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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended February 28, 2003
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the transition period from to
Commission File Number: 000-19320
Ag Services of America, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42-1264455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1309 Technology Parkway, Cedar Falls, Iowa 50613
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(319)277-0261
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
Common Stock, no par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter)
is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark if the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act) [ ] Yes [X] No
The aggregate value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average bid and asked prices of the
Common Stock as of August 31, 2002 was $42,551,000.
As of May 12, 2003, 5,479,514 shares of the registrant's common
stock, no par value, were issued and outstanding. At that date,
there were 114 stockholders of record and approximately 2,000
stockholders for whom securities firms acted as nominees.
DOCUMENTS INCORPORATED BY REFERENCE
Herein the following documents are incorporated by reference:
Selected portions of the Registrant's Definitive Proxy Statement
for the annual shareholders' meeting are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS
Financial Information about Industry Segments
The Company is engaged in one industry segment - the supplying of a wide
range of farm inputs at competitive prices along with the credit to
finance these farm inputs through the crop growing cycle.
Narrative Description of Business
General:
Ag Services of America, Inc. (the "Company") was incorporated under the
laws of the state of Iowa in 1985. The Company's primary business is the
supply of farm inputs, including seed, fertilizer, agricultural chemicals,
crop insurance and cash advances for rent, fuel and irrigation, to farmers
through out the United States. The Company buys seed, fertilizer,
agricultural chemicals and other farm inputs from numerous national and
regional manufacturers, distributors and suppliers of seed, fertilizer
and agricultural chemicals. Farmers have traditionally purchased farm
inputs from one or more suppliers using credit from commercial banks,
the Farm Credit System, the FmHA or other agricultural lenders. The
Company extends credit and provides farmers the convenience of purchasing
and financing a wide varitey of farm inputs from a single source at
competitive prices. The Company's strategy has been to provide a
single source of farm inputs and the credit necessary to finance these
inputs through the growing cycle by taking a security interest in the
crop itself. This strategy is an attractive alternative to farmers
who have difficulty obtaining credit, who needed additional credit for
the expansion of existing operations and/or who wanted the convenience
of a single source of farm inputs, finance and product expertise.
The Company believes that its business strategy has been responsible for
its growth and has focused its efforts on the following principles:
* Supplying and financing a complete line of quality farm inputs from one
or more of numerous suppliers at competitive prices with prompt delivery.
* Providing customers with appropriate product selection and crop
production advice from the Company's product specialists.
* Providing detailed monthly statements to simplify the customer's
bookkeeping for all farm inputs purchased from the Company throughout
each growing season.
* Offering multi-peril crop insurance through the Company as a licensed
insurance agency.
* Visiting customers' farms to view crops and discuss harvest plans and
marketing strategies.
* Providing professional and personalized service throughout the entire
growing season to encourage renewed business each year.
* Selecting credit worthy and experienced customers.
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Principal Markets:
The Company's customers are currently located in 38 states. The Company's
principal target market is corn and soybean producers in the states of Iowa,
Minnesota, Nebraska, Illinois, Ohio, South Dakota, North Dakota, Texas and
Indiana.
Products and Suppliers:
The Company buys seed, fertilizer, agricultural chemicals and other farm inputs
from numerous manufacturers, distributors or dealers. These suppliers may
deliver the farm inputs directly to the Company's customers. The Company
negotiates the purchase price, discounts and trade credit annually with most
of these suppliers. During the year ended February 28, 2003 ("Fiscal 2003"),
the percentage of net revenues attributed to the sale of seed, agricultural
chemicals, fertilizer, financing income, customer fees and other income was
26.1%, 29.2%, 25.8%, 14.8%, 3.3% and 0.8%, respectively.
Seed. The Company currently buys seed from approximately 30 national and
regional seed companies. Seed company representatives as well as the
Company's account managers work directly with the Company's customers to
assist them in selecting specific hybrids and varieties of seed. The
Company sells seed at competitive prices and achieves its margin based
on standard industry discounts or negotiated volume discounts, if available.
Seed is delivered to the Company's customers directly by the seed
companies.
Agricultural Chemicals. The Company currently buys agricultural chemicals
from major distributors or suppliers. The Company sells agricultural
chemicals at competitive prices and achieves its margin based on dealer
discounts, negotiated pricing, manufacturers' rebates and opportunistic
purchasing. Agricultural chemicals are generally delivered directly to
the customer's farm by the distributor or through a dealer.
Fertilizer. The Company currently buys fertilizer from over 500 suppliers.
The Company sells fertilizer at competitive prices and achieves its
margin based on dealer discounts, negotiated pricing or opportunistic
purchasing. The Company purchases fertilizer using two alternative
methods, depending on the customer's needs. For those customers with
storage facilities to handle bulk dry materials, bulk fluids or anhydrous
ammonia, the Company may purchase the materials through major fertilizer
distribution terminals or manufacturers. These bulk materials may be
direct-shipped in truckload quantities to the customer's farm. Customers
without storage facilities can have the materials supplied by the Company,
which may enlist the delivery service of a local fertilizer dealer.
Customer Fees. Customer fees are primarily comprised of program fees charged
to customers and insurance commissions. Program fees are fees charged to
customer's accounts upon approval, net of estimated refunds. The Company
offers its customers multi-peril crop insurance as an agent, although
customers may also purchase multi-peril crop insurance from other insurance
agents. Through twenty-one of its employees, the Company is currently
licensed as an insurance agent in approximately 30 states. When customers
purchase the insurance through the Company's agent, the Company receives
a commission based on the premium amount.
Cash Rents, Fuel, Irrigation and Custom Application. The Company also
provides its customers with credit for cash rents, fuel, irrigation and
custom application costs. The amount of credit extended to customers for
these input costs is not reported as net revenue, but is an integral part
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of the complete financing package for the customer's crop input needs.
If a customer's farm acreage is leased, the landowner may require payment
of the annual rent before planting. Based on its credit policy and the
customer's needs, the Company may assist its customers with the advance
payment of all or a portion of these cash rents. The Company's customers
generally arrange their own fuel, irrigation and custom application needs
and the Company may, based on its credit policy, advance cash for a portion
or all of these costs.
Government Programs:
The two principal government programs affecting the Company's business
are government underwritten multi-peril crop insurance and the government's
farm subsidy program payments.
Multi-Peril Crop Insurance. The Company requires that its customers purchase
multi-peril crop insurance and assign the insurance coverage to the Company
as collateral for the credit extended by the Company to the customer.
Multi-peril crop insurance, while sold and administered in large part by
private companies, is currently underwritten by the Federal Crop Insurance
Corporation ("FCIC"), an agency of the United States Government. Current
multi-peril crop insurance generally covers crop losses for hail, wind,
drought, flood and certain other covered events.
While various forms of federal multi-peril crop insurance have been in
existence since 1938, federal farm policies and funding are subject to
periodic change, and there can be no assurance that the FCIC or any other
federal agency will continue to underwrite multi-peril crop insurance
on an ongoing basis. If the Company's customers were not able to obtain
multi-peril crop insurance through some combination of the FCIC or
domestic or foreign private insurance underwriters at a reasonable cost,
the Company would be required to seek alternative collateral from its
customers, which could have a material adverse affect on the Company's
net revenues. There can be no assurance that multi-peril crop insurance
will continue to be available to the Company's customers or, if available,
for a reasonable cost.
FSA "Farm Program" Payments. The United States Department of Agriculture,
through its Farm Service Agency ("FSA"), guarantees participating farmers
various forms of payments on "base acres" for various crops over the next
year under the Farm Security and Rural Investment Act of 2002
("2002 Farm Bill"). Corn, soybeans, wheat and certain other crops are
currently eligible under the FSA farm program. If a customer of the
Company participates in the FSA farm program, the Company may supplement
its security by obtaining an assignment of the customer's FSA "Farm Program"
payments. While various forms of federal support programs have been in
existence since 1933, federal farm policies and funding, including support
payments under the 2002 Farm Bill, are subject to periodic change, and
there can be no assurance that the FSA or any other federal agency will
continue to provide support programs on an ongoing basis. Prior to the
signing of the 2002 Farm Bill, the Federal Agriculture and Improvement
Act of 1995 was in effect.
Farm Input Pricing and Finance Charges:
The Company structures its pricing of farm inputs so that the net prices
paid by its customers who take advantage of the Company's payment discounts
are generally competitive with farm inputs purchased from other distributors
or suppliers. The Company charges its customers for farm inputs when provided.
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Finance charges on credit extended to a customer commence immediately for
cash rents provided by the Company and on the date shipped for other farm
input products sold by the Company to a customer. The Company establishes
and sets its interest rates each year based on the Company's estimate of
market conditions and anticipated interest costs over the year. For the
year ending February 28, 2004 ("Fiscal 2004"), the Company's customers
will be charged interest at a variable rate note at prime to 4.0% above
prime based on the credit worthiness of the customer. The variable rate
notes with customers may be subject to an "interest rate floor" which
locks in a minimum interest rate for customers ranging from 4.75% to 10.25%.
As of April 9, 2003, the current prime rate is 4.25% per annum as
published in the Midwest Edition of The Wall Street Journal.
Currently customer accounts, including all interest, are due by January 15th
for North accounts and January 31st for South accounts. The Company
currently assesses a 3.0% program fee based on the customer's established
credit limit and the customer can earn back all or part of the program fee
based on the following repayment dates for North accounts: 3.0% for customer
accounts paid off by December 1, 2.0% for customer accounts paid off by
December 21 and 1.0% for customer accounts paid off by January 15th. South
accounts, 3.0% for customer accounts paid off by December 18, 2.0% for
customer accounts paid off by January 8 and 1.0% for customer accounts paid
off by January 31st.
Customer Support:
The Company provides customers personalized service with their farm input
needs throughout the entire crop growing cycle. The Company's account
managers provide information on the availability and use of various
chemicals, fertilizers and seed, while the ultimate decision of product
choice is made by the customer. The Company's account managers discuss
with customers the efficient use of farm inputs, cost-effective fertility
and weed control programs, product availability, pricing and delivery.
When orders are received, the Company coordinates the customer's needs
and delivery requirements with the appropriate suppliers. The Company
also generally schedules at least one or two visits to the customer's
farm to inspect the growing crop and to discuss harvest plans and any
pertinent problems during the growing cycle. The Company provides
each customer a detailed monthly statement to simplify the customer's
bookkeeping for all farm inputs purchased from the Company throughout
each growing season.
Credit Policy and Customer Notes:
The Company has established a credit policy with procedures for credit
review and approval. Each new customer and customers from prior years
must provide financial and credit information to the Company. If a
customer is approved by the Company for credit, the Company will generally
extend credit from 80% to 95% of the insured value of that customer's
planned crop, based on his multi-peril insurance coverage. The Company
secures its position principally by obtaining a first lien position
on the crop and by receiving an assignment of the farmer's multi-peril
crop insurance and government farm program payments, if available.
For certain customers, the Company's lien on the crop might be
subordinate to one or more prior liens, which would directly reduce
the amount of credit available to that customer. The Company obtains
a current credit report or search to verify the priority of the
Company's lien. The Company also contacts customer references, and
for larger accounts, the Company may visit the prospective customer's
farm to review farm operations before extending credit.
-6-
In conjunction with the loans discussed above, the Company also offers
crop input-only financing on a limited basis and has a portfolio of
intermediate term loans. Crop input-only notes are typically
unsecured and are used by the Company's customers as a source for
financing seed, chemicals and/or fertilizer from various national
manufacturers and suppliers. Crop input-only notes are due in the
fall of the year following harvest. Intermediate term loans range
from one to five years in length and are secured with machinery
and equipment and/or real estate.
The Company's principal assets are its notes receivable from customers
who finance their purchase of farm inputs with the "AGriflex Credit"
program from the Company throughout the crop growing cycle. At
February 28, 2003 and February 28, 2002, the total outstanding customer
notes receivable were $281,250,000 and $268,747,000, respectively.
For the years ended February 28, 2003 and February 28, 2002, there
were no individual customers whose accounts were 5% or more of the
Company's total customer notes receivable at year-end.
Each customer account is assigned to an employee of the Company. The
accounts are monitored for collection, during harvest season, under
the supervision of the Company's account managers. The Company's
employees generally contact their respective assigned customers biweekly
during the harvest season. Through this process, the Company obtains
information from customers concerning crop yields, marketing strategy,
number of acres harvested and the location of the customers' stored
crops. If a customer has a claim under his multi-peril crop insurance,
the Company will take steps to assure that the claim has been properly
and timely filed. Under the Company's credit arrangements, when a
customer sells his crop, the customer is required to obtain the sale
proceeds by check, payable to both the customer and the Company, and
forward the check to the Company as endorsed by the customer. Upon
receipt of the check, the Company applies the proceeds as a payment on
the customer's account and forwards any overpayments to the customer.
The Company does not retain customer funds on deposit. If a customer
is to receive all or a portion of the value of his crop through a
multi-peril crop insurance claim or farm program payment, the collection
of that customer's account could be delayed pending receipt of those
payments.
Some customers may wish to store their crops for later sale, or for other
reasons may not pay their accounts in full when due. The Company monitors
and documents its collateral and collection position on all accounts on
an ongoing basis. The Company will informally extend the payment of a
customer's note receivable to accommodate a customer's crop marketing
requirements if the Company determines that there continues to be
sufficient collateral. Therefore, a customer's note receivable that
is past due may not be past due because of a customer's inability
to pay or collateral impairment. The amount of customer notes
receivable that were past due (including notes extended by the Company)
at February 28, 2003 and February 28, 2002 was $174,031,000 and
$140,364,000, respectively. The amount of past due customer notes
receivable increased slightly from 86.6% of net revenues in Fiscal 2002
to 87.9% in Fiscal 2003, primarily as a result of an increase in the
amount of customers utilizing an extended marketing cycle. This increase
in past due customer notes receivable was in line with the Company's
expectations. The increased dollar amount of past due customer notes
receivable has not had a material adverse affect on the Company's earnings,
and management does not believe that this increase will have a material
adverse affect on earnings or the Company's ability to supply and finance
farm inputs in the future.
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The Company also continually evaluates and classifies each customer account
based on collateral and expected timing of collection in determining its
allowance for doubtful notes. At February 28, 2003 and February 28, 2002,
the Company's allowance for doubtful notes was $12,300,000 and $9,500,000,
respectively.
Sales and Marketing:
The Company markets its Agriflex Credit program through advertising, including
direct mail and telemarketing, customer solicitation and referrals,
including cooperative marketing efforts with several major seed and
fertilizer suppliers which allow the Company to market its program
through their dealer networks. In addition, as of May 25, 2003, the
Company employs twenty-one full time salaried sales people. The sales
representatives identify prospective customers and assist in obtaining
customer information for the Company's credit review and approval.
After the Company has approved a customer, the Company's employees
begin to service the customer's account generally without assistance
from the sales representatives.
Powerfarm:
The Company continues to leverage its business model and use of its credit
products via the Internet through Powerfarm.com. The site highlights
Ag Services credit programs and allows farmers to apply for credit lines
electronically. In addition, existing customers have the ability to access
detailed account information 24 hours a day through the site.
Seasonal Factors:
The sale of farm inputs is seasonal with approximately 75% of revenues
being generated from March 1 through August 31 of each year.
Credit Facilities:
Due to the seasonality of the Company's revenues and the terms of its
customer notes receivable, the Company is required to finance the carrying
of its revenues as notes receivable for a majority of its fiscal year.
The Company's business and its growth are dependent on adequate credit
to finance its sales of farm inputs to farmers. The Company uses its
capital, trade credit and bank and commercial paper borrowings to finance
farm input purchases. The terms of the Company's trade credit vary for
each supplier and type of farm input and may require a lien on certain
assets of the Company.
In November 2002 the Company negotiated amendments to its asset backed
securitized financing program to extend the due date to May 2003, with
a subsequent extention to June 2003. This program is currently in a
wind down phase, which calls for an orderly collection of the notes
receivable and pay down of the outstanding borrowings. This facility
does not allow for the financing of 2003 Crop Year receivables. The
Company also maintains a $75 million revolving line of credit facility,
which was also amended in November 2002 to extend its due date to
March 31, 2003. Subsequent to year-end, this facility was reduced to
$65 million and extended to June 2003. This facility also does not
allow for the financing of 2003 Crop Year receivables. The Company
currently has a $200 million revolving line of credit for the 2003
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crop year that expires in December 2003. The maximum amount available
under the revolving line of credit is subject to a borrowing base
computation as provided by the agreement. The Company has also
negotiated participation agreements with two financial institutions
whereby these financial institutions can finance up to $23.0 million
in customer receivables. If the Company were not able to maintain a
sufficient line of credit or other credit facility, the Company would
not be able to finance sufficient sales of farm inputs, which would
have a material adverse affect on the Company's business and its growth.
(see "Risk Factors")
Competition:
The Company faces competition from many types of suppliers of farm
inputs, including manufacturers' dealers, independent distributors
and suppliers, and farm cooperatives. Farm input financing is
competitive and, in recent years, several large agricultural supply
companies have provided financing for various farm inputs. Many of
the Company's competitors are considerably larger and better
capitalized, and there can be no assurance that the Company will be
able to compete effectively against such competitors in the future.
Within this competitive environment, the Company competes
principally on the basis of its competitive pricing, broad range of
farm inputs offered and the convenience of its financing.
Major Customers:
The customer base is sufficiently broad that no customer accounts for
10% or more of the Company's revenues.
Backlog Orders:
Although the Company had approximately $101,014,000 in commitments
to supply farm input financing, there was no material sales backlog
as of February 28, 2003.
Government Regulation:
Farm input financing and cash advances are subject to certain state
laws governing money brokers, federal and states truth-in-lending
regulations, and state usury laws limiting interest rates for certain
types of customers. Additional laws and regulations could be
implemented in the future governing the Company's financing
activities for the sale of farm inputs and cash advances or other
aspects of the Company's business. Compliance with these laws and
regulations may adversely affect the Company's operations and costs.
The sale of certain farm inputs, including agricultural chemicals and
pesticides is subject to certain federal and state environmental rules
and regulations. The Company holds licenses necessary for the sale
of these products. The Company also serves as an agent for the sale
of multi-peril crop insurance and has twenty-seven employees with
the required insurance agent's license.
Employees:
As of February 28, 2003, the Company had 158 full time employees,
including eleven executive positions, four in product specialization
and distribution, fifty-four in credit review and approval, five in
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multi-peril crop insurance sales, eighteen in accounting and
administration, thirteen in information systems, fourteen in legal and
collection and thirty-nine in sales and marketing. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its relations with its employees to be good.
Subsequent to year end, the Company has taken certain cost cutting
measures in response to a smaller customer portfolio for the 2003
crop year. Among other cutbacks, the Company reduced its workforce
by approximately 30% in May 2003.
Company Website:
The Company maintains a website with the address www.agservices.com.
The Company is not including the information contained on its website
as part of, or incorporating it by reference into, this Annual Report
on Form 10-K. The Company makes available free of charge through its
website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, and amendments to these reports, as soon as
reasonably practicable after the Company electronically files such material
with, or furnishes such material to, the Securities and Exchange
Commission.
Risk Factors:
Availability of Credit to Finance Farm Inputs. The Company's principal
source of revenues, which accounted for at least 77% of net revenue
over the past three fiscal years, is the sale of farm inputs to farmers.
If a farmer does not have sufficient cash resources to cover farm
input costs until the sale of the crops after harvest, he must finance
his purchase of farm inputs throughout the crop growing cycle. To
facilitate the sale of farm inputs, the Company offers its customers
financing during the entire growing season for each crop. For the
fiscal years ended February 28, 2003, 2002 and 2001, the Company
financed its purchase of farm inputs from the following sources
in the respective percentages indicated: bank and corporate lines
of credit 82.5%, 78.6% and 79.2%; trade credit 3.9%, 3.3% and 4.3%;
and equity 13.6%, 18.1% and 16.5%. If the Company is not able to
obtain and maintain sufficient lines of credit, the Company would
not be able to finance sufficient sales of farm inputs, which would
have a material adverse effect on the Company's business.
As of May 15, 2003, the Company has arranged for financing for the 2003
crop year of approximately $220 million, which allows for customer
financing for the 2003 crop year of up to $255 million. This
compares to total 2002 crop year customer financing of approximately
$465 million. This credit facility and the revolving credit facility
(which financed 2002 crop loans and can not be used to fund 2003 crop
year loans) expire in June 2003 unless certain actions are taken,
including a capital investment as described below. There can be no
assurance the Company will be successful in securing additional
financing and, if financing is secured, it may be on terms less
favorable than current terms.
The Company is taking action in order to secure additional financing.
The Company has entered into a securities purchase agreement with
American Securities Capital Partners, L.P. (ASCP) whereby ASCP has
agreed to invest up to $70 million in capital in the Company, of
which $35 million would be immediately available. The Company
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believes this transaction will assist in arranging for the needed
financing. The securities purchase agreement is subject to certain
conditions, including shareholder approval. Finalization of this
transaction is not assured.
In the event that the ASCP transaction does not close and alternative
financing cannot be arranged, the Company may be left with limited
options. Failure to obtain new financing would materially impair the
Company's ability to continue operations under the normal course of
business and could have a material adverse impact upon the Company.
Security and Collection of Customer Notes Receivable. The Company's
principal asset is its notes receivable from customers who finance
their purchase of farm inputs from the Company throughout the crop
growing cycle. The Company currently secures its position principally
by obtaining a first lien position on the crop and by receiving an
assignment of the farmer's multi-peril crop insurance and an assignment
of government farm program payments, if available. For certain
customers, the Company's lien on the crop might be subordinate to one
or more prior liens. Agricultural co-ops and other suppliers of farm
inputs who provide financing for their particular brands of farm inputs
typically obtain a lien on the crop or assets sold but do not generally
require a lien on farm land or equipment. Since the Company finances
the purchase of farm inputs on a short-term basis through the crop
growing and marketing cycle, the Company also generally does not require
that customers provide a lien on farm land or equipment. Although
the Company's credit policies include taking action necessary to
preserve its lien and rights to a customer's crop, if the Company
fails to perfect its lien or if a customer commits fraud, including
the improper sale of crop to a bona fide purchaser, the Company may
have difficulty preserving its lien rights. In addition, if a farmer
does not engage in proper farming practices, the multi-peril crop
insurance may not be available.
The Company also has a portfolio of intermediate term loans with repayment
terms ranging from one to five years. These intermediate term loans
were used to finance machinery and equipment and/or real estate. The
Company typically takes a first lien position on the corresponding
collateral. In addition to the above financing programs the Company
also offers a crop-input only financing program whereby the Company
finances customers' purchases of seed, chemical and/or fertilizer only
from certain national manufacturers and suppliers. These notes are
typically unsecured and repayment terms are generally in fall of the
year following harvest.
The Company reviews its customer notes receivable monthly and classifies
each customer note receivable into one or more of the following five
classifications: "acceptable," "other loans especially mentioned (OLEM),"
"substandard," "doubtful" and "loss." Although the Company believes it
has made adequate provision in its Financial Statements for probable
losses on these receivables, the value of the Company's collateral may
fluctuate due to the variability of crop and fixed asset values over
time, which could adversely affect the adequacy of the Company's
reserve for doubtful notes.
From time to time, there is a concentration of large customer accounts.
If one or more large customer accounts does not repay their account in
full, this could have a material adverse effect on the earnings of the
Company.
Availability of Government Underwritten Multi-Peril Crop Insurance.
The Company currently secures its position principally by obtaining
a lien on the crop and by receiving an assignment of the farmer's
multi-peril crop insurance and government farm program payments, if
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available. Multi-peril crop insurance attaches only if the crop
is properly planted by a previously established date. If the insurance
underwriter determined that a farmer did not engage in proper farming
practices, or if a farmer did not plant his crop on a timely basis
(other than as a result from weather), multi-peril crop insurance
coverage could be denied. While various forms of federal multi-peril
crop insurance have been in existence since 1938, federal farm policies
and funding are subject to periodic change, and there can be no
assurance that the Federal Crop Insurance Corporation ("FCIC") or
any other federal agency will continue to underwrite multi-peril crop
insurance on an ongoing basis. If the Company's customers were not
able to obtain multi-peril crop insurance through some combination
of the FCIC or private insurance carriers at a reasonable cost, the
Company would be required to seek alternative collateral from its
customers, which could have a material adverse effect on the Company's
net revenues.
Reduction of Financing Volume. For the 2003 Crop Year the Company has
had to turn down a substantial amount of customers the Company previously
financed due to limitations in credit facilities. There is no assurance
that the Company will be able to get these customers back in the future
or be able to replace them with new customers. This reduction in
customer volume could have a material adverse effect on the
Company's business.
Agricultural Industry Cycles. Because all of the Company's customers
are engaged in farming, the Company is subject to weather and agricultural
industry cycles. The sale of farm inputs is seasonal based on the crop
growing cycle. Farm input costs, crop prices, interest rates and credit
availability for agricultural lending are all subject to fluctuations
from time to time based on market conditions, weather, and the United
States and world economics.
The agricultural crop production industry is currently going through a
consolidation phase which is reducing the number of viable farming
operations. Currently, this is increasing the demand for credit
throughout the industry. Further consolidation could change the need
for financing in agriculture in the future, which could have a material
adverse effect on the Company's net revenues.
