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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 2003
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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)
(319) 277-0261
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
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 the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). [ ] Yes [X] No
5,479,514 common shares were outstanding as of July 14, 2003.
AG SERVICES OF AMERICA, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated condensed balance sheets, May 31, 2003
(unaudited) and February 28, 2003 1
Unaudited consolidated condensed statements of income,
three months ended May 31, 2003 and 2002 2
Unaudited consolidated condensed statements of cash flows,
three months ended May 31, 2003 and 2002 3
Unaudited consolidated statement of stockholders' equity,
three months ended May 31, 2003 4
Notes to consolidated condensed financial statements
(unaudited) 5-12
Item 2. Management's discussion and analysis of
financial condition and results of operations 13-20
Item 3. Quantitative and qualitative disclosures
about market risk 19
Item 4. Controls and procedures 19-20
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and reports on form 8-K: 21-22
Certifications 23-26
(a) Exhibits
(10.42) Fourth Amendment to the Amended and Restated
Credit Agreement 27-32
(10.43) Fifth Amendment to the Amended and Restated
Credit Agreement 33-53
AG SERVICES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
May 31, February 28,
ASSETS 2003 2003*
----------- -----------
CURRENT ASSETS
Cash $2 $8
Customer notes receivable, less allowance for
doubtful notes and reserve for discounts
May 31, 2003 $14,697; February 28, 2003
$12,892 273,578 209,732
Inventory and other assets 3,126 2,714
Foreclosed assets held for sale 1,845 2,266
Deferred income taxes, net 5,567 5,524
----------- -----------
Total current assets $284,118 $220,244
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes May 31, 2003 $6,737
February 28, 2003 $5,208 $48,667 $53,418
Deferred financing costs, less accumulated
amortization May 31, 2003 $2,457;
February 28, 2003 $2,090 -- 367
Deferred income taxes, net 3,008 1,926
----------- -----------
$51,675 $55,711
----------- -----------
PROPERTY AND EQUIPMENT
Land and building, less accumulated
depreciation May 31, 2003 $179;
February 28, 2003 $137; $5,357 $5,387
Equipment, less accumulated depreciation
May 31, 2003 $2,184; Februray 28, 2003 $2,087 1,180 1,326
----------- -----------
$6,537 $6,713
----------- -----------
$342,330 $282,668
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, inluding current maturities $241,338 $180,872
Outstanding checks in excess of bank balances 4,596 16,488
Accounts payable 12,621 1,037
Accrued expenses 2,611 3,584
Income taxes payable 845 168
----------- -----------
Total current liabilities $262,011 $202,149
----------- -----------
LONG-TERM LIABILITIES
Notes payable, less current maturities $2,765 $2,808
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, no par or stated value;
authorized 10,000,000 shares, none issued -- --
Capital stock, common, no par or stated value;
authorized 30,000,000 shares; issued
May 31, 2003 5,479,514 shares;
February 28, 2003 5,479,514 shares $24,499 $24,499
Retained earnings 54,070 54,379
Accumulated other comprehensive income(loss) (1,015) (1,167)
----------- -----------
$77,554 $77,711
----------- -----------
$342,330 $282,668
=========== ===========
* Condensed from Audited Financial Statements.
See Notes to Consolidated Financial Statements.
-1-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended May 31, 2003 and 2002
(Dollars in Thousands, Except Per Share Amounts)
May 31, May 31,
2003 2002
----------- -----------
Net revenues:
Farm inputs $41,392 $65,800
Financing income 5,398 6,316
Customer fees 1,169 2,485
Other 208 644
----------- -----------
$48,167 $75,245
----------- -----------
Cost of revenues:
Farm inputs $38,242 $60,636
Financing expense 3,731 3,382
Provision for doubtful notes 3,514 4,077
----------- -----------
$45,487 $68,095
----------- -----------
Income before operating
expenses and income taxes $2,680 $7,150
Operating expenses 3,177 3,643
----------- -----------
Income (loss) before income taxes ($497) $3,507
Income taxes (benefit) (188) 1,350
----------- -----------
Net income (loss) ($309) $2,157
=========== ===========
Earnings (loss) per share:
Basic ($0.06) $0.39
=========== ===========
Diluted ($0.06) $0.39
=========== ===========
Weighted average shares:
Basic 5,479,514 5,473,288
=========== ===========
Diluted 5,479,514 5,513,826
=========== ===========
See Notes to Consolidated Financial Statements.
-2-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended May 31, 2003 and 2002
(Dollars in Thousands)
May 31, May 31,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($309) $2,157
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation 184 148
Amortization 367 722
Deferred income taxes (1,218) (2,492)
Loss on sale of equipment
and foreclosed assets 1 34
Changes in assets and liabilities:
(Increase) in customer notes
receivable (59,095) (168,853)
(Increase)decrease in inventory
and other assets (412) 3,346
Decrease in prepaid and
income taxes payable 677 3,505
Increase in accounts payable
and accrued expenses 10,611 10,595
----------- -----------
Net cash (used in)
operating activities ($49,194) ($150,838)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment $9 $15
(Purchases) of building and equipment (18) (687)
Proceeds from sale of foreclosed assets
held for sale 635 213
(Purchases) of foreclosed assets held
for sale (214) (238)
----------- -----------
Net cash provided by (used in)
investing activities $412 ($697)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $117,692 $164,715
Principal payments on short-term
borrowings (56,981) (13,560)
Principal payments on long-term
borrowings (43) --
Increase (decrease) in excess of
outstanding checks over bank balances (11,892) 798
(Increase) in deferred financing costs -- (500)
Proceeds from issuance of
capital stock, net -- 65
----------- -----------
Net cash provided by financing
activities $48,776 $151,518
----------- -----------
(Decrease) in cash ($6) ($17)
CASH
Beginning 8 42
----------- -----------
Ending $2 $25
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $3,147 $2,362
Income taxes $353 $337
See Notes to Consolidated Financial Statements.
-3-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended May 31, 2003
(Dollars in Thousands)
Capital Stock
-------------------------
Accumulated
Other
Shares Retained Comprehensive Comprehensive
Issued Amount Earnings Income (Loss) Total Income
------------ ------------ ------------ ------------ ------------ ------------
Balance, February 28, 2003 5,479,514 $24,499 $54,379 ($1,167) $77,711
Comprehensive income (loss):
Net income (loss) -- -- (309) -- (309) ($309)
Other comprehensive income,
net of tax -- -- -- 152 152 152
------------
Total comprehensive income (loss) ($157)
------------ ------------ ------------ ------------ ------------ ============
Balance, May 31, 2003 5,479,514 $24,499 $54,070 ($1,015) $77,554
============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements.
-4-
AG SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with the instructions of Form 10-Q and Rule 10-01 of Regulation
S-X. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principals
generally accepted in the United States of America have been condensed or
omitted. It is suggested these interim consolidated condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report for the year ended
February 28, 2003. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation
of the financial position, results of operations and cash flows for the
interim periods presented have been made. Operating results for the three
month period ended May 31, 2003 are not necessarily indicative of the
results that may be expected for the year ending February 28, 2004.
Principles of Consolidation
The consolidated financial statements include the accounts of Ag Services
of America, Inc. (the Company) and its wholly owned subsidiaries, Ag
Acceptance Corporation and Powerfarm, Inc. All material intercompany
balances and transactions have been eliminated in consolidation.
According to the terms related to the asset backed securitized financing
program as described in Note 3 of the consolidated condensed financial
statements, the Company formed Ag Acceptance Corporation, a wholly owned,
special purpose corporation.
In conjunction with the Company's e-commerce initiative, the Company
created Powerfarm, Inc. a wholly owned subsidiary which operates and
manages the Company's website Powerfarm.com.
Revenue Recognition
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 primarily 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 months ended May 31, 2003 and 2002, the percentage of
net revenues attributable to the sale of seed, fertilizer, agricultural
chemicals, financing income and customer fees was as follows.
