<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
FARMLAND INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 2011 44-0209330
(State or other (Primary standard (I.R.S. Employer
jurisdiction of industrial Identification No.)
incorporation or classification code
organization) number)
---------------
3315 NORTH OAK TRAFFICWAY
KANSAS CITY, MISSOURI 64116-0005
(816) 459-6000
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
JOHN F. BERARDI
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FARMLAND INDUSTRIES, INC.
3315 NORTH OAK TRAFFICWAY
KANSAS CITY, MISSOURI 64116-0005
(816) 459-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
COPIES OF ALL COMMUNICATIONS TO:
JAMES BRIDGES FARMLAND
INDUSTRIES, INC. 3315
NORTH OAK TRAFFICWAY
KANSAS CITY, MISSOURI
64116-0005 (816) 459-
6000
KENNETH R. BLACKMAN FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ONE NEW YORK
PLAZA NEW YORK, NEW YORK 10004-1980 (212) 859-8000
JON R. LIND MCDERMOTT,
WILL & EMERY 227 WEST
MONROE STREET CHICAGO,
ILLINOIS 60606-5096
(312) 372-2000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement, as
determined by market conditions.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Amount Maximum Maximum
Title of each class of to be Offering Price Aggregate Amount of
securities to be registered Registered Per Unit Offering Price Registration Fee(1)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Securities..... $200,000,000 100% $200,000,000 $68,966
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to 457(o).
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS +
+SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY +
+NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH +
+OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR +
+QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 10, 1995
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 1995
$100,000,000
FARMLAND INDUSTRIES, INC.
% SENIOR NOTES DUE 2005
-----------
Interest on the Senior Notes is payable and of each
year, commencing , 1996. The Senior Notes are not redeemable prior to
maturity and do not provide for any sinking fund. The Senior Notes will be
represented by one or more Global Securities registered in the name of the
nominee of The Depository Trust Company. Beneficial interests in the Global
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Except as described
herein, Senior Notes in definitive form will not be issued. The Senior Notes
will be issued only in registered form in denominations of $1,000 and integral
multiples thereof. See "Description of the Senior Notes".
The Senior Notes are general unsecured and non-subordinated obligations of
the Company and rank on a parity in right of payment with all other unsecured
and non-subordinated indebtedness of the Company.
Application will be made to list the Senior Notes on the New York Stock
Exchange.
SEE "RISK FACTORS" ON PAGE S-5 FOR A DESCRIPTION OF CERTAIN RISK FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE (1) DISCOUNT (2) COMPANY(1)(3)
------------------ ------------ -------------
<S> <C> <C> <C>
Per Senior Note................... % % %
Total............................. $ $ $
</TABLE>
-----
(1) Plus accrued interest, if any, from , 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $ payable by the Company.
-----------
The Senior Notes offered hereby are being offered by Goldman, Sachs & Co., as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
Senior Notes will be ready for delivery in book-entry form only through the
facilities of DTC in New York, New York on or about , 1995.
GOLDMAN, SACHS & CO.
-----------
The date of this Prospectus Supplement is , 1995.
<PAGE>
IN CONNECTION WITH THE OFFERING OF THE SENIOR NOTES, THE UNDERWRITERS MAY
OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE SENIOR NOTES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
S-2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. Unless
the context requires otherwise, (i) "Farmland" or the "Company" herein and
therein refers to Farmland Industries, Inc. and its consolidated subsidiaries,
and (ii) all references herein and therein to "year" or "years" are to fiscal
years ended August 31.
THE COMPANY
Farmland is an agricultural farm supply and processing and marketing company
headquartered in Kansas City, Missouri that is owned primarily by its members
and operates on a cooperative basis. In 1994, Farmland's membership consisted
of 1,480 cooperative associations of farmers and ranchers and 1,365 pork or
beef producers or associations of such producers. Founded originally in 1929,
Farmland has grown from revenues of $310,000 during its first year of operation
to over $6.6 billion during 1994.
The Company is the largest farmer-owned cooperative in the United States in
terms of revenues. The Company's principal U.S. trade territory is comprised of
22 midwestern states. Those states accounted for 82% of wheat production, 88%
of corn production, 81% of soybean production, 72% of cattle production, and
82% of hog production, in the United States in calendar year 1994. Farmland has
endeavored to develop a significant presence in international markets. In 1994,
Farmland had exports to more than 85 countries, and derived 37% of its grain
revenues from export sales. In 1995, the Company sold more than 2.5 million
tons of wheat to China, which management believes constituted the largest wheat
sale ever by a private U.S. enterprise to a foreign country. Foreign grain
sales generally are paid in U.S. Dollars.
The Company conducts business primarily in two operating areas: inputs and
outputs. On the input side of the agricultural industry, the Company operates
as a farm supply cooperative. On the output side of the agricultural industry,
the Company operates as a processing and marketing cooperative.
The Company's farm supply operations consist of three principal product
divisions--petroleum, crop production and feed--that produce and distribute
farm supply products principally at wholesale. Substantially all of the
Company's farm supply products sold in 1994 were produced in plants owned by
the Company or operated by the Company under long-term lease arrangements.
Approximately 65% of the Company's farm supply products sold in 1994 were to
farm cooperative associations which are members (as defined below) of Farmland.
These farm cooperatives distribute products primarily to farmers and ranchers
in states which comprise the corn belt and the wheat belt and who utilize the
products in the production of farm crops and livestock.
On the output side, the Company's processing and marketing operations include
the storage and marketing of grain, the processing of pork and beef, and the
marketing of fresh pork, processed pork and fresh beef. In 1994, approximately
61% of the hogs processed and 46% of the grain marketed were supplied to the
Company by its members. Substantially all of the Company's pork and beef
products sold in 1994 were processed in plants owned by the Company.
No material part of the business of any segment of the Company is dependent
on a single customer or a few customers. The Company competes for market share
with numerous participants (including other cooperatives) with various levels
of vertical integration, product and geographical diversification, sizes and
types of operations.
S-3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........ $100,000,000 aggregate principal amount of % Senior Notes Due
2005 (the "Senior Notes").
Maturity Date............. , 2005. The Senior Notes are not redeemable prior to
maturity and do not provide for any sinking fund.
Interest Payment Dates.... and , commencing , 1996.
Ranking................... The Senior Notes are general unsecured and non-subordinated
obligations of the Company and rank on parity in right of
payment with all other unsecured and non-subordinated
indebtedness of the Company. As of May 31, 1995, after giving
effect to this offering, (i) the Company had outstanding
$520.4 million aggregate principal amount of non-subordinated
indebtedness, including the Senior Notes, (ii) the Company had
outstanding $296.1 million aggregate principal amount of
subordinated indebtedness, and (iii) certain of the Company's
subsidiaries had outstanding $186.3 million aggregate
principal amount of indebtedness, of which $155.5 million was
nonrecourse to the Company.
Certain Covenants......... The Indenture (as defined below) under which the Senior Notes
are issued restricts, among other things, the ability of the
Company in certain circumstances (i) to incur liens on its
assets, (ii) to repay or purchase Subordinated Debt (as
defined below), and (iii) to pay patronage refunds or
dividends on its common stock or to purchase or redeem any of
its common stock or capital credits.
Use of Proceeds........... The net proceeds to the Company from the sale of the Senior
Notes offered hereby are estimated to be $ million. The
Company intends to use approximately $50 million to repay term
debt outstanding under the Credit Agreement (as defined below)
and to use the balance of such net proceeds for general
corporate purposes. Pending such use, such balance will be
used temporarily to repay short-term indebtedness.
Listing................... Application will be made to list the Senior Notes on the New
York Stock Exchange ("NYSE") under the symbol " ".
Book-Entry System......... The Senior Notes will be issued in the form of one or more
fully registered global securities (collectively, the "Global
Security") registered in the name of the nominee of The
Depository Trust Company ("DTC"). Except as described in this
Prospectus Supplement, beneficial interests in the Global
Security will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and its
participants. Except in limited circumstances described in
this Prospectus Supplement, owners of beneficial interests in
the Global Security will not be entitled to have Senior Notes
registered in their names, will not receive or be entitled
receive Senior Notes in definitive form and will not be
considered holders thereof under the Indenture. Senior Notes
will be issued only in denominations of $1,000 and integral
multiples thereof.
</TABLE>
S-4
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus Supplement and the accompanying
Prospectus, the following risk factors before purchasing the Senior Notes
offered hereby.
INCOME TAX MATTERS
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive
of statutory interest thereon) in the aggregate amount of $70.8 million. The
asserted deficiencies relate primarily to the Company's tax treatment of a
$237.2 million gain resulting from its sale, in July 1983, of the stock of
Terra Resources, Inc. ("Terra") and the IRS's contention that Farmland
incorrectly treated the Terra sale gain as income against which certain
patronage-sourced operating losses could be offset. The statutory notice
further asserts that Farmland incorrectly characterized for tax purposes gains
aggregating approximately $14.6 million, and a loss of approximately $2.3
million, from dispositions of certain other assets and that Farmland was not
entitled to a claimed intercorporate dividends-received deduction with respect
to a $24.8 million distribution received in 1983 from Terra.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. Prior to trial, the IRS withdrew its challenge to Farmland's
claimed intercorporate dividends-received deduction and several other minor
issues were resolved. The parties will submit post-trial briefs to the court
in September and November 1995.
If the United States Tax Court decides in favor of the IRS on all unresolved
issues raised in the statutory notice, Farmland would have additional federal
and state income tax liabilities aggregating approximately $85.8 million plus
accumulating statutory interest thereon (approximately $173.4 million, before
tax benefits of the interest deduction, through June 30, 1995), or $259.2
million in the aggregate at June 30, 1995. In addition, such a decision would
affect the computation of Farmland's taxable income for its 1989 tax year and,
as a result, could increase Farmland's federal and state income taxes for that
year by approximately $5.0 million plus applicable statutory interest thereon.
Finally, the additional federal and state income taxes and accrued interest
thereon, which would be owed based on an adverse decision, would become
immediately due and payable unless the Company appealed the decision and
posted the requisite bond to stay assessment and collection.
The liability resulting from an adverse decision would be charged to current
operations and would have a material adverse effect on the Company and may
affect its ability to pay, when due, principal and interest on the Senior
Notes and the Company's other indebtedness. In order to pay any such tax
claim, the Company would have to consider financing arrangements, including
the incurrence of indebtedness and the sale of assets. Moreover, the Company
would be required to renegotiate the Credit Agreement with its bank lenders,
as well as other existing financing agreements with certain other parties, not
only to effect such financing arrangements, but also to cure events of default
under the Credit Agreement and to maintain compliance with various
requirements thereof and such other existing financing agreements, including
working capital and funded indebtedness provisions, in order to avoid default
thereunder. No assurance can be given that such financing arrangements or such
renegotiation would be successfully concluded. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Financial
Condition, Liquidity and Capital Resources".
GENERAL FACTORS AFFECTING THE BUSINESS
The Company's revenues, margins and net income depend, to a large extent, on
conditions in agriculture and may be volatile due to factors beyond the
Company's control, such as weather, crop failures, federal agricultural
programs, production efficiencies and U.S. imports and exports. In
S-5
<PAGE>
addition, various federal and state regulations to protect the environment
encourage farmers to reduce the amount of fertilizer and other chemical
applications. Global variables which affect supply, demand and price of crude
oil, refined fuels, natural gas and other commodities may impact the Company's
operations. Historically, changes in the costs of raw materials used in the
manufacture of the Company's finished products have not necessarily resulted
in corresponding changes in the prices at which such products have been sold
by the Company. Management cannot determine the extent to which these factors
may impact future operations of the Company. The Company's cash flow and net
income may continue to be volatile as conditions affecting agriculture and
markets for the Company's products change. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
LIMITED ACCESS TO EQUITY CAPITAL MARKETS
As a cooperative, the Company cannot sell its common equity securities to
traditional public or private markets. Instead, equity is raised largely from
cooperative voting members, associate members and other persons with which
Farmland is a party to a currently effective patronage agreement ("patrons").
Farmland's members provide equity through the reinvestment of a portion of the
patronage refunds receivable from the Company. Unless the context otherwise
requires, the term "member" as used in this Prospectus Supplement and the
accompanying Prospectus means any voting member, any associate member or any
patron. See "Business--Patronage Refunds and Distribution of Net Earnings" and
"--Equity Redemption Plans" in the accompanying Prospectus.
ENVIRONMENTAL MATTERS
The Company is subject to various stringent federal, state and local laws
and regulations in the United States which regulate the Company's petroleum
operations, farm supply manufacturing and distribution operations, its food
processing and marketing operations and its grain marketing operations, or
which may impose liability for the cleanup of environmental contamination. The
Company has incurred and will continue to incur substantial capital
expenditures and operating costs related to these laws and regulations. The
Company cannot, however, predict the impact of new or amended laws or
regulations, nor can it predict with certainty how existing laws and
regulations will be enforced or interpreted. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Matters Involving
the Environment" herein and "Business--Matters Involving the Environment" in
the accompanying Prospectus.
Many of the Company's current and former facilities have been in operation
for many years and, over such time, the Company and other predecessor
operators of such facilities have generated, used, stored, or disposed of
substances or wastes that are or might be considered hazardous under
applicable environmental laws. As a result of such operations, the soil and
groundwater at or under certain of the Company's current and former facilities
have been contaminated, but to date the Company has not been required to make
material expenditures in connection with the cleanup of contamination at any
such facility. However, material expenditures may be required by the Company
in the future to remediate contamination from past or future releases of
hazardous substances or wastes.
The Company wholly or jointly owns or operates 54 manufacturing properties
and has potential responsibility for environmental conditions at a number of
former manufacturing facilities and at waste disposal facilities operated by
third parties. The Company is investigating or remediating contamination at 17
sites. The Company has also been identified as a potentially responsible party
(a "PRP") under the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and has unresolved liability with respect to the
past disposal of hazardous substances at six such sites. Such laws may impose
joint and several liability on certain statutory classes of persons for the
costs of
S-6
<PAGE>
investigation and remediation of contaminated properties, regardless of fault
or the legality of the original disposal. These persons include the present and
former owner or operator of a contaminated property, and companies that
generated, disposed of, or arranged for the disposal of, hazardous substances
found at the property. During 1993 and 1994, the Company paid approximately $.5
million and $1.4 million, respectively, for environmental investigation and
remediation.
The Company currently is aware of probable obligations for environmental
matters at 18 sites. As of May 31, 1995, the Company has made an environmental
accrual of $8.4 million. The Company periodically reviews and, as appropriate,
revises its environmental accruals. Based on current information and regulatory
requirements, the Company believes that the accruals established for
environmental expenditures are adequate.
The Company's actual final costs of resolving certain environmental matters
are not quantifiable, and therefore have not been accrued, because such matters
are in preliminary stages and the timing, extent and costs of various actions
which governmental authorities may require are currently unknown. Management
also is aware of other environmental matters for which there is a reasonable
possibility that the Company will incur costs to resolve. It is possible that
the costs of resolution of the matters described in this paragraph may exceed
the liabilities which, in the opinion of management, are probable and which
costs are reasonably estimable at May 31, 1995. In the opinion of management,
it is reasonably possible for such costs to be approximately an additional
$24.0 million.
ABSENCE OF PUBLIC MARKET FOR THE SENIOR NOTES
There is currently no trading market for the Senior Notes, and no assurance
can be given that any market for the Senior Notes will develop or, if any such
market develops, as to the liquidity of such market. Application will be made
to list the Senior Notes on the NYSE. No assurance can be given that a holder
of the Senior Notes will be able to sell them in the future or that such sale
will be at a price equal to or higher than the initial public offering price.
Furthermore, the Senior Notes may trade at a discount from their initial public
offering price depending upon prevailing interest rates and other factors.
THE COMPANY
Farmland is an agricultural farm supply and processing and marketing company
headquartered in Kansas City, Missouri that is owned primarily by its members
and operates on a cooperative basis. In 1994, Farmland's membership consisted
of 1,480 cooperative associations of farmers and ranchers and 1,365 pork or
beef producers or associations of such producers. Founded originally in 1929,
Farmland has grown from revenues of $310,000 during its first year of operation
to over $6.6 billion during 1994.
The Company is the largest farmer-owned cooperative in the United States in
terms of revenues. The Company's principal U.S. trade territory is comprised of
22 midwestern states. Those states accounted for 82% of wheat production, 88%
of corn production, 81% of soybean production, 72% of cattle production, and
82% of hog production, in the United States in calendar year 1994. Farmland has
endeavored to develop a significant presence in international markets. In 1994,
Farmland had exports to more than 85 countries, and derived 37% of its grain
revenues from export sales. In 1995, the Company sold more than 2.5 million
tons of wheat to China, which management believes constituted the largest wheat
sale ever by a private U.S. enterprise to a foreign country. Foreign grain
sales generally are paid in U.S. Dollars.
The Company conducts business primarily in two operating areas: inputs and
outputs. On the input side of the agricultural industry, the Company operates
as a farm supply cooperative. On the output side of the agricultural industry,
the Company operates as a processing and marketing cooperative.
S-7
<PAGE>
The Company's farm supply operations consist of three principal product
divisions--petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, by-products of petroleum
refining and a complete line of car, truck and tractor tires, batteries and
accessories. Principal products of the crop production division are nitrogen,
phosphate and potash fertilizers, and, through the Company's ownership in the
Wilfarm joint venture, a complete line of insecticides, herbicides and mixed
chemicals. Principal products of the feed division include swine, dairy, pet,
beef, poultry, mineral and specialty feeds, feed ingredients and supplements,
animal health products and livestock services. The Company's three farm supply
divisions produce and distribute products principally at wholesale.
Substantially all of the Company's farm supply products sold in 1994 were
produced in plants owned by the Company or operated by the Company under long-
term lease arrangements. Approximately 65% of the Company's farm supply
products sold in 1994 were to farm cooperative associations which are members
of Farmland. These farm cooperatives distribute products primarily to farmers
and ranchers in states which comprise the corn belt and the wheat belt and who
utilize the products in the production of farm crops and livestock.
On the output side, the Company's processing and marketing operations
include the storage and marketing of grain, the processing of pork and beef,
and the marketing of fresh pork, processed pork and fresh beef. In 1994,
approximately 61% of the hogs processed and 46% of the grain marketed were
supplied to the Company by its members. Substantially all of the Company's
pork and beef products sold in 1994 were processed in plants owned by the
Company.
No material part of the business of any segment of the Company is dependent
on a single customer or a few customers. Financial information about the
Company's industry segments is presented in Note 12 of the Notes to
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the year ended August 31, 1994 which is incorporated by
reference in the accompanying Prospectus (the "1994 Form 10-K").
The Company competes for market share with numerous participants (including
other cooperatives) with various levels of vertical integration, product and
geographical diversification, sizes and types of operations. Further
information regarding the Company's properties and its business is presented
under "Business" in the accompanying Prospectus.
Farmland was formally incorporated in Kansas in 1931. Its principal
executive offices are at 3315 North Oak Trafficway, Kansas City, Missouri
64116 (telephone 816-459-6000).
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Senior Notes offered
hereby are estimated to be $ million. The Company intends to use
approximately $50.0 million to repay term debt outstanding under the Credit
Agreement and to use the balance of such net proceeds for general corporate
purposes. Pending such use, such balance will be used temporarily to repay
short-term indebtedness.
The term debt to be repaid with part of the net proceeds from the sale of
the Senior Notes (a) was incurred under a $650.0 million credit facility
provided by eight domestic and international banking institutions (the "Credit
Agreement"), (b) becomes due in May 1997, and (c) currently bears interest at
variable rates that, at the option of the Company, are based upon (i) the
prime rate, (ii) LIBOR plus .7%, or (iii) the average rate paid by major New
York banks on new issues of negotiable certificates of deposit plus .825%. As
of July 31, 1995, the effective interest rate on such term debt ranged from
6.64% to 6.83% per annum.
The closing of the sale of the Senior Notes offered hereby is conditioned
upon obtaining the consent of the lenders under the Credit Agreement to the
issuance of certain additional debt, including the Senior Notes.
S-8
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization (including short-term
debt) of the Company as of May 31, 1995, on an actual basis and as adjusted to
give effect to the issuance of the Senior Notes offered hereby:
<TABLE>
<CAPTION>
Actual As Adjusted
---------- -----------
(Amounts in Thousands)
<S> <C> <C>
SHORT-TERM DEBT (INCLUDING NONRECOURSE DEBT OF $70,688
AND CURRENT MATURITIES OF LONG-TERM DEBT)(1)........... $ 334,877 $ 284,877
LONG-TERM DEBT (EXCLUDING CURRENT MATURITIES):
Senior Notes.......................................... -- 100,000
Other non-subordinated debt........................... 128,638 78,638
Subordinated debt..................................... 283,574 283,574
Nonrecourse debt(1)................................... 69,335 69,335
---------- ----------
Total long-term debt................................ $ 481,547 $ 531,547
INTERIM NET INCOME(2)................................... $ 129,043 $ 129,043
CAPITAL SHARES AND EQUITIES(2):
Preferred shares--Authorized 8,000,000 shares of $25
par value; issued and outstanding, 147,913 shares.... $ 3,698 $ 3,698
Common shares--Authorized 50,000,000 shares of $25 par
value; issued and outstanding, 15,944,773 shares..... 398,619 398,619
Associate member common shares--Authorized 2,000,000
shares of $25 par value; issued and outstanding,
395,740 shares....................................... 9,894 9,894
Capital credits....................................... 40,795 40,795
Earned surplus and other equities..................... 131,721 131,721
---------- ----------
Total capital shares and equities................... $ 584,727 $ 584,727
---------- ----------
Total capitalization.............................. $1,530,194 $1,530,194
========== ==========
</TABLE>
--------
(1) Nonrecourse debt refers to debt of subsidiaries of the Company for which
only the applicable subsidiary is responsible.
(2) In accordance with the bylaws of Farmland, the member-sourced portion of
consolidated earnings (before income taxes) is determined annually and
distributed to members of Farmland as patronage refunds. The member-
sourced portion of such earnings is determined on the basis of the
quantity or value of business done by Farmland during the year with or for
members entitled to receive patronage refunds. As this determination is
made only after the end of the fiscal year, and because the appropriation
of earned surplus is dependent on the determination of the amount of
patronage refunds, and in view of the fact that the portion of the annual
patronage refund to be paid in cash or Farmland equity (common stock,
associate member common stock or capital credits) is determined (by the
Board of Directors of Farmland (the "Board of Directors") at its
discretion) after the amount of the annual patronage refund has been
determined, Farmland makes no provision for patronage refunds in its
interim financial statements. Therefore, the amount of interim net income
has been reflected as a separate item in Farmland's May 31, 1995 condensed
consolidated balance sheet and is not included in capital shares and
equities at May 31, 1995.
S-9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of the end of and for
each of the years in the five-year period ended August 31, 1994 are derived
from the consolidated financial statements of the Company, which consolidated
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The Consolidated Financial Statements as of
August 31, 1994 and 1993 and for each of the years in the three-year period
ended August 31, 1994 (the "Consolidated Financial Statements"), and the
independent auditors' report thereon, are included in the 1994 Form 10-K and
incorporated by reference herein. The following selected consolidated
financial data as of and for the nine-month periods ended May 31, 1995 and May
31, 1994 are derived from unaudited condensed consolidated financial
statements of the Company (the "May 31, 1995 Financial Statements") included
in the Company's Quarterly Report on Form 10-Q for the quarterly period ended
May 31, 1995 (the "May 1995 Form 10-Q"), which is incorporated by reference in
the accompanying Prospectus. The May 31, 1995 Financial Statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the results of operations for
the periods covered thereby. The information set forth below should be read in
conjunction with information appearing elsewhere or incorporated by reference
in this Prospectus Supplement and the accompanying Prospectus: "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Consolidated Financial Statements and related notes, and the independent
auditors' report which contains an explanatory paragraph concerning income tax
adjustments proposed by the IRS relating to Terra, and the May 31, 1995
Financial Statements and related notes.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED AUGUST 31 MAY 31 MAY 31
------------------------------------------------------- ----------- -----------
1990 1991 1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF
OPERATIONS:(1)(2)(3)
Net Sales............... $3,377,603 $3,638,072 $3,429,307 $4,722,940 $6,677,933 $4,981,747 $5,325,044
Operating Profit........ 154,811 139,790 160,912 86,579 155,049 110,465 212,644
Interest Expense (net of
interest capitalized).. 30,090 36,951 27,965 36,764 51,485 (38,310) (39,431)
Income (Loss) Before
Income Taxes and
Extraordinary Item..... 58,184 50,166 70,504 (36,833) 78,766 45,563 150,482
Net Income (Loss)....... 48,580 42,693 62,313 (30,400) 73,876 43,308 129,043
========== ========== ========== ========== ========== ========== ==========
DISTRIBUTION OF NET
EARNINGS:
Patronage Refunds:
Equity Reinvestments... $ 24,403 $ 17,837 $ 1,038 $ 1,155 $ 44,032 Note 4 Note 4
Cash or Cash
Equivalent............ 8,800 12,571 17,918 495 26,580 Note 4 Note 4
Earned Surplus and Other
Equities............... 15,377 12,285 43,357 (32,050) 3,264 Note 4 Note 4
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 48,580 $ 42,693 $ 62,313 $ (30,400) $ 73,876 Note 4 Note 4
========== ========== ========== ========== ========== ========== ==========
RATIO OF EARNINGS TO
FIXED CHARGES(5)....... 2.2 1.9 2.5 Note 5 2.1 1.9 4.1
BALANCE SHEETS:
Working Capital......... $ 121,518 $ 122,124 $ 208,629 $ 260,519 $ 290,704 $ 267,924 $ 332,547
Property, Plant and
Equipment, Net......... 469,710 490,712 446,002 504,378 501,290 499,203 575,591
Total Assets............ 1,352,889 1,369,231 1,526,392 1,719,981 1,926,631 1,873,542 2,078,504
Long-Term Debt
(excluding current
maturities)............ 273,071 291,132 322,377 485,861 517,806 459,116 481,547
Capital Shares and
Equities............... 476,011 497,364 588,129 561,707 585,013 553,064 (4) 584,727 (4)
</TABLE>
--------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition, Liquidity and Capital
Resources" for a discussion of the pending income tax litigation relating
to Terra, a former subsidiary of the Company.
S-10
<PAGE>
(2) During 1991, the Company changed its method for inventory pricing of
certain petroleum inventories from the first-in, first-out (FIFO) method
previously used to the last-in, first-out (LIFO) method because the LIFO
method better matches current costs with current revenues. Pro forma
effects of retroactive application of the LIFO method are not
determinable.
(3) Acquisitions and Dispositions:
(a) In October 1993, the Company acquired approximately 53% of the common
stock of National Carriers, Inc. ("NCI") and increased its ownership of
NCI to 79% in August 1994. NCI is a trucking company located in
Liberal, Kansas. NCI provides substantially all the trucking service
needs of National Beef Packing Company, L.P. ("NBPC"), a limited
partnership. The purchase price of NCI ($4.4 million) was paid in cash.
See Note 2 of the Notes to Consolidated Financial Statements included
in the 1994 Form 10-K.
(b) In December 1993, the Company acquired all the common stock of seven
international grain trading companies (collectively referred to as
"Tradigrain"). The purchase price for Tradigrain ($31.4 million) was
paid in cash. See Note 2 of the Notes to Consolidated Financial
Statements included in the 1994 Form 10-K.
(c) During 1993, Farmland acquired a 58% interest in NBPC (such interest
having increased to 68% in March 1995). Effective April 15, 1993, NBPC
acquired Idle Wild Foods, Inc.'s beef packing plant and feedlot located
in Liberal, Kansas. See Note 2 of the Notes to Consolidated Financial
Statements included in the 1994 Form 10-K.
(d) On August 30, 1993, The Cooperative Finance Association ("CFA")
purchased 10,113,000 shares of its voting common stock from Farmland as
part of a recapitalization plan which established CFA as an independent
finance association for its members. As a result of CFA's stock
purchase and amendments to CFA's bylaws, Farmland did not have voting
control of CFA at August 31, 1993 and, therefore, did not include CFA
in its consolidated balance sheet at August 31, 1993. Farmland's
remaining investment in CFA is being accounted for by the cost method.
(e) Effective June 30, 1992, the Company acquired the grain marketing
assets of Union Equity Co-Operative Exchange ("Union Equity"). See Note
2 of the Notes to Consolidated Financial Statements included in the
1994 Form 10-K.
(f) The following unaudited financial information for the years ended
August 31, 1992 and 1993 presents pro forma results of operations of
the Company as if the disposition of CFA and the acquisition of Union
Equity and NBPC had occurred at the beginning of each period presented.
The pro forma financial information includes adjustments for
amortization of goodwill, additional depreciation expense, and
increased interest expense both on recourse and nonrecourse debt
assumed in the acquisitions. The pro forma financial information does
not necessarily reflect the results of operations that would have
occurred had the Company been a single entity which excluded CFA and
included Union Equity and NBPC for the full years 1992 and 1993. See
Note 2 of the Notes to Consolidated Financial Statements included in
the 1994 Form 10-K.
<TABLE>
<CAPTION>
AUGUST 31 (UNAUDITED)
-----------------------
1992 1993
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Net Sales.......................................... $ 5,441,303 $ 5,357,867
=========== ===========
Income (Loss) Before Extraordinary Item............ $ 47,225 $ (44,040)
=========== ===========
</TABLE>
(4) In accordance with the bylaws of Farmland, the member-sourced portion of
consolidated earnings (before income taxes) is determined annually and
distributed to members of Farmland as patronage refunds. The member-
sourced portion of such earnings is determined on the basis of the
quantity or value of business done by Farmland during the year with or for
members entitled to receive patronage refunds. As this determination is
made only after the end of the fiscal year,
S-11
<PAGE>
and because the appropriation of earned surplus is dependent on the
determination of the amount of patronage refunds, and in view of the fact
that the portion of the annual patronage refund to be paid in cash or
Farmland equity (common stock, associate member common stock or capital
credits) is determined (by the Board of Directors at its discretion) after
the amount of the annual patronage refund has been determined, Farmland
makes no provision for patronage refunds in its interim financial
statements. Therefore, the amount of interim net income has been reflected
as a separate item in Farmland's May 31, 1995 condensed consolidated
balance sheet and is not included in capital shares and equities at May 31,
1995.
(5) In computing the ratio of earnings to fixed charges, earnings represent
pretax income (loss) for the enterprise as a whole including 100% of such
income (loss) of minority-owned subsidiaries which have fixed charges, the
Company's share of 50%-owned entities and any distributed earnings (but
not losses or undistributed earnings) of less-than-50% owned entities plus
fixed charges. Fixed charges consist of interest and finance charges on
all indebtedness plus that portion of rentals considered to be the
interest factor. Income was inadequate to cover fixed charges for the year
ended August 31, 1993. The dollar amount of the coverage deficiency was
$36.6 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has historically maintained two primary sources for debt
capital: a substantially continuous public offering of its debt securities
(the "continuous debt program") and bank lines of credit.
The Company's debt securities issued under the continuous debt program
generally are offered on a best-efforts basis through the Company's wholly
owned broker-dealer subsidiary, Farmland Securities Company, and through
American Heartland Investments, Inc. (which is not affiliated with Farmland),
and also may be offered by selected unaffiliated broker-dealers. The types of
securities offered in the continuous debt program include certificates payable
on demand and five- and ten-year subordinated debt certificates. The total
amount of such debt outstanding and the flow of funds to, or from, the Company
as a result of the continuous debt program are influenced by the rate of
interest which Farmland establishes for each type of debt certificate offered
and by options of Farmland to call for redemption certain of its outstanding
debt certificates. During the year ended August 31, 1994, and the nine months
ended May 31, 1995, the outstanding balance of demand loan and subordinated
debt certificates increased by $17.6 million and $8.7 million, respectively.
Farmland has a $650.0 million Credit Agreement. The Credit Agreement
provides short-term credit of up to $450.0 million to finance seasonal
operations and inventory, and revolving term credit of up to $200.0 million.
At May 31, 1995, short-term borrowings under the Credit Agreement were $183.0
million, revolving term borrowings were $50.0 million and $37.9 million was
being utilized to support letters of credit issued on behalf of Farmland by
participating banks.
Farmland pays commitment fees under the Credit Agreement of 1/10 of 1%
annually on the unused portion of the short-term commitment and 1/4 of 1%
annually on the unused portion of the revolving term commitment. In addition,
Farmland must maintain consolidated working capital of not less than $150.0
million, consolidated net worth of not less than $475.0 million and funded
indebtedness and senior funded indebtedness of not more than 52% and 43% of
Combined Total Capitalization (as defined in the Credit Agreement),
respectively. All computations are based on consolidated financial data
adjusted to exclude nonrecourse subsidiaries (as defined in the Credit
Agreement). At May 31, 1995, Farmland was in compliance with all covenants
under the Credit Agreement. The Credit Agreement expires in May 1997.
S-12
<PAGE>
The Company maintains other borrowing arrangements with banks and financial
institutions. Under such agreements, at May 31, 1995, $47.2 million was
borrowed and letters of credit issued by banks amounted to $37.9 million.
Financial covenants of these arrangements generally are not more restrictive
than under the Credit Agreement.
In the opinion of management, these arrangements for debt capital are
adequate for the Company's present operating and capital plans. However,
alternative financing arrangements are continuously evaluated. This offering
of Senior Notes is an example of such an alternative financing arrangement and
will enable the Company to refinance a portion of the term debt outstanding
under the Credit Agreement. Such term debt becomes due in May 1997. See "Use
of Proceeds".
NBPC, 68%-owned by Farmland, maintains borrowing agreements with a group of
banks which provides financing support for its beef packing operations.