Competition. Although the Company is not currently aware of other
companies which provide the same range of farm inputs and financing
currently provided by the Company, many different companies provide
one or more of the Company's products. The Company faces competition
from many types of suppliers of farm inputs, including manufacturers'
dealers, independent distributors and suppliers, and farm cooperatives.
Commercial banks, the Farm Credit System and other agricultural
lenders compete with the Company for farm input financing. Farm input
financing is competitive and, in recent years, several large
agricultural supply companies and cooperatives, including Pioneer Hi-Bred
International Inc., Deere Credit and Cenex/Land O'Lakes, have provided
financing for various farm inputs. Many of the Company's competitors
are considerably larger and better capitalized, and there can be no
assurance that the Company will be able to compete effectively against
its competitors in the future.
Dependence on Key Officers. The success of the Company is dependent
on its President, Henry C. Jungling, Jr., its Chairman of the Board,
Gaylen D. Miller, its Chief Executive Officer and Secretary,
Kevin D. Schipper and its Chief Operating Officer, Shawn R. Smeins.
The loss of the services of these officers could have a material
adverse effect on the business of the Company.
-12-
Government Regulation. Farm input financing, including cash advances,
is subject to certain state laws governing money brokers, federal and
state truth in lending regulations, and state usury laws limiting
interest rates for certain types of customers. The sale of certain
farm inputs, including agricultural chemicals and pesticides, is
subject to certain federal and state environmental rules and regulations.
The Company also is subject to insurance agency regulations for its
sale of multi-peril crop insurance. Additional laws and regulations
could be implemented in the future governing the Company's financing
activities for the sale of farm inputs, including cash advances, or
other aspects of the Company's business. Compliance with these laws
and regulations may adversely affect the Company's operations and costs.
ITEM 2. PROPERTIES
During Fiscal 2001 the Company was granted land by the City of
Cedar Falls, Iowa to construct new headquarters. The construction
of the Company's new corporate headquarters was completed in
February of 2002. The new headquarters, aggregating approximately
60,000 square feet, is located in Cedar Falls, Iowa. The land and
building are used as security for the Company's outstanding credit
agreements.
ITEM 3. LEGAL PROCEEDINGS
The Company is named in lawsuits in the ordinary course of its business.
Although it is not possible to predict the outcome of such lawsuits,
in the opinion of management the outcomes will not have a material
adverse effect on the financial condition of the Company. The Company
maintains insurance coverage that management believes is reasonable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is traded on the New York Stock Exchange
("NYSE"), under the symbol ASV. These quotations reflect prices
without retail markup, markdown or commissions and may not represent
actual transactions.
Quarterly Common Stock Prices
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2003
High $14.50 $13.15 $12.75 $8.50
Low $12.50 $9.81 $6.24 $6.61
2002
High $15.70 $16.15 $13.27 $14.00
Low $13.90 $12.70 $9.55 $10.00
-13-
Stockholders
As of February 28, 2003, the Company had 114 stockholders of record
and approximately 2,000 stockholders for whom securities firms acted
as nominees.
Dividends
The holders of common shares are entitled to receive dividends when
and as declared by the Board of Directors. However, other than
dividends paid prior to September 1989 to its then parent corporation,
which was subsequently merged into the Company, the Company has not
paid a cash dividend on its common stock. The Company does not
anticipate payment of any cash dividends in the foreseeable future
on its common stock. The Company presently intends to retain earnings
to finance growth. The Company's current borrowing agreements contain
covenants that prohibit the declaration or payment of dividends.
-14-
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
February February February February February
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Statement of Income Data:
Net revenues:
Farm inputs $160,482 $128,739 $130,067 $114,191 $87,886
Financing income 29,196 26,536 31,861 25,067 19,680
Customer fees 6,605 5,652 5,900 5,846 4,351
Other farm inputs 1,583 1,070 665 829 466
---------- ---------- ---------- ---------- ----------
Net revenues $197,866 $161,997 $168,493 $145,933 $112,383
---------- ---------- ---------- ---------- ----------
Cost of revenues:
Farm inputs $147,936 $119,098 $120,329 $104,937 $80,218
Financing expense 16,205 13,830 17,082 12,062 9,309
Provision for doubtful notes 9,068 7,485 6,266 5,421 4,021
---------- ---------- ---------- ---------- ----------
Net cost of revenues $173,209 $140,413 $143,677 $122,420 $93,548
---------- ---------- ---------- ---------- ----------
Income from continuing
operations before operating
expenses and income taxes $24,657 $21,584 $24,816 $23,513 $18,835
Operating expenses 15,265 12,679 12,799 10,556 8,374
---------- ---------- ---------- ---------- ----------
Income from continuing
operations before income
taxes $9,392 $8,905 $12,017 $12,957 $10,461
Income taxes 3,494 3,429 4,564 4,878 3,722
---------- ---------- ---------- ---------- ----------
Income from continuing
operations $5,898 $5,476 $7,453 $8,079 $6,739
Discontinued operations -- -- -- (469) (246)
---------- ---------- ---------- ---------- ----------
Net income $5,898 $5,476 $7,453 $7,610 $6,493
========== ========== ========== ========== ==========
Earnings per common share - Basic:
Income from continuing
operations $1.08 $1.01 $1.41 $1.54 $1.29
Discontinued operations -- -- -- (0.09) (0.04)
---------- ---------- ---------- ---------- ----------
Net income $1.08 $1.01 $1.41 $1.45 $1.25
========== ========== ========== ========== ==========
Earnings per common share - Diluted:
Income from continuing
operations $1.07 $1.00 $1.36 $1.48 $1.24
Discontinued operations -- -- -- (0.08) (0.04)
---------- ---------- ---------- ---------- ----------
Net income $1.07 $1.00 $1.36 $1.40 $1.20
========== ========== ========== ========== ==========
Cash dividends per share $-- $-- $-- $-- $--
========== ========== ========== ========== ==========
Weighted average shares:
Basic 5,477,277 5,415,104 5,271,069 5,232,895 5,203,976
========== ========== ========== ========== ==========
Diluted 5,494,366 5,489,755 5,490,109 5,453,478 5,430,781
========== ========== ========== ========== ==========
February February February February February
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Working capital $18,095 $19,138 $52,081 $45,139 $39,390
Total assets 282,668 273,801 221,240 164,328 134,644
Total debt 183,680 187,640 147,771 93,390 70,300
Stockholders' equity 77,711 71,467 66,178 58,436 50,537
Book Value Per Share: $14.18 $13.07 $12.53 $11.13 $9.70
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements of the Company, the related notes thereto and Selected Financial
Data included elsewhere in this Annual Report.
Financing and Going Concern Matters
The availability of lines of credit is essential to the Company's operations.
As of May 15, 2003, the Company has arranged for financing for the 2003 crop
year of approximately $220 million, which allows for customer financing for
the 2003 crop year of up to $255 million. This compares to total 2002 crop
year customer financing of approximately $465 million. This credit facility
and the revolving credit facility (which financed 2002 crop loans and can
not be used to fund 2003 crop year loans) expire in June 2003 unless
certain actions are taken, including a capital investment as described below.
There can be no assurance the Company will be successful in securing
additional financing and, if financing is secured, it may be on terms
less favorable than current terms.
The Company is taking action in order to secure additional financing. As
described below, the Company has entered into a securities purchase
agreement with American Securities Capital Partners, L.P. (ASCP) whereby
ASCP has agreed to invest up to $70 million in capital in the Company, of
which $35 million would be immediately available. The Company believes
this transaction will assist in arranging for the needed financing.
The securities purchase agreement is subject to certain conditions, including
shareholder approval. Finalization of this transaction is not assured.
In the event that the ASCP transaction does not close and alternative
financing cannot be arranged, the Company may be left with limited options.
Failure to obtain new financing would materially impair the Company's
ability to continue operations under the normal course of business and
could have a material adverse impact upon the Company.
The Company entered into a securities purchase agreement during February 2003
with ASCP, a New York private-equity investment firm, under which ASCP has
agreed to invest up to $70 million in the Company in exchange for convertible
preferred stock. The agreement contemplates that ASCP will contribute up
to $70 million in three annual installments; the first payment of $35 million
is subject, among other things, to satisfactory completion of due diligence,
the Company arranging for long-term financing and shareholder approval. The
second and third payments are conditional upon the Company achieving certain
economic thresholds. At this time, management does not believe it will meet
these economic thresholds. ASCP will have voting control of the Company
after the initial funding.
The parties are presently conducting due diligence, negotiating final terms
and documentation. If the transaction is consummated, current shareholders
will incur dilution. There can be no assurance at this time that this
-16-
investment will be consummated. The Company is considering various
alternatives in the event that the transaction is not completed.
In addition to the ASCP transaction, the Company has undertaken certain
actions to continue operations at a reduced level of revenue. The Company
is anticipating that the $220 million credit facility will allow for
customer financing for the 2003 crop year of up to $255 million as
compared to 2002 crop year financing of $465 million. Because of the
timing of these crop loans the Company will need to operate for the
2003 crop year on this lower level of activity. Management believes
that this level of activity will be adequate to sustain operations in
this transition year.
The Company has also implemented a cost reduction program which will help
to mitigate the effects of the reduced financing capabilities of the Company.
Among other cutbacks, the Company reduced its workforce by approximately
30% in May 2003. Management believes that it will be able to regain some
of the market share lost as a result of the inability to provide financing
to customers for the 2003 year. Management also believes that with the cost
reduction program that was implemented and the consummation of the ASCP
capital investment, the Company will be able to obtain long-term financing
without suffering irrecoverable losses due to the reduced lending
capabilities. No assurance can be given that the Company would be
successful in these efforts.
Critical Accounting Policies
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and disclosures included within this report,
are based on the Company's audited consolidated financial statements.
These statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
financial information contained in these statements is, for the most
part, based on approximate measures of the financial effects of
transactions and events that have already occurred. However, the
preparation of these statements requires management to make certain
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses.
The Company's significant accounting policies are described in the
"Notes to Consolidated Financial Statements". Based on its
consideration of accounting policies that involve the most complex
and subjective estimates and judgments, management has identified
its most critical accounting policy to be that related to the
allowance for doubtful notes.
The allowance for doubtful notes is established through a provision
for doubtful notes charged to expense. Loans are charged against
the allowance for doubtful notes when management believes that
collectibility of the customer receivable is unlikely. The Company
has policies and procedures for evaluating the overall credit
quality of its loan portfolio including timely identification of
potential problem credits. On a quarterly basis, management reviews
the appropriate level for the allowance for loan losses incorporating
a variety of risk considerations, both quantitative and qualitative.
Quantitative factors include the Company's historical loss
experience, delinquency and charge-off trends, collateral values,
known information about individual loans and other factors.
Qualitative factors include the general economic environment in
the Company's market area and the expected trend of those economic
conditions. To the extent actual results differ from forecasts
and management's judgment, the allowance for doubtful notes may be
greater or less than future charge-offs.
-17-
General
Net revenues increased 22% to $197.9 million for Fiscal 2003 as compared
to $162.0 million in Fiscal 2002. Net income increased 8% to $5.9 million
in 2003 from $5.5 million in 2002. The Company reported basic and diluted
earnings per share of $1.08 and $1.07 for Fiscal 2003, respectively,
compared to $1.01 and $1.00 per share, respectively, in Fiscal 2002.
Results of Operations
Selected Operating Results
The following table sets forth the dollars and percentages of net
revenues by the selected items in the Consolidated Statements of Income
of the Company.
Dollars (in thousands) and Percentage of Total Net Revenue
-----------------------------------------------------------
Year Ended Year Ended Year Ended
February 28, 2003 February 28, 2002 February 28, 2001
----------------- ----------------- -----------------
Net revenues:
Farm inputs $160,482 81.1% $128,739 79.4% $130,067 77.2%
Financing income 29,196 14.8% 26,536 16.4% 31,861 18.9%
Customer fees 6,605 3.3% 5,652 3.5% 5,900 3.5%
Other farm inputs 1,583 0.8% 1,070 0.7% 665 0.4%
--------- ------ --------- ------ --------- ------
Total net revenues $197,866 100.0% $161,997 100.0% $168,793 100.0%
--------- ------ --------- ------ --------- ------
Cost of revenues:
Farm inputs $147,936 74.8% $119,098 73.6% $120,329 71.5%
Financing expense 16,205 8.2% 13,830 8.5% 17,082 10.1%
Provision for
doubtful notes 9,068 4.6% 7,485 4.6% 6,266 3.7%
--------- ------ --------- ------ --------- ------
Total cost of
revenues $173,209 87.6% $140,413 86.7% $143,677 85.3%
--------- ------ --------- ------ --------- ------
Income before
operating expenses
and income taxes $24,657 12.4% $21,584 13.3% $24,816 14.7%
Operating expenses 15,265 7.7% 12,679 7.8% 12,799 7.6%
--------- ------ --------- ------ --------- ------
Income before
income taxes $9,392 4.7% $8,905 5.5% $12,017 7.1%
Income taxes 3,494 1.7% 3,429 2.1% 4,564 2.7%
--------- ------ --------- ------ --------- ------
Net income $5,898 3.0% $5,476 3.4% $7,453 4.4%
========= ====== ========= ====== ========= ======
Net Revenues
The Company reclassified its revenues in the current fiscal year to present
revenues associated with the cash advances for fuel, irrigation, land
rents and other farm inputs and revenues associated with the input only
program on a net reporting basis in contrast to the previously presented
-18-
gross reporting basis. All information provided in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
is based upon the new revenue reporting basis. The input only program
is a financing program provided by the Company for various suppliers and
manufacturers. The Company has decided to report its revenue in this
manner because it believes it is a preferable presentation under current
generally accepted accounting principles. This presentation has the
impact of reducing farm input revenues and cost of farm input revenues
from previously reported amounts by approximately $268.1 million,
$225.4 million and $177.2 million for the years ended February 28, 2003,
2002 and 2001, respectively. This presentation has no impact on future
or past earnings of the Company.
Net revenues in Fiscal 2003 increased 22% to $197.9 million, compared with
$162.0 million in 2002, and $168.5 million in 2001. The Company reached
record level of revenues in 2003 as a result of strong demand for the
Company's Agri-Flex Credit(R)Financing Program and an excellent spring
planting season in its primary market area. Financing income as a
percentage of net revenues decreased to 14.8% in Fiscal 2003 from 16.4%
in 2002 and 18.9% in 2001. The decrease in financing income as a
percentage of net revenues for Fiscal 2003 was primarily a result of a
decrease in the average prime lending rate over the prior year of
approximately 165 basis points, which is the base rate used by the
Company to charge interest on a variable rate basis to its customers.
The decrease in financing income as a percentage of net revenues for
Fiscal 2002 over Fiscal 2001 was primarily a result of a decrease in
the prime-lending rate by approximately 300 basis points. For the last
three fiscal years over 95% of the Company's customers have had
variable rate notes, which allows the Company to pass interest rate
risk onto its customers.
In addition to financing income, net revenues primarily consist of farm
inputs, including seed, agricultural chemicals and fertilizer. Customer
fees consist of program fees and insurance brokerage services.
Net revenue for the years ended February 28, 2003 and 2002 are
summarized below.
Net Revenues (Dollars in thousands) February 28, 2003 February 28, 2002
- ---------------------------------- ----------------- -----------------
Seeds $51,651 26.1% $37,235 23.0%
Chemicals 57,867 29.2% 47,687 29.4%
Fertilizers 50,964 25.8% 43,817 27.0%
Financing income 29,196 14.8% 26,536 16.4%
Customer fees 6,605 3.3% 5,652 3.5%
Other income 1,583 0.8% 1,070 0.7%
-------- ------ -------- ------
Net revenue $197,866 100.0% $161,997 100.0%
======== ====== ======== ======
Cost of Revenues
The total cost of revenues was 87.6% of net revenues for Fiscal 2003,
which increased from 86.7% of net revenues in 2002, which increased from
85.3% of net revenues in 2001. The increase in the total cost of revenues
as a percentage of net revenues in Fiscal 2003 was a result of increased
financing expenses. The gross margin on net revenues increased to 6.3%
in 2003 from 6.0% in 2002 and 5.8% in 2001 while the gross margin on
financing decreased to 6.6% in 2003 from 7.8% in 2002 and 8.8% in 2001.
The decrease in gross margin on financing is due to a decrease in the
average prime lending rate by approximately 165 basis points and to
-19-
additional fees and pricing increases paid by the Company in connection
with the extension of the Company's credit facilities. These fees and
increased pricing had the effect of raising the Company's cost of funds
by 112 basis points or approximately $3.7 million when compared to
Fiscal 2002. Financing expense, as a cost of revenue, is directly
affected by changes in the prevailing prime, LIBOR and commercial paper
interest rates under the Company's financing agreements. The Company
establishes interest rates for customers each year based on the Company's
anticipated financing expenses and competitive influences in the market.
For Fiscal 2003, 2002 and 2001, the Company offered variable rate notes
to customers ranging from prime to 4.0% above prime. The provision for
doubtful notes, as a percentage of net revenues, remained constant at
4.6% in Fiscal 2003 and 2002, increasing from 3.7% in Fiscal 2001.
Operating Expenses
Operating expenses have remained relatively constant at 7.7% of net
revenues in Fiscal 2003 as compared to 7.8% for Fiscal 2002, which
increased from 7.6% for Fiscal 2001. The increase in the dollar amount
of operating expenses is attributed to the Company's growth and increased
incentive compensation related to higher Company earnings.
Manpower expenses increased to $10.3 million in Fiscal 2003 from
$8.6 million in 2002 and $8.3 million in 2001. This is a result of
the Company adding employees as well as general wage rate increases
to existing employees and increased incentive compensation related
to higher Company earnings. The balance of the increase in operating
expenses is attributed to the Company's growth.
Net Income
Net income increased 8% to $5.9 million in Fiscal 2003, compared with
$5.5 million in 2002, which decreased from $7.5 million in 2001. The
increase in net income is primarily attributable to the increase in
volume of the Company's AgriFlex Credit program, which was offset by
additional financing expenses incurred by the Company during Fiscal 2003.
Powerfarm
The Company continues to leverage its business model and use of its credit
products via the Internet through Powerfarm.com. The site highlights
Ag Services credit programs and allows farmers to apply for credit
lines electronically. In addition, existing customers have the ability
to access detailed account information 24 hours a day through the site.
Seasonality
The Company's revenues and income are directly related to the growing
cycle for crops. Accordingly, quarterly revenues and income vary during
each fiscal year. The following table shows the Company's quarterly net
revenues and net income for Fiscal 2003 and 2002. This information is
derived from unaudited financial statements, which include, in the
opinion of management, all normal and recurring adjustments which
management considers necessary for a fair statement of results of
those periods. The operating results for any quarter are not
necessarily indicative of the results for any future period.
-20-
Fiscal 2003 Quarter Ended
--------------------------------------------------
May 31 August 31 November 30 February 28
-------- --------- ----------- -----------
(Dollars in Thousands)
Net revenues $75,245 $80,138 $18,466 $24,017
Net income $2,157 $2,502 $1,354 ($115)
Fiscal 2002 Quarter Ended
--------------------------------------------------
May 31 August 31 November 30 February 28
-------- --------- ----------- -----------
(Dollars in Thousands)
Net revenues $60,796 $60,517 $16,378 $24,306
Net income $1,834 $2,025 $1,297 $320
Inflation
The Company does not believe the Company's net revenues and income
from continuing operations were significantly impacted by inflation or
changing prices in Fiscal 2003, 2002, or 2001.
Adoption of Financial Accounting Standard
Effective March 1, 2001, the Company adopted FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 requires that all derivative financial instruments that qualify
for hedge accounting, such as interest rate swap contracts, be recognized
in the financial statements and measured at fair value regardless of the
purpose or intent for holding them. Changes in fair value of derivative
financial instruments are either recognized periodically in income or
stockholder's equity (as a component of comprehensive income), depending
on whether the derivative is being used to hedge changes in fair value or
cash flows. The adoption of FAS 133 did not have a material effect on
the primary financial statements, but did increase Fiscal 2003
comprehensive income by $0.2 million and reduced Fiscal 2002
comprehensive income by $1.4 million.
Liquidity and Capital Resources
Described below are various matters related to the Company's liquidity
and capital resources. This section should be read in conjunction with
the description of the Company's financing issues as described in
"Financing and Going Concern Matters".
Due to the seasonality of the Company's revenues and the terms of its
customer notes receivable, the Company is required to finance the carrying
of its revenues as customer notes receivable, for a majority of its fiscal
year. As a result, the Company's need for capital has increased
significantly due to its rapid growth. At February 28, 2003 and 2002,
the Company had approximately $101 million and $153 million respectively,
in commitments to supply farm inputs.
The Company has funded its operating requirements and growth through
a combination of retained earnings, equity capital, trade credit and bank
and commercial paper borrowings. For the Fiscal years ended
February 28, 2003, 2002 and 2001, the Company financed its purchase of farm
inputs from the following sources in the respective percentages indicated:
bank and commercial paper borrowings 82.5%, 78.6% and 79.2%; trade credit
3.9%, 3.3% and 4.3%; and equity 13.6%, 18.1% and 16.5%. The increase in
bank and commercial paper borrowings as a percentage of farm input purchases
was a result of the Company's ability to leverage its equity through the
-21-
more favorable terms of bank and commercial paper borrowings. Capital
expenditures have been financed through bank borrowings. The Company's
principal source of working capital has been bank and commercial paper
borrowings, retained earnings, a $2.5 million sale of common stock by
the Company in April 1990, the $4.7 million from its initial public
offering of common stock in August 1991, and the $12.9 million from
its convertible subordinated debenture offering in April 1993, which
was converted to common stock in Fiscal 1997.
At February 28, 2003 the Company had working capital of $18.1 million,
a decrease of $1.0 million since February 28, 2002. The components
of this net decrease, since February 28, 2002, were (i) $1.0 million
decrease resulting from operating activities, consisting of
approximately $5.9 million in net income, $0.7 million in depreciation,
$1.6 million in amortization, and the remainder from a net change in
other working capital items, (ii) capital expenditures of approximately
$1.3 million related to the acquisition of equipment and furniture
and offset by (iii) net proceeds of $0.1 million from the issuance
of common stock upon exercise of options.
The Company negotiated a $200 million revolving line of credit for
the 2003 Crop Year that expires in December 2003. The terms of the
agreement allow for two variable interest rate alternatives based on
LIBOR or prime (current effective rates range from 3.875% to 5.50% at
February 28, 2003). The total amount outstanding under the revolving
line of credit at February 28, 2003 was $57.1 million.
At February 28, 2003 the Company had a maximum amount available under
the line of credit of approximately $2.8 million based on a borrowing
base computation provided by the agreement. This line of credit
contains a provision which accelerates the due date to June 15, 2003
in the event the Company does not receive an equity investment from ASCP.
The Company anticipates that it will not meet this provision and the
line of credit will be extended to meet the timing of the expected ASCP
equity investment. There can be no assurance that the Company will get
this extension.
The Company has negotiated amendments to its asset backed securitized
financing program to extend the due date to June 2003 from November 2002.
This facility does not allow for the financing of 2003 Crop Year
receivables. This program is currently in a wind down phase, which
calls for an orderly collection of the notes receivable and pay down
of the outstanding borrowings. Ag Acceptance (the Company's wholly-owned,
special purpose corporation) pledges its interest in these notes receivable
to a commercial paper market conduit entity which incurs interest at
variable rates in the commercial paper market (current effective rates
range from 1.27% to 1.31% at February 28, 2003) and the remaining portion
is a term note with interest at a variable cost of LIBOR plus 50 basis
points (current effective rate is 1.83% at February 28, 2003). The total
outstanding under the asset backed securitized financing program at
February 28, 2003 and 2002 was $52.4 million and $132.5 million, respectively.
The Company's $75 million revolving line of credit facility was also
amended in November 2002 to extend its due date to March 31, 2003.
Subsequent to year-end, this facility was reduced to $65 million and
extended to June 2003. This facility also does not allow for the
financing of 2003 Crop Year receivables. Additional terms of the
agreement allow a variable interest rate based on prime (current
effective rate is 7.25% at February 28, 2003). The total outstanding
under this facility at February 28, 2003 and 2002 was $53.5 million and
$45.0 million, respectively.
-22-
All borrowings are collateralized by substantially all assets of
the Company. The agreements as discussed above contain various
restrictive covenants, including, among others, restrictions on mergers,
issuance of stock, declaration or payment of dividends, transactions
with affiliates, loans to stockholders, and requirements that the
Company maintain certain levels of equity and pretax earnings. These
restrictions are in effect unless written consent is obtained.
Advances under the agreements are also subject to portfolio performance,
financial covenant restrictions, and borrowing base calculations. The
Company was in violation of one covenant at February 28, 2003, however,
the note holders have waived this violation.
In June 2002, the Company negotiated a credit facility with a financial
institution whereby the Company participates certain customer notes
receivable to this institution effective through January 2004. Advances
and repayments under this credit agreement are based on and collateralized
by the performance of these customer notes receivable. This agreement
accrues interest based on the variable interest rates of the underlying
customer notes receivables ranging from prime to 2.5% over prime (current
effective rates range from 4.25% to 6.75%). At February 28, 2003 the
Company had $11.6 million outstanding under the agreement.
