SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
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[X] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
AG SERVICES OF AMERICA, INC.
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(Name of Registrant as Specified in its Charter)
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AG SERVICES OF AMERICA, INC.
1309 Technology Parkway
Cedar Falls, Iowa 50613
June 12, 2003
Dear Shareholder:
You are invited to the annual meeting of shareholders, to be held on
July 14, 2003 , at the corporate headquarters of Ag Services of
America, Inc., 1309 Technology Parkway, Cedar Falls, Iowa 50613, at 9:00
a.m. , Central Standard Time. You will find information about the
annual meeting in the enclosed Notice of Annual Meeting and
proxy statement. In addition, you will also find enclosed a form of proxy
and information on how to grant your proxy by mail. The subjects to be
considered at the meeting are important to our future. We encourage you to
vote by granting your proxy as soon as possible in order to ensure that your
vote will be counted at the annual meeting.
At the annual meeting, we will ask you to consider and vote on
five proposals:
1. To approve a securities purchase agreement that we entered into on
February 24, 2003 with ASP/ASA, LLC, pursuant to which, among other things,
we will issue and sell up to 70,000 shares of 8.375% convertible preferred
stock to ASP/ASA, LLC. ASP/ASA, LLC will hold a majority of voting power
with respect to our company upon the first closing of the sale of convertible
preferred stock.
2. To re-elect two members to our board of directors.
3. To elect five new members to our board of directors; these five will
replace four members who have agreed to resign from our board of directors
and fill one newly created position, each effective only upon the completion
of the first closing of the sale of convertible preferred stock to
ASP/ASA, LLC.
4. To remove the first paragraph of Article VII of our Amended and
Restated Articles of Incorporation, which provides that our board of
directors shall be divided into three classes, each of which is elected
in a different year for a three year term. The removal of this provision
will be effective only upon completion of the first closing of the sale of
convertible preferred stock to ASP/ASA, LLC. If the first closing occurs,
each member of our board of directors will continue in office until our
next annual meeting.
5. To ratify the appointment of McGladrey & Pullen, LLP, as our
independent public accountants for the fiscal year ending
February 29, 2004.
In addition, at the meeting we will consider and act upon any other
matters that may properly come before the meeting or any adjournment
thereof.
This annual meeting is designed to serve as our regular annual
meeting and as a special meeting necessary in order to complete the
transactions contemplated by the securities purchase agreement. Proposals
2 and 5 are matters required to be addressed at our regular annual meeting.
Proposals 1, 3 and 4 relate to the securities purchase agreement. The
accompanying proxy statement provides greater detail as to how these
proposals relate to each other.
As described in the enclosed materials, our board of directors
unanimously approved the securities purchase agreement and believes that
it is in the best interests of our company. The board of directors
recommends a vote "for" each of the five proposals contained in this
proxy statement.
Regardless of whether you plan to attend the annual meeting,
your vote is important. We urge you to participate by promptly completing
and returning the enclosed proxy card as soon as possible. You may revoke
your proxy and vote in person if you decide to attend the annual
meeting.
On behalf of the board of directors and management, we thank you for
your continued support of Ag Services of America, Inc. during these
challenging times.
Sincerely,
/s/ Henry C. Jungling, Jr.
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Henry C. Jungling, Jr.
President
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/s/ Gaylen D. Miller
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Gaylen D. Miller
Chairman of the Board
/s/ Kevin D. Schipper
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Kevin D. Schipper
Chief Executive Officer and
Secretary
This proxy statement is dated June 12, 2003 and is first being
mailed to shareholders on or about June 13, 2003.
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AG SERVICES OF AMERICA, INC.
1309 Technology Parkway
Cedar Falls, Iowa 50613
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 14, 2003
Dear Ag Services of America, Inc. Shareholder,
It is my pleasure to invite you to the annual meeting of the
shareholders of Ag Services of America, Inc. to be held on Monday,
July 14, 2003, at our corporate headquarters, 1309 Technology Parkway,
Cedar Falls, Iowa 50613, at 9:00 a.m., Central Standard Time.
At the annual meeting, we will ask you to consider and vote on
the following proposals:
1. The approval of a securities purchase agreement that we entered into on
February 24, 2003 with ASP/ASA, LLC, pursuant to which, among other things,
we will issue and sell up to 70,000 shares of 8.375% convertible preferred
stock to ASP/ASA, LLC. ASP/ASA, LLC will hold a majority of voting power
with respect to our company upon the first closing of the sale of the
convertible preferred stock.
2. The re-election of two members to our board of directors.
3. The election of five new members to our board of directors; these
five will replace four members who have agreed to resign from
our board of directors and fill one newly-created position, each
effective only upon the completion of the first closing of the sale
of convertible preferred stock to ASP/ASA, LLC.
4. The removal of the first paragraph of Article VII of our Amended and
Restated Articles of Incorporation, which provides that our board of
directors shall be divided into three classes, each of which is elected
in a different year for a three year term. The removal of this provision
will be effective only upon completion of the first closing of the sale of
convertible preferred stock to ASP/ASA, LLC. If the first closing occurs,
each member of our board of directors will continue in office until our
next annual meeting.
5. The ratification of the appointment of McGladrey & Pullen, LLP, as our
independent public accountants for the fiscal year ending
February 29, 2004.
In addition, at the meeting we will consider and act upon any other
matters that may properly come before the meeting or any adjournment
thereof.
This annual meeting is designed to serve as our regular annual meeting
and as a special meeting necessary in order to complete the transactions
contemplated by the securities purchase agreement. Proposals 2 and 5 are
matters required to be addressed at our regular annual meeting. Proposals
1, 3 and 4 relate to the securities purchase agreement. The accompanying
proxy statement provides greater detail as to how these proposals relate
to each other.
The accompanying proxy statement describes these proposals in greater
detail. If you were a shareholder at the close of business on
June 2, 2003, you are entitled to notice of, and you may vote at,
the annual meeting.
Whether or not you plan to attend the annual meeting, we ask
that you submit your proxy as soon as possible so that your shares can be
voted at this meeting. You may vote by mailing a traditional proxy card or
by voting in person. Submitting your proxy will NOT prevent you from voting
in person. Please review the instructions on the enclosed proxy card and
in the proxy statement regarding your voting options.
By order of the board of directors,
/s/ Kevin D. Schipper
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Kevin D. Schipper
Corporate Secretary
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Cedar Falls, IA
June 12, 2003
YOUR VOTE IS IMPORTANT
Please mark, sign and date the enclosed proxy card and mail it promptly
in the enclosed return envelope.
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TABLE OF CONTENTS
Page
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Questions and Answers about the Proposals and the
Annual Meeting 9
Summary 12
Overview of the Securities Purchase Agreement 12
The Parties to the Securities Purchase Agreement 12
The Annual Meeting 13
Shareholder Voting Agreement 14
Recommendation of Our Board of Directors 14
Opinions of Our Financial Advisor 14
Interests of Certain Persons in the Transaction 15
Appraisal Rights 15
Conditions to the Transactions 15
Termination of the Securities Purchase Agreement 15
Certificate of Designations 16
Additional Agreements 16
Election of Directors 16
Additional Information 17
The Parties to the Securities Purchase Agreement 18
Ag Services of America, Inc 18
ASP/ASA, LLC 18
American Securities Capital Partners, LLC 18
The Annual Meeting 18
Date, Time and Place 18
Matters to Be Considered 18
Reasons for Seeking Shareholder Approval 19
Record Date and Shares Entitled to Vote;
Procedures for Voting; Quorum 20
Vote Required 20
Voting of Proxies 20
Revocability of Proxies 21
Proxy Solicitation 21
The Transaction 21
Background of the Transaction 21
Reasons for the Transaction 23
Factors Considered by the Board 23
Opinion of Our Financial Advisor Dated
February 24, 2003 24
Recent Developments Subsequent to Execution of the
Securities Purchase Agreement and Additional Analysis
by Our Financial Advisor 31
Interests of Certain Persons in the Transaction 36
Appraisal Rights 36
Shareholder Voting Agreement 36
Proposal 1 - Approval of Securities Purchase Agreement 37
Securities Purchase Agreement 37
Certificate of Designations, Preferences and Rights 45
Registration Rights Agreement 47
Shareholder Agreement 47
Management Consulting Agreement 48
Proposal 2 - Election of Directors 49
Proposal 3 - Election of Five New Directors 50
Proposal 4 - Removal of Staggered Board 51
Board Committees and Meetings 51
Executive Officers 52
Beneficial Ownership of Common Stock and Corporate
Information 53
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Executive Compensation and Other Related Information 55
Proposal 5 - Ratification of Appointment of Independent
Public Accountants 59
Other Matters 59
Financial Data 59
Cautionary Statement Regarding Forward-Looking Statements 60
Future Shareholder Proposals 60
Where You Can Find More Information 60
Annex A - Securities Purchase Agreement A-1
Annex B - Certificate of Designations, Preferences and
Rights of 8.375% Convertible Preferred Stock of Ag
Services of America, Inc B-1
Annex C - Shareholder Voting Agreement C-1
Annex D - Opinion of Rabobank International Dated
February 24, 2003 D-1
Annex E - Opinion of Rabobank International Dated
June 2, 2003 E-1
Annex F - Proposed Amendment to the Amended and Restated
Articles of Incorporation F-1
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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS AND THE ANNUAL MEETING
Below are brief answers to frequently asked questions concerning the
proposals and the annual meeting. These questions and answers do not,
and are not intended to, address all the information that may be important to
you. You should read the summary and the remainder of this proxy statement,
including all annexes, carefully.
1. Q: Why Did You Send Me This Proxy Statement?
A: We sent you this proxy statement and the enclosed proxy card because our
board of directors is soliciting your proxy to vote at our annual
meeting of shareholders. This proxy statement summarizes the information you
need to know to vote at the annual meeting. However, you do not need
to actually attend the annual meeting to vote your shares. Instead,
you may simply complete, date, and sign the enclosed proxy card and return
it in the enclosed envelope.
We intend to send this proxy statement, the attached Notice of
Annual Meeting and the enclosed proxy card on or about
June 13, 2003 to all shareholders of record at the close of business
on June 2, 2003, the record date for the annual meeting. At the
close of business on the record date for the annual meeting, there were
5,479,514 shares of our common stock entitled to vote on the matters
to be voted upon at the annual meeting. Our common stock is currently
our only class of voting stock.
2. Q: What am I Being Asked to Vote on at the Annual Meeting ?
A: At our annual meeting, we will ask you to consider and vote on
five proposals:
1. To approve a securities purchase agreement that we entered into with
ASP/ASA, LLC on February 24, 2003, pursuant to which we will, among other
things, issue and sell up to 70,000 shares of 8.375% convertible preferred
stock to ASP/ASA, LLC.
2. To re-elect two members to our board of directors.
3. To approve the election of five new members to our board of directors.
These five will replace four of our current directors who will be resigning
and fill one newly created board position, each effective only upon the
completion of the first closing of the sale of convertible preferred stock
to ASP/ASA, LLC.
4. To remove the first paragraph of Article VII of our Amended and
Restated Articles of Incorporation, which provides that our board of
directors shall be divided into three classes, each of which is elected
in a different year for a three year term. The removal of this provision
will be effective only upon completion of the first closing of the sale of
convertible preferred stock to ASP/ASA, LLC. If the first closing occurs,
each member of our board of directors will continue in office until our
next annual meeting.
5. To ratify the appointment of McGladrey & Pullen, LLP as our
independent certified public accountants for the fiscal year ending
February 29, 2004.
This annual meeting is designed to serve as our regular annual meeting
and as a special meeting necessary in order to complete the transactions
contemplated by the securities purchase agreement. Proposals 2 and 5 are
matters required to be addressed at our regular annual meeting. Proposals
1, 3 and 4 relate to the securities purchase agreement. Approval of Proposal
1 is required in order to effect the first closing contemplated by the
securities purchase agreement. There are other conditions to the first
closing, and we cannot assure you that the first closing will occur even if
Proposal 1 is approved. Proposals 3 and 4, if approved, will become effective
only upon completion of the first closing. If the first closing does not
occur, Proposals 3 and 4 will not go into effect.
3. Q: Is the Board of Directors Recommending that I Vote in Favor of the
Proposals?
A: Yes. After considering a number of factors, our board of directors
unanimously determined that the terms of the securities purchase
agreement are in the best interests of Ag Services and our shareholders.
Our board of directors recommends that you vote FOR
1. Approval of the securities purchase agreement;
2. The re-election of two members to our board of directors;
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3. The election to our board of directors of the five nominees named in
this proxy statement, effective only upon completion of the first closing;
4. The removal of the first paragraph of Article VII of our Amended and
Restated Articles of Incorporation, effective only upon completion of the
first closing; and
5. The ratification of the appointment of McGladrey & Pullen, LLP as our
independent public accountants for the year ending February 29, 2004.
4. Q: How Many Votes Do I Have?
A: Each share of our common stock that you own entitles you to one vote on
the matters to be voted on at the annual meeting. The enclosed proxy card
indicates the number of shares of our common stock that you own.
5. Q: What Vote Is Required to Hold a Valid Meeting and to Approve the
Proposals?
A: A quorum is necessary to hold a valid annual meeting. A quorum is
reached when the holders of at least a majority of the outstanding shares
of stock are present in person or represented by proxy at the annual
meeting. As long as a quorum is present, the affirmative vote of a majority
of the shares cast is required for approval of the securities purchase
agreement and for approval of the amendment to our Amended and Restated
Articles of Incorporation, and the affirmative vote of a plurality of the
shares cast is required for election of the nominees to our board of
directors.
6. Q: How Will the Votes be Counted?
A: All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. If you indicate "ABSTAIN" on any
of the proposals when granting your proxy, your shares will still count
towards a quorum but will not be counted as a vote either for or against
the proposal. Broker non-votes will be counted towards a quorum
but will not be counted as a vote either for or against the
proposals. Therefore, abstentions and broker non-votes
will not be counted in determining the number of votes on the proposals.
Broker non-votes occur when brokers do not vote on some matters because
they have not been authorized to vote by the beneficial owners of the
shares and do not have discretionary authority to vote on those matters.
7. Q: How Do I Vote by Granting a Proxy?
A: If you are a shareholder of record, you may direct your vote by granting
a proxy. You can grant your proxy by mailing in your completed, signed and
dated proxy card. Whether or not you plan to attend the annual
meeting, we urge you to grant your proxy by signing, dating and returning
the enclosed proxy card in the enclosed envelope.
8. Q: How Do I Direct My Vote If My Shares Are Held in a Brokerage Account
or By a Bank or Other Nominee?
A: If you are the beneficial owner of shares held for you in a brokerage
account or by a bank or other nominee, you may direct your vote by submitting
voting instructions to your broker, bank or nominee, which will grant a
proxy in accordance with your instructions. To direct your vote, you should
follow the instructions provided on the voting instructions card provided by
your broker, bank or nominee.
A number of brokers and banks are participating in a program provided through
ADP Investor Communication Services that offers telephone and Internet voting
options. If your broker or bank is participating in that program, you may be
able to direct the voting of your shares by telephone, by calling the
telephone number shown on the voting form that you receive from your broker
or bank, or over the Internet at the voting website of ADP Investor
Communications (www.proxyvote.com). If your broker or bank participates in
a different program and provides different instructions for directing your
vote telephonically or over the Internet, you should follow those
instructions instead.
9. Q: How Will My Shares be Voted If I Grant My Proxy?
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A: If you properly fill in your proxy card and send it to us in time to vote,
the proxy holders named on your proxy card will vote your shares as you have
directed. If you sign the proxy card but do not make specific choices, the
proxy holders will vote your shares "FOR" approval of the proposals as
recommended by our board of directors.
10. Q: May I Revoke My Proxy?
A: If you grant your proxy, you may revoke it at any time before it is
exercised at the annual meeting by any one of the following three ways:
* filing a written notice of revocation with our Corporate Secretary no
later than the date of the annual meeting;
* filing another executed proxy, which bears a later date, with our
Corporate Secretary; or
* attending the annual meeting and voting in person. Please note
that simply attending the annual meeting (but not voting) will NOT
revoke your proxy.
11. Q: Can I Still Vote in Person If I Have Already Granted My Proxy?
A: Yes. If you plan to attend the annual meeting and vote in person,
we will give you a ballot at the meeting. However, if your shares are held
in the name of your broker, bank or other nominee, you must bring a proxy
issued in your name from the broker, bank or nominee indicating that you
were the beneficial owner of the shares on June 2, 2003, the record
date for voting. Granting your proxy will not affect your right to attend
the annual meeting and vote in person.
12. Q: Who Pays the Costs of Soliciting These Proxies?
A: We will pay all costs of soliciting these proxies, including preparing,
assembling, printing and mailing the enclosed materials. We will ask banks,
brokers and other institutions, nominees and fiduciaries to forward the proxy
material to their principals. We may reimburse them for expenses.
13. Q: Do I Have Appraisal Rights for Any of the Matters to be Considered at
the Annual Meeting?
A: As a shareholder, you are not entitled to appraisal rights in the event
you dissent from approval of the proposals.
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SUMMARY
This summary, together with the preceding question and answer section,
highlights important information relating to the securities purchase
agreement and other matters discussed in greater detail elsewhere in
this proxy statement. This summary includes parenthetical references to
pages in other portions of this proxy statement containing a more detailed
description of the topics presented in this summary. This summary does not
contain all of the information you should consider before voting on the
proposals. To more fully understand the matters to be considered at the
annual meeting, you should read carefully this entire proxy statement
and all of its annexes, including the securities purchase agreement, which
is attached as Annex A, before voting on whether to approve the proposals.
In addition, we incorporate by reference important business and financial
information about us into this proxy statement. You may obtain the
information incorporated by reference into this proxy statement without
charge by following the instructions described in "Where You Can Find More
Information."
Overview of the Securities Purchase Agreement
On February 24, 2003, we entered into a securities purchase agreement
with ASP/ASA, LLC. The securities purchase agreement provides for, among
other things, the sale to ASP/ASA, LLC of up to 70,000 shares of 8.375%
convertible preferred stock at $1,000 per share.
Under the securities purchase agreement, the convertible preferred
stock is to be sold at three closings. At the first closing, we will
sell 35,000 shares of convertible preferred stock to ASP/ASA, LLC for
$35 million. If . the second closing occurs , we will sell
17,500 shares of convertible preferred stock for $17.5 million at that
closing. If the third closing occurs , we will sell 17,500 shares
of convertible preferred stock to ASP/ASA, LLC for $17.5 million at that
closing .
The first closing will occur upon the satisfaction of various conditions,
as described more fully on page 36 . The second and third closings
will occur no sooner than May 2004 and May 2005, upon the satisfaction of
additional conditions, as described more fully on page 37. We do not
believe, however, that we will satisfy all of the conditions to
ASP/ASA, LLC's obligation to purchase convertible preferred stock from us
at the second closing. If the second closing does not occur, ASP/ASA, LLC
will not be obligated to purchase convertible preferred stock from us at
the third closing. As a result, we do not believe that ASP/ASA, LLC will
be obligated to purchase convertible preferred stock from us at the second
closing or the third closing. In addition, even if the second closing does
occur, we and ASP/ASA, LLC will have the option to forego the third closing
in the event we do not need the funds to support our growth plans.
After the first closing occurs, ASP/ASA, LLC will hold a majority of
our voting rights and will control our board of directors.
The Parties to the Securities Purchase Agreement (page 10)
Ag Services of America, Inc.
Ag Services of America, Inc.
1309 Technology Parkway
Cedar Falls, Iowa 50613
319-277-0261
Ag Services of America, Inc., an Iowa corporation, is a supplier of
financing and agricultural crop inputs, including seeds, chemicals and
fertilizer, to farmers throughout the United States.
Our common stock is traded on the New York Stock Exchange under the
symbol "ASV."
ASP/ASA, LLC
ASP/ASA, LLC
c/o American Securities Capital Partners, LLC
The Chrysler Center
666 Third Avenue, 29th Floor
New York, NY 10017
(212) 476-8000
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ASP/ASA, LLC is a Delaware limited liability company and an indirect
subsidiary of American Securities Capital Partners, LLC. ASP/ASA, LLC was
formed solely for the purpose of facilitating the transactions contemplated
by the securities purchase agreement.
American Securities Capital Partners, LLC
American Securities Capital Partners, LLC
The Chrysler Center
666 Third Avenue, 29th Floor
New York, NY 10017
(212) 476-8000
American Securities Capital Partners, LLC is a private investment
management company that makes equity investments in both privately and
publicly held companies, primarily in the United States and Canada.
American Securities Capital Partners, LLC is not a party to the securities
purchase agreement.
The Annual Meeting (page 10)
* Date, Time and Place. The annual meeting will take place on Monday,
July 14, 2003, at 9:00 a.m., local time, at 1309 Technology Parkway,
Cedar Falls, Iowa.
* Matters to be Considered . Shareholders will consider and vote on
five proposals:
1. the approval of the securities purchase agreement;
2. the re-election of two members of our board of directors;
3. the election of five new members to our board of directors;
these five will replace four members who have agreed to resign from
our board of directors and fill one newly created board position, each
effective only upon the first closing of the sale of convertible
preferred stock to ASP/ASA, LLC pursuant to the securities purchase
agreement;
4. the removal of the first paragraph of Article VII of our Amended and
Restated Articles of Incorporation, which provides that our board of
directors shall be divided into three classes, with one class being
elected at each annual meeting for a three year term; the removal of
this provision will be effective only upon completion of the first closing
of the sale of convertible preferred stock to ASP/ASA, LLC; and
5. to ratify the appointment of McGladrey & Pullen, LLP, as our
independent public accountants for the fiscal year ending
February 29, 2004.
This annual meeting is designed to serve as our regular annual
meeting and as a special meeting necessary in order to complete the
transactions contemplated by the securities purchase agreement. Proposals
2 and 5 are matters required to be addressed at our regular annual meeting.
Proposals 1, 3 and 4 relate to the securities purchase agreement. Approval
of Proposal 1 is required in order to effect the first closing contemplated
by the securities purchase agreement. There are other conditions to the
first closing, and we cannot assure you that the first closing will occur
even if Proposal 1 is approved. Proposals 3 and 4, if approved, will become
effective only upon completion of the first closing. If the first closing
does not occur, Proposals 3 and 4 will not go into effect.
* Record Date and Shares Entitled to Vote; Quorum . The record date for
determining the holders of shares of our common stock entitled to notice of,
and to vote at, the annual meeting is June 2, 2003 . On the
record date, 5,479,514 shares of our common stock were outstanding
and entitled to vote on the proposals contained in this proxy statement .
The presence, in person or by proxy, of shares representing at least a
majority of all the votes entitled to be cast is necessary to constitute a
quorum for the transaction of business at the meeting.
* Vote Required . The affirmative vote of a majority of the shares
cast at a meeting at which a quorum is present is required for
approval of the securities purchase agreement and to amend our Amended
and Restated Articles of Incorporation. The affirmative vote of a plurality
of the shares cast at a meeting at which a quorum is present is required for
election of the nominees to our board of directors . Each share of our
common stock is entitled to one
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vote. Certain of our shareholders, who currently hold approximately 23% of
our outstanding shares, have agreed to vote to approve the securities
purchase agreement and related matters .
* Procedures for Voting . You may vote shares you hold of record in
either of two ways:
* by completing and returning the enclosed proxy card, or
* by voting in person at the annual meeting.
If you hold shares of our common stock in "street name" through a
broker or other financial institution, you must follow the instructions
provided by the broker or other financial institution regarding how to
instruct it to vote those shares.
* Voting of Proxies . Shares of common stock represented by properly
executed proxies received at or prior to the annual meeting that have
not been revoked will be voted at the meeting in accordance with the
instructions indicated on the proxies. Shares of common stock represented by
properly executed proxies for which no instruction is given will be voted FOR
each of the proposals contained in this proxy statement.
* Revocability of Proxies . Your proxy may be revoked at any time
before it is voted. If you complete and return the enclosed proxy card but
wish to revoke it, you must either (1) file with our Corporate Secretary a
written, later-dated notice of revocation, (2) send a later-dated proxy card
to our Corporate Secretary at or before the annual meeting, or
(3) attend the annual meeting and vote in person. Please note that
your attendance at the meeting will not, by itself, revoke your proxy.
* Failure to Vote . If you indicate "ABSTAIN" on any of the
proposals when granting your proxy, your shares will still count towards
a quorum but will not be counted as a vote either for or against such
proposal. If you do not instruct your broker to vote your shares or if
you abstain from voting, your shares will count towards a quorum but
will not be counted as a vote either for or against the proposals. If you
are a holder of record and send your proxy but do not instruct how to vote,
your shares will count toward a quorum and will be counted as a vote FOR
the proposals.
Shareholder Voting Agreement (page 31)
James D. Gerson, Henry C. Jungling, Rebecca L. Jungling, Michael Lischin,
Ervin Mellema, Gaylen D. Miller, Glenna R. Miller and Kevin D. Schipper, who
currently own approximately 23% of the outstanding shares of our common stock,
entered into a shareholder voting agreement with ASP/ASA, LLC, under which
they agreed to vote their shares in favor of approval of the securities
purchase agreement and related matters . The shareholder voting
agreement is attached to this proxy statement as Annex C.
Recommendation of Our Board of Directors
Our board of directors has unanimously adopted the securities purchase
agreement and has determined that it is in the best interests of Ag Services
that we enter into the securities purchase agreement and complete the
transactions contemplated by the securities purchase agreement. Our board of
directors unanimously recommends that shareholders vote FOR approval of the
securities purchase agreement and the related proposals having to do with
the election to our board of directors of the five nominees named
in this proxy statement and the removal of the provision in our Amended
and Restated Articles of Incorporation relating to a staggered board of
directors. In addition, the board of directors unanimously recommends that
shareholders vote FOR the re-election of two members of our board of
directors and to ratify the appointment of our independent public
accountants.
Opinions of Our Financial Advisor (pages 17 and 24)
In connection with the proposed transactions, our financial advisor,
Rabobank International , delivered to our board of directors an opinion
as to the fairness to our company, as of February 24, 2003 , from a
financial point of view, of the consideration to be received by us for the
sale of convertible preferred stock pursuant to the securities purchase
agreement. The full text of the written opinion of Rabobank, dated
February 24, 2003, is attached to this proxy statement as Annex D.
After the securities purchase agreement was executed, we revised the
projections that Rabobank had used to prepare its opinion dated
February 24, 2003. As a result of these revised projections, as well as
our belief that the conditions to the second closing and third closing
will not be satisfied, we requested that Rabobank supplement their analysis
and opinion dated February 24, 2003 by reviewing the fairness, from a
financial point of view, of the consideration to be received by us for
the sale of the convertible preferred stock, using our revised projections
and assuming that the
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second closing and the third closing will not occur. The full text of
this opinion, dated June 2, 2003, is attached to this proxy statement
as Annex E.
We encourage you to read these opinions carefully in their
entirety for a description of the procedures followed, assumptions made,
matters considered and limitations on Rabobank's review. The opinions
of Rabobank are addressed to our board of directors and do not
constitute a recommendation to any shareholder as to any matters relating
to the securities purchase agreement.
Interests of Certain Persons in the Transaction (page 30)
When considering the recommendation of our board of directors, you
should be aware that some of our directors and executive officers have
interests in the transaction that are different from, or in addition to,
yours. These interests include, among others, payments to some of our
directors and executive officers in connection with non-competition
agreements to be entered into with us, the execution of new employment
agreements with some of our directors and executive officers and the
repayment to some of our directors and executive officers of notes due
to them.
Appraisal Rights (page 31)
Our shareholders are not entitled to appraisal rights in connection
with the transactions contemplated by the securities purchase agreement
or any of the other proposals being presented at the annual meeting.
Conditions to the Transactions (page 36)
The completion of the transactions contemplated by the securities
purchase agreement depends on the satisfaction or waiver of a number of
conditions, including, but not limited to, the following:
* the approval of the securities purchase agreement by our shareholders
and the election of the nominees named in this proxy statement to our board
of directors;
* the receipt of debt financing for Ag Services satisfactory to ASP/ASA, LLC;
* the execution of various additional agreements;
* the achievement of certain net income targets and levels of loan
commitments;
* the absence of any legal restraint preventing the consummation of the
transactions;
* the accuracy of the parties' representations and warranties in the
securities purchase agreement, subject to materiality qualifiers;
* the performance by each party of its obligations under the securities
purchase agreement in all material respects; and
* the absence of a material adverse effect.
We do not believe that we will satisfy all of the conditions to
ASP/ASA, LLC's obligation to purchase convertible preferred stock from us
at the second closing. In addition, if the second closing does not occur,
ASP/ASA, LLC will not be obligated to purchase convertible preferred stock
from us at the third closing. As a result, we do not believe that
ASP/ASA, LLC will be obligated to purchase convertible preferred stock from
us at the second closing or the third closing.
Termination of the Securities Purchase Agreement (page 39)
We and ASP/ASA, LLC may mutually agree in writing to terminate the
securities purchase agreement.
Either we or ASP/ASA, LLC may terminate the securities purchase
agreement if:
* our shareholders do not approve the securities purchase agreement;
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* the first closing, the second closing or the third closing do not occur
by specified dates;
* a governmental entity has issued a permanent injunction or other order
or decree preventing the transactions that is in effect and has become
final and nonappealable;
* the other party breaches any of its representations, warranties or
covenants in the securities purchase agreement, which breach is incurable
or is not cured within 30 calendar days of written notice of the breach.
We or ASP/ASA, LLC may terminate the securities purchase agreement if
the first closing does not occur by June 15, 2003. Pursuant to a letter
agreement between us and ASP/ASA, LLC, however, we have agreed to reimburse
ASP/ASA, LLC for expenses in the amount of $1,500,000, and upon receipt
of this payment, ASP/ASA, LLC has agreed to amend the securities purchase
agreement to extend the date by which the first closing must occur to
July 15, 2003. If this payment is not made, both we and ASP/ASA, LLC will
have the right to terminate the securities purchase agreement on
June 15, 2003 because the first closing will not occur by that date.
In addition, ASP/ASA, LLC may terminate the securities purchase
agreement if our board of directors withdraws its recommendation in favor
of the proposals contained in this proxy statement or recommends another
transaction.
Certificate of Designations (page 40)
The terms of the convertible preferred stock are set forth in a
certificate of designations, preferences and rights attached to this
proxy statement as Annex B. The convertible preferred stock will rank
senior to all other classes or series of our capital stock with respect
to liquidation, dissolution or winding up of our company. The convertible
preferred stock is convertible into our common stock at the rate of $8.50 per
share, subject to adjustments, and will accrue cumulative cash dividends at
the rate of 8.375% per year. We will be required to redeem the convertible
preferred stock, including the compounded accrued dividends on that stock,
on the seventh anniversary of the first closing date.
The certificate of designations provides for a liquidation preference
for the holders of convertible preferred stock in the event of a liquidation
or change of control.
Under the terms of the certificate of designations, ASP/ASA, LLC will
hold a majority of our voting power after the first closing.
Additional Agreements
Under the securities purchase agreement, we are required to enter
into various additional agreements, including:
* a registration rights agreement with ASP/ASA, LLC (page 42) ; and
* a management consulting agreement with American Securities Capital
Partners, LLC (page 44) .
In addition, certain of our shareholders will be required to enter
into a shareholder agreement with ASP/ASA, LLC (page 43) .
Election of Directors (pages 44 and 46)
At the meeting, Kevin D. Schipper and Ervin J. Mellema have been
nominated for re-election as members of our board of directors. The
election of these two directors is part of our regular annual meeting,
and their election will be effective regardless of whether the first
closing under the securities purchase agreement occurs. The descriptions
of Messrs. Schipper and Mellema are contained in this proxy statement.
In addition, four members of our board of directors have agreed to
resign, and our board will be increasing in size from six to seven members,
effective only upon completion of the first closing. The descriptions of
the five persons nominated to replace the resigning directors and fill the
newly-created board position upon completion of the first closing are
also contained in this proxy statement.
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Our board of directors unanimously recommends that shareholders
vote FOR the re-election of Messrs. Schipper and Mellema. Our board of
directors also unanimously recommends that shareholders vote FOR the
election to the board of directors of the five nominees named in this
proxy statement, effective as of the first closing.
Additional Information
If you have questions about the proposals or this proxy statement,
or would like additional copies of the proxy statement or the proxy card,
you should call Kevin D. Schipper, our Corporate Secretary, at
(319) 277-0261.
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THE PARTIES TO THE SECURITIES PURCHASE AGREEMENT
Ag Services of America, Inc.
We are an Iowa corporation and a supplier of financing and agricultural
crop inputs, including seed, chemicals and fertilizer, to farmers throughout
the United States.
Our principal executive office is located at 1309 Technology Parkway,
Cedar Falls, Iowa 50613, and our telephone number is 319-277-0261.
Our common stock is traded on New York Stock Exchange under the
symbol "ASV."
ASP/ASA, LLC
ASP/ASA, LLC is a Delaware limited liability company and an indirect
subsidiary of American Securities Capital Partners, LLC. ASP/ASA, LLC was
formed solely for the purpose of facilitating the transactions contemplated
by the securities purchase agreement.
The mailing address of ASP/ASA, LLC is c/o American Securities Capital
Partners, LLC., The Chrysler Center, 666 Third Avenue, 29th Floor, New York,
New York 10017, and its telephone number is (212) 476-8000.
American Securities Capital Partners, LLC
American Securities Capital Partners, LLC is a private investment
management company that makes equity investments in both privately and
publicly held companies, primarily in the United States and Canada. American
Securities Capital Partners, LLC is not a party to the securities purchase
agreement.
The principal executive office of American Securities Capital Partners,
LLC is located at The Chrysler Center, 666 Third Avenue, 29th Floor, New York,
New York 10017, and its telephone number is (212) 476-8000.
THE ANNUAL MEETING
Date, Time and Place
We are furnishing this proxy statement to holders of our common stock in
connection with the solicitation of proxies by our board of directors for use
at the annual meeting to be held on Monday, July 14, 2003,
9:00 a.m., local time, at our headquarters at 1309 Technology Parkway,
Cedar Falls, Iowa, and at any adjournments or postponements of the
annual meeting. This proxy statement, the attached notice of
annual meeting and the accompanying proxy card are first being sent
or given to our shareholders on or about June 13, 2003.
Matters to Be Considered
At the annual meeting, holders of record of our common stock as
of the close of business on June 2, 2003 will consider and act on:
1. The approval of a securities purchase agreement that we entered into
on February 24, 2003 with ASP/ASA, LLC, pursuant to which, among other things,
we will issue and sell up to 70,000 shares of 8.375% convertible preferred
stock to ASP/ASA, LLC at up to three closings. ASP/ASA, LLC will hold a
majority of voting power with respect to our company upon the first closing
of the sale of convertible preferred stock.
2. The re-election of two members to our board of directors.
3. The election of five new members to our board of directors; these five
will replace four members who have agreed to resign from our board of
directors and fill one newly created board position, each effective only
upon the completion of the first closing of the sale of convertible
preferred stock to ASP/ ASA, LLC.
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4. The removal of the first paragraph of Article VII of our Amended and
Restated Articles or Incorporation, which provides that our board of
directors shall be divided into three classes, with one class being
elected at each annual meeting for a three year term. The removal of this
provision will be effective only upon completion of the first closing of
the sale of convertible preferred stock to ASP/ASA, LLC. If this proposal
is approved and the first closing occurs, each member of our board of
directors will continue in office until our next annual meeting.
5. The ratification of the appointment of McGladrey & Pullen, LLP, as our
independent public accountants for the fiscal year ending
February 29, 2004.
This annual meeting is designed to serve as our regular annual meeting
and as a special meeting necessary in order to complete the transactions
contemplated by the securities purchase agreement. Proposals 2 and 5 are
matters required to be addressed at our regular annual meeting. Proposals
1, 3 and 4 relate to the securities purchase agreement. Approval of Proposal
1 is required in order to effect the first closing contemplated by the
securities purchase agreement. There are other conditions to the first
closing, and we cannot assure you that the first closing will occur even if
Proposal 1 is approved. Proposals 3 and 4, if approved, will become
effective only upon completion of the first closing. If the first closing
does not occur, Proposals 3 and 4 will not go into effect.
In addition, at the meeting we will consider and act upon any other
matters that may properly come before the meeting or any adjournment
thereof.
Reasons for Seeking Shareholder Approval
You are being asked to consider and vote on five proposals. The first
proposal is the approval of the securities purchase agreement that we
entered into on February 24, 2003 with ASP/ASA, LLC, pursuant to which,
among other things, we will issue and sell up to 70,000 shares of 8.375%
convertible preferred stock to ASP/ASA, LLC. The second proposal is the
re-election of two members to our board of directors. The third proposal
is the election of five new members to our board of directors, effective
only upon completion of the first closing. The fourth proposal is to
remove the first paragraph of Article VII of our Amended and Restated
Articles of Incorporation, which provides for a staggered board of directors.
The removal of this provision will be effective only upon completion of
the first closing. The fifth proposal is the ratification of the appointment
of McGladrey & Pullen, LLP as our independent public accountants for the
fiscal year ending February 29, 2004.
Proposal 1. Our common stock is listed on the New York Stock Exchange
("NYSE"). Proposal 1 requires your approval because of rules that apply to
companies with common stock listed on the NYSE. One of the NYSE rules
requires us to obtain shareholder approval for sales of stock that could
result in an issuance of 20% or more of our outstanding stock or voting
power. The NYSE rules also require shareholder approval for stock issuances
that would result in a change of control. After the first closing,
ASP/ASA, LLC will hold approximately 60% of our voting power. As a result,
we need your approval before we can complete the first closing.
Proposal 2. We are asking you to re-elect two directors to our board
of directors. The election of these two directors is part of our regular
annual meeting, and their election will be effective regardless of whether
the first closing under the securities purchase agreement occurs.
Proposal 3. As part of the transactions contemplated by the securities
purchase agreement, four of our directors have agreed to resign and a new
board position is being created, each effective only upon the completion of
the first closing. Our articles of incorporation provide that our shareholders
must elect directors to permanently fill these vacancies. As a result, we
are asking you to consider and vote on the election of five new persons to our
board of directors, effective only upon the first closing. If the first
closing does not occur, the election of these five persons will not go into
effect.
Proposal 4. As part of the transactions contemplated by the
securities purchase agreement, we are asking you to consider and vote on the
removal of the first paragraph of Article VII of our Amended and Restated
Articles of Incorporation, which provides that our board of directors shall
be divided into three classes, with one class being elected at each annual
meeting for a three year term. If the first closing does not occur, this
provision in our Amended and Restated Articles of Incorporation will not
be removed. If this proposal is approved and the first closing does occur,
each member of our board of directors will continue in office until our
next annual meeting.
Proposal 5. We are asking you to ratify the appointment of McGladrey
& Pullen, LLP as our independent public accountants for the fiscal year
ending February 29, 2004. This proposal is part of our regular annual
meeting.
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Record Date and Shares Entitled to Vote; Procedures for Voting; Quorum
Our board of directors has fixed the close of business on
June 2, 2003 , as the record date for determining the holders of
shares of our common stock who are entitled to notice of, and to vote at,
the annual meeting. A shareholders' list will be available for
inspection by any shareholder entitled to vote at the annual meeting
beginning two business days after the date of the Notice of Annual
Meeting and continuing through the annual meeting. As of the record
date, 5,479,514 shares of our common stock were issued and outstanding.
You are entitled to one vote for each share of our common stock that you
hold as of the record date.
If you are a record holder of shares of our common stock on the record
date, you may vote those shares of our common stock in person at the
annual meeting or by proxy as described below under "Voting of
Proxies." If you hold shares of our common stock in "street name" through
a broker or other financial institution, you must follow the instructions
provided by the broker or other financial institution regarding how to
instruct it to vote those shares.
The presence, in person or by proxy, of shares representing at least a
majority of all the votes entitled to be cast on the approval of the
proposals is necessary to constitute a quorum for the transaction of
business at the annual meeting.
Vote Required
To hold a valid annual meeting of our shareholders, a quorum
must be present, which means the holders of at least a majority of the
outstanding shares of our common stock must be present, in person or by
proxy. Approval of the securities purchase agreement and the amendment
to our Amended and Restated Articles of Incorporation requires the
affirmative vote of a majority of the votes cast, and the election of the
directors requires the affirmative vote of a plurality of the votes cast,
at the annual meeting.
James D. Gerson, Henry C. Jungling, Rebecca L. Jungling, Michael Lischin,
Ervin Mellema, Gaylen D. Miller, Glenna R. Miller and Kevin D. Schipper have
agreed, under the terms of a shareholder voting agreement, to vote shares
currently representing approximately 23% of the outstanding shares of our
common stock in favor of approval of the securities purchase agreement and
related matters. See "Proposal 1 - Approval of the Purchase
Agreement - Shareholder Voting Agreement." For information with respect to
the beneficial ownership of our common stock by our directors and executive
officers, please see "Beneficial Ownership of Common Stock."
Voting of Proxies
Whether or not you plan to attend the annual meeting in person,
you are requested to complete, sign, date and promptly return the enclosed
proxy card in the envelope provided for this purpose to ensure that
your shares are voted. Shares of common stock represented by properly
executed proxies received at or prior to the annual meeting that have
not been revoked will be voted at the annual meeting in accordance
with the instructions indicated on the proxies as to the proposal
and in accordance with the judgment of the persons named in the proxies on
all other matters that may properly come before the annual meeting.
Shares of common stock represented by properly executed proxies for which
no instruction is given on the proxy card will be voted FOR approval of
the proposals.
If you indicate "ABSTAIN" on either of the proposals when granting your
proxy, your shares will still count towards a quorum but will not be counted
as a vote either for or against such proposal. Broker non-votes will
be counted towards a quorum but will not be counted as a vote either
for or against the proposals. Therefore, abstentions and broker
non-votes will not be counted in determining the number of votes on the
proposals. Broker non-votes occur when brokers do not vote on some
matters because they have not been authorized to vote by the beneficial
owners of the shares and do not have discretionary authority to vote on
those matters.
If the annual meeting is postponed or adjourned, at any
subsequent reconvening of the annual meeting, all proxies will be
voted in the same manner as they would have been voted at the original
convening of the annual meeting (except for any proxies that
previously have been revoked or withdrawn effectively), even if they have
been effectively voted on the same or any other matter at a previous meeting.
Please return your marked proxy card promptly so your shares can be
represented at the annual meeting, even if you plan to attend the
meeting in person.