-5-
Three Months Ended May 31,
2003 2002
----------------- -----------------
Seed 32.3% 30.3%
Chemicals 23.7% 25.5%
Fertilizer 30.0% 31.7%
Financing 11.2% 8.4%
Customer fees 2.4% 3.3%
Other 0.4% 0.8%
------ ------
Total 100.0% 100.0%
====== ======
The Company decided in the prior 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
change of presentation has no impact on future or past earnings of the
Company.
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:
Three Months Ended
May 31, 2003 May 31, 2002
---------- ----------
Net income (loss), as reported ($309) $2,157
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (73) (83)
---------- ----------
Pro forma net income (loss) ($382) $2,074
========== ==========
Basic earnings per share
As reported ($0.06) $0.39
Pro forma ($0.07) $0.38
Diluted earnings per share
As reported ($0.06) $0.39
Pro forma ($0.07) $0.38
-6-
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 during the three months ended May 31, 2002:
risk-free interest rates of 3.4%; expected lives of 7 years; price
volatility of 39.8% and no expected dividends. No options were granted
during the three months ended May 31, 2003.
Note 2. Financing and Going Concern Matters
Financing Agreements
The availability of lines of credit is essential to the Company's operations.
The Company has arranged for credit facilities to support 2003 crop year
customer loans of up to $260 million compared to total 2002 crop year
customer loans of approximately $465 million. The Company's primary credit
facility is currently a $265 million revolving line of credit used to
finance the 2003 crop year customers and older receivables, which expires
in October 2004, and does not allow for the financing of 2004 or future
crop years. This facility limited the amount of 2003 customer loans to
$260 million. In the event this facility is not refinanced by
September 15, 2003, the agreement calls for a controlled wind down of the
facility through October 2004. There can be no assurance the Company will
be successful in securing financing for future periods and, if financing is
secured, it may be on terms less favorable than current terms.
The Company is taking action in order to secure financing for future periods.
As described below, the Company has entered into a securities purchase
agreement with ASP/ASA, LLC, an indirect subsidiary of American Securities
Capital Partners, L.P. (ASCP) whereby ASP/ASA, LLC has agreed to invest up
to $70 million in convertible preferred stock 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
final due diligence and the replacement of long-term financing.
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.
-7-
Anticipated Equity Infusion
The Company entered into a securities purchase agreement during February
2003 with ASP/ASA, LLC, an indirect subsidiary of ASCP, a New York
private-equity investment firm, under which ASP/ASA, LLC has agreed to
invest up to $70 million in the Company in exchange for convertible
preferred stock. The agreement contemplates that ASP/ASA, LLC will
invest up to $70 million in three annual installments; the first investment
of $35 million is subject, among other things, to satisfactory completion
of due diligence and the Company arranging for long-term financing. 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. ASP/ASA, LLC will have voting control of the
Company after the initial funding.
The shareholders of the Company have approved the transaction, however, the
parties are presently conducting final due diligence and working on a new
long-term credit facility. 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
has currently secured financing for approximately $260 million of 2003
crop year customer loan commitments. Because of the timing of these crop
loans the Company will be operating at this reduced level for the 2003
crop year. 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.
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 will 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.
The Company's current financing expires in October 2004 and the Company
has been unable to secure financing customers beyond the 2003 crop year.
While the Company believes it will be successful in its efforts to obtain
new financing, there can be no assurance of success. In the event the
-8-
Company is unable to obtain new financing, the Company would be forced
to liquidate and discontinue operations.
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. 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.
Note 3. Pledged Assets and Related Debt
The Company negotiated a $200 million revolving line of credit for the
2003 Crop Year that was originally set to expire 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 3.8125% to
5.50% at May 31, 2003). The total amount outstanding under the
revolving line of credit at May 31, 2003 was $141.2 million. At
May 31, 2003 the Company had a maximum amount available under the line
of credit of approximately $1.6 million based on a borrowing base
computation provided by the agreement. Subsequent to the end of the
quarter this agreement was amended.
The Company's $65 million revolving line of credit facility was set to
expire on June 30, 2003. This facility also did 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
May 31, 2003). The total outstanding under this facility at May 31, 2003
was $60.3 million. At May 31, 2003 the Company had a maximum amount
available under the line of credit of approximately $4.7 million based on
a borrowing base computation provided by the agreement. Subsequent to the
end of the quarter this agreement was amended.
Subsequent to the end of the first quarter the Company amended and combined
its $200 million revolving line of credit with the $65 million revolving
line of credit into one $265 million credit facility. This amended credit
facility has been extended until October 2004 and allows for up to $260
million of 2003 Crop Year financing. In the event this facility is not
refinanced by September 15, 2003, the agreement calls for a controlled wind
down of the facility through October 2004. This agreement will accrue
interest at prime plus 50 basis points (current effective rate would have
been 4.75% at May 31, 2003).
The Company has negotiated amendments to its asset backed securitized
financing program to extend the due date to September 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. 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 rate is approximately 1.41% at
May 31, 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
1.90% at May 31, 2003). The total outstanding under the asset backed
securitized financing program at May 31, 2003 was approximately $17.6
million. Subsequent to the end of the first quarter the Company repaid
this facility in its entirety.
-9-
All of the above 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.
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 4.5% to 6.75% at May 31, 2003). At May 31,
2003 the Company had $7.0 million outstanding under the agreement. In
April 2003, the Company negotiated an additional $17 million credit
facility with another financial institution to participate certain other
customer notes receivable through January 2004. This agreement accrues
interest at prime less 75 basis points (current effective rate is 3.5% at
May 31, 2003). At May 31, 2003 the Company had $9.2 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 May 31, 2003, the Company had $2.8 million 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 October 2004. 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 May 31, 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
-10-
remaining outstanding notional amount or changes in interest rates.
Included in other comprehensive income at May 31, 2003 is a loss of
approximately $1.0 million. 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.
Note 4. Commitments and Contingencies
Commitments
In the normal course of business, the Company makes various commitments
that are not reflected in the accompanying consolidated condensed financial
statements. These include various commitments to extend credit to customers.
At May 31, 2003 and February 28, 2003 the Company had approximately $64
million and $101 million, respectively, in commitments to supply 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 liability 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 would have a material adverse effect
on the Company's future operations. The federal government has from time to
time evaluated the federal multi-peril insurance program and is likely to
review the program in the future, and 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 May 31, 2003 is approximately $2.3 million and expires once
the mortgage is repaid in full.
-11-
Note 5. 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.
Presented below is the computation of earnings per share for the periods
indicated:
Three Months Ended
May 31,
----------------------
2003 2002
---------- ----------
Computation of weighted average number
of basic shares:
Basic:
Common shares outstanding at
beginning of the period 5,479,514 5,468,864
Weighted average number of shares
issued during the period -- 4,424
---------- ----------
Weighted average shares outstanding
(basic) 5,479,514 5,473,288
========== ==========
Net income (loss) available to stockholders: ($308,607) $2,157,448
========== ==========
Basic earnings per share: ($0.06) $0.39
========== ==========
Diluted:
Common shares outstanding at
beginning of the period 5,479,514 5,468,864
Weighted average number of shares
issued during the period -- 4,424
Weighted average of potential dilutive
shares computed using the treasury
stock method using the average market
price during the period:
Options (1) -- 40,538
---------- ----------
Weighted average shares outstanding
(diluted) 5,479,514 5,513,826
========== ==========
Net income (loss) available to stockholders: ($308,607) $2,157,448
========== ==========
Diluted earnings per share: ($0.06) $0.39
========== ==========
(1) Some of the stock options have been excluded because they are
antidilutive.
-12-
AG SERVICES OF AMERICA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Financing and Going Concern Matters
Financing Agreements
The availability of lines of credit is essential to the Company's operations.
The Company has arranged for customer financing for the 2003 crop year of up
to $260 million compared to total 2002 crop year customer financing of
approximately $465 million. The Company's primary credit facility is
currently a $265 million revolving line of credit used to finance the 2003
crop year customers and older receivables, which expires in October 2004,
and does not allow for the financing of 2004 or future crop years. This
facility limited the amount of 2003 customer financing to $260 million.
