corporation for the purposes
therein contained.
WITNESS my hand and seal the day and year aforesaid.
_______________________________
Notary Public
My Commission Expires:_____________________________
<PAGE>
EXHIBIT 10.3(b)
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND CONSENT AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Amendment"), is
dated as of December 22, 1999 by and among SOUTHERN STATES COOPERATIVE,
INCORPORATED, a Virginia agricultural cooperative corporation (the "Company"),
the financial institutions listed on the signature pages hereto as banks (the
"Banks"), and COBANK, ACB, as administrative agent for the Banks (in such
capacity, the "Administrative Agent").
RECITALS
WHEREAS, the Banks, the Administrative Agent and the Company are parties to
that certain Revolving Credit Agreement entered into as of January 12, 1999, as
amended by that certain First Amendment to Revolving Credit Agreement dated as
of February 3, 1999 (as so amended, the "Existing Credit Agreement"; and as
amended by this Amendment, the "Amended Credit Agreement"; capitalized terms
used herein and not otherwise defined herein shall have the meanings ascribed to
them in the Existing Credit Agreement);
WHEREAS, the Company, the Banks and the Administrative Agent desire to
enter into this Amendment to, subject to certain terms and conditions contained
herein, amend certain provisions of the Existing Credit Agreement; and
WHEREAS, the Company and GoldKist have resolved certain discrepancies in
the final purchase price of the purchased assets under the GoldKist Acquisition
Agreement pursuant to which among other things, (i) GoldKist has agreed to
repurchase from the Company certain accounts receivable, and (ii) subject to the
consent of the Banks and the Administrative Agent, GoldKist and the Company have
agreed that the indemnification provisions set forth in Section 15.3(b) of the
GoldKist Acquisition Agreement will be amended as provided in the Amendment to
the GoldKist Acquisition Agreement attached hereto as Exhibit A (the "GoldKist
---------
Amendment").
NOW, THEREFORE, in consideration of the premises and the agreements,
covenants and provisions herein contained and for TEN DOLLARS ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
SECTION 1. AMENDMENTS TO EXISTING CREDIT AGREEMENT
---------------------------------------
Subject to the satisfaction of the condition precedent set forth in Section
4 of this Amendment, the Company, the Banks and the Administrative Agent hereby
agree that the Existing Credit Agreement be, and it hereby is, amended as
follows:
1.1 General. Upon and after the date hereof, all references to the
-------
Existing Credit Agreement in that document or in any other Loan Document shall
mean the Existing Credit Agreement as amended hereby. Except as expressly
provided herein, the execution and delivery of this Amendment do not and will
not amend, modify or supplement any provision of, or constitute a consent to or
a waiver of any noncompliance with the provisions of, the Existing Credit
Agreement, and, except as specifically provided in this Amendment, the Existing
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed.
1.2 Amendment to Section 1.01. Section 1.01 of the Existing Credit
-------------------------
Agreement is amended by amending and restating the definitions of "Consolidated
Cash Flow" and "Permitted Investments" set forth therein to read in their
entirety as follows:
"Consolidated Cash Flow" shall mean, for any period, the sum of:
(a) savings before income taxes of the Company and its consolidated
Subsidiaries, undistributed (loss) earnings in Statesman Financial
Corporation and distributions on capital securities, calculated in
accordance with GAAP; plus
----
(b) undistributed (loss) earnings in Statesman Financial Corporation,
net of income taxes, calculated in accordance with GAAP; plus
----
(c) Consolidated Interest Expense paid or accrued during such period,
to the extent and only to the extent that such amount was deducted in
determining item (a) above, calculated in accordance with GAAP; plus
----
(d) the aggregate amount of Depreciation and amortization during such
period, to the extent and only to the extent that such amount was deducted
in determining item (a) above, calculated in accordance with GAAP; minus
-----
(e) one-time gains of greater than $1,000,000 during such period;
minus
-----
(f) extraordinary income during such period, to the extent and only
to the extent that such income was included in determining item (a) above,
calculated in accordance with GAAP.
2
<PAGE>
"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 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, (ix) loans to customers in the ordinary course of business, (x)
investments by the Company in a Receivables Entity in connection with a
Qualified Receivables Transaction; provided, however, that any investment
--------- -------
in any such Receivables Entity is in the form of a Purchase Money Note, or
any equity interest or interests in accounts receivable and related assets
generated by the Company and transferred to such Receivables Entity in
connection with a Qualified Receivables Transactions and (x) other
investments made after the Closing Date so long as (a) the amount of any
single such investment under this clause (x) does not at any time exceed
$2,000,000, and (b) after giving effect to such proposed investment, the
aggregate amount of all such investments under this clause (x) does not
exceed $5,000,000 in any fiscal year of the Company.
1.3 Amendment to Section 6.06. Section 6.06 of the Existing Credit
-------------------------
Agreement is amended by amending and restating such section in its entirety as
follows:
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; (2) transactions involving
the purchase or placement of insurance with Southern States Insurance Exchange,
Inc.; and (3) purchases or sales of services, products or other assets from or
to Affiliates in the ordinary course of business of the Company, each of which
purchases or sales is 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 does not result in a loss to the Company on any such
purchase or sale; 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 2. CONSENT
-------
Subject to the satisfaction of the conditions precedent set forth in
Section 4 of this Amendment and in reliance upon the representations and
warranties provided by the Company to the Administrative Agent and Banks by
which the Company has requested such consent, the Administrative Agent and each
of the Banks signatory hereto, constituting Requisite Banks,
3
<PAGE>
hereby grant their consent, in accordance with Section 6.10 (a) of the Existing
Credit Agreement, to the Company entering into the GoldKist Amendment, provided,
--------
however, that such consent shall be deemed void ab initio and of no force or
- -------
effect whatsoever unless the form and substance of the final fully executed
GoldKist Amendment is substantially the same as set forth in Exhibit A attached
---------
hereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES
--------------- --- ----------
In order to induce the Administrative Agent and the Banks to enter into
this Amendment, the Company hereby represents and warrants to the Administrative
Agent and the Banks as follows:
3.1 Authorization of Amendment, Etc. The Company has the right and power,
-------------------------------
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Amendment in accordance with its terms. This
Amendment has been duly executed and delivered by the Company and is a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
3.2 Compliance of Amendment with Laws, Etc. The execution, delivery and
--------------------------------------
performance of this Amendment in accordance with its terms do not and will not,
by the passage of time, the giving of notice or otherwise,
(a) require any governmental approval or violate any applicable law
relating to the Company;
(b) conflict with, result in a breach of or constitute a default
under the articles or certificate of incorporation or bylaws of the
Company, any material provisions of any indenture, agreement or other
instrument to which the Company is a party or by which the Company or any
of its properties may be bound or any governmental approval relating to the
Company, or
(c) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the
Company.
3.3 Representations in Credit Agreement. Immediately prior to the
-----------------------------------
effectiveness of this Amendment, all of the representations set forth in the
Existing Credit Agreement were accurate in all material respects as of the date
hereof, except to the extent that such representations and warranties expressly
relate to an earlier date, in which case such representations and warranties
shall have been true and correct on and as of such date. After giving effect to
this Amendment, all of the representations and warranties set forth in the
Amended Credit Agreement, will be accurate in all material respects as of the
date hereof, except to the extent that such representations and warranties
expressly relate to an earlier date, in which case such representations and
warranties shall have been true and correct on and as of such date.
4
<PAGE>
SECTION 4. CONDITIONS TO EFFECTIVENESS
---------------------------
The effectiveness of this Amendment is subject to the satisfaction in full
of each of the following conditions precedent:
4.1 Executed Loan Documents. This Amendment shall have been duly
-----------------------
authorized and executed by the parties hereto in form and substance
satisfactory to the Administrative Agent, shall be in full force and effect and
no default shall exist hereunder, and the Company and the Banks party hereto
shall have delivered original counterparts hereof to the Administrative Agent.
4.2 Final GoldKist Amendment. The Company shall have delivered to the
------------------------
Administrative Agent the final, execution copy, of the GoldKist Amendment.
SECTION 5. MISCELLANEOUS
-------------
5.1 Counterparts. This Amendment may be executed by each party to this
------------
Amendment upon a separate copy, and in such case one counterpart of this
amendment shall consist of enough of such copies to reflect the signature of all
of the parties to this Amendment. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Amendment or its terms to produce or account
for more than one of such counterparts.
5.2 Section References. The references in this Amendment to any section
------------------
are, unless otherwise specified, to such section of this Amendment.
5.3 Construction. This Amendment is a Loan Document executed pursuant to
------------
the Existing Credit Agreement and shall be construed, administered and applied
in accordance with all of the terms and provisions of the Existing Credit
Agreement.
5.4 Governing Law. This amendment shall be governed by, construed and
-------------
enforced in accordance with the laws of the Commonwealth of Virginia, without
reference to the conflicts or choice of law principles thereof.
5.5 Successors and Assigns. This amendment shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
5.6 Effectiveness. The amendments set forth in Section 1 hereof shall
-------------
become effective as of the date of this Amendment (and shall not apply to any
period prior to the date of this Amendment), upon the satisfaction of all of the
conditions precedent set forth in Section 4 hereof
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers hereunder duly authorized as of the day
and year first written above.
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By: /s/ Leslie T. Newton
------------------------------------
Title: VICE PRESIDENT & TREASURER
---------------------------------
COBANK, ACB, as Administrative Agent
and Bank
By: /s/ Lori L. O'Flaherty
------------------------------------
Title: Vice President
----------------------------------
FIRST UNION NATIONAL BANK,
as Bank
By: /s/ Eileen McCrichard
--------------------------------------
Title: Vice President
----------------------------------
BANK OF AMERICA, N.A. (successor by merger to
NationsBank, N.A.), as Bank
By: /s/
-------------------------------------
Title: Principal
----------------------------------
<PAGE>
FMB Bank,
as Bank
By: /s/
------------------------------------
Title: Vice President
----------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH, as Bank
By: /s/
-------------------------------------
Title: Vice President
----------------------------------
By: /s/ Edward Peyser
-------------------------------------
Title: Vice President
----------------------------------
BANQUE NATIONALE de PARIS
(CHICAGO BRANCH), as Bank
By: /s/
-------------------------------------
Title: Senior Vice President
----------------------------------
CRESTAR BANK,
as Bank
By: /s/ C. Gray Key
-------------------------------------
Title: Vice President
----------------------------------
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
AG CAYMAN ISLANDS BRANCH, as Bank
By: /s/ Kurt A. Morris
--------------------------------------
Title: Vice President
----------------------------------
By: /s/ Eric K. Zimmerman
-------------------------------------
Title: Assistant Vice President
----------------------------------
WACHOVIA BANK, N.A.,
as Bank
By: /s/
-------------------------------------
Title: Senior Vice President
---------------------------------
<PAGE>
AMENDMENT TO
ASSET PURCHASE AGREEMENT
This Agreement made as of the 7 day of September, 1999, by and between
- ---------
Gold Kist Inc., a Georgia cooperative marketing association ("GK"), and Southern
States Cooperative, Inc., a Virginia agricultural cooperative, a corporation
("Southern States").
WITNESSETH:
WHEREAS, GK and Southern States desire to amend the terms of the Asset
Purchase Agreement dated as of July 23, 1998 (the "Agreement") to change the
minimum amount of certain indemnifiable losses for which Gold Kist shall be
liable pursuant to the Asset Purchase Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and obligations contained herein, it is mutually agreed as follows:
1. The Agreement is incorporated herein by reference and is specifically made
a part hereof. All provisions, terms, covenants and conditions set forth
therein shall remain in full force and effect and shall apply to this
Agreement, except as specifically and expressly modified herein.
2. GK and Southern States hereby agree that Section 15.3(b) of the Agreement
shall be amended to read as follows:
(b) Notwithstanding the provisions of Section 15.2, Gold Kist shall have
no liability to indemnify Southern States Indemnified Persons
hereunder with respect to the matters referenced in clause (iii) of
Section 15.3(a) above with respect to any individual claim until the
aggregate amount of Southern States Indemnified Persons' indemnifiable
losses exceed $25,000 for such claims;
<PAGE>
provided, however, that if the aggregate amount of any such losses
with respect to a claim exceeds $25,000, Gold
Kist shall indemnify Southern States for the entire amount of such
claim, including the initial $25,000 amount.
3. This amendment to the Agreement shall be deemed to be effective as of
October 13, 1998.
IN WITNESS WHEREOF, the parties have duly executed this amendment to
the Agreement as of the date first above written.
GOLD KIST INC.
By: /s/ M. A. Stimpert
--------------------------
Title: Senior Vice President
-----------------------
SOUTHERN STATES COOPERATIVE, INC.
By:___________________________
Title:________________________
<PAGE>
EXHIBIT 10.3(c)
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
This THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Amendment"), is
dated as of January 31, 2000 by and among SOUTHERN STATES COOPERATIVE,
INCORPORATED, a Virginia agricultural cooperative corporation (the "Company"),
the financial institutions listed on the signature pages hereto as banks (the
"Banks"), and COBANK, ACB, as administrative agent for the Banks (in such
capacity, the "Administrative Agent").
RECITALS
WHEREAS, the Banks, the Administrative Agent and the Company are parties to
that certain Revolving Credit Agreement entered into as of January 12, 1999, as
amended by that certain First Amendment to Revolving Credit Agreement dated as
of February 3, 1999 and that certain Second Amendment to Revolving Credit
Agreement and Consent Agreement, dated as of December 22, 1999 (as so amended,
the "Existing Credit Agreement"; and as amended by this Amendment, the "Amended
Credit Agreement"; capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Existing Credit
Agreement);
WHEREAS, the Company, the Banks and the Administrative Agent desire to
enter into this Amendment to amend certain provisions of the Existing Credit
Agreement; and
NOW, THEREFORE, in consideration of the premises and the agreements,
covenants and provisions herein contained and for TEN DOLLARS ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO EXISTING CREDIT AGREEMENT
---------------------------------------
Subject to the satisfaction of the conditions precedent set forth in
Section 3 of this Amendment, the Company, the Banks and the Administrative
Agent hereby agree that the Existing Credit Agreement be, and it hereby is,
amended as follows:
1.1 General. Upon and after the date hereof, all references to the
-------
Existing Credit Agreement in that document or in any other Loan Document shall
mean the Existing Credit Agreement as amended hereby. Except as expressly
provided herein, the execution and delivery of this Amendment do not and will
not amend, modify or supplement any provision of, or constitute a consent to or
a waiver of any noncompliance with the provisions of, the Existing Credit
Agreement, and, except as specifically provided in this Amendment, the Existing
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed.
<PAGE>
Third Amendment to Revolving Credit Agreement/
Southern States
1.2 Amendments to Section 1.01. (a) Section 1.01 of the Existing Credit
--------------------------
Agreement is amended by amending and restating the definitions of "Applicable
Margin", "Commitment", "Consolidated Funded Debt", "Debt", "Facility Fee
Percentage" and "Permitted Investments" set forth therein in their entirety as
follows:
"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 rating provided by Standard & Poor's as set forth
below:
- --------------------------------------------------------------------------------
Pricing Standard & Poor's LIBOR Applicable Base Rate
Level Corporate Rating Margin Applicable Margin
- --------------------------------------------------------------------------------
I BBB+ or higher 0.450% 0.000%
- --------------------------------------------------------------------------------
II BBB 0.575% 0.000%
- --------------------------------------------------------------------------------
III BBB- 0.800% 0.000%
- --------------------------------------------------------------------------------
IV BB+ 0.950% 0.250%
- --------------------------------------------------------------------------------
V BB or lower 1.000% 0.375%
- --------------------------------------------------------------------------------
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 prospective, from the date of adjustment in rating.
The Company shall provide the Administrative Agent with written notice of
any change in the corporate rating of the Company within ten (10) Business
Days after the Company becomes aware of or receives notice of such change.
Notwithstanding the foregoing, during the period from December 1, 1999
through October 31, 2000, unless a change in the Company's corporate rating
justifying an increase in the Applicable Margin occurs, the Applicable
Margin for all LIBOR Loans shall be 0.950% and for all Base Rate Loans
shall be 0.250%, and no adjustment to reduce the Applicable Margin shall be
made.
"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
10.4 hereof or as may be reduced as provided in Section 2.06 or Section
2.18 hereof.
2
<PAGE>
Third Amendment to Revolving Credit Agreement/
Southern States
"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, (6) all
obligations of the Company and its consolidated Subsidiaries under
Guarantees, and (7) eighty-five percent (85%) of the original cost of all
property leased by the Company or its consolidated Subsidiaries under
Synthetic Leases. "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.
