<PAGE> 1
As Filed with the Securities and Exchange Commission on March 3, 1994
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
MARYLAND 52-1145429
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
TERRA CENTRE, 600 FOURTH STREET, P.O. BOX 6000
SIOUX CITY, IOWA 51102-6000
(712) 277-1340
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
GEORGE H. VALENTINE
VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
TERRA CENTRE, 600 FOURTH STREET, P.O. BOX 6000
SIOUX CITY, IOWA 51102-6000
(712) 277-1340
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
COPIES TO:
SCOTT N. GIERKE, P.C. VALERIE FORD JACOB
McDermott, Will & Emery Fried, Frank, Harris,
227 West Monroe Street Shriver & Jacobson
Chicago, Illinois 60606 One New York Plaza
New York, New York 10004
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be 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 a continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER LYON(2) OFFERING PRICE (2) FEE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liquid Yield Option(TM) Notes
Due 2009 . . . . . . . . . . . $230,000,000 $552.07 $126,976,100 $43,786
-------------------------------------------------------------------------------------------------------------------
Common Shares, without par value (3) N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------
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</TABLE>
(TM) Trademark of Merrill Lynch & Co., Inc.
(1) Includes $30,000,000 principal amount at maturity of LYONs subject to
the Underwriter's over-allotment option.
(2) Estimated in accordance with Rule 457 under the Securities Act of 1933
solely for purposes of calculating the registration fee.
(3) Such undeterminable number of Common Shares as may be required for
issuance upon conversion of the LYONs being registered hereunder.
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 BECOMES
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
<PAGE> 2
Exhibit 4
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.
<PAGE> 3
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 3, 1994
PROSPECTUS
$200,000,000
TERRA INDUSTRIES INC.
LIQUID YIELD OPTION(TM) NOTES DUE 2009
(ZERO COUPON-SENIOR)
The issue price of each Liquid Yield Option(TM) Note ("LYON") to be
issued by Terra Industries Inc. (the "Company") will be $ ( % of
principal amount at maturity) (the "Issue Price"), and there will be no
periodic payments of interest. The LYONs will mature on , 2009. The
Issue Price of each LYON represents a yield to maturity of % per annum
(computed on a semi-annual bond equivalent basis) calculated from ,
1994. The LYONs will be senior indebtedness of the Company. The Company is a
holding company and the LYONs will be effectively subordinated to all existing
and future liabilities, including indebtedness, of the Company's subsidiaries.
As of December 31, 1993, such subsidiaries had approximately $282 million of
total liabilities, including approximately $57 million of indebtedness. See
"Capitalization" and "Description of LYONs--Ranking and Holding Company
Structure."
Each LYON will be convertible at the option of the Holder at any time
on or prior to maturity, unless previously redeemed or otherwise purchased by
the Company, into common shares, without par value, of the Company (the "Common
Shares") at a conversion rate of shares per LYON (the "Conversion Rate").
The Conversion Rate will not be adjusted for accrued original issue discount
("OID"), but will be subject to adjustment upon the occurrence of certain
events affecting the Common Shares. The foregoing is subject to the Company's
right to pay cash equal to the market value of the Common Shares for which the
LYONs are convertible in lieu, in whole or in part, of delivering Common
Shares. Upon conversion, the Holder will not receive any cash payment
representing accrued OID; such accrued OID will be deemed paid by the Common
Shares, and/or cash in lieu thereof, received on conversion. See "Description
of LYONs--Conversion Rights." On March 2, 1994, the last reported sale price of
the Common Shares on the New York Stock Exchange ("NYSE") Composite Tape was
$8 1/8 per share.
The LYONs will be purchased by the Company, at the option of the
Holder, as of , 1999 and , 2004 (each, a "Purchase Date")
for a Purchase Price per LYON of $ and $ (Issue Price plus
accrued OID through each Purchase Date), respectively, representing a yield per
annum to the Holder on each such date of %, computed on a semi-annual bond
equivalent basis. The Company, at its option, may elect to pay the Purchase
Price on any Purchase Date in cash or Common Shares at the market value at that
time, or any combination thereof. See "Description of LYONs--Purchase of LYONs
at the Option of the Holder." In addition, as of 35 business days after the
occurrence of any Change in Control of the Company occurring on or prior to
, 1999, the LYONs will be purchased for cash by the Company, at the option of
the Holder, for a Change in Control Purchase Price equal to the Issue Price
plus accrued OID through the date set for such purchase. See "Description of
LYONs -- Change in Control Permits Purchase of LYONs at the Option of the
Holder."
The LYONs are not redeemable by the Company prior to , 1999.
On and after that date, the LYONs are redeemable for cash at the option of the
Company, in whole or in part, at Redemption Prices equal to the Issue Price
plus accrued OID through the date of redemption. See "Description of
LYONs--Redemption of LYONs at the Option of the Company."
For a discussion of certain United States federal income tax
consequences for Holders of LYONs, see "Certain United States Federal Tax
Considerations."
Application will be made to list the LYONs on the NYSE. The Common
Shares are currently listed on the NYSE and the Toronto Stock Exchange (the
"TSE") under the symbol TRA.
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE LYONS
OFFERED HEREBY.
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT PRICE TO UNDERWRITING PROCEEDS TO
AT MATURITY PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per LYON . . . . . . . . 100% % % %
- --------------------------------------------------------------------------------------------------------------------------------
Total(3) . . . . . . . . $200,000,000 $ $ $
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
$30,000,000 aggregate principal amount at maturity of LYONs on the same
terms as set forth above to cover over-allotments, if any. If the option
is exercised in full, the total Principal Amount at Maturity, Price to
Public, Underwriting Discount and Proceeds to Company will be $230,000,000,
$ , $ and $ , respectively. See "Underwriting."
The LYONs are offered by the Underwriter, subject to prior sale, when,
as and if delivered to and accepted by the Underwriter, and subject to approval
of certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the LYONs will be made, in book-entry form only, through the
facilities of The Depository Trust Company, on or about , 1994.
(TM) Trademark of Merrill Lynch & Co., Inc.
Merrill Lynch & Co.
The date of this Prospectus is , 1994.
<PAGE> 4
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, proxy statements, information statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements, information statements and
other information can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the regional offices of the Commission, located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60604 and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
information can also be inspected and copied at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York, 10005. The Company has
filed with the Commission a Registration Statement on Form S-3, of which this
Prospectus constitutes a part (together with any amendments thereto, the
"Registration Statement"), under the Securities Act with respect to the LYONs
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain items of which are contained in
schedules and exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission and to which reference is hereby made for
further information with respect to the Company and the LYONs offered hereby.
Statements made in this Prospectus concerning the contents of any documents
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, its Current Report on Form 8-K filed January 14, 1994 and
all other reports filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act prior to the termination of the offering made hereby are
incorporated herein by reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein, or in an amendment or supplement hereto which also is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents referred to above that have been
incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
the documents that are incorporated herein). Requests for such copies should
be directed to: George H. Valentine, Esq., Vice President, General Counsel and
Corporate Secretary, Terra Industries Inc., Terra Centre, 600 Fourth Street,
P.O. Box 6000, Sioux City, Iowa 51102-6000, telephone (712) 277-1340.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE LYONS
OFFERED HEREBY OR THE COMPANY'S COMMON SHARES, OR BOTH, AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OPEN MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[MAP]
-2-
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and consolidated financial statements (and notes thereto)
included elsewhere or incorporated by reference in this Prospectus. Except as
otherwise noted, all information in this Prospectus assumes no exercise of the
Underwriter's over-allotment option. Except as otherwise indicated, all
financial information regarding Terra Industries Inc. and its subsidiaries is
presented on the basis of generally accepted accounting principles. Unless
otherwise referred to herein or the context otherwise requires, references to
the "Company" shall mean Terra Industries Inc. and its direct and indirect
subsidiaries, and references to "Terra Industries" shall mean Terra Industries
Inc.
THE COMPANY
The Company is a leading producer of fertilizer, and a leading
marketer of fertilizer, crop protection and seed products. The Company owns
and operates the largest independent farm service center network in North
America and is the second largest supplier of crop production inputs in the
United States. In addition to marketing and producing crop production
products, the Company provides its grower customers with a comprehensive
selection of value-added services such as soil and plant tissue analysis, crop
production program recommendations, custom blending of fertilizers, field
application services, pest control-inspections, crop performance follow-up and
financing to selected growers.
The Company's business strategy is to be the supplier of choice for
crop production products and services. The Company's growth strategy is to
strengthen its market leadership position by increasing sales and improving
operating margins. Key elements of this strategy include (i) increasing
distribution volumes by expanding sales from Company-owned locations and its
affiliated dealer network, (ii) making strategic acquisitions of production and
distribution facilities, (iii) changing its product mix to include a higher
portion of its more profitable private label products and (iv) continuing to
build customer loyalty by providing value-added services.
The Company's distribution network is comprised of approximately 350
farm service centers, 58 fertilizer storage facilities and 770 affiliated
dealers serving the 48 contiguous United States and three provinces in the
eastern region of Canada. This network is served by independent suppliers and
the Company's production facilities, which include three nitrogen fertilizer
plants, one crop protection chemical formulation plant and seven liquid
chemical formulation facilities.
The Company markets its line of crop protection and production
products to farmers and dealers primarily in the midwestern, southern,
southwestern and southeastern regions of the United States, and the eastern
region of Canada. During 1993, approximately 60% of the Company's distribution
revenues consisted of retail sales to growers while 40% were at wholesale to
dealers.
On March 31, 1993, the Company expanded its operations into Canada
through its acquisition of a fertilizer production operation, two Agromart(R)
farm service centers and a 50% interest in 30 other Agromart(R) farm service
centers. On December 31, 1993, the Company acquired the business and
substantially all the assets of Asgrow Florida Company, a leading distributor
of fertilizer, crop protection products and seed to the vegetable, citrus and
ornamental markets in Florida.
-3-
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
LYONs . . . . . . . . . . . . . . . . . $200,000,000 aggregate principal amount at maturity ($230,000,000 aggregate principal
amount at maturity if the Underwriter's over-allotment option is exercised in full) of
LYONs due , 2009. There will be no periodic interest payments on the
LYONs. Each LYON will have an Issue Price of $ and a principal amount at
maturity of $1,000.
Yield to Maturity of LYONs . . . . . . % per annum (computed on a semi-annual bond equivalent basis) calculated from
, 1994.
Conversion Rights . . . . . . . . . . . Each LYON will be convertible, at the option of the Holder, at any time on or prior to
maturity, unless previously redeemed or otherwise purchased by the Company, into
Common Shares at the Conversion Rate of Common Shares per LYON. The Conversion Rate
will not be adjusted for accrued OID, but will be subject to adjustment upon the
occurrence of certain events affecting the Common Shares. The foregoing is subject to
the Company's right to pay cash equal to the market value of the Common Shares for which
the Common Shares are convertible in lieu, in whole or in part, of delivering Common
Shares. A Holder may not withdraw his conversion notice if the Company elects to pay
cash in lieu of delivering Common Shares. Upon conversion, the Holder will not receive
any cash payment representing accrued OID; such accrued OID will be deemed paid by the
Common Shares and/or cash received on conversion. See "Description of LYONs--Conversion
Rights."
Ranking and Holding
Company Structure . . . . . . . . . . The LYONs will be senior indebtedness of Terra Industries. As of December 31, 1993,
Terra Industries had no outstanding senior indebtedness.
Terra Industries is a holding company and the LYONs will be effectively subordinated
to all existing and future liabilities, including indebtedness, of subsidiaries of Terra
Industries. As of December 31, 1993, Terra Industries' subsidiaries had approximately
$282 million of total liabilities, including approximately $57 million of indebtedness.
The indenture for the LYONs (the "Indenture") contains no limitation on liens or the
amount of additional indebtedness that may be incurred by Terra Industries and its
subsidiaries. See "Description of LYONs -- Ranking and Holding Company Structure."
Original Issue Discount . . . . . . . . Each LYON is being offered at an OID for United States Federal income tax purposes
equal to the excess of the principal amount at maturity of the LYON over the amount of
its Issue Price. Prospective purchasers of LYONs should be aware that, although there
will be no periodic payments of interest on the LYONs, accrued OID will be includable
periodically in a Holder's gross income for United States Federal income tax purposes
prior to conversion, redemption, other disposition or maturity of such Holder's LYONs,
whether or not such LYONs are ultimately converted, redeemed, sold (to the Company or
otherwise) or paid at
</TABLE>
-4-
<PAGE> 7
<TABLE>
<S> <C>
maturity. See "Certain United States Federal Tax Considerations--U.S. Holders--
Original Issue Discount."
Sinking Fund . . . . . . . . . . . . . None.
Optional Redemption . . . . . . . . . . The LYONs will not be redeemable by the Company prior to , 1999. On and
after that date, the LYONs are redeemable for cash at any time at the option of the
Company, in whole or in part, at Redemption Prices equal to the Issue Price plus accrued
OID through the date of redemption. See "Description of LYONs--Redemption of LYONs at
the Option of the Company."
Purchase at the Option
of the Holder . . . . . . . . . . . . The Company will purchase any LYON, at the option of the Holder, as of , 1999
and , 2004, for a Purchase Price per LYON of $ and $ (representing
the Issue Price plus accrued OID through such Purchase Date), respectively, representing
a % yield per annum to the Holder upon such date, computed on a semi-annual bond
equivalent basis. Subject to certain exceptions, the Company, at its option, may elect
to pay the Purchase Price on any such Purchase Date in cash or Common Shares at the
market value of such Common Shares at that time, or any combination thereof. In
addition, as of 35 business days after the occurrence of a Change in Control of the
Company occurring on or prior to , 1999, the Company will purchase for cash any
LYON, at the option of the Holder, for a Change in Control Purchase Price equal to the
Issue Price plus accrued OID through the Change in Control Purchase Date. See
"Description of LYONs--Purchase of LYONs at the Option of the Holder" and "Description
of LYONs--Change in Control Permits Purchase of LYONs at the Option of the Holder" for a
summary of these provisions and the definition of "Change in Control."
Use of Proceeds . . . . . . . . . . . Of the estimated net proceeds, approximately $75 million will be used to retire certain
indebtedness of the Company and the balance will be available for the Company's
general corporate purposes, including acquisitions. See "Use of Proceeds."
Listing . . . . . . . . . . . . . . . . Application will be made to list the LYONs on the NYSE. The Common Shares are
currently listed on the NYSE and the TSE under the symbol TRA.
</TABLE>
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<PAGE> 8
SUMMARY FINANCIAL DATA
Set forth below are summary consolidated financial data for the
Company at and for the periods indicated. The following information should be
read in conjunction with the consolidated financial statements and the related
notes of the Company included elsewhere and incorporated by reference herein.
See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1989 1990 1991 1992 1993
------------ ------------ ------------ ------------ -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues . . . . . . . . $ 949,458 $ 962,202 $ 1,022,597 $ 1,082,191 $ 1,238,001
Cost of sales . . . . . . . . . 798,407 806,772 849,684 904,246 1,021,187
Depreciation and amortization . 14,242 14,997 14,399 14,994 15,470
Selling, general &
administrative expense . . . . 124,628 138,315 132,845 137,232 161,791
Equity in unconsolidated - - - - (2,275)
affiliates . . . . . . . . . .
------------ ------------ ------------ ------------ -------------
Income before interest and
income taxes . . . . . . . . . 12,181 2,118 25,669 25,719 41,828
Net interest expense . . . . . 17,134 17,056 12,563 7,533 9,683
------------ ------------ ------------ ------------ -------------
Income (loss) from
continuing operations
before income taxes . . . . (4,953) (14,938) 13,016 18,186 32,145
Income tax (provision) benefit. 316 816 (1,073) (7,757) (9,300)
------------ ------------ ------------ ------------ -------------
Income (loss) from
continuing operations . . . (4,637) (14,122) 12,033 10,429 22,845
Income (loss) from
discontinued operations . . 29,808 (94,379) (168,808) (1,665) -
------------ ------------ ------------ ------------ -------------
Income (loss) before
extraordinary items and
cumulative effect of
accounting changes . . . . . 25,171 (108,501) (156,775) 8,764 22,845
Extraordinary gain . . . . . . - - 5,115 - -
Cumulative effect of
accounting changes . . . . . - - - 22,265 -
------------ ------------ ------------ ------------ -------------
Net income (loss) . . . . . . . $ 25,171 $ (108,501) $ (151,660) $ 31,029 $ 22,845
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Per Common Share:
Income (loss) from
continuing operations . . . $ (0.07) $ (0.21) $ 0.18 $ 0.15 $ 0.33
Income (loss) from
discontinued operations . . 0.45 (1.43) (2.51) (0.02) -
------------ ------------ ------------ ------------ -------------
Income (loss) before
extraordinary items . . 0.38 (1.64) (2.33) 0.13 0.33
Extraordinary gain . . . . - - 0.07 - -
Cumulative effect of
accounting changes . . . - - - 0.32 -
------------ ------------ ------------ ------------ -------------
Net Income (loss) . . . . $ 0.38 $ (1.64) $ (2.26) $ 0.45 $ 0.33
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Dividends . . . . . . . . $ 0.09 $ 0.12 $ - $ - $ 0.02
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Ratio of earnings to
fixed charges(3) . . . . $ - $ - $ 1.6x $ 2.1x $ 2.4x
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993
----------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(1)
------ -------------
(in thousands)
<S> <C> <C>
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 231,287 $ 259,518
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634,482 666,371
LYONs offered hereby . . . . . . . . . . . . . . . . . . . . . . . . . . - 106,431
Other long-term debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . 119,061 47,004
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 242,980 240,495
</TABLE>
- ---------------------------
(1) Adjusted to reflect the sale of the LYONs offered hereby. See "Use of
Proceeds" and "Capitalization."
(2) Excludes current maturities.
(3) For the purposes of computing the ratio of earnings to fixed
charges, earnings consist of earnings from continuing operations before
income taxes, extraordinary items, cumulative effect of accounting changes
and fixed charges. Fixed charges include interest expense and the portion
of rents representative of the interest factor. For the years ended
December 31, 1989 and 1990, earnings before fixed charges were insufficient
to cover fixed charges by $4,953 and $14,938, respectively.
6
<PAGE> 9
INVESTMENT CONSIDERATIONS
Prospective investors should consider carefully, in addition to the
other information in this Prospectus, the following factors before purchasing
the LYONs offered hereby.
HOLDING COMPANY STRUCTURE
Terra Industries' assets consist primarily of investments in its
subsidiaries. As a result, Terra Industries' rights, and the rights of its
creditors (including Holders of LYONs) to participate in the distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization
will be subject to the prior claims of such subsidiary's creditors (including
trade creditors), except to the extent that Terra Industries is itself
recognized as a creditor of such subsidiary, in which case the claims of Terra
Industries would still be subject to the claims of any secured creditor of such
subsidiary and of any holder of indebtedness of such subsidiary senior to that
held by Terra Industries. As of December 31, 1993, Terra Industries'
subsidiaries had approximately $282 million of total liabilities, including
approximately $57 million of indebtedness. There are no restrictions in the
Indenture on the creation of additional senior indebtedness (or any other
indebtedness). See "Ranking and Holding Company Structure."
The LYONs are obligations exclusively of Terra Industries. Since the
operations of Terra Industries are currently conducted through subsidiaries,
Terra Industries' cash flow and its ability to service its debt, including the
LYONs, is dependent upon the earnings of its subsidiaries and the distribution
of those earnings to Terra Industries or upon loans or other payments of funds
by those subsidiaries to Terra Industries. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
amounts due pursuant to the LYONs or to make any funds available therefor,
whether by dividends, loans or other payments. In addition, the payment of
dividends and the making of loan advances to Terra Industries by its
subsidiaries are contingent upon the earnings of those subsidiaries and are
subject to various business considerations and restrictive loan covenants.
VOTING CONTROL BY PRINCIPAL SHAREHOLDER
Minorco, a Luxembourg corporation ("Minorco"), indirectly owns
approximately 53% of the outstanding capital stock of the Company. Minorco is a
publicly held international natural resources company with its principal
interests in mining and the processing of gold, base metals and industrial
materials, pulp, paper, packaging and in agribusiness. As a result of such
beneficial ownership of Common Shares, Minorco is able to control the election
of the Company's directors and the management and policies of the Company. In
addition, the possible future sale by Minorco of all or a portion of the Common
Shares held indirectly by it could adversely affect the market price of the
Common Shares.
INDUSTRY CONSIDERATIONS
The Company's future operating results are subject to certain external
factors which are beyond the Company's control, including the number of planted
acres; the types of crops planted; the effects general weather patterns have on
the timing and duration of field work for crop planting and harvesting; the
supply of crop inputs; the relative balance of supply and demand for nitrogen
fertilizers; the availability and cost of natural gas; and the availability and
cost of financing sources to fund seasonal working capital needs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors that Affect Operating Results."
SEASONALITY
The agricultural products business is seasonal, based upon the
planting, growing and harvesting cycles. Inventories must be accumulated in
the first few months of the calendar year to be available for seasonal sales,
requiring significant storage capacity. Inventory accumulations are financed
by suppliers or short-term borrowings, which are retired with the proceeds of
the sales of such inventory. In times of lower demand, the
-7-
<PAGE> 10
Company can reduce purchases, thereby decreasing inventory carrying costs.
Over half of the Company's sales generally occur during the second quarter of
each year.
ENVIRONMENTAL REGULATION
The Company's business activities are subject to stringent
environmental regulation by federal, provincial state and local governmental
authorities. There can be no assurance that existing regulations will not be
revised or that new regulations will not be adopted or become applicable to the
Company's business that would have a material and adverse affect on its
business or financial condition.
COMPETITION
The market for fertilizer, crop protection products, seed and services
for agriculture is highly competitive. Nationally, sales attributable to the
Company's farm service centers accounted for less than 10% of total crop
production products. However, within the specific market areas served by its
farm service centers, the Company's share of the market was substantially
higher. The Company's competitors include cooperatives, divisions of
diversified agribusiness companies, regional distributors and independent
dealers, some of which have substantially greater financial and other resources
than the Company. The Company competes primarily by providing a comprehensive
line of products and by providing what the Company believes to be superior
services to growers and dealers.
Ten percent of the fertilizer produced by the Company is sold to its
farm service centers, and the remaining 90% is sold to independent dealers,
national retail chains and cooperatives located close to The Company's
manufacturing plants. The Company competes with other manufacturers of
nitrogen fertilizer principally on the basis of price, delivery terms and
availability of products. The profitability of the Company, and the ability of
the Company to repay amounts due on the LYONs, will depend on its ability to
compete successfully.
-8-
<PAGE> 11
THE COMPANY
The Company is a leading producer of fertilizer, and a leading
marketer of fertilizer, crop protection and seed products. The Company owns
and operates the largest independent farm service center network in North
America and is the second largest supplier of crop production inputs in the
United States. In addition to marketing and producing crop production
products, the Company provides its grower customers a comprehensive selection
of value-added services such as soil and plant tissue analysis, crop production
program recommendations, custom blending of fertilizers, field application
services, pest control-inspections, crop performance follow-up and financing to
selected growers.
The Company's business strategy is to be the supplier of choice for
crop production products and services. The Company's growth strategy is to
strengthen its market leadership position by increasing sales and improving
operating margins. Key elements of this strategy include (i) increasing
distribution volumes by expanding sales from Company-owned locations and its
affiliated dealer network, (ii) making strategic acquisitions of production and
distribution facilities, (iii) changing its product mix to include a higher
portion of its more profitable private label products and (iv) continuing to
build customer loyalty by providing value-added services.
The Company's distribution network is comprised of approximately 350
farm service centers, 58 fertilizer storage facilities and 770 affiliated
dealers serving the 48 contiguous United States and three provinces in the
eastern region of Canada. This network is served by independent suppliers and
the Company's production facilities which include three nitrogen fertilizer
plants, one crop protection chemical formulation plant and seven liquid
chemical formulation facilities.
The Company markets its line of crop protection and production products
to farmers and dealers primarily in the midwestern, southern, southwestern and
southeastern regions of the United States, and the eastern region of Canada.
During 1993, approximately 60% of the Company's distribution revenues consisted
of retail sales to growers while 40% were at wholesale to dealers.
On March 31, 1993, the Company expanded its operations into Canada
through its acquisition of a fertilizer production operation, two Agromart(R)
farm service centers and a 50% interest in 30 other Agromart(R) farm service
centers for an aggregate consideration of $73 million (Cdn), of which
approximately $47 million (Cdn) was provided through lease financing. On
December 31, 1993, the Company acquired for $31 million (plus certain purchase
price adjustments) the business and substantially all the assets of Asgrow
Florida Company, a leading distributor of fertilizer, crop protection products
and seed to the vegetable, citrus and ornamental markets in Florida.
The Company's principal executive offices are located at Terra Centre,
600 Fourth Street, P.O. Box 6000, Sioux City, Iowa 51102-6000 and its telephone
number is (712) 277-1340.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the LYONs are
estimated to be approximately $ million ($ million if the Underwriter's
over-allotment option is exercised in full) net of estimated underwriting
discounts and offering expenses. Approximately $75 million of such estimated
net proceeds will be used to repay certain indebtedness incurred to fund the
retirement of all of the Company's outstanding 8.5% Convertible Subordinated
Debentures (the "Convertible Debentures"). The remaining estimated net
proceeds will be used for general corporate purposes, including acquisitions
and the expansion of the Company's existing operations. Pending any such uses,
the net proceeds will be invested in short-term investment grade securities.
-9-
<PAGE> 12
COMMON SHARES PRICE RANGE AND DIVIDENDS
The Company's Common Shares are listed on the NYSE and the TSE under
the symbol TRA. The following table sets forth the range of high and low sales
prices for the Common Shares on the NYSE Composite Tape and the amount of
dividends declared for the periods indicated.