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Revocability of Proxies
You may revoke your proxy at any time prior to the time it is voted at
the annual meeting. You may revoke your proxy by:
* executing a later-dated proxy card relating to the same shares and
delivering it to our Corporate Secretary before the taking of the vote at
the annual meeting;
* filing with our Corporate Secretary, before the taking of the vote at the
annual meeting, a written notice of revocation bearing a later date
than the proxy card; or
* attending the annual meeting and voting in person (although
attendance at the annual meeting will not, in and of itself, revoke
a proxy).
Any written revocation or subsequent proxy card should be delivered to
Ag Services of America, Inc., 1309 Technology Parkway, P.O. Box 668,
Cedar Falls, IA 50613, Attention: Corporate Secretary, or hand delivered
to our Corporate Secretary or his representative before the taking of the
vote at the annual meeting.
Proxy Solicitation
This proxy solicitation is being made on behalf of our board of
directors. We will solicit proxies initially by mail. Further solicitation
may be made by our directors, officers and employees personally, by
telephone, facsimile, e-mail, Internet or otherwise, but they will not be
specifically compensated for these services. Upon request, we will reimburse
brokers, dealers, banks or similar entities acting as nominees for their
reasonable expenses incurred in forwarding copies of the proxy materials
to the beneficial owners of the shares of our common stock they hold of
record. We will bear the expenses incurred in connection with printing,
filing and mailing of this proxy statement.
THE TRANSACTION
Background of the Transaction
Our business is seasonal in nature, and depends in large part upon
continued access to capital markets and the availability of large amounts
of debt financing. In 2002, our management began facing difficulty
refinancing our debt obligations. As a result, management considered
several options, including increasing our equity to support additional
debt. In March of 2002, we announced that we had defaulted on our primary
credit facility. As a condition to a waiver of this default, we agreed to
obtain additional equity. To assist us in meeting our continued financing
needs and additional capital requirements, we retained the investment
banking services of Rabobank International on May 9, 2002.
As part of its investment banking activities, Rabobank analyzed our
capital structure, including the debt facilities we had in place at that
time. On June 10, 2002, Rabobank recommended that we pursue strategic
financial alternatives, including a significant investment in, or sale of,
our company. The recommendation was based in large part on our need for
additional equity to support increased credit facilities in a very
challenging credit environment. On June 24, 2002, we announced a $35 million
increase to our revolving line of credit and an additional $30 million
increase to our commercial paper securitization program to a total facility
size of $375 million. With these increased credit facilities, we anticipated
that we would be able to meet our financing needs for the 2002 crop year.
At our request, Rabobank initiated contact with 75 parties to elicit
their interest in acquiring or making an investment in our company. These
potential investors consisted of 34 financial sponsors, 33 commercial banks
and other specialty financial institutions and eight strategic companies
in the wholesale/retail crop input distribution industry or related
industries. During the first two weeks of July 2002, Rabobank received 31
indications of interest, which resulted in 31 fully negotiated
confidentiality agreements.
By August 1, 2002, seven parties had expressed interest in proceeding
to the next stage and had requested a meeting with our senior management. In
addition to these seven parties, three crop input participants expressed an
interest in discussing joint venture opportunities with us only after a
substantial investment in our company by a financial sponsor.
From September 9 to September 12, 2002, our senior management made
presentations to the seven parties who expressed an interest in making an
investment, including American Securities Capital Partners, LLC, or ASCP,
which indirectly owns ASP/ASA, LLC. These presentations provided the parties
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with further details regarding our business, historical performance, key
financial aspects and future projections. On October 1, 2002, management
met with ASCP to answer further questions.
During this time, we, with the assistance of Rabobank, continued to
seek a replacement for our credit facilities and found that market conditions
continued to be very challenging. We had previously requested permission
from our lenders to extend credit to our 2003 crop year customers. On
October 28, 2002, we were notified that our request had been denied. We
then reviewed our alternatives and announced on November 5, 2002, that
financing for 2003 crop year customers was not available and that we were
pursuing other alternatives, including the sale of or strategic investment
in our company.
On November 2, 2002, we received a preliminary letter of intent from
ASCP. From November 4 through November 6, 2002, we met with several other
prospective investors and continued to negotiate the final terms of a letter
of intent with ASCP. The other prospective investors ultimately elected not
to proceed with a transaction with us. On November 13, 2003, our board of
directors met to review our options, including a review of the letter of
intent submitted by ASCP. At that time, our directors also reviewed a
preliminary liquidation model of our company prepared by our management.
Our directors believed that a liquidation was the only viable alternative
to a sale of, or a significant investment in, our company at that time.
Because three of our directors, Messrs. Miller, Jungling and Schipper,
will each receive non-competition payments and their loans to us will be
repaid if we complete the proposed transaction with ASCP, our board
concluded that the proposal should be reviewed by our independent directors.
Accordingly, the board of directors appointed a Special Committee consisting
of Messrs. Gerson, Mellema and Lischin to make a recommendation to the entire
board of directors. Upon review of the available alternatives, the Special
Committee voted to authorize our management to enter into the letter of
intent with ASCP. Upon further negotiation of its terms, the letter of intent
was recommended by the Special Committee and approved by unanimous consent of
the board on November 14, 2002.
On November 27, 2002, we were made aware of concerns regarding the
accounting structure of the transaction proposed in the letter of
intent. Specific concerns related to the accounting treatment of the sale of
preferred stock based on the dividend and participation rights. As a result,
ASCP presented us with an alternative transaction structure. On
December 12, 2002, our board of directors met to review this proposed
alternative transaction structure and to review a more detailed liquidation
analysis prepared by our management. Our board of directors requested
additional review of the alternative structure by Rabobank to address
the accounting concerns.
On December 4, 2002, we obtained commitments for $100 million of
financing and authorization to make customer commitments of up to
$125 million for the 2003 crop year.
On January 13, 2003, the board of directors met to review a third
structure proposed by ASCP. The structure provided for the sale of
convertible preferred stock with cumulative cash dividends that would
result in more favorable accounting treatment than the structure
initially proposed. Among other changes to the terms of the convertible
preferred stock, the conversion price was lowered to $8.50 per share from
$10.50 per share as a result of the elimination of warrants and the addition
of a cumulative cash pay dividend.
On January 22, 2003, the board met to review the financial presentation
of each of the alternative proposed structures. Upon review of the terms and
the financial impact of each of proposed structures, the Special Committee
recommended the third proposed structure, providing for the sale of
convertible preferred stock with cumulative cash pay dividends and a
conversion price of $8.50 per share. The Special Committee also engaged
an outside accounting firm to assist the Special Committee in its review
of the liquidation analysis. On February 4, 2003, the board of directors
met to hear the presentation of the outside accounting firm stating that,
based on its review, nothing came to its attention that caused it to believe
that management's assumptions used in the liquidation analysis did not
provide a reasonable basis for the analysis, assuming an orderly liquidation
could occur. The liquidation analysis showed that the discounted net present
value of the amount to be realized upon liquidation was estimated to be
approximately $8.82 per share.
On February 18, 2003, the Special Committee met telephonically and
reviewed the proposed transaction with ASCP. The discussion included
topics such as the financial impact to our shareholders, accounting
presentation, our ability to secure financing before and after closing
the transaction, and other aspects of the transaction. At that meeting,
Rabobank presented its analysis and delivered its oral opinion to our board
of directors, subsequently confirmed in its written opinion dated as of
February 24, 2003, to the effect that, as of that date and based upon the
assumptions made, matters considered and limits of review set forth in its
written opinion, the consideration to be received by the company pursuant
to the transaction was fair, from a financial point of view, to the company
.. In addition, the Special Committee discussed liquidation as the
only other viable alternative for us, and reviewed the impact liquidation
would have on our shareholders, employees and customers. Upon conclusion of
significant discussion, the Special Committee recommended the transaction
and the board unanimously approved the proposed transaction.
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After the securities purchase agreement was executed, and based upon our
inability to obtain additional financing for the 2003 crop year, we revised
the projections that Rabobank had used to prepare its opinion dated
February 24, 2003. As a result of the revised projections, we no longer
believe that we will satisfy certain of the conditions to ASP/ASA, LLC's
obligation to purchase convertible preferred stock from us at the second
closing. If the second closing does not occur, ASP/ASA, LLC will not be
obligated to purchase convertible preferred stock from us at the third
closing. Because of the revised projections and our belief that the
conditions to the second and third closing will not be satisfied, we requested
that Rabobank supplement their analysis and opinion dated February 24, 2003
by reviewing the fairness, from a financial point of view, of the
consideration to be received by us for the sale of the convertible preferred
stock, using our revised projections and assuming that the second closing
and third closing will not occur. Rabobank provided such an opinion to our
board dated June 2, 2003, as described below under "Recent Developments
Subsequent to Execution of Securities Purchase Agreement and Additional
Analysis by Our Financial Advisor."
Reasons for the Transaction
The Special Committee believes that there are a number of reasons for
entering into the securities purchase agreement and completing the
transactions contemplated by the securities purchase agreement, and that
these transactions will be vital for our continued success in the future.
Some of these reasons are described below.
* Immediate Need for Capital. The market for debt financing has been and
continues to be very challenging. We have an immediate need for capital to
support our business. The sale of convertible preferred stock to ASP/ASA, LLC
would provide us with $35 million in the near term .
* Line of Credit. Because of the difficult financial environment, we have
been unable to obtain a line of credit without an equity investment by a
significant financial partner. We anticipate that the transactions
contemplated by the securities purchase agreement will provide us with
increased access to credit.
* Limited Financing Alternatives. During the past nine months, Rabobank
contacted more than 75 parties regarding an equity investment in, or possible
sale of, our company. ASA/ASP, LLC is the only party that has elected to
proceed with a transaction. Because of our current financial condition,
the Special Committee believed that the transactions contemplated by the
securities purchase agreement are the only available alternative to
liquidation.
* Liquidation Analysis. Prior to the execution of the securities purchase
agreement , a liquidation analysis was prepared by management and reviewed
by an independent accounting firm, which showed that the discounted net
present value of the amount to be realized upon liquidation of the company
was estimated to be approximately $8.82 per share. This liquidation
analysis was subsequently revised to reflect our updated liquidation
assumptions. The revised analysis shows that the expected discounted
net present value of the amount to be realized upon liquidation would be
less than or equal to $8.43 per share.
* Uncertainties of Liquidation. The Special Committee believes that the
process of liquidation could be very costly and uncertain. In addition,
we were informed by our current lenders that a liquidation event and wind
down of our credit facilities would be managed by the lenders' agents and
we would not manage the liquidation in the normal course of business.
Accordingly, the likelihood of our being able to undergo an orderly
liquidation would be low. Therefore, the Special Committee concluded that
the completion of sale of convertible preferred stock to ASP/ASA, LLC and
the other transactions contemplated by the securities purchase agreement
would be a preferable alternative for us.
Factors Considered by the Board
Our board of directors has approved the securities purchase agreement
and has determined that the sale of convertible preferred stock under
the securities purchase agreement is in the best interest of our company and
our shareholders. During the course of its deliberations, the board
considered, with the assistance of our management and our financial and
other advisors, various factors, including, but not limited to, the following:
* All of the reasons described under "Reasons for the Transactions" above;
* Our financial condition, as well as our historical results of operations
and prospects for the future;
* The potential uses of the proceeds from the sale of convertible preferred
stock and the potential to obtain larger credit facilities;
-23-
* The requirement of existing and prospective lenders that we obtain
additional equity contributions in order to obtain a new and larger
credit facility;
* Our limited ability to obtain other sources of capital and credit;
* The final securities purchase agreement and terms of the convertible
preferred stock;
* Advice rendered by the financial advisor and legal counsel to our board
of directors;
* The oral opinion of Rabobank to our board of directors on
February 18, 2003, subsequently confirmed in its written opinion dated as
of February 24, 2003, to the effect that, as of that date and based upon
the assumption made, matters considered and limits of review set forth in
its written opinion, the consideration to be received by the company
pursuant to the transaction was fair, from a financial point of view, to
the company;
* Discussions with management;
* Interests in the transaction of some of our directors and executive
officers;
* Stock price and volume performance for the prior year;
* Stock ownership before and after the transaction;
* Dilution to our current shareholders;
* Accounting treatment of the sale of convertible preferred stock;
* Income tax consequences to us with respect to the sale of convertible
preferred stock;
* The effect of filing a registration statement for all of the stock issued
in the transactions; and
* The liquidation analysis.
The board did not quantify or otherwise assign relative weights to the
individual items described above. The board relied on the experience and
expertise of its financial advisor for quantitative analysis of the
financial terms of the transactions. In considering the factors described
above, individual members of the board may have given different weight to
different factors. The board considered all of these factors as a whole and
believes that the factors favor the sale of convertible preferred stock
contemplated by the securities purchase agreement.
Some of the factors considered by the board and described above have
changed since we executed the securities purchase agreement. For example,
because we revised the projections that Rabobank used to prepare its opinion
dated February 24, 2003, as well as our belief that the conditions to the
second closing and the third closing will not be satisfied, we requested
that Rabobank review the fairness, from a financial point of view, of the
consideration to be received by us for the sale of the convertible preferred
stock, using our revised projections and assuming that the second closing
and the third closing will not occur. Rabobank provided such an opinion to
our board dated June 2, 2003. In addition, the liquidation analysis considered
by the board was revised subsequent to the execution of the securities
purchase agreement to reflect our revised financial projections.
Opinion of Our Financial Advisor Dated February 24, 2003
On February 18, 2003 Rabobank delivered its oral opinion to the company's
board of directors, subsequently confirmed in its written opinion dated as of
February 24, 2003, to the effect that, as of that date and based upon the
assumptions made, matters considered and limits of review set forth in its
written opinion, the Consideration to be received by the company pursuant to
the Transaction was fair from a financial point of view to the company. For
the purposes of this opinion, Rabobank assumed, with the company's consent,
that the first closing and the second closing will be consummated in
accordance with the terms of the securities purchase agreement, and that
the third closing may or may not be consummated as the result of the
determination by the company or ASP/ASA, LLC that the additional funds are
not needed by the company. The issuance and sale of the convertible
preferred stock pursuant to
-24-
the first closing, the second closing and the third closing, as applicable,
is referred to in this section of the proxy statement as the "Transaction,"
and the aggregate consideration to be received by the company at the first
closing, the second closing and the third closing, as applicable, is referred
to in this section of the proxy statement as the "Consideration." A copy of
Rabobank's written opinion dated February 24, 2003 is attached to this proxy
statement as Annex D.
After the securities purchase agreement was executed, the company
revised the projections that Rabobank had used to prepare its opinion dated
February 24, 2003. As a result of the revised projections, the company no
longer believes that it will satisfy certain of the conditions to
ASP/ASA, LLC's obligation to purchase convertible preferred stock from the
company at the second closing. If the second closing does not occur,
ASP/ASA, LLC will not be obligated to purchase convertible preferred stock
from the company at the third closing. Because of the revised projections
and the company's belief that the conditions to the second and third closing
will not be satisfied, the company requested that Rabobank supplement its
analysis and opinion dated February 24, 2003 by reviewing the fairness,
from a financial point of view, of the consideration to be received by the
company for the sale of the convertible preferred stock, using the company's
revised projections and assuming that the second closing and third closing
will not occur. Rabobank provided such an opinion to the company's board
dated June 2, 2003, as described below under "Recent Developments Subsequent
to Execution of Securities Purchase Agreement and Additional Analysis by Our
Financial Advisor."
Rabobank's written opinion dated February 24, 2003 sets forth the
assumptions made, matters considered and limits on the scope of review
undertaken by Rabobank. Each holder of the company's common stock is urged
to read Rabobank's opinion in its entirety. Rabobank's opinion was intended
for the use and benefit of the company's board of directors, does not address
the merits of the underlying decision by the company to engage in the
Transaction and does not constitute a recommendation to any shareholder as
to how that shareholder should vote on the Transaction or any related matter.
The consideration was determined on the basis of negotiations between the
company and ASP/ASA, LLC and was approved by the company's board of directors.
This summary of Rabobank's opinion dated February 24, 2003 is
qualified by reference to the full text of the opinion attached as Annex D.
In arriving at its opinion, Rabobank, among other things:
* Examined the securities purchase agreement;
* Examined the company's audited financial statements for the fiscal years
1996 through 2002;
* Examined certain publicly available business and financial information
relating to the company that Rabobank deemed to be relevant, including the
company's annual reports on Form 10-K for the fiscal years ended 1996
through 2002 and the company's quarterly reports on Form 10-Q for the
quarters ended May 31, August 31 and November 30, 2002;
* Examined certain monthly financial statements provided to Rabobank by
the company;
* Examined certain internal business, operating and financial information,
including financial forecasts for the company for the fiscal years 2003
through 2010 prepared by the senior management of the company which gives
effect to the Transaction;
* Examined a liquidation analysis prepared by the senior management of the
company which gives effect to a liquidation of the company;
* Examined the financial position, operating results and certain stock market
information regarding the company and compared them with those of certain
publicly traded companies that Rabobank deemed to be relevant;
* Examined the potential pro forma impact of the Transaction on the company,
including its capitalization, fully-diluted earnings and book value;
* Examined other financial studies and analyses and took into account other
matters as Rabobank deemed necessary, including Rabobank's assessment of
general economic, market and monetary conditions;
* Conducted discussions with members of senior management of the company
concerning the matters described in the bullet-points set forth above, and
the prospects for the company if the Transaction is not consummated; and
* Considered other matters which Rabobank deemed relevant to its inquiry and
took into account accepted financial and investment banking procedures that
Rabobank deemed relevant.
-25-
Management of the company advised Rabobank that, absent approval of
the Transaction, the company would be forced to liquidate, and that if
the company were liquidated, the discounted book value of the company would
be less than the current book value on a going-concern basis. The company
did not provide Rabobank with any financial forecast that did not give
effect to the Transaction other than the liquidation analysis.
In connection with the preparation of its opinion, Rabobank contacted
more than 70 parties to solicit their interest in acquiring or making an
investment in the company.
In preparing its opinion, Rabobank assumed and relied, without
independent verification, upon the accuracy and completeness of all the
information examined by or otherwise reviewed or discussed with Rabobank
for purposes of its opinion, including without limitation the financial
forecasts and the liquidation analysis prepared by the senior management
of the company. Rabobank was advised by the senior management of the
company that the financial forecasts and liquidation analysis were each
reasonably prepared on good faith bases reflecting the best currently
available estimates and judgments of the senior management of the company.
With regard to the financial forecasts, Rabobank further assumed that
(i) the financial forecasts would be achieved in the amounts and at the times
contemplated by the financial forecasts and (ii) all material assets and
liabilities (contingent or otherwise) of the company were as set forth in the
company's financial statements or other information made available to
Rabobank. These financial forecasts did not take into account any payments
that may be made to management of the company in respect of any
non-competition arrangements to be entered into with the company. With
regard to the liquidation analysis, Rabobank further assumed that all
material assets and liabilities (contingent or otherwise) of the company
were as set forth in the liquidation analysis. Rabobank thus expressed no
opinion with respect to the financial forecasts or the liquidation analysis
or any of the assumptions, estimates or judgments upon which either was based.
The company did not request that Rabobank evaluate the potential consideration
to be received by the holders of the company's common stock in a liquidation
scenario.
Rabobank did not make or obtain an independent valuation or appraisal of
the assets, liabilities, solvency or other issues relating to the solvency of
the company. Rabobank further assumed that in all respects material to its
analysis, the representations and warranties contained in the securities
purchase agreement were true and correct and that each party to the securities
purchase agreement would perform all of the covenants and agreements required
to be performed by it under the securities purchase agreement without any
waiver of any material terms or conditions by the company. Rabobank further
assumed that all material corporate, governmental, regulatory or other
consents and approvals requisite to consummate the Transaction had been
or would be obtained.
Rabobank's opinion was limited to the consideration the company would
receive pursuant to the Transaction and did not address any other matters,
including, but not limited to, the company's ability to satisfy its
obligations or the company's ability to access capital markets for
financing requirements or solvency, in each case at any time, including
presently and following consummation of the Transaction. Without limiting
the foregoing, Rabobank expressed no opinion (i) as to the price at which
the company's common stock would trade at any future time or as to the effect
of the Transaction on the trading price of the company's common stock;
(ii) whether any alternative transaction might produce consideration for
the company in an amount in excess of that contemplated by the Transaction;
or (iii) as to the fairness or any other aspect of any portion of the
Transaction (including the voting rights associated with the convertible
preferred stock) other than the issuance and sale by the company of the
convertible preferred stock for the Consideration.
Rabobank's opinion was based upon economic, market, financial and other
conditions existing on, and other information disclosed to Rabobank, as of
the date of its opinion. It should be understood that, although subsequent
developments may affect Rabobank's opinion, Rabobank does not have any
obligation to update, revise or reaffirm its opinion.
The following is a summary of certain financial and comparative analyses
performed by Rabobank that were presented to the board of directors in
connection with the written opinion delivered to the board of directors on
February 24, 2003. The financial analyses summarized below include
information presented in tabular format. In order to understand fully
Rabobank's financial analyses, the tables must be read together with the
text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data described below
without considering the full narrative description of the financial analyses,
including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Rabobank's financial analyses.
-26-
Public Company Trading Analysis
Using publicly available information and estimates of future financial
results published by Bloomberg, L.P. and the SNL Financial DataSource
database, Rabobank performed a public company trading analysis and compared
certain financial and operations data and ratios provided by company
management (on a stand-alone basis assuming the Transaction is not
consummated) with the corresponding data and ratios of the following
thirteen publicly traded companies in the specialty finance industry:
* Delta Financial Corporation
* HPSC, Inc.
* Consumer Portfolio Services, Inc.
* American Business Financial Services, Inc.
* PMC Capital, Inc.
* ASTA Funding, Inc.
* Medallion Financial Corp.
* Wilshire Financial Services Group Inc.
* Pacific Crest Capital, Inc.
* DVI, Inc.
* Capital Crossing Bank
* United PanAm Financial Corp.
* World Acceptance Corporation
No company utilized as a comparison in the analyses described below is
identical to the company. In addition, the analyses performed by Rabobank
incorporate projections prepared by research analysts using only publicly
available information. These estimates may or may not prove to be accurate.
An analysis of publicly traded comparable companies is not mathematical;
rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the public
companies and other factors that could affect the public trading value of
the companies to which they are being compared.
Rabobank derived estimated per-share valuation ranges for the company's
common stock by comparing:
* price to earnings ratios based upon the selected companies'
last-twelve-months earnings per share as of February 21, 2003;
* price to earnings ratios based upon the selected companies' estimated 2003
earnings per share; and
* price to book value ratios based on the selected companies' stated book
values as of February 21, 2003.
The results of this analysis were as follows:
Adjusted
High for Average for Average for Low for
Selected Selected Selected Selected
Company Companies Companies Companies* Companies
----------- ----------- ----------- ----------- -----------
Price to earnings ratios based
upon last twelve months
earnings per share as of
February 21, 2003 6.3x 12.1x 6.7x 6.6x 1.7x
Price to earnings ratios based
upon estimated 2003
earnings per share 5.9x 9.7x 7.8x 7.9x 5.4x
* Determined by excluding highest and lowest multiples
-27-
Based on these analyses, Rabobank derived an average present value per
share of company common stock, prior to the company's receipt of the
consideration to be paid by ASP/ASA, LLC pursuant to the Transaction, of:
* $6.65 per share, by comparing price to earnings ratios based upon fiscal
year ending February 28, 2003 projected earnings and using a price
to earnings ratio of 6.5x, representing the approximate mid-point for its
range; and
* $10.39 per share, by comparing price to earnings ratios based upon fiscal
year ending February 28, 2003 projected book value and using a price
to book value ratio of 0.75x, representing the approximate mid-point for its
range.
Terminal Equity Value Analysis
Rabobank performed a terminal equity value analysis to derive an implied
valuation range for the company under the following two scenarios:
* The first closing and the second closing are consummated; and
* The first closing, second closing and third closing are consummated.
In each scenario, Rabobank used financial projections provided by the
company's management for the fiscal years 2004 to 2010, which assumed the
company's receipt of the consideration to be paid by ASP/ASA, LLC pursuant
to the Transaction. With management's consent and advice, Rabobank adjusted
management's financial projections to apply a 38.5% tax rate to each
projected year, and then derived ranges of implied present values of the
company's common stock, by:
* Calculating the projected fiscal year 2006, 2008 and 2010 terminal values
of the company based upon each of:
* price to earnings ratio multiples ranging from 8.0x to 12.0x, as applied
to the projected net earnings per share of the company's common stock at
the end of each of these fiscal years; and
* book value to earnings multiples ranging from 0.75x to 1.25x, as applied
to the projected book value of the company at the end of each of these
fiscal years.
* Discounting those terminal values to present values using discount rates
ranging from 7.5% to 8.0%.
* Rabobank then divided the terminal values by 11.8 million (assuming the
first closing and the second closing are consummated) and by 13.8 million
(assuming the first closing, the second closing and the third closing are
consummated), representing the number of fully diluted shares of the
company's common stock projected to be issued and outstanding in 2006,
2008 and 2010 under the two scenarios.
Based upon this approach, Rabobank calculated the ranges of present
estimated equity value per share of the company's common stock.
First Closing and Second Closing are Consummated
Net Income to Common Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Range Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Earnings 10.0x 7.5% - 8.0% $10.19 - $10.30 $10.25
Fiscal Year
2008 Estimated
Earnings 10.0x 7.5% - 8.0% $14.71 - $15.03 $14.87
Fiscal Year
2010 Estimated
Earnings 10.0x 7.5% - 8.0% $21.44 - $22.10 $21.77
-28-
First Closing and Second Closing are Consummated
Book Value Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Range Book Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Book Value 1.00x 7.5% - 8.0% $11.40 - $11.54 $11.47
Fiscal Year
2008 Estimated
Book Value 1.00x 7.5% - 8.0% $12.67 - $12.94 $12.81
Fiscal Year
2010 Estimated
Book Value 1.00x 7.5% - 8.0% $14.95 - $15.41 $15.18
First Closing, Second Closing and Third Closing are Consummated
Net Income to Common Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Range Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Earnings 10.0x 7.5% - 8.0% $9.25 - $9.35 $9.30
Fiscal Year
2008 Estimated
Earnings 10.0x 7.5% - 8.0% $14.35 - $14.65 $14.50
Fiscal Year
2010 Estimated
Earnings 10.0x 7.5% - 8.0% $22.36 - $23.04 $22.70
First Closing, Second Closing and Third Closing are Consummated
Book Value Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Range Book Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Book Value 1.00x 7.5% - 8.0% $10.76 - $10.88 $10.82
Fiscal Year
2008 Estimated
Book Value 1.00x 7.5% - 8.0% $12.01 - $12.27 $12.14
Fiscal Year
2010 Estimated
Book Value 1.00x 7.5% - 8.0% $14.50 - $14.95 $14.73
Discounted Equity Value Analysis
Rabobank performed an analysis of the implied present value per share
of the company's common stock under the following two scenarios:
* the first closing and the second closing are consummated; and
* the first closing, second closing and third closing are consummated.
In each scenario, the analysis was performed by utilizing earnings per
share and book value per share projections provided by company management
to calculate implied share prices for the company, assuming the company's
receipt of the consideration to be paid by ASP/ASA, LLC pursuant to the
Transaction.
First Closing and Second Closing are Consummated
Earnings Per Share to Common Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Earnings Per Share 8.0x - 12.0x 7.75% $8.58 - $12.87 $10.72
Fiscal Year
2008 Estimated
Earnings Per Share 8.0x - 12.0x 7.75% $12.58 - $18.87 $15.73
Fiscal Year
2010 Estimated
Earnings Per Share 8.0x - 12.0x 7.75% $18.28 - $27.42 $22.85
-29-
First Closing and Second Closing are Consummated
Book Value Per Share Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Book Value Per Share 0.75x - 1.25x 7.75% $8.29 - $13.81 $11.05
Fiscal Year
2008 Estimated
Book Value Per Share 0.75x - 1.25x 7.75% $9.25 - $15.42 $12.33
Fiscal Year
2010 Estimated
Book Value Per Share 0.75x - 1.25x 7.75% $10.97 - $18.28 $14.62
First Closing, Second Closing and Third Closing are Consummated
Earnings Per Share to Common Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Earnings Per Share 8.0x - 12.0x 7.75% $7.82 - $11.73 $9.77
Fiscal Year
2008 Estimated
Earnings Per Share 8.0x - 12.0x 7.75% $12.32 - $18.47 $15.40
Fiscal Year
2010 Estimated
Earnings Per Share 8.0x - 12.0x 7.75% $19.07 - $28.60 $23.83
First Closing, Second Closing and Third Closing are Consummated
Book Value Per Share Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Book Value Per Share 0.75x - 1.25x 7.75% $7.82 - $13.03 $10.43
Fiscal Year
2008 Estimated
Book Value Per Share 0.75x - 1.25x 7.75% $8.77 - $14.62 $11.69
Fiscal Year
2010 Estimated
Book Value Per Share 0.75x - 1.25x 7.75% $10.64 - $17.73 $14.18
Management Liquidation Analysis
Rabobank received a liquidation analysis from company management,
which indicated a discounted net present value per share valuation of the
company of approximately $8.82. This analysis represented the company
management's expected pay-out per share pursuant to a four-year, orderly
wind down of the business, utilizing recovery assumptions that were not
shared with Rabobank. Rabobank did not perform any independent analysis
with respect to this liquidation analysis, and expressed no view as to the
liquidation analysis or the assumptions underlying it. This liquidation
analysis was subsequently revised, as described below under "Recent
Developments Subsequent to Execution of Securities Purchase Agreement and
Additional Analysis by Our Financial Advisor."
The summary set forth above summarizes the material analyses performed
by Rabobank but does not purport to be a complete description of the
analyses performed by Rabobank in arriving at its opinion. The preparation
of a fairness opinion is a complex process and is not necessarily
susceptible to partial or summary description. Accordingly, Rabobank
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and the factors considered by Rabobank, without
considering all analyses and factors, could create an incomplete view of
the processes underlying the Rabobank opinion. Rabobank did not assign
-30-
relative weights to any of its analyses in preparing its opinion. The
matters considered by Rabobank in its analyses were based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions and other matters,
many of which are beyond the company's and Rabobank's control and involve
the application of complex methodologies and educated judgments. Any
estimates contained in the Rabobank analyses are not necessarily indicative
of actual past or future results or values, which may be significantly more
or less favorable than the estimates. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future. The estimates are inherently subject to
uncertainty.
The board of directors selected Rabobank to act as its financial advisor
because Rabobank is familiar with the company and its business. An affiliate
of Rabobank is the lead agent bank and lead credit under the company's amended
and restated credit agreement. In addition, an affiliate of Rabobank currently
holds approximately 10.5% of the company's common stock for its own
account and for the accounts of customers.
Rabobank will receive a fee from the company for its services in
connection with the Transaction, a portion of which was payable upon delivery
of its opinion to the company's board of directors, and an additional
significant portion of which is payable contingent upon the consummation
of the Transaction. In addition, the company agreed to indemnify Rabobank
against certain liabilities arising out of its engagement.
Recent Developments Subsequent to Execution of the Securities Purchase
Agreement and Additional Analysis by Our Financial Advisor
At the time the securities purchase agreement was executed, the company
had targeted funding commitments that would support customer loan commitments
of up to $438 million for the 2003 crop year. The company expected that this
funding would support the projections provided to and relied upon by Rabobank
in preparing its opinion dated February 24, 2003 and described herein. These
projections were the basis for the net income target levels and customer loan
commitment levels that are conditions to ASP/ASA, LLC's obligation to
purchase convertible preferred stock from the company at the second closing.
Specifically, one condition to ASP/ASA, LLC's obligation to purchase
convertible preferred stock from the company at the second closing is that
the company shall have achieved 90% of a specified annual net income target
for the previous fiscal year and that ASP/ASA, LLC shall reasonably expect
that the company will achieve 90% of the specified annual net income target
for the then current fiscal year. These annual net income targets are $7
million for 2003, $8.9 million for 2004, $14.1 million for 2005 and $21
million for 2006. In addition, another condition to ASP/ASA, LLC's obligation
to purchase convertible preferred stock from the company at the second
closing is that the company shall have approved at least $500 million in
loans to customers for the 2004 crop year. Moreover, if the second closing
does not occur, ASP/ASA, LLC is not obligated to purchase convertible
preferred stock from the company at the third closing.
Primarily due to a difficult credit environment, the company has not
been able to secure funding commitments as targeted on February 24, 2003.
As of May 6, 2003, the company had secured funding commitments that will
allow the company to extend up to approximately $255 million in customer
loans for the 2003 crop year. Accordingly, the company believes that it is
unlikely that it will achieve the net income targets or meet the customer
loan commitment requirements that are each specified in the securities
purchase agreement as a condition to ASP/ASA's obligation to purchase
convertible preferred stock from the company at the second closing. As
a result, the company does not believe that ASP/ASA, LLC will be obligated
to purchase convertible preferred stock from it at the second closing or
the third closing.
Based on the company's updated liquidation assumptions, the company's
senior management reviewed the liquidation analysis that had been previously
performed. The revised liquidation analysis showed that the discounted net
present value of the amount to be realized upon liquidation was estimated to
be between $7.18 and $9.68 per share, but that the expected amount to be
realized would be less than or equal to $8.43 per share.
As discussed above under "Opinion of Our Financial Advisor," the opinion
of Rabobank dated February 24, 2003 assumed, with the company's consent and
consistent with the company's projections at the time, that the first closing
and the second closing would be consummated in accordance with the terms of
the securities purchase agreement, and that the third closing may or may
not be consummated. Because of the revisions to the company's projections
and the company's current view that the conditions to the second closing
and the third closing described above will not be satisfied, the company
requested that Rabobank supplement its analysis and opinion of February 24,
2003 by reviewing the fairness of the consideration to be received by the
company for the sale of the convertible preferred stock, from a financial
point of view, using the company's revised projections and assuming that
the second closing and the third closing will not occur. This supplemental
analysis is provided below.
-31-
Rabobank delivered its opinion dated June 2, 2003 to the company's
board of directors to the effect that, as of that date and based upon
the assumptions made, matters considered and limits of review set forth
in its written opinion, the Consideration to be received by the company
pursuant to the Transaction was fair from a financial point of view to
the company. For the purposes of its opinion dated June 2, 2003, Rabobank
assumed, with the company's consent, that the first closing will be
consummated in accordance with the terms of the securities purchase agreement,
and that the second and third closings will not be consummated as the result
of the company's projected inability to satisfy the conditions required for
the second closing pursuant to the securities purchase agreement. The
issuance and sale of the convertible preferred stock pursuant to the first
closing is referred to in this section of the proxy statement as the
"Transaction," and the aggregate consideration to be received by the company
at the first closing is referred to in this section of the proxy statement
as the "Consideration." A copy of Rabobank's written opinion dated
June 2, 2003 is attached to this proxy statement as Annex E.
Rabobank's written opinion dated June 2, 2003 sets forth the
assumptions made, matters considered and limits on the scope of review
undertaken by Rabobank. Each holder of the company's common stock is urged
to read Rabobank's opinion in its entirety. Rabobank's opinion was intended
for the use and benefit of the company's board of directors, does not
address the merits of the underlying decision by the company to engage in
the Transaction and does not constitute a recommendation to any shareholder
as to how that shareholder should vote on the Transaction or any related
matter. The consideration was determined on the basis of negotiations
between the company and ASP/ASA, LLC and was approved by the company's
board of directors. This summary of Rabobank's opinion is qualified by
reference to the full text of the opinion attached as Annex E.
In arriving at its opinion, Rabobank, among other things:
* Examined the securities purchase agreement;
* Examined the company's audited financial statements for the fiscal
years 1996 through 2003;
* Examined certain publicly available business and financial
information relating to the company that Rabobank deemed to be
relevant, including the company's annual reports on Form 10-K for the
fiscal years ended 1996 through 2003;
* Examined certain monthly financial statements provided to Rabobank
by the company;
* Examined certain internal business, operating and financial
information, including revised financial forecasts for the company
for the fiscal years 2004 through 2010 prepared by the senior
management of the company which gives effect to the Transaction;
* Examined a revised liquidation analysis prepared by the senior
management of the company which gives effect to a liquidation of
the company;
* Examined the financial position, operating results and certain stock
market information regarding the company and compared them with
those of certain publicly traded companies that Rabobank deemed to
be relevant;
* Examined the potential pro forma impact of the Transaction on the
company, including its capitalization, fully-diluted earnings and
book value;
* Examined other financial studies and analyses and took into account
other matters as Rabobank deemed necessary, including Rabobank's
assessment of general economic, market and monetary conditions;
* Conducted discussions with members of senior management of the
company concerning the matters described in the bullet-points set
forth above, and the prospects for the company if the Transaction is
not consummated; and
* Considered other matters which Rabobank deemed relevant to its
inquiry and took into account accepted financial and investment
banking procedures that Rabobank deemed relevant.
Management of the company advised Rabobank that, absent approval of
the Transaction, the company would be forced to liquidate, and that if the
company were liquidated, the discounted book value of the company would be
less than the current book value on a going-concern basis. The company did
not provide Rabobank with any financial forecast that did not give effect
to the Transaction other than the liquidation analysis.
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In preparing its opinion, Rabobank assumed and relied, without
independent verification, upon the accuracy and completeness of all the
information examined by or otherwise reviewed or discussed with Rabobank
for purposes of its opinion, including without limitation the revised
financial forecasts and the liquidation analysis prepared by the senior
management of the company. In that regard, senior management of the company
has advised Rabobank that the expected net present value of the company's
common stock in a liquidation of the company will be less than or equal to
$8.43 per share. Rabobank was advised by the senior management of the
company that the revised financial forecasts and liquidation analysis
were each reasonably prepared on good faith bases reflecting the best
currently available estimates and judgments of the senior management of
the company. With regard to the financial forecasts, Rabobank further
assumed that (i) the revised financial forecasts would be achieved in the
amounts and at the times contemplated by such financial forecasts and (ii)
all material assets and liabilities (contingent or otherwise) of the company
were as set forth in the company's financial statements or other information
made available to Rabobank. These financial forecasts did not take into
account any payments that may be made to management of the company in respect
of any non-competition arrangements to be entered into with the company.
With regard to the revised liquidation analysis, Rabobank further assumed
that all material assets and liabilities (contingent or otherwise) of the
company were as set forth in such liquidation analysis. Rabobank thus
expressed no opinion with respect to the revised financial forecasts or the
liquidation analysis or any of the assumptions, estimates or judgments upon
which either was based. The company did not request that Rabobank evaluate
the potential consideration to be received by the holders of the company's
common stock in a liquidation scenario.
Rabobank did not make or obtain an independent valuation or appraisal
of the assets, liabilities, solvency or other issues relating to the
solvency of the company. Rabobank further assumed that in all respects
material to its analysis, the representations and warranties contained
in the securities purchase agreement were true and correct and that each
party to the securities purchase agreement would perform all of the
covenants and agreements required to be performed by it under the
securities purchase agreement without any waiver of any material terms
or conditions by the company. Rabobank further assumed that all material
corporate, governmental, regulatory or other consents and approvals
requisite to consummate the Transaction had been or would be obtained.
Rabobank's opinion was limited to the consideration the company
would receive pursuant to the Transaction and did not address any other
matters, including, but not limited to, the company's ability to satisfy
its obligations or the company's ability to access capital markets for
financing requirements or solvency, in each case at any time, including
presently and following consummation of the Transaction. Without
limiting the foregoing, Rabobank expressed no opinion (i) as to the
price at which the company's common stock would trade at any future
time or as to the effect of the Transaction on the trading price of
the company's common stock; (ii) whether any alternative transaction
might produce consideration for the company in an amount in excess of
that contemplated by the Transaction; or (iii) as to the fairness or
any other aspect of any portion of the Transaction (including the voting
rights associated with the convertible preferred stock) other than the
issuance and sale by the company of the convertible preferred stock for
the Consideration.
Rabobank's opinion was based upon economic, market, financial and
other conditions existing on, and other information disclosed to Rabobank,
as of the date of its opinion. It should be understood that, although
subsequent developments may affect Rabobank's opinion, Rabobank does not
have any obligation to update, revise or reaffirm its opinion.
In preparing its opinion dated June 2, 2003, Rabobank reviewed the
financial analyses it performed in connection with its opinion dated as
of February 24, 2003 using the revised forecasts prepared by senior
management of the company. The following is a summary of certain financial
and comparative analyses performed by Rabobank in connection with the
written opinion delivered to the board of directors on June 2, 2003.
The financial analyses summarized below include information presented
in tabular format. In order to understand fully Rabobank's financial
analyses, the tables must be read together with the text of each summary
set forth below and the description of each methodology set forth above
under the caption "Opinion of Financial Advisor." The tables alone do not
constitute a complete description of the financial analyses. Considering
the data described below without considering the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or
incomplete view of Rabobank's financial analyses.
Public Company Trading Analysis
Using the methodology described above under the caption "Opinion
of Financial Advisor - Public Company Trading Analysis," the revised
forecasts prepared by senior management of the company, and publicly
available information and estimates of future financial results published
by Bloomberg, L.P. as of May 30, 2003, Rabobank performed a public
company trading analysis.
The results of this analysis were as follows:
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Adjusted
High for Average for Average for Low for
Selected Selected Selected Selected
Company Companies Companies Companies* Companies
----------- ----------- ----------- ----------- -----------
Price to earnings ratios based
upon last twelve months
earnings per share as of
May 30, 2003 5.4x 12.3x 8.8x 8.9x 4.7x
Price to earnings ratios based
upon estimated 2003
earnings per share NA 12.0x 9.4x 9.4x 6.7x
* Determined by excluding highest and lowest multiples
Based on these analyses, Rabobank derived an average present value
per share of company common stock, prior to the company's receipt of the
consideration to be paid by ASP/ASA, LLC pursuant to the Transaction, of:
* $6.98 per share, by comparing price to earnings ratios based upon
fiscal year ending February 28, 2003 earnings and using a price to earnings
ratio of 6.5x, representing the approximate mid-point for its range; and
* $10.60 per share, by comparing price to earnings ratios based upon
fiscal year ending February 28, 2003 book value and using a price to book
value ratio of 0.75x, representing the approximate mid-point for its range.
Terminal Equity Value Analysis
Using the methodology described above under the caption "Opinion of
Financial Advisor - Terminal Equity Value Analysis" and the revised
forecasts prepared by senior management of the company, Rabobank performed
a terminal equity value analysis to derive an implied valuation range for
the company assuming that just the first closing is consummated. Based
upon this approach, Rabobank calculated the ranges of present estimated
equity value per share of the company's common stock.