"Debt" shall mean without duplication (1) indebtedness or liability
for borrowed money, or for the deferred purchase price of property or
services (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, (6)
obligations under Guarantees and (7) all obligations as lessee under each
Synthetic Lease to make payments to the lessor thereunder upon termination
of such Synthetic Lease. "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.
3
<PAGE>
Third Amendment to Revolving Credit Agreement/
Southern States
"Facility Fee Percentage" shall mean, for any day, the rate per annum
determined by reference to the Company's corporate rating provided by
Standard & Poor's as set forth below:
- --------------------------------------------------------------------------------
Standard &
Poor's Facility
Pricing Corporate Fee
Level Rating Percentage
- --------------------------------------------------------------------------------
I BBB+ or higher 0.150%
- --------------------------------------------------------------------------------
II BBB 0.175%
- --------------------------------------------------------------------------------
III BBB- 0.200%
- --------------------------------------------------------------------------------
IV BB+ 0.300%
- --------------------------------------------------------------------------------
V BB or lower 0.375%
- --------------------------------------------------------------------------------
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 rating of the Company within ten (10)
Business Days after the Company becomes aware of or receives notice of such
change.
Notwithstanding the foregoing, during the period from December 1, 1999
through October 31, 2000, unless a change in the Company's corporate rating
justifying an increase in the Facility Fee Percentage occurs, the Facility
Fee Percentage shall be 0.300%, and no adjustment to reduce the Facility
Fee Percentage shall be made.
"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 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, (ix) loans to customers in the ordinary course of business,
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Third Amendment to Revolving Credit Agreement/
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(x) investments by the Company in a Receivables Entity in connection with
the Qualified Receivables Transaction; provided, however, that any
-------- -------
investment in any such Receivables Entity is in the form of a Purchase
Money Note, or any equity interest or interests in wholesale receivables
and related assets generated by the Company and transferred to such
Receivables Entity in connection with the Qualified Receivables Transaction
and (xi) other investments made after the Closing Date so long as (a) the
amount of any single such investment under this clause (xi) does not at any
time exceed $2,000,000, and (b) after giving effect to such proposed
investment, the aggregate amount of all such investments under this clause
(xi) does not exceed $5,000,000 in any fiscal year of the Company.
(b) Section 1.01 of the Existing Credit Agreement is further amended by
adding the following terms to read in their entirety as follows:
"Commitment Reduction Date" means the 20th day of each month,
commencing with the second month following the month in which the initial
closing of the Qualified Receivables Transaction occurs.
"Excess QRT Proceeds" means, as of any Commitment Reduction Date, the
amount, if any, by which the balance of wholesale receivables transferred
pursuant to the Qualified Receivables Transaction outstanding as of the
Reporting Day of the month immediately preceding such Commitment Reduction
Date exceeds the Target Balance as of such Commitment Reduction Date;
provided, however, that if such excess amount is less than $2,000,000, the
-------- -------
Excess QRT Proceeds as of such Commitment Reduction Date shall be deemed to
be zero.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company to
a Receivables Entity in connection with the Qualified Receivables
Transaction, which note is repayable from cash available to the Receivables
Entity, other than amounts required to be established as reserves pursuant
to agreements, amounts required to be paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts
owing to such investors and amounts required to be paid in connection with
the purchase of newly generated wholesale receivables.
"Qualified Receivables Transaction" means a transaction or series of
transactions pursuant to which (1) the Company sells, conveys or otherwise
transfers to a Receivables Entity, and (2) such Receivables Entity may
sell, convey or otherwise transfer to any other Person, or may grant a
security interest or other interest in, any wholesale receivables of the
Company (whether now existing or arising in the future), and any assets
related thereto (including, without limitation, all collateral securing
such wholesale receivables, all contracts and guarantees or other
obligations (including letters of credit and insurance) in respect of such
wholesale receivables, and the proceeds of such wholesale
5
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receivables) which are customarily transferred, or in respect of which
security interests or other interests are customarily granted in connection
with asset securitizations involving accounts receivable.
"Receivables Entity" means a wholly-owned subsidiary of the Company or
any other Person in which the Company makes an investment and to which the
Company transfers wholesale receivables and related assets in connection
with the Qualified Receivables Transaction, and:
(1) which engages in no activities other than in connection with the
financing of accounts receivable;
(2) which is designated by the Board of Directors of the Company as a
Receivables Entity as provided below;
(3) no portion of the Debt or any other obligations (contingent or
otherwise) of which:
(a) is guaranteed by the Company (excluding guarantees of
obligations (other than the principal of, and interest on, Debt)
pursuant to Standard Securitization Undertakings or guarantees of
Standard Securitization Undertakings);
(b) is recourse to or obligates the Company in any way other
than pursuant to Standard Securitization Undertakings or guarantees of
Standard Securitization Undertakings; or
(c) subjects any property or asset of the Company, directly or
indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to Standard Securitization Undertakings or
guarantees of Standard Securitization Undertakings;
(4) with which the Company does not have any material contract,
agreement, arrangement or understanding (except in connection with a
Purchase Money Note or the Qualified Receivables Transaction) other than on
terms no less favorable to the Company than those that might be obtained at
the time from Persons that are not Affiliates of the Company, other than
fees payable in the ordinary course of business in connection with
servicing accounts receivable; and
(5) to which the Company does not have any obligation to maintain or
preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results.
Any designation by the Board of Directors of the Company required
under clause (2) above shall be evidenced by delivery to the Administrative
Agent of a
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Third Amendment to Revolving Credit Agreement/
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certified copy of a resolution of the Board of Directors of the Company
giving effect to such designation and a certificate of the chief financial
officer of the Company certifying that such designation complies with the
foregoing conditions.
"Reporting Day" means, for any month, the day in such month as of
which the monthly report required to be provided to the Administrative
Agent pursuant to Section 5.10(K) sets forth the outstanding balance of
wholesale receivables transferred by the Company pursuant to the Qualified
Receivables Transaction.
"Standard Securitization Undertakings" means representations,
warranties, covenants, indemnities and obligations to pay fees, costs and
expenses made or undertaken by the Company that are reasonably customary in
securitization of accounts receivable transactions.
"Synthetic Lease" means any lease that is not reflected on the
Company's books as a liability and is treated as an operating lease, in
accordance with GAAP, but which arises under a transaction in which the
property subject to such lease is owned by the Company for purposes of the
Code.
"Target Balance" means, as of the first Commitment Reduction Date,
$40,000,000, and as of each Commitment Reduction Date occurring thereafter,
the sum of the amount of the Target Balance as of the immediately preceding
Commitment Reduction Date plus the amount of Excess QRT Proceeds, if any,
----
as of the immediately preceding Commitment Reduction Date.
1.3 Amendment to Subsection 2.06(B). Subsection 2.06(B) of the Existing
-------------------------------
Credit Agreement is amended by amending and restating such subsection in its
entirety as follows:
(B) Mandatory Repayments and Reduction of Commitments.
(i) On Termination Date. 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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Third Amendment to Revolving Credit Agreement/
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(ii) In Connection with the Qualified Receivables Transaction.
(a) Immediately upon the initial closing of the Qualified
Receivables Transaction, the Company shall repay the Loans in a principal
amount of $21,000,000. Such repayment shall be applied in the following
order: (1) first to Base Rate Loans, (2) second, to such LIBOR Loans as the
Company shall elect, and (3) lastly, only if all Base Rate Loans and LIBOR
Loans are being repaid, to such Bid Rate Loans as the Company shall elect.
The repayment required hereunder shall be accompanied by payment of all
accrued interest on the amount repaid. In the event any LIBOR Loan or Bid
Rate Loan is repaid prior to the last day of the Interest Period or the Bid
Rate Maturity Date applicable thereto, the Company shall compensate the
Bank receiving such repayment in the manner set forth in Section 2.11
hereof. With respect to each Base Rate Loan and LIBOR Loan repaid pursuant
to this Subsection 2.06(B)(ii)(a), all payments of principal and interest
contemplated herein shall be made directly to each Bank in the same
proportion that each Bank contributed to the Loan when it was made.
The repayment pursuant to this Subsection 2.06(B)(ii)(a) shall be
applied to ratably and permanently reduce the Commitment of each Bank, such
that the amount of the reduction in the Aggregate Commitments equals the
amount of principal repaid. Upon such repayment and reduction, 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. From and after such a reduction in the Aggregate
Commitments, the facility fee provided for in Section 2.07 will be
determined based on the reduced Commitment of each Bank and, accordingly,
the facility fee for each Bank will be reduced.
(b) On each Commitment Reduction Date, the Aggregate
Commitments shall be permanently reduced in an amount equal to fifty
percent (50%) of the Excess QRT Proceeds as of such date.
Any such reduction shall be applied to ratably and permanently reduce
the Commitment of each Bank. If, after such reduction of the Aggregate
Commitments, the aggregate amount of Loans outstanding exceeds the amount
of the Aggregate Commitments as so reduced, the Company shall repay the
Loans in an amount at least sufficient to reduce the aggregate amount of
Loans outstanding to the amount of the Aggregate Commitments as so reduced.
Such repayment shall be applied in the following order: (1) first to Base
Rate Loans, (2) second, to such LIBOR Loans as the Company shall elect, and
(3) lastly, only if all Base Rate Loans and LIBOR Loans are being repaid,
to such Bid Rate Loans as the Company shall elect. The repayment required
hereunder shall be accompanied by payment of all accrued interest on the
amount repaid. In the event any LIBOR Loan or Bid Rate Loan is repaid
prior to the last day of the Interest Period or the Bid Rate Maturity Date
applicable thereto, the Company shall compensate the
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Third Amendment to Revolving Credit Agreement/
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Bank receiving such repayment in the manner set forth in Section 2.11
hereof. With respect to each Base Rate Loan and LIBOR Loan repaid pursuant
to this Subsection 2.06(B)(ii)(b), all payments of principal and interest
contemplated herein shall be made directly to each Bank in the same
proportion that each Bank contributed to the Loan when it was made.
Upon such repayment and reduction, 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.
From and after such a reduction in the Aggregate Commitments, the facility
fee provided for in Section 2.07 will be determined based on the reduced
Commitment of each Bank and, accordingly, the facility fee for each Bank
will be reduced.
1.4 Amendments to Section 5.10. (a) Subsection 5.10(J) of the Existing
--------------------------
Credit Agreement is amended by amending and restating such section in its
entirety as follows:
(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 (including Synthetic
Leases and asset securitization transactions) extended or otherwise made
available to the Company that exceed $5,000,000 in the aggregate; provided,
--------
however, that 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.
(b) Section 5.10 of the Existing Credit Agreement is amended by adding
thereto the following Subsection (K):
(K) Reports with Respect to the Qualified Receivables Transaction. (i)
Promptly, and in any event within ten (10) days of preparation or receipt
thereof, copies of a monthly report prepared by or provided to the Company
in connection with the Qualified Receivables Transaction that sets forth
the balance of wholesale receivables transferred by the Company pursuant to
the Qualified Receivables Transaction outstanding as of the Reporting Day
of the month covered by such report, and (ii) such other information
regarding the Qualified Receivables Transaction as the Administrative Agent
may reasonably request from time to time.
1.5 Amendment to Section 6.01. Section 6.01 of the Existing Credit
-------------------------
Agreement is amended by adding thereto the following clauses (K) and (L):
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Third Amendment to Revolving Credit Agreement/
Southern States
(K) Liens granted pursuant to any Synthetic Lease on the property leased
thereunder.
(L) Liens granted pursuant to the requirements of the Qualified
Receivables Transaction which are customarily granted in connection with
asset securitizations involving accounts receivable.
1.6 Amendment to Section 6.03. Section 6.03 of the Existing Credit
-------------------------
Agreement is amended by amending and restating such section in its entirety as
follows:
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 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, (v) sales and other
dispositions of certain assets acquired from GoldKist in an aggregate
amount not to exceed $30,000,000, and (vi) sales of wholesale receivables
and related assets pursuant to the Qualified Receivables Transaction. 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).
1.7 Amendment to Section 6.06. Section 6.06 of the Existing Credit
-------------------------
Agreement is amended by amending and restating such section in its entirety as
follows:
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; (2) transactions involving the purchase or placement of
insurance with Southern States Insurance Exchange, Inc.; (3) purchases or
sales of services, products or other assets from or to Affiliates in the
ordinary course of business of the Company, each of which purchases or
sales
10
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Third Amendment to Revolving Credit Agreement/
Southern States
is 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 does not result in a loss to the Company on any such purchase
or sale; and (4) sales or other transfers or dispositions of wholesale
receivables and related assets of the types specified in the definition of
the Qualified Receivables Transaction, and acquisitions of Permitted
Investments described in clause (x) of the definition of Permitted
Investments in connection with the Qualified Receivables Transaction,
provided, however, the Company may engage in transactions in the normal
-------- -------
course of business as contemplated by the Financing Services and
Contributed Capital Agreements.
1.8 Amendment to Section 6.09. Section 6.09 of the Existing Credit
-------------------------
Agreement is amended by amending and restating such section in its entirety as
follows:
SECTION 6.09. Leases. Become a lessee under any operating lease
other than (i) Synthetic Leases, so long as the original cost of all
property subject thereto (including all costs, fees and expenses incurred
in connection with the acquisition, design, engineering, construction,
assembly, installation, testing and completion of the property) does not
exceed $35,000,000 in the aggregate at any one time and (ii) other
operating leases so long as the total lease expenses of the Company under
such other operating leases do not exceed $30,000,000 in the aggregate for
any fiscal year of the Company.
SECTION 2. REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Administrative Agent and the Banks to enter into this
Amendment, the Company hereby represents and warrants to the Administrative
Agent and the Banks as follows:
2.1 Authorization of Amendment, Etc. The Company has the right and power,
-------------------------------
and has taken all necessary action, to authorize it to execute, deliver and
perform its obligations under this Amendment in accordance with its terms. This
Amendment has been duly executed and delivered by the Company and is a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
2.2 Compliance of Amendment with Laws, Etc. The execution, delivery and
--------------------------------------
performance of this Amendment in accordance with its terms do not and will not,
by the passage of time, the giving of notice or otherwise,
(a) require any governmental approval or violate any applicable law
relating to the Company;
(b) conflict with, result in a breach of or constitute a default under
the articles or certificate of incorporation or bylaws of the Company, any
material provisions of any indenture, agreement or other instrument to
which the Company is a party or by which
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Third Amendment to Revolving Credit Agreement/
Southern States
the Company or any of its properties may be bound or any governmental
approval relating to the Company, or
(c) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the
Company.
2.3 Representations in Credit Agreement. Immediately prior to the
-----------------------------------
effectiveness of this Amendment, all of the representations set forth in the
Existing Credit Agreement were accurate in all material respects as of the date
hereof, except to the extent that such representations and warranties expressly
relate to an earlier date, in which case such representations and warranties
shall have been true and correct on and as of such date. After giving effect to
this Amendment, all of the representations and warranties set forth in the
Amended Credit Agreement, will be accurate in all material respects as of the
date hereof, except to the extent that such representations and warranties
expressly relate to an earlier date, in which case such representations and
warranties shall have been true and correct on and as of such date.
SECTION 3. EFFECTIVENESS
-------------
This Amendment shall become effective upon the satisfaction in full of each
of the following conditions precedent:
3.1 Executed Documents. This Amendment shall have been duly authorized and
------------------
executed by the parties hereto in form and substance satisfactory to the
Administrative Agent, shall be in full force and effect and no default shall
exist hereunder, and the Company and the Banks party hereto shall have delivered
original counterparts hereof to the Administrative Agent.
3.2 Amendment Fees. The Company shall have paid to each Bank in
--------------
immediately available funds an amendment fee in an amount equal to 2.5 b.p.
(0.025%) of the amount of such Bank's Commitment.
SECTION 4. MISCELLANEOUS
-------------
4.1 Counterparts. This Amendment may be executed by each party to this
------------
Amendment upon a separate copy, and in such case one counterpart of this
amendment shall consist of enough of such copies to reflect the signature of all
of the parties to this Amendment. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Amendment or its terms to produce or account
for more than one of such counterparts.
4.2 Construction. This Amendment is a Loan Document executed pursuant to
------------
the Existing Credit Agreement and shall be construed, administered and applied
in accordance with all of the terms and provisions of the Existing Credit
Agreement.
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Third Amendment to Revolving Credit Agreement/
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4.3 Governing Law. This amendment shall be governed by, construed and
-------------
enforced in accordance with the laws of the Commonwealth of Virginia, without
reference to the conflicts or choice of law principles thereof.
4.4 Successors and Assigns. This amendment shall be binding upon and inure
----------------------
to the benefit of the parties hereto and their respective successors and
assigns.
[Signatures Begin on Next Page]
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Third Amendment to Revolving Credit Agreement/
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective duly authorized officers as of the day and year
first written above.