<TABLE>
<CAPTION>
DIVIDENDS DECLARED
HIGH LOW PER COMMON SHARE
---- --- ------------------
<S> <C> <C> <C>
1992
First quarter . . . . . . . . . . . . $6 $4 3/8 $ -
Second quarter . . . . . . . . . . . 5 7/8 5 -
Third quarter . . . . . . . . . . . . 5 3/8 4 1/2 -
Fourth quarter . . . . . . . . . . . 5 1/4 4 1/4 -
1993
First quarter . . . . . . . . . . . . $4 7/8 3 3/4 $ -
Second quarter . . . . . . . . . . . 4 1/4 3 1/2 -
Third quarter . . . . . . . . . . . . 5 3 5/8 -
Fourth quarter . . . . . . . . . . . 7 7/8 4 1/2 0.02
1994
First quarter
(through March 2, 1994) . . . . . . . $ 8 3/4 $ 6 7/8 $ 0.02
</TABLE>
On March 2, 1994, the last reported sale price of the Common Shares on
the NYSE Composite Tape was $8 1/8 per share. As of February 28, 1994, the
Company had 5,774 shareholders of record.
The Company has no restriction (other than under Maryland corporate
law) with respect to the issuance or payments of dividends. While the Company
intends to pay regular dividends on its Common Shares in the future, the
decision to do so shall be made quarterly by the Board of Directors and is
dependent upon the Company's earnings, financial position, capital
requirements, credit agreements and such other factors as the Board of
Directors deems relevant. As a holding company, Terra Industries' ability to
pay dividends to its shareholders is partially dependent upon dividends and
loans from its subsidiaries. The payment of dividends and the making of loan
advances to Terra Industries by its subsidiaries are contingent upon the
earnings of those subsidiaries and are subject to various business
considerations and restrictive loan covenants.
-10-
<PAGE> 13
CAPITALIZATION
Set forth below is the capitalization of the Company at December 31,
1993, and as adjusted to reflect the sale of LYONs offered by the Company
hereby and the application of a portion of the net proceeds therefrom to fund
the retirement of the Convertible Debentures. See "Use of Proceeds." This
table should be read in conjunction with the Company's Consolidated Financial
Statements and the related notes and other financial information included
elsewhere or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
At December 31, 1993
----------------------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT, INCLUDING CURRENT MATURITIES
OF LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . $ 9,636 $ 9,636
------------------- ------------------
------------------- ------------------
LONG-TERM DEBT:
LYONS OFFERED HEREBY . . . . . . . . . . . . . . . . . . . . $ -- $ 106,431
CONVERTIBLE DEBENTURES . . . . . . . . . . . . . . . . . . . 72,057 --
OTHER LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . 47,004 47,004
------------------- -------------------
TOTAL LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . 119,061 153,435
------------------- ------------------
COMMON STOCKHOLDERS EQUITY:
COMMON SHARES, WITHOUT PAR VALUE, 114,375,000 SHARES 122,257 122,257
AUTHORIZED, 69,454,773 OUTSTANDING(1) . . . . . . . . . . .
PAID-IN-CAPITAL . . . . . . . . . . . . . . . . . . . . . . 516,128 516,128
CUMULATIVE TRANSLATION ADJUSTMENT . . . . . . . . . . . . . (488) (488)
ACCUMULATED DEFICIT . . . . . . . . . . . . . . . . . . . . (394,917) (397,402)
------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . 242,980 240,495
------------------- -------------------
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . $ 362,041 $ 393,930
------------------- -------------------
------------------- -------------------
</TABLE>
(1) EXCLUDES 2,145,000 COMMON SHARES SUBJECT TO OUTSTANDING STOCK OPTIONS, OF
WHICH 1,777,000 ARE CURRENTLY EXERCISABLE.
-11-
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is intended to provide information to
facilitate the understanding and assessment of significant changes and trends
related to the financial condition and results of operations of the Company.
This discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere or
incorporated by reference in this Prospectus.
CONSOLIDATED RESULTS
The Company's 1993 income from continuing operations was $22.8
million, or $0.33 per share, compared with 1992 income from continuing
operations of $10.4 million, or $0.15 per share, and 1991 income from
continuing operations of $12.0 million, or $0.18 per share. The Company's 1993
net income was $22.8 million, or $0.33 per share, compared with 1992 net income
of $31.0 million, or $0.45 per share, and a 1991 net loss of $151.7 million, or
$2.26 per share. Net income for 1992 included a credit of $22.3 million, or
$0.32 per share, to recognize the combined effect of changes in accounting for
income taxes and retiree medical benefits. Losses from discontinued businesses
were $1.7 million and $168.8 million in 1992 and 1991, respectively. The 1991
results included an extraordinary gain of $5.1 million related to the
retirement of Convertible Debentures.
FINANCIAL COMPARABILITY AND OVERVIEW
During 1993, the Company expanded its operations through the
acquisition of manufacturing and distribution businesses in Canada. Properties
acquired in Canada were comprised of the lease of an anhydrous ammonia
production and upgrading facility located near Sarnia, Ontario and ownership
interests in 32 farm service centers in Ontario, New Brunswick and Nova Scotia.
Two of the farm service centers are owned by Terra Canada and 30 are operated
by companies in which Terra Canada has a 50% ownership interest. The Canadian
properties, acquired as of March 31, 1993, contributed $98.3 million in
revenues and $8.9 million in net income to the Company's 1993 results.
The Company also purchased assets associated with 12 farm service
centers in Florida (Terra Asgrow) on December 31, 1993. This acquisition had
no effect on 1993 results of operations.
During 1992, the Company adopted Statement of Financial Accounting
Standards (SFAS) 106, "Employers' Accounting for Post-Retirement Benefits Other
than Pensions" and SFAS 109, "Accounting for Income Taxes." The cumulative
prior years' effect of these accounting changes as of January 1, 1992 was a
credit of $22.3 million, or $0.32 per share. The credit resulted principally
from the recognition of income tax benefits expected to be realized by the
Company from its net operating loss (NOL) and tax credit carryforwards. The
effect on 1992 income from continuing operations for these changes versus the
methods used in 1991 was a reduction of $7.2 million, or $0.10 per share.
As a result of the Company's decision to focus on agribusiness as its
sole operating segment and a gain on the sale of remaining coal properties
discontinued in 1990, the Company realized a $2.4 million gain on the
disposition of discontinued operations in 1992. During 1991, the Company
realized a loss of $170 million on the sale of its base metals segment for $87
million.
Operating results for 1992 and 1991 (there was no effect on operating
results for 1993) for the base metals, leasing, construction materials,
beryllium and gold businesses have been included in discontinued operations for
all periods presented and were as follows:
-12-
<PAGE> 15
<TABLE>
<CAPTION>
(in thousands) 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Base metals $ --- $ 176,760
Leasing 5,915 8,285
Construction materials 27,809 29,429
- --------------------------------------------------------------------------------------------------------------
$ 33,724 $ 214,474
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Net income (loss) from operations:
Base metals $ --- $ (4,827)
Leasing (2,801) 3,760
Construction materials (825) (195)
Other (399) 2,454
- --------------------------------------------------------------------------------------------------------------
$ (4,025) $ 1,192
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
FACTORS THAT AFFECT OPERATING RESULTS
Factors that may affect the Company's future operating results
include: the number of planted acres; the types of crops planted; the effects
general weather patterns have on the timing and duration of field work for crop
planting and harvesting; the supply of crop inputs; the relative balance of
supply and demand for nitrogen fertilizers; the availability and cost of
natural gas; management's ability to control selling, general and
administrative expenses; and the availability and cost of financing sources to
fund seasonal working capital needs.
The number of planted acres and the types of crops planted are
influenced by government programs designed to manage carryover stocks and
commodity prices of certain crops. Due to the higher cost of crop inputs per
acre for corn and cotton, compared with other major crops, changes in corn and
cotton acreages have a more significant effect on the demand for the Company's
products and services than changes in other crops. Significant declines in
corn carryover stocks have lowered 1994 government corn acreage set-asides. As
a result, and assuming more favorable weather conditions than experienced
during 1993, the U.S.D.A. forecasts and the Company expects planted corn
acreage to increase from 74 million acres to 80 million acres in 1994.
Weather can have a significant effect on operations. Weather
conditions that delay or intermittently disrupt field work during the planting
season may result in fewer crop inputs being applied than normal and/or shift
plantings to crops with shorter growing seasons. Similar conditions following
harvest may delay or eliminate opportunities to apply fertilizers in the fall
of the year. Weather can also have an adverse effect on crop yields, which
lowers the income of the Company's customers and could impair their ability to
pay for inputs purchased from the Company. During 1993, excessive moisture
through much of the Midwest resulted in higher-than-normal unplanted acreage
and fewer applications of crop inputs. Soil moisture levels remain high in
some Midwest areas and early spring precipitation could disrupt field work
during the 1994 planting season.
Reliable sources for supply of crop inputs at competitive prices are
critical to the distribution portion of the Company's business. The Company's
sources for fertilizer, agricultural chemicals and seed are typically basic
manufacturers of the products without an internal capability to distribute
products to the North American grower. The Company has entered into purchase
agreements which should ensure an adequate supply of products for its grower
and dealer customers through 1994.
Prices for manufactured fertilizers and feed products are influenced
by the world supply and demand balance for ammonia and nitrogen derivatives and
may be temporarily influenced by regional changes in supply and demand levels.
-13-
<PAGE> 16
The principal raw material used to produce nitrogen fertilizer is
natural gas. Natural gas costs comprise almost 50 percent of the total costs
and expenses associated with the Company's Manufactured Fertilizer operations.
The Company believes there is a sufficient supply of natural gas to allow
stable costs over the long-term and has entered into firm contracts to minimize
the risk of interruption or curtailment of natural gas supplies during the
heating season. At December 31, 1993, the Company had fixed prices for
approximately 40% of its 1994 natural gas requirements for its nitrogen
fertilizer plants using supply contracts or financial derivatives. During
1993, most of the natural gas used at the Company's Courtright Facility was
obtained pursuant to fixed price contracts that were considerably favorable
compared with U.S. contracts. The favorable gas supply contracts expired
during the 1993 fourth quarter. Compared with spot prices for natural gas, the
Company estimates the Courtright Facility's fixed price contracts reduced 1993
costs by $7.0 million.
The Company's business is highly seasonal with the majority of sales
occurring during the second quarter in conjunction with spring planting
activity. Due to the seasonality of the business and the relatively brief
periods products can be used by customers, the Company builds inventories
during the first quarter in order to ensure timely product availability during
the peak sales season. The Company's ability to purchase product at off-season
prices and carry inventory until periods of peak demand generally contributes
to gross profits. For its current level of sales, the Company requires lines
of credit to fund inventory increases as well as to support customer credit
terms. The Company believes that its revolving credit facilities,
approximating $156 million, which expire during 1995 are adequate for expected
1994 sales levels.
RESULTS OF CONTINUING OPERATIONS
1993 COMPARED WITH 1992
CONSOLIDATED RESULTS
The Company reported income from continuing operations of $22.8
million, or $0.33 per share, on revenues of $1,238.0 million in 1993, compared
with income from continuing operations of $10.4 million, or $0.15 per share, on
revenues of $1,082.2 million in 1992. The 1993 results include nine months of
operation of Terra International (Canada) Inc. ("Terra Canada"), an indirect
wholly owned subsidiary of Terra Industries, which added $98.3 million to
revenues and $8.9 million to income from continuing operations.
The Company's operations are classified into two major
categories--Distribution and Manufactured Fertilizer. The Distribution
category includes sales of products purchased from manufacturers and resold by
the Company. Distribution revenues are derived primarily from grower and
dealer customers through sales of chemicals, fertilizer, seed and related
services. The Manufactured Fertilizer category represents only those
operations directly related to wholesale sales of nitrogen fertilizer and feed
ingredients manufactured at the Company's Woodward, Port Neal and Courtright
Facilities.
-14-
<PAGE> 17
Total revenues and pretax income from continuing operations for the
years ended December 31, 1993 and 1992 by major operating category were as
follows:
<TABLE>
<CAPTION>
Revenues Pretax Income
- --------------------------------------------------------------------------------------------------------------
(in thousands) 1993 1992 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Distribution $ 1,019,438 $ 958,725 $ 16,903 $ 16,568
Manufactured Fertilizer 228,910 125,659 28,654 14,841
Other - net of intercompany eliminations (10,347) (2,193) 3,523 (877)
- --------------------------------------------------------------------------------------------------------------
Operating income 49,080 30,532
Non-operating expenses and net
interest expense (16,935) (12,346)
- --------------------------------------------------------------------------------------------------------------
Total from continuing operations $ 1,238,001 $ 1,082,191 $ 32,145 $ 18,186
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION
Distribution revenues of $1.02 billion in 1993 increased $60.7 million
from 1992 sales or 6.3%. Approximately $17.7 million of the sales increase
reflected a 3% increase in chemical sales, while the acquisition of the
Canadian business added $20.1 million of the sales increase, or 2.1%.
Distributed fertilizer sales increased $18.3 million and seed revenues
approximated 1992 levels. Revenue increases in 1993 were less than expected
due to weather conditions, especially the flooding and wet conditions in the
central United States, which reduced planted acres and input application rates.
Operating income for the Distribution business was $16.9 million in
1993, compared with $16.6 million in 1992. The acquisition of the Canadian
business added $4.0 million to Distribution operating income. Domestic
operating income included a $12.1 million increase in gross profits which was
more than offset by $15.8 million of higher direct selling expenses. The
increase in gross profits includes $5.4 million from higher sales volumes of
chemicals as well as margin improvements resulting primarily from the Company's
increased distribution of its Riverside(R) proprietary brand products. Gross
profits increased $4.3 million due to higher sales volumes for distributed
fertilizer; gross profits related to sales of other products and services
increased $2.4 million. Increases in 1993 direct selling expenses from 1992
were primarily due to a $8.1 million increase in compensation costs, which
related principally to normal wage increases and additional personnel, and
increased equipment leasing, operating and maintenance expenses of $3.7 million
related to the increased number of locations and excessively wet field
conditions. Advertising and promotional expenditures increased $1.3 million
from 1992.
MANUFACTURED FERTILIZER
Domestic Manufactured Fertilizer revenues increased 20% to $150.7
million in 1993 from $125.7 million in 1992. In addition, the acquisition of
the Courtright Facility added $78.2 million of Manufactured Fertilizer sales.
Increased domestic fertilizer sales volumes added 15% to revenues and higher
selling prices for nitrogen fertilizer and feed products increased revenues by
5%. The additional sales volume and higher selling prices were principally the
result of increased demand for nitrogen solution fertilizers which were heavily
used in the shortened planting season.
Operating income for the Manufactured Fertilizer business in 1993 was
$28.7 million, compared with $14.8 million in 1992. The Courtright Facility
contributed $9.5 million to the increase in 1993 operating income. Higher
domestic sales volumes contributed $4.0 million to earnings for 1993. Expanded
domestic ammonia production and 1992 maintenance turnarounds on both domestic
plants improved 1993 gas conversion efficiency which added $2.0 million to
operating income while excess 1992 turnaround costs of $3.0 million were not
-15-
<PAGE> 18
repeated. Higher selling prices for domestic production increased earnings by
$6.6 million but were more than offset in 1993 by $11.3 million of cost
increases caused mainly by natural gas price increases.
OTHER OPERATING INCOME
Other operating income was $3.5 million in 1993, compared with a 1992
loss of $.9 million, as the result of reversing $4.2 million of product
liability reserves expensed in 1989, reflecting the settlement of litigation
with DuPont over the fungicide Benlate.
NON-OPERATING EXPENSES AND NET INTEREST EXPENSE
Non-operating expenses, which include corporate and unallocated
expenses and interest expense, net of interest income, totaled $16.9 million in
1993, compared with $12.3 million in 1992. Corporate and unallocated expenses
increased $4.6 million in 1993 from 1992 as a result of additional interest
expense due to the November 1992 issuance of $30.0 million of unsecured notes
and short-term bond trading losses.
INCOME TAXES
For 1993, the income tax provision rate was lower than statutory rates
due to the utilization of previously unrecognized capital loss carryforwards.
For federal income tax reporting purposes, the Company has remaining NOLs of
$55 million and tax credits of $1.7 million to offset taxable income and
regular tax liabilities, respectively.
RESULTS OF CONTINUING OPERATIONS
1992 COMPARED WITH 1991
CONSOLIDATED RESULTS
Income from continuing operations was $10.4 million, or $0.15 per
share, for 1992 compared with $12.0 million, or $0.18 per share, for 1991. The
1992 income tax provision was $6.7 million higher than in 1991 primarily as the
result of the Company's change in accounting for income taxes. The Company
recorded 1992 income from continuing operations before income taxes of $18.2
million compared with $13.1 million in 1991. Total revenues were $1,082.2
million in 1992 compared with $1,022.6 million in 1991.
Total revenues and pretax income from continuing operations for the
years ended December 31, 1992 and 1991 by major operating category were as
follows:
<TABLE>
<CAPTION>
Revenues Pretax Income
- --------------------------------------------------------------------------------------------------------------
(in thousands) 1992 1991 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution $ 958,725 $ 899,250 $ 16,568 $ 9,991
Manufactured Fertilizer 125,659 126,664 14,841 26,703
Other - net of intercompany eliminations (2,193) (3,317) (877) (2,085)
- --------------------------------------------------------------------------------------------------------------
Operating income 30,532 34,609
Non-operating expenses and net
interest expense (12,346) (21,503)
- --------------------------------------------------------------------------------------------------------------
Total from continuing operations $ 1,082,191 $ 1,022,597 $ 18,186 $ 13,106
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE> 19
DISTRIBUTION
Distribution revenues of $958.7 million in 1992 increased $59.4
million from 1991 sales of $899.3 million. Chemical sales increased $64.7
million, or 11%, during 1992 principally as the result of increased sales
volumes in the market area that covers Mississippi, Arkansas, Tennessee,
Louisiana and portions of Missouri. Within this market area, demand for cotton
insecticide showed the largest increase. Retail fertilizer volumes increased
$14.1 million, or 7%, in 1992 due to increased application rates and market
share growth. Total distributed fertilizer sales declined, however, due to the
expiration of a dealer supply agreement for phosphate fertilizers and a 4%
reduction in selling prices. Seed sales increased $4.6 million, or 10%, over
1991 levels.
Operating income for the Distribution business was $16.6 million in
1992, compared with $10.0 million in 1991. The increase in 1992 operating
income reflected a $12.4 million increase in gross profits offset by a 5%, or
$5.8 million, increase in direct selling expenses. The higher gross profits
resulted primarily from increased sales volumes as overall gross margins
approximated 1991 levels. Increases in 1992 direct selling expenses from 1991
were primarily due to a $4.7 million increase to compensation costs that
reflected normal wage increases, higher medical benefit costs and additional
personnel. Expenses compared with 1991 also increased by $1.0 million as the
result of the accounting change to recognize retiree medical costs over the
employee's service period.
MANUFACTURED FERTILIZER
Manufactured Fertilizer revenues totaled $125.7 million in 1992
compared with $126.7 million in 1991. Selling prices for fertilizer and feed
ingredients manufactured by the Company declined by $2.3 million, or 2%, in
1992 due primarily to a higher proportion of off-season sales of ammonia, when
prices are generally lower. The pricing reductions were partially offset by
increased ammonia volumes.
Operating income for Manufactured Fertilizer operations declined $11.9
million to $14.8 million in 1992 from $26.7 million in 1991. Lower selling
prices combined with a 10% increase in natural gas costs reduced 1992 operating
income by $7.5 million. Natural gas costs increased significantly over 1991
levels during the last six months of 1992 as the result of lower industry-wide
inventories and increased regulatory tariffs. Manufacturing costs for 1992
were also increased by $3.0 million for higher-than-anticipated costs of
maintenance turnarounds at both nitrogen production facilities. Manufacturing
costs for 1991 were reduced $1.3 million by insurance proceeds.
NON-OPERATING EXPENSES AND NET INTEREST EXPENSE
Non-operating expenses, which include corporate and unallocated
expenses and interest expense, net of interest income, totaled $12.3 million in
1992 compared with $21.5 million in 1991. Corporate and unallocated expenses
declined to $4.8 million in 1992 from $8.9 million in 1991 primarily as the
result of the August 1991 closing of the Company's New York corporate office.
Interest expense was reduced from $14.4 million in 1991 to $10.6 million in
1992 due to lower seasonal borrowings, the retirement of $31.4 million of
Convertible Subordinated Debentures during the last half of 1991, scheduled
debt repayments and lower interest rates. Interest income increased to $3.1
million in 1992 from $1.8 million in 1991 due to higher average cash balances
as the result of 1991 asset sales.
LIQUIDITY AND CAPITAL RESOURCES
During 1993, cash was provided primarily through operating activities
and the sale of assets associated with discontinued operations and was utilized
for two major acquisitions, the continued upgrading of production facilities,
funding of sales growth and repayment of debt.
-17-
<PAGE> 20
Cash was used to fund increases in accounts receivable of $50.8
million and inventory of $46.4 million, including $26.8 million in accounts
receivable and $30.1 million in inventory related to acquisitions. Higher
fourth quarter 1993 sales than in 1992 caused the majority of the remaining
increase in the accounts receivable balance. The remaining increases in
inventory resulted from off-season purchases to obtain discounts, increased
crop protection chemicals stocked under the Company's Riverside label and
higher fertilizer inventory in anticipation of seasonal price increases.
Asset sales during 1993 generated $24.4 million, including $18.5
million from the sale of the construction materials business and $5.9 million
from the sale of the remaining leasing business. Asset sales generated $23.1
million of cash during 1992, which included $12.0 million from the sale of coal
properties and $10.0 million from the sale of a leasing subsidiary.
The 1993 Canadian acquisition was funded through an operating lease
for the production facilities and $19.9 million in cash. A $35 million
Canadian dollar revolving credit facility is available to provide for Terra
Canada's working capital needs. The Terra Asgrow (Florida) purchase was closed
December 31, 1993 with $31.0 million paid from available cash. Payments for
the Canadian and Florida acquisitions included $20.5 million for non-current
assets.
Purchases of property, plant and equipment totaled $21.6 million in
1993 compared with $17.6 million in 1992. Except for $6.9 million spent for a
methanol manufacturing plant at the Woodward, Oklahoma facility, the 1993
capital expenditures were for routine replacements of property, plant and
equipment and service center expansions. The Company expects 1994 capital
expenditures to approximate $27 million, of which $8 million relates to
completing the methanol manufacturing plant. The remaining $19 million of
capital expenditures will be used for routine replacements of property, plant
and equipment, expansion of service centers, and efficiency improvements at the
fertilizer production plants.
Repayment of long-term debt during 1993 and 1992 was limited to
scheduled repayments. Consolidated debt, including the portion due within one
year, as a percentage of total capital was 35% at December 31, 1993 and 38% as
of December 31, 1992. During 1992, the Company issued $30 million of long-term
debt through a private placement to be used for general operating purposes.
In July 1993, the Board of Directors authorized a share repurchase
program for up to two million Common Shares. During 1993, 106,900 Common
Shares were repurchased for $0.5 million. In the fourth quarter of 1993, the
Board of Directors declared and paid a $0.02 per share regular quarterly
dividend.
The ratio of current assets to current liabilities at December 31,
1993 was 2.1, unchanged from December 31, 1992. The Company's current ratio
will generally decline through June as seasonal increases in inventories and
receivables are funded by increases in current liabilities.
Current financial resources are expected to be adequate to meet normal
requirements during 1994. Cash balances at December 31, 1993 were $65.1
million, of which $13.0 million is used to collateralize letters of credit
supporting recorded liabilities. The Company has a $130 million revolving
credit facility to fund seasonal increases in inventories and receivables. The
facility expires December 31, 1995. Credit agreements outstanding at December
31, 1993 contain certain restrictions, which are described in Notes 8 and 10 to
the Consolidated Financial Statements. In addition, these agreements restrict
the transfer of cash and other assets from certain operating subsidiaries to
Terra Industries.
The Company plans to grow internally and through acquisitions.
Management believes the present working capital position combined with
projected cash flows and available borrowing capacity and other financing
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alternatives will be sufficient to meet anticipated cash requirements for
operating needs, capital expenditures and expansion strategies.
BUSINESS
GENERAL
The Company is a leading producer of fertilizer, and a leading marketer
of fertilizer, crop protection and seed products. The Company owns and
operates the largest farm service center network in North America and is the
second largest supplier of crop production inputs in the United States. In
addition to marketing and producing crop production products, the Company
provides its grower customers with a comprehensive selection of value-added
services such as soil and plant tissue analysis, crop production program
recommendations, custom blending of fertilizers, field application services,
pest control-inspection, crop performance follow-up and financing to selected
growers.
The Company's distribution network is comprised of approximately:
o 350 farm service centers in North America;
o 58 fertilizer storage facilities; and
o 770 affiliated dealers serving growers in the 48 contiguous
states.
The Company's production facilities are comprised of:
o 3 nitrogen fertilizer plants located in Oklahoma (the
"Woodward Facility"), Iowa (the "Port Neal Facility") and
Ontario (the "Courtright Facility");
o 1 crop protection chemical formulation plant located in
Arkansas (the "Blytheville Facility"); and
o 7 additional liquid chemical formulation facilities.
The Company's Canadian operations were acquired, effective March 31,
1993, as a result of the acquisition by Terra Canada from ICI Canada Inc.
("ICI") of ICI's interest in the Agromarts(R) and the Courtright Facility.
Terra Canada's farm service centers operate under the trademark "Agromart(R),"
two of which are wholly owned by Terra Canada. The others are operated by
corporations in which Terra Canada owns a 50% interest.
On December 31, 1993, the Company acquired from The Upjohn Company the
business and most of the assets of Asgrow, a leading distributor of fertilizer,
crop protection products and seed to the vegetable, citrus and ornamental
markets in Florida. These retail locations are initially being operated under
the name "Terra Asgrow Florida."
The Company is organized and conducts its operations through two
primary business units: Distribution and Manufactured Fertilizer.
DISTRIBUTION
The Company's Distribution business, which employed approximately
1,775 people as of December 31, 1993, manages a network of farm service centers
and a distribution system for crop protection products, fertilizer, seed and
crop production services. Through these operations, the Company markets a
comprehensive line of
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crop protection products (herbicides, insecticides, fungicides, adjuvants,
plant growth regulators, defoliants and desiccants), fertilizer (nitrogen,
phosphates, potash and micronutrients), seed and crop production services to
farmers and dealers primarily in the midwestern, southern, southwestern and
southeastern regions of the United States, and the eastern region of Canada.
Approximately 60% of the Distribution business' revenues were attributable to
retail sales to growers in 1993 while approximately 40% were attributable to
wholesale sales to dealers.