First Closing Consummated
Net Income to Common Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Range Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Earnings 10.0x 7.5% - 8.0% $7.26 - $7.35 $7.31
Fiscal Year
2007 Estimated
Earnings 10.0x 7.5% - 8.0% $8.92 - $9.06 $8.99
Fiscal Year
2008 Estimated
Earnings 10.0x 7.5% - 8.0% $10.54 - $10.76 $10.65
Fiscal Year
2009 Estimated
Earnings 10.0x 7.5% - 8.0% $12.27 - $12.59 $12.43
Fiscal Year
2010 Estimated
Earnings 10.0x 7.5% - 8.0% $14.10 - $14.53 $14.31
First Closing Consummated
Book Value Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Range Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Book Value 10.0x 7.5% - 8.0% $10.76 - $10.89 $10.82
Fiscal Year
2007 Estimated
Book Value 10.0x 7.5% - 8.0% $10.85 - $11.03 $10.94
Fiscal Year
2008 Estimated
Book Value 10.0x 7.5% - 8.0% $11.10 - $11.34 $11.22
Fiscal Year
2009 Estimated
Book Value 10.0x 7.5% - 8.0% $11.51 - $11.81 $11.66
Fiscal Year
2010 Estimated
Book Value 10.0x 7.5% - 8.0% $12.06 - $12.44 $12.25
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Discounted Equity Value Analysis
Using the methodology described above under the caption "Opinion of
Financial Advisor - Discounted Equity Value Analysis" and the revised
forecasts prepared by senior management of the company, Rabobank performed
an analysis of the implied present value per share of the company's common
stock assuming that just the first closing is consummated. Based upon this
approach, Rabobank calculated the ranges of present estimated equity value
per share of the company's common stock.
First Closing Consummated
Earnings Per Share to Common Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Range Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Earnings Per Share 10.0x 7.5% - 8.0% $6.73 - $6.80 $6.77
Fiscal Year
2007 Estimated
Earnings Per Share 10.0x 7.5% - 8.0% $8.19 - $8.31 $8.25
Fiscal Year
2008 Estimated
Earnings Per Share 10.0x 7.5% - 8.0% $9.63 - $9.82 $9.72
Fiscal Year
2009 Estimated
Earnings Per Share 10.0x 7.5% - 8.0% $11.20 - $11.47 $11.34
Fiscal Year
2010 Estimated
Earnings Per Share 10.0x 7.5% - 8.0% $12.88 - $13.26 $13.06
First Closing Consummated
Book Value Per Share Method
-----------------------------
Fiscal Year Discount Range of Implied Present Midpoint of
Multiple Rate Range Values Per Share Range
-------------------- -------------------- -------------------- --------------------
Fiscal Year
2006 Estimated
Book Value Per Share 10.0x 7.5% - 8.0% $11.00 - $11.12 $11.06
Fiscal Year
2007 Estimated
Book Value Per Share 10.0x 7.5% - 8.0% $11.10 - $11.27 $11.18
Fiscal Year
2008 Estimated
Book Value Per Share 10.0x 7.5% - 8.0% $11.35 - $11.58 $11.47
Fiscal Year
2009 Estimated
Book Value Per Share 10.0x 7.5% - 8.0% $11.77 - $12.06 $11.91
Fiscal Year
2010 Estimated
Book Value Per Share 10.0x 7.5% - 8.0% $12.34 - $12.70 $12.52
Revised Management Liquidation Analysis
A revised liquidation analysis showed that the expected discounted
net present value per share of the company's common stock in a liquidation
of the company was estimated to be between $7.18 and $9.68 per share. Based
upon that analysis, senior management of the company has advised Rabobank
that the expected amount to be realized upon liquidation would be less
than or equal to $8.43 per share. This analysis represented the company
management's expected pay-out per share pursuant to a four-year, orderly
wind down of the business, utilizing recovery assumptions that were not
shared with Rabobank. Rabobank did not perform any independent analysis
with respect to this liquidation analysis, and expressed no view as to
the liquidation analysis or the assumptions underlying it.
The summary set forth above summarizes the material analyses performed
by Rabobank but does not purport to be a complete description of the
analyses performed by Rabobank in arriving at its opinion dated June 2, 2003.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial or summary description. Accordingly,
Rabobank believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by Rabobank,
without considering all analyses and factors, could create an incomplete
view of the processes underlying the Rabobank opinion. Rabobank did not
assign relative weights to any of its analyses in preparing its opinion.
The matters considered by Rabobank in its analyses were based on numerous
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macroeconomic, operating and financial assumptions with respect to i
ndustry performance, general business and economic conditions and other
matters, many of which are beyond the company's and Rabobank's control
and involve the application of complex methodologies and educated
judgments. Any estimates contained in the Rabobank analyses are not
necessarily indicative of actual past or future results or values,
which may be significantly more or less favorable than the estimates.
Estimated values do not purport to be appraisals and do not necessarily
reflect the prices at which businesses or companies may be sold in the
future. The estimates are inherently subject to uncertainty.
Interests of Certain Persons in the Transaction
In considering the recommendation of our board of directors, you
should be aware that some of our directors and executive officers may
be deemed to have interests in the transactions contemplated by the
securities purchase agreement that are different from, or in addition
to, those of our shareholders. Under the securities purchase agreement,
we are required to enter into non-competition agreements with Gaylen
Miller, the Chairman of our board of directors, Henry Jungling, our
President and a member of our board of directors, and Kevin Schipper,
our Chief Executive Officer and a member of our board of directors, in
each case on terms and conditions satisfactory to ASP/ASA, LLC, pursuant
to which we will be required to make a $400,000 payment to each of Messrs.
Miller, Jungling and Schipper. Pursuant to the securities purchase
agreement, we are also required to enter into new employment agreements
with each of Messrs. Miller, Jungling and Schipper and Shawn Smeins, our
Chief Operating Officer, on terms and conditions satisfactory to
ASP/ASA, LLC. These new agreements will be effective as of the first
closing and will replace the current employment agreements described below
under "Executive Compensation and Other Related Information - Employment
Agreements."
In addition, a portion of the proceeds of the sale of convertible
preferred stock will be used to repay our notes to Messrs. Miller, Jungling
and Schipper, in the aggregate amount of $4,419,760.
Three of the nominees to become members of our board of directors,
Michael Fisch, Glenn Kaufman and Marc Saiontz, are employed by American
Securities Capital Partners, L.P. Messrs. Fisch and Kaufman are managing
directors and Mr. Saiontz is a senior associate at American Securities
Capital Partners, L.P. American Securities Capital Partners, L.P. is a
limited partnership affiliated with American Securities Capital
Partners, LLC, which indirectly owns ASP/ASA, LLC. ASP/ASA, LLC will
hold a majority of our voting power upon the first closing.
Appraisal Rights
Our shareholders are not entitled to appraisal rights in connection
with the transactions contemplated by the securities purchase agreement
or any of the other proposals presented at the annual meeting.
Shareholder Voting Agreement
As a condition to entering into the securities purchase agreement,
ASP/ASA, LLC required that James D. Gerson, Henry L. Jungling,
Rebecca L. Jungling, Michael Lischin, Ervin Mellema, Gaylen D. Miller,
Glenna R. Miller and Kevin D. Schipper (the "shareholder parties") enter
into a shareholder voting agreement. This summary is qualified in its
entirety by reference to the shareholder voting agreement, attached
to this proxy statement as Annex C. We urge you to read carefully the
full text of the shareholder voting agreement. As of the record date
for the annual meeting, the operative terms of the shareholder voting
agreement covered approximately 23% of the outstanding shares of our
common stock.
Covenants
Under the shareholder voting agreement, the shareholder parties have
agreed:
* to vote in favor of the approval of the securities purchase
agreement and each of the transactions contemplated by the
securities purchase agreement;
* to vote against any amendment of our articles of incorporation or
by-laws or other proposal or transaction involving us or any of our
shareholders which would impede, frustrate, prevent or delay the
transactions contemplated by the securities purchase agreement or
change the voting rights of our shareholders; and
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* not to sell, transfer, pledge, assign or otherwise dispose of any
of the shares of our common stock subject to the shareholder voting
agreement or enter into any agreement, option or other arrangement or
understanding, other than under the shareholder voting agreement, the
securities purchase agreement or liens or security interests pursuant
to loans disclosed in the shareholder voting agreement, with respect
to the transfer or voting of the subject shares.
Grant of Irrevocable Proxy
In the shareholder voting agreement, the shareholder parties have
agreed to irrevocably grant to and appoint ASP/ASA, LLC and any individual
designated by ASP/ASA, LLC as their proxy to vote all the shares of our common
stock subject to the shareholder voting agreement in favor of the securities
purchase agreement and against any competing transaction.
Termination of the Shareholder Voting Agreement
The shareholder voting agreement terminates upon the termination of the
securities purchase agreement. Termination of the shareholder voting
agreement will not relieve the parties from any liability for any breach
of the shareholder voting agreement prior to termination.
PROPOSAL 1 - APPROVAL OF SECURITIES PURCHASE AGREEMENT
You are being asked to approve the securities purchase agreement that
we entered into on February 24, 2003 with ASP/ASA, LLC. The securities
purchase agreement provides for, among other things, the sale to
ASP/ASA, LLC of up to 70,000 shares of 8.375% convertible preferred
stock at $1,000 per share, subject to the satisfaction of various
conditions. The convertible preferred stock will be issued pursuant
certificate of designations, preferences and rights. The securities purchase
agreement also provides for the execution of additional agreements,
including a registration rights agreement, a shareholder agreement and a
management consulting agreement.
The following is a summary of the material terms of the securities
purchase agreement, the certificate of designations, the registration rights
agreement, the shareholder agreement and the management consulting
agreement. This summary is qualified in its entirety by reference to the
securities purchase agreement, attached to this proxy statement as
Annex A, and the certificate of designations, attached to this proxy
statement as Annex B. We urge you to read carefully the full text of the
securities purchase agreement and the certificate of designations, which
are incorporated by reference in this section of the proxy statement.
Our board of directors has unanimously approved the securities
purchase agreement and unanimously recommends that our shareholders
vote FOR approval of the securities purchase agreement.
Securities Purchase Agreement
Structure of Sale
The securities purchase agreement provides that the convertible
preferred stock will be purchased at up to three closings, subject to
various conditions. At the first closing, which is to occur no later
than June 15, 2003, we will sell 35,000 shares of convertible preferred
stock to ASP/ASA, LLC for $35 million. The date by which the first
closing must occur may be extended as described below under "Termination
of the Securities Purchase Agreement." At the second closing, which
is to occur no later than July 31, 2004, we will sell 17,500 shares of
convertible preferred stock to ASP/ASA, LLC for $17.5 million. At the
third closing, which is to occur no later than July 31, 2005, we will
sell 17,500 shares of convertible preferred stock to ASP/ASA, LLC for
$17.5 million. We believe, however, that it is unlikely that we will
satisfy all of the conditions to ASP/ASA, LLC's obligation to purchase
convertible preferred stock from us at the second closing. Completion
of the second closing is a condition to ASP/ASA's obligation to purchase
convertible preferred stock from us at the third closing. As a result,
we do not believe that ASP/ASA, LLC will be obligated to purchase
convertible preferred stock from us at the second closing or the third
closing. In addition, even if the conditions to ASP/ASA, LLC's obligation
to purchase convertible preferred stock from us at the second and third
closings are satisfied, we and ASP/ASA, LLC have the option to forego the
purchase and sale of convertible preferred stock at the third closing if
the funds are not needed to support our growth plans.
Representations and Warranties
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The securities purchase agreement contains representations and
warranties with respect to us and our subsidiaries relating to, among
other things:
* organization, corporate power, capital structure and similar
corporate matters;
* authorization, execution, delivery and enforceability of the
securities purchase agreement;
* the conduct of our business, and the absence of a material adverse
effect, since February 28, 2002;
* the recommendation of the board of directors in favor of the
transactions contemplated by the securities purchase agreement;
* real property, personal property and intellectual property owned
by us and our subsidiaries;
* the absence of any violation of, or conflicts with, organizational
documents or certain contracts, judgments, orders, laws or
regulations as a result of entering into the securities purchase
agreement or completing the transactions contemplated by the
securities purchase agreement;
* the consents we are required to obtain and the filings we are
required to make in connection with the securities purchase
agreement and the transactions contemplated by the securities
purchase agreement;
* compliance with applicable laws;
* the absence of legal proceedings that would have a material adverse
effect on us;
* the accuracy and completeness of the information contained in the
reports and financial statements that we file with the SEC, and the
compliance of our SEC filings with applicable requirements of Federal
securities laws;
* the absence of undisclosed liabilities;
* contracts material to us and our subsidiaries;
* tax, environmental, labor and employment and benefit plan matters;
* defaults on loans extended by us;
* insurance policies covering us and our subsidiaries;
* banking regulations;
* the shareholder vote required to approve the securities purchase
agreement;
* various Federal securities law matters;
* our solvency;
* the absence of undisclosed broker's fees;
* the receipt by us of an opinion from Rabobank; and
* the amounts of certain outstanding loans payable to us.
The securities purchase agreement contains customary representations
and warranties by ASP/ASA, LLC relating to, among other things:
* authorization, execution, delivery and enforceability of the
securities purchase agreement;
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* compliance with Federal securities laws;
* the absence of any violation of, or conflicts with, organizational
documents, contracts, orders, laws or regulations as a result of
entering into the securities purchase agreement or completing the
transactions contemplated by the securities purchase agreement;
* restrictive legends to be placed on the convertible preferred
stock and shares of our common stock into which the convertible
preferred stock is convertible; and
* the absence of undisclosed broker's fees.
The representations and warranties in the securities purchase
agreement are subject, in some cases, to specified exceptions and
qualifications.
Covenants Relating to the Conduct of our Business
Except as contemplated by the securities purchase agreement or
consented to in advance in writing by ASP/ASA, LLC, until the persons
nominated by ASP/ASA, LLC and named in this proxy statement become members
of our board of directors, we have agreed that we will (and will cause our
subsidiaries to) carry on business in the ordinary course and we will
(and will cause our subsidiaries to) use all reasonable best efforts to
keep available the services of our officers and employees and to preserve
our business and third party relationships. In addition, until the persons
nominated by ASP/ASA, LLC and named in this proxy statement become members
of our board of directors, except as expressly contemplated by the terms
of the securities purchase agreement or consented to in advance in writing
by ASP/ASA, LLC, we have agreed that we will not (and will not permit any
of our subsidiaries to) take various actions, including the following:
* amend our organizational documents or alter in any manner the
corporate structure or ownership of any of our subsidiaries;
* adopt a plan of liquidation, dissolution, merger, consolidation,
recapitalization or other reorganization;
* declare or pay any dividend or make any other distribution to our
shareholders;
* redeem or acquire any shares of our capital stock or any stock
option or issue any capital stock or any option, warrant or right
or any securities convertible into or exchangeable for any shares
of capital stock, except the issuance of securities contemplated
by the securities purchase agreement or our stock purchase plan or
upon the exercise of stock options outstanding as of the date of
the securities purchase agreement;
* increase the compensation, benefits or severance pay to any of our
or our subsidiaries' current or former directors, officers, employees,
consultants or independent contractors;
* establish, adopt or alter in any material respect any collective
bargaining agreement, benefit plan or benefit agreement;
* accelerate or increase any rights or benefits, fund or secure the
payment of compensation or benefits, or make any material
determinations not in the ordinary course of business under any
benefit plan or benefit agreement;
* amend or modify any stock option;
* make any loan or cash advance to, or engage in any transaction with,
any current or former director, officer, employee, consultant or
independent contractor, other than advancing business expenses in the
ordinary course of business;
* incur, assume or guarantee any new liabilities, obligations or
indebtedness for borrowed money, except pursuant to our currently
existing credit facilities;
* pay, settle, waive, cancel or satisfy any claims, liabilities,
obligations or litigation, other than the satisfaction of certain
liabilities in the ordinary course of business;
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* make any change in any method of accounting or accounting practice
or policy other than those required by GAAP, except for the change
in our policy on revenue recognition, as described in our quarterly
report on Form 10-Q for the period ended November 30, 2002;
* make or incur any capital expenditure which, individually, exceeds
$50,000 or, in the aggregate, exceed $100,000;
* acquire or agree to acquire any business organization or division
or assets other than inventory, supplies, raw materials or other
immaterial assets acquired in the ordinary course of business
consistent with past practice;
* sell, lease or encumber any properties or assets, except sales
of inventory in the ordinary course of business consistent with
past practice;
* make any change in any material terms of agreements with suppliers;
* make any material change in our credit and collection policy;
* purchase any loans from, or sell any loans to, a third party or
acquire or sell participation interests in any loans, in each case,
for more than $100,000, or sell any existing loans for less than
their face value;
* approve any loans that would result in more than $5,000,000, in the
aggregate, being loaned by us to any one customer;
* approve any loans that would cause the percentage of the total amount
of loans approved since February 24, 2003 for a particular type of
crop to exceed certain thresholds specified in the securities purchase
agreement;
* make or change any material election relating to taxes; or
* agree to take any of the actions that are prohibited by the
securities purchase agreement.
Many of the actions prohibited by the securities purchase agreement
are subject to exceptions, including to comply with applicable laws or to
take actions in the ordinary course of business.
Additional Covenants
In addition to our agreement to conduct our business in accordance
with the covenants described in "Covenants Relating to the Conduct of our
Business," the securities purchase agreement contains agreements by us or
by us and ASP/ASA, LLC to take several other actions, including those
described below.
* Reasonable Best Efforts. We and ASP/ASA, LLC have agreed to use
our reasonable best efforts to satisfy the conditions described
under "Conditions to the Company's Obligation to Sell Convertible
Preferred Stock" and "Conditions to Purchaser's Obligation to Purchase
Convertible Preferred Stock."
* Reasonable Access. We have agreed to afford ASP/ASA, LLC reasonable
access to properties, books, records and personnel and to furnish
promptly to ASP/ASA, LLC a copy of each report, schedule, registration
statement and other document we file or receive pursuant to the
requirements of securities laws and other information concerning our
business, properties and personnel that ASP/ASA, LLC reasonably
requests.
* Other Transactions. We have agreed that, until the date of the first
closing, we will not encourage, solicit, initiate or participate in
discussions or negotiations with, enter into agreements with, or
provide any information or assistance to, any person concerning any
merger, sale of securities, sale of substantial assets or any similar
transaction involving us or our subsidiaries. If we or one of our
subsidiaries receives a proposal relating to this type of transaction,
we have agreed to notify ASP/ASA, LLC promptly of the proposal.
* Preparation of Proxy Statement. We and ASP/ASA, LLC have agreed to
cooperate with respect to amending or supplementing the proxy
statement to reflect any material information discovered prior to the
date of the first closing. Any filing of, or amendment or supplement
to, the proxy statement is subject to ASP/ASA, LLC's review and comment.
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We have agreed to use our reasonable best efforts to respond as promptly
as practicable to any comments of the SEC with respect to this proxy
statement, and to advise ASP/ASA, LLC of any comments, or requests for
further information, from the SEC.
* Shareholder Meeting. We have agreed to make arrangements for and hold
a shareholders' meeting as promptly as practicable after the date of
the securities purchase agreement for the purpose of obtaining
shareholder approval of the securities purchase agreement and the
election of new directors.
* Publicity. We and ASP/ASA, LLC have agreed not to issue any press
release or make any public statement relating to the securities
purchase agreement or the transactions contemplated by the securities
purchase agreement without the other party's advance consent in
writing.
* Insurance. We have agreed to solicit bids from insurance providers
for insurance to cover the indemnification of our directors and
officers and to provide ASP/ASA, LLC with copies of the bids. We have
agreed to accept the bid that ASP/ASA, LLC requests, as long as that
bid is reasonably satisfactory to us. We have also agreed to keep
ASP/ASA, LLC informed of all insurance policies covering us and our
subsidiaries and to take all necessary steps to renew those policies
or other steps that ASP/ASA, LLC reasonably requests.
Conditions to Our Obligation to Sell Convertible Preferred Stock
Our obligation to sell convertible preferred stock to ASP/ASA, LLC at
each of the first, second and third closings is subject to the satisfaction
of various conditions, including, but not limited to, the following:
* ASP/ASA, LLC's payment of the purchase price;
* as of the date of each closing, the representations and warranties
made by ASP/ASA, LLC that are qualified by materiality must be true
and correct, and ASP/ASA, LLC's representations and warranties that
are not so qualified must be true and correct in all material
respects;
* ASP/ASA, LLC must have performed in all material respects its
obligations under the securities purchase agreement; and
* there must not be any law, regulation, order or other ruling entered
by a court or enacted by a governmental authority which prohibits any
of the transactions contemplated by the securities purchase agreement.
Our obligation to sell convertible preferred stock to ASP/ASA, LLC
at the first closing is subject to the satisfaction of the following
additional conditions:
* the approval of our shareholders of the securities purchase
agreement; and
* our purchase of insurance providing for at least $10,000,000 of
coverage relating to the indemnification of our directors and
officers, but this condition will be deemed satisfied if ASP/ASA, LLC
requests that we accept a bid providing for this coverage (as
described under "Additional Covenants - Insurance").
Conditions to Purchaser's Obligation to Purchase Convertible Preferred
Stock
ASP/ASA, LLC's obligation to purchase convertible preferred stock
from us at each of the first, second and third closings is subject to
the satisfaction of various conditions, including, but not limited to,
the following:
* we must have in effect debt financing on terms satisfactory to
ASP/ASA, LLC;
* we must have reimbursed ASP/ASA, LLC for its expenses incurred in
connection with the securities purchase agreement and the transactions
contemplated by the securities purchase agreement;
* as of the date of each closing, the representations and warranties
made by us that are qualified by materiality must be true and
correct, and our representations and warranties that are not so
qualified must be true and correct in all material respects;
* we must have performed in all material respects our obligations
under the securities purchase agreement;
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* there must not be any law, regulation, order or other ruling entered
by a court or enacted by a governmental authority which prohibits
any of the transactions contemplated by the securities purchase
agreement; and
* since the date of the securities purchase agreement, a material
adverse effect must not have occurred, as described under "Material
Adverse Effect" below.
Pursuant to a letter agreement between us and ASP/ASA, LLC, dated
May 29, 2003, we have unconditionally agreed to reimburse ASP/ASA, LLC
for its reasonable business expenses incurred in connection with the
securities purchase agreement in the amount of $1,500,000. Effective upon
receipt by ASP/ASA, LLC of the full amount of that payment, ASP/ASA, LLC
waives its rights to rely on certain of the conditions described above as
a result of the following events: (i) our inability to secure funding
commitments in excess of $230 million for the 2003 crop year; and (ii) our
elimination of approximately 30% of our workforce. As a result, if we make
the full $1,500,000 payment, ASP/ASA, LLC's obligation to complete the
first closing will remain even if these conditions are not satisfied due
to either of these two events.
ASP/ASA, LLC's obligation to purchase convertible preferred stock
from us at the first closing is subject to various additional conditions,
including, but not limited to, the following:
* the approval of our shareholders of the securities purchase agreement,
and the election by our shareholders of the new directors designated
by ASP/ASA, LLC;
* our payment to ASP/ASA, LLC of 50% of a transaction fee equal to
$350,000 plus 0.5% of all funds loaned or committed to be loaned to
us as of the first closing;
* the receipt of resignations from certain members of our board of
directors;
* the execution of a management consulting agreement, described in
more detail below under "Management Consulting Agreement";
* the execution of non-competition agreements with Messrs. Miller,
Jungling, and Schipper, described above under "Interests of Certain
Persons in the Transaction";
* the execution of employment agreements with Messrs. Miller, Jungling,
and Schipper and Shawn Smeins, described above under "Interests of
Certain Persons in the Transaction";
* the execution of a shareholder agreement with Messrs. Miller,
Jungling, Schipper and Smeins, described in more detail below
under "Shareholder Agreement";
* the execution of a registration rights agreement, described in
more detail below under "Registration Rights Agreement";
* the execution of agreements, such as incentive agreements and
non-competition agreements, with employees to be identified by
ASP/ASA, LLC, on terms and conditions satisfactory to ASP/ASA, LLC;
* To the extent requested by ASP/ASA, LLC, our purchase of
insurance for the indemnification of our directors and officers;
* our approval and closing of commitments for at least $230,000,000 in
loans to customers for the 2003 crop year and receipt of financing
to fund these commitments that is reasonably satisfactory to
ASP/ASA, LLC;
* satisfaction of the obligations of the Federal Crop Insurance
Corporation in respect of 85% of the outstanding multi-peril crop
insurance claims submitted by our customers as of December 31, 2002;
and
* ASP/ASA, LLC's completion of and satisfaction with its confirmatory
due diligence investigation of us and our subsidiaries.
ASP/ASA, LLC's obligation to purchase convertible preferred stock
from us at the second closing is subject to various additional conditions,
including the following:
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* our payment of 50% of the transaction fee; and
* our approval of at least $500,000,000 in loans to customers for
the 2004 crop year.
ASP/ASA, LLC's obligation to purchase convertible preferred stock
from us at the third closing is subject to various additional conditions,
including the following:
* our approval of at least $600,000,000 in loans to customers for
the 2005 crop year.
ASP/ASA, LLC's obligation to purchase convertible preferred stock from
us at the second closing and the third closing is subject to the completion
of a review by an independent accounting firm which confirms the
satisfaction of the following:
* our achievement of net income targets specified in the securities
purchase agreement; and
* our projected collections of outstanding loans exceeding certain
levels outlined in the securities purchase agreement.
We believe that it is unlikely that we will achieve the net income
targets and levels of loan commitments that are conditions to ASP/ASA, LLC's
obligation to purchase convertible preferred stock from us at the second
closing. Completion of the second closing is a condition to ASP/ASA, LLC's
obligation to purchase convertible preferred stock from us at the third
closing. As a result, we do not believe that ASP/ASA, LLC will be obligated
to purchase convertible preferred stock from us at the second closing or the
third closing.
Material Adverse Effect
Under the securities purchase agreement, a material adverse effect
means:
* a material adverse effect on the condition, business, prospects,
properties or results of operations of us and our subsidiaries,
taken as a whole;
* a material disruption or material adverse change in financial,
banking, or capital markets in the U.S. that would, in ASP/ASA, LLC's
judgment, make it impracticable or inadvisable to proceed with the
transactions contemplated by the securities purchase agreement;
* an outbreak or escalation of hostilities involving the U.S. or
a declaration by the U.S. of a national emergency or war that would,
in ASP/ASA, LLC's judgment, make it impracticable or inadvisable
to proceed with the transactions contemplated by the securities
purchase agreement; or
* a material adverse change in the agriculture services industry.
Indemnification
The securities purchase agreement provides that, until the first
closing, we will indemnify and hold harmless ASP/ASA, LLC, American
Securities Capital Partners LLC and their officers, directors, employees,
agents and controlling persons against any losses, claims, damages,
liabilities and expenses in connection with the securities purchase
agreement or the transactions contemplated by the securities purchase
agreement, as long as the losses, claims, damages, liabilities and
expenses have not resulted from the willful misconduct or gross negligence
of the indemnified party.
Fees and Expenses
We have agreed in the securities purchase agreement to pay fees to
ASP/ASA, LLC and to reimburse ASP/ASA, LLC for expenses as described below.
* We have agreed to pay a transaction fee equal to $350,000 plus
0.5% of the amount of funds loaned to us or committed to be loaned
to us as of the date of the first closing, 50% of which is payable
on the date of the first closing and 50% of which is payable on the
one-year anniversary of the first closing.
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* We have agreed to reimburse ASP/ASA, LLC and its affiliates for
their expenses incurred in connection with the securities purchase
agreement, including the fees of counsel, accountants and other
advisors. We have also agreed to reimburse ASP/ASA, LLC for its
reasonable business expenses incurred in connection with the
securities purchase agreement in an amount not to exceed $1,500,000
if the first closing does not occur or if the securities purchase
agreement is terminated for certain specified reasons. However,
pursuant to a letter agreement between us and ASP/ASA, LLC, dated
May 29, 2003, we have unconditionally agreed to reimburse
ASP/ASA, LLC for its reasonable business expenses incurred in
connection with the securities purchase agreement in the amount
of $1,500,000. ASP/ASA, LLC has acknowledged that the expenses
payable pursuant to the securities purchase agreement will be
reduced by $1,500,000 or any portion of that amount received by
ASP/ASA, LLC in connection with the letter agreement. ASP/ASA, LLC
has also acknowledged that, if the first closing does not occur,
receipt of the $1,500,000 payment in connection with the letter
agreement will satisfy our obligations to reimburse ASP/ASA, LLC
for its reasonable business expenses pursuant to the securities
purchase agreement.
* We have agreed to pay ASP/ASA, LLC a $5,000,000 fee if:
* the securities purchase agreement is terminated because our board
of directors withdraws or adversely modifies its recommendation in
favor of the securities purchase agreement and the election of
ASP/ASA, LLC's designees to our board of directors, or our board
of directors recommends another transaction;
* the securities purchase agreement is terminated because our
shareholders did not approve the securities purchase agreement or
the election of ASP/ASA, LLC's designees to the board of directors
and we entered into a transaction with any person relating to any
merger, equity or debt sale, sale of substantial assets or similar
transaction during the 18-month period following termination of
the securities purchase agreement.
Termination of the Securities Purchase Agreement
We and ASP/ASA, LLC may terminate the securities purchase agreement
if:
* we do not obtain approval by our shareholders;
* the first closing is not completed by June 15, 2003, which may be
extended as described below;
* a governmental entity has issued a permanent injunction or other
order or decree preventing the transactions that is in effect and
has become final and nonappealable;
* the other party breaches any of its representations, warranties
or covenants in the securities purchase agreement, which breach is
incurable or is not cured within 30 calendar days of written notice
of the breach;
* the second closing is not completed by July 31, 2004, but this
termination would only relate to the parties' rights and obligations
relating to the second closing; or
* the third closing is not completed by July 31, 2005, but this
termination would only relate to the parties' rights and obligations
relating to the third closing.
Pursuant to a letter agreement between us and ASP/ASA, LLC, dated
May 29, 2003, we have unconditionally agreed to reimburse ASP/ASA, LLC for
its reasonable business expenses incurred in connection with the securities
purchase agreement in the amount of $1,500,000. Effective upon receipt of
the full amount of this payment, ASP/ASA, LLC waives its right to terminate
the securities purchase agreement based on breaches of representations,
warranties or covenants relating to (i) our inability to secure funding
commitments to support customer loan commitments in excess of $230 million;
or (ii) our elimination of approximately 30% of our workforce. In addition,
upon receipt of this payment, ASP/ASA, LLC has agreed to amend the securities
purchase agreement to extend the date by which the first closing must occur
to July 15, 2003.
ASP/ASA, LLC may terminate the securities purchase agreement if our
board of directors withdraws its recommendation in favor of the proposals
contained in this proxy statement or recommends another transaction.
Each of the parties has the option to forego the purchase and sale of
convertible preferred stock at the third closing if funds are not needed to
support our growth plans.
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Use of Proceeds
The securities purchase agreement provides that we may use the
proceeds from the sale of convertible preferred stock for:
* the payment of fees associated with the sale;
* the payment of fees associated with the refinancing of our company;
* the payment of $400,000 to each of Gaylen Miller, Kevin Schipper
and Henry Jungling pursuant to non-competition agreements to be
entered into with us;
* working capital;
* the extension of credit to our customers in the ordinary course
of business;
* repayment of notes to Gaylen Miller, Kevin Schipper and
Henry Jungling;
* the payment of operating expenses incurred in the ordinary course
of business; and
* capital expenditures in the ordinary course of business.
Certificate of Designations, Preferences and Rights
The terms of the convertible preferred stock are set forth in a
certificate of designations, preferences and rights of 8.375% convertible
preferred stock (the "certificate of designations"). The summary below is
qualified in its entirety by the certificate of designations, attached to
this proxy statement as Annex B.
Purchase Price
The purchase price of the convertible preferred stock is $1,000 per
share.
Rank
The convertible preferred stock will rank senior to all classes of
our common stock and each other class of capital stock or series of
preferred stock with respect to distributions of assets upon
liquidation, dissolution or winding up.
Dividends
The holders of convertible preferred stock will be entitled to receive
cumulative dividends accruing at the rate per share of 8.375%,
compounding annually, payable in cash and payable quarterly in arrears.
As long as any shares of convertible preferred stock are outstanding,
we will be prohibited from declaring or paying any dividends on any of
our other classes or series of securities without the written consent
of a majority of the holders of convertible preferred stock.
Redemption
We will redeem all of the convertible preferred stock on the seventh
anniversary of the first closing. At that time, each holder of
convertible preferred stock may elect to convert its shares of
convertible preferred stock into our common stock or receive a cash
payment for its shares at the rate of $1,000 per share. Each holder will
also receive any accrued dividends in cash with respect to its shares.
The convertible preferred stock may not be redeemed at our option at
any time.
Liquidation Preference
Upon the occurrence of various liquidation events, as described more
fully in Section 5 of the certificate of designations, no distribution
will be made to the holders of any other classes or series of our
capital stock until the holders of convertible preferred stock have
received, for each share, the greater of (1) $1,000 or (2) the value
of the shares of common stock into which the share of convertible
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preferred stock is convertible, plus accrued dividends. This per share
amount will also be payable to the holders of convertible preferred
stock upon a change of control, which is defined as our entering into
any transaction which results in ASP/ASA, LLC and its affiliates owning
less than 20% of our voting power or the sale of all or substantially
all of our assets.
Conversion
The convertible preferred stock is convertible into our common
stock at the rate of $8.50 per share at any time at the option of
the holder.
Anti-Dilution
The convertible preferred stock contains customary anti-dilution
provisions, which provide for adjustments to the conversion price upon
the occurrence of certain events, including, but not limited to, stock
splits, stock dividends, or the issuance of other dividends or
distributions to holders of our common stock.
Adjustments of Purchase Price
The certificate of designations includes provisions to adjust the
purchase price paid by ASP/ASA, LLC by adjusting the conversion price
of the convertible preferred stock. ASP/ASA, LLC's agreement to purchase
the convertible preferred stock on the terms and conditions outlined in
the securities purchase agreement was based, in part, on the quality of
our loans to customers, including our ability to collect those loans
and the adequacy of reserves for those loans. The adjustments, set forth
in detail in Section 8 of the certificate of designations, are designed
to adjust the purchase price based on information relating to the
quality of our loans to customers. These adjustments are to be made
upon a liquidation event or a change of control, and on the second and
fourth anniversaries of the first closing if a liquidation event or
change of control has not occurred. A final adjustment is to be made
on the fifth anniversary of the first closing date if a liquidation
event or change of control has not occurred.
Voting Rights
After the first closing, ASP/ASA, LLC will be entitled to a number
of votes equal to the number of shares of our common stock into which all
70,000 shares of convertible preferred stock are convertible, which
currently represents approximately 60% of our outstanding common stock.
The sale of convertible preferred stock on the second and third closings
will not provide ASP/ASA, LLC with any additional voting rights.
Protective Provisions
As long as shares of convertible preferred stock are outstanding,
we are prohibited from taking various actions without obtaining the
approval of the holders of a majority of the outstanding shares of
convertible preferred stock, including, among others:
* alter, amend or repeal the rights or privileges of the convertible
preferred stock or any of our capital stock so as to affect
adversely the convertible preferred stock;
* create any new class or series of capital stock that has a
preference over or ranks in parity with the convertible preferred
stock as to distribution of assets upon liquidation, dissolution or
winding up or that is mandatorily redeemable or must be purchased
if certain events occur;
* increase the authorized number of shares of convertible
preferred stock;
* increase the par value of our common stock; or
* issue any additional shares of convertible preferred stock except
pursuant to the securities purchase agreement.
Arbitration
We and ASP/ASA, LLC have agreed to settle any disputes relating
to the determination of adjustments to the conversion price of the
convertible preferred stock (as described above under "Anti-Dilution" and
"Adjustments of Purchase Price") through arbitration.
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Effect of Issuance of Convertible Preferred Stock on Our Common Stock
The issuance of convertible preferred stock involves various
factors that affect our common stock, including the following:
* The convertible preferred stock is entitled to dividends, but no
dividends may be paid on our common stock or other capital stock
without the consent of the holders of the convertible preferred
stock.
* The dividends payable on the 70,000 shares of convertible
preferred stock to be sold to ASP/ASA, LLC pursuant to the
securities purchase agreement will be deducted in determining net
income available to common shareholders and, if declared and paid,
the dividends would reduce our working capital.
* The holders of convertible preferred stock have a prior claim
against our assets in the event of a liquidation or bankruptcy.
* ASP/ASA, LLC has registration rights allowing it to sell publicly
shares of convertible preferred stock or common stock into which
the convertible preferred stock is convertible.
Registration Rights Agreement
Registration
We have agreed to enter into a registration rights agreement with
ASP/ASA, LLC under which we will be required, within 90 days of the
first closing, to prepare and file a shelf registration statement
covering the offer and sale of the convertible preferred stock and
shares of common stock into which the convertible preferred stock is
convertible. If we fail to file or obtain or maintain or effectiveness
of this shelf registration statement, but we propose to file certain
other registration statements covering our securities, we will be
required to comply with requests by the holders of convertible preferred
stock or common stock into which convertible preferred stock was converted
to include their shares in the other registration statements.
Fees and Expenses
We will be responsible for all of the fees and expenses incurred
in performing our obligations under the registration rights agreement.
Additional Dividends
If we have not filed the shelf registration statement with the
SEC within 90 days of the first closing, the SEC has not declared the
shelf registration effective within 150 days of the first closing or
certain other events occur that prevent the sale of securities under
the shelf registration, then additional dividends will accrue with
respect to the convertible preferred stock. These additional dividends
will accrue at a rate of 1% per year with respect to the first 180-day
period following any of the defaults listed in the previous sentence,
and will accrue at a rate of an additional 1% per year for each additional
180-day period that a default continues to occur.
Shareholder Agreement
We have agreed that, on the first closing, we and Henry Jungling,
Kevin Schipper, Gaylen Miller and Shawn Smeins (each, a "restricted
shareholder") will enter into a shareholder agreement with ASP/ASA, LLC.
The material terms of the shareholder agreement are described below.
Transfer Restrictions
Pursuant to the shareholder agreement, and subject to certain
exceptions, each restricted shareholder will agree not to offer,
transfer, sell, assign, pledge or otherwise dispose of shares of our
common stock from the first closing until the earlier of:
* the date ASP/ASA, LLC ceases to own any of our securities; or
* the seventh anniversary of the first closing.
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The restricted shareholders will be permitted to transfer shares to
the following persons or entities, if the transferee agrees in writing to
be bound by the terms of the shareholder agreement:
* a spouse or child;
* an heir, executor, administrator, and certain trustees or
beneficiaries;
* a partnership, trust, corporation or other legal entity in which
the restricted shareholder or the persons listed above hold 100%
of the beneficial interest; or
* any other person if ASP/ASA, LLC consents in writing to the
transfer.
The restrictions on transfer are subject to the following exceptions:
* the restrictions will not apply to liens, security interests, or
transfers arising from a foreclosure, in each case, in connection
with loans secured by our common stock;
* shares securing loans to a restricted shareholder may be sold if
the proceeds will be used solely to repay the loans secured, the sale
occurs no earlier than six months before the loan matures and the
restricted shareholder uses reasonable efforts to use other proceeds
to repay the loans;
* after the second anniversary of the first closing, each restricted
shareholder may transfer up to 15% of its shares (but may not
transfer more than 5% of its shares in any 12-month period);
* each restricted shareholder may transfer up to 5,000 shares per
calendar year to a charitable organization; and
* after the second anniversary of the first closing, the transfer
restrictions will not apply to any restricted shareholder who
ceases to be our employee.
Other Employee Shareholders
Pursuant to the shareholder agreement employees who, upon exercising
options or other rights, hold more than 15,000 shares of our common stock,
will become parties to the shareholder agreement and will be subject to the
transfer restrictions in that agreement. We will agree to include provisions
in employee option agreements and related documents to that effect and will
continue use our best efforts to receive any employee consents necessary to
comply with those requirements.
Termination
The shareholder agreement will terminate on the earlier of the date
on which ASP/ASA, LLC and its affiliates cease to own any of our
securities or the seventh anniversary of the first closing.
Management Consulting Agreement
We have agreed that, on the first closing, we will enter into the
management consulting agreement with American Securities Capital
Partners, LLC ("consultant"), an affiliate of ASP/ASA, LLC. The
material terms of the management consulting agreement are described
below.
Services
Pursuant to the management consulting agreement, consultant agrees
to provide consulting services to us as an independent contractor.
Consultant is not required to devote any specified amount of time to
such consulting services.
Compensation
We will pay consultant an annual fee (prorated for any partial
periods) of $400,000 in equal quarterly installments, with the first
installment payable on the first closing.
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If, during the term of the management consulting agreement, we
consummate any merger, acquisition, disposition, recapitalization or
other extraordinary transaction, consultant is entitled to charge us
a transaction fee of 1% of the value of such transaction.
If, during the term of the management consulting agreement, we
consummate any financing or increase the size of an existing facility,
consultant is entitled to charge us a transaction fee of 0.25% of the
aggregate value of such financing or increase.
Expenses
We will reimburse consultant for its reasonable out-of-pocket
expenses incurred in connection with the management consulting agreement.
Term
The management consulting agreement will terminate on the date on
which affiliates of consultant cease to own any of our securities.
Our board of directors unanimously recommends that you vote FOR the
approval of the securities purchase agreement.
PROPOSAL 2 - ELECTION OF DIRECTORS
Our Amended and Restated Articles of Incorporation provide that our
board of directors shall be divided into three classes, with one class
being elected for a three-year term at each annual meeting. Kevin D.
Schipper and Ervin Mellema have been nominated for re-election as Class
III Directors, to serve until 2006. The election of these two directors
is part of our regular annual meeting, and their elections will be
effective regardless of whether the first closing under the securities
purchase agreement occurs.
Our board of directors unanimously recommends that you vote FOR the
re-election of the Class III directors.
Class III Directors
Kevin D. Schipper
Kevin D. Schipper is a founder of our company and has served as
a director since its formation in October 1985, as Chief Executive
Officer since November 2002, as Chief Operating Officer from July 1994
to November 2002 and as Secretary since August 1999. Mr. Schipper served
as Vice President since our formation in October 1985 until July 1994
and as Treasurer and Secretary from July 1988 until July 1994. Before
joining our company, Mr. Schipper was employed by Scoular Grain Company,
where he worked in product sales.