In the event this facility is not refinanced by September 15, 2003, the
agreement calls for a controlled wind down of the facility through October
2004. There can be no assurance the Company will be successful in securing
financing for future periods and, if financing is secured, it may be on
terms less favorable than current terms.
The Company is taking action in order to secure financing for future periods.
As described below, the Company has entered into a securities purchase
agreement with ASP/ASA, LLC, an indirect subsidiary of American Securities
Capital Partners, L.P. (ASCP) whereby ASP/ASA, LLC has agreed to invest up
to $70 million in convertible preferred stock 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
final due diligence and the replacement of long-term financing.
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 ASP/ASA, LLC, an indirect subsidiary of ASCP, a New York private-equity
investment firm, under which ASP/ASA, LLC has agreed to invest up to $70
million in the Company in exchange for convertible preferred stock. The
agreement contemplates that ASP/ASA, LLC will invest up to $70 million in
three annual installments; the first investment of $35 million is subject,
among other things, to satisfactory completion of due diligence and the
Company arranging for long-term financing. 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. ASP/ASA, LLC will have voting control of the Company after the
initial funding.
The shareholders of the Company have approved the transaction, however,
the parties are presently conducting final due diligence and working on a
new long-term credit facility. 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.
-13-
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
has currently secured financing for approximately $260 million of 2003 crop
year customer loan commitments. Because of the timing of these crop loans
the Company will be operating at this reduced level for the 2003 crop year.
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.
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 will be successful in these efforts.
Results of Operations
The following table sets forth percentages of net revenues represented by the
selected items in the unaudited condensed statements of income of the Company
for the three months ended May 31, 2003 and 2002. In the opinion of
management, all normal and recurring adjustments necessary for a fair
statement of the results for such periods have been included. The operating
results for any period are not necessarily indicative of results for any
future period. Fiscal 2004 revenues and earnings were significantly
impacted by the Company's limited financing capabilities. For Crop Year
2003, the Company is limited to $260 million of customer loan commitments
compared to approximately $465 million of customer loan commitments
granted for Crop Year 2002 which results in an approximate 45% reduction in
volume.
Percentage
of Net Revenues
------------------
Three Months Ended
May 31,
------------------
2003 2002
-------- --------
Net Revenues:
Farm inputs 85.9% 87.4%
Financing income 11.2% 8.4%
Customer fees 2.4% 3.3%
Other 0.5% 0.9%
-------- --------
100.0% 100.0%
-------- --------
Cost of Revenues:
Farm inputs 79.4% 80.6%
Financing expense 7.7% 4.5%
Provision for doubtful notes 7.3% 5.4%
-------- --------
94.4% 90.5%
-------- --------
Income before operating expenses
and income taxes 5.6% 9.5%
Operating expenses 6.6% 4.8%
-------- --------
Income (loss) before income taxes (1.0%) 4.7%
Income taxes (benefit) (0.4%) 1.8%
--------- -------
Net income (loss) (0.6%) 2.9%
========= ========
-14-
Net Revenues
Net revenues decreased $27.0 million or 36.0% during the three months ended
May 31, 2003, compared with the three months ended May 31, 2002. The
decrease in net revenues was primarily the result of the smaller credit
facility available to the Company for 2003 customer loan commitments.
Financing income as a percentage of net revenues increased to 11.2% for the
three months ended May 31, 2003 from 8.4% for the three months ended
May 31, 2002. Financing income overall decreased $0.9 million from the
prior year due to reduced customer loan commitments as described above.
In addition to financing income, net revenues primarily consist of the sale
of farm inputs, which includes seed, agricultural chemicals and fertilizer.
Customer fees primarily consist of program fees and insurance brokerage
services. Net revenue for the years ended May 31, 2003 and 2002 are
summarized below.
Net Revenue (Dollars in thousands) May 31, 2003 May 31, 2002
---------------- ----------------
Seeds $15,555 32.3% $22,772 30.3%
Chemicals 11,395 23.7% 19,212 25.5%
Fertilizer 14,442 30.0% 23,816 31.7%
Financing income 5,398 11.2% 6,316 8.4%
Customer fees 1,169 2.4% 2,485 3.3%
Other income 208 0.4% 644 0.8%
----------------- ----------------
Net Revenue $48,167 100.0% $75,245 100.0%
================= ================
Cost of Revenues
The total cost of revenues was 94.4% of net revenues for the three months
ended May 31, 2003, as compared to 90.5% for the three months ended May 31,
2002. The gross margin on the sale of farm inputs decreased slightly to
7.6% for the three months ended May 31, 2003 from 7.8% for the three months
ended May 31, 2002 as a result of lower margins on seed and fertilizer sales.
Gross margin on financing income decreased to 3.5% of net revenues for the
first quarter of Fiscal 2004 as compared to 3.9% for the same period one year
ago. This decrease was the result of several factors. The Company's average
receivable portfolio decreased in size by approximately 12% compared to the
prior year. Increased costs of approximately $1.2 million connected to the
Company's 2003 credit facility also reduced financing income. Offsetting
these decreases was a 23 basis point increase in the
-15-
portfolio yield on the Company's portfolio. The provision for doubtful
notes increased to 7.3% of net revenues for the three months ended
May 31, 2003 as compared to 5.4% of net revenues for the three months ended
May 31, 2002. The Company made an unexpected provision to its allowance
for doubtful accounts of $1.5 million during the three months ended
May 31, 2003. The adjustment to the allowance was a result of the
Company's strategy to reduce its volume in its western region where the
agricultural industry has been impacted economically by low commodity
prices and declining real estate values.
Operating Expenses
Operating expenses increased to 6.6% of net revenues for the three months
ended May 31, 2003, as compared to 4.8% for the three months ended
May 31, 2002. The increase in operating expenses as a percentage of net
revenues is the result of a 36.0% decline in net revenues of the Company
during the three months ended May 31, 2003 compared to the three months
ended May 31, 2002. The decrease in the dollar amount of operating
expenses is primarily attributed to the reduction in manpower expenses
in the three months ended May 31, 2003. The Company implemented several
cost cutting measures which most significantly was the reduction of its
workforce by nearly 30% in May 2003 in response to a smaller customer
portfolio for the 2003 crop year. Payroll and payroll related expenses
decreased to $2.1 million for the three months ended May 31, 2003 from
$2.6 million for the three months ended May 31, 2002.
Net Income
Net income decreased $2.5 million to a loss of $0.3 million for the three
months ended May 31, 2003 from $2.2 million net income for the three
months ended May 31, 2002. The decrease in net income is primarily
attributable to the lower level of customer volume for the 2003 crop year
and the unexpected provision for doubtful notes made during the three
months ended May 31, 2003.
Powerfarm
The Company continues to leverage its business model and use of its credit
products via the Internet through Powerfarm.com. The Powerfarm website
offers growers one of the most comprehensive assortments of credit options
available in the agricultural industry. 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.
Inflation
The Company does not believe the Company's net revenues and net income were
significantly impacted by inflation or changing prices in Fiscal 2003 or
the first three months of Fiscal 2004.
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 tables show the Company's quarterly net
revenues and net income for Fiscal 2003 and the first quarter of Fiscal
2004. This information is derived from unaudited consolidated financial
statements, which include, in the opinion
-16-
of management, all normal and recurring adjustments which management
consider 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.
Fiscal 2004 Quarter Ended
May 31 August 31 November 30 February 29
----------- ----------- ----------- -----------
(Dollars in thousands)
Net revenues $48,167
Net income (loss) ($309)
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)
Liquidity and Capital Resources
At May 31, 2003 the Company had working capital of $22.1 million, an
increase of $4.0 million since February 28, 2003. The components of
this net increase, since February 28, 2003, were $4.0 million increase
resulting from operating activities, consisting of approximately ($0.3)
million in net loss, $63.8 million increase in customer notes receivable,
$60.4 million decrease in notes payable, $11.9 million decrease in
outstanding checks in excess of bank balances, $11.6 million increase in
accounts payable and the remainder from a net change in other working
capital.