In addition to selling products required to grow crops, the Company's
sales representatives provide services to grower customers through the
Company's approximately 350 farm service center locations. These services
include soil and plant tissue analysis and crop production program
recommendations, custom blending of fertilizers, field application services for
fertilizer and crop protection products, and field inspections for pest control
and crop program performance follow-up.
The Company markets its products primarily to agricultural customers,
including both dealers and growers. In connection with its product sales, the
Company provides warehousing and delivery services and makes available to its
dealer customers many of the services and training courses utilized by
Company-operated locations in support of the sales programs.
The Company also markets its products through its Professional
Products group to non-farm customers, including turf growers, nurseries, golf
courses, parks and athletic facilities. The Company offers these customers
herbicides, insecticides, fungicides, fertilizer, adjuvants, plant growth
regulators, seed and agronomic services. The Company's Professional Products
personnel generally work through existing Terra International farm service
center locations using established delivery systems and product lines.
The Company's Distribution operations are organized into the Northern
and Southern Divisions and 13 regions. Field personnel receive regular
training through Terra University(R), a series of courses designed to develop
skills in agronomy, management, sales, environmental and personal safety, and
field application. The field salespeople are supported by a full-service soil
and plant tissue analysis laboratory, a staff of agronomists and a research
station where the efficacy of various crop protection products and the
performance of numerous seed varieties are tested.
The Company markets several major seed brands and, in its U.S.
marketing area is the largest independent seed distributor. The Company
focuses particular marketing efforts on its proprietary brand of corn hybrids,
soybean and cotton seed varieties, which provide higher margins and represented
approximately 20% of total seed sales in 1993. The Company also sells DEKALB
brand seed under a unique marketing and distribution agreement through the
Company's Corn Belt distribution network.
Although most agricultural chemicals marketed by the Company are
manufactured by unaffiliated suppliers, the Company also markets its own
Riverside(R) brand agricultural chemicals. The Company's Riverside(R) line
includes over 100 products, nine of which were added in 1993. The Riverside(R)
product line consists of herbicides, insecticides, fungicides, adjuvants, seed
treatments, plant growth regulators, defoliants and desiccants. The Company
possesses and processes the registrations required by the United States
Environmental Protection Agency (the "EPA") for its Riverside(R) pesticide
products. Riverside(R) products represented approximately 16% of total crop
protection product sales in 1993. The majority of Riverside(R) products are
formulated and packaged in facilities owned by the Company. The Riverside(R)
line includes several formulations produced exclusively by the Company, but
does not include proprietary agricultural chemicals. Riverside(R) products
provide higher gross margins than most products manufactured by unaffiliated
suppliers, but the sale of such products also involves additional indirect
costs, including the cost of maintaining and disposing of excess inventory and
potentially greater liability for product defects.
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The Company offers its customers a complete production program,
consisting of fertilizer, seed and chemicals for major field crops. The
Company's farm service centers utilize its Ag Analytical Services lab in Elida,
Ohio to analyze nutrient levels of customer soil and plant tissue samples. The
results of these tests are analyzed by the Company's proprietary CropMaster(R)
program, which provides specific, localized soil fertility recommendations for
specific crops on a field-by-field basis. Crop input recommendations are
provided via computer terminals at most farm service center locations, which
are linked to a mainframe computer located at the Company's headquarters in
Sioux City, Iowa. Recommendations can be made for substantially all crops
grown in the Company's marketing geography. The program also provides "least
cost" nutrient blending formula recommendations, makes seed variety
recommendations based on hybrid characteristics and other factors important to
the individual grower, and maintains crop input records for grower customers.
For selected dealer customers, the Company offers a services package
called MarketMasteTM to enhance the Company's relationship with these key
dealers and increase sales. The package includes environmental and safety
audits, special training courses, access to the Company's Ag Analytical
Services lab, use of CropMaster(R) and other services. There were
approximately 475 MarketMasterTM dealer sites at December 31, 1993, and
additional dealer sites are expected in 1994.
PRODUCT FORMULATIONS
The Company's Blytheville Facility formulates dry flowable ("DF") crop
protection products and liquid crop protection chemicals in separate production
lines at the same location. DF formulations are small, dry, water-dispersible
granules that are mixed with water before application. Because of their dry
form, the granules have several benefits compared with liquid formulations,
including: easier package disposal; easier cleanup of accidental spills;
absence of toxic solvents; no fumes; less weight; less space required for
storage; and no product loss from freezing temperatures or settling. Because
of these benefits, the Company expects more agricultural chemicals will be
offered to growers in DF form in the future. The Blytheville Facility is one
of 13 known DF plants in the U.S. and formulates eight DF products and six
liquid products. Approximately 40% of the plant's volume in 1993 was
attributable to the Company's own Riverside(R) brand product line. The Company
has developed several DF formulations not available from any other producer or
formulator. The Company has also developed DF formulations for a number of
companies that contract all or portions of their production at the Blytheville
Facility.
MANUFACTURED FERTILIZER
The Company's Manufactured Fertilizer business, which employed 521
people as of December 31, 1993, produces, sells and delivers nitrogen
fertilizers and selected animal feed ingredients to wholesale agribusiness
customers and anhydrous ammonia products to industrial customers. Its
principal customers are large independent dealers, national retail chains,
cooperatives and industrial consumers. Its competitors are typically large
national fertilizer distributors or producers of nitrogen fertilizers. The
Company is North America's fifth largest producer of anhydrous ammonia (the
basic raw material for nitrogen fertilizers) and the fourth largest nitrogen
solutions manufacturer. In 1993, fertilizer and feed ingredients manufactured
by the Company accounted for approximately 38.0% of the Company's total sales.
The Company's nitrogen fertilizer manufacturing facilities, consisting
of the Woodward Facility, the Port Neal Facility and the Courtright Facility
(together, the "Manufacturing Facilities"), are integrated facilities for the
production of anhydrous ammonia, urea liquor and nitrogen fertilizer solutions.
In addition, the Port Neal and Courtright Facilities produce solid urea for
both the feed and fertilizer markets.
Each Manufacturing Facility is designed to operate continuously except
for planned biennial shutdowns for maintenance or installation of efficiency
improvements. The average utilization of the Port Neal, Woodward
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and Courtright Facilities over the last three years was approximately 92%, 95%,
and 91%, respectively. Utilization for the Port Neal Facility during 1992 was
adversely affected by an extended shutdown for capital improvements and planned
maintenance, which took longer to complete than originally scheduled. As a
result of the capital improvements, annual anhydrous ammonia production
capacity increased by approximately 70,000 tons in 1993.
Approximately 90% of the Company's fertilizer production is sold to
independent dealers, national retail chains, cooperatives and industrial
consumers. The remaining 10% percent is sold through the Company's farm
service centers to retail customers.
During 1993, the Company began implementation of plans to co-produce
methanol and ammonia at its Woodward Facility. The total project is expected
to be completed in the first half of 1994 and will enable the Company to
convert a portion of that plant's ammonia production to up to 400 tons per day
of methanol, depending on the relative demand of ammonia and methanol. The
project cost is estimated to be $15 million.
The acquisition of the Courtright Facility added approximately 450,000
tons of capacity to the Company's production of anhydrous ammonia, 130,000 tons
of urea liquor capacity, 140,000 tons of urea-ammonium nitrate (UAN) solutions
capacity and 115,000 tons of ammonium nitrate capacity. The Courtright
Facility's urea liquor and granulation capacity are expected to increase as a
result of a plant upgrade project, announced in February 1994. The project is
expected to be completed in 1995 and will enable the Company to replace 65,000
tons of annual industrial ammonia sales with higher value urea and nitrogen
solution sales. The project cost is estimated to be approximately $20 million
and is expected to be funded through lease financing.
CREDIT
A substantial portion of the Company's sales to its grower and dealer
customers is made on credit terms customary in the industry. During the third
quarter of 1992, the Company established a grower financing program to provide
crop input financing to certain grower customers for all operating requirements
on extended payment terms. In 1993 the Company provided approximately $25
million in financing to grower customers under this program and expects to
finance about $50 million in 1994.
SUPPLY
Reliable sources for supply of crop inputs at competitive prices are
critical to the Company's Distribution business. The Company purchases
products from various chemical and fertilizer suppliers at prevailing market
prices. The Company has entered into purchase agreements with basic chemical
and fertilizer manufacturers to help ensure an adequate supply of products for
its grower and dealer customers through 1994. The Company also purchases
various chemicals and catalysts used in manufacturing and formulation.
Availability of these materials is currently considered adequate to meet
production needs.
The principal raw material used by the Company in its nitrogen
fertilizer manufacturing operations at its Manufacturing Facilities is natural
gas. Natural gas costs comprised approximately 50% of the total costs and
expenses associated with the Company's Manufactured Fertilizer operations
during 1993.
The Company currently purchases natural gas from various suppliers,
principally under 12-month gas supply contracts with a combination of fixed and
market price terms, and engages in the use of other forward pricing mechanisms
to protect against significant unexpected increases in the price of natural
gas. The Company has minimized the risk of interruption or curtailment of its
natural gas supply during the heating season of 1993-1994 by securing firm
transportation contracts for the majority of the natural gas requirements for
its
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Manufacturing Facilities. Approximately 40% of the Company's 1994 natural gas
requirements have been set by forward pricing mechanisms.
TRANSPORTATION
The Company uses several modes of transportation to receive and
distribute products to customers and its own locations, including railroad and
tank cars, common carrier trucks, barges, common carrier pipelines and
Company-owned or leased vehicles. During 1993, the Company operated 35 liquid,
21 dry and two anhydrous ammonia fertilizer terminal storage facilities
strategically located in 18 states and Ontario to help ensure efficient
movement and seasonal product availability. The Company also has varying
amounts of warehouse space at each of its farm service center locations.
Through Terra Express, Inc. and Terra Express of Oklahoma, Inc.,
wholly owned truck transportation subsidiaries of Terra International
(together, "Terra Express"), the Company provides transportation services to
its own facilities and customers as a contract carrier. Terra Express uses
approximately 90 owner-operated units and twenty Company-owned units to deliver
fertilizer, crop protection products, seed, feed ingredients and other products
for its customers and the Company's own locations. At its Manufacturing
Facilities, its Blytheville Facility and liquid fertilizer storage locations,
the Company utilizes railcars as the major method of transportation. All of
the Company's approximately 1,100 railcars are leased.
Purchased gas is transported to the Port Neal Facility via an
interstate pipeline operating as an open access natural gas transporter. Under
a Federal Energy Regulatory Commission order, the Company maintains facilities
for direct access to its interstate pipeline shipper, avoiding additional costs
of local utility services. The Company transports purchased natural gas for
its Woodward Facility through an intrastate pipeline that is not an open access
carrier; however, the Company is able to transport gas supplies from any
in-state source connected to the widespread pipeline system. The Courtright
Facility utilizes local gas storage service provided by a local utility, and
purchased gas is transported from western Canada through the TransCanada
Pipeline under various delivery contracts.
RESEARCH AND DEVELOPMENT
The Company operates a 70-acre Agronomy Research Station near its Port
Neal Facility for product and program development and testing, and routinely
conducts product evaluation and testing with growers and universities. The
Company also develops DF and other chemical formulations for its Riverside(R)
product line and for basic chemical products at its product development
laboratory located in Blytheville, Arkansas.
EMPLOYEES
The Company had approximately 2,390 full-time employees at December
31, 1993, none of whom were covered by a collective bargaining agreement. In
addition, the Company, which annually hires temporary employees on a seasonal
basis, hired approximately 1,500 temporary employees during its spring selling
season in 1993.
DESCRIPTION OF LYONs
The LYONs are to be issued under an indenture to be dated as of
, 1994 (the "Indenture"), between the Company and NationsBank of
Texas, N.A., as trustee (the "Trustee"). A copy of the form of Indenture is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The following summaries of certain provisions of the LYONs and the
Indenture do not purport to be complete and are subject
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to, and are qualified in their entirety by reference to, all the provisions of
the LYONs and the Indenture, including the definitions therein of certain terms
which are not otherwise defined in this Prospectus. Wherever particular
provisions or defined terms of the Indenture (or of the Form of LYON which is a
part thereof) are referred to, such provisions or defined terms are
incorporated herein by reference. References herein are to sections in the
Indenture and paragraphs in the Form of LYON. As used in this "Description of
LYONs," the "Company" refers to Terra Industries Inc. and does not include its
subsidiaries.
GENERAL
The LYONs will be senior obligations of the Company limited to
$200,000,000 aggregate principal amount at maturity ($230,000,000 aggregate
principal amount at maturity if the Underwriter's over-allotment option is
exercised in full) and will mature on , 2009. The principal amount
at maturity of each LYON is $1,000, and will be payable at the office of the
Paying Agent, which initially will be the Trustee, or an office or agency
maintained by the Company for such purpose, in the Borough of Manhattan, The
City of New York. (Sections 2.03, 4.05 and Form of LYON, paragraph 3.) The
Indenture contains no limitation on the amount of additional indebtedness that
may be incurred by the Company and its subsidiaries or on the ability of the
Company and its subsidiaries to enter into agreements that restrict the ability
of the respective subsidiaries to pay cash dividends or make advances or other
payments to the Company. See -- "Ranking and Holding Company Structure."
The LYONs are being offered at a substantial discount from their
principal amount at maturity. See "Certain United States Federal Tax
Considerations--U.S. Holders--Original Issue Discount." There will be no
periodic payments of interest. The calculation of the accrual of OID (the
difference between the Issue Price and the principal amount at maturity of a
LYON) in the period during which a LYON remains outstanding will be on a
semi-annual bond equivalent basis using a 360-day year composed of twelve
30-day months; such accrual will commence from the Issue Date of the LYONs.
(Form of LYON, paragraph 1.) Maturity, conversion, purchase by the Company at
the option of a Holder, or redemption of a LYON will cause OID and interest, if
any, to cease to accrue on such LYON, under the terms and subject to the
conditions of the Indenture. (Section 2.08.) The Company may not reissue a
LYON that has matured or been converted, purchased by the Company at the option
of a Holder, redeemed or otherwise canceled (except for registration of
transfer, exchange or replacement thereof). (Section 2.10.)
The LYONs will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount at maturity or an
integral multiple thereof. (Form of LYON, paragraph 10.) LYONs may be
presented for conversion at the office of the Conversion Agent and for exchange
or registration of transfer at the office of the Registrar, each of which will
initially be the Trustee. See "Book-Entry System." (Section 2.03.) The Company
will not charge a service charge for any registration of transfer or exchange
of LYONs; however, the Company may require payment by a Holder of a sum
sufficient to cover any tax, assessment or other governmental charge payable in
connection therewith. (Section 2.06.)
RANKING AND HOLDING COMPANY STRUCTURE
The LYONs will be senior indebtedness of the Company and will rank
parri pasu with all other unsecured and unsubordinated indebtedness of the
Company. The Company is a holding Company and its assets consist
primarily of investments in its subsidiaries. As a result, the Company's
rights, and the rights of its creditors (including Holders of LYONs) to
participate in the distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization will be subject to the prior claims
of such subsidiary's creditors (including trade creditors), except to the
extent that the Company is itself recognized as a creditor of such subsidiary,
in which case the claims of the Company would still be subject to the claims of
any secured creditor of such subsidiary and of any holder of indebtedness of
such subsidiary senior to that held by the Company. As
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of December 31, 1993, the Company's subsidiaries had approximately $282 million
of total liabilities, including approximately $57 million of indebtedness.
There are no restrictions in the Indenture on the creation of additional senior
indebtedness (or any other indebtedness).
The Company's ability to service its indebtedness, including the
LYONs, is dependent primarily upon the earnings of its subsidiaries and the
distribution or other payment of such earnings to the Company. The debt
agreements of the subsidiaries contain certain covenants which restrict their
ability to pay dividends and make other advances to the Company. The Indenture
contains no limitation on the ability of the Company and its subsidiaries to
enter into agreements to limit these dividends, advances and other payments
further.
CONVERSION RIGHTS
A Holder of a LYON may convert it at any time before the close of
business on , 2009; provided, however, that if a LYON is called for
redemption, the Holder may convert it at any time before the close of business
on the Redemption Date. Upon conversion, the Company may elect to deliver
Common Shares or an amount of cash determined as described below. A LYON in
respect of which a Holder has delivered a Purchase Notice or a Change in
Control Purchase Notice exercising the option of such Holder to require the
Company to purchase such LYON may be converted only if such notice is withdrawn
in accordance with the terms of the Indenture. (Form of LYON, paragraph 8.) A
Holder may convert a portion of such Holder's LYONs so long as such portion
amounts to $1,000 principal amount at maturity or an integral multiple thereof.
(Section 10.01 and Form of LYON, paragraph 8.)
The initial Conversion Rate is Common Shares per LYON, subject to
adjustment upon the occurrence of certain events described below. (Form of
LYON, paragraph 8.) See "Common Shares Price Range and Dividends." A Holder
entitled to a fractional Common Share shall receive cash equal to the then
current market value of such fractional share based on the Sale Price on the
Trading Day immediately preceding the Conversion Date. (Section 10.03.)
On conversion of a LYON, a Holder will not receive any cash payment
representing accrued OID. The Company's delivery to the Holder of the fixed
number of Common Shares into which the LYON is convertible (together with the
cash payment, if any, in lieu of fractional shares), or if the Company so
elects, cash in lieu thereof, will be deemed to satisfy the Company's
obligation to pay the principal amount at maturity of the LYON including the
accrued OID attributable to the period from the Issue Date through the
Conversion Date. Thus, the accrued OID is deemed to be paid in full rather
than canceled, extinguished or forfeited. The Conversion Rate will not be
adjusted at any time during the term of the LYONs for such accrued OID.
For a discussion of the tax treatment of a Holder receiving Common Shares
upon conversion, see "Certain United States Federal Tax Considerations--U.S.
Holders--Disposition, Conversion or Purchase by the Company."
To convert a LYON into Common Shares, a Holder must (a) complete and
manually sign the conversion notice on the back of the LYON (or complete and
manually sign a facsimile thereof) and deliver such notice to the Conversion
Agent, or, if applicable, complete and deliver to The Depository Trust Company
("DTC," which term includes any successor thereto) the appropriate instruction
form for conversion pursuant to DTC's book-entry conversion program, (b)
surrender the LYON to the Conversion Agent (which is not necessary in the case
of conversion pursuant to DTC's book-entry conversion program), (c) if
required, furnish appropriate endorsements and transfer documents, and (d) if
required, pay all transfer or similar taxes. Pursuant to the Indenture, the
date on which all of the foregoing requirements have been satisfied is the
Conversion Date. (Sections 10.02 and 10.04 and Form of LYON, paragraph 8.)
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In lieu of delivering Common Shares upon notice of conversion of any
LYONs, the Company may elect to pay the Holder surrendering such LYONs an
amount in cash per LYON equal to the Sale Price (as defined below) of a Common
Share on the Trading Day immediately preceding the Conversion Date multiplied
by the Conversion Rate in effect on such Trading Day, subject to adjustment
upon the occurrence of certain events described below; provided, that if such
payment of cash is not permitted pursuant to the provisions of the Indenture or
otherwise, the Company shall deliver Common Shares (and cash in lieu of any
fractional shares) as set forth below. A Holder may not withdraw his election
to convert LYONs if the Company elects to pay cash in lieu of delivering Common
Shares. Upon conversion of any LYONs, the Company shall inform the Holders
through the Conversion Agent of its election to deliver Common Shares and/or to
pay cash in lieu of delivery of such shares no later than two Business Days
following the Conversion Date. If the Company elects to deliver Common Shares,
such shares will be delivered through the Conversion Agent no later than the
seventh Business Day following the Conversion Date. If the Company elects to
pay cash, such cash payment will be made to the Holder surrendering such LYONs
no later than the fifth Business Day following such Conversion Date. (Section
10.02.)
The Company may not pay cash upon conversion of any LYONs (other than
cash in lieu of fractional shares) if there has occurred and is continuing an
Event of Default described under "Events of Default; Notice and Waiver" below
(other than a default in such payment on such LYONs). (Section 10.01.)
The "Sale Price" on any date means the closing per share sale price
for the Common Shares (or, if no closing sale price is reported, the average of
the bid and ask prices or, if more than one in either case the average of the
average bid and the average ask prices on such date) on the NYSE Composite Tape
or, in the event the Common Shares are not listed on the NYSE, such other
national or regional securities exchange upon which Common Shares are listed,
as reported in the composite transactions for the principal United States
securities exchange on which the Common Shares are traded or, if such Common
Shares are not listed on a United States national or regional securities
exchange, as reported by NASDAQ, or, if such Common Shares are not reported by
NASDAQ, as determined by the Company on such basis as it deems appropriate.
(Section 1.01.)
ADJUSTMENT OF CONVERSION RATE
The Conversion Rate will be adjusted for (a) dividends or
distributions on Common Shares payable in Common Shares or other capital stock;
(b) subdivisions, combinations or certain reclassifications of Common Shares;
(c) distributions to all holders of Common Shares of certain rights, warrants
or options to purchase Common Shares for a period expiring within 60 days at
less than the Sale Price at the Time of Determination; and (d) distributions to
all holders of Common Shares of assets or debt securities of the Company or
certain rights, warrants or options to purchase securities of the Company
(excluding distributions of capital stock referred to in clauses (a) and (b)
and any rights, warrants or options referred to in clause (c) and cash
dividends or other cash distributions from current net earnings or retained
earnings other than any Extraordinary Cash Dividend). However, no adjustments
need be made if Holders may participate in the transaction on a basis and with
notice that the Board of Directors determines to be fair and reasonable or in
certain other cases. In cases where the fair market value of assets, debt
securities or certain rights, warrants or options to purchase securities of the
Company applicable to one Common Share distributed to shareholders exceeds the
Average Sale Price of the Common Shares as of the Time of Determination, or
such Average Sale Price exceeds the fair market value of such assets, debt
securities or rights, warrants or options so distributed by less than $1.00,
rather than being entitled to an adjustment in the Conversion Rate in
accordance with clause (d) above, the Holder of a LYON upon conversion thereof
will be entitled to receive, in addition to the Common Shares into which such
LYON is convertible, the kind and amount of assets, debt securities or rights,
warrants or options comprising the distribution that such Holder would have
received if such Holder had converted such LYON immediately prior to the record
date for determining the shareholders entitled to receive the distribution.
The Company must
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cause notice of any action requiring an adjustment of the Conversion Rate to be
mailed to Holders of LYONs and filed with the Trustee and the Conversion Agent
at least 15 days before the proposed record date for such dividend or
distribution (unless no adjustment need be made because Holders may participate
in the transaction on a basis and with notice that the Board of Directors
determines to be fair and reasonable). The Indenture permits the Company to
increase the Conversion Rate from time to time and for any period of time
(provided that such period is not less than 20 business days). (Sections
10.06, 10.07, 10.08, 10.10, 10.12, 10.14, 10.17 and 10.19 and Form of LYON,
paragraph 8.)
If the Company is party to a consolidation, merger or binding share
exchange or a transfer of all or substantially all of its assets, the right to
convert a LYON into Common Shares may be changed into a right to convert it
into the kind and amount of securities, cash or other assets of the Company or
another person which the Holder would have received if the Holder had converted
such Holder's LYONs immediately before the effective date of the transaction.
The Company must cause notice of any proposed transaction adjustment of the
Conversion Rate to be mailed to Holders of LYONs and filed with the Trustee and
the Conversion Agent at least 15 days before the proposed effective date of
such consolidation, merger, binding share exchange or transfer or any
subdivision, combination, reclassification or liquidation or dissolution of the
Company. Failure to file or mail any such notice or any notice or any defect
in any such notice will not affect the validity of any such transaction.
(Sections 10.13 and 10.14.)
In the event of a taxable distribution to holders of Common Shares
which results in an adjustment of the Conversion Rate or in the event the
Conversion Rate is increased at the discretion of the Company, the Holders of
the LYONs may, in certain circumstances, be deemed to have received a
distribution subject to Federal income tax as a dividend. See "Certain United
States Federal Tax Considerations."
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<PAGE> 30
REDEMPTION OF LYONS AT THE OPTION OF THE COMPANY
No sinking fund is provided for the LYONs. Prior to , 1999,
the LYONs will not be redeemable at the option of the Company. On and after
that date, the LYONs are redeemable for cash at the option of the Company, in
whole or from time to time in part, at the Redemption Prices specified below.
(Sections 3.01 and 3.03 and Form of LYON, paragraph 5.) Not less than 30 days'
nor more than 60 days' notice of redemption shall be given by mail to Holders
of LYONs. (Section 3.03 and Form of LYON, paragraph 7.)
The table below shows Redemption Prices per $1,000 principal amount at
Stated Maturity LYON on , 1999, at each thereafter prior to
maturity and at maturity on , 2009, which prices reflect the accrued
OID calculated through each such date. The Redemption Price of a LYON redeemed
between such dates would include an additional amount reflecting the additional
OID accrued from and including the next preceding date in the table through the
Redemption Date. (Form of LYON, paragraph 5.)
<TABLE>
<CAPTION>
(1) (2) (3)
REDEMPTION
LYON ACCRUED OID PRICE
ISSUE PRICE AT % (1) + (2)
----------------------------------------------
REDEMPTION DATE
- ---------------
<S> <C> <C> <C>
, 1999 . . . . . . . . . . . . . . . . . . . . $ $ $
, 2000 . . . . . . . . . . . . . . . . . . . .
, 2001 . . . . . . . . . . . . . . . . . . . .
, 2002 . . . . . . . . . . . . . . . . . . . .
, 2003 . . . . . . . . . . . . . . . . . . . .
, 2004 . . . . . . . . . . . . . . . . . . . .
, 2005 . . . . . . . . . . . . . . . . . . . .
, 2006 . . . . . . . . . . . . . . . . . . . .
, 2007 . . . . . . . . . . . . . . . . . . . .
, 2008 . . . . . . . . . . . . . . . . . . . .
At Stated Maturity . . . . . . . . . . . . . . . . . . . 1,000.00
</TABLE>
If less than all of the outstanding LYONs are to be redeemed, the
Trustee shall select the LYONs to be redeemed in principal amounts at maturity
of $1,000 or integral multiples thereof by lot, pro rata or by any other method
the Trustee considers fair and appropriate. If a portion of a Holder's LYONs
is selected for partial redemption and such Holder converts a portion of such
LYONs, such converted portion shall be deemed (so far as may be) to be the
portion selected for redemption. (Section 3.02.)
PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
On , 1999, and , 2004, (each, a "Purchase Date"),
the Company will become obligated to purchase, at the option of the Holder
thereof, any outstanding LYON for which a written Purchase Notice has been
delivered by the Holder to the Paying Agent at any time from the opening of
business on the date that is 20 business days prior to such Purchase Date until
the close of business on the business day prior to such Purchase Date and for
which such Purchase Notice has not been withdrawn, subject to certain
additional conditions. The Purchase Price payable in respect of a LYON shall
be equal to the Issue Price plus accrued OID through the Purchase Date, with
respect to each Purchase Date. The Company, at its option, may elect to pay
the Purchase Price with respect to any particular Purchase Date in cash or
Common Shares, or in any combination thereof. (Section 3.08 and Form of LYON,
paragraph 6.) For a discussion of the tax treatment of
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<PAGE> 31
a Holder receiving cash, Common Shares or any combination thereof, see "Certain
United States Federal Tax Considerations."
The Company will be required to give notice (the "Company Notice") on
a date not less than 20 business days prior to the Purchase Date to all Holders
at their addresses shown in the register of the Registrar (and to beneficial
owners as required by applicable law) stating, among other things, (a) whether
the Company will pay the Purchase Price of LYONs in cash or Common Shares or
any combination thereof (specifying the percentages of each); (b) if the
Company elects to pay in Common Shares, in whole or in part, the method of
calculating the Market Price of the Common Shares; and (c) the procedures that
Holders must follow to require the Company to purchase LYONs from such Holders.
(Section 3.08.)
The Purchase Notice given by each Holder electing to require the
Company to purchase LYONs shall state (a) if applicable, the certificate
numbers of the LYONs to be delivered by such Holder for purchase by the
Company; (b) the portion of the principal amount at maturity of LYONs to be
purchased, which portion must be $1,000 or an integral multiple thereof; (c)
that such LYONs are to be purchased by the Company pursuant to the applicable
provisions of the LYONs and the Indenture; and (d) in the event the Company
elects, pursuant to the Company Notice, to pay the Purchase Price with respect
to the applicable Purchase Date in Common Shares, in whole or in part, but such
Purchase Price is ultimately to be paid to such Holder entirely in cash because
any of the conditions to payment of the Purchase Price (or portion thereof) in
Common Shares is not satisfied prior to the close of business on such Purchase
Date, as described below, whether such Holder elects (x) to withdraw such
Purchase Notice as to some or all of the LYONs to which it relates (stating the
principal amount at maturity and, if applicable, certificate numbers of the
LYONs as to which such withdrawal shall relate), or (y) to receive cash in
respect of the entire Purchase Price for all LYONs (or portion thereof) to
which such Purchase Notice relates. If the Holder fails to indicate, in the
Purchase Notice and in any written notice of withdrawal, such Holder's choice
with respect to the election described in clause (d) above, such Holder shall
be deemed to have elected to receive cash in respect to the entire Purchase
Price for all LYONs subject to such Purchase Notice in such circumstances.
(Section 3.08.) For a discussion of the tax treatment of a Holder receiving
cash instead of Common Shares, see "Certain United States Federal Tax
Considerations."
Any Purchase Notice may be withdrawn by the Holder by a written notice
of withdrawal delivered to the Paying Agent prior to the close of business on
the business day prior to the Purchase Date. The notice of withdrawal shall
state the principal amount at maturity and the certificate numbers of the LYONs
as to which the withdrawal notice relates and the principal amount at maturity,
if any, which remains subject to the Purchase Notice. (Section 3.10.)
The table below shows the Purchase Prices of a LYON as of the
specified Purchase Dates:
<TABLE>
<CAPTION>
PURCHASE DATE PURCHASE PRICE
------------- --------------
<S> <C>
, 1999 . . . . . . . . . . . . . . . . . . . . $
, 2004 . . . . . . . . . . . . . . . . . . . .
</TABLE>
If the Company elects to pay the Purchase Price, in whole or in part,
in Common Shares, the number of Common Shares to be delivered in respect of the
portion of the Purchase Price to be paid in Common Shares shall be equal to
such portion of the Purchase Price divided by the Market Price (as defined
below) of Common Shares. No fractional Common Shares will be delivered upon
any purchase by the Company of LYONs through the delivery of such Common Shares
in payment, in whole or in part, of the Purchase Price. Instead, the Company
will pay cash based on the Market Price for all fractional Common Shares.
(Section 3.08.) See "Certain United States Federal Tax Considerations."
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<PAGE> 32
The "Market Price" means the average of the Sale Prices of the Common
Shares for the five Trading Day period ending on (if the third business day
prior to the applicable Purchase Date is a Trading Day or, if not, then on the
last Trading Day prior to) the third business day prior to the related Purchase
Date, appropriately adjusted to take into account the occurrence, during the
period commencing on the first of such Trading Days during such five Trading
Day period and ending on such Purchase Date, of certain events that would
result in an adjustment of the Conversion Rate with respect to the Common
Shares. Because the Market Price of the Common Shares are determined prior to
the applicable Purchase Date, Holders of LYONs bear the market risk with
respect to the value of the Common Shares to be received from the date such
Market Price is determined to such Purchase Date. The Company may pay the
Purchase Price (or any portion thereof) in Common Shares only if the
information necessary to calculate the Market Price is published in The Wall
Street Journal or another daily newspaper of national circulation. (Section
3.08.)
Upon determination of the actual number of Common Shares to be issued
for each $1,000 principal amount at maturity of LYONs, the Company will publish
such determination in The Wall Street Journal or another daily newspaper of
national circulation. (Section 3.08.)
The Company's right to purchase LYONs, in whole or in part, with
Common Shares is conditioned upon to the satisfaction by the Company of various
conditions, including, among others: (i) the registration of the Common Shares
to be issued in respect of the Purchase Date under the Securities Act and the
Exchange Act, if required; and (ii) any necessary qualification or registration
under applicable state securities law or the availability of an exemption from
such qualification and registration. If such conditions are not satisfied with
respect to a Holder or Holders prior to the close of business on the Purchase
Date, the Company will pay the Purchase Price of the LYONs of such Holder or
Holders entirely in cash. (Section 3.08.) See "Certain United States Federal
Tax Considerations." The Company may not change the form of consideration (or
components or percentages of components thereof) to be paid once the Company
has given its Company Notice to Holders of LYONs except as described in the
second sentence of this paragraph. (Section 3.08.)
The Company will comply with the provisions of Rule 13e-4, Rule 14e-1
and any other tender offer rules under the Exchange Act which may then be
applicable and will file Schedule 13E-4 or any other schedule required
thereunder in connection with any offer by the Company to purchase LYONs or any
purchase by the Company of LYONs at the option of Holders. (Section 3.13.)
Payment of the Purchase Price for a LYON for which a Purchase Notice
has been delivered and not validly withdrawn is conditioned upon delivery or
book-entry transfer of such LYON (together with necessary endorsements) to the
Paying Agent at any time (whether prior to, on or after the Purchase Date)
after delivery of such Purchase Notice. (Section 3.08.) See "Book-Entry
System." Payment of the Purchase Price for such LYON will be made promptly
following the later of the Purchase Date or the time of delivery or book-entry
transfer of such LYON. (Section 3.08.) If the Paying Agent holds, in
accordance with the terms of the Indenture, money or securities sufficient to
pay the Purchase Price of such LYON on the business day following a Purchase
Date, then, on and after such Purchase Date, such LYON will cease to be
outstanding and OID on such LYON will cease to accrue, whether or not such LYON
is delivered to the Paying Agent, and all other rights of the Holder shall
terminate (other than the right to receive the Purchase Price upon delivery of
the LYON). (Section 2.08 and Form of LYON, paragraph 6.)
The Company's ability to purchase LYONs with cash may be limited by
the terms of its then existing borrowing agreements. No LYONs may be purchased
for cash at the option of Holders if there has occurred (prior to, on, or
after, as the case may be, the giving, by the Holders of such LYONs, of the
required Purchase Notice) and is continuing an Event of Default with respect to
the LYONs described under "Events of Default; Notice and Waiver" below (other
than a default in the payment of the Purchase Price with respect to such
LYONs). (Section 3.10.)
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<PAGE> 33
CHANGE IN CONTROL PERMITS PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
In the event of any Change in Control (as defined below) of the
Company occurring on or prior to , 1999, each Holder of LYONs will
have the right, at the Holder's option, subject to the terms and conditions of
the Indenture, to require the Company to purchase all or any portion (provided
that the principal amount at maturity must be $1,000 or an integral multiple
thereof) of the Holder's LYONs as of the date that is 35 business days after
the occurrence of such Change in Control (a "Change in Control Purchase Date")
at a cash price equal to the Issue Price plus accrued OID through the Change in
Control Purchase Date (the "Change in Control Purchase Price"). (Section 3.09
and Form of LYON, paragraph 6.) This obligation of the Company may not be
waived by the Company's Board of Directors or by the Trustee. If a Change in
Control occurs, there can be no assurance that the Company will have available
funds sufficient to pay the Change in Control Purchase Price for all of the
LYONs that might be delivered by Holders. One of the events constituting a
Change in Control under the Indenture is a consolidation or merger of the
Company under certain circumstances.
Within 15 business days after the occurrence of a Change in Control,
the Company is obligated to mail to the Trustee and to all Holders of LYONs at
their addresses shown in the register of the Registrar (and to beneficial
owners as required by applicable law) a notice regarding the Change in Control,
which notice shall state, among other things: (i) the events causing a Change
in Control and the date of such Change in Control, (ii) the last date on which
the purchase right may be exercised, (iii) the change in Control Purchase Date,
(iv) the Change in Control Purchase Price, (v) a brief description of the
conversion rights of the LYONs, (vi) the name and address of the Paying Agent
and the Conversion Agent, (vii) the Conversion Rate and any adjustments
thereto, (viii) that LYONs with respect to which a Change in Control Purchase
Notice is given by the Holder may be converted into Common Shares (or, in lieu
thereof, cash if the Company shall so elect) at any time on or prior to the
close of business on the Change of Control Purchase Date only if the Change in
Control Purchase Notice is withdrawn in accordance with the terms of the
Indenture, (ix) the procedures that Holders must follow to exercise these
rights and (x) the procedures for withdrawing a Change in Control Purchase
Notice. Within 15 business days after the occurrence of a Change in Control,
the Company will cause a copy of such notice to be published in The Wall Street
Journal or another daily newspaper of national circulation. (Section 3.09.)
To exercise this right, the Holder must deliver a written notice (a
"Change in Control Purchase Notice") to the Paying Agent (initially the
Trustee) prior to the close of business on the business day prior to the Change
in Control Purchase Date. The Change in Control Purchase Notice shall state
(i) if applicable, the certificate numbers of the LYONs to be delivered by the
Holder thereof for purchase by the Company; (ii) the portion of the principal
amount at maturity of LYONs to be purchased, which portion must be $1,000 or an
integral multiple thereof; and (iii) that such LYONs are to be purchased by the
Company pursuant to the applicable provisions of the LYONs. (Section 3.09 and
Form of LYON, paragraph 6.) See "Book-Entry System."
Any Change in Control Purchase Notice may be withdrawn by the Holder
by a written notice of withdrawal delivered to the Paying Agent prior to the
close of business on the business day prior to the Change in Control Purchase
Date. The notice of withdrawal shall state the principal amount at maturity
and, if applicable, the certificate numbers of the LYONs as to which the
withdrawal notice relates and the principal amount at maturity, if any, which
remains subject to a Change in Control Purchase Notice. (Section 3.10.) See
"Book-Entry System."
Payment of the Change in Control Purchase Price for a LYON for which a
Change in Control Purchase Notice has been delivered and not validly withdrawn
is conditioned upon delivery or book-entry transfer of such LYON (together with
necessary endorsements) to the Paying Agent at any time (whether prior to, or
after the Change in Control Purchase Date) after the delivery of such Change in
Control Purchase Notice. (Section 3.09.) See "Book-Entry System." Payment of
the Change in Control Purchase Price for such LYON will be made
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<PAGE> 34
promptly following the later of the Change in Control Purchase Date or the time
of delivery of such LYON. (Section 3.10.) If the Paying Agent holds, in
accordance with the terms of the Indenture, money sufficient to pay the Change
in Control Purchase Price of such LYON on the business day following the Change
in Control Purchase Date, then, immediately after such Change in Control
Purchase Date, such LYON will cease to be outstanding and OID on such LYON will
cease to accrue, whether or not such LYON is delivered to the Paying Agent, and
all other rights of the Holder shall terminate (other than the right to receive
the Change in Control Purchase Price upon delivery of the LYON). (Section 2.08
and Form of LYON, paragraph 6.)
Under the Indenture, a "Change in Control" of the Company is deemed to
have occurred at such time as either of the following events shall occur (i)
There shall be consummated any consolidation or merger of the Company (a) in
which the Company is not the continuing or surviving corporation or (b)
pursuant to which the Common Shares would be converted into cash, securities or
other property, other than a consolidation or merger of the Company in which
the holders of Common Shares immediately prior to the consolidation or merger
have, directly or indirectly, at least a majority of the common equity of the
continuing or surviving corporation immediately after such consolidation or
merger; or (ii) there is a report filed by any person (other than Minorco and
its Affiliates), including its Affiliates and Associates, on Schedule 13D or
14D-1 (or any successor schedule, form or report) pursuant to the Exchange Act,
disclosing that such person (for the purposes of Section 3.09 of the Indenture
only, the term "person" shall include a "person" within the meaning of Section
13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision to
either of the foregoing) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of 50% or more of the voting
power of the Common Shares then outstanding; provided, however, that a person
shall not be deemed beneficial owner of, or to own beneficially, (A) any
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such person or any of such person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange thereunder, or (B)
any securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations under
the Exchange Act, and (2) is not also then reportable on Schedule 13D (or any
successor schedule, form or report) under the Exchange Act.
The Company will comply with the provisions of Rule 13e-4, Rule 14e-1
and any other tender offer rules under the Exchange Act which may then be
applicable and will file Schedule 13E-4 or any other schedule required
thereunder in connection with any offer by the Company to purchase LYONs at the
option of Holders upon a Change in Control. (Section 3.13.) The Change in
Control purchase feature of the LYONs may in certain circumstances make more
difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The Change in Control purchase feature, however, is not
the result of management's knowledge of any specific effort to accumulate
Common Shares or to obtain control of the Company by means of a merger, tender
offer, solicitation or otherwise, or part of a plan by management to adopt a
series of anti-takeover provisions. Instead, the Change in Control purchase
feature is a standard term contained in other LYONs offerings that have been
marketed by the Underwriter, and the terms of such feature result from
negotiations between the Company and the Underwriter.
The Company could, in the future, enter into certain transactions,
including certain recapitalizations of the Company, that would not constitute a
Change in Control with respect to the Change in Control purchase feature of the
LYONs, but that would increase the amount of indebtedness the Company has
outstanding at such time. No LYONs may be purchased at the option of Holders
upon a Change in Control of the Company if there has occurred (prior to, on or
after, as the case may be, the giving, by the Holders of such LYONs, of the
required Change in Control Purchase Notice) and is continuing an Event of
Default with respect to the LYONs described under "Events of Default; Notice
and Waiver" below (other than a default in the payment of the Change in Control
Purchase Price with respect to such LYONs). (Sections 3.10 and 10.03.)
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<PAGE> 35
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Indenture provides that the Company may not consolidate with or
merge with or into any other person or transfer (by lease, assignment, sale or
otherwise) substantially all of its properties or assets to another person,
unless, among other items, (i) the resulting, surviving or transferee person
(if other than the Company) is organized and existing under the laws of the
United States, any state thereof or the District of Columbia and such person
assumes all obligations of the Company under the LYONs and the Indenture, and
(ii) the Company or such successor person shall not immediately thereafter be
in default under the Indenture. Upon the assumption of the Company's
obligations by such person or group in such circumstances, subject to certain
exceptions, the Company shall be discharged from all obligations under the
LYONs and the Indenture. (Section 5.01.) Although such transactions are
permitted under the Indenture, certain of the foregoing transactions occurring
on or prior to , 1999 could constitute a Change in Control of the
Company permitting each Holder to require the Company to purchase the LYONs of
such Holder as described above. (Section 3.09.)
EVENTS OF DEFAULT; NOTICE AND WAIVER
The Indenture provides that, if an Event of Default specified therein
shall have happened and be continuing, either the Trustee or the Holders of not
less than 25% in aggregate principal amount at maturity of the LYONs then
outstanding (which include any Holders of LYONs who are directors, officers or
affiliates of the Company) may declare the Issue Price of the LYONs plus the
OID on the LYONs accrued through the date of such declaration to be immediately
due and payable. In the case of certain events of bankruptcy or insolvency,
the Issue Price of the LYONs plus the OID accrued thereon through the date of
occurrence of such event shall automatically become and be immediately due and
payable. (Section 6.02.) Under certain circumstances, the Holders of a
majority in aggregate principal amount at maturity of the outstanding LYONs may
rescind any such acceleration with respect to the LYONs and its consequences.
(Section 6.02.) Interest shall, to the extent permitted by law, accrue and be
payable on demand upon a default in the payment of the principal amount at
maturity, Issue Price plus accrued OID, or any Redemption Price, Purchase Price
or Change in Control Purchase Price with respect to any LYON and such interest
shall be compounded semiannually. The accrual of such interest on overdue
amounts shall be in lieu of, and not in addition to, the continued accrual of
OID. (Form of LYON, paragraph 1.) An Event of Default of the LYONs may also
cause an event of default under the terms of the Company's other outstanding
debt, certain of which may be pari passu or structurally senior to the LYONs.
There can be no assurance that the Company will have sufficient funds or
available financing to satisfy its obligation to repurchase the LYONs or any
other debt that may come due upon an Event of Default. The Company presently
would not have sufficient funds (without seeking alternative sources of
financing) to satisfy its obligations to repurchase the LYONs and any other
debt that may become due upon an Event of Default, if an Event of Default were
to occur contemporaneously with the sale of the LYONs offered hereby.
Under the Indenture, an Event of Default includes any of the
following: (i) default in payment of the principal amount at maturity, Issue
Price plus accrued OID, Redemption Price, Purchase Price or Change in Control
Purchase Price with respect to any LYON when such becomes due and payable
(whether or not payment is prohibited by the provisions of the Indenture); (ii)
failure to deliver Common Shares (or pay cash in lieu thereof) when such Common
Shares are required to be delivered following conversion of a LYON, (iii)
failure by the Company to comply with any of its other agreements in the LYONs
or the Indenture upon receipt by the Company of notice of such default by the
Trustee or by Holders of not less than 25% in aggregate principal amount at
maturity of the LYONs then outstanding, and the Company's failure to cure (or
obtain a waiver of) such default within 60 days after receipt by the Company of
such notice; (iv) default under any bond, debenture or other evidence of
indebtedness for money borrowed of the Company or any consolidated subsidiary
having an aggregate outstanding principal amount of in excess of $7.5 million,
which default shall have occurred at final maturity or which default resulted
in such indebtedness being accelerated, without such indebtedness being
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<PAGE> 36
discharged or such acceleration having been rescinded or annulled within 30
days after receipt of notice thereof by the Company from the Trustee or by the
Company and the Trustee from the Holders of not less than 25% in aggregate
principal amount at maturity of the LYONs then outstanding or (v) certain
events of bankruptcy or insolvency. (Section 6.01.)
The Holders of a majority in aggregate principal amount at maturity of
the outstanding LYONs may 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 the Trustee, provided that such direction shall not be in
conflict with any law or the Indenture and subject to certain other
limitations. (Section 6.05.) Before proceeding to exercise any right or power
under the Indenture at the direction of such Holders, the Trustee shall be
entitled to receive from such Holders reasonable security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in complying with any such direction. (Section 7.01.) No Holder
of any LYON will have any right to pursue any remedy with respect to the
Indenture or the LYONs, unless (i) such Holder shall have previously given the
Trustee written notice of a continuing Event of Default; (ii) the Holders of at
least 25% in aggregate principal amount at maturity of the outstanding LYONs
shall have made a written request to the Trustee to pursue such remedy; (iii)
such Holder or Holders have offered to the Trustee reasonable security or
indemnity satisfactory to the Trustee; (iv) the Holders of a majority in
aggregate principal amount at maturity of the outstanding LYONs have not given
the Trustee a direction inconsistent with such request within 60 days after
receipt of such request; and (v) the Trustee shall have failed to comply with
the request within such 60-day period. (Section 6.06.)
Notwithstanding the foregoing, the right of any Holder (i) to receive
payment of the principal amount at maturity, Issue Price plus accrued OID,
Redemption Price, Purchase Price or Change in Control Purchase Price with
respect to any LYON and any interest in respect of a default in the payment of
any such amounts on such LYON, on or after the due date expressed in such LYON,
(ii) to convert LYONs (including, without limitation, the right to receive cash
in lieu of Common Shares upon conversion if the Company has elected to pay cash
with respect thereto) or (iii) to institute suit for the enforcement of any such
payments or conversion shall not be impaired or adversely affected without such
Holder's consent. (Section 6.07.) The Holders of at least a majority in
aggregate principal amount at maturity of the outstanding LYONs may waive an
existing default and its consequences, other than (x) any default by the
Company in any payment on the LYONs, (y) any default which constitutes a
failure to convert any LYON in accordance with its terms or (z) any default
in respect of certain covenants or provisions in the Indenture that may not be
modified without the consent of the Holder of each LYON as described in
"Modification" below. (Section 6.04.)
The Company will be required to furnish to the Trustee annually a
statement as to any default by the Company in the performance and observance of
its obligations under the Indenture. (Section 4.03.) The Trustee will be
required to give notice to Holders of the LYONs of any continuing default known
to the Trustee within 90 days after the occurrence thereof unless such default
shall have been cured or waived before the giving of such notice; provided,
that the Trustee may withhold such notice, as to any default other than a
payment default, or a default with respect to the Company's failure to provide
Common Shares (or pay cash in lieu thereof) upon conversion of a LYON, if it
determines in good faith that withholding the notice is in the interests of the
Holders. (Section 7.05.)
MODIFICATION
Without the consent of any Holder of LYONs, the Company and the
Trustee may amend the Indenture to (i) cure any ambiguity, defect or
inconsistency, (ii) provide for the assumption by a successor corporation of
the obligations of the Company under the Indenture, (iii) provide for
certificated LYONs in addition to certificated LYONs, (iv) make any change that
does not adversely affect the rights of any Holder of LYONs, or (v) make any
change to comply with the Trust Indenture Act of 1939, or to comply with any
requirement of the
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<PAGE> 37
Commission in connection with the qualification of the Indenture under the
Trust Indenture Act of 1939. (Section 9.01.)
Modification and amendment of the Indenture or the LYONs may be
effected by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount at maturity of the LYONs
then outstanding. However, without the consent of each Holder affected
thereby, no amendment may, among other things: (i) reduce the principal amount
at maturity, Issue Price, Purchase Price, Change in Control Purchase Price or
Redemption Price with respect to any LYON, or extend the Stated Maturity of any
LYON or alter the manner or rate of accrual of OID or interest, or make any
LYON payable in money or securities other than that stated in the LYON; (ii)
make any reduction in the principal amount at maturity of LYONs whose Holders
must consent to an amendment or any waiver under the Indenture or modify the
Indenture provisions relating to such amendments or waivers; (iii) make any
change that adversely affects the right to convert any LYON or the right to
require the Company to purchase a LYON (including the right to receive cash in
lieu of Common Shares); or (iv) impair the right to institute suit for the
enforcement of any payment with respect to, or conversion of, the LYONs.
(Section 9.02.)
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of the Company, the
claim of the Holder of a LYON may be, under Title 11 of the United States Code,
limited to the Issue Price of the LYON plus that portion of the OID that has
accrued from the date of issue to the commencement of the proceeding. In
addition, the Holders of the LYONs will be effectively subordinated to the
indebtedness and other liabilities of the Company's subsidiaries. See
"Description of LYONs--Holding Company Structure."
TAXATION OF LYONS
See "Certain United States Federal Tax Considerations" for a
discussion of certain Federal tax aspects that will apply to Holders of LYONs.
BOOK-ENTRY SYSTEM
The LYONs initially will be represented by one or more global
securities (the "Global Securities") deposited with DTC and registered in the
name of a nominee of DTC. Except as set forth below, the LYONs will be
available for purchase in denominations of $1,000, and integral multiples
thereof, in book-entry form only.
Upon the issuance of the Global Securities, the Depository for such
Global Securities or its nominee will credit on its book-entry registration and
transfer system the respective principal amounts of the LYONs represented by
such Global Security to the accounts of the persons that have accounts with
such Depository (the "Participants"). Such accounts shall be designated by the
Underwriter, dealers or agents with respect to such LYONs. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
applicable Depository or its nominee (with respect to interests of
Participants) and records of Participants (with respect to interests of persons
who hold through Participants). 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 own,
pledge or transfer beneficial interests in a Global Security.
Unless and until certificated LYONs are issued under the limited
circumstances described below, no beneficial owner of a LYON shall be entitled
to receive a definitive certificate representing a LYON. So long as the
Depository or its nominee is the registered owner of all of the Global
Securities, the Depository or such nominee as the case may be, will be
considered to be the sole owner or holder of the LYONs for all purposes
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<PAGE> 38
of the Indenture. Unless and until exchanged in whole or in part for the LYONs
represented thereby, the Global Securities may not be transferred except in
their entirety by the Depository to a nominee of the Depository or by a nominee
of such Depository to such Depository or another nominee of such Depository or
by the Depository or any nominee to a successor depository or any nominee of
such successor.
So long as the Global Securities represent the LYONs, payments of
principal will be made to the Depository or its nominee, as the registered
owner of the Global Securities. Payments to beneficial owners of the LYONs are
expected to be made through the Depository or its nominee, as described in this
Prospectus. None of the Company, the Trustee, any Paying Agent or the
Registrar will have any responsibility or liability for any aspect of the
records relating to, or payment made on account of, beneficial ownership
interests in the Global Security for the LYONs or for maintaining, supervising
or reviewing any records relating to such beneficial interests.