Ervin J. Mellema
Ervin J. Mellema has served as a director of our company since May 1991.
Since 1976, Mr. Mellema has been an operating principal of Campbell Mellema
Insurance Inc., a property and casualty insurance agency, and Campbell
Mellema Realty, LLC, a real estate brokerage firm.
Current Directors
Our board of directors is divided into three classes. One class is
elected at each annual meeting of our shareholders for a three-year term.
The Board is currently composed of six members:
Class I Directors: Mr. Gaylen D. Miller and Mr. James Gerson
Class II Directors: Mr. Henry C. Jungling, Jr. and Mr. Michael Lischin
Class III Directors: Mr. Kevin D. Schipper and Mr. Ervin J. Mellema
Class I Directors Continuing in Office Until the 2004 Annual Meeting
Gaylen D. Miller
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Gaylen D. Miller is a founder of our company and has served as a
director since its formation in October 1985, as Chairman since August
2001, from August 1997 until August 1999 and from August 1993 until
August 1995, and as Chairman and Chief Operating Officer from August
1993 until July 1994. Mr. Miller served as President and Chief Executive
Officer from August 1999 until August 2001, from August 1995 until August
1997 and from May 1991 until August 1993. Mr. Miller served as Co-President
of the company from July 1988 until May 1991 and as Vice President,
Secretary, and Treasurer from November 1985 until July 1988. Mr. Miller
was raised on a farm in Iowa. Before joining our company, he held
administrative and accounting positions with Land-O-Lakes, Inc., an
agricultural cooperative, and DEKALB Genetics Corporation, an international
seed company. Messrs. Miller and Jungling are first cousins and Mr.
Jungling is Mr. Schipper's uncle.
James D. Gerson
James D. Gerson has served as a director of the company since
August 1991. Mr. Gerson was Vice President of Fahnestock & Co. Inc.,
a securities firm, for more than five years until April 2003. Mr. Gerson
also serves as a director of American Power Conversion Corp., Evercel, Inc.
and FuelCell Energy, Inc.
Class II Directors Continuing in Office Until the 2005 Annual Meeting
Henry C. Jungling, Jr.
Henry C. Jungling, Jr. is a founder of our company and has served
as a director since its formation in October 1985, and as President since
November 2002 and as President and Chief Executive Officer from August 2001
to November 2002, from August 1997 until August 1999 and from August 1993
until August 1995. Mr. Jungling served as Chairman from August 1999 until
August 2001 and from August 1995 until August 1997, and as Chairman and
Chief Operating Officer from May 1991 until August 1993. Mr. Jungling served
as Co-President of our company from July 1988 until May 1991 and as President
from November 1985 until July 1988. Mr. Jungling was raised on a farm in Iowa
and managed his own farming operation for 18 years.
Michael Lischin
Michael Lischin has served as a director of the company since April
1990. Mr. Lischin is an attorney admitted to the bar in New York and Kentucky.
His area of concentration is livestock asset based financing. He has served
as a director and officer of a variety of companies that provide financing
in the agricultural industry.
PROPOSAL 3 - ELECTION OF FIVE NEW DIRECTORS
Pursuant to the securities purchase agreement, James D. Gerson,
Henry C. Jungling, Michael Lischin and Ervin J. Mellema have agreed to
resign from our board of directors and our board of directors will be
increased in size from six members to seven members, effective only upon
completion of the first closing. As a result, you are being asked to
elect five new members to our board of directors effective as of the first
closing. The biographies of the nominees, each of whom has been designated
by ASP/ASA, LLC, are set forth below.
Director Nominees
You are being asked to consider and vote on the election of the
following persons to become members of our board of directors to serve
after the first closing. Each of these persons has been designated by
ASP/ASA, LLC to become a member of our board of directors. If the first
closing does not occur, the election of these five directors will not
become effective.
Our board of directors unanimously recommends that you vote FOR the
election of the five nominees named below, effective upon the first
closing under the securities purchase agreement.
Jonathan E. Baum
Jonathan E. Baum has been the Chairman and Chief Executive Officer
of George K. Baum & Company, an investment banking firm, since 1994. Mr.
Baum is a director of the American Italian Pasta Company, George K. Baum
Merchant Banc, L.L.C. and Prairie Capital Management Inc. Mr. Baum is
42 years old.
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Michael G. Fisch
Michael G. Fisch is a managing director of American Securities
Capital Partners, L.P., a private investment firm affiliated with
ASP/ASA, LLC. Mr. Fisch has served as a financial advisor to the William B.
Rosenwald family, and as a managing director of American Securities Capital
Partners, L.P. since 1993. Mr. Fisch is a director of Anthony International,
El Pollo Loco, Inc., VUTEK Inc., Cambridge International Inc. and the
Oreck Corporation. He is a member of the investment committee of Sterling
American Property II, L.P. and Sterling American Property IV, L.P. He is
also a founding partner and on the investment committee of
ICV Partners, L.P. Mr. Fisch is 41 years old.
Glenn B. Kaufman
Glenn B. Kaufman is a managing director of American Securities
Capital Partners, L.P., a private investment firm affiliated with
ASP/ASA, LLC. Mr. Kaufman joined American Securities Capital
Partners, L.P. in September 1997. He was previously an attorney at
the law firm of Cravath, Swaine & Moore, where he had focused on
private equity and related transactions. Mr. Kaufman also previously
worked in a small business consulting group of Price Waterhouse. Mr.
Kaufman is a director of Anthony International and El Pollo Loco, Inc.,
and has previously served as an advisor to a number of technology
related businesses. Mr. Kaufman is 35 years old.
Douglas A. Monticciolo
Douglas A. Monticciolo is the co-founder and Managing Director
of FCS Advisors, Inc., a boutique financial services investment bank,
and founder of The Franchise Capital Source, Inc., a financial
advisory firm for large franchise companies. Mr. Monticciolo was
previously co-head of the Asset-Backed Securities department for
Deutsche Bank Securities Inc, and founder of Deutsche Bank's franchise
finance business and an independent franchise loan origination company.
Prior to Deutsche Bank, Mr. Monticciolo specialized in asset and balance
sheet advisory and transactions for financial institutions with a focus
on securitization and principal finance. In this capacity, Mr.
Monticciolo was a senior vice-president and head of the Bank Industry
Group at Lehman Brothers for 1 1/2 years and vice-president of the Bank
Industry Group at Goldman, Sachs & Co. for 9 years. Mr. Monticciolo
is 39 years old.
Marc L. Saiontz
Marc L. Saiontz is a senior associate at American Securities Capital
Partners, L.P. a private investment firm affiliated with ASP/ASA, LLC.
Mr. Saiontz joined American Securities Capital Partners, L.P. in December
1996 from Morgan Stanley Capital Partners, where he had focused on private
equity investments since 1995. Mr. Saiontz left American Securities Capital
Partners, L.P. in July 1999 to attend business school and rejoined the
firm upon receiving his M.B.A. in 2001. Mr. Saiontz is 30 years old.
PROPOSAL 4 - REMOVAL OF STAGGERED BOARD
The first paragraph of Article VII of our Amended and Restated
Articles of Incorporation provides that our board of directors shall be
divided into three classes, with one class being elected at each annual
meeting for a three-year term. As part of the transactions contemplated
by the securities purchase agreement, you are being asked to consider
and vote upon the removal of this provision from our Amended and Restated
Articles of Incorporation. The removal of this provision will become
effective only upon completion of the first closing under the securities
purchase agreement. If the first closing does not occur, the provision
for a staggered board will remain. If this proposal is approved and the
first closing does occur, the provision for a staggered board will be
removed and each of the members of our board of directors will continue
in office until our next annual meeting. The text of the proposed amendment
to our Amended and Restated Articles of Incorporation is set forth in
Annex F to this proxy statement.
Our board of directors unanimously recommends that you vote FOR the
removal of the first paragraph of Article VII of our Amended and Restated
Articles of Incorporation, effective upon the first closing under the
securities purchase agreement.
BOARD COMMITTEES AND MEETINGS
The board of directors met ten times during the fiscal year ended
February 28, 2003. Each director attended at least 75% of the meetings of
the board of directors and board committees of which he was a member.
Audit Committee
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Our board of directors has an Audit Committee consisting of Messrs.
Gerson, Lischin and Mellema. The Audit Committee's primary responsibilities
are set forth in the Audit Committee charter. The Audit Committee met six
times during the fiscal year ended February 28, 2003 and has the
responsibility for consulting with our officers regarding the appointment
of independent public accountants as auditors, discussing the scope of the
auditor's examination and reviewing annual financial statements. The Audit
Committee also reviews our accounting policies, internal control procedures
and system and compliance activities. The Audit Committee is currently
composed of three independent directors, and our board of directors has
made a determination that the members of the Audit Committee satisfy the
independence requirements of the New York Stock Exchange.
The following is a report on the Audit Committee's activities relating
the fiscal year 2003.
Review of Audited Financial Statements with Management
The Audit Committee reviewed and discussed the audited financial
statements for the fiscal years ended February 28, 2002 and 2003,
with our management.
Review of Financial Statements and Other Matters with Independent Accountants
The Audit Committee has discussed with McGladrey & Pullen, LLP, our
independent auditors, the matters required to be discussed by Statement
on Auditing Standards No. 61 (Communication with Audit Committees). The
Audit Committee has received from McGladrey & Pullen, LLP the written
disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and as
discussed matters relating to the firm's independence from us.
James D. Gerson Michael Lischin Ervin J. Mellema
Audit Committee Composition After First Closing
The current members of the Audit Committee, James D. Gerson, Michael
Lischin and Ervin J. Mellema, will be resigning from our board of directors
effective as of the first closing. As a result, if the first closing occurs,
our board of directors will be appointing three new members to the Audit
Committee. If you elect the nominees named above to become members of our
board of directors effective as of the first closing, we anticipate that
the new members of the Audit Committee will be Jonathan E. Baum, Douglas A.
Monticciolo and Marc L. Saiontz. We intend to modify the composition of the
Audit Committee to ensure that all of the members satisfy the independence
requirements of the New York Stock Exchange by the earlier of
October 31, 2004 or our first annual shareholder meeting after
January 15, 2004.
Directors' Fees
We currently pay director's fees to our non-employee directors in
the amount of $1,500 per board meeting and $250 per committee meeting
plus reimbursement for expenses incurred in connection with the performance
of their duties. We may increase the amount of fees paid to our directors
after the first closing.
Compensation Committee Interlocks and Insider Participation
At present, the entire board of directors is responsible for
approving the compensation program and salaries for our executive officers.
Gaylen D. Miller, Henry C. Jungling, Jr. and Kevin D. Schipper, who are
members of our board of directors, were also executive officers of the
company during fiscal 2003. However, the executive officers who are members
of our board are not present when any of their own compensation is under
consideration. There were no director interlocks with other companies or
related party transactions in fiscal 2003.
EXECUTIVE OFFICERS
The name, age and office(s) held by each of our executive officers are
shown below. Each of the executive officers listed below serves at the
pleasure of the Board of Directors, except Messrs. Jungling, Miller, Schipper
and Smeins who have entered into employment agreements with us. Pursuant to
the securities purchase agreement, Messrs. Jungling, Miller, Schipper and
Smeins are to enter into new employment agreements with us on terms
satisfactory to ASP/ASA, LLC. These new agreements will replace the
current agreements.
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Name Age Position With the Company
Henry C. Jungling, Jr.(1) 55 President
Gaylen D. Miller (1) 54 Chairman of the Board
Kevin D. Schipper (1) 43 Chief Executive Officer and Secretary
Shawn R. Smeins (1) 35 Chief Operating Officer
John T. Roth (2) 31 Vice President Finance and Treasurer
Todd J. Ryan (1) 40 Vice President Sales and Marketing
Eunice M. Schipper (1) 61 Vice President Credit
Neil H. Stadlman (1) 57 Vice President Information Strategies
Lisa M. Meester (1) 43 Vice President Information Systems
Jamey Ross (1) 31 Vice President Products and Distribution
Linda Kobliska (1) 47 General Counsel
(1) These executive officers of the Company have been an employee of the
Company in varying capacities for more than the past five years.
(2) Mr. Roth has been employed by the Company in varying capacities since
October 1998. Before joining the Company, Mr. Roth was a CPA with
McGladrey and Pullen, LLP, a public accounting firm, from July 1995
through October 1998. McGladrey and Pullen, LLP is the Company's
independent auditor.
BENEFICIAL OWNERSHIP OF COMMON STOCK AND CORPORATE INFORMATION
Security Ownership of Certain Beneficial Owners
The following table provides certain information regarding the
ownership of our common stock as of June 3, 2003 by:
* each director;
* each executive officer named in the Summary Compensation Table;
* all of our directors and the executive officers named above as a group;
and
* all those known to be beneficial owners of more than five percent of
our common stock.
Number of Shares Percentage
Name of Beneficially of Shares
Beneficial Owner Owned (1) (2) Outstanding
Gaylen D. Miller 363,134 6.61%
Henry C. Jungling, Jr. 356,834 6.49%
Kevin D. Schipper 361,134 6.57%
James D. Gerson 196,216 3.58%
Shawn Smeins 11,250 *
Michael Lischin 11,750 *
Ervin J. Mellema 10,750 *
Neil Stadlman 18,200 *
All Directors and Officers as a
Group (14 persons) 1,416,113 25.72%
* Less than 1%
The following tables also show the total votes owned by each of these
persons as of June 3, 2003, based upon each person's ownership of outstanding
common stock and outstanding shares of convertible preferred stock. The
first table reflects beneficial ownership after the first closing under
the securities purchase agreement, the second table reflects beneficial
ownership after the second closing under the securities purchase agreement,
and the third table reflects beneficial ownership after the third closing
under the securities purchase agreement.
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Notwithstanding the number of shares listed below as beneficially
owned, ASP/ASA, LLC will have the right to vote approximately 60% of our
shares entitled to vote after each of the first closing, the second
closing and the third closing.
After First Closing under the Securities Purchase Agreement
Number of Shares Percentage
Name of Beneficially of Shares
Beneficial Owner Owned (1) (2) Outstanding
ASP/ASA, LLC 4,117,647 42.9%
Gaylen D. Miller 363,134 3.78%
Henry C. Jungling, Jr. 356,834 3.71%
Kevin D. Schipper 361,134 3.76%
James D. Gerson 196,216 2.04%
Shawn Smeins 11,250 *
Michael Lischin 11,750 *
Ervin J. Mellema 10,750 *
Neil Stadlman 18,200 *
All Directors and Officers as a
Group ( 14 persons) 5,530,260 57.60%
* Less than 1%
After Second Closing under the Securities Purchase Agreement
Number of Shares Percentage
Name of Beneficially of Shares
Beneficial Owner Owned (1) (2) Outstanding
ASP/ASA, LLC 6,176,471 52.99%
Gaylen D. Miller 363,134 3.11%
Henry C. Jungling, Jr. 356,834 3.06%
Kevin D. Schipper 361,134 3.09%
James D. Gerson 196,216 1.68%
Shawn Smeins 11,250 *
Michael Lischin 11,750 *
Ervin J. Mellema 10,750 *
Neil Stadlman 18,200 *
All Directors and Officers as a
Group ( 14 persons) 7,588,984 65.09%
* Less than 1%
After Third Closing under the Securities Purchase Agreement
Number of Shares Percentage
Name of Beneficially of Shares
Beneficial Owner Owned (1) (2) Outstanding
ASP/ASA, LLC 8,235,294 60.05%
Gaylen D. Miller 363,134 2.64%
Henry C. Jungling, Jr. 356,834 2.60%
Kevin D. Schipper 361,134 2.63%
James D. Gerson 196,216 1.43%
Shawn Smeins 11,250 *
Michael Lischin 11,750 *
Ervin J. Mellema 10,750 *
Neil Stadlman 18,200 *
All Directors and Officers as a
Group ( 14 persons) 9,647,807 70.34%
* Less than 1%
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(1) The persons or entities identified in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them unless otherwise indicated. The number of
shares beneficially owned includes shares of Common Stock issuable upon
exercise of options that will become exercisable during the 60-day
period commencing June 3, 2003.
(2) Includes shares held by spouses and minor children sharing
the same home.
Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, as well as persons who own
more than 10% of our common stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, all such Section 16(a) filing requirements were
complied with during fiscal 2003. This statement is based solely on a review
of reports furnished to us and written representations that no other reports
were required during fiscal 2003.
EXECUTIVE COMPENSATION AND OTHER RELATED INFORMATION
The following table sets forth the cash and certain other compensation
paid or accrued by us for services rendered in all capacities during the
fiscal years ended February 28, 2003, 2002 and 2001 to our Chairman of the
Board and our four other most highly compensated executive officers who were
serving as executive officers at the end of fiscal 2003.
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------------------- -------------------------------
Securities
Underlying
Name and Fiscal Options LTIP(e) All
Principal Position Year Salary Bonus Other(a) Awards(b) SARs Payouts Other
------------------ ---- ---------- ---------- -------- ---------- --------- --------- --------
Gaylen D. Miller 2003 $250,000 $180,000(f) $0 $0 0 $0 $5,435(i)
Chairman of the 2002 250,000 25,000(f) 0 0 0 0 4,835(i)
Board 2001 233,534 125,000(f) 0 0 0 0 5,017(i)
Henry C. Jungling Jr. 2003 $250,000 $180,000(f) $0 $0 0 $0 $5,470(j)
President 2002 250,000 25,000(f) 0 0 0 0 4,870(j)
2001 233,534 125,000(f) 0 0 0 0 5,052(j)
Kevin D. Schipper 2003 $250,000 $180,000(f) $0 $0 0 $0 $5,093(k)
Chief Executive 2002 250,000 25,000(f) 0 0 0 0 4,493(k)
Officer 2001 233,354 125,000(f) 0 0 0 0 4,675(k)
Shawn R. Smeins 2003 $114,000 $30,240(f) $0 $0 0 $0 $2,675(l)
Chief Operating 2002 94,577 0(g) 0 0 6,000(d) 0 2,526(l)
Officer 2001 77,057 7,382(g) 0 0 8,000(d) 0 1,506(l)
Neil Stadlman 2003 $107,346 $19,250(g) $0 $0 0 $0 $3,006(l)
VP Information 2002 105,702 0(g) 0 0 0 0 3,243(l)
Strategies 2001 103,322 10,139(g) 0 0 4,000(h) 0 2,911(l)
(a) The table excludes non-cash compensation for the use of an automobile,
which did not exceed the lesser of $50,000 or 10% of the base
compensation paid to each officer.
(b) No restricted stock awards were made in any of the periods presented.
(c) No stock appreciation rights were granted or paid in any periods
presented.
(d) Includes stock options granted under our 1993 Stock Option Plan for
3,000 shares granted on May 31, 2000, when the market value of our
common stock was $16.31, for 5,000 shares on November 30, 2000, when
the market value of our common stock was $12.44, and for 6,000 shares
granted on November 30, 2001, when the market value of our common stock
was $10.30.
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(e) We did not have a long-term incentive compensation plan for any of
the periods presented.
(f) Reflects incentive compensation accrued in Fiscal 2003, 2002 and 2001
to our officers according to their respective employment
agreements.
(g) Reflects incentive compensation accrued.
(h) Includes stock options granted on May 31, 2000, under our 1993 Stock
Option Plan, when the market value of our common stock was $16.31.
(i) Reflects premiums paid by us for $250,000 term life insurance coverage
in Fiscal 2003, 2002 and 2001 of $635, $635, and $635, respectively,
and $4,800, $4,200, and $4,382, respectively, contributed to our
401(k) Plan.
(j) Reflects premiums paid by us for $250,000 term life insurance coverage
in Fiscal 2003, 2002 and 2001 of $670, $670, and $670, respectively,
and $4,800, $4,200 and $4,382, respectively, contributed to our
401(k) Plan.
(k) Reflects premiums paid by us for $250,000 term life insurance
coverage in Fiscal 2003, 2002 and 2001 of $293, $293, and $293,
respectively, and $4,800, $4,200 and $4,382, respectively, contributed
to our 401(k) Plan.
(l) Reflects contributions to our 401(k) Plan.
Related Party Transactions
In February 2002, Messrs. Miller, Jungling and Schipper advanced us
an aggregate of $4,404,000. We make monthly interest payments to these
officers at a variable interest rate of 0.5% below prime rate. These notes
are secured by a second mortgage on our corporate office facility.
Options/SAR Grants
In Fiscal 2003
No stock options were granted to any of the officers named in the
Summary Compensation Table set forth above in Fiscal 2003.
Aggregated Option/SAR Exercises
In Fiscal 2003 and Year-End Option/SAR Values
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARS at Options/SARS at
Shares February 28, 2003 February 28, 2003
Acquired ----------------- -------------------
On Value Exer- Unexer- Exer- Unexer-
Name Exercise Realized cisable cisable cisable cisable
--------------- ----------- ----------- ------- --------- -------- -------
Gaylen D. Miller 0 $0 15,000 0 $0 $0
Henry C. Jungling,Jr. 0 $0 15,000 0 $0 $0
Kevin D. Schipper 0 $0 15,000 0 $0 $0
Shawn Smeins 0 $0 11,250 7,750 $0 $0
Neil Stadlman 0 $0 7,000 1,000 $0 $0
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Employment Agreements
Pursuant to the securities purchase agreement, each of Messrs.
Jungling, Miller, Schipper and Smeins are to enter into a new employment
agreement with us on terms and conditions satisfactory to ASP/ASA, LLC.
These new employment agreements will be effective as of the first closing
and will replace the existing agreements described below.
Effective July 1, 2000, Messrs. Jungling, Miller and Schipper entered
into separate three-year employment agreements us, each of which automatically
renews for one additional year at each anniversary of the contract and provides
for (i) a base salary of $250,000, subject to adjustment upward upon annual
review by our board of directors on March 1 of each year the agreement is in
effect, (ii) payment of an annual bonus to each of these persons based upon
our earning per share ("EPS") growth compared to the previous year,
(iii) $250,000 in term life insurance coverage and (iv) receipt of other
benefits, including use of an automobile. If the respective employment
agreement is terminated by us without "cause" or by the executive upon or
after a "change in control" or "diminution in responsibility," we must continue
to pay the person salary and bonus for up to two years. "Cause" is defined to
include repeated neglect in performance, breach of the employment agreement or
indictment or conviction of a felony or misdemeanor involving moral turpitude.
A "change in control" occurs if (i) any person acquires beneficial
ownership of 25% or more of the combined voting power of our outstanding
voting securities or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute our board of
directors cease for any reason (other than uncontested election) to constitute
at least a majority of our board of directors. A "diminution of responsibility"
is deemed to have occurred if, without the executive's written consent,
(i) the executive is not elected or re-elected to an office or position at
least equal to that, or is removed from an office or position, held by the
executive immediately prior to a "change in control" or (ii) there is a
material reduction in the executive's nature or scope of authorities, powers,
functions, duties, titles or responsibilities.
Effective August 7, 2002, Mr. Smeins entered into a three-year employment
agreement with us, which automatically renews for one additional year at each
anniversary of the contract and provides for (i) a base salary of $120,000,
subject to adjustment upward upon annual review each year the agreement is
in effect, (ii) payment of an annual bonus based upon our earning per share
("EPS") growth compared to the previous year, and (iii) receipt of other
benefits, including use of an automobile. If his employment agreement is
terminated by us without "cause," we must continue to pay him salary and
bonus for up to two years. The terms "cause," "change in control" and
"diminution in responsibility" are defined similarly to those in the
employment agreements with Messrs. Jungling, Miller and Schipper.
Board Report on Executive Compensation
At present, our entire board of directors is responsible for
approving the compensation program and salaries for Messrs. Jungling,
Miller and Schipper. However, Messrs. Jungling, Miller and Schipper are
not present when their compensation is under consideration.
Compensation Philosophy. It is our philosophy to ensure that executive
compensation is directly linked to sustained improvements in corporate
performance and increases in shareholder value as measured by our stock
price. The following objectives have been adopted by our board of directors
as guidelines for compensation decisions:
* Provide a competitive total compensation package that enables us to
attract and retain key executive talent needed to accomplish our
corporate goals.
* Integrate all pay programs with our annual and long-term business
objectives and strategy, and focus executive behavior on the
fulfillment of those objectives.
* Provide variable compensation opportunities that are directly
linked with our performance and that align executive remuneration
with the interests of our shareholders.
At present, executive compensation is comprised of (i) a base salary,
(ii) an annual cash incentive bonus, (iii) additional incentive
compensation in the form of stock options, and (iv) other benefits
typically provided to executives of comparable companies, all described
further below. For each such component of compensation, our compensation
levels are compared with those of comparable companies. For purpose of
establishing these comparable compensation levels, we compare ourselves
to a national group of companies selected by management and its consultants.
This group consists primarily of public and non-public companies that
have revenue levels similar to ours. This group does not include the
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companies used by us in the industry peer group index in the performance
graph appearing elsewhere herein, as several of the members of the industry
peer group are considerably larger in size with executive compensation well
above ours.
Base Salary. The salaries of Messrs. Jungling, Miller and Schipper
are based on the officer's level of responsibility and comparisons to
prevailing salary levels for similar positions at our company and at
comparable companies. Our board seeks to provide Messrs. Jungling, Miller
and Schipper with salaries that are at least commensurate with the median
salary levels at comparable companies. Compensation is linked to individual
employment agreements as discussed above, which are consistent with our
compensation philosophy.
Annual Bonus. Messrs. Jungling's, Miller's and Schipper's annual
bonuses are linked to individual employment agreements, as discussed above,
which are consistent with our compensation philosophy. The employment
agreements establish target performance levels and the amount of bonus payable
if these targets are met. Our board of directors evaluates the annual bonus
through review of information furnished by its consultants as to the bonus
practices among comparable companies. The annual bonuses paid to Messrs.
Jungling, Miller and Schipper have typically been less than the median annual
bonuses paid by comparable companies.
The bonus is based upon our earning per share ("EPS") growth. The EPS
growth is determined by comparing the fiscal year end audited results to the
EPS of the previous year. The bonus payment is $150,000 if the EPS growth is
15%. The bonus is adjusted upward by $10,000 for each full percent increase
above 15% and, conversely, is adjusted downward by $5,000 for each full
percent that falls below 15%. In the event we fail to achieve what the
board deems to be appropriate sustained growth, the board, in its discretion,
may determine the bonus by comparing the fiscal year end audited results to
the EPS of either of the two prior year's end results, whichever is higher.
The board may also, in its discretion, exclude certain items affecting our
short-term profitability deemed important to our future growth from the
calculation of the bonus.
As discussed above, pursuant to the securities purchase agreements, Messrs.
Jungling, Miller, Schipper and Smeins are to enter into new employment
agreements with us, on terms satisfactory to ASP/ASA, LLC. These agreements
will be effective as of the first closing and will replace the existing
agreements described above.
Compensation Committee
James D. Gerson Michael Lischin Ervin J. Mellema
The current members of the compensation committee, James D. Gerson,
Michael Lischin and Ervin J. Mellema, will be resigning from our board of
directors effective as of the first closing. As a result, if the first
closing occurs, our board of directors will be appointing three new members
to the compensation committee. If you elect the nominees named in this
proxy statement to become members of our board of directors effective as of
the first closing, we anticipate that the new members of the compensation
committee will be Michael G. Fisch, Jonathan E. Baum and Douglas A.
Monticciolo.
Performance Graph
The following graph compares the cumulative total stockholder return
on our common stock with that of the Russell 2000 Index and the Agricultural
Input Supply Index, an agricultural input supply index prepared for us made
up of the following NYSE companies; Agco Corporation, CNH Global NV, Deere &
Company, Dow Chemical, Du Pont, Lindsay Manufacturing, Monsanto and Ag
Services of America, Inc. The comparison for each of the periods assumes that
$100 was invested on February 28, 1998, in each of the company's common stock,
the stocks included in the Russell 2000 Index and the stocks included in the
Agricultural Input Supply Index. These indexes, which reflect formulas for
dividend reinvestment and weighting of individual stocks, do not necessarily
reflect returns that could be achieved by individual investors.
[GRAPH]
Ag Services Agricultural
of America, Russell Input Supply
Inc. 2000 Index Index
------ ------ ------
1998 100.00 100.00 100.00
1999 83.00 86.00 85.00
2000 142.00 128.00 89.00
2001 86.00 107.00 83.00
2002 73.0 107.00 88.00
2003 43.0 83.00 72.00
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PROPOSAL 5 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
Our board of directors unanimously recommends that you vote FOR
the ratification of the independent public accountants described below.
You are being asked to ratify the action of our board of directors
appointing McGladrey & Pullen, LLP as our independent public accountants
for the fiscal year ending February 29, 2004.
McGladrey & Pullen, LLP acted as our independent certified public
accountants for Fiscal 2003, and has been selected by the Board to serve
again in that capacity for Fiscal 2004. The following table lists the
aggregate fees and costs billed to us by McGladrey & Pullen, LLP and their
affiliate, RSM McGladrey, Inc., for (i) services rendered in connection
with auditing our annual consolidated financial statements for Fiscal 2003
and reviewing our quarterly financial statements for Fiscal 2003, (ii)
services rendered during Fiscal 2003 in connection with auditing our 401(k)
Plan and services in connection with the transactions with ASP/ ASA LLC,
(iii) preparation of tax returns, and (iv) miscellaneous consultations.
Audit Fees $138,918
Audit of 401(k)Plan and services in connection with an
equity investment 55,247
Tax consultation and compliance services 8,871
Miscellaneous fees 39,365
OTHER MATTERS
Our board of directors knows of no other matters which may come
before the meeting. However, if any matters other than those referred to
above should properly come before the meeting calling for a vote of the
stockholders, it is the intention of the persons named in the enclosed
proxy to vote such proxy in accordance with their best judgment.
FINANCIAL DATA
Financial Statements and Other Financial Information
Accompanying this proxy statement is our 2003 annual report for
the fiscal year ended February 28, 2003. The following information is
incorporated by reference to our 2003 annual report:
1. The Company's Consolidated Financial Statements
a. Report of Independent Accountants.
b. Consolidated Balance Sheet as of February 28, 2003 and
February 28, 2002.
c. Consolidated Statements of Income for the fiscal years ended
February 28, 2003, 2002 and 2001.
d. Consolidated Statements of Stockholders' Equity for the years
ended February 28, 2003, 2002 and 2001.
e. Consolidated Statements of Cash Flows for the years ended
February 28, 2003, 2002 and 2001.
f. Notes to Consolidated Financial Statements.
Accountants
Representatives of McGladrey & Pullen, LLP, will be present at the
Annual Meeting. Representatives of McGladrey & Pullen, LLP will have the
opportunity to make a statement at the annual meeting if they desire, and
are expected to be available to respond to appropriate questions from
shareholders.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on various underlying assumptions and
expectations of management and are subject to risks and uncertainties which
could cause actual results to differ materially from those expressed in the
forward-looking statements. These risks and uncertainties include, but are
not limited to, the availability of adequate and timely debt and equity
financing; general economic conditions within the agricultural industry;
competitive factors and pricing pressures; changes in product mix; changes
in the seasonality of demand patterns; changes in weather conditions;
changes in agricultural regulations; unknown risks; the amount and
availability under its asset backed securitization program; and the risks
described from time to time in our SEC reports and other public filings.
Other factors and assumptions not identified above could also cause
actual results to differ materially from those set forth in the forward-looking
statements. Although our management believes these assumptions are reasonable,
we cannot assure you that they will prove correct. Accordingly, you should
not rely upon forward-looking statements as a prediction of actual results.
Further, we undertake no obligation to update forward-looking statements
after the date they are made or to conform the statements to actual results
or changes in our expectations.
The forward-looking statements should be read in conjunction with our
Annual Report on Form 10-K for the fiscal year ended February 28, 2003.
Our reports on Form 10-K and Form 10-Q are on file with the SEC, and copies
are available without charge upon written request at the address provided
in "Where You Can Find More Information."
All information contained in this proxy statement with respect to
ASP/ASA, LLC, American Securities Capital Partners, LLC and American
Securities Capital Partners, L.P. has been supplied or confirmed by
ASP/ASA, LLC, American Securities Capital Partners, LLC and American
Securities Capital Partners, L.P., respectively.
FUTURE SHAREHOLDER PROPOSALS
Rule 14a-8 under the Exchange Act requires that a shareholder
proposal intended to be included in the proxy statement for the 2004
annual meeting be received at our executive offices no later than
February 12, 2004. The proposal may be omitted from the annual meeting
proxy statement if the submitting shareholder does not meet the applicable
requirements under Rule 14a-8.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. The public may read and copy any
materials we file with the SEC at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers, including Ag Services, that file electronically with
the SEC. The address of the SEC's Internet site is http://www.sec.gov.
Requests for further copies of this proxy statement or proxy cards
should be directed to us at the following address:
Ag Services of America, Inc.
1309 Technology Parkway
P.O. Box 668
Cedar Falls, IA 50613
Attention: Kevin D. Schipper
Telephone: 319-277-0261
If you would like to request documents from us, please do so by
July 5, 2003 in order to receive them before the annual meeting.
You should rely only on the information contained in this proxy
statement or other documents to which we refer you. We have not authorized
anyone to provide you with information that is different from what is
contained in this proxy statement. This proxy statement is dated
June 12, 2003 . You should not assume that the information contained in
this proxy statement is accurate as of any date other than that date,
and the mailing of the proxy statement to shareholders shall not create
any implication to the contrary.
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ANNEX A
SECURITIES PURCHASE AGREEMENT
Dated as of February 21, 2003
between
AG SERVICES OF AMERICA, INC.
and
ASP/ASA, LLC
TABLE OF CONTENTS
ARTICLE I
Purchase and Sale of Securities; Closing
SECTION 1.01. Purchase and Sale of Securities 1
SECTION 1.02. Payment and Delivery 2
SECTION 1.03. Closing 2
ARTICLE II
Representations and Warranties of the Company
SECTION 2.01. Organization, Standing, etc 3
SECTION 2.02. Capital Stock 3
SECTION 2.03. Issuance of Securities 5
SECTION 2.04. Authorization; Enforcement 5
SECTION 2.05. Absence of Changes 5
SECTION 2.06. Acknowledgment of Dilution; Board Recommendation 5
SECTION 2.07. Real Property 6
SECTION 2.08. No Conflicts; Consents 6
SECTION 2.09. No Violation 7
SECTION 2.10. Legal and Governmental Proceedings 7
SECTION 2.11. Investment Company 7
SECTION 2.12. Full Disclosure 7
SECTION 2.13. Financial Statements 8
SECTION 2.14. Intellectual Property 8
SECTION 2.15. Contracts 8
SECTION 2.16. Labor 10
SECTION 2.17. Benefit Plans and Agreements 10
SECTION 2.18. Taxes 12
SECTION 2.19. Books and Records 13
SECTION 2.20. Loan Defaults 13
SECTION 2.21. Environmental 13
SECTION 2.22. Insurance 13
SECTION 2.23. Transactions with Affiliates 14
SECTION 2.24. Banking Regulations 14
SECTION 2.25. Securities Act 14
SECTION 2.26. General Solicitation 14
SECTION 2.27. Integration 14
SECTION 2.28. Solvency 14
SECTION 2.29. Vote Required 15
SECTION 2.30. Business Combination Statute 15
SECTION 2.31. No Brokers 15
SECTION 2.32. Fairness Opinion 15
SECTION 2.33. Margin Regulations 15
SECTION 2.34. August 31 Loans 15
ARTICLE III
Representations and Warranties of the Purchaser
SECTION 3.01. Authorization: Enforcement 16
SECTION 3.02. Compliance with Securities Act 16
SECTION 3.03. Investment Purpose 16
SECTION 3.04. Accredited Investor Status 16
SECTION 3.05. Reliance on Exemptions 16
SECTION 3.06. No Conflicts 16
SECTION 3.07. Governmental Review 17
SECTION 3.08. Legends 17
SECTION 3.09. Brokers 18
ARTICLE IV
Covenants
SECTION 4.01. Reasonable Best Efforts 18
SECTION 4.02. Form D; Blue Sky Laws 18
SECTION 4.03. Reporting Status 18
SECTION 4.04. Use of Proceeds 18
SECTION 4.05. Financial Information 18
SECTION 4.06. Reservation of Shares 19
SECTION 4.07. Listing 19
SECTION 4.08. Ordinary Conduct 19
SECTION 4.09. Credit and Collection Policy 22
SECTION 4.10. Access to Information 22
SECTION 4.11. Other Transactions 23
SECTION 4.12. No Integration 23
SECTION 4.13. Preparation of the Proxy Statement 23
SECTION 4.14. Shareholder Approval 24
SECTION 4.15. Directors 24
SECTION 4.16. Compliance with Laws 24
SECTION 4.17. Publicity 24
SECTION 4.18. Shareholder Litigation 25
SECTION 4.19. Insurance 25
SECTION 4.20. FSA Loan Program 25
SECTION 4.21. First Closing Loan Amounts 25
SECTION 4.22. Fairness Opinion 25
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ARTICLE V
Conditions
SECTION 5.01. Conditions to the Company's Obligation to Sell 26
SECTION 5.02. Conditions to Purchaser's Obligation to Purchase 27
ARTICLE VI
Fees and Expenses
SECTION 6.01. Transaction Fee 31
SECTION 6.02. Expenses 31
SECTION 6.03. Other Fees and Expenses 32
ARTICLE VII
Termination
SECTION 7.01. Termination 32
SECTION 7.02. Consequences of Termination 33
ARTICLE VIII
Miscellaneous
SECTION 8.01. Indemnity 34
SECTION 8.02. Transfer Taxes 34
SECTION 8.03. Entire Agreement 34
SECTION 8.04. Amendment and Waiver 34
SECTION 8.05. Extension; Waiver 34
SECTION 8.06. Notices 35
SECTION 8.07. Assignment 36
SECTION 8.08. Severability 36
SECTION 8.09. Exhibits and Schedules; Interpretation 36
SECTION 8.10. GOVERNING LAW 36
SECTION 8.11. Consent to Jurisdiction 37
SECTION 8.12. Counterparts 37
SECTION 8.13. Further Assurances 37
SECTION 8.14. No Third Party Beneficiaries 37
-iii-
Annexes
Annex I Index of Defined Terms
Annex II Convertible Preferred Stock to be Issued by the Company and
Purchased by Purchaser
Exhibits
Exhibit A Certificate of Designations
Exhibit A-1 Shareholder Voting Agreement
Exhibit B Registration Rights Agreement
Exhibit C Management Consulting Agreement
Exhibit D Shareholder Agreement
Exhibit E Credit and Collection Policy
Exhibit F Net Income Targets
-iv-
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
February 21, 2003, by and between AG SERVICES OF AMERICA, INC., an Iowa
corporation (the "Company"), and ASP/ASA, LLC, a Delaware limited liability
company ("Purchaser") and an indirect subsidiary of AMERICAN SECURITIES
CAPITAL PARTNERS, LLC ("ASCP").
WHEREAS, the Company and Purchaser are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by
the United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
WHEREAS, the Company proposes to issue and sell to Purchaser 70,000
shares of the Company's 8.375% Convertible Preferred Stock (the "Convertible
Preferred Stock" or the "Securities").
WHEREAS, the Convertible Preferred Stock is being issued pursuant
to a Certificate of Designations, Rights and Preferences (the "Certificate
of Designations"), a copy of which is attached hereto as Exhibit A.
WHEREAS, Purchaser has entered into a shareholder voting agreement
with certain shareholders of the Company, dated the date hereof (the
"Shareholder Voting Agreement"), a copy of which is attached hereto as
Exhibit A-1.
WHEREAS, the holders of the Convertible Preferred Stock will be
entitled to the benefits of a registration rights agreement
(the "Registration Rights Agreement"), a copy of which is attached hereto
as Exhibit B, pursuant to which the Company will agree to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Securities; Closing
SECTION 1.01. Purchase and Sale of Securities. Subject to the
terms and conditions set forth herein, on each Closing Date, the Company
shall issue and sell to Purchaser, and Purchaser shall purchase from the
Company, the number of shares of Convertible Preferred Stock set forth on
Annex II. The issuance, sale and purchase of the Convertible Preferred
Stock shall take place at three closings (each, a "Closing"), the first of
which is referred to herein as the "First Closing", the second of which
is referred to herein as the "Second Closing" and the third of which is
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referred to herein as the "Third Closing". The purchase price for each
Closing (each, a "Closing Purchase Price" and collectively, the "Purchase
Price") is set forth on Annex II. The purchase price for the First
Closing is referred to herein as the "First Closing Purchase Price",
the purchase price for the Second Closing is referred to herein as the
"Second Closing Purchase Price" and the purchase price for the Third
Closing is referred to herein as the "Third Closing Purchase Price".
(b) Notwithstanding the foregoing, (i) the Company shall have
the option to elect not to sell any shares of Convertible Preferred Stock
to Purchaser at the Third Closing and (ii) Purchaser shall have the option
to elect not to purchase any shares of Convertible Preferred Stock at the
Third Closing and not to pay the Third Closing Purchase Price (each, a
"Third Closing Termination Right") if the Company or Purchaser, as
applicable, determines that the Third Closing Purchase Price is not required
to support the Company's growth plans. The Company shall notify Purchaser,
or Purchaser shall notify the Company, as applicable, of its intent to
exercise the Third Closing Termination Right in writing at least 90 days,
in the case of the Company exercising such right, or 30 days, in the case
of Purchaser exercising such right, prior to the date the Third Closing
would have occurred if such party did not exercise such termination right.
SECTION 1.02. Payment and Delivery. On each Closing Date,
Purchaser shall pay the Closing Purchase Price for the Convertible
Preferred Stock to be issued and sold to it on such date in accordance
with Section 1.01 and Annex II of this Agreement. Each Closing Purchase
Price shall, on the applicable Closing Date, be paid by wire transfer
of immediately available funds to the Company, in accordance with the
Company's written wiring instructions provided to the Purchaser at least
48 hours in advance, against delivery of duly executed certificates
representing the number of shares of Convertible Preferred Stock which
Purchaser is purchasing at the applicable Closing.
SECTION 1.03. Closing. The First Closing will take place at
10 a.m., New York City time, on a date to be specified by the parties
(the "First Closing Date"), which shall be no later than the second
business day following satisfaction or waiver of the conditions applicable
to the First Closing set forth in Article V of this Agreement (other than
those conditions that by their terms are to be satisfied on the First
Closing Date, but subject to the satisfaction or waiver of such conditions);
provided, that the First Closing shall not occur later than June 15, 2003.
