UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 000-19320
Ag Services of America, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42-1264455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1309 Technology Parkway, Cedar Falls, Iowa 50613
(Address of principal executive offices) (Zip Code)
(319) 277-0261
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
5,476,864 common shares were outstanding as of May 31, 2002.
AG SERVICES OF AMERICA, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated condensed balance sheets, May 31, 2002
(unaudited) and February 28, 2002 1
Unaudited consolidated condensed statements of income,
three months ended May 31, 2002 and 2001 2
Unaudited consolidated condensed statements of cash
flows, three months ended May 31, 2002 and 2001 3
Unaudited consolidated statement of stockholders' equity,
three months ended May 31, 2002 4
Notes to consolidated condensed financial statements
(unaudited) 5-8
Item 2. Management's discussion and analysis of
financial condition and results of operations 9-14
Item 3. Quantitative and qualitative disclosures
about market risk 14
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on form 8-K: 15
(a) Exhibits
(10.30) Amendment No. 5 To Master Trust Indenture
and Security Agreement 16-28
(10.31) Amendment No. 6 To Master Trust Indenture
and Security Agreement 29-34
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AG SERVICES OF AMERICA, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
May 31, February 28
ASSETS 2002 2002*
(Unaudited)
---------- ----------
CURRENT ASSETS
Cash $25 $42
Customer notes receivable, less allowance
for doubtful notes and reserve for
discounts May 31, 2002 $16,320;
February 28, 2002 $10,521 360,293 202,981
Inventory and other assets 120 3,466
Foreclosed assets held for sale 2,306 2,314
Prepaid income taxes - 735
Deferred income taxes, net 6,181 4,030
---------- ----------
Total current assets $368,925 $213,568
---------- ----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes May 31, 2002 $4,999;
February 28, 2002 $4,079; $62,707 $51,166
Loan origination fees, less accumulated
amortization May 31, 2002 $1,235;
February 28, 2002 $513; 376 598
Deferred income taxes, net 2,557 2,335
---------- ----------
$65,640 $54,099
---------- ----------
PROPERTY AND EQUIPMENT
Land and building, less accumulated
depreciation May 31, 2002 $33;
February 28, 2002 None $5,284 $5,316
Equipment, less accumulated depreciation
May 31, 2002 $1,778; February 28, 2002
$1,675 1,373 818
---------- ----------
$6,657 $6,134
---------- ----------
$441,222 $273,801
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including current maturities $338,467 $179,736
Outstanding checks in excess of
bank balances 11,521 10,723
Accounts payable 11,822 1,738
Accrued expenses 2,744 2,233
Income taxes payable 2,770 -
----------- ----------
Total current liabilities $367,324 $194,430
----------- ----------
LONG-TERM LIABILITIES
Notes payable, less current maturities $- $7,904
----------- ----------
STOCKHOLDERS' EQUITY
Capital stock $24,461 $24,396
Retained earnings 50,638 48,481
Accumulated other comprehensive income (loss) (1,201) (1,410)
----------- ----------
$73,898 $71,467
----------- ----------
$441,222 $273,801
=========== ==========
*Condensed from Audited Financial Statements.
See Notes to Consolidated Condensed Financial Statements.
-1-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Months Ended May 31, 2002 and 2001
(Dollars in Thousands, Except Per Share Amounts)
2002 2001
---------- ----------
Net revenues:
Farm inputs $205,691 $157,901
Financing income 6,316 6,259
---------- ----------
$212,007 $164,160
---------- ----------
Cost of revenues:
Farm inputs $197,398 $151,423
Financing expense 3,382 3,391
Provision for doubtful notes 4,077 3,027
---------- ----------
$204,857 $157,841
---------- ----------
Income before operating
expenses and income taxes $7,150 $6,319
Operating expenses 3,643 3,351
---------- ----------
Income before income taxes $3,507 $2,968
Income taxes 1,350 1,134
---------- ----------
Net income $2,157 $1,834
========== ==========
Earnings per share:
Basic $0.39 $0.35
========== ==========
Diluted $0.39 $0.34
========== ==========
Weighted average shares:
Basic 5,473,288 5,283,810
========== ==========
Diluted 5,513,826 5,471,116
========== ==========
See Notes to Consolidated Condensed Financial Statements.
-2-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended May 31, 2002 and 2001
(Dollars in Thousands)
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,157 $1,834
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation 148 135
Amortization 722 85
Deferred income taxes (2,492) -
(Increase) in customer notes receivable (168,853) (119,258)
Changes in assets and liabilities 16,946 14,760
---------- ----------
Net cash (used in) operating activities ($151,372) ($102,444)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Purchases) of building and
equipment,net ($671) ($175)
(Purchases) proceeds of foreclosed assets
held for sale, net 8 (657)
---------- ----------
Net cash (used in) investing activities ($663) ($832)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings $164,715 $136,474
Principal payments on borrowings (13,560) (37,940)
Increase in excess of outstanding
checks over bank balance 798 4,498
Proceeds from issuance of capital stock,
net 65 624
---------- ----------
Net cash provided by financing
activities $152,018 $103,656
---------- ----------
Increase (decrease) in cash ($17) $380
CASH
Beginning 42 61
---------- ----------
Ending $25 $441
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $2,362 $2,721
Income taxes $337 $400
See Notes to Consolidated Condensed Financial Statements
-3-
AG SERVICES OF AMERICA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended May 31, 2002
(Dollars in thousands)
Capital Stock
--------------------------
Accumulated
Other
Shares Retained Comprehensive Comprehensive
Issued Amount Earnings Income (Loss) Total Income
------------ ------------ ------------ ------------ ------------ ------------
Balance,
February 28, 2002 5,468,864 $24,396 $48,481 ($1,410) $71,467
Comprehensive income:
Net income - - 2,157 - 2,157 $2,157
Other comprehensive
income(loss), net
of tax - - - 209 209 209
------------
Total comprehensive income $2,366
============
Issuance of capital stock
upon the exercise
of options 8,000 65 - - 65
------------ ------------ ------------ ------------ ------------
Balance, May 31, 2002 5,476,864 $24,461 $50,638 ($1,201) $73,898
============ ============ ============ ============ ============
See Notes to Consolidated Condensed Financial Statements
-4-
AG SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions of Form 10-Q and Rule 10-01
of Regulation S-X. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principals generally accepted in the United States of America have been
condensed or omitted. It is suggested these interim consolidated condensed
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report for the year ended
February 28, 2002. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation
of the financial position, results of operations and cash flows for the
interim periods presented have been made. Operating results for the three
month period ended May 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending February 28, 2003.