Borrowings under this facility are nonrecourse to Farmland or Farmland's other
affiliates. At May 31, 1995, $90.0 million was available under this facility
of which $65.7 million was borrowed and $1.3 million was utilized to support
letters of credit. In addition, NBPC has incurred certain long-term borrowings
from Farmland. NBPC has pledged certain assets to Farmland and such group of
banks to support its borrowings.
Tradigrain, which is comprised of seven international grain trading
subsidiaries of Farmland, has borrowing agreements with various international
banks which provide financing and letters of credit to support current
international grain trading transactions. Obligations of Tradigrain under
these loan agreements are nonrecourse to Farmland or Farmland's other
affiliates.
Leveraged leasing has been utilized to finance railcars and a substantial
portion of the Company's fertilizer production equipment. Under the most
restrictive covenants of its leases, the Company has agreed to maintain
working capital of at least $75.0 million, Consolidated Funded Debt of not
greater than 65% of Consolidated Capitalization and Senior Funded Debt of not
greater than 50% of Consolidated Capitalization (all as defined in the most
restrictive lease).
As a cooperative, Farmland's member-sourced net earnings (i.e., income from
business done with or for members) are distributed to its voting members,
associate members and patrons in the form of common equity, capital credits or
cash. For this purpose, net income or loss was determined in accordance with
the requirements of federal income tax law up to 1994 and is determined in
accordance with generally accepted accounting principles in 1995 and after.
Other income is treated as "nonmember-sourced income". Nonmember-sourced
income is subject to income tax and after-tax earnings are transferred to
earned surplus. Under Farmland's bylaws, the member-sourced income is
distributed to members as patronage refunds unless the earned surplus account,
at the end of that year, is lower than 30% of the sum of the prior year-end
balance of outstanding common stock, associate member stock, capital credits,
nonmember capital and patronage refunds for reinvestment. In such cases,
member-sourced income is reduced by the lesser of 15% or an amount required to
increase the earned surplus account to the required 30%. The amount by which
the member-sourced income is so reduced is treated as nonmember-sourced
income. The member-sourced income remaining is distributed to members as
patronage refunds. For the years 1992, 1993 and 1994, the earned surplus
account exceeded the required amount by $49.5 million, $3.8 million and $2.3
million, respectively.
Generally, a portion of the patronage refund is distributed in cash and the
balance (the "invested portion") is distributed in common stock, associate
member common stock or capital credits (depending on the membership status of
the recipient), or the Board of Directors may determine to distribute the
invested portion in any other form or forms of equities. The invested portion
of the patronage refund is determined annually by the Board of Directors, but
the invested portion of the patronage refund is not deductible for federal
income tax purposes when it is issued unless at least 20% of the amount of the
patronage refund is paid in cash. The invested portion of the patronage
S-13
<PAGE>
refund is a source of funds from operations which is retained for use in the
business and increases Farmland's equity base. Common stock and associate
member common stock representing the invested portion of patronage refunds may
be redeemed by cash payments from Farmland to holders thereof who participate
in Farmland's base capital plan. Capital credits and other equities of
Farmland and Farmland Foods, Inc., a 99% owned subsidiary ("Foods"), may be
redeemed under other equity redemption plans. The base capital plan and other
equity redemption plans are described under "Business--Equity Redemption
Plans" in the accompanying Prospectus.
In 1994, operations generated a net cash inflow of $106.0 million. Other
major cash sources in 1994 included $34.6 million from dispositions of
investments and notes receivable, $17.9 million (net) from investors in demand
loan and subordinated debt certificates and $17.1 million from sales of
property, plant and equipment.
The primary uses of cash in 1994 included $69.8 million for capital
additions or improvements, $36.6 million (net) for repayment of bank loans and
other notes payable, $35.8 million for acquisition of businesses (Tradigrain
and NCI) and $22.1 million for investments and notes receivable.
Major uses of cash during the nine months ended May 31, 1995 include net
payments of $90.1 million to decrease the balance of bank loans and other
notes outstanding, $26.3 million for patronage refunds and dividends
distributed from earnings of the 1994 fiscal year, $86.5 million for capital
expenditures, $12.3 million for the redemption of equities under the Farmland
base capital plan and special redemption plan and $19.0 million for
acquisition of investments and notes receivable. Major sources of cash in the
same period included $87.0 million from operations, $56.3 million from an
increase in the balance of checks and drafts outstanding and $37.6 million
from the disposition of investments and notes receivable.
In July 1983, Farmland sold the stock of Terra, a wholly owned subsidiary
engaged in oil and gas exploration and production operations, and exited its
oil and gas exploration and production activities. The gain from the sale of
Terra amounted to $237.2 million for tax reporting purposes.
On March 24, 1993, the IRS issued a statutory notice to Farmland asserting
deficiencies in federal income taxes (exclusive of statutory interest thereon)
in the aggregate amount of $70.8 million. The asserted deficiencies relate
primarily to the Company's tax treatment of the $237.2 million gain resulting
from its sale of the stock of Terra and the IRS's contention that Farmland
incorrectly treated the Terra sale gain as income against which certain
patronage-sourced operating losses could be offset. The statutory notice
further asserts that Farmland incorrectly characterized for tax purposes gains
aggregating approximately $14.6 million, and a loss of approximately $2.3
million, from dispositions of certain other assets and that Farmland was not
entitled to a claimed intercorporate dividends-received deduction with respect
to a $24.8 million distribution received in 1983 from Terra.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. Prior to trial, the IRS withdrew its challenge to Farmland's
claimed intercorporate dividends-received deduction and several other minor
issues were resolved. The parties will submit post-trial briefs to the court
in September and November 1995.
If the United States Tax Court decides in favor of the IRS on all unresolved
issues raised in the statutory notice, Farmland would have additional federal
and state income tax liabilities aggregating approximately $85.8 million plus
accumulating statutory interest thereon (approximately $173.4 million, before
tax benefits of the interest deduction, through June 30, 1995), or $259.2
million in the aggregate at June 30, 1995. In addition, such a decision would
affect the computation of Farmland's taxable income for its 1989 tax year and,
as a result, could increase Farmland's federal and state income taxes for that
year by approximately $5.0 million plus applicable statutory interest thereon.
Finally, the
S-14
<PAGE>
additional federal and state income taxes and accrued interest thereon, which
would be owed based on an adverse decision, would become immediately due and
payable unless the Company appealed the decision and posted the requisite bond
to stay assessment and collection.
The liability resulting from an adverse decision would be charged to current
operations and would have a material adverse effect on the Company and may
affect its ability to pay, when due, principal and interest on the Senior
Notes and the Company's other indebtedness. In order to pay any such tax
claim, the Company would have to consider financing arrangements, including
the incurrence of indebtedness and the sale of assets. Moreover, the Company
would be required to renegotiate the Credit Agreement with its bank lenders,
as well as other existing financing agreements with certain other parties, not
only to effect such financing arrangements, but also to cure events of default
under the Credit Agreement and to maintain compliance with various
requirements thereof and such other existing financing agreements, including
working capital and funded indebtedness provisions, in order to avoid default
thereunder. No assurance can be given that such financing arrangements or such
renegotiation would be successfully concluded.
No provision has been made in the consolidated financial statements for
federal or state income taxes (or interest thereon) in respect of the IRS
claims described above. Farmland believes that it has meritorious positions
with respect to all of these claims.
In the opinion of management, it is more likely than not that the United
States Tax Court will conclude that Farmland's treatment of the Terra sale
gain was substantially, if not entirely, correct. However, none of the issues
involved in this dispute is free from doubt, and there can be no assurance
that the United States Tax Court will rule in favor of Farmland on any of
these issues.
RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1992, 1993 AND 1994
The Company's revenues, margins and net income depend, to a large extent, on
conditions in agriculture and may be volatile due to factors beyond the
Company's control, such as weather, crop failures, federal agricultural
programs, production efficiencies and U.S. imports and exports. In addition,
various federal and state regulations to protect the environment encourage
farmers to reduce the amount of fertilizer and other chemical applications.
Global variables which affect supply, demand and price of crude oil, refined
fuels, natural gas and other commodities may impact the Company's operations.
Historically, changes in the costs of raw materials used in the manufacture of
the Company's finished products have not necessarily resulted in corresponding
changes in the prices at which such products have been sold by the Company.
Management cannot determine the extent to which these factors may impact
future operations of the Company. The Company's cash flow and net income may
continue to be volatile as conditions affecting agriculture and markets for
the Company's products change.
The increase (decrease) in sales and operating profit by business segment in
each of the years in the three-year period ended 1994, compared with the
respective prior year, is presented in the table below.
S-15
<PAGE>
Management's discussion of business segment sales, operating profit or loss
and other factors affecting the Company's income before income taxes and
extraordinary item during 1992, 1993 and 1994 follows the table.
<TABLE>
<CAPTION>
CHANGE IN
INCOME BEFORE INCOME TAXES
CHANGE IN SALES- AND EXTRAORDINARY ITEM-
INCREASE (DECREASE) INCREASE (DECREASE)
----------------------------- -----------------------------
1992 1993 1994 1992 1993 1994
COMPARED COMPARED COMPARED COMPARED COMPARED COMPARED
WITH 1991 WITH 1992 WITH 1993 WITH 1991 WITH 1992 WITH 1993
--------- --------- --------- --------- --------- ---------
(AMOUNTS IN MILLIONS) (AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENT
--SALES/OPERATING
PROFIT OR LOSS:
Petroleum............. $(210) $ (92) $ (32) $ 17 $ (13) $ 32
Crop Production....... (138) (13) 278 (13) (60) 74
Feed.................. (21) 34 49 (3) (1) (4)
Food Processing and
Marketing............ 21 563 943 14 (8) 4
Grain Marketing....... 155 798 674 (1) 1 (34)
Other................. (16) 4 43 (10) 7 (4)
----- ------ ------ ---- ----- ----
$(209) $1,294 $1,955 $ 4 $ (74) $ 68
===== ====== ======
CORPORATE EXPENSES AND OTHER:
General corporate expenses (increase) decrease........ 13 9 (9)
Other income and deductions (net) increase (decrease). (5) 7 14
Interest expense (increase) decrease.................. 9 (9) (14)
Equity in income (loss) of investees.................. (1) (10) 23
Minority owners' interest in loss (income) of
subsidiaries......................................... -0- (1) 5
Provision for (loss) on disposition of assets......... -0- (29) 29
---- ----- ----
Income before income taxes and extraordinary item..... $ 20 $(107) $116
==== ===== ====
</TABLE>
In computing the operating profit or loss of a business segment, none of the
following have been added or deducted: corporate, general and administrative
expenses which cannot practicably be identified or allocated to a business
segment, interest expense, equity in income (loss) of investees, and
miscellaneous income or deductions.
PETROLEUM
SALES
Sales of petroleum products reflect a decrease of $31.9 million in 1994
compared with 1993 primarily due to lower prices of refined fuels and propane.
The effect of lower prices was to reduce reported sales by approximately $62.4
million. Part of this decrease was offset by the effect of a 6% increase in
refined fuels and propane unit sales.
Sales of the petroleum segment decreased $92.2 million in 1993 compared with
1992, primarily a result of a 12% decrease in unit sales of refined fuels
(gasoline, diesel and distillates) and a 2% decline of the average selling
price thereof. Unit sales decreased principally because the Company sold its
investment in National Cooperative Refinery Association ("NCRA") in June 1992.
The refined fuels unit sales decrease in 1993 reduced sales by approximately
$92.2 million compared with 1992 and lower prices of refined fuels reduced
sales by $17.7 million. Sales of other products (principally asphalt and coke)
decreased $12.4 million. Propane sales increased approximately $30.1 million
in 1993 due to a 27% increase in unit sales and 18% higher prices.
S-16
<PAGE>
In 1992, sales of petroleum products declined $209.7 million compared with
1991. This decrease resulted primarily because unit sales of refined products
(gasoline, distillate and diesel) and the average price of these products was
lower in 1992 than 1991 by 4% and 16%, respectively. The unit sales and price
declines reduced sales of these products by approximately $37.3 million and
$154.2 million, respectively. In addition, propane prices in 1992 averaged
approximately 82% of the prior year's level, which reduced sales by
approximately $13.5 million.
OPERATING PROFIT
Results from petroleum operations increased $31.7 million in 1994 compared
with 1993 primarily because unit margins on diesel fuels with low levels of
sulfur (required by the Environmental Protection Agency for diesel fuel sold
after September 30, 1993) were higher than the prior year. These margins were
significantly higher immediately after the crossover to the low sulfur level
diesel fuels. In addition, margins on other refined fuels improved in 1994
compared with 1993 because the cost per barrel of crude oil decreased and
because production at the Coffeyville, Kansas refinery was substantially
higher than in the prior year. Unit margins on diesel fuels with low sulfur
levels have decreased to, and are expected to remain, near normal levels.
Operating profit of the petroleum segment decreased $12.8 million in 1993
compared with 1992. The favorable effects of improved margins in propane and
lower marketing and administrative expenses were more than offset by the
unfavorable effects of lower income from distributing fuels produced by NCRA
and the write-down to market value of certain petroleum inventories.
Operating profit of the petroleum segment was $8.2 million in 1992 compared
with a loss of $9.3 million in 1991. Most of this improvement resulted from
elimination in 1992 of losses experienced in 1991 on petroleum futures
contracts. The Company changed its hedging practice in March 1991.
CROP PRODUCTION
SALES
Crop production sales in 1994 increased $278.5 million compared with 1993
due to higher plant nutrient prices and unit sales. The average price per ton
of nutrient increased approximately 13.3% and unit sales increased
approximately 1.1 million tons or 18%.
Sales of the crop production segment decreased $13.0 million in 1993
compared with 1992. Nitrogen fertilizer sales increased $54.1 million due to
8% higher unit sales and because the average selling price increased 3%.
Phosphate fertilizer sales decreased $65.7 million. This decrease is primarily
a result of the sale of the Green Bay, Florida phosphate plant to a 50%-owned
joint venture. Subsequent to this sale (on November 15, 1991) export sales
from the Green Bay plant have not been reported in the Company's operations.
In 1992, the Company's sales included export sales from the Green Bay plant of
$60.9 million.
The crop production segment's sales declined $137.7 million in 1992 compared
with 1991. Substantially all of this decrease resulted from lower unit sales
and prices for phosphate fertilizers. The Company reported 30% lower phosphate
unit sales in 1992 which reduced sales approximately $117.3 million. This
decrease resulted principally from the sale on November 15, 1991 of the Green
Bay, Florida phosphate plant to a 50%-owned joint venture. In addition, sales
of phosphate fertilizers decreased approximately $18.2 million, because the
average price was 7% lower. Sales of turf and garden products were
approximately $2.9 million lower.
OPERATING PROFIT
Operating profits of the crop production business in 1994 increased $74.4
million compared with 1993. This increase resulted from higher unit sales and
unit margins. Unit margins in 1994 were
S-17
<PAGE>
approximately twice the level of 1993 which increased operating profit in this
segment approximately $66.8 million. Unit sales increased over one million
tons (18%) which increased operating profit approximately $10.8 million. In
addition, included in the statement of operations in the caption, "Equity in
income (loss) of investees", is $15.3 million in 1994 representing the
Company's share of net income from fertilizer joint ventures. This is an
increase of $23.4 million compared with 1993. Demand for plant nutrients in
1994 was stronger than in 1993 due to an increase in the number of acres under
cultivation, principally corn acreage (corn acreage harvested was relatively
low in 1993 due to wet weather and the resulting floods in the Company's trade
territory). In addition, demand for plant nutrients was stimulated by
favorable weather conditions during the fall and spring application seasons.
The increased demand for plant nutrients translated into higher unit sales and
margins and contributed significantly to the Company's increased net income in
1994.
Operating profit of the crop production segment decreased $60.3 million in
1993 compared with 1992, primarily because of a 29% higher natural gas cost
(the principal raw material consumed in producing nitrogen fertilizer) which
was not recovered through selling prices. Fertilizer margins decreased
approximately $43.2 million because of higher natural gas cost. In addition,
phosphate fertilizer margins decreased approximately $7.1 million because
decreased phosphate fertilizer selling prices more than offset decreased cost.
In addition, the Company's share of the net loss of fertilizer ventures
(included in the Company's statement of operations in the caption "Equity in
income (loss) of investees"), was $8.2 million in 1993 compared with a loss of
$1.3 million in 1992.
The crop production segment's operating profit of $111.9 million decreased
$13.4 million in 1992 compared with 1991. The decrease resulted primarily from
lower phosphate fertilizer selling prices and from realignment of the
Company's phosphate fertilizer production operations into two 50%-owned
ventures.
FEED
SALES
Sales of feed products increased $48.7 million in 1994 compared with 1993.
Unit sales of formula feed and feed ingredients each increased approximately
10% which generated a $43.5 million increase in sales. The balance of the
sales increase resulted primarily from higher feed ingredient prices.
Sales of the feed segment increased $33.9 million in 1993 compared with
1992, primarily because of higher unit sales. Formula feed unit sales
increased approximately 9% which increased sales $20.3 million. Feed
ingredients unit sales increased approximately 12% which increased sales by
$18 million. In addition, sales of animal health products increased $2.0
million. Lower formula feed selling prices partly offset the effect of higher
unit sales.
The feed segment's sales for 1992 decreased $20.9 million compared with
1991, principally because feed ingredients unit sales decreased 22%. Unit
sales of feed ingredients decreased because sales efforts were directed from
products with near break-even margins to products with higher margins. Feed
ingredient sales decreased approximately $41.7 million because of the unit
sales decline. Feed ingredient prices increased an average of 8% which
increased sales by approximately $11.2 million and formula feed sales
increased $6.8 million, principally due to higher unit sales.
OPERATING PROFIT
Operating profit of the feed business segment decreased $3.7 million in 1994
compared with 1993. Gross margins decreased approximately $.5 million
reflecting lower margins on feed ingredients and pet food of $.8 million and
$.4 million, respectively, partly offset by $.7 million higher margins on
animal health products. In addition, sales marketing and feed administration
expenses increased $3.2 million primarily due to higher commissions and other
variable compensation plans.
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Operating profit of the feed segment of $20.7 million in 1993 decreased
slightly compared with 1992. The decrease was due to the impact of lower
selling prices.
Operating profit of the feed segment for 1992 of $21.3 million decreased
$3.2 million compared with 1991. The decrease resulted from $1.3 million lower
patronage refunds received on purchases from other cooperatives and from $2.5
million higher expenses partly offset by $.4 million higher gross margins.
PROCESSING AND MARKETING
SALES
Sales of the processing and marketing business increased $943 million in
1994 compared with 1993. Sales of beef increased $735.5 million principally
because NBPC has been included in the Company's 1994 results for the full
year. NBPC was acquired in April 1993. Pork sales increased $207.5 million,
due mostly to including operations of the Monmouth, Illinois plant in the
Company's results for a full year in 1994. This plant was acquired in February
1993. In addition, sales of specialty meats of the Company's Carando division
increased $13.0 million.
Processing and marketing sales increased $562.5 million in 1993 compared
with 1992, primarily due to business acquisitions. In April 1993, the Company
and partners organized NBPC. Farmland acquired a 58% ownership interest in
NBPC (such interest having increased to 68% in March 1995) which acquired a
beef packing plant and feedlot located in Liberal, Kansas. As a result of this
acquisition, the Company's sales included beef sales of $442.1 million in
1993. In February 1993, Foods, a 99%-owned subsidiary, purchased a pork
processing plant located at Monmouth, Illinois. As a result of this
acquisition, sales of pork products increased approximately $90.0 million.
Sales of fabricated pork products at the Company's other plants increased
$17.0 million and sales of specialty meats of the Carando division increased
$8.3 million.
Sales of the processing and marketing segment in 1992 increased $21.1
million compared with 1991. Sales of specialty meats increased $51.1 million
primarily because these products were not included in sales for 1991 prior to
April 1, when the Company acquired three specialty meats plants. Fresh and
processed pork sales were lower than in 1991 because the effect of lower
wholesale prices was greater than the effect of higher unit sales.
OPERATING PROFIT
Operating profit in the processing and marketing segment of $20.6 million in
1994 reflects an increase of $4.1 million compared with 1993. The increase
includes $13.0 million higher operating profit of the pork business partly
offset by an $8.9 million decrease of operating profit of the beef business.
Operating profit from pork processing and marketing operations increased
primarily due to higher volume and higher margins on fresh pork, branded pork,
hams and specialty meats of the Carando division. Operating profit of the beef
business decreased owing to weak consumer demands for beef and industry price
competition.
Operating profit of the processing and marketing segment decreased $8.7
million in 1993 compared with 1992. The decrease is primarily due to a 4.6%
increase in live hog costs. Margins on fabricated products and hams increased
$3.6 million and $4.4 million, respectively, and margins on beef products (not
included in the Company's operations in 1992) were $4.2 million. These
increases resulted from acquisitions which increased sales as discussed above.
However, these increases were more than offset by the effects of the 4.6%
increase in live hog costs which could not be fully recovered through
increased wholesale prices of fresh and processed pork products and by higher
selling and administrative expenses.
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Operating profit of the processing and marketing segment for 1992 increased
$13.8 million compared with 1991. The improvement includes higher gross
margins of approximately $26.8 million, partially offset by approximately
$13.4 million higher selling, general and administrative expenses. The gross
margin increase includes $9.9 million higher margins on specialty meats
attributable to ownership of specialty meats plants during all of 1992,
compared with only five months of 1991. Additional improvements of gross
margins resulted from a more favorable spread between the costs of live hogs
and wholesale pork prices, from higher unit sales, and from a shift of sales
to value-added products with higher unit margins. Selling, general and
administrative expenses of this segment increased, primarily due to expenses
incurred in connection with the specialty meats plants which were operated by
the Company for only five months in the prior year.
GRAIN MARKETING
SALES AND OPERATING PROFIT
Grain sales increased $673.6 million in 1994 compared with 1993 primarily
due to the acquisition of Wells-Bowman Trading Company and from operating
elevators in Utah and Idaho which were leased to the Company in 1994.
The grain marketing business had an operating loss of $33.5 million in 1994
compared with near break-even operations in 1993. The operating loss in 1994
includes an operating loss of $14.4 million in the international operations of
Tradigrain and an operating loss of $19.1 million in the Company's grain
division. The loss in 1994 resulted primarily from negative unit margins on
international grain transactions and higher domestic operating expenses.
Grain operations which were acquired in July 1992 reported sales for the
full year in 1993 of $953.5 million. Sales for the two months ended August 31,
1992 were $155.2 million.
In 1993, operating profit of the grain business was $.1 million compared
with a loss of $.7 million for the two months ended August 31, 1992. In 1993,
grain marketing operations were relocated to Kansas City from Enid, Oklahoma,
an export elevator at Houston, Texas was sold and certain duplicative
administrative costs were eliminated. As a result, cost reductions were
realized in 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $81.5
million in 1994 compared with 1993. However, as a percent of sales, these
expenses were slightly lower in 1994 than in 1993. Approximately $17.6 million
of the increase resulted from acquisition of Tradigrain and NCI and from
including NBPC in the Company's financial statements for the full year in
1994. Approximately $29.0 million of the increase was in pork marketing and
processing and resulted primarily from including the Monmouth, Illinois pork
plant in the Company's operations for a full year, and from higher sales of
pork. Farm supply businesses and the grain marketing business had higher SG&A
of $13.1 million and $3.4 million, respectively. The balance of the SG&A
increase was primarily due to variable compensation plans.
These expenses decreased $12.3 million in 1993 compared with 1992 primarily
due to SG&A directly connected to business segments. Corporate, general and
administrative expenses, not identified to business segments (see Note 12 of
the Notes to Consolidated Financial Statements included in the 1994 Form 10-
K), decreased $9.3 million in 1993 compared with 1992.
In 1992, corporate general and administrative expenses not identified to
business segments decreased $5.2 million compared with 1991. This decrease was
mostly due to lower retirement plan costs, reduced corporate advertising and
reduced coverage and cost of liability insurance.
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OTHER INCOME (DEDUCTIONS)
INTEREST EXPENSE
Interest expense reflects an increase of $14.7 million in 1994 compared with
1993. The increase is primarily attributable to including the interest costs of
NBPC's beef operations in the Company's financial statements for a full year in
1994, the acquisition of NCI and Tradigrain in May 1994 and by higher interest
rates.
Interest expense increased $8.8 million in 1993 compared with 1992 due to an
increase of the average level of borrowings, partly offset by lower interest
rates. Interest expense decreased $8.9 million in 1992 compared with 1991. The
decrease results from lower borrowings and lower interest rates.
PROVISION FOR LOSS ON DISPOSITION OF ASSETS
At August 31, 1993, management was negotiating to sell the Company's refinery
at Coffeyville, Kansas. Based on the progress of negotiation and the
transactions contemplated, operations for 1993 included a $20.0 million
provision for loss on the sale of the refinery. Accordingly, the net carrying
value of property, plant and equipment was reduced by $20.0 million at August
31, 1993. The transactions contemplated were subject to certain conditions,
including negotiation of final agreements. During 1994, management determined
that final sale terms anticipated by the potential purchaser were not in the
Company's best interest. Accordingly, negotiations were terminated, and the
sale was not consummated.
In 1993, the Company entered discussions with a potential purchaser of a
dragline. Based on these discussions, the Company estimated a loss of $6.2
million from the sale. Accordingly, at August 31, 1993, the carrying value of
the dragline was written down by $6.2 million, and a provision for this loss
was included in the Company's consolidated statement of operations for the year
then ended. In 1994, this sale was consummated on terms substantially as
expected.
At August 31, 1993, the carrying value of a pork processing plant at Iowa
Falls, Iowa was written down by $3.3 million to an estimated disposal value.
OTHER, NET
In June 1993, the Company filed a lawsuit against 43 insurance carriers and
other parties (the "Defendants") seeking declaratory judgments regarding
Defendants' insurance coverage obligations for environmental remediation costs.
In fiscal year 1994, the Company negotiated settlements with 20 insurance
companies and, as part of the settlements, the Company provided Defendants with
releases of various possible environmental obligations. As a result of these
settlements, the Company received cash payments of $13.6 million in 1994 and
has included such amount in the caption "Other income and deductions (net)" in
the consolidated statement of operations for the year then ended.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED MAY 31, 1995 AND NINE MONTHS ENDED
MAY 31, 1994
SALES
Sales for the nine months ended May 31, 1995 increased 6.9% compared with the
corresponding period of the prior year. The increase includes $373.4 million
higher sales of agricultural output products (grain and food), offset by $23.0
million lower sales of farm production input products (crop production
products, petroleum and feed) and $7.1 million lower sales of other products
and services.
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Sales of agricultural output products increased due to higher grain prices
and volume, higher beef volume and as a result of an acquisition on March 31,
1995 by NBPC (68%-owned by Farmland) of the assets of Hyplains Beef, LLC.
Sales of agricultural input products decreased due to lower sales in the
feed and crop production business segments, partly offset by increased sales
in the petroleum business segment.
Sales of the feed business segment decreased because volume and prices of
formula feed and feed ingredients decreased. Sales of the crop production
business segment reflect a net decrease due to placing the Company's crop
protection operations in a 50%-owned joint venture on January 1, 1995.
Subsequent to the formation of this joint venture, sales of these products
have not been included in the Company's financial statements. The effect of
decreased sales of crop protection products was mostly offset by an $85.6
million increase in sales of crop nutrients. This increase resulted from
higher prices, partly offset by a slight decrease in volume which reflected
the wet spring season and delayed planting activities. Sales of petroleum
products increased primarily because of higher gasoline volume and prices.
This effect was partly offset by lower distillate and propane unit sales and
by lower prices of all other refined products and propane.
NET INCOME
Net income for the nine months ended May 31, 1995 increased $85.7 million
compared with the corresponding period of the prior year. The increase
included increases in operating profits in crop production, food processing
and marketing and grain marketing of $70.6 million, $45.0 million and $31.5
million, respectively. In addition, the net results of joint ventures engaged
in crop production and beef operations increased $11.5 million and $4.2
million, respectively. The effect of these increases on net income was reduced
by an operating loss in the petroleum business segment of $9.7 million in the
nine months ended May 31, 1995 compared with an operating profit of $24.4
million in the corresponding period of the prior year and a $5.9 million
decrease in operating profit in the feed business. In addition, general
corporate expenses increased $9.2 million, income taxes increased $19.2
million and the deduction for minority owners interest increased $7.7 million
which was principally a result of increased income of the beef business.
Operating profit of the Company's crop production business increased
primarily as a result of increased prices, partly offset by a slight decrease
in unit sales. In addition, net income from joint ventures engaged in
fertilizer operations increased because of higher volume and prices. Operating
profit of the food processing and marketing business increased because live
hog and cattle costs decreased without a corresponding decline in wholesale
prices. In addition, the number of hogs and cattle processed increased.
Operating results in the grain marketing business increased due to higher
volume and more favorable unit margins on all types of grains handled. The
petroleum business segment had an operating loss for the nine months ended May
31, 1995, as the revenues received from selling refined products were below
the costs of purchasing and refining crude oil.
SG&A increased $20.2 in the nine months ended May 31, 1995 compared with the
corresponding period of the prior year. Approximately $11.0 million of the
increase was directly connected to business segments (primarily the grain and
pork businesses) and has been included in the determination of the operating
profit of business segments. General corporate expenses, not identified to
business segments, increased reflecting higher cost of variable compensation
plans and employee pension expenses.
The estimated effective tax rate for the nine months ended May 31, 1995 was
based on historical effective rates. The actual effective tax rate may be
subject to subsequent revision. The effective tax rate for fiscal year 1994
has been used to provide income taxes for the nine months ended May 31, 1994.
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CAPITAL EXPENDITURES
The Company plans capital expenditures of approximately $289.9 million
during 1995 and 1996, of which $86.5 million have been made through May 31,
1995. The Company intends to fund its capital program with cash from
operations or from debt financing. See "Business--Capital Expenditures" in the
accompanying Prospectus.
MATTERS INVOLVING THE ENVIRONMENT
The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use,
storage, discharge and disposal of hazardous materials as the Company uses
hazardous substances and generates hazardous wastes in the ordinary course of
its manufacturing process. The Company recognizes liabilities related to
remediation of contaminated properties when the related costs are probable and
can be reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs and
currently enacted laws and regulations. In reporting environmental
liabilities, no offset is made for potential recoveries. Such liabilities
include estimates of the Company's share of costs attributable to PRPs which
are insolvent or otherwise unable to pay. All liabilities are monitored and
adjusted regularly as new facts or changes in law or technology occur.
The Company wholly or jointly owns or operates 54 manufacturing properties
and has potential responsibility for environmental conditions at a number of
former manufacturing facilities and at waste disposal facilities operated by
third parties. The Company is investigating or remediating contamination at 17
sites. The Company has also been identified as a PRP under CERCLA and has
unresolved liability with respect to the past disposal of hazardous substances
at six such sites. Such laws may impose joint and several liability on certain
statutory classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owner or operator of a
contaminated property, and companies that generated, disposed, or arranged for
the disposal, of hazardous substance found at the property. During 1993 and
1994, the Company paid approximately $.5 million and $1.4 million,
respectively, for environmental investigation and remediation.
The Company is currently aware of probable obligations for environmental
matters at 18 sites. As of May 31, 1995, the Company has made an environmental
accrual of $8.4 million. The Company periodically reviews and, as appropriate,
revises its environmental accruals. Based on current information and
regulatory requirements, the Company believes that the accruals established
for environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental matters
are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management also is aware of other environmental matters for which there is a
reasonable possibility that the Company will incur costs to resolve. It is
possible that the costs of resolution of the matters described in this
paragraph may exceed the liabilities which, in the opinion of management, are
probable and which costs are reasonably estimable at May 31, 1995. In the
opinion of management, it is reasonably possible for such costs to be
approximately an additional $24.0 million.
Under the Resource Conservation Recovery Act of 1976 ("RCRA"), the Company
has four closure and five post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Operations are being
conducted at these locations, and the Company does not plan to terminate such
operations in the
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foreseeable future. Therefore, the Company has not accrued these environmental
exit costs. The Company accrues these liabilities when plans for termination
of plant operations have been made. Such closure and post-closure costs are
estimated to be $5.8 million at May 31, 1995 (and is in addition to the $24.0
million described in the preceding paragraph).
The Company is currently involved in three administrative proceedings
brought by Region VII of the Environmental Protection Agency ("EPA") with
respect to alleged violations under the Clean Air Act, the Emergency Planning
and Community Right-to-Know Act and RCRA at the Coffeyville refinery. The
Company is currently negotiating with the EPA concerning these matters and
believes that such negotiations may result in compromise settlements,
including the possible implementation of a Supplemental Environmental Project
in connection with the Clean Air Act proceeding. Absent such settlements, the
Company may contest the EPA's allegations. Accordingly, no provision has been
made in the Company's financial statements for these proposed penalties. See
"Business--Matters Involving the Environment" in the accompanying Prospectus.
Protection of the environment requires the Company to incur expenditures for
equipment or processes, which expenditures may impact the Company's future net
income. However, the Company does not anticipate that its competitive position
will be adversely affected by such expenditures or by laws and regulations
enacted to protect the environment. Environmental expenditures are capitalized
when such expenditures provide future economic benefits. In 1994, the Company
had capital expenditures of approximately $2.6 million to prevent future
discharges into the environment. Such capital expenditures (through May 31,
1995) were approximately $2.0 million. The majority of such expenditures was
for improvements at the Coffeyville refinery. Management believes the Company
currently is in substantial compliance with existing environmental rules and
regulations.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("Statement 115"), which was issued
by the Financial Accounting Standards Board ("FASB") in May 1993. Statement
115 expands the use of fair value accounting and the reporting for investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. The effect of the Company's implementation of
Statement 115 at September 1, 1994 was insignificant.