The Company negotiated a $200 million revolving line of credit for the 2003
Crop Year that was originally set to expire 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 3.8125% to 5.50% at
May 31, 2003). The total amount outstanding under the revolving line of
credit at May 31, 2003 was $141.2 million. At May 31, 2003 the Company
had a maximum amount available under the line of credit of approximately
$1.6 million based on a borrowing base computation provided by the agreement.
Subsequent to the end of the first quarter this agreement was amended.
The Company's $65 million revolving line of credit facility was set to
expire on June 30, 2003. This facility also did 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
May 31, 2003). The total outstanding under this facility at May 31, 2003
was $60.3 million. At May 31, 2003 the Company had a maximum amount
available under the line of credit of approximately $4.7 million based on a
borrowing base computation provided by the agreement. Subsequent to the end
of the first quarter this agreement was amended.
Subsequent to the end of the first quarter the Company amended and combined
its $200 million revolving line of credit with the $65 million revolving
line of credit into one $265 million credit facility. This amended credit
facility has been extended until October 2004 and allows for up to $260
million of 2003 Crop Year financing. In the event this facility is not
refinanced by September 15, 2003, the agreement calls for a controlled wind
down of the facility through October 2004. This
-17-
agreement will accrue interest at prime plus 50 basis points (current
effective rate would have been 4.75% at May 31, 2003).
The Company has negotiated amendments to its asset backed securitized
financing program to extend the due date to September 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. 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 rate is approximately 1.41%
at May 31, 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 1.90% at May 31, 2003). The total outstanding under the asset backed
securitized financing program at May 31, 2003 was approximately $17.6
million. Subsequent to the end of the first quarter the Company repaid
this facility in its entirety.
All of the above 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.
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 4.5% to 6.75% at May 31, 2003).
At May 31, 2003 the Company had $7.0 million outstanding under the
agreement. In April 2003, the Company negotiated an additional $17
million credit facility with another financial institution to participate
certain other customer notes receivable through January 2004. This
agreement accrues interest at prime less 75 basis points (current
effective rate is 3.5% at May 31, 2003). At May 31, 2003 the Company
had $9.2 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 May 31, 2003, the Company had $2.8 million 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 October 2004. 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 May 31, 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.
-18-
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 May 31, 2003 is a loss of approximately $1.0 million. 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.
"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 agriculture 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; technological problems; the amount and
availability under its asset backed securitization program; unknown risks;
and other risks detailed in the Company's Securities and Exchange
Commission filings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At May 31, 2003 the Company had $244.1 million outstanding in notes payable
at an average variable interest rate of 5.34%. The Company has an
interest rate swap that effectively converts $22.5 million of this variable
rate debt to a fixed rate instrument. After considering the effect of
this swap, the Company has floating rate debt of $217.2 million at a
variable interest rate of 4.87%. A 10% increase in the average variable
interest rate would increase interest expense by approximately 49 basis
points. Assuming similar average outstanding borrowings as Fiscal 2003
of $331 million, this would increase the Company's interest expense by
approximately $1.6 million.
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 approximately
95% of the Company's notes receivable are variable rate notes.
ITEM 4. CONTROLS AND PROCEDURES
During the 90-day period prior to the filing date of this report,
management, including the Company's Chief Executive Officer and Chairman
of the Board (Principal Financial and Accounting Officer), 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 Chief Executive Officer and Chairman of the Board
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
-19-
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.
-20-
AG SERVICES OF AMERICA, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual meeting of Stockholders on July 14, 2003.
Proxies for such a meeting were solicited pursuant to regulation 14A
under Securities Exchange Act of 1934, as amended.
Votes Votes Votes
Proposal in Favor Withheld Abstaining
- ----------------------------------------------------------------------------
Approval of Securities Purchase Agreement 2,716,204 509,197 11,498
Re-election of Directors
Kevin D. Schipper 2,757,833 200,599 278,367
Ervin Mellema 2,657,748 300,684 278,367
Election of five new directors (effective
upon the first closing of the
sale of securities to ASCP)
Jonathan E. Baum 2,720,027 238,605 278,367
Michael G. Fisch 2,630,207 328,425 278,367
Glenn B. Kaufman 2,580,228 378,404 278,367
Douglas A. Monticciolo 2,721,027 237,605 278,367
Marc L. Saiontz 2,581,228 377,404 278,367
Removal of first paragraph of Article VII
of our amended and restated Articles
of Incorporation (effective upon the
first closing of the sale of securities
to ASCP) 2,851,886 367,872 17,241
Ratify appointment of McGladrey & Pullen,
LLP as independent auditors 4,767,095 247,022 3,358
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits were filed during the period covered by this report.
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on July 3, 2003
disclosing Ag Services' press release regarding first quarter
results for Fiscal 2004.
-21-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AG SERVICES OF AMERICA, INC.
----------------------------
(Registrant)
/s/ Gaylen D. Miller
----------------------------
Gaylen D. Miller
Chairman of the Board
(Principal Financial and Accounting Officer)
Date: July 15, 2003
-22-
CERTIFICATIONS
I, Kevin D. Schipper, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ag Services
of America, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
-23-
6. The registrant's other certifying officers and I have indicated in
this quarterly 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: July 15, 2003 /s/ Kevin D. Schipper
-------------------------
Kevin D. Schipper
Chief Executive Officer
-24-
I, Gaylen D. Miller, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ag Services
of America, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
-25-
6. The registrant's other certifying officers and I have indicated in
this quarterly 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: July 15, 2003 /s/ Gaylen D. Miller
-------------------------
Gaylen D. Miller
Chairman of the Board
(Principal Accounting and Financial Officer)
-26-
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FOURTH AMENDMENT (this "Amendment"), dated as of
June 13, 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, March 28, 2003, and April 15, 2003 (as so amended, the
"Original Agreement").
The Borrower has requested an emergency increase in its credit
availability pending its completion of a plan to address the imminent
maturity of the B Loans, and the Required Lenders have agreed to accommodate
such request on the terms and subject to the conditions set forth in this
Amendment.
The Borrower also has asked for a brief extension of the maturity
of the B Loans (and related time periods in the Original Agreement) in order
to provide additional time to work on alternative arrangements. The
Required Lenders have agreed to that request as well, on the terms and
subject to the conditions set forth in 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 Date Amendments. Section 5.10 of the Original Agreement,
Section 7.01(p) of the Original Agreement, and the definitions of "Applicable
Margin", "Eligible Advance" and "Termination Date" in Section 1.1 of the
Original Agreement are hereby amended by deleting all references therein
to the date "June 15, 2003" and inserting in their place the date
"June 30, 2003".
-27-
2.2 Amendment to Borrowing Base A Definition. The definition of
"Borrowing Base A" in Section 1.1 of the Original Agreement is hereby amended
by deleting the existing advance rate of "82.5%" contained in the first line
of such definition and replacing the same with an advance rate of "85.0%."
ARTICLE III
CONDITIONS PRECEDENT
3.1 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) A payment in immediately available funds, for the pro
rata account of the A Lenders, of an increase fee of $200,000 in
consideration of their agreement in Section 2.2 above;
(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) Payment of all fees of counsel to the Agent invoiced as
of the date of this Amendment, and payment of the out-of-pocket
expenses (other than legal fees and expenses) incurred and invoiced
by Rabobank in connection with its advisory and fairness opinion
services to the Borrower; and
(f) An amendment to Section 9.01(x) of the Indenture to change
the date reference therein to a date not sooner than June 30, 2003.
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:
(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
-28-
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
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 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.
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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.
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:
------------------------------
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 Fourth Amendment]
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U.S. BANK NATIONAL ASSOCIATION
By:
---------------------------------
Title:
------------------------------
[Signature Page Two of Two to Fourth Amendment]
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FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIFTH AMENDMENT (this "Amendment"), dated as of June 26, 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, March 28, 2003, April 15, 2003 and June 13, 2003
(as so amended, the "Original Agreement").