Principles of Consolidation
The consolidated financial statements include the accounts of Ag Services
of America, Inc. (the Company) and its wholly owned subsidiaries,
Ag Acceptance Corporation and Powerfarm, Inc. All material intercompany
balances and transactions have been eliminated in consolidation.
According to the terms related to the asset backed securitized financing
program as described in Note 3 of the consolidated condensed financial
statements, the Company formed Ag Acceptance Corporation, a wholly owned,
special purpose Corporation.
In conjunction with the Company's e-commerce initiative, the Company created
Powerfarm, Inc. a wholly owned subsidiary which operates and manages the
Company's website Powerfarm.com.
Note 2. Commitments and Contingencies
Commitments:
In the normal course of business, the Company makes various commitments that
are not reflected in the accompanying consolidated condensed financial
statements. These include various commitments to extend credit to customers.
At May 31, 2002 and February 28, 2002 the Company had approximately
$164 million and $153 million, respectively, in commitments to supply
farm inputs. No material losses or liquidity demands are anticipated
as a result of these commitments.
Contingencies:
The Company is named in lawsuits in the ordinary course of business.
Counsel for the Company has advised the Company, while the outcome
of various legal proceedings is not certain, it is unlikely that these
proceedings will result in any liability which will materially affect
the financial position or operating results of the Company.
-5-
The availability of lines of credit to finance operations and the existence
of a multi-peril crop insurance program are essential to the Company's
operations. If the federal multi-peril crop insurance program currently
in existence was terminated or negatively modified and no comparable private
or government program was established, this would have a material adverse
effect on the Company's future operations. The federal government has from
time to time evaluated the federal multi-peril insurance program and is
likely to review the program in the future, and there can be no assurance
of the outcome of such evaluations.
Note 3. Pledged Assets and Related Debt
The Company has an asset backed securitized financing program through
November 2002, with a maximum available borrowing amount of $375 million.
Under the terms of the facility, the Company sells and may continue to
sell or contribute certain notes receivable to Ag Acceptance Corporation
("Ag Acceptance"), a wholly owned, special purpose subsidiary of the Company.
Ag Acceptance pledges its interest in these notes receivable to a
commercial paper market conduit entity on $305 million of the facility
which incurs interest at variable rates in the commercial paper market
(current effective rates range from 1.83% to 1.90% at May 31, 2002)
and the remaining $70 million is a term note with interest at a variable
cost of LIBOR plus 38 basis points (current effective rate is 2.09% at
May 31, 2002). The agreement contains various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends, transactions with affiliates, and
requires the Company to maintain certain levels of equity and pretax
earnings. Advances under the facility are made subject to portfolio
performance, financial covenant restrictions and borrowing base calculations.
At May 31, 2002, the Company had approximately $292.8 million outstanding
under the asset backed securitized financing program and had a maximum
additional amount available of approximately $10.3 million, based on
borrowing base computations as provided by the agreement.
The Company also has a $30 million term note that matures in November
of 2002. Additional terms of the agreement allow two variable interest
rate alternatives based on prime or LIBOR (current effective rates range
from 3.875% to 5.25% at May 31, 2002). The agreement also contains
various restrictive covenants, including, among others, restrictions on
mergers, issuance of stock, declaration or payment of dividends and
loans to stockholders, and requires the Company to maintain certain levels
of equity and pretax earnings. At May 31, 2002, the Company had
$30 million outstanding under the term loan.
In conjunction with the securitized financing program and the term loan,
the Company maintains a $15 million revolving bank line of credit through
November 2002. The line of credit is accessible to cover any potential
deficiencies in available funds financed through the securitization
program. All borrowings are collateralized by substantially all assets
of the Company. The terms of the agreement allow for two variable
interest rate alternatives based on prime or LIBOR (current effective
rates range from 3.875% to 5.25% at May 31, 2002). The agreement
also contains various restrictive covenants, including, among others,
restrictions on mergers, issuance of stock, declaration or payment
of dividends and loans to stockholders, and requires the Company to
maintain certain levels of equity and pretax earnings. Advances under
the line of credit agreement are also subject to portfolio performance,
-6-
financial covenant restrictions, and borrowing base calculations.
At May 31, 2002 the Company had $9.4 million outstanding under the
agreement and had a maximum additional amount available of approximately
$5.6 million based on borrowing base computations as provided by the
agreement.
Subsequent to quarter end, the Company renegotiated its $30 million
term note and $15 million line of credit into one $80 million revolving
facility through November 2002. The new agreement calls for a
$5 million pay down on July 31, 2002, which will reduce the revolving
facility to $75 million. All other provisions of the credit facility
have remained substantially the same.
The Company has a credit agreement whereby the Company may borrow up
to $3.9 million, with a declining balance provision, on a revolving
line of credit through April 2022. This credit agreement is used to
finance the Company's new corporate headquarters at a fixed interest
rate of 5.74% for five years. There was no outstanding balance under
the credit agreement at May 31, 2002. The agreement also contains various
restrictive financial covenants.
In February 2002, three executive officers of the Company, who are also
the original founders of the Company, loaned an aggregate $4.4 million to
the Company, due on March 31, 2003. The Company makes monthly interest
payments to these officers at a variable interest rate of 0.5% below the
prime rate (current effective rate is 4.25% at May 31, 2002). These notes
are unsecured.
Subsequent to quarter end, the Company negotiated an additional credit
facility with a financial institution whereby the Company has the ability
to borrow up to $19 million. Advances and repayments under this credit
agreement are based on the performance of certain customer notes receivable
of the Company.
The Company maintains an interest-rate risk-management strategy that
uses derivative instruments to minimize significant, unanticipated earnings
fluctuations caused by interest-rate volatility. The Company's specific
goal is to lower (where possible) the cost of its borrowed funds.
In July 2000, the Company entered into an interest rate swap agreement with
an original notional amount of $30 million. The notional amount decreases
by $7.5 million annually in each July 2002, 2003, 2004 and 2005. The swap
is utilized to manage interest rate exposures and is designated as a cash
flow hedge. The swap agreement is a variable receive/fixed pay swap
which expires in July, 2005 and has the effect of converting the interest
rate paid on the notional amount of the Company's variable rate debt to a
fixed rate of 9.78%. The differential to be paid or received on the swap
agreement is recognized and accrued over the life of the agreement as other
comprehensive income based on the remaining outstanding notional amount or
changes in interest rates. The difference between the Company's actual
variable interest expense and 9.78% on the notional amount for the next
twelve months is reclassified from other comprehensive income and
recognized as interest expense.
-7-
Note 4. Earnings Per Share
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of shares outstanding.
In computing diluted earnings per share, the dilutive effect of stock options
during the periods presented increase the weighted average number of shares.