In the first quarter of 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, "Employer's Accounting
for Postemployment Benefits" ("Statement 112"), which was issued by FASB in
November 1992. Statement 112 establishes standards of accounting and reporting
for the estimated cost of benefits provided to former or inactive employees.
The effect of the Company's implementation of Statement 112 at September 1,
1994 was insignificant.
DESCRIPTION OF THE SENIOR NOTES
The following description of the particular terms of the Senior Notes
offered hereby supplements, and to the extent inconsistent therewith replaces,
the description of the general terms and provisions of the Debt Securities (as
defined in the accompanying Prospectus), to which description reference is
hereby made.
The Company's % Senior Notes Due 2005 offered hereby constitute a single
series of Debt Securities to be issued under an Indenture dated as of ,
1995, as amended, supplemented or modified from time to time (the "Indenture")
between the Company and The Chase Manhattan Bank (National Association), as
trustee (the "Trustee"), and will be limited to $100,000,000 aggregate
principal amount. The Trustee initially will be the Registrar and Paying
Agent. The Indenture is described more fully under "Description of Debt
Securities" in the accompanying Prospectus. The
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statements herein concerning the Senior Notes and the Indenture do not purport
to be complete and are qualified in their entirety by reference to the
provisions of the Indenture, including the definitions of certain terms used
herein without definition.
The Senior Notes will mature on , 2005. The Senior Notes are not
redeemable or repayable prior to maturity and do not provide for any sinking
fund. The Company may purchase Senior Notes in the open market by tender or
contract. Senior Notes so purchased may be held, resold or surrendered to the
Trustee for cancellation. If applicable, the Company will comply with the
requirements of Rule 14e-1 of the Securities Exchange Act of 1934, as amended,
and other securities laws and regulations in connection with any such
purchase. The Senior Notes may be defeased in the manner provided in the
Indenture.
Interest on the Senior Notes will be payable semi-annually on each and
(each an "Interest Payment Date"), commencing , 1996. Interest
payable on each Interest Payment Date will include interest accrued from ,
1995 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for. Interest payable on any Interest Payment Date will
be payable to the person in whose name a Senior Note (or any predecessor
Senior Note) is registered at the close of business on the or ,
as the case may be, next preceding such Interest Payment Date. Principal of
and interest on the Notes will be payable at the office or agency of the
Company maintained for such purpose in the Borough of Manhattan, The City of
New York, which initially will be the office of the Paying Agent, provided
that payment of interest may be made, at the option of the Company, by check
mailed to the person entitled thereto. Interest shall be computed on the basis
of a 360-day year comprised of twelve 30-day months.
The Senior Notes will be represented by one or more global securities
(collectively, the "Global Security") deposited with, or on behalf of, DTC or
other successor depository (DTC or such other depository appointed by the
Company is herein referred to as the "Depository") and registered in the name
of the Depository or its nominee. The Senior Notes will not be issuable in
definitive form, except under the limited circumstances described herein.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under New York Banking Law, a "banking" organization within
the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended. DTC was
created to hold securities of its participants and to facilitate the clearance
and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations,
some of which (and/or their representatives) own DTC. Access to DTC's book-
entry system also is available to others, such as banks, brokers, dealers and
trust companies, that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Upon the issuance by the Company of Senior Notes represented by the Global
Security, DTC will credit, on its book-entry registration and transfer system,
the respective principal amounts of the Senior Notes represented by the Global
Security to the accounts of participants. Ownership of beneficial interests in
the Global Security will be limited to participants or persons that hold
interests through participants. Ownership of beneficial interests in Senior
Notes represented by the Global Security will be shown on, and the transfer
thereof will be effected only through, records maintained by DTC (with respect
to interests of participants in DTC), or by participants in DTC or persons
that may hold interests through such participants (with respect to persons
other than participants in DTC). The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in the Global Security.
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So long as the Depository for the Global Security, or its nominee, is the
registered owner of the Global Security, the Depository or its nominee, as the
case may be, will be considered the sole owner or holder of the Senior Notes
represented by such Global Security for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in Senior Notes
represented by the Global Security will not be entitled to have Senior Notes
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Senior Notes in definitive form
and will not be considered the owners or Holders thereof under the Indenture.
Payments of principal of and interest on the Senior Notes represented by the
Global Security registered in the name of DTC or its nominee will be made to
DTC or its nominee, as the case may be, as the registered owner of the Global
Security. Neither the Company, the Trustee nor the Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. The Company has been advised that DTC,
upon receipt of any payment of principal or interest in respect of the Global
Security, will credit immediately the accounts of the related participants with
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Security as shown on the records of
DTC. The Company expects that payments by participants to owners of beneficial
interests in the Global Security will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name" and
will be the responsibility of such participants.
If the Depository with respect to the Global Security is at any time
unwilling or unable to continue as Depository and a successor Depository is not
appointed by the Company within 90 days, the Company will issue certificated
Senior Notes in definitive form in exchange for the Senior Notes represented by
the Global Security.
For other terms of the Senior Notes, see "Description of Debt Securities" in
the accompanying Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Pricing Agreement relating to the Senior Notes, the Company has agreed
to sell to Goldman, Sachs & Co. ("Goldman Sachs"), and Goldman Sachs has agreed
to purchase, the entire principal amount of Senior Notes offered hereby.
Under the terms and conditions of the Underwriting Agreement, Goldman Sachs
is committed to take and pay for all of the Senior Notes offered hereby, if any
are taken.
Goldman Sachs proposes to offer the Senior Notes in part directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus Supplement, and in part to certain securities dealers at such price
less a concession of % of the principal amount of the Senior Notes. Goldman
Sachs may allow, and such dealers may reallow, a concession not in excess of
% of the principal amount of the Senior Notes to certain brokers and
dealers. After the Senior Notes are released for sale to the public, the
offering price and other selling terms may from time to time be varied by
Goldman Sachs. Goldman Sachs will pay Cooperative Funding Corporation an
advisory fee upon completion of this offering of the Senior Notes.
Application will be made to list the Senior Notes offered hereby on NYSE. No
assurance can be given as to the liquidity of any trading market for the Senior
Notes.
The Company has agreed to indemnify Goldman Sachs against certain liabilities
including liabilities under the Securities Act of 1933, as amended.
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LEGAL MATTERS
The validity of the Senior Notes will be passed upon for the Company by
Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York. Certain legal matters in connection with
the Senior Notes will be passed upon for Goldman Sachs by McDermott, Will &
Emery, Chicago, Illinois. McDermott, Will & Emery in the past has represented
and in the future may represent the Company on other matters. McDermott, Will
& Emery currently is acting as special counsel to assist the Company and its
trial counsel in connection with the pending income tax litigation relating to
Terra (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition, Liquidity and Capital Resources").
Fried, Frank, Harris, Shriver & Jacobson and McDermott, Will & Emery each will
rely upon the opinion of Robert B. Terry, Esq., Vice President and General
Counsel of the Company, with respect to all matters of Kansas law.
S-27
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 10, 1995
PROSPECTUS
$200,000,000
FARMLAND INDUSTRIES, INC.
DEBT SECURITIES
-----------
Farmland Industries, Inc. ("Farmland" or the "Company") may issue and sell
from time to time, in one or more series, up to an aggregate of $200,000,000 of
its debt securities (the "Debt Securities").
When a particular series of Debt Securities is offered, all specific terms of
the offering will be set forth in a supplement to this Prospectus (the
"Prospectus Supplement"), which will be delivered with the Prospectus. The
Prospectus Supplement will set forth with respect to each series of Debt
Securities: the designation and principal amount offered; the rate (or method
of calculation) and time of payment of interest, if any; the authorized
denominations; the maturity or maturities; the terms for a sinking, purchase or
analogous fund; the terms for redemption or early repayment, if any; the
purchase price and other terms of the offering; and any listing on a securities
exchange.
This Prospectus may not be used to consummate sales of Debt Securities unless
accompanied by a Prospectus Supplement.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
The Debt Securities may be sold (i) through underwriting syndicates
represented by managing underwriters, or by underwriters without a syndicate,
which may include Goldman, Sachs & Co.; (ii) through agents designated from
time to time; or (iii) directly. The names of any underwriters or agents of the
Company involved in the sale of the Debt Securities in respect of which this
Prospectus is being delivered, any applicable commissions or discounts, and the
net proceeds to the Company from such sale are set forth in the Prospectus
Supplement.
-----------
The date of this Prospectus is , 1995.
<PAGE>
IN CONNECTION WITH THE OFFERING OF THE DEBT SECURITIES, THE UNDERWRITERS MAY
OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE DEBT SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: 500 West Madison
Street, Suite 1400, Chicago, IL 60661 and 7 World Trade Center, 13th Floor,
New York, NY 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. If any of the Debt
Securities are listed on the New York Stock Exchange, such material will be
available for inspection at the offices of the New York Stock Exchange, Inc.
at 20 Broad Street, New York, N.Y. 10005.
This Prospectus constitutes a part of the Registration Statement on Form S-3
(together with all amendments, schedules and exhibits thereto, the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus and
the accompanying Prospectus Supplement omit certain of the information
contained in the Registration Statement in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Debt Securities, reference is made to the Registration
Statement, including the schedules and exhibits filed therewith. Statements
contained in this Prospectus and the accompanying Prospectus Supplement as to
the contents of certain documents are not necessarily complete, and, with
respect to each such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission, reference is made to the
copy of the document so filed. Each such statement is qualified in its
entirety by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended August 31,
1994 (the "1994 Form 10-K");
2. The Company's Quarterly Report on Form 10-Q, as amended by Form 10-Q/A,
for the quarterly period ended November 30, 1994;
3. The Company's Quarterly Report on Form 10-Q for the quarterly period
ended February 28, 1995; and
4. The Company's Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1995 (the "May 1995 Form 10-Q").
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus or any
Prospectus Supplement and prior to the termination of the offering of the Debt
Securities shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus, in any Prospectus Supplement or in a
document incorporated or deemed
2
<PAGE>
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus or any Prospectus Supplement to the
extent that a statement contained herein or in any subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any Prospectus Supplement.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference herein (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to: Farmland Industries, Inc., 3315
North Oak Trafficway, Kansas City, Missouri 64116-0005, telephone (816) 459-
6000, Attention: John F. Berardi.
THE COMPANY
Farmland is an agricultural farm supply and processing and marketing company
headquartered in Kansas City, Missouri that is primarily owned by its members
and operates on a cooperative basis. Founded originally in 1929, Farmland has
grown from revenues of $310,000 during its first year of operation to over $6.6
billion during 1994. Members are entitled to receive patronage refunds
distributed by Farmland from its member-sourced annual net income. Unless the
context otherwise requires, the term "member" herein means any voting member,
any associate member or any other person with which Farmland is a party to a
currently effective patronage refund agreement (a "patron"). See "Business--
Patronage Refunds and Distribution of Net Earnings".
Farmland was formally incorporated in Kansas in 1931. Its principal executive
offices are at 3315 North Oak Trafficway, Kansas City, Missouri 64116
(telephone 816-459-6000). Unless the context requires otherwise, (i) "Farmland"
or the "Company" herein refers to Farmland Industries, Inc. and its
consolidated subsidiaries, and (ii) all references herein to "year" or "years"
are to fiscal years ended August 31.
MEMBERSHIP
Membership requirements are determined by Farmland's Articles of
Incorporation and the Board of Directors of Farmland (the "Board of
Directors").
VOTING MEMBERS
Farmland's current requirements for voting membership are as follows: (1)
Voting membership is limited to (a) farmers' and ranchers' cooperative
associations which have purchased farm supplies from or provided grain to
Farmland during Farmland's two most recently completed years, and (b) producers
of hogs and cattle or associations of such producers which have provided hogs
or cattle to Farmland during Farmland's two most recent years. (2) Voting
members must maintain a minimum investment of $1,000 in par value of Farmland
common stock. (3) A cooperative must limit voting to agricultural producers and
conduct a majority of its business with voting producers.
ASSOCIATE MEMBERS
Farmland's associate members have all the rights of membership except that
they do not have the right to vote at a meeting of the shareholders of
Farmland.
Farmland's current requirements for associate membership are as follows: (1)
Any person meeting the requirements for voting membership can be an associate
member. (2) Associate members must
3
<PAGE>
maintain a minimum investment of $1,000 in par value of Farmland associate
member common stock. (3) Associations other than those owned 100% by voting
members and associate members of Farmland must conduct business on a
cooperative basis and must have a minimum of 25 active members. (4) Hog and/or
cattle feeding businesses must derive a majority of earned income from such
feeding business and agree to provide Farmland with the information it needs
to pay patronage refunds from its hog and/or cattle marketing operations to
members or other associate members that are eligible to receive such refunds.
In 1994, Farmland's membership consisted of 1,480 cooperative associations
of farmers and ranchers and 1,365 pork or beef producers or associations of
such producers. See "Business--Patronage Refunds and Distribution of Net
Earnings".
BUSINESS
GENERAL
The Company is the largest farmer-owned cooperative in the United States in
terms of revenues. The Company's principal U.S. trade territory is comprised
of 22 midwestern states. Those states accounted for 82% of wheat production,
88% of corn production, 81% of soybean production, 72% of cattle production,
and 82% of hog production, in the United States in calendar year 1994.
Farmland has endeavored to develop a significant presence in international
markets. In 1994, Farmland had exports to more than 85 countries, and derived
37% of its grain revenues from export sales. In 1995, the Company sold more
than 2.5 million tons of wheat to China, which management believes constituted
the largest wheat sale ever by a private U.S. enterprise to a foreign country.
Foreign grain sales generally are paid in U.S. Dollars.
The Company conducts business primarily in two operating areas: inputs and
outputs. On the input side of the agricultural industry, the Company operates
as a farm supply cooperative. On the output side of the agricultural industry,
the Company operates as a processing and marketing cooperative.
The Company's farm supply operations consist of three principal product
divisions--petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, by-products of petroleum
refining and a complete line of car, truck and tractor tires, batteries and
accessories. Principal products of the crop production division are nitrogen,
phosphate and potash fertilizers, and, through the Company's ownership in the
Wilfarm joint venture, a complete line of insecticides, herbicides and mixed
chemicals. Principal products of the feed division include swine, dairy, pet,
beef, poultry, mineral and specialty feeds, feed ingredients and supplements,
animal health products and livestock services. The Company's three farm supply
divisions produce and distribute products principally at wholesale.
Substantially all of the Company's farm supply products sold in 1994 were
produced in plants owned by the Company or operated by the Company under long-
term lease arrangements. Approximately 65% of the Company's sales of farm
supply products sold in 1994 were to farm cooperative associations which are
members of Farmland. These farm cooperatives distribute products primarily to
farmers and ranchers in states which comprise the corn belt and the wheat belt
and who utilize the products in the production of farm crops and livestock.
On the output side, the Company's processing and marketing operations
include the storage and marketing of grain, the processing of pork and beef,
and the marketing of fresh pork, processed pork and fresh beef. In 1994,
approximately 61% of the hogs processed and 46% of the grain marketed were
supplied to the Company by its members. Substantially all of the Company's
pork and beef products sold in 1994 were processed in plants owned by the
Company.
4
<PAGE>
No material part of the business of any segment of the Company is dependent
on a single customer or a few customers. Financial information about the
Company's industry segments is presented in Note 12 of the Notes to
Consolidated Financial Statements included in the 1994 Form 10-K.
The Company competes for market share with numerous participants with
various levels of vertical integration, product and geographical
diversification, sizes and types of operations. In the petroleum industry,
competitors include major oil companies, independent refiners, other
cooperatives and product brokers. Competitors in the crop production industry
include global producers of nitrogen and phosphate fertilizers (some of which
are cooperatives) and product importers and brokers. The feed, pork and beef
industries are comprised of a large variety of competitive participants.
PETROLEUM
MARKETING
The principal product of this business segment is refined fuels.
Approximately 68% of refined fuels product sales in 1994 resulted from
transactions with Farmland's members. The balance of the Company's refined
fuels product sales were principally through retailing chains in urban areas.
Based on total volume of refined fuels withdrawn at terminal storage
facilities along pipelines which serve most of the Company's trade territory,
the Company estimates its market share in rural markets is approximately 8%.
Other petroleum products include lube oil, grease, by-products of petroleum
refining and a complete line of car, truck and tractor tires, batteries and
accessories. Sales of petroleum products as a percent of the Company's
consolidated sales for 1992, 1993 and 1994 were 29%, 19% and 13%,
respectively.
Competitive methods in the petroleum industry include service, product
quality and pricing. However, in refined fuel markets, price competition is
most dominant. Many participants in the industry engage in one or more of the
industry's processes (oil production and transportation, refining, wholesale
distribution and retailing). The Company participates in the industry
primarily as a midcontinent refiner and as a wholesale distributor of
petroleum products.
PRODUCTION
The Company owns refineries at Coffeyville, Kansas and at Phillipsburg,
Kansas. Prior to June 30, 1992 the Company owned approximately 30% of the
National Cooperative Refinery Association ("NCRA"). As a 30% owner, Farmland
was required to purchase 30% of the production of this refinery. On June 30,
1992, the Company sold its ownership interest in NCRA.
The refinery at Phillipsburg, Kansas is closed. A loading terminal located
at the refinery remains in operation. The carrying value of this refinery at
May 31, 1995 was approximately $1.6 million. The Company is evaluating
alternative uses for this facility and cannot at this time determine the
extent of any losses related to the closure of the refinery, but such losses
are expected not to be significant. During the four months of 1992 in which it
operated, sales associated with products of the Phillipsburg refinery amounted
to approximately $20.9 million and the refinery processed 871,000 barrels of
crude oil.
Production volume for 1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
BARRELS OF CRUDE OIL PROCESSED
DAILY AVERAGE
BASED ON 365 DAYS PER YEAR
(BARRELS)
--------------------------------
LOCATION 1992 1993 1994
-------- ---------- ---------- ----------
<S> <C> <C> <C>
Coffeyville, Kansas......................... 57,000 53,000 64,211
</TABLE>
The Coffeyville refinery produced 23 million barrels of motor fuels and
heating fuels in 1992, 20 million barrels in 1993, and 25 million barrels in
1994. Approximately 68% of petroleum product sales in 1994 represented
products produced at this location.
5
<PAGE>
Management terminated negotiations with a potential purchaser of the
Coffeyville refinery in 1994 when final sale terms were determined not to be in
the Company's best interest. See Note 17 of the Notes to Consolidated Financial
Statements included in the 1994 Form 10-K. In July 1994, the Company acquired a
mothballed refinery in Texas which is being reassembled at the Coffeyville
refinery site. When reassembly is complete in 1996, crude oil processing
capacity is expected to increase.
RAW MATERIALS
Farmland's refinery at Coffeyville, Kansas is designed to process high
quality crude oil with low sulfur content ("sweet crude"). Competition for
sweet crude and declining production in proximity of the refinery has increased
its cost of raw material relative to such cost for coastal refineries with the
capacity for processing and access to lower quality crude grades. The Company's
pipeline/trucking gathering system collects approximately 27% of its crude oil
supplies from producers near its refineries. Additional supplies are acquired
from diversified sources. Modifications to the Coffeyville refinery to increase
its capability to process efficiently crude oil streams containing greater
amounts of lower quality crude are continuing.
Crude oil is purchased approximately 45 to 60 days in advance of the time the
related refined products are to be marketed. Certain of these advance crude oil
purchase transactions, as well as fixed price refined products advance sales
contracts, are hedged utilizing petroleum futures contracts.
During periods of volatile crude oil price changes or in extremely short
crude supply conditions, the Company's petroleum operations could be affected
to a greater extent than petroleum operations of more vertically integrated
competitors with crude oil supplies available from owned producing reserves. In
past periods of relatively severe crude oil shortages, various governmental
regulations such as price controls and mandatory crude oil allocating programs
have been implemented to spread the adversity among all industry participants.
There can be no assurance as to what, if any, government action would be taken
if a crude oil shortage were to develop.
CROP PRODUCTION
MARKETING
The Company's crop production business segment includes nitrogen-, phosphate-
, and potash-based fertilizer products and, through the Company's ownership in
the Wilfarm joint venture, a complete line of crop protection products such as
insecticides, herbicides and mixed chemicals. Sales of the crop production
business segment as a percent of consolidated sales for 1992, 1993 and 1994
were 26%, 19% and 17%, respectively.
Competition in the plant nutrient industry is dominated by price
considerations. However, during the spring and fall plant nutrient application
seasons, farming activities intensify and delivery service capacity is a
significant competitive factor. Therefore, the Company maintains a significant
capital investment in distribution assets and a seasonal investment in
inventory to support its manufacturing operations. The Company has plant
nutrient custom dry blending, liquid mixing, storage and distribution
facilities at 15 locations throughout its trade territory.
The Company's sales of crop production products are primarily at wholesale to
local cooperative associations (members and customers of the Company). In view
of this member/customer relationship, management believes that, with respect to
such customers, the Company has a slight competitive advantage.
Domestic competition, mainly from other regional cooperatives, major
petroleum companies with chemical divisions and integrated chemical companies,
is intense due to customers' sophisticated buying tendencies and production
strategies that focus on costs and service. Also, foreign competition exists
from
6
<PAGE>
producers of crop production products manufactured in countries with lower cost
natural gas supplies (the principal raw material in nitrogen-based fertilizer
products). In certain cases, foreign producers of fertilizer for export to the
United States may be subsidized by their respective governments.
PRODUCTION
The Company manufactures nitrogen-based crop production products. Based on
total production capacity, the Company is one of the largest producers of
anhydrous ammonia fertilizer in the United States. The Company owns and
produces nitrogen-based products at four anhydrous ammonia plants, four urea
ammonium nitrate plants and two urea plants. In addition, the Company operates
three anhydrous ammonia plants under long-term lease arrangements.
The Company owns and produces phosphate-based products at one plant and has
50% ownership interest in two ventures which produce phosphate-based products.
Nitrogen fertilizer production information for 1992, 1993 and 1994 is as
follows:
<TABLE>
<CAPTION>
ACTUAL ANNUAL PRODUCTION
ANHYDROUS AMMONIA
-------------------------
PLANT LOCATION 1992 1993 1994
-------------- --------- ------- -------
(TONS)
<S> <C> <C> <C>
Lawrence, Kansas................................... 450,000 375,000 443,000
Dodge City, Kansas................................. 254,000 241,000 257,000
Fort Dodge, Iowa................................... 240,000 232,000 256,000
Beatrice, Nebraska................................. 250,000 243,000 277,000
Enid, Oklahoma (2 plants)*......................... 1,017,000 969,000 985,000
Pollock, Louisiana*................................ 501,000 490,000 526,000
</TABLE>
--------
* Indicates leased plants.
Synthetic anhydrous ammonia is the basic component of other commercially
produced nitrogen-based crop production products and uses natural gas as the
major raw material.
Ammonia is used as the principal raw material in the production of value-
added nitrogen-based products such as urea, ammonium nitrate, urea ammonium
nitrate solutions and other products.
Production of urea, ammonium nitrate, urea ammonium nitrate solutions and
other nitrogen-based products from anhydrous ammonia, as a raw material, for
1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
ACTUAL ANNUAL PRODUCTION
--------------------------
PRODUCT 1992 1993 1994
------- -------- -------- --------
(TONS)
<S> <C> <C> <C>
Lawrence, Kansas.................................. 691,000 661,000 654,000
Enid, Oklahoma.................................... 452,000 473,000 433,000
Dodge City, Kansas................................ 217,000 241,000 163,000
Beatrice, Nebraska................................ 177,000 166,000 162,000
</TABLE>
Ammonia also is used to react with phosphoric acid to produce phosphoric acid
products such as liquid mixed fertilizer, diammonium phosphate and monoammonium
phosphate.
The Company owns a phosphate chemical plant located in Joplin, Missouri and
land in Florida which contains an estimated 40 million tons of phosphate rock.
The Joplin plant produces ammonium phosphate which is combined in varying
ratios with muriate of potash to produce 12 different fertilizer grade
products. In addition, feed grade phosphate (dicalcium phosphate) is produced
at this facility.
7
<PAGE>
Production at the Joplin plant for 1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
ACTUAL ANNUAL PRODUCTION
--------------------------
PRODUCT 1992 1993 1994
------- -------- -------- --------
(TONS)
<S> <C> <C> <C>
Ammonium Phosphate................................ 88,000 72,000 75,000
Feed Grade Phosphate.............................. 129,000 141,000 157,000
</TABLE>
Prior to November 15, 1991, the Company owned and operated a phosphate
chemical plant located in Green Bay, Florida. Effective November 15,1991, the
Company and Norsk Hydro a.s. formed Farmland Hydro, L.P. ("Hydro") to
manufacture phosphate fertilizer products for distribution to international
markets. Hydro operates a phosphate plant at Green Bay, Florida and owns
phosphate rock reserves located in Hardee County, Florida which contain an
estimated 40 million tons of phosphate rock. The Company provides management
and administrative services and Norsk Hydro a.s. provides marketing services
to Hydro. The joint venture's plant produces phosphoric acid products such as
super acid, diammonium phosphate and monoammonium phosphate. Annual production
in short tons of such products for the ten months in 1992 during which the
joint venture operated, for 1993 and for 1994 was 880,000, 1,216,000 and
1,437,000, respectively. The phosphate rock required to operate the joint
venture's plant is presently purchased from outside suppliers and adequate
supplies of sulfur are available from several producers.
Plans for development of the phosphate reserves owned by the Company and
Hydro have not been established in view of the availability of adequate
supplies of phosphate rock from alternative sources.
The Company and J.R. Simplot Company formed a joint venture in April 1992,
SF Phosphates, Limited, to own and operate a phosphate mine located in Vernal,
Utah, a phosphate chemical plant located in Rock Springs, Wyoming and a 96-
mile pipeline connecting the mine to the plant. The plant produces
monoammonium phosphate and super acid with annual production of 131,000 tons
for the five months of operations in 1992, 440,000 tons for 1993 and 465,000
tons for 1994. Under the joint venture agreement, the Company and J.R. Simplot
Company purchase the production of the joint venture in proportion to their
ownership.
The Company and Mississippi Chemical Company have entered into a letter of
intent to form a joint venture to develop, construct and operate a 1,750
metric ton per day ammonia production facility at the Brighton Industrial
Site, at LaBrea in the Republic of Trinidad and Tobago. The partners expect
the plant to be funded by a combination of nonrecourse project financing and
equity. The Company expects to fund its equity position in the project
(estimated to amount to approximately $67.0 million) from currently available
sources of capital. Although production start up is expected early in 1998,
there can be no assurance that the joint venture will proceed, that such
nonrecourse financing will be obtained at all or on favorable terms or that
production will commence at such time.
RAW MATERIALS
Natural gas, the largest single component of nitrogen-based fertilizer
production, is purchased directly from natural gas producers. Natural gas
purchase contracts are generally market sensitive and contract prices change
as the market price for natural gas changes. The Company's management believes
that the flexible pricing attributes of its gas supply contracts, without
relinquishing rights to long-term supplies, are essential to its competitive
position. In addition, the Company has a hedging program which utilizes
natural gas futures and options to reduce risks of market price volatility.
Natural gas is delivered to the Company's facilities under pipeline
transportation service agreements which have been negotiated with each plant's
delivering pipeline. Natural gas delivery to the plants could be curtailed
under regulations of the Federal Energy Regulatory Commission if the
pipeline's capacity were required to serve priority users such as residences,
hospitals and schools. In
8
<PAGE>
such case, production could be curtailed. No significant production has been
lost because of curtailments in transportation, and no such curtailment is
anticipated.
FEED
Products in the Company's feed line include swine, beef, poultry, dairy,
pet, mineral and specialty feeds, feed ingredients and supplements, animal
health products and livestock services.
This business segment's sales were approximately 13%, 10% and 8% of
consolidated sales for the years 1992,1993 and 1994, respectively.
Approximately 45% of the feed business segment's sales in 1994 was
attributable to products manufactured in the Company's feed mills. The Company
operates feed mixing plants at 19 locations throughout its territory, an
animal protein and premix plant located in Eagle Grove, Iowa, a premix plant
in Marion, Ohio and a pet food plant in Muncie, Kansas.
Feed production is as follows:
<TABLE>
<CAPTION>
ACTUAL ANNUAL PRODUCTION
---------------------------
1992 1993 1994
------- --------- ---------
(TONS)
<S> <C> <C> <C>
22 feed mills (combined)......................... 954,000 1,030,000 1,118,000
</TABLE>
In addition, the Company's feed operations include placement of Company-
owned feeder pigs with individuals who have contractual arrangements with the
Company to feed pigs on a fee basis until weight gain is finished. During
1992, 1993 and 1994, approximately 46,300 pigs, 113,000 pigs and 250,100 pigs,
respectively, were finished under this program. The majority of the finished
pigs were sold to a 99%-owned subsidiary, Farmland Foods, Inc. ("Foods") for
processing.
The Company owns less than a 50% interest in Alliance Farm Cooperative
Association (formerly Yuma Feeder Pig Limited Liability Company) which
operates swine farrowing facilities.
The Company operates a facility for production of quality swine breeding
stock. These animals are placed with farrowers under contractual arrangements.
In addition, the Company purchases swine breeding stock for placement with
such farrowers.
The Company conducts research in genetic selection, breeding, animal health
and nutrition at its research facility in Bonner Springs, Kansas. Through
local cooperative associations of farmers and ranchers, the Company
participates in livestock and hog services designed to produce lean, feed-
efficient animals and help livestock producers select feed formulations which
maximize weight gain.
PORK PROCESSING AND MARKETING
PRODUCTION
The Company's pork processing and marketing operations are conducted through
Foods, which operates eight food processing facilities. Meat processing
facilities at Springfield, Massachusetts, Carey, Ohio, and New Riegel, Ohio
produce Italian-style specialty meats and ham products. A facility at Wichita,
Kansas processes pork into fresh sausage, and pork, beef and chicken into hot
dogs, dry
9
<PAGE>
sausage and other luncheon meats. A facility in Denison, Iowa and one in
Crete, Nebraska function as pork abattoirs and have additional capabilities
for processing pork into bacon, ham and smoked meats. An additional facility
at Monmouth, Illinois was purchased on February 15, 1993. These facilities
also process fresh pork into primal cuts for additional processing into
fabricated meats which are sold to commercial users and to retail grocery
chains, as well as case-ready and label-branded cuts for retail distribution.
The eighth plant located in Carroll, Iowa is primarily a packaging facility
for canned or cook-in-bag products. A facility at San Leandro, California was
closed on September 1, 1993. A previously closed pork processing plant at Iowa
Falls, Iowa is currently held for sale.
Production for 1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
ACTUAL WEEKLY PRODUCTION
ON A ONE-SHIFT BASIS
-------------------------------
LOCATION 1992 1993 1994
-------- --------- --------- ---------
(POUNDS)
<S> <C> <C> <C>
Wichita, Kansas............................. 1,618,000 1,514,000 1,884,000
San Leandro, California**................... 269,000 243,000 -0-
Carroll, Iowa............................... 1,131,000* 1,204,000* 1,111,000*
Springfield, Massachusetts.................. 560,000 666,000 622,000
Carey/Riegel, Ohio.......................... 220,000 231,000 257,000
--------
* All ham products were produced on two work shifts per day during 1992, 1993
and 1994.
** Closed September 1, 1993.
<CAPTION>
ACTUAL WEEKLY PRODUCTION
ON A ONE-SHIFT BASIS
-------------------------------
LOCATION 1992 1993 1994
-------- --------- --------- ---------
(POUNDS)
<S> <C> <C> <C>
Denison, Iowa............................... 39,000 37,000 40,000
Crete, Nebraska............................. 47,000 45,000 47,000
Monmouth, Illinois.......................... -0-* 25,000 28,000
</TABLE>
--------
* The Company did not own the Monmouth facility in 1992.
MARKETING
The Company's pork marketing operations include meat processing, primarily
pork, and marketing. Products marketed include fresh pork, fabricated pork,
smoked meats, ham, bacon, fresh sausage, dry sausage, hot dogs, and packing
house by-products. These products are marketed under the Farmland, Maple
River, Marco Polo, Carando, Regal and other brand names. Product distribution
is through national and regional retail food chains, food service accounts,
distributors and international marketing activities.
Pork marketing is a highly competitive industry with many suppliers of live
hogs, fresh pork and processed pork products. Other meat products such as
beef, poultry and fish also compete directly with pork products. Competitive
methods in this segment include price, product quality, product
differentiation and customer service.
BEEF PROCESSING AND MARKETING
PRODUCTION
The Company's beef processing and marketing operations are conducted through
National Beef Packing Company, L.P. which was formed in April 1993, and is 68%
owned by Farmland. The processing facilities for these beef operations are
located in Liberal, Kansas and Dodge City, Kansas. These facilities function
as beef abattoirs and have capabilities for processing fresh beef into primal
10
<PAGE>
cuts for additional processing into fabricated or boxed beef. During 1994, the
two plants operated at 97% of capacity and slaughtered 1,708,000 cattle.
MARKETING
Products in the Company's beef processing and marketing operations include
fresh beef, boxed beef and packing house by-products. Product distribution is
through national and regional retail and food service customers under the
Farmland Black Angus Beef and other brand names. There is also a limited amount
of international product distribution.
Beef marketing is a highly competitive industry with many suppliers of live
cattle, fresh beef and processed beef. Other meat products such as pork,
poultry and fish also compete directly with beef products. Competitive methods
in this industry include price, product quality and customer service.