The Company has a credit agreement whereby the Company may borrow up
to $3.8 million, with a declining balance provision, on a revolving line
of credit through April 2022. This credit agreement was used to finance
the Company's corporate headquarters at a fixed interest rate of 5.74%
through November 2006. At February 28, 2003 and 2002, the Company had
$2.8 million and $3.5 million, respectively, outstanding under the credit
agreement. The agreement also contains various restrictive financial
covenants.
In February 2002, three executive officers of the Company, who are
also the original founders of the Company, loaned an aggregate of
$4.4 million to the Company. The due date has been extended to June 2003.
The Company makes monthly interest payments to these officers at a variable
interest rate of 0.5% below the prime rate (current effective rate is 3.75%
at February 28, 2003). These notes are collateralized by a second mortgage
on the Company's corporate headquarters.
The Company maintains an interest-rate risk-management strategy that
uses derivative instruments to minimize significant, unanticipated earnings
fluctuations caused by interest rate volatility. The Company's specific
goal is to lower (where possible) the cost of its borrowed funds.
In July 2000, the Company entered into an interest rate swap agreement
with an original notional amount of $30 million. The current notional amount
of $22.5 million decreases by $7.5 million annually in each July 2003, 2004
and 2005. The swap is utilized to manage interest rate exposures and is
designated as a cash flow hedge. The swap agreement is a variable
receive/fixed pay swap, which expires in July 2005 and has the effect of
converting the interest rate paid on the notional amount of the Company's
variable rate debt to a fixed rate of 9.78%. The differential to be paid
or received on the swap agreement is recognized and accrued over the life
of the agreement as other comprehensive income based on the remaining
outstanding notional amount or changes in interest rates. Included in other
comprehensive income at February 28, 2003 and 2002 is a loss of approximately
-23-
$1.2 million and $1.4 million, respectively. The difference between the
Company's actual variable interest expense and 9.78% on the notional amount
for the next twelve months is reclassified from other comprehensive income
and recognized as interest expense.
Quantitative and Qualitative Disclosures About Market Risk
At February 28, 2003, the Company had $183.7 million outstanding in notes
payable at an average variable interest rate of 4.87%. The Company has
an interest rate swap which effectively converts $30 million of this variable
rate debt to a fixed rate instrument. The Company also has a building loan
with a fixed rate of interest. After considering the effect of the swap
and the building loan, the Company has floating rate debt of $156.5 million
at a variable interest rate of 4.15%. A 10% increase in the average
variable interest rate would increase interest expense by approximately
41 basis points. Assuming similar average outstanding borrowings for
Fiscal 2002 of $331 million, this would increase the Company's interest
expense by approximately $1,357,000.
The above sensitivity analysis is to provide information about the
Company's potential market risks as they pertain to an adverse change in
interest rates. The above analysis excludes the positive impact that
increased interest rates would have on financing income as more than 95%
of the Company's notes receivable are variable rate notes.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995
Information contained in this report, other than historical information,
should be considered forward looking, which reflect Management's current
views of future events and financial performance that involve a number of
risks and uncertainties. The factors that could cause actual results to
differ materially include, but are not limited to, the following: general
economic conditions within the agricultural industry; competitive factors
and pricing pressures; changes in product mix; changes in the seasonality
of demand patterns; changes in weather conditions; changes in agricultural
regulations; and other risks detailed in the Company's Securities and
Exchange Commission filings.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At February 28, 2003 the Company had $183.7 million outstanding in
notes payable at an average variable interest rate of 4.87%. The
Company has an interest rate swap which effectively converts
$22.5 million of this variable rate debt to a fixed rate instrument.
The Company also has a building loan with a fixed rate of interest.
After considering the effect of the swap and the building loan,
the Company has floating rate debt of $156.5 million at a variable
interest rate of 4.15%. A 10% increase in the average variable
interest rate would increase interest expense by approximately 41 basis
points. Assuming similar average variable rate outstanding borrowings
for Fiscal 2003 of $331 million, the Company's interest expense would
increase by approximately $1,357,000.
The above sensitivity analysis is to provide information about the
Company's potential market risks as they pertain to an adverse change
in interest rates. The above analysis excludes the positive impact
that increased interest rates would have on financing income, as 95%
of the Company's notes receivable are variable rate notes.
-24-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules set forth in Item 16.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
with the Company's independent public accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
The name, age and office(s) held by each of the Registrant's executive
officers are shown below. Each of the executive officers listed below
serves at the pleasure of the Board of Directors, except Messrs. Jungling,
Miller and Schipper who have entered into employment agreements with the
Registrant effective through July 1, 2005. The Company has also entered
into an employment agreement with Mr. Smeins through August 1, 2005.
Name Age Position With the Company
- --------------------------- ---- ------------------------------
Henry C. Jungling, Jr. (1) 56 President
Gaylen D. Miller (1) 54 Chairman of the Board
Kevin D. Schipper (1) 43 Chief Executive Officer and Secretary
Shawn R. Smeins (1) 35 Chief Operating Officer
John T. Roth (2) 31 Vice President Finance and Treasurer
Todd J. Ryan (1) 40 Vice President Sales and Marketing
Eunice M. Schipper (1) 61 Vice President Credit
Neil H. Stadlman (1) 57 Vice President Credit Administration
Lisa M. Meester (1) 43 Vice President Information Systems
Bruce Nelson (1) 52 Vice President Collections
Jamey Ross (1) 31 Vice President Products and Distribution
Linda Kobliska (1) 47 General Counsel
Tad Mozena (1) 35 VP Marketing & Public Relations -
Powerfarm, Inc.
(1) These executive officers of the Registrant have been an employee of the
Company in varying capacities for more than the past five years.
(2) Mr. Roth has been employed by the Company in varying capacities since
October 1998. Before joining the Company, Mr. Roth was a CPA with
McGladrey and Pullen, LLP, a public accounting firm, from July 1995
through October 1998. McGladrey and Pullen, LLP is the Company's
independent auditor.
-25-
The balance of the information regarding directors and executive officers
of the Company is set forth in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item is set forth in the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders and is incorporated
herein by reference.
Number of securities
Number of securities remaining available for
to be issued Weighted-average future issuance under
upon exercise of exercise price of equity, compensation plans
outstanding options, outstanding options (excluding securities
Plan category warrants and rights warrants and rights Reflected in column (a))
- ----------------------------------- ----------------------- ------------------- --------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 307,190 $13.40 246,925
Equity compensation plans
not approved by security holders -- -- --
---------------------- ------------------- ---------------------------
Total 307,190 $13.40 246,925
====================== =================== ===========================
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth in the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
During the 90-day period prior to the filing date of this report, management,
including the Company's President, Chief Executive Officer and Treasurer,
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon, and as of the date of that
evaluation, the President, Chief Executive Officer and Treasurer concluded
that the disclosure controls and procedures were effective, in all material
respects, to ensure that information required to be disclosed in the
reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
There have been no significant changes in the Company's internal controls or
in other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation. There were
no significant deficiencies or material weaknesses identified in the
evaluation and therefore, no corrective actions were taken.
-26-
PART IV
ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) - Financial Statements
(a)(2) - Financial Statement Schedules
(a)(3)and (c) - Exhibits
(b) - Reports on Form 8-K
No reports on Form 8-K were filed in the last quarter of the period covered
by this Form 10-K.
-27-
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following index is submitted in response to Item 15:
Page
Reference
-----------
FINANCIAL STATEMENTS
Report of Independent Public Accountants 31
Consolidated balance sheets, February 28,
2003 and 2002 32
Consolidated statements of income, years
ended February 28, 2003, 2002
and 2001 33
Consolidated statements of stockholders'
equity, years ended February 28, 2003,
2002 and 2001 34
Consolidated statements of cash flows, years
ended February 28, 2003, 2002
and 2001 35
Notes to consolidated financial statements 36-59
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants 29
Schedule II Valuation and Qualifying Accounts 30
EXHIBITS
See Index of Exhibits on pages 65-66.
-28-
McGLADREY & PULLEN, LLP
Certified Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
Ag Services of America, Inc.
Cedar Falls, Iowa
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purpose of complying with the
Securities and Exchange Commission's rules and is not a part of the
basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated
financial statements taken as a whole.
Our report covering the basic consolidated financial statements indicates
that there is substantial doubt as to the Company's ability to continue as
a going concern, the outcome of which cannot presently be determined and
that the financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Des Moines, Iowa
April 8, 2003
McGladrey & Pullen, LLP is an independent member firm of
RSM International, an affiliation of independent accounting
and consulting firms.
-29-
AG SERVICES OF AMERICA, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- --------------------------------- ------------- ------------------------------ --------------- --------------
Additions
------------------------------
(2)
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions - End of
Description of Perod Expenses Describe Describe Period
- --------------------------------- ------------- -------------- --------------- --------------- --------------
Year ended February 28, 2003:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $9,500,000 $9,068,129 $6,268,129 (1) $12,300,000
Reserve for discounts $5,100,000 $9,176,439 (2) $8,476,439 (3) $5,800,000
Year ended February 28, 2002:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $7,300,000 $7,485,110 $5,285,110 (1) $9,500,000
Reserve for discounts $4,150,000 $7,490,381 (2) $6,540,381 (3) $5,100,000
Year ended February 28, 2001:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $4,550,000 $6,266,196 $3,516,196 (1) $7,300,000
Reserve for discounts $2,700,000 $7,019,085 (2) $5,569,085 (3) $4,150,000
(1) Uncollectible customer notes receivable written off, net of recoveries.
(2) Provision for discounts as a reduction of revenues.
(3) Cash discounts taken.
-30-
McGladrey & Pullen, LLP
Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ag Services of America, Inc.
Cedar Falls, Iowa
We have audited the accompanying consolidated balance sheets of Ag Services
of America, Inc. as of February 28, 2003 and 2002, and the related
consolidated statements of income, stockholders' equity and cash flows
for the years ended February 28, 2003, 2002, and 2001. 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 auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Ag Services of America, Inc. as of February 28, 2003 and 2002, and the
results of its operations and its cash flows for the years ended
February 28, 2003, 2002, and 2001 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 4
to the financial statements, the Company depends on lines of credit to
finance its operations and has been unable to secure long term financing
beyond June 2003. As described in Note 2, the Company has entered into an
agreement to raise additional equity and is pursuing the acquisition of
long term financing, however, if the Company is unable to obtain new financing,
it may be unable to repay its debts in the normal course of business,
and continue normal operations. This raises substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
As explained in Note 1 to the consolidated financial statements, the
consolidated statements of income for 2002 and 2001 have been reclassified
to present certain farm inputs revenue and cost of revenue on a net basis
rather than on a gross basis.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Des Moines, Iowa
April 8, 2003
McGladrey & Pullen, LLP is an independent member firm of
RSM International, an affiliation of independent accounting
and consulting firms.
-31-
AG SERVICES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
February 28, 2003 and February 28, 2002
(Dollars in Thousands)
ASSETS (Note 4) 2003 2002
----------- -----------
CURRENT ASSETS
Cash $8 $42
Customer notes receivable, less allowance for
doubtful notes and reserve for discounts
2003 $12,892; 2002 $10,521 (Notes 3) 209,732 202,981
Inventory and other assets 2,714 3,466
Foreclosed assets held for sale 2,266 2,314
Prepaid income taxes -- 735
Deferred income taxes, net (Note 6) 5,524 4,030
----------- -----------
Total current assets $220,244 $213,568
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes 2003 $5,208; 2002 $4,079
(Note 3) $53,418 $51,166
Deferred financing costs, less accumulated
amortization 2003 $2,090; 2002 $513 367 598
Deferred income taxes, net (Note 6) 1,926 2,335
----------- -----------
$55,711 $54,099
----------- -----------
PROPERTY AND EQUIPMENT
Land and building, less accumulated
depreciation 2003 $137; 2002 none $5,387 $5,316
Equipment, less accumulated depreciation
2003 $2,087; 2002 $1,675 1,326 818
----------- -----------
$6,713 $6,134
----------- -----------
$282,668 $273,801
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, inluding current maturities
(Note 4) $180,872 $179,736
Outstanding checks in excess of bank balances 16,488 10,723
Accounts payable 1,037 1,738
Accrued expenses, including due to officers
2003 $932; 2002 $257 3,584 2,233
Income taxes payable 168 --
----------- -----------
Total current liabilities $202,149 $194,430
----------- -----------
LONG-TERM LIABILITIES (Note 4) $2,808 $7,904
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 8)
STOCKHOLDERS' EQUITY (Note 4)
Capital stock, common, no par or stated value;
authorized 10,000,000 shares; issued 2003
5,479,514 shares; 2002 5,468,864 shares
(Notes 7 and 9) $24,499 $24,396
Retained earnings 54,379 48,481
Accumulated other comprehensive income(loss) (1,167) (1,410)
----------- -----------
$77,711 $71,467
----------- -----------
$282,668 $273,801
=========== ===========
See Notes to Consolidated Financial Statements.
-32-
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended February 28, 2003, 2002, and 2001
(Dollars in Thousands, Except Per Share Amounts)
2003 2002 2001
----------- ----------- -----------
Net revenues:
Farm inputs $160,482 $128,739 $130,067
Financing income 29,196 26,536 31,861
Customer fees 6,605 5,652 5,900
Other 1,583 1,070 665
----------- ----------- -----------
$197,866 $161,997 $168,493
----------- ----------- -----------
Cost of revenues:
Farm inputs $147,936 $119,098 $120,329
Financing expense 16,205 13,830 17,082
Provision for doubtful notes
(Note 3) 9,068 7,485 6,266
----------- ----------- -----------
$173,209 $140,413 $143,677
----------- ----------- -----------
$24,657 $21,584 $24,816
Operating expenses (Notes 5 and 8) 15,265 12,679 12,799
----------- ----------- -----------
Income before income taxes $9,392 $8,905 $12,017
Income taxes (Note 6) 3,494 3,429 4,564
----------- ----------- -----------
Net income $5,898 $5,476 $7,453
=========== =========== ===========
Earnings per share (Notes 1 and 9):
Basic $1.08 $1.01 $1.41
=========== =========== ===========
Diluted $1.07 $1.00 $1.36
=========== =========== ===========
Weighted average shares (Notes 1 and 9):
Basic 5,477,277 5,415,104 5,271,069
=========== =========== ===========
Diluted 5,494,366 5,489,755 5,490,109
=========== =========== ===========
See Notes to Consolidated Financial Statements.
-33-
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended February 28, 2003, 2002, and 2001
(Dollars in Thousands)
Capital Stock
-------------------
Accumulated
Other
Shares Retained Comprehensive Comprehensive
Issued Amount Earnings Income (Loss) Total Income
------------ ------------ ------------ ------------ ------------ ------------
Balance, February 29, 2000 5,249,039 $22,884 $35,552 $-- $58,436
Comprehensive income:
Net income -- -- 7,453 -- 7,453 $7,453
============
Issuance of capital stock
upon the exercise of
options (Note 7) 31,525 278 -- -- 278
Issuance of capital stock
under stock purchase plan
(Note 7) 500 11 -- -- 11
------------ ------------ ------------ ------------ ------------
Balance, February 28, 2001 5,281,064 $23,173 $43,005 $-- $66,178
Comprehensive income:
Net income -- -- 5,476 -- 5,476 5,476
Other comprehensive income
(loss), net of tax
Interest rate swap (Note 4):
Cumulative effect of the
change in accounting
principle -- -- -- (1,313) (1,313) (1,313)
Change for the year -- -- -- (97) (97) (97)
------------
Total comprehensive income $4,066
============
Issuance of capital stock
upon the exercise of
options (Note 7) 187,700 717 -- -- 717
Tax benefit from employee
stock options exercised -- 505 -- -- 505
Issuance of capital stock
under stock purchase plan
(Note 7) 100 1 -- -- 1
------------ ------------ ------------ ------------ ------------
Balance, February 28, 2002 5,468,864 $24,396 $48,481 ($1,410) $71,467
Comprehensive income:
Net income -- -- 5,898 -- 5,898 5,898
Other comprehensive income
(loss), net of tax
Interest rate swap (Note 4):
Change for the year -- -- -- 243 243 243
------------
Total comprehensive income $6,141
============
Issuance of capital stock
upon the exercise of
options (Note 7) 10,550 80 -- -- 80
Tax benefit from employee
stock options exercised -- 22 -- -- 22
Issuance of capital stock
under stock purchase plan
(Note 7) 100 1 -- -- 1
============ ============ ============ ============ ============
Balance, February 28, 2003 5,479,514 $24,499 $54,379 ($1,167) $77,711
============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements.
-34-
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 28, 2003, 2002 and 2001
(Dollars in Thousands)
2003 2002 2001
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $5,898 $5,476 $7,453
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 681 486 485
Amortization 1,577 344 300
Deferred income taxes (1,225) (1,470) (1,858)
(Gain)loss on sale of equipment
and foreclosed assets 42 149 (62)
Change in assets and liabilities:
(Increase) in customer notes
receivable (9,003) (50,104) (52,333)
(Increase)decrease in inventory
and other assets 752 3,234 (1,837)
(Increase)decrease in prepaid and
income taxes payable 925 (500) 1,192
Increase (decrease) in accounts
payable and accrued expenses 650 884 (456)
----------- ----------- -----------
Net cash provided by(used in)
operating activities $297 ($41,501) ($47,116)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment $59 $126 $224
Purchase of building and equipment (1,316) (4,682) (778)
Proceeds from sale of foreclosed assets
held for sale 364 1,916 296
Purchase of foreclosed assets held
for sale (361) (994) (810)
----------- ----------- -----------
Net cash (used in) investing
activities ($1,254) ($3,634) ($1,068)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $486,770 $4,404 $31,450
Principal payments on short-term
borrowings (489,655) -- (49,350)
Proceeds from long-term borrowings 6,576 362,572 288,663
Principal payments on long-term
borrowings (7,268) (329,342) (216,382)
Increase (decrease) in excess of
outstanding checks over bank balances 5,765 6,789 (5,900)
Deferred financing costs (1,346) (25) (570)
Proceeds from issuance of
capital stock, net (Note 7) 81 718 289
----------- ----------- -----------
Net cash provided by financing
activities $923 $45,116 $48,200
----------- ----------- -----------
Increase (decrease) in cash ($34) ($19) $16
CASH
Beginning 42 61 45
----------- ----------- -----------
Ending $8 $42 $61
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $14,529 $13,415 $16,635
Income taxes $3,794 $5,399 $3,372
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Deferred revenue on donated land -- -- $875
Customer notes receivable transferred
to foreclosed assets held for resale -- $1,355 $292
See Notes to Consolidated Financial Statements.
-35-
AG SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
The Company's operations consist primarily of the retail sale of farm
inputs to agricultural producers located throughout the United States
through direct financing of these farm inputs on credit terms that the
Company establishes for its customers.
Basis of presentation:
The consolidated financial statements include the accounts of Ag Services
of America, Inc. (the Company) and its subsidiaries, Ag Acceptance
Corporation and Powerfarm, Inc., which are wholly-owned. All material
intercompany balances and transactions have been eliminated in
consolidation.
Unless otherwise noted, all dollar amounts presented are in thousands
except per share amounts.
Accounting estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reported period. Actual
results could differ from those estimates. A material estimate that is
particularly susceptible to significant change in the near term relates
to the determination of the allowance for doubtful notes.
Significant accounting policies:
Revenue recognition and seasonal nature of business:
The Company recognizes revenue from the sales of farm inputs such as seed,
fertilizer and agricultural chemicals upon delivery to the customers.
Customer fees consist of program fees and insurance brokerage services.
Program fees are recognized at estimated realizable amounts as the
services are performed. Insurance brokerage revenues, also classified
as customer fees, are recognized generally on the effective date of the
policies or on the billing date, whichever is later. During the three
years ended February 28, 2003, 2002 and 2001, the percentage of net
revenues attributable to the sale of seed, fertilizer, agricultural
chemicals, customer fees and financing income was as follows.
2003 2002 2001
---------- ---------- ----------
Seed 26.1% 23.0% 22.7%
Chemicals 29.2% 29.4% 28.7%
Fertilizer 25.8% 27.0% 25.7%
Customer fees 3.3% 3.5% 3.5%
Financing 14.8% 16.4% 18.9%
Other 0.8% 0.7% 0.5%
---------- ---------- ----------
Total 100.0% 100.0% 100.0%
========== ========== ==========
-36-
The Company decided in the current fiscal year to present revenues
associated with the cash advances for fuel, irrigation, land rents and
other farm inputs and revenues associated with the input only program
on a net reporting basis in contrast to the previously presented gross
reporting basis. The input only program is a financing program provided
by the Company for various suppliers and manufacturers. The Company has
decided to report its revenue in this manner because it believes it is
a preferable presentation under current generally accepted accounting
principles. This presentation has the impact of reducing farm input
revenues and cost of farm input revenues from previously reported amounts
by approximately $268,104, $225,359 and $177,160 for the years ended
February 28, 2003, 2002 and 2001, respectively. This change of
presentation has no impact on future or past earnings of the Company.
The income statement for the years ended February 28, 2002 and 2001
have been reclassified for this change in presentation.
Presented below is the revenue that would have been included in the
statements of income under the previous presentation.
2003 2002 2001
---------- ---------- ----------
Farm input revenue $430,169 $355,168 $307,892
Financing income 29,196 26,536 31,861
Customer fees 6,605 5,652 5,900
---------- ---------- ----------
Total income $465,970 $387,356 $345,653
========== ========== ==========
Financing income on customer notes receivable is accrued based upon the
outstanding principal balance of the underlying note. The accrual of
interest is discontinued on a note when management believes, after
considering collection efforts and other factors, that the customer's
financial condition is such that collection of interest is doubtful.
When previously accrued interest is deemed to be uncollectible, such
amount is charged to the allowance for doubtful notes. No interest
income is recognized on those notes until the principal balance has
been collected.
Due to the nature of the Company's operations, the majority of revenues
are generated in the months of April through June of each fiscal year.
The Company's debt financing requirements to fund operations corresponds
with the revenue cycle. Historically, the percentage of net revenues
recognized in each quarter has approximated the following:
First quarter, March 1 to May 31 39%
Second quarter, June 1 to August 31 39%
Third quarter, September 1 to November 30 10%
Fourth quarter, December 1 to February 28 12%
Customer notes receivable and allowance for doubtful notes:
Customer notes receivable are stated at the principal amounts outstanding
reduced by the reserve for discounts and the allowance for
doubtful notes. The reserve for discounts is maintained at an
amount considered to be adequate based on past experience of cash
discounts granted. The reserve is increased by provisions recorded as
a reduction of revenues and is reduced by cash discounts granted to
customers. The allowance for doubtful notes is maintained at an amount
that management considers adequate to absorb estimated losses relating
-37-
to specifically identified notes, as well as probable credit losses
inherent in the balance of the note portfolio, based on an evaluation
of the collectibility of existing notes and prior loss experience.
This evaluation also takes into consideration such factors as changes
in the nature and volume of the note portfolio, overall portfolio
quality, review of specific problem notes, and current economic
conditions that may affect the customer's ability to pay. While
management uses the best information available to make its evaluation,
future adjustments to the allowance may be necessary if there are
significant changes in economic conditions. The allowance is increased
by provisions charged to cost of revenues. Notes are charged against
the allowance for doubtful notes when management believes that
collectibility of the principal is unlikely. Subsequent recoveries
are credited to the allowance.
Customer notes receivable are considered impaired when based on current
information and events, it is probable the Company will not be able to
collect all contractual principal and interest payments due in
accordance with the terms of the agreement. Impaired loans are measured
on an individual basis based on the present value of expected future
cash flows discounted at the note's effective interest rate or the fair
value of the collateral if the loan is collateral dependent. The
amount of impairment, if any, and subsequent changes are included in
the allowance for doubtful notes.
Inventories:
Inventories of agricultural inputs are valued at lower of cost
(first-in, first-out method) or market.
Foreclosed assets held for sale:
Foreclosed assets, primarily real estate, are valued at lower of cost or
fair market value minus estimated costs to sell.
Property, equipment and depreciation:
Land, which is the land donated by the City of Cedar Falls, Iowa is carried
at $875, which is the estimated fair market value of the land at the date
of the grant. The corresponding deferred revenue associated with the land
donated to the Company is included in accrued expenses and is being
amortized by the straight-line method over the estimated life of the
building placed into service in February 2002. Building, primarily the
office space constructed on the donated land is carried at cost and is
being depreciated using the straight-line method over 40 years.
Equipment, primarily transportation and office equipment, is carried at
cost and is depreciated using declining-balance methods over the estimated
useful lives ranging from three to seven years.
Deferred financing costs:
The Company incurs financing cost with lenders in connection with its
borrowing programs. These fees are deferred and amortized using the
interest method over the life of the respective loan agreement.
-38-
Advertising costs:
The Company charges the costs of advertising to expense as incurred.
Advertising expense for the years ended February 28, 2003, 2002 and 2001
was $437, $663 and $1,071, respectively.