Presented below is the computation of earnings per share for the periods
indicated:
Three Months Ended
May 31
----------------------
2002 2001
---------- ----------
Computation of weighted average number
of basic shares:
Basic:
Common shares outstanding at
beginning of the period 5,468,864 5,281,064
Weighted average number of shares
issued during the period 4,424 2,746
---------- ----------
Weighted average shares outstanding
(basic) 5,473,288 5,283,810
========== ==========
Net income available to stockholders: $2,157,448 $1,834,131
========== ==========
Basic earnings per share: $0.39 $0.35
========== ==========
Diluted:
Common shares outstanding at
beginning of the period 5,468,864 5,281,064
Weighted average number of shares
issued during the period 4,424 2,746
Weighted average of potential dilutive
shares computed using the treasury
stock method using the average market
price during the period:
Options (1) 40,538 187,306
---------- ----------
Weighted average shares outstanding
(diluted) 5,513,826 5,471,116
========== ==========
Net income available to stockholders: $2,157,448 $1,834,131
========== ==========
Diluted earnings per share: $0.39 $0.34
========== ==========
(1) Some of the stock options have been excluded because they are
antidilutive.
-8-
AG SERVICES OF AMERICA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth percentages of net revenues represented by the
selected items in the unaudited condensed statements of income of the Company
for the three months ended May 31, 2002 and 2001. In the opinion of
management, all normal and recurring adjustments necessary for a fair
statement of the results for such periods have been included. The operating
results for any period are not necessarily indicative of results for any
future period.
Percentage
of Net Revenues
------------------
Three Months Ended
May 31,
------------------
2002 2001
-------- --------
Net Revenues:
Farm inputs 97.0% 96.2%
Financing income 3.0% 3.8%
-------- --------
100.0% 100.0%
-------- --------
Cost of Revenues:
Farm inputs 93.1% 92.3%
Financing expense 1.6% 2.1%
Provision for doubtful notes 1.9% 1.8%
-------- --------
96.6% 96.2%
-------- --------
Income before operating expenses
and income taxes 3.4% 3.8%
Operating expenses 1.7% 2.0%
-------- --------
Income before income taxes 1.7% 1.8%
Federal and state income taxes 0.7% 0.7%
-------- --------
Net Income 1.0% 1.1%
======== ========
-9-
Net Revenues:
Net revenues increased $48 million or 29% during the three months ended
May 31, 2002, compared with the three months ended May 31, 2001. The
increase in net revenues was primarily the result of strong demand for
the Company's AgriFlex Credit(R) Financing Program and an excellent spring
planting season in its primary market area. Financing income as a percentage
of net revenues decreased to 3.0% of net revenues for the three months
ended May 31, 2002 from 3.8% for the three months ended May 31, 2001.
The decrease in financing margin was primarily the result of a decrease
in the prime lending rate by approximately 300 basis points, as compared
to the same period one year ago.
Revenues primarily consist of farm inputs, including seed, fertilizer,
agricultural chemicals, other services (which includes crop insurance
commissions, fees charged to customers and other income) and other farm
inputs including cash advances for land rental, fuel, irrigation, product
application fees and other farm related expenses. Typically, the Company
does not realize any farm input margin on "other farm inputs" revenue.
Farm input revenue for the quarters ended May 31, 2002 and 2001 are
summarized below.
May 31, 2002 May 31, 2001
---------------- ---------------
Farm input revenue
Input only program $14,067 6.8% $5,212 3.3%
Seeds $22,772 11.1% $16,696 10.6%
Chemicals $19,212 9.3% $15,084 9.6%
Fertilizer $23,816 11.6% $20,553 13.0%
Other farm inputs
(cash rents, irrigation,etc.) $123,339 60.0% $98,443 62.3%
Other services (insurance, fees, etc.) $2,485 1.2% $1,913 1.2%
-----------------------------------
Total farm input revenue $205,691 100.0% $157,901 100.0%
===================================
Cost of Revenues
The total cost of revenues increased slightly to 96.6% for the three months
ended May 31, 2002, as compared to 96.2% for the three months ended
May 31, 2001. The gross margin on the sale of farm inputs as a percentage
of net revenues remained constant at 3.9% for the three months ended
May 31, 2002 and three months ended May 31, 2001. Gross margin on financing
income decreased to 1.4% of net revenues for the first quarter of Fiscal 2003
as compared to 1.7% for the same period one year ago. This decrease in
margin was primarily the result of a reduction in the prime lending rate
of 300 basis points from the same period last year. The provision for
doubtful notes remained relatively constant at 1.9% of net revenues for
the three months ended May 31, 2002 as compared to 1.8% of net revenues
for the three months ended May 31, 2001.
Operating Expenses
Operating expenses decreased, as a result of management's efforts to control
costs, to 1.7% of net revenues for the three months ended May 31, 2002, as
compared to 2.0% for the three months ended May 31, 2001. The increase in
the dollar amount of operating expenses is attributed to the Company's growth.
Payroll and payroll related expenses increased to $2.5 million for the three
months ended May 31, 2002 from $2.3 million for the three months ended
May 31, 2001.
-10-
Net Income
Net income increased 17.6% to $2.2 million for the three months ended
May 31, 2002 from $1.8 million for the three months ended May 31, 2001.
The increase in net income is primarily attributable to the increase
in volume of the Company's AgriFlex Credit(R) program and an excellent
spring planting season as mentioned above.
Powerfarm
The Company continues to leverage its business model and use of its
credit products via the Internet through Powerfarm.com. The Powerfarm
website offers growers one of the most comprehensive assortments of
credit options available in the agricultural industry. The site
highlights Ag Services credit programs and allows farmers to apply for
credit lines electronically. In addition, existing customers have the
ability to access detailed account information 24 hours a day through
the site.
Inflation
The Company does not believe the Company's net revenues and net income
were significantly impacted by inflation or changing prices in Fiscal 2002
or the first three months of Fiscal 2003.
Seasonality
The Company's revenues and income are directly related to the growing
cycle for crops. Accordingly, quarterly revenues and income vary during
each fiscal year. The following tables show the Company's quarterly net
revenues and net income for Fiscal 2002 and the first quarter of Fiscal 2003.
This information is derived from unaudited consolidated financial statements,
which include, in the opinion of management, all normal and recurring
adjustments which management consider necessary for a fair statement of
results of those periods. The operating results for any quarter are not
necessarily indicative of the results for any future period.