The Second Closing will take place at 10 a.m., New York City time, on
a date to be specified by the parties (the "Second Closing Date"), which
shall be no later than the second business day following satisfaction
or waiver of the conditions applicable to the Second Closing set forth
in Article V of this Agreement (other than those conditions that by their
terms are to be satisfied on the Second Closing Date, but subject to the
satisfaction or waiver of such conditions); provided, that the Second
Closing shall not occur prior to May 1, 2004 nor later than July 31, 2004.
If a Third Closing Termination Right is not exercised, the Third Closing
will take place at 10 a.m., New York City time, on a date to be specified
by the parties (the "Third Closing Date"), which shall be no later than the
second business day following satisfaction or waiver of the conditions
applicable to the Third Closing set forth in Article V of this Agreement
(other than those conditions that by their terms are to be satisfied on
the Third Closing Date, but subject to the satisfaction or waiver of such
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conditions); provided, that the Third Closing shall not occur prior to
May 1, 2005 nor later than July 31, 2005. The First Closing Date, the
Second Closing Date and the Third Closing Date are individually referred
to herein as a "Closing Date". Each Closing shall occur on the applicable
Closing Date at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue,
New York, New York, 10019.
ARTICLE II
Representations and Warranties of the Company
The Company represents and warrants to, and agrees with, the Purchaser that:
SECTION 2.01. Organization, Standing, etc. The Company and
each of its Subsidiaries is a corporation duly incorporated and validly
existing and in good standing under the laws of the jurisdiction in which
it is incorporated, with all requisite power and authority (corporate and
other) to own, lease and operate its properties and to conduct its business
as currently owned, leased, operated and conducted, and is duly registered
and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify or to be in good standing, individually
or in the aggregate, would not or would not reasonably be expected to
result in a Material Adverse Effect. "Subsidiaries" means any corporation
or other entity, whether incorporated or unincorporated, in which the
Company owns, directly or indirectly, 50% or more of the equity or other
ownership interest of such corporation or other entity.
SECTION 2.02. Capital Stock. As of the date hereof, the
authorized capital stock of the Company consists of 30,000,000 shares of
common stock, no par value (the "Common Stock") and 10,000,000 shares of
no par value preferred stock, of which 5,479,514 shares of Common Stock
are issued and outstanding and no shares of preferred stock are issued
and outstanding. All of the issued shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable. Except as disclosed in Schedule 2.02(a), there are no
outstanding securities, options, "phantom" stock rights, stock appreciation
rights, stock-based performance units, warrants, calls, rights, contracts,
commitments, agreements, instruments, arrangements, understandings,
obligations or undertakings of any kind to which the Company or any of
its Subsidiaries is bound, (i) (A) obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities
of, or securities convertible into, or exchangeable or exercisable for,
shares of capital stock or other voting securities of, the Company or any
of its Subsidiaries or (B) that give any person the right to receive any
economic benefit or right similar to or derived from the economic benefits
and rights occurring to holders of shares of capital stock or other voting
securities of the Company or any of its Subsidiaries or (ii) obligating
the Company or any of its Subsidiaries to issue, grant, extend or enter
into any security, option, "phantom" stock rights, stock appreciation
right, stock-based performance unit, warrant, call, right, contract,
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commitment, agreement, instrument, arrangement, understanding, obligation
or undertaking. There are no outstanding contractual obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire (i) any shares of capital stock of the Company or its Subsidiaries
or (ii) any option or other equity-based award pursuant to which the
Company or any of its Subsidiaries have any obligations. Except as
disclosed in Schedule 2.02(a), (i) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register
the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement) and (ii) there are no
anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Convertible
Preferred Stock.
(b) As of the date of this Agreement, (i) 700,000 shares of
Common Stock are authorized for issuance pursuant to the Company's 1993
Stock Option Plan and 300,000 shares of Common Stock were previously
authorized for issuance pursuant to the Company's 1991 Stock Option Plan
(which plan has been terminated)(such plans, collectively, the "Stock
Option Plans"), of which (A) 552,115 shares are reserved and available
for issuance under the Stock Option Plans, (B) 304,190 shares are subject
to outstanding Stock Options under the Stock Option Plans and (C) 229,115
shares are subject to currently exercisable Stock Options under the Stock
Option Plans, and (ii) 150,000 shares of Common Stock are authorized for
issuance pursuant to the Company's 1995 Stock Purchase Plan (the "Stock
Purchase Plan" and, together with the Stock Option Plans, the "Stock
Plans"), of which (A) 144,690 shares are reserved and available for
issuance under the Stock Purchase Plan and (B) 5,310 shares have previously
been issued under the Stock Purchase Plan. As of the date of this
Agreement, the Company is not subject to any share delivery obligations
under the Stock Purchase Plan with respect to amounts paid by participants
under such plan. Schedule 2.02(b) sets forth a complete and accurate list,
as the date hereof, of outstanding stock options and all other rights to
purchase or receive shares of Common Stock granted under the Stock Plans
or otherwise (collectively, the "Stock Options"), the number of shares of
Common Stock subject to each such Stock Option, the name of the Stock Plan
pursuant to which such Stock Option was granted, the grant date, expiration
date and exercise price of such Stock Option, the vesting schedule of such
Stock Option and the name of the holder of such Stock Option. All
outstanding Stock Options are evidenced by stock option agreements
substantially in the forms attached as Exhibit A to Schedule 2.02(b).
(c) Schedule 2.02(c) sets forth a complete and accurate list
of each of the Company's Subsidiaries and the jurisdiction of incorporation
or organization of each Subsidiary. All of the issued shares of capital
stock of each Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly or indirectly by the Company, free and clear of all pledges,
claims, liens, charges, encumbrances, mortgages and security interests
of any kind or nature whatsoever (collectively, "Liens") except as
otherwise disclosed in Schedule 2.02(c). Except as disclosed in
Schedule 2.02(c) and except for the capital stock of its Subsidiaries,
the Company does not own, directly or indirectly, any capital stock or
other ownership interest in any person.
-4-
SECTION 2.03. Issuance of Securities. The Convertible
Preferred Stock has been duly and validly authorized or, as of the First
Closing Date, will be duly and validly authorized, and, when issued and
delivered as provided herein, will be duly and validly executed,
authenticated, issued and delivered. Upon issuance, the Convertible
Preferred Stock will be fully paid and non-assessable and free of preemptive
or similar rights and will be entitled to the benefits provided by the
Certificate of Designations. The shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock (the "Conversion Shares"),
upon issuance, will be duly and validly issued, fully paid and
non-assessable.
SECTION 2.04. Authorization; Enforcement. Except as disclosed
in Schedule 2.04, the Company has all requisite corporate power and
authority to file and perform its obligations under the Certificate of
Designations and to enter into and perform its obligations under this
Agreement and the Registration Rights Agreement and to consummate the
transactions contemplated hereby and thereby. This Agreement constitutes,
and upon execution and delivery by the Company of the Registration Rights
Agreement and upon execution and filing of the Certificate of Designations,
each of such agreements and instruments will constitute, a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
SECTION 2.05. Absence of Changes. Except as set forth in
Schedule 2.05, since February 28, 2002 to the date of this Agreement,
the Company and its Subsidiaries have conducted their respective businesses
only in the ordinary course consistent with past practice, and:
(a) there has not been any event that has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect; and
(b) no event or transaction has occurred that would be
prohibited by Section 4.08 of this Agreement.
SECTION 2.06. Acknowledgment of Dilution; Board Recommendation.
The Company understands and acknowledges the potentially dilutive effect
to the Common Stock of the issuance of the Conversion Shares. The
Company's directors and executive officers have studied and fully
understand the nature of the Securities being sold hereunder. The
Company further acknowledges that its obligation to issue Conversion
Shares in accordance with this Agreement and the Certificate of
Designations is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company. Taking the foregoing into account, the
Company's Board of Directors has determined, in its good faith business
judgment, that the issuance of the Convertible Preferred Stock hereunder
and under the Certificate of Designations and the consummation of the
transactions contemplated hereby and thereby are in the best interest of
the Company and its shareholders.
(b) The Board of Directors of the Company, at a meeting duly
called and held at which all directors of the Company were present either
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in person or by telephone, duly and unanimously adopted resolutions
(i) directing that (A) this Agreement and (B) the election to the
Company's Board of Directors of persons designated by Purchaser be
submitted to a vote at a meeting of the Company's shareholders to be
held as promptly as practicable following the date of this Agreement and
(ii) recommending that such shareholders approve (A) this Agreement (the
"Transaction Approval"), and (B) the election of such persons to the
Company's Board of Directors (together with the Transaction Approval,
the "Shareholder Approval") which resolutions have not been modified,
supplemented or rescinded and remain in full force and effect.
SECTION 2.07. Real Property. The Company and its Subsidiaries
have good and marketable title to all real property and all personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects, except as otherwise disclosed to the Purchaser
in Schedule 2.07. Any real property held under lease by the Company
and its Subsidiaries is held by them under valid, subsisting and
enforceable leases with such exceptions as, individually or in the
aggregate, would not or would not reasonably be expected to result in
a Material Adverse Effect.
SECTION 2.08. No Conflicts; Consents. The issue and sale of the
Convertible Preferred Stock hereunder and the compliance by the Company with
all of the provisions of this Agreement and the Registrations Rights
Agreement, and the consummation of the transactions contemplated hereby
and thereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or (with the giving of notice or the
lapse of time or both) constitute a default under, (i) any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument
to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound or to which any of the
property or assets of the Company or any of its Subsidiaries is subject,
(ii) the provisions of the charter, by-laws or other constitutive
documents of the Company or any of its Subsidiaries or (iii) any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its Subsidiaries or
any of their properties or assets except, in the cases of clause (i) or
(iii), such breaches, violations or defaults that, individually or in
the aggregate, would not or would not reasonably be expected to result
in a Material Adverse Effect.
(b) The Company is not required to obtain any consent, approval,
authorization or order of, or make any filing or registration with, any
governmental entity, including any Federal, state or local government or
any court, administrative agency or commission or other governmental or
regulatory authority or agency (each, a "Governmental Entity"), in
connection with the execution and delivery of this Agreement and the
Registration Rights Agreement and the consummation of the transactions
contemplated hereby and thereby, except for (i) the filing with the SEC
of a proxy statement relating to the meeting of the shareholders of the
Company to be called and convened for purposes of obtaining the Shareholder
Approval (such proxy statement as amended or supplemented from time to
time, the "Proxy Statement") and such reports under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement and the Registration Rights Agreement and
the transactions contemplated hereby and thereby (ii) the delivery to the
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Secretary of State of the State of Iowa for filing of the Certificate of
Designations, (iii) any filings required under the rules and regulations
of the New York Stock Exchange (the "NYSE") and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings,
the failure of which to be obtained or made, individually or in the
aggregate, would not or would not reasonably be expected to (A) have a
Material Adverse Effect, (B) impair in any material respect the ability
of the Company to perform its obligations under this Agreement and the
Registration Rights Agreement or (C) prevent or materially impede,
interfere with, hinder or delay the consummation of the transactions
contemplated by this Agreement and the Registration Rights Agreement.
SECTION 2.09. No Violation. Neither the Company nor any of its
Subsidiaries (i) is in violation of its charter, by-laws or other
constitutive documents, (ii) is in default in any respect, and no event
has occurred which (with the giving of notice or the lapse of time or both)
would constitute such a default, in the due performance or observance of
any term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument
to which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation in any respect
of any law, ordinance, governmental rule, regulation or court decree
(including any Environmental Laws) to which it or its property or assets
may be subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its
business, except for, in the case of clause (ii), such defaults,
violations or failures to obtain that, individually or in the aggregate,
would not or would not reasonably be expected to have a Material Adverse
Effect.
SECTION 2.10. Legal and Governmental Proceedings. Except as
otherwise disclosed in Schedule 2.10, there are no legal or governmental
proceedings pending (including proceedings pursuant to Environmental Laws)
to which the Company or any of its Subsidiaries is a party or of which
any property of the Company or any of its Subsidiaries is the subject
which, if determined adversely to the Company or any of its Subsidiaries,
individually or in the aggregate, could have or could reasonably be
expected to have a Material Adverse Effect; and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others.
SECTION 2.11. Investment Company. The Company is not and,
after giving effect to the offering and sale of the Securities, will not
be, an "investment company", as such term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").
SECTION 2.12. Full Disclosure. The Company has filed all
reports, schedules, forms, statements and other documents (including
exhibits and other information incorporated therein) required to be
filed by the Company with the SEC since January 1, 2001 (the "Company
SEC Documents"). As of their respective dates, each of the Company SEC
Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such
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Company SEC Documents, and none of the Company SEC Documents at the time
it was filed contained any untrue statement of material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 2.13. Financial Statements. The consolidated historical
financial statements, together with the related notes thereto, included in
the Company SEC Documents fairly present the financial position of the
Company at the respective dates indicated and the results of operations
and cash flows for the respective periods indicated, in each case in
accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout such periods.
(b) Except as set forth in the financial statements included in
the Company's Form 10-K for the year ended February 28, 2002, and except
for debt incurred after the date of this Agreement in accordance with
Section 4.08(e) and liabilities incurred in connection with this Agreement
or the transactions contemplated hereby, neither the Company nor any of
its Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) (i) of a nature required to be
disclosed on a balance sheet or in the related notes to financial
statements prepared in accordance with GAAP, (ii) that constitute
indebtedness for borrowed money or (iii) which, individually or in the
aggregate, have had or would reasonably be expected to have a Material
Adverse Effect.
SECTION 2.14. Intellectual Property. The Company and each of
its Subsidiaries owns or possesses all patents, trademarks, trademark
registration, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights necessary for
the conduct of their respective businesses (the "Intellectual Property"),
and neither the Company nor any of its Subsidiaries is aware of any claim
to the contrary or any challenge by any other person to the rights of
the Company or its Subsidiaries with respect to such Intellectual Property
that, if determined adversely to the Company or any such Subsidiary,
individually or in the aggregate, would have or would reasonably be expected
to have a Material Adverse Effect.
SECTION 2.15. Contracts. Schedule 2.15 sets forth each contract,
commitment, agreement, lease, instrument, arrangement, understanding,
obligation or undertaking to which the Company or any of its Subsidiaries is
a party or by or to which any of their properties are bound or subject that
is material to the business of the Company and its Subsidiaries, taken as a
whole, including any such contract, commitment, agreement, lease, instrument,
arrangement, understanding, obligation or undertaking:
(a) pursuant to which the Company or any of its Subsidiaries has
agreed not to compete with any person, or to actively engage, in any line of
business;
(b) pursuant to which the Company or any of its Subsidiaries has
entered into an exclusive distributorship arrangement;
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(c) with (i) any beneficial owner of more than one percent of
the outstanding Common Stock, (ii) any affiliate of the Company or any of
its Subsidiaries or (iii) any current or former director, officer,
employee or consultant of the Company or any of its Subsidiaries or of any
affiliate of the Company or any of its Subsidiaries, including loan
agreements and agreements not to compete;
(d) that grants exclusive license rights to the Intellectual
Property of the Company;
(e) under which the Company or any of its Subsidiaries has
(i) incurred any indebtedness for borrowed money that is currently owing or
(ii) given any guarantee in respect of indebtedness for repayment of
borrowed money, in each case having an aggregate principal amount in
excess of $100,000;
(f) that contains any guarantees as to the Company's or any of
its Subsidiaries future revenues or operating income;
(g) that is otherwise material and that requires any consent
(including any consent to assignment) of or notice to a third party, or
any approval, authorization, qualification or order of any Governmental
Entity, in connection with this Agreement and the Registration Rights
Agreement or the consummation of the transactions contemplated hereby
and thereby in order to avoid termination of or loss of benefits thereunder;
(h) providing for payments of royalties to third parties at a
current rate in excess of $100,000 per year;
(i) not made in the ordinary course of business granting a
third party any license to any Intellectual Property of the Company or
any of its Subsidiaries;
(j) providing confidential treatment by the Company or any of
its Subsidiaries of third party information, other than (i) nondisclosure
agreements entered into by the Company or any of its Subsidiaries in the
ordinary course of business or (ii) the confidentiality agreement between
the Company and American Securities Capital Partners, L.P., dated
July 15, 2002 (the "Confidentiality Agreement"); and
(k) granting the other party thereto or a third party "most
favored nation" status that, following consummation of the transactions
contemplated hereby, would in any way apply to the Company or its
Subsidiaries.
Each contract of the Company and its Subsidiaries required to be
listed in Schedule 2.15 is in full force and effect and is a legal, valid
and binding agreement of the Company or such Subsidiary and, to the
knowledge of the Company, of each other party thereto, enforceable against
the Company or such Subsidiary, as the case may be, and, to the knowledge
of the Company, against the other party or parties thereto, in each case,
in accordance with its terms, except for such failures to be in full force
and effect or enforceable that, individually or in the aggregate, have not
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had and would not reasonably be expected to have a Material Adverse Effect.
Each of the Company and its Subsidiaries has performed or is performing
in all material respects all material obligations required to be performed
by it under such contracts and is not (with or without notice or lapse of
time or both) in breach or default in any material respect thereunder, and,
to the knowledge of the Company, no other party to any of such contracts
is (with or without notice or lapse of time or both) in breach or default
in any material respect thereunder except, in each case, for such instances
of nonperformance and such breaches that, individually or in the aggregate,
have not had and would not reasonably be expected to have a Material Adverse
Effect.
SECTION 2.16. Labor. There are no collective bargaining
agreements or other labor union agreements to which the Company or any
of its Subsidiaries is a party or by which any of them is bound, and no
such agreements are being negotiated by the Company or any of its
Subsidiaries. Since February 28, 2002, neither the Company nor any of
its Subsidiaries has encountered any labor union organizing activity or
had any actual or threatened employee strikes, work stoppages, slowdowns
or lockouts. The Company and its Subsidiaries have not been engaged in
any unfair labor practice and there are no unfair labor practice complaints
against the Company or any of its Subsidiaries pending before any
Governmental Entity or threatened in writing.
SECTION 2.17. Benefit Plans and Agreements. Except as set
forth in Schedule 2.17(a)(i), from February 28, 2002, to the date of this
Agreement, there has not been any adoption or amendment by the Company or
any of its Subsidiaries of any collective bargaining agreement or any
bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, thrift, savings, stock bonus, restricted stock, cafeteria,
paid time off, perquisite, fringe benefit, vacation, severance, disability,
death benefit, hospitalization, medical, welfare benefit or other plan,
arrangement or understanding (whether or not legally binding) maintained,
contributed to or required to be maintained or contributed to by the
Company, any of its Subsidiaries, or any other person or entity that,
together with the Company or any of its Subsidiaries, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code
(a "Commonly Controlled Entity"), in each case providing benefits to any
current or former director, officer, employee, consultant or independent
contractor of the Company or any of its Subsidiaries (collectively,
"Benefit Plans") or any material change in any actuarial or other
assumption used to calculate funding obligations with respect to any
Benefit Plan or any change in the manner in which contributions to any
Benefit Plan are made or the basis on which such contributions are
determined. Except as set forth in Schedule 2.17(a)(ii), as of the
date of this Agreement, there are not any employment, consulting,
deferred compensation, indemnification, severance or termination
agreements or arrangements between the Company or any of its Subsidiaries
and any current or former director, officer, employee, consultant or
independent contractor of the Company or any of its Subsidiaries
(collectively, the "Benefit Agreements"), nor does the Company or any
of its Subsidiaries have any general severance plan or policy.
(b) Schedule 2.17(b) contains a list of all Benefit Plans,
including those that are "employee pension benefit plans" (as defined in
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Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (sometimes referred to herein as "Company Pension Plans")
and "employee welfare benefit plans" (as defined in Section 3(1) of ERISA),
and Benefit Agreements. The Company has delivered to Purchaser true, complete
and correct copies of (i) each Benefit Plan and Benefit Agreement (or, in
the case of any unwritten Benefit Plan or Benefit Agreement, a description
thereof), (ii) the two most recent annual reports on Form 5500 required to
be filed with the Internal Revenue Service with respect to each Benefit
Plan, (iii) the most recent summary plan description for each Benefit Plan
for which a summary plan description is required and (iv) each trust
agreement and insurance or group annuity contract in effect as of the date
of this Agreement relating to any Benefit Plan or Benefit Agreement.
(c) The Company, its Subsidiaries, each of their respective
officers, each Benefit Plan, each trust created thereunder and each trustee
or administrator thereof is in compliance in all material respects with the
applicable provisions of ERISA, the Internal Revenue Code of 1986, as amended
(the "Code") and all other applicable law. Each Benefit Plan and Benefit
Agreement has been administered in compliance with its terms in all material
respects. There is no material pending or, to the knowledge of the Company,
threatened, litigation, investigation, dispute, suit, proceeding or other
claim (except for claims for benefits payable in the normal course operation
of the Benefit Plans and Benefit Agreements) against, involving or relating
to any Benefit Plan or Benefit Agreement. All contributions and premiums
required to be made under the terms of any Benefit Plan or any Benefit
Agreement as of the date of this Agreement have been timely made or have
been reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Company SEC Documents. All Pension Plans
have been the subject of determination letters from the Internal Revenue
Service to the effect that such Pension Plans are qualified and exempt
from Federal income taxes under Sections 401(a) and 501(a), respectively,
of the Code, and no such determination letter has been revoked nor, to
the knowledge of the Company, has revocation been threatened, nor has any
such Pension Plan been amended since the date of its most recent
determination letter or application therefor in any respect that would
adversely affect its qualification, materially increase its costs or require
security under Section 307 of ERISA.
(d) No Pension Plan is subject to the provisions of Title IV of
ERISA, and none of the Company, any of its Subsidiaries or any Commonly
Controlled Entity has any actual or contingent liability under Title IV of
ERISA. With respect to any Benefit Plan that is an employee welfare benefit
plan, (i) no such Benefit Plan is unfunded or funded through a "welfare
benefits fund" (as such term is defined in Section 419(e) of the Code),
(ii) each such Benefit Plan that is a "group health plan" (as such term
is defined in Section 5001(b)(1) of the Code) complies with the applicable
requirements of Section 4980B(f) of the Code and (iii) each such Benefit
Plan (including any such Benefit Plan covering retirees or other former
directors, officers, employees, consultants and independent contractors)
may be amended or terminated without material liability to the Company
and its Subsidiaries at any time. The Company and its Subsidiaries have
no obligations for retiree health and life benefits under any Benefit
Plan or Benefit Agreement.
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(e) Except as set forth in Schedule 2.17(e), none of the
execution and delivery by the Company of this Agreement and the consummation
of transactions contemplated hereby (including as a result of any
termination of employment), will (i) entitle any current or former director,
officer, employee, consultant or independent contractor of the Company or
any of its Subsidiaries to severance pay, (ii) accelerate the time of payment
or vesting or trigger any payment or funding (through a grantor trust or
otherwise) of compensation or benefits under, increase the amount payable
or trigger any other material obligation pursuant to, any Benefit Plan or
Benefit Agreement or (iii) result in any breach or violation of, or a default
under, any Benefit Plan or Benefit Agreement.
(f) Other than payments or benefits that may be made or provided
to the persons listed in Schedule 2.17(f) (the "Primary Company Executives"),
no amount or other entitlement or economic benefit that could be received
(whether in cash or property or the vesting of property) as a result of the
transactions contemplated by this Agreement by or for the benefit of any
employee, officer, director or consultant of the Company or any of its
Subsidiaries or any of their affiliates who is a "disqualified individual"
(as such term is defined in proposed Treasury Regulation Section 1.280G-1)
under any Benefit Plan or Benefit Agreement or otherwise would be
characterized an "excess parachute payment" (as defined in Section 280G(b)
(1) of the Code) and no disqualified individual is entitled to receive any
additional payment from the Company, any of its Subsidiaries or any other
person in the event that the excise tax under Section 4999 of the Code is
imposed on such disqualified individual. Set forth in Schedule 2.17(f) is
(i) the estimated maximum amount that could be paid to each Primary Company
Executive as a result of the transactions contemplated by this Agreement
under all Benefit Plans and Benefit Agreements and (ii) the "base amount"
(as defined in Section 280G(b)(3) of the Code) for each Primary Company
Executive calculated as of the date of this Agreement.
SECTION 2.18. Taxes. The Company and each of its Subsidiaries
have timely filed all Tax Returns required to be filed and have paid all
Taxes required to be paid. The most recent audited financial statements
for the Company reflect an adequate reserve for all Taxes payable by the
Company and the Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements. There are no outstanding
agreements or waivers extending the statutory period of limitations
applicable to any material Tax Returns required to be filed by the Company
or the Subsidiaries. Neither the Company nor its Subsidiaries have any
knowledge of any material disputes or claims concerning any Tax liability
of the Company or the Subsidiaries claimed or raised by any taxing
authority. Neither the Company nor its Subsidiaries are under audit or
examination by any taxing authority, and no such audit or examination has
been threatened.
(b) For purposes of this Agreement, "Tax" shall mean all forms
of taxation or duties imposed, or required to be collected or withheld,
including charges, together with any related interest, penalties or other
additional amounts, and "Tax Return" shall mean any return, filing, report,
questionnaire, information statement or other document required to be filed,
including any amendments that may be filed, for any taxable period with any
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taxing authority (whether or not a payment is required to be made with
respect to such filing).
SECTION 2.19. Books and Records. The Company (i) makes and
keeps accurate books and records and (ii) maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization,
(B) transactions are recorded as necessary to permit preparation of its
financial statements in conformity with GAAP and to maintain accountability
for assets, (C) access to its assets is permitted only in accordance with
management's general or specific authorization and (D) the reported
accountability for its assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any difference.
SECTION 2.20. Loan Defaults. The rate of defaults on the
repayment of loans extended by the Company has not increased in any material
respect as compared to the rate of defaults historically experienced by the
Company.
SECTION 2.21. Environmental. Except as would not or would not
reasonably be expected to, individually or in the aggregate, result in a
Material Adverse Effect: (i) there has been no presence, Release, storage,
generation, manufacture, refinement, transportation, handling or treatment
of Hazardous Materials, at, in, on, under or from any property now or
previously owned, leased or operated by the Company or any of its Subsidiaries
in violation of, or which would result in liability or otherwise any require
remedial action under, any Environmental law or any permit issued thereunder;
and (ii) neither the Company nor any of its Subsidiaries has received any
notice alleging that the Company or any of its Subsidiaries is in violation
of, or liable under, any Environmental Laws or any permit issued thereunder.
As used herein, (i) the term "Environmental Laws" means all laws, rules,
regulations, codes, ordinances, orders, decrees, judgments, injunctions,
notices or binding agreements issued, promulgated or entered into by any
Governmental Entity, relating in any way to the environment, preservation or
reclamation of natural resources, the presence, management or release of
Hazardous Materials or to health and safety matters, (ii) the term "Hazardous
Materials" means (A) petroleum products and byproducts, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls, radon gas and all
ozone-depleting substances or (B) any chemical, material, substance, waste,
pollutant or contaminant that is prohibited, limited or regulated pursuant
to any Environmental Law, and (iii) the term "Release" means any release,
spill, emission, leaking, dumping, injection, pouring, deposit, disposal,
discharge, dispersal, leaching or migration into or through the environment
or within or upon any building, structure, facility or fixture.
SECTION 2.22. Insurance. The Company and each of its
Subsidiaries carry, or are covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of their respective
businesses and the value of their properties, and as is customary for
companies engaged in similar businesses in similar industries.
Schedule 2.22 sets forth a list of each of the insurance policies covering
the Company and its Subsidiaries and the expiration dates of such policies.
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SECTION 2.23. Transactions with Affiliates. Except as set
forth in Schedule 2.23, none of the agreements, contracts or other
arrangements between the Company or any of its Subsidiaries, on the one
hand, and (i) any affiliate of the Company or any of its Subsidiaries or
(ii) any current or former director, officer, employee or consultant of
the Company or any of its Subsidiaries or of any affiliate of the Company
or any of its Subsidiaries, on the other hand, will continue in effect
subsequent to the First Closing Date.
SECTION 2.24. Banking Regulations. The Company is not a "bank"
as such term is defined in the Bank Holding Company Act of 1956 (the
"BCHA") and is in compliance with the BCHA.
SECTION 2.25. Securities Act. Subject to the accuracy of the
representations and warranties of Purchaser contained herein, it is not
necessary in connection with the offer, sale and delivery of the Securities
in the manner contemplated by this Agreement to register the Securities
under the Act.
SECTION 2.26. General Solicitation. Neither the Company, any
affiliate of the Company nor any person acting on its or their behalf, has
sold the Securities by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act or,
with respect to Securities sold outside the United States to non-U.S.
persons (as defined in Rule 902 under the Securities Act), by means of
any directed selling efforts within the meaning of Rule 902 under the
Securities Act and the Company, any affiliate of the Company and any person
acting on its or their behalf has complied with and will implement the
"offering restriction" within the meaning of such Rule 902 of the Securities
Act.
SECTION 2.27. Integration. Within the preceding six months,
neither the Company nor any other person acting on behalf of the Company
has sold to any person any Securities or any securities of the same or a
similar class as the Securities other than Securities offered or sold to
the Purchaser hereunder. The Company will take reasonable precautions
designed to ensure that any offer or sale, direct or indirect, in the United
States or to any U.S. person (as defined in Rule 902 under the Securities
Act) of any Securities or any substantially similar security issued by
the Company, within six months subsequent to each Closing Date, is made
under restrictions and other circumstances reasonably designed not to
affect the status of the offer and sale of the Securities in the United
States and to U.S. persons contemplated by this Agreement as transactions
exempt from the registration provisions of the Securities Act.
SECTION 2.28. Solvency. The Company (both before and after
giving effect to each Closing) is solvent (i.e., its assets have a fair
market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it
intend to take any action that would impair its ability to, pay its
debts from time to time incurred in connection therewith as such debts
mature. The Company did not receive a qualified opinion from its auditors
with respect to its most recent fiscal year end and does not anticipate
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or know of any basis upon which its auditors might issue a qualified
opinion in respect of its current fiscal year, other than the possibility
of a qualified opinion in the event the transactions contemplated by
this Agreement do not occur.
SECTION 2.29. Vote Required. The affirmative vote of a majority
of the votes cast at a meeting of the shareholders of the Company, at which
a majority of the outstanding shares of the Company's Common Stock are
represented, to obtain the Shareholder Approval is the only vote of the
holders of any class or series of capital stock of the Company necessary to
approve this Agreement and the transactions contemplated hereby.
SECTION 2.30. Business Combination Statute. The Board of
Directors of the Company has unanimously approved the terms of this Agreement
and the transactions contemplated hereby, and such approval represents all
action necessary to render inapplicable to this Agreement and the
transactions contemplated hereby the provisions of Section 490.1110 of
the Iowa Business Corporations Act.
SECTION 2.31. No Brokers. The Company has dealt with no broker,
finder, commission agent or other Person in connection with the sale of the
Securities and the transactions contemplated by this Agreement, and the
Company is under no obligation to pay any broker's fee or commission in
connection with such transactions, other than dealings with and obligations
to Rabobank International.
SECTION 2.32. Fairness Opinion. The Board of Directors of the
Company has received the oral opinion of Rabobank International, to the
effect that, as of the date hereof, the Purchase Price is fair, from a
financial point of view, to holders of the Common Stock.
SECTION 2.33. Margin Regulations. The Company is not engaged
in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" (as such terms are defined or used in any of
Regulations T, U or X of the Board of Governors of the Federal Reserve
System).
SECTION 2.34. August 31 Loans. Schedule 2.34 sets forth (i) the
amount of all outstanding loans, by customer, payable to the Company as of
August 31, 2002 (such loans, together with all program and other fees subject
to collection by the Company, the "August 31 Loans") and (ii) the value of
reserves established by the Company for such outstanding loans as of
August 31, 2002 (the "August 31 Reserves"). Schedule 2.34 indicates which
of the August 31 Loans are on non-accrual status for purposes of GAAP.
ARTICLE III
Representations and Warranties of the Purchaser
Purchaser hereby represents and warrants to, and agrees with the Company that:
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SECTION 3.01. Authorization: Enforcement. This Agreement and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered by the Purchaser, and, assuming the due authorization,
execution and delivery by the Company, constitute valid and binding
agreements of the Purchaser, enforceable against the Purchaser in accordance
with their terms.
SECTION 3.02. Compliance with Securities Act. Purchaser will
offer and sell the Securities only (i) pursuant to an effective registration
statement under the Securities Act or (ii) under a valid exemption for the
registration requirements of the Act; provided, however, that by making the
representations herein, the Purchaser does not agree to hold any Securities
for any minimum or other specific term and reserves the right to dispose of
the Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
SECTION 3.03. Investment Purpose. Purchaser is purchasing the
Securities (as well as any Conversion Shares) for Purchaser's own account,
for investment purposes only and not with a view towards the public sale
or distribution thereof.
SECTION 3.04. Accredited Investor Status. Purchaser is an
"Accredited Investor" as the term is defined in Rule 501(a) of Regulation D.
SECTION 3.05. Reliance on Exemptions. Purchaser understands
that the Securities are being offered and sold to Purchaser in reliance upon
specific exemptions from the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and accuracy
of, and Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set forth herein
in order to determine the availability of such exemptions and the
eligibility of Purchaser to acquire the Securities.
SECTION 3.06. No Conflicts. The purchase of the Securities
hereunder and the compliance by Purchaser with all of the provisions of
this Agreement and the Registrations Rights Agreement, and the consummation
of the transactions contemplated hereby and thereby will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
(with the giving of notice or the lapse of time or both) constitute a
default under, (i) any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which Purchaser is a party or by
which Purchaser is bound or to which any of the property or assets of
Purchaser is subject, (ii) the provisions of the charter, by-laws or other
constitutive documents of Purchaser or (iii) any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over Purchaser or any of its properties or assets except,
in the cases of clause (i) or (iii), such breaches, violations or defaults
that, individually or in the aggregate, could not or could not reasonably
be expected to result in a Material Adverse Effect.
-16-
SECTION 3.07. Governmental Review. Purchaser understands that
no Federal or state agency or any other government or governmental agency
has passed upon the merits of or made any recommendation or endorsement of
the Securities.
SECTION 3.08. Legends. Purchaser understands that the
Convertible Preferred Stock and the Conversion Shares (until such time as
such Conversion Shares have been registered under the Securities Act as
contemplated by the Registration Rights Agreement or otherwise may be sold
by the Purchaser pursuant to Rule 144 without any restriction as to the
public resale thereof) shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer
of the certificates for such Securities):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW, (B) AN OPINION
OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OR (C) RULE 144 UNDER THE SECURITIES
ACT.
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by state securities laws,
(i) the sale of such Security (including the Conversion Shares) is registered
under the Securities Act, or (ii) such holder provides the Company with an
opinion of counsel, in form, substance and scope reasonably acceptable to
the Company, to the effect that a public sale or transfer of such Security
(including the Conversion Shares) may be made without registration under the
Securities Act or (c) such holder provides the Company with reasonable
assurances that such Security (including the Conversion Shares) can be sold
pursuant to Rule 144 without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold. Purchaser
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, pursuant to an effective registration
statement and in accordance with the prospectus delivery requirements set
forth in the rules promulgated by the SEC or in compliance with an exemption
from the registration requirements of applicable securities laws. In the event
the above legend is removed from any Security and thereafter the effectiveness
of a registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance notice to Purchaser, the Company
may require that the above legend be placed on any such Security that cannot
then be sold pursuant to an effective registration statement or Rule 144
(without any restriction as to the number of Securities acquired as of a
particular date that can then be immediately sold), which legend shall be
-17-
removed when such Security may again be sold pursuant to an effective
registration statement or Rule 144 (without the aforementioned restriction).
SECTION 3.09. Brokers. Purchaser has dealt with no broker,
finder, commission agent or other Person in connection with the purchase
of the Securities and the transactions contemplated by this Agreement,
and Purchaser is under no obligation to pay any broker's fee or commission
in connection with such transactions, other than dealings with and
obligations to The Franchise Capital Source, Inc. and George K. Baum
& Company.
ARTICLE IV
Covenants
SECTION 4.01. Reasonable Best Efforts. The parties shall use
their reasonable best efforts to satisfy timely each of the conditions
described in Article V of this Agreement.
SECTION 4.02. Form D; Blue Sky Laws. The Company agrees to file
a Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to Purchaser promptly after such filing. The Company
shall, on or before the Closing Date with respect to the First Closing, take
such action as the Company shall reasonably determine is necessary to qualify
the Securities for sale to Purchaser at each Closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of
the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to Purchaser on or
prior to the Closing Date with respect to the First Closing.
SECTION 4.03. Reporting Status. The Company's Common Stock is
registered under Section 12(b) of the Exchange Act. So long as Purchaser
beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the Exchange Act,
and the Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act or the rules
and regulations thereunder would permit such termination.
SECTION 4.04. Use of Proceeds. The Company shall use the
proceeds from the sale of the Securities solely in the manner set forth
in Schedule 4.04 attached hereto.
SECTION 4.05. Financial Information. The Company agrees to send
the following reports to Purchaser until Purchaser transfers, assigns, or
sells all of the Securities: (i) within five days after the filing with the
SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q and any Current Reports on Form 8-K; (ii) within one day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or
giving to the other shareholders of the Company, copies of any notices or
other information the Company makes available or gives to such shareholders.
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SECTION 4.06. Reservation of Shares. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion of the
outstanding Convertible Preferred Stock and issuance of Conversion Shares
pursuant to the Certificate of Designations. The Company shall not reduce
the number of shares of Common Stock reserved for issuance upon conversion
of the Convertible Preferred Stock without the consent of Purchaser. If
at any time the number of shares of Common Stock authorized and reserved
for issuance is below the number of shares of Common Stock issued and
issuable upon conversion of the Convertible Preferred Stock, the Company
will promptly take all corporate action necessary to authorize and reserve
a sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares to meet the
Company's obligations under this Section 4.06, in the case of an
insufficient number of authorized shares, and using its best efforts to
obtain shareholder approval of an increase in such authorized number of
shares.
SECTION 4.07. Listing. The Company shall promptly secure the
listing of the Conversion Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock
are then listed (subject to official notice of issuance) and, so long as
Purchaser owns any of the Securities, shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Conversion
Shares. The Company will obtain and, so long as Purchaser owns any of the
Securities, maintain the listing and trading of its Common Stock on the
NYSE or the Nasdaq Stock Market, Inc. ("Nasdaq"), and will comply in all
respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers
("NASD") and such exchange, as applicable. The Company shall promptly
provide Purchaser with copies of any notices it receives from NYSE and
any other exchanges or quotation systems on which the Common Stock is
then listed regarding the continued eligibility of the Common Stock for
listing on such exchanges and quotation systems.
SECTION 4.08. Ordinary Conduct. Except as set forth in Schedule
4.08 or otherwise expressly permitted by the terms of this Agreement, from
the date hereof to the date on which the persons designated by Purchaser
become members of the Company's Board of Directors (such period referred
to herein as the "Restricted Period"), the Company shall conduct its
business, and shall cause the business of its Subsidiaries to be conducted,
in the ordinary course in substantially the same manner as presently
conducted and shall make, and shall cause its Subsidiaries to make, all
reasonable best efforts consistent with past practices to keep available
the services of their current officers and employees and to preserve their
relationships with customers, suppliers and others with whom the Company
or any Subsidiary deals. The Company shall not, and shall cause its
Subsidiaries not to, take any action that would, or that could reasonably
be expected to, result in any of the conditions set forth in Article V of
this Agreement not being satisfied. In addition, except as set forth in
Schedule 4.08 or otherwise expressly permitted by the terms of this Agreement,
during the Restricted Period, the Company shall not, and shall cause its
Subsidiaries not to, do any of the following without the prior written
consent of Purchaser:
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(a) (i) amend its articles of incorporation or by-laws or
comparable charter or organizational documents or alter through merger,
liquidation, reorganization, restructuring or in any other manner the
corporate structure or ownership of any Subsidiary of the Company or
(ii) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, recapitalization or other reorganization of the Company or
any Subsidiary of the Company other than the transactions contemplated by
this Agreement;
(b) declare or pay any dividend or make any other distribution
to its shareholders whether or not upon or in respect of any shares of its
capital stock;
(c) redeem or otherwise acquire any shares of its capital stock
or any Stock Option or issue any capital stock or any option, warrant or
right relating or linked thereto or any securities convertible into or
exchangeable for any shares of capital stock (except (i) the issuance of
Securities to Purchaser, (ii) the issuance of Common Stock upon the exercise
of Stock Options outstanding on the date of this Agreement or (iii) the
issuance of Common Stock in connection with purchases of such stock pursuant
to the Stock Purchase Plan);
(d) except as required to comply with applicable law, (i)
increase in any manner the compensation or fringe or other benefits of,
or grant or pay any bonus to, any current or former director, officer,
employee, consultant or independent contractor of the Company or any of
its Subsidiaries, except in the ordinary course of business consistent
with past practice or as may required by any Benefit Plan or Benefit
Agreement set forth in Schedule 2.17(a), (ii) grant to any current or
former director, officer, employee, consultant or independent contractor
of the Company any increase in severance or termination pay,
(iii) establish, adopt, enter into, terminate, extend, renew or amend in
any material respect any collective bargaining agreement, Benefit Plan
or Benefit Agreement, (iv) take any action to accelerate or increase any
rights or benefits under any Benefit Plan or Benefit Agreement, (v) take
any action to fund or in any other way secure the payment of compensation
or benefits under any Benefit Plan or Benefit Agreement, (vi) make any
material determinations not in the ordinary course of business consistent
with past practice under any collective bargaining agreement, Benefit Plan
or Benefit Agreement, (vii) amend or modify any Stock Option or (viii) make
any loan or cash advance to, or engage in any transaction with, any current
or former director, officer, employee, consultant or independent contractor,
other than travel and other business expenses advanced to such persons in
the ordinary course of business consistent with past practice;
(e) incur, assume or guarantee any liabilities, obligations or
indebtedness for borrowed money, except for liabilities, obligations or
indebtedness incurred pursuant to (i) the Master Trust Indenture and Security
Agreement, dated June 23, 1999, among the Company, Ag Acceptance Corporation,
U.S. Bank, N.A. and MBIA Insurance Corporation, as amended or (ii) the
Amended and Restated Credit Agreement, dated December 11, 2002, among the
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Company, various lenders, and Cooperative Centrale Raiffeisen-Boerenleenbank
B.A. "Rabobank Nederland", New York Branch;
(f) except as required by law, (i) pay, discharge, settle or
satisfy any claims, liabilities, obligations or litigation (whether absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business
consistent with past practice or in accordance with their terms as in effect
on the date of this Agreement, of liabilities reflected or reserved against
in the audited financial statements (or the notes thereto) of the Company
included in the Company's Annual Report on Form 10-K dated February 28, 2002
(for amounts not in excess of such reserves) or incurred since the date of
such financial statements in the ordinary course of business consistent with
past practice, (ii) cancel any material indebtedness, (iii) waive, release,
grant or transfer any claims or rights of substantial value or (iv) waive
any benefit of, or agree to modify in any respect, or fail to enforce, the
confidentiality provisions relating to the Company's information in any
agreement to which the Company or any of its Subsidiaries is a party;
(g) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP, except for the change
in the Company's policy on revenue recognition, as described in the Company's
quarterly report on Form 10-Q for the period ended November 30, 2002;
(h) enter into any contract that would have been required to be
set forth on Schedule 2.15 or modify, amend or terminate any contract
listed on such Schedule 2.15;
(i) make or incur any capital expenditure which, individually,
is in excess of $50,000 or make or incur any such expenditures which, in
the aggregate, are in excess of $100,000;
(j) acquire or agree to acquire (i) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by
purchasing all of or a substantial equity interest in, or by any other
manner, any business or any corporation, partnership, limited liability
company, joint venture, association or other business organization or
division thereof or (ii) except as permitted by Section 4.08(i), any
assets other than inventory, supplies, raw materials or other immaterial
assets, in each case in the ordinary course of business consistent with
past practice;
(k) sell, lease, license, mortgage, sell and leaseback or
otherwise encumber or subject to any Lien or otherwise dispose of any of
its properties or assets or any interests therein (including
securitizations), except sales of inventory in the ordinary course of
business consistent with past practice;
(l) make any change in any material terms of its agreements
with suppliers;
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(m) make any material change in the Company's credit and
collection policy, as amended in January 2000 and attached hereto as
Exhibit E (the "Credit and Collection Policy"), including expanding approved
industries and loan products, increasing lending limits, relaxing
underwriting criteria or increasing delegated authorities (other than in
the ordinary course of individual promotions), except as required to
comply with regulatory changes or accounting pronouncements;
(n) (i) purchase any loans from a third party or acquire
participation interests in any such loans, in each case, for more than
$100,000, (ii) sell any existing loans for less than the face value of
such loans or (iii) sell participation interests in any existing or
future loans, except for sales of participation interests in conjunction
with the guaranteed loan program administered by the Farm Service Agency
of the U.S. Department of Agriculture (the "FSA") that are approved by
Purchaser pursuant to Section 4.20;
(o) (i) approve any loans that would result in more than
$5,000,000, in the aggregate, being loaned by the Company to any one
customer (as such term is defined in Section 8(d)(ii) of the Certificate
of Designations), or (ii) approve any loans that would cause the
percentage of the total amount of loans approved since the date hereof
for a particular type of crop to exceed: 65% for corn, 65% for soybeans,
30% for wheat, 10% for cotton, 10% for rice, 5% for sugar beets, 5% for
potatoes, or 15% for all other crops in the aggregate (provided that
such percentage shall not exceed 5% for any one crop);
(p) make or change any material election with respect to Taxes; or
(q) agree, whether in writing or otherwise, to do any of the
foregoing.