GRAIN MARKETING
Effective June 30, 1992, the Company acquired substantially all the business
and assets of Union Equity Co-Operative Exchange ("Union Equity"). The grain
marketing and storage operations of the Company as described herein are
substantially the same as the grain operations previously conducted by Union
Equity.
The Company markets wheat, milo, corn, soybeans, barley and oats, with wheat
constituting the majority of the marketing business. The Company purchases
grain from members and nonmembers located in the Midwestern part of the United
States. Once the grain is purchased, the Company assumes all risks related to
selling such grain. Since grain is a commodity, pricing of grain in the United
States is principally conducted through bids based on the commodity futures
markets.
The Company is exposed to risk of loss in the market value of its grain
inventory and fixed price purchase contracts if grain market prices decrease,
and is exposed to loss on its fixed price sales contracts if grain market
prices increase. To reduce the price change risk associated with holding
positions in grain, the Company takes opposite and offsetting positions by
entering into grain commodity futures contracts. Such contracts have terms of
up to one year. The Company's strategy is to maintain hedged positions on as
close to 100% of its position in grain as is possible. During 1994, the Company
maintained hedges on approximately 95.3% of its grain positions. Based on total
assets at the beginning and end of 1994, the average market value of grain
positions not hedged during the year amounted to approximately 1/5 of 1% of the
Company's average total assets. While hedging activities reduce the risk of
loss from changing market values of grain, such activities also limit the gain
potential which otherwise could result from changes in market prices of grain.
In 1994, approximately 37% of grain revenues were from export sales. The five
largest purchasers in terms of total revenues from grain operations were Mexico
(6%), Jordan (5%), Egypt (4%), Israel (4%) and South Africa (2%). In 1992 and
1993, export sales or sales to domestic customers for export accounted for
approximately 55% and 60%, respectively, of consolidated grain revenues. A
majority of the grain export sales are under price subsidies or credit
arrangements guaranteed by the United States government, primarily through
programs administered by the United States Department of Agriculture ("USDA").
Export-related sales are subject to international political upheavals and
changes in other countries' trade policies which are not within the control of
the United States or the Company. Foreign sales of grain generally are paid in
U.S. Dollars.
TRADIGRAIN
In December 1993, the Company acquired all the common stock of seven
international grain trading companies (collectively referred to as
"Tradigrain") formerly owned by B.P. Nutrition B.V. Tradigrain imports, exports
and ships all major grains from the major producing countries to final
consumers which are either governmental entities, private companies or other
major grain companies.
11
<PAGE>
Tradigrain's purchases of grain are made on a cash basis against
presentation of documents. Its sales of grain are mostly done against
confirmed letters of credit at sight or on 180/360 days deferred basis. The
volume of grain traded by Tradigrain varies from seven to ten million metric
tons per year and represents total sales of between $800 million to $1.2
billion per year. For purposes of the Company's consolidated financial
statements, on Tradigrain transactions, the Company recognizes as revenues net
margin on grain traded rather than the value of the commodities involved in
the trades.
PROPERTY
The Company owns or leases 31 inland elevators and one export elevator with
a total capacity of approximately 177,045,000 bushels of grain. The location,
type, number and aggregate capacity in bushels of the elevators at July 31,
1995 are as follows:
<TABLE>
<CAPTION>
AGGREGATE
LOCATION TYPE NUMBER CAPACITY
-------- ------ ------ ----------
<S> <C> <C> <C>
Amarillo, Texas..................................... Inland 1 3,226,000
Black, Texas........................................ Inland 1 1,418,000
Commerce City, Colorado............................. Inland 1 3,234,000
Darrouzett, Texas................................... Inland 1 1,277,000
Enid, Oklahoma...................................... Inland 4 50,300,000
Fairfax, Kansas..................................... Inland 1 10,047,000
Galveston, Texas.................................... Export 1 3,253,000
Hutchinson, Kansas.................................. Inland 3 25,268,000
Idaho and Utah...................................... Inland 11 9,825,000
Lincoln, Nebraska................................... Inland 1 5,099,000
Omaha, Nebraska..................................... Inland 2 4,266,000
Saginaw, Texas...................................... Inland 2 37,274,000
Topeka, Kansas...................................... Inland 1 12,055,000
Wichita, Kansas..................................... Inland 1 10,503,000
</TABLE>
RESEARCH
The Company operates a research and development farm near Bonner Springs,
Kansas where many aspects of animal nutrition are studied. The research is
directed toward improving the nutrition and feeding practices of livestock and
pets.
Research related to commercialization of a wheat processing plant to produce
wheat gluten as a replacement source for raw material used in certain consumer
products has been completed and technology for an economically viable plant
has been developed. Farmland has formed Heartland Wheat Growers, L.P., a joint
venture with local cooperatives, and currently is building a wheat processing
plant in Russell, Kansas that will process approximately 4.25 million bushels
of wheat per year. See "--Capital Expenditures".
Expenditures related to Company-sponsored product and process improvements
amounted to $3.3 million, $3.3 million and $2.7 million for the years ended
1992, 1993 and 1994, respectively.
CAPITAL EXPENDITURES
The Company plans capital expenditures of approximately $289.9 million
during 1995 and 1996.
Capital expenditures of approximately $111.8 million are planned for the
crop production business segment (excluding costs for construction of an
anhydrous ammonia plant in Trinidad which is being evaluated at this time). A
new urea ammonium nitrate ("UAN") facility is planned at the Fort Dodge,
12
<PAGE>
Iowa anhydrous ammonium plant. The new facility is expected to cost
approximately $30.0 million of which approximately $21.0 million is expected
be expended during this period. This facility will upgrade anhydrous ammonium
to produce approximately 115,000 tons of UAN per year. A UAN plant at the
Lawrence, Kansas facility is being expanded to increase production by
approximately 128,000 tons per year. An estimated $2.5 million will be
expended in fiscal 1995 to complete the project. Expenditures at the Dodge
City, Kansas facility of approximately $6.0 million are expected to increase
anhydrous ammonia and UAN production capacity by 52,500 tons and 10,500 tons,
respectively. Capital expenditures of $66.4 million are planned for operating
efficiency improvements, necessities and replacements, and $15.9 million are
planned for environmental and safety issues, predominately at nitrogen
fertilizer plants.
Capital expenditures in the feed business segment are estimated to be $23.4
million. A feed mill in southeast New Mexico is being constructed at an
approximate cost of $1.3 million. The remaining projected expenditures of
$22.1 million are for feed mill and livestock production efficiencies,
operating necessities and replacements.
Capital expenditures in the petroleum business segment are expected to be
$87.4 million and include approximately $32.9 million to increase daily crude
oil processing capacity at the Coffeyville, Kansas refinery of which $27.9
million is to be expended during this period. The remaining projected
expenditures of the petroleum business segment are as follows: $23.6 million
for operating necessities; $20.7 million for increased operating efficiency;
and $10.2 million for environmental and safety issues.
Capital expenditures of approximately $32.6 million are planned in the pork
marketing business segment. A waste water expansion project at the Crete,
Nebraska facility is expected to cost approximately $2.4 million. A 10,000
square foot loading dock and storage facility will be constructed at the
Monmouth, Illinois plant for an estimated $1.5 million. The remaining
expenditures are mostly for operational improvements and replacements.
Capital expenditures of approximately $7.3 million planned for the grain
business segment are mainly for expansion and replacements.
Heartland Wheat Growers, L.P. (a partnership between the Company and local
cooperatives) located in Russell, Kansas, was formed for the purpose of
constructing and operating a wheat processing facility, to produce wheat
gluten, wheat starch and derivative products and to market and distribute such
products. The Company has a 79% interest in the partnership. The Company's
planned investment to finance construction of the wheat gluten plant amounts
to approximately $25.5 million of which $21.5 million will be expended during
the period.
The Company intends to fund its capital program with cash from operations or
from its primary sources of debt capital. Of the foregoing planned capital
expenditures, $86.5 million were made in 1995 (through May 31, 1995).
MATTERS INVOLVING THE ENVIRONMENT
The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use,
storage, discharge and disposal of hazardous materials as the Company uses
hazardous substances and generates hazardous wastes in the ordinary course of
its manufacturing process. The Company recognizes liabilities related to
remediation of contaminated properties when the related costs are probable and
can be reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs and
currently enacted laws and regulations. In reporting environmental
liabilities, no offset is made for potential recoveries. Such liabilities
include estimates of the Company's share of costs attributable to potentially
responsible parties ("PRPs") which are insolvent or otherwise unable to pay.
All liabilities are monitored and adjusted regularly as new facts or changes
in law or technology occur.
13
<PAGE>
The Company wholly or jointly owns or operates 54 manufacturing properties
and has potential responsibility for environmental conditions at a number of
former manufacturing facilities and at waste disposal facilities operated by
third parties. The Company is investigating or remediating contamination at 17
sites. The Company has also been identified as a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") and has unresolved liability with respect to the past
disposal of hazardous substances at six such sites. Such laws may impose joint
and several liability on certain statutory classes of persons for the costs of
investigation and remediation of contaminated properties, regardless of fault
or the legality of the original disposal. These persons include the present
and former owner or operator of a contaminated property, and companies that
generated, disposed, or arranged for the disposal, of hazardous substance
found at the property. During 1993 and 1994, the Company paid approximately
$.5 million and $1.4 million, respectively, for environmental investigation
and remediation.
The Company is currently aware of probable obligations for environmental
matters at 18 sites. As of May 31, 1995, the Company has made an environmental
accrual of $8.4 million. The Company periodically reviews and, as appropriate,
revises its environmental accruals. Based on current information and
regulatory requirements, the Company believes that the accruals established
for environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental matters
are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management also is aware of other environmental matters for which there is a
reasonable possibility that the Company will incur costs to resolve. It is
possible that the costs of resolution of the matters described in this
paragraph may exceed the liabilities which, in the opinion of management, are
probable and which costs are reasonably estimable at May 31, 1995. In the
opinion of management, it is reasonably possible for such costs to be
approximately an additional $24.0 million.
Under the Resource Conservation Recovery Act of 1976 ("RCRA"), the Company
has four closure and five post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Operations are being
conducted at these locations and the Company does not plan to terminate such
operations in the foreseeable future. Therefore, the Company has not accrued
these environmental exit costs. The Company accrues these liabilities when
plans for termination of plant operations have been made. Such closure and
post-closure costs are estimated to be $5.8 million at May 31, 1995 (and is in
addition to the $24.0 million described in the preceding paragraph).
The Company is currently involved in three administrative proceedings
brought by Region VII of the Environmental Protection Agency ("EPA") with
respect to alleged violations under the Clean Air Act, the Emergency Planning
and Community Right-to-Know Act and RCRA at the Coffeyville refinery. The
Company is currently negotiating with the EPA concerning these matters and
believes that such negotiations may result in compromise settlements,
including the possible implementation of a Supplemental Environmental Project
in connection with the Clean Air Act proceeding. Absent such settlements, the
Company may contest the EPA's allegations. Accordingly, no provision has been
made in the Company's financial statements for these proposed penalties.
Specifically, the three administrative proceedings are described as follows:
(1) The Company is a party to an administrative enforcement action brought
by Region VII of the EPA which alleges violations of the Emergency
Planning and Community Right-to-Know Act and the release reporting
requirements of CERCLA at its Coffeyville, Kansas refinery. This
proceeding involves alleged violations of release reporting
requirements and seeks a civil penalty in the amount of $350,000.
14
<PAGE>
(2) The Company is a party to an administrative enforcement action brought
by Region VII of the EPA which alleges violations of RCRA at its
Coffeyville, Kansas refinery. In this proceeding, the EPA has proposed
a civil penalty in the amount of approximately $1.4 million.
(3) The Company has been informed by the U.S. Department of Justice of its
intent to bring an enforcement action alleging certain violations of
the Clean Air Act at its Coffeyville, Kansas refinery. The U.S.
Department of Justice has informed the Company that it will seek a
civil penalty of at least $1.6 million.
Protection of the environment requires the Company to incur expenditures for
equipment or processes, which expenditures may impact the Company's future net
income. However, the Company does not anticipate that its competitive position
will be adversely affected by such expenditures or by laws and regulations
enacted to protect the environment. Environmental expenditures are capitalized
when such expenditures provide future economic benefits. In 1994, the Company
had capital expenditures of approximately $2.6 million to prevent future
discharges into the environment. In 1995, such capital expenditures (through
May 31, 1995) were approximately $2.0 million. The majority of such
expenditures was for improvements at the Coffeyville refinery. Management
believes the Company currently is in substantial compliance with existing
environmental rules and regulations.
GOVERNMENT REGULATION
The Company's business is conducted within a legal environment created by
numerous federal, state and local laws which have been enacted to protect the
public's interest by promoting fair trade practices, safety, health and
welfare. The Company's operating procedures conform to the intent of these laws
and management believes that the Company currently is in compliance with all
such laws, the violation of which could have a material adverse effect on the
Company.
Certain policies may be implemented from time to time by the USDA, the
Department of Energy or other governmental agencies which may impact the
demands of farmers and ranchers for the Company's products or which may impact
the methods by which certain of the Company's operations are conducted. Such
policies may impact the Company's farm supply and marketing operations.
Management is not aware of any newly implemented or pending policies having a
significant impact or which may have a significant impact on operations of the
Company.
EMPLOYEE RELATIONS
At May 31, 1995, the Company had approximately 11,000 employees.
Approximately 41% of the Company's employees were represented by unions having
national affiliations. The Company's relationship with employees is considered
to be generally satisfactory. No labor strikes or work stoppages within the
last three fiscal years have had a materially adverse effect on the Company's
operating results. Current labor contracts expire on various dates through
March 1997. There are no wage re-openers in any of the collective bargaining
agreements.
PATRONAGE REFUNDS AND DISTRIBUTION OF NET EARNINGS
For purposes of this section, (1) annual earnings for 1994 and earlier years
means earnings before income taxes determined in accordance with federal income
tax law, and (2) annual earnings for 1995 and after means earnings before
income taxes determined in accordance with generally accepted accounting
principles.
Farmland operates on a cooperative basis. In accordance with its bylaws,
Farmland returns the member-sourced portion of its annual net earnings to its
members as a patronage refund. Each member's portion of the annual patronage
refund is determined by the quantity or value of business
15
<PAGE>
transacted by the member with Farmland during the year for which the patronage
is paid in comparison with Farmland's total member-sourced earnings for such
year in the patronage allocation unit for which the patronage is paid.
Generally, a portion of the annual patronage refund is returned in cash, and
for the balance of the patronage refund (the "invested portion") the members
receive Farmland common stock, associate member common stock or capital
credits (the equity type received is determined by the membership status). The
invested portion of the patronage refund is determined annually by the Board
of Directors. The annual patronage refund is returned to members as soon as
practical after the end of each fiscal year. The Internal Revenue Code of
1986, as amended, allows a cooperative to deduct from its taxable income the
total amount of the patronage refunds returned, provided that not less than
20% of the total patronage refund returned is cash. The bylaws of Farmland
provide that the Board of Directors has complete discretion with respect to
the handling and ultimate disposition of any member-sourced losses.
For the years ended 1992, 1993 and 1994, Farmland returned the following
patronage refunds:
<TABLE>
<CAPTION>
CASH OR CASH
EQUIVALENT PORTION INVESTED PORTION TOTAL PATRONAGE
OF PATRONAGE REFUNDS OF PATRONAGE REFUNDS REFUNDS
-------------------- -------------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
1992.............. $17,449 $ -0- $17,449
1993.............. -0- -0- -0-
1994.............. 26,552 44,032 70,584
</TABLE>
Nonpatronage income or loss (income or loss from activities not directly
related to the cooperative marketing or purchasing activities of Farmland) is
subject to income taxes computed on the same basis as such taxes are computed
on the income or loss of other corporations.
EQUITY REDEMPTION PLANS
The Equity Redemption Plans described below (the "Plans") may be changed at
any time or from time to time at the sole and absolute discretion of the Board
of Directors. The Plans are also not binding upon the Board of Directors or
the Company, and the Board of Directors reserves the right to redeem, or not
redeem, any equities of the Company without regard to whether such action or
inaction is in compliance with the Plans. The factors which may be considered
by the Board of Directors in determining when, and under what circumstances,
the Company may redeem equities include, but are not limited to, the terms of
the Company's base capital plan, income and other tax considerations, the
Company's results of operations, financial position, cash flow, capital
requirements, long-term financial planning needs and other relevant
considerations. By retaining discretion to determine the amount, timing and
ordering of any equity redemptions, the Board of Directors believes that it
can continue to assure that the best interests of the Company and thus of its
members will be protected.
BASE CAPITAL PLAN
For the purposes of acquiring and maintaining adequate capital to finance
the business of the Company, the Board of Directors has established a base
capital plan ("Base Capital Plan"). The Base Capital Plan provides a mechanism
for determining the Company's total capital requirements and each
16
<PAGE>
voting member's and associate member's share thereof (the base capital
requirement). As part of the Base Capital Plan, the Board of Directors may, in
its discretion, provide for redemption of Farmland common stock or associate
member common stock held by voting members or associate members who have an
investment in Farmland common stock or associate member common stock which
exceeds the voting members' or associate members' base capital requirement.
The Base Capital Plan provides a mechanism under which the cash portion of the
patronage refund payable to voting members or associate members will depend
upon the degree to which such voting members or associate members meet their
base capital requirements.
ESTATE SETTLEMENT PLAN
The estate settlement plan provides that in the event of the death of an
individual (a natural person) equity holder, the equity holdings of the
deceased will be redeemed at par value with the exception of purchased equity
holdings owned by the deceased for less than five years. This provision is
subject to a limitation of $1.0 million in any one fiscal year without further
authorization by the Board of Directors.
SPECIAL EQUITY REDEMPTION PLANS
From time to time and for all profitable years following 1987, the Company
has redeemed portions of its outstanding equity under various special equity
redemption plans. Each such plan has been designed to return cash to members
or former members of Farmland or Foods by redeeming certain types of
outstanding equity. The order in which each type of equity is redeemed is
determined by the Board of Directors. Except for preferred stock sold through
a public offering in 1984, substantially all the equity redeemed under these
plans was originally issued as part of the Company's patronage refunds. See
"--Patronage Refunds and Distribution of Net Earnings".
The current special equity redemption plan is designed to provide a
systematic method for redemption of outstanding equity which is not subject to
redemption through other Plans, such as the Base Capital Plan or the estate
settlement plan.
Provisions of the current special equity redemption plan include:
1. No special redemption will be made if the redemption of equities may
result in a violation of covenants in loan agreements and similar
instruments; and
2. The targeted amount for special redemptions is a percentage of
consolidated net income (member and nonmember). The percentage is
determined based on the ratio of Funded Indebtedness to Capitalization
(as defined in the special equity redemption plan) before the special
redemption but after giving effect to the distribution of cash and the
redemption of equities under the Base Capital Plan. The calculation for
special redemptions is as follows:
<TABLE>
<CAPTION>
TOTAL SPECIAL EQUITY
FUNDED INDEBTEDNESS REDEMPTION
AS A PERCENT OF AS A PERCENT OF
CAPITALIZATION CONSOLIDATED NET INCOME
------------------- -----------------------
<S> <C>
>50 % None
48-50 % 2.5%
44-47 % 5.0%
40-43 % 7.5%
<40 % 10.0%
</TABLE>
Presented below are the amounts approved for redemption of equity by the
Board of Directors under the Base Capital Plan, the estate settlement plan and
the special equity redemption plans for all
17
<PAGE>
years following 1987, the year in which the Company returned to profitability
following the loss years of the mid-1980's. The amounts approved for
redemption of equity were paid in cash in the fiscal year following approval.
<TABLE>
<CAPTION>
BASE ESTATE SPECIAL EQUITY
CAPITAL SETTLEMENT REDEMPTION TOTAL
PLAN PLAN PLANS PLAN
REDEMPTIONS* REDEMPTIONS REDEMPTIONS REDEMPTIONS
------------ ----------- -------------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
1988........................ $ -0- $ 16 $ 5,368 $ 5,384
1989........................ -0- 13 15,518 15,531
1990........................ -0- 78 20,029 20,102
1991........................ 2,300 4 5,351 7,669
1992........................ 6,707 234 6,755 13,696
1993........................ -0- 127 12 139
1994........................ 8,740 126 4,108 12,974
</TABLE>
--------
* The Base Capital Plan became effective in 1991.
LEGAL PROCEEDINGS
In the opinion of Robert B. Terry, Vice President and General Counsel of
Farmland, there is no litigation existing or pending against Farmland or any
of its subsidiaries that, based on the amounts involved or the defenses
available to the Company, would have a material adverse effect on the
financial position of the Company except for the pending tax litigation
relating to Terra Resources, Inc. ("Terra"), a former subsidiary of the
Company, as explained in Note 3 of the Notes to Condensed Consolidated
Financial Statements included in the May 1995 Form 10-Q. See "Risk Factors--
Income Tax Matters" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition, Liquidity and
Capital Resources" in the Prospectus Supplement accompanying this Prospectus.
The Company is currently involved in three administrative proceedings
brought by Region VII of the EPA. See "Business--Matters Involving the
Environment".
USE OF PROCEEDS
Except as otherwise may be stated in any Prospectus Supplement, the Company
intends to use the proceeds from the sale of Debt Securities for general
corporate purposes, which may include the refinancing of existing
indebtedness.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the indenture under which the Debt Securities are to be issued. The particular
terms of each issue of Debt Securities, as well as any modifications or
additions to such general terms that may apply in the case of such issue of
Debt Securities, will be described in the Prospectus Supplement relating to
such issue of Debt Securities. Accordingly, for a description of the terms of
a particular issue of Debt Securities, reference must be made to both the
Prospectus Supplement relating thereto and to the following description. As
used in this section, the "Company" refers only to Farmland Industries, Inc.
exclusive of any subsidiaries.
The Debt Securities are to be issued under an indenture dated as of ,
1995, as amended, supplemented or modified from time to time (the
"Indenture"), between the Company and The Chase Manhattan Bank (National
Association), as trustee (in such capacity, the "Trustee"), the form of which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. Each series of Debt Securities issued pursuant to the Indenture
will be issued pursuant to an amendment or supplement thereto in the form of a
supplemental indenture or pursuant to an Officers' Certificate, in each case
delivered pursuant to a resolution of the Board of Directors of the Company
and in accordance with the provisions of Section 3.1 or Article 8 of the
Indenture, as the case may be. The
18
<PAGE>
terms of the Debt Securities include those stated in the Indenture and those
made a part of the Indenture by reference to the Trust Indenture Act of 1939,
as amended (the "TIA"). The Debt Securities are subject to all such terms and
the Holders of Debt Securities are referred to the Indenture and the TIA for a
statement of such terms.
The following summaries of certain provisions of the Indenture and the Debt
Securities are not complete and are qualified in their entirety by reference
to the provisions of the Indenture, including the definitions of capitalized
terms used herein without definition. Numerical references in parentheses are
to sections in the Indenture and unless otherwise indicated capitalized terms
have the meanings given them in the Indenture.
GENERAL
The Indenture provides that Debt Securities issued thereunder may be issued
without limit as to aggregate principal amount, in one or more series, in each
case as established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors or as established in one or more
supplemental indentures to such Indenture (Section 3.1). The Debt Securities
will constitute general unsecured and non-subordinated obligations of the
Company and will rank on parity in right of payment with all other unsecured
and non-subordinated indebtedness of the Company.
The Indenture provides that there may be more than one Trustee under such
Indenture, each with respect to one or more series of Debt Securities. Any
Trustee under the Indenture may resign or be removed with respect to one or
more series of Debt Securities issued under the Indenture, and a successor
Trustee may be appointed to act with respect to such series. (Sections 6.10
and 6.11). If two or more persons are acting as Trustee with respect to
different series of Debt Securities issued under the Indenture, each such
Trustee shall be a Trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Section 6.11), and any
action described therein to be taken by the "Trustee" may then be taken by
each such Trustee with respect to, and only with respect to, the one or more
series of Debt Securities for which it is Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for the following terms and other
information to the extent applicable with respect to such Debt Securities: (1)
the title of such Debt Securities; (2) any limit on the aggregate principal
amount of such Debt Securities; (3) the date or dates on which the principal
of such Debt Securities is payable or the method of determination thereof; (4)
the rate or rates at which such Debt Securities shall bear interest, if any,
or the method of calculating such rate or rates of interest, the date or dates
from which such interest shall accrue or the method by which such date or
dates shall be determined, and the date or dates on which any such interest
shall be payable; (5) the place or places where the principal of and premium,
if any, and interest, if any, on such Debt Securities shall be payable; (6)
the period or periods within which, the price or prices at which, and the
other terms and conditions upon which, such Debt Securities may be redeemed,
in whole or in part, at the option of the Company and the other detailed terms
and provisions of such optional redemption; (7) the obligation, if any, of the
Company to redeem or purchase such Debt Securities pursuant to any sinking
fund or analogous provisions or upon the happening of a specified event or at
the option of a Holder thereof, and the period or periods within which, the
price or prices at which, and the other terms and conditions upon which, such
Debt Securities shall be redeemed or purchased, in whole or in part, pursuant
to such obligation; (8) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which such Debt Securities shall be
issuable; (9) if other than the principal amount thereof, the portion of the
principal amount of such Debt Securities which shall be payable upon
declaration of acceleration thereof or the method by which such portion shall
be determined; (10) if other than as provided in the Indenture, the Person to
whom any interest on any Debt Security shall be payable, and the extent to
which, or the manner in which, any interest payable on a temporary or
permanent Global Security on an Interest Payment Date will be paid; (11)
provisions, if any, granting special rights to the Holders of such Debt
Securities upon the occurrence of such events as may be
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specified; (12) any deletions from, modifications of or additions to the
Events of Default or covenants of the Company set forth in the Indenture
pertaining to such Debt Securities; (13) if other than as provided in the
Indenture, the means of defeasance or covenant defeasance as may be specified
for such Debt Securities; (14) if other than the Trustee, the identity of the
Registrar and any Paying Agent; (15) whether such Debt Securities shall be
issued in whole or in part in temporary or permanent global form and, if so,
(i) the initial Depository for such Global Securities, and (ii) if other than
as provided in the Indenture, whether and the circumstance under which
beneficial owners of interests in any Debt Securities in temporary or
permanent global form may exchange such interests for Debt Securities and of
like tenor of any authorized form and denomination; and (16) any other terms
(which terms shall not be inconsistent with the provisions of the Indenture),
including, without limitation, any terms which may be required by or advisable
under United States laws or regulations or advisable in connection with the
marketing of such Debt Securities. (Section 3.1).
Debt Securities will be issued only in fully registered form without
coupons. Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on
behalf of, a Depository identified in the applicable Prospectus Supplement.
The specific depository arrangement with respect to a series of Debt
Securities or any part thereof will be described in the applicable Prospectus
Supplement. Unless otherwise specified in the Prospectus Supplement, Debt
Securities will be issued in denominations of $1,000 and any integral multiple
thereof. (Section 3.2).
The Indenture does not contain any provisions that would limit the ability
of the Company or any of its Affiliates to incur indebtedness (secured or
unsecured) or that would afford Holders of Debt Securities protection in the
event of a highly leveraged transaction, restructuring, change in control,
merger or similar transaction involving the Company that may adversely affect
Holders of the Debt Securities.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates ("Original Issue Discount
Securities"). Special federal income tax, accounting and other considerations
applicable thereto will be described in the Prospectus Supplement relating to
any such Debt Securities.
CERTAIN DEFINITIONS
The following terms are defined in the Indenture (Sections 1.1, 9.9 and
9.12).
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Consolidated Net Worth" means, at any date of determination, the difference
between the Company's consolidated total assets and consolidated total
liabilities as shown on the Company's most recent audited consolidated
financial statements prepared in accordance with generally accepted accounting
principles.
"Default" means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.
"Event of Default" is defined below under "--Events of Default, Notice and
Waiver".
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"Material Subsidiary" means, at any particular time, any Subsidiary that,
together with any Subsidiaries of such Subsidiary (i) accounted for more than
5% of the consolidated sales of the Company for its most recently completed
fiscal year, or (ii) owned more than 5% of the consolidated assets of the
Company as at the end of such fiscal year, all as calculated in accordance with
generally accepted accounting principles.
"Maturity", when used with respect to any Debt Security, means the date on
which the principal of such Debt Security or any installment of principal
thereof becomes due and payable as therein or in the Indenture provided,
whether at the Stated Maturity or by declaration of acceleration, call for
redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President, any Executive Vice President or any Senior Vice
President, signing alone, or by any Vice President signing together with the
Corporate Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer of the Company.
"Opinion of Counsel" means a written opinion of legal counsel, who may be (a)
counsel for the Company or (b) other counsel designated by the Company and who
shall be acceptable to the Trustee. Any counsel for the Company may be an
employee of the Company.
"Stated Maturity", when used with respect to any Debt Security or any
installment of principal thereof or interest thereon, means the date specified
in such Debt Security as the fixed date on which the principal of such Debt
Security or such installment of principal or interest is due and payable.
"Subordinated Debt" means indebtedness of the Company which is by its terms
made subordinate or junior in the right of payment to the Debt Securities or
other indebtedness of the Company.
"Subsidiary" means any corporation of which the Company at the time owns or
controls, directly or indirectly, more than 50% of the shares of outstanding
stock having general voting power under ordinary circumstances to elect a
majority of the Board of Directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency).
CERTAIN COVENANTS
LIMITATION ON LIENS
The Company, with the exceptions listed below, will not issue, assume or
guarantee any indebtedness for borrowed money (referred to in this subsection
as "indebtedness") secured by a mortgage, security interest, pledge or lien
("mortgage") of or upon any of its property, owned at the date of the Indenture
or thereafter acquired, unless the Debt Securities then outstanding (together
with, if the Company shall so determine, any other indebtedness issued, assumed
or guaranteed by the Company and then existing or thereafter created) are
secured by such mortgage equally and ratably with (or, at the option of the
Company, prior to) all other indebtedness secured thereby for so long as such
other indebtedness shall be so secured. The term "indebtedness" as used in this
subsection does not include any guarantee, cash deposit or other recourse
obligation in connection with the sale, securitization or discount by the
Company of finance or accounts receivable, trade acceptances or other paper
arising in the ordinary course of its business.
The foregoing covenant does not apply to (1) mortgages of or upon any
property (including, without limitation, inventory) acquired, constructed or
improved by, or of or upon any shares of capital
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stock or indebtedness acquired by, the Company after the date of the Indenture
(A) to secure the payment of all or any part of the purchase price of such
property, shares of capital stock or indebtedness upon the acquisition thereof
by the Company, or (B) to secure any indebtedness issued, assumed or
guaranteed by the Company prior to, at the time of, or within 360 days after
(i) in the case of property, the latest of the acquisition, completion of
construction (including any improvements on existing property) and
commencement of commercial operation of such property or (ii) in the case of
shares of capital stock or indebtedness, the acquisition of such shares of
capital stock or indebtedness, which indebtedness is issued, assumed or
guaranteed for the purpose of financing or refinancing all or any part of the
purchase price of such property, shares of capital stock or indebtedness and,
in the case of property, the cost of construction thereof or improvements
thereon, provided that, in the case of any such acquisition, construction or
improvement of property, the mortgage shall not apply to any property, shares
of capital stock or indebtedness theretofore owned by the Company other than,
in the case of any such construction or improvement, any theretofore
unimproved or substantially unimproved real property on which the property so
constructed or the improvement is located; (2) mortgages of or upon any
property, shares of capital stock or indebtedness, which mortgages exist at
the time of acquisition of such property, shares or indebtedness by the
Company; (3) mortgages of or upon any property of a corporation, which
mortgages exist at the time such corporation is merged with or into or
consolidated with the Company or which mortgages exist at the time of a sale
or transfer of the properties of a corporation as an entirety or substantially
as an entirety to the Company; (4) mortgages to secure indebtedness of the
Company to any Subsidiary; (5) mortgages in favor of the United States of
America or any state thereof, or any department, agency or instrumentality or
political subdivision of the United States of America or any state thereof, or
in favor of any other country or political subdivision to secure partial,
progress, advance or other payments pursuant to any contract or statute or to
secure any indebtedness incurred or guaranteed for the purpose of financing or
refinancing all or any part of the purchase price of the property, shares of
capital stock or indebtedness subject to such mortgages, or the cost of
constructing or improving the property subject to such mortgages (including,
without limitation, mortgages incurred in connection with pollution control,
industrial revenue or similar financings); (6) mortgages on properties
financed through tax-exempt municipal obligations, provided that such
mortgages are limited to the property so financed; (7) mortgages existing on
the date of execution of the Indenture; and (8) any extension, renewal,
substitution, refinancing, refunding or replacement (or successive extensions,
renewals, substitutions, refinancings, refundings or replacements) (each a
"refinancing") in whole or in part of any mortgage existing at the date of the
Indenture or any mortgage referred to in the foregoing clauses (1) through
(7), inclusive, provided, however, that the principal amount of indebtedness
secured thereby shall not exceed the principal amount of indebtedness so
secured at the time of such refinancing plus the aggregate amount of premiums,
other payments, costs and expenses required to be paid or incurred in
connection with such refinancing, and that such refinancing shall be limited
to all or a part of the property (plus improvements and construction on such
property), shares of capital stock or indebtedness which was subject to the
mortgage so extended, renewed, substituted, refinanced, refunded or replaced.
Notwithstanding the foregoing, the Company may, without equally and ratably
securing the Debt Securities, issue, assume or guarantee indebtedness secured
by a mortgage not excepted by clauses (1) through (8) above, if the aggregate
amount of such indebtedness, together with all other indebtedness of, or
indebtedness guaranteed by, the Company existing at such time and secured by
mortgages not so excepted, does not at the time exceed 10% of the Company's
Consolidated Net Worth. (Section 9.9).