Fiscal 2003 Quarter Ended
May 31 August 31 November 30 February 28
----------- ----------- ----------- -----------
(Dollars in thousands)
Net revenues $212,007
Net income $2,157
Fiscal 2002 Quarter Ended
May 31 August 31 November 30 February 28
----------- ----------- ----------- -----------
(Dollars in thousands)
Net revenues $164,160 $110,310 $25,104 $87,782
Net income $1,834 $2,025 $1,297 $320
-11-
Liquidity and Capital Resources
At May 31, 2002 the Company had working capital of $3.4 million, a decrease
of $61.7 million over a year ago and a decrease of $15.7 million since
February 28, 2002. The decrease in working capital was due to the
restructuring of the Company's debt as the Company's current securitized
financing program, term note and revolving line of credit are set to expire
in November 2002. As a result of the expiration of these credit facilities
within the next twelve months, all debts associated with these facilities are
classified as current liabilities on the Company's balance sheet. The Company
is presently considering several financing alternatives and expects to replace
these facilities by November. Once the new financing program is in place,
working capital will return to a more normalized, historical amount.
The components of this net decrease, since February 28, 2002, were
(i) $15.1 million decrease resulting from operating activities, consisting
of approximately $2.2 million in net income, $0.1 million in depreciation,
$0.7 million in amortization, and the remainder from a net change in other
working capital items, (ii) capital expenditures of approximately $0.7 million
related to the acquisition of equipment and furniture and (iii) net proceeds
of $0.1 million from the issuance of common stock upon exercise of options.
The Company has an asset backed securitized financing program through
November 2002, with a maximum available borrowing amount of $375 million.
Under the terms of the facility, the Company sells and may continue to sell
or contribute certain notes receivable to Ag Acceptance Corporation
("Ag Acceptance"), a wholly owned, special purpose subsidiary of the Company.
Ag Acceptance pledges its interest in these notes receivable to a commercial
paper market conduit entity on $305 million of the facility which incurs
interest at variable rates in the commercial paper market (current effective
rates range from 1.83% to 1.90% at May 31, 2002) and the remaining
$70 million is a three-year term note with interest at a variable cost of
LIBOR plus 25 basis points (current effective rate is 2.09% at May 31, 2002).
The agreement contains various restrictive covenants, including, among
others, restrictions on mergers, issuance of stock, declaration or payment
of dividends, transactions with affiliates, and requires the Company to
maintain certain levels of equity and pretax earnings. Advances under the
facility are made subject to portfolio performance, financial covenant
restrictions and borrowing base calculations. At May 31, 2002, the Company
had approximately $292.8 million outstanding under the asset backed
securitized financing program and had a maximum additional amount available
of approximately $10.3 million, based on borrowing base computations as
provided by the agreement.
The Company also has a $30 million term note that matures in November of 2002.
Additional terms of the agreement allow two variable interest rate alternatives
based on prime or LIBOR (current effective rates range from 3.875% to 5.25%
at May 31, 2002). The agreement also contains various restrictive covenants,
including, among others, restrictions on mergers, issuance of stock,
declaration or payment of dividends and loans to stockholders, and requires the
Company to maintain certain levels of equity and pretax earnings.
At May 31, 2002, the Company had $30 million outstanding under the term loan.
In conjunction with the securitized financing program and the term loan, the
Company maintains a $15 million revolving bank line of credit through
November 2002. The line of credit is accessible to cover any potential
deficiencies in available funds financed through the securitization program.
All borrowings are collateralized by substantially all assets of the Company.
The terms of the agreement allow for two variable interest rate alternatives
-12-
base on prime or LIBOR (current effective rates range from 3.875% to
5.25% at May 31, 2002). The agreement also contains various restrictive
covenants, including, among others, restrictions on mergers, issuance of
stock, declaration or payment of dividends and loans to stockholders, and
requires the Company to maintain certain levels of equity and pretax earnings.
Advances under the line of credit agreement are also subject to portfolio
performance, financial covenant restrictions, and borrowing base calculations.
At May 31, 2002 the Company had $9.4 million outstanding under the agreement
and had a maximum additional amount available of approximately $5.6 million
based on borrowing base computations as provided by the agreement.
Subsequent to quarter end, the Company renegotiated its $30 million term note
and $15 million line of credit into one $80 million revolving facility through
November 2002. The new agreement calls for a $5 million pay down on
July 31, 2002, which will reduce the revolving facility to $75 million.
All other provisions of the credit facility have remained substantially
the same.
The Company has a credit agreement whereby the Company may borrow up to
$3.9 million, with a declining balance provision, on a revolving line of
credit through April 2022. This credit agreement is used to finance the
Company's new corporate headquarters at a fixed interest rate of 5.74% for
five years. There was no outstanding balance under the credit agreement at
May 31, 2002. The agreement also contains various restrictive financial
covenants.
In February 2002, three executive officers of the Company, who are also
the original founders of the Company, loaned an aggregate $4.4 million
to the Company, due on March 31, 2003. The Company makes monthly interest
payments to these officers at a variable interest rate of 0.5% below the
prime rate (current effective rate is 4.25% at May 31, 2002).
These notes are unsecured.
Subsequent to quarter end, the Company negotiated an additional credit
facility with a financial institution whereby the Company has the ability
to borrow up to $19 million. Advances and repayments under this credit
agreement are based on the performance of certain customer notes receivable
of the Company.
The Company maintains an interest-rate risk-management strategy that uses
derivative instruments to minimize significant, unanticipated earnings
fluctuations caused by interest-rate volatility. The Company's specific goal
is to lower (where possible)the cost of its borrowed funds.
In July 2000, the Company entered into an interest rate swap agreement
with an original notional amount of $30 million. The notional amount
decreases by $7.5 million annually in each July 2002, 2003, 2004 and
2005. The swap is utilized to manage interest rate exposures and is
designated as a cash flow hedge. The swap agreement is a variable
receive/fixed pay swap which expires in July, 2005 and has the effect
of converting the interest rate paid on the notional amount of the
Company's variable rate debt to a fixed rate of 9.78%. The differential
to be paid or received on the swap agreement is recognized and accrued
over the life of the agreement as other comprehensive income based on
the remaining outstanding notional amount or changes in interest rates.
The difference between the Company's actual variable interest expense
and 9.78% on the notional amount for the next twelve months is reclassified
from other comprehensive income and recognized as interest expense.