Income tax matters:
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Stock options issued to employees:
SFAS No. 123, "Accounting for Stock-Based Compensation", establishes a fair
value based method for the accounting and financial reporting of its
stock-based employee compensation plans. However, as allowed by the
standard, the Company has elected to continue to apply the intrinsic value
based method as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Under this method, compensation
is measured as the difference between the market value of the stock on the
grant date, less the amount required to be paid for the stock. The
difference, if any, is charged to expense over the period of service.
Had compensation cost for the Company's two stock based compensation plans
been determined based on the grant date fair values of the awards (the
method prescribed in SFAS No. 123), reported net income and earnings per
common share would have been reduced to the pro forma amounts shown below:
2003 2002 2001
---------- ---------- ----------
Net income, as reported $5,898 $5,476 $7,453
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (344) (468) (432)
---------- ---------- ----------
Pro forma net income $5,554 $5,008 $7,021
========== ========== ==========
Basic earnings per share
As reported $1.08 $1.01 $1.41
Pro forma $1.01 $0.92 $1.33
Diluted earnings per share
As reported $1.07 $1.00 $1.36
Pro forma $1.01 $0.91 $1.28
-39-
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in Fiscal 2003, 2002, and 2001, respectively:
risk-free interest rates of 3.4%, 5.2%, and 4.7%; expected lives of 7 for
all years; price volatility of 39.8%, 39.5%, and 33.9% and no expected
dividends.
Fair value of financial instruments:
The carrying amount of cash, current customer notes receivable and accounts
payable approximates fair value because of the relative short maturity of
these instruments. The carrying amount of non-current customer notes
receivable and notes payable approximate fair value because these
instruments bear interest at approximate current rates offered to credit
customers and available to the Company for similar borrowings. The
fair value of the interest rate swap agreement discussed in Note 3 is
based on the market price provided by the commercial bank which is
counterparty to the agreement, and represents the amount the Company
would pay or receive to terminate the agreement.
Earnings per share:
Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of shares
outstanding. In computing diluted earnings per share, the dilutive
effect of stock options during the periods presented increase the
weighted average number of shares.
Reportable operating segments:
The Company uses the "management approach" for reporting information
about segments in annual and interim financial statements. The
management approach is based on the way the chief operating
decision-maker organizes segments within a company for making operating
decisions and assessing performance. Reportable segments are based
on products and services, geography, legal structure, management
structure and any other manner in which management disaggregates
a company. Based on the "management approach" model, the Company
has determined that its business is comprised of a single operating
segment.
Adoption of FAS 133:
The Company adopted Statement of Financial Accounting Standards No. 133
(FAS 133), Accounting for Derivative Instruments and Hedging Activities,
on March 1, 2001. In accordance with the transition provisions of
FAS 133, the Company recorded a net-of-tax cumulative-effect-type
adjustment of $1,313 in accumulated other comprehensive income to
recognize at fair value all derivatives that are designated as
cash-flow hedging instruments during Fiscal 2002.
Derivative Instruments and Hedging Activities:
All derivatives are recognized on the balance sheet at their fair value.
The Company uses derivative instruments solely in connection with
borrowings on their term debt. On the date the derivative contract
is entered into, the Company designates the derivative as a hedge of
a forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized liability ("cash flow" hedge).
Changes in the fair value of a derivative that is highly effective,
-40-
and that is designated and qualifies as a cash-flow hedge, are recorded
in other comprehensive income, until earnings are affected by the
variability of cash flows (e.g., when periodic settlements on a
variable-rate liability are recorded in earnings).
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective
and strategy for undertaking various hedged transactions. This
process includes linking all derivatives that are designated as
cash-flow hedges to specific assets and liabilities on the balance
sheet or to specific firm commitments or forecasted transactions.
The Company also formally assesses, both at the hedge's inception
and on an ongoing basis, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in
cash flows of hedged items. When it is determined that a derivative
is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, the Company discontinues hedge accounting
prospectively.
Pending Accounting Pronouncements:
In April 2003, the FASB issued Statement No. 149, "Amendment of Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities."
This statement clarifies the definition of a derivative and incorporates
certain decisions made by the Board as part of the Derivatives Implementation
Group process. This statement is effective for contracts entered into or
modified, and for hedging relationships designated after June 30, 2003 and
should be applied prospectively. Adoption of this standard is not expected
to have a significant impact on the Corporation's financial condition or
results of operations.
-41-
Note 2. Financing and Going Concern Matters
Financing Agreements
The availability of lines of credit is essential to the Company's operations.
As of May 15, 2003, the Company has arranged for financing for the 2003 crop
year of approximately $220 million, which allows for customer financing for
the 2003 crop year of up to $255 million. This compares to total 2002 crop
year customer financing of approximately $465 million. This credit facility
and the revolving credit facility (which financed 2002 crop loans and can
not be used to fund 2003 crop year loans) expire in June 2003 unless
certain actions are taken, including a capital investment as described below.
There can be no assurance the Company will be successful in securing
additional financing and, if financing is secured, it may be on terms less
favorable than current terms.
The Company is taking action in order to secure additional financing.
As described below, the Company has entered into a securities purchase
agreement with American Securities Capital Partners, L.P. (ASCP) whereby
ASCP has agreed to inject up to $70 million in capital in the Company,
of which $35 million would be immediately available. The Company believes
this transaction will assist in arranging for the needed financing.
The securities purchase agreement is subject to certain conditions, including
shareholder approval. Finalization of this transaction is not assured.
In the event that the ASCP transaction does not close and alternative
financing cannot be arranged, the Company may be left with limited
options. Failure to obtain new financing would materially impair the
Company's ability to continue operations under the normal course of
business and could have a material adverse impact upon the Company.
Anticipated Equity Infusion
The Company entered into a securities purchase agreement during February 2003
with ASCP, a New York private-equity investment firm, under which ASCP has
agreed to invest up to $70 million in the Company in exchange for convertible
preferred stock. The agreement contemplates that ASCP will invest up
to $70 million in three annual installments; the first payment of
$35 million is subject, among other things, to satisfactory completion
of due diligence, the Company arranging for long-term financing and
shareholder approval. The second and third payments are conditional
upon the Company achieving certain economic thresholds. At this time,
management does not believe it will meet these economic thresholds.
ASCP will have voting control of the Company after the initial funding.
The parties are presently conducting due diligence, negotiating final
terms and documentation. If the transaction is consummated, current
shareholders will incur substantial dilution. There can be no assurance
at this time that this investment will be consummated. The Company is
considering various alternatives in the event that the transaction
is not completed.
Company Actions
In addition to the ASCP transaction, the Company has undertaken certain
actions to continue operations at a reduced level of revenue. The
Company is anticipating that the $220 million credit facility will allow
for customer financing for the 2003 crop year of up to $255 million as
compared to 2002 crop year financing of $465 million. Because of the
timing of these crop loans the Company will need to operate for the
2003 crop year on this lower level of activity. Management believes
-42-
that this level of activity will be adequate to sustain operations
in this transition year.
The Company has also implemented a cost reduction program which will
help to mitigate the effects of the reduced financing capabilities
of the Company. Management believes that it will be able to regain
some of the market share lost as a result of the inability to provide
financing to customers for the 2003 year. Management also believes
that with the cost reduction program that was implemented and the
consummation of the ASCP capital investment, the Company will be
able to obtain long-term financing without suffering irrecoverable
losses due to the reduced lending capabilities. No assurance can be
given that the Company would be successful in these efforts.
Going Concern
The accompanying consolidated financial statements have been prepared
on the going concern basis of accounting and do not reflect any
adjustments that might result if the Company were unable to continue
as a going concern. As discussed above, the Company's financing
expires in June 2003 and the Company has been unable to secure
long-term financing beyond that date. If the Company is unable to
obtain new financing, it may be unable to repay its debts in the
normal course of business and be forced to liquidate. This raises
substantial doubt about the Company's ability to continue as a going concern.
The three preceding sections entitled "Financing Agreements,"
"Anticipated Equity Infusion," and "Company Actions" describe the
financing structure and the actions the Company has taken and is
planning to take to alleviate the situation. However, there can be
no assurance that these actions will be sufficient to repay its debt
in the normal course of business and continue normal operations.
These financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
-43-
Note 3. Customer Notes Receivable
Customer notes receivable consist of the following:
As of As of
February 28, February 28,
2003 2002
------------ ------------
Prior years $2,485 $5,026
1999 spring accounts 8,092 10,712
2000 spring accounts 8,098 17,501
2001 spring accounts 25,749 107,125
2002 spring accounts 129,607 97,022
2003 spring accounts 77,590 --
Intermediate accounts 29,629 31,361
------------ ------------
$281,250 $268,747
Less reserve for discounts 5,800 5,100
Less allowance for doubtful notes 12,300 9,500
------------ ------------
$263,150 $254,147
============ ============
The amount of principal and accrued and unpaid interest applicable
to the customer notes receivable were as follows:
As of As of
February 28, February 28,
2003 2002
------------ -----------
Principal $276,709 $263,928
Accrued interest 4,541 4,819
----------- -----------
Total $281,250 $268,747
=========== ===========
Accrued interest is included on the balance sheet with
customer notes receivable.
Impaired (nonaccrual) customer notes receivable are summarized
as follows:
As of As of
February 28, February 28,
2003 2002
------------ -----------
Principal $47,923 $25,417
Accrued interest 773 812
----------- ------------
Total $48,696 $26,229
=========== ============
-44-
Allowance provided for impaired
(nonaccrual) notes, included
in allowance for doubtful
notes $6,466 $4,216
=========== ============
Average balance of impaired
(nonaccrual) customer notes
receivable outstanding
during fiscal year $38,568 $29,134
=========== ============
Number of customers 183 115
The Company collected and recorded $51, $186 and $118 of interest income
on impaired (nonaccrual) notes receivable during Fiscal 2003, 2002 and
2001, respectively.
It is the Company's policy to obtain a lien on the customer's growing
crop, along with an assignment of the customer's federal crop insurance
and government farm program payments, if available. The Company extends
discounts to customers paying their notes timely ranging from 1% to 3%.
The notes bear interest from 8.0% to 10.5% for fixed rate notes and
from prime to 4.0% above the prime rate as listed in the Wall Street
Journal (currently 4.25% at February 28, 2003) for variable rate notes.
The variable rate notes with customers may be subject to an "interest
rate floor" which locks in a minimum interest rate for customers
ranging from 4.75% to 10.25%.
Due to the Company's customers' marketing strategies and the timing of
their receiving payment on insurance claims and government subsidies,
it is the Company's normal operating policy to carry customer notes
receivable past their due date of January 15 for north accounts and
January 31 for south accounts. The amount of customer notes receivable
that was past due was $174,031, $140,364 and $120,779, which includes
notes on nonaccrual status of $41,196, $20,100 and $17,037 at
February 28, 2003, 2002 and 2001 respectively.
Changes in the allowance for doubtful notes are summarized as follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 29,
2003 2002 2001
------------ ------------ ------------
Balance, beginning $9,500 $7,300 $4,550
Provision charged to
operating expense 9,068 7,485 6,266
Recoveries of
charged-off notes 327 756 515
Notes charged-off (6,595) (6,041) (4,031)
------------ ------------ ------------
Balance, ending $12,300 $9,500 $7,300
============ ============ ============
-45-
The following table shows the Company's classification of its
customer notes receivable:
February 28, 2003
-----------------------------------------------------------------------------------
Sub-
Acceptable(1) OLEM(2) standard(3) Doubtful(4) Loss(5) Total
------------- ------------- ------------- ------------- ------------- -------------
Prior Years $-- $632 $1,812 $41 $-- $2,485
1999 spring
accounts 2 2,111 5,190 789 -- 8,092
2000 spring
accounts 400 3,342 1,685 2,671 -- 8,098
2001 spring
accounts 2,345 13,199 8,686 1,519 -- 25,749
2002 spring
accounts 98,010 16,076 12,364 3,157 -- 129,607
------------- ------------- ------------- ------------- ------------- -------------
Total past
due $100,757 $35,360 $29,737 $8,177 $-- $174,031
------------- ------------- ------------- ------------- ------------- -------------
2003 spring
accounts $77,144 $446 $-- $-- $-- $77,590
Intermediate
accounts 13,238 14,149 2,215 27 -- 29,629
------------- ------------- ------------- ------------- ------------- -------------
$90,382 $14,595 $2,215 $27 $-- $107,219
------------- ------------- ------------- ------------- ------------- -------------
Total customer
notes
receivable $191,139 $49,955 $31,952 $8,204 $-- $281,250
============= ============= ============= ============= ============= =============
February 28, 2002
-----------------------------------------------------------------------------------
Sub-
Acceptable(1) OLEM(2) standard(3) Doubtful(4) Loss(5) Total
------------- ------------- ------------- ------------- ------------- -------------
Prior Years $-- $164 $675 $11 $-- $850
1998 spring
accounts -- 1,174 2,413 589 -- 4,176
1999 spring
accounts 198 1,806 7,256 1,452 -- 10,712
2000 spring
accounts 5,859 3,773 3,346 4,523 -- 17,501
2001 spring
accounts 86,656 13,397 6,000 1,072 -- 107,125
------------- ------------- ------------- ------------- ------------- -------------
Total past
due $92,713 $20,314 $19,690 $7,647 $-- $140,364
------------- ------------- ------------- ------------- ------------- -------------
2002 spring
accounts $97,022 $-- $-- $-- $-- $97,022
Intermediate
accounts 25,383 2,496 3,334 148 -- 31,361
------------- ------------- ------------- ------------- ------------- -------------
$122,405 $2,496 $3,334 $148 $-- $128,383
------------- ------------- ------------- ------------- ------------- -------------
Total customer
notes
receivable $215,118 $22,810 $23,024 $7,795 $-- $268,747
============= ============= ============= ============= ============= =============
(1) A customer note receivable is classified by the Company as "acceptable"
if a customer account does not display any deficiencies regarding either
the customer or the collateral.
(2) A customer note receivable is classified by the Company as "other loans
especially mentioned (OLEM)" if a customer account is secured by adequate
collateral which may possibly become impaired if not closely monitored by
the Company. In addition, certain of these accounts, while adequately
collateralized, have required an extended period of time to receive
payment in full.
(3) A customer note receivable is classified by the Company as "substandard"
if a customer account displays limited deficiencies regarding either the
customer or the collateral. Payment in full is still considered likely
and will require more than normal servicing and monitoring. Some
probability of loss potential, while existing in the aggregate amount
of substandard notes receivable, does not have to exist in individual
notes classified as substandard.
(4) A customer note receivable is classified by the Company as "doubtful"
if a customer account displays significant deficiencies regarding either
the customer or the collateral. The "doubtful" classification does not
-46-
mean that the customer note receivable has no likelihood of payment.
However, under this classification, the deficiencies may result in the
Company receiving less than payment in full.
(5) A customer note receivable is classified by the Company as "loss" if a
customer account is clearly not performing. The "loss" classification
does not mean that the loan has absolutely no recovery value in the
future, but that currently there is limited liquidation value.
When determining the amount of a customer's credit limit, the Company
estimates the value of the collateral. If there are superior liens on the
collateral, such as a landlord's lien on the crop, the Company will not
include the value of the collateral, to the extent of the amount of the
superior lien, when determining a customer's credit limit. In the opinion
of management, superior liens are not material to the Company's operations
and do not materially affect the Company's rights because the Company
values its collateral net of any existing superior liens.
-47-
Note 4. Pledged Assets and Related Debt
The Company negotiated a $200 million revolving line of credit for the 2003
Crop Year that expires in December 2003. The terms of the agreement allow
for two variable interest rate alternatives based on LIBOR or prime (current
effective rates range from 3.875% to 5.50% at February 28, 2003). The
total amount outstanding under the revolving line of credit at
February 28, 2003 was $57,150. At February 28, 2003 the Company had a
maximum amount available under the line of credit of approximately
$2.8 million based on a borrowing base computation provided by the
agreement. This line of credit contains a provision which accelerates
the due date to June 15, 2003 in the event the Company does not receive
an equity injection from ASCP. The Company anticipates that it will not
meet this provision and the line of credit will be extended to meet the
timing of the expected ASCP equity injection. There can be no assurance
that the Company will get this extension.
The Company has negotiated amendments to its asset backed
securitized financing program to extend the due date to June 2003 from
November 2002. This facility does not allow for the financing of 2003
Crop Year receivables. This program is currently in a wind down phase,
which calls for an orderly collection of the notes receivable and pay
down of the outstanding borrowings. Ag Acceptance pledges its interest
in these notes receivable to a commercial paper market conduit entity
which incurs interest at variable rates in the commercial paper market
(current effective rates range from 1.27% to 1.31% at February 28, 2003)
and the remaining portion is a term note with interest at a variable
cost of LIBOR plus 50 basis points (current effective rate is 1.83% at
February 28, 2003). The total outstanding under the asset backed
securitized financing program at February 28, 2003 and 2002 was
$52,386 and $132,501, respectively.
The Company's $75 million revolving line of credit facility was also
amended in November 2002 to extend its due date to March 31, 2003.
Subsequent to year-end, this facility was reduced to $65 million and
extended to June 2003. This facility also does not allow for the
financing of 2003 Crop Year receivables. Additional terms of the
agreement allow a variable interest rate based on prime (current
effective rate is 7.25% at February 28, 2003). The total outstanding
under this facility at February 28, 2003 and 2002 was $53,450 and
$45,000, respectively.
All borrowings are collateralized by substantially all assets of the
Company. The agreements as discussed above contain various restrictive
covenants, including, among others, restrictions on mergers, issuance
of stock, declaration or payment of dividends, transactions with
affiliates, loans to stockholders, and requirements that the Company
maintain certain levels of equity and pretax earnings. These restrictions
are in effect unless written consent is obtained. Advances under the
agreements are also subject to portfolio performance, financial covenant
restrictions, and borrowing base calculations. The Company was in
violation of one covenant at February 28, 2003, however, the note
holders have waived this violation.
In June 2002, the Company negotiated a credit facility with a financial
institution whereby the Company participates certain customer notes
receivable to this institution effective through January 2004. Advances
and repayments under this credit agreement are based on and
collateralized by the performance of these customer notes receivable.
This agreement accrues interest based on the variable interest rates
of the underlying customer notes receivables ranging from prime to
-48-
2.5% over prime (current effective rates range from 4.25% to 6.75%).
At February 28, 2003 the Company had $11.6 million outstanding
under the agreement.
The Company has a credit agreement whereby the Company may borrow up
to $3.8 million, with a declining balance provision, on a revolving
line of credit through April 2022. This credit agreement was used to
finance the Company's corporate headquarters at a fixed interest
rate of 5.74% through November 2006. At February 28, 2003 and 2002,
the Company had $2.8 million and $3.5 million, respectively,
outstanding under the credit agreement. The agreement also contains
various restrictive financial covenants.
In February 2002, three executive officers of the Company, who are also
the original founders of the Company, loaned an aggregate of $4.4 million
to the Company. The due date has been extended to June 2003. The Company
makes monthly interest payments to these officers at a variable interest
rate of 0.5% below the prime rate (current effective rate is 3.75% at
February 28, 2003). These notes are collateralized by a second mortgage
on the Company's corporate headquarters.
The Company maintains an interest-rate risk-management strategy that uses
derivative instruments to minimize significant, unanticipated earnings
fluctuations caused by interest rate volatility. The Company's specific
goal is to lower (where possible) the cost of its borrowed funds.
In July 2000, the Company entered into an interest rate swap agreement
with an original notional amount of $30 million. The current notional
amount of $22.5 million decreases by $7.5 million annually in each July 2003,
2004 and 2005. The swap is utilized to manage interest rate exposures and
is designated as a cash flow hedge. The swap agreement is a variable
receive/fixed pay swap, which expires in July 2005 and has the effect of
converting the interest rate paid on the notional amount of the Company's
variable rate debt to a fixed rate of 9.78%. The differential to be paid
or received on the swap agreement is recognized and accrued over the life
of the agreement as other comprehensive income based on the remaining
outstanding notional amount or changes in interest rates. Included in
other comprehensive income at February 28, 2003 and 2002 is a loss of
approximately $1,167 and $1,410, respectively. The difference between
the Company's actual variable interest expense and 9.78% on the notional
amount for the next twelve months is reclassified from other comprehensive
income and recognized as interest expense.
-49-
Total amounts outstanding under all above agreements are summarized below:
As of As of
February 28, February 28,
2003 2002
------------ ------------
$200 million revolving
line of credit $57,150 $--
Asset backed securitization
financing program 52,386 132,501
$75 million revolving
line of credit 53,450 45,000
Participations 11,630 --
Building line of credit 2,808 3,500
Loans from executive officers 4,404 4,404
Interest rate swap 1,852 2,235
------------ ------------
Total debt $183,680 $187,640
Less current maturities 180,872 179,736
------------ ------------
Long-term liabilities $2,808 $7,904
============ ============
-50-
Note 5. Commitments and Contingencies
Commitments:
In the normal course of business, the Company makes various commitments
that are not reflected in the accompanying financial statements. These
include various commitments to supply farm input financing to customers.
At February 28, 2003, 2002 and 2001, the Company had approximately
$101,014, $152,763 and $120,446 respectively, in commitments to supply
farm input financing, including seed, chemicals, fertilizer and other
farm inputs. No material losses or liquidity demands are anticipated
as a result of these commitments.
Contingencies:
The Company is named in lawsuits in the ordinary course of business.
Management for the Company believes, while the outcome of
various legal proceedings is not certain, it is unlikely that these
proceedings will result in any recovery which will materially affect
the financial position or operating results of the Company.
The availability of lines of credit to finance operations and the existence
of a multi-peril crop insurance program are essential to the Company's
operations. If the federal multi-peril crop insurance program currently
in existence was terminated or negatively modified and no comparable
private or government program was established, this could have a material
adverse effect on the Company's future operations. The government has
from time to time evaluated the federal multi-peril crop insurance program
and is likely to review the program in the future, but there can be no
assurance of the outcome of such evaluations.
Guarantee:
In the process of collecting a customer note receivable, the Company has
guaranteed the first mortgage debt of a customer to a third party financial
institution. Under the guarantee, the Company would be required to repay
the debt of the customer under certain default conditions. The outstanding
debt is collateralized by real estate, which could be liquidated to recover
any amounts paid by the Company under the guarantee. The amount guaranteed
by the Company at February 28, 2003 is approximately $2,300 and expires
once the mortgage is repaid in full.
-51-
Note 6. Income Taxes
Net deferred tax assets consist of the following components:
As of As of
February 28, February 28,
2003 2002
------------ ------------
Deferred tax assets:
Allowance for doubtful notes $4,551 $3,515
Deferred revenue 324 324
Reserve for discounts 2,146 1,887
Interest rate swap contract 685 825
Accrued vacations 146 138
------------ ------------
$7,852 $6,689
------------ ------------
Deferred tax liabilities:
Property and equipment $402 $324
------------ ------------
$7,450 $6,365
============ ============
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheet as follows:
As of As of
February 28, February 28,
2003 2002
------------ ------------
Current assets $5,524 $4,030
Noncurrent assets 1,926 2,335
------------ ------------
$7,450 $6,365
============ ============
Income tax expense is made up of the following components:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
2003 2002 2001
------------- ------------ ------------
Current tax expense:
Federal $4,218 $4,328 $5,662
State 501 571 760
----------- ----------- -----------
$4,719 $4,899 $6,422
Deferred tax expense (1,225) (1,470) (1,858)
----------- ----------- -----------
$3,494 $3,429 $4,564
=========== =========== ===========
Total income tax expense varies from the amount that would have resulted by
applying the effective federal income tax rate to income before income taxes
for the following reasons:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
2003 2002 2001
------------ ------------ ------------
Federal statutory rate 35.0% 35.0% 35.0%
State tax expense 4.6% 5.0% 4.5%
Other, net (2.4%) (1.2%) (1.5%)
----------- ----------- -----------
Effective tax rate 37.2% 38.5% 38.0%
=========== =========== ===========
-52-
Note 7. Employee Stock Plans and Capital Stock
Stock options plans:
The Company has two stock-based compensation plans. On May 30, 1991 the
Company adopted its "1991 Stock Option Plan" which provides for the
issuance of a maximum of 300,000 shares of common stock to directors,
officers, employees or other persons. Options granted under the stock
option plan may be either "incentive stock options" or "nonqualified
stock options." As designated by the Board of Directors, the stock
option plan is administered by the officers of the Company, who designate
the type of option to be granted, the number of options to be granted,
the number of shares of common stock to be covered by each option
(subject to a specified maximum number of shares of common stock which
may be purchased under all options granted), the exercise price, the
period during which the options are exercisable, the method of payment
and certain other terms. The exercise price for each share of common
stock covered by an option is determined by the Board of Directors or
the committee, except (i) the exercise price for an incentive stock
option may not be less than the fair market value, at the time the
option is granted, of the stock subject to the option and (ii) the
exercise price for a nonqualified stock option may not be less than
85% of the fair market value, at the time the option is granted,
of the stock subject to the option. The exercise price for an incentive
stock option granted to any individual who owns stock, at the time of
the grant, possessing more than 10% of the voting power of the capital
stock of the Company may not be less than 110% of such fair market value
on the date of the grant. No more than $100,000 of stock vesting
during any calendar year per person will qualify for incentive stock
option treatment. Options are nontransferable, other than by will or
the laws of descent and distribution, and may be exercised only by the
optionee while employed by or providing services to the Company or
within three months after termination of employment by reason of
retirement or six months following termination of employment resulting
from death or permanent disability. Options expire no later than ten
years from the date of grant, provided that incentive stock options
granted to employees owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of
its subsidiaries expire five or fewer years from the date of grant.