SECTION 4.09. Credit and Collection Policy. The Company shall,
and shall cause each of its Subsidiaries to, comply in all material respects
with the Credit and Collection Policy (including making loans that adhere to
such policy), as amended from time to time in accordance with Section 4.08
of this Agreement.
SECTION 4.10. Access to Information. Except as set forth in
Schedule 4.10, upon reasonable notice, the Company shall, and shall cause
each of its Subsidiaries to (in order to permit Purchaser to evaluate the
transactions contemplated by this Agreement), (i) at reasonable intervals
from time to time, confer with Purchaser to report on operational matters
and other matters reasonably requested by Purchaser and (ii) afford to
Purchaser and to its officers, employees, accountants, counsel and other
representatives, reasonable access, during normal business hours during the
Restricted Period, to their respective properties, books, contracts,
commitments, directors, officers, attorneys, accountants, auditors (and,
to the extent within the Company's control, former auditors), other advisors
and representatives, records and personnel, but only to the extent that
such access does not unreasonably interfere with the business or operations
of the Company or any such Subsidiary, and, during such period, the Company
shall, and shall cause each of its Subsidiaries to, furnish promptly to
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Purchaser (a) a copy of each material report, schedule, registration statement
and other document filed or received by it during such period pursuant to
the requirements of Federal, state or local, domestic or foreign, laws and
(b) such other information concerning its business, properties and personnel
as Purchaser may reasonably request. All such information shall constitute
and shall be subject to the Confidentiality Agreement and Purchaser shall,
and shall cause its advisors and representatives who receive such information
to agree to, hold all such Information in confidence to the extent required
by, and in accordance with, the terms of the Confidentiality Agreement. The
Confidentiality Agreement shall survive any termination of this Agreement.
SECTION 4.11. Other Transactions. The Company agrees that,
from the date of this Agreement to the First Closing Date, it shall not,
and it shall cause its Subsidiaries and their respective officers,
directors, shareholders or other representatives not to, directly or
indirectly, encourage, solicit, initiate or participate in discussions or
negotiations with, enter into agreements with, or provide any information
or assistance to, any person or group (other than Purchaser and its
affiliates and their respective representatives) concerning any merger,
sale of securities, sale of substantial assets or similar transaction
involving the Company or any Subsidiary. In the event the Company or one
of its Subsidiaries receives a proposal relating to any such transaction,
the Company shall promptly notify Purchaser of such proposal. Without
limiting the foregoing, it is understood that any violation of the
restrictions set forth in this Section 4.11 by any director, officer or
employee of the Company or any of its Subsidiaries or any investment
banker, attorney, accountant or other advisor or representative of the
Company or any of its Subsidiaries shall be deemed to breach of this
Section 4.11 by the Company.
SECTION 4.12. No Integration. The Company shall not make any
offers or sales of any security (other than the Convertible Preferred Stock)
under circumstances that would require registration of the Convertible
Preferred Stock being offered or sold hereunder under the Securities Act
or cause the offering of the Convertible Preferred Stock to be integrated
with any other offering of securities by the Company for the purpose of any
shareholder approval provision applicable to the Company or its securities.
SECTION 4.13. Preparation of the Proxy Statement. As promptly
as practicable following the date of this Agreement, the Company shall
prepare and file with the SEC the Proxy Statement. Each of the Company and
Purchaser shall furnish all information concerning itself and its affiliates
that is required to be included in the Proxy Statement or that is
customarily included in proxy statements prepared in connection with
transactions of the type contemplated by this Agreement. The Company shall
use its reasonable best efforts to respond as promptly as practicable to
any comments of the SEC with respect to the Proxy Statement and to cause
the Proxy Statement to be mailed to the Company's shareholders as promptly
as practicable after the date of this Agreement. The Company shall promptly
notify Purchaser upon the receipt of any comments from the SEC or its staff
or any request from the SEC or its staff for amendments or supplements to the
Proxy Statement or for additional information and shall provide Purchaser
with copies of all correspondence between the Company and its
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representatives, on the one hand, and the SEC and its staff, on the other
hand. If at any time prior to the First Closing Date any information
relating to the Company or Purchaser, or any of their respective directors,
officers or affiliates, should be discovered by the Company or Purchaser
which should be set forth in an amendment or supplement to the Proxy
Statement, so that the Proxy Statement would not include any misstatement
of a material fact or omit to state any material fact necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading, the party which discovers such information
shall promptly notify the other parties and an appropriate amendment or
supplement describing such information shall be promptly filed with the
SEC and, to the extent required by law, disseminated to the shareholders
of the Company. Notwithstanding anything to the contrary stated above,
prior to filing or mailing the Proxy Statement (or any amendment or
supplement thereto) or responding to any comments of the SEC with respect
thereto, the Company shall (i) provide Purchaser an opportunity to review,
comment on and approve such document or response, (ii) include in such
document or response all comments reasonably proposed by Purchaser and
(iii) not file or mail such document or respond to the SEC prior to
receiving Purchaser's approval, which approval shall not be unreasonably
withheld or delayed. The Company agrees that the Proxy Statement will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder. The
Proxy Statement shall include the recommendation of the Board in favor of
the Shareholder Approval as contemplated by Section 2.06(b).
SECTION 4.14. Shareholder Approval. The Company shall, as
soon as practicable following the date of this Agreement (in accordance
with the By-laws of the company and the Iowa Business Corporations Act),
establish a record date for, duly call, give notice of, convene and hold
a special meeting of its shareholders for the purpose of obtaining the
Shareholder Approval.
SECTION 4.15. Directors. To the extent requested by Purchaser,
the Company shall, as soon as practicable after the First Closing Date (in
accordance with the By-laws of the Company and the Iowa Business
Corporations Act), take all reasonable action necessary to hold a special
meeting of the Company's shareholders for the purpose of electing members
of the Company's Board of Directors and shall provide for the nomination
at such meeting of those persons designated by Purchaser to become members
of the Company's Board of Directors.
SECTION 4.16. Compliance with Laws. The Company shall maintain
appropriate compliance policies and procedures designed to ensure that the
Company and its Subsidiaries comply with all applicable laws and regulations
in all material respects. The compliance policies and procedures shall be
satisfactory to the Company's Board of Directors.
SECTION 4.17. Publicity. Except as otherwise required by law,
none of the parties hereto shall issue any press release or make any other
public statement, in each case relating to, connected with or arising out
of this Agreement or Purchaser's interest in the Company or the matters
contained herein or therein, without obtaining the prior written approval
of the Purchaser and the Company to the contents and the manner of
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presentation and publication thereof. Except as otherwise required by law,
no references to the Purchaser or any of its affiliates shall be made in
any public statement without the Purchaser's or such affiliate's written
consent.
SECTION 4.18. Shareholder Litigation. The Company shall give
Purchaser the opportunity to participate in the defense or settlement of
any shareholder litigation against the Company and/or its directors
relating to the transactions contemplated by this Agreement and the
Registration Rights Agreement, and no such settlement shall be agreed
to without Purchaser's prior written consent, which consent shall not
be unreasonably withheld.
SECTION 4.19. Insurance. As soon as practicable after the date
of this Agreement, the Company shall solicit bids from insurance providers
for insurance to cover the indemnification of the directors and officers
of the Company, which coverage shall apply to acts of such directors and
officers occurring prior to and subsequent to the First Closing Date, and
shall promptly provide Purchaser with copies of such bids. Each bid shall
contain all of the terms of the applicable insurance policy, including
the premiums. The Company shall accept such bid that Purchaser requests
(provided such bid is reasonably satisfactory to the Company) and shall
enter into the agreements necessary to obtain insurance from the
applicable provider.
(b) For as long as this Agreement is in effect, the Company shall
(i) keep Purchaser informed of the status of the insurance policies covering
the Company and its Subsidiaries, (ii) subject to Purchaser's consent, take
all steps that are necessary to renew any such insurance policies and
(iii) take such other steps with respect to such insurance policies that
Purchaser reasonably requests.
SECTION 4.20. FSA Loan Program. The Company agrees that it shall
notify Purchaser in writing of any plans to sell participation interests in
any existing or future loans in conjunction with the guaranteed loan program
administered by FSA, and shall provide Purchaser with copies of all relevant
agreements or other documents related to such planned sales. The Company
shall not consummate any such sales during the Restricted Period without
receiving Purchaser's approval.
SECTION 4.21. First Closing Loan Amounts. On the First Closing
Date, the Company agrees that it shall provide Purchaser with a list of
(i) all loans, by customer, funded during the period from September 1, 2002
through the First Closing Date and outstanding as of the First Closing Date,
(ii) all loans, by customer, committed to be loaned by the Company during
such period, whether or not funded as of the First Closing Date, and
(iii) the value of reserves established for such loans.
SECTION 4.22. Fairness Opinion. The Company agrees that it shall
take all reasonable action necessary to receive the written opinion of
Rabobank International, confirming the oral opinion described in
Section 2.32, as soon as possible after the date of this Agreement.
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ARTICLE V
Conditions
SECTION 5.01. Conditions to the Company's Obligation to Sell.
The obligation of the Company hereunder to issue and sell the Convertible
Preferred Stock to Purchaser at the First Closing, the Second Closing and,
if a Third Closing Termination Right is not exercised, the Third Closing,
is subject to the satisfaction, at or before the applicable Closing Date,
of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) With respect to the First Closing:
(i) The Transaction Approval shall have been obtained by
the Company.
(ii) The Company shall have purchased insurance providing
for at least $10,000,000 of coverage in respect of the
indemnification of directors and officers of the Company, as
contemplated by Section 4.19(a); provided, however, that the
foregoing condition shall be deemed satisfied if Purchaser
requests that the Company accept a bid from an insurance provider
providing for such coverage pursuant to Section 4.19(a).
(b) With respect to each of the First Closing, the Second Closing
and, if a Third Closing Termination Right is not exercised, the Third Closing:
(i) Purchaser shall have delivered the applicable Purchase
Price in accordance with Section 1.01 and Annex II of this Agreement.
(ii) The representations and warranties of Purchaser that
are qualified as to materiality shall be true and correct, and
those not qualified as to materiality shall be true and correct in
all material respects, as of the date when made and as of the
applicable Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as
of such date).
(iii) Purchaser shall have performed, satisfied and
complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed,
satisfied or complied with by Purchaser at or prior to the
applicable Closing Date.
(iv) The Company shall have received a certificate or
certificates, executed by the chairman of the board, chief
executive officer, president or chief financial officer of
Purchaser, dated as of the applicable Closing Date, to the effect
of clause (ii) and (iii) of this Section 5.01(b) and as to such
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other matters as may be reasonably requested by the Company
including, but not limited to, certificates with respect to
Purchaser's Certificate of Incorporation, By-laws and Board of
Directors' resolutions relating to the transactions contemplated
hereby.
(v) No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby
which prohibits the consummation of any of the transactions
contemplated by this Agreement that relate to the applicable
Closing.
SECTION 5.02. Conditions to Purchaser's Obligation to Purchase.
The obligation of Purchaser hereunder to purchase the Convertible Preferred
Stock at each of the First Closing, the Second Closing and, if a Third
Closing Termination Right is not exercised, the Third Closing, is subject to
the satisfaction, at or before the applicable Closing Date, of each of the
following conditions, provided that these conditions are for Purchaser's
sole benefit and may be waived by Purchaser at any time in its sole
discretion:
(a) With respect to the First Closing:
(i) The Shareholder Approval shall have been obtained
by the Company.
(ii) The Certificate of Designations shall have been
accepted for filing with the Secretary of State of the State of
Iowa, and a copy thereof certified by such Secretary of State
shall have been delivered to Purchaser.
(iii) The Company shall have paid to Purchaser (or an
entity designated by Purchaser) the amount of the Transaction Fee
payable on the First Closing Date pursuant to Section 6.01 of this
Agreement, and the Board of Directors of the Company shall have
received a written opinion from Rabobank International, confirming
the oral opinion described in Section 2.32.
(iv) The Company shall have received resignations from
the Board of Directors of the Company of the persons designated
by Purchaser, effective as of the First Closing Date.
(v) The Company shall have executed a management
consulting agreement (the "Management Consulting Agreement")
with ASCP in the form of Exhibit C.
(vi) The Company shall have entered into separate
non-competition agreements (each, a "Non-Competition Agreement")
with each of Gaylen Miller, Henry Jungling and Kevin Schipper
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(each, an "Executive") on terms and conditions satisfactory to
Purchaser, pursuant to which the Company will be required to make
a $400,000 payment to each Executive on the First Closing Date.
Such Non-Competition Agreements shall be in full force and effect
on the First Closing Date.
(vii) The Company shall have entered into an employment
agreement with each of the Executives and Shawn Smeins (each, an
"Employment Agreement") on terms and conditions satisfactory to
Purchaser (it being understood that the employment agreement with
each Executive and with Shawn Smeins in effect as of the date of
this Agreement (as referenced in Schedule 2.17(a)(ii)) shall be
terminated upon the execution of the Employment Agreement with the
respective Executive or Shawn Smeins, as applicable). Such
Employment Agreements shall be in full force and effect on the
First Closing Date.
(viii) A shareholder agreement (the "Shareholder
Agreement") in the form of Exhibit D hereto shall have been
executed by the shareholders named therein.
(ix) The Company shall have executed the Registration
Rights Agreement.
(x) The Company shall have entered into agreements,
including incentive agreements (such as stock option agreements)
and non-competition agreements, with certain employees of the
Company identified by Purchaser on terms and conditions
satisfactory to Purchaser. Such agreements shall be in full force
and effect on the First Closing Date.
(xi) The Company shall have received the consents specified
in Section 2.08(b).
(xii) To the extent requested by Purchaser pursuant to
Section 4.19(a) of this Agreement, the Company shall have purchased
insurance for the indemnification of directors and officers of
the Company.
(xiii) The Company (A) shall have approved and closed
commitments for at least $230,000,000 in loans to customers for
the 2003 crop year and (B) shall have received financing to fund
such commitments that is reasonably satisfactory to Purchaser.
(xiv) The obligations of the Federal Crop Insurance
Corporation in respect of 85% of the multi-peril crop insurance
claims submitted by customers of the Company and outstanding as
of December 31, 2002 have been satisfied.
(xv) Purchaser shall have completed, and shall have been
satisfied in all respects with, its confirmatory due diligence
investigation of the Company and its Subsidiaries.
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(b) With respect to the Second Closing:
(i) The First Closing shall have occurred.
(ii) The Company shall have paid to Purchaser (or an entity
designated by Purchaser) the amount of the Transaction Fee payable
on the one-year anniversary of the First Closing Date pursuant to
Section 6.01 of this Agreement.
(iii) The Company shall have approved at least $500,000,000
in loans to customers for the 2004 crop year.
(c) With respect to the Third Closing, if a Third Closing
Termination Right is not exercised:
(i) The Second Closing shall have occurred.
(ii) The Company shall have approved at least $600,000,000
in loans to customers for the 2005 crop year.
(d) With respect to each of the Second Closing and, if a Third
Closing Termination Right is not exercised, the Third Closing, a review
shall have been completed by an independent accounting firm satisfactory
to Purchaser in its sole discretion, and such review shall have confirmed
the satisfaction of each of the following conditions (in good faith and
in accordance with GAAP and the Company's historical practices):
(i) (A) The Company shall have achieved 90% of the annual
net income target, as outlined in Exhibit F to this Agreement, for
the previous fiscal year and (B) Purchaser shall reasonably expect
that the Company will achieve 90% of the annual net income target,
as outlined in Exhibit F to this Agreement, for the then current
fiscal year. Satisfaction of the annual net income target described
in clause (A) of the foregoing sentence shall be subject to the
completion of an audit for the applicable fiscal year and the
satisfactory review of such audit by an independent accounting
firm chosen by Purchaser.
(ii) The Company's projected collections (determined on
a good faith basis) of loans outstanding as of August 31, 2002 shall
exceed 99% of (A) the value of all loans or advances outstanding as
of August 31, 2002 minus (B) the value of reserves established as of
August 31, 2002 for such loans.
(iii) The Company's projected collections of loans or
advances made between August 31, 2002 and the First Closing Date
shall exceed 99% of (A) the value of all loans or advances made
during this period and outstanding as of the First Closing Date
minus (B) a provision for reserves equivalent to 1.72% of such
value.
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(e) With respect to each of the First Closing, the Second
Closing and, if a Third Closing Termination Right is not exercised, the
Third Closing:
(i) The Company shall have in effect debt financing,
including trade credit financing, on terms satisfactory to
Purchaser, in its sole discretion. For the avoidance of doubt,
the satisfaction of Purchaser with the Company's financing will be
evaluated separately with respect to each Closing, and such
satisfaction may not exist notwithstanding the terms of the
financing (including size, advance rates, maturities and costs)
in effect on the applicable Closing being substantially similar
to the terms of financing deemed satisfactory by Purchaser on a
previous Closing.
(ii) The Company shall have delivered to Purchaser duly
executed certificates (in such denominations as Purchaser shall
request) representing the Securities purchased at such Closing
in accordance with Section 1.01 and Annex II of this Agreement.
(iii) The Company shall have reimbursed Purchaser (or an
entity designated by Purchaser) for their respective expenses in
accordance with Section 6.02 of this Agreement.
(iv) The representations and warranties of the Company that
are qualified as to materiality shall be true and correct, and those
not qualified as to materiality shall be true and correct in all
material respects, as of the date when made and as of the applicable
Closing Date as though made at such time (except for representations
and warranties that speak as of a specific date, which
representations and warranties shall be true and correct as of
such date).
(v) The Company shall have performed, satisfied and complied
in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to the applicable Closing
Date.
(vi) Purchaser shall have received a certificate or
certificates, executed by the chairman of the board or the chief
executive officer of the Company, dated as of the applicable
Closing Date, to the effect of clauses (iv) and (v) of this
Section 5.02(e) and as to such other matters as may be reasonably
requested by Purchaser including, but not limited to, certificates
with respect to the Company's Articles of Incorporation, By-laws and
Board of Directors' resolutions relating to the transactions
contemplated hereby.
(vii) No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
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authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement that relate to such Closing.
(viii) Since the date of this Agreement, no event has
occurred that has had or would reasonably be expected to have a
Material Adverse Effect. "Material Adverse Effect" shall mean any
of the following: (i) a material adverse effect on the condition
(financial or other), business (including loan revenues, commission
rates and rates of loan write-offs and delinquencies), prospects,
properties or results of operations of the Company and its
Subsidiaries, taken as a whole, (ii) a material disruption or
material adverse change in financial, banking or capital markets
in the United States, (iii) the outbreak or escalation of
hostilities involving the United States or the declaration by
the United States of a national emergency or war,
or (iv) a material adverse change in the agriculture services
industry (including as a result of the Federal Crop Insurance
Corporation ceasing to underwrite multi-peril crop insurance or
materially altering the terms of such underwriting, a material
change in or discontinuance of subsidies by the United States
Department of Agriculture pursuant to the Farm Security and Rural
Investment Act of 2002, or a material change in or discontinuance
of other federal farm funding programs), in the case of the
foregoing clauses (ii) and (iii), if the effect of any of the
events specified in such clauses, in the judgment of Purchaser,
makes it impracticable or inadvisable to proceed with the
transactions contemplated by this Agreement that have not yet
been completed.
ARTICLE VI
Fees and Expenses
SECTION 6.01. Transaction Fee. The Company agrees that it shall
pay Purchaser or ASCP a transaction fee (the "Transaction Fee") equivalent
to the sum of (i) $350,000 plus (ii) 0.5% of (A) the amount of funds loaned
to the Company and (B) the amount of funds unfunded but committed to be
loaned to the Company, in each case under credit facilities in effect as of
the First Closing Date. The Company shall pay 50% of the Transaction Fee
on the First Closing Date and the remaining 50% on the one-year anniversary
of the First Closing Date. The Transaction Fee shall be payable by the
Company if the First Closing occurs and shall not be contingent in any way
on the occurrence of the Second Closing or the Third Closing.
SECTION 6.02. Expenses. The Company agrees that it shall
reimburse Purchaser and its affiliates for their respective expenses
reasonably incurred in connection with this Agreement and the transactions
contemplated hereby, including the fees and disbursements of their
respective counsel, finders, accountants, brokers and other advisors
and experts. The Company shall pay Purchaser (or an entity designated
by Purchaser) an amount equivalent to such expenses (i) incurred prior
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to the First Closing Date on the First Closing Date and (ii) as
incurred subsequent to the First Closing Date. The Company and Purchaser
acknowledge and agree that the Company previously paid $500,000 to
Purchaser and that the amount payable by the Company to Purchaser
pursuant to clause (i) of this Section 6.02 shall be reduced by
$500,000 to reflect such payment.
SECTION 6.03. Other Fees and Expenses. The Company agrees
that, if (i) the Company does not obtain Shareholder Approval, (ii) the
First Closing does not occur due to the failure of the condition set forth
in Section 5.01(a)(ii), or (iii) this Agreement is terminated pursuant
to Section 7.01(d) or 7.01(f), the Company shall, promptly thereafter,
reimburse Purchaser (by wire transfer of same day funds to an account
designated by Purchaser) for its reasonable business expenses incurred
in connection with this Agreement and the transactions contemplated
hereby in an amount not to exceed $1,500,000.
(b) The Company shall pay to Purchaser $5,000,000 if
(i) this Agreement is terminated pursuant to Section 7.01(d) or
(ii) this Agreement is terminated pursuant to Section 7.01(b) or
Section 7.01(c) and, in the case of this clause (ii), the Company
enters into an agreement or otherwise consummates a transaction
with any person or group (other than Purchaser or its affiliates)
relating to any merger, sale of equity or debt securities, sale
of substantial assets or similar transaction involving the Company
and its Subsidiaries during the 18-month period following such
termination. Such fee shall be payable by wire transfer of same
day funds to an account designated by Purchaser within two business
days of such termination in the case of clause (i) or prior to the
date such agreement is entered into or such transaction is
consummated, whichever comes first, in the case of clause (ii).
ARTICLE VII
Termination
SECTION 7.01. Termination. Notwithstanding anything contained
herein to the contrary, this Agreement may be terminated, and the transactions
contemplated hereby abandoned, as follows:
(a) by mutual written consent of the Company and Purchaser;
(b) by the Company or Purchaser, if the Company does not
receive the Shareholder Approval;
(c) by the Company or Purchaser, if the First Closing Date
does not occur by June 15, 2003;
(d) by Purchaser, if the Board of Directors of the Company
withdraws or modifies in a manner adverse to Purchaser the
recommendations contemplated by Sections 2.06(b) and 4.08 of this
Agreement or otherwise recommends another transaction;
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(e) by the Company or Purchaser, if (i) any temporary
restraining order, preliminary or permanent injunction or other
order or decree issued by any court of competent jurisdiction or
other legal restraint or prohibition (collectively, "Legal
Restraints") issued upon the application of any Governmental Entity
that has the effect of preventing the transactions contemplated by
this Agreement shall be in effect or (ii) any such Legal Restraint
issued upon the application of any other person shall be in effect
and shall have become final and nonappealable;
(f) by Purchaser, if the Company shall have breached or
failed to perform any of its representations, warranties, covenants
or other agreements contained in this Agreement, which breach or
failure to perform (i) would give rise to the failure of a
condition set forth in Section 5.02(e)(iv) or 5.02(e)(v) and
(ii) has not been or is incapable of being cured by the Company
within 30 calendar days after its receipt of written notice
thereof from Purchaser;
(g) by the Company, if Purchaser shall have breached or
failed to perform any of its representations, warranties,
covenants or other agreements contained in this Agreement,
which breach or failure to perform (i) would give rise to the
failure of a condition set forth in Section 5.01(b)(ii) or 5.01(b)
(iii) and (ii) has not been or is incapable of being cured by
Purchaser within 30 calendar days after its receipt of written
notice thereof from the Company;
(h) by the Company or Purchaser, if the Second Closing
Date does not occur by July 31, 2004; provided, however, that such
termination shall only relate to the rights and obligations relating
to the Second Closing; or
(i) by the Company or Purchaser, if the Third Closing
Termination Right is not exercised and the Third Closing Date
does not occur by July 31, 2005; provided, however, that such
termination shall only relate to the rights and obligations
relating to the Third Closing.
SECTION 7.02. Consequences of Termination. In the event of
termination by the Company or Purchaser pursuant to Section 7.01 (other
than Section 7.01(h) and 7.01(i)), this Agreement shall become void and
of no further force or effect, except for the second and third sentences
of Section 4.10 relating to access to information, the provisions of
Article VI, the provisions of Section 8.01 and this Section 7.02.
Nothing in this Article VII or elsewhere in this Agreement shall be
deemed to impair the right of either party to compel specific performance
by the other party of its obligations under this Agreement. Nothing in
this Article VII shall be deemed to release either party from any
liability for any breach by such party of the terms and provisions of
this Agreement.
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ARTICLE VIII
Miscellaneous
SECTION 8.01. Indemnity. From the date of this Agreement to the
First Closing Date, the Company agrees to indemnify and hold harmless
Purchaser, ASCP and their respective officers, directors, employees,
affiliates, agents and controlling persons from and against any and all
losses, claims, damages, liabilities and expenses, including the fees,
charges and disbursements of counsel, to which any such indemnified persons
may become subject arising out of or in connection with (i) the execution
and delivery of this Agreement or any agreement or instrument contemplated
hereby, the performance by such persons of their respective obligations
hereunder or thereunder or the consummation of the transactions
contemplated hereby or thereby, or (ii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, regardless
of whether any of such indemnified parties is a party thereto; provided,
however, that such indemnity shall not, as to any indemnified party,
apply to losses, claims, damages, liabilities or related expenses to
the extent they are found in a final judgment of a court of competent
jurisdiction to have resulted from the willful misconduct or gross
negligence of such indemnified party. The Company further agrees that,
within 15 days of receipt of notice of an indemnifiable loss, claim,
damage, liability or expense from an indemnified party, it shall pay
the amount stated in such notice to such indemnified party. For the
avoidance of doubt, if the First Closing does not occur, the Company's
obligations under this Section 8.01 shall continue indefinitely.
SECTION 8.02. Transfer Taxes. All transfer, documentary,
sales, use, stamp, registration, real estate transfer or gains and stock
transfer Taxes incurred in connection with this Agreement and the
transactions contemplated hereby shall be borne by the Company.
SECTION 8.03. Entire Agreement. This Agreement (including
all schedules and exhibits hereto) and the Registration Rights Agreement
constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or
referred to herein and therein. This Agreement and the Registration
Rights Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof
and thereof.
SECTION 8.04. Amendment and Waiver. This Agreement may be
amended by the parties at any time, whether before or after the
Shareholder Approval has been obtained; provided, however, that after
the Shareholder Approval has been obtained, no amendment shall be made
which by law requires further approval by the shareholders of the
Company without such further approval having been obtained. This
Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
SECTION 8.05. Extension; Waiver. At any time prior to the
applicable Closing Date, the parties may (i) extend the time for the
-34-
performance of any of the obligations or other acts of the other party,
(ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and
(iii) subject to the proviso to the first sentence of Section 8.04,
waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party to any such extension
or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party. The failure of any party to assert
any of its rights under this Agreement or otherwise shall not
constitute a waiver of those rights nor shall any single or partial
exercise by any party to this Agreement of any of its rights under
this Agreement preclude any other or further exercise of such rights
or any other rights under this Agreement.
SECTION 8.06. Notices. Any Notices required or permitted
to be given under the terms hereof shall be sent by certified or
registered mail (return receipt requested) or delivered personally
or by courier (including a recognized overnight delivery service)
or by facsimile and shall be effective five days after being placed
in the mail, if mailed by regular United States mail, or upon receipt,
if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Ag Services of America, Inc.
1309 Technology Parkway
P.O. Box 668
Cedar Falls, IA 50613
Attention: Kevin D. Schipper
Facsimile: 319-277-0277
With a copy to:
Richard Krantz, Esq.
Robinson & Cole LLP
Financial Centre
695 East Main Street
Stamford, CT 06904-2305
Facsimile: 203-462-7599
If to Purchaser:
ASP/ASA, LLC
666 Third Avenue
29th Floor
New York, NY 10017-4011
Attention: Marc L. Saiontz
Facsimile: (212) 697-5524
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With a copy to:
Ronald Cami, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Facsimile: (212) 474-3700
SECTION 8.07. Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned, in whole
or in part, by either of the parties (whether by operation of law or
otherwise) without the prior written consent of the other party, and any
such assignment that is not so consented to shall be null and void;
provided, however, that Purchaser may assign its rights and obligations
hereunder in whole or in part to any direct or indirect subsidiary of
American Securities Capital Partners, L.P. (provided that such transferee
agrees in writing to be bound by this Agreement), but no such assignment
shall relieve Purchaser of its obligations hereunder if such assignee
does not perform such obligations.
SECTION 8.08. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any
rule or law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties
as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 8.09. Exhibits and Schedules; Interpretation.
(a) The headings contained in this Agreement, in any Exhibit or Schedule
hereto and in the table of contents to this Agreement are for reference
purposes only and shall no affect in any way the meaning or interpretation
of this Agreement. All Exhibits and Schedules annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if
set forth in full herein. Any capitalized terms used in any Schedule or
Exhibit but not otherwise defined therein shall have the meaning as defined
in this Agreement.
(b) For all purposes hereof, (i) the words "include" and
"including" shall be deemed to be followed by the phrase "without
limitation" and (ii) "person" means any individual, firm, corporation,
partnership, limited liability company, trust, joint venture,
Governmental Entity or other entity.
SECTION 8.10. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS
OF LAW.
-36-
SECTION 8.11. Consent to Jurisdiction. Each party hereto
irrevocably submits to the exclusive jurisdiction of the courts of the
United States District Court for the Southern District of New York
(or, if subject matter jurisdiction in that court is not available,
in any state court located within the city of New York) over any dispute
arising out of or relating to this Agreement or any agreement or
instrument contemplated hereby or entered into in connection herewith
or any of the transactions contemplated hereby or thereby. Each party
hereto irrevocably consents to the service of any and all process in
any action or proceeding arising out of or relating to this Agreement
by the mailing of copies of such process to such party at their address
specified in Section 8.06.
SECTION 8.12. Counterparts. This Agreement may be executed by
any one or more of the parties hereto in any number of counterparts, each
of which shall be deemed to be an original, but all such respective
counterparts shall together constitute one and the same instrument.
SECTION 8.13. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of
this Agreement and the consummation of the transactions contemplated hereby.
SECTION 8.14. No Third Party Beneficiaries. This Agreement is
for the sole benefit of the parties hereto and their permitted assigns
(consistent with Section 8.07 of this Agreement) and nothing herein expressed
or implied shall give or be construed to give to any person, other than the
parties hereto and such assigns, any legal or equitable rights hereunder.
-37-
IN WITNESS WHEREOF, the Company and Purchaser have caused this
Securities Purchase Agreement to be duly executed as of the date first
written above.
AG SERVICES OF AMERICA, INC.,
by: /s/Kevin Schipper
--------------------------
Name:Kevin Schipper
Title: Chief Executive Officer
ASP/ASA, LLC,
by: /s/Michael G. Fisch
---------------------------
Name: Michael G. Fisch
Title: President
-38-
ANNEX I
Index of Defined Terms
Term
Agreement Recitals
ASCP Recitals
August 31 Loans Section 2.34
August 31 Reserves Section 2.34
BCHA Section 2.24
Benefit Agreements Section 2.17(a)
Benefit Plans Section 2.17(a)
Certificate of Designations Recitals
Closing Section 1.01
Closing Date Section 1.03
Closing Purchase Price Section 1.01
Code Section 2.17(c)
Common Stock Section 2.02(a)
Commonly Controlled Entity Section 2.17(a)
Company Recitals
Company Pension Plans Section 2.17(b)
Company SEC Documents Section 2.12
Confidentiality Agreement Section 2.15(j)
Conversion Shares Section 2.03
Convertible Preferred Stock Recitals
Credit and Collection Policy Section 4.09(l)
Employment Agreement Section 5.02(a)(vii)
Environmental Laws Section 2.20
ERISA Section 2.17(b)
Exchange Act Section 2.08(b)
Executive Section 5.02(a)(vi)
First Closing Section 1.01
First Closing Date Section 1.03
First Closing Purchase Price Section 1.01
FSA Section 4.08(n)(i)
GAAP Section 2.13(a)
Governmental Entity Section 2.08(b)
Hazardous Materials Section 2.20
Intellectual Property Section 2.14
Investment Company Act Section 2.11
Legal Restraints Section 7.01(e)
Liens Section 2.02(c)
Material Adverse Effect Section 5.02(e)(viii)
Management Consulting Agreement Section 5.02(a)(v)
NASD Section 4.07
Nasdaq Section 4.07
Non-Competition Agreement Section 5.02(a)(vi)
-39-
NYSE Section 2.08(b)
Primary Company Executives Section 2.17(f)
Proxy Statement Section 2.08(b)
Purchase Price Section 1.01
Purchaser Recitals
Registration Rights Agreement Recitals
Regulation D Recitals
Release Section 2.20
Restricted Period Section 4.09
SEC Recitals
Second Closing Section 1.01
Second Closing Date Section 1.03
Second Closing Purchase Price Section 1.01
Securities Recitals
Securities Act Recitals
Shareholder Agreement Section 5.02(a)(viii)
Shareholder Approval Section 2.06(b)
Shareholder Voting Agreement Recitals
Stock Options Section 2.02(b)
Stock Option Plans Section 2.02(b)
Stock Plans Section 2.02(b)
Stock Purchase Plan Section 2.02(b)
Subsidiaries Section 2.01
Tax Section 2.18(b)
Tax Return Section 2.18(b)
Third Closing Section 1.01(a)
Third Closing Date Section 1.03
Third Closing Purchase Price Section 1.01(a)
Third Closing Termination Right Section 1.01(b)
Transaction Approval Section 2.06(b)
Transaction Fee Section 6.01
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ANNEX II
Convertible Preferred Stock to be issued by the
Company and purchased by Purchaser
Preferred Shares Purchase Price
---------------- --------------
First Closing 35,000 $35,000,000
Second Closing 17,500 $17,500,000
Third Closing 17,500 $17,500,000
---------------- --------------
Total 70,000 $70,000,000
-41-
ANNEX B
CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS
of
8.375% CONVERTIBLE PREFERRED STOCK
of
AG SERVICES OF AMERICA, INC.
(Pursuant to Section 602 of the
Iowa Business Corporation Act)
AG SERVICES OF AMERICA, INC. (the "Company"), a corporation organized
and existing under the Iowa Business Corporation Act, hereby certifies that
the following resolutions were adopted by the Board of Directors of the
Company on [ ] pursuant to authority of the Board of Directors
as required by Section 602 of the Iowa Business Corporation Act:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Company in accordance with the provisions of its
Articles of Incorporation, the Board of Directors hereby authorizes and
provides for the issuance of 70,000 shares of 8.375% Convertible Preferred
Stock (the "Convertible Preferred Stock"), having the powers, designations,
preferences and relative participating, optional and other special rights,
and the qualifications, limitations and restrictions, as follows:
1. Certain Definitions
"2003 Prior Year Loan Repayment" shall have the meaning set forth in
Section 8(d) below.
"2004 Prior Year Loan Repayment" shall have the meaning set forth in
Section 8(d) below.
"Accrued Dividends" shall have the meaning set forth in Section 3(a)
below.
"Additional August 31 Loans" shall have the meaning set forth in
Section 8(a) below.
"Adjusted Shares" shall have the meaning set forth in Section 8(a)
below.
"Arbitrator" shall have the meaning set forth in Section 12(a) below.
-1-
"Articles of Incorporation" shall mean the articles of incorporation
of the Company, as amended and restated as of August 21, 2000.
"Asset Value" shall have the meaning set forth in Section 8(a) below.
"August 31 Final Uncollectible Loan Adjustment Amount" shall have the
meaning set forth in Section 8(b) below.
"August 31 Foreclosed Assets" shall have the meaning set forth in
Section 8(a) below.
"August 31 Loans" shall have the meaning set forth in the Securities
Purchase Agreement.
"August 31 Reserves" shall have the meaning set forth in the Securities
Purchase Agreement.
"August 31 Uncollectible Loan Amount" shall have the meaning set forth
in Section 8(a) below.
"August 31 Uncollectible Loan Adjustment Amount" shall have the meaning
set forth in Section 8(a) below.
"Business Day" shall mean any day other than a Saturday, Sunday or a
federal holiday.
"By-Laws" shall mean the by-laws of the Company, as amended and
restated as of July 11, 1991.
"Calculation Dispute" shall have the meaning set forth in Section
12(a) below.
"Change of Control" shall mean (i) the consummation of any transaction
which results in Purchaser and its affiliates holding, in the aggregate,
less than 20% of the voting power of the Company or (ii) the sale of all or
substantially all of the assets of the Company.
"Closing Price" on any Trading Day with respect to the per share
price of Common Stock means the last reported sales price regular way or,
in case no such reported sale takes place on such Trading Day, the average
of the reported closing bid and asked prices regular way, in either case
on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading, or, if not listed or admitted to trading on any
national securities exchange, on Nasdaq or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or
Nasdaq, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange
member firm that is selected from time to time by the Company for that
purpose and is reasonably acceptable to Purchaser.
-2-
"Commencement Date" shall have the meaning set forth in Section
7(g) below.
"Common Stock" shall mean the common stock, no par value, of the
Company.
"Conversion Date" shall mean, with respect to any share of Convertible
Preferred Stock, the date on which the share of Convertible Preferred Stock
and the written notice of conversion are delivered to the Company in
accordance with Section 5(b) hereof.
"Conversion Price" shall initially mean $8.500 and thereafter shall
be subject to adjustment from time to time pursuant to the terms of
Sections 7 and 8. The Conversion Price shall be rounded to three decimal
places.
"Conversion Rate" shall mean, as of any date, the number of shares
of Common Stock issuable upon conversion of one share of Convertible
Preferred Stock, determined by dividing the Stated Value of such share
of Convertible Preferred Stock by the Conversion Price then in effect.
"Credit and Collection Policy" shall have the meaning set forth
in the Securities Purchase Agreement.
"Current Event" shall have the meaning set forth in Section 7(g)
below.
"Current Market Value" shall mean, with respect to a share of Common
Stock, the average of the daily Closing Prices for the 10 consecutive
Trading Days selected by the Company commencing not more than 20
Trading Days before, and ending not later than, the date of determination,
or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, Nasdaq or any over-the-counter market, the
market value as determined by a nationally recognized independent
investment bank that is reasonably selected by Purchaser.
"Deemed Uncollectible Loans" shall have the meaning set forth in
Section 8(a) below.
"Distribution Date" shall have the meaning set forth in Section
7(h) below.
"Dividend Payment Date" shall have the meaning set forth in Section
3(a) below.
"Expiration Time" shall have the meaning set forth in Section
7(f) below.
"Farm Bill" shall have the meaning set forth in Section 8(a)
below.
"Farm Products" shall have the meaning set forth in Section
8(a) below.
"First Closing Adjustment Period" shall have the meaning set forth
in Section 8(a) below.
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"First Closing Final Uncollectible Loan Adjustment Amount" shall
have the meaning set forth in Section 8(b) below.
"Final True-Up Date" shall have the meaning set forth in Section 8(b)
below.