-13-
The Company's current securitized financing program, term note and revolving
line of credit expire in November 2002. The Company is presently considering
several financing alternatives and believes the options available to it will
be sufficient to finance the Company and it's operations in the foreseeable
future. Failure to obtain alternative financing resources would materially
impair the Company's ability to finance sufficient sales of farm inputs in
order to continue operations under the normal course of business.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995
Information contained in this report, other than historical information,
should be considered forward looking, which reflect Management's current
views of future events and financial performance that involve a number of
risks and uncertainties. The factors that could cause actual results to
differ materially include, but are not limited to, the following: general
economic conditions within the agriculture industry; competitive factors
and pricing pressures; changes in product mix; changes in the seasonality
of demand patterns; changes in weather conditions; changes in agricultural
regulations; technological problems; the amount and availability under its
asset backed securitization program; unknown risks; and other risks detailed
in the Company's Securities and Exchange Commission filings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At May 31, 2002 the Company had $337 million outstanding in notes payable at an
average variable interest rate of 2.73%. The Company has an interest rate
swap that effectively converts $30 million of this variable rate debt to a
fixed rate instrument. After considering the effect of this swap, the Company
has floating rate debt of $307 million at a variable interest rate of 2.04%.
A 10% increase in the average variable interest rate would increase interest
expense by approximately 20 basis points. Assuming similar average outstanding
borrowings as Fiscal 2002 of $246 million, this would increase the Company's
interest expense by approximately $0.5 million.
The above sensitivity analysis is to provide information about the Company's
potential market risks as they pertain to an adverse change in interest rates.
The above analysis excludes the positive impact that increased interest rates
would have on financing income as approximately 95% of the Company's notes
receivable are variable rate notes.
-14-
AG SERVICES OF AMERICA, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits were filed during the period covered by this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AG SERVICES OF AMERICA, INC.
----------------------------
(Registrant)
/s/ Gaylen D. Miller
----------------------------
Gaylen D. Miller
Chairman of the Board
(Principal Financial and Accounting Officer)
Date: July 15, 2002
-15-
AMENDMENT NO. 5
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
THIS AMENDMENT NO. 5 TO MASTER TRUST INDENTURE AND SECURITY
AGREEMENT dated as of May 31, 2002 (this "Amendment") is entered into by
and among AG ACCEPTANCE CORPORATION, as Issuer (the "Issuer"), AG SERVICES
OF AMERICA, INC., as Servicer (the "Servicer"), U.S. BANK, N.A., as Trustee
(d/b/a FIRSTAR BANK, N.A., as Trustee) (the "Trustee") and MBIA INSURANCE
CORPORATION, as the Insurer (the "Insurer"). Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to such
terms in the Indenture (as defined below and amended hereby).
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer
have entered into that certain Master Trust Indenture and Security Agreement,
dated as of June 23, 1999 (as amended, restated, supplemented or otherwise
modified from time to time, the "Indenture"); and
WHEREAS, the Issuer, the Servicer, the Trustee and the Insurer
have agreed to amend the Indenture as hereinafter set forth;
NOW THEREFORE, in consideration of the premises and other mutual
covenants contained herein, the parties hereto agree as follows:
SECTION 1. Amendments. The Indenture is hereby amended as
follows, such amendment to be effective as of the date set forth in Section 2
hereof, and subject to the satisfaction of the conditions precedent set
forth in Section 2 hereof:
1.1 The Indenture is hereby amended to add the following
Section 4.05 of the Indenture:
SECTION 4.05 Collateral Releases.
(a) On any date prior to the Wind Down Date, with the prior
written consent of the Control Party in its sole discretion, the Issuer
may direct the Trustee in writing to release its Lien on a portion of
the Pledged Assets, subject to the following conditions:
(i) immediately prior to such release and after giving effect
to such release, no Unmatured Event of Default, Event of Default,
Amortization Event or any event which, with the giving of notice
or the passage of time or both, would constitute an Amortization
Event shall occur;
(ii) immediately prior to such release and after giving
effect to such release and the application of all or a portion of
the repurchase price pursuant to clause (vi) below, no Asset
Deficiency shall exist;
-16-
(iii) not less than 7 Business Days prior to the proposed
date of such release (or such shorter notice period acceptable
to the Trustee and the Control Party in their sole discretion),
the Trustee and the Control Party shall have received a preliminary
request (a "Preliminary Request") for the release of the Lien on
specified Pledged Assets setting forth the approximate repurchase
price for such Pledged Assets and details of such Pledged Assets
to be considered for release in substantially the form of
Exhibit I ;
(iv) no later than 5:00 p.m. (New York City time) on the
Business Day immediately preceding the date of the proposed release,
the Control Party shall have received a final request (a "Final
Request") for the release of the Lien on specified Pledged Assets,
updating the information set forth in the related Preliminary
Request, including the final repurchase price, the final list of
Pledged Assets to be released and the details of such Pledged Assets
to be released in substantially the form of Exhibit J;
(v) the Control Party shall have executed the Final Request
evidencing its consent thereto and shall have delivered a copy
thereof the Trustee;
(vi) the Trustee and the Control Party shall have received
two Servicer's Daily Reports each dated the date of the proposed
release, one with respect to the Pledged Assets before giving
effect to such release and one with respect to the Pledged Assets
after giving effect to such release, together with a certificate
of a Servicing Officer, certifying the accuracy of such Servicer's
Daily Reports and certifying the compliance with the other
provisions of this Section 4.05(a); and
(vii) the receipt by the Trustee of the amount, if any,
necessary to reduce to zero any Asset Deficiency after giving
effect to such Release, which amount shall be retained by the
Trustee and immediately applied to reduce such Asset Deficiency,
if any, to zero.
(b) Upon the satisfaction of the conditions set forth above, at
the expense of the Issuer, the Trustee shall release its Lien on Pledged
Assets described in the Final Request by executing a Release substantially
in the form of Annex A to Exhibit J, and upon the written request of the
Issuer, such other documents or instruments as may be reasonably necessary
to terminate and remove of record such Lien.
1.2 The Indenture is hereby amended to delete clause (p)(i) from
Section 9.01 of the Indenture and to substitute the following therefor:
(p)(i) the Originator's Consolidated Pre-Tax Margin shall be less
than 2.0% as of the end of the fiscal quarter ended May 31, 2002, shall be
less than 1.75% as of the end of the fiscal quarter ended August 31, 2002,
shall be less than 2.1% as of the end of the fiscal quarter ended
November 30, 2002, or less than 3.0% as of the end of any fiscal
quarter thereafter;
-17-
1.3 Section 9.01 of the Indenture is hereby amended to delete
clause (t) in its entirety and to substitute the following therefor:
(t) the Originator shall fail to achieve a Fixed Charge Coverage
Ratio of at least (i) 1.70 to 1.00 as of the end of the four-Fiscal
Quarter period ended May 31, 2002, (ii) 1.55 to 1.00 as of the end of the
four-Fiscal Quarter period ended August 31, 2002, (iii) 1.70 to 1.00 as of
the end of the four-Fiscal Quarter period ended November 30, 2002 and as
of the end of the four-Fiscal Quarter period ended February 28, 2003 and
(iv) 1.75 to 1.00 as of the end of any Fiscal Quarter thereafter for the
four-Fiscal Quarter period then ended; or
1.4 The Indenture is hereby amended to add Exhibit I and J
attached hereto as Exhibit I and J, respectively, to the Indenture.