The Borrower has requested an extension of the maturity, a
corresponding extension of the revolving commitments and a pricing
reduction with respect to the Loans under the Original Agreement and
the Required Lenders have agreed to accommodate such requests on the
terms and subject to the conditions set forth in 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 Amendments to Definitions.
(a) Section 1.1 of the Original Agreement is hereby amended by
deleting the following definitions: "Aggregate Primary Facility A
Commitment Amount", "Aggregate Secondary Facility A Commitment Amount",
"Average Total Indebtedness to Average Consolidated Tangible Net Worth",
"2003 Credit Factor Concentration Limit Excess", "Eligible Inventory",
"Obligor Concentration Limit Excess", "Primary Facility A Commitment
Amount", "Primary Facility Percentage", "Secondary Facility A Commitment
Amount" and "Secondary Facility A Percentage".
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(b) Certain definitions set forth in Section 1.1 of the Original
Agreement are hereby amended as follows:
"Eligible Advance": Clause (j) of the definition of "Eligible
Advance" is amended to substitute the date "October 31, 2004"
for the date "June 30, 2003".
"Eligible 2003 Advance": Clause (b) of the definition of
"Eligible 2003 Advance" is amended to read in its entirety:
"[reserved];".
"Required Lenders": Is amended by deleting the proviso thereto.
(c) Section 1.1 of the Original Agreement is hereby amended to
amend in their entirety (or add, as the case may be) the following
definitions in their appropriate alphabetical position:
"'Advance': With respect to a Facility, any portion of the
outstanding Loans with respect to such Facility as to which a
particular interest rate option and, if pertinent, an Interest
Period is applicable. On and after the date of the Fifth
Amendment, an Advance may only be a Base Rate Advance."
"'American Securities Transaction': the sale by the Borrower
to ASP/ASA of the Borrower's stock pursuant to the terms of a
Securities Purchase Agreement dated as of February 24, 2003 between
the Borrower and ASP/ASA, as the same shall be amended,
supplemented or otherwise modified from time to time.
"'Applicable Margin': The margin specified in the table below
relating to the applicable Advance type and Loan type.
Loan Type Eurodollar Rate Advances Base Rate Advances
- ----------- ---------------------------- -----------------------------------
A Loan 3.1875% from the date of 0.50% from the date of the
the Fifth Amendment to and Fifth Amendment to and
including July 6, 2003 including September 15, 2003,
(for the existing Interest and, if the Loans have not been
Periods ending on July 7, repaid in full on or prior to
2003) or 2.625% from the September 15, 2003, the Applicable
date of the Fifth Amendment Margin shall be 1.50% on and after
to and including July 15, September 16, 2003
2003 (for the existing
Interest Periods ending
on July 16, 2003), as the
case may be
- ----------- ---------------------------- -----------------------------------
B Loan Not Applicable 0.50% from the date of the
Fifth Amendment to and
including September 15, 2003, and
if the Loans have not been repaid
in full on or prior to September 15,
2003, the Applicable Margin shall
be 1.50% on and after September 16,
2003
- ----------- ---------------------------- -----------------------------------
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"'Arrangement Fee': shall have the meaning given in Section
2.9(d)."
"'ASP/ASA': ASP/ASA, LLC, a Delaware limited liability
company."
"'Borrowing Base A': An amount equal to (i) from the date of
the Fifth Amendment to and including December 31, 2003, 82.5%,
(ii) from January 1, 2004 to and including April 30 2004, 75%,
(iii) from May 1, 2004 to and including July 31, 2004, 40%, and
(iv) from August 1, 2004 and thereafter, 30%, of the sum of:
(a) the aggregate Principal Balance plus accrued interest
of all Eligible 2003 Advances made in respect of 2003 Secured
Loans; and
(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)."
"'Borrowing Base B': An amount equal to the sum of:
(a) with respect to Eligible Advances in respect of 2002
Loans not also constituting Intermediate Loans, the sum of the
aggregate Principal Balance thereof plus accrued interest
thereon multiplied by (i) from the date of the Fifth Amendment
to and including December 31, 2003, 75%, (ii) from
January 1, 2004 to and including April 30, 2004, 50%, and
(iii) from May 1, 2004 and thereafter, 30%;
(b) with respect to Eligible Advances in respect of 2001
Loans not also constituting Intermediate Loans, the sum of the
aggregate Principal Balance thereof plus accrued interest
thereon multiplied by (i) from the date of the Fifth Amendment
to and including December 31, 2003, 50%, (ii) from
January 1, 2004 to and including April 30, 2004, 40%,
(iii) from May 1, 2004 to and including July 31, 2004, 20%,
and (iv) from August 1, 2004 and thereafter, 0%;
(c) with respect to Eligible Advances in respect of
Intermediate Loans, the sum of the aggregate Principal Balance
thereof plus accrued interest thereon multiplied by (i) from
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the date of the Fifth Amendment to and including
December 31, 2003, 50%, (ii) from January 1, 2004 to and
including April 30, 2004, 40%, (iii) from May 1, 2004 and
thereafter, 0%;
(In each of (a) through (c) above, the Principal Balances
and accrued interest described therein shall be determined as
if calculated on a pro forma basis and as if the terms
"Advance" and "Loan" in the Indenture included both the loans
owned by Ag Acceptance and the loans owned by the Borrower)
plus
(d) before September 15, 2003, 100% of the Borrower's
cash and investments of the type described in subsections
(a)-(c) of Section 6.5 (to the extent pledged to the Agent for
the benefit of the Secured Parties and held by one of the
Lenders acting as a collateral agent in a manner and pursuant
to documentation satisfactory to the Agent); provided, however,
that the Borrower may only include such cash and investments
in Borrowing Base B to the extent that the Borrower is unable
to make payments on the B Loan-related Obligations without
causing an Event of Default to occur under Section 9.01(v)
of the Indenture;
plus
(e) before September 15, 2003, 100% of the cash balances
and "Eligible Investments" (as defined in the Indenture) owned
by Ag Acceptance;
less
(f) the sum of the total liabilities of Ag Acceptance.
"'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 Fifth
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: $215,000,000
U.S. Bank: $50,000,000."
"'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 there
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are no remaining Facility A Commitments, such Lender's share of
the Total Facility A Outstandings)."
"'Facility A Unused Commitment': With respect to any Lender
as of any date, the amount by which such Lender's Facility A
Commitment Amount exceeds such Lender's Facility A Percentage of
the Total Facility A Outstandings on such date."
"'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 Fifth
Amendment, as the same may be reduced from time to time pursuant
to Section 2.8 or Section 9.6."
"'Fifth Amendment': means the Fifth Amendment to Amended and
Restated Credit Agreement dated as of June 26, 2003 among the
Borrower, the Agent and the Lenders."
"'Intermediate Loan': shall have the meaning specified in the
Indenture."
"'2001 Loan': A Loan (as defined in the Indenture) made to
an Obligor to produce a crop during the calendar 2001 (or earlier)
growing season."
"'2002 Loan': A Loan (as defined in the Indenture) made to
an Obligor to produce a crop during the calendar 2002 growing
season."
"'2004 Loan' A Loan (as defined in the Indenture) made to
an Obligor to produce a crop during any growing season after the
calendar 2003 growing season."
"'Obligor Risk Participations': Participations in Loans
(as defined in the Indenture) (a) not held by Ag Acceptance,
(b) not 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 (i) being of comparable or
lesser credit quality, (ii) being of comparable or longer maturity
and (iii) in the case of participations entered into after the
Fifth Amendment, having an equal or greater advance rate as
compared to the advance rate included in Borrowing Base A or
Borrowing Base B, as the case may be, and in all cases not selected
in a manner that is adverse to the interests of the Lenders."
"'Termination Date': With respect to (i) Facility A, the
earliest of (a) October 31, 2004, (b) the date on which the
Facility A Commitments are terminated pursuant to Section 7.2, or
(c) the date on which the Facility A Commitment Amounts are reduced
to zero pursuant to Section 2.8, and (ii) Facility B, the earliest
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of (a) October 31, 2004, (b) the date on which the Facility B
Commitments are terminated pursuant to Section 7.2, or (c) the
date on which the Facility B Commitments are reduced to zero
pursuant to Section 2.8."