OWNERSHIP OF MATERIAL SUBSIDIARY STOCK
The Company will not take any action which would result in a decrease in the
percentage (and such decrease does not result in the Material Subsidiary no
longer qualifying as a Subsidiary) of the
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outstanding shares of stock of any Material Subsidiary owned directly or
indirectly by the Company, except as the result of (a) the issuance of
directors' qualifying shares, (b) the declaration and payment of patronage
refunds, (c) the issuance of capital stock to members, (d) the purchase or
retirement of shares with the proceeds of newly issued shares, or (e) the sale
of capital stock at a price determined by the Company (which determination may
be evidenced by a resolution of the Board of Directors) to be the fair value
thereof and which is otherwise not restricted by the Indenture. (Section 9.10).
TRANSACTIONS WITH AFFILIATES
The Company will not enter into any transaction (including the purchase, sale
or exchange of property or the rendering of any service) with any Affiliate of
the Company or any Subsidiary, other than in the ordinary course of business
and upon fair and reasonable terms taking into account the nature of the
Company or the Subsidiary's business. (Section 9.11).
PREPAYMENT OF SUBORDINATED DEBT
The Company will not repay, prepay or purchase, redeem or otherwise acquire
any or all of the Subordinated Debt, provided, however, that the Company may
make (a) a regularly scheduled payment on Subordinated Debt; (b) any mandatory
prepayment required under the terms of the Subordinated Debt; and (c) any other
repayment or prepayment or any purchase, redemption or acquisition of such
Subordinated Debt, if, after giving effect to such other repayment or
prepayment or such purchase, redemption or acquisition, (i) the principal
amount of all outstanding Subordinated Debt is equal to or greater than $200
million, and (ii) there are no Defaults or Events of Default under the
Indenture. (Section 9.12).
RESTRICTION ON CERTAIN PAYMENTS
The Company may not pay any patronage refunds or any dividends on its capital
stock or purchase or redeem any of its capital stock or capital credits at any
time (except refunds, dividends, purchases or redemptions payable in common
stock of the Company or capital credits) (any of the foregoing being referred
to herein as a "Distribution") if, after giving effect to such Distribution (a)
its Consolidated Net Worth would be less than $450 million, or (b) the
aggregate amount of all Distributions in respect of a given fiscal year (the
"Applicable Year") (whether such Distribution actually is paid or made in the
Applicable Year or subsequent thereto) would exceed the greater of (i) the
Company's net income for the Applicable Year or (ii) the Company's patronage
earnings (i.e., member-sourced income) for the Applicable Year; provided,
however, that the foregoing limitation in clause (b) above shall not apply if,
after giving effect to such Distribution, the Company's Consolidated Net Worth
would be $600 million or more; provided, further, however, that notwithstanding
any of the foregoing limitations: (A) the Company may pay or make Distributions
in respect of any Applicable Year in an aggregate amount not exceeding the
greater of (1) 50% of the Company's net income for the Applicable Year or (2)
50% of the Company's patronage earnings for the Applicable Year (provided that,
in any event, the Company may pay cash patronage refunds in respect of any
Applicable Year to the extent necessary for the patronage distribution to be a
"qualified distribution" under applicable tax law); (B) the Company may pay or
make Distributions in connection with estate settlements; and (C) the Company
may pay or make Distributions that arise by operation of law (including,
without limitation, pursuant to a court order, judgment or decree). (Section
9.13).
CORPORATE EXISTENCE
Subject to "--Mergers, Consolidations and Transfers of Assets" below, the
Company will preserve and keep in full force its corporate existence and rights
and franchises; provided, however, that the Company may abandon or terminate
any right or franchise if, in the opinion of the Company, such abandonment or
termination is in the best interests of the Company and does not materially
adversely affect the ability of the Company to operate its business or to
fulfill its obligations under the Indenture. (Section 9.4).
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WAIVERS OF CERTAIN COVENANTS
The Company may fail or omit in any particular instance to comply with any
of the covenants set forth above in this "--Certain Covenants" subsection
(other than the covenant relating to its corporate existence) with respect to
any series of Debt Securities if the Company shall have obtained and filed
with the Trustee prior to the time for such compliance the consent in writing
of the Holders of at least a majority in principal amount of all of the Debt
Securities of such series at the time Outstanding either waiving such
compliance in such instance or generally waiving compliance with such
covenant, but no such waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon. (Section 9.14).
MERGERS, CONSOLIDATIONS AND TRANSFERS OF ASSETS
The Company may merge or consolidate with or into any other corporation or
sell, convey, transfer or otherwise dispose of all or substantially all of its
assets to any person, firm or corporation, if: (a) (i) in the case of a merger
or consolidation, the Company is the surviving corporation, or (ii) in the
case of a merger or consolidation where the Company is not the surviving
corporation and in the case of any such sale, conveyance or other disposition,
the successor or acquiring corporation is a corporation organized and existing
under the laws of the United States or a State thereof and such corporation
expressly assumes by supplemental indenture all the obligations of the Company
under the Debt Securities and under the Indenture; (b) immediately thereafter,
giving effect to such merger or consolidation, or such sale, conveyance,
transfer or other disposition, no Default or Event of Default shall have
occurred and be continuing; and (c) the Company has delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel each stating that such
merger or consolidation, or such sale, conveyance, transfer or other
disposition complies with the Indenture and that all conditions precedent
therein provided for relating to such transaction have been complied with. In
the event of the assumption by a successor corporation of the obligations of
the Company as provided in clause (a)(ii) of the immediately preceding
sentence, such successor corporation shall succeed to and be substituted for
the Company under the Indenture and under the Debt Securities and all
obligations of the Company thereunder shall terminate. (Section 7.1).
EVENTS OF DEFAULT, NOTICE AND WAIVER
Except as may otherwise be set forth in the applicable Prospectus
Supplement, the Indenture provides that the following events are "Events of
Default" with respect to any series of Debt Securities: (a) default for 30
days in the payment of any installment of interest on any Debt Security of
such series; (b) default in the payment of any principal of, or premium, if
any, on, any such Debt Security of such series at its Maturity, upon
redemption (if applicable) or otherwise; (c) default for 60 days after written
notice in the performance of any other covenant or warranty in respect of the
Debt Securities of such series contained in the Indenture; (d) a default under
any agreement or instrument under which there may be issued or by which there
may be secured or evidenced any indebtedness for money borrowed, whether such
indebtedness now exists or shall hereafter be created, having an outstanding
principal amount of $10 million or more in the aggregate, which default shall
have resulted in such indebtedness being declared due and payable prior to the
date on which it would otherwise have become due and payable, without such
declaration of acceleration having been rescinded or annulled within a period
of ten days after there shall have been given, by registered or certified
mail, to the Company by the Trustee, or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Outstanding Debt
Securities of such series, a written notice specifying such Event of Default,
and stating that such notice is a "Notice of Default" under the Indenture; (e)
certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company or its
property; and (f) any other Event of Default provided in or pursuant to the
applicable resolution of the Board of Directors, or established in the
supplemental indenture under which such series of Debt Securities is issued.
(Section 5.1). No Event of Default with respect to a particular series of Debt
Securities necessarily constitutes an Event of Default with respect to any
other series of Debt Securities issued under the Indenture.
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Within 90 days after the occurrence of any Default with respect to any series
of Debt Securities, the Trustee for such series must give the Holders of Debt
Securities of such series notice of all Defaults of which it has knowledge and
that have not been cured or waived. Nevertheless, the Trustee may withhold
notice to the Holders of Debt Securities of any series of any Default with
respect to such series if and so long as it determines that the withholding of
such notice is in the interest of such Holders. (Section 6.6).
If an Event of Default with respect to any series of Debt Securities shall
have occurred and be continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Outstanding Debt Securities of such series
may, by written notice, declare the principal thereof (or, if the Debt
Securities of such series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of such series) to be
due and payable immediately. (Section 5.2).
The Indenture contains a provision entitling the Trustee to be indemnified by
the Holders of Debt Securities issued thereunder before proceeding to exercise
any right or power under such Indenture at the request of any Holders. (Section
6.2). The Indenture provides that the Holders of a majority in principal amount
of the Outstanding Debt Securities of any series issued thereunder may, with
certain exceptions, direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, with respect to the Debt Securities of such
series. (Section 5.8). The right of a Holder to institute a proceeding with
respect to the Indenture is subject to certain conditions precedent, including
notice and indemnity to the Trustee, but each Holder has an absolute right to
the receipt of principal, premium, if any, and interest, if any, at the
respective Stated Maturities of the Debt Securities (or, in the case of a
redemption, on the Redemption Date) or to institute suit for the enforcement
thereof. (Sections 5.9 and 5.10).
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series may, on behalf of the Holders of all such Debt
Securities, waive any past default, except a default (a) in the payment of
principal of, premium, if any, or interest, if any, on any Debt Securities of
such series at maturity, upon redemption or otherwise, and (b) in respect of
any covenant or provision of the Indenture that cannot be modified or amended
without the consent of the Holder of each outstanding Debt Security affected.
(Section 5.7).
The Indenture requires the Company to furnish to the Trustee annual
statements as to the fulfillment by the Company of its obligations under the
Indenture. (Section 9.7).
MODIFICATION OF THE INDENTURE
The Company and the Trustee may, at any time and from time to time, without
the consent of any Holders of Debt Securities, modify and amend the Indenture,
for any of the following purposes: (a) to evidence the succession of another
corporation to the Company and the assumption by any such successor of the
covenants of the Company under the Indenture and in the Debt Securities; (b) to
add to the covenants of the Company for the benefit of the Holders of all or
any series of Debt Securities (and if such covenants are to be for the benefit
of less than all series of Debt Securities, stating that such covenants are
expressly being included solely for the benefit of such series) or to surrender
any right or power conferred by the Indenture upon the Company; (c) to add any
additional Events of Default with respect to all or any series of Debt
Securities; (d) to add to or change any of the provisions of the Indenture to
facilitate the issuance of Debt Securities in global form; (e) to add to,
change or eliminate any of the provisions of the Indenture; provided, however,
that any such addition, change or elimination shall become effective only when
there is no Debt Security Outstanding of any series created prior to the
execution of the supplemental indenture which is entitled to the benefit of
such provision; (f) to secure the Debt Securities; (g) to establish the form or
terms of Debt Securities of any series as permitted by Sections 2.1 and 3.1 of
the Indenture; (h) to evidence and provide for the acceptance of appointment
under the Indenture by a successor Trustee with respect to the Debt
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Securities of one or more series and to add to or change any of the provisions
of the Indenture as shall be necessary to provide for or facilitate the
administration of the trusts under the Indenture by more than one Trustee,
pursuant to the requirements of Section 6.10 of the Indenture; (i) to correct
or supplement any provision under the Indenture which may be inconsistent with
any other provision under the Indenture or to make any other provisions with
respect to matters or questions arising under the Indenture, provided such
action shall not adversely affect the interests of the Holders of Debt
Securities of any series issued under the Indenture in any material respect, or
to cure any ambiguity or correct any mistake; and (j) to modify, eliminate or
add to the provisions of the Indenture under the TIA or under any similar
federal statute subsequently enacted and to add to the Indenture such other
provisions as may be expressly required under the TIA. (Section 8.1).
Modifications and amendments to the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in principal amount
of each series of Debt Securities at the time Outstanding that is affected
thereby; provided, however, that no such modification or amendment may, without
the consent of the Holder of each Outstanding Debt Security of such series
affected thereby: (i) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Debt Security of such series,
or reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or reduce the amount of the
principal of an Original Issue Discount Security of such series that would be
due and payable upon a declaration of acceleration of the Maturity thereof
pursuant to Section 5.2 of the Indenture, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date); (ii) reduce
the percentage in principal amount of the Outstanding Debt Securities of such
series, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of the Indenture or certain defaults
thereunder and their consequences) provided for in the Indenture; (iii) change
any obligation of the Company to maintain an office or agency in the Place of
Payment for the Debt Securities of such series where such Debt Securities may
be presented or surrendered for payment, where such Debt Securities may be
surrendered for registration of transfer or exchange or where notices and
demands to or upon the Company may be served; or (iv) make any change in
Section 5.7 or Section 8.2(a) of the Indenture except to increase any
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the Holders of each Outstanding
Debt Security of such series affected thereby. (Section 8.2).
SATISFACTION AND DISCHARGE; DEFEASANCE
The Indenture, with respect to any series of Debt Securities (except for
certain specified surviving obligations referred to below), will be discharged
and canceled upon the satisfaction of certain conditions, including the
following: (a) all Debt Securities of such series not theretofore delivered to
the Trustee for cancellation have become due or payable, will become and due
and payable at their Stated Maturity within one year, or are to be called for
redemption within one year; and (b) the deposit with the Trustee of an amount
sufficient to pay the principal, premium, if any, and interest to the Maturity
of all Debt Securities of such series. (Section 4.1).
The Company also may be discharged from some or all of its obligations with
respect to some or all of the Debt Securities of any series at any time prior
to the Stated Maturity or redemption thereof when: (a) the Company has
irrevocably deposited with the Trustee, in trust, (i) money in an amount, or
(ii) if Debt Securities of such series are not subject to repayment at the
option of Holders, Government Obligations which through the payment of interest
and principal in respect thereof in accordance with their terms shall provide,
not later than one day before the due date of any payment, money in an amount,
or (iii) a combination thereof in an amount, sufficient, in the opinion of a
nationally recognized firm of independent certified public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge, and which shall be applied by the Trustee to pay and discharge,
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the principal of, premium, if any, and interest, if any, on such Debt
Securities on the Maturity of such principal or installment of principal or
interest and any mandatory sinking fund payments applicable to such Debt
Securities on the day on which such payments are due and payable in accordance
with the terms of the Indenture and such Debt Securities; (b) the Company has
delivered to the Trustee an Opinion of Counsel to the effect that such deposit
and discharge will not result in recognition by the Holders of the Debt
Securities of such series of income, gain or loss for Federal income tax
purposes (other than income, gain or loss which would have been recognized in
like amount and at a like time absent such deposit and discharge); (c) the
discharge of the Company's obligations shall not cause a Default or Event of
Default under the Indenture or an event of default under any other material
agreement of the Company; (d) no bankruptcy default shall occur within 90 days
of the deposit; and (e) the Company has delivered to the Trustee an Opinion of
Counsel as to certain other matters. (Section 4.6).
Upon such discharge of the Company's obligations, the Holders of the Debt
Securities of such series shall no longer be entitled to the benefits of the
Indenture, except for the purposes of registration of transfer and exchange of
the Debt Securities or replacement of lost, stolen or mutilated Debt Securities
and shall look only to such deposited funds or obligations for payment.
(Sections 4.1, 4.2 and 4.7).
PAYMENT AND TRANSFER
Principal of, premium, if any, and interest, if any, on the Debt Securities
of any series are to be payable at the Place of Payment for such series, which
may be the Corporate Trust Office of the Trustee or any other office or agency
maintained by the Company for such purposes, provided that payment of interest,
if any, on Debt Securities may be made at the option of the Company by check
mailed to the persons in whose names such Debt Securities are registered at the
close of business on the day or days specified in the applicable Prospectus
Supplement. (Sections 3.7 and 9.2).
Debt Securities may be transferred or exchanged at the Place of Payment for
such series, which may be the Corporate Trust Office of the Trustee or at any
other office or agency maintained by the Company for such purposes, subject to
the limitations in the Indenture, without the payment of any service charge
except for any tax or governmental charge incidental thereto. (Section 3.5).
SAME-DAY SETTLEMENT
If the accompanying Prospectus Supplement so indicates, settlement for the
Debt Securities will be made by the underwriters, dealers or agents in
immediately available funds and all applicable payments of principal, premium
and interest on the Debt Securities will be made by the Company in immediately
available funds. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearinghouse or next-day funds. In
contrast, the Debt Securities subject to settlement in immediately available
funds will trade in the Depository's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Debt Securities will
therefore be required by the Depository to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Debt Securities.
CONCERNING THE TRUSTEE
The Chase Manhattan Bank (National Association) is the Trustee under the
Indenture. The Company maintains banking relationships in the ordinary course
of business with the Trustee. Among other things, the Trustee is a lending bank
under the Credit Agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition, Liquidity
and Capital Resources" in the 1994 Form 10-K.
27
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters and also may
sell Debt Securities directly to other purchasers or through agents. Such
underwriters may include Goldman, Sachs & Co., or a group of underwriters
represented by firms including Goldman, Sachs & Co. Goldman, Sachs & Co. also
may act as agents.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on
the resale of Debt Securities by them may be deemed to be underwriting
discounts and commissions, under the Securities Act. Any such underwriter or
agent will be identified, and any such compensation received from the Company
will be described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Debt Securities may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase Debt Securities from the Company pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Company. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the offered
Debt Securities shall not at the time of delivery be prohibited under the laws
of the jurisdiction to which such purchaser is subject. The underwriters and
such other agents will not have any responsibility in respect of the validity
or performance of such contracts.
LEGAL MATTERS
The validity of the Debt Securities will be passed upon for the Company by
Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York. McDermott, Will & Emery, Chicago, Illinois,
will serve as counsel for any underwriters or agents. McDermott, Will & Emery
in the past has represented and in the future may represent the Company on
other matters. McDermott, Will & Emery currently is acting as special counsel
to assist the Company and its trial counsel in connection with the pending
income tax litigation relating to Terra (see the May 1995 Form 10-Q). Fried,
Frank, Harris, Shriver & Jacobson and McDermott, Will & Emery each will rely
upon the opinion of Robert B. Terry, Esq., Vice President and General Counsel
of the Company, with respect to all matters of Kansas law.
EXPERTS
The Consolidated Financial Statements and financial statement schedules of
Farmland as of August 31, 1993 and 1994, and for each of the years in the
three-year period ended August 31, 1994, have been incorporated by reference
in this Prospectus and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein and upon the authority of such firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the Consolidated Financial Statements contains an explanatory
paragraph concerning income tax adjustments proposed by the IRS relating to
Terra.
28
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SO-
LICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH IN-
FORMATION.
------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ S-3
Risk Factors.............................................................. S-5
The Company............................................................... S-7
Use of Proceeds........................................................... S-8
Capitalization............................................................ S-9
Selected Consolidated Financial Data...................................... S-10
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-12
Description of the Senior Notes........................................... S-24
Underwriting.............................................................. S-26
Legal Matters............................................................. S-27
PROSPECTUS
Available Information..................................................... 2
Documents Incorporated by Reference....................................... 2
The Company............................................................... 3
Business.................................................................. 4
Use of Proceeds........................................................... 18
Description of Debt Securities............................................ 18
Plan of Distribution...................................................... 28
Legal Matters............................................................. 28
Experts................................................................... 28
</TABLE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
$100,000,000
FARMLAND INDUSTRIES, INC.
% SENIOR NOTES DUE 2005
------------
PROSPECTUS SUPPLEMENT
------------
GOLDMAN, SACHS & CO.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
<TABLE>
<S> <C>
SEC registration fee.............................................. $68,966
Blue sky fees and expenses........................................ **
Legal fees and expenses........................................... **
Accounting fees and expenses...................................... **
Printing and engraving expenses................................... **
NYSE listing fee.................................................. 5,000
Trustee's fees and expenses....................................... **
Rating agency fees................................................ **
Miscellaneous..................................................... **
-------
Total........................................................... $ **
=======
</TABLE>
--------
* Except for the SEC registration fee and the NYSE listing fee, all of the
foregoing expenses have been estimated.
** To be inserted by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6002(b) of Chapter 17 of the Kansas Statutes (1987), permits the
following provision to be included in the articles of incorporation of the
Company: a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders, policyholders or members for
monetary damages for breach of fiduciary duty as a director, provided that
such provision shall not eliminate or limit the liability of a director (A)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, policyholders or members, (B) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(C) under the provision of K.S.A. 17-6424 and amendments thereto, or (D) for
any transaction from which the director derived an improper personal benefit.
No such provision shall eliminate or limit the liability of a director for any
act or omission occurring prior to the date when such provision becomes
effective. All references in this subsection to a director shall be deemed
also to refer to a member of the governing body of a corporation which is not
authorized to issue capital stock. Section 6002(c) provides that "It shall not
be necessary to set forth in the articles of incorporation any of the powers
conferred on corporations by this act."
Article VII of Articles of Incorporation of Farmland Industries, Inc.
reads as follows:
ARTICLE VII--INDEMNIFICATION
Section 1. Indemnification. The Association may agree to the terms and
conditions upon which any director, officer, employee or agent accepts his
office or position and in its bylaws, by contract or in any other manner
may agree to indemnify and protect any director, officer, employee or agent
of the Association, or any person who serves at the request of the
Association as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
fullest extent permitted by the laws of the State of Kansas.
Section 2. Limitation of Liability. Without limiting the generality of
the foregoing provisions of this ARTICLE VII, to the fullest extent
permitted or authorized by the laws of the State of Kansas, including,
without limitation the provisions of subsection (b)(8) of Kan. Stat. Ann.
Sec. 17-6002 (1981) as now in effect and as it may from time to time
hereafter be amended, no person who is currently or shall hereinafter
become a director of the Association shall have personal liability to
II-1
<PAGE>
the Association for monetary damages for breach of fiduciary duty as a
director for any act or omission occurring subsequent to the date this
provision becomes effective. If the Kansas General Corporation Code is
amended after approval of this provision by the shareholders of the
Association, to authorize corporate action further limiting or eliminating
the personal liability of directors, then the liability of a director of
the Association shall be limited or eliminated to the fullest extent
permitted by the Kansas General Corporation Code, as so amended.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1 --Form of Underwriting Agreement *
4.1 --Form of Indenture between the Company and The Chase Manhattan Bank
(National Association), as trustee
4.2 --Form of Senior Note
5.1 --Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to the
Company, as to the legality of the securities being offered *
5.2 --Opinion of Robert B. Terry, Esq., General Counsel to the Company, as to
certain litigation matters *
12 --Statement regarding computation of ratio of earnings to fixed charges
23.1 --Consent of KPMG Peat Marwick LLP
23.2 --Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 5.1) *
23.3 --Consent of Robert B. Terry, Esq. (included in Exhibit 5.2) *
23.4 --Consent of Bryan Cave
24 --Powers of Attorney for the Company relating to subsequent amendments
(included on pages II-4 through II-6 of the Registration Statement)
25 --Form T-1 Statement of Eligibility Under Trust Indenture Act of 1939 of
The Chase Manhattan Bank (National Association)
</TABLE>
--------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant (the "Registrant") hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b)
under the Securities Act of 1933 if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(ii) above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is
II-2
<PAGE>
contained in periodic reports filed by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions permitted under Item 15 above or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered hereby, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by them is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liabilities under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF KANSAS CITY, STATE OF MISSOURI, ON THE 10TH DAY OF
AUGUST, 1995.
Farmland Industries, Inc.
/s/ H.D. Cleberg
By __________________________________
H.D. CLEBERG, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears below
constitutes and appoints Robert B. Terry and John F. Berardi, and each of
them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, as well as any related
registration statement (or amendment thereto) filed pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/s/ Albert J. Shivley Chairman of the August 10, 1995
------------------------------------- Board of Directors
ALBERT J. SHIVLEY
/s/ H.D. Cleberg President, Chief August 10, 1995
------------------------------------- Executive Officer
H.D. CLEBERG and Director
(Principal
Executive Officer)
/s/ Otis H. Molz Vice Chairman, Vice August 10, 1995
------------------------------------- President and
OTIS H. MOLZ Director
II-4
<PAGE>
SIGNATURES TITLE DATE
/s/ Lyman Adams, Jr. Director August 10, 1995
-------------------------------------
LYMAN ADAMS, JR.
/s/ Ronald J. Amundson Director August 10, 1995
-------------------------------------
RONALD J. AMUNDSON
/s/ Baxter Ankerstjerne Director August 10, 1995
-------------------------------------
BAXTER ANKERSTJERNE
/s/ Jody Bezner Director August 10, 1995
-------------------------------------
JODY BEZNER
/s/ Richard L. Detten Director August 10, 1995
-------------------------------------
RICHARD L. DETTEN
/s/ Steven Erdman Director August 10, 1995
-------------------------------------
STEVEN ERDMAN
/s/ Warren Gerdes Director August 10, 1995
-------------------------------------
WARREN GERDES
/s/ Ben Griffith Director August 10, 1995
-------------------------------------
BEN GRIFFITH
/s/ Gail D. Hall Director August 10, 1995
-------------------------------------
GAIL D. HALL
/s/ Jerome Heuertz Director August 10, 1995
-------------------------------------
JEROME HEUERTZ
/s/ Barry Jensen Director August 10, 1995
-------------------------------------
BARRY JENSEN
II-5
<PAGE>
SIGNATURES TITLE DATE
/s/ Greg Pfenning Director August 10, 1995
-------------------------------------
GREG PFENNING
/s/ Vonn Richardson Director August 10, 1995
-------------------------------------
VONN RICHARDSON
/s/ Monte Romohr Director August 10, 1995
-------------------------------------
MONTE ROMOHR
/s/ Joe Royster Director August 10, 1995
-------------------------------------
JOE ROYSTER
/s/ Paul Ruedinger Director August 10, 1995
-------------------------------------
PAUL RUEDINGER
/s/ Raymond J. Schmitz Director August 10, 1995
-------------------------------------
RAYMOND J. SCHMITZ
/s/ Theodore J. Wehrbein Director August 10, 1995
-------------------------------------
THEODORE J. WEHRBEIN
/s/ Robert Zinkula Director August 10, 1995
-------------------------------------
ROBERT ZINKULA
/s/ John F. Berardi Executive Vice August 10, 1995
------------------------------------- President and Chief
JOHN F. BERARDI Financial Officer
(Principal
Financial Officer)
/s/ Merl Daniel Vice President and August 10, 1995
------------------------------------- Controller
MERL DANIEL (Principal
Accounting Officer)
II-6
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FARMLAND INDUSTRIES, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
1 --Form of Underwriting Agreement *
4.1 --Form of Indenture between the Company and The Chase Manhattan
Bank (National Association), as trustee
4.2 --Form of Senior Note
5.1 --Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel
to the Company, as to the legality of the securities being
offered *
5.2 --Opinion of Robert B. Terry, Esq., General Counsel to the
Company, as to certain litigation matters *
12 --Statement regarding computation of ratio of earnings to fixed
charges
23.1 --Consent of KPMG Peat Marwick
23.2 --Consent of Fried, Frank, Harris, Shriver & Jacobson (included
in Exhibit 5.1) *
23.3 --Consent of Robert B. Terry, Esq. (included in Exhibit 5.2) *
23.4 --Consent of Bryan Cave
24 --Powers of Attorney for the Company relating to subsequent
amendments (included on pages II-4 through II-6 of the
Registration Statement)
25 --Form T-1 Statement of Eligibility Under Trust Indenture Act of
1939 of The Chase Manhattan Bank (National Association)
</TABLE>
--------
* To be filed by amendment.
<PAGE>
EXHIBIT 4.1
[DRAFT -- 8/10/95]
================================================================================
FARMLAND INDUSTRIES, INC.
to
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), Trustee
----------------
INDENTURE
Dated as of _______________, 1995
----------------
Providing for Issuance of
Debt Securities in Series
================================================================================
<PAGE>
Reconciliation and tie between Indenture, dated as of ____________, 1995, and
the Trust Indenture Act of 1939, as amended.
<TABLE>
<CAPTION>
Trust Indenture Act Indenture
of 1939 Section Section
<S> <C>
310(a)(1) 6.12
(a)(2) 6.12
(a)(3) TIA
(a)(4) Not applicable
TIA
(a)(5) 6.10; 6.12; TIA
311(a) TIA
(b) TIA
312(a) 6.8
(b) TIA
(c) TIA
313(a) 6.7; TIA
(b) TIA
(c) TIA
(d) TIA
314(a) 9.6; 9.7; TIA
(b) Not Applicable
(c)(1) 1.2
(c)(2) 1.2
(c)(3) Not Applicable
(d) Not Applicable
(e) TIA
315(a) TIA
(b) 6.6
(c) TIA
(d)(1) TIA
(d)(2) TIA
(d)(3) TIA
(e) TIA
316(a)(last sentence) 1.1
(a)(1)(A) 5.2; 5.8
(a)(1)(B) 5.7
(b) 5.9; 5.10
(c) TIA
</TABLE>
<PAGE>
<TABLE>
<S> <C>
317(a)(1) 5.3
(a)(2) 5.4
(b) 9.3
318(a) 1.11
(b) TIA
(c) 1.11; TIA
</TABLE>
----------------------
This reconciliation and tie section does not constitute part of the
Indenture.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 Definitions and Other Provisions
of General Application.................................... 1
Section 1.1 Definitions................................. 1
Section 1.2 Compliance Certificates and Opinions........ 9
Section 1.3 Form of Documents Delivered to Trustee...... 10
Section 1.4 Acts of Holders............................. 10
Section 1.5 Notices, etc., to Trustee and Company....... 12
Section 1.6 Notice to Holders; Waiver................... 12
Section 1.7 Headings and Table of Contents.............. 13
Section 1.8 Successors and Assigns...................... 13
Section 1.9 Separability................................ 13
Section 1.10 Benefits of Indenture....................... 13
Section 1.11 Governing Law............................... 13
Section 1.12 Legal Holidays.............................. 13
ARTICLE 2 Security Forms............................................. 14
Section 2.1 Forms Generally............................. 14
Section 2.2 Form of Trustee's Certificate of
Authentication.............................. 14
Section 2.3 Securities in Global Form................... 15
ARTICLE 3 The Securities............................................. 16
Section 3.1 Amount Unlimited; Issuable in Series........ 16
Section 3.2 Denominations............................... 19
Section 3.3 Execution, Authentication, Delivery and
Dating...................................... 19
Section 3.4 Temporary Securities........................ 22
Section 3.5 Registration, Registration of Transfer and
Exchange.................................... 23
Section 3.6 Replacement Securities...................... 26
Section 3.7 Payment of Interest; Interest Rights
Preserved................................... 27
Section 3.8 Persons Deemed Owners....................... 28
Section 3.9 Cancellation................................ 29
Section 3.10 Computation of Interest..................... 29
Section 3.11 CUSIP Numbers............................... 29
ARTICLE 4 Satisfaction, Discharge and Defeasance..................... 29
Section 4.1 Termination of Company's Obligations Under
the Indenture............................... 29
Section 4.2 Application of Trust Funds.................. 31
Section 4.3 Applicability of Defeasance Provisions;
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Company's Option to Effect Defeasance or
Covenant Defeasance......................... 31
Section 4.4 Defeasance and Discharge.................... 31
Section 4.5 Covenant Defeasance......................... 32
Section 4.6 Conditions to Defeasance or Covenant
Defeasance.................................. 33
Section 4.7 Deposited Money and Government Obligations
to be Held in Trust......................... 35
Section 4.8 Transfers and Distribution at Company
Request..................................... 35
ARTICLE 5 Defaults and Remedies...................................... 36
Section 5.1 Events of Default........................... 36
Section 5.2 Acceleration; Rescission and Annulment...... 38
Section 5.3 Collection of Indebtedness and Suits for
Enforcement by Trustee...................... 38
Section 5.4 Trustee May File Proofs of Claim............ 39
Section 5.5 Trustee May Enforce Claims Without
Possession of Securities.................... 39
Section 5.6 Delay or Omission not Waiver................ 39
Section 5.7 Waiver of Past Defaults..................... 39
Section 5.8 Control by Majority......................... 40
Section 5.9 Limitation on Suits by Holders.............. 40
Section 5.10 Rights of Holders to Receive Payment........ 41
Section 5.11 Application of Money Collected.............. 41
Section 5.12 Restoration of Rights and Remedies.......... 41
Section 5.13 Rights and Remedies Cumulative.............. 42
ARTICLE 6 The Trustee................................................ 42
Section 6.1 Certain Duties and Responsibilities......... 42
Section 6.2 Rights of Trustee........................... 43
Section 6.3 Trustee May Hold Securities................. 45
Section 6.4 Money Held in Trust......................... 45
Section 6.5 Trustee's Disclaimer........................ 45
Section 6.6 Notice of Defaults.......................... 45
Section 6.7 Reports by Trustee to Holders............... 46
Section 6.8 Securityholder Lists........................ 46
Section 6.9 Compensation and Indemnity.................. 46
Section 6.10 Replacement of Trustee...................... 47
Section 6.11 Acceptance of Appointment by Successor...... 49
Section 6.12 Eligibility; Disqualification............... 50
Section 6.13 Merger, Conversion, Consolidation or
Succession to Business...................... 50
Section 6.14 Appointment of Authenticating Agent......... 51
Section 6.15 Trustee's Application for Instructions
from the Company............................ 53
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7 Consolidation, Merger or Sale by the Company............... 53
Section 7.1 Consolidation, Merger or Sale of Assets
Permitted................................... 53
ARTICLE 8 Supplemental Indentures.................................... 54
Section 8.1 Supplemental Indentures Without Consent of
Holders..................................... 54
Section 8.2 With Consent of Holders..................... 55
Section 8.3 Compliance with Trust Indenture Act......... 56
Section 8.4 Execution of Supplemental Indentures........ 56
Section 8.5 Effect of Supplemental Indentures........... 57
Section 8.6 Reference in Securities to Supplemental
Indentures.................................. 57
ARTICLE 9 Covenants.................................................. 57
Section 9.1 Payment of Principal, Premium, if any, and
Interest.................................... 57
Section 9.2 Maintenance of Office or Agency............. 57
Section 9.3 Money for Securities to Be Held in Trust;
Unclaimed Money............................. 58
Section 9.4 Corporate Existence......................... 59
Section 9.5 Insurance................................... 60
Section 9.6 Reports by the Company...................... 60
Section 9.7 Annual Review Certificate; Notice of
Default..................................... 61
Section 9.8 Provision of Financial Statements........... 61
Section 9.9 Limitation on Liens......................... 61
Section 9.10 Ownership of Material Subsidiary Stock...... 64
Section 9.11 Transactions with Affiliates................ 64
Section 9.12 Prepayment of Subordinated Debt............. 64
Section 9.13 Restriction on Certain Payments............. 65
Section 9.14 Waiver of Certain Covenants................. 65
ARTICLE 10 Redemption................................................. 66
Section 10.1 Applicability of Article.................... 66
Section 10.2 Election to Redeem; Notice to Trustee....... 66
Section 10.3 Selection of Securities to Be Redeemed...... 66
Section 10.4 Notice of Redemption........................ 67
Section 10.5 Deposit of Redemption Price................. 68
Section 10.6 Securities Payable on Redemption Date....... 68
Section 10.7 Securities Redeemed in Part................. 68
ARTICLE 11 Sinking Funds.............................................. 69
Section 11.1 Applicability of Article.................... 69
Section 11.2 Satisfaction of Sinking Fund Payments with
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Securities.................................. 69
Section 11.3 Redemption of Securities for Sinking
Fund........................................ 70
</TABLE>
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<PAGE>
INDENTURE, dated as of _______________, 1995, from FARMLAND INDUSTRIES,
INC., a Kansas corporation (the "Company"), to THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), as Trustee (the "Trustee").