SECTION 2. Amendment Effective Date. This Amendment shall become
effective as of the date (the "Amendment Effective Date") on which each of the
following conditions precedent shall have been satisfied:
(a) each of the Issuer, the Servicer, the Trustee and the Insurer
shall have received a copy of this Amendment duly executed by each of the
parties hereto; and
(b) either (i) the Noteholder's Consents attached to this Amendment
shall have been duly executed and delivered by the Majority Noteholders;
or (ii) with respect to each Rating Agency, the Rating Agency Condition
shall have been satisfied with respect thereto.
SECTION 3. Covenants, Representations and Warranties of the Issuer
and the Servicer.
3.1 Upon the effectiveness of this Amendment, (i) each of the
Issuer and the Servicer hereby reaffirms all representations and warranties
made by it in the Indenture as amended hereby (except for those
representations and warranties that relate to a specific date) and agrees
that all such covenants, representations and warranties shall be deemed to
have been remade as of the effective date of this Amendment (except for those
representations and warranties that relate to a specific date) and (ii) each
of the Issuer and the Servicer hereby represents and warrants that no Asset
Deficiency is continuing and no Event of Default or event or circumstance
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default shall have occurred and be continuing.
3.2 Each of the Issuer and the Servicer represents and warrants
that this Amendment constitutes a legal, valid and binding obligation of such
party, enforceable against it in accordance with its terms.
3.3 In consideration for the execution of this Amendment by
the Insurer and the Trustee, and the execution by the Noteholders of their
respective consent to this Amendment, each of the Issuer and the Servicer
hereby waives each and every claim, defense, demand, action and suit of any
kind or nature whatsoever against each of the
-18-
Insurer, Trustee, Noteholder and each of their respective directors, officers,
shareholders, employees and agents arising on or prior to the date hereof in
connection with the Indenture, any of the other Transaction Documents and the
transactions contemplated thereby.
SECTION 4. Reference to and Effect on the Indenture and the
Transaction Documents.
4.1 As of the Amendment Effective Date, each reference in the
Indenture to "this Indenture", "hereunder", "hereof", "herein", or words
of like import shall mean and be a reference to the Indenture as amended
hereby, and each reference to the Indenture in any other Transaction
Document, instrument or agreement executed and/or delivered in connection
with the Indenture shall mean and be a reference to the Indenture as
amended hereby.
4.2 Except as specifically amended above and in connection
herewith, the Indenture and all other documents, instruments and agreements
executed and/or delivered in connection therewith shall remain in full force
and effect and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Trustee or
the Insurer under the Indenture or any other document, instrument or agreement
executed in connection therewith, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 5. Governing Law. This Amendment will be governed by and
construed in accordance with the internal laws (as opposed to any conflict of
law provisions, except Sections 5-1401 and 5-1402 of the New York General
Obligations Law) and decisions of the State of New York.
SECTION 6. Severability. Each provision of this Amendment shall
be severable from every other provision of this Amendment for the purpose of
determining the legal enforceability of any provision hereof, and the
unenforceability of one or more provisions of this Amendment in one
jurisdiction shall not have the effect of rendering such provision or
provisions unenforceable in any other jurisdiction.
SECTION 7. Execution in Counterparts. This Amendment may be
executed in one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall
be deemed to be an original, but all of which taken together shall
constitute one and the same instrument. Delivery of an executed
counterpart of a signature page to this Amendment by facsimile shall be
effective as delivery of a manually executed counterpart of this Amendment.
SECTION 8. Successors and Assigns. This Amendment shall be
binding upon, and shall inure to the benefit of, the parties hereto and
their respective successors and assigns.
SECTION 9. Headings. Section headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
[remainder of page intentionally left blank]
-19-
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
AG ACCEPTANCE CORPORATION, as the Issuer
By:_________________________
Name:
Title:
AG SERVICES OF AMERICA, INC., as Servicer
By:_________________________
Name:
Title:
U.S. BANK, N.A., as Trustee
(d/b/a FIRSTAR BANK, N.A., as Trustee)
By:_________________________
Name:
Title:
MBIA INSURANCE CORPORATION, as Insurer
By:__________________________
Name:
Title:
-20-
CONSENT TO
AMENDMENT NO. 5
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-1 Noteholder, hereby
consents to the Amendment No. 5 to the Master Trust Indenture and Security
Agreement dated as of May 31, 2002 (the "Amendment") to which this Consent
is attached. The consent granted hereunder shall apply only to the foregoing
Amendment and shall not be deemed to be a consent to any other amendment for
which the consent of the undersigned is required.
TRIPLE-A ONE FUNDING CORPORATION, as
the Series 1999-1 Noteholder and
Majority Noteholder
By: MBIA Insurance Corporation,
as Attorney-in-Fact
By:____________________________
Name:
Title:
-21-
CONSENT TO
AMENDMENT NO. 5
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-2 Noteholder hereby
consents to the Amendment No. 5 to the Master Trust Indenture and
Security Agreement dated as of May 31, 2002 (the "Amendment") to
which this Consent is attached. The consent granted hereunder shall
apply only to the foregoing Amendment and shall not be deemed to be a
consent to any other amendment for which the consent of the undersigned
is required.
COBANK, ACB, as the Series
1999-2 Noteholder
By:__________________________
Name:
Title:
-22-
Exhibit I
FORM OF PRELIMINARY REQUEST FOR RELEASE OF SPECIFIED COLLATERAL
To: U.S. Bank N.A., as Trustee (d/b/a Firstar Bank, N.A., as Trustee)
U.S. Bank Trust Center
EP-MN-T2CT Chuck Pedersen
180 East Fifth Street
St. Paul, Minnesota 55101
Facsimile No.: 651-244-1797
MBIA Insurance Corporation
113 King Street
Armonk, New York, 10504
Attention: Andrew Laterza - IPM/STF Corporate
Facsimile No.: 914-765-3810
Re: Master Trust Indenture And Security Agreement, dated as of June 23, 1999
among Ag Acceptance Corporation, a Delaware corporation, as Issuer
(the "Issuer"), Ag Services of America, Inc. ("Ag Services"), an Iowa
corporation, as Servicer (the "Servicer"), U.S. Bank N.A., as Trustee
(d/b/a Firstar Bank, N.A., as Trustee) (the "Trustee") and MBIA Insurance
Corporation, as the "Insurer" (as amended, restated, supplemented or
otherwise modified from time to time, the "Indenture"). Capitalized terms
used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Indenture.