2.2 Amendment to Section 2.1(a) of the Original Agreement:
Section 2.1(a) of the Original Agreement is amended to read in its
entirety as follows:
"(a) A Loans. Each Lender with a Facility A Commitment
Amount set forth opposite its signature to the Fifth 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) such
Lender's share of the Total Facility A Outstandings to exceed such
Lender's Facility A Percentage, or (iii) the Total Facility A
Outstandings to exceed Borrowing Base A. A Loans hereunder shall
be made by the several Lenders ratably in accordance with their
respective Facility A Percentages. A Loans may be obtained and
maintained solely as Base Rate Advances."
2.3 Amendment to Section 2.2(a) of the Original Agreement:
Section 2.2(a) of the Original Agreement is hereby amended to read in its
entirety as follows:
"(a) Procedure for Disbursements. Any request by the
Borrower for Loans hereunder shall be in writing or by telephone
and must be given by the Borrower so as to be received by the
Agent not later than 10:00 a.m. (New York time) on the requested
Loan date. Each request for Loans hereunder shall be irrevocable
and shall be deemed a representation by the Borrower that on the
requested Loan date and, after giving effect to the requested
Loans, the applicable conditions specified in Article III have
been and will be satisfied. Each request for Loans hereunder
shall specify (i) the requested Loan date, (ii) the aggregate
amount of any A Loans to be made on such date and (iii) the
aggregate amount of B Loans to be made on such date, which Loans
(whether A Loans or B Loans) shall be in a minimum amount of
either $1,000,000 or, if more, an integral multiple of $250,000
or integral multiples thereof. The Agent may rely on any
telephone request for Loans hereunder by the Borrower which it
believes in good faith to be genuine; and the Borrower hereby
waives the right to dispute the Agent's record of the terms of
such telephone request. Promptly upon receipt of such notice
(but in no event later than 11:00 a.m., New York City time on
the Business Day of receipt of such notice), the Agent shall
advise each Lender of the proposed Advances. 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) Facility A Percentage of any requested A Loan(s)
and (ii) Facility B Percentage of any requested B Loan(s).
Subject to satisfaction of the conditions precedent set forth in
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Article III, the Agent shall transfer to the Borrower all funds
received from the Lenders in respect of the relevant Loans prior
to 2:30 p.m., New York City time, on the date that the Borrower
requested that such Loans be disbursed."
2.4 Amendment to Section 2.4 of the Original Agreement: Section
2.4 of the Original Agreement is amended in its entirety to read as follows:
"Section 2.4 Conversions and Continuations. Notwithstanding
anything to the contrary anywhere else in this Agreement, from and
after the date of the Fifth Amendment all Loans shall be obtained
and maintained solely as Base Rate Advances and may not be
converted into Eurodollar Rate Advances. Any and all Eurodollar
Rate Advances outstanding immediately prior to the date of the
Fifth Amendment shall be converted into Base Rate Advances on the
last day of the Interest Period then applicable thereto."
2.5 Amendment to Section 2.5(c) of the Original Agreement:
Section 2.5(c) of the Original Agreement is amended in its entirety to read
as follows:
"(c) From and after the occurrence of an Event of Default and
continuing thereafter until such Event of Default shall be remedied
to the written satisfaction of the Agent and the Required Lenders,
the outstanding principal balance of each Loan and any other amount
then due and payable but remaining unpaid shall bear interest, until
paid in full, at a rate of interest one and one half percent (1.5%)
higher than the rate otherwise applicable to the outstanding Loans."
2.6 Amendment to Section 2.7(a)(iii) of the Original Agreement.
Section 2.7(iii) of the Original Agreement is hereby deleted.
2.7 Amendment to Section 2.8 of the Original Agreement.
Section 2.8 of the Original Agreement is amended in its entirety to read as
follows:
"Section 2.8 Reduction or Termination of Commitments.
(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 the Borrower may
not at any time reduce the Aggregate Facility A Commitment
Amount below the Total Facility A Outstandings. The foregoing
reductions are independent of any reductions required by the
proviso in the definition of Facility A Commitment Amount.
The Borrower may at any time 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
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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 at any time terminate 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.
(iii) Reallocation of Amounts. Upon the Borrower's
written request, the Aggregate Facility A Commitment Amount
and the Aggregate Facility B Commitment Amount (and the
corresponding underlying Loans) may be reallocated so long
as (A) no Default or Event of Default shall have occurred
and then be continuing, (B) the sum of such commitment amounts
does not exceed $265,000,000, (C) the Borrower would be in
compliance with both Borrowing Base A and Borrowing Base B
immediately after such reallocation and (D) the Borrower
executes and delivers to the Agent replacement A Notes and
B Notes reflecting such reallocation."
2.8 Amendment to Section 2.9 of the Original Agreement:
Section 2.9 of the Original Agreement is amended by adding the following
new Section 2.9(d):
"(d) Arrangement Fee. The Borrower shall pay the
following fees (collectively, the "Arrangement Fees") to the
Agent in Immediately Available Funds for the pro rata account
of the Lenders:
(i) if the Borrower has not paid all of the
Obligations in full in Immediately Available Funds prior
to 1:00 p.m. (New York time) on September 15, 2003, or
any of the Commitments remain outstanding on
September 15, 2003, a fee in the amount of 1.00% of the
sum of the Aggregate Facility A Commitment Amount and
the Aggregate Facility B Commitment Amount (in each case
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as measured on the date of the Fifth Amendment), payable
prior to the close of business on September 15, 2003, and
(ii) if the Borrower has not paid all of the
Obligations in full in Immediately Available Funds prior
to 1:00 p.m. (New York time) on October 31, 2004, or any
of the Commitments remain outstanding on October 31, 2004,
a fee in the amount of 0.60% of the sum of the Aggregate
Facility A Commitment Amount and the Aggregate Facility
B Commitment Amount (in each case as measured on the date
of the Fifth Amendment), payable prior to the close of
business on October 31, 2004.
The parties hereto acknowledge that the foregoing fees shall
be payable in lieu of, and shall replace, the deferred fees
referenced in the Fee Letter."
2.9 Amendment to Section 5.3 of the Original Agreement.
(a) Subsection (a) of Section 5.3 of the Original Agreement is
hereby amended by deleting the phrase "'unqualified opinion' (as that term
is used and generally understood in the accounting profession)" and inserting
in its place the word "opinion".
(b) Subsections (c) and (k) of Section 5.3 of the Original
Agreement are hereby amended, and new subsections (m), (n) and (o) of
Section 5.3 are hereby added to the Original Agreement, to read in their
entirety as follows:
"(c) on a weekly basis, a Borrowing Base Certificate in
form and substance satisfactory to the Agent;
(k) [reserved];
(m) on a weekly basis, six-week future cash flow projections
for the Borrower and its Subsidiaries;
(n) bi-weekly starting September 1, 2003, an update on the
status of relationships with any Obligor that involves any Obligor
Note classified as "substandard" or below under the Borrower's
classification system as in effect on the date of the Fifth
Amendment for each such relationship where the applicable Obligor
owes $1,500,000 or more to the Borrower or Ag Acceptance;
(o) as soon as available, but no less frequently than once
a month, any report received from any third party sales agent
marketing Intermediate Loans for the Borrower pursuant to
Section 5.14; and
(p) on a monthly basis, a report in reasonable detail
concerning transactions of the type referenced in Section 6.26
including measurements against the limits specified in such
Section."
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2.10. Addition of Section 5.6 to the Original Agreement. Section
5.6 of the Original Agreement is hereby amended to read in its entirety as
follows:
"Section 5.6 Books and Records; Inspections and Examinations.