"First Closing Foreclosed Assets" shall have the meaning set forth
in Section 8(a) below.
"First Closing Loans" shall have the meaning set forth in Section
8(a) below.
"First Closing Uncollectible Loan Amount" shall have the meaning set
forth in Section 8(a) below.
"First Closing Uncollectible Loan Adjustment Amount" shall have the
meaning set forth in Section 8(a) below.
"IBCA" shall mean the Iowa Business Corporation Act.
"Issue Date" shall mean, for any share of Convertible Preferred Stock,
the date of issuance of such share.
"Junior Securities" shall mean all capital stock of the Company (and
all rights or options exercisable for or convertible into such capital
stock), including the Common Stock, to which the Convertible Preferred
Stock ranks prior with respect to distribution of assets upon liquidation,
dissolution or winding up of the Company.
"Liquid Collateral" shall have the meaning set forth in Section 8(d)
below.
"Liquidation Event" shall have the meaning set forth in Section 5(a)
below.
"Liquidation Preference" shall mean, with respect to a share of
Convertible Preferred Stock, a cash amount equal to the sum of (i) the
greater of (A) the Stated Value thereof and (B) the aggregate Current
Market Value of the shares of Common Stock into which such share of
Convertible Preferred Stock is convertible at the Conversion Price then
in effect, plus (ii) Accrued Dividends with respect to such share of
Convertible Preferred Stock.
"Negotiation Period" shall have the meaning set forth in Section
12(a) below.
"Other Event" shall have the meaning set forth in Section 7(g)
below.
"Purchased Shares" shall have the meaning set forth in Section
7(f) below.
"Reference Date" shall have the meaning set forth in Section 7(d)
below.
"Representative Firms" shall have the meaning set forth in Section
12(a) below.
"Securities Act" shall mean the Securities Act of 1933, as amended.
-4-
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of February 21, 2003 between the Company and Purchaser.
"Specified Loans" shall have the meaning set forth in Section 8(a)
below.
"Specified Reserve Value" shall have the meaning set forth in Section
8(a) below.
"Stated Value" shall mean $1,000 per share of Convertible Preferred
Stock.
"Tracking Document" shall have the meaning set forth in Section 8(c)
below.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the
applicable securities exchange or in the applicable securities market.
"Victorious Party" shall have the meaning set forth in Section 12(c)
below.
Any terms used but not defined herein shall have the meanings given
such terms in the Securities Purchase Agreement.
2. Rank.
The Convertible Preferred Stock shall rank prior to the Junior
Securities with respect to distribution of assets upon liquidation,
dissolution or winding up of the company, whether voluntary or involuntary.
3. Dividends.
(a) The holders of shares of Convertible Preferred Stock shall be
entitled to receive, when, as and if dividends are declared by the board
of directors of the Company, cumulative dividends accruing at the rate
per share of 8.375%, compounding annually, from the Issue Date of such
shares, payable in cash and payable quarterly in arrears on March 15,
June 15, September 15 and December 15 in each year or, if any such date
is not a Business Day, on the next succeeding Business Day (each, a
"Dividend Payment Date"), to the holders of record as of the immediately
preceding February 28, May 31, August 31 and November 30 (such dividends,
if accrued and unpaid, the "Accrued Dividends"). Dividends payable on
the Convertible Preferred Stock will be computed on a compounding basis
using a 360-day year of twelve 30-day months and will be deemed to accrue
on a daily basis. Dividends on the Convertible Preferred Stock shall
accrue whether or not the Company has earnings or profits, whether or
not there are funds legally available for the payment of such dividends
and whether or not dividends are declared.
(b) In no event, so long as any Convertible Preferred Stock shall
remain outstanding, shall any dividend whatsoever be declared or paid
upon, nor shall any distribution be made upon, any Junior Securities,
nor shall any shares of Junior Securities be purchased or redeemed by
the Company nor shall any moneys be paid to or made available for a
sinking fund for the purchase or redemption of any Junior Securities,
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without, in each such case, the written consent of the holders of
a majority of the outstanding shares of Convertible Preferred Stock,
voting together as a class. For the avoidance of doubt, the provisions
of this Section 3(b) shall apply even if the Company has paid quarterly
dividends to the holders of Convertible Preferred Stock pursuant to
Section 3(a).
4. Redemption
(a) The Company shall redeem each outstanding share of Convertible
Preferred Stock on the seventh anniversary of the First Closing Date
(the "Redemption Date"). On the Redemption Date, each holder of shares
of Convertible Preferred Stock shall be entitled to elect to (i) convert
such shares of Convertible Preferred Stock into Common Stock in
accordance with Section 6 or (ii) receive a cash payment from the
Company equivalent to the Stated Value of such shares of Convertible
Preferred Stock. In either case, each holder of shares of Convertible
Preferred Stock shall receive in cash any Accrued Dividends with respect
to such shares.
(b) Subject to paragraph (a) of this Section 4, the Convertible
Preferred Stock may not be redeemed at the option of the Company at
any time.
5. Liquidation Preference.
(a) If the Company shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an
order for relief in an involuntary case under any law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or make an assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in
respect of the Company shall be entered by a court having jurisdiction
in the premises in an involuntary case under the Federal bankruptcy laws
or any other applicable Federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Company
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and any such decree or order shall be unstayed
and in effect for a period of 30 consecutive days and, on account of any
such event, the Company shall liquidate, dissolve or wind up, or if the
Company shall otherwise liquidate, dissolve or wind up (each such event
being considered a "Liquidation Event"), no distribution shall be made to
the holders of any Junior Securities or other shares of capital stock of
the Company unless prior thereto, the holders of shares of Convertible
Preferred Stock shall have received the Liquidation Preference with respect
to each share. If upon the occurrence of a Liquidation Event, the assets
and funds available for distribution among the holders of the Convertible
Preferred Stock shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire
assets and funds of the Company legally available for distribution to
the Convertible Preferred Stock shall be distributed ratably among
such shares in proportion to the ratio that the
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Liquidation Preference payable on each such share bears to the
aggregate liquidation preference payable on all such shares.
(b) Upon a Change of Control, the Company shall pay to Purchaser
the Liquidation Preference with respect to the shares of Convertible
Preferred Stock owned by Purchaser after giving effect to such Change
of Control.
6. Conversion Rights.
(a) Subject to and upon compliance with the provisions of this
Section 6, at the option of the holder thereof, any Convertible Preferred
Stock may be converted at the Conversion Rate into fully paid and
nonassessable Common Stock at any time.
(b) In order to exercise the conversion rights set forth in this
Section 6, the holder of any Convertible Preferred Stock to be converted
shall surrender any instrument representing such Convertible Preferred
Stock, duly endorsed or assigned to the Company or in blank, at the
registered office of the Company, accompanied by written notice to the
Company at such office that such holder of Convertible Preferred Stock
elects to convert such Convertible Preferred Stock.
(c) Convertible Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of
surrender of such Convertible Preferred Stock for conversion in accordance
with the foregoing provisions, and at such time the rights of the holder
of such Convertible Preferred Stock shall cease with respect to such
surrendered Convertible Preferred Stock, and the person or persons
entitled to receive the Common Stock issuable upon conversion shall be
treated for all purposes as the holder or holders of such Common Stock
at such time. As promptly as practicable on or after the Conversion Date,
the Company shall issue and deliver at such office a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with (i) a cash payment in lieu of any fraction of
a share of Common Stock in accordance with Section 6(e) and (ii) a cash
payment of any Accrued Dividends with respect to the shares of Convertible
Preferred Stock surrendered for conversion.
(d) In the case of any holder of Convertible Preferred Stock that
converts part, but not all, of its Convertible Preferred Stock, upon such
conversion the Company shall execute and deliver to such holder of
Convertible Preferred Stock a new certificate representing the unconverted
portion of such holder's unconverted Convertible Preferred Stock.
(e) No fractional shares of Common Stock shall be issued upon
conversion of Convertible Preferred Stock. Instead of a fractional share
of Common Stock which would otherwise be issuable upon conversion of any
Convertible Preferred Stock, the Company shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the
Stated Value of such share of Convertible Preferred Stock or, alternatively,
the Company shall round up to the next higher whole share of Common Stock.
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(f) The Company will pay any and all transfer taxes that may be
payable in respect of the issue or delivery of Common Stock on conversion
of Convertible Preferred Stock pursuant hereto. The Company shall not,
however, be required to pay any tax which may be payable in respect of
any transfer involved in the issue and delivery of Common Stock in a
name other than that of the holder of the Convertible Preferred Stock to
be converted, and no such issue or delivery shall be make unless and
until the person requesting such issue has paid to the Company the amount
of any such tax, or has established to the satisfaction of the Company
that such tax has been paid.
7. Anti-Dilution.
In addition to any adjustments made to the Conversion Price pursuant
to Section 8, the following adjustments shall be made to the Conversion
Price:
(a) In case the Company shall pay or make a dividend or other
distribution on its Common Stock exclusively in Common Stock, the
Conversion Price in effect at the opening of business on the day next
following the date fixed for the determination of shareholders entitled
to receive such dividend or other distribution shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day
next following the date fixed for such determination. For the purposes
of this paragraph (a), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued
in lieu of fractions of shares of Common Stock. The Company shall not
pay any dividend or make any distribution on shares of Common Stock held
in the treasury of the Company.
(b) In case the Company shall pay or make a dividend or other distribution
on its Common Stock consisting exclusively of, or shall otherwise issue to
all holders of its Common Stock, rights, warrants or options entitling the
holders thereof to subscribe for or purchase shares of Common Stock at a
price per share less than the current market price per share (determined
as provided in paragraph (g) of this Section 7) of the Common Stock on
the date fixed for the determination of shareholders entitled to receive
such rights, warrants or options, the Conversion Price in effect at the
opening of business on the day following the date fixed for such
determination shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the aggregate
of the offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such current market
price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately
after the opening of business on the day following the date fixed for such
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determination. For the purposes of this paragraph (b), the number of
shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Company but shall include shares issuable
in respect of scrip certificates issued in lieu of fractions of shares
of Common Stock. The Company shall not issue any rights, warrants or
options in respect of shares of Common Stock held in the treasury of
the Company.
(c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of Common Stock shall each be
combined into a smaller number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day
upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(d) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock evidences of its indebtedness, shares
of any class of capital stock, securities, cash or property (excluding any
rights, warrants or options referred to in paragraph (b) of this Section 7,
any dividend or distribution paid exclusively in cash and any dividend or
distribution referred to in paragraph (a) of this Section 7), the Conversion
Price shall be reduced so that the same shall equal the price determined
by multiplying the Conversion Price in effect immediately prior to the
effectiveness of the Conversion Price reduction contemplated by this
paragraph (d) by a fraction of which the numerator shall be the current
market price per share (determined as provided in paragraph (g) of this
Section 7) of the Common Stock on the date of such effectiveness less
the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive and
in a written resolution of such Board of Directors and shall, in the
case of securities being distributed for which prior thereto there is
an actual or when issued trading market, be no less than the value
determined by reference to the average of the closing prices in such
market over the period specified in the succeeding sentence), on the
date of such effectiveness, of the portion of the evidences of
indebtedness, shares of capital stock, securities, cash and property
so distributed applicable to one share of outstanding Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such reduction to become effective immediately prior to the opening of
business on the day next following the later of (i) the date fixed for the
payment of such distribution and (ii) the date 20 days after the notice
relating to such distribution is given pursuant to Section 10(a) (such
later date of (i) and (ii) being referred to as the "Reference Date").
(e) In case the Company shall, by dividend or otherwise, make a
distribution to all holders of its Common Stock exclusively in cash in an
aggregate amount that, together with (i) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash
within the 12 months preceding the date of payment of such distribution
and in respect of which no Conversion Price adjustment pursuant to this
paragraph (e) has been made and (ii) the aggregate of any cash plus the
fair market value
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(as determined in good faith by the Board of Directors of the Company,
whose determination shall be conclusive and described in a written
resolution of such Board of Directors), as of the expiration of the tender
or exchange offer referred to below, of consideration payable in respect
of any tender or exchange offer by the Company or a Subsidiary of the
Company for all or any portion of the Common Stock concluded within the
12 months preceding the date of payment of such distribution and in respect
of which no Conversion Price adjustment pursuant to paragraph (f) of this
Section 7 has been made, exceeds 12.5% of the product of the current market
price per share (determined as provided in paragraph (g) of this Section
7) of the Common Stock on the date fixed for shareholders entitled to
receive such distribution times the number of shares of Common Stock
outstanding on such date, the Conversion Price shall be reduced so that
the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the effectiveness of the Conversion
Price reduction contemplated by this paragraph (e) by a fraction of which
the numerator shall be the current market price per share (determined as
provided in paragraph (g) of this Section 7) of the Common Stock on the
date of such effectiveness less the amount of cash so distributed
applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such reduction
to become effective immediately prior to the opening of business on the
later of (i) the day following the date fixed for the payment of such
distribution and (ii) the date 20 days after the notice relating to such
distribution is given pursuant to Section 10(a).
(f) In case a successful tender or exchange offer made by the
Company or any Subsidiary for all or any portion of the Common Stock shall
involve an aggregate consideration having a fair market value (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive and described in a written resolution of
such Board of Directors) at the last time (the "Expiration Time") tenders or
exchanges may be made pursuant to such tender or exchange offer (as it may
be amended) that, together with (i) the aggregate of the cash plus the
fair market value (as determined in good faith by the Board of Directors
of the Company, whose determination shall be conclusive and described in
a written resolution of such Board of Directors), as of the expiration
of the other tender or exchange offer referred to below, of consideration
payable in respect of any other tender or exchange offer by the Company or
a Subsidiary of the Company for all or any portion of the Common Stock
concluded within the preceding 12 months and in respect of which no
Conversion Price adjustment pursuant to this paragraph (f) has been made
and (ii) the aggregate amount of any distributions to all holders of the
Common Stock made exclusively in cash within the preceding 12 months and
in respect of which no Conversion Price adjustment pursuant to paragraph
(e) of this Section 7 has been made, exceeds 12.5% of the product of the
current market price per share (determined as provided in paragraph (g) of
this Section 7) of the Common Stock on the Expiration Time times the number
of shares of Common Stock outstanding (including any tendered shares) on
the Expiration Time, the Conversion Price shall be reduced (but not
increased) so that the same shall equal the price determined by multiplying
the Conversion Price in effect immediately prior to the Expiration Time by
a fraction of which the numerator shall be (i) the product of the current
market price per share (determined as provided in paragraph (g) of this
Section 7) of the Common Stock at the Expiration Time times the number
of shares of Common Stock outstanding (including
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any tendered or exchanged shares) at the Expiration Time minus (ii) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to shareholders based on the acceptance (up to any maximum specified
in the terms of the tender or exchange offer) of all shares validly tendered
or exchanged and not withdrawn as of the Expiration Time (the shares deemed
so accepted, up to any such maximum, being referred to as the "Purchased
Shares") and the denominator shall be the product of (i) such current market
price per share at the Expiration Time times (ii) such number of outstanding
shares at the Expiration Time less the number of Purchased Shares, such
reduction to become effective immediately prior to the opening of business
on the day following the Expiration Time.
(g) For the purpose of any computation under this paragraph and
paragraphs (b), (d) and (e) of this Section 7, the current market price
per share of Common Stock on any date in question shall be deemed to be
the average of the daily Closing Prices for the ten consecutive Trading
Days selected by the Company commencing not more than 20 Trading Days
before, and ending not later than, the date in question; provided,
however, that (i) if the "ex" date (as hereinafter defined) for any event
(other than the issuance or distribution requiring such computation) that
requires an adjustment to the conversion Price pursuant to paragraph (a),
(b), (c), (d), (e) or (f) above ("Other Event") occurs on or after the
20th Trading Day prior to the date in question and prior to the "ex" date
for the issuance or distribution requiring such computation (the "Current
Event"), the Closing Price for each Trading Day prior to the "ex" date
for such Other Event shall be adjusted by multiplying such Closing Price
by the same fraction by which the Conversion Price is so required to be
adjusted as a result of such Other Event, (ii) if the "ex" date for any
Other Event occurs after the "ex" date for the Current Event and on or
prior to the date in question, the Closing Price for each Trading Day on
and after the "ex" date for such Other Event shall be adjusted by
multiplying such Closing Price by the reciprocal of the fraction by which
the Conversion Price is so required to be adjusted as a result of such
Other Event, (iii) if the "ex" date for any Other Event occurs on the "ex"
date for the Current Event, one of those events shall be deemed for purposes
of clauses (i) and (ii) of this proviso to have an "ex" date occurring
prior to the "ex" date for the other event, and (iv) if the "ex" date for
the Current Event is on or prior to the date in question, after taking into
account any adjustment required pursuant to clause (ii) of this proviso,
the Closing Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the amount of any cash and the fair market value
on the date in question (as determined in good faith by the Board of
Directors of the Company in a manner consistent with any determination of
such value for purposes of paragraph (d) or (e) of this Section 7, whose
determination shall be conclusive and described in a written resolution of
such Board of Directors) of the portion of the rights, warrants, options,
evidences of indebtedness, shares of capital stock, securities, cash or
property being distributed applicable to one share of Common Stock. For
the purpose of any computation under paragraph (f) of this Section 7, the
current market price per share of Common Stock on any date in question
shall be deemed to be the average of the daily Closing Prices for the ten
consecutive Trading Days selected by the Company commencing on or after
the latest (the "Commencement Date") of (i) the date 20 Trading Days before
the date in question, (ii) the date of commencement of the tender or
exchange offer requiring such computation and (iii) the date of the last
amendment, if any, of such tender or exchange offer involving a change
in the maximum number of
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shares for which tenders are sought or a change in the consideration
offered, and ending not later than the date of the Expiration Time of
such tender or exchange offer (or, if such Expiration Time occurs before
the close of trading on a Trading Day, not later than the Trading Day
immediately preceding the date of such Expiration Time); provided,
however, that if the "ex" date for any Other Event (other than the tender
or exchange offer requiring such computation) occurs on or after the
Commencement Date and on or prior to the date of the Expiration Time for
the tender or exchange offer requiring such computation, the Closing
Price for each Trading Day prior to the "ex" date for such Other Event
shall be adjusted by multiplying such Closing Price by the same fraction
by which the Conversion Price is so required to be adjusted as a result
of such other event. For purposes of this paragraph, the term "ex" date,
(i) when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the Closing Price was
obtained without the right to receive such issuance or distribution, (ii)
when used with respect to any subdivision or combination of shares of
Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective, and (iii) when used
with respect to any tender or exchange offer means the first date on
which the Common Stock trades regular way on such exchange or in such
market after the Expiration Time of such tender or exchange offer.
(h) In the event that the Company distributes rights or warrants
(other than those referred to in paragraph (b) above) pro rata to holders
of Common Stock, so long as any such rights or warrants have not expired
or been redeemed by the Company, the Company shall make proper provision
so that the holder of any Convertible Preferred Stock surrendered for
conversion will be entitled to receive upon such conversion, in addition
to the Conversion Shares, a number of rights and warrants to be determined
as follows: (i) if such conversion occurs on or prior to the date for
the distribution to the holders of rights or warrants of separate
certificates evidencing such rights or warrants (the "Distribution Date"),
the same number of rights or warrants to which a holder of a number of
shares of Common Stock equal to the number of Conversion Shares is
entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the rights or warrants, and (ii) if such
conversion occurs after such Distribution Date, the same number of rights
or warrants to which a holder of the number of shares of Common Stock
into which the Stated Value of such Convertible Preferred Stock was
convertible immediately prior to such Distribution Date would have been
entitled on such Distribution Date in accordance with the terms and
provisions of and applicable to the rights or warrants.
8. Adjustments of Purchase Price through Adjustments of Conversion
Price.
In addition to any adjustments made to the Conversion Price pursuant
to Section 7, the adjustments set forth in this Section 8 shall be made
to the Conversion Price. Schedule A attached hereto provides an
illustration of the application of these adjustments. To the extent a
conflict arises between the provisions of this Section 8 and the attached
Schedule A, the provisions of this Section 8 shall govern.
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(a) On (i) the second and fourth anniversaries of the First Closing
Date, to the extent neither a Liquidation Event nor a Change of Control
has occurred, and (ii) upon a Liquidation Event or a Change of Control
(each, a "True-Up Date"), the Conversion Price shall be reduced by
subtracting the following amounts:
(A) the August 31 Uncollectible Loan Adjustment Amount; and
(B) the First Closing Uncollectible Loan Adjustment Amount.
"August 31 Uncollectible Loan Adjustment Amount" shall mean, as of
any True-Up Date, a fraction, expressed numerically and rounded to three
decimal places:
(i) the numerator of which is (A) the August 31 Uncollectible
Loan Amount as of the applicable True-Up Date, if such True-Up Date is
(1) the second anniversary of the First Closing Date or (2) a Liquidation
Event or Change of Control, if the second anniversary of the First Closing
Date has not yet occurred, or (B) the difference between the August 31
Uncollectible Loan Amount calculated as of the applicable True-Up Date
and the August 31 Uncollectible Loan Amount calculated as of the previous
True-Up Date, if such True-Up Date is (1) the fourth anniversary of the
First Closing Date or (2) a Liquidation Event or Change of Control, if
the second anniversary of the First Closing Date has occurred; and
(ii) the denominator of which is the Adjusted Shares as of
the applicable True-Up Date.
"August 31 Uncollectible Loan Amount" shall mean, as of any True-Up
Date, the amounts of (a) the August 31 Loans and loans funded by the
Company subsequent to August 31, 2002 pursuant to commitments made by the
Company on or prior to August 31, 2002, including all program and other
fees subject to collection by the Company (such loans and fees, the
"Additional August 31 Loans" and, together with the August 31 Loans, the
"Specified Loans"), in each case, including accrued interest on such loans
(in accordance with GAAP), and (b) the foreclosed assets held for sale by
the Company as of August 31, 2002 (the "August 31 Foreclosed Assets"), in
each case, that, without duplication, (i) the Company has written off as
uncollectible, or in the case of the August 31 Foreclosed Assets, as
unsaleable for book value, on a Company balance sheet since August 31, 2002,
(ii) the Company has refunded or otherwise forgiven since August 31, 2002
(including refunds or forgiveness of program or other fees), (iii) the
Company or its Board of Directors has reasonably decided since August 31,
2002 to write off as uncollectible, or in the case of the August 31
Foreclosed Assets, as unsaleable for book value, on a Company balance sheet,
(iv) otherwise have been or should be reserved against in accordance with
GAAP and historical practice, or (v) are Deemed Uncollectible Loans, in
each case less any actual recoveries by the Company of such amounts as of
such True-Up Date or, in the case of the August 31 Foreclosed Assets, any
gains on the sale of such assets as of such True-Up Date, and less the
August 31 Reserve Value and a provision for reserves equivalent to 1.72%
of the Additional August 31
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Loans (such reserves, collectively, the "Specified Reserve Value").
To the extent the calculation in the foregoing definition yields a number
less than zero, the August 31 Uncollectible Loan Amount shall be deemed
to be zero.
"Adjusted Shares" shall mean, as of any date, 5,400,000 shares of
Common Stock, increased or decreased, as applicable, to give effect to
the occurrence of any event prior to such date, without duplication,
that has caused an adjustment to the Conversion Price pursuant to Section
7.
"First Closing Uncollectible Loan Adjustment Amount" shall mean,
as of any True-Up Date, a fraction, expressed numerically and rounded
to three decimal places:
(i) the numerator of which is (A) the First Closing Uncollectible
Loan Amount as of the applicable True-Up Date, if such True-Up Date is
(1) the second anniversary of the First Closing Date or (2) a Liquidation
Event or Change of Control, if the second anniversary of the First
Closing Date has not yet occurred, or (B) the difference between the
First Closing Uncollectible Loan Amount calculated as of the applicable
True-Up Date and the First Closing Uncollectible Loan Amount calculated
as of the previous True-Up Date, if such True-Up Date is (1) the fourth
anniversary of the First Closing Date or (2) a Liquidation Event or Change
of Control, if the second anniversary of the First Closing Date has
occurred; and
(ii) the denominator of which is the Adjusted Shares as of the
applicable True-Up Date.
"First Closing Uncollectible Loan Amount" shall mean, as of any
True-Up Date, the amounts of (a) loans funded by the Company during the
period from September 1, 2002 through the First Closing Date (such period,
the "First Closing Adjustment Period") and loans funded subsequent to the
First Closing Date pursuant to commitments made by the Company during the
First Closing Adjustment Period, in each case, including all program and
other fees subject to collection by the Company (such loans and fees,
collectively, the "First Closing Loans") and including accrued interest
on such loans (in accordance with GAAP) and (b) assets foreclosed on by
the Company during the First Closing Adjustment Period and held for
sale by the Company as of the First Closing Date (the "First Closing
Foreclosed Assets"), in each case, that, without duplication, (i) the
Company has written off as uncollectible or, in the case of the First
Closing Foreclosed Assets, as unsaleable for book value, on a Company
balance sheet since the date of origination of the applicable loan, (ii)
the Company has refunded or otherwise forgiven since the First Closing
Date (including refunds or forgiveness of program or other fees), (iii)
the Company or its Board of Directors has reasonably decided since the
date of origination of the applicable loan to write off as uncollectible
or, in the case of the First Closing Foreclosed Assets, as unsaleable for
book value, on a Company balance sheet, (iv) otherwise have been or should
be reserved against in accordance with GAAP and historical practice, or
(v) are Deemed Uncollectible Loans, in each case less any actual recoveries
by the Company of such amounts or, in the case of the First Closing
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Foreclosed Assets, any gains on the sale of such assets as of such True-Up
Date, and less a provision for reserves equivalent to 1.72% of the First
Closing Loans. To the extent the calculation in the foregoing definition
yields a number less than zero, the First Closing Uncollectible Loan Amount
shall be deemed to be zero.
"Deemed Uncollectible Loans" shall mean, with respect to any outstanding
loan made by the Company to a customer, the difference between (i) the
principal amount of such loan plus accrued interest thereon (in accordance
with GAAP) and (ii) the Asset Value relating to the assets securing such loan.
"Asset Value" shall mean (A)(1) 90% of the value of farm products (as defined
by the Uniform Commercial Code of the applicable state, the "Farm Products")
that are crops for which loan deficiency payments or loan support programs
under the Farm Security and Rural Investment Act of 2002 (the "Farm Bill")
are available, but only to the extent such crops remain eligible for such
benefits under the Farm Bill, (2) 70% of the value (or portion thereof) of
Farm Products that are crops for which loan deficiency payments or loan
support payments under the Farm Bill are not available and in respect of
which the applicable customer has entered into a contract for sale to a
counterparty who, in the reasonable opinion of Purchaser, is creditworthy,
(3) 70% of the value of multi-peril crop insurance underwritten by the
Federal Crop Insurance Corporation, for which the Company is the loss payee,
in respect of Farm Products that are crops covered by such insurance,
financed under the Company's Credit and Collection Policy, currently being
planted or grown, and for which the Company has a first priority lien, less
any non-subordinated rents and payments (provided that this clause (3)
shall be included in the calculation of Deemed Uncollectible Loans only if
the Company has verified that such crop is being planted or grown in
accordance with the requirements of the Federal Crop Insurance Corporation
and, in any event, shall be included only on the first True-Up Date), (4)
50% of the value of all other Farm Products, in each case, for which a
written confirmation has been received by the Company from a person
reasonably satisfactory to Purchaser, which confirmation shall be dated no
earlier than 45 days prior to the applicable True-Up Date, and the value
of such farm products shall be as set forth in such written confirmation,
(B) 75% of the value of equipment (as defined by the Uniform Commercial
Code of the applicable state) that is used for farming or that Purchaser
otherwise reasonably determines shall be included in the determination of
such value, for which a written appraisal has been received by the Company
from a person reasonably satisfactory to Purchaser, which appraisal shall
be dated no earlier than one year prior to the applicable True-Up Date,
and the value of such equipment shall be as set forth in such written
appraisal, (C) 85% of the value real property for which a written
appraisal has been received by the Company from a person reasonably
satisfactory to Purchaser, which appraisal shall be dated no earlier than
three years prior to the applicable True-Up Date, and the value of such
real property shall be as set forth in such written appraisal, and (D)
the value of other verifiable collateral, including third party claims
(such as bank claims and grain buyer claims), approved by the Company's
independent accountants and Purchaser, in the case of each of clauses
(A), (B), (C) and (D), less the amount of claims in respect of such
assets that are senior or pari passu in right of payment to the Company's
claim to such assets or as otherwise approved by the Company's independent
accountants and Purchaser. For purposes of calculating Asset Value, to
the extent the same assets secure different loans
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made by the Company to a customer, such assets shall be deemed to secure
such loans extended by the Company to such customer in reverse
chronological order.
(b) As long as neither a Liquidation Event nor a Change of Control
has occurred, on the fifth anniversary of the First Closing Date (the
"Final True-Up Date"), the Conversion Price shall be reduced by
subtracting the August 31 Final Uncollectible Loan Adjustment Amount and
the First Closing Final Uncollectible Loan Adjustment Amount.
The "August 31 Final Uncollectible Loan Adjustment Amount" shall
mean a fraction, expressed numerically and rounded to three decimal places:
(i) the numerator of which is the sum of the outstanding
amounts of (A) the Specified Loans, including accrued interest thereon
(in accordance with GAAP), and (B) any August 31 Foreclosed Assets, less
(1) the amount of any Specified Loans that are current intermediate loans
that are not more than 90 days past due (or are otherwise approved by
the Company's independent accountants and Purchaser) and are not Deemed
Uncollectible Loans, (2) the August 31 Uncollectible Loan Amount as of
the immediately preceding True-Up Date and (3) the Specified Reserve
Value; and
(ii) the denominator of which is the Adjusted Shares as of
such Final True-Up Date;
provided, however, that to the extent the above calculation yields a number
less than zero, the August 31 Final Uncollectible Loan Adjustment Amount
shall be deemed to be zero.
The "First Closing Final Uncollectible Loan Adjustment Amount" shall
mean a fraction, expressed numerically and rounded to three decimal places:
(i) the numerator of which is the sum of the outstanding amounts
of (A) the First Closing Loans, including accrued interest thereon (in
accordance with GAAP), and (B) any First Closing Foreclosed Assets, less (1)
the amount of any First Closing Loans that are current intermediate loans
that are not more than 90 days past due (or are otherwise approved by the
Company's independent accountants and Purchaser) and are not Deemed
Uncollectible Loans, (2) the First Closing Uncollectible Loan Amount as of
the immediately preceding True-Up Date and (3) a provision for reserves
equivalent to 1.72% of the First Closing Loans; and
(ii) the denominator of which is the Adjusted Shares as of such
Final True-Up Date;
provided, however, that to the extent the above calculation yields a number
less than zero, the First Closing Final Uncollectible Loan Adjustment Amount
shall be deemed to be zero.
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For purposes of the definitions of August 31 Final Uncollectible
Loan Adjustment Amount and First Closing Final Uncollectible Loan Adjustment
amount, (a) clause (A) of such definitions shall not include any outstanding
loans to a customer if (i) the balance of all loans made to such customer by
the Company is secured by multi-peril crop insurance underwritten by the
Federal Crop Insurance Corporation and Farm Service Agency program payment
collateral and the Company has applied a credit factor of less than 95% to
such collateral after the reduction of non-subordinated rents and payments,
provided that the Company verified that the applicable crop is being planted
or grown in accordance with the requirements of the Federal Crop Insurance
Corporation (all of the underwriting procedures described in this clause (i)
to be consistent with the Credit and Collection Policy) (ii) the repayment
of such customer's loans to the Company since the First Closing Date have in
no case been more than six months past due (or such longer period for certain
crops, excluding corn, soybeans and potatoes, as may be approved by Purchaser
in its sole discretion), (iii) such customer has not carried any material
rollover or carryover balances (as defined in the Company's Credit and
Collection Policy) since the First Closing Date and such customer has not
carried any rollover or carryover balances (as defined in the Company's
Credit and Collection Policy) in more than one year since the First Closing
Date and (iv) in the reasonable opinion of Purchaser, such customer is
creditworthy and is capable of repaying its loan balances to the Company
on the Final True-Up Date, (b) the August 31 Final Uncollectible Loan
Adjustment Amount and First Closing Final Uncollectible Loan Adjustment
Amount shall each be reduced by up to 38.5% to the extent the Company has
written off any amounts specified in clause (A) or (B) of the respective
definitions and to the extent the Company had sufficient current taxable
income at the time of the applicable write-off such that, in the reasonable
opinion of Purchaser's independent accountants, the Company received a
current cash tax benefit (excluding the creation of a deferred tax asset)
from such write-off (provided that any reduction of the August 31 Final
Uncollectible Loan Adjustment Amount or First Closing Final Uncollectible
Loan Adjustment Amount pursuant to this clause (b) shall be subject to
audit of the current tax benefit by the applicable taxing authorities), and
(c) the term "outstanding amounts" of loans or foreclosed assets shall be
deemed to include (i) any loans written off as uncollectible or assets
written off as unsaleable for book value, as applicable, on a Company balance
sheet on or prior to the Final True-Up Date and (ii) any loans refunded
or otherwise forgiven on or prior to the Final True-Up Date (including
refunds or forgiveness of program or other fees).
(c) For purposes of calculating adjustments to the Conversion Price
pursuant to this Section 8, upon Purchaser's request, the Company promptly
shall provide Purchaser (or an entity designated by Purchaser) with copies
of any confirmations and appraisals received in connection with the
determination of Asset Value. The Company shall also establish and
maintain, on a monthly basis and as of each True-Up Date, a tracking
document (the "Tracking Document") that (i) contains information regarding
each customer of the Company who has received loans from the Company that
are outstanding as of the First Closing Date, including the amount of loans
to such customer by the Company (both outstanding loans as well as new
extensions of credit), the accrued interest on such loans, the accrual
status of such loans, the value of reserves established for such loans,
the amount of such loans that the Company has written off as
-17-
uncollectible, the amount of any payments made by such customer and a
description of the manner in which the Company has applied such payments
to outstanding loans, and (ii) contains a certification by the chief
financial officer of the Company that such information is accurate and
complete in all respects. All approvals required under this Section 8
shall be in writing and shall be referenced in the Tracking Document.
The Company shall provide a copy of the Tracking Document to Purchaser
(or an entity designated by Purchaser) on a monthly basis and shall make
such changes to the types of information contained in such document as
Purchaser reasonably requests. The Tracking Document as of the True-Up
Date shall be reviewed by an accounting firm chosen by Purchaser, in its
sole discretion.
(d) For purposes of this Section 8, (i) notwithstanding the
Company's policy with respect to the application of loan proceeds, the
Company shall be deemed to have used the last-in-first-out method of
applying loan proceeds to outstanding loans and all repayments of loans
by a customer to the Company shall be deemed to apply to the loans extended
by the Company to such customer in reverse chronological order and (ii)
all persons who have received loans from the Company and are (A) members
of the same family (including a parent, stepparent, grandparent, child,
stepchild, grandchild, spouse, sibling, niece, nephew, aunt, uncle,
cousin, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law, and including adoptive relationships),
(B) persons sharing a household (other than a tenant or employee) or (C)
affiliated entities are deemed to be one "customer" of the Company.
Notwithstanding the deemed application of proceeds set forth in
clause (i) above, (i) any cash proceeds received by the Company on or
prior to August 31, 2003 from the sale or receipt of Liquid Collateral
securing a loan made by the Company to a customer prior to a 2003
Agriflex Loan (as defined in the Credit and Collection Policy) being made
by the Company to such customer (a "2003 Prior Year Loan Repayment")
will be applied to loans made by the Company to such customer in reverse
chronological order, beginning with the loan made to such customer
immediately prior to the 2003 Agriflex Loan, provided that the 2003
Agriflex Loan made to such customer (A) is not secured, in whole or
in part, by such Liquid Collateral and (B) is secured by multi-peril
crop insurance underwritten by the Federal Crop Insurance Corporation
and Farm Service Agency program payment collateral, and the Company has
applied a credit factor of less than 100% to such collateral after the
reduction of non-subordinated rents and payments (all of the underwriting
procedures described in this clause (B) to be consistent with the Credit
and Collection Policy), and (ii) any cash proceeds received by the
Company on or prior to August 31, 2004 from the sale or receipt of Liquid
Collateral securing a loan made by the Company to a customer prior to a
2004 Agriflex Loan (as defined in the Credit and Collection Policy) being
made by the Company to such customer (a "2004 Prior Year Loan Repayment")
will be applied to loans made by the Company to such customer in reverse
chronological order, beginning with the loan made to such customer
immediately prior to the 2004 Agriflex Loan made to such customer, provided
that the 2004 Agriflex Loan made to such customer (A) is not secured, in
whole or in part, by such Liquid Collateral and (B) is secured by
multi-peril crop insurance underwritten by the Federal Crop Insurance
Corporation and Farm Service Agency program payment
-18-
collateral, and the Company has applied a credit factor of less than 100%
to such collateral after the reduction of non-subordinated rents and payments
(all of the underwriting procedures described in this clause (B) to be
consistent with the Credit and Collection Policy).
"Liquid Collateral" shall mean, with respect to any customer, (i)
crops for which the Company provides Agriflex financing and for which the
loan made to such customer immediately prior to the 2003 Agriflex Loan or
2004 Agriflex Loan, as applicable, was intended to provide financing and
(ii) multi-peril crop insurance proceeds in respect of claims filed for
crop losses prior to 2003, in the case of a 2003 Prior Year Loan Repayment,
or prior to 2004, in the case of a 2004 Prior Year Loan Repayment, (iii)
Farm Service Agency program payment collateral and (iv) cash.
(e) For the avoidance of doubt, (i) the Conversion Price shall not,
in any case, increase above 8.500 pursuant to this Section 8 and (ii)
reductions to the Conversion Price pursuant to this Section 8 shall not be
made more than once in respect of a single portion of an outstanding loan
by the Company to a customer.
(f) The Company agrees that, for purposes of this Section 8, the
receipt of proceeds by the Company from a customer in excess of the accrued
amount of such customer's loans shall not be used to offset any uncollected
amounts of other customers' loans.
(g) The Company acknowledges and agrees that it has not made and shall
not make a loan to any person for the purpose of inducing, directly or
indirectly, repayment of a loan that would affect the August 31
Uncollectible Loan Amount, the First Closing Date Uncollectible Loan Amount
or the Final Uncollectible Loan Adjustment Amount. The Company further
acknowledges and agrees that the provisions of this Section 8 are designed
to operate as adjustments to the Purchase Price paid by Purchaser to the
Company pursuant to the Securities Purchase Agreement.
9. Notice of Adjustments of Conversion Price.
Whenever the Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in
accordance with Sections 7 and 8 and shall prepare a certificate signed
by the Treasurer of the Company setting forth the adjusted Conversion
Price and showing in reasonable detail the facts upon which such adjustment
is based, and such certificate shall forthwith be filed (with a copy to
Purchaser) at each office or agency maintained for the purpose of
conversion of Convertible Preferred Stock pursuant to Section 6; and
(b) a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price shall forthwith be required,
and as soon as practicable after it is required, such notice shall be
mailed by the Company to all holders of Convertible Preferred Stock at
their last address of record.
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10. Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock that would require a conversion price adjustment
pursuant to Section 7;
(b) the Company shall authorize the granting to all holders of its
Common Stock of rights, warrants or options to subscribe for or purchase
any shares of capital stock of any class or of any other rights (excluding
rights distributed pursuant to any shareholder rights plan);
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of
Common Stock), or of any consolidation or merger to which the Company
is a party and for which approval of any shareholders of the Company
is required, or of the sale or transfer of all or substantially all of
the assets of the Company;
(d) of the voluntary or involuntary dissolution, liquidation or
winding, up of the Company; or
(e) the Company or any Subsidiary of the Company shall commence a
tender or exchange offer for all or a portion of the Company's outstanding
shares of Common Stock (or shall amend any such tender or exchange offer);
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of the Convertible Preferred Stock pursuant to
Section 6, and shall cause to be mailed to all holders of Convertible
Preferred Stock at their last addresses of record, at least 20 days (or 10
days in any case specified in clause (a) or (b) above) prior to the
applicable record, effective or expiration date hereinafter specified, a
notice stating (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or granting of rights, warrants or
options, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, rights, warrants or options are to be determined, or (ii)
the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up, or (iii) the date on which such tender offer
commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms
thereof (or the material terms of any amendment thereto).
11. Voting Rights
(a) The holders of Convertible Preferred Stock shall be entitled
to vote on all matters submitted to a vote of the holders of Common Stock
(whether pursuant to the Articles of Incorporation, the By-Laws, the IBCA
or otherwise) and shall vote with the
-20-
holders of Common Stock as a single class. The holders of
Convertible Preferred Stock shall collectively be entitled to a number
of votes equal to the sum of (i) the number of shares of Common Stock
into which the issued and outstanding shares of Convertible Preferred
Stock are convertible, (ii) prior to the consummation of the Second
Closing (as defined in the Securities Purchase Agreement), the number of
shares of Common Stock into which the Convertible Preferred Stock to be
issued on the Second Closing is convertible, as if such shares of
Convertible Preferred Stock have been issued as of the date of the
applicable vote, and (iii) prior to the consummation of the Third Closing
(as defined in the Securities Purchase Agreement), the number of shares
of Common Stock into which the Convertible Preferred Stock to be issued
on the Third Closing is convertible, as if such shares of Convertible
Preferred Stock have been issued as of the date of the applicable vote.
Such votes shall be divided among the holders of the Convertible Preferred
Stock on a pro rata basis. The record date for the taking of the
applicable vote shall be the date as of which the Conversion Price is
calculated.
(b) The Company shall provide each holder of Convertible Preferred
Stock with prior notification of any meeting of the shareholders of the
Company and copies of proxy materials and other information sent to
shareholders. In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire (including by way
of merger, consolidation or recapitalization) any share of any class or
any other securities or property, or to receive any other right, or for
the purpose of determining shareholders who are entitled to vote in
connection with any proposed sale, lease or conveyance of all or
substantially all of the assets of the Company, or any proposed
liquidation, dissolution or winding up of the Company, the Company shall
mail a notice to each holder, at least 10 days prior to the record date
specified therein (or 30 days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any
such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the
amount and character of such dividend, distribution, right or other
event to the extent known at such time.