THE COMPANY:
SOUTHERN STATES COOPERATIVE,
INCORPORATED
By: /s/ Leslie T. Newton
-------------------------------
Title: Vice President & Treasurer
THE ADMINISTRATIVE AGENT AND THE BANKS:
COBANK, ACB, as Administrative Agent
and Bank
By: /s/ Lori L. O'Flaherty
-------------------------------
Title: Vice President
FIRST UNION NATIONAL BANK,
as Bank
By: /s/ Eileen McCrickard
-------------------------------
Title: Vice President
<PAGE>
Third Amendment to Revolving Credit Agreement/
Southern States
BANK OF AMERICA, N.A. (successor by merger to
NationsBank, N.A.), as Bank
By: /s/
-------------------------------
Title: Principal
ALLFIRST BANK (formerly known as FMB Bank),
as Bank
By: /s/
-------------------------------
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH, as Bank
By: /s/
-------------------------------
Title: Vice President
By: /s/
-------------------------------
Title:
-------------------------------
BANQUE NATIONALE de PARIS
(CHICAGO BRANCH), as Bank
By: /s/
-------------------------------
Title: Executive Vice President and
General Manager
<PAGE>
Third Amendment to Revolving Credit Agreement/
Southern States
CRESTAR BANK,
as Bank
By: /s/
-------------------------------
Title: Senior Vice President
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
AG CAYMAN ISLANDS BRANCH, as Bank
By: /s/ Kurt A. Morris
-------------------------------
Title: Vice President
By: /s/ Eric K. Zimmerman
-------------------------------
Title: Assistant Vice President
WACHOVIA BANK, N.A.,
as Bank
By: /s/
-------------------------------
Title: Senior Vice President
714360
<PAGE>
EXHIBIT 10.4
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 12th day of January, 2000, 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.
2
<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.
"Headquarters" means the office of Statesman at 6606 West Broad
------------
Street, Post Office Box 25567, Richmond, Virginia 23260.
3
<PAGE>
"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.
"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.
4
<PAGE>
"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 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.
5
<PAGE>
"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 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
---------
6
<PAGE>
hereto (a "Receivables Certificate") with the blanks therein appropriately
completed and reflecting the following information for the preceding month:
(a) the amount of all Receivables arising out of sales of goods or
services during the preceding month, if any, which were sold by the Cooperative
to Statesman as of the end of such preceding month;
(b) Receivables which were previously sold to Statesman under the
provisions of this Article II showing the outstanding balances as of the last
day of the preceding month in the aggregate for Retail Accounts, Grain Marketing
Accounts and Accounts Receivable - Local Cooperatives;
(c) Receivables which were previously sold to Statesman pursuant to
this Article II upon which there was any change in the outstanding balance
during such month, and all debits and credits thereon, including without
limitation payments and other remittances by or on behalf of the account
obligor, credits, rebates and adjustments, showing in the aggregate for Retail
Accounts, Grain Marketing Accounts and Accounts Receivable - Local Cooperatives
the prior balance, the amount and nature of adjustments and the balance as of
the last day of the preceding month;
(d) the Cooperative shall promptly make available to Statesman, at
Statesman's request, listings of accounts with balances and other referenced
amounts by obligor that are referred to in Sections 2.03(1)(a), (b) and (c).
(2) Not later than 11:00 a.m. (Richmond, Virginia, time) on the fifth
Business Day after receipt by Statesman of the Receivables Certificate,
Statesman shall pay to the Cooperative the amount by which (a) the aggregate
outstanding balance on each Receivable it has purchased exceeds (b) the Purchase
Discount (as herein defined) and the amount, if any, to be placed in the Reserve
Account pursuant to Section 2.04, provided, however, that Statesman may choose
not to pay for any Receivable evidenced by a promissory note or other instrument
unless such note or other instrument has been endorsed and delivered to
Statesman.
(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
7
<PAGE>
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
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
8
<PAGE>
[(aHCO%) x (1 + ADV)] + AIC
where
aHCO% = average Historical Charge Off Percentage for Accounts
Receivable -Local Cooperatives for the three preceding fiscal
years which for purposes of this calculation shall not be less
than .05% or such other percentage as may be from time to time
agreed to by the Cooperative and Statesman.
ADV = Average Total Delinquency Percentage Variance for Accounts
Receivable - Local Cooperatives.
AIC = the anticipated interest charges for the current month for
borrowings relating to outstanding Accounts Receivable - Local
Cooperatives purchased by Statesman.
Notwithstanding anything to the contrary contained in this Agreement, a
portion of such purchase price shall be placed in the reserve account described
in Section 2.04.
SECTION 2.04. RESERVE ACCOUNT. Statesman shall place in a reserve account
---------------
(the "Reserve Account") an amount not to exceed one-eighth of one percent
(0.125%) of the aggregate outstanding balance on each Receivable it elects to
purchase, provided, however, that in no event shall any additional amount be
deducted from the Purchase Price paid to the Cooperative or placed in the
Reserve Account if the aggregate amount in the Reserve Account is equal to or
greater than one quarter of one percent (0.25%) of the aggregate unpaid balance
of all Receivables which Statesman has purchased from the Cooperative (including
the Receivables being paid for on such date). Funds in the Reserve Account need
not be segregated from other funds of Statesman. If at the end of any fiscal
year of Statesman, the balance in the Reserve Account after charges to the
Reserve Account as permitted in Section 2.05 is greater than one-eighth of one
percent (0.125%) of the balance owing on Receivables which Statesman has
purchased from the Cooperative, no Event of Default shall have occurred and be
continuing and no obligation of the Cooperative to Statesman is then due and
payable, Statesman will upon request of the Cooperative remit such excess to the
Cooperative.
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
9
<PAGE>
the preceding month on Purchased Receivables, (ii) all rebates or credits on any
Purchased Receivable allowed by the Cooperative during the preceding month, and
(iii) all other adjustments made by the Cooperative on any Purchased Receivable
during such month which resulted in a reduction of the amount owing thereon,
minus any proceeds the Cooperative has collected on Purchased Receivables and
paid to Statesman since the delivery of the previous Receivables Certificate.
SECTION 2.07. METHOD OF PAYMENT. All payments from the Cooperative to
-----------------
Statesman under the terms of this Agreement shall be made to Statesman in
immediately available funds in Richmond, Virginia. Whenever any payment is
scheduled to be made on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
SECTION 2.08. FACILITY FEES FOR PURCHASE OF RECEIVABLES. The Cooperative
-----------------------------------------
will pay to Statesman by the tenth Business Day of each month, or such later day
as may be agreed to by Statesman, a Facility Fee in such amount as shall be
agreed upon from time to time by the Cooperative and Statesman.
SECTION 2.09. COLLECTION OF RECEIVABLES. Statesman hereby authorizes the
-------------------------
Cooperative to collect Purchased Receivables, subject to direction and control,
but Statesman may, without cause or notice, curtail or terminate said authority
at any time. Upon receipt of all checks, drafts, cash and other remittance in
payments of or on account of the Purchased Receivables, the Cooperative will
account to Statesman for such proceeds as herein provided. The Cooperative will
endorse all checks, drafts and other items evidencing such proceeds where
necessary to permit collection of such items, which endorsement Statesman is
also hereby authorized to make, as attorney-in-fact on behalf of the
Cooperative.
The Cooperative will pay all proceeds it collects on Purchased Receivables
to Statesman monthly no later than the tenth Business Day of each month or at
such other intervals as Statesman may from time to time request.
If the Cooperative receives any promissory note or other instrument (other
than a check) in payment of or on account of any Purchased Receivable, it will
immediately endorse the same and deliver it to Statesman.
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.
10
<PAGE>
SECTION 2.10. REPURCHASE OF RECEIVABLES. If the Cooperative shall at any
-------------------------
time determine not to sell to Statesman the Retail Accounts arising out of sales
made at any Retail Service, the Cooperative will with the consent of Statesman
promptly repurchase from Statesman all Retail Accounts arising out of sales made
at such Retail Service which Statesman has previously purchased from it. The
purchase price for such Retail Accounts will be the Balances Owed on the Retail
Accounts giving credit for all payments received by Statesman to the date of
sale to the Cooperative.
ARTICLE III
-----------
INSTALLMENT SALES FINANCING
---------------------------
SECTION 3.01. GENERAL. Statesman will from time to time, upon the terms
-------
and subject to the conditions contained in this Agreement, purchase from the
Cooperative Approved Contracts. Statesman may from time to time, at its option,
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
11
<PAGE>
endorsed and all related credit information, and the satisfaction of all the
conditions set forth in Article VI hereof, provided no Event of Default shall
have occurred and be continuing, and provided Statesman shall not then be
entitled to require that the Cooperative repurchase Purchased Contracts under
the provisions of Section 3.03 hereof, Statesman shall pay the Cooperative in
cash the purchase price for each such Approved Contract or Eligible Contract.
Promptly thereafter, the Cooperative will notify each obligor on each such
Purchased Contract to make all future payments to Statesman at its Headquarters.
The Cooperative authorizes Statesman to insert its name, or the name of any
other assignee, in the space provided therefor in the assignment clause of all
Purchased Contracts and to return to the Cooperative all Installment Sales
Contracts not purchased. Statesman will identify in writing those contracts it
agrees to purchase and will return those contracts it declines to purchase. The
Cooperative is authorized to cancel the endorsement on each Installment Sales
Contract which Statesman does not purchase.
SECTION 3.05. WARRANTIES.
----------
(1) By the delivery and sale of each such Installment Sales Contract under
the provisions of Section 3.02 or Section 3.03, the Cooperative warrants to
Statesman that:
(a) It has good title to such Installment Sales Contract or is
authorized to obtain payment on behalf of one who has good title and the sale
and transfer thereof are otherwise rightful;
(b) Each such Installment Sales Contract is a binding obligation
arising from the sale of merchandise by a Retail Service in the ordinary course
of business as described in the contract to a person or entity specified therein
as the obligor and constitutes the valid and legally binding obligation of such
obligor enforceable in accordance with its terms; such contract states the full
agreement of the parties and arises out of legally sufficient consideration;
(c) All signatures on such Installment Sales Contract are genuine or
authorized and all obligors thereon have the capacity to execute such contract;
(d) Such Installment Sales Contract has not been materially altered;
(e) No obligor on such Installment Sales Contract has any defense, 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;
12
<PAGE>
(h) All current credit information with respect to such obligors has
been accurately reported to Statesman;
(i) The Installment Sales Contract forms provided by Statesman have
not been altered, modified or supplemented in any respect;
(j) All information required to be disclosed in such forms has been
accurately recorded therein and the Cooperative has complied with the Truth-in-
Lending Act and all other applicable disclosure laws, federal and state;
(k) No fee has been charged with respect to any contract and no such
contract includes any deferred payment price or other charge which violates any
applicable usury law or consumer protection law;
(l) Such Installment Sales Contract contains all of the terms and
conditions of the agreement between the Cooperative and the obligors with
respect to such purchase and the Cooperative has not entered into any other
agreement with 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.
13
<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.
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;
14
<PAGE>
(2) If the purchaser under any Purchased Contract returns merchandise, for
any reason, within 10 days from the date of the sale, the Cooperative will fully
reimburse such purchaser for any down payment and immediately repurchase the
Purchased Contract from Statesman for its Net Balance.
SECTION 3.10. MODIFICATIONS, EXTENSIONS. Statesman may, without affecting
-------------------------
the agreements of the Cooperative herein, change, modify, extend or renew the
dates and amounts of the periodic installment payments in any Purchased
Contract.
SECTION 3.11. WARRANTY, SERVICE, OR SIMILAR AGREEMENTS. The Cooperative
----------------------------------------
covenants and agrees to indemnify and hold Statesman harmless from any and all
losses arising out of the breach of any performance or extended warranties and
all service or similar agreements made by Manufacturer, the Cooperative, or any
other Person relating to merchandise which is the subject of any Purchased
Contract, even if any such warranty, service, or similar agreements are not
immediately effective. Unless such agreement expressly provides otherwise, the
Cooperative agrees to provide repairs and service to the purchaser of the
merchandise at its usual rates of charge.
SECTION 3.12. REPOSSESSION.
------------
(1) The Cooperative will, at Statesman's request, act as its agent in the
repossession of any property described in any Purchased Contract in accordance
with all applicable laws and in that capacity take certain actions, including
the transportation of the property from its location to the Cooperative's place
of business, repair and restoration of the property to a marketable condition,
and storage, without storage fee. Statesman will compensate the Cooperative for
its reasonable actual costs in such transportation, repair, and restoration,
except as covered by an extended warranty or service agreement. In the event
Statesman directs the Cooperative on its behalf to sell the property, it will
pay the Cooperative such commission as is agreed upon from time to time by the
Cooperative and Statesman and as evidenced by Statesman's letter. The
Cooperative agrees to sell said property in accordance with the applicable
provisions of the Uniform Commercial Code, as it may be amended from time to
time, and other applicable law.
(2) Where an extended warranty or service agreement is included in the
sales contract purchased, the Cooperative hereby agrees to perform at its
expense or have performed such warranty or service work under the terms of such
extended warranty or service agreement. A pro rata refund will be paid in cash
to Statesman of the unearned identifiable charge assessed for the extended
warranty or service agreement, which will then be credited to any balance due on
such Purchased Contract.
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
15
<PAGE>
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.
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
16
<PAGE>
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.
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
17
<PAGE>
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
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
18
<PAGE>
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;
(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;
19
<PAGE>
(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
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.
20
<PAGE>
(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.
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.
21
<PAGE>
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.
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
22
<PAGE>
hereinafter be referred to as an "Approved Wholesale Account." Statesman will
notify the Cooperative in writing of its decision.
(2) Not later than 10:00 a.m. (Richmond, Virginia, time) on each Business
Day, the Cooperative will provide to Statesman information on Approved Wholesale
Accounts being offered to Statesman for purchase. This information shall
include all information which Statesman may reasonably request and shall be in a
form satisfactory to Statesman.
(3) Not later than 12 noon (Richmond, Virginia, time) on the same Business
Day, Statesman will confirm to the Cooperative those Approved Wholesale Accounts
it is purchasing and will prepare and deliver its check drawn on Crestar Bank,
Richmond, Virginia, or other bank satisfactory to the Cooperative, or make an
ACH transfer or wire transfer, for the face amount of the Wholesale Accounts
which Statesman is purchasing less any amount to be placed in the Wholesale
Reserve Account pursuant to Section 4.04 and less the Purchase Discount for
Wholesale Accounts. Statesman may choose not to pay for any Wholesale Account
evidenced by a promissory note or other instrument unless such note or other
instrument has been endorsed and delivered to Statesman.
(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
23
<PAGE>
lienor, all its rights of stoppage in transit, replevin and reclamation relating
thereto, all its rights in and to all security therefor and guarantees thereof,
and guarantees thereto, all of its rights against third parties with respect
thereto, and all other proceeds thereof, cash or non-cash. Any goods so
recovered or returned shall be segregated in a manner acceptable to Statesman
and held for Statesman's account as owner. The Cooperative shall notify
Statesman promptly of all such returned or recovered goods.
(6) Statesman may at any time and from time to time revoke the Statesman
Approval with respect to any customer of the Cooperative or reduce the amount of
Wholesale Accounts owing from such customer which it will purchase from the
Cooperative or change the Repayment Term approved for such customer. It will
promptly notify the Cooperative of its decision to revoke the Statesman Approval
for any Wholesale Account, or to reduce the amount of such Account or change
terms and Statesman shall not be obligated to purchase any Wholesale Account
arising out of the delivery of any merchandise to or the commencement of any
service for such obligor which occurs after such notice is given to the
Cooperative except as Statesman shall have otherwise agreed. The revocation or
alteration of the Statesman Approval with respect to a customer shall not affect
the right of the Cooperative to extend credit for merchandise or services to any
customer, but all payments received from such customer shall be applied to
earliest invoices first, and payments shall be applied to invoices included in
Wholesale Accounts purchased by Statesman before they are applied to invoices
arising after the revocation or alteration of the Statesman Approval with
respect to such customer or the reduction of the amount of credit approved for
such customer.
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
24
<PAGE>
will provide the Cooperative with a report of transactions in the Wholesale
Reserve Account during such month showing the balance in such account as of the
end of such month.
SECTION 4.06. CREDIT RISK. On all Purchased Wholesale Accounts, Statesman
-----------
agrees to assume any loss which is due solely to the financial inability of the
customer to pay at maturity (the "Credit Risk") unless the representation
contained in paragraph (l)(i) of Section 4.10 was not true at the time Statesman
purchased such Wholesale Account, provided the customer has received and
accepted the goods and/or services which gave rise to such Purchased Wholesale
Account without any Dispute. The term "Dispute" shall mean any dispute,
deduction, claim, offset, defense or counterclaim of any kind, including,
without limitation, any dispute relating to goods or services already paid for
or relating to any obligation to the Cooperative other than the Wholesale
Account on which payment is being withheld.