If the Depository is at any time unwilling, unable or ineligible to
continue as depository and a successor depository is not appointed by the
Company within 90 days, the Company will issue individual LYONs in definitive
form in exchange for the Global Securities representing the LYONs. In
addition, the Company may at any time and in its sole discretion determine not
to have the LYONs represented by Global Securities, and, in such event, will
issue individual LYONs in definitive form in exchange for the Global
Securities. In either instance, the Company will issue LYONs in definitive
form equal in aggregate principal amount to the Global Securities, in such
names and in such principal amounts as the Depository shall request. LYONs so
issued in definitive form will be issued in denominations of $1,000 and
integral multiples thereof and will be issued in registered form only, without
coupons.
DTC has advised the Company and the Underwriter as follows: DTC is a
limited-purpose trust company organized under the laws of the State of New
York, 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 including securities brokers
and dealers (including the Underwriter), 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 is also 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.
DESCRIPTION OF CAPITAL STOCK
The following statements are subject to the detailed provisions of the
Company's Articles of Incorporation, do not purport to be complete, and are
qualified in their entirety by reference thereto.
The authorized capital stock of the Company consists of 114,375,000
Common Shares, without par value, 69,454,773 of which were outstanding as of
December 31, 1993, 19,125,000 Class A Shares, without par value, none of which
are currently outstanding, and 16,500,000 Trust Shares, $.0001 par value, none
of which are currently outstanding.
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<PAGE> 39
COMMON SHARES
The holders of Common Shares are entitled to one vote for each share
on all matters voted upon by shareholders. The holders of Common Shares have
no preemptive or other rights to subscribe for additional securities of the
Company.
Each Common Share has the right to receive dividends when, as and if
declared by the Board of Directors out of assets legally available therefor,
provided, that no dividend may be declared with respect to the Common Shares
unless and until an identical dividend per share is declared with respect to
the Class A Shares. In the event of a liquidation, dissolution or winding up
of the Company, the holders of Common Shares will be entitled to share with the
holders of the outstanding Class A Shares and Trust Shares according to the
number of Common Shares, Class A Shares and Trust Shares held by each such
holder ratably in the assets available for distribution after the payment of
liabilities; provided, however, that the holders of the outstanding Trust
Shares shall only be so entitled up to an amount equal to $.0001 per share for
every share of their holdings of Trust Shares.
RECLASSIFICATION OF SHARES
The Board of Directors of Terra Industries has the authority pursuant
to the Articles of Incorporation of Terra Industries to classify and
reclassify, without any further vote or action by the shareholders, any
unissued stock of any class by setting or changing the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualification, or terms or conditions of redemption of the stock.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary is a general discussion of certain of the United
States federal tax considerations involved in the ownership, disposition and
conversion of LYONs. This summary does not consider all possible tax
consequences of the purchase, ownership or disposition of LYONs or Common
Shares and is not intended to reflect the individual tax position of any
individual Holder. It does not deal with Holders who: (i) acquired LYONs other
than at their original issuance for their original issue price, (ii) are
involved in special tax situations, such as the holding of LYONs or Common
Shares as part of a straddle with other investments or situations in which the
functional currency is not the U.S. dollar, or (iii) are subject to special
treatment under the federal income tax laws (such as dealers in securities,
individual retirement accounts and other tax-deferred accounts, life insurance
companies and tax-exempt organizations and, in the case of Non-U.S. Holders,
certain expatrites). This discussion is based on interpretations of the
Internal Revenue Code of 1986, as amended (the "Code"), and Treasury
Regulations (including certain proposed Treasury Regulations) all as in effect
as of the date of this Prospectus and all of which are subject to change or
different interpretation by the Internal Revenue Service ("IRS") or the courts.
Persons considering the purchase of LYONs should consult their own tax advisors
regarding their particular circumstances and with respect to the effects of
state, local or non-United States tax laws to which they may be subject. For
purposes of this discussion, a U.S. Holder is an individual who is a citizen or
resident of the United States or a corporation that is organized under the laws
of the United States or any state thereof. A Non-U.S. Holder is a nonresident
alien individual as to the United States or a corporation organized outside the
United States, whose income, if any, arising from the ownership of LYONs or
Common Shares is not effectively connected with a U.S. trade or business
carried on by such individual or corporation.
The Company has been advised by its counsel, McDermott, Will & Emery,
that in its opinion the LYONs will be treated as indebtedness for federal
income tax purposes under existing law and the following
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<PAGE> 40
discussion of tax consequences assumes that the LYONs will be treated as
indebtedness. However, the IRS is not precluded from adopting a contrary
position.
U.S. HOLDERS
ORIGINAL ISSUE DISCOUNT
The following summary is based in part upon the OID provisions of the
Code and certain Treasury Regulations issued thereunder. On February 2, 1994,
new comprehensive original issue discount regulations (the "New OID
Regulations") were finalized. Although the New OID Regulations technically
apply only to debt instruments issued on or after April 4, 1994, taxpayers may
nevertheless rely upon them with respect to the LYONs. The discussion below is
based on the New OID Regulations.
LYONs are being issued at a substantial discount from their Principal
Amount at Maturity. For federal income tax purposes, the difference between
the Issue Price (the initial offering price to the public at which a
substantial amount of the LYONs are to be sold) and the Principal Amount at
Maturity of each LYON constitutes OID. The LYONs will carry a substantial
amount of OID. U.S. Holders of the LYONs will be required to include OID in
income periodically over the term of the LYONs before receipt of the cash
attributable to such income. A holder of a LYON must include in gross income
for federal income tax purposes the sum of the daily portions of OID with
respect to the LYON for each day during the taxable year or portion of a
taxable year on which such U.S. Holder holds the LYON. The daily portion is
determined by allocating to each day of the accrual period a pro rata portion
of an amount equal to the adjusted issue price of the LYON at the beginning of
the accrual period multiplied by the yield to maturity of the LYON (determined
by compounding at the close of each accrual period and adjusted for the length
of the accrual period). The accrual period will be each six-month period (or
shorter period from the date of original issue) that ends on a day in the
calendar year corresponding to the maturity date of the LYON or the date six
months before such maturity date. (Under the New OID Regulations, it may be
possible for a U.S. Holder to adopt one or more shorter accrual periods.) The
adjusted issue price of the LYON at the start of any accrual period is the
Issue Price of the LYON increased by the accrued OID for each prior accrual
period. Under these rules, U.S. Holders will have to include in gross income
increasingly greater amounts of OID in each successive accrual period. A U.S.
Holder's original tax basis for determining gain or loss on the sale or other
disposition of a LYON will be increased by any accrued OID includable in such
U.S. Holder's gross income.
DISPOSITION, CONVERSION OR PURCHASE BY THE COMPANY
General. Any gain or loss realized upon a sale or other disposition
of a LYON (including a sale to or redemption by the Company that is paid in
cash), except as described below, will be capital gain or loss (which will be
long-term if a LYON is held for more than one year). The amount of any such
gain or loss will equal the difference between the sale or redemption proceeds
and the U.S. Holder's then tax basis in the LYON.
Conversion. A U.S. Holder's conversion of a LYON into Common Shares
will generally not be a taxable event (except with respect to cash received in
lieu of a fractional share). The U.S. Holder's obligation to include in gross
income the daily portions of OID with respect to a LYON will terminate on the
date of conversion. The U.S. Holder's basis in the Common Shares received on
conversion of a LYON will be the same as the U.S. Holder's basis in the LYON at
the time of conversion (exclusive of any tax basis allocable to a fractional
share), and the holding period for the Common Shares received on conversion
(assuming each is held as a capital asset) will include the holding period of
the LYON converted, except that the holding period of Common Shares allocable
to accrued OID may commence on the day following the date of conversion.
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<PAGE> 41
Tender of LYONs. If the U.S. Holder elects to exercise his option to
tender the LYONs to the Company on a Purchase Date or to the Company on a
Change in Control Purchase Date and the Company purchases the LYONs for cash
only, such purchase will be a taxable sale. The U.S. Holder would recognize
gain or loss upon the sale, measured by the difference between the amount of
cash transferred by the Company to the U.S. Holder in satisfaction of the
Purchase Price or the Change in Control Purchase Price and the U.S. Holder's
tax basis in the tendered LYON. Gain or loss recognized by the U.S. Holder
will be capital gain or loss.
If the U.S. Holder elects to exercise his option to tender the LYONs
to the Company on a Purchase Date and the Company issues Common Shares in
satisfaction of all or part of the Purchase Price, the exchange of the LYON for
Common Shares should qualify as a reorganization or an otherwise nontaxable
transaction for federal income tax purposes. If the Purchase Price is paid
solely in Common Shares, neither gain nor loss would be recognized by the U.S.
Holder, except as described below with respect to a fractional share. If the
Purchase Price is paid in a combination of Common Shares and cash (other than
cash received in lieu of a fractional share), gain (but not loss) realized by
the U.S. Holder would be recognized, but only to the extent such gain does not
exceed such cash. A U.S. Holder's tax basis in the Common Shares received in
the exchange will be the same as the U.S. Holder's tax basis in the LYON
tendered to the Company in exchange therefor (exclusive of any tax basis
allocable to a fractional share interest as described below), decreased by the
amount of cash (other than cash received in lieu of a fractional share), if
any, received in the exchange and increased by the amount of any gain
recognized by the U.S. Holder on the exchange (other than gain with respect to
a fractional share). The holding period for Common Shares received in the
exchange will include the holding period for the LYON tendered to the Company
in exchange therefor (assuming both are held as capital assets), except that
the holding period for Common Shares allocable to accrued OID may commence on
the day following the Purchase Date.
Under the present advance ruling policy of the IRS, cash received in
lieu of a fractional Common Share upon conversion or purchase of a LYON should
be treated as a payment in exchange for the fractional share interest in such
Common Shares. Accordingly, the receipt of cash in lieu of a fractional Common
Share should generally result in capital gain or loss (measured by the
difference between the cash received for the fractional share interest and the
U.S. Holder's tax basis in the fractional share interest).
CONSTRUCTIVE DIVIDEND
If at any time the Company makes a distribution of property to
shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (for example, distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for Common Shares) and, pursuant to the anti-dilution
provisions of the Indenture, the Conversion Rate of the LYONs is increased,
such increase may be deemed to be the payment of a taxable dividend to U.S.
Holders of LYONs. If the Conversion Rate is increased at the discretion of the
Company, such increase may be deemed to be the payment of the taxable dividend
to U.S. Holders of LYONs.
THE COMMON SHARES
Distributions, if any, paid on the Common Shares after an exchange, to
the extent made from current and accumulated earnings and profits of the
Company, as determined for federal income tax purposes, will be included in a
U.S. Holder's income as they are paid. Gain or loss realized on a sale or
exchange of Common Shares will equal the difference between the amount realized
on such sale or exchange and the Holder's adjusted tax basis in such shares.
Such gain or loss will generally be long-term capital gain or loss if the
holding period for such shares exceeds one year.
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<PAGE> 42
NON-U.S. HOLDERS
The following discussion is a summary of the principal United States
federal income and estate tax consequences resulting from the ownership of
LYONs or Common Shares by Non-U.S. Holders.
WITHHOLDING TAX ON PAYMENTS OF PRINCIPAL AND OID ON LYONS
The payment of principal (including any OID included therein) of a
LYON by the Company or any paying agent of the Company to any Non-U.S. Holder
or the payment of OID upon conversion of a LYON will not be subject to
withholding United States federal income tax at source, provided that such
Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
and is not a controlled foreign corporation that is related to the Company
through stock ownership and either (i) the beneficial owner of the LYON
certifies to the Company or its agent, under penalty of perjury, that it is not
a U.S. Holder and provides its name and address on United States Treasury Form
W-8 (or a suitable substitute form) or (ii) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and holds
the LYON certifies under penalty of perjury that such a Form W-8 (or suitable
substitute form) has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof.
GAIN ON DISPOSITION OF LYONS AND COMMON SHARES
Provided that the Company is at no time a United States real property
holding corporation within the meaning of Section 897(c) of the Code (a
"USRPHC"), a Non-U.S. Holder will not be subject to United States federal
income tax on gain or income realized on the sale or exchange of a LYON,
including, subject to the preceding paragraph, the redemption, conversion or
exchange of a LYON for Common Shares, or the sale or exchange of Common Shares
unless in the case of an individual Non-U.S. Holder such Holder is present in
the United States for 183 days or more in the year of such sale, exchange or
redemption and either (a) has a "tax home" in the United States and the gain or
income is not attributable to an office or other fixed place of business
maintained by such non-U.S. Holder outside of the United States, or (b) the
gain from the disposition is attributable to an office or other fixed place of
business in the United States. Even if the Company is determined to be a
USRPHC, a Non-U.S. Holder that is not present in the United States for 183 days
or more or, even if present in the United States for 183 days or more, that
does not meet the criteria set forth in clauses (a) or (b) in the preceding
sentence will not be subject to United States federal income tax on any such
gain or income provided that such Holder does not actually or constructively
own more than five percent of the Common Shares (including any Common Shares
that may be received in exchange for a LYON). Under present law the Company
would not be a USRPHC so long as during a specified five-year period the fair
market value of its United States real property interests is less than 50% of
the sum of the fair market value of its United States real property interests,
interests in real property located outside the United States and other of its
assets that are used or held for use in a trade or business. The Company
believes that it is not presently a USRPHC, but there can be no assurrance that
it will not become a USRPHC in the future.
U.S. FEDERAL ESTATE TAX
A LYON held by an individual who at the time of death is not a citizen
or resident of the United States (as specially defined for United States
federal estate tax purposes) will not be subject to United States federal
estate tax if the individual does not actually or constructively own 10 percent
or more of the total combined voting power of all classes of stock of the
Company entitled to vote and, at the time of the individual's death, if
payments with respect to such LYON would not have been effectively connected
with the conduct by such individual of a trade or business in the United
States.
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<PAGE> 43
THE COMMON SHARES
Dividends, if any, paid on the Common Shares after an exchange to a
Non-U.S. Holder generally will be subject to withholding of U.S. Federal
income tax at a 30 percent rate, subject to reduction for Non-U.S. Holders
eligible for the benefits of certain income tax treaties. Common Shares held
by an individual who at the time of death is not a citizen or resident of the
United States (as specially defined for United States federal estate tax
purposes) will be subject to United States federal estate tax, subject to
reduction of such estate tax if the individual is eligible for the benefits of
an estate tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments on the LYONs made by the Company or any paying agent of the
Company, and payments of dividends on the Common Shares, to certain
non-corporate Holders of the LYONs or Common Shares generally will be subject
to information reporting and possibly to "backup withholding" at a rate of 31
percent. Information reporting and backup withholding will not apply, however,
to payments made on a LYON if the certification described in clause (i) under
"Non-U.S. Holders--Withholding Tax on Payments of Principal and OID on LYONs"
above is received, provided in each case that the payor does not have actual
knowledge that the Holder is a U.S. Holder, or to payments made on the Common
Shares if such payments are subject to the 30% (or reduced treaty rate)
withholding tax described above under "Non-U.S. Holders--the Common Shares."
Payment of proceeds from the sale of a LYON or Common Shares to or
through the United States office of a broker is subject to information
reporting and backup withholding unless the Holder or beneficial owner
certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding. Payment outside
the United States of the proceeds of the sale of a LYON or Common Shares to or
through a foreign office of a "broker" (as defined in applicable U.S. Treasury
Department regulations) will not be subject to information reporting or backup
withholding, except that if the broker is a U.S. person, a controlled foreign
corporation for United States tax purposes or a foreign person 50 percent or
more of whose gross income is from a United States trade or business,
information reporting will apply to such payment unless the broker has
documentary evidence in its records that the beneficial owner is not a U.S.
Holder and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter")
has agreed, subject to the terms and conditions of the Purchase Agreement, to
purchase $200,000,000 aggregate principal amount at maturity of the LYONs from
the Company. The Purchase Agreement provides that the Underwriter will be
obligated to purchase all of the LYONs offered hereby, if any are purchased.
The Underwriter has advised the Company that it proposes to offer the LYONs
directly to the public at the offering price set forth on the front cover page
of this Prospectus. After the initial public offering, the offering price may
be changed. The LYONs are offered subject to receipt and acceptance by the
Underwriter and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted the Underwriter an option for 30 days after
the date of this Prospectus to purchase up to an additional $30,000,000
aggregate principal amount at maturity of LYONs to cover over-allotments, if
any, at the initial public offering price less the underwriting discount, plus
accrued OID, if any, accrued from the Issue Date, computed on a semi-annual
bond equivalent basis.
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<PAGE> 44
The Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriter may be required to make in respect
thereof.
The Underwriter has previously marketed (and anticipates continuing to
market) securities of issuers under the trademark "LYONs." The LYONs offered by
the Company hereby contain certain terms and provisions which are different
from such other previously marketed LYONs, the terms and provisions of which
also vary. See "Description of LYONs."
The Company and Minorco have agreed with the Underwriter that, without
the Underwriter's prior written consent, for a period of 120 days following the
sale by the Company of the LYONs offered hereby, they will not directly or
indirectly, sell, offer to sell, contract to sell, transfer or otherwise
dispose of, directly or indirectly, any Common Shares, any securities
convertible into or exchangeable for Common Shares or any rights to purchase or
acquire Common Shares.
The Underwriter has, from time to time, performed various investment
banking and brokerage services for the Company for which it has received
customary fees.
LEGAL MATTERS
The validity of the LYONs and certain other legal matters relating to
the offering will be passed upon for the Company by McDermott, Will & Emery,
Chicago, Illinois. Certain legal matters relating to the offering will be
passed upon for the Underwriter by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York.
EXPERTS
The Consolidated Financial Statements and schedules of the Company as
of December 31, 1993 and 1992, and for each of the years then ended, included
elsewhere herein and incorporated by reference in this Prospectus and in the
Registration Statement in which this Prospectus is included have been audited
by Deloitte & Touche, independent certified public accountants, as indicated in
their reports thereon, which appear elsewhere herein and incorporated by
reference herein. The financial statements and schedules audited by Deloitte &
Touche have been included herein in reliance on their reports given their
authority as experts in accounting and auditing.
The Consolidated Financial Statements and schedules of the Company as
of December 31, 1991 and for the year then ended included elsewhere or
incorporated by reference in this Prospectus and in the Registration Statement
in which this Prospectus is included have been audited by Price Waterhouse,
independent certified public accountants, as indicated in their reports
thereon, which are incorporated by reference herein. The financial statements
and schedules audited by Price Waterhouse have been included herein in reliance
on their reports given their authority as experts in accounting and auditing.
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<PAGE> 45
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Statements of Financial Position as of
December 31, 1993 and 1992 F-3
Consolidated Statements of Income for the years ended
December 31, 1993, 1992 and 1991 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991 F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1992 and 1991 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Terra Industries Inc.
We have audited the accompanying consolidated statement of financial position
of Terra Industries Inc. and its subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, cash flows and changes in
stockholders' equity for the years then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of the Corporation for the year ended December 31, 1991
were audited by other auditors whose report, dated February 13, 1992, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such 1993 and 1992 consolidated financial statements present
fairly, in all material respects, the financial position of the Corporation at
December 31, 1993 and 1992, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the financial statements, the Corporation changed its
method of accounting for post-retirement medical benefits and income taxes
effective January 1, 1992 to conform with Statements of Financial Accounting
Standards No. 106 and 109.
DELOITTE & TOUCHE
Omaha, Nebraska
February 1, 1994
F-2
<PAGE> 47
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(in thousands) At December 31,
- -------------------------------------------------------------------------------------------------------------------
1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and short-term investments $ 65,102 $ 121,789
Accounts receivable, less allowance for doubtful
accounts of $5,788 and $6,427 122,774 71,995
Inventories 244,995 198,621
Deferred tax asset - current 26,011 22,660
Other current assets 10,586 7,611
- -------------------------------------------------------------------------------------------------------------------
Total current assets 469,468 422,676
- -------------------------------------------------------------------------------------------------------------------
Equity and other investments 2,218 480
Property, plant and equipment, net 110,670 91,969
Deferred tax asset - non-current 24,742 23,599
Net assets of discontinued operations 3,488 32,369
Other assets 23,896 9,099
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 634,482 $ 580,192
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Debt due within one year $ 9,636 $ 12,508
Accounts payable 99,886 86,941
Accrued and other liabilities 128,659 107,410
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 238,181 206,859
- -------------------------------------------------------------------------------------------------------------------
Long-term debt 119,061 121,171
Deferred income taxes 451 ---
Other liabilities 33,809 30,686
Commitments and contingencies (Note 11) --- ---
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 391,502 358,716
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 114,375 shares;
69,455 and 65,346 shares outstanding 1993 and 1992, respectively 122,257 83,931
Trust Shares, authorized 16,500 shares;
none and 4,010 shares outstanding 1993 and 1992, respectively --- 22,312
Paid-in capital 516,128 531,609
Cumulative translation adjustment (488) ---
Accumulated deficit (394,917) (416,376)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 242,980 221,476
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 634,482 $ 580,192
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-3
<PAGE> 48
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands, except per-share amounts) Year ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Net sales $ 1,212,510 $1,062,045 $ 1,003,766
Other income, net 25,491 20,146 18,831
- -------------------------------------------------------------------------------------------------------------------
1,238,001 1,082,191 1,022,597
- -------------------------------------------------------------------------------------------------------------------
COST AND EXPENSES
Cost of sales 1,021,187 904,246 849,684
Depreciation and amortization 15,470 14,994 14,399
Selling, general and administrative expense 161,791 137,232 132,845
Equity in unconsolidated affiliates (2,275) --- ---
Interest income (3,261) (3,084) (1,789)
Interest expense 12,944 10,617 14,352
- -------------------------------------------------------------------------------------------------------------------
1,205,856 1,064,005 1,009,491
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 32,145 18,186 13,106
Income tax provision 9,300 7,757 1,073
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations 22,845 10,429 12,033
Loss from discontinued operations:
(Loss) income from operations, net of taxes --- (4,025) 1,192
Gain (loss) on disposition, net of taxes --- 2,360 (170,000)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary items and
cumulative effect of accounting changes 22,845 8,764 (156,775)
Extraordinary gain on early retirement of debt --- --- 5,115
Cumulative effect of accounting changes --- 22,265 ---
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 22,845 $ 31,029 $ (151,660)
- -------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 69,064 69,103 67,103
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
Continuing operations $ 0.33 $ 0.15 $ 0.18
Discontinued operations --- (0.02) (2.51)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary items 0.33 0.13 (2.33)
Extraordinary gain on early retirement of debt --- --- 0.07
Cumulative effect of accounting changes --- 0.32 ---
- -------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 0.33 $ 0.45 $ (2.26)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-4
<PAGE> 49
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands) Year ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 22,845 $ 31,029 $ (151,660)
Adjustments to reconcile income from
continuing operations to net cash (used in)
provided by operating activities:
Depreciation and amortization 15,470 14,994 14,399
Income taxes 5,500 6,313 (345)
Cumulative effect of accounting changes --- (22,265) ---
Loss from discontinued operations --- 1,665 168,808
Gain on early retirement of debt --- --- (5,115)
Unfunded retiree medical costs 723 1,161 ---
Equity in unconsolidated affiliates (2,275) --- ---
Other non-cash items 713 --- ---
Change in current assets and liabilities, excluding
working capital purchased/sold:
Accounts receivable (24,540) (1,764) (30,847)
Inventories (6,718) (32,136) (30,452)
Other current assets (2,893) (875) 917
Accounts payable (9,945) (2,071) 12,693
Accrued and other liabilities 2,452 38 20,048
Other (2,354) 684 (4,891)
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,022) (3,227) (6,445)
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from asset sales 24,391 23,065 124,983
Discontinued operations 5,630 (5,504) (42,755)
Purchase of property, plant and equipment (21,620) (17,620) (12,728)
Acquisitions (58,260) --- ---
Dividends of unconsolidated affiliates 537 --- ---
- -------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (49,322) (59) 69,500
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net short-term borrowings 7,313 --- ---
Retirement of convertible debentures --- --- (14,430)
Proceeds from issuance of long-term debt 250 30,000 ---
Principal payments on long-term debt (12,545) (5,842) (5,832)
Dividends (1,386) --- ---
Stock issuance/repurchase - net 513 --- ---
- -------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (5,855) 24,158 (20,262)
- -------------------------------------------------------------------------------------------------------------------
Foreign Exchange Effect on Cash and
Short-Term Investments (488) --- ---
- -------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND
SHORT-TERM INVESTMENTS (56,687) 20,872 42,793
- -------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 121,789 100,917 58,124
- -------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF YEAR $ 65,102 $ 121,789 $ 100,917
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
INTEREST PAID $ 11,800 $ 10,400 $ 14,700
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TAXES PAID $ 3,800 $ 6,000 $ 1,100
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-5
<PAGE> 50
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Common Class A Trust Paid-In Translation Accumulated
(in thousands) Shares Shares Shares Capital Adjustment Deficit Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1990 $ 52,203 $ 17,898 $ 28,821 $527,607 $ (8,823) $(295,745) $ 321,961
Exchange of HBMS Special Shares 1,366 --- (796) (570) --- --- ---
Translation adjustment --- --- --- --- 8,823 --- 8,823
Retirement of convertible debentures 2,626 --- --- 8,533 --- 5,115 16,274
Conversion of Class A Shares 17,898 (17,898) --- --- --- --- ---
Stock Incentive Plan 4 --- --- 9 --- --- 13
Net Loss --- --- --- --- --- (156,775) (156,775)
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1991 74,097 --- 28,025 535,579 --- (447,405) 190,296
Exchange of HBMS Special Shares 9,791 --- (5,713) (4,078) --- ---
Exercise of stock options 36 --- --- 95 --- --- 131
Stock Incentive Plan 7 --- --- 13 --- --- 20
Net Income --- --- --- --- --- 31,029 31,029
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1992 83,931 --- 22,312 531,609 --- (416,376) 221,476
Exchange of HBMS Special Shares 38,213 --- (22,312) (15,901) --- --- ---
Exercise of stock options 213 --- --- 767 --- --- 980
Stock repurchase (107) --- --- (360) --- --- (467)
Translation adjustment --- --- --- --- (488) --- (488)
Stock Incentive Plan 7 --- --- 13 --- --- 20
Dividends --- --- --- --- --- (1,386) (1,386)
Net Income --- --- --- --- --- 22,845 22,845
- -------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 $122,257 $ --- $ --- $516,128 $ (488) $(394,917) $ 242,980
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-6
<PAGE> 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The Consolidated Financial Statements include the accounts of Terra Industries
Inc., formerly Inspiration Resources Corporation, and all majority-owned
subsidiaries (the Corporation).