Recitals
--------
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its debentures, notes
or other evidences of indebtedness ("Securities") to be issued in one or more
series as herein provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
This Indenture is subject to the provisions of the Trust Indenture Act that
are required to be a part of this Indenture and, to the extent applicable, shall
be governed by such provisions.
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
ratable benefit of the Holders of the Securities or of series thereof, as
follows:
ARTICLE 1
Definitions and Other Provisions
--------------------------------
of General Application
----------------------
Section 1.1 Definitions. (a) For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
<PAGE>
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such principles as are generally
accepted at the date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Affiliate" of any specified Person means any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specified Person. For purposes of this definition, "control" when used
with respect to any specified Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Paying Agent or Registrar.
"Authenticating Agent" means any authenticating agent appointed by the
Trustee pursuant to Section 6.14.
"Board" or "Board of Directors" means the Board of Directors of the
Company, the Executive Committee or any other duly authorized committee thereof.
"Board Resolution" means a copy of a resolution of the Board of Directors,
certified by the Corporate Secretary or an Assistant Secretary of the Company to
have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment or any other
particular location referred to in this Indenture or in the Securities, means,
unless otherwise specified with respect to any Securities pursuant to Section
3.1, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in that Place of Payment or particular location are
authorized or obligated by law, executive order or regulation to close.
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<PAGE>
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, or, if at any time after the execution of this Indenture such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Company" means the Person named as the Company in the first paragraph of
this Indenture until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" means such
successor corporation.
"Company Order" and "Company Request" mean, respectively, a written order
or request signed in the name of the Company by the Chairman of the Board, the
President, any Executive Vice President or any Senior Vice President, signing
alone, by any Vice President signing together with the Treasurer, any Assistant
Treasurer, the Corporate Secretary or any Assistant Secretary of the Company,
or, with respect to Sections 3.3, 3.4, 3.5 and 6.1, any other employee of the
Company named in an Officers' Certificate and delivered to the Trustee.
"Corporate Trust Office" means the office of the Trustee in which at any
particular time its corporate trust business shall be principally administered,
which office at the date hereof is located at ___________________________, New
York, New York _____.
"corporation" includes corporations, associations, companies and business
trusts.
"Default" means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.
"Depositary", when used with respect to the Securities of or within any
series issuable or issued in whole or in part in global form, means the Person
designated as Depositary by the Company pursuant to Section 3.1 until a
successor Depositary shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter shall mean or include each Person
which is then a Depositary hereunder, and if at any time there is more than one
such Person, shall be a collective reference to such Persons.
"Dollar" or "$" means the coin or currency of the United States as at the
time of payment is legal tender for the payment of public and private debts.
"Government Obligations" means securities which are (i) direct obligations
of the United States for the payment of
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<PAGE>
which its full faith and credit is pledged or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States, the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States, each of which are not callable
or redeemable at the option of the issuer thereof, and shall also include a
depositary receipt issued by a bank or trust company as custodian with respect
to any such Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such custodian for the
account of the holder of a depositary receipt, provided, however, that (except
as required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depositary receipt from any amount
received by the custodian in respect of the Government Obligation evidenced by
such depositary receipt.
"Holder" means a person in whose name a Security is registered on the
Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented, amended or modified by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and, unless the context otherwise requires, shall include the terms of a
particular series of Securities established as contemplated by Section 3.1.
"interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Material Subsidiary" means, at any particular time, any Subsidiary that,
together with any Subsidiaries of such Subsidiary (i) accounted for more than
five percent (5%) of the consolidated sales of the Company for its most recently
completed fiscal year, or (ii) owned more than five percent (5%) of the
consolidated assets of the Company as at the end of such fiscal year, all as
calculated in accordance with generally accepted accounting principles.
"Maturity", where used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or
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<PAGE>
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Officer" means the Chairman of the Board of Directors, the President, any
Executive Vice President, any Senior Vice President, any Vice President, the
Corporate Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer of the Company.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President, any Executive Vice President or any Senior Vice President,
signing alone, or by any Vice President signing together with the Corporate
Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of
the Company.
"Opinion of Counsel" means a written opinion of legal counsel, who may be
(a) counsel for the Company or (b) other counsel designated by the Company and
who shall be acceptable to the Trustee. Any counsel for the Company may be an
employee of the Company.
"Original Issue Discount Security" means any Security which provides for an
amount less than the stated principal thereof to be due and payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 5.2.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided, however, that,
if such Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture and such Securities or provisions
therefor satisfactory to the Trustee have been made;
(iii) Securities, except to the extent provided in Sections 4.4 and
4.5, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article 4; and
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<PAGE>
(iv) Securities which have been paid pursuant to Section 3.6 or in exchange
for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, or whether
sufficient funds are available for redemption or for any other purpose, and for
the purpose of making the calculations required by section 313 of the Trust
Indenture Act, (y) the principal amount of any Original Issue Discount
Securities that may be counted in making such determination or calculation and
that shall be deemed to be Outstanding for such purpose shall be equal to the
amount of principal thereof that would be (or shall have been declared to be)
due and payable, at the time of such determination, upon a declaration of
acceleration of the maturity thereof pursuant to Section 5.2, and (z) Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or of such other obligor shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in making such calculation or in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Securities
which Trustee knows to be so owned shall be so disregarded and Securities so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate of the Company
or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, premium, if any, or interest on any Securities on behalf of the
Company.
"Periodic Offering" means an offering of Securities of a series from time
to time, the specific terms of which Securities, including, without limitation,
the rate or rates of interest or formula for determining the rate or rates of
interest thereon, if any, the Stated Maturity or Stated Maturities thereof, the
original issue date or dates thereof, the redemption provisions, if any, with
respect thereto, and any other terms specified as
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<PAGE>
contemplated by Section 3.1 with respect thereto, are to be determined by the
Company upon the issuance of such Securities.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities of or within
any series, means the place or places where, subject to the provisions of
Section 9.2, the principal of, premium, if any, and interest on such Securities
are payable as specified as contemplated by Section 3.1.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen security.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed
in whole or in part, means the price at which it is to be redeemed pursuant to
this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities of or within any series means the date specified for that
purpose as contemplated by Section 3.1.
"Responsible Officer", when used with respect to the Trustee, shall mean
the chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any senior vice president, any vice
president, any assistant vice president, the secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any senior trust
officer, any trust officer, the controller, any assistant controller, or any
other officer of the Trustee customarily performing functions similar to those
performed by the persons who at the time shall be such officers, respectively,
and also means, with respect to a particular corporate trust matter, any other
officer to whom such corporate
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<PAGE>
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
"Security" or "Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Security or Securities of the
Company issued, authenticated and delivered under this Indenture.
"Special Record Date" for the payment of any Defaulted Interest on the
Securities of any issue means a date fixed by the Trustee pursuant to Section
3.7.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" means any corporation of which the Company at the time owns or
controls, directly or indirectly, more than 50% of the shares of outstanding
stock having general voting power under ordinary circumstances to elect a
majority of the Board of Directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency).
"Trust Indenture Act" means the Trust Indenture Act of 1939 and any
reference herein to such Act or a particular provision thereof shall mean such
Act or provision, as the case may be, as amended or replaced from time to time
or as supplemented from time to time by rules or regulations adopted by the
Commission under or in furtherance of the purposes of such Act or provision, as
the case may be.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor Trustee replaces it pursuant to the applicable
provisions of this Indenture, and thereafter means such successor Trustee and
if, at any time, there is more than one Trustee, "Trustee" as used with respect
to the Securities of any series shall mean the Trustee with respect to the
Securities of that series.
"United States" means, unless otherwise specified with respect to the
Securities of any series as contemplated by Section 3.1, the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction.
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<PAGE>
"Yield to Maturity" means the yield to maturity, calculated by the Company
at the time of issuance of a series of Securities or, if applicable, at the most
recent determination of interest on such series, in accordance with accepted
financial practice.
(b) The following terms shall have the meanings specified in the Sections
referred to opposite such term below:
<TABLE>
<CAPTION>
Term Section
----- --------
<S> <C>
"Act" 1.4(a)
"Bankruptcy Law" 5.1
"Consolidated Net Worth" 9.9
"Custodian" 5.1
"Defaulted Interest" 3.7(b)
"Distribution" 9.13
"Event of Default" 5.1
"Register" 3.5
"Registrar" 3.5
"Subordinated Debt" 9.12
</TABLE>
Section 1.2 Compliance Certificates and Opinions. Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than pursuant to Sections 2.3,
3.3 and 9.7) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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<PAGE>
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or covenant
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1.3 Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations as to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.4 Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee
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<PAGE>
and, where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 315 of the Trust Indenture Act) conclusive in favor of
the Trustee and the Company if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is
by a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other reasonable manner which the Trustee deems sufficient.
(c) The ownership, principal amount and serial numbers of Securities shall
be proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
(e) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to an Officers' Certificate delivered to the
Trustee, fix in advance a record date for the determination of Holders entitled
to give such request, demand, authorization, direction, notice, consent, waiver
or other Act, but the Company shall have no obligation to do so. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of Outstanding Securities have authorized or agreed or
consented to
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<PAGE>
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the outstanding Securities shall be computed as of
such record date; provided, however, that no such authorization, agreement or
consent by the Holders on such record date shall be deemed effective unless it
shall become effective pursuant to the provisions of clause (a) of this Section
1.4 not later than six months after the record date.
Section 1.5 Notices, etc., to Trustee and Company. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Trustee Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first class postage prepaid, to the Company
addressed to it at Farmland Industries, Inc., 3315 North Oak Trafficway,
Kansas City, Missouri, 64116, Attention: Treasurer or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.6 Notice to Holders; Waiver. Where this Indenture provides for
notice to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each such Holder affected by such event, at his address as
it appears in the Register, within the time prescribed for the giving of such
notice.
Neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders of Securities. Any notice mailed to a Holder in
the manner herein prescribed shall be conclusively deemed to have been received
by such Holder, whether or not such Holder actually receives such notice.
If by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give such notice as provided above,
then such notification as shall be made
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<PAGE>
with the approval of the Trustee shall constitute a sufficient notification for
every purpose hereunder.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be equivalent of such notice. Waivers
of notice by Holders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.
Section 1.7 Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
Section 1.8 Successors and Assigns. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
Section 1.9 Separability. In case any provision of this Indenture or the
Securities shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 1.10 Benefits of Indenture. Nothing in this Indenture or in the
Securities, expressed or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, the Registrar, any Paying Agent
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 1.11 Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This Indenture is subject to the Trust Indenture Act and if any provision hereof
limits, qualifies or conflicts with the Trust Indenture Act, the Trust Indenture
Act shall control.
Section 1.12 Legal Holidays. Unless otherwise specifically provided for
with respect to any series of Securities, in any case where any Interest Payment
Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity of
any Security
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<PAGE>
shall not be a Business Day at any Place of Payment, then (notwithstanding any
other provision of this Indenture or any Security, other than a provision in the
Securities of any series which specifically states that such provision shall
apply in lieu of this Section) payment of principal, premium, if any, or
interest need not be made at such Place of Payment on such date, but may be made
on the next succeeding Business Day at such Place of Payment with the same force
and effect as if made on such date; and no interest shall accrue on the amount
so payable for the period from and after such Interest Payment Date, Redemption
Date, sinking fund payment date, Stated Maturity or Maturity, as the case may
be.
ARTICLE 2
Security Forms
--------------
Section 2.1 Forms Generally. The Securities of each series shall be in
substantially such form (including global form) as shall be established by
delivery to the Trustee of an Officers' Certificate or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture. Such Securities may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as the Company
may deem appropriate and as are not inconsistent with this Indenture, or as may
be required to comply with the rules of any securities exchange, all as
determined by the officers executing such Securities as evidenced by their
execution of the Securities. If temporary Securities of any series are issued
as permitted by Section 3.4, the form thereof also shall be established as
provided in the preceding sentences. If the forms of Securities of any series
are established by an Officers' Certificate, such Officers' Certificate shall be
delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 3.3 for the authentication and delivery of such
Securities.
The permanent Securities, if any, shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner, all as determined by the officers executing such Securities,
as evidenced by their execution of such Securities.
Section 2.2 Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication shall be in substantially the following
form:
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<PAGE>
This is one of the Securities of a series issued under the within-mentioned
Indenture.
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
as Trustee
By:__________________________________
Authorized Signatory
Section 2.3 Securities in Global Form. If Securities of or within a
series are issuable in whole or in part in temporary or permanent global form,
as specified as contemplated by Section 3.1, then, notwithstanding clause (8) of
Section 3.1(b) and the provisions of Section 3.2, any such Security shall
represent such of the Outstanding Securities of such series as shall be
specified therein and may provide that it shall represent the aggregate amount
of Outstanding Securities from time to time endorsed thereon and that the
aggregate amount of Outstanding Securities represented thereby may from time to
time be reduced to reflect exchanges. Any endorsement of a Security in global
form to reflect the amount, or any increase or decrease in the amount, or
changes in the rights of Holders, of Outstanding Securities represented thereby,
shall be made by the Trustee in such manner and upon instructions given by such
Person or Persons as shall be specified therein or in the Company Order to be
delivered to the Trustee pursuant to Section 3.3 or 3.4. Subject to the
provisions of Section 3.3 and, if applicable, Section 3.4, the Trustee shall
deliver and redeliver any Security in global form in the manner and upon
instructions given by the Person or Persons specified therein or in the
applicable Company Order. Any instructions by the Company with respect to
endorsement or delivery or redelivery of a Security in global form shall be in
writing but need not comply with Section 1.2 hereof and need not be accompanied
by an Opinion of Counsel.
The provisions of the last paragraph of Section 3.3 shall apply to any
Security in global form if such Security was never issued and sold by the
Company and the Company delivers to the Trustee the Security in global form
together with written instructions (which need not comply with Section 1.2 and
need not be accompanied by an Opinion of Counsel) with regard to the reduction
in the principal amount of securities represented thereby, together with the
written statement contemplated by the last paragraph of Section 3.3.
Notwithstanding the provisions of Sections 2.1 and 3.7, unless otherwise
specified as contemplated by Section 3.1,
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payment of principal of, premium, if any, and interest on any Security in
permanent global form shall be made to the Person or Persons specified therein.
ARTICLE 3
The Securities
--------------
Section 3.1 Amount Unlimited; Issuable in Series. (a) The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited. The Securities may be issued from time to time in
one or more series.
(b) The following matters shall be established and (subject to Section 3.3)
set forth, or determined in the manner provided, in an Officers' Certificate, a
Board Resolution or one or more indentures supplemental hereto:
(1) the title of the Securities of the series (which title shall
distinguish the Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(which limit shall not pertain to (i) Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 8.6,
or 10.7 and (ii) any Securities which, pursuant to the last paragraph of
Section 3.3, are deemed never to have been authenticated and delivered
hereunder);
(3) the date or dates on which the principal of the Securities of the
series is payable or the method of determination thereof;
(4) the rate or rates at which the Securities of the series shall bear
interest, if any, or the method of calculating such rate or rates of
interest, the date or dates from which such interest shall accrue or the
method by which such date or dates shall be determined, the Interest
Payment Dates on which any such interest shall be payable and the Regular
Record Date, if any, for the interest payable on any Security on any
Interest Payment Date;
(5) the place or places where, subject to the provisions of Section
9.2, the principal of, premium, if
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any, and interest, if any, on Securities of the series shall be payable;
(6) the period or periods within which, the price or prices at which,
and the other terms and conditions upon which, Securities of the series may
be redeemed, in whole or in part, at the option of the Company and, if
other than as provided in Section 10.3, the manner in which the particular
Securities of such series (if less than all Securities of such series are
to be redeemed) are to be selected for redemption;
(7) the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant to any sinking fund or analogous
provisions or upon the happening of a specified event or at the option of a
Holder thereof and the period or periods within which, the price or prices
at which, and the other terms and conditions upon which, Securities of the
series shall be redeemed or purchased, in whole or in part, pursuant to
such obligation;
(8) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of the series shall be
issuable;
(9) if other than the principal amount thereof, the portion of the
principal amount of such Securities of the series which shall be payable
upon declaration of acceleration thereof pursuant to Section 5.2 or the
method by which such portion shall be determined;
(10) if other than as provided in Section 3.7, the Person to whom any
interest on any Security of the series shall be payable, and the extent to
which, or the manner in which (including any certification requirement and
other terms and conditions under which), any interest payable on a
temporary or permanent global Security on an Interest Payment Date will be
paid if other than in the manner provided in Section 2.3 and Section 3.4,
as applicable;
(11) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified;
(12) any deletions from, modifications of or additions to the Events
of Default set forth in Section 5.1 or covenants of the Company set forth
in Article 9 pertaining to the Securities of the series;
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(13) the applicability, if any, to the Securities of or within the
series of Sections 4.4 and 4.5, or such other means of defeasance or
covenant defeasance as may be specified for the Securities of such series;
(14) if other than the Trustee, the identity of the Registrar and any
Paying Agent;
(15) whether Securities of the series shall be issued in whole or in
part in temporary or permanent global form and, if so, (i) the initial
Depositary for such global Securities and (ii) if other than as provided in
Section 3.4 or 3.5, as applicable, whether and the circumstance under which
beneficial owners of interests in any Securities of the series in temporary
or permanent global form may exchange such interests for Securities of such
series and of like tenor of any authorized form and denomination; and
(16) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture), including without
limitation any terms which may be required by or advisable under United
States laws or regulations or advisable in connection with the marketing of
Securities of the series.
(c) All Securities of any one series shall be substantially identical
except as to denomination and the rate or rates of interest, if any, and Stated
Maturity, the date from which interest, if any, shall accrue and except as may
otherwise be provided in or pursuant to an Officers' Certificate pursuant to
this Section 3.1 or in an indenture supplemental hereto. All Securities of any
one series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the Holders, for issuances of
additional Securities of such series or for the establishment of additional
terms with respect to the Securities of such series.
(d) If any of the terms of the Securities of any series are
established by action taken pursuant to a Board Resolution, a copy of such Board
Resolution shall be certified by the Corporate Secretary or an Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officers' Certificate setting forth, or providing the manner for
determining, the terms of the Securities of such series, and an appropriate
record of any action taken pursuant thereto in connection with the issuance of
any Securities of such series shall be delivered to the Trustee prior to the
authentication and delivery thereof. With respect to Securities of a series
subject to a Periodic Offering, such Board Resolution or Officers'
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Certificate may provide general terms for Securities of such series and provide
either that the specific terms of particular Securities of such series shall be
specified in a Company Order or that such terms shall be determined by the
Company, or one or more of the Company's agents designated in an Officers'
Certificate, in accordance with the Company Order as contemplated by the first
proviso of the third paragraph of Section 3.3.
Section 3.2 Denominations. Unless otherwise provided as contemplated by
Section 3.1, any Securities of a series shall be issuable in denominations of
$1,000 and any integral multiple thereof.
Section 3.3 Execution, Authentication, Delivery and Dating. Securities
shall be executed on behalf of the Company by the Chairman, President, any
Executive Vice President, any Senior Vice President or the Treasurer and
attested to by the Corporate Secretary or Assistant Secretary of the Company.
The Company's seal shall be affixed to the Securities, or a facsimile of such
seal shall be reproduced on the Securities. The signatures of such officers on
the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time, the Company may deliver Securities of
any series executed by the Company to the Trustee for authentication, together
with a Company Order for the authentication and may make available for delivery
such Securities, and the Trustee in accordance with the Company Order shall
authenticate and deliver such Securities; provided, however, that in the case of
Securities offered in a Periodic Offering, the Trustee shall authenticate and
deliver such Securities from time to time in accordance with such other
procedures (including, without limitation, the receipt by the Trustee of oral or
electronic instructions from the Company or its duly authorized agents, promptly
confirmed in writing) acceptable to the Trustee as may be specified by or
pursuant to a Company Order delivered to the Trustee prior to the time of the
first authentication of Securities of such series.
If the form or terms of the Securities of a series have been established by
or pursuant to one or more Officers' Certificates as permitted by Sections 2.1
and 3.1, in authenticating such Securities and accepting the additional
responsibilities under
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this Indenture in relation to such Securities, the Trustee shall be entitled to
receive, and (subject to section 315(a) through (d) of the Trust Indenture Act)
shall be fully protected in relying upon, an Opinion of Counsel stating,
(1) that the forms and terms of such Securities have been established
in conformity with the provisions of this Indenture; and
(2) that such Securities when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid and
legally binding obligations of the Company, enforceable in accordance with
their terms, subject to customary exceptions;
provided, however, that, with respect to Securities of a series subject to a
Periodic Offering, the Trustee shall be entitled to receive such Opinion of
Counsel only once at or prior to the time of the first authentication of
Securities of such series and that the Opinion of Counsel above may state:
(x) that the forms of such Securities have been, and the terms of such
Securities (when established in accordance with such procedures as may be
specified from time to time in a Company Order, all as contemplated by and
in accordance with a Board Resolution or an Officers' Certificate pursuant
to Section 3.1, as the case may be) will have been, established in
conformity with the provisions of this Indenture; and
(y) that such Securities, when (1) executed by the Company, (2)
completed, authenticated and delivered by the Trustee in accordance with
this Indenture, and (3) issued by the Company in the manner and subject to
any conditions specified in such Opinion of Counsel, will constitute valid
and legally binding obligations of the Company, enforceable in accordance
with their terms, subject to customary exceptions.
With respect to Securities of a series subject to a Periodic Offering, the
Trustee may conclusively rely, as to the authorization by the Company of any of
such Securities, the form and terms thereof and the legality, validity, binding
effect and enforceability thereof, upon the Opinion of Counsel and other
documents delivered pursuant to Sections 2.1 and 3.1 of this Section, as
applicable, at or prior to the time of the first authentication of Securities of
such series unless and until it
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has received written notification that such opinion or other documents have been
superseded or revoked. In connection with the authentication and delivery of
Securities of a series subject to a Periodic Offering, the Trustee shall be
entitled to assume that the Company's instructions to authenticate and deliver
such Securities do not violate any rules, regulations or orders of any
governmental agency or commission having jurisdiction over the Company.
If the form or terms of the Securities of a series have been established by
or pursuant to one or more Officers' Certificates as permitted by Sections 2.1
and 3.1, the Trustee shall have the right to decline to authenticate such
Securities if the issue of such Securities pursuant to this Indenture will
adversely affect the Trustee's own rights, duties or immunities under this
Indenture or otherwise in a manner which is not reasonably acceptable to the
Trustee.
Notwithstanding the provisions of Section 3.1 and of the two preceding
paragraphs, if all of the Securities of any series are not to be issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 at or prior to the time of the authentication
of each Security of such series if such Officers' Certificate is delivered at or
prior to the authentication upon original issuance of the first Security of such
series to be issued.
If the Company shall establish pursuant to Section 3.1 that the Securities
of a series are to be issued in whole or in part in global form, then the
Company shall execute and the Trustee shall, in accordance with this Section and
the Company Order with respect to such series, authenticate and deliver one or
more Securities in global form that (i) shall represent and shall be denominated
in an amount equal to the aggregate principal amount of the Outstanding
Securities of such series to be represented by such Security or Securities in
global form, (ii) shall be registered in the name of the Depositary for such
Security or Securities in global form or the nominee of such Depositary and
(iii) shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's instruction.
Each Depositary designated pursuant to Section 3.1 for a Security in global
form must, at the time of its designation and at all times while it serves as
Depositary, be a clearing agency registered under the Securities Exchange Act of
1934 and any other applicable statute or regulation. The Trustee shall have no
responsibility to determine if the Depositary is so registered. Each Depositary
shall enter into an agreement with the Trustee governing the respective duties
and rights of such
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Depositary and the Trustee with regard to Securities issued in global form.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefits under this Indenture or be
valid or obligatory for any purpose until authenticated by the manual signature
of one of the authorized signatories of the Trustee or an Authenticating Agent.
Such signature upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered under
this Indenture and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Security to the Trustee for cancellation as
provided in Section 3.9 together with a written statement (which need not comply
with Section 1.2 and need not be accompanied by an Opinion of Counsel) stating
that such Security has never been issued and sold by the Company, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall not be entitled to the benefits
of this Indenture.
Section 3.4 Temporary Securities. Pending the preparation of definitive
Securities of any series, the Company may execute and, upon Company Order, the
Trustee shall authenticate and deliver temporary Securities of such series which
are printed, lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor and form, of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as conclusively evidenced by their
execution of such Securities. In the case of Securities of any series, such
temporary Securities may be in global form.
Except in the case of temporary Securities in global form, each of which
shall be exchanged in accordance with the provisions thereof, if temporary
Securities of any series are issued, the Company will cause permanent Securities
of such series to be prepared without unreasonable delay. After preparation of
such permanent Securities, the temporary Securities shall be exchangeable for
such permanent Securities of like tenor upon surrender of the temporary
Securities of such series at the office or agency of the Company pursuant to
Section 9.2 in a Place of Payment for such series, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Securities
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of any series, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of permanent Securities of
the same series of authorized denominations and of like tenor. Until so
exchanged, the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as permanent Securities of
such series except as otherwise specified as contemplated by Section 3.1.
Section 3.5 Registration, Registration of Transfer and Exchange. The
Company shall cause to be kept at the Corporate Trust Office of the Trustee or
in any office or agency to be maintained by the Company in accordance with
Section 9.2 in a Place of Payment, a register (the "Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and the registration of transfers of
Securities. The Register shall be in written form or any other form capable of
being converted into written form within a reasonable time. The Trustee is
hereby initially appointed "Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security of any series
at the office or agency maintained pursuant to Section 9.2 in a Place of Payment
for that series, the Company shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Securities of the same series, of any authorized denominations and of a
like aggregate principal amount and tenor.
At the option of the Holder, Securities of any series (except a Security in
global form) may be exchanged for other Securities of the same series, of any
authorized denominations and of a like aggregate principal amount containing
identical terms and provisions, upon surrender of the Securities to be exchanged
at such office or agency. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
Notwithstanding any other provision (other than the provisions set forth in
the fifth and sixth paragraphs of this Section) of this Section, unless and
until it is exchanged in whole or in part for Securities in certificated form, a
Security in global form representing all or a portion of the Securities of a
series may not be transferred except as a whole by the Depositary for such
series to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such
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Depositary or any such nominee to a successor Depositary for such series or a
nominee of such successor Depositary.
If at any time the Depositary for the Securities of a series notifies the
Company that it is unwilling or unable to continue as Depositary for the
Securities of such series or if at any time the Depositary for the Securities of
such series shall no longer be eligible under Section 3.3, the Company shall
appoint a successor Depositary with respect to the Securities of such series.
If a successor Depositary for the Securities of such series is not appointed by
the Company within 90 days after the issuer receives such notice or becomes
aware of such ineligibility, the Company's election pursuant to Section 3.1
shall no longer be effective with respect to the Securities of such series and
the Company shall execute, and the Trustee, upon receipt of a Company Order for
the authentication and delivery of certificated Securities of such series of
like tenor, shall authenticate and deliver Securities of such series of like
tenor in certificated form, in authorized denominations and in an aggregate
principal amount equal to the principal amount of the Security or Securities of
such series of like tenor in global form in exchange for such Security or
Securities in global form.
The Company may at any time in its sole discretion determine that
Securities of a series issued in global form shall no longer be represented by
such a Security or Securities in global form. In such event the Company shall
execute, and the Trustee, upon receipt of a Company Order for the authentication
and delivery of certificated Securities of such series of like tenor, shall
authenticate and deliver, Securities of such series of like tenor in
certificated form, in authorized denominations and in an aggregate principal
amount equal to the principal amount of the Security or Securities of such
series of like tenor in global form in exchange for such Security or Securities
in global form.
If specified by the Company pursuant to Section 3.1 with respect to a
series of Securities, the Depositary for such series may surrender a Security in
global form of such series in exchange in whole or in part for Securities of
such series in certificated form on such terms as are acceptable to the Company
and such Depositary. Thereupon, the Company shall execute, and the Trustee
shall authenticate and deliver, without service charge,
(i) to each Person specified by such Depositary a new certificated
Security or Securities of the same series of like tenor, of any
authorized denomination as requested by such Person in aggregate
principal amount equal to and in exchange for such Person's beneficial
interest in the Security in global form; and
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(ii) to such Depositary a new Security in global form of like tenor in a
denomination equal to the difference, if any, between the principal
amount of the surrendered Security in global form and the aggregate
principal amount of certificated Securities delivered to Holders
thereof.
Upon the exchange of a Security in global form for Securities in
certificated form, such Security in global form shall be cancelled by the
Trustee. Securities in certificated form issued in exchange for a Security in
global form pursuant to this Section shall be registered in such names and in
such authorized denominations as the Depositary for such Security in global
form, pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall deliver such
Securities to the Persons in whose names such Securities are so registered.
Whenever any Securities are surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or upon any
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration or transfer or for
exchange shall (if so required by the Company, the Registrar or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Registrar and the Trustee duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or for any
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration or transfer or exchange of Securities, other than
exchanges pursuant to Section 3.4 or 10.7 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of,
or exchange any Securities for a period beginning at the opening of business 15
days before any selection for redemption of Securities of like tenor and of the
series of which such Security is a part and ending at the close of business on
the earliest date on which the relevant notice of redemption is deemed
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to have been given to all Holders of Securities of like tenor and of such series
to be redeemed or (ii) to register the transfer of or exchange any Security so
selected for redemption, in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
Section 3.6 Replacement Securities. If a mutilated Security is
surrendered to the Trustee, together with, in proper cases, such security or
indemnity as may be required by the Company or the Trustee to save each of them
harmless, the Company shall execute and the Trustee shall authenticate and
deliver a replacement Security of the same series and date of maturity, if the
Trustee's requirements are met.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver in lieu of any such destroyed, lost or stolen Security a replacement
Security of the same series and principal amount, containing identical terms and
provisions as the destroyed, lost or stolen Security.
In case any such mutilated, destroyed lost or stolen Security has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with
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respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.
Section 3.7 Payment of Interest; Interest Rights Preserved. (a) Unless
otherwise provided as contemplated by Section 3.1, interest, if any, on any
Security which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name that Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest at the office or agency maintained
for such purpose pursuant to Section 9.2; provided, however, that, at the option
of the Company, interest on any series of Securities that bear interest may be
paid (i) by check mailed to the address of the Person entitled thereto as it
shall appear on the Register of Holders of Securities of such series or (ii) to
the extent specified as contemplated by Section 3.1, by wire transfer to an
account maintained by the Person entitled thereto as specified in the Register
of Holders of Securities of such series.
(b) Unless otherwise provided as contemplated by Section 3.1, any
interest on any Security of any series which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause (1) provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15
days and not less than 10 days prior to the date of the proposed payment
and not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date and, in the name and at the expense of the
Company, shall
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cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid, to
each Holder of Securities of such series at his address as it appears in
the Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on a
specified date in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this clause (2), such manner of payment shall be deemed practicable by
the Trustee.
(c) Subject to the foregoing provisions of this Section and Section
3.5, each Security delivered under this Indenture upon registration of transfer
of or in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
security.
Section 3.8 Persons Deemed Owners. Prior to due presentment of any
Security for registration of transfer, the Company, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of, premium, if any, and (subject to Sections 3.5 and 3.7) interest on
such Security and for all other purposes whatsoever, whether or not such
Security be overdue, and neither the Company, the Trustee nor any agent of the
Company or the Trustee shall be affected by notice to the contrary.
No holder of any beneficial interest in any global Security held on its
behalf by a Depositary shall have any rights under this Indenture with respect
to such global Security, and such Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the owner of such global
Security for all purposes whatsoever. None of the Company, the Trustee or any
agent of the Company or the Trustee shall have any responsibility or liability
for any aspect of the records relating to or payments
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made on account of beneficial ownership interests of a Security in global form,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Section 3.9 Cancellation. The Company at any time may deliver Securities
to the Trustee for cancellation. The Registrar and any Paying Agent shall
forward to the Trustee any Securities surrendered to them for replacement, for
registration of transfer, or for exchange or payment. The Trustee shall cancel
all Securities surrendered for replacement, for registration of transfer, or for
exchange, payment, redemption or cancellation and may dispose of cancelled
Securities and issue a certificate of destruction to the Company. The Company
may not issue new Securities to replace Securities that it has paid or delivered
to the Trustee for cancellation, except as expressly permitted in the terms of
Securities for any particular series or as permitted pursuant to the terms of
this Indenture.