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;
25
<PAGE>
(b) Such Wholesale Account is a binding obligation arising from the
sale of merchandise or the provision of a service by the Cooperative in the
ordinary course of business, as described in the invoice relating to such
transaction, to a person or entity specified therein as the obligor, arises out
of legally sufficient consideration, and constitutes the valid and legally
binding obligation of such obligor enforceable in accordance with its terms;
(c) No invoice has 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
26
<PAGE>
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 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:
27
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Percentage Owned by Cooperative
------------------ -------------------------------
<S> <C>
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%
</TABLE>
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.
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
28
<PAGE>
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
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.
29
<PAGE>
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.
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
30
<PAGE>
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.
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.
31
<PAGE>
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
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
32
<PAGE>
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
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
33
<PAGE>
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.
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.
34
<PAGE>
"Determination Period" or "Determination Periods" means the calendar month,
-------------------- ---------------------
the six calendar month period and the twelve calendar month period immediately
preceding the TAPOS Determination Date.
"Minimum Class A Investment" means the number of shares of Statesman Class
--------------------------
A Preferred Stock determined by Statesman as follows:
MI = (HT/(PV x R)) - RE
where
MI = Minimum Class A Investment (stated at the par value).
HT = the highest TAPOS computed for the Cooperative during any of
the three Determination Periods.
PV = the par value of one share of the Statesman Class A
Preferred Stock.
R = the Contributed Capital Rate, expressed as a decimal.
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.
35
<PAGE>
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.
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
36
<PAGE>
to any Local Cooperative, Independent Cooperative or Dealership of the
Cooperative or any lease financing by Statesman for the Cooperative, and the
obligations of the Cooperative to purchase Statesman Class A Preferred Stock
under, or as a condition to, each such financing arrangement shall be
cumulative.
ARTICLE X
---------
EVENTS OF DEFAULT
-----------------
SECTION 10.01. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Default shall be made in the payment of any amount payable
hereunder, when and as the same becomes due and payable, whether at the stated
maturity thereof or by acceleration or otherwise; or
(b) Default shall be made in the due observance or performance of any
other term, covenant, or agreement contained in this Agreement; or
(c) Any representation or warranty made by the Cooperative herein, or
in any Receivables Certificate or any statement or representation made in any
other certificate, report, or opinion delivered pursuant hereto shall prove to
have been incorrect in any material respect when made; or
(d) The Cooperative or any Subsidiary of the Cooperative shall become
insolvent or unable to meet its obligations as they mature, make an assignment
for the benefit of creditors, consent to the appointment of a trustee or a
receiver, or admit in writing its inability to pay its debts as they mature; or
(e) A trustee or receiver shall be appointed for the Cooperative or
any Subsidiary of the Cooperative or for a substantial part of its properties
without the consent of the Cooperative or such Subsidiary and not be discharged
within thirty (30) days; or
(f) Bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings shall be instituted by or against the Cooperative or any
Subsidiary of the Cooperative, and, if instituted against it, be consented to by
the Cooperative or such Subsidiary or remain undismissed for a period of thirty
(30) days; or
(g) Any default shall be made with respect to any obligation for the
payment of borrowed money of the Cooperative or any Subsidiary of the
Cooperative when due or the performance of any other obligation incurred in
connection with any indebtedness for borrowed money of the Cooperative or any
Subsidiary of the Cooperative, if the effect of such default is to accelerate
the maturity of such indebtedness; or
(h) Any final judgment for the payment of money in excess of ONE
HUNDRED THOUSAND DOLLARS ($100,000.00) which in the opinion of Statesman is not
adequately insured or indemnified against shall be rendered against the
Cooperative or any
37
<PAGE>
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
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
38
<PAGE>
(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
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
39
<PAGE>
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.
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.
40
<PAGE>
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: /s/
----------------------
/s/ Title: ___________________
- -----------------------
STATESMAN FINANCIAL CORPORATION
ATTEST: By: /s/
----------------------
/s/
- ----------------------- Title: ___________________
41
<PAGE>
EXHIBIT 10.5(b)
SECOND AMENDMENT TO FINANCING SERVICES AND
CONTRIBUTED CAPITAL AGREEMENT
This SECOND AMENDMENT TO FINANCING SERVICES AND CONTRIBUTED CAPITAL
AGREEMENT (the "Amendment") is made as of this 25th day of March, 1999, 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 as amended by an
Amendment to Financing Services and Contributed Capital Agreement dated as of
November 6, 1998 (as so amended, the "Agreement") and desire to amend the
provisions of Section 13.01 of the Agreement.
Accordingly, the parties hereto agree as follows:
AMENDMENT
- ---------
Section 13.01 of the Agreement is amended to read as follows:
SECTION 13.01. DEFINITIONS. As used in this Article the following
-----------
terms shall have the following definitions:
"Contributed Capital Rate" means the ratio of debt to tangible net
------------------------
worth which institutional lenders extending credit to MLCC require it to
maintain from time to time, whether such ratio is stated as an affirmative or
negative covenant, and in the event MLCC is required to maintain different
ratios on different dates, "Contributed Capital Rate" means the ratio which is
------------------------
in effect on the applicable TAPOS Determination Date.
"Determination Period" or "Determination Periods" means the calendar
-------------------- ---------------------
month, the six calendar month period and the twelve calendar month period
immediately preceding the TAPOS Determination Date.
"Minimum Class X Investment" means the number of shares of MLCC Class
--------------------------
X Preferred Stock determined by MLCC as follows:
MI = (HT/(PV x R)) - RE
where
MI = Minimum Class X Investment (stated at the par value).
HT = The highest TAPOS during any of the three Determination Periods.
PV = The par value of one share of the MLCC Class X Preferred Stock.
R = The Contributed Capital Rate, expressed as a decimal.
<PAGE>
RE = The balance of MLCC's retained earnings as of the TAPOS
Determination Date divided by the par value of Class X
Preferred Stock.
If the Minimum Class X Investment computed using this formula is a
fraction, it will be rounded upward to the next whole number of shares.
"TAPOS" means calculated total program outstanding as determined by MLCC
-----
for each of the three Determination Periods according to the following formula:
TAPOS = AL + L + LFP + CA + NBC - TD - SAP
where
AL = Average amount of Loans outstanding during such Determination
Period.
L = Average Leases outstanding during such Determination Period.
LFP = Average cost to MLCC of livestock owned by MLCC which is subject
to a Livestock Feeding Agreement.
CA = Assets acquired in satisfaction of contractual obligations owing
to MLCC, including without limitation, assets acquired by
foreclosure or by transfer in lieu of foreclosure, valued as
carried on the books of MLCC.
NBC = Average investment (stated at par value) which MLCC was required
to maintain in CoBANK ACB during such Determination Period.
TD = Average term debt which is excluded in the determination of the
Contributed Capital Rate during such Determination Period.
SAP = Average outstanding Preferred Stock of MLCC of all classes
during such Determination Period (stated at the par value).
In the computation for a Determination Period of one month, the amounts of
AL, LFP, L, CA, 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.
2
<PAGE>
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.
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: John Hawkins
---------------------------------
Its: Sr. Vice President and CFO
--------------------------------
MICHIGAN LIVESTOCK CREDIT CORPORATION
By: Leslie T. Newton
--------------------------------
Its: V.P. and Treasurer
--------------------------------
3
<PAGE>
EXHIBIT 10.13
SOUTHERN STATES DEFERRED COMPENSATION PLAN
(As Restated Effective July 1, 1995)
Including:
1. First Amendment
(Effective July 1, 1996)
2. Second Amendment
(Effective July 1, 1997)
3. Third Amendment
(Effective October 1, 1997)
4. Fourth Amendment
(Effective July 1, 1998)
5. Fifth Amendment
(Effective July 1, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definition of Terms
-------------------
<S> <C>
1.1 Act......................................................... 1
1.2 Affiliated Employers........................................ 1
1.3 Administrator............................................... 1
1.4 Beneficiary................................................. 1
1.5 Benefit Commencement Date................................... 1
1.6 Board....................................................... 2
1.7 Code........................................................ 2
1.8 Corporation................................................. 2
1.9 Deferred Thrift Benefit..................................... 2
1.10 Earnings Fund Share......................................... 2
1.11 Effective Date.............................................. 2
1.12 Eligible Employee........................................... 2
1.12A Eligible Executives......................................... 2
1.13 Employee.................................................... 2
1.14 Executive Bonus............................................. 2
1.15 Fiscal Year................................................. 2
1.16 Participant................................................. 2
1.17 Plan........................................................ 2
1.18 Plan Sponsor................................................ 3
1.19 Plan Year................................................... 3
1.20 Rabbi Trust................................................. 3
1.21 Reserve Account............................................. 3
1.22 Rollover Account............................................ 3
1.23 Salary...................................................... 3
1.24 Subsidiary.................................................. 3
1.25 Thrift Plan................................................. 3
ARTICLE II
Participation
-------------
2.1 Participation............................................... 3
2.2 Termination of Participation................................ 4
ARTICLE III
Incentive Compensation Awards
-----------------------------
3.1 Earnings Fund Program....................................... 4
3.2 Executive Bonus Program..................................... 5
3.3 Chief Executive Officer Incentive Program................... 6
3.4 Eligible Executives Incentive Program....................... 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
Elective Deferrals
------------------
<S> <C>
4.1 Deferral of Earnings Fund Share and Executive Bonus.............. 6
4.2 Deferral of Salary............................................... 6
4.3 Deferred Thrift Benefit.......................................... 6
ARTICLE V
Allocations to and Vesting in Reserve Account
---------------------------------------------
5.1 Allocations of Deferred Earnings Fund Share and Executive Bonus.. 6
5.2 Allocations of Deferred Salary................................... 7
5.3 Allocations of Deferred Thrift Benefit........................... 7
5.4 Subtractions from Reserve Account................................ 7
5.5 Deemed Earnings on Reserve Accounts.............................. 7
5.6 Vesting in Reserve Account....................................... 7
5.7 Equitable Adjustment in Case of Error or Omission................ 7
5.8 Statement of Reserve Account Balance............................. 7
ARTICLE VI
Special Rules Relating to Rollover Account
------------------------------------------
6.1 Transfer to Rollover Account..................................... 8
6.2 Deemed Earnings on Rollover Account.............................. 8
6.3 Subtractions from Rollover Account............................... 8
6.4 Vesting in Rollover Account...................................... 8
6.5 Equitable Adjustment in Case of Error or Omission................ 8
6.6 Statement of Rollover Account Balance............................ 8
6.7 Death Benefits Attributable to Rollover Account.................. 8
6.8 Disability Benefits Attributable to Rollover Account............. 9
6.9 Restrictions on Death or Disability Benefits..................... 10
ARTICLE VII
Funding
-------
7.1 Funding.......................................................... 10
7.2 Use of Rabbi Trust Permitted..................................... 11
ARTICLE VIII
Time and Form of Payment
------------------------
8.1 Current Earning Fund Share and Executive Bonus Payments.......... 11
8.2 Distribution of Accounts......................................... 11
8.3 Death After Benefit Commencement................................. 13
8.4 Benefit Determination and Payment Procedure...................... 13
8.5 Payments to Minors and Incompetents.............................. 14
8.6 Distribution of Benefit When Distributee Cannot Be Located....... 14
8.7 Claims Procedure................................................. 14
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IX
Beneficiary Designation
-----------------------
<S> <C>
9.1 Beneficiary Designation..................................... 15
ARTICLE X
Withdrawals
-----------
10.1 Severe Financial Hardship Withdrawals....................... 15
10.2 Other Withdrawals........................................... 16
ARTICLE XI
Plan Administration
-------------------
11.1 Plan Administrator.......................................... 16
11.2 Power and Authority of Administrator........................ 16
ARTICLE XII
Amendment and Termination of Plan
---------------------------------
12.1 Amendment or Termination of the Plan........................ 16
ARTICLE XIII
Adoption by Additional Corporations
-----------------------------------
13.1 Adoption by Additional Corporations......................... 17
ARTICLE XIV
Miscellaneous
-------------
14.1 Non-assignability........................................... 17
14.2 Right to Require Information and Reliance Thereon........... 17
14.3 Notices and Elections....................................... 17
14.4 Delegation of Authority..................................... 18
14.5 Service of Process.......................................... 18
14.6 Governing Law............................................... 18
14.7 Binding Effect.............................................. 18
14.8 Severability................................................ 18
14.9 No Effect on Employment Agreement........................... 18
14.10 Gender and Number........................................... 18
14.11 Titles and Captions......................................... 18
</TABLE>
-iii-
<PAGE>
This Deferred Compensation Plan (hereinafter the "Plan" and formerly known
as the Deferred Incentive Compensation Plan) is amended and restated this 28th
day of June, 1995, effective July 1, 1995, unless otherwise specifically stated,
by Southern States Cooperative, Incorporated, a Virginia corporation
(hereinafter called the "Plan Sponsor");
WITNESSETH:
WHEREAS, the Plan was adopted to provide an incentive compensation program
for certain executives of the Corporation and to allow for the deferral of the
receipt of such incentive compensation; and
WHEREAS, the Plan Sponsor deems it appropriate to expand the deferral
program to include salary deferral, withdrawal rights and the right of a
Participant to select a rate of return for the deemed investment of the Reserve
Account based on various measures permitted by the Administrator.
NOW, THEREFORE, in consideration of the premises herein, the Plan Sponsor
agrees as follows:
ARTICLE I
Definition of Terms
-------------------
The following words and terms as used in this Plan shall have the meaning
set forth below, unless a different meaning is clearly required by the context:
1.1 "Act": The Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time, or the corresponding sections of any
subsequent legislation which replaces it, and, to the extent not inconsistent
therewith, the regulations issued thereunder.
1.2 "Affiliated Employers": The Plan Sponsor and all of its
Subsidiaries.
1.3 "Administrator": The plan administrator provided for in Article XI
hereof.
1.4 "Beneficiary": The person or persons designated by a Participant or
otherwise entitled pursuant to Article IX to receive benefits under the Plan
attributable to such Participant after the death of such Participant.
1.5 "Benefit Commencement Date":
(i) When used with respect to the Reserve Account, the first July 1
or January 1 following the Participant's cessation of employment as an
Employee of the Affiliated Employers for whatever reason.
(ii) When used with respect to the Rollover Account, generally the
first July 1 or January 1 following the earlier of:
(A) The later of:
(I) The Participant's cessation of employment as an
Employee of the Affiliated Employers, or
(II) The date the Participant reaches age fifty-five (55),
or
(B) The date the Participant reaches age sixty-five (65).
<PAGE>
In the case of the Death or Disability Benefits described in Article VI,
the first July 1 or January 1 following the Participant's death and receipt
of a claim from the Beneficiary, or following receipt of proof of the
Participant's total and permanent disability. However, if a Participant's
Benefit Commencement Date occurs prior to January 1, 1990, such Participant
shall continue to receive benefit payments as determined under the Plan as
amended effective January 1, 1990.
1.6 "Board": The present and any succeeding Board of Directors of the
Plan Sponsor, unless such term is used with respect to a particular Corporation
and its Employees, in which event it shall mean the present and any succeeding
Board of Directors of that Corporation.
1.7 "Code": The Internal Revenue Code of 1986, as the same may be
amended from time to time, or the corresponding section of any subsequent
Internal Revenue Code, and, to the extent not inconsistent therewith,
regulations issued thereunder.
1.8 "Corporation": The Plan Sponsor and any of its Subsidiaries
approved by the Board of the Plan Sponsor for participation in and adopting the
Plan.
1.9 "Deferred Thrift Benefit": The amount awarded to certain
Participants under paragraph 4.3.
1.10 "Earnings Fund Share": The share of the Earnings Fund awarded to
certain Participants under paragraph 3.1, the Chief Executive Officer Incentive
Distribution to the Chief Executive Officer under paragraph 3.3 of the Plan and
the Eligible Executive's Distribution to the Eligible Executives under paragraph
3.4.
1.11 "Effective Date": The Effective Date of this restatement of the
Plan is July 1, 1995.
1.12 "Eligible Employee": An Employee who is employed by the Corporation
in:
(i) Its 200 pay series, or
(ii) Effective July 1, 1989, its 100 pay series.
1.12A "Eligible Executives": The Chief Financial Officer and the Group
Vice Presidents.
1.13 "Employee": An individual who is employed in the service of the
Affiliated Employers as a common law employee.