Operating results and, where appropriate, other data presented for prior years
have been reclassified to reflect discontinued operations described in Note 4.
Business segment:
The Corporation operates in the agribusiness industry through its wholly owned
subsidiary, Terra International, Inc., a marketer and producer of fertilizer,
crop protection products, seed and services for agriculture.
Foreign Exchange:
Results of operations for the Canadian subsidiary are translated using average
currency exchange rates during the period, while assets and liabilities are
translated using current rates. Resulting translation adjustments are recorded
as currency translation adjustments in stockholders' equity.
Cash and short-term investments:
The Corporation considers short-term investments with an original maturity of
three months or less to be cash equivalents which are reflected at their
approximate fair value.
Inventories:
Inventories are stated at the lower of cost or estimated net realizable value.
The cost of inventories is determined using the first-in, first-out method.
Property, plant and equipment:
Expenditures for plant and equipment additions, replacements and major
improvements are capitalized. Related depreciation is charged to expense on a
straight-line basis over estimated useful lives. Maintenance and repair costs
are expensed as incurred.
Reclassifications:
Certain reclassifications have been made to prior years' financial statements
to conform with current year presentation.
Per-share results:
Earnings-per-share data are based on the weighted average number of Common
Shares that would become outstanding after allowing for the full exchange of
Hudson Bay Mining and Smelting Co., Limited Special Shares held by the public
and exercise of outstanding stock options. All previously unexchanged Special
Shares were automatically exchanged for Common Shares of the Corporation on
July 6, 1993. The dilutive effect of the Corporation's outstanding restricted
shares, stock options and convertible debentures was not significant.
2. ACQUISITIONS
On April 8, 1993, a wholly owned subsidiary of the Corporation, Terra
International (Canada) Inc. (Terra Canada) acquired rights to an anhydrous
ammonia manufacturing plant and related upgrading facilities (the nitrogen
plant) located at Courtright, Ontario effective as of March 31, 1993. In
addition, Terra Canada purchased working capital associated with the nitrogen
plant and interests in 32 farm service centers operating under the trademark,
Agromart(TM). All but two of the Agromarts(TM) are owned by corporations in
which Terra Canada has a 50% interest, and the remaining 50% interests are
owned by local management and other investors. The remaining two Agromarts(TM)
are wholly owned by Terra Canada. The amount paid in connection with the
transaction was approximately $73 million
F-7
<PAGE> 52
(Cdn) of which approximately $47 million (Cdn) was provided through lease
financing and the remainder was funded by a working capital line of credit and
cash.
On December 31, 1993, Terra International, Inc. purchased net assets of certain
operations of Asgrow Florida Company, Inc. (Terra Asgrow Florida), a
distributor of fertilizer, chemicals and seed, for $39 million. Terra Asgrow
Florida operates 12 distribution centers and is a supplier to the vegetable and
ornamental markets, mostly in Florida. The amount paid at closing was
approximately $31 million which was provided from available cash.
Terra Canada's operating results from the date of acquisition are included in
the Consolidated Statements of Income. The following represents unaudited pro
forma summary results of operations as if both acquisitions had occurred at the
beginning of 1992:
<TABLE>
<CAPTION>
(in thousands, except per-share data) Year Ended December 31
- -------------------------------------------------------------------------------------------------------------------
1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 1,351,000 $ 1,282,800
Income before extraordinary items and
cumulative effect of accounting changes $ 25,500 $ 14,300
Net income $ 25,500 $ 36,600
Net income per share $ 0.37 $ 0.53
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The pro forma operating results were adjusted to include lease expense rather
than depreciation for the nitrogen plant, increased costs of seed sales,
amortization of intangibles, interest expense on the acquisition borrowings and
the effect of income taxes.
The pro forma information listed above does not purport to be indicative of the
results that would have been obtained if the operations were combined during
the above period. In addition, they are not intended to be a projection of
future operating results or trends.
3. ACCOUNTING CHANGES
In 1992, the Corporation adopted Statement of Financial Accounting Standard
(SFAS) 106, "Employers Accounting for Post-Retirement Benefits Other than
Pensions" and SFAS 109, "Accounting for Income Taxes." In connection with the
adoption of SFAS 106, the Corporation elected to recognize immediately the
prior service cost of providing post-retirement medical benefits during the
active service of the employee. This resulted in a one-time charge of $5.7
million, net of income taxes of $3.5 million. Net income from continuing
operations for 1992 was reduced $0.7 million from that which would have been
reported under the Corporation's previous accounting method. The pro forma
effect of the change on prior years is not determinable. Prior to 1992, the
Corporation recognized expense in the period the benefits were paid. These
benefit costs were not significant in 1991.
Accounting for income taxes under SFAS 109 requires recognition of deferred tax
assets and liabilities for the effect of future tax consequences of events
recognized in the Corporation's financial statements or tax returns. SFAS 109
requires the Corporation to recognize the income tax benefit of operating loss
and tax credit carryforwards expected to be realized; such recognition was
prohibited under SFAS 96, the Corporation's previous method of accounting for
income taxes. A $28.0 million credit was recorded as the effect at January 1,
1992 of a change in accounting principle. Income tax expense from continuing
operations was increased $6.5 million for 1992 pursuant to SFAS 109.
4. DISCONTINUED OPERATIONS
During 1993, the Corporation sold the leasing business and the construction
materials businesses, discontinued in 1992.
As of December 31, 1992, the Corporation's Board of Directors approved plans to
sell the leasing and construction materials businesses as well as equity
interests in a copper alloy producer, an undeveloped beryllium mine property
and its gold mining affiliate. As a result of this decision and a gain on the
sale of remaining coal properties,
F-8
<PAGE> 53
discontinued in 1990, the Corporation realized a $2.4 million gain on
disposition of discontinued operations during 1992.
During the 1991 third quarter, the Corporation sold its interests in its base
metals segment consisting of Hudson Bay Mining and Smelting Co., Limited (HBMS)
and related metals marketing and trading operations. The base metals segment
was sold to Minorco, the Corporation's majority stockholder, for $87 million.
The Corporation recognized a $170 million loss on the disposal of the base
metals segment.
Financial results of the base metals, coal, leasing and other discontinued
businesses for 1993 have been applied against their respective reserves and
1992 and 1991 amounts have been included in discontinued operations and are as
follows:
<TABLE>
<CAPTION>
(in millions) 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Base metals $ -- $ 176.8
Leasing 5 .9 8.3
Construction materials 27.8 29.4
- -------------------------------------------------------------------------------------------------------------------
$ 33.7 $ 214.5
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations,
net of income taxes:
Base metals $ -- $ (4.8)
Leasing (2.8) 3.8
Construction materials (0.8) (0.2)
Other (0.4) 2.4
- -------------------------------------------------------------------------------------------------------------------
$ (4.0) $ 1.2
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
5. RELATIONSHIP WITH MAJORITY STOCKHOLDER
Minorco, through its beneficial ownership of Common Shares, owns approximately
53 percent of the equity of the Corporation. In 1992, the Corporation
discontinued its remaining operations in the gold mining business conducted
through its 50 percent interest in Western Gold Exploration and Mining Company,
Limited Partnership (WestGold). The remaining 50 percent interest is owned by
Minorco. During 1991, the Corporation sold its base metals segment to Minorco
as described in Note 4. The Corporation subleases office space to Minorco,
procures certain insurance coverages for Minorco and related companies and
shares the cost of an executive of both organizations. Payments in settlement
of these services are made on an ongoing basis.
6. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 22,983 $ 14,770
Finished goods 222,012 183,851
- -------------------------------------------------------------------------------------------------------------------
Total $ 244,995 $ 198,621
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE> 54
7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 66,343 $ 59,589
Plant and equipment 179,095 152,766
- -------------------------------------------------------------------------------------------------------------------
245,438 212,355
Less accumulated depreciation
and amortization (134,768) (120,386)
- -------------------------------------------------------------------------------------------------------------------
Total $ 110,670 $ 91,969
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
8. DEBT DUE WITHIN ONE YEAR
Debt due within one year consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings $ 7,313 $ ---
Current maturities of long-term debt 2,323 12,508
- -------------------------------------------------------------------------------------------------------------------
Total $ 9,636 $ 12,508
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation has short-term domestic bank lines of credit consisting of a
$130 million revolving credit facility, which is used primarily to provide for
domestic seasonal working capital needs, a $26.2 million ($35 million Cdn)
revolving credit facility used to provide for working capital needs for its
Canadian operations, and a $15 million uncommitted line for working capital
needs. There was $7.3 million outstanding at December 31, 1993 under the
Canadian facility. Interest on borrowings under these lines is charged at
current market rates.
Under both the domestic and Canadian facility, the Corporation has agreed,
among other things, to maintain certain levels of working capital and net
worth, adhere to maximum debt leverage limitations and restrict payments to the
Corporation from operating subsidiaries. The Corporation's $130 million
revolving credit agreement expires December 31, 1995. A commitment fee of 1/4
percent is paid on the unused portion of the facility, and no borrowings were
outstanding at December 31, 1993. The Corporation's $35 million (Cdn)
revolving credit agreement expires January 5, 1995 and is renewable every 120
days for a 360-day term. A commitment fee of 1/8 percent is paid on the
facility. The Corporation's $15.0 million line is subject to periodic review
and may be withdrawn by the bank at any time.
9. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Customer deposits $ 50,714 $ 41,714
Payroll and benefit costs 17,072 15,167
Income taxes 17,025 9,551
Other 43,848 40,978
- -------------------------------------------------------------------------------------------------------------------
Total $ 128,659 $ 107,410
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
10. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
F-10
<PAGE> 55
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8.5% Convertible Subordinated Debentures,
due 2012 $ 72,057 $ 72,057
Unsecured Senior Notes, 8.48%, due 2005 30,000 30,000
Industrial Development Revenue Bonds
bearing interest at an average 6.78% with
increasing payments from 1994 to 2011 9,355 9,485
Industrial Development Revenue Bonds
bearing a variable interest rate repaid December, 1993 --- 5,000
Unsecured Notes, 8.75% to 9.63%,
due 1996 to 1998 8,500 10,500
Bank Note, floating rate repaid January, 1993 --- 5,258
Other 1,472 1,379
- -------------------------------------------------------------------------------------------------------------------
121,384 133,679
Less current maturities (2,323) (12,508)
- -------------------------------------------------------------------------------------------------------------------
Total $ 119,061 $ 121,171
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Estimated Fair Value $ 121,500 $ 121,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Scheduled principal payments for each of the five years 1994 through 1998 are
$2.3 million, $2.3 million, $2.8 million, $1.3 million and $6.5 million,
respectively.
The Corporation's 8.5 percent Convertible Subordinated Debentures (Debentures)
are convertible into Common Shares any time prior to maturity, unless
previously redeemed, at a conversion price of $8.083 per share. The Debentures
are subject to redemption, upon not less than 20 days notice by mail, at any
time, as a whole or in part, at the election of the Corporation. The
redemption price, expressed as a percent of the principal amount of the
Debentures to be redeemed, is 103.40% until May 31, 1994, 102.55% until May 31,
1995 and decreasing yearly thereafter to 100% at June 1, 1997.
During 1992, the Corporation entered into a long-term note purchase agreement
of $30 million in 8.48 percent Senior Notes requiring semi-annual payments
through May 1, 2005. The Corporation has executed interest rate swap
agreements to convert one-half of these notes to LIBOR-based floating rate
instruments. The interest rate agreements became effective on April 15, 1993
and terminates on April 15, 2003. The debt agreement includes covenants
similar to the Revolving Credit Agreement described in Note 8 and a requirement
for rental and interest obligations coverage.
The Industrial Development Revenue Bonds due in 2011 are secured by a letter of
credit guaranteed by the Corporation and, along with other long-term debt due
in 2003, by the Corporation's headquarters building located in Sioux City,
Iowa.
The fair value of long-term debt was established by reference to the
public exchange market for the publicly traded long-term securities of the
Corporation and consideration of redemption provisions. Estimates of fair
value developed by the Corporation were utilized for other long-term debt.
11. COMMITMENTS AND CONTINGENCIES
The Corporation and its subsidiaries are committed to various non-cancelable
operating leases for agricultural equipment, and office, production, and
storage facilities expiring on various dates through 2001. Total minimum
rental payments are as follows:
<TABLE>
<CAPTION>
(in thousands)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
1994 $ 25,178
1995 21,329
1996 16,998
1997 11,244
</TABLE>
F-11
<PAGE> 56
<TABLE>
<S> <C>
1998 and thereafter 5,061
- -------------------------------------------------------------------------------------------------------------------
Total $ 79,810
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation entered a lease financing agreement in connection with the
purchase of an ammonia manufacturing plant and related upgrading facilities
located near Sarnia, Ontario. The agreement is for a four-year term requiring
annual lease payments of approximately $4.0 million (Cdn). Terra Canada has an
option to purchase the nitrogen plant during the term of the lease and at
expiration for approximately $47 million (Cdn). If, at the end of the lease
term, Terra Canada elects not to exercise its purchase option, the Corporation
must pay to the lessor approximately $40 million (Cdn), subject to
reimbursement based on the proceeds realized upon the sale of the nitrogen
plant by the lessor. Terra Canada has entered into certain agreements in order
to convert its obligations with respect to the nitrogen plant set forth above
from Canadian dollar and fixed rental obligations to U.S. dollar and variable
rental obligations based on interest rate changes tied to LIBOR.
Total rental expense under all leases, including short-term cancelable
operating leases, was approximately $24.7 million, $19.4 million and $18.9
million for the years ended December 31, 1993, 1992 and 1991, respectively.
In 1988, the Corporation formulated a fungicide for E. I. DuPont de Nemours and
Company ("DuPont") at the Blytheville facility. The fungicide was recalled and
claims in excess of $90 million, plus punitive damages, have been filed by
third parties alleging damages from product use. During 1993, the Corporation
reached a settlement with DuPont whereby DuPont will assume responsibility for
all related pending product claims and will reimburse the Corporation for
claims previously settled and not reimbursed by insurers. As a result of this
settlement, reserves established in 1989 to cover expected recall and claims
costs will not be required. Accordingly, the Corporation reduced 1993 costs in
the fourth quarter by $4.2 million, the remaining amount of such reserves.
A subsidiary of the Corporation has been notified by the United States
Environmental Protection Agency (EPA) that it is a potentially responsible
party (PRP) in the Matter of Valley Chemical Site, Greenville, Mississippi.
Ten other companies have also been named as PRPs. Based on discussions with
the EPA and review of information from other PRPs, the Corporation believes its
responsibility is limited to a portion of material removal costs which should
not be significant to its operating results.
The Corporation is contingently liable for retiree medical benefits of
employees of coal mining operations sold on January 12, 1993. Under the
purchase agreement, the purchaser agreed to indemnify the Corporation against
its obligations under certain employee benefit plans. Due to the Coal Industry
Retiree Health Benefit Act of 1992, certain retiree medical benefits of union
coal miners have become statutorily mandated, and all companies owning 50
percent or more of any company liable for such benefits as of certain specified
dates becomes liable for such benefits if the company directly liable is unable
to pay them. As a result, if the purchaser becomes unable to pay its retiree
medical obligations assumed pursuant to the sale, the Corporation may have to
pay such amount. The Corporation has estimated that the present value of
liabilities for which it retains contingent responsibility approximates $12
million at December 31, 1993. In the event the Corporation would be required
to assume this liability, mineral reserves associated with the sold coal
subsidiary would revert to the Corporation.
The Corporation and certain of its subsidiaries are involved in the above
mentioned and various other legal actions and claims, including environmental
matters, arising from the normal course of business. Although it is not
possible to predict with any certainty the outcome of such matters, it is the
opinion of management that these matters will not have a material adverse
effect on the Corporation.
12. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
FINANCIAL INSTRUMENTS - The Corporation enters into foreign exchange forward
and option contracts to manage exposure to currency fluctuations. These
agreements are entered as designated hedges of fixed obligations and hedges of
net foreign currency transaction exposures. At December 31, 1993, the notional
amounts for all foreign exchange forward and foreign currency option contracts
totaled $98.2 million. These amounts are a reflection of the extent of such
activity and are disclosed for informational purposes only. They do not
indicate the significantly smaller credit or economic risks involved in these
agreements.
F-12
<PAGE> 57
These contracts had a carrying amount of $0.1 million and a fair value of $0.9
million. Fair value of foreign exchange forward contracts is based on
quotations received from a quotation service and on computations prepared by
the Corporation which are based on current rates of exchange. Maturities,
which are consistent with the settlement dates of items being hedged, extend
through April 1997. The gains and losses on these contracts are deferred and
included as a component of the related transaction.
The Corporation fixes some natural gas supply prices through the use of swap
agreements and financial derivatives. The Corporation had gas contracts with a
computed value of $24.7 million and a fair value of $24.2 million based on
contract prices and rates in effect at December 31, 1993. Gains and losses on
futures contracts and swap agreements are credited or charged to manufacturing
cost in the month to which the hedged transaction relates.
At December 31, 1993, the Corporation had letters of credit outstanding
totaling $19.5 million, guaranteeing various insurance and financing
activities. Short-term investments of $13.0 million at December 31, 1993 and
1992 are restricted to collateralize certain of the letters of credit.
The Corporation enters into the above agreements with a limited number of major
international financial institutions. The Corporation does not expect any
losses from credit exposure due to review and control procedures established by
corporate policy.
CONCENTRATIONS OF CREDIT RISK - The Corporation is subject to credit risk
through trade receivables and short-term investments. Although a substantial
portion of its debtors' ability to pay is dependent upon the agribusiness
economic sector, credit risk with respect to trade receivables is minimized due
to a large customer base and its geographic dispersion. Short-term cash
investments are placed with well capitalized, high quality financial
institutions and in short duration corporate and government debt securities
funds. By policy, the Corporation limits the amount of credit exposure in any
one type of investment instrument.
13. STOCKHOLDERS' EQUITY
The Corporation allocates $1.00 per share upon the issuance of Common Shares to
the Common Share capital account.
On July 6, 1993, the outstanding HBMS Special Exchangeable Non-Voting Shares
(HBMS Special Shares) were each automatically exchanged for one Common Share of
the Corporation. Through the Corporation's Trust Shares, each HBMS Special
Share had a vote equivalent to one Common Share of the Corporation. For Common
Shares issued upon the exchange of HBMS Special Shares subsequent to August 31,
1986, the Corporation allocated $9.53 per share to the Common Share capital
account, representing the average historical capitalization of the HBMS Special
Shares.
In 1992, the Corporation issued 375,500 restricted Common Shares under its 1992
Stock Incentive Plan to certain key employees of the Corporation. During 1993
an additional 38,500 shares were issued and 45,500 shares were forfeited. At
December 31, 1993, 368,500 of the unvested shares remain outstanding. Under
terms of the issuance, vesting of stock granted is contingent upon the
attainment, prior to March 1999, of pre-established market price objectives for
the Corporation's shares and/or, for approximately 31 percent of participants,
specified regional or divisional three-year operating profit objectives. In
1991, the Corporation issued 33,300 restricted Common Shares under its 1987
Stock Incentive Plan. The agreement restricts the shares to vesting in equal
annual installments over five years. The shares issued are entitled to normal
voting rights and earn dividends as declared during the performance periods.
Compensation expenses are accrued on ratable bases through the performance
periods.
The Corporation has authorized 16,500,000 Trust Shares for issuance. All Trust
Shares previously outstanding were cancelled in July 1993.
In addition to the Common and Trust Shares, the Corporation has authorized
19,125,000 Class A Shares for issuance. All Class A Shares previously
outstanding were converted to Common Shares in 1991.
A summary of changes in the Corporation's outstanding capital stock follows:
F-13
<PAGE> 58
<TABLE>
<CAPTION>
Common Class A Trust Total
(in thousands) Shares Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1990 43,207 17,898 5,181 66,286
Exchanges of HBMS Special Shares 144 --- (144) ---
Retirement of Convertible Debentures 2,626 --- --- 2,626
Conversion of Class A Shares 17,898 (17,898) --- ---
Stock Incentive Plan 33 --- --- 33
- -------------------------------------------------------------------------------------------------------------------
December 31, 1991 63,908 --- 5,037 68,945
Exchange of HBMS Special Shares 1,027 --- (1,027) ---
Exercise of stock options 36 --- --- 36
Stock Incentive Plan 375 --- --- 375
- -------------------------------------------------------------------------------------------------------------------
December 31, 1992 65,346 --- 4,010 69,356
Exchange of HBMS Special Shares 4,010 --- (4,010) ---
Exercise of stock options 213 --- --- 213
Repurchase of shares (107) --- --- (107)
Stock Incentive Plan (7) --- --- (7)
- -------------------------------------------------------------------------------------------------------------------
December 31, 1993 69,455 --- --- 69,455
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, 12.5 million Common Shares were reserved for issuance
upon award of restricted shares, exercise of employee stock options and
conversion of convertible debentures.
14. STOCK OPTIONS
The Corporation's 1992 Stock Incentive Plan authorized granting key employees
options to purchase Common Shares at not less than fair market value on the
date of grant and also authorizes the award of performance units and restricted
shares. The Corporation's 1983 Stock Option Plan and 1987 Stock Incentive Plan
authorized granting key employees similar options to purchase Common Shares.
No further options may be granted under the 1983 and 1987 Plan. Awards to a
maximum of 2.5 million Common Shares may be granted under the 1992 Plan.
Options generally may not be exercised prior to one year or more than ten years
from the date of grant. At December 31, 1993, 1,763,500 Common Shares were
available for grant under the 1992 Plan. A summary of activity under the 1992,
1987 and 1983 Plans follows:
<TABLE>
<CAPTION>
Shares Price Range
(in thousands) Under Option Per Share
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1990 2,603 $4.13 to $13.11
Granted 356 3.38
Expired/terminated 505 3.38 to 13.11
Exercised --- ---
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 2,454 $3.38 to $13.11
Granted 328 5.00
Expired/terminated 163 3.38 to 11.15
Exercised 36 3.38 to 4.13
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 2,583 $3.38 to $13.11
Granted 41 5.00
Expired/terminated 266 4.125 to 13.11
Exercised 213 3.38 to 6.75
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 2,145 $3.38 to $11.38
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE> 59
The number of options exercisable at December 31 for each of the past three
years follows:
<TABLE>
<CAPTION>
Price Range
(in thousands) Options Per Share
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1991 2,101 $4.13 to $13.11
1992 2,255 3.38 to 13.11
1993 1,777 3.38 to 11.38
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
15. RETIREMENT PLANS
The Corporation and its subsidiaries maintain non-contributory pension plans
that cover substantially all salaried and hourly employees. Benefits are based
on a final pay formula for the salaried plans and a flat benefit formula for
the hourly plans. The plans' assets consist principally of equity securities
and corporate and government debt securities. The Corporation and its
subsidiaries also have certain non-qualified pension plans covering
executives, which are unfunded. The Corporation accrues pension costs based
upon annual independent actuarial valuations for each plan and funds these
costs in accordance with statutory requirements. The components of net
periodic pension expense (credit) were as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current service cost $ 2,627 $ 2,019 $ 1,914
Interest on projected benefit obligation 3,539 2,322 2,077
Actual return on assets (4,629) (2,290) (4,251)
Net amortization and other 853 28 2,395
- -------------------------------------------------------------------------------------------------------------------
Pension expense $ 2,390 $ 2,079 $ 2,135
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table reconciles the plans' funded status to amounts included in
the Consolidated Statements of Financial Position at December 31:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- --------------------------------------------------------------------------------------------------------------
Plans with Plans with
Plans with accumulated Plans with accumulated
assets in excess benefits in assets in excess benefits in
of accumulated excess of of accumulated excess of
benefits plan assets benefits plan assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligations $ (32,550) $ (1,532) $ (21,764) $ (1,069)
Accumulated benefit obligations $ (36,213) $ (1,680) $ (24,376) $ (1,109)
Projected benefit obligations $ (51,173) $ (1,993) $ (33,558) $ (1,155)
Plan assets at fair value 45,626 --- 30,732 ---
- -------------------------------------------------------------------------------------------------------------------
Funded status (5,547) (1,993) (2,826) (1,155)
Unrecognized net experience loss (gain) 4,061 295 1,673 (386)
Unrecognized prior service cost 636 107 667 116
Unrecognized net transition (asset) obligation (3,469) 645 (3,835) 705
Additional minimum liability --- (734) --- (389)
- -------------------------------------------------------------------------------------------------------------------
Pension liability included in the Consolidated
Statements of Financial Position $ (4,319) $ (1,680) $ (4,321) $ (1,109)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the terms of the Canadian purchase agreement, the Corporation
established a pension plan for transferring employees, whereby the seller will
transfer assets, which approximate the projected benefit obligations of $9.8
million.
The assumptions used to determine the actuarial present value of benefit
obligations and pension expense during each of the years in the three-year
period ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
F-15
<PAGE> 60
<TABLE>
<S> <C> <C> <C>
Weighted average discount rates to determine:
Pension expense 7.5% 8.5% 8.5%
Present value of benefit obligations 7.5% 8.5% 8.5%
Long-term per annum compensation increase 5.0% 6.0% 6.0%
Long-term return on plan assets 9.5% 9.5% 9.5%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation also sponsors a qualifying savings plan covering most full-time
employees. Contributions made by participating employees are matched based on
a specified percentage of employee contributions to 6% of the employees' pay
base. The cost of the Corporation's matching contribution to the savings plan
totaled $1.4 million in 1993, and $1.1 million in 1992 and 1991.
16. POST-RETIREMENT BENEFITS
The Corporation also provides health care benefits for eligible retired
employees of its agribusiness subsidiary. Participants generally become
eligible after reaching retirement age with ten years of service. The plan
pays a stated percentage of most medical expenses reduced for any deductible
and payments made by government programs. The plan is unfunded.
Employees hired prior to January 1, 1990 are eligible for participation in the
plan. Participant contributions and co-payments are subject to escalation.