Keep accurate books of record and account for itself in accordance
with GAAP and, upon request of the Agent or any Lender (but subject
to the frequency limitations below), will give any representative
of the Agent or any Lender access during normal business hours to,
and permit such representative to examine, copy or make extracts
from, any and all such books, records and documents in its
possession, to conduct audits of the Borrower's loan portfolio,
Borrowing Base A, Borrowing Base B (including property owned by
Ag Acceptance) and Collateral, to inspect any of its properties
and to discuss its financial condition with its principal officers,
all at such times and as often as it may reasonably request;
provided, that, so long as no Default or Event of Default has
occurred and is continuing, only one such visit may occur (with both
Lenders visiting at the same time) before September 15, 2003. The
Agent shall provide notice to the Borrower of its scheduled visits
and the Borrower shall use its best efforts to inform all Lenders
of such visits; provided, that, the Borrower's failure to do so
shall not constitute an Event of Default hereunder. Without
limiting the foregoing, the Borrower acknowledges that the Agent
intends to conduct, at the Borrower's cost, field audits of the
Borrower, its Subsidiaries and the components of Borrowing Base A
and Borrowing Base B on a regular basis after September 15, 2003.
The Borrower agrees to permit and cooperate with (and to cause its
Subsidiaries to permit and cooperate with) each such audit. The
Borrower further agrees that, after September 15, 2003, the Agent
may hire, at the Borrower's cost, one or more consultants to advise
the Agent and the Lenders in connection with the liquidation of the
Company's and Ag Acceptance's portfolios."
2.11 Amendment to Section 5.10 of the Original Agreement:
Section 5.10 of the Original Agreement is amended in its entirety to
read as follows:
"Section 5.10 Post-Closing Matters. Deliver or cause to be
delivered, no later than July 18, 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."
2.12 Amendment to Section 5.12 of the Original Agreement:
Section 5.12 of the Original Agreement is amended by adding the following
sentence at the end of such Section:
"Notwithstanding anything to the contrary in this Section 5.12,
the Borrower will not and will not permit any of its existing
Subsidiaries to (i) create any additional Subsidiary (other than a
special-purpose Subsidiary which may be created in anticipation of
a securitization transaction to accompany the American Securities
Transaction, so long as such Subsidiary does not conduct any actual
business and is not capitalized) or (ii) designate any Subsidiary
as an Unrestricted Subsidiary, and each of Powerfarm and Ag
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Acceptance shall remain Restricted Subsidiaries for all purposes
of this Agreement and shall not be designated Unrestricted
Subsidiaries."
2.13 Addition of Section 5.13 to the Original Agreement.
Section 5.13 is hereby added to the Original Agreement to read in its
entirety as follows:
"Section 5.13. Payment of Outstanding Securitization Amount.
Upon request of the Agent, to use Loan proceeds hereunder to permit
Ag Acceptance's obligations under the Securitization Documents to
be satisfied and paid in full (excepting any surviving contingent
payment obligations such as indemnities). Furthermore, upon such
satisfaction and payment (whether financed through Loans hereunder,
through the continued amortization of Ag Acceptance's portfolio,
or otherwise), the Borrower shall:
(a) concurrently cause Ag Acceptance (i) to execute
and deliver to the Agent a Subsidiary Guaranty and Subsidiary
Security Agreement, each dated as of the date on which such
Securitization Document obligations were satisfied, and
(ii) within 10 days thereafter, to either (A) declare and
pay a dividend to the Borrower, or (B) return capital to the
Borrower, which dividend or return of capital shall be
comprised of all Loans (as defined in the Indenture) that are
not then (1) the subject of bankruptcy or other insolvency
proceedings relating to the related Obligor, or (2) the subject
of litigation between Ag Acceptance and any related Obligor;
and
(b) depending upon the Agent's request, promptly either
(i) enter into (and cause Ag Acceptance to enter
into) an amendment to this Agreement in form and substance
satisfactory to the Agent and the Lenders, including,
without limitation, such security and other provisions
as shall be required by the Agent and the Lenders to assure
(A) a first priority security interest in favor of the
Agent for the benefit of the Lenders in and to all Loans
(as defined in the Indenture), (B) an appropriate and
proportional advance rate for Advances to be made to Ag
Acceptance consistent with the Borrowing Base methodology
currently employed in this Agreement, and (C) cross-
guaranties between the Borrower and Ag Acceptance
satisfactory to the Agent and the Lenders; or
(ii) cause Ag Acceptance to enter into a separate
credit agreement substantially on the terms contained in
this Agreement, including, without limitation, such
security and other provisions as shall be required by the
Agent and the Lenders to assure (A) a first priority
security interest in favor of the Agent for the benefit
of the Lenders in and to all Loans (as defined in the
Indenture), (B) an appropriate and proportional advance
rate for advances to be made to Ag Acceptance consistent
with the Borrowing Base methodology currently employed
in this Agreement, and (C) cross-defaults between this
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Agreement and such credit agreement and cross-guaranties
between Ag Acceptance and the Borrower satisfactory to
the Agent and the Lenders"
2.14. Addition of Section 5.14 to the Original Agreement.
Section 5.14 is hereby added to the Original Agreement to read in its
entirety as follows:
"Section 5.14. Orderly Liquidation; Marketing Intermediate
Loans. If the Obligations have not been paid in full on or before
September 15, 2003, (a) begin, in good faith and with reasonable commercial
diligence, an orderly liquidation of the Borrower's and Ag Acceptance's
portfolios and (b) begin, not later than October 1, 2003, to market the
Intermediate Loans in good faith and with reasonable commercial diligence
through a third party sales agent reasonably acceptable to the Agent and
the Lenders (which the Company agrees to engage on or before
October 1, 2003)."
2.15 Amendment to Section 6.10 of the Original Agreement.
Section 6.10 of the Original Agreement is hereby amended in its entirety
to read as follows:
"Section 6.10. Subsidiaries and Affiliates. Form, acquire,
organize, establish or incorporate any new Subsidiary (other than a special
- -purpose Subsidiary which may be created in anticipation of a securitization
transaction to accompany the American Securities Transaction, so long as
such Subsidiary does not conduct any actual business and is not capitalized)."
2.16 Amendment to Section 6.13 of the Original Agreement:
Section 6.13 of the Original Agreement is amended in its entirety to
read as follows:
"Section 6.13 Total Indebtedness to Consolidated Tangible
Net Worth Ratio. Fail to achieve, as of the end of any Fiscal
Quarter, a Total Indebtedness to Consolidated Tangible Net Worth
Ratio for the four-Fiscal Quarter period then ended of less than
or equal to (a) 3.55 to 1.00 for the Fiscal Quarter ending
May 31, 2003, or (b) 3.70 to 1.00 for each Fiscal Quarter ending
during any period commencing after May 31, 2003."
2.17 Amendment to Section 6.14 of the Original Agreement:
Section 6.14 of the Original Agreement is hereby amended in its entirety
to read as follows:
"Section 6.14 [INTENTIONALLY OMITTED]."
2.18 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 (before the
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Securitization Outstanding Amount is paid in full) 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
Covenant specified in Section 6.13 would be violated on a pro
forma basis, or (iii) such Obligor Risk Participations relate
to Customer Loan outstandings or commitments in excess of
$30,000,000 in the aggregate (provided, however, that this
clause (iii) shall not apply to participations of the type
described in the last sentence of this Section 6.24). 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. In addition to the foregoing restrictions,
no Obligor Risk Participation shall be sold by the Borrower
or any Subsidiary on or after the date of the Fifth Amendment
unless (a) the advance rate received by the Borrower in respect
thereof equals or exceeds the comparable advance rate under
this Agreement with respect to the subject Loan, and (b) the
proceeds of such Obligor Risk Participation are used by the
Borrower to permanently reduce the Commitments under Section 2.8."