Section 3.10 Computation of Interest. Except as otherwise specified as
contemplated by Section 3.1, (i) interest on any Securities that bear interest
at a fixed rate shall be computed on the basis of a 360-day year of twelve 30-
day months and (ii) interest on any Securities that bear interest at a variable
rate shall be computed on the basis of the actual number of days in an interest
period divided by 360 or the actual number of days in the year.
Section 3.11 CUSIP Numbers. The Company in issuing the Securities may use
"CUSIP" numbers (if then generally in use) (in addition to the other
identification numbers printed on the Securities), and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE 4
Satisfaction, Discharge and Defeasance
--------------------------------------
Section 4.1 Termination of Company's Obligations Under the Indenture.
Except as otherwise provided as contemplated by Section 3.1, this Indenture
shall upon a Company Request cease to be of further effect with respect to
Securities of or within any series (except as to any surviving rights of
registration of
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transfer or exchange of such Securities and replacement of such Securities which
may have been lost, stolen or mutilated, as herein expressly provided for) and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to such
Securities when:
(1) either
(A) all such Securities previously authenticated and delivered
(other than (i) such Securities which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section
3.6, and (ii) such Securities for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such trust, as
provided in Section 9.3) have been delivered to the Trustee for
cancellation; or
(B) all Securities of such series and, in the case of (i) or (ii)
below, not theretofore delivered to the Trustee for cancellation which
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for the purpose, an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal, premium, if
any, and interest, with respect thereto, to the date of such deposit
(in the case of Securities which have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
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(3) the Company delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
as to such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligation
of the Company to the Trustee and any predecessor Trustee under Section 6.9, the
obligations of the Company to any Authenticating Agent under Section 6.14 and,
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 4.2 and
the last paragraph of Section 9.3 shall survive.
Section 4.2 Application of Trust Funds. Subject to the provisions of the
last paragraph of Section 9.3, all money deposited with the Trustee pursuant to
Section 4.1 shall be held in trust and applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal, premium, if any, and any interest for whose payment such money has
been deposited with or received by the Trustee, but such money need not be
segregated from other funds except to the extent required by law.
Section 4.3 Applicability of Defeasance Provisions; Company's Option to
Effect Defeasance or Covenant Defeasance. If pursuant to Section 3.1 provision
is made for either or both of (i) defeasance of the Securities of or within a
series under Section 4.4 or (ii) covenant defeasance of the Securities of or
within a series under Section 4.5, then the provisions of such Section or
Sections, as the case may be, together with the provisions of Sections 4.6
through 4.9 inclusive, with such modifications thereto as may be specified
pursuant to Section 3.1 with respect to any Securities, shall be applicable to
such Securities, and the Company may at its option by Board Resolution, at any
time, with respect to such Securities, elect to have Section 4.4 (if applicable)
or Section 4.5 (if applicable) be applied to such outstanding Securities upon
compliance with the conditions set forth below in this Article.
Section 4.4 Defeasance and Discharge. Upon the Company's exercise of the
option specified in Section 4.3 applicable to this Section with respect to the
Securities of or within a series, the Company shall be deemed to have been
discharged from its obligations with respect to such Securities on the date the
conditions set forth in Section 4.6 are satisfied (hereinafter "defeasance").
For this purpose, such defeasance means that the
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Company shall be deemed to have paid and discharged the entire indebtedness
represented by such Securities which shall thereafter be deemed to be
"Outstanding" only for the purposes of Section 4.7 and the other Sections of
this Indenture referred to in clause (ii) of this Section, and to have satisfied
all its other obligations under such Securities and this Indenture insofar as
such Securities are concerned (and the Trustee, at the expense of the Company,
shall on a Company Order execute proper instruments acknowledging the same),
except the following which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of such Securities to receive,
solely from the trust funds described in Section 4.6(a) and as more fully set
forth in such Section, payments in respect of the principal of, premium, if any,
and interest, if any, on such Securities when such payments are due; (ii) the
rights, powers, trusts, duties and immunities of the Trustee hereunder; and
(iii) this Article 4. Subject to compliance with this Article 4, the Company may
exercise its option under this Section notwithstanding the prior exercise of its
option under Section 4.5 with respect to such Securities.
Section 4.5 Covenant Defeasance. Upon the Company's exercise of the
option specified in Section 4.3 applicable to this Section with respect to any
Securities of or within a series, the Company shall be released from its
obligations under Sections 7.1, 9.4, 9.5, 9.8, 9.9, 9.10, 9.11, 9.12, and 9.13
and, if specified pursuant to Section 3.1, its obligations under any other
covenant, with respect to such Securities on and after the date the conditions
set forth in Section 4.6 are satisfied (hereinafter, "covenant defeasance"), and
such Securities shall thereafter be deemed to be not "Outstanding" for the
purposes of any direction, waiver, consent or declaration or Act of Holders (and
the consequences of any thereof) in connection with Sections 7.1, 9.4, 9.5, 9.8,
9.9, 9.10, 9.11, 9.12, and 9.13 or such other covenant, but shall continue to be
deemed "Outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to such Securities, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section or such other covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such Section or such other covenant or by reason of reference in any such
Section or such other covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 5.1(3) or 5.1(7) or otherwise, as the case may be, but,
except as specified above, the remainder of this Indenture and such Securities
shall be unaffected thereby.
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Section 4.6 Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to application of Section 4.4 or Section 4.5
to any Securities of or within a series:
(a) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee (or another trustee satisfying the
requirements of Section 6.11 who shall agree to comply with, and shall be
entitled to the benefits of, the provisions of Sections 4.3 through 4.9
inclusive and the last paragraph of Section 9.3 applicable to the Trustee,
for purposes of such Sections also a "Trustee") as trust funds in trust for
the purpose of making the payments referred to in clauses (x) and (y) of
this Section 4.6(a), specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, with instructions
to the Trustee as to the application thereof, (A) money in an amount, or
(B) if Securities of such series are not subject to repayment at the option
of Holders, Government Obligations which through the payment of interest
and principal in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment referred
to in clause (x) or (y) of this Section 4.6(a), money in an amount or (C) a
combination thereof in an amount, sufficient, in the opinion of a
nationally recognized firm of independent certified public accountants
expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee to pay and
discharge, (x) the principal of premium, if any, and interest, if any, on
such Securities on the Maturity of such principal or installment of
principal or interest and (y) any mandatory sinking fund payments
applicable to such Securities on the day on which such payments are due and
payable in accordance with the terms of this Indenture and such Securities.
Before such a deposit the Company may make arrangements satisfactory to the
Trustee for the redemption of Securities at a future date or dates in
accordance with Article 10 which shall be given effect in applying the
foregoing.
(b) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default or Event of Default under
this Indenture or result in a breach or violation of, or constitute a
default under, any other material agreement or instrument to which the
Company is a party or by which it is bound.
(c) No Default or Event of Default under Section 5.1(5) or 5.1(6) with
respect to such Securities shall have
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occurred and be continuing during the period commencing on the date of such
deposit and ending on the 91st day after such date (it being understood
that this condition shall not be deemed satisfied until the expiration of
such period).
(d) In the case of an election under Section 4.4, the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel to the effect that (i) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or (ii) since the
date of execution of this Indenture, there has been a change in the
applicable Federal income tax law, in either case to the effect that, and
based thereon such opinion shall confirm that, the Holders of such
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such defeasance and will be subject to Federal
income tax on the same amount and in the same manner and at the same times,
as would have been the case if such deposit, defeasance and discharge had
not occurred.
(e) In the case of an election under Section 4.5, the Company shall
have delivered to the Trustee an opinion of Counsel to the effect that the
Holders of such Securities will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred.
(f) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance under Section 4.4 or the covenant defeasance
under Section 4.5 (as the case may be) have been complied with and an
Opinion of Counsel to the effect that either (i) as a result of a deposit
pursuant to subsection (a) above and the related exercise of the Company's
option under Section 4.4 or Section 4.5 (as the case may be), registration
is not required under the Investment Company Act of 1940, as amended, by
the Company, with respect to the trust funds representing such deposit or
by the Trustee for such trust funds or (ii) all necessary registrations
under said act have been effected.
(g) Such defeasance or covenant defeasance shall be effected in
compliance with any additional or substitute terms, conditions or
limitations which may be imposed on the
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Company in connection therewith as contemplated by Section 3.1.
Section 4.7 Deposited Money and Government Obligations to be Held in
Trust. Subject to the provisions of the last paragraph of Section 9.3, all
money and Government Obligations (or other property as may be provided pursuant
to Section 3.1) (including the proceeds thereof) deposited with the Trustee
pursuant to Section 4.6 in respect of any Securities of any series shall be held
in trust and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Holders of such Securities of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, if
any, but such money need not be segregated from other funds except to the extent
required by law.
Section 4.8 Transfers and Distribution at Company Request. To the extent
permitted by the Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 76, as amended or interpreted by the Financial
Accounting Standards Board from time to time, or any successor thereto
("Standard No. 76"), or to the extent permitted by the Commission, the Trustee
shall, from time to time, take one or more of the following actions as specified
in a Company Request:
(a) Retransfer, reassign and deliver to the Company any securities
deposited with the Trustee pursuant to Section 4.6(a), provided that the
Company shall in substitution therefor, simultaneously transfer, assign and
deliver to the Trustee other Government Obligations appropriate to satisfy
the Company's obligations in respect of the relevant Securities; and
(b) The Trustee (and any Paying Agent) shall promptly pay to the
Company upon a Company Request any excess money or securities held by them
at any time, including, without limitation, any assets deposited with the
Trustee pursuant to Section 4.6(a) exceeding those necessary for the
purposes of Section 4.6(a).
The Trustee shall not take the actions described in subsections (a) and (b) of
this Section 4.8 unless it shall have first received a written report of KPMG
Peat Marwick LLP, or another nationally recognized independent public accounting
firm, (i) expressing their opinion that the contemplated action is permitted by
Standard No. 76 or the Commission, for transactions accounted for as
extinguishment of debt under the circumstances
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described in paragraph 3.c of Standard No. 76 or any successor provision and,
(ii) verifying the accuracy, after giving effect to such action or actions, of
the computations which demonstrate that the amounts remaining to be earned on
the Government Obligations deposited with the Trustee pursuant to Section 4.6(a)
will be sufficient for purposes of Section 4.6(a).
ARTICLE 5
Defaults and Remedies
---------------------
Section 5.1 Events of Default. An "Event of Default" occurs with respect
to the Securities of any series if (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) the Company defaults in the payment of interest on any Security of
that series when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of or any
premium, if any, on any Security of that series when the same becomes due
and payable at its Maturity or on redemption or otherwise, or in the
payment of a mandatory sinking fund payment when and as due by the terms of
the Securities of that series;
(3) the Company defaults in the performance of, or breaches, any
covenant or warranty of the Company in this Indenture with respect to any
Security of that series (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with), and such default or breach continues for a period of 60 days
after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
25% in principal amount of the Outstanding Securities of that series, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
(4) the Company defaults under the terms of any agreement or
instrument under which there may be issued or by which there may be secured
or evidenced any indebtedness for money borrowed, whether such indebtedness
now exists
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or shall hereafter be created, having an outstanding principal amount of
$10,000,000 or more in the aggregate, and such indebtedness shall be
accelerated so that the same shall be or become due and payable prior to
the date on which the same would otherwise become due and payable and such
acceleration is not rescinded or annulled within ten days after there has
been given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities of that series a
written notice specifying such default and stating that such notice is a
"Notice of Default" hereunder; (it being understood however, that, subject
to the provisions of Section 6.1, the Trustee shall not be deemed to have
knowledge of such default under such agreement or instrument unless either
(A) a Responsible Officer of the Trustee shall have actual knowledge of
such default or (B) a Responsible Officer of the Trustee shall have
received written notice thereof from the Company, from any Holder, from the
holder of any such indebtedness or from the trustee under any such
agreement or other instrument); provided, however, that if such default
under such agreement or instrument is remedied or cured by the Company or
waived by the holders of such indebtedness, then the Event of Default
hereunder by reason thereof shall be deemed likewise to have been thereupon
remedied, cured or waived without further action upon the part of either
the Trustee or any of such Holders;
(5) the Company pursuant to or within the meaning of any Bankruptcy
Law (A) commences a voluntary case, (B) consents to the entry of an order
for relief against it in an involuntary case, (c) consents to the
appointment of a Custodian of it or for all or substantially all of its
property, or (D) makes a general assignment for the benefit of its
creditors;
(6) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (A) is for relief against the Company in an
involuntary case, (B) appoints a Custodian of the Company or for all or
substantially all of its property, or (C) orders the liquidation of the
Company; and the order or decree remains unstayed and in effect for 90
days; or
(7) any other Event of Default provided as contemplated by Section 3.1
with respect to Securities of that series.
The term "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal
or state law for the relief of debtors. The term
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"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
Section 5.2 Acceleration; Rescission and Annulment. If an Event of
Default with respect to the Securities of any series at the time Outstanding
occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of all of the Outstanding Securities of that series,
by written notice to the Company (and, if given by the Holders, to the Trustee),
may declare the principal (or, if the Securities of that series are Original
Issue Discount Securities, such portion of the principal amount as may be
specified in the terms of that series) of all the Securities of that series to
be due and payable and upon any such declaration such principal (or, in the case
of Original Issue Discount Securities, such specified amount) shall be
immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in aggregate principal amount of the
Outstanding Securities of that series, by written notice to the Trustee, may
rescind and annul such declaration and its consequences if all existing Defaults
and Events of Default with respect to Securities of that series, other than the
non-payment of the principal of Securities of that series which have become due
solely by such declaration of acceleration, have been cured or waived as
provided in Section 5.7. No such rescission shall affect any subsequent Default
or impair any right consequent thereon.
Section 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if:
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal, premium, if any, and interest and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal, premium, if any, and on any overdue interest, at the
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rate or rates prescribed therefor in such Securities, and, in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses of
collection including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
Section 5.4 Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Holders of Securities allowed
in any judicial proceedings relating to the Company, its creditors or its
property.
Section 5.5 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be
prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto.
Section 5.6 Delay or Omission not Waiver. No delay or omission by the
Trustee or any Holder of any Securities to exercise any right or remedy accruing
upon an Event of Default shall impair any such right or remedy or constitute a
waiver of or acquiescence in any such Event of Default.
Section 5.7 Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of Outstanding Securities of any series by notice to
the Trustee may waive on behalf of the Holders of all Securities of such series
a past Default or Event of Default with respect to that series and its
consequences except (i) a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on any Security of such series or
(ii) in respect of a covenant or provision hereof which pursuant to Section 8.2
cannot be amended or modified without the consent of the Holder of each
outstanding Security of such series adversely affected. Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Indenture.
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Section 5.8 Control by Majority. The Holders of a majority in aggregate
principal amount of the Outstanding Securities of each series affected (with
each such series voting as a class) shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on it with respect to
Securities of that series; provided, however, that (i) the Trustee may refuse to
follow any direction that conflicts with law or this Indenture, (ii) the Trustee
may refuse to follow any direction that is unduly prejudicial to the rights of
the Holders of Securities of such series not consenting, or that would in the
good faith judgment of the Trustee have a substantial likelihood of involving
the Trustee in personal liability and (iii) the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
Section 5.9 Limitation on Suits by Holders. No Holder of any Security of
any series shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(1) the Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series have made a written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be,
or which may be, incurred by the Trustee in pursuing the remedy;
(4) the Trustee for 60 days after its receipt of such notice, request
and the offer of indemnity has failed to institute any such proceedings;
and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the Outstanding Securities of that series has not given
to the Trustee a direction inconsistent with such written request.
No one or more Holders shall have any right in any manner whatever by
virtue of, or by availing of, any provision of this Indenture to affect, disturb
or prejudice, the rights of any
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other of such Holders, or to obtain or to seek to obtain priority or preference
over any other of such Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all of such Holders.
Section 5.10 Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, but subject to Section 9.2, the right of any
Holder of a Security to receive payment of principal of, premium, if any, and,
subject to Sections 3.5 and 3.7, interest on the Security, on or after the
respective due dates expressed in the Security (or, in case of redemption, on
the redemption dates), or, subject to Section 5.9, to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
Section 5.11 Application of Money Collected. If the Trustee collects any
money pursuant to this Article, it shall pay out the money in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal, premiums, if any, or
interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.9;
Second: to Holders of Securities in respect of which or for the
benefit of which such money has been collected for amounts due and unpaid
on such Securities for principal of, premium, if any, and interest,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if any,
and interest, respectively; and
Third: to the Company.
Section 5.12 Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
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Section 5.13 Rights and Remedies Cumulative. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in the last paragraph of Section 3.6, no right or remedy
herein conferred upon or reserved to the Trustee or the Holders is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
ARTICLE 6
The Trustee
-----------
Section 6.1 Certain Duties and Responsibilities. (a) Except during the
continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture.
(b) In case an Event of Default has occurred and is continuing with
respect to the Securities of any series, the Trustee shall exercise such of
the rights and powers vested in it by this Indenture with respect to the
Securities of such series, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent
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action, its own negligent failure to act, or its own willful misconduct,
except that:
(1) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in principal amount of the
Outstanding Securities of any series relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
Section 6.2 Rights of Trustee. Subject to the provisions of the Trust
Indenture Act:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties.
(b) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or a Company Order (other than
delivery of any Security to
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the Trustee for authentication and delivery pursuant to Section 3.3, which
shall be sufficiently evidenced as provided therein) and any resolution of
the Board of Directors may be sufficiently evidenced by a Board Resolution.
(c) Whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate.
(d) The Trustee may consult with counsel of its selection and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney.
(g) The Trustee may act through agents or attorneys and shall not be
responsible for the misconduct or negligence of any agent or attorney
appointed with due care.
(h) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its
rights or powers.
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(i) The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of its rights or powers, if it shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it.
Section 6.3 Trustee May Hold Securities. The Trustee, any Paying Agent,
any Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
310(b) and 311 of the Trust Indenture Act, may otherwise deal with the Company,
an Affiliate or Subsidiary with the same rights it would have if it were not
Trustee, Paying Agent, Registrar or such other agent.
Section 6.4 Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.
Section 6.5 Trustee's Disclaimer. The recitals contained herein and in
the Securities, except the Trustee's certificate of authentication, shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or adequacy of this Indenture or the Securities. The Trustee shall
not be accountable for the Company's use of the proceeds from the Securities or
for monies paid over to the Company pursuant to the Indenture.
Section 6.6 Notice of Defaults. If a Default occurs and is continuing
with respect to the Securities of any series and if it is known to the Trustee,
the Trustee shall, within 90 days after it occurs, transmit, in the manner and
to the extent provided in Section 313(c) of the Trust Indenture Act, notice of
all uncured Defaults known to it; provided, however, that, in the case of a
Default in payment on the Securities of any series, the Trustee may withhold the
notice if and so long as the board of directors, the executive committee or a
committee of its Responsible Officers in good faith determines that withholding
such notice is in the interests of Holders of Securities of that series;
provided further that, in the case of any default or breach of the character
specified in Section 5.1(3) with respect to the Securities of such series, no
such notice to Holders shall be given until at least 60 days after the
occurrence thereof.
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Section 6.7 Reports by Trustee to Holders. Within 60 days after each
______________ of each year commencing with the first ____________ after the
first issuance of Securities pursuant to this Indenture, the Trustee shall
transmit by mail to all Holders of Securities as provided in Section 313(c) of
the Trust Indenture Act a brief report dated as of such _________ if required by
Section 313(a) of the Trust Indenture Act. The Trustee also shall comply with
Section 313(b) and (d) of the Trust Indenture Act.
Section 6.8 Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Holders of Securities of each series. If the
Trustee is not the Registrar, the Company shall furnish to the Trustee
semiannually on or before the last day of June and December in each year, and at
such other times as the Trustee may request in writing, a list, in such form and
as of such date as the Trustee may reasonably require, containing all the
information in the possession of the Registrar, the Company or any of its Paying
Agents other than the Trustee as to the names and addresses of Holders of
Securities of each such series.
Section 6.9 Compensation and Indemnity. (a) The Company shall pay to the
Trustee from time to time such compensation as shall be agreed between the
Company and the Trustee for all services rendered by it hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it in connection
with the performance of its duties under this Indenture, except any such expense
as may be attributable to its negligence or bad faith. Such expenses shall
include the reasonable compensation and expenses of the Trustee's agents and
counsel.
(b) The Company shall indemnify the Trustee for and hold it harmless
against, any loss or liability incurred by it without negligence or bad faith on
its part arising out of or in connection with its acceptance or administration
of the trust or trusts hereunder. The Trustee shall notify the Company promptly
of any claim for which it may seek indemnity. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent.
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(c) The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
(d) To secure the payment obligations of the Company pursuant to this
Section, the Trustee shall have a lien prior to the Securities of any series on
all money or property held or collected by the Trustee, except that held in
trust to pay principal, premium, if any, and interest on particular Securities.
(e) When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 5.1(5) or Section 5.1(6), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
(f) The provisions of this Section shall survive the termination of this
Indenture.
Section 6.10 Replacement of Trustee. (a) The resignation or removal of
the Trustee and the appointment of a successor Trustee shall become effective
only upon the successor Trustee's acceptance of appointment as provided in
Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of
any series by giving written notice thereof to the Company. If the instrument
of acceptance by a successor Trustee required by Section 6.11 shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(c) The Holders of a majority in aggregate principal amount of the
Outstanding Securities of any series may remove the Trustee with respect to that
series by so notifying the Trustee and the Company and may appoint a successor
Trustee for such series with the Company's consent.
(d) If at any time:
(1) the Trustee fails to comply with Section 310(b) of the Trust
Indenture Act after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
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(2) the Trustee shall cease to be eligible under Section 310(a) of the
Trust Indenture Act and shall fail to resign after written request therefor
by the Company or by any Holder of a Security who has been a bona fide
Holder of a Security for at least six months; or
(3) the Trustee becomes incapable of acting, is adjudged a bankrupt or
an insolvent or a receiver or public officer takes charge of the Trustee or
its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company by or pursuant to a Board Resolution may
remove the Trustee with respect to all Securities, or (ii) subject to Section
315(e) of the Trust Indenture Act, any Holder who has been a bona fide Holder of
a Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, with respect to Securities of one or more
series, the Company, by or pursuant to Board Resolution, shall promptly appoint
a successor Trustee with respect to the Securities of that or those series (it
being understood that any such successor Trustee may be appointed with respect
to the Securities of one or more or all of such series and that at any time
there shall be only one Trustee with respect to the Securities of any particular
series) and shall comply with the applicable requirements of Section 6.11. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the Securities
of any series shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 6.11, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so appointed by the
Company or the Holders and accepted appointment in the manner required by
Section 6.11, any Holder who has been a bona fide Holder of a Security of such
series for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
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Section 6.11 Acceptance of Appointment by Successor. (a) In case of the
appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment.
Thereupon, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee, without further act, deed or conveyance,
shall become vested with all the rights, powers and duties of the retiring
Trustee; but, on the request of the Company or the successor Trustee, such
retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such retiring Trustee
hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and such successor Trustee shall execute and deliver an
indenture supplemental hereto wherein such successor Trustee shall accept such
appointment and which (i) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, such successor Trustee all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series to which the appointment of such
successor Trustee relates, (ii) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
as to which the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee, and (iii) shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees as co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
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transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under the
Trust Indenture Act.
(e) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series in the manner
provided for notices to the Holders of Securities in Section 1.6. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.
Section 6.12 Eligibility; Disqualification. There shall at all times be a
Trustee hereunder which shall be eligible to act as Trustee under Section
310(a)(1) of the Trust Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or the requirements of Federal,
State, Territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
Section 6.13 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
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authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
Section 6.14 Appointment of Authenticating Agent. The Trustee may appoint
an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon original issue, exchange,
registration of transfer or partial redemption thereof, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Any such appointment shall be evidenced by an instrument in writing
signed by a Responsible Officer of the Trustee, a copy of which instrument shall
be promptly furnished to the Company. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and, except as may otherwise be provided pursuant to
Section 3.1, shall at all times be a bank or trust company or corporation
organized and doing business and in good standing under the laws of the United
States of America or of any State or the District of Columbia, authorized under
such laws to act as Authenticating Agent, having a combined capital and surplus
of not less that $1,500,000 and subject to supervision or examination by Federal
or State authorities. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Authenticating Agent shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
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corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided, however, such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time resign
by giving written notice of resignation to the Trustee for such series and to
the Company. The Trustee for any series of Securities may at any time terminate
the agency of an Authenticating Agent by giving written notice of termination to
such Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee for such series may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment to all Holders of Securities of the series with
respect to which such Authenticating Agent will serve in the manner set forth in
Section 1.6. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation including reimbursement of its reasonable expenses for
its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to or in lieu of the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
This is one of the Securities of a series issued under the within-mentioned
Indenture.
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THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
as Trustee
By
-------------------------------
as Authenticating Agent
By
-------------------------------
Authorized Officer
Section 6.15 Trustee's Application for Instructions from the Company. Any
application by the Trustee for written instructions from the Company may, at the
option of the Trustee, set forth in writing any action proposed to be taken or
omitted by the Trustee under this Indenture and the date on and/or after which
such action shall be taken or such omission shall be effective. The Trustee
shall not be liable for any action taken by, or omission of, the Trustee in
accordance with a proposal included in such application on or after the date
specified in such application (which date shall not be less than fifteen
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
ARTICLE 7
Consolidation, Merger or Sale by the Company
--------------------------------------------
Section 7.1 Consolidation, Merger or Sale of Assets Permitted. The
Company may merge or consolidate with or into any other corporation or sell,
convey, transfer or otherwise dispose of all or substantially all of its assets
to any person, firm or corporation, if (i) (A) in the case of a merger or
consolidation, the Company is the surviving corporation or (B) in the case of a
merger or consolidation where the Company is not the surviving corporation and
in the case of any such sale, conveyance or other disposition, the successor or
acquiring corporation is a corporation organized and existing under the laws of
the United States or a State thereof and such corporation expressly assumes by
supplemental indenture all the obligations of the Company under the Securities
and under this Indenture, (ii) immediately thereafter, giving effect to such
merger or consolidation, or such sale, conveyance, transfer or other
disposition, no Default
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or Event of Default shall have occurred and be continuing and (iii) the Company
has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
each stating that such merger or consolidation, or such sale, conveyance,
transfer or other disposition complies with this Article and that all conditions
precedent herein provided for relating to such transaction have been complied
with. In the event of the assumption by a successor corporation of the
obligations of the Company as provided in clause (i)(B) of the immediately
preceding sentence, such successor corporation shall succeed to and be
substituted for the Company hereunder and under the Securities and all such
obligations of the Company shall terminate.
ARTICLE 8
Supplemental Indentures
-----------------------
Section 8.1 Supplemental Indentures Without Consent of Holders. Without
the consent of any Holders, the Company, when authorized by a Board Resolution,
and the Trustee, at any time and from time to time, may enter into indentures
supplemental hereto, in form reasonably satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default with respect to all or any
series of Securities; or
(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to facilitate the issuance of Securities
in global form; or
(5) to add to, change or eliminate any of the provisions of this
Indenture; provided, however, that any such addition, change or elimination
shall become effective only when there is no Security Outstanding of any
series
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created prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 and 3.1; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee, pursuant to the requirements
of Section 6.10;
(9) to correct or supplement any provision herein which may be
inconsistent with any other provision herein or to make any other
provisions with respect to matters or questions arising under this
Indenture, provided, however, such action shall not adversely affect the
interests of the Holders of Securities of any series in any material
respect, or to cure any ambiguity or correct any mistake; or
(10) to modify, eliminate or add to the provisions of this Indenture
under the Trust Indenture Act or under any similar federal statute
subsequently enacted and to add to this Indenture such other provisions as
may be expressly required under the Trust Indenture Act.
Section 8.2 With Consent of Holders. With the written consent of the
Holders of a majority of the aggregate principal amount of the Outstanding
Securities of each series adversely affected by such supplemental indenture, the
Company and the Trustee may enter into an indenture or indentures supplemental
hereto to add any provisions to or to change or eliminate any provisions of this
Indenture or of any other indenture supplemental hereto or to modify the rights
of the Holders of Securities of each such series; provided, however, that
without the consent of the Holder of each Outstanding Security affected thereby,
an amendment under this Section may not:
(1) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon
the redemption thereof, or reduce the amount of the principal of an
Original Issue Discount Security that would be due and
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payable upon a declaration of acceleration of the Maturity thereof pursuant
to Section 5.2, or impair the right to institute suit for the enforcement
of any such payment on or after the Stated Maturity thereof (or, in the
case of redemption, on or after the Redemption Date);
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture;
(3) change any obligation of the Company to maintain an office or
agency in the places and for the purposes specified in Section 9.2; or
(4) make any change in Section 5.7 or this 8.2(a) except to increase
any percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holders
of each Outstanding Security affected thereby.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture, which has expressly been included solely for the
benefit of one or more particular series of Securities, or that modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It is not necessary under this Section 8.2 for the Holders to consent to
the particular form of any proposed supplemental indenture, but it is sufficient
if they consent to the substance thereof.
Section 8.3 Compliance with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article shall comply with the requirements
of the Trust Indenture Act as then in effect.
Section 8.4 Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the
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execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 8.5 Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
Section 8.6 Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
ARTICLE 9
Covenants
---------
Section 9.1 Payment of Principal, Premium, if any, and Interest. The
Company covenants and agrees for the benefit of the Holders of each series of
Securities that it will duly and punctually pay the principal of, premium, if
any, and interest on the Securities of that series in accordance with the terms
of the Securities of such series and this Indenture. An installment of
principal or interest shall be considered paid on the date it is due if the
Trustee or Paying Agent holds on that date money designated for and sufficient
to pay the installment.
Section 9.2 Maintenance of Office or Agency. The Company will maintain in
each Place of Payment for any series of Securities an office or agency where
securities of that series may be presented or surrendered for payment, where
Securities of that series may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. The Company will
give prompt written notice to the
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Trustee of the location and any change in the location of any such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
Unless otherwise specified as contemplated by Section 3.1, the Trustee
shall initially serve as Paying Agent.
Section 9.3 Money for Securities to Be Held in Trust; Unclaimed Money. If
the Company shall at any time act as its own Paying Agent with respect to any
series of Securities, it will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities of that series, segregate
and hold in trust for the benefit of the Persons entitled thereto a sum
sufficient to pay the principal, premium, if any, or interest so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee in writing of its action or
failure so to act.
The Company will cause each Paying Agent for any series of Securities other
than the Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee, subject to the provisions of
this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Securities of that series in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
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(2) give the Trustee notice of any default by the Company (or any
other obligor upon the securities of that series) in the making of any
payment of principal, premium, if any, or interest on the Securities; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by a Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of any principal, premium or interest on
any Security of any series and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on a Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, or cause to be mailed to such Holder, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
Section 9.4 Corporate Existence . Subject to Article 7, the Company will
at all times do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and its rights and franchises;
provided, however, that nothing in this Section 9.4 shall prevent the
abandonment or termination of any right or franchise of the Company if, in the
opinion of the Company, such abandonment or
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termination is in the best interests of the Company and does not materially
adversely affect the ability of the Company to operate its business or to
fulfill its obligations hereunder.
Section 9.5 Insurance. The Company covenants and agrees that it will
maintain, and cause each of its Subsidiaries to maintain, insurance with
responsible and reputable insurance companies or associations or through a
program of self-insurance in such amounts and covering such risks as, in the
determination of the Company, are consistent with sound business practice for
corporations engaged in the same or a similar business similarly situated.
Section 9.6 Reports by the Company. The Company covenants:
(a) to file with the Trustee, within 30 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934, as amended; or, if the Company is not
required to file information, documents or reports pursuant to either of
such sections, then to file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents
and reports which may be required pursuant to section 13 of the Securities
Exchange Act of 1934, as amended, in respect of a security listed and
registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations;
(b) to file with the Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants provided for in
this Indenture, as may be required from time to time by such rules and
regulations; and
(c) to transmit to all Holders of Securities, within 30 days after the
filing thereof with the Trustee, in the manner and to the extent provided
in section 313(c) of the Trust Indenture Act, such summaries of any
information, documents and reports required to be filed by the Company
pursuant to subsections (a) and (b) of this Section 9.6, as
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may be required by rules and regulations prescribed from time to time by
the Commission.
Section 9.7 Annual Review Certificate; Notice of Default. The Company
covenants and agrees to deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company, a brief certificate from the principal
executive officer, principal financial officer, or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 9.7, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. The Company shall file
with the Trustee written notice of the occurrence of any Event of Default within
45 Business Days of its becoming aware of any such Event of Default.
Section 9.8 Provision of Financial Statements. If the Company is not
required to file with the Commission periodic reports and other information
pursuant to section 13(a), 13(c) or 15(d) of the Securities Exchange Act of
1934, the Company shall furnish without cost to each Holder and file with the
Trustee (i) within 135 days after the end of each fiscal year, annual reports
containing the information required to be contained in Items 1, 2, 3, 6, 7, 8
and 9 of Form 10-K promulgated under the Securities Exchange Act of 1934, or
substantially the same information required to be contained in comparable items
of any successor form, (ii) within 60 days after the end of each of the first
three fiscal quarters of each fiscal year, quarterly reports containing the
information required to be contained in Form 10-Q promulgated under the
Securities Exchange Act of 1934, or substantially the same information required
to be contained in any successor form and (iii) promptly from the time after the
occurrence of an event required to be therein reported, such other reports
containing information required to be contained in Form 8-K promulgated under
the Securities Exchange Act of 1934, or substantially the same information
required to be contained in any successor form.