The following table indicates the components of the post-retirement medical
benefits obligation included in the Corporation's Consolidated Statement of
Financial Position at December 31, 1993:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement medical benefit obligation:
Retirees $ 2,054 $ 2,168
Fully eligible active plan participants 1,946 2,075
Other active participants 5,305 6,205
- -------------------------------------------------------------------------------------------------------------------
Funded status (9,305) (10,448)
Unrecognized net (gain) loss 149 37
Unrecognized prior service (benefit) (2,040) ---
- -------------------------------------------------------------------------------------------------------------------
(Accrued) post-retirement benefit cost $ (11,196) $ (10,411)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic post-retirement medical benefit cost consisted of the following
components:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost of benefits earned $ 526 $ 723
Interest cost on accumulated post-retirement medical
benefit obligation 614 730
Net amortization and other (127) ---
- -------------------------------------------------------------------------------------------------------------------
Net periodic post-retirement medical benefit cost $ 1,013 $ 1,453
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation limits its future obligation for post-retirement medical
benefits by capping at 5% the annual rate of increase in the cost of claims it
assumes under the Plan. The weighted average discount rate used in determining
the accumulated post-retirement medical benefit obligation is 7.5% and was 8.0%
in 1992. The determination of the Corporation's accumulated post-retirement
benefit obligation as of December 31, 1993 utilizes the annual limit of 5% for
increases in claims costs.
17. OTHER INCOME, NET
Other income consisted of the following:
F-16
<PAGE> 61
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fertilizer service revenue $ 13,531 $ 10,354 $ 9,743
Service charge income 3,930 3,963 3,833
Other, net 8,030 5,829 5,255
- -------------------------------------------------------------------------------------------------------------------
Total $ 25,491 $ 20,146 $ 18,831
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
18. INCOME TAXES
Components of the income tax provision (benefit) applicable to continuing
operations are as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 4,884 $ 640 $ 600
Foreign 3,750 --- ---
State 4,709 804 818
- -------------------------------------------------------------------------------------------------------------------
13,343 1,444 1,418
- -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (4,126) 6,288 (119)
Foreign 451 --- ---
State (368) 25 (226)
- -------------------------------------------------------------------------------------------------------------------
(4,043) 6,313 (345)
- -------------------------------------------------------------------------------------------------------------------
Total income tax provision $ 9,300 $ 7,757 $ 1,073
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective January 1, 1992, the Corporation adopted SFAS 109 to account for
income taxes as described in Note 3 above. The Corporation has accumulated net
operating loss (NOL) carryforwards and, in prior years under provisions of its
previous accounting method, the benefits from loss carryforwards had been
included as a reduction of income tax expense in the year utilized.
The income tax provision differs from the federal statutory provision for the
following reasons:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing
operations before taxes:
U.S. $ 19,046 $ 18,186 $ 13,106
Canada 13,099 --- ---
- -------------------------------------------------------------------------------------------------------------------
$ 32,145 $ 18,186 $ 13,106
- -------------------------------------------------------------------------------------------------------------------
Statutory income tax:
U.S. $ 6,666 $ 6,183 $ 4,456
Canada 4,978 --- ---
- -------------------------------------------------------------------------------------------------------------------
11,644 6,183 4,456
Non-deductible expenses 698 710 705
State and local income taxes 3,061 547 391
Benefit of loss carryforwards (4,494) --- (5,036)
Change in federal tax rates (1,233) --- ---
Undistributed equity earnings (865) --- ---
Other 489 317 557
- -------------------------------------------------------------------------------------------------------------------
Income tax provision $ 9,300 $ 7,757 $ 1,073
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax assets totaled $50.8 million and $46.3 million at December 31,
1993 and 1992, respectively. At December 31, 1993, undistributed earnings of
the Canadian subsidiary, considered permanently invested, for which deferred
income taxes have not been provided, was $8.9 million. The tax effect of NOL
and tax credit carryforwards and significant temporary differences between
reported and taxable earnings that gave rise to net deferred tax assets were as
follows:
F-17
<PAGE> 62
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOL, capital loss and tax credit carryforwards $ 28,937 $ 31,209
Discontinued business costs 7,295 8,992
Unfunded employee benefits 8,146 8,354
Accrued liabilities 8,658 5,705
Inventory valuation 4,059 3,418
Account receivable allowances 2,176 2,286
Depreciation (6,297) (4,020)
Valuation allowance (2,765) (9,554)
Other 93 (131)
- -------------------------------------------------------------------------------------------------------------------
$ 50,302 $ 46,259
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Remaining unutilized NOL carryforwards were approximately $55 million
and $51 million at December 31, 1993 and 1992, respectively. NOL carryforwards
that have not been utilized expire in 2005. Investment tax credits of
approximately $1.7 million expire in varying amounts from 1998 through 2000.
Alternative minimum taxes paid of $5.2 million are available to offset future
tax liabilities and have an indefinite life. The Corporation's capital loss
carryforwards totalled $7.9 million and $28.1 million at December 31, 1993 and
1992, respectively. Capital loss carryforwards that are not utilized will
expire in 1997. The change in the valuation allowance reflects current
utilization of capital losses against capital gains and changes in tax rates.
A valuation allowance is provided since the realization of tax benefits of
capital loss carryforwards is not assured.
Components of income tax provision (benefit) included in net income other than
from continuing operations are as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ --- $ 120 $ 2,496
State and local --- 5,479 1,992
- -------------------------------------------------------------------------------------------------------------------
--- 5,599 4,488
- -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal --- (18,887) 554
State and local --- (2,001) (629)
- -------------------------------------------------------------------------------------------------------------------
--- (20,888) (75)
- -------------------------------------------------------------------------------------------------------------------
$ --- $ (15,289) $ 4,413
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE> 63
<TABLE>
<S> <C>
No dealer, salesperson or other individual has
been authorized to give any information or make
any representations not contained in this
Prospectus in connection with the offering covered
by this Prospectus. If given or made, such
information or representations must not be relied $200,000,000
upon as having been authorized by the Company or
the Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of
an offer to buy, the LYONs in any jurisdiction TERRA INDUSTRIES INC.
where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create
an implication that there has not been any change
in the facts set forth in this Prospectus or in
the affairs of the Company since the date hereof.
TABLE OF CONTENTS LIQUID YIELD OPTIONTM NOTES
Page DUE 2009
----
(ZERO COUPON-SENIOR)
Available Information . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . 3
Investment Considerations . . . . . . . . . 7
The Company . . . . . . . . . . . . . . . . 9 ________________
Use of Proceeds . . . . . . . . . . . . . . 9
Common Shares Price Range and PROSPECTUS
Dividends . . . . . . . . . . . . . . . 10 ________________
Capitalization. . . . . . . . . . . . . . . 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . 12
Business . . . . . . . . . . . . . . . . . 19
Description of LYONs . . . . . . . . . . . 23
Book-Entry System . . . . . . . . . . . . . 35
Description of Capital Stock . . . . . . . 36
Certain United States Federal Tax
Considerations . . . . . . . . . . . . . 37
Underwriting . . . . . . . . . . . . . . . 41 MERRILL LYNCH & CO.
Legal Matters . . . . . . . . . . . . . . . 42
Experts . . . . . . . . . . . . . . . . . . 42 , 1994
Index to Financial Information . . . . . . F-1
TM TRADEMARK OF MERRILL LYNCH & CO., INC.
</TABLE>
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate (except for the Securities and
Exchange Commission Registration Fee and NYSE Fee) of all expenses, other than
the underwriting discount, payable by the Company in connection with the
issuance and sale of securities being registered.
<TABLE>
<S> <C>
SEC Registration Fee $43,786
NYSE Filing Fee 13,198
NASD Filing Fee *
Trustee Fees *
Printing Costs *
Engraving Costs *
Accounting Fees and Expenses *
Legal Fees and Expenses (not including Blue Sky) *
Blue Sky Fees and Expenses *
Miscellaneous *
--------
Total $ *
--------
</TABLE>
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland General Corporate Law provides the following with respect to the
indemnification of directors, officers, employees and agents:
(a) Any director made a party to any proceeding in its capacity as a
director, may be indemnified by registrant against certain liabilities unless
it is established that: (i) The act or omission of the director was material
to such proceeding and was committed in bad faith or was the result of active
and deliberate dishonesty; or (ii) the director actually received an improper
benefit or (iii) in the case of criminal proceedings the director had
reasonable cause to believe that the act or omission was unlawful.
(b) A director who performs his duties in accordance with the standard of
care required of directors by Maryland law has no liability by reason of being
or having been director of a corporation.
(c) The Articles of Incorporation of the registrant may expand or limit the
liability of its directors and officers to the corporation or its Stockholders
for money damages except in circumstances where it is proved that such person
received an improper benefit or such person actions, or failure to act, was the
result of active or deliberate dishonesty.
The indemnification provided by Maryland General Corporate Law and the
registrant's By-Laws is not exclusive of any other rights to which a director
or officer of the registrant may be entitled. The registrant also carries
directors' and officers' liability insurance.
The Articles of Incorporation of registrant provide the following with
respect to indemnification of officers and directors; (a) the Company shall
indemnify (i) its directors to the fullest extent provided by the general laws
of the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures provided by such laws; (ii) its officers to the
same extent as it shall indemnify its directors; and (iii) its officers who are
not directors to such further extent as shall be authorized by the Board of
Directors and be consistent with law.
The foregoing shall not limit the authority of the Company to indemnify other
employees and agents consistent with law.
II-1
<PAGE> 65
The proposed form of Purchase Agreement for the LYONs will contain provisions
under which the Underwriter agree to indemnify the directors and officers of
the registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1) Form of Purchase Agreement*
4) Form of Indenture
5) Opinion re Legality*
8) Opinion re Tax Matters (included in Exhibit 5)*
12) Statement re Computation of Ratio of Earnings to Fixed Charges
23.1) Consent of Deloitte & Touche
23.2) Consent of Price Waterhouse
23.3) Consent of McDermott, Will & Emery (included in Exhibit 5)*
24) Powers of Attorney
25) Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
NationsBank of Texas, N.A.
</TABLE>
_______________________
* To be supplied by Amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
The undersigned registrant hereby undertakes that:
II-2
<PAGE> 66
(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 shall be deemed to be part of this registration
statement as of the time it is declared effective.
(2) For the purpose of determining any liability under the
Securities Act, 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.
The undersigned registrant hereby undertakes that 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 foregoing provisions described under Item 15, 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
Act 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 by such director, officer, or controlling person in
connection with the securities being registered, 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 of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 67
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 Sioux City, State of Iowa, on March 2, 1994.
TERRA INDUSTRIES INC.
By: /S/ GEORGE H. VALENTINE
George H. Valentine
Title: Vice President, General Counsel
and Corporate Secretary
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Reuben F. Richards* Chairman of the Board March 2, 1994
Burton M. Joyce* Chief Executive Officer, March 2, 1994
President and Director
(Principal Executive Officer)
Francis G. Meyer* Vice President, Chief Financial March 2, 1994
Officer
(Principal Financial Officer and
Principal Accounting Officer)
Carol L. Brookins* Director March 2, 1994
Edward M. Carson* Director March 2, 1994
David E. Fisher* Director March 2, 1994
Basil T.A. Hone* Director March 2, 1994
John R. Norton III* Director March 2, 1994
Henry R. Slack* Director March 2, 1994
</TABLE>
*By: /S/ GEORGE H. VALENTINE
George H. Valentine
Attorney-in-Fact
<PAGE> 68
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
(1) Form of Purchase Agreement*
4) Form of Indenture
5) Opinion re Legality*
8) Opinion re Tax Matters (included in Exhibit 5)*
12) Statement re Computation of Ratios Of Earnings to Fixed Charges
23.1 Consent of Deloitte & Touche
23.2 Consent of Price Waterhouse
23.3 Consent of McDermott, Will & Emery (included in Exhibit 5)*
24) Powers of Attorney
25) Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of NationsBank of Texas, N.A.
</TABLE>
______________
* To be supplied by Amendment
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 4
TERRA INDUSTRIES INC., AS ISSUER
AND
NATIONSBANK OF TEXAS, N.A., AS TRUSTEE
---------------------
INDENTURE
DATED AS OF , 1994
---------------------
LIQUID YIELD OPTION(TM) NOTES DUE 2009
(ZERO COUPON -- SENIOR)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(TM) TRADEMARK OF MERRILL LYNCH & CO., INC.
<PAGE> 2
TABLE OF CONTENTS
Note: This Table of Contents shall not, for any purpose, be deemed to be part of
the Indenture.
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS OF THE COMPANY
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions............................................................
SECTION 1.02. Other Definitions......................................................
SECTION 1.03. Incorporation by Reference of TIA......................................
SECTION 1.04. Rules of Construction..................................................
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating; Depositary Arrangements...............................
SECTION 2.02. Execution and Authentication...........................................
SECTION 2.03. Registrar, Paying Agent and Conversion Agent...........................
SECTION 2.04. Paying Agent To Hold Money and Securities in Trust.....................
SECTION 2.05. Securityholder Lists...................................................
SECTION 2.06. Transfer and Exchange..................................................
SECTION 2.07. Replacement Securities.................................................
SECTION 2.08. Outstanding Securities; Determinations of Holders' Action..............
SECTION 2.09. Temporary Securities...................................................
SECTION 2.10. Cancellation...........................................................
SECTION 2.11. Persons Deemed Owners..................................................
SECTION 2.12. Acts of Holders........................................................
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.01. Right to Redeem; Notices to Trustee....................................
SECTION 3.02. Selection of Securities to Be Redeemed.................................
SECTION 3.03. Notice of Redemption...................................................
SECTION 3.04. Effect of Notice of Redemption.........................................
SECTION 3.05. Deposit of Redemption Price............................................
SECTION 3.06. Securities Redeemed in Part............................................
SECTION 3.07. Conversion Arrangement on Call for Redemption..........................
SECTION 3.08. Purchase of Securities at the Option of the Holder.....................
Purchase of Securities at Option of the Holder Upon Change in
SECTION 3.09. Control................................................................
SECTION 3.10. Effect of Purchase Notice or Change in Control Purchase Notice.........
SECTION 3.11. Deposit of Purchase Price or Change in Control Purchase Price..........
SECTION 3.12. Securities Purchased in Part...........................................
SECTION 3.13. Covenant to Comply With Securities Laws Upon Purchase of Securities....
SECTION 3.14. Repayment to the Company...............................................
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities..................................................
SECTION 4.02. SEC Reports............................................................
SECTION 4.03. Compliance Certificate; Notice of Defaults.............................
SECTION 4.04. Further Instruments and Acts...........................................
SECTION 4.05. Maintenance of Office or Agency........................................
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge or Transfer Assets..............................
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default......................................................
SECTION 6.02. Acceleration...........................................................
SECTION 6.03. Other Remedies.........................................................
SECTION 6.04. Waiver of Past Defaults................................................
SECTION 6.05. Control by Majority....................................................
SECTION 6.06. Limitation on Suits....................................................
SECTION 6.07. Rights of Holders to Receive Payment...................................
SECTION 6.08. Collection Suit by Trustee.............................................
SECTION 6.09. Trustee May File Proofs of Claim.......................................
SECTION 6.10. Priorities.............................................................
SECTION 6.11. Undertaking for Costs..................................................
SECTION 6.12. Waiver of Stay, Extension or Usury Laws................................
SECTION 6.13. Restoration of Rights and Remedies.....................................
SECTION 6.14. Delay or Omission Not Waiver...........................................
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee......................................................
SECTION 7.02. Rights of Trustee......................................................
SECTION 7.03. Individual Rights of Trustee...........................................
SECTION 7.04. Trustee's Disclaimer...................................................
SECTION 7.05. Notice of Defaults.....................................................
SECTION 7.06. Reports by Trustee to Holders..........................................
SECTION 7.07. Compensation and Indemnity.............................................
SECTION 7.08. Replacement of Trustee.................................................
SECTION 7.09. Successor Trustee by Merger............................................
SECTION 7.10. Eligibility; Disqualification..........................................
SECTION 7.11. Preferential Collection of Claims Against Company......................
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Discharge of Liability on Securities...................................
SECTION 8.02. Repayment to the Company...............................................
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders.............................................
SECTION 9.02. With Consent of Holders................................................
SECTION 9.03. Compliance with Trust Indenture Act....................................
SECTION 9.04. Revocation and Effect of Consents, Waivers and Actions.................
SECTION 9.05. Notation on or Exchange of Securities..................................
SECTION 9.06. Trustee to Sign Supplemental Indentures................................
SECTION 9.07. Effect of Supplemental Indentures......................................
ARTICLE 10
CONVERSION
SECTION 10.01. Conversion Privilege...................................................
SECTION 10.02. Conversion Procedure...................................................
SECTION 10.03. Fractional Shares......................................................
SECTION 10.04. Taxes on Conversion....................................................
SECTION 10.05. Company to Provide Stock...............................................
SECTION 10.06. Adjustment for Change in Capital Stock.................................
SECTION 10.07. Adjustment for Rights Issue............................................
SECTION 10.08. Adjustment for Other Distributions.....................................
SECTION 10.09. When Adjustment May Be Deferred........................................
SECTION 10.10. When No Adjustment Required............................................
SECTION 10.11. Notice of Adjustment...................................................
SECTION 10.12. Voluntary Increase.....................................................
SECTION 10.13. Notice of Certain Transactions.........................................
SECTION 10.14. Reorganization of Company; Special Distributions.......................
SECTION 10.15. Company Determination Final............................................
SECTION 10.16. Trustee's Adjustment Disclaimer........................................
SECTION 10.17. Simultaneous Adjustments...............................................
SECTION 10.18. Successive Adjustments.................................................
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TIA Controls...........................................................
SECTION 11.02. Notices................................................................
SECTION 11.03. Communication by Holders with Other Holders............................
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.....................
SECTION 11.05. Statements Required in Certificate or Opinion..........................
SECTION 11.06. Separability Clause....................................................
SECTION 11.07. Rules By Trustee, Paying Agent, Conversion Agent and Registrar.........
SECTION 11.08. Legal Holiday..........................................................
SECTION 11.09. GOVERNING LAW..........................................................
SECTION 11.10. No Recourse Against Others.............................................
SECTION 11.11. Successors.............................................................
SECTION 11.12. Benefits of Indenture..................................................
SECTION 11.13. Multiple Originals.....................................................
</TABLE>
EXHIBIT A -- Form of LYON
iv
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- ---------
<C> <S> <C>
310(a)(1)....................................................................... 7.10
(a)(2)....................................................................... 7.10
(a)(3)....................................................................... N.A.
(a)(4)....................................................................... N.A.
(a)(5)....................................................................... 7.10
(b).......................................................................... 7.08; 7.10
(c).......................................................................... N.A.
311(a).......................................................................... 7.11
(b).......................................................................... 7.11
(c).......................................................................... N.A.
312(a).......................................................................... 2.05
(b).......................................................................... 11.03
(c).......................................................................... 11.03
313(a).......................................................................... 7.06
(b).......................................................................... 7.06
(c).......................................................................... 11.02
(d).......................................................................... 7.06
314(a).......................................................................... 4.02; 11.02
(b).......................................................................... N.A.
(c)(1)....................................................................... 11.04
(c)(2)....................................................................... 11.04
(c)(3)....................................................................... N.A.
(d).......................................................................... N.A.
(e).......................................................................... 11.05
(f).......................................................................... 4.04
315(a).......................................................................... 7.01
(b).......................................................................... 7.05; 11.02
(c).......................................................................... 7.01
(d).......................................................................... 7.01
(e).......................................................................... 6.11
316(a)(last sentence)........................................................... 2.08
(a)(1)(A).................................................................... 6.05
(a)(l)(B).................................................................... 6.04
(a)(2)....................................................................... N.A.
(b).......................................................................... 6.07
(c).......................................................................... N.A.
317(a)(1)....................................................................... 6.08
(a)(2)....................................................................... 6.09
(b).......................................................................... 2.04
318(a).......................................................................... 11.01
N.A. means Not Applicable.
</TABLE>
- ---------------
* Note: This Cross Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
v
<PAGE> 7
INDENTURE, dated as of , 1994, between TERRA INDUSTRIES INC., a
Maryland corporation ("Company"), and NATIONSBANK OF TEXAS, N.A., a
corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's Liquid Yield
Option(TM) Notes due 2009 (Zero Coupon -- Senior).
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of the Securities,
of substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture;
This Indenture is subject to, and shall be governed by, the provisions of
the TIA that are required to be part of and to govern indentures qualified under
the TIA; and
All acts and things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid, binding and legal obligations of the Company,
and to make this Indenture a valid agreement of the Company in accordance with
its terms.
NOW THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually convenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"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 the purposes of this definition,
"control," when used with respect to any specified person, means the power to
direct or cause the direction of 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.
"Average Sale Price" means the average of the Sale Prices of the Common
Stock for the shorter of
(i) 30 consecutive Trading Days ending on the last full Trading Day
prior to the Time of Determination with respect to the rights, options,
warrants or distribution in respect of which the Average Sale Price is
being calculated, or
(ii) the period (x) commencing on the date next succeeding the first
public announcement of (a) the issuance of rights, options or warrants or
(b) the distribution, in each case, in respect of which the Average Sale
Price is being calculated and (y) proceeding through the last full trading
day prior to the Time of Determination with respect to the rights, warrants
or distribution in respect of which the Average Sale Price is being
calculated, or
(iii) the period, if any, (x) commencing on the date next succeeding
the Ex-Dividend Time with respect to the next preceding (a) issuance of
rights, warrants, or options or (b) distribution, in each case, for which
an adjustment is required by the provisions of Section 10.06(4), 10.07 or
10.08 and (y) proceeding through the last full Trading Day prior to the
Time of Determination with respect to the rights, warrants, or options or
distribution in respect of which the Average Sale Price is being
calculated.
- ---------------
(TM) Trademark of Merrill Lynch & Co., Inc.
<PAGE> 8
If the Ex-Dividend Time (or in the case of a subdivision, combination or
reclassification, the effective date with respect thereto) with respect to a
dividend, subdivision, combination or reclassification to which Section
10.06(1), (2), (3) or (5) applies occurs during the period applicable for
calculating "Average Sale Price" pursuant to the definition in the preceding
sentence, "Average Sale Price" shall be calculated for such period in a manner
determined by the Board of Directors to reflect the impact of such dividend,
subdivision, combination or reclassification on the Sale Price of the Common
Stock during such period.
"Board of Directors" or "Board" means, with respect to any matter, either
the board of directors of the Company or any committee of such board duly
authorized, with respect to such matter, to exercise the powers of such board.
"Business Day" means each day of the year on which banking institutions in
The City of New York are not required or authorized to close.
"Capital Stock" for any corporation means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) capital stock issued by that corporation.
"Cash" or "cash" means such coin or currency of The United States of
America as at any time of payment is legal tender for the payment of public and
private debts.
"Common Stock" means the Common Shares, without par value, of the Company
as it exists on the date of this Indenture or any other shares of capital stock
of the Company into which such common shares shall be reclassified or changed.
"Company" means the party named as the "Company" in the first paragraph of
this Indenture until a successor person replaces it pursuant to the applicable
provisions of this Indenture and, thereafter, shall mean such successor person.
To the extent necessary to comply with the requirements of the provisions of TIA
Sections 310 through 317 as they are applicable to the Company, the term
"Company" shall include any other obligor with respect to the Securities for
purposes of complying with such provisions.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
any Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Subsidiary" means, at any date, any Subsidiary the accounts
of which are consolidated with those of the Company as of such date for public
financial reporting purposes.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Ex-Dividend Time" means the time immediately prior to the commencement of
"ex-dividend" trading on the New York Stock Exchange or such other national or
regional exchange or market on which the Common Stock is then listed or quoted
for any rights, options, warrants or other distributions distributed to holders
of the Common Stock as set forth in Section 10.07 or 10.08.
"Holder" or "Securityholder" means a person in whose name a Security is
registered on the Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time to
time in accordance with the terms hereof.
"Issue Date" of any Security means the date on which the Security was
originally issued or deemed issued as set forth on the face of the Security.
"Issue Price" of any Security means, in connection with the original
issuance of such Security, the initial issue price at which the Security is sold
as set forth on the face of the Security.
2
<PAGE> 9
"Mortgage" means any mortgage, pledge, lien, deed of trust, security
interest or other similar encumbrance.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary, any Assistant Treasurer or Assistant
Secretary of the Company.
"Officers' Certificate" means a written certificate containing the
information specified in Sections 11.04 and 11.05, signed in the name of the
Company by its Chairman of the Board, its President or a Vice President, and by
its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary,
and delivered to the Trustee.
"Opinion of Counsel" means a written opinion containing the information
specified in Sections 11.04 and 11.05, if applicable, rendered by legal counsel
who may be (i) an employee of, or counsel to, the Company or (ii) other counsel
designated by the Company and reasonably acceptable to the Trustee.
"Original Issue Discount" of any Security means the difference between the
Issue Price and the Principal Amount of the Security as set forth on the face of
the Security.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal" or "Principal Amount" of a Security means the principal amount
due at the Stated Maturity of the Security as set forth on the face of the
Security.
"Redemption Date" or "redemption date" shall mean the date specified for
redemption of any of the Securities in accordance with the terms of the
Securities and this Indenture.
"Redemption Price" or "redemption price" shall have the meaning set forth
in paragraph 5 of the Securities.
"Sale Price" of a single share of Common Stock on any date means the
closing per share sale price (or if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case the
average of the average bid and the average ask prices) on such date as reported
in composite transactions for the principal United States securities exchange on
which the Common Stock is traded or, if the Common Stock is not listed on a
United States national or regional stock exchange, as reported by the National
Association of Securities Dealers Automated Quotation System. In the absence of
one or more of such quotations, the Company shall be entitled to determine the
"Sale Price" on the basis of such quotations as it deems appropriate.
"SEC" means the Securities and Exchange Commission, as from time to time
constituted, created under the Exchange Act, or if at any time after the
execution of this Indenture the SEC 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.
"Securities" means any of the Company's Liquid Yield Option(TM) Notes due
2009 (Zero Coupon -- Senior), as amended or supplemented from time to time in
accordance with the terms hereof, issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholder" or "Holder" means a person in whose name a Security is
registered on the Registrar's books.
"Stated Maturity," when used with respect to any Security, means the date
specified in such Security as the fixed date on which the Principal of such
Security is due and payable.
"Subsidiary" means (i) a corporation, a majority of whose Capital Stock
with voting power, under ordinary circumstances, to elect directors is, at the
date of determination, directly or indirectly owned by the Company, by one or
more Subsidiaries of the Company or by the Company and one or more Subsidiaries
of the Company, (ii) a partnership in which the Company or a Subsidiary of the
Company holds a majority
3
<PAGE> 10
interest in the equity capital or profits of such partnership, or (iii) any
other person (other than a corporation) in which the Company, a Subsidiary of
the Company or the Company and one or more Subsidiaries of the Company, directly
or indirectly, at the date of determination, has (x) at least a majority
ownership interest or (y) the power to elect or direct the election of a
majority of the directors or other governing body of such person.