2.19 Addition of Section 6.26 to the Original Agreement.
Section 6.26 is hereby added to the Original Agreement to read in its
entirety as follows:
"Section 6.26 Release of Collateral to Obligors, Protective
Advances and Program Fee Extensions. Without the Agent's advance
written consent, release any Customer Collateral or agree to any
extensions of program fees otherwise payable by Obligors, except
for releases or program fee extensions (a) that the Borrower is
required to make or permit under the relevant credit documentation
with the Obligor in effect on the date of the Fifth Amendment
(such as when a Loan (as defined in the Indenture) is repaid)
or (b) that the Borrower reasonably determines (as the lender
or as the servicer for Ag Acceptance) to be necessary to protect
the Borrower's or Ag Acceptance's interest in Customer Collateral
posted by such Obligor (such as releases to pay for senior rents,
operating expenses that relate solely to harvesting Customer
Collateral, storage and transportation expenses that relate to
Customer Collateral, or the payment of senior Liens (other than
Liens of the type referenced in the next sentence) that otherwise
would prime the Borrower's or Ag Acceptance's Liens on the
relevant Customer Collateral). Furthermore, without the Agent's
advance written consent, the Borrower shall not (and shall not
permit Ag Acceptance to) acquire or otherwise pay amounts owed by
Obligors to competing financiers that exceed (x) in aggregate
the lesser of 25% of the principal balance of the relevant Loan
(as defined in the Indenture) to such Obligor or $500,000 or
(y) $7,500,000 measured on a cumulative basis for all such
acquisitions or payments made after the date of the Fifth
Amendment."
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2.20 Amendment to Section 7.1(p) of the Original Agreement.
Section 7.1(p) of the Original Agreement is hereby amended in its
entirety to read as follows:
"(p) [INTENTIONALLY OMITTED]."
2.21 Addition of Section 8.14 to the Original Agreement.
Section 8.14 is hereby added to the Original Agreement to read in its
entirety as follows:
"Section 8.14 Payments Among Lenders to Balance
Outstandings. Each Lender shall cooperate with the Agent to
cause a one-time adjustment to be made on the date of the
Fifth Amendment in respect of each such Lender's share of
Total Facility A Outstandings and Total Facility B Outstandings
such that, on and after giving effect to such adjustments, each
Lender's (a) share of Total Facility A Outstandings does not
exceed its Facility A Commitment Amount nor its Facility A
Percentage of Total Facility A Outstandings, and (b) share of
Total Facility B Outstandings does not exceed its Facility B
Commitment Amount nor its Facility B Percentage of Total
Facility B Outstandings. Such adjustment shall be independent
of any other allocative provision of this Agreement, including,
without limitation Sections 8.10A and 8.10B."
ARTICLE III
CONDITIONS PRECEDENT
3.1 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
Lender;
(b) The Acknowledgment of Guarantor attached to this Amendment,
duly executed by Powerfarm;
(c) A payment in Immediately Available Funds, for the pro rata
account of the Lenders, of an amendment fee of 0.075% of the sum of
the Aggregate Facility A Commitment Amount and the Aggregate
Facility B Commitment Amount (in each case as such commitment
amounts are constituted after giving effect to this Amendment),
such fee to be fully earned on and as of the date hereof;
(d) Certificates indicating that (i) the execution, delivery
and performance of this Amendment and the performance of the
Original Agreement as amended hereby 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 on the Closing Date 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;
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(e) Incumbency certificates showing the names and bearing
the signatures of the officers of the Borrower authorized to
execute this Amendment and the other Loan Documents, certified
as of the date of this Amendment by the Secretary or an Assistant
Secretary of the Borrower;
(f) 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;
(g) A payment of the Agent's invoiced legal expenses and a
payment of $90,000 toward Rabobank's legal and accounting fees,
costs and expenses (both as Agent and as adviser) invoiced as of
the date of this Amendment;
(h) Amendments to the Management Group Indebtedness to change
the maturity date thereof to a date not sooner than the earlier of
(i) November 15, 2004 and (ii) the date on which the American
Securities Transaction is consummated; and
(i) A new A Note and a new B Note in favor of each Lender
in the amount of such Lender's revised Facility A Commitment Amount
and Facility B Commitment Amount, respectively, made and given in
substitution for and replacement of, but not payment of, the
Borrower's existing A Note and B Note.
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:
(a) The Borrower's execution, delivery and performance of
this Amendment and the replacement Notes referenced in
Section 3.1(i) above, and the Borrower's performance 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 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
this Amendment), the replacement Notes referenced in Section 3.1(i)
above, 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.
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(c) No action, suit or proceeding is pending or, to the
Borrower's knowledge, threatened against the Borrower or any of its
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 Subsidiaries.
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 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 Release. In consideration of the maturity extensions,
extended revolving commitments, pricing reductions and other financial
accommodations embodied in this Amendment, the Borrower and Powerfarm,
by their respective signatures (or countersignature to the
Acknowledgement of Guarantor) below, hereby absolutely and unconditionally
release and forever discharge Rabobank (individually and as the Agent),
the Lenders and any and all of their respective members, parent companies,
subsidiary companies, other Affiliates, insurers, indemnitors, successors
and assigns, together with all of their respective present and former
directors, officers, agents and employees from any and all claims, demands
or causes of action of any kind, nature or description, whether arising
in law or equity or upon contract or tort or under any state or federal
law or otherwise, which either the Borrower or Powerfarm has had, now
has or has made claim to have against any such party for or by reason of
any act, omission, matter, cause or thing whatsoever arising out of
(a) the Original Agreement or any other Loan Document, (b) the
Securitization Documents, (c) Rabobank's role as or obligations in
connection with its role as financial advisor to the Borrower and/or
Powerfarm (whether under or arising out of the terms of the letter
from Rabobank to the Borrower dated May 9, 2002, as amended, or otherwise),
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or (d) any other relationship between the Borrower and/or Powerfarm on the
one hand and any one or more of Rabobank (individually or as Agent) and/or
any other Lender on the other hand, in each case from the beginning of
time to and including the date of the Fifth Amendment, whether such claims,
demands and cause of action are matured or unmatured or known or unknown.
5.4 Merger and Integration, Superseding Effect. This Amendment,
together with the Original Agreement as amended by 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 the Original Agreement, as amended by this
Amendment, shall control.
5.5 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. The Borrower agrees to pay all future
expenses, including reasonable attorney's fees and expenses, incurred
by the Agent in connection enforcement of any of the Loan Documents,
on a monthly basis. The Borrower also agrees to pay all expenses,
including reasonable attorney's fees and expenses, incurred by the Agent
in connection with any amendment to the Original Agreement as amended
by this Amendment entered into to accomplish the purposes of Section 5.14
of the Original Agreement as amended by this Amendment (though the Agent
and the Lenders agree that they will not charge any fee payable directly
to the Agent or the Lenders in connection with any such amendment).
5.6 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.
5.7 Successors. This Amendment shall be binding upon the
Borrower, Powerfarm, 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.
5.8 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.
5.9 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
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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-
$141,981,132 BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
Facility B Commitment Amount
$73,018,868
individually and as Agent
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
[Signature Page One of Two to Fifth Amendment]
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Facility A Commitment Amount U.S. BANK NATIONAL ASSOCIATION
$33,018,868 By:
--------------------------------
Facility B Commitment Amount Title:
-----------------------------
$16,981,132
[Signature Page Two of Two to Fifth Amendment]
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ACKNOWLEDGEMENT OF GUARANTOR
Please refer to our Guaranty (the "Guaranty") and to our Security
Agreement (the "Security Agreement") each dated as of August 31, 2000,
relating to Ag Services of America, Inc. (the "Borrower"). We have
previously acknowledged the Amended and Restated Credit Agreement dated
as of December 11, 2003 and amended as of February 25, 2003, March 28, 2003,
April 15, 2003 and June 15, 2003 (as so amended, the "Original Agreement" and,
as amended by the Amendment referenced below, the "Credit Agreement") among
the Borrower, various Lenders and Cooperatieve Centrale Raiffeisen -
Boerenleenbank, B.A., "Rabobank Nederland", New York Branch (individually,
"Rabobank"), as Agent for such Lenders (in such capacity, the "Agent"). We
now acknowledge receipt of a copy of, and consent to the execution and delivery
of, a Fifth Amendment to Amended and Restated Credit Agreement dated as of
June 26, 2003 amending the terms of the Original Agreement (the "Amendment")
and specifically consent to and agree to the release contained in Section 5.3
of the Amendment.
POWERFARM, INC.
By:
--------------------------------
Title:
-----------------------------
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