No additional options may be granted under this plan subsequent to
the plan's termination date of May 21, 2001. The termination does not
effect any options outstanding on the termination date.
On August 3, 1993 the Stockholders of the Company adopted its "1993 Stock
Option Plan" which provides for the issuance of a maximum of 200,000 shares
of common stock to directors, officers, employees or other persons. The
other provisions of the 1993 Stock Option Plan are the same as provisions
of the 1991 Stock Option Plan discussed above. On August 1, 1995 the
stockholders of the Company approved a proposal to amend its "1993 Stock
Option Plan" to increase the maximum number shares of common stock
issuable to directors, officers, employees or other persons from 200,000
to 400,000 shares. On August 21, 2000, the stockholders of the Company
approved a proposal to amend its "1993 Stock Option Plan" to increase
the maximum number of shares issuable from 400,000 shares to 700,000
shares. The other provisions of the 1993 Stock Option Plan remained
the same as previously discussed above. At February 28, 2003 and 2002,
the total options available for future grant under the 1993
plan, was 246,925 and 230,675 shares, respectively.
-53-
The following table summarizes the options to purchase shares of the
Company's common stock under the two option plans combined:
Stock Options
-----------------------------
Weighted
Average
Outstanding Exercise Price
----------- --------------
Balance at February 29, 2000 464,665 $9.29
Granted 98,800 $16.02
Exercised (31,525) $8.83
Canceled (22,750) $17.85
----------- --------------
Balance at February 28, 2001 509,190 $10.24
Granted 20,200 $11.72
Exercised (187,700) $3.82
Canceled (7,700) $16.11
----------- --------------
Balance at February 28, 2002 333,990 $13.80
Granted 25,000 $9.45
Exercised (10,550) $7.56
Canceled (41,250) $15.77
----------- --------------
Balance at February 28, 2003 307,190 $13.40
=========== ==============
Number of Options
----------------------------------
2003 2002 2001
---------- ---------- ----------
Exercisable, end of year 230,865 229,665 363,565
========== ========== ==========
Weighted-average fair value
per option of options
granted during the year $4.46 $5.86 $7.04
========== ========== ==========
Options are exercisable over varying periods ending on February 28, 2013.
A further summary of the fixed options outstanding at February 28, 2003
is as follows:
Options Outstanding Options Exercisable
--------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- --------- ----------- -----------
$6.75 to $9.00 68,740 3.82 $8.12 52,740 $8.12
$9.50 to $13.75 88,000 4.47 $10.80 61,849 $10.47
$14.25 to $16.50 71,750 7.04 $15.92 42,708 $15.84
$17.25 to $24.75 78,700 5.44 $18.62 73,568 $18.18
----------- ---------- --------- ----------- -----------
307,190 5.17 $13.40 230,865 $13.38
=========== ========== ========= =========== ===========
-54-
Capital stock:
In August 1995, the Company's Board of Directors approved the "1995 Stock
Purchase Plan" which allows directors, officers and all other employees of
the Company to purchase common stock directly from the Company, subject to
certain restrictions. Shares may be purchased at (i) the closing price of
the stock on the trading day immediately preceding the purchase date or
(ii) the cost at which the shares may be purchased in the open market,
exclusive of brokerage commissions and fees. An aggregate of 150,000
authorized but unissued shares are reserved for issuance under the plan.
The stock purchase plan is administered by the Company and is subject to
termination or amendment by the Board of Directors at any time. During
the years ended February 28, 2003, 2002 and 2001, 100, 100, and 500 shares,
respectively, were purchased under this plan.
In total, 698,805 shares of Common Stock are reserved for issuance under
the plans discussed above.
-55-
Note 8. Employee Benefits
The Company has contractual employment and noncompetition agreements
through July 1, 2005 with its three top officers who are also directors
of the Company. Each agreement provides for (i) a base salary adjustable
annually, (ii) payment of an annual bonus based upon diluted EPS,
(iii) $250 in life insurance coverage and (iv) receipt of other Company
benefits including use of an automobile. The total amount of the
annual bonus for these officers included as compensation expense for
the years ended February 28, 2003, 2002 and 2001 was $570, $75 and
$375, respectively.
The Company also has a contractual employment and noncompetition agreement
through August 7, 2005 with its Chief Operating Officer. The agreement
provides for (i) a base salary adjustable annually, (ii) payment of an
annual bonus based upon diluted EPS and (iii) receipt of other Company
benefits including the use of an automobile. The total amount of annual
bonus included as compensation expense for the years ended
February 28, 2003, 2002 and 2001 was $32, none and $7, respectively.
Effective June 1, 1992, the Company has established a Retirement and
Savings Plan (the "401(k) Plan"). Currently, all employees of the
Company, including officers, are eligible to participate in the 401(k) Plan.
Benefits provided under the 401(k) Plan are funded by a qualified
retirement trust administered by Wells Fargo Bank Minnesota, N.A. as trustee.
Participants may contribute an amount of their compensation, including base
salary and overtime, to the 401(k) Plan, which can not be more than the
maximum dollar limit allowed by law on a pretax basis. The Company makes
a matching contribution to the 401(k) Plan subject to certain limitations,
equal to 40% of each participant's pretax contribution on an amount of up
to 7% of such participant's compensation.
For the years ended February 28, 2003, 2002 and 2001, $144, $128 and $129,
respectively, was contributed to employee accounts including $35 for each
of the three years, contributed to the accounts of the Company's executive
officers.
The Company has a Management Bonus Program which pays bonuses to all eligible
management employees based upon the diluted earnings per share growth of the
Company. The total amount of bonus compensation charged to expense for the
years ended February 28, 2003, 2002 and 2001 was $168, none and $76,
respectively.
The Company also has an Employee Incentive Compensation Program. The Company
pays bonuses to all eligible employees based on the growth in net revenues
and net income. The bonuses range from zero to 8% of all eligible employees
calendar year compensation. The total amount of incentive compensation
charged to expense for the years ended February 28, 2003, 2002 and 2001
was $185, none and none, respectively.
-56-
Note 9. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
2003 2002 2001
------------ ------------ ------------
Net income available to
shareholders: $5,898 $5,476 $7,453
============ ============ ============
Earnings per share:
Weighted average shares
outstanding - basic 5,477,277 5,415,104 5,271,069
============ ============ ============
Basic earnings per share: $1.08 $1.01 $1.41
============ ============ ============
Diluted earnings per share:
Weighted average shares
outstanding - basic 5,477,277 5,415,104 5,271,069
Effect of dilutive securities:
Employee stock options 17,089 74,651 219,040
------------ ------------ ------------
Weighted average shares -
diluted 5,494,366 5,489,755 5,490,109
============ ============ ============
Diluted earnings per share: $1.07 $1.00 $1.36
============ ============ ============
At February 28, 2003, 2002 and 2001, respectively, 186,650, 185,900, and
31,300 employee stock options were outstanding but were not included in
computation of diluted earnings per share because the exercise price was
greater than the average market price of the common shares.
-57-
Note 10. Customer Credit Operations
Customer credit operations were as follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
2003 2002 2001
------------ ------------ ------------
Financing income $29,196 $26,536 $31,861
------------ ------------ ------------
Direct costs:
Financing expense $16,205 $13,830 $17,082
Payroll and related costs 3,978 3,749 3,028
Credit report services 85 50 52
Legal fees 1,484 898 944
Provision for doubtful
notes 9,068 7,485 6,266
------------ ------------ ------------
Total direct costs $30,820 $26,012 $27,372
------------ ------------ ------------
Net financing income (loss) ($1,624) $524 $4,489
============= ============ ===========
The above results do not reflect any allocation of corporate
overhead expenses.
-58-
Note 11. Selected Quarterly Financial Data (Unaudited)
First Second Third Fourth
Fiscal 2003 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------
Net revenues $75,245 $80,138 $18,466 $24,017
Cost of revenue $68,095 $71,898 $12,578 $20,638
Gross profit $7,150 $8,240 $5,888 $3,379
Net income (loss) $2,157 $2,502 $1,354 ($115)
Basic earnings per share $0.39 $0.46 $0.25 ($0.02)
Diluted earnings per share $0.39 $0.45 $0.25 ($0.02)
First Second Third Fourth
Fiscal 2002 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------
Net revenues $60,795 $60,517 $16,378 $24,306
Cost of revenue $54,476 $53,906 $11,315 $20,715
Gross profit $6,319 $6,611 $5,063 $3,591
Net income $1,834 $2,025 $1,297 $320
Basic earnings per share $0.35 $0.37 $0.24 $0.06
Diluted earnings per share $0.34 $0.37 $0.24 $0.06
The Company reclassified its revenues in the current fiscal year to present
revenues associated with the cash advances for fuel, irrigation, land rents
and other farm inputs and revenues associated with the input only program
on a net reporting basis in contrast to the previously presented gross
reporting basis.
-59-
CORPORATE DATA
Stock Market Information
The Company's common stock is traded on the New York Stock Exchange
under the symbol ASV.
As of February 28, 2003, there were 5,479,514 shares of common
stock outstanding. At that date, there were 114 shareholders of
record and approximately 2,000 shareholders for whom securities
firms acted as nominees.
Transfer Agent
Wells Fargo Bank Minnesota, N.A.
Stock Transfer Department
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
612/450-4064 or 800/468-9716
Form 10-K
Shareholders who wish to obtain, without charge, a copy of our
annual report on form 10-K, filed with the Securities and Exchange
Commission for the fiscal year ended February 28, 2003, may do so
by writing John T. Roth, Vice President Finance, at our corporate
headquarters.
Investor Relations Contact
Shareholders and prospective investors are welcome to call or write
Ag Services with questions or requests for additional information.
Inquiries should be directed to corporate headquarters to the
attention of:
Gaylen Miller
Chairman of the Board
(319) 277-0261
E-mail: gaylen.miller@agservices.com
Corporate Headquarters
1309 Technology Parkway
P.O. Box 668
Cedar Falls, IA 50613
(319) 277-0261
Independent Public Accountants
McGladrey & Pullen, LLP
400 Locust Street, Suite 640
Des Moines, IA 50309
-60-
Internet Address
Ag Services makes Company information available electronically via
a site on the World Wide Web. This site is regularly updated and
includes information on the Company's products and services, press
releases, and key publications such as the annual report. The
Company's Internet address is www.agservices.com.
-61-
BOARD OF DIRECTORS
Gaylen D. Miller Chairman of the Board
Ag Services of America, Inc.
Henry C. Jungling, Jr. President
Ag Services of America, Inc.
Kevin D. Schipper Chief Executive Officer and
Secretary
Ag Services of America, Inc.
James D. Gerson Former Vice President
Fahnestock & Co., Inc.
Michael Lischin Attorney at Law
Ervin J. Mellema Operating Principal
Campbell Mellema Insurance, Inc.
and Campbell Mellema Realty, LLC
OFFICERS
Gaylen D. Miller Chairman of the Board
Henry C. Jungling, Jr. President
Kevin D. Schipper Chief Executive Officer and
Secretary
Shawn R. Smeins Chief Operating Officer
John T. Roth Vice President Finance and Treasurer
Todd J. Ryan Vice President Sales
Eunice M. Schipper Vice President Account Management
Neil H. Stadlman Vice President Information Strategies
Lisa M. Meester Vice President Information Systems
Bruce A. Nelson Vice President Collections
Jamey J. Ross Vice President Products and
Distribution
Linda E. Kobliska General Counsel
Tad W. Mozena Vice President Marketing and Public Relations -
Powerfarm, Inc.
-62-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the under-signed, thereunto duly authorized.
(Registrant) AG SERVICES OF AMERICA, INC.
By (Signature and Title) /s/Gaylen D. Miller
Gaylen D. Miller
Chairman of the Board
(Principal Financial and Accounting Officer)
/s/ Kevin D. Schipper
Kevin D. Schipper
Chief Executive Officer
(Principal Executive Officer)
Date May 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Gaylen D. Miller
Gaylen D. Miller
Chairman and Director
Date: May 28, 2003
By: /s/ Henry C. Jungling, Jr.
Henry C. Jungling, Jr.
President and Director
Date: May 28, 2003
By: /s/ Kevin D. Schipper
Kevin D. Schipper
Chief Executive Officer and Director
Date: May 28, 2003
By: /s/ James D. Gerson
James D. Gerson
Director
Date: May 27, 2003
-63-
By: /s/ Michael Lischin
Michael Lischin
Director
Date: May 27, 2003
By: /s/ Ervin J. Mellema
Ervin J. Mellema
Director
Date: May 27, 2003
-64-
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- -------- -------------------------------------------
3.1 Articles of Restatement of the Company (1)
3.2 Amended and Restated Bylaws of the Company (3)
3.3 Articles of Amendment (2)
4.1 Form of stock certificate evidencing common stock,
without par value, of the Company (2)
4.2 Form of Indenture between Ag Services of America, Inc.
and Norwest Bank Minnesota, N.A., as Trustee (4)
4.3 Form of 7% Convertible Subordinated Debentures due 2003
(included in Exhibit 4.2) (4)
10.1 Loan Agreement dated April 15, 1996 (7)
10.8 1993 Stock Option Plan (4)
10.9 Form of Indemnification Agreement between the Company
and each officer and director (2)
10.10 Commercial Notes dated April 15, 1996 (7)
10.14 Form of Amendment to 1993 Stock Option Plan (6)
10.15 Retirement and Savings Plan (4)
10.16 Amendment to Retirement and Savings Plan (6)
10.17 Form of 1995 Stock Purchase Plan (6)
10.18 Amended and Restated Loan Agreement dated March 12,
1997 (8)
10.19 Credit Agreement dated March 12, 1997 (8)
10.20 Purchase and Contribution Agreement dated March 12,
1997 (8)
10.21 Amendment No. 1 to Third Amended and Restated Loan
Agreement (9)
-65-
10.22 Amendment No. 2 to Third Amended and Restated Loan
Agreement (9)
10.23 Amendment No. 3 to Third Amended and Restated Loan
Agreement (9)
10.24 Amendment No. 1 to Credit Agreement (9)
10.25 Master Trust Indenture and Security Agreement (10)
10.26 Employee Agreement with Kevin D. Schipper (11)
10.27 Employee Agreement with Gaylen D. Miller (11)
10.28 Employee Agreement with Henry C. Jungling (11)
10.29 Amendment No. 4 and Master Waiver to Master Trust Indenture
and Security Agreement (12)
10.30 Amendment No. 5 To Master Trust Indenture and
Security Agreement (13)
10.31 Amendment No. 6 To Master Trust Indenture and
Security Agreement (13)
10.32 Amendment No. 7 To Master Trust Indenture and
Security Agreement (14)
10.33 Amendment No. 8 To Master Trust Indenture and
Security Agreement (14)
10.34 Amended and Restated Credit Agreement (14)
10.35 Amendment No. 9 To Master Trust Indenture and
Security Agreement (15)
10.36 Amendment No. 10 To Master Trust Indenture and
Security Agreement (15)
10.37 Amendment No. 11 To Master Trust Indenture and
Security Agreement (15)
10.38 First Amendment to the Amended and Restated
Credit Agreement (15)
10.39 Second Amendment to the Amended and Restated
Credit Agreement (15)
10.40 Third Amendment to the Amended and Restated
Credit Agreement (15)
10.41 Employee Agreement with Shawn R. Smeins (15)
21.1 Subsidiaries of the Registrant (15)
-66-
(1) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Registration
Statement on Form S-1 on May 31, 1991 as Commission File No. 33-40981.
(2) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1 on July 12, 1991
as Commission File No. 33-40981.
(3) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-1 on July 24, 1991
as Commission File No. 33-40981.
(4) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Registration
Statement on Form S-1 on March 31, 1993 as Commission File No. 33-60358.
(5) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-K for the year ended February 28, 1994.
(6) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-K for the year ended February 28, 1995.
(7) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-K for the year ended February 29, 1996.
(8) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-K for the year ended February 28, 1997.
(9) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-K for the year ended February 28, 1998.
(10) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-K for the year ended February 28, 1999.
(11) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-Q for the quarter ended November 30, 2000
(12) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-K for the year ended February 28, 2002.
-67-
(13) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-Q for the quarter ended May 31, 2002.
(14) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by reference
under the same exhibit number to the exhibits filed with the Company's
Form 10-Q for the quarter ended November 30, 2002.
(15) - Filed herewith
-68-
CERTIFICATIONS
I, Kevin D. Schipper, certify that:
1. I have reviewed this annual report on Form 10-K of Ag Services
of America, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Securities Exhange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditor any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
-69-
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date:
--------------------
-----------------------
Kevin D. Schipper
Chief Executive Officer
-70-
I, Gaylen D. Miller, certify that:
1. I have reviewed this annual report on Form 10-K of Ag Services
of America, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Securities Exhange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditor any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
-71-
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date:
--------------------
------------------------
Gaylen D. Miller
Chairman of the Board
(Principal Financial and
Accounting Officer)
-72-
AG SERVICES OF AMERICA ,INC.
EXHIBIT 10.35
AMENDMENT NO. 9
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
THIS AMENDMENT NO. 9 TO MASTER TRUST INDENTURE AND SECURITY
AGREEMENT dated as of December 31, 2002 (this "Amendment") is entered into
by and among AG ACCEPTANCE CORPORATION, as Issuer (the "Issuer"), AG SERVICES
OF AMERICA, INC., as Servicer (the "Servicer"), U.S. BANK, N.A., (successor
to FIRSTAR BANK, N.A.), as Trustee (the "Trustee"), and MBIA INSURANCE
CORPORATION, as the Insurer (the "Insurer"). Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to such
terms in the Indenture (as defined below and amended hereby).
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer have
entered into that certain Master Trust Indenture and Security Agreement, dated
as of June 23, 1999 (as amended, restated, supplemented or otherwise modified
from time to time, the "Indenture"); and
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer have
agreed to amend the Indenture as hereinafter set forth;
NOW THEREFORE, in consideration of the premises and other mutual
covenants contained herein, the parties hereto agree as follows:
SECTION 1. Amendments. The Indenture is hereby amended as follows,
such amendment to be effective as of the date set forth in Section 2 hereof,
and subject to the satisfaction of the conditions precedent set forth in
Section 2 hereof:
1.1 Section 2.05 of the Indenture is amended to add the following
clause (w) at the end thereof:
(w) The Issuer shall cause the Originator to at all times borrow the
maximum amount of "A Loans" available to it, under and as defined in
that certain Amended and Restated Credit Agreement, dated as of
December 6, 2002, amount Ag Services of America, Inc., the various
"Lenders" thereunder and Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as "Agent".
1.2 Schedule 3 (Scheduled Aggregate Outstanding Amounts) to the
Indenture is hereby deleted in its entirety and replaced therefor with
Schedule 3 attached hereto.
SECTION 2. Amendment Effective Date. This Amendment shall become
effective as of the date (the "Amendment Effective Date") on which each of
the following conditions precedent shall have been satisfied:
(a) each of the Issuer, the Servicer, the Trustee and the Insurer
shall have received a copy of this Amendment duly executed by each of
the parties hereto; and
(b) either (i) the Noteholder's Consents attached to this Amendment
shall have been duly executed and delivered by the Majority Noteholders
of each Series of Notes; or (ii) with respect to each Rating Agency, the
Rating Agency Condition shall have been satisfied with respect thereto.
SECTION 3. Covenants, Representations and Warranties of the Issuer
and the Servicer.
3.1 Upon the effectiveness of this Amendment, (i) each of the Issuer
and the Servicer hereby reaffirms all representations and warranties made by it
in the Indenture as amended hereby (except for those representations and
warranties that relate to a specific date) and agrees that all such covenants,
representations and warranties shall be deemed to have been remade as of the
effective date of this Amendment (except for those representations and
warranties that relate to a specific date) and (ii) each of the Issuer and
the Servicer hereby represents and warrants that no Asset Deficiency is
continuing and no Event of Default or event or circumstance which, with the
giving of notice or the passage of time, or both, would constitute an Event
of Default shall have occurred and be continuing.
3.2 Each of the Issuer and the Servicer represents and warrants that
this Amendment constitutes a legal, valid and binding obligation of such party,
enforceable against it in accordance with its terms.
3.3 In consideration for the execution of this Amendment by the
Insurer and the Trustee, and the execution by the Noteholders of their
respective consents to this Amendment, each of the Issuer and the Servicer
hereby waives each and every claim, defense, demand, action and suit of any
kind or nature whatsoever against each of the Insurer, Trustee, Noteholder
and each of their respective directors, officers, shareholders, employees
and agents arising on or prior to the date hereof in connection with the
Indenture, any of the other Transaction Documents and the transactions
contemplated thereby.
SECTION 4. Reference to and Effect on the Indenture and the
Transaction Documents.
4.1 As of the Amendment Effective Date, each reference in the
Indenture to "this Indenture", "hereunder", "hereof", "herein", or words of
like import shall mean and be a reference to the Indenture as amended hereby,
and each reference to the Indenture in any other Transaction Document,
instrument or agreement executed and/or delivered in connection with the
Indenture shall mean and be a reference to the Indenture as amended hereby.
4.2 Except as specifically amended above and in connection
herewith, the Indenture and all other documents, instruments and agreements
executed and/or delivered in connection therewith shall remain in full
force and effect and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Trustee
or the Insurer under the Indenture or any other document, instrument or
agreement executed in connection therewith, nor constitute a waiver of any
provision contained therein, except as specifically set forth herein.
-2-
SECTION 5. Governing Law. This Amendment will be governed by and
construed in accordance with the internal laws (as opposed to any conflict
of law provisions, except Sections 5-1401 and 5-1402 of the New York General
Obligations Law) and decisions of the State of New York.
SECTION 6. Severability. Each provision of this Amendment shall
be severable from every other provision of this Amendment for the purpose of
determining the legal enforceability of any provision hereof, and the
unenforceability of one or more provisions of this Amendment in one
jurisdiction shall not have the effect of rendering such provision or
provisions unenforceable in any other jurisdiction.
SECTION 7. Execution in Counterparts. This Amendment may be
executed in one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall
be deemed to be an original, but all of which taken together shall
constitute one and the same instrument. Delivery of an executed
counterpart of a signature page to this Amendment by facsimile shall
be effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 8. Successors and Assigns. This Amendment shall be
binding upon, and shall inure to the benefit of, the parties hereto and
their respective successors and assigns.
SECTION 9. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute
a part of this Amendment for any other purpose.
[remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
AG ACCEPTANCE CORPORATION, as the Issuer
By:
-------------------------------------
Name:
Title:
AG SERVICES OF AMERICA, INC., as Servicer
By:
-------------------------------------
Name:
Title:
U.S. BANK, N.A. (successor to FIRSTAR BANK, N.A.),
as Trustee
By:
-------------------------------------
Name:
Title:
MBIA INSURANCE CORPORATION, as Insurer
By:
-------------------------------------
Name:
Title:
Schedule 3
SCHEDULED AGGREGATE OUTSTANDING AMOUNTS
Scheduled Aggregate
DATE Outstanding Amount
- ----------------------------------------------- -------------------------
From December 31, 2002 through January 30, 2003 $175,045,333
From January 31, 2003 through February 27, 2003 $118,081,000
From February 28, 2003 through March 29, 2003 $76,784,333
From March 30, 2003 through April 29, 2003 $46,939,000
From April 30, 2003 through May 30, 2003 $28,707,333
From May 31, 2003 through June 29, 2003 $4,605,667
From and after June 30, 2003 $0
CONSENT TO
AMENDMENT NO. 9
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-1 Noteholder, hereby consents
to the Amendment No. 9 to the Master Trust Indenture and Security Agreement
dated as of December 31, 2002 (the "Amendment") to which this Consent is
attached. The consent granted hereunder shall apply only to the foregoing
Amendment and shall not be deemed to be a consent to any other amendment
for which the consent of the undersigned is required.
TRIPLE-A ONE FUNDING CORPORATION, as the
Series 1999-1 Noteholder and Majority Noteholder
By: MBIA Insurance Corporation, as Attorney-in-Fact
By:
-----------------------------------------------
Name:
Title:
CONSENT TO
AMENDMENT NO. 9
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-2 Noteholder hereby consents to
the Amendment No. 9 to the Master Trust Indenture and Security Agreement
dated as of December 31, 2002 (the "Amendment") to which this Consent is
attached. The consent granted hereunder shall apply only to the foregoing
Amendment and shall not be deemed to be a consent to any other amendment for
which the consent of the undersigned is required.
COBANK, ACB, as the Series 1999-2 Noteholder
By:
-----------------------------------------
Name:
Title:
AG SERVICES OF AMERICA ,INC.
EXHIBIT 10.36
AMENDMENT NO. 10
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
THIS AMENDMENT NO. 10 TO MASTER TRUST INDENTURE AND SECURITY
AGREEMENT dated as of March 14, 2003 (this "Amendment") is entered into
by and among AG ACCEPTANCE CORPORATION, as Issuer (the "Issuer"), AG SERVICES
OF AMERICA, INC., as Servicer (the "Servicer"), U.S. BANK, N.A., (successor
to FIRSTAR BANK, N.A.), as Trustee (the "Trustee"), and MBIA INSURANCE
CORPORATION, as the Insurer (the "Insurer"). Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to such
terms in the Indenture (as defined below and amended hereby).