1.14 "Executive Bonus": The discretionary bonus awarded to certain
Participants under paragraph 3.2.
1.15 "Fiscal Year": The fiscal year of the Plan Sponsor.
1.16 "Participant": An Eligible Employee but only during such period and
for such purposes as he is considered a Participant as described in Article II
of the Plan. Participants may be classified as Active or Inactive Participants
as provided in Article II.
1.17 "Plan": This document, as contained herein or as duly amended,
which shall be known as the "Southern States Deferred Compensation Plan". Prior
to July 1, 1995 the Plan was known as the "Southern States Deferred Incentive
Compensation Plan"
1.18 "Plan Sponsor": Southern States Cooperative, Incorporated, a
Virginia corporation, or its corporate successor.
1.19 "Plan Year": The twelve (12) month period beginning on the first
day of July of each year.
-2-
<PAGE>
1.20 "Rabbi Trust": A trust fund described in paragraph 7.2 and
established or maintained for the Plan.
1.21 "Reserve Account": The bookkeeping account of a Participant
attributable to elective and non-elective deferrals under the Plan and to any
deemed earnings thereon less any amounts transferred pursuant to paragraph 6.1
to the Rollover Account.
1.22 "Rollover Account": The bookkeeping account of a Participant
attributable to elective and non-elective deferrals made prior to January 1,
1990 and deemed earnings thereon (less any distributions made prior to July 1,
1990) which are transferred from the Reserve Account pursuant to paragraph 6.1.
1.23 "Salary": A Participant's regular base salary paid or payable for
personal services rendered to the Corporation as an Eligible Employee, including
that portion of such amount which is electively deferred under or contributed to
this Plan or any other plan, whether a deferred compensation or cafeteria plan,
of the Corporation for such Plan Year, but excluding any such compensation
deferred or contributed from a prior period, bonuses, incentive pay, expense
reimbursement and allowances and benefits not normally paid in cash to the
Participant. Salary for any Plan Year shall be determined as of the first day of
the Plan Year.
1.24 "Subsidiary": A corporation (other than the Plan Sponsor) in which
the Plan Sponsor owns an equity interest and holds fifty percent (50%) or more
of the votes entitled to be cast for directors.
1.25 "Thrift Plan": The Southern States Thrift Plan and Trust as
restated effective January 1, 1987 and as thereafter amended.
ARTICLE II
Participation
-------------
2.1 Participation. The Board, upon recommendation of the President and
-------------
Chief Executive Officer of the Plan Sponsor, shall determine in advance of each
Fiscal Year, the offices and positions that will be entitled to actively
participate in the Plan for the Fiscal Year. Each Eligible Employee who is so
designated by the Board by his office or position for a Fiscal Year shall be a
Participant and an Active Participant in the Plan for the Fiscal Year. In
addition, where a designated office or position is vacated by a Participant and
is subsequently filled during a Fiscal Year, or where an office or position is
newly designated (either a currently filled position or a newly created
position) for participation in the Plan, the Board, upon recommendation of the
President and Chief Executive Officer of the Plan Sponsor, may include any
Active Participant's successor or replacement and/or the individual who fills
the newly designated office or position, as a Participant and an Active
Participant in the Plan for such Fiscal Year, as of a date designated by the
Board. For purposes of this paragraph, the Board's determination of the offices
and positions entitled to actively participate in the Plan shall continue in
effect for subsequent Fiscal Years unless changed in advance of a Fiscal Year.
In making its designation, the Board may distinguish between Employees who are
eligible to participate only in the deferral aspect of the Plan and those who
are eligible for the Earning Fund Program on the Executive Bonus.
2.2 Termination of Participation.
----------------------------
2.2(a) A Participant shall cease to be an Active Participant upon the
first to occur of the following events:
(i) The Participant retires or otherwise terminates his employment
with the Corporation; or
(ii) The Participant ceases to be an Eligible Employee.
2.2(b) A Participant shall be an Inactive Participant whenever he is not
an Active Participant but he is still entitled to future benefits under the
terms of the Plan.
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<PAGE>
2.2(c) An individual shall cease to be a Participant when he is neither an
Active Participant nor an Inactive Participant.
ARTICLE III
Incentive Compensation Awards
-----------------------------
3.1 Earnings Fund Program.
---------------------
3.1(a) With respect to each Fiscal Year, each Covered Participant for such
Fiscal Year shall be entitled to a share (the "Earnings Fund Share") of the
Earnings Fund for such Fiscal Year equal to the ratio of such Covered
Participant's Covered Base Salary for such Fiscal Year to the sum of all Covered
Participants' Covered Base Salary for such Fiscal Year.
3.1(b) For purposes hereof, the following terms shall have the meanings
set forth below:
(i) The term "Applicable Percentage" means the following percentage
determined by reference to the Participant's incentive group:
Incentive Group Applicable Percentage
--------------- ---------------------
200 Pay Series (Incentive Group A) 17 1/2%
200 Pay Series (Incentive Group B) 15 %
200 Pay Series (Incentive Group C) 12 1/2%
200 Pay Series (Incentive Group D) 10 %
100 Pay Series (Incentive Group E) 10 %
(ii) The term "Associated Companies" means corporations (other than
the Plan Sponsor) in which the Plan Sponsor owns an equity interest of more
than five percent (5%) but holds less than fifty percent (50%) of the votes
entitled to be cast for directors.
(iii) The term "Covered Base Salary" for a Fiscal Year means the
product obtained by multiplying a Participant's final annual base salary
determined at the earlier of the last day of the Fiscal Year or the date he
ceases to be an Active Participant by his Applicable Percentage for the
Fiscal Year subject, however, to the following:
(A) Where a Participant becomes an Active Participant on a day
other than the first day of a Fiscal Year, ceases to be an Active
Participant on a day other than the last day of a Fiscal Year, or
becomes a member of a different incentive group while an Active
Participant during a Fiscal Year, his Covered Base Salary shall be
determined separately for each such period, his Covered Base Salary for
each such period shall then be prorated on the basis of the ratio of
the number of days in each such period to the number of days in the
Fiscal Year, and his Covered Base Salary for the Fiscal Year shall be
the sum of his Covered Base Salary for each such period.
(B) Where a Participant is designated as a "partial" Covered
Participant for a Fiscal Year, his Covered Base Salary shall be his
otherwise determined Covered Base Salary for the Fiscal Year multiplied
by the "partial" percentage applicable to him.
(iv) The term "Covered Participant" for a Fiscal Year means a
Participant (other than the Chief Executive Officer and the Eligible
Executives) who is an Active Participant designated by the Board to be
eligible for the Earnings Fund Program at any time during the Fiscal Year,
provided, however, that the Chief Executive Officer of the Plan Sponsor may
disqualify a Participant at any time as a result of a performance not
deemed to be of the caliber that warrants treatment as a Covered
Participant and entitlement to a standard Earnings Fund Share:
-4-
<PAGE>
(A) In whole, in which case the Participant shall not be
considered a Covered Participant and shall not be entitled to an
Earnings Fund Share for the Fiscal Year(s) to which such
disqualification relates, or
(B) In part, in which case the President and Chief Executive
Officer of the Plan Sponsor shall designate the percentage (the
"partial" percentage) of the Participant's partial qualification as a
Covered Participant and the Participant shall only be entitled to such
a partial standard Earnings Fund Share (determined by adjusting his
Covered Base Salary) for the Fiscal Year(s) to which such partial
qualification relates.
(v) The term "Earnings Fund" means, with respect to any Fiscal
Year, the lesser of:
(A) The sum of (I) the product obtained by multiplying the
excess of Net Earnings for the Fiscal Year over ten percent (10%) of
Net Worth as of the beginning of the Fiscal Year by five percent (5%)
plus (II) $5,000 for each full one million dollars ($1,000,000) of
actual consolidated dollar volume in total operations of the Affiliated
Employers for the Fiscal Year over budgeted dollar volume in total
operations, or
(B) The aggregate sum of the Covered Base Salary of each Covered
Participant for the Fiscal Year.
(vi) The term "Net Earnings" means the consolidated pre-tax net
earnings of the Affiliated Employers adjusted to reflect the imputed cost
of investments in Associated Companies and to exclude in respect to
Associated Companies all dividends, patronage refunds, gains and losses on
investments, and equity in unrealized earnings and losses.
(vii) The term "Net Worth" means the consolidated book value of the
assets less liabilities of the Affiliated Employers, excluding the recorded
value of investments in Associated Companies.
3.2 Executive Bonus Program.
-----------------------
3.2(a) With respect to each Fiscal Year, an Active Participant designated
by the Board to be eligible for the Elective Bonus Program shall be entitled to
a bonus (the "Executive Bonus") in such amount, if any, as is determined by and
in the discretion of the President and Chief Executive Officer of the Plan
Sponsor as soon as possible following the end of each Fiscal Year based on his
assessment of the Participant's performance during the preceding twelve (12)
months.
3.2(b) The Executive Bonus to which an Active Participant may be entitled
for a Fiscal Year shall not exceed his Covered Base Salary for the Fiscal Year.
3.3 Chief Executive Officer Incentive Program. With respect to each
-----------------------------------------
Fiscal Year beginning on or after July 1, 1997, the Chief Executive Officer
shall be entitled to an Incentive Distribution pursuant to the program described
in Appendix A to the Plan.
3.4 Eligible Executives Incentive Program. With respect to each Fiscal
-------------------------------------
Year beginning on or after July 1, 1998, the Eligible Executives shall be
entitled to an Incentive Distribution pursuant to the program described in
Appendix B to the Plan.
ARTICLE IV
Elective Deferrals
------------------
4.1 Deferral of Earnings Fund Share and Executive Bonus. A Participant
---------------------------------------------------
may elect to defer the receipt of any or all of his Earnings Fund Share and his
Executive Bonus for a Fiscal Year. The election to defer such amounts shall be
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<PAGE>
made annually and filed with the Administrator prior to the beginning of the
Fiscal Year for which such payments will be made; provided, however, that when
an individual becomes an Active Participant on a day other than the first day of
a Fiscal Year, he shall have thirty (30) days after he is notified of
commencement of active participation to file his election with the
Administrator. Such election shall be in writing on a form provided by the
Administrator for this purpose.
4.2 Deferral of Salary. A Participant may elect to defer the receipt of
------------------
any or all of his Salary for a Plan Year. The election to defer such amounts may
be subject to any maximum or minimum percentage or dollar amount as the
Administrator in its sole discretion may determine and shall be made annually
and filed with the Administrator prior to the beginning of the Plan Year for
which such payments will be made; provided, however, that when an individual
becomes an Active Participant on a day other than the first day of a Plan Year,
he shall have thirty (30) days after he is notified of commencement of active
participation to file his election with the Administrator. Such election shall
be in writing on a form provided by the Administrator for this purpose.
4.3 Deferred Thrift Benefit. Each Participant who is an Active
-----------------------
Participant at some time during the period from March 16, 1989 through December
31, 1990, inclusive, and who during such period would have been eligible to be
an active participant in the Thrift Plan but for the exclusion of Employees in
the Corporation's 200 pay series from active participation in the Thrift Plan
shall be entitled to a non-elective deferred award (the "Deferred Thrift
Benefit") in an amount equal to one and one-half percent (1-1/2%) of his
"Compensation" (as defined in the Thrift Plan) for that portion of the 1989 and
1990 calendar years beginning on the later of (i) March 16, 1989 or (ii) the
date he becomes an Active Participant through the earlier of (iii) December 31,
1990 or (iv) the date he is first eligible after March 15, 1989 to become an
active participant in the Thrift Plan. For purposes hereof, such Deferred Thrift
Benefit shall be determined for each such separate period of exclusion from
participation in the Thrift Plan if there is more than one such period with
respect to a Participant.
ARTICLE V
Allocations to and Vesting in Reserve Account
---------------------------------------------
5.1 Allocation of Deferred Earnings Fund Share and Executive Bonus. The
--------------------------------------------------------------
Earning Fund Share and Executive Bonus, or portion thereof, of a Participant for
a Fiscal Year which is deferred pursuant to paragraph 4.1 shall be allocated to
the Participant's Reserve Account upon receipt by the Plan Administrator of
notification authorizing the fiscal year award.
5.2 Allocation of Deferred Salary. The Salary which is deferred
-----------------------------
pursuant to paragraph 4.2 shall be allocated to the Participant's Reserve
Account as of the last day of the calendar month in which such Salary would
otherwise have been paid, if the Participant is employed as of such date. A
Participant whose employment terminates during the calendar month shall be paid
the amount of his deferred Salary for such month in cash.
5.3 Allocation of Deferred Thrift Benefit. The Deferred Thrift Benefit
-------------------------------------
of a Participant with respect to a calendar month shall be allocated to the
Participant's Reserve Account as of the last day of such calendar month.
5.4 Subtractions from Reserve Account. All distributions, withdrawals
---------------------------------
and forfeitures from a Participant's Reserve Account shall be subtracted when
made.
5.5 Deemed Earnings on Reserve Accounts.
-----------------------------------
5.5(a) With respect to the Reserve Account of Participants whose benefits
begin to be paid on or after January 1, 1996 and with respect to earnings
credited for periods beginning on and after July 1, 1995, there shall be
credited daily to the Reserve Account of each Participant earnings and losses
based on the deemed investments selected by the Participant (or, if deceased,
his Beneficiary) in accordance with the procedures adopted for the Plan by the
Administrator from time to time. The available investment options shall be the
funds available for directed investment under the Thrift Plan. For periods prior
to October 1, 1997, the Reserve Account of a Participant who does not make a
deemed investment direction shall be credited with earnings and losses as though
his Reserve Account were invested in the Stable Value Fund under the Thrift
Plan. For
-6-
<PAGE>
periods beginning on and after October 1, 1997, the Reserve Account of a
Participant who does not make a deemed investment direction shall be credited
with earnings and losses as though his Reserve Account were invested in the
Default Fund named under the Thrift Plan
5.5(b) With respect to the Reserve Account of Participants whose benefits
begin to be paid on or before July 1, 1995 and with respect to earnings credited
for periods beginning before July 1, 1995, there shall be credited to the
Reserve Account an additional amount equal to the average balance in the Reserve
Account during such Fiscal Year, multiplied by the rate of interest paid on new
debentures sold by the Plan Sponsor during the Fiscal Year, or in the absence of
such debenture rate, the daily average rate of interest charged by CoBank A.C.B.
for variable term loans during the Fiscal Year.
5.5(c) Notwithstanding the foregoing, for the purpose of determining the
balance of a Participant's Reserve Account as of January 1, 1990 that is to be
transferred to the Rollover Account pursuant to paragraph 6.1, there shall be
credited to the Reserve Account an additional amount equal to the average
balance in the Reserve Account during the period beginning July 1, 1989 and
ending December 31, 1989 ( for purposes of this subparagraph the "Crediting
Period"), multiplied by the rate of interest paid on new debentures sold by the
Plan Sponsor during the Crediting Period, or in the absence of such debenture
rate, the daily average rate of interest charged by the National Bank for
Cooperatives, Baltimore Region for variable term loans during the Crediting
Period plus an amount equal to the April 1, 1990 distribution multiplied by the
rate of interest described above and applied for a three month period.
5.6 Vesting in Reserve Account. Except as provided in paragraph 10.2, a
--------------------------
Participant's rights to the balance in his Reserve Account shall be fully vested
and non-forfeitable at all times, and the termination of his employment as an
Eligible Employee for any reason or his death shall not diminish the amount
payable to the Participant or his Beneficiary.
5.7 Equitable Adjustment in Case of Error or Omission. Where an error
-------------------------------------------------
or omission is discovered in the account of a Participant, the Administrator
shall be authorized to make such equitable adjustment as it deems appropriate.
5.8 Statement of Reserve Account Balance. Within a reasonable time
------------------------------------
after the end of each Fiscal Year, the Administrator shall provide to each
Participant (or, if deceased, to his Beneficiary) a statement of the balance as
of such date in his Reserve Account.
ARTICLE VI
Special Rules Relating to Rollover Account
------------------------------------------
6.1 Transfer to Rollover Account. The balance of a Participant's
----------------------------
Reserve Account as of December 31, 1989 less any subtractions made for
distributions made prior to July 1, 1990 shall be transferred as of January 1,
1990 to the Rollover Account. Notwithstanding the foregoing, in the event that
the balance of a Participant's Reserve Account as of January 1, 1990 is less
than Fifteen Hundred Dollars ($1,500), such Participant's deferred benefit shall
not be transferred to the Rollover Account but shall remain in and subject to
the rules relating to the Reserve Account.