Pursuant to Section 4.05(a)(iii) of the Indenture, Ag Services
anticipates the repurchase from the Issuer, for an aggregate repurchase price
of approximately $________, the Acquired Advances and the other Pledged Assets
related thereto as described below and in connection therewith, hereby requests
that the Control Party consent to the release of the Lien on such Pledged
Assets as of [Insert proposed release date], as such list of Pledged Assets
may be modified as set forth on the Final Request related hereto to be
delivered to the Control Party on [Insert proposed release date].
Loan No. Obligor Year/Loan Type O/S Advance Bal. Accrued/Unpaid Interest
and Costs
AG SERVICES OF AMERICA, INC.
By:__________________________
Name:
Title:
-23-
AG ACCEPTANCE CORPORATION
By:_________________________
Name:
Title:
-24-
Exhibit J
[FORM OF FINAL REQUEST FOR RELEASE OF SPECIFIED COLLATERAL/
FORM OF RELEASE]
To: U.S. Bank N.A., as Trustee (d/b/a Firstar Bank, N.A., as Trustee)
U.S. Bank Trust Center
EP-MN-T2CT Chuck Pedersen
180 East Fifth Street
St. Paul, Minnesota 55101
Facsimile No.: 651-244-1797
MBIA Insurance Corporation
113 King Street
Armonk, New York, 10504
Attention: Andrew Laterza - IPM/STF Corporate
Facsimile No.: 914-765-3810
Re: Master Trust Indenture And Security Agreement, dated as of June 23, 1999
among Ag Acceptance Corporation, a Delaware corporation, as Issuer
(the "Issuer"), Ag Services of America, Inc. ("Ag Services"), an Iowa
corporation, as Servicer (the "Servicer"), U.S. Bank N.A., as Trustee
(d/b/a Firstar Bank, N.A., as Trustee)(the "Trustee") and MBIA Insurance
Corporation, as the "Insurer" (as amended, restated, supplemented or
otherwise modified from time to time, the "Indenture"). Capitalized
terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Indenture.
Pursuant to Section 4.05(a)(iv) of the Indenture, Ag Services desires to
repurchase from the Issuer, for an aggregate repurchase price of $________
(the "Repurchase Price"), the Acquired Advances and the other Pledged Assets
related thereto as described below and in connection therewith, hereby requests
the release of the Lien on such Pledged Assets as of [Insert proposed release
date]. A payment to the Noteholders in the aggregate amount of $_______ will
be required to reduce any Asset Deficiency to zero after giving effect to such
repurchase.
Loan No. Obligor Year/Loan Type O/S Advance Bal. Accrued/Unpaid Interest
and Costs
AG SERVICES OF AMERICA, INC.
By:_________________________
Name:
Title:
-25-
AG ACCEPTANCE CORPORATION
By:________________________
Name:
Title:
Acknowledged and Agreed to
the __ day of 200_
MBIA Insurance Corporation,
as Control Party
By:_______________________
Name:
Title:
-26-
Annex A
RELEASE
KNOW ALL MEN BY THESE PRESENTS, that U.S. Bank N.A., as Trustee
(d/b/a Firstar Bank, N.A., as Trustee) (the "Trustee") under that
certain Master Trust Indenture And Security Agreement, dated as of
June 23, 1999 among Ag Acceptance Corporation, a Delaware corporation,
as Issuer (the "Issuer"), Ag Services of America, Inc. ("Ag Services"),
an Iowa corporation, as Servicer (the "Servicer"), U.S. Bank N.A., as
Trustee (d/b/a Firstar Bank, N.A., as Trustee) (the "Trustee") and MBIA
Insurance Corporation, as the "Insurer" (as amended, restated, supplemented
or otherwise modified from time to time, the "Indenture"; unless otherwise
defined herein, capitalized terms used in this Release have the meanings
ascribed to them in the Indenture), in accordance with the terms of the
Indenture, does hereby without recourse, representation or warranty and
in express reliance upon the statements made by Ag Services and the Issuer
in the request dated [Insert Date], relative to this Release
(the "Final Request") and in the Servicer's Daily Report and a certificate
of the Servicing Officer delivered in connection therewith, REMISE, CONVEY,
RELEASE AND QUIT CLAIM unto the Issuer all the right, title and interest
(including, without limitation, any and all security interests and any and
all liens, charges, claims, encumbrances and other third party rights)
whatsoever that the Trustee may have acquired for itself or for the benefit
of the Secured Parties (or that any Secured Party may have acquired) in,
through or by the Indenture, in (a) the Pledged Assets specified in the
Final Request attached hereto and (b) all payments and proceeds thereof
(exclusive of the repurchase price paid to the Issuer pursuant to the
terms of the Indenture) (the "Released Assets"). The Trustee, for itself
as Trustee and on behalf of the other Secured Parties in accordance with
the terms of the Indenture, and in express reliance upon the statements made
by the Company in the Final Request and in the Servicer's Daily Report
and a certificate of the Servicing Officer delivered in connection therewith,
further hereby, without recourse, representation or warranty, relinquishes,
releases and renders ineffective all of the rights, powers and interests of
the Trustee and the Secured Parties with respect to the Released Assets,
derived from or arising under the Indenture.
This Release is in no way to operate to discharge the Lien of the
Indenture Agreement upon any property other than the Released Assets, but
it is only to release the Released Assets and none other; and the remaining
or unreleased Collateral is to remain as security for payment of the
indebtedness secured thereby and for full performance of all of the
covenants, conditions and obligations contained in the Indenture or in
any other Transaction Document, and the other documents described therein.
-27-
IN WITNESS WHEREOF, this Release has been executed this
[ ] day of [ ], 200_.
U.S. BANK, N.A., as Trustee
(d/b/a FIRSTAR BANK, N.A., as Trustee)
By:________________________
Name:
Title:
-28-
AMENDMENT NO. 6
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
THIS AMENDMENT NO. 6 TO MASTER TRUST INDENTURE AND
SECURITY AGREEMENT dated as of June 18, 2002 (this "Amendment") is
entered into by and among AG ACCEPTANCE CORPORATION, as Issuer
(the "Issuer"), AG SERVICES OF AMERICA, INC., as Servicer
(the "Servicer"), U.S. BANK, N.A., (d/b/a FIRSTAR BANK, N.A.),
as Trustee (the "Trustee"), and MBIA INSURANCE CORPORATION, as
the Insurer (the "Insurer"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to
such terms in the Indenture (as defined below and amended hereby).