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer
have entered into that certain Master Trust Indenture and Security Agreement,
dated as of June 23, 1999 (as amended, restated, supplemented or otherwise
modified from time to time, the "Indenture"); and
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer
have agreed to amend the Indenture as hereinafter set forth;
NOW THEREFORE, in consideration of the premises and other mutual
covenants contained herein, the parties hereto agree as follows:
SECTION 1. Amendments. The Indenture is hereby amended as follows,
such amendment to be effective as of the date set forth in Section 2 hereof,
and subject to the satisfaction of the conditions precedent set forth in
Section 2 hereof:
1.1 The defined term "Required Reserves" contained in Section 1.01
is hereby amended to delete the percentage "18%" appearing in clause (ii)
thereof and to replace therefor the percentage "15%".
1.2 Schedule 3 (Scheduled Aggregate Outstanding Amounts) to the
Indenture is hereby deleted in its entirety and replaced therefor with
Schedule 3 attached hereto.
SECTION 2. Amendment Effective Date. This Amendment shall become
effective as of the date (the "Amendment Effective Date") on which each of
the following conditions precedent shall have been satisfied:
(a) each of the Issuer, the Servicer, the Trustee and the Insurer
shall have received a copy of this Amendment duly executed by each of
the parties hereto;
(b) either (i) the Noteholder's Consents attached to this
Amendment shall have been duly executed and delivered to the Insurer
by the Majority Noteholders of each Series of Notes; or (ii) with respect
to each Rating Agency, the Rating Agency Condition shall have been
satisfied with respect thereto;
(c) the Consent of the Liquidity Banks attached to this Amendment
shall have been duly executed and delivered to the Insurer by the
Liquidity Banks;
(d) a duly executed copy of the Securities Purchase Agreement,
dated as of February 21, 2003, between the Originator and ASP/ASA, LLC,
shall have been delivered to the Insurer; and
(e) the Insurer shall have received documentation satisfactory to
it that the "Facility A Commitment Amount" under and as defined in the
Amended and Restated Credit Agreement, dated as of December 6, 2002,
among the Originator, the various "Lenders" party thereto and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank
Nederland", New York Branch, as "Agent", has been increased to no less
than $200,000,000.
SECTION 3. Covenants, Representations and Warranties of the Issuer
and the Servicer.
3.1 Upon the effectiveness of this Amendment, (i) each of the
Issuer and the Servicer hereby reaffirms all representations and warranties
made by it in the Indenture as amended hereby (except for those
representations and warranties that relate to a specific date) and agrees
that all such covenants, representations and warranties shall be deemed to
have been remade as of the effective date of this Amendment (except for those
representations and warranties that relate to a specific date) and (ii) each
of the Issuer and the Servicer hereby represents and warrants that no Asset
Deficiency is continuing and no Event of Default or event or circumstance
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default shall have occurred and be continuing.
3.2 Each of the Issuer and the Servicer represents and warrants
that this Amendment constitutes a legal, valid and binding obligation of such
party, enforceable against it in accordance with its terms.
3.3 In consideration for the execution of this Amendment by the
Insurer and the Trustee, and the execution by the Noteholders of their
respective consents to this Amendment, each of the Issuer and the Servicer
hereby waives each and every claim, defense, demand, action and suit of any
kind or nature whatsoever against each of the Insurer, Trustee, Noteholder
and each of their respective directors, officers, shareholders, employees
and agents arising on or prior to the date hereof in connection with the
Indenture, any of the other Transaction Documents and the transactions
contemplated thereby.
3.4 The Issuer shall cause all funds made available to the Issuer
as a result of the reduction to Required Reserves set forth in Section 1.1
of this Amendment to be used by the Originator solely for the purpose of
making new Crop Loans.
SECTION 4. Reference to and Effect on the Indenture and the
Transaction Documents.
4.1 As of the Amendment Effective Date, each reference in the
Indenture to "this Indenture", "hereunder", "hereof", "herein", or words
-2-
of like import shall mean and be a reference to the Indenture as amended
hereby, and each reference to the Indenture in any other Transaction
Document, instrument or agreement executed and/or delivered in connection
with the Indenture shall mean and be a reference to the Indenture as
amended hereby.
4.2 Except as specifically amended above and in connection
herewith, the Indenture and all other documents, instruments and
agreements executed and/or delivered in connection therewith shall
remain in full force and effect and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Trustee
or the Insurer under the Indenture or any other document, instrument or
agreement executed in connection therewith, nor constitute a waiver of any
provision contained therein, except as specifically set forth herein.
SECTION 5. Governing Law. This Amendment will be governed by
and construed in accordance with the internal laws (as opposed to any
conflict of law provisions, except Sections 5-1401 and 5-1402 of the
New York General Obligations Law) and decisions of the State of New York.
SECTION 6. Severability. Each provision of this Amendment
shall be severable from every other provision of this Amendment for the
purpose of determining the legal enforceability of any provision hereof,
and the unenforceability of one or more provisions of this Amendment
in one jurisdiction shall not have the effect of rendering such provision
or provisions unenforceable in any other jurisdiction.
SECTION 7. Execution in Counterparts. This Amendment may be
executed in one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall
be deemed to be an original, but all of which taken together shall
constitute one and the same instrument. Delivery of an executed
counterpart of a signature page to this Amendment by facsimile shall
be effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 8. Successors and Assigns. This Amendment shall be
binding upon, and shall inure to the benefit of, the parties hereto and
their respective successors and assigns.
SECTION 9. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
-3-
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
AG ACCEPTANCE CORPORATION, as the Issuer
By:
-------------------------------------
Name:
Title:
AG SERVICES OF AMERICA, INC., as Servicer
By:
-------------------------------------
Name:
Title:
U.S. BANK, N.A. (successor to Firstar Bank, N.A.),
as Trustee
By:
-------------------------------------
Name:
Title:
MBIA INSURANCE CORPORATION, as Insurer
By:
-------------------------------------
Name:
Title:
Schedule 3
SCHEDULED AGGREGATE OUTSTANDING AMOUNTS
Scheduled Aggregate
DATE Outstanding Amount
- ----------------------------------------------- -------------------------
From March 14, 2003 through March 29, 2003 $76,784,333
From March 30, 2003 through April 29, 2003 $46,939,000
From April 30, 2003 through May 30, 2003 $28,707,333
From and after May 31, 2003 $0
CONSENT TO
AMENDMENT NO. 10
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-1 Noteholder, hereby consents
to the Amendment No. 10 to the Master Trust Indenture and Security Agreement
dated as of March 14, 2003 (the "Amendment") to which this Consent is
attached. The consent granted hereunder shall apply only to the foregoing
Amendment and shall not be deemed to be a consent to any other amendment for
which the consent of the undersigned is required.
TRIPLE-A ONE FUNDING CORPORATION, as the
Series 1999-1 Noteholder and Majority Noteholder
By: MBIA Insurance Corporation, as Attorney-in-Fact
By:
-----------------------------------------
Name:
Title:
CONSENT TO
AMENDMENT NO. 10
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-2 Noteholder hereby consents to
the Amendment No. 10 to the Master Trust Indenture and Security Agreement
dated as of March 14, 2003 (the "Amendment") to which this Consent is attached.
The consent granted hereunder shall apply only to the foregoing Amendment
and shall not be deemed to be a consent to any other amendment for which the
consent of the undersigned is required.
COBANK, ACB, as the Series 1999-2 Noteholder
By:
-----------------------------------------
Name:
Title:
CONSENT
Dated as of March 14, 2003
Each of the undersigned, as a Liquidity Bank party to that certain
Liquidity Agreement dated as of June 23, 1999 (as amended, restated,
supplemented or otherwise modified from time to time, the "Liquidity
Agreement") by and among TRIPLE-A ONE FUNDING CORPORATION (the "Liquidity
Borrower"), the Liquidity Banks party thereto, and COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A. "RABOBANK NEDERLAND", NEW YORK BRANCH,
as agent (the "Liquidity Agent"), hereby consents to Amendment No. 10 to
the Master Trust Indenture and Security Agreement dated as of March 14, 2003
(the "Amendment"). The consent granted hereunder shall apply only to the
Amendment and shall not be deemed to be a consent to any other amendment
for which the consent of the undersigned is required.
IN WITNESS WHEREOF, the parties hereto have caused this Consent to
be executed by their respective officers thereto duly authorized as of the
date first written above.
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
"RABOBANK NEDERLAND", NEW YORK BRANCH,
as a Liquidity Bank, as Liquidity Agent and as
Liquidity Collateral Agent
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
U.S. BANK, N.A. (successor to Firstar Bank, N.A.),
as a Liquidity Bank
By:
---------------------------------------
Name:
Title:
WELLS FARGO BANK, N.A.,
as a Liquidity Bank
By:
---------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as a Liquidity Bank
By:
--------------------------------------
Name:
Title:
NATIONAL AUSTRALIA BANK LIMITED,
as a Liquidity Bank
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
AG SERVICES OF AMERICA ,INC.
EXHIBIT 10.37
AMENDMENT NO. 11
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
THIS AMENDMENT NO. 11 TO MASTER TRUST INDENTURE AND SECURITY
AGREEMENT dated as of April 30, 2003 (this "Amendment") is entered into
by and among AG ACCEPTANCE CORPORATION, as Issuer (the "Issuer"), AG
SERVICES OF AMERICA, INC., as Servicer (the "Servicer"), U.S. BANK, N.A.,
(successor to FIRSTAR BANK, N.A.), as Trustee (the "Trustee"), and MBIA
INSURANCE CORPORATION, as the Insurer (the "Insurer"). Capitalized terms
used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Indenture (as defined below and amended
hereby).
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer
have entered into that certain Master Trust Indenture and Security
Agreement, dated as of June 23, 1999 (as amended, restated, supplemented
or otherwise modified from time to time, the "Indenture"); and
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer
have agreed to amend the Indenture as hereinafter set forth;
NOW THEREFORE, in consideration of the premises and other mutual
covenants contained herein, the parties hereto agree as follows:
SECTION 1. Amendments. The Indenture is hereby amended as follows,
such amendment to be effective as of the date set forth in Section 2 hereof,
and subject to the satisfaction of the conditions precedent set forth in
Section 2 hereof:
1.1 The defined term "Defaulted Loan" contained in Section 1.01
is hereby amended to delete the phrase "15 months" appearing in both clause
(i)(A)(i) and (i)(A)(ii) thereof and to replace therefor, in each case,
the phrase "16 months and 15 days".
1.2 Clause Second of Section 4.03(d) is hereby deleted in its
entirety and replaced with the following therefor:
Second, to be distributed to Noteholders to reduce the
Outstanding Principal Balance of all Notes in accordance with their
Series Allocation Percentages (as calculated on the Wind Down Date)
until the Outstanding Principal Balances of such Notes have been
reduced to zero;
1.3 Section 9.01(x) is hereby deleted in its entirety and
replaced with the following therefor:
(x) The Aggregate Outstanding Amount shall be greater than zero
on June 15, 2003; or
SECTION 2. Amendment Effective Date. This Amendment shall become
effective as of the date (the "Amendment Effective Date") on which each of
the following conditions precedent shall have been satisfied:
(a) each of the Issuer, the Servicer, the Trustee and the Insurer
shall have received a copy of this Amendment duly executed by each of
the parties hereto;
(b) either (i) the Noteholder's Consents attached to this Amendment
shall have been duly executed and delivered to the Insurer by the
Majority Noteholders of each Series of Notes; or (ii) with respect to
each Rating Agency, the Rating Agency Condition shall have been
satisfied with respect thereto; and
(c) the Consent of the Liquidity Banks attached to this Amendment
shall have been duly executed and delivered to the Insurer by the
Liquidity Banks.
SECTION 3. Covenants, Representations and Warranties of the Issuer
and the Servicer.
3.1 Upon the effectiveness of this Amendment, (i) each of the Issuer
and the Servicer hereby reaffirms all representations and warranties made by
it in the Indenture as amended hereby (except for those representations and
warranties that relate to a specific date) and agrees that all such covenants,
representations and warranties shall be deemed to have been remade as of the
effective date of this Amendment (except for those representations and
warranties that relate to a specific date) and (ii) each of the Issuer and
the Servicer hereby represents and warrants that no Asset Deficiency is
continuing and no Event of Default or event or circumstance which, with the
giving of notice or the passage of time, or both, would constitute an Event
of Default shall have occurred and be continuing.
3.2 Each of the Issuer and the Servicer represents and warrants
that this Amendment constitutes a legal, valid and binding obligation of
such party, enforceable against it in accordance with its terms.
3.3 In consideration for the execution of this Amendment by the
Insurer and the Trustee, and the execution by the Noteholders of their
respective consents to this Amendment, each of the Issuer and the Servicer
hereby waives each and every claim, defense, demand, action and suit of
any kind or nature whatsoever against each of the Insurer, Trustee, Noteholder
and each of their respective directors, officers, shareholders, employees
and agents arising on or prior to the date hereof in connection with the
Indenture, any of the other Transaction Documents and the transactions
contemplated thereby.
SECTION 4. Reference to and Effect on the Indenture and the
Transaction Documents.
4.1 As of the Amendment Effective Date, each reference in the
Indenture to "this Indenture", "hereunder", "hereof", "herein", or words of
like import shall mean and be a reference to the Indenture as amended hereby,
and each reference to the Indenture in any other Transaction Document,
-2-
instrument or agreement executed and/or delivered in connection with the
Indenture shall mean and be a reference to the Indenture as amended hereby.
4.2 Except as specifically amended above and in connection
herewith, the Indenture and all other documents, instruments and agreements
executed and/or delivered in connection therewith shall remain in full force
and effect and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Trustee
or the Insurer under the Indenture or any other document, instrument or
agreement executed in connection therewith, nor constitute a waiver of any
provision contained therein, except as specifically set forth herein.
SECTION 5. Governing Law. This Amendment will be governed by and
construed in accordance with the internal laws (as opposed to any conflict
of law provisions, except Sections 5-1401 and 5-1402 of the New York General
Obligations Law) and decisions of the State of New York.
SECTION 6. Severability. Each provision of this Amendment shall
be severable from every other provision of this Amendment for the purpose
of determining the legal enforceability of any provision hereof, and the
unenforceability of one or more provisions of this Amendment in one
jurisdiction shall not have the effect of rendering such provision or
provisions unenforceable in any other jurisdiction.
SECTION 7. Execution in Counterparts. This Amendment may be
executed in one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall
be deemed to be an original, but all of which taken together shall constitute
one and the same instrument. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile shall be effective as
delivery of a manually executed counterpart of this Amendment.
SECTION 8. Successors and Assigns. This Amendment shall be binding
upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns.
SECTION 9. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute
a part of this Amendment for any other purpose.
[remainder of page intentionally left blank]
-3-
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
AG ACCEPTANCE CORPORATION, as the Issuer
By:
-------------------------------------
Name:
Title:
AG SERVICES OF AMERICA, INC., as Servicer
By:
-------------------------------------
Name:
Title:
U.S. BANK, N.A. (successor to Firstar Bank, N.A.),
as Trustee
By:
--------------------------------------
Name:
Title:
MBIA INSURANCE CORPORATION, as Insurer
By:
--------------------------------------
Name:
Title:
CONSENT TO
AMENDMENT NO. 11
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-1 Noteholder, hereby consents
to the Amendment No. 11 to the Master Trust Indenture and Security Agreement
dated as of April 30, 2003 (the "Amendment") to which this Consent is
attached. The consent granted hereunder shall apply only to the foregoing
Amendment and shall not be deemed to be a consent to any other amendment
for which the consent of the undersigned is required.
TRIPLE-A ONE FUNDING CORPORATION, as the
Series 1999-1 Noteholder and Majority Noteholder
By: MBIA Insurance Corporation, as Attorney-in-Fact
By:
--------------------------------------
Name:
Title:
CONSENT TO
AMENDMENT NO. 11
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-2 Noteholder hereby consents
to the Amendment No. 11 to the Master Trust Indenture and Security Agreement
dated as of April 30, 2003 (the "Amendment") to which this Consent is
attached. The consent granted hereunder shall apply only to the foregoing
Amendment and shall not be deemed to be a consent to any other amendment
for which the consent of the undersigned is required.
COBANK, ACB, as the Series 1999-2 Noteholder
By:
--------------------------------------
Name:
Title:
CONSENT
Dated as of April 30, 2003
Each of the undersigned, as a Liquidity Bank party to that certain
Liquidity Agreement dated as of June 23, 1999 (as amended, restated,
supplemented or otherwise modified from time to time, the "Liquidity
Agreement") by and among TRIPLE-A ONE FUNDING CORPORATION (the "Liquidity
Borrower"), the Liquidity Banks party thereto, and COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A. "RABOBANK NEDERLAND", NEW YORK BRANCH,
as agent (the "Liquidity Agent"), hereby consents to Amendment No. 11
to the Master Trust Indenture and Security Agreement dated as of
April 30, 2003 (the "Amendment"). The consent granted hereunder shall
apply only to the Amendment and shall not be deemed to be a consent to any
other amendment for which the consent of the undersigned is required.
IN WITNESS WHEREOF, the parties hereto have caused this Consent
to be executed by their respective officers thereto duly authorized as of
the date first written above.
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
"RABOBANK NEDERLAND", NEW YORK BRANCH,
as a Liquidity Bank, as Liquidity Agent and as
Liquidity Collateral Agent
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
U.S. BANK, N.A. (successor to Firstar Bank, N.A.),
as a Liquidity Bank
By:
----------------------------------------
Name:
Title:
WELLS FARGO BANK, N.A.,
as a Liquidity Bank
By:
----------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as a Liquidity Bank
By:
---------------------------------------
Name:
Title:
NATIONAL AUSTRALIA BANK LIMITED,
as a Liquidity Bank
By:
---------------------------------------
Name:
Title:
AG SERVICES OF AMERICA ,INC.
EXHIBIT 10.38
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT (this "Amendment"), dated as of
February 25, 2003, is among AG SERVICES OF AMERICA, INC., an Iowa
corporation (the "Borrower"), various Lenders, and COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH,
as agent (in such capacity, the "Agent") for the Lenders.
RECITALS
The parties described above are parties to an Amended and Restated
Credit Agreement dated as of December 11, 2002 (the "Original Agreement").
The Borrower has requested certain increases in the credit
facilities provided under the Original Agreement.
The Required Lenders have agreed to accommodate the foregoing request
pursuant to the terms and conditions of this Amendment.
ACCORDINGLY, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Original Agreement Definitions. Terms defined in the Original
Agreement shall have the same meaning when used herein unless otherwise
expressly indicated.
ARTICLE II
AMENDMENTS
2.1 Amendment to Original Agreement Definitions. Section 1.1 of the
Original Agreement is hereby amended to add or amend, as the case may be,
the following definitions in their appropriate alphabetical position:
(a) '"Aggregate Primary Facility A Commitment Amount': As of any
date, the sum of the Primary Facility A Commitment Amounts."
(b) '"Aggregate Secondary Facility A Commitment Amount': As of any
date, the sum of the Secondary Facility A Commitment Amounts."
(c) The definition of "Borrowing Base A" is amended in its entirety
to read as follows:
'"Borrowing Base A': An amount equal to 77.5% of the sum of:
(a) the aggregate Principal Balance plus accrued interest of
all Eligible 2003 Advances made in respect of 2003 Secured
Loans;
(b) the aggregate Principal Balance plus accrued interest of
all Eligible 2003 Advances made in respect of 2003
Unsecured Loans (up to a combined limit of $15,000,000);
less
(c) the 2003 Credit Factor Concentration Limit Excess."
(d) The definition of "Eligible 2003 Advance" is amended by
amending clause (d) of such definition to read in its entirety as
follows:
"(d) the related 2003 Loan, when aggregated with all other
2003 Loans, does not cause the Borrower Loan Commitments with
respect to 2003 Loans to exceed $230,000,000;"
(e) '"Facility A Commitment Amount': With respect to a Lender,
the amount set forth as such Lender's Facility A Commitment Amount
opposite such Lender's name on the signature pages to the First
Amendment, as the same may be reduced from time to time pursuant to
Section 2.8 or Section 9.6; provided, however, that a Lender's
Facility A Commitment Amount shall be reduced to the extent necessary
to ensure that the sum of such Lender's Facility A Commitment Amount,
such Lender's Facility B Commitment Amount and such Lender's Liquidity
Commitment does not exceed the aggregate amounts set forth for the
particular Lenders below:
Rabobank: $170,000,000
U.S. Bank: $55,000,000."
(f) '"Facility A Unused Commitment': With respect to any Lender
as of any date, the sum of (i) the amount by which such Lender's
Primary Facility A Commitment Amount exceeds such Lender's Primary
Facility A Percentage of the Total Facility A Outstandings on such date
(for purposes of this clause (i) such Total Facility A Outstandings
shall be the actual Total Facility A Outstandings on such date up to a
maximum amount equal to the then applicable Aggregate Primary Facility
A Commitment Amount), and (ii) the amount by which such Lender's
Secondary Facility A Commitment Amount exceeds such Lender's Secondary
Facility A Percentage of the Total Facility A Outstandings on such date
(for purposes of this clause (ii) such Total Facility A Outstandings
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shall be the actual Total Facility A Outstandings on such date in excess
of the then applicable Aggregate Primary Facility A Commitment Amount)."
(g) "'First Amendment': The First Amendment to this Agreement
dated as of February 25, 2003 among the Borrower, the Agent and the
Required Lenders."
(h) '"Facility A Percentage': With respect to any Lender, the
percentage equivalent of a fraction, the numerator of which is such
Lender's Facility A Commitment Amount and the denominator of which
is the Aggregate Facility A Commitment Amount, or, if either (i) there
are no remaining Facility A Commitments, or (ii) such term is being
used to allocate payments owing to the A Lenders among the A Lenders,
such Lender's share of the Total Facility A Outstandings."
(i) '"Primary Facility A Commitment Amount': With respect to a
Lender, that portion of such Lender's Facility A Commitment Amount
described as follows (i) with respect to Rabobank, $70,000,000, and
(ii) with respect to U.S. Bank, $30,000,000; provided, however, that
each such amount may be reduced pro-rata as required to comply with
the proviso contained in the definition of Facility A Commitment
Amount regarding the aggregate credit exposure of the A Lenders to
the Borrower."
(j) '"Primary Facility A Percentage': With respect to a Lender,
the percentage equivalent of a fraction, the numerator of which is
such Lender's Primary Facility A Commitment Amount and the denominator
of which is the Aggregate Primary Facility A Commitment Amount."
(k) '"Secondary Facility A Commitment Amount': With respect to a
Lender, such Lender's Facility A Commitment Amount minus such Lender's
Primary Facility A Commitment Amount."
(l) '"Secondary Facility A Percentage': With respect to a Lender,
the percentage equivalent of a fraction, the numerator of which is such
Lender's Secondary Facility A Commitment Amount and the denominator of
which is the Aggregate Secondary Facility A Commitment Amount."
(m) '"Union Planters': Union Planters Bank, N.A., a national
banking association.
(n) '"U.S. Bank': U.S. Bank National Association, a national
banking association, in its individual capacity."
2.2 Amendment to Section 2.1 of the Original Agreement. Clause
(a) of Section 2.1 of the Original Agreement is hereby amended in its
entirety as follows:
"(a) A Loans. Each Lender with a Facility A Commitment Amount
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set forth opposite its signature to the First Amendment agrees,
severally and for itself alone, to make revolving loans (each, an
"A Loan" and, collectively, the "A Loans") to the Borrower from time
to time on any Business Day from the Restatement Date to the
Termination Date applicable to Facility A, during which period the
Borrower may borrow, repay and reborrow in accordance with the
provisions hereof, provided, however, that no A Loan will be made in
any amount which, after giving effect thereto, would cause (i) the
Total Facility A Outstandings to exceed the Aggregate Facility A
Commitment Amount, (ii) U.S. Bank's share of the Total Facility A
Outstandings to exceed an amount equal to the product of (1) its
Primary Facility A Percentage, and (2) the Aggregate Primary Facility A
Commitment Amount less the then unused portion of the Aggregate
Primary Facility A Commitment Amount, (iii) Rabobank's share of the
Total Facility A Outstandings to exceed its Facility A Percentage, or
(iv) the Total Facility A Outstandings to exceed Borrowing Base A.
A Loans hereunder up to the Aggregate Primary Facility A Commitment
Amount shall be made by the several Lenders ratably in accordance
with their respective Primary Facility A Percentages. A Loans
hereunder in excess of the Aggregate Primary Facility A Commitment
Amount shall be made by the several Lenders ratably in accordance
with their respective Secondary Facility A Percentages. Notwithstanding
any provision of this Section 2.1 or any other provision of this
Agreement to the contrary, Rabobank shall have no obligation to make
A Loans in excess of its Primary Facility A Commitment Amount unless
(A) the aggregate outstanding principal amount of all A Loans made by
each Lender (including, with respect to a Lender, only those A Loans
made by that individual Lender) are not less than such Lender's Primary
Facility A Commitment Amount (without giving effect to any potential
reduction in such amount resulting from the proviso in the definition
of Primary Facility A Commitment Amount), and (B) the Total Facility B
Outstanding Amount is not then less than the Aggregate Facility B
Commitment Amount. A Loans may be obtained and maintained, at the
election of the Borrower, but subject to the limitations hereof,
as Base Rate Advances or Eurodollar Rate Advances."
