UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 24, 2003
Ag Services of America, Inc.
(Exact name of Registrant as specified in its charter)
Iowa 000-19320 42-1264455
(State or other jurisdiction (Commission File (I.R.S. Employer
incorporation or of Number) Identification No.)
organization)
1309 Technology Parkway
Cedar Falls, IA 50613
(Address of principal executive offices) (Zip code)
(319) 277-0261
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS
Ag Services of America, Inc. (the "Company"), an Iowa corporation, and
ASP/ASA, LLC, a Delaware limited liability company and an indirect
subsidiary of American Securities Capital Partners, LLC ("ASCP"), have
entered into a Securities Purchase Agreement dated as of February 24, 2003
(the "Purchase Agreement"). The Purchase Agreement provides for the sale
by the Company of up to 70,000 shares of its convertible preferred stock
at $1,000 per share (the "Convertible Preferred Stock") to ASP/ASA, LLC.
The Purchase Agreement provides that the Convertible Preferred Stock
shall be purchased in three tranches. The first tranche will consist
of 35,000 shares for a purchase price of $35 million (Tranche I). The
second tranche will consist of 17,500 shares for a purchase price of
$17.5 million (Tranche II). The third tranche will consist of 17,500
shares for a purchase price of $17.5 million (Tranche III). Tranche I
will be funded upon the satisfaction of certain conditions, including
the Company's acquisition of debt financing upon terms satisfactory to
ASP/ASA, LLC, approval by the Company's shareholders, receipt of a
fairness opinion and other customary closing conditions. Tranches II
and III shall be funded no sooner than May 2004 and May 2005,
respectively, upon the Company's acquisition of additional debt financing
upon terms satisfactory to ASP/ASA, LLC and satisfaction of certain other
conditions, including the Company's achievement of certain economic targets.
The Company and ASP/ASA, LLC will have the option to forego funding of
Tranche III in the event the funds are not needed to support the Company's
additional growth plans.
The Convertible Preferred Stock shall be senior to other Company stock and
shall be redeemed by the Company on the seventh anniversary of the closing
of Tranche I. The Convertible Preferred Stock will be convertible into the
Company's common stock at the rate of $8.50 per share at any time at the
option of the holder thereof, and will accrue cash dividends at a rate of
8.375% per annum. After the closing of Tranche I, ASP/ASA, LLC shall be
entitled to vote all 70,000 shares of Convertible Preferred Stock, on the
basis of one vote for each share of the Company's common stock into which
the Convertible Preferred Stock is convertible, representing approximately
60% of the votes entitled to vote giving effect to the closing of Tranche I.
The Convertible Preferred Stock will be immediately redeemable for cash in
the event of a (i) liquidation or (ii) change of control (defined as the
voting rights of ASP/ASA, LLC falling below 20% of the voting power of the
Company or the sale of all or substantially all of the assets of the
Company). The Convertible Preferred Stock contains standard anti-dilution
provisions for events such as the Company declaring a dividend or other
distribution on its common stock. The conversion price for the
Convertible Preferred Stock will be lowered to the extent the Company has
not maintained adequate loan reserves prior to the closing of Tranche I.
ASP/ASA, LLC shall receive customary registration rights. The Company
shall also enter into a Management Consulting Agreement with ASCP pursuant
to which ASCP shall receive $400,000 per year as well as certain other fees.
Upon the closing of Tranche I, the Company shall enter into non-competition
agreements with each of Gaylen Miller, Henry Jungling and Kevin Schipper
pursuant to which the Company shall pay $400,000 to each of them.
ASP/ASA, LLC and certain shareholders have entered into a Voting Agreement
as of February 24, 2003 pursuant to which the Company's directors have
granted ASP/ASA, LLC an irrevocable proxy to vote their shares of the
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Company's common stock, currently representing approximately 23% of the
stock outstanding, to approve the transaction.
The descriptions of the Purchase Agreement, the transactions contemplated
by the Purchase Agreement and the Convertible Preferred Stock are not
intended to be complete and are qualified in their entirety by the complete
text of the Purchase Agreement and the Certificate of Designations,
Preferences and Rights of 8.375% Convertible Preferred Stock of the Company
which are attached as Exhibits 10.1 and 10.2, respectively, to this report
and are incorporated herein by reference.
ITEM 7. FINANCIAL STATMENTS AND EXHIBITS
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits.
10.1 Securities Purchase Agreement dated as of February 24, 2003
between Ag Services of America, Inc. and ASP/ASA, LLC
10.2 Certificate of Designations, Preferences and Rights of 8.375%
Convrtible Preferred Stock of Ag Services of America, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Ag Services of America, Inc.
Dated March 6, 2003 By: /s/ John T. Roth
-------------------------
John T. Roth
Vice President Finance
--------------------------------------------------------------------------------
INDEX TO EXHIBITS
10.1 Securities Purchase Agreement dated as of February 24, 2003
between Ag Services of America, Inc. and ASP/ASA, LLC
10.2 Certificate of Designations, Preferences and Rights of 8.375%
Convrtible Preferred Stock of Ag Services of America, Inc.
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SECURITIES PURCHASE AGREEMENT
Dated as of February 21, 2003
between
AG SERVICES OF AMERICA, INC.
and
ASP/ASA, LLC
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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
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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
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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
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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.
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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.
-20-
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.
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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
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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
-37-
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
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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.
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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.
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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
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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)
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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
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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.
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"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.
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"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.
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"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
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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
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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
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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
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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
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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.
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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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