WHEREAS, the Issuer, the Servicer, the Trustee and the
Insurer have entered into that certain Master Trust Indenture and
Security Agreement, dated as of June 23, 1999 (as amended, restated,
supplemented or otherwise modified from time to time, the "Indenture");
and
WHEREAS, the Issuer, the Servicer, the Trustee and the
Insurer have agreed to amend the Indenture as hereinafter set forth;
NOW THEREFORE, in consideration of the premises and other
mutual covenants contained herein, the parties hereto agree as follows:
SECTION 1. Amendments. The Indenture is hereby amended as
follows, such amendment to be effective as of the date set forth in
Section 2 hereof, and subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof:
1.1 The defined term "Required Reserves" contained in
Section 1.01 is hereby amended to delete the percentage "15%" set
forth in clause (ii) thereof and to substitute the percentage "18%"
therefor.
1.2 The defined term "Scheduled Wind Down Date" contained
in Section 1.01 is hereby deleted in its entirety and the following
definition substituted therefor:
"Scheduled Wind Down Date" means the Distribution Date
occurring in November, 2002, as such date may from
time to time be extended pursuant to Section 12.01 hereof.
1.3. The defined terms "Consolidated Capital" and
"Consolidated Capital Requirement" contained in Section 1.01 are hereby
deleted in their entirety.
SECTION 2. Amendment Effective Date. This Amendment shall
become effective as of the date (the "Amendment Effective Date") on
which each of the following conditions precedent shall have been satisfied:
-29-
(a) each of the Issuer, the Servicer, the Trustee and the
Insurer shall have received a copy of this Amendment duly executed by
each of the parties hereto; and
(b)either (i) the Noteholder's Consents attached to this
Amendment shall have been duly executed and delivered by the Majority
Noteholders of each Series of Notes; or (ii) with respect to each Rating
Agency, the Rating Agency Condition shall have been satisfied with
respect thereto.
SECTION 3. Covenants, Representations and Warranties of
the Issuer and the Servicer.
3.1 Upon the effectiveness of this Amendment, (i) each
of the Issuer and the Servicer hereby reaffirms all representations
and warranties made by it in the Indenture as amended hereby (except
for those representations and warranties that relate to a specific date)
and agrees that all such covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this Amendment
(except for those representations and warranties that relate to a specific
date) and (ii) each of the Issuer and the Servicer hereby represents and
warrants that no Asset Deficiency is continuing and no Event of Default
or event or circumstance which, with the giving of notice or the passage
of time, or both, would constitute an Event of Default shall have occurred
and be continuing.
3.2 Each of the Issuer and the Servicer represents and
warrants that this Amendment constitutes a legal, valid and binding
obligation of such party, enforceable against it in accordance with
its terms.
3.3 In consideration for the execution of this Amendment
by the Insurer and the Trustee, and the execution by the Noteholders of
their respective consent to this Amendment, each of the Issuer and the
Servicer hereby waives each and every claim, defense, demand, action and
suit of any kind or nature whatsoever against each of the Insurer,
Trustee, Noteholder and each of their respective directors, officers,
shareholders, employees and agents arising on or prior to the date hereof
in connection with the Indenture, any of the other Transaction Documents
and the transactions contemplated thereby.
SECTION 4. Reference to and Effect on the Indenture and
the Transaction Documents.
4.1 As of the Amendment Effective Date, each reference
in the Indenture to "this Indenture", "hereunder", "hereof", "herein",
or words of like import shall mean and be a reference to the Indenture
as amended hereby, and each reference to the Indenture in any other
Transaction Document, instrument or agreement executed and/or delivered
in connection with the Indenture shall mean and be a reference to the
Indenture as amended hereby.
4.2 Except as specifically amended above and in connection
herewith, the Indenture and all other documents, instruments and agreements
executed and/or delivered in connection therewith shall remain in full force
and effect and are hereby ratified and confirmed.
4.3 The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy
of the Trustee or the Insurer under the Indenture or any other document,
-30-
instrument or agreement executed in connection therewith, nor constitute
a waiver of any provision contained therein, except as specifically set
forth herein.
SECTION 5. Governing Law. This Amendment will be governed
by and construed in accordance with the internal laws (as opposed to any
conflict of law provisions, except Sections 5-1401 and 5-1402 of the New
York General Obligations Law) and decisions of the State of New York.
SECTION 6. Severability. Each provision of this Amendment
shall be severable from every other provision of this Amendment for the
purpose of determining the legal enforceability of any provision hereof,
and the unenforceability of one or more provisions of this Amendment in
one jurisdiction shall not have the effect of rendering such provision or
provisions unenforceable in any other jurisdiction.
SECTION 7. Execution in Counterparts. This Amendment may be
executed in one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall
be deemed to be an original, but all of which taken together shall
constitute one and the same instrument. Delivery of an executed
counterpart of a signature page to this Amendment by facsimile shall
be effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 8. Successors and Assigns. This Amendment shall be
binding upon, and shall inure to the benefit of, the parties hereto and
their respective successors and assigns.
SECTION 9. Headings. Section headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Amendment
to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
AG ACCEPTANCE CORPORATION, as the Issuer
By:__________________________
Name:
Title:
AG SERVICES OF AMERICA, INC., as Servicer
By:___________________________
Name:
Title:
U.S. BANK, N.A. (d/b/a FIRSTAR BANK, N.A.),
as Trustee
By:___________________________
Name:
Title:
MBIA INSURANCE CORPORATION, as Insurer
By:___________________________
Name:
Title:
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CONSENT TO
AMENDMENT NO. 6
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-1 Noteholder,
hereby consents to the Amendment No. 6 to the Master Trust
Indenture and Security Agreement dated as of June 18, 2002
(the "Amendment") to which this Consent is attached. The consent
granted hereunder shall apply only to the foregoing Amendment
and shall not be deemed to be a consent to any other amendment
for which the consent of the undersigned is required.
TRIPLE-A ONE FUNDING CORPORATION,
as the Series 1999-1 Noteholder and
Majority Noteholder
By: MBIA Insurance Corporation,
as Attorney-in-Fact
By:_____________________________
Name:
Title:
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CONSENT TO
AMENDMENT NO. 6
TO
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
The undersigned, as the Series 1999-2 Noteholder
hereby consents to the Amendment No. 6 to the Master Trust
Indenture and Security Agreement dated as of June 18, 2002
(the "Amendment") to which this Consent is attached. The
consent granted hereunder shall apply only to the foregoing
Amendment and shall not be deemed to be a consent to any
other amendment for which the consent of the undersigned
is required.
COBANK, ACB, as the Series
1999-2 Noteholder
By:________________________
Name:
Title:
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