2.3 Amendment to Section 2.2 of the Original Agreement. Section 2.2(a)
of the Original Agreement is hereby amended by removing the second to last
sentence of such Section and replacing it with the following text:
"At or before 1:30 p.m., New York City time, on the date of the requested
Loans, each Lender shall provide the Agent, at the Agent's principal
office in New York City, with Immediately Available Funds covering such
Lender's (i) Primary Facility A Percentage of any requested A Loan(s)
which, after giving effect thereto, do not cause the Total Facility A
Outstandings to exceed the Aggregate Primary Facility A Commitment
Amount, (ii) Secondary Facility A Percentage of any requested A Loan(s)
which, after giving effect thereto, cause the Total Facility A
Outstandings to exceed the Aggregate Primary Facility A Commitment
Amount, and (iii) Facility B Percentage of any requested B Loan(s)."
2.4 Amendment to Section 2.7 of the Original Agreement. Section 2.7 of
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the Original Agreement is hereby amended by adding clause (iii) thereto
as follows:
"(iii) Payment Facilitating Reduction of Rabobank Facility B
Commitment Amount. The Borrower, on or prior to its execution and
delivery of the First Amendment, has provided the Agent with
$5,000,000 for purposes of implementing the permanent reduction of
Rabobank's Facility B Commitment Amount as further described in
Section 2.8(ii), such amount to be applied as set forth and
described in Section 8.10A(c)."
2.5 Amendment to Section 2.8 of the Original Agreement. Section 2.8
of the Original Agreement is hereby amended in its entirety to read as
follows:
"(i) Facility A Commitment Amounts. The Borrower may, at any
time, upon not less than five Business Days prior written notice to
the Agent, reduce the Facility A Commitment Amounts, ratably, with
any such reduction in a minimum aggregate amount for all the Lenders
of $100,000, or, if more, in an integral multiple of $100,000;
provided, however, that (1) the Borrower may not at any time
reduce the Aggregate Facility A Commitment Amount below the
Total Facility A Outstandings, (2) any reductions with respect
to the Facility A Commitment Amount shall be applied (A) first,
to Rabobank's Secondary Facility A Commitment Amount, and (B) then,
ratably, to each Lender's Primary Facility A Commitment Amount, and
(3) after giving effect to the reduction priorities in (2) above,
no Lender's share of the Total Facility A Outstandings shall exceed
the sum of its Primary Facility A Commitment Amount and its
Secondary Facility A Commitment Amount. The foregoing reductions
are independent of any reductions required by the proviso in the
definition of Facility A Commitment Amount. The Borrower may,
upon not less than thirty Business Days prior written notice to
the Agent, terminate the Facility A Commitments in their entirety.
Upon termination of the Facility A Commitments pursuant to this
Section 2.8, the Borrower shall pay to the Agent for the account
of the Lenders the full amount of all outstanding Advances of
A Loans, all accrued and unpaid interest thereon, all unpaid
Facility A Commitment Fees accrued to the date of such termination,
any indemnities payable with respect to Advances pursuant to
Sections 2.14, 2.15, 2.16, and 2.17 and all other unpaid
Obligations of the Borrower hereunder in respect of A Loans.
(ii) Facility B Commitment Amounts. The Borrower may, at any
time, upon not less than five Business Days prior written notice to
the Agent, reduce the Facility B Commitment Amounts, ratably, with
any such reduction in a minimum aggregate amount for all the Lenders
of $100,000, or, if more, in an integral multiple of $100,000;
provided, however, that the Borrower may not at any time reduce
the Aggregate Facility B Commitment Amount below the Total
Facility B Outstandings. The Borrower may, upon not less than
thirty Business Days prior written notice to the Agent, terminate
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the Facility B Commitments in their entirety. Upon termination of
the Facility B Commitments pursuant to this Section 2.8, the
Borrower shall pay to the Agent for the account of the Lenders the
full amount of all outstanding Advances of B Loans, all accrued
and unpaid interest thereon, all unpaid Facility B Commitment Fees
accrued to the date of such termination, any indemnities payable
with respect to Advances pursuant to Sections 2.14, 2.15, 2.16,
and 2.17 and all other unpaid Obligations of the Borrower hereunder
in respect of B Loans. Notwithstanding any provision of this
Section 2.8 or any other provision of this Agreement to the contrary,
Rabobank's Facility B Commitment Amount shall, on and after giving
effect to the First Amendment, be reduced by $5,000,000 (on and
after giving effect to such reduction, Rabobank's Facility B
Commitment Amount will be $45,000,000). Such reduction is
independent of any other reduction in the Facility A Commitment
Amounts and/or Facility B Commitment Amounts made or to be made
under this Agreement."
2.6 Amendment to Section 6.2 of the Original Agreement. Section 6.2 of
the Original Agreement is hereby amended by amending clause (i) thereof in its
entirety to read as follows:
"(i) the following Liens on the Headquarters in favor of Union
Planters: (1) a first mortgage Lien securing Indebtedness not to
exceed $3,920,000, and (2) a second mortgage Lien securing
Indebtedness not to exceed $1,200,000.
2.7 Amendment to Section 6.25 of the Original Agreement. Section 6.25
of the Original Agreement is hereby amended in its entirety to read as
follows:
"Section 6.25 Borrower Loan Commitments. Make Borrower Loan
Commitments (a) with respect to 2003 Loans in excess of $230,000,000,
(b) with respect to 2003 Unsecured Loans in excess of $20,000,000,
(c) for any Intermediate Loans (as defined in the Indenture), or
(d) for any 2004 Loans."
2.8 Amendment to Section 7.1 of the Original Agreement. Clause (p)
is hereby added to Section 7.1 of the Original Agreement as follows:
"(p) American Securities Capital Partners shall fail to make
an equity contribution of not less than $35,000,000 to the Borrower
on or prior to March 31, 2003."
2.9 Amendment to Section 8.10A of the Original Agreement. Clause (a)
of Section 8.10A is hereby amended to read in its entirety as follows:
"(a) Subject to Section 8.10B, all funds received by the Agent
in respect of any payments made by or on behalf of the Borrower on
the A Notes or the Facility A Commitment Fees shall be distributed
forthwith by the Agent among the A Lenders, in like currency and
funds as received, ratably according to each A Lender's Facility A
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Percentage; provided, however, that notwithstanding the foregoing,
all payments of principal (but not Facility A Commitment Fees which
shall still be paid in accordance with the first clause of this
subsection (a)) made by the Borrower in respect of A Loans shall
be made to the Agent solely for the account of Rabobank until the
Total Facility A Outstandings have been reduced to the then
applicable Aggregate Primary Facility A Commitment Amount, after
which point principal payments allocable to Facility A shall be
applied as otherwise provided by the other terms of this Agreement
and the Loan Documents."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties. To induce the Required Lenders
to enter into this Amendment, the Borrower hereby represents and warrants
to the Required Lenders as follows:
(a) The Borrower's execution, delivery and performance of this
Amendment (and of the Original Agreement as amended by this Amendment)
and the A Note described in Section 4.1(b) have been duly authorized
by all necessary corporate or other organizational action, and do not
and will not (i) contravene the terms of any of the Borrower's
organizational documents; (ii) conflict with or result in any breach
or contravention of, or the creation of any Lien under, any contractual
obligation to which the Borrower is a party or any order, injunction,
writ or decree of any Governmental Body to which the Borrower, any of
its Restricted Subsidiaries, or any of their respective properties is
subject; or (iii) violate any law, rule or regulation.
(b) This Amendment, the Original Agreement (as amended by the
Amendment), the A Note described in Section 4.1(b) and the other
Loan Documents are the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their
respective terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, moratorium and other laws applicable to
creditors' rights generally and by general principles of equity.
(c) No action, suit or proceeding is pending or, to the
Borrower's knowledge, threatened against the Borrower or any of its
Restricted Subsidiaries that could have a material adverse effect on
the business, operations, property, assets or condition, financial or
otherwise, of the Borrower or any of its Restricted Subsidiaries.
(d) The incumbency certificate delivered in connection with the
Original Agreement remains true, correct and in full force and effect.
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ARTICLE IV
CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT
4.1 Conditions to Effectiveness of this Amendment. This Amendment shall
become effective when the Agent shall have received the following:
(a) This Amendment, duly executed by the Borrower and each
Required Lender;
(b) A new A Note in favor of Rabobank in the amount of its
revised Facility A Commitment, made and given in substitution for
and replacement of, but not payment of, its existing A Note;
(c) Certificates indicating that (i) the execution, delivery
and performance of this Amendment and the Original Agreement as
amended hereby and the A Note described in clause (b) above have
each been duly authorized by all necessary company action on behalf
of the Borrower, including resolutions of the Borrower's board of
directors, and (ii) the certificate of incorporation and the by-laws
of the Borrower which were certified and delivered to the Agent in
connection with the execution and delivery of the Original Agreement
continue in full force and effect and have not been amended or
otherwise modified except as set forth in the certificate to be
delivered, certified as of the date of this Amendment by the
Secretary or an Assistant Secretary of the Borrower;
(d) An opinion, satisfactory to the Required Lenders in form
and substance, of Linda Kobliska, Esquire addressed to the Agent
and the Required Lenders and dated as of the date of this Amendment;
(e) A letter acknowledgement and consent from Powerfarm in favor
of the Agent and the Required Lenders acknowledging receipt of this
Amendment, the A Note described in clause (b) above and consenting to
the Borrower's execution and delivery of the same;
(f) an executed agreement between the Borrower and American
Securities Capital Partners ("ASCP") pursuant to which ASCP agrees,
subject to certain conditions precedent, to make equity contributions
to the Borrower in an aggregate amount of at least $70,000,000, in
form and substance (including, without limitation, as to any conditions
precedent to such equity contributions) satisfactory to the Agent;
together with a separate "highly confident" letter from FCS Advisers
as to the consummation of such equity contributions, in form and
substance satisfactory to the Agent;
(g) A fee letter between the Borrower and Rabobank, duly
executed by both parties; and
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(h) Payment of all fees of counsel to the Agent invoiced as
of the date of this Amendment.
ARTICLE V
MISCELLANEOUS
5.1 Reference to and Effect on the Original Agreement and the other
Loan Documents.
(a) The Original Agreement, as hereby amended, and the other
Loan Documents remain in full force and effect and are hereby
ratified and confirmed.
(b) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of the Agent or the Lenders under the
Original Agreement or any of the other Loan Documents, nor constitute
a waiver of any provision thereof.
(c) This Amendment constitutes a Loan Document as such term is
used in the Original Agreement as amended hereby.
5.2 Continuation of Representations and Warranties. The Borrower
represents and warrants to the Agent and the Lenders that on and as of
the date hereof and after giving effect to this Amendment, (i) all of
the representations and warranties contained in the Original Agreement
are correct and complete in all material respects as of the date hereof,
as though made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date,
in which case they were true and correct as of such earlier date, and
(ii) no Default or Event of Default shall have occurred and be continuing.
5.3 Merger and Integration, Superseding Effect. This Amendment,
from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto and supersedes and has merged
into it all prior oral and written agreements on the same subjects by
and between the parties hereto with the effect that this Amendment shall
control.
5.4 Expenses. As provided in Section 9.2 of the Original Agreement,
the Borrower agrees to pay all of the expenses, including reasonable
attorney's fees and expenses, incurred by the Agent in connection with
this Amendment.
5.5 Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the
same instrument, and either of the parties hereto may execute this
Amendment by signing any such counterpart.
5.6 Successors. This Amendment shall be binding upon the Borrower,
the Agent and the Lenders and their respective successors and assigns,
and shall inure to the benefit of the Borrower, the Agent and the Lenders
and the successors and assigns of the Borrower, the Agent and Lenders.
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5.7 Headings. The headings of various sections of this Amendment
have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
5.8 Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY
OF THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW).
5.9 Borrower Acknowledgements. The Borrower hereby acknowledges
(a) receipt of a copy of each Loan Document and each other document and
agreement executed in connection with this Amendment or the Obligations
under any Loan Document, (b) that it has been advised by counsel in
the negotiation, execution and delivery of this Amendment and the other
Loan Documents, (c) that neither the Agent nor any Lender has any
fiduciary relationship to the Borrower, the relationship being solely
that of debtor and creditor, (d) that no joint venture exists between
the Borrower and the Agent or any Lender, and (e) that neither the
Agent nor any Lender undertakes any responsibility to the Borrower to
review or inform the Borrower of any matter in connection with any
phase of the business or operations of the Borrower and the Borrower
shall rely entirely upon its own judgment with respect to its business,
and any review, inspection or supervision of, or information supplied
to, the Borrower by the Agent or any Lender is for the protection of
the Lenders and neither the Borrower nor any third party is entitled
to rely thereon.
[Signature Pages Follow]
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IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AMENDMENT SHOULD
BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE.
NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT
OR IN THE OTHER LOAN DOCUMENTS MAY BE LEGALLY ENFORCED. YOU MAY CHANGE
THE TERMS OF THIS AMENDMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
AG SERVICES OF AMERICA, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Facility A Commitment Amount COOPERATIEVE CENTRALE RAIFFEISEN-
$170,000,000 BOERENLEENBANK B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH,
individually and as Agent
By:
-------------------------------
Title:
----------------------------
By:
-------------------------------
Title:
----------------------------
[Signature Page One of Two to First Amendment]
Facility A Commitment Amount U.S. BANK NATIONAL ASSOCIATION,
$30,000,000
By:
-------------------------------
Title:
---------------------------
[Signature Page Two of Two to First Amendment]
AG SERVICES OF AMERICA ,INC.
EXHIBIT 10.39
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT (this "Amendment"), dated as of March 28, 2003,
is among AG SERVICES OF AMERICA, INC., an Iowa corporation (the "Borrower"),
various Lenders, and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH, as agent (in such capacity, the
"Agent") for the Lenders.
RECITALS
--------
The parties described above are parties to an Amended and Restated
Credit Agreement dated as of December 11, 2002 and amended as of
February 25, 2003 (as so amended, the "Original Agreement").
The Borrower has requested certain changes to the credit facilities
provided under the Original Agreement, and the Required Lenders have agreed
to accommodate the foregoing requests pursuant to the terms and conditions
of this Amendment.
ACCORDINGLY, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Original Agreement Definitions. Terms defined in the Original
Agreement shall have the same meaning when used herein unless otherwise
expressly indicated.
ARTICLE II
AMENDMENTS
2.1 Amendment to Original Agreement Definitions. Section 1.1 of the
Original Agreement is hereby amended to add or amend, as the case may be,
the following definitions in their appropriate alphabetical position:
(a) The definition of "Applicable Margin" is amended by deleting
the references to the date "March 31, 2003" and inserting in their
place the date "June 15, 2003".
(b) Clause (j) of the definition of "Eligible Advance" is
amended by deleting the date "March 31, 2003" and inserting in its
place the date "June 15, 2003".
(c) The definition of "Eligible 2003 Advance" is amended by
amending clauses (c) and (d) of such definition to read in their
entirety as follows:
"(c) the aggregate Principal Balance plus accrued interest
on all 2003 Loans made to a given Obligor (as if such Obligor and
all of such Obligor's Affiliates were one Obligor) does not exceed
(i) $4,000,000, in the case of Obligors who did not have an existing
credit relationship with the Borrower at the time of the relevant
initial 2003 Loan, or (ii) $5,000,000, in the case of Obligors
who had an existing credit relationship with the Borrower at the
time of the relevant initial 2003 Loan;
(d) the related 2003 Loan, when aggregated with all other 2003
Loans, does not cause the Borrower Loan Commitments with respect to
2003 Loans to exceed the sum of (i) $230,000,000 and (ii) the
aggregate principal amount of Obligor Risk Participations that one
or more Persons are willing to purchase from the Borrower, as
evidenced by letters from such Persons to the Agent in form and
substance satisfactory to the Agent, subject to an overall limit
in any event of $260,000,000;"
(d) The definition of "Facility B Commitment Amount" is amended
in its entirety to read as follows:
"'Facility B Commitment Amount': With respect to a Lender,
the amount set forth as such Lender's Facility B Commitment Amount
opposite such Lender's name on the signature pages to the Second
Amendment, as the same may be reduced from time to time pursuant
to Section 2.8 or Section 9.6."
(e) "'Intercreditor Agreement"': The Intercreditor Agreement dated
as of April 23, 1998 and amended as of June 23, 1999 between the Borrower
and Ag Acceptance, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with its terms."
(f) "'Management Group Subordination Agreement': The Management
Group Subordination Agreement dated as of March 28, 2003, relating to
the Management Group Indebtedness, among the Management Group and the
Agent (and acknowledged by the Borrower), as the same may be amended,
supplemented or otherwise modified from time to time in accordance with
its terms."
(g) The definition of "Obligor Risk Participations" is amended in
its entirety to read as follows:
"'Obligor Risk Participations': participations in Loans (as
defined in the Indenture) (a) not held by Ag Acceptance, (b) not
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constituting "Subject Loans" under the Intercreditor Agreement,
(c) not included in either Borrowing Base A or Borrowing Base B,
(d) for which the Obligor thereon is not an Obligor on or guarantor
of any other Loan in either Borrowing Base A or Borrowing Base B,
(e) in which participations have not been sold by the Borrower to
Ag Acceptance or another Affiliate of the Borrower and (f) which the
Borrower has certified to the Agent (prior to the effectiveness of
such participations) as being of comparable or lesser credit quality
and of comparable or longer maturity as compared to the Eligible
Advances comprising Borrowing Base A or Borrowing Base B, as the
case may be, and otherwise not selected in a manner that is adverse
to the interests of the Lenders."
(h) The definition of "PHI Agreement" is amended in its entirety
to read as follows:
"'PHI Agreement': A Security Interest Subordination Agreement
in form and substance satisfactory to the Agent, to be dated as of
March 28, 2003, from PHI to the Agent and the Secured Parties, as
the same may be amended, supplemented or otherwise modified from
time to time with the Agent's prior written consent."
(i) "'Second Amendment': The Second Amendment to this Agreement
dated as of March 28, 2003 among the Borrower, the Agent and the Lenders."
(j) Clause (ii) of the definition of "Termination Date" is amended
by deleting the date "March 31, 2003" and inserting in its place the date
"June 15, 2003".
2.2 Amendment to Section 2.1 of the Original Agreement. Section 2.1(b)
of the Original Agreement is hereby amended by deleting the second sentence
thereof, which read as follows:
"Notwithstanding anything in this Agreement or any other Loan
Document to the contrary, each disbursement of B Loans shall be made
exclusively by Rabobank to the extent that, after giving effect to such
disbursement, the Total Facility B Outstandings would exceed $45,000,000."
2.3 Amendment to Section 5.10 of the Original Agreement. Section 5.10
of the Original Agreement is hereby amended in its entirety to read as follows:
"Section 5.10 Post-Closing Matters. Deliver or cause to be
delivered, no later than April 15, 2003, documents in form and substance
satisfactory to the Agent granting the Agent, for the benefit of the
Secured Parties, a third mortgage Lien on the Headquarters."
2.4 Amendment to Section 6.2 of the Original Agreement. Section 6.2 of
the Original Agreement is hereby amended by amending clauses (i), (k) and
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(n) thereof in their entirety to read as follows:
"(i) the following Liens on the Headquarters: (1) a first mortgage
Lien securing Indebtedness of the Borrower owed to Union Planters not
to exceed $3,920,000; and (2) subject to the Management Group
Subordination Agreement, one or more second mortgage Liens securing the
Management Group Indebtedness not to exceed $1,200,000.
(k) Liens subject to the PHI Agreement (after such agreement and
all acknowledgements attached thereto have been duly executed and
delivered by all of the parties thereto and such agreement and such
acknowledgements have been delivered to the Agent) and Liens arising
or permitted under the Securitization Documents;
(n) Liens in favor of the relevant participants on underlying
Loans (as defined in the Indenture) that are the subject of Obligor Risk
Participations that are permitted under this Agreement."
2.5 Amendment to Section 6.24 of the Original Agreement. Section 6.24
of the Original Agreement is hereby amended in its entirety to read as
follows:
"Section 6.24 Obligor Risk Participations. Sell Obligor Risk
Participations (a) in any "Subject Loans" (as defined in the
Intercreditor Agreement), (b) relating to Loans other than 2003 Loans
if the Borrower shall not have received the prior written consent of
the Required Lenders and MBIA Insurance Corporation, or (c) relating
to 2003 Loans if (i) such Obligor Risk Participations are not sold
on a non-recourse basis (provided, however, that the Borrower may
sell Obligor Risk Participations on a full-recourse basis to Farm
Credit Service members pursuant to a master contract and participation
certificates in the form reviewed in advance and consented to by the
Agent), (ii) after giving effect to the sale of such Obligor Risk
Participation(s) the Financial Covenants specified in Sections 6.13
and 6.14 would be violated on a pro forma basis, or (iii) such
Obligor Risk Participations relate to Customer Loan outstandings
or commitments in excess of $24,000,000 in the aggregate. The Agent
and the Lenders agree that the Lien of the Borrower Security Agreement
on any underlying Loan (as defined in the Indenture) that is the subject
of an Obligor Risk Participation that is permitted hereunder shall be
deemed to be released upon the Borrower's sale of the relevant Obligor
Risk Participation."
2.6 Amendment to Section 6.25 of the Original Agreement. Section 6.25
of the Original Agreement is hereby amended in its entirety to read as
follows:
"Section 6.25 Borrower Loan Commitments. Make Borrower Loan
Commitments
(a) with respect to 2003 Loans in excess of the sum of (i)
$230,000,000 and (ii) the aggregate principal amount of Obligor Risk
-4-
Participations that one or more Persons are willing to purchase from
the Borrower, as evidenced by letters from such Persons to the Agent
in form and substance satisfactory to the Agent, subject to an overall
limit in any event of $260,000,000,
(b) with respect to 2003 Unsecured Loans in excess of $20,000,000,
(c) for any Intermediate Loans (as defined in the Indenture), or
(d) for any 2004 Loans."
2.7 Amendment to Section 7.1 of the Original Agreement. Clause (p) is
hereby added to Section 7.1 of the Original Agreement as follows:
"(p) American Securities Capital Partners shall fail to make an
equity contribution of not less than $35,000,000 to the Borrower on or
prior to June 15, 2003."
2.8 Amendment to Section 8.10A of the Original Agreement.
Section 8.10A(c) of the Original Agreement is hereby amended in its entirety
to read as follows:
"(c) [Intentionally Omitted]."
ARTICLE III
CONSENTS AND WAIVERS
3.1 Consent Relating to the Securitization Documents. For purposes of
Sections 5.11 and 6.21 of the Original Agreement, the Agent and the Lenders
hereby consent to the execution and delivery of Amendment No. 9 and Amendment
No. 10 to the Indenture, dated as of December 31, 2002 and as of
March 14, 2003, respectively.
3.2 Waiver of Default. The Borrower was in violation of Section 6.22
of the Original Agreement as of its February 28, 2003 Fiscal Year-end. Upon
the effectiveness of this Amendment, the Lenders hereby waive such Event of
Default. The foregoing waiver shall be effective only in this specific
instance and for the special purpose for which it is given, and shall not
be deemed to be a waiver of any other Default or Event of Default now existing
or hereafter arising under the Original Agreement as amended hereby.
Furthermore, such waiver shall not entitle the Borrower to any other or
further waiver in any similar or other circumstances.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties. To induce the Required Lenders to
enter into this Amendment, the Borrower hereby represents and warrants to the
Required Lenders as follows:
-5-
(a) The Borrower's execution, delivery and performance of this
Amendment (and of the Original Agreement as amended by this Amendment)
have been duly authorized by all necessary corporate or other
organizational action, and do not and will not (i) contravene the terms
of any of the Borrower's organizational documents; (ii) conflict with
or result in any breach or contravention of, or the creation of any Lien
under, any contractual obligation to which the Borrower is a party or
any order, injunction, writ or decree of any Governmental Body to which
the Borrower, any of its Restricted Subsidiaries, or any of their
respective properties is subject; or (iii) violate any law, rule or
regulation.
(b) This Amendment, the Original Agreement (as amended by the
Amendment) and the other Loan Documents are the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, moratorium and other laws
applicable to creditors' rights generally and by general principles of
equity.
(c) No action, suit or proceeding is pending or, to the Borrower's
knowledge, threatened against the Borrower or any of its Restricted
Subsidiaries that could have a material adverse effect on the business,
operations, property, assets or condition, financial or otherwise, of the
Borrower or any of its Restricted Subsidiaries.
(d) The incumbency certificate delivered in connection with the
Original Agreement remains true, correct and in full force and effect.