6.2 Deemed Earnings on Rollover Account. Effective January 1, 1990, at
-----------------------------------
the end of each Fiscal Year or such other crediting period required under the
Plan, there shall be credited to the Rollover Account an additional amount equal
to the average balance in the Rollover Account during such Fiscal Year or other
crediting period, multiplied by the following annual rate of interest determined
on the basis of the Participant's age as of January 1, 1990:
Under Age 45 10.50%
45-49 11.00%
50-54 11.50%
55-59 12.50%
60 and Over 13.00%
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<PAGE>
6.3 Subtractions from Rollover Account. All distributions from a
----------------------------------
Participant's Rollover Account shall be subtracted when made.
6.4 Vesting in Rollover Account. A Participant's rights to the balance
---------------------------
in his Rollover Account shall be fully vested and non-forfeitable at all times,
and the termination of his employment as an Eligible Employee for any reason or
his death shall not diminish the amount payable to the Participant or his
Beneficiary.
6.5 Equitable Adjustment in Case of Error or Omission. Where an error
-------------------------------------------------
or omission is discovered in the Rollover Account of a Participant, the
Administrator shall be authorized to make such equitable adjustment as it deems
appropriate.
6.6 Statement of Rollover Account Balance. Within a reasonable time
-------------------------------------
after the end of each Fiscal Year, the Administrator shall provide to each
Participant (or, if deceased, to his Beneficiary) a statement of the balance as
of such date in his Rollover Account.
6.7 Death Benefits Attributable to Rollover Account.
-----------------------------------------------
6.7(a) Effective July 1, 1990, except as provided in subparagraph 6.9, in
the event a Participant who has a balance in his Rollover Account dies while an
Eligible Employee and before his Benefit Commencement Date, then the Beneficiary
of such Participant shall be entitled to a benefit under the Plan (the "Death
Benefit") in an amount equal to the following:
(i) In the event such Participant's death occurs prior to the date
he reaches age 62, the applicable Death Benefit shall be equal to 70% of
the balance of his Rollover Account determined as though he had lived and
earnings had continued to be credited until the last day of the calendar
month in which he would have reached age 65, or the actual balance in his
Rollover Account as of the next July or January 1 following the date of his
death, if greater.
(ii) In the event such Participant's death occurs on or after the
date he reaches age 62, the applicable Death Benefit shall be equal to 100%
of the balance of his Rollover Account determined as though he had lived
and earnings had continued to be credited until the last day of the
calendar month in which he would have reached age 65, or the actual balance
in his Rollover Account as of the next July 1 or January 1 following the
date of his death, if greater.
6.7(b) In the event a Participant who has a balance in his Rollover
Account dies before his Benefit Commencement Date at a time when he is not an
Eligible Employee, then the Beneficiary of such Participant shall be entitled to
receive the balance in the Participant's Rollover Account determined at the next
July 1 or January 1 following his death.
6.8 Disability Benefits Attributable to Rollover Account.
----------------------------------------------------
6.8(a) Effective July 1, 1990, except as provided in subparagraph 6.9, in
the event a Participant who has a balance in his Rollover Account becomes
totally and permanently disabled while an Eligible Employee and before his
Benefit Commencement Date, then he shall be entitled to a benefit under the Plan
(the "Disability Benefit") in an amount equal to the following:
(i) In the event such Participant provides proof of his total and
permanent disability prior to the date he reaches age 62, the applicable
Disability Benefit shall be equal to 70% of the balance of his Rollover
Account determined as though earnings had continued to be credited until
the last day of the calendar month in which he would have reached age 65,
or the actual balance in his Rollover Account as of the next July 1 or
January 1 following the date proof of disability is furnished, if greater.
(ii) In the event such Participant provides proof of his total and
permanent disability on or after the date he reaches age 62, the applicable
Disability Benefit shall be equal to 100% of the balance of his Rollover
Account determined as though earnings had continued to be credited until
the last day of the calendar month in which he would
-8-
<PAGE>
have reached age 65, or the actual balance in his Rollover Account as of
the next July 1 or January 1 following the date proof of disability is
furnished, if greater.
6.8(b) For purposes hereof, the determination of total and permanent
disability shall be made by the Administrator in accordance with the following
standard. A Participant shall be considered to be totally and permanently
disabled if he is unable to perform each of the material duties of his regular
occupation or of any gainful occupation for which he is reasonably fitted taking
into consideration his training, education or experience, as well as prior
earnings. In making its determination, the Administrator may rely on the advice
of one or more physicians appointed or approved by the Plan Sponsor and the
Administrator shall have the right to require further medical examinations from
time to time to determine whether there has been any change in the Participant's
physical condition.
6.8(c) In the event that a Participant's total and permanent disability
ceases:
(i) If he again becomes an Eligible Employee, no further Disability
Benefits shall be paid and the balance in his Rollover Account shall be
recomputed and he shall be entitled to the remainder of his recomputed
Rollover Account (including any Death Benefit, if applicable) in such
manner and at such time as though no total and permanent disability had
occurred. The recomputed balance as of the day following the last
disability payment shall be the amount which would have been in the
Rollover Account had the Participant terminated employment on the date
payment of the Disability Benefit began and received payments on the basis
of the balance as of such date during the period of disability.
(ii) If he does not again become an Eligible Employee, no further
Disability Benefits shall be paid and the balance in his Rollover Account
shall be recomputed and he shall be entitled to any remaining payments on
the basis of the recomputed balance. The recomputed balance as of the day
following the last disability payment shall be the amount which would have
been in the Rollover Account had the Participant terminated employment on
the date as of payment of the Disability Benefit began and received
payments on the basis of the balance as of such date during the period of
disability.
6.8(d) In the event a Participant who has a balance in his Rollover
Account provides proof of his total and permanent disability before his Benefit
Commencement Date at a time when he is not an Eligible Employee, then he shall
be entitled to receive the balance in his Rollover Account determined at the
next July 1 or January 1 following the date proof of his total and permanent
disability is provided to the Administrator.
6.9 Restrictions on Death or Disability Benefits. Neither the Death
--------------------------------------------
Benefit nor the Disability Benefit described in this ARTICLE shall be paid under
the following circumstances:
(i) The Participant fails to execute such applications, submit to
such physical examinations and provide such truthful and complete
information as may be requested by the Administrator,
(ii) The Participant is determined to be uninsurable based on the
underwriting factors applied by the Administrator, or
(iii) The Participant's death or disability is the result of a
suicide or intentional self-inflicted injury which occurs within the
thirteen (13) month period beginning January 1, 1990.
ARTICLE VII
Funding
-------
7.1 Funding.
-------
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<PAGE>
7.1(a) The undertaking to pay benefits hereunder shall be unfunded
obligation payable solely from the general assets of the Corporation and subject
to the claims of the Corporation's creditors. The Reserve Account and the
Rollover Account shall be maintained as book reserve accounts solely for
accounting purposes.
7.1(b) Except as provided in the Rabbi Trust established as permitted in
paragraph 7.2, nothing contained in the Plan and no action taken pursuant to the
provisions of the Plan shall create or be construed to create a trust of any
kind or a fiduciary relationship between the Corporation and the Participant or
his Beneficiary or any other person. To the extent that any person acquires a
right to receive payments from the Corporation under the Plan, such rights shall
be no greater than the right of any unsecured general creditor of the
Corporation.
7.1(c) Where more than one Corporation participates in the Plan, the
funding and payment provisions hereof shall apply separately to each such
Corporation.
7.1(d) The Plan Sponsor may in its discretion make the payment of any or
all benefits under the Plan in lieu of payment by one or more Corporations.
Where the Plan Sponsor makes payments on behalf of other Corporations, the Plan
Sponsor may require contributions by participating Corporations to the Plan
Sponsor at such times (whether before, at or after the time of payment), in such
amounts and or such basis as it may from time to time determine in order to
defray the cost of benefits and administration of the Plan.
7.2 Use of Rabbi Trust Permitted. Notwithstanding any provision herein
----------------------------
to the contrary, the Plan Sponsor may in its sole discretion elect to establish
and fund a Rabbi Trust for the purpose of providing benefits under the Plan.
ARTICLE VIII
Time and Form of Payment
------------------------
8.1 Current Earnings Fund Share and Executive Bonus Payments. A
--------------------------------------------------------
Participant's Earnings Fund Share and Executive Bonus, or portion thereof, for a
Fiscal Year for which no deferral election has been properly filed by the
Participant shall be paid to the Participant (or his Beneficiary) as soon as
practicable following the close of the Fiscal Year.
8.2 Distribution of Accounts.
------------------------
8.2(a) Distributions from a Participant's Reserve Account and Rollover
Account shall commence on the Participant's Benefit Commencement Date.
8.2(b) Distributions from a Participant's Reserve Account which begin to
be paid on or after January 1, 1996 shall be made in quarterly installment
payments to the Participant or his Beneficiary over the Distribution Period on
the first day of each calendar quarter until the Participant's Reserve Account
has been paid in full as follows:
(i) The initial quarterly payment shall be based on the balance in
the Participant's Reserve Account at the end of the calendar quarter
immediately preceding the Benefit Commencement Date. The initial payment
shall be an amount equal to the applicable preceding quarterly balance
divided by 41 in the case of a July 1 Benefit Commencement Date or 39 in
the case of a January 1 Benefit Commencement Date. The initial payment
amount shall continue to be made quarterly until the following October 1.
(ii) The quarterly payment amount shall be recalculated and adjusted
beginning with each October payment and continuing until the next October
payment when the payment amount shall again be recalculated based on the
balance in the Participants' Reserve Account after the preceding July 1
payment. The new quarterly payment at each October 1 shall be equal to that
adjusted balance divided by the remaining number of payments to be made.
(iii) The final quarterly payment shall be the balance in the
Participant's Reserve Account and will be paid as soon as reasonably
possible following the completion of the final June 30 valuation.
-10-
<PAGE>
(iv) All payments, other than the final payment, shall be rounded to
the nearest whole dollar.
(v) All payments will be deducted on a pro rata basis from the
investment options which the Participant has selected pursuant to
subparagraph 5.5(a) as deemed investments of the balance of his Reserve
Account.
(vi) Effective July 1 of a final payment year which begins prior to
October 1, 1997, the Reserve Account of the Participant shall be credited
with deemed earnings and losses based on the performance of the Stable
Value Fund investment under the Thrift Plan.
(vii) Effective July 1 of a final payment year which begins on or
after October 1, 1997, the Reserve Account of the Participant shall be
credited with deemed earnings and losses based on the performance of the
Default Fund investment under the Thrift Plan.
8.2(c) Distributions from a Participant's Reserve Account which begin on
or before July 1, 1995 shall be made in quarterly payments to the Participant or
his Beneficiary over the Distribution Period on the first day of each calendar
quarter until the Participant's Reserve Account has been paid in full as
follows:
(i) The quarterly payments during the Distribution Period are
intended to be substantially equal. Annual recalculations applying the
Payment Factors shall be made in order to compensate for variations between
actual deemed earnings credited pursuant to paragraph 5.5 and the assumed
average rate of ten percent (10%) per annum.
(ii) The initial quarterly payment shall be based on the balance in
Participant's Reserve Account on the immediately preceding June 30th in the
case of a January 1 Benefit Commencement Date and on the June 30th of the
immediately preceding calendar year in the case of a July 1 Benefit
Commencement Date. The initial payment amount shall be an amount equal to
the applicable June 30th balance multiplied by .041527 in the case of a
July 1 Benefit Commencement Date or .040796 in the case of a January 1
Benefit Commencement Date. The initial payment amount shall continue to be
made quarterly until the following October 1.
(iii) The quarterly payment amount shall be recalculated and adjusted
beginning with each October payment and continuing until the next October
payment when the quarterly payment amount shall again be recalculated. The
recalculation shall be based on the balance in the Participant's Reserve
Account after the preceding July payment. The new quarterly payment amount
at each October 1 shall be an amount equal to that adjusted balance
multiplied by the applicable Payment Factor for the quarterly payment
number as of which the recalculation occurs.
(iv) The final quarterly payment shall be the balance in the
Participant's Reserve Account.
(v) All payments, other than the final payment, shall be rounded to
the nearest whole dollar.
(vi) The "Payment Factors" are as follows:
Payment Factors
----------------------------------------
Quarterly July 1 Benefit January 1 Benefit
Payment Number Commencement Date Commencement Date
------------- ----------------- -----------------
1 .041527 .040796
2 .039233
4 .041859
6 .041859
8 .045187
10 .045187
12 .049517
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<PAGE>
14 .049517
16 .055352
18 .055352
20 .063594
22 .063594
24 .076051
26 .076051
28 .096940
30 .096940
32 .138907
34 .138907
36 .265200
38 .265200
39 Balance
41 Balance
8.2(d) Distribution from a Participant's Rollover Account shall normally
be made in equal quarterly payments to the Participant or his Beneficiary over
the Distribution Period on the first day of each calendar quarter until the
Participant's Rollover Account has been paid. The quarterly payments shall be
determined on the basis of the applicable interest rate described in paragraph
6.2.
8.2(e) For purposes hereof the term "Distribution Period":
(i) When used with respect to the Reserve Account, the forty-
one (41) consecutive calendar quarters beginning with July in the case
of a July 1 Benefit Commencement Date or the thirty-nine (39)
consecutive calendar quarters beginning with January in the case of a
January 1 Benefit Commencement Date.
(ii) When used with respect to the Rollover Account, the forty
(40) consecutive calendar quarters beginning with the Benefit
Commencement Date.
8.2(f) Notwithstanding the foregoing:
(i) The Board shall have the right, in its sole discretion to vary
the manner and the time of making the installment distribution provided in
this paragraph by making such distributions in a lump sum equal to the
balance in the Reserve Account and the Rollover Account at the time in
question or over a shorter or longer period than required herein as it may
find appropriate.
(ii) The Board, in its discretion, may require that the balance or a
portion of the balance in the Participant's Reserve Account or Rollover
Account shall be paid as a lump sum where the balance or a portion of the
balance due to the Participant or any Beneficiary under either or both the
Reserve Account or the Rollover Account as of the Benefit Commencement Date
is twenty five hundred dollars ($2,500) or less.
(iii) All lump sum payments made pursuant to this subparagraph shall
be made on July 1 of the calendar year in which the Benefit Commencement
Date otherwise occurs, or if later, the July 1 next following the Board's
determination to make such payment.
8.3 Death After Benefit Commencement. If a Participant dies after his
--------------------------------
Benefit Commencement Date, no benefits shall be payable other than the remaining
benefits due to the Participant under the Plan which shall be paid to his
Beneficiary.
8.4 Benefit Determination and Payment Procedure. The Administrator
-------------------------------------------
shall make all determinations concerning eligibility for benefits under the
Plan, the time or terms of payment, and the form or manner of payment to the
-12-
<PAGE>
Participant (or the Participant's Beneficiary in the event of the death of the
Participant). The Administrator shall promptly notify the Corporation and, where
payments are to be made from a Rabbi Trust, the trustee thereof, of each such
determination that benefit payments are due and provide to the Corporation or
trustee all other information necessary to allow the Corporation or trustee to
carry out said determination, whereupon the Corporation or trustee shall pay
such benefits in accordance with the Administrator's determination.
8.5 Payments to Minors and Incompetents. If a Participant or Beneficiary
-----------------------------------
entitled to receive any benefits hereunder is a minor or is adjudged to be
legally incapable of giving valid receipt and discharge for such benefits, or is
deemed so by the Administrator, benefits will be paid to such person as the
Administrator may designate for the benefit of such Participant or Beneficiary.
Such payments shall be considered a payment to such Participant or Beneficiary
and shall, to the extent made, be deemed a complete discharge of any liability
for such payments under the Plan.
8.6 Distribution of Benefit When Distributee Cannot Be Located. The
----------------------------------------------------------
Administrator shall make all reasonable attempts to determine the identity
and/or whereabouts of a Participant entitled to benefits under the Plan,
including the mailing by certified mail of a notice to the last known address
shown on the Corporation's or the Administrator's records. If the Administrator
is unable to locate such a person entitled to benefits hereunder, or if there
has been no claim made for such benefits, the Corporation shall continue to hold
the benefit due such person, subject to any applicable statute of escheats.
8.7 Claims Procedure.
----------------
8.7(a) A Participant or Beneficiary (the "claimant") shall have the right to
request any benefit under the Plan by filing a written claim for any such
benefit with the Administrator on a form provided by the Administrator for such
purpose. The Administrator shall give such claim due consideration and shall
either approve or deny it in whole or in part. Within ninety (90) days
following receipt of such claim by the Administrator, notice of any denial
thereof, in whole or in part, shall be delivered to the claimant or his duly
authorized representative or such notice of denial shall be sent by mail to the
claimant or his duly authorized representative at the address shown on the claim
form or such individual's last known address. The aforesaid ninety (90) day
response period may be extended to one hundred eighty (180) days after receipt
of the claimant's claim if special circumstances exist and if written notice of
the extension to one hundred eighty (180) days indicating the special
circumstances involved and the date by which a decision is expected to be made
is furnished to the claimant within ninety (90) days after receipt of the
claimant's claim. Such notice of denial shall be written in a manner calculated
to be understood by the claimant and shall:
(i) Set forth a specific reason or reasons for the denial,
(ii) Make specific reference to the pertinent provisions of the
Plan on which any denial of benefits is based,
(iii) Describe any additional material or information necessary for
the claimant to perfect the claim and explain why such material or
information is necessary, and
(iv) Explain the claim review procedure of subparagraph 8.7(b).