Section 9.9 Limitation on Liens. (a) The Company will not issue, assume
or guarantee any indebtedness for borrowed money (referred to in this Section as
"indebtedness," which term shall not include any guarantee, cash deposit or
other recourse obligation in connection with the sale, securitization or
discount by the Company of finance or accounts receivable, trade acceptances or
other paper arising in the ordinary course of its business) secured by a
mortgage, security interest, pledge or lien (referred to in this Section as
"mortgage" or "mortgages") of or upon any property of the Company whether such
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property is owned at the date of this Indenture or thereafter acquired, without
making effective provision whereby the Securities (together with, if the Company
shall so determine, any other indebtedness issued, assumed or guaranteed by the
Company and then existing or thereafter created) shall be secured by such
mortgage equally and ratably with (or, at the option of the Company, prior to)
such indebtedness, so long as such indebtedness shall be so secured; provided,
that the foregoing shall not apply to any of the following:
(1) mortgages of or upon any property (including, without limitation,
inventory) acquired, constructed or improved by, or of or upon any shares
of capital stock or indebtedness acquired by, the Company after the date of
this Indenture (A) to secure the payment of all or any part of the purchase
price of such property, shares of capital stock or indebtedness upon the
acquisition thereof by the Company, or (B) to secure any indebtedness
issued, assumed or guaranteed by the Company prior to, at the time of, or
within 360 days after (i) in the case of property, the latest of the
acquisition, completion of construction (including any improvements on
existing property) and commencement of commercial operation of such
property or (ii) in the case of shares of capital stock or indebtedness,
the acquisition of such shares of capital stock or indebtedness, which
indebtedness is issued, assumed or guaranteed for the purpose of financing
or refinancing all or any part of the purchase price of such property,
shares of capital stock or indebtedness and, in the case of property, the
cost of construction thereof or improvements thereon, provided, however,
that in the case of any such acquisition, construction or improvement of
property, the mortgage shall not apply to any property, shares of capital
stock or indebtedness theretofore owned by the Company other than, in the
case of any such construction or improvement, any theretofore unimproved or
substantially unimproved real property on which the property so constructed
or the improvement is located;
(2) mortgages of or upon any property, shares of capital stock or
indebtedness, which mortgages exist at the time of acquisition of such
property, shares or indebtedness by the Company;
(3) mortgages of or upon any property of a corporation, which
mortgages exist at the time such corporation is merged with or into or
consolidated with the Company or which mortgages exist at the time of a
sale or
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transfer of the properties of a corporation as an entirety or substantially
as an entirety to the Company;
(4) mortgages to secure indebtedness of the Company to any
Subsidiary;
(5) mortgages in favor of the United States of America or any State
thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any State thereof, or in
favor of any other country or political subdivision to secure partial,
progress, advance or other payments pursuant to any contract or statute or
to secure any indebtedness incurred or guaranteed for the purpose of
financing or refinancing all or any part of the purchase price of the
property, shares of capital stock or indebtedness subject to such
mortgages, or the cost of constructing or improving the property subject to
such mortgages (including, without limitation, mortgages incurred in
connection with pollution control, industrial revenue or similar
financings);
(6) mortgages on properties financed through tax-exempt municipal
obligations, provided that such mortgages are limited to the property so
financed;
(7) mortgages existing on the date of execution of this Indenture;
and
(8) any extension, renewal, substitution, refinancing, refunding or
replacement (or successive extensions, renewals, substitutions,
refinancings, refundings or replacements) (each a "refinancing") in whole
or in part of any mortgage existing at the date of the Indenture or any
mortgage referred to in the foregoing Clauses (1) through (7), inclusive,
provided, however, that the principal amount of indebtedness secured
thereby shall not exceed the principal amount of indebtedness so secured at
the time of such refinancing plus the aggregate amount of premiums, other
payments, costs and expenses required to be paid or incurred in connection
with such refinancing, and that such refinancing shall be limited to all or
a part of the property (plus improvements and construction on such
property), shares of capital stock or indebtedness which was subject to the
mortgage so extended, renewed, substituted, refinanced, refunded or
replaced.
(b) Notwithstanding the provisions of subsection (a) of this Section, the
Company may, without equally and ratably securing the Securities, issue, assume
or guarantee indebtedness
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secured by a mortgage not excepted by clauses (1) through (8) of such subsection
(a), if the aggregate amount of such indebtedness, together with all other
indebtedness of, or indebtedness guaranteed by, the Company existing at such
time and secured by mortgages not so excepted, does not at the time exceed 10%
of the Company's Consolidated Net Worth. "Consolidated Net Worth" shall be the
difference between the Company's consolidated total assets and consolidated
total liabilities as shown on the Company's most recent audited consolidated
financial statements prepared in accordance with generally accepted accounting
principles.
Section 9.10 Ownership of Material Subsidiary Stock. The Company covenants
that it will not take any action which would result in a decrease in the
percentage (and such decrease does not result in the Material Subsidiary no
longer qualifying as a Subsidiary) of the outstanding shares of stock of any
Material Subsidiary directly or indirectly owned by the Company, except as the
result of (1) the issuance of directors' qualifying shares, (2) the declaration
and payment of patronage refunds, (3) the issuance of capital stock to members,
(4) the purchase or retirement of shares with the proceeds of newly issued
shares, or (5) the sale of capital stock at a price determined by the Company
(which determination may be evidenced by a resolution of the Company's Board of
Directors) to be the fair value thereof and which is otherwise not restricted by
this Indenture.
Section 9.11 Transactions with Affiliates. The Company covenants that it
will not enter into any transaction, including, without limitation, the
purchase, sale or exchange of property or the rendering of any service, with any
Affiliate of the Company or any Subsidiary except in the ordinary course of
business and upon fair and reasonable terms taking into account the nature of
the Company's or the Subsidiary's business.
Section 9.12 Prepayment of Subordinated Debt. The Company covenants that it
will not repay, prepay or purchase, redeem or otherwise acquire any or all of
the indebtedness of the Company which is by its terms made subordinate or junior
in right of payment to the Securities or other indebtedness (the "Subordinated
Debt"), except (1) a regularly scheduled payment thereof, (2) any mandatory
prepayment required under the terms of the subordination agreement related to
such Subordinated Debt, and (3) any other repayment or prepayment or any
purchase, redemption or acquisition of such Subordinated Debt if, after giving
effect to such other repayment or prepayment or such purchase, redemption or
acquisition, (a) the principal amount of all
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outstanding Subordinated Debt is equal to or greater than Two Hundred Million
Dollars ($200,000,000), and (b) there are no Defaults or Events of Default under
this Indenture.
Section 9.13 Restriction on Certain Payments. The Company covenants that it
will not pay any patronage refunds or dividends on its stock or purchase or
redeem any of its stock or capital credits at any time (except refunds,
dividends, purchases or redemptions payable in common stock of the Company or
capital credits) (any of the foregoing being referred to herein as a
"Distribution"), if, after giving effect to such Distribution (a) its
Consolidated Net Worth would be less than $450,000,000, or (b) the aggregate
amount of all Distributions in respect of a given fiscal year (the "Applicable
Year") (whether such Distribution actually is paid or made in the Applicable
Year or subsequent thereto) would exceed the greater of (i) the Company's net
income for the Applicable Year or (ii) the Company's patronage earnings (i.e.,
member-sourced income) for the Applicable Year; provided, however, that the
foregoing limitation in clause (b) above shall not apply if, after giving effect
to such Distribution, the Company's Consolidated Net Worth would be $600,000,000
or more; provided, further, however, that notwithstanding any of the foregoing
limitations: (A) the Company may pay or make Distributions in respect of any
Applicable Year in an aggregate amount not exceeding the greater of (1) 50% of
the Company's net income for the Applicable Year or (2) 50% of the Company's
patronage earnings for the Applicable Year (provided that, in any event, the
Company may pay cash patronage refunds in respect of any Applicable Year to the
extent necessary for the patronage distribution to be a "qualified distribution"
under applicable tax law); (B) the Company may pay or make Distributions in
connection with estate settlements; and (C) the Company may pay or make
Distributions that arise by operation of law (including, without limitation,
pursuant to a court order, judgment or decree).
Section 9.14 Waiver of Certain Covenants. The Company may fail or omit in
any particular instance to comply with the covenants set forth in this Article
IX (other than Sections 9.1, 9.2 and 9.4) with respect to any series of
Securities if the Company shall have obtained and filed with the Trustee prior
to the time for such compliance the consent in writing of the Holders of at
least a majority in aggregate principal amount of all of the Securities of such
series at the time Outstanding either waiving such compliance in such instance
or generally waiving compliance with such covenant or covenants, but no such
waiver shall extend to or affect any obligation not expressly waived or impair
any right consequent thereon.
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ARTICLE 10
Redemption
----------
Section 10.1 Applicability of Article. Securities of any series
which are redeemable before their Stated Maturity shall be redeemable in
accordance with their terms and (except as otherwise specified as contemplated
by Section 3.1 for Securities of any series) in accordance with this Article.
Section 10.2 Election to Redeem; Notice to Trustee. The election of
the Company to redeem any Securities shall be evidenced by or pursuant to a
Board Resolution or an Officers' Certificate. In the case of any redemption at
the election of the Company of not less than all the Securities of any series,
the Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date, of the principal amount of Securities of
such series to be redeemed and, if applicable, of the tenor of the Securities to
be redeemed. In the case of any redemption of Securities (i) prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture, or (ii) pursuant to an election of
the Company which is subject to a condition specified in the terms at such
Securities, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction or condition.
Section 10.3 Selection of Securities to Be Redeemed. Unless
otherwise specified as contemplated by Section 3.1, if less than all the
Securities of a series with the same original issue date, interest rate and
Stated Maturity are to be redeemed, the Trustee, not more than 45 days prior to
the redemption date, shall select the Securities of the series to be redeemed in
such manner as the Trustee shall deem fair and appropriate. The Trustee shall
make the selection from the Securities of the series that are Outstanding and
that have not previously been called for redemption and may provide for the
selection for redemption of portions (equal to the minimum authorized
denomination for Securities of that series or any integral multiple thereof) of
the principal amount of Securities of such series of a denomination larger than
the minimum authorized denomination for Securities of that series. The Trustee
shall promptly notify the Company in writing of the Securities selected by the
Trustee for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed.
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For purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
Section 10.4 Notice of Redemption. Unless otherwise specified as
contemplated by Section 3.1, notice of redemption shall be given in the manner
provided in Section 1.6 not less than 30 days nor more than 60 days prior to the
Redemption Date to the Holders of the Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if fewer than all the Outstanding Securities of a series are to
be redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Security or Securities to be
redeemed;
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder will receive, without a
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed;
(5) the Place or Places of Payment where such Securities maturing
after the Redemption Date are to be surrendered for payment for the
Redemption Price;
(6) that Securities of the series called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price;
(7) that, on the Redemption Date, the Redemption Price will become
due and payable upon each such Security, or the portion thereof, to be
redeemed and, if applicable, that interest thereon will cease to accrue on
and after said date;
(8) that the redemption is for a sinking fund, if such is the case;
and
(9) CUSIP number.
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Notice of redemption of securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
Section 10.5 Deposit of Redemption Price. On or prior to any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 9.3) an amount of money sufficient to pay on the Redemption
Date the Redemption Price of, and (unless the Redemption Date shall be an
Interest Payment Date) interest accrued to the Redemption Date on, all
Securities or portions thereof which are to be redeemed on that date.
Unless any Security by its terms prohibits any sinking fund payment
obligation from being satisfied by delivering and crediting Securities
(including Securities, redeemed otherwise than through a sinking fund), the
Company may deliver such Securities to the Trustee for crediting against such
payment obligation in accordance with the terms of such Securities and this
Indenture.
Section 10.6 Securities Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Company shall default in the
payment of the Redemption Price and accrued interest) such Securities shall
cease to bear interest. Except as provided in the next succeeding paragraph,
upon surrender of any such Security for redemption in accordance with said
notice, such Security shall be paid by the Company at the Redemption Price,
together with accrued interest to the Redemption Date; provided, however, that,
unless otherwise specified as contemplated by Section 3.1, installments of
interest on Securities whose Stated Maturity is prior to the Redemption Date
shall be payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 3.7.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security.
Section 10.7 Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part at any Place of Payment therefor (with, if the Company
or the Trustee so required, due
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endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of that Security, without service charge,
a new Security or Securities of the same series, the same form and the same
Maturity in any authorized denomination equal in aggregate principal amount to
the unredeemed portion of the principal of the Security surrendered.
ARTICLE 11
Sinking Funds
-------------
Section 11.1 Applicability of Article. The provisions of this Article
shall be applicable to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 3.1 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment." If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 11.2. Each sinking fund payment shall be applied to the redemption
of Securities of any series as provided for by the terms of Securities of such
series.
Section 11.2 Satisfaction of Sinking Fund Payments with Securities. The
Company (i) may deliver Outstanding Securities of a series (other than any
previously called for redemption) and (ii) may apply as a credit Securities of a
series which have been redeemed either at the election of the Company pursuant
to the terms of such Securities or through the application of permitted optional
sinking fund payments pursuant to the terms of such Securities, in each case in
satisfaction of all or any part of any sinking fund payment with respect to the
Securities of such series required to be made pursuant to the terms of such
Securities as provided for by the terms of such series; provided that such
Securities have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
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Section 11.3 Redemption of Securities for Sinking Fund. Not less than 60
days prior to each sinking fund payment date for any series of Securities, the
Company shall deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing sinking fund payment for that series pursuant to the
terms of that series, the portion thereof, if any, which is to be satisfied by
payment of cash and the portion thereof, if any, which is to be satisfied by
delivering and crediting Securities of that series pursuant to Section 11.2 and
shall also deliver to the Trustee any Securities to be so delivered. Not less
than 30 days before each such sinking fund payment date, the Trustee shall
select the Securities to be redeemed upon such sinking fund payment date in the
manner specified in Section 10.3 and cause notice of the redemption thereof to
be given in the name of and at the expense of the Company in the manner provided
in Section 10.4. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
10.6 and 10.7.
---------------------
This Indenture may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute but one
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
FARMLAND INDUSTRIES, INC.
By:
----------------------------
Name:
Title:
THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION), as Trustee
By:
----------------------------
Name:
Title:
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EXHIBIT 4.2
[DRAFT--8/10/95]
FARMLAND INDUSTRIES, INC.
____% SENIOR NOTE DUE 2005
NO. R-1
CUSIP NO. ______________ U.S. $100,000,000
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC" OR THE "DEPOSITORY"), TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
FARMLAND INDUSTRIES, INC., a Kansas corporation (hereinafter called the
"Company", which term includes any successor corporation under the Indenture
referred to), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the sum of One Hundred Million Dollars (U.S.$100,000,000) on
______________, 2005, and to pay interest (computed on the basis of a 360-day
year of twelve 30-day months) thereon from ____________, 1995, or from and
including the most recent Interest Payment Date (as hereinafter defined) to
which interest has been paid or duly provided for, semi-annually on
______________ and ______________ in each year, commencing ______________, 1996,
through maturity (each an "Interest Payment Date"), until the principal hereof
is paid or has been duly provided for, at the rate of ___% per annum. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in said Indenture, be paid to the Person in whose
name this Note (or one or more Predecessor Securities, as defined in said
Indenture) is registered at the close of business on the __________ or
__________, as the case may be, next preceding each Interest Payment Date. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the registered Holder on each Interest Payment Date and may be
paid to the Person in whose name this Note (or one or more Predecessor
Securities) is registered at the close of business on a record date not more
than 15 days and not less than 10 days prior to the date fixed by the Trustee
for payment of such defaulted interest and not less than 10 days after the
receipt by the Trustee from the Company of notice of the proposed payment,
notice of which record date shall be given to
<PAGE>
Holders of Notes not less than 10 days prior to such record date, or may be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture. Payment of the principal of and interest on this Note will be made
at the office or agency of the Company maintained for that purpose in the
Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, provided, however, that at the option of the
Company payment of interest may be made (subject to collection) by check mailed
to the address of the Person entitled thereto as such address shall appear on
the Securities Register.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
* * *
-2-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY
OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR OF THE
DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR.
DATED: ___________________, 1995
FARMLAND INDUSTRIES, INC.
By:______________________________
Name:
Title:
[Seal]
ATTEST:
________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series designated and referred to in the
within-mentioned Indenture.
CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Trustee
By:______________________________
Authorized Signatory
-3-
<PAGE>
[Reverse of Note]
FARMLAND INDUSTRIES, INC.
____% SENIOR NOTE DUE 2005
This Note is one of a duly authorized issue of debentures, notes or other
evidences of indebtedness (hereinafter called the "Securities") of the Company,
all such Securities issued and to be issued under an Indenture for Debt
Securities (herein, together with all indentures supplemental thereto, called
the "Indenture") dated as of _______________, 1995, between the Company and The
Chase Manhattan Bank (National Association), as Trustee, to which Indenture
reference is hereby made for a specification of the rights and limitation of
rights thereunder of the Holders of the Securities and of the rights,
obligations, duties and immunities of the Trustee and of the Company. As
provided in the Indenture, the Securities may be issued in one or more series,
which different series may be issued in various aggregate principal amounts, may
mature at different times, may bear interest, if any, at different rates, may be
subject to different redemption provisions, if any, may be subject to different
sinking, purchase or analogous funds, if any, may be subject to different
covenants and Events of Default and may otherwise vary as in the Indenture
provided or permitted. This Note is one of a series designated on the face
hereof (the "Notes").
The Notes are not redeemable by the Company prior to maturity and do not
provide for any sinking fund.
If any Event of Default with respect to the Notes, as defined in the
Indenture, shall occur and be continuing, the principal of the Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding, as defined
in the Indenture, of each series of Securities to be affected thereby. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities of any series at the
time Outstanding, as defined in the Indenture, on behalf of the Holders of all
the Securities of such series, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences
-1-
<PAGE>
with respect to such series. Any such consent or waiver by the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the transfer herefor or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, this Note is transferable on the Securities Register of the Company, upon
surrender of this Note for registration of transfer at the office or agency of
the Company to be maintained for that purpose in the Borough of Manhattan, The
City of New York, duly endorsed by, or accompanied by a written instrument of
transfer in the form satisfactory to the Company and the Securities Registrar
duly executed by the Holder herefor or his attorney duly authorized in writing,
and thereupon one or more new Notes, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a like tenor and
of a different authorized denomination, as requested by the Holder surrendering
the same.
If at any time the Depositary for the Securities of a series notifies the
Company that it is unwilling or unable to continue as Depositary for the
Securities of such series or if at any time the Depositary for the Securities of
such series shall no longer be eligible under Section 3.3 of the Indenture, the
Company shall appoint a successor Depositary with respect to the Securities of
such series. If a successor Depositary for the Securities of such series is not
appointed by the Company within 90 days after the issuer receives such notice or
becomes aware of such ineligibility, the Company's election pursuant to Section
3.1 of the Indenture shall no longer be effective with respect to the Securities
of such series and the Company shall execute, and the Trustee, upon receipt of a
Company Order for the authentication and delivery of certificated Securities of
such series of like tenor, shall authenticate and deliver Securities of such
series of like tenor in certificated form, in authorized denominations and in an
aggregate principal amount equal to the
-2-
<PAGE>
principal amount of the Security or Securities of such series of like tenor in
global form in exchange for such Security or Securities in global form.
The Company may at any time in its sole discretion determine that
Securities of a series issued in global form shall no longer be represented by
such a Security or Securities in global form. In such event the Company shall
execute, and the Trustee, upon receipt of a Company Order for the authentication
and delivery of certificated Securities of such series of like tenor, shall
authenticate and deliver, Securities of such series of like tenor in
certificated form, in authorized denominations and in an aggregate principal
amount equal to the principal amount of the Security or Securities of such
series of like tenor in global form in exchange for such Security or Securities
in global form. Except as provided above, owners of beneficial interests in
this permanent global Note will not be entitled to receive physical delivery of
Notes in certificated registered form and will not be considered the Holders
thereof for any purpose under the Indenture.
No recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture or any indenture supplemental thereto or in this Note,
or because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or indirectly through the Company or any successor corporation, under
any rule of law, statute or constitutional provision or by the enforcement of
any assessment, penalty or by any legal or equitable proceeding or otherwise,
all such liability being expressly waived and released by the acceptance hereof
and as a condition of and as part of the consideration for the issue hereof.
The Indenture with respect to any series will be discharged and cancelled
except for certain Sections thereof, subject to the terms of the Indenture, upon
the payment of all the Securities of such series or upon the irrevocable deposit
with the Trustee of cash or Government Obligations (or a combination thereof)
sufficient for such payment in accordance with Article 4 of the Indenture.
Certain terms used in this Note which are defined in the Indenture have the
meanings set forth therein.
This Note shall for all purposes be governed by, and construed in
accordance with, the laws of the State of New York.
The Company, the Trustee and any agent of the Company or the Trustee may
deem and treat the person in whose name this Note is
-3-
<PAGE>
registered as the owner hereof for all purposes, whether or not this Note be
overdue and notwithstanding any notation of ownership or other writing hereon,
and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
-4-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -
___________________ Custodian ______________________
(Cust) (Minor)
Under Uniform Gifts to Minors Act
____________________________________________________
Additional abbreviations may also be used though not in the above list.
__________________________
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________________________
____________________________________
________________________________________________________________________________
(Please Print or Typewrite Name and Address of Assignee)
the within instrument of FARMLAND INDUSTRIES, INC. and does hereby irrevocably
constitute and appoint _________________________________________________________
____________________________ Attorney to transfer said instrument on the books
of the within-named Company, with full power of substitution in the premises.
Dated _____________ _____________________________________
Signature
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration by enlargement or any change whatever.
-5-
<PAGE>
Exhibit 12
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended August 31 -------------------
--------------------------------------------------------- May 31, May 31,
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Net Income (Loss)............ $ 48,580 $ 42,693 $ 61,046 $(30,400) $ 73,876 $43,308 $129,043
Income Tax Expense (Benefit). $ 9,604 $ 7,473 $ 9,458 $ (6,433) $ 4,890 $ 2,255 $ 21,439
Minority Interest in Income
of Subsidiary that has
Fixed Charges............... -0- -0- -0- 865 333 395 74
Minority Interest in Loss of
Subsidiary that has fixed
costs....................... -0- -0- -0- (37) (4,855) (5,352) 2,415
Equity Interest in Loss
(Earnings) of Less-than-
fifty Percent Owned
Investees................... 113 856 2,341 1,007 (603) (211) 783
Total Fixed Charges
(excluding interest
capitalized)................ 47,000 54,443 47,719 55,268 64,383 47,061 48,882
-------- -------- -------- -------- -------- ------- --------
Earnings..................... $105,297 $105,465 $120,564 $ 20,270 $138,024 $87,457 $202,637
======== ======== ======== ======== ======== ======= ========
Fixed Charges:
Interest (including
amounts capitalized)....... $37,226 $ 42,481 $ 34,426 $ 43,873 $ 51,842 $38,390 $ 39,986
Estimated Interest Component
of Rentals.................. 11,652 12,290 13,293 13,006 12,898 8,752 9,451
-------- -------- -------- -------- -------- ------- --------
Total Fixed Charges.......... $ 48,878 $ 54,771 $ 47,719 $ 56,879 $ 64,740 $47,141 $ 49,437
======== ======== ======== ======== ======== ======= ========
Ratio of Earnings to Fixed
Charges..................... 2.2 1.9 2.5 Note 1 2.1 1.9 4.1
Earnings Inadequate to Cover
Fixed Charges............... $ 36,609
========
</TABLE>
-----------
(1) In computing the ratio of earnings to fixed charges, earnings represent
pretax income (loss) for the enterprise as a whole including 100% of such
income (loss) of minority-owned subsidiaries which have fixed charges, the
Company's share of 50%-owned entities and any distributed earnings (but not
losses or undistributed earnings) of less-than-50% owned entities plus
fixed charges. Fixed charges consist of interest and finance charges on all
indebtedness plus that portion of rentals considered to be the interest
factor. Income was inadequate to cover fixed charges for the year ended
August 31, 1993. The dollar amount of the coverage deficiency was $36.6
million.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Farmland Industries, Inc.
We consent to the use of our report on the consolidated financial statements
and financial statement schedules of Farmland Industries, Inc. as of
August 31, 1994 and 1993 and for each of the years in the three-year period
ended August 31, 1994 incorporated herein by reference, and to the references
to our firm under the headings "Selected Consolidated Financial Data" in the
prospectus supplement and "Experts" in the prospectus.
Our report dated October 21, 1994 contains an explanatory paragraph concerning
income tax adjustments proposed by the Internal Revenue Service relating to
Terra Resources, Inc.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
August 10, 1995
<PAGE>
Exhibit 23.4
CONSENT OF SPECIAL TAX COUNSEL
Farmland Industries, Inc.:
We consent to the references to our firm in the Prospectus (or in any document
incorporated by reference in the Prospectus) filed as part of this Registration
Statement.
BRYAN CAVE
August 10, 1995
<PAGE>
EXHIBIT 25
Securities Act of 1933 File No. _________
(If application to determine eligibility of trustee
for delayed offering pursuant to Section 305(b)(2))
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)___________
__________________
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
(Exact name of trustee as specified in its charter)
13-2633612
(I.R.S. Employer Identification Number)
1 CHASE MANHATTAN PLAZA, NEW YORK, NEW YORK
(Address of principal executive offices)
10081
(Zip Code)
________________
FARMLAND INDUSTRIES, INC.
(Exact name of obligor as specified in its charter)
KANSAS
(State or other jurisdiction of incorporation or organization)
44-0209330
(I.R.S. Employer Identification No.)
3315 NORTH OAK TRAFFICWAY
KANSAS CITY, MISSOURI
(Address of principal executive offices)
64116-0005
(Zip Code)
__________________________________
DEBT SECURITIES
(Title of the indenture securities)
______________________________________________________________________________
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.
Board of Governors of The Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The Trustee is not the obligor, nor is the Trustee directly or
indirectly controlling, controlled by, or under common control
with the obligor.
(See Note on Page 2.)
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as a part of this statement of
eligibility.
*1. -- A copy of the articles of association of the trustee as now
in effect. (See Exhibit T-1 (Item 12), Registration No.
33-55626.)
*2. -- Copies of the respective authorizations of The Chase
Manhattan Bank (National Association) and The Chase Bank
of New York (National Association) to commence business
and a copy of approval of merger of said corporations,
all of which documents are still in effect. (See Exhibit
T-1 (Item 12), Registration No. 2-67437.)
*3. -- Copies of authorizations of The Chase Manhattan Bank
(National Association) to exercise corporate trust powers,
both of which documents are still in effect. (See Exhibit
T-1 (Item 12), Registration No. 2-67437).
*4. -- A copy of the existing by-laws of the trustee. (See Exhibit
T-1 (Item 16) (25.1), Registration No. 33-60809.)
*5. -- A copy of each indenture referred to in Item 4, if the
obligor is in default. (Not applicable).
*6. -- The consents of United States institutional trustees
required by Section 321(b) of the Act. (See Exhibit T-1,
(Item 12), Registration No. 22-19019.)
7. -- A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority. (See Exhibit 7)
___________________
*The Exhibits thus designated are incorporated herein by reference.
Following the description of such Exhibits is a reference to the copy of the
Exhibit heretofore filed with the Securities and Exchange Commission, to which
there have been no amendments or changes.
___________________
1.
<PAGE>
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee
of all facts on which to base a responsive answer to Item 2 the answer to said
Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an amendment
to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, The Chase Manhattan Bank (National Association), a corporation
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and the
State of New York, on the 3rd day of August 1995.
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By: /s/ Timothy E. Burke
-----------------------------
Timothy E. Burke
Second Vice President
_________________
2.
<PAGE>
REPORT OF CONDITION EXHIBIT 7
CONSOLIDATING DOMESTIC AND FOREIGN SUBSIDIARIES OF
THE CHASE MANHATTAN BANK, N.A.
OF NEW YORK IN THE STATE OF NEW YORK, AT THE CLOSE OF BUSINESS ON MARCH 31,
1995, PUBLISHED IN RESPONSE TO CALL MADE BY COMPTROLLER OF THE CURRENCY, UNDER
TITLE 12, UNITED STATES CODE, SECTION 161.
<TABLE>
<CAPTION>
CHARTER NUMBER 02370 COMPTROLLER OF THE CURRENCY NORTHEASTERN DISTRICT
STATEMENT OF RESOURCES AND LIABILITIES
ASSETS THOUSANDS
OF DOLLARS
<S> <C>
CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS:
NONINTEREST-BEARING BALANCES AND CURRENCY AND COIN.................................... $4,264,000
INTEREST-BEARING BALANCES............................................................. 6,755,000
HELD-TO-MATURITY SECURITIES............................................................. 1,571,000
AVAILABLE-FOR-SALE SECURITIES........................................................... 4,687,000
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL IN
DOMESTIC OFFICES OF THE BANK AND OF ITS EDGE AND AGREEMENT SUBSIDIARIES, AND IN IBFS:
FEDERAL FUNDS SOLD.................................................................... 2,502,000
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL....................................... 35,000
LOANS AND LEASE FINANCING RECEIVABLES:
LOANS AND LEASES. NET OF UNEARNED INCOME................................. $52,831,000
LESS: ALLOWANCE FOR LOAN AND LEASE LOSSES................................ 1,078,000
LESS: ALLOCATED TRANSFER RISK RESERVE.................................... 0
------------
LOANS AND LEASES, NET OF UNEARNED INCOME, ALLOWANCE, AND RESERVE........................ 51,753,000
ASSETS HELD IN TRADING ACCOUNTS......................................................... 17,278,000
PREMISES AND FIXED ASSETS (INCLUDING CAPITALIZED LEASES)................................ 1,785,000
OTHER REAL ESTATE OWNED................................................................. 441,000
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES..................... 46,000
CUSTOMERS' LIABILITY TO THIS BANK ON ACCEPTANCES OUTSTANDING............................ 1,077,000
INTANGIBLE ASSETS....................................................................... 809,000
OTHER ASSETS............................................................................ 6,346,000
-----------
TOTAL ASSETS............................................................................ $99,349,000
===========
LIABILITIES
DEPOSITS:
IN DOMESTIC OFFICES................................................................... $28,080,000
NONINTEREST-BEARING................................................... $10,224,000
INTEREST-BEARING...................................................... 17,856,000
-----------
IN FOREIGN OFFICES, EDGE AND AGREEMENT SUBSIDIARIES, AND IBFS......................... 35,906,000
NONINTEREST-BEARING.................................................... $ 2,695,000
INTEREST-BEARING....................................................... 33,211,000
-----------
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE IN DOMESTIC
OFFICES OF THE BANK AND OF ITS EDGE AND AGREEMENT SUBSIDIARIES, AND IN IBF'S:
FEDERAL FUNDS PURCHASED............................................................... 2,086,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE........................................ 158,000
DEMAND NOTES ISSUED TO THE U.S. TREASURY................................................ 194,000
TRADING LIABILITIES..................................................................... 13,545,000
OTHER BORROWED MONEY
WITH ORIGINAL MATURITY OF ONE YEAR OR LESS.............................................. 2,122,000
WITH ORIGINAL MATURITY OF MORE THAN ONE YEAR............................................ 429,000
MORTGAGE INDEBTEDNESS AND OBLIGATIONS UNDER CAPITALIZED LEASES.......................... 40,000
BANK'S LIABILITY ON ACCEPTANCES, EXECUTED AND OUTSTANDING............................... 1,081,000
SUBORDINATED NOTES AND DEBENTURES....................................................... 2,360,000
OTHER LIABILITIES....................................................................... 6,300,000
-----------
TOTAL LIABILITIES....................................................................... $92,301,000
-----------
LIMITED-LIFE PREFERRED STOCK AND RELATED SURPLUS........................................ 0
EQUITY CAPITAL
PERPETUAL PREFERRED STOCK AND RELATED SURPLUS........................................... 0
COMMON STOCK............................................................................ 917,000
SURPLUS................................................................................. 4,666,000
UNDIVIDED PROFITS AND CAPITAL RESERVES.................................................. 1,552,000
LESS: NET UNREALIZED LOSS ON MARKETABLE EQUITY SECURITIES............................... (98,000)
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENTS..................................... 11,000
-----------
TOTAL EQUITY CAPITAL.................................................................... 7,048,000
-----------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK, AND
EQUITY CAPITAL........................................................................ $99,349,000
===========
</TABLE>
I, LESTER J. STEPHENS, JR., SENIOR VICE PRESIDENT AND CONTROLLER OF THE ABOVE-
NAMED BANK DO HEREBY DECLARE THAT THIS REPORT OF CONDITION IS TRUE AND CORRECT
TO THE BEST OF MY KNOWLEDGE AND BELIEF.
(SIGNED) LESTER J. STEPHENS, JR.
WE THE UNDERSIGNED DIRECTORS, ATTEST TO THE CORRECTNESS OF THIS STATEMENT OF
RESOURCES AND LIABILITIES. WE DECLARE THAT IT HAS BEEN EXAMINED BY US, AND TO
THE BEST OF OUR KNOWLEDGE AND BELIEF HAS BEEN PREPARED IN CONFORMANCE WITH THE
INSTRUCTIONS AND IS TRUE AND CORRECT.
(SIGNED) THOMAS G. LABRECQUE
(SIGNED) RICHARD J. BOYLE DIRECTORS
(SIGNED) DONALD H. TRAUTLEIN