ARTICLE V
CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT
5.1 Conditions to Effectiveness of this Amendment. This Amendment shall
become effective when the Agent shall have received the following:
(a) This Amendment, duly executed by the Borrower and each
continuing Lender;
(b) Payment in full, in immediately available funds, of the B
Note payable to Bank of America, National Association, together with
all accrued interest thereon and accrued fees relating thereto
(it being agreed that such principal payment shall be funded in part
through reallocation of the outstanding principal amount of the B Loans
among the continuing B Lenders, with the outstanding B Loan principal
amount owed to Rabobank being $45,000,000 and the outstanding B Loan
principal amount owed to U.S. Bank being $20,000,000 immediately after
giving effect to this Amendment and such reallocation);
-6-
(c) An opinion, satisfactory to the Required Lenders in form and
substance, of Linda Kobliska, Esquire addressed to the Agent and the
Required Lenders and dated as of the date of this Amendment;
(d) A letter acknowledgement and consent from Powerfarm in favor
of the Agent and the Lenders acknowledging receipt of this Amendment
and consenting to the Borrower's execution and delivery of the same;
(e) The Management Group Subordination Agreement and all
acknowledgements attached to such agreement, each in the form agreed
by the Agent, duly executed by all of the parties thereto;
(f) Payment of all fees of counsel to the Agent invoiced as of
the date of this Amendment.
ARTICLE VI
MISCELLANEOUS
6.1 Reference to and Effect on the Original Agreement and the other
Loan Documents.
(a) The Original Agreement, as hereby amended, and the other
Loan Documents remain in full force and effect and are hereby ratified
and confirmed.
(b) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Agent or the Lenders under the Original
Agreement or any of the other Loan Documents, nor constitute a waiver
of any provision thereof.
(c) This Amendment constitutes a Loan Document as such term is
used in the Original Agreement as amended hereby.
6.2 Continuation of Representations and Warranties. The Borrower
represents and warrants to the Agent and the Lenders that on and as of the
date hereof and after giving effect to this Amendment, (i) all of the
representations and warranties contained in the Original Agreement are
correct and complete in all material respects as of the date hereof, as
though made on and as of such date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they
were true and correct as of such earlier date, and (ii) no Default or Event
of Default shall have occurred and be continuing.
6.3 Merger and Integration, Superseding Effect. This Amendment, from
and after the date hereof, embodies the entire agreement and understanding
between the parties hereto and supersedes and has merged into it all prior
oral and written agreements on the same subjects by and between the parties
hereto with the effect that this Amendment shall control.
6.4 Expenses. As provided in Section 9.2 of the Original Agreement,
-7-
the Borrower agrees to pay all of the expenses, including reasonable
attorney's fees and expenses, incurred by the Agent in connection with this
Amendment.
6.5 Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Amendment by
signing any such counterpart.
6.6 Successors. This Amendment shall be binding upon the Borrower, the
Agent and the Lenders and their respective successors and assigns, and shall
inure to the benefit of the Borrower, the Agent and the Lenders and the
successors and assigns of the Borrower, the Agent and Lenders.
6.7 Headings. The headings of various sections of this Amendment have
been inserted for reference only and shall not be deemed to be a part of this
Amendment.
6.8 Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW).
6.9 Borrower Acknowledgements. The Borrower hereby acknowledges
(a) receipt of a copy of each Loan Document and each other document and
agreement executed in connection with this Amendment or the Obligations under
any Loan Document, (b) that it has been advised by counsel in the negotiation,
execution and delivery of this Amendment and the other Loan Documents,
(c) that neither the Agent nor any Lender has any fiduciary relationship to
the Borrower, the relationship being solely that of debtor and creditor,
(d) that no joint venture exists between the Borrower and the Agent or any
Lender, and (e) that neither the Agent nor any Lender undertakes any
responsibility to the Borrower to review or inform the Borrower of any matter
in connection with any phase of the business or operations of the Borrower
and the Borrower shall rely entirely upon its own judgment with respect to
its business, and any review, inspection or supervision of, or information
supplied to, the Borrower by the Agent or any Lender is for the protection
of the Lenders and neither the Borrower nor any third party is entitled to
rely thereon.
[Signature Pages Follow]
-8-
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AMENDMENT SHOULD BE
READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER
TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT OR IN THE OTHER
LOAN DOCUMENTS MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS
AMENDMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
AG SERVICES OF AMERICA, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Facility A Commitment Amount: COOPERATIEVE CENTRALE RAIFFEISEN-
$170,000,000 BOERENLEENBANK B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH,
Facility B Commitment Amount:
$45,000,000
individually and as Agent
By:
--------------------------
Title:
-----------------------
By:
--------------------------
Title:
-----------------------
[Signature Page One of Two to Second Amendment]
Facility A Commitment Amount: U.S. BANK NATIONAL ASSOCIATION
$30,000,000
Facility B Commitment Amount: By:
$20,000,000 --------------------------
Title:
-----------------------
[Signature Page Two of Two to Second Amendment]
AG SERVICES OF AMERICA ,INC.
EXHIBIT 10.40
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDMENT (this "Amendment"), dated as of April 15, 2003,
is among AG SERVICES OF AMERICA, INC., an Iowa corporation (the "Borrower"),
various Lenders, and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH, as agent (in such capacity, the
"Agent") for the Lenders.
RECITALS
The parties described above are parties to an Amended and Restated Credit
Agreement dated as of December 11, 2002 and amended as of March 28, 2003
(as so amended, the "Original Agreement").
The Borrower has requested certain changes to the credit facilities
provided under the Original Agreement, and the Required Lenders have agreed
to accommodate the foregoing requests pursuant to the terms and conditions
of this Amendment.
ACCORDINGLY, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Original Agreement Definitions. Terms defined in the Original
Agreement shall have the same meaning when used herein unless otherwise
expressly indicated.
ARTICLE II
AMENDMENTS
2.1 Amendment to Original Agreement Definitions. Section 1.1 of the
Original Agreement is hereby amended to amend the following definition:
The definition of "Borrowing Base A" is hereby amended by deleting
the existing advance rate of "77.5%" contained in the first line of such
definition and replacing the same with an advance rate of "82.5%."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties. To induce the Required Lenders to
enter into this Amendment, the Borrower hereby represents and warrants to the
Required Lenders as follows:
(a) The Borrower's execution, delivery and performance of this
Amendment (and of the Original Agreement as amended by this Amendment)
have been duly authorized by all necessary corporate or other
organizational action, and do not and will not (i) contravene the terms
of any of the Borrower's organizational documents; (ii) conflict with
or result in any breach or contravention of, or the creation of any
Lien under, any contractual obligation to which the Borrower is a party
or any order, injunction, writ or decree of any Governmental Body to
which the Borrower, any of its Restricted Subsidiaries, or any of their
respective properties is subject; or (iii) violate any law, rule or
regulation.
(b) This Amendment, the Original Agreement (as amended by the
Amendment) and the other Loan Documents are the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, moratorium and other laws
applicable to creditors' rights generally and by general principles of
equity.
(c) No action, suit or proceeding is pending or, to the Borrower's
knowledge, threatened against the Borrower or any of its Restricted
Subsidiaries that could have a material adverse effect on the business,
operations, property, assets or condition, financial or otherwise, of the
Borrower or any of its Restricted Subsidiaries.
(d) The incumbency certificate delivered in connection with the
Original Agreement remains true, correct and in full force and effect.
ARTICLE IV
MISCELLANEOUS
4.1 Reference to and Effect on the Original Agreement and the other
Loan Documents.
(a) The Original Agreement, as hereby amended, and the other Loan
Documents remain in full force and effect and are hereby ratified and
confirmed.
(b) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the
Agent or the Lenders under the Original Agreement or any of the other
Loan Documents, nor constitute a waiver of any provision thereof.
(c) This Amendment constitutes a Loan Document as such term is
-2-
used in the Original Agreement as amended hereby.
4.2 Continuation of Representations and Warranties. The Borrower
represents and warrants to the Agent and the Lenders that on and as of the
date hereof and after giving effect to this Amendment, (i) all of the
representations and warranties contained in the Original Agreement are
correct and complete in all material respects as of the date hereof, as
though made on and as of such date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they
were true and correct as of such earlier date, and (ii) no Default or Event
of Default shall have occurred and be continuing.
4.3 Merger and Integration, Superseding Effect. This Amendment, from
and after the date hereof, embodies the entire agreement and understanding
between the parties hereto and supersedes and has merged into it all prior
oral and written agreements on the same subjects by and between the parties
hereto with the effect that this Amendment shall control.
4.4 Expenses. As provided in Section 9.2 of the Original Agreement,
the Borrower agrees to pay all of the expenses, including reasonable
attorney's fees and expenses, incurred by the Agent in connection with
this Amendment.
4.5 Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Amendment by
signing any such counterpart.
4.6 Successors. This Amendment shall be binding upon the Borrower,
the Agent and the Lenders and their respective successors and assigns, and
shall inure to the benefit of the Borrower, the Agent and the Lenders and the
successors and assigns of the Borrower, the Agent and Lenders.
4.7 Headings. The headings of various sections of this Amendment have
been inserted for reference only and shall not be deemed to be a part of this
Amendment.
4.8 Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW).
4.9 Borrower Acknowledgements. The Borrower hereby acknowledges
(a) receipt of a copy of each Loan Document and each other document and
agreement executed in connection with this Amendment or the Obligations
under any Loan Document, (b) that it has been advised by counsel in the
negotiation, execution and delivery of this Amendment and the other Loan
Documents, (c) that neither the Agent nor any Lender has any fiduciary
relationship to the Borrower, the relationship being solely that of debtor
and creditor, (d) that no joint venture exists between the Borrower and
the Agent or any Lender, and (e) that neither the Agent nor any Lender
undertakes any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the business or
operations of the Borrower and the Borrower shall rely entirely upon its
own judgment with respect to its business, and any review, inspection or
supervision of, or information supplied to, the Borrower by the Agent or
-3-
any Lender is for the protection of the Lenders and neither the Borrower
nor any third party is entitled to rely thereon.
[Signature Pages Follow]
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AMENDMENT SHOULD BE
READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER
TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT OR IN THE
OTHER LOAN DOCUMENTS MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS
OF THIS AMENDMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of
the date first above written.
AG SERVICES OF AMERICA, INC.
By:
--------------------------
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH,
individually and as Agent
By:
---------------------------
Title:
By:
--------------------------
Title:
[Signature Page One of Two to Third Amendment]
U.S. BANK NATIONAL ASSOCIATION
By:
---------------------------
Title:
[Signature Page Two of Two to Third Amendment]
AG SERVICES OF AMERICA ,INC.
EXHIBIT 10.41
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement")
is made and entered into this _____ day of ____________, 2002, by and
between AG SERVICES OF AMERICA, INC., an Iowa Corporation ("Company")
and Shawn Smeins. ("Employee").
RECITALS:
WHEREAS, Employee has been employed by company for approximately
nine years and has been instrumental in the successful growth and
development of the Company and its business operations most recently
serving as Executive Vice-President; and
WHEREAS, it is in the best interest of Company and its shareholders
to promote Employee to the position of Senior Executive Officer and to retain
the services of Employee for the period and upon the other terms and
conditions provided in this Agreement; and
WHEREAS, Employee is willing to serve in the employ of Company on
a full-time basis for the period and upon such other terms and conditions
provided in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals which
are incorporated in and made a part of this Agreement, and in further
consideration of the mutual agreements, provisions and covenants contained
herein, the parties hereto agree as follows:
1. Employment. Company hereby employs Employee, and Employee hereby
accepts employment with Company, all upon the terms and conditions
contained in this Agreement.
2. Services. Employee shall devote his entire working time and
attention to the business of Company. Employee shall perform
such management level duties as assigned to him from time to
time by the senior officers of Company. Employee shall carry
out his duties within the policies and directions as established
by Company and in a prudent, businesslike manner.
3. Terms. Company agrees to employ Employee and Employee agrees to
remain in the employment of Company for a term commencing on the
date hereof and continuing for a period of three (3) years. At
the end of each year the agreement shall automatically renew for
an additional year unless earlier terminated in accordance with
the provisions hereof (the "Term").
4. Compensation. In consideration for all services rendered by
Employee under the terms of this Agreement, Company agrees to
compensate Employee as follows:
-1-
a. Base Salary. Company shall pay Employee a base salary of
$120,000 per year, which shall be paid in accordance with
the normal payroll practices of Company in effect from time
to time. Employee's base salary shall be reviewed annually
by the senior officers of the Company during the Term and may
be adjusted upward (but not downward) if deemed necessary or
appropriate in the sole discretion of the senior officers.
b. Bonus. The Company shall pay Employee a performance bonus
based upon the diluted earnings per share ("EPS") growth of the
Company. The EPS growth shall be determined by comparing the
fiscal year end audited results to the EPS of the previous year.
Employee shall be paid a performance bonus when the Company's
fiscal year diluted earnings per share is equal to or greater
than 10%. If the EPS growth rate is 10% or greater, then the
amount of bonus is equal the to EPS growth rate multiplied by
the Employee's prior calendar year base compensation. When the
EPS growth rate is 15% to 19%, then the bonus is multiplied by
150% factor. When the EPS growth rate is 20% or greater then
the bonus is multiplied by 200% factor. Senior management in
its discretion is allowed to make adjustments for events that
negatively affect diluted EPS for the short term, but are
considered significant to the long-term success of the Company.
The amount of the Bonus will be determined by the annual audit
of the Company prepared in accordance with generally accepted
accounting principles by an independent certified public
accountant selected by Company, and such determination will be
binding and conclusive on the parties hereto. The Bonus will
be paid no later than thirty (30) days after completion of such
audit, with deductions for payroll taxes and other items of
withholding.
c. Automobile. At all times during the Term hereof, Company shall
at its expense provide Employee with an automobile of such make
and model as determined in accordance with Company policy as
in effect from time to time.
d. Other Fringe Benefits. Employee shall be entitled to
participate (at the expense of Company) in all now existing
or hereafter adopted plans providing fringe benefits to the
key executive personnel of Company and in all now existing
or hereafter adopted plans (to the extent eligible therefore)
providing benefits to Company's employees in general,
including, but not limited to, group life insurance,
supplemental life insurance and health and accident insurance.
-2-
5. Termination of Employment by Company.
a. Termination on Account of Disability. Employee's employment
under this Agreement shall terminate in the event of Employee's
disability (as hereinafter defined) during the Term hereof.
For purposes of this Agreement, "disability" shall be defined
as: (i) the permanent physical or mental disability of
Employee continuing for a period of at least six (6) months
which prevents Employee from performing a major portion of
his duties as certified by three reputable practicing
physicians in the State of Iowa, with one such physician
selected by Company, another such physician selected by
Employee and the third such physician selected by the two
physicians selected by Company and Employee, and the decision
of a majority of the three physicians shall be binding upon
the parties; or (ii) the death of Employee. In such event,
Company's obligation to continue to pay Employee's compensation
under paragraph 4 hereof shall terminate as of the end of the
month during which a determination of "disability" in
accordance with this paragraph has been made. However,
notwithstanding such termination, Company shall remain
obligated to pay Employee (or, in the event of death, to
Employee's spouse or, if she is not living, then to
Employee's estate or such other person or entity as Employee
shall designate) the following amounts:
(1) Any base salary which is due and unpaid at the date of
termination, plus a pro rata Bonus amount. The pro rata
Bonus amount shall be calculated by dividing number of
days worked in the fiscal year in which the termination
occurs by 365 and applying that percentage to the Bonus
calculation specified in paragraph 4(b) hereof. The
Bonus will be paid at the time specified in paragraph
4(b) hereof; and
(2) A severance benefit consisting of a monthly payment
equal to one-half (1/2) of the amount Employee would
have been entitled to receive on a monthly basis as base
salary pursuant to paragraph 4(a) hereof, commencing with
the month of termination and continuing each month
thereafter through and including the term of this
agreement. For purposes of this paragraph 5(a), the
base salary used to determine the severance benefit will
be the base salary in effect on the date of termination.
b. Termination for Cause. Notwithstanding any provision in this
Agreement which may appear to be to the contrary, Employee's
employment under this Agreement shall terminate for "cause"
effective immediately upon Employee's receipt of written
-3-
notice from Company of such termination directed to Employee,
and in such event, the obligation of Company to pay Employee's
compensation under paragraph 4 of this Agreement shall
immediately terminate. However, notwithstanding such
termination, Company shall remain obligated to pay Employee
any base salary which is due and unpaid as of the date of
termination, plus a pro rata Bonus amount. The pro rata Bonus
amount shall be calculated by dividing number of days worked
in the fiscal year in which the termination occurs by 365
and applying that percentage to the Bonus calculation specified
in paragraph 4(b) hereof. For purposes of this Agreement,
"cause" shall be defined as the occurrence of any one or more
of the following events:
(1) A repeated neglect of duties, a violation of the Company's
policies, malfeasance, nonfeasance, or other conduct of
Employee in the performance of duties contemplated by this
Agreement which, in the sole discretion of the senior
officers of Company, is detrimental to the best interests
of Company;
(2) Any other material breach by Employee, as determined in
the sole discretion of the senior officers of Company, of
the provisions of this Agreement; or
(3) The indictment, conviction or plea of guilty or nolo
contendere of Employee to any felony or to a misdemeanor
involving moral turpitude.
c. Termination Without Cause. Notwithstanding any provision in
this Agreement which may appear to the contrary, Employee's
employment shall terminate without "cause" effective immediately
upon Employee's receipt of written notice of such termination
directed to Employee. In the event Employee's employment is
terminated by Company without "cause" (as defined above),
Company's obligation to continue to pay Employee's
compensation under paragraph 4 shall terminate as of the
date of termination. Notwithstanding such termination, however,
Company shall remain obligated to pay Employee as a severance
benefit the following amounts:
(1) All the base salary which Employee, but for such
termination, would have been entitled to receive hereunder
for two years from date of termination, to be paid at the
same time and in the same manner as provided in paragraph
4(a) (hereinafter referred to as the "Severance Period").
(2) All Bonus payments which would have accrued to Employee,
but for such termination, during the Severance Period,
including a pro rata amount of the Bonus for any portion
-4-
of a fiscal year included within the Severance Period.
Such payment shall be determined and made by Company at
the same time and in the same manner as provided in
paragraph 4(b) hereof.
6. Termination of Employment by Employee.
a. Termination by Employee. Notwithstanding any provision in
this Agreement which may appear to be the contrary, Employee
shall have the right to terminate his employment hereunder
upon or after the occurrence of a Change in Control
(as defined below) or a Diminution in Responsibility (as
defined below) with respect to Employee and, in the event
of such a termination by Employee, he shall be entitled to
receive as a severance benefit from Company the following
amounts:
(1) All base salary which Employee, but for such termination,
would have been entitled to receive hereunder for the
Severance Period (as defined in paragraph 5 (c)(1) hereof
and including any adjustment thereto authorized by such
paragraph). For purposes of this paragraph 6(a)(1), the
base salary to be paid to Employee during the Severance
Period will be at the rate of base salary in effect on
the date of termination. Such payments shall be made by
Company at the same time and in the same manner as provided
in paragraph 4(a) hereof; and
(2) All Bonus payments which would have accrued to Employee,
but for such termination, during the Severance Period,
including a pro rata amount of the Bonus for any portion
of a fiscal year included within the Severance Period.
Such payments shall be determined and made by Company at
the same time and in the same manner as provided in
paragraph 4(b) hereof.
b. Change in Control. For purposes of this paragraph 6, the term
"Change in Control" shall be defined to mean any of the
following events:
(1) The acquisition and/or merger in a single transaction or
in any series of transactions by any person acting
directly or indirectly or through or in concert with
one or more persons (other than Company) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Securities Exchange Act of 1934) of 25% or more
of the combined voting power of the then outstanding
voting securities of Company;
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(2) The first purchase under a tender offer or exchange offer
(other than an offer by Company) pursuant to which
outstanding voting securities of Company have been
purchased; or
(3) During any period of two consecutive years, individuals
who at the beginning of such period constitute the Board
of Directors of Company cease for any reason (other than
an uncontested election) to constitute at least a
majority thereof. For purposes of this definition, the
term "person" shall mean an individual or a corporation,
partnership, trust, association, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization
or any other form of entity not listed.
c. Diminution in Responsibility. For purposes of this
paragraph 6, the term "Diminution of Responsibility" shall
be defined to mean any of the following events with respect
to Employee:
(1) Employee, without his written consent, is not elected or
re-elected to or is removed from an office or position at
least equal to that which Employee held in connection with
his employment immediately prior to the Change of Control;
or
(2) A material change in the nature or scope of the
authorities, powers, functions, duties, titles or
responsibilities attached to Employee's position of
employment without Employee's written consent as a result
of which change Employee's position shall be or become of
less dignity, responsibility, importance or scope.
7. Confidential Information and Trade Secrets. Employee recognizes
and acknowledges that Company has developed and continues to
develop and use commercially valuable proprietary technical and
non-technical information which is vital to the success of
Company's business, and furthermore, that Company utilizes trade
secrets in formulating, promoting, financing and selling its
products which are entitled to protection from disclosure.
Employee shall hold in strict confidence during the Term of this
Agreement and at all times thereafter and shall not disclose to
any third party any information of a confidential and proprietary
nature not generally available to the public which becomes known
to Employee in his course of employment with Company, or has
become known to Employee in his course of employment with
Company prior to the date hereof, relating to the business
operations of Company or its customers. If Employee fails to
keep and perform every covenant of this paragraph 7, Company
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shall be entitled to specifically enforce the same by injunction
in equity in addition to any other remedies Company may have.
8. Noncompetition. Employee shall not, during the Term of this
Agreement and for two (2) years thereafter, within the trade
area now or hereafter served by Company, associate in any
capacity whatsoever, whether as a promoter, owner, officer,
director, employee, partner, lessee, lender, agent, consultant,
advisor, broker, commission salesman or otherwise, in any
business which is in competition with the business of Company,
except for passive investments in publicly held companies over
which Employee does not exercise any controlling influence.
Further, Employee shall not, for a period of two (2) years
after the termination of his employment hereunder, in any
manner, directly or indirectly, contact or solicit any of
the then existing customers of Company (including but not
limited to, any officer, director, employee, agent or affiliate
of a customer) with respect to the business of Company or employ
(or contact or solicit for the purpose of seeking to employ) any
then existing employee of Company. For purposes of this
paragraph 8, the business of Company shall mean E-Commerce
activities, and the marketing, distribution and/or sale of
agricultural inputs (such as seed, chemicals and fertilizer)
to farmers in conjunction with the extension of credit by
Company to such farmers. If Employee fails to keep and perform
every covenant of this paragraph 8, Company shall be entitled
to specifically enforce the same by injunction in equity in
addition to any other remedies which Company may have. If any
portion of this paragraph 8 shall be invalid or unenforceable,
such invalidity or unenforceability shall be in no way deemed
or construed to affect in any way the enforceability of any
other portion of this paragraph 8. If any court in which
Company seeks to have the provisions of this paragraph 8
specifically enforced determines that the scope, area or
duration hereinafter specified is too broad, such court
may determine a reasonable scope, area or duration. Employee
acknowledges that covenants contained in this paragraph 8 are
reasonable in scope, area and duration and are necessary in
furtherance of the legitimate interests of Company. Employee
represents and warrants that he has available to him sufficient
other means of support and that observance of the covenants
contained in this paragraph 8 will not deprive him of his
ability to earn a livelihood or to support his dependents.
9. Non-Waiver. The failure of either party to insist in any one or
more instances upon performance of any of the terms or conditions
of this Agreement shall not be construed as a waiver or
relinquishment of any right granted hereunder, or of the future
performance of any such term, covenant or condition, but the
obligations of either party with respect thereto shall continue
in full force and effect.
10. Assignment. This Agreement and all rights hereunder are personal
to Employee and shall not be assignable by him and any purported
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assignment thereof shall not be valid and binding on Company.
Company may assign this Agreement and all of its rights hereunder
to any person, firm or corporation succeeding to the business
of Company, provided such person, firm or corporation shall
assume by contract or by operation of law all of Company's
obligations hereunder.
11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements
and understandings between the parties with respect to the
subject matter hereof.
12. Applicable Law. This Agreement and the legal relations between
the parties hereto shall be governed by and construed in
accordance with the laws of the State of Iowa.
13. Notices. All notices or other communications required or
permitted to be given, pursuant to the terms of this Agreement,
shall be in writing and shall be deemed to be duly given when
received if delivered in person or by fax, telex, telegram
or cable and confirmed by mail, or mailed by registered or
certified mail (return receipt requested) or express mail,
postage prepaid as follows:
If to Company: Ag Services of America, Inc.
1309 Technology Parkway
P. O. Box 668
Cedar Falls, Iowa 50613
ATTN: Henry C. Jungling
If to Employee: Shawn Smeins (HOME ADDRESS??)
Ag Services of America, Inc.
1309 Technology Parkway
P. O. Box 668
Cedar Falls, Iowa 50613
IN WITNESS WHEREOF, this Employment and Noncompetition Agreement
has been executed by the parties as of the Effective Date.
AG SERVICES OF AMERICA, INC. "EMPLOYEE"
An Iowa Corporation
By
--------------------------- ----------------------
Its Shawn Smeins
--------------------------
By --------------------------
Its
--------------------------
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AG SERVICES OF AMERICA, INC.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
There is no parent of the Company. The following is a listing of
subsidiaries of the Company.
Jurisdiction of
Organization
---------------
Ag Acceptance Corporation Delaware
Powerfarm, Inc. Delaware