If such notice of denial is not provided to the claimant within the applicable
ninety (90) day or one hundred eighty (180) day period, the claimant's claim
shall be considered denied for purposes of the claim review procedure of
subparagraph 8.7(b).
8.7(b) A Participant or Beneficiary whose claim filed pursuant to
subparagraph 8.7(a) has been denied, in whole or in part, may, within sixty (60)
days following receipt of notice of such denial, or following the expiration of
the applicable period provided for in subparagraph 8.7(a) for notifying the
claimant of the decision on the claim if no notice of denial is provided, make
written application to the Administrator for a review of such claim, which
application shall be filed with the Administrator. For purposes of such review,
the claimant or his duly authorized representative may review Plan documents
pertinent to such claim and may submit to the Administrator written issues and
comments respecting such claim. The
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<PAGE>
Administrator may schedule and hold a hearing. The Administrator shall make a
full and fair review of any denial of a claim for benefits and issue its
decision thereon promptly, but no later than sixty (60) days after receipt by
the Administrator of the claimant's request for review, or one hundred twenty
(120) days after such receipt if a hearing is to be held or if other special
circumstances exist and if written notice of the extension to one hundred twenty
(120) days is furnished to the claimant within sixty (60) days after the receipt
of the claimant's request for a review. Such decision shall be in writing, shall
be delivered or mailed by the Administrator to the claimant or his duly
authorized representative in the manner prescribed in subparagraph 8.7(a) for
notices of approval or denial of claims, and shall:
(i) Include specific reasons for the decision,
(ii) Be written in a manner calculated to be understood by the
claimant, and
(iii) Contain specific references to the pertinent Plan provisions
on which the decision is based.
The Administrator's decision made in good faith shall be final.
ARTICLE IX
Beneficiary Designation
-----------------------
9.1 Beneficiary Designation.
-----------------------
9.1(a) Each Participant shall be entitled to designate a Beneficiary
hereunder by filing a designation in writing with the Administrator on the form
provided for such purpose. Any Beneficiary designation made hereunder shall be
effective only if signed and dated by the Participant and delivered to the
Administrator prior to the time of the Participant's death. Any Beneficiary
designation hereunder shall remain effective until changed or revoked hereunder.
9.1(b) Any Beneficiary designation may include multiple, contingent or
successive Beneficiaries and may specify the proportionate distribution to each
Beneficiary.
9.1(c) A Beneficiary designation may be changed by the Participant at any
time, or from time to time, by filing a new designation in writing with the
Administrator.
9.1(d) If the Participant dies without having designated a Beneficiary, or
if the Beneficiary so designated has predeceased him, then his estate shall be
deemed to be his Beneficiary.
9.1(e) If a Beneficiary of the Participant shall survive the Participant but
shall die before the Participant's entire benefit under the Plan has been
distributed, then, absent any other provision by the Participant, the unpaid
balance thereof shall be distributed to the such other beneficiary named by the
deceased Beneficiary to receive his interest or, if none, to the estate of the
deceased Beneficiary. If multiple beneficiaries are designated, absent any
other provision by the Participant, those named or the survivor of them shall
share equally in any amounts payable hereunder.
ARTICLE X
Withdrawals
-----------
10.1 Severe Financial Hardship Withdrawals.
-------------------------------------
10.1(a) In the event of any Severe Financial Hardship and upon written
request of a Participant (or, if subsequent to his death, his Beneficiary), the
Administrator in its sole discretion may pay in one lump sum to the Participant
(or his Beneficiary) all or any portion of the Participant's Reserve Account
and/or Rollover Account. Any such payment shall be
-14-
<PAGE>
limited to that amount reasonably necessary to alleviate the Severe Financial
Hardship, and any remaining payments or account balances shall be appropriately
adjusted.
10.1(b) For purposes hereof, a "Severe Financial Hardship" means an
unforeseeable emergency, and shall be defined in a manner consistent with the
meaning ascribed thereto under Section 457 of the Code as a severe financial
hardship of the Participant (or, if subsequent to his death, his Beneficiary)
resulting from a sudden and unexpected illness, accident or loss of property due
to casualty, or any other similar extraordinary and unforeseeable circumstance
arising as a result of events beyond the control of the Participant (or, if
subsequent to his death, his Beneficiary).
10.2 Other Withdrawals. Upon written request at any time prior to pay out
-----------------
of the entire Reserve Account and Rollover Account, a Participant may elect to
withdraw all or a portion of his Reserve Account and/or his Rollover Account
subject to the following forfeiture provisions:
(i) The Participant shall forfeit ten percent (10%) of the amount
elected to be withdrawn. Such forfeited amount shall be subtracted from the
account from which withdrawn but shall not at any time be distributed to the
Participant; and
(ii) The Participant shall forfeit the right to make additional
deferrals of Salary and/or of his Earnings Fund Share and Executive Bonus
for one full Plan Year following the withdrawal.
It is intended that the forfeitures described herein constitute a "substantial
limitation or restriction" on the right to receive the amounts held in the
Reserve Account and the Rollover Account as that term is used for purposes of
Sections 61 and 451 of the Code. Any remaining payments or account balances
shall be appropriately adjusted.
ARTICLE XI
Plan Administration
-------------------
11.1 Plan Administrator. The Plan shall be administered by a plan
------------------
administrator (the "Administrator") to be appointed by and serve at the pleasure
of the Plan Sponsor, or in the absence of the appointment or in the event any
person so appointed shall fail or cease to serve, the Plan Sponsor shall be the
Administrator.
11.2 Power and Authority of Administrator. The Administrator is hereby
------------------------------------
vested with all the power and authority necessary in order to carry out its
duties and responsibilities in connection with the administration of the Plan,
including the power to interpret the provisions of the Plan. For such purpose,
the Administrator shall have the power to adopt rules and regulations consistent
with the terms of the Plan.
ARTICLE XII
Amendment and Termination of Plan
---------------------------------
12.1 Amendment or Termination of the Plan.
------------------------------------
12.1(a) The Plan may be terminated at any time by the Board of the Plan
Sponsor. The Plan may be amended in whole or in part from time to time by the
Board of the Plan Sponsor effective as of any date specified. No amendment or
termination shall operate:
(i) To decrease a Participant's Reserve Account balance or
Rollover Account balance as of the earlier of the date on which the
amendment or termination is approved by the Board of the Plan Sponsor or the
date on which an instrument of amendment or termination is signed or
approved on behalf of the Plan Sponsor, or
-15-
<PAGE>
(ii) To vary the distribution plan of a Participant under paragraph
6.2 after the Participant retires or otherwise ceases to be employed by the
Affiliated Employers without the consent of the Participant or, if deceased,
his Beneficiary.
12.1(b) Notwithstanding the foregoing, the Board hereby delegates to the
Chief Executive Officer the right to modify, alter, or amend the Plan in whole
or in part to make any technical modification, alteration or amendment which in
the opinion of counsel for the Plan Sponsor is required by law and is deemed
advisable by the Chief Executive Officer and to make any other modification,
alteration or amendment which does not, in the Chief Executive Officer's view,
substantially increase costs, contributions or benefits and does not materially
affect the eligibility, vesting or benefit accrual or allocation provisions of
the Plan.
ARTICLE XIII
Adoption by Additional Corporations
-----------------------------------
13.1 Adoption by Additional Corporations. Any Subsidiary of the Plan
-----------------------------------
Sponsor may adopt the Plan with the consent of the Board of the Plan Sponsor and
approval by its Board.
ARTICLE XIV
Miscellaneous
-------------
14.1 Non-assignability. The interests of each Participant under the Plan
-----------------
are not subject to claims of the Participant's creditors; and neither the
Participant, nor his Beneficiary, shall have any right to sell, assign, transfer
or otherwise convey the right to receive any payments hereunder or any interest
under the Plan, which payments and interest are expressly declared to be non-
assignable and non-transferable.
14.2 Right to Require Information and Reliance Thereon. The Corporation
-------------------------------------------------
and Administrator shall have the right to require any Participant, Beneficiary
or other person receiving benefit payments to provide it with such information,
in writing, and in such form as it may deem necessary to the administration of
the Plan and may rely thereon in carrying out its duties hereunder. Any payment
to or on behalf of a Participant or Beneficiary in accordance with the
provisions of the Plan in good faith reliance upon any such written information
provided by a Participant or any other person to whom such payment is made shall
be in full satisfaction of all claims by such Participant and his Beneficiary;
and any payment to or on behalf of a Beneficiary in accordance with the
provision so the Plan in good faith reliance upon any such written information
provided by such Beneficiary or any other person to whom such payment is made
shall be in full satisfaction of all claims by such Beneficiary.
14.3 Notices and Elections. All notices required to be given in writing
---------------------
and all elections required to be made in writing, under any provision of the
Plan, shall be invalid unless made on such forms as may be provided or approved
by the Administrator and, in the case of a notice or election by a Participant
or Beneficiary, unless executed by the Participant or Beneficiary giving such
notice or making such election. Subject to limitations under applicable
provisions of the Code or the Act (such as the requirement that deferral
elections be in writing), the Administrator is authorized in its discretion to
accept other means for receipt of effective notices, elections, consent and/or
application by Participants and/or Beneficiaries, including but not limited to
interactive voice systems, on such basis and for such purposes as it determines
from time to time.
14.4 Delegation of Authority. Whenever the Plan Sponsor or any other
-----------------------
Corporation is permitted or required to perform any act, such act may be
performed by its President or Chief Executive Officer or other person duly
authorized by its President or Chief Executive Officer or the Board of the
Corporation.
14.5 Service of Process. The Administrator shall be the agent for service
------------------
of process on the Plan.
-16-
<PAGE>
14.6 Governing Law. The Plan shall be construed, enforced and
-------------
administered in accordance with the laws of the Commonwealth of Virginia, and
any federal law which preempts the same.
14.7 Binding Effect. The Plan shall be binding upon and inure to the
--------------
benefit of the Corporation, its successors and assigns, and the Participant and
his heirs, executors, administrators and legal representatives.
14.8 Severability. If any provision of the Plan should for any reason be
------------
declared invalid or unenforceable by a court of competent jurisdiction, the
remaining provisions shall nevertheless remain in full force and effect.
14.9 No Effect on Employment Agreement. The Plan shall not be considered
---------------------------------
or construed to modify, amend or supersede any employment or other agreement
between the Corporation and the Participant heretofore or hereafter entered into
unless so specifically provided.
14.10 Gender and Number. In the construction of the Plan, the masculine
-----------------
shall include the feminine or neuter and the singular shall include the plural
and vice-versa in all cases where such meanings would be appropriate.
14.11 Titles and Captions. Titles and captions and headings herein have
-------------------
been inserted for convenience of reference only and are to be ignored in any
construction of the provisions hereof.
IN WITNESS WHEREOF, the Plan Sponsor has caused the Plan to be signed on its
behalf by its duly authorized officer or member of its Board of Directors on the
day, month and year aforesaid.
SOUTHERN STATES COOPERATIVE,
INCORPORATED, Plan Sponsor
By: /s/ Gene E. James
------------------------
Its President & CEO
----------------------
-17-
<PAGE>
SOUTHERN STATES
DEFERRED COMPENSATION PLAN
(As Restated July 1, 1995)
Chief Executive Officer Incentive Program
Appendix A
----------
A-1.1 Definitions.
-----------
A-1.1(a) "EBT": Earnings before tax determined based on the audited
consolidated financial statements of the Plan Sponsor for the Fiscal Year and
appearing as "Savings from continuing operations before income taxes and
cumulative effect of change in accounting principles" adjusted for years
beginning on or after July 1, 1999 to exclude the equity in undistributed
earnings (losses) of associated companies for the Fiscal Year, net of deferred
income taxes.
A-1.1(b) "Incentive Bank":
(i) With respect to the first complete Fiscal Year of any
Chief Executive Officer's term, One Hundred Fifty Thousand Dollars
($150,000) plus any Incentive Formula Award for the Fiscal Year.
(ii) With respect to any Fiscal Year remaining in the Chief
Executive Officer's term, the ending balance in the Incentive Bank for
the prior Fiscal Year less the Incentive Distribution attributable to the
prior Fiscal Year, plus any Incentive Formula Award for the Fiscal Year.
Notwithstanding the foregoing, the ending balance in the Incentive Bank for
the prior Fiscal Year, beginning with the ending balance for the Fiscal Year
ending June 30, 1999, shall not reflect a negative balance.
A-1.1(c) "Incentive Formula Award": 1.5% of the amount by which EBT for
the current Fiscal Year exceeds 10% of the sum of the Plan Sponsor's total
Stockholders' and Patrons Equity determined at the end of the prior Fiscal Year.
For the first five (5) Fiscal Years of employment as Chief Executive Officer, no
Incentive Formula Award will be granted for a partial Fiscal Year. After
completion of five (5) complete Fiscal Years of employment as Chief Executive
Officer, the Incentive Formula Award shall be determined based on the pro rata
portion of the Fiscal Year during which the Chief Executive Officer was employed
in that capacity.
A-1.1(d) "Incentive Distribution": One-third (1/3) of the balance in the
Incentive Bank as of the end of a Fiscal Year, provided, however, no Incentive
Distribution shall be payable for any Fiscal Year in which the Plan Sponsor
incurs a loss.
A-1.1(e) "Stockholders' and Patrons Equity": Stockholders' and Patrons
Equity determined based on audited consolidated financial statements of the Plan
Sponsor at the end of the prior Fiscal Year adjusted to exclude preferred stocks
and accumulated equity in undistributed earnings (losses) of associated
companies, net of deferred income taxes.
A-1.2 Chief Executive Officer Incentive Program. An Incentive
-----------------------------------------
Distribution determined each Fiscal Year shall be payable to the Chief Executive
Officer following the close of such Fiscal Year. If no deferral election is in
place under the Plan, the Incentive Distribution shall be paid to the Chief
Executive Officer, or if deceased, to his Beneficiary, as soon as reasonably
practical following the completion of the audit of the financial statements for
the Fiscal Year.
A-1.3 Forfeiture of Incentive Bank. The entire positive balance of the
----------------------------
Incentive Bank shall be forfeited in the event the Chief Executive Officer
terminates employment with the Plan Sponsor (whether voluntarily or
involuntarily), for any reason including death or disability, prior to
completing at least three (3) complete Fiscal Years of employment as Chief
Executive Officer. The lesser of the entire positive balance of the Incentive
Bank or One Hundred Fifty Thousand
-18-
<PAGE>
Dollars ($150,000) of the Incentive Bank will be forfeited in the event the
Chief Executive Officer terminates employment with the Plan Sponsor (whether
voluntarily or involuntarily), for any reason (including death or disability)
other than Normal Retirement under the Retirement Plan for Employees of Southern
States, prior to the completing at least five (5) complete Fiscal Years of
employment as Chief Executive Officer.
A-1.4 Payout of Incentive Bank Balance. Upon the Chief Executive
--------------------------------
Officer's termination of employment with the Plan Sponsor for any reason, the
balance in the Incentive Bank, not forfeited pursuant to paragraph A-1.3, shall
be paid to the Chief Executive Officer (or, if deceased, his Beneficiary) as
soon as reasonably possible following the end of the Fiscal Year.
A-1.5 Board Discretion. The Board reserves the right at any time to
----------------
adjust any component of the Chief Executive Officer Incentive Program, including
the right to adjust EBT for unusual gains or losses incurred during a Fiscal
Year. However, the Board may not reduce the balance in the Incentive Bank or
defer payment of an Incentive Distribution for which no deferral election is in
place under the Plan.
A-1.6 Separate Incentive Bank for Each CEO. In the event that the Board
------------------------------------
continues the Chief Executive Officer Incentive Program for an individual who
succeeds the individual in that position on July 1, 1997, a new and separate
Incentive Bank shall be established for such successor.
-19-
<PAGE>
SOUTHERN STATES
DEFERRED COMPENSATION PLAN
(As Restated July 1, 1995)
Eligible Executives Incentive Program
Appendix B
----------
B-1.1 Definitions.