(c) In addition to the voting rights described in paragraph (a)
of this Section 11, (i) the holders of a majority of the outstanding
shares of Convertible Preferred Stock, voting together as a class, shall
have the ability to cause the Company to commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law or otherwise liquidate, dissolve
or wind up the affairs of the Company and (ii) the board of directors of
the Company shall not cause the occurrence of any of the events set forth
in the foregoing clause (i) without the written consent of the holders of
a majority of the outstanding shares of Convertible Preferred Stock,
voting together as a class. For the avoidance of doubt, each such event
shall constitute a Liquidation Event pursuant to Section 5.
12. Protective Provisions.
So long as shares of Convertible Preferred Stock are outstanding,
the Company shall not, without first obtaining the approval (by vote or
written consent, as provided by
-21-
the IBCA) of the holders of at least a majority of the then outstanding
shares of Convertible Preferred Stock:
(a) alter, amend or repeal the rights, preferences or privileges
of the Convertible Preferred Stock or any capital stock of the Company
so as to affect adversely the Convertible Preferred Stock;
(b) create any new class or series of capital stock (i) having a
preference over the Convertible Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Company or (ii)
that is mandatorily redeemable or must be purchased upon the occurrence of
certain events or otherwise, in whole or in part;
(c) create any new class or series of capital stock ranking in
parity with the Convertible Preferred Stock as to distribution of assets
upon liquidation, dissolution or winding up of the Company;
(d) increase the authorized number of shares of Convertible
Preferred Stock;
(e) increase the par value of the Common Stock;
(f) issue any additional shares of Convertible Preferred Stock
except pursuant to the Securities Purchase Agreement; or
(g) do any act or thing not authorized or contemplated by this
Certificate of Designations which would result in taxation of the holders
of shares of the Convertible Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
12. Arbitration
(a) With respect to any controversy, dispute or claim arising out of,
or in connection with, the determination of adjustments to the Conversion
Price pursuant to Section 7 or 8 hereof (a "Calculation Dispute"), the
parties shall use their reasonable best efforts to resolve such a
Calculation Dispute during the period of 15 days commencing when one party
notifies the other party in writing of such a Calculation Dispute (the
"Negotiation Period"). In the event any Calculation Dispute remains, the
parties agree to submit for arbitration any such remaining Calculation
Disputes to a nationally recognized independent public accounting firm as
shall be selected by Purchaser and the Company in writing (the "Arbitrator").
To the extent the parties are unable to select an Arbitrator, each party
shall promptly select a public accounting firm (the "Representative Firms"),
and such Representative Firms shall select the Arbitrator within five days
of their selection. Within 15 business days after the selection of the
Arbitrator, Purchaser and the Company shall submit, in the form of written
brief, their positions with respect to any and all remaining Calculation
Disputes. Purchaser and the Company shall use reasonable efforts to cause
the Arbitrator to render a written decision resolving the remaining
Calculation Disputes solely on such written submissions within 30 days
of such submission. If either party fails to make its submission within
15 business days
-22-
following the selection of the Arbitrator, the Arbitrator shall be required
to decide on the basis of submissions made to it within such 15 business
day period.
(b) Any award rendered by the Arbitrator shall be final, binding
and unappealable except as provided in the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq., and judgment may be entered on any such award by any
state or federal court having competent jurisdiction.
(c) The Arbitrator shall determine which party's position is closer
to its determination (the "Victorious Party"). All costs of any arbitration
pursuant to this Section shall be borne by the party that is not the
Victorious Party.
(d) Notwithstanding paragraphs (a), (b) and (c) of this Section 12,
no Arbitrator, court, judge, jury or other decision maker in any legal
proceeding shall determine whether any approval granted or denied by
Purchaser pursuant to Section 8 of this Certificate of Designations was
reasonable or otherwise appropriate.
13. Transfer Restrictions.
(a) Shares of Convertible Preferred Stock have not been registered
under the Securities Act and shall be "restricted securities" within the
meaning of Rule 144 under the Securities Act. The Convertible Preferred
Stock may not be offered or sold except pursuant to an effective registration
statement or in accordance with an applicable exemption from the registration
requirements of the Securities Act.
(b) Each share of Convertible Preferred Stock will contain the legend
required pursuant to Section 3.08 of the Securities Purchase Agreement.
-23-
IN WITNESS WHEREOF, this Certificate of Designations, Preferences
and Rights is executed on behalf of the Company this [ ] day of
[ ].
AG SERVICES OF AMERICA, INC.
By:
--------------------------
Name:
Title:
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ANNEX C
SHAREHOLDER VOTING AGREEMENT
among
ASP/ASA, LLC
and
THE INDIVIDUALS LISTED ON THE SIGNATURE PAGE HERETO
Dated as of February 21, 2003
TABLE OF CONTENTS
Page
----
SECTION 1. Representations and Warranties of the Shareholders 1
SECTION 2. Representations and Warranties of Purchaser 2
SECTION 3. Covenants of the Shareholder 3
SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy 4
SECTION 5. Further Assurances 5
SECTION 6. Certain Events 5
SECTION 7. Assignment 5
SECTION 8. Termination 5
SECTION 9. General Provisions 5
SECTION 10. Enforcement 7
SECTION 11. Shareholder Capacity 7
SECTION 12. Headings 7
SHAREHOLDER VOTING AGREEMENT dated as of February 21, 2003
(this "Agreement"), among ASP/ASA, LLC, a Delaware limited
liability company ("Purchaser") and an indirect subsidiary of
AMERICAN SECURITIES CAPITAL PARTNERS, LLC and THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE HERETO (such persons are individually
referred to herein as a "Shareholder" and collectively as the
"Shareholders").
WHEREAS Purchaser and Ag Services of America, Inc., an Iowa
corporation (the "Company"), propose to enter into a Securities Purchase
Agreement dated as of the date hereof (as the same may be amended or
supplemented, the "Securities Purchase Agreement"; terms used but not defined
herein shall have the meanings set forth in the Securities Purchase Agreement)
providing for the purchase by the Purchaser of 70,000 shares of the
Company's 8.375% Convertible Preferred Stock (the "Securities Purchase"),
upon the terms and subject to the conditions set forth in the Securities
Purchase Agreement;
WHEREAS each Shareholder owns (of record and beneficially) the number
of shares of capital stock of the Company set forth on Schedule A hereto (such
shares of capital stock of the Company being referred to herein as the
Shareholders' "Original Shares"; the Original Shares, together with any other
shares of capital stock of the Company or other voting securities of the
Company acquired (of record or beneficially) by each Shareholder, after the
date hereof and during the term of this Agreement (including through the
exercise of any warrants, stock options or similar instruments), being
collectively referred to herein as the Shareholders' "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the
Securities Purchase Agreement, Purchaser has required that the Shareholders
enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein
and in the Securities Purchase Agreement, the parties hereto agree as
follows:
SECTION 1. Representations and Warranties of the Shareholders.
Each Shareholder hereby represents and warrants to Purchaser as follows:
(a) Execution and Delivery; Enforceability. This Agreement has been
duly executed and delivered by such Shareholder and, assuming the due
authorization, execution and delivery by Purchaser, constitutes a valid and
binding obligation of such Shareholder, enforceable against such Shareholder
in accordance with its terms, except to the extent enforceability may be
subject to general principles of equity or limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws. The execution and delivery by such
Shareholder of this Agreement and the consummation of the transactions
contemplated by this Agreement and compliance by such Shareholder with the
-1-
provisions of this Agreement do not and will not conflict with, or result
in any violation or breach of, or default (with or without notice or lapse
of time, or both), or give rise to a right of, or result in, termination,
cancelation or acceleration of any obligation or to loss of a material
benefit under, or result in the creation of any Lien in or upon any of the
properties or assets of such Shareholder under, or give rise to any
increased, additional, accelerated or guaranteed rights or entitlements
under, any provision of (i) any loan or credit agreement, bond, debenture,
note, mortgage, indenture, lease or other contract, commitment, agreement,
instrument, arrangement, understanding, obligation, undertaking, permit,
concession, franchise or license to which such Shareholder is a party or
any of his or its properties or assets is subject or (ii) subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in the following
sentence, any (A) statute, law, ordinance, rule or regulation or
(B) judgment, order or decree, in each case, applicable to such Shareholder
or his properties or assets. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity
is required by or with respect to the Shareholder in connection with the
execution and delivery of this Agreement by the Shareholder, the
consummation by such Shareholder of the transactions contemplated by this
Agreement or the compliance by such Shareholder with the provisions of
this Agreement, except for (1) the filing with the SEC of such reports under
the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby and (2) such other consents, approvals,
orders, authorizations, registrations, declarations and filings the failure
of which to be obtained or made individually or in the aggregate would not
or would not reasonably be expected to impair in any material respect the
ability of such Shareholder to perform his obligations under this Agreement
or prevent the consummation of any of the transactions contemplated by
this Agreement.
(b) The Subject Shares. Such Shareholder is the record and
beneficial owner of, and has good and marketable title to, the Subject
Shares, free and clear of any Liens, other than those Liens set forth on
Schedule B hereto. Other than as set forth on Schedules A and B hereto,
(1) such Shareholder does not own (of record or beneficially) any shares
of capital stock of the Company or any options, warrants, rights or other
similar instruments to acquire any capital stock or other voting
securities of the Company, (2) such Shareholder has the sole right to vote
and Transfer (as defined in Section 3(c)) the Subject Shares, and
(3) the Subject Shares are not subject to any proxies, voting trust or
other agreement, understanding, arrangement or restriction with respect
to the voting or the Transfer of the Subject Shares, in each case, except
as set forth in Sections 3 and 4 of this Agreement or arising under
federal or state security laws.
SECTION 2. Representations and Warranties of Purchaser.
Purchaser represents and warrants to each Shareholder as follows:
(a) Organization and Authority. Purchaser is a limited liability
company duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate power
and authority to conduct its business as presently conducted.
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(b) Authorization; Noncontravention. Purchaser has the requisite
corporate power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated by this Agreement and to comply
with the provisions of this Agreement. This Agreement has been duly executed
and delivered by Purchaser and, assuming the due execution and delivery by
each Shareholder, constitutes a valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms. The execution
and delivery by Purchaser of this Agreement and the consummation of the
transactions contemplated by this Agreement and compliance by Purchaser
with the provisions of this Agreement do not and will not conflict with,
or result in any violation or breach of, or default (with or without
notice or lapse of time, or both) under, (i) any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
Purchaser is a party or by which Purchaser is bound or to which any of
the property or assets of Purchaser is subject, (ii) the provisions of
the charter, by-laws or other constitutive documents of Purchaser or
(iii) any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over Purchaser or
any of its properties or assets except, in the cases of clause (i) or
(iii), such breaches, violations or defaults that, individually or in
the aggregate, could not or could not reasonably be expected to result
in a Material Adverse Effect.
SECTION 3. Covenants of the Shareholder. Each Shareholder
covenants and agrees as follows:
(a) At any meeting of the shareholders of the Company called to
vote upon the Securities Purchase Agreement, the Securities Purchase or
any of the other transactions or matters contemplated by the Securities
Purchase Agreement (including those specified in Section 2.06(b) of the
Securities Purchase Agreement), or at any adjournment thereof, or in any
other circumstances upon which a vote, consent or other approval
(including by written consent) with respect to the Securities Purchase
Agreement, the Securities Purchase or any of the other transactions or
matters contemplated by the Securities Purchase Agreement is sought,
such Shareholder shall vote (or cause to be voted) all the Subject Shares
in favor of, and shall consent to (or cause to be consented to), the
approval of the Securities Purchase Agreement, the Securities Purchase
and the terms thereof and each of the other transactions and matters
contemplated by the Securities Purchase Agreement.
(b) At any meeting of the shareholders of the Company or at any
adjournment thereof or in any other circumstances upon which a vote,
consent or other approval (including by written consent) of the shareholders
of the Company is sought, such Shareholder shall vote (or cause to be voted)
all the Subject Shares against, and shall not consent to (and shall cause
not to be consented to with respect to the Subject Shares) any amendment of
the Company's articles of incorporation or by-laws or other proposal, action
or transaction involving the Company or any of its subsidiaries or any of
its shareholders, which amendment or other proposal, action or transaction
would in any manner impede, frustrate, prevent or delay the consummation
of the Securities Purchase or the other transactions and matters
contemplated by the Securities Purchase Agreement or this Agreement or
change in any manner the voting rights of the holders of Company Common
Stock (collectively, "Frustrating Transactions").
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(c) Until the date of the First Closing, except for liens or
security interests pursuant to loans listed in, and as otherwise described
in, Schedule B, such Shareholder shall not (i) sell, transfer, pledge,
assign or otherwise dispose of (including by gift) (collectively,
"Transfer"), or consent to or permit any Transfer of, any Subject Shares
or any interest therein, or enter into any loan or credit agreement,
bond, debenture, note, mortgage, indenture, lease or other contract,
commitment, agreement, option, instrument, arrangement, understanding,
obligation or undertaking, with respect to the Transfer (including any
profit sharing or other derivative arrangement) of any Subject Shares
or any interest therein, to any person other than pursuant to this
Agreement or the Securities Purchase Agreement, unless prior to any such
Transfer the transferee of such Subject Shares enters into a shareholder
agreement with Purchaser on terms substantially identical to the terms
of this Agreement or (ii) enter into any voting arrangement, whether by
proxy, voting agreement or otherwise, with respect to any Subject Shares
and shall not commit or agree to take any of the foregoing actions,
other than pursuant to this Agreement. Such Shareholder shall not, nor
shall such Shareholder permit any entity under such Shareholder's control
to, deposit any Subject Shares in a voting trust.
SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Each Shareholder hereby irrevocably grants to, and appoints, Purchaser
and any individual designated in writing by Purchaser, such Shareholder's
proxy and attorney-in-fact (with full power of substitution), for and in
the name, place and stead of such Shareholder, to vote all of the Subject
Shares, or grant a consent or approval in respect of the Subject Shares,
(i) in favor of the approval of the Securities Purchase Agreement and
the approval of the terms thereof and of the Securities Purchase and each
of the other transactions and matters contemplated by the Securities
Purchase Agreement (including those specified in Section 2.06(b) of the
Securities Purchase Agreement), (ii) against any Frustrating Transaction
and (iii) otherwise in accordance with Section 3 of this Agreement.
Each Shareholder understands and acknowledges that Purchaser is entering
into the Securities Purchase Agreement in reliance upon such Shareholder's
execution and delivery of this Agreement.
(b) Each Shareholder represents that any proxies heretofore given
in respect of the Subject Shares are not irrevocable, and that all such
proxies are hereby revoked.
(c) Each Shareholder hereby affirms that the irrevocable proxy
set forth in this Section 4 is given in connection with the execution of
the Securities Purchase Agreement, and that such irrevocable proxy is given
to secure the performance of the duties of such Shareholder under this
Agreement. Each Shareholder hereby further affirms that the irrevocable
proxy is coupled with an interest and may under no circumstances be
revoked. Each Shareholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue hereof.
Each such irrevocable proxy is executed and intended to be irrevocable
in accordance with the provisions of Section 490.722 of the Iowa Business
Corporation Act.
(d) The proxy granted in this Section 4 shall automatically expire
upon the termination of this Agreement.
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SECTION 5. Further Assurances. Each Shareholder shall, from time
to time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Purchaser
may reasonably request for the purpose of effectuating the matters covered
by this Agreement, including with respect to the grant of the proxy set forth
in Section 4.
SECTION 6. Certain Events. Each Shareholder agrees that this
Agreement and the obligations hereunder shall attach to the Subject Shares
and shall be binding upon any person or entity to which legal or beneficial
ownership of the Subject Shares shall pass, whether by operation of law or
otherwise, including such Shareholder's heirs, guardians, administrators
or successors. In the event of any stock split, stock dividend,
reclassification, merger, reorganization, recapitalization or other change
in the capital structure of the Company affecting the capital stock of the
Company, the number of Original Shares and the number of Subject Shares
listed on Schedule A hereto shall be adjusted appropriately. In addition,
in the event that any Shareholder acquires any additional shares of capital
stock of the Company or other voting securities of the Company (including
through the exercise of any warrants, stock options or similar
instruments), the number of Subject Shares listed on Schedule A hereto
shall be adjusted appropriately. This Agreement and the representations,
warranties, covenants, agreements and obligations hereunder shall attach
to any additional shares of capital stock of the Company or other voting
securities of the Company issued to or acquired by any Shareholder
(including through the exercise of any warrants, stock options or similar
instruments).
SECTION 7. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned,
in whole or in part, by operation of law or otherwise, by either of the
parties hereto without the prior written consent of the other party hereto,
except that Purchaser may assign, in its sole discretion, any of or all
its rights, interests and obligations under this Agreement to any direct
or indirect wholly owned subsidiary of Purchaser. Any purported assignment
in violation of this Section 7 shall be null and void. Subject to the
preceding sentences of this Section 7, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by, the parties hereto and their
respective successors and assigns.
SECTION 8. Termination. This Agreement shall terminate upon the
termination of the Securities Purchase Agreement in accordance with its
terms. No termination of this Agreement shall relieve any party hereto from
any liability for any breach of any provision of this Agreement prior to
termination.
SECTION 9. General Provisions. (a) Amendments. This Agreement
may not be amended except by an instrument in writing signed on behalf of
each of the parties.
(b) Notices. All notices required or permitted to be given under
the terms hereof shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by regular
-5-
United States mail, or upon receipt, if delivered personally or by
courier (including a recognized overnight delivery service) or by facsimile,
in each case addressed to a party. The addresses for such communications
all notices, requests, consents and other communications hereunder shall be:
if to the Purchaser:
ASP/ASA, LLC
666 Third Avenue, 29th Floor
New York, New York 10117
Attention: Marc L. Saiontz
Facsimile: (212) 697-5524
if to the Shareholders:
c/o Kevin D. Schipper
Ag Services of America, Inc.
1309 Technology Parkway
P.O. Box 668
Cedar Falls, IA 50613
Facsimile: (319) 277-0277
(c) Interpretation. The representations, warranties and
covenants contained herein shall be deemed to be made severally, and not
jointly, by each of the Shareholders.
(d) Counterparts; Effectiveness. This Agreement may be executed
by any one or more of the parties hereto in any number of counterparts, each
of which shall be deemed to be an original, but all such respective
counterparts shall together constitute one and the same instrument. The
effectiveness of this Agreement shall be conditioned upon the execution
and delivery of the Securities Purchase Agreement by each of the parties
thereto.
(e) Entire Agreement; No Third-Party Beneficiaries. This
Agreement constitutes the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred
to herein and therein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof. This Agreement is for the sole benefit of the parties
hereto, their permitted assigns (consistent with Section 7 of this
Agreement) and the persons specified as proxies in Section 4, and nothing
herein expressed or implied shall give or be construed to give to any
person, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
-6-
(g) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule
or law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal
or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 10. Enforcement. Each party hereto irrevocably submits
to the exclusive jurisdiction of the courts of the United States District
Court for the Southern District of New York (or, if subject matter
jurisdiction in that court is not available, in any state court located
within the city of New York) over any dispute arising out of or relating
to this Agreement or any agreement or instrument contemplated hereby or
entered into in connection herewith or any of the transactions contemplated
hereby or thereby. Each party hereto irrevocably consents to the service
of any and all process in any action or proceeding arising out of or
relating to this Agreement by the mailing of copies of such process to
such party at their address specified in Section 9(b).
SECTION 11. Shareholder Capacity. The Shareholder does not make
any agreement or understanding herein in his capacity as a director or
officer of the Company. The Shareholder signs solely in his capacity as
the record holder and beneficial owner of, or the trustee of one or more
trusts that are the record holder of, and whose beneficiaries are the
beneficial owners of, the Subject Shares and nothing herein shall limit
or affect any actions taken by the Shareholder in his capacity as an
officer or director of the Company.
SECTION 12. Headings. Section headings are used for convenience
only and shall in no way affect the construction of this Agreement.
-7-
IN WITNESS WHEREOF, Purchaser has caused this Agreement to be
signed by its officer thereunto duly authorized and each Shareholder has
signed this Agreement, all as of the date first written above.
ASP/ASA, LLC,
by
--------------------
Name:
Title:
SHAREHOLDERS
/s/ James D. Gerson
--------------------
James D. Gerson
/s/ Henry C. Jungling
--------------------
Henry C. Jungling
/s/ Rebecca L. Jungling
--------------------
Rebecca L. Jungling
/s/ Michael Lischin
--------------------
Michael Lischin
/s/ Ervin Mellema
--------------------
Ervin Mellema
/s/ Gaylen D. Miller
--------------------
Gaylen D. Miller
/s/ Glenna R. Miller
--------------------
Glenna R. Miller
/s/ Kevin D. Schipper
--------------------
Kevin D. Schipper
-8-
SCHEDULE A
----------------
Numer of Number of Number of Number of Number of
Original Original Original Original Original
Shares Shares Shares Shares Shares
Owned of Owned Subject to Owned of Owned
Owner Record Beneficially Liens Record Beneficially
------------------- ------------ ------------ ------------ ------------ ------------
James D. Gerson 189,466 0 0 189,466 0
Henry C. Jungling 268,500 0 265,000 268,500 0
Rebecca L. Jungling 73,334 0 73,334 73,334 0
Michael Lischin 11,000 0 0 11,000 0
Ervin Mellema 10,000 0 0 10,000 0
Gaylen D. Miller 313,934 4,200 246,667 313,934 4,200
Glenna R. Miller 30,000 0 0 30,000 0
Kevin D. Schipper 346,134 0 346,034 346,134 0
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SCHEDULE B
1. In addition to the shares of capital stock of the Company listed in
Schedule A, other securities of the Company:
Henry Jungling - 15,000 stock options
Gaylen Miller - 15,000 stock options
Kevin Schipper - 15,000 stock options
James Gerson - 7,000 stock options
Michael Lischin - 1,000 stock options
Erv Mellema - 1,000 stock options
2. Liens and Agreements Affecting the Original/Subject Shares:
Henry Jungling - 70,000 shares pledged to Wells Fargo, N.A. maturing
September 1, 2003
Henry Jungling - 195,000 shares pledged to U.S. Bank, N.A. maturing
June 5, 2005
Rebecca Jungling - 15,584 shares pledged to Wells Fargo, N.A. maturing
September 1, 2003
Rebecca Jungling - 57,750 shares pledged to U.S. Bank, N.A. maturing
June 5, 2005
Gaylen Miller - 13,000 shares pledged to Farm Credit Services of America,
FLCA maturing January 1, 2019
Gaylen Miller - 233,667 shares pledged to Union Planters Bank, N.A. maturing
March 10, 2003
Kevin Schipper - 364,034 shares pledged to Union Planters Bank, N.A. maturing
March 10, 2003
3. Notwithstanding anything to the contrary in this Agreement, the transfer
restrictions in paragraph (c) of Section 3 of this Agreement shall not apply
to James D. Gerson if he ceases to be a member of the Company's board of
directors after the date hereof so long as (i) he is not obligated by law
to disclose any such transfer prior to the Shareholder Approval and
(ii) he agrees in writing not to (x) disparage the Company, Purchaser,
their respective affiliates, the Securities Purchase Agreement or the
other transactions and matters contemplated thereby or (y) take any steps
designed to frustrate the Securities Purchase Agreement or the other
transactions and matters contemplated thereby.
-10-
ANNEX D
February 24, 2003
Board of Directors
Ag Services of America, Inc.
1309 Technology Parkway
Cedar Falls, IA 50613
Ladies and Gentlemen:
Pursuant to the terms of and subject to the conditions set forth in the
Securities Purchase Agreement, dated as of February 24, 2003 (the
"Securities Purchase Agreement"), by and between Ag Services of America, Inc.
(the "Company") and ASP/ASA, LLC ("ASP/ASA"), an indirect subsidiary of
American Securities Capital Partners, LLC, the Company will issue and sell
to ASP/ASA shares of the Company's newly issued 8.375% Convertible
Preferred Stock, (the "Convertible Preferred Stock") for an aggregate
purchase price of up to $70 million in cash . The Convertible Preferred
Stock will be issued and sold in three closings: (1) the first closing of
$35,000,000 is intended to be funded no later than June 15, 2003
(the "First Closing"); (2) the second closing of $17,500,000 is intended
to be funded between May 1, 2004 and July 31, 2004 (the "Second Closing");
and (3) the third closing of $17,500,000 is intended to be funded between
May 1, 2005 and July 31, 2005 (the "Third Closing"). The Third Closing is
intended to occur unless either (a) ASP/ASA exercises its option to elect
not to purchase any shares of Convertible Preferred Stock, or (b) the
Company exercises its option to elect not to sell such shares of Convertible
Preferred Stock at such time (each, a "Third Closing Termination Right").
Following the First Closing, ASP/ASA will be eligible to exercise voting
rights equivalent to those of 70,000 shares of Convertible Preferred Stock
(the aggregate number of shares to be acquired by ASP/ASA if the First
Closing, the Second Closing and the Third Closing are each consummated).
For the purposes of this opinion, we have assumed, with your consent,
that the First Closing and the Second Closing will be consummated in
accordance with the terms of the Securities Purchase Agreement, and that
the Third Closing may or may not be consummated as the result of the
exercise by the Company or ASP/ASA of a Third Closing Termination Right.
The issuance and sale of the Convertible Preferred Stock pursuant to
the First Closing, the Second Closing and the Third Closing, as applicable,
is referred to as the "Transaction," and the aggregate consideration to be
received by the Company at the First Closing, the Second Closing and the
Third Closing, as applicable, is referred to as the "Consideration." The
terms and conditions of the Transaction are more fully set forth in the
Securities Purchase Agreement.
You have requested our opinion as to the fairness, from a financial
point of view, to the Company of the Consideration the Company will receive
pursuant to the Transaction.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have examined: (a) the Securities
Purchase Agreement; (b) the audited financial statements of the Company
for the fiscal years 1996 through 2002; (c) certain publicly available
financial and other information concerning the Company, including the
Company's annual reports on Form 10-K for the fiscal years ended 1996
through 2002 and the Company's quarterly reports on Form 10-Q for the
quarters ended May 31, August 31 and November 30, 2002; (d) certain monthly
-1-
financial statements provided to us by the Company; (e) certain internal
business, operating and financial information, including financial forecasts
for the Company for the fiscal years 2003 to 2010 (the "Forecasts")
prepared by the senior management of the Company which gives effect to the
Transaction; (f) a liquidation analysis (the "Liquidation Analysis")
prepared by the senior management of the Company which gives effect to a
liquidation of the Company; (g) the financial position, operating results
and certain stock market information regarding the Company compared with
those of certain other publicly traded companies we deemed relevant; and
(h) the potential pro forma impact of the Transaction on the Company,
including its capitalization, fully-diluted earnings and book value. We
have also held discussions with members of the senior management of the
Company to discuss the foregoing and the prospects for the Company if the
Transaction is not consummated, have considered other matters which we
have deemed relevant to our inquiry, and have taken into account such
accepted financial and investment banking procedures and considerations
as we have deemed relevant.
Management of the Company has advised us that, absent the Transaction,
the Company will be forced to liquidate, and that if the Company were
liquidated, the discounted book value of the Company would be less than the
current book value of the Company on a going-concern basis. The Company
has not provided us with any financial forecast that does not give effect
to the Transaction other than the Liquidation Analysis.
In connection with the preparation of this opinion, we contacted more
than 70 parties to solicit their interest in acquiring or making an investment
in the Company.
In rendering our opinion, we have assumed, with your consent, and relied,
without independent verification, upon the accuracy and completeness of all
the information examined by or otherwise reviewed or discussed with us for
purposes of this opinion, including without limitation the Forecasts and the
Liquidation Analysis. We have been advised by the senior management of the
Company that the Forecasts and the Liquidation Analysis have each been
reasonably prepared on good faith bases reflecting the best currently
available estimates and judgments of the senior management of the Company.
With regard to the Forecasts, we have further assumed, with your consent,
that (i) the Forecasts will be achieved in the amounts and at the times
contemplated thereby and (ii) all material assets and liabilities
(contingent or otherwise) of the Company are as set forth in the Company's
financial statements or other information made available to us. With
regard to the Liquidation Analysis, we have further assumed, with your
consent,that all material assets and liabilities (contingent or otherwise)
of the Company are as set forth in the Liquidation Analysis. We thus express
no opinion with respect to the Forecasts or the Liquidation Analysis or any
of the assumptions, estimates or judgments upon which either was based. The
Company has not requested that we evaluate the potential consideration to
be received by the holders of the Company's common stock, no par value
(the "Common Stock"), in a liquidation scenario.
We have not made or obtained an independent valuation or appraisal of
the assets, liabilities, solvency or other issues relating to the solvency
of the Company. We have further assumed, with your consent, that in all
respects material to our analysis, the representations and warranties
-2-
contained in the Securities Purchase Agreement are true and correct and
that each party will perform all of the covenants and agreements required
to be performed by it under the Securities Purchase Agreement without any
waiver of any material terms or conditions by the Company. We have further
assumed, with your consent, that all material corporate, governmental,
regulatory or other consents and approvals requisite to consummate the
Transaction have been or will be obtained.
Our opinion is limited to the matters expressly referred to in the last
paragraph of this letter and does not address any other matters, including,
but not limited to, the Company's ability to satisfy its obligations or the
Company's ability to access the capital markets for financing requirements
or solvency, in each case at any time, including presently and following
consummation of the Transaction. Without limiting the foregoing, we are
expressing no opinion (i) as to the price at which the Common Stock will
trade at any future time or as to the effect of the Transaction on the
trading price of the Common Stock; (ii) whether any alternative transaction
might produce consideration for the Company in an amount in excess of that
contemplated by the Transaction; or (iii) as to the fairness or any other
aspect of any portion of the Transaction (including the voting rights
associated with the Convertible Preferred Stock), other than the issuance
and sale of the Convertible Preferred Stock for the Consideration.
Our opinion herein is based upon economic, market, financial and other
conditions existing on, and other information disclosed to us as of, the
date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We have relied as to all legal matters on
advice of counsel to the Company.
We will receive a fee from the Company for our services in connection
with the Transaction, a significant portion of which is payable contingent
upon the consummation of the Transaction. We will also receive a fee from
the Company for the delivery of this opinion. In addition, the Company
has agreed to indemnify us against certain liabilities arising out of our
engagement. Rabobank International, New York Branch ("Rabobank
International"), is the agent bank and lead credit under the Company's
amended and restated credit agreement. In addition, an affiliate of
Rabobank International holds approximately 8.4% of the Common Stock for
the accounts of its customers.
Our investment banking services and our opinion were provided for the
use and benefit of the Board of Directors in connection with its
consideration of the Securities Purchase Agreement. It is understood that
this letter may not be disclosed or otherwise referred to without our
prior written consent. Our opinion does not address the merits of the
underlying decision by the Company to enter into the Transaction and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the Transaction or any matter related thereto.
-3-
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration the Company will receive pursuant to the
Transaction is fair, from a financial point of view, to the Company.
Very truly yours,
-------------------------------
RABOBANK INTERNATIONAL,
NEW YORK BRANCH
-4-
ANNEX E
June 2, 2003
Board of Directors
Ag Services of America, Inc.
1309 Technology Parkway
Cedar Falls, IA 50613
Ladies and Gentlemen:
Pursuant to the terms of and subject to the conditions set forth in
the Securities Purchase Agreement, dated as of February 24, 2003
(the "Securities Purchase Agreement"), by and between Ag Services of
America, Inc. (the "Company") and ASP/ASA, LLC ("ASP/ASA"), an indirect
subsidiary of American Securities Capital Partners, LLC, the Company will
issue and sell to ASP/ASA shares of the Company's newly issued 8.375%
Convertible Preferred Stock, (the "Convertible Preferred Stock") for an
aggregate purchase price of up to $70 million in cash . The Convertible
Preferred Stock will be issued and sold in three closings: (1) the first
closing of $35,000,000 is intended to be funded no later than June 15, 2003
(the "First Closing"); (2) the second closing of $17,500,000 is intended to
be funded between May 1, 2004 and July 31, 2004 (the "Second Closing"); and
(3) the third closing of $17,500,000 is intended to be funded between
May 1, 2005 and July 31, 2005 (the "Third Closing"). Following the First
Closing, ASP/ASA will be eligible to exercise voting rights equivalent to
those of 70,000 shares of Convertible Preferred Stock (the aggregate number
of shares to be acquired by ASP/ASA if the First Closing, the Second Closing
and the Third Closing are each consummated). For the purposes of this
opinion, we have assumed, with your consent, that the First Closing will be
consummated in accordance with the terms of the Securities Purchase
Agreement, and that the Second and Third Closings will not be consummated
as the result of the Company's projected inability to satisfy the conditions
required for the Second Closing pursuant to the Securities Purchase
Agreement. The issuance and sale of the Convertible Preferred Stock pursuant
to the First Closing is referred to as the "Transaction," and the aggregate
consideration to be received by the Company at the First Closing is referred
to as the "Consideration." The terms and conditions of the Transaction are
more fully set forth in the Securities Purchase Agreement.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the Consideration the Company will receive pursuant
to the Transaction.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have examined: (a) the Securities
Purchase Agreement; (b) the audited financial statements of the Company
for the fiscal years 1996 through 2003; (c) certain publicly available
financial and other information concerning the Company, including the
Company's annual reports on Form 10-K for the fiscal years ended 1996
through 2003; (d) certain monthly financial statements provided to us by
the Company; (e) certain internal business, operating and financial
information, including revised financial forecasts for the Company for the
fiscal years 2004 to 2010 (the "Forecasts") prepared by the senior
management of the Company which gives effect to the Transaction; (f) a revised
liquidation analysis (the "Liquidation Analysis") prepared by the senior
management of the Company which gives effect to a liquidation of the Company;
(g) the financial position, operating results and certain stock market
information regarding the Company compared with those of certain other
publicly traded companies we deemed relevant; and (h) the potential pro
forma impact of the Transaction on the Company, including its capitalization,
fully-diluted earnings and book value. We have also held discussions with
members of the senior management of the Company to discuss the foregoing and
the prospects for the Company if the Transaction is not consummated, have
considered other matters which we have deemed relevant to our inquiry, and
have taken into account such accepted financial and investment banking
procedures and considerations as we have deemed relevant.
Management of the Company has advised us that, absent the Transaction,
the Company will be forced to liquidate, and that if the Company were
liquidated, the discounted book value of the Company would be less than the
current book value of the Company on a going-concern basis. The Company has
not provided us with any financial forecast that does not give effect to
the Transaction other than the Liquidation Analysis.
In connection with the preparation of our opinion dated February 24, 2003
we contacted more than 70 parties to solicit their interest in acquiring or
making an investment in the Company.
In rendering our opinion, we have assumed, with your consent, and relied,
without independent verification, upon the accuracy and completeness of all
the information examined by or otherwise reviewed or discussed with us for
purposes of this opinion, including without limitation the Forecasts and the
Liquidation Analysis. We have been advised by the senior management of the
Company that the Forecasts and the Liquidation Analysis have each been
reasonably prepared on good faith bases reflecting the best currently
available estimates and judgments of the senior management of the Company.
In that regard, senior management of the Company has advised us that the
expected net present value per share of common stock, no par value, of the
Company (the "Common Stock") in a liquidation of the Company will be less
than or equal to $8.43. With regard to the Forecasts, we have further
assumed, with your consent, that (i) the Forecasts will be achieved in the
amounts and at the times contemplated thereby and (ii) all material assets
and liabilities (contingent or otherwise) of the Company are as set forth
in the Company's financial statements or other information made available
to us. With regard to the Liquidation Analysis, we have further assumed,
with your consent, that all material assets and liabilities (contingent or
otherwise) of the Company are as set forth in the Liquidation Analysis. We
thus express no opinion with respect to the Forecasts or the Liquidation
Analysis or any of the assumptions, estimates or judgments upon which either
was based. The Company has not requested that we evaluate the potential
consideration to be received by the holders of the Common Stock in a
liquidation scenario.
We have not made or obtained an independent valuation or appraisal of
the assets, liabilities, solvency or other issues relating to the solvency
of the Company. We have further assumed, with your consent, that in all
respects material to our analysis, the representations and warranties
contained in the Securities Purchase Agreement are true and correct and that
each party will perform all of the covenants and agreements required to be
performed by it under the Securities Purchase Agreement without any waiver
-2-
of any material terms or conditions by the Company. We have further assumed,
with your consent, that all material corporate, governmental, regulatory or
other consents and approvals requisite to consummate the Transaction have
been or will be obtained.
Our opinion is limited to the matters expressly referred to in the last
paragraph of this letter and does not address any other matters, including,
but not limited to, the Company's ability to satisfy its obligations or the
Company's ability to access the capital markets for financing requirements
or solvency, in each case at any time, including presently and following
consummation of the Transaction. Without limiting the foregoing, we are
expressing no opinion (i) as to the price at which the Common Stock will
trade at any future time or as to the effect of the Transaction on the
trading price of the Common Stock; (ii) whether any alternative transaction
might produce consideration for the Company in an amount in excess of that
contemplated by the Transaction; or (iii) as to the fairness or any other
aspect of any portion of the Transaction (including the voting rights
associated with the Convertible Preferred Stock), other than the issuance
and sale of the Convertible Preferred Stock for the Consideration.
Our opinion herein is based upon economic, market, financial and other
conditions existing on, and other information disclosed to us as of, the
date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to
update, revise or reaffirm this opinion. We have relied as to all legal
matters on advice of counsel to the Company.
We will receive a fee from the Company for our services in connection
with the Transaction, a significant portion of which is payable contingent
upon the consummation of the Transaction. We will also receive a fee from
the Company for the delivery of this opinion. In addition, the Company
has agreed to indemnify us against certain liabilities arising out of our
engagement. Rabobank International, New York Branch ("Rabobank
International"), is the agent bank and lead credit under the Company's
amended and restated credit agreement. In addition, an affiliate of
Rabobank International holds approximately 8.4% of the Common Stock for
the accounts of its customers.
Our investment banking services and our opinion were provided for the
use and benefit of the Board of Directors in connection with its consideration
of the Securities Purchase Agreement. It is understood that this letter may
not be disclosed or otherwise referred to without our prior written consent.
Our opinion does not address the merits of the underlying decision by the
Company to enter into the Transaction and does not constitute a recommendation
to any shareholder as to how such shareholder should vote on the Transaction
or any matter related thereto.
-3-
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration the Company will receive pursuant to the
Transaction is fair, from a financial point of view, to the Company.
Very truly yours,
----------------------
RABOBANK INTERNATIONAL,
NEW YORK BRANCH
-4-
ANNEX F
ARTICLES OF AMENDMENT
OF
AG SERVICES OF AMERICA, INC.
Pursuant to Section 490.1006 of the Iowa Business Corporation Act, the
undersigned, Ag Services of America, Inc., an Iowa corporation (the
"Corporation"), hereby adopts the following Amendment to its Articles
of Incorporation:
1. The first paragraph of Article VII of the Articles of Incorporation
of the Corporation is hereby amended to read in its entirety as follows:
The number of directors of the Corporation shall not be less than three
(3) nor more than nine (9). The exact number of directors shall be
determined from time to time by resolution of the Board of Directors.
Each director shall be elected for a one year term.
2. The date of adoption of the amendment by the stockholders of the
Corporation was July 14, 2003.
3. The amendment has been approved by the shareholders of the Corporation
in the manner required by the Iowa Business Corporation Act and by the
Articles of Incorporation of the Corporation.
Dated effective this day of July, 2003
AG SERVICES OF AMERICA, INC.
----------------------------
Henry C. Jungling, Jr.
President
COMMON STOCK
AG SERVICES OF AMERICA, INC
ANNUAL MEETING OF SHAREHOLDERS
Monday, July 14, 2003
9:00 a.m.
AG SERVICES OF AMERICA, INC.
1309 Technology Parkway
Cedar Falls, IA 50613
The undersigned hereby constitutes and appoints Henry C. Jungling Jr.
and Kevin D. Schipper, his or her true and lawful agent
and proxy with full power of substitution in each, to represent and to
vote on behalf of the undersigned all of the shares of Ag Services of
America, Inc, (the "Company") which the undersigned is entitled to vote
at the annual meeting of shareholders of the Company to be held on
Monday, July 14, 2003 at the corporate headquarters of Ag Services
of America, Inc., 1309 Technology Parkeway, Cedar Falls, Iowa 50613, at
9:00 a.m. , Central Standard Time, and at any adjournment or
adjournments thereof, upon the following proposal more fully described
in the Notice of Annual Meeting of shareholders and proxy statement for
the annual meeting (receipt of which is hereby acknowledged).
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy
will be voted FOR (i) the approval of the securities purchase agreement,
(ii) the re-election of Messrs. Schipper and Mellema, (iii) the election of
the nominees named in this proxy statement to become members of our board of
directors, effective only upon the completion of the first closing, (iv) the
removal of the first paragraph of Article VII of our Amended and Restated
Articles of Incorporation, effective only upon completion of the first closing,
and (v) the ratification of McGladrey & Pullen, LLP as our independent public
accountants for the fiscal year ending February 29, 2004.
(continued and to be signed on reverse side)
1. APPROVAL OF THE SECURITIES PURCHASE AGREEMENT
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. RE-ELECTION OF KEVIN D. SCHIPPER AND ERVIN J. MELLEMA
FOR ALL WITHHOLD ALL
[ ] [ ]
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right)
----------------------------------------------
(Except nominee(s) written above)
3. ELECTION OF FIVE NEW DIRECTORS, EFFECTIVE UPON COMPLETION OF THE FIRST
CLOSING:
[ ] Vote FOR [ ] Vote WITHHELD
all nominees from all nominees
(except as marked)
01 Jonathan E. Baum 04 Douglas A. Monticciolo
02 Michael G. Fisch 05 Marc L. Saiontz
03 Glenn B. Kaufman
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
----------------------------------------------
(Except nominee(s) written above)
4. REMOVAL OF THE FIRST PARAGRAPH OF ARTICLE VII OF OUR AMENDED AND
RESTATED ARTICLES OF INCOPORATION, EFFECTIVE UPON COMPLETION OF THE
FIRST CLOSING.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. RATIFICATION OF THE SELECTION OF MCGLADREY & PULLEN, LLP AS OUR
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING FEBRUARY 29, 2004.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. In his discretion, the proxy is authorized to vote upon other matters as
may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
I will attend the special meeting. [ ]
Signature of Common shareholder Dated:
------------------------- ----------
Signature of Common shareholder
(IF HELD JOINTLY) -------------------------
Note: This proxy must be signed exactly as the name appears heron.
When shares are held by joint tenants, both should sign. If the signer is
a coporation, please sign full corporate name by duly authorized officer,
giving full title as such. If the signer is a partnerhip, please sign in
partnership name by authorized person.