"TIA" means the Trust Indenture Act of 1939, as amended.
"Time of Determination" means the time and date of the earlier of (i) the
determination of shareholders entitled to receive rights, warrants, or options
or a distribution, in each case, to which Sections 10.07 and 10.08 apply and
(ii) the Ex-Dividend Time.
"Trading Day" means a day during which trading in securities generally
occurs on the New York Stock Exchange or, if the Common Stock is not listed on
the New York Stock Exchange, on the principal other national or regional
securities exchange on which the Common Stock is then listed or, if the Common
Stock is not listed on a national or regional securities exchange, on the
National Association of Securities Dealers Automated Quotation System or, if the
Common Stock is not quoted on the National Association of Securities Dealers
Automated Quotation System, on the principal market on which the Common Stock is
then traded.
"Trust Officer," when used with respect to the Trustee, means any officer
of the Trustee including any Vice President, any Assistant Vice President, any
Assistant Secretary or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Trustee" means the party named as the "Trustee" in the first paragraph of
this Indenture until a successor person replaces it pursuant to the applicable
provisions of this Indenture and, thereafter, shall mean such successor person.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
----- ----------
<S> <C>
"Act" or "Act of the Holder"............................................................ 2.12(a)
"Associate"............................................................................. 3.09(a)
"Bankruptcy Law"........................................................................ 6.01
"beneficial owner"...................................................................... 3.09(a)
"Change in Control"..................................................................... 3.09(a)
"Change in Control Purchase Date"....................................................... 3.09(a)
"Change in Control Purchase Notice"..................................................... 3.09(c)
"Change in Control Purchase Price"...................................................... 3.09(a)
"Company Notice"........................................................................ 3.08(e)
"Company Notice Date"................................................................... 3.08(e)
"Conversion Agent"...................................................................... 2.03
"Conversion Date"....................................................................... 10.02
"Conversion Rate"....................................................................... 10.01
"Custodian"............................................................................. 6.01
"Depositary Participants"............................................................... 2.01
"DTC"................................................................................... 2.01
"Event of Default"...................................................................... 6.01
"Extraordinary Cash Dividend"........................................................... 10.08
"Legal Holiday"......................................................................... 11.08
"Market Price".......................................................................... 3.08(d)
"Notice of Default"..................................................................... 6.01,
7.05
</TABLE>
4
<PAGE> 11
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
---- ----------
<S> <C>
"Over-allotment Option"................................................................. 2.02
"Paying Agent".......................................................................... 2.03
"Permitted Holder"...................................................................... 3.09(a)
"Purchase Date"......................................................................... 3.08(a)
"Purchase Notice"....................................................................... 3.08(a)
"Purchase Price"........................................................................ 3.08(a)
"Registrar"............................................................................. 2.03
</TABLE>
SECTION 1.03. Incorporation by Reference of TIA. Whenever this Indenture
refers to a provision of the TIA, such provision is incorporated by reference in
and made a part of this Indenture. The following TIA terms used in this
Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company.
All other TIA terms used in this Indenture that are defined by the TIA or
defined by TIA reference to another statute or regulation have the meanings
assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in
effect from time to time in The United States of America;
(3) "or" is not exclusive;
(4) "including" means including, without limitation; and
(5) words in the singular include the plural, and words in the plural
include the singular.
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating; Depositary Arrangements. The Securities and
the Trustee's certificate of authentication shall be substantially in the form
of Exhibit A to this Indenture, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage (provided that any such notation, legend or
endorsement required by usage is in a form acceptable to the Company and the
Trustee). Each Security shall be dated the date of its authentication.
Notwithstanding any provision in this Indenture to the contrary, the
Securities shall be registered only in the name of The Depository Trust Company
or a similar SEC registered securities depositary or the nominee thereof (such
depositary and any nominee, "DTC"), and DTC will evidence the beneficial
ownership of the Securities by means of appropriate book-entries in its records
as custodial agent for the various participating firms that maintain customer
accounts with respect to the Securities ("Depositary Participants").
Notwithstanding any provision in this Indenture to the contrary, the Company and
the Trustee (or, at any time during continuance of an Event of Default, the
Trustee) may from time to time, by notice to the Registrar, authorize the
Registrar to register the Securities in the name of a different depositary upon
receipt from any prior
5
<PAGE> 12
depositary of the Securities, or alternatively, provide for certificated
Securities. Notwithstanding any provision in this Indenture to the contrary, at
any time when the Securities are registered in the name of DTC, the Trustee or
the Paying Agent may pay the Principal Amount (or the applicable portion
thereof) of, and interest or other amounts due, if any, on, the Securities to
DTC by wire transfer at such address as DTC may specify. The exchange, purchase
and redemption of the Securities and the exercise of other rights of Holders
under this Indenture in respect of the Securities while such Securities are
registered in the name of DTC must be exercised through DTC. Notwithstanding
anything in this Indenture to the contrary, so long as the Securities are
registered in the name of DTC, (i) neither the Company, the Registrar nor the
Trustee shall have any obligation to deliver any certificate evidencing the
Securities to any Holder other than DTC, but in lieu thereof instruction shall
be given for a book-entry transfer of the Securities in the records of DTC to an
account established by such Holder or such Holder's nominee and (ii) no Holder
shall be obligated to deliver certificate(s) evidencing Securities, but in lieu
thereof shall give instructions for a book-entry transfer of the Securities in
the records of DTC, the applicable Depositary Participant or another financial
institution or broker to a specified account. Neither the Trustee nor the
Company shall have any responsibility or obligation to any Depositary
Participant or any person on behalf of whom such Depositary Participant holds
any interest in the Securities. The Trustee and the Company shall cooperate on
reasonable terms with DTC in effectuating the intent and the purposes of this
Indenture.
Any arrangement with DTC may be revoked by the Company and the Trustee (or,
at any time during continuance of an Event of Default, the Trustee) at any time
upon reasonable notice to the Registrar and the then current depositary and, if
so revoked, the Company shall issue and the Trustee shall authenticate
definitive Securities and the Trustee shall notify the record owner of the
occurrence of such event and of the availability of certificates evidencing the
Securities to record owners requesting the same, in an aggregate Principal
Amount representing the interest of each, making such adjustments and allowances
as it may find necessary or appropriate. Definitive certificates evidencing the
Securities shall be issued only upon surrender to the Company of the prior
depositary Securities by DTC, accompanied by registration instructions for the
definitive certificates evidencing the Securities. Neither the Company nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon issuance of the definitive certificates evidencing the Securities, all
references in this Indenture to obligations imposed upon or to be performed by
DTC shall cease to be applicable and the provisions relating to definitive
certificates shall be applicable.
SECTION 2.02. Execution and Authentication. The Securities shall be
executed by the Company by its Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
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 Issue Date of such Securities.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
The Trustee shall authenticate and deliver Securities for original issue in
an aggregate Principal Amount of up to $200,000,000 upon a Company Order without
any further action by the Company; provided, however, that in the event that the
Company sells any Securities pursuant to the over-allotment option (the "Over-
allotment Option") granted pursuant to Section 2 of the Purchase Agreement,
dated as of , 1994 (the "Purchase Agreement"), between the
Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, then the Trustee shall authenticate and deliver Securities for
original issue in an aggregate Principal Amount of up to $200,000,000 plus up to
$30,000,000 aggregate Principal Amount of
6
<PAGE> 13
Securities sold pursuant to the Over-allotment Option upon a Company Order. The
aggregate Principal Amount of Securities outstanding at any time may not exceed
the amount set forth in the foregoing sentence, subject to the proviso set forth
therein, except as provided in Section 2.07. The Securities shall be issued only
in registered form without coupons and only in denominations of $1,000 Principal
Amount and any integral multiple thereof.
In case the Company, pursuant to Article 5, shall be consolidated or merged
with or into any other person or shall sell, convey, assign, transfer, lease or
otherwise dispose of substantially all of its properties and assets to any
person, and the successor person resulting from such consolidation, or surviving
such merger, or into which the Company shall have been merged or consolidated,
or the successor person which shall have received a conveyance, transfer, lease
or other disposition as aforesaid, shall have executed an indenture supplemental
hereto with the Trustee pursuant to Article 5, any of the Securities
authenticated or delivered prior to such consolidation, merger, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor person, be exchanged for other Securities executed in the name of
the successor person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like Principal Amount; and the Trustee,
upon Company Request of the successor person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor person, at the
option of a Holder but without expense to such Holder, shall provide for the
exchange of all Securities at the time outstanding held by such Holder for
Securities authenticated and delivered in such new name.
The Trustee shall have the right to decline to authenticate and deliver any
Securities under this Section if the Trustee, being advised by counsel,
determines that such action may not lawfully be taken or if the Trustee in good
faith by its board of directors or trustees, executive committee, or a trust
committee of directors or trustees or vice presidents shall determine that such
action would expose the Trustee to personal liability.
SECTION 2.03. Registrar, Paying Agent and Conversion Agent. The Company
shall maintain an office or agency where Securities may be presented for
registration of transfer or for exchange ("Registrar"), an office or agency
where Securities may be presented for purchase or payment ("Paying Agent") and
an office or agency where Securities may be presented for conversion
("Conversion Agent"). The Registrar shall keep a register of the Securities and
of their transfer and exchange. The Company may have one or more co-registrars,
one or more additional paying agents and one or more additional conversion
agents. The term Registrar includes any additional or co-registrar. The term
Paying Agent includes any additional paying agent. The term Conversion Agent
includes any additional conversion agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or Conversion Agent other than the Trustee. The
agreement shall implement the provisions of this Indenture that relate to such
agent. The Company shall notify the Trustee and the Holders of the name and
address of any such agent and of any change in the office or agency referred to
in Section 4.05. If the Company fails to maintain a Registrar, Paying Agent or
Conversion Agent, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 7.06. The Company or any
Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar,
Conversion Agent or coregistrar.
The Company initially appoints the Trustee as Registrar, Conversion Agent
and Paying Agent in connection with the Securities.
SECTION 2.04. Paying Agent To Hold Money and Securities in Trust. In
accordance with Section 4.05 and except as otherwise provided herein, prior to
or on each due date of payments in respect of any Security, the Company shall
deposit with the Paying Agent a sum of money or, if permitted by the terms
hereof, securities sufficient to make such payments when so becoming due. The
Company shall require each Paying Agent (other than the Trustee) to agree in
writing that the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money and securities held by the Paying Agent
for the making of payments in respect of the Securities and shall notify the
Trustee of any Default by the Company in making any such payment. At any time
during the continuance of any Default by the Company in making any payments in
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respect of the Securities, the Paying Agent shall, upon the written request of
the Trustee, forthwith pay to the Trustee all money and securities so held in
trust. If the Company, a Subsidiary or an Affiliate of either of them acts as
Paying Agent, it shall segregate the money and securities held by it as Paying
Agent and hold it as a separate trust fund. The Company at any time may require
a Paying Agent to pay all money and securities held by it to the Trustee and to
account for any money and securities disbursed by it. Upon doing so, the Paying
Agent shall have no further liability for such money and securities.
SECTION 2.05. 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 Securityholders. If the Trustee is not the
Registrar, the Company shall furnish or cause to be furnished to the Trustee (i)
at least semiannually on June 1 and December 1 of each year a list of the names
and addresses of Securityholders dated within 15 days of the date on which the
list is furnished and (ii) at such other times as the Trustee may reasonably
request in writing a list, in such form and as of such date as the Trustee may
reasonably require, of the names and addresses of Securityholders.
SECTION 2.06. Transfer and Exchange. Upon surrender for registration of
transfer of any Security, together with a written instrument of transfer
satisfactory to the Trustee duly executed by the Securityholder or such
Securityholder's attorney duly authorized in writing, at the office or agency of
the Company designated as Registrar pursuant to Section 2.03 or at the office or
agency referred to in Section 4.05, 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 any authorized denomination or
denominations, of a like aggregate Principal Amount. The Company shall not
charge a service charge for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to pay all taxes, assessments or
other governmental charges that may be imposed in connection with the transfer
or exchange of the Securities from the Securityholder requesting such transfer
or exchange (other than any exchange of a temporary Security for a definitive
Security not involving any change in ownership).
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like aggregate
Principal Amount, upon surrender of the Securities to be exchanged, together
with a written instrument of transfer satisfactory to the Registrar duly
executed by the Securityholder or such Securityholder's attorney duly authorized
in writing, 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.
The Company shall not be required to make, and the Registrar need not
register, transfers or exchanges of (a) Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed), (b) any Securities in respect of which a Purchase Notice or
a Change in Control Purchase Notice has been given and not withdrawn by the
Holder thereof in accordance with the terms of this Indenture (except, in the
case of Securities to be purchased in part, the portion thereof not to be
purchased) or (c) any Securities for a period of 15 days before a selection of
Securities to be redeemed.
SECTION 2.07. Replacement Securities. If (a) any mutilated Security is
surrendered to the Company or the Trustee, or (b) the Company and the Trustee
receive evidence to their satisfaction of the destruction, loss or theft of any
Security, and there is delivered to the Company and the Trustee such security or
indemnity (including posting of a bond) as may be required by them to save each
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 may
execute, and upon its written request the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and Principal
Amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, or is about to be purchased by the
Company pursuant to Article 3 hereof, the Company in its discretion may, instead
of issuing a new Security, pay or purchase such Security, as the case may be.
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Upon the issuance of any new Securities 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) in connection therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, 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 benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.08. Outstanding Securities; Determinations of Holders'
Action. Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, mutilated, destroyed, lost or stolen Securities for which the
Trustee has authenticated and delivered a new Security in lieu thereof or which
shall have been paid pursuant to Section 2.07 and those described in this
Section 2.08 as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate thereof holds the Security; provided,
however, that in determining whether the Holders of the requisite Principal
Amount of Securities have given or concurred in any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor under the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee actually knows to be so
owned shall be so disregarded. Subject to the foregoing, only Securities
outstanding at the time of such determination shall be considered in any such
determination (including determinations pursuant to Articles 6 and 9).
If a Security is replaced or paid pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent holds, in accordance with this Indenture, on a
Redemption Date or a Conversion Date, or on the Business Day following a
Purchase Date or a Change in Control Purchase Date, or on Stated Maturity, money
or, if permitted by the terms hereof, securities sufficient to pay the
Securities payable on that date, then on and after that date such Securities
shall cease to be outstanding and Original Issue Discount and interest, if any,
on such Securities shall cease to accrue and all other rights of the Holder
shall terminate (other than the right to receive the applicable Redemption
Price, Purchase Price, Change in Control Purchase Price or Conversion Rate, as
the case may be, upon delivery of the Security in accordance with the terms of
this Indenture); provided, that if such Securities are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made.
If a Security is converted in accordance with Article 10, then from and
after the Conversion Date such Security shall cease to be outstanding and
Original Issue Discount and interest, if any, shall cease to accrue on such
Security.
SECTION 2.09. Temporary Securities. Pending the preparation of definitive
Securities, the Company may execute, and upon Company Order the Trustee shall
authenticate and deliver, temporary Securities which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor 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.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 2.03 or
4.05, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like Principal Amount of
definitive Securities of
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authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 2.10. Cancellation. All Securities surrendered for payment,
redemption or purchase by the Company pursuant to Article 3, conversion pursuant
to Article 10, registration of transfer or exchange shall, if surrendered to any
person other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly cancelled by the Trustee. The Company may not
issue new Securities to replace Securities it has paid or delivered to the
Trustee for cancellation or that any Holder has converted pursuant to Article
10. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Securities held by the Trustee shall be
disposed of by the Trustee in accordance with its standard procedures and
evidence of such disposition shall be delivered to the Company unless the
Company directs by Company Order that the Trustee deliver cancelled Securities
to the Company.
SECTION 2.11. Persons Deemed Owners. Prior to due presentment of a
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 the Security or the payment of any Redemption Price, Purchase Price
or Change in Control Purchase Price in respect thereof, and interest thereon,
for the purpose of conversion 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.
SECTION 2.12. 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 and, where it is expressly required by the terms of
this Indenture, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of 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 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 signor 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 manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Registrar.
(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 a Board resolution, 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
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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 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 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 this Indenture not later than six months after the
record date.
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.01. Right to Redeem; Notices to Trustee. The Company, at its
option, may redeem the Securities for cash in accordance with the provisions set
forth in paragraphs 5 and 7 of the Securities. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the Redemption Date, the Principal Amount of Securities to
be redeemed and the Redemption Price.
The Company shall give the notice to the Trustee provided for in this
Section 3.01 at least 30 days but not more than 60 days before the Redemption
Date. If fewer than all the Securities are to be redeemed, any record date
relating to such redemption shall be selected by the Company and given to the
Trustee, which record date shall not be less than ten days after the date of
notice to the Trustee.
SECTION 3.02. Selection of Securities to Be Redeemed. If less than all the
Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by any other method the Trustee considers fair
and appropriate (so long as such method is not prohibited by the rules of any
stock exchange on which the Securities are then listed). The Trustee shall make
the selection at least 30 but not more than 60 days before the Redemption Date
from outstanding Securities not previously called for redemption. The Trustee
may select for redemption portions of the Principal Amount of Securities that
have denominations larger than $1,000. Securities and portions of them the
Trustee selects shall be in Principal Amounts of $1,000 or an integral multiple
of $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
If any Security selected for partial redemption is thereafter surrendered
for conversion in part before termination of the conversion right with respect
to the portion of the Security so selected, the converted portion of such
Security shall be deemed (so far as may be), solely for purposes of determining
the aggregate Principal Amount of Securities to be redeemed by the Company, to
be the portion selected for redemption. Securities that have been converted
during a selection of Securities to be redeemed may be treated by the Trustee as
outstanding for the purpose of such selection.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60
days before a Redemption Date, the Company shall mail a notice of redemption by
first-class mail to each Holder of Securities to be redeemed in the manner
provided in Section 11.02.
The notice shall identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the Conversion Rate;
(4) the name and address of the Paying Agent and Conversion Agent and
of the office or agency referred to in Section 4.05;
(5) that Securities called for redemption may be converted at any time
before the close of business on the Redemption Date;
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(6) that Holders who want to convert Securities must satisfy the
requirements set forth in paragraph 8 of the Securities;
(7) that Securities called for redemption must be surrendered to the
Paying Agent or at the office or agency referred to in Section 4.05 to
collect the Redemption Price;
(8) the CUSIP number of the Securities;
(9) if fewer than all the outstanding Securities are to be redeemed,
any certificate numbers and Principal Amounts of the particular Securities
to be redeemed; and
(10) that, unless the Company defaults in making payment of the
Redemption Price, Original Issue Discount on Securities called for
redemption and interest, if any, will cease to accrue on and after the
Redemption Date.
At the Company's written request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense, provided that the
Company makes such request at least five days prior to the mailing of such
notice of redemption.
Such notice if mailed in the manner herein provided shall be conclusively
presumed to have been given, whether or not the Holder receives such notice. In
any case, failure to give such notice by mail or any defect in the notice to the
Holder of any Security designated for redemption as a whole or in part shall not
affect the validity of the proceedings for the redemption of any other Security.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is
given, Securities called for redemption become due and payable on the Redemption
Date stated in the notice and at the Redemption Price therefor, except for
Securities that are converted in accordance with the terms of this Indenture.
Upon the later of the Redemption Date and the date such Securities are
surrendered to the Paying Agent or at the office or agency referred to in
Section 4.05, such Securities called for redemption shall be paid at the
Redemption Price stated in the notice.
SECTION 3.05. Deposit of Redemption Price. Prior to or on the Redemption
Date, the Company shall deposit with the Paying Agent (or if the Company or a
Subsidiary or an Affiliate of either of them is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the Redemption Price of all
Securities to be redeemed on the Redemption Date other than Securities or
portions of Securities called for redemption which prior thereto have been
delivered by the Company to the Trustee for cancellation, provided, however,
that monies deposited on the Redemption Date must be received by the Paying
Agent no later than 1:00 p.m. local time in The City of New York. The Paying
Agent shall as promptly as practicable return to the Company any money, with
interest, if any, thereon, not required for that purpose because of conversion
of Securities pursuant to Article 10. If such money is then held by the Company
or a Subsidiary or an Affiliate of the Company in trust and is not required for
such purpose it shall be discharged from such trust and be the sole property of
the Company, such Subsidiary or such Affiliate.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder, a new Security in an authorized
denomination equal in Principal Amount to the unredeemed portion of the Security
surrendered.
SECTION 3.07. Conversion Arrangement on Call for Redemption. In connection
with any redemption of Securities, the Company may arrange for the purchase and
conversion of any Securities called for redemption by an agreement with one or
more investment bankers or other purchasers to purchase all or a portion of such
Securities by paying to the Paying Agent in trust for the Securityholders whose
Securities are to be so purchased, on or before the close of business on the
Redemption Date, an amount that, together with any amounts deposited with the
Trustee by the Company for redemption of such Securities, is not less than the
Redemption Price, together with interest, if any, accrued to the Redemption
Date, on such Securities, provided, however, that monies deposited on the
Redemption Date must be received by the Paying Agent no later than 1:00 p.m.
local time in The City of New York. Notwithstanding anything to the contrary
contained in this Article 3, the obligation of the Company to pay the Redemption
Price of such Securities, including all accrued and unpaid interest, if any,
shall be deemed to be satisfied and discharged to the extent such amount
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is so paid by such purchasers but no such agreement shall relieve the Company of
its obligation to pay such Redemption Price and interest, if any. If such an
agreement is entered into, any Securities not duly surrendered for conversion by
the Holders thereof may, at the option of the Company, be deemed, to the fullest
extent permitted by law, acquired by such purchasers from such Holders and
(notwithstanding anything to the contrary contained in Article 10) surrendered
by such purchasers for conversion, all as of immediately prior to the close of
business on the Redemption Date, subject to payment of the above amount as
aforesaid. The Paying Agent shall hold and pay to the Holders whose Securities
are selected for redemption any such amount paid to it for purchase and
conversion in the same manner as it would moneys deposited with it by the
Company for the redemption of Securities. Without the Paying Agent's prior
written consent, no arrangement between the Company and such purchasers for the
purchase and conversion of any Securities shall increase or otherwise affect any
of the powers, duties, responsibilities or obligations of the Paying Agent as
set forth in this Indenture, and the Company agrees to indemnify the Paying
Agent from, and hold it harmless against, any loss, liability or reasonable
expense arising out of or in connection with any such arrangement for the
purchase and conversion of any Securities between the Company and such
purchasers, including the reasonable costs and expenses incurred by the Paying
Agent in the defense of any claim or liability arising out of or in connection
with the exercise or performance of any of its powers, duties, responsibilities
or obligations under this Indenture.
SECTION 3.08. Purchase of Securities at the Option of the Holder.
(a) General. Securities shall be purchased by the Company pursuant to
paragraph 6 of the Securities as of , 1999, and ,
2004 (each, a "Purchase Date"), at the purchase price specified therein (each, a
"Purchase Price"), at the option of the Holder thereof, upon:
(1) delivery to the Paying Agent or to the office or agency referred to in
Section 4.05 by the Holder of a written notice of purchase (a
"Purchase Notice") at any time from the opening of business on the date that is
20 Business Days prior to a Purchase Date until the close of business on the
Business Day immediately preceding such Purchase Date stating:
(A) any certificate number of the Security that the Holder will
deliver to be purchased;
(B) the portion of the Principal Amount of the Security which the
Holder will deliver to be purchased, which portion must be $1,000 or an
integral multiple thereof;
(C) that such Security shall be purchased on the Purchase Date
pursuant to the terms and conditions specified in this Indenture and in
paragraph 6 of the Securities; and
(D) if the Company elects pursuant to Section 3.08(b) to pay the
Purchase Price on such Purchase Date, in whole or in part, in shares of
Common Stock, but such portion of the Purchase Price to be paid in
Common Stock is ultimately to be paid in cash because any condition in
Section 3.08(d) is not satisfied, such Holder elects (i) to withdraw
such Purchase Notice as to some or all of the Securities to which it
relates (stating the Principal Amount and any certificate numbers of the
Securities as to which such withdrawal shall relate), or (ii) to receive
cash in respect of the Purchase Price for all Securities or portion
thereof subject to such Purchase Notice; and
(2) delivery of such Security prior to, on or after the Purchase Date
(together with all necessary endorsements) to the Paying Agent at the
offices of the Paying Agent or to the office or agency referred to in
Section 4.05, such delivery being a condition to receipt by the Holder of
the Purchase Price therefor; provided, however, that such Purchase Price
shall be so paid pursuant to this Section 3.08 only if the Security so
delivered conforms in all respects to the description thereof in the
related Purchase Notice.
If a Holder, in such Holder's Purchase Notice and in any written notice of
withdrawal delivered by such Holder pursuant to the terms of Section 3.10, fails
to indicate such Holder's choice with respect to the election set forth in
clause (D) of Section 3.08(a)(1) above, such Holder shall be deemed to have
elected to receive cash in respect of the Purchase Price otherwise payable in
Common Stock.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.08, a portion of a Security if the Principal Amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this
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Indenture that apply to the purchase of all of a Security also apply to the
purchase of such portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions hereof
shall be consummated by the delivery of the consideration to be received by the
Holder promptly following the later of the Purchase Date and the time of
delivery of the Security to the Paying Agent in the manner required by this
Section 3.08.
Notwithstanding anything herein to the contrary, any Holder delivering to
the Paying Agent, or to the office or agency referred to in Section 4.05, the
Purchase Notice contemplated by this Section 3.08(a) shall have the right to
withdraw at any time prior to the close of business on the Business Day
immediately preceding the Purchase Date such Purchase Notice by delivery of a
written notice of withdrawal to the Paying Agent or such office or agency in
accordance with Section 3.10.
The Paying Agent shall promptly notify the Company of the receipt by it of
any Purchase Notice or written notice of withdrawal thereof.
(b) Company's Right to Elect Manner of Payment of Purchase Price. The
Securities to be purchased pursuant to Section 3.08(a) may be paid for, at the
election of the Company, in cash or Common Stock, or in any combination of cash
and Common Stock, subject to the conditions set forth in this Section 3.08. The
Company shall designate, in the notice from the Company delivered pursuant to
Section 3.08