-----------
B-1.1(a) "EBT": Earnings before tax determined based on the audited
consolidated financial statements of the Plan Sponsor for the Fiscal Year and
appearing as "Savings from continuing operations before income taxes and
cumulative effect of change in accounting principles".
B-1.1(b) "Incentive Bank":
(i) With respect to the first complete Fiscal Year of any
Eligible Executive's term, any Incentive Formula Award for the Fiscal
Year.
(ii) With respect to any Fiscal Year remaining in the Eligible
Executives' term, the ending balance in the Incentive Bank for the prior
Fiscal Year less the Incentive Distribution attributable to the prior Fiscal
Year, plus any Incentive Formula Award for the Fiscal Year.
B-1.1(c) "Incentive Formula Award": .40% of the amount by which EBT for
the current Fiscal Year exceeds a 4% return on Total Assets determined at the
end of the prior Fiscal Year.
B-1.1(d) "Incentive Distribution": One-half (1/2) of the balance in the
Incentive Bank as of the end of a Fiscal Year.
B-1.1(e) "Total Assets": Total assets determined based on the audited
consolidated financial statements of the Plan Sponsor for the Fiscal Year and
appearing at the bottom of the balance sheet of the annual report of the Plan
Sponsor.
B-1.2 Eligible Executives Incentive Program. An Incentive Distribution
-------------------------------------
determined each Fiscal Year shall be payable to each Eligible Executive
following the close of such Fiscal Year. If no deferral election is in place
under the Plan, the Incentive Distribution shall be paid to the Eligible
Executive, or if deceased, to his Beneficiary, as soon as reasonably practical
following the completion of the audit of the financial statements for the Fiscal
Year.
B-1.3 Payout of Incentive Bank Balance. Upon an Eligible Executive's
--------------------------------
termination of employment with the Plan Sponsor for any reason, the balance in
the Incentive Bank shall be paid to such Eligible Executive (or, if deceased,
his Beneficiary) as soon as reasonably possible following the end of the Fiscal
Year.
B-1.4 Board Discretion. The Board reserves the right at any time to
----------------
adjust any component of the Eligible Executives Incentive Program, including the
right to adjust EBT for unusual gains or losses incurred during a Fiscal Year.
However, the Board may not reduce the balance in the Incentive Bank or defer
payment of an Incentive Distribution for which no deferral election is in place
under the Plan.
B-1.5 Separate Incentive Bank for Each Eligible Executives. In the event
----------------------------------------------------
that the Board continues the Eligible Executives Incentive Program for any
individual who succeeds the individuals in those positions on July 1, 1998, a
new and separate Incentive Bank shall be established for such successor.
-20-
<PAGE>
EXHIBIT 12
Southern States Cooperative
Ratios of earnings to fixed charges
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes, extraordinary charge,
cumulative effect of accounting changes and
discontinued operations and distributions on capital
securities of trust subsidiary $(1,449,650) $13,570,456 $33,539,852 $34,645,994 $23,172,418
Interest expense, net of capitalized interest 28,413,129 16,859,373 15,565,523 15,236,987 14,797,975
Portion of rents representative of interest factor 5,151,839 2,900,188 2,703,206 2,423,809 2,393,876
Amortization of capitalized interest 75,000 62,249 15,143 10,832 6,051
Distributions on capital securities of trust subsidiary - - - - -
------------ ------------ ------------ ------------ ------------
Total Earnings $ 2,190,318 $33,392,266 $51,823,724 $52,317,622 $40,370,320
============ ============ ============ ============ ============
Fixed Charges:
Interest expense (before deducting capitalized interest) $29,314,830 $17,310,851 $15,730,029 $15,352,563 $14,876,278
Portion of rents representative of interest factor 5,151,839 2,900,188 2,703,206 2,423,809 2,393,876
Distributions on capital securities of trust subsidiary - - - - -
Preferred stock dividend requirements of majority-owned
subsidiaries grossed up for pre-tax effect 316,063 316,063 316,061 316,061 316,063
------------ ------------ ------------ ------------ ------------
Total Fixed Charges $34,782,732 $20,527,102 $18,749,297 $18,092,434 $17,586,217
============ ============ ============ ============ ============
Ratio of Earnings to Fixed Charges 0.93 1.63 2.76 2.89 2.30
============ ============ ============ ============ ============
Insufficient to cover fixed charges by
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
---------------------------------
Three months ended Three
September 30, Year Months Ended
------------------------- Ended September 30,
1999 1998 June 30, 1999 1999
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes, extraordinary charge,
cumulative effect of accounting changes and
discontinued operations and distributions on capital
securities of trust subsidiary $(4,604,498) $(8,081,367) $ (9,732,000) $(5,019,000)
Interest expense, net of capitalized interest 8,487,985 4,684,437 27,952,000 7,318,000
Portion of rents representative of interest factor 1,287,960 725,047 6,151,828.76 1,287,960
Amortization of capitalized interest 18,750 3,786 75,000.00 18,750
Distributions on capital securities of trust subsidiary - - 6,938,000 1,773,000
------------ ----------- ------------- -------------
Total Earnings $ 5,190,197 $(2,668,097) $ 31,384,829 $ 5,378,710
============ =========== ============= =============
Fixed Charges:
Interest expense (before deducting capitalized interest) $ 8,506,735 $ 4,688,223 $ 28,853,701 $ 7,336,750
Portion of rents representative of interest factor 1,287,960 725,047 6,151,829 1,287,960
Distributions on capital securities of trust subsidiary - - 6,938,000 1,773,000
Preferred stock dividend requirements of majority-owned
subsidiaries grossed up for pre-tax effect 79,016 79,016 316,063 79,016
------------ ----------- ------------ -------------
Total Fixed Charges $ 9,873,711 $ 5,492,285 $ 42,259,593 $10,476,725
============ =========== ============ =============
Ratio of Earnings to Fixed Charges 0.53 (0.49) 0.74 0.51
============ =========== ============ =============
Insufficient to cover fixed charges by
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated October 29, 1999, relating to the consolidated financial statements
and financial statement schedule of Southern States Cooperative, Incorporated
and Subsidiaries, which appear 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
February 4, 2000
<PAGE>
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.
/s/ KPMG LLP
Atlanta, Georgia
February 2, 2000
<PAGE>
EXHIBIT 24(a)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Wayne A. Boutwell, Jonathan A. Hawkins and N. Hopper Ancarrow, Jr., or
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (including without limitation in any capacity
on behalf of Southern States Cooperative, Inc. (the "Company"), Southern States
Capital Trust I ("Trust I") and/or Southern States Capital Trust II ("Trust II")
or as an officer, director or trustee thereof), to sign a Registration Statement
on Form S-1 for registration of up to $100,000,000 of ___% Capital Securities
(liquidation amount $25.00 per Capital Security) to be issued by Trust II (the
"Capital Securities"), for which registration was previously applied for by the
Company and Trust I but will be pursued by the Company and Trust II, and
qualification of any indenture relating to such Capital Securities under the
Trust Indenture Act of 1939, and any and all amendments (including post-
effective amendments) to such Registration Statement (including amendments to
Registration Statements originally filed on behalf of Trust I), and to file the
same, with all applications, statements and exhibits thereto, and all
preliminary prospectuses, prospectuses, prospectus supplements and documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-fact
and agents, or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Power
of Attorney on the 27th day of December, 1999.
- ---------------------------
John B. East
/s/ Raleigh O. Ward, Jr.
- ---------------------------
Raleigh O. Ward, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Wayne A. Boutwell, Jonathan A. Hawkins and N. Hopper Ancarrow, Jr., or
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (including without limitation in any capacity
on behalf of Southern States Cooperative, Inc. (the "Company"), Southern States
Capital Trust I ("Trust I") and/or Southern States Capital Trust II ("Trust II")
or as an officer, director or trustee thereof), to sign a Registration Statement
on Form S-1 for registration of up to $100,000,000 of ___% Capital Securities
(liquidation amount $25.00 per Capital Security) to be issued by Trust II (the
"Capital Securities"), for which registration was previously applied for by the
Company and Trust I but will be pursued by the Company and Trust II, and
qualification of any indenture relating to such Capital Securities under the
Trust Indenture Act of 1939, and any and all amendments (including post-
effective amendments) to such Registration Statement (including amendments to
Registration Statements originally filed on behalf of Trust I), and to file the
same, with all applications, statements and exhibits thereto, and all
preliminary prospectuses, prospectuses, prospectus supplements and documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-fact
and agents, or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Power
of Attorney on the 23rd day of December, 1999.
/s/ John B. East
- ---------------------
John B. East
- ---------------------
Raleigh O. Ward, Jr.
<PAGE>
EXHIBIT 25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM T-1
------------------------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2)
-----
-----------------------------------------
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
<TABLE>
<S> <C> <C>
230 SOUTH TRYON STREET, 9TH FL.
CHARLOTTE, NC 28288-1179 22-1147033
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
</TABLE>
Patricia A. Welling (804) 343-6067
800 East Main Street, Richmond, Virginia 23219
-------------------------------------------------
SOUTHERN STATES CAPITAL TRUST II
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware (Applied For)
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
6606 West Broad Street
P. O. Box 23264
Richmond, VA 23260
(Address of principal executive offices) (Zip Code)
-----------------------------------------------
Capital Securities of Southern States Capital Trust II
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1. General information.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market Regulation,
Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
3. Voting Securities of the Trustee.
Response not required.
(See answer to Item 13)
4. Trusteeships under other indentures.
Response not required.
(See answer to Item 13)
5. Interlocking directorates and similar relationships with the obligor or
underwriters.
Response not required.
(See answer to Item 13)
6. Voting securities of the Trustee owned by the obligor or its officials.
Response not required.
(See answer to Item 13)
7. Voting securities of the Trustee owned by underwriters or their officials.
Response not required.
(See answer to Item 13)
8. Securities of the obligor owned or held by the Trustee.
Response not required.
(See answer to Item 13)
2
<PAGE>
9. Securities of underwriters owned or held by the Trustee.
Response not required.
(See answer to Item 13)
10. Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
Response not required.
(See answer to Item 13)
11. Ownership or holdings by the Trustee of any securities of a person owning
50 percent or more of the voting securities of the obligor.
Response not required.
(See answer to Item 13)
12. Indebtedness of the obligor to the Trustee.
Response not required.
(See answer to Item 13)
13. Defaults by the obligor.
A. None
B. None
14. Affiliations with the underwriters.
Response not required.
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under the laws of
the United States.
16. List of Exhibits.
(1) *Articles of Incorporation.
(2) Certificate of Authority of the Trustee to conduct business. No
Certificate of Authority of the Trustee to commence business is
furnished since this authority is continued in the Articles of
Association of the Trustee.
3
<PAGE>
(3) *Certificate of Authority of the Trustee to exercise corporate trust
powers.
(4) *By-Laws.
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939 as amended. Included at Page 5 of this Form T-1
Statement.
(7) *Report of condition of Trustee. See Attached.
(8) Inapplicable.
(9) Inapplicable.
* Exhibits thus designated have heretofore been filed with the Securities
and Exchange Commission, have not been amended since filing are
incorporated herein by reference (See Exhibit T-1 Registration Number 333-
58547).
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this Statement of Eligibility and Qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Richmond, and in the Commonwealth of Virginia on the 17TH day of December,
-----
1999.
FIRST UNION NATIONAL BANK
(Trustee)
BY: /s/ Patricia A. Welling
-------------------------
Vice President
EXHIBIT T-1 (6)
CONSENT OF TRUSTEE
Under Section 321(b) of the Trust Indenture Act of 1939 and in
connection with the issuance by Southern States Capital Trust II of its Capital
Securities of Southern States Capital Trust II, First Union National Bank, as
the Trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION NATIONAL BANK
BY: /s/ John M. Turner
-------------------------
Vice President
Dated: December 17, 1999
-----------------
#585275v2
5
<PAGE>
REPORT OF CONDITION
Consolidating domestic subsidiaries of the
First Union National Bank Charlotte
Name of Bank City
in the state of North Carolina, at the close of business on September
30, 1999, published in response to call made by Comptroller of the
Currency, under title 12, United States Code, Section 161. Charter
Number 02737 Comptroller of the Currency Southeastern District
Statement of Resources and Liabilities
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
1 Cash and balances due from depository institutions:
<S> <C> <C>
a. Noninterest-bearing balances and currency and coin........................................... 8,946,000
b. Interest-bearing balances.................................................................... 266,000
2 Securities:
a. Held-to-maturity securities.................................................................. 1,644,000
b. Available-for-sale securities................................................................ 47,356,000
3 Federal funds sold and securities purchased under agmts to resell: 2,856,000
4 Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................. 132,839,000
b. LESS: Allowance for loan and lease losses................................ 1,743,000
c. LESS: Allocated transfer risk reserve.................................... 0
d. Loans and leases, net of unearned income, allowance, and reserve............................. 131,096,000
5 Assets held in trading accounts................................................................. 8,333,000
6 Premises and fixed assets (including capitalized leases)........................................ 3,070,000
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
7 Other real estate owned.............................................................................. 134,000
8 Investments in unconsolidated subsidiaries and associated companies.................................. 262,000
9 Customers' liability to this bank on acceptances outstanding......................................... 807,000
10 Intangible assets.................................................................................... 5,115,000
11 Other assets......................................................................................... 10,789,000
12 Total assets......................................................................................... 220,674,000
LIABILITIES
13 Deposits:
a. In domestic offices.............................................................................. 129,621,000
(1) Noninterest-bearing......................................................... 21,341,000
(2) Interest-bearing............................................................ 108,280,000
b. In foreign offices, Edge and Agmt subsidiaries, and IBFs.......................................... 9,838,000
(1) Noninterest-bearing........................................................................... 466,000
(2) Interest-bearing.............................................................................. 9,372,000
14 Federal funds purchased and securities sold under agmts to repurchase: 23,796,000
15 a. Demand notes issued to the U.S. Treasury.......................................................... 782,000
b. Trading liabilities............................................................................... 4,984,000
16 Other borrowed money:
a. With a remaining maturity of one year or less..................................................... 14,643,000
b. With a remaining maturity of more than one year through three years............................... 5,639,000
c. With a remaining maturity of more than three years 2,872,000
17 Not applicable
18 Bank's liability on acceptances executed and outstanding............................................. 807,000
19 Subordinated notes and debentures.................................................................... 4,269,000
20 Other liabilities.................................................................................... 6,515,000
21 Total liabilities.................................................................................... 203,766,000
22 Not applicable
</TABLE>
2
<PAGE>
EQUITY CAPITAL
<TABLE>
<S> <C>
23 Perpetual preferred stock and related surplus....................................................... 161,000
24 Common stock........................................................................................ 455,000
25 Surplus............................................................................................. 13,306,000
26 a. Undivided profits and capital reserves........................................................... 3,553,000
b. Net unrealized holding gains (losses) on available-for-sale securities........................... (562,000)
27 Cumulative foreign currency translation adjustments................................................. (5,000)
28 Total equity capital................................................................................ 16,908,000
29 Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21and 28)............................................................................ 220,674,000
</TABLE>
We, the undersigned directors, attest to the correctness of this
statement of resources and liabilities. We declare that it has been
examined by us, and to the best of our knowledge and belief has been
prepared in conformance with the instructions and is true and correct.
Directors I, Gary R. Sessions
----------------------
Edward E. Crutchfield Name
---------------------
G. Kennedy Thompson Vice President
------------------- ---------------
Mark C. Treanor Title
---------------
of the above-named bank
do hereby declare that
this Report of
Condition is true and
correct to the best of
my knowledge and
belief.
report.condition 9/30/99
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS INCOME
FILED AS PART OF THE INTERIM REPORT INCLUDED IN THE COMPANY'S FORM S-1 FOR THE
QUARTER ENDED SEPTEMBER 30, 1999.
</LEGEND>
<CIK> 0001100893
<NAME> SOUTHERN STATES CAPITAL TRUST II
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 20,901
<SECURITIES> 0
<RECEIVABLES> 111,445
<ALLOWANCES> 3,068
<INVENTORY> 224,693
<CURRENT-ASSETS> 375,113
<PP&E> 381,945
<DEPRECIATION> 194,055
<TOTAL-ASSETS> 695,076
<CURRENT-LIABILITIES> 217,834
<BONDS> 0
2,114
1,459
<COMMON> 12,114
<OTHER-SE> 157,233
<TOTAL-LIABILITY-AND-EQUITY> 695,076
<SALES> 287,005
<TOTAL-REVENUES> 292,531
<CGS> 232,090
<TOTAL-COSTS> 294,107
<OTHER-EXPENSES> 8,595
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,171)
<INCOME-TAX> (3,977)
<INCOME-CONTINUING> (10,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,590
<NET-INCOME> (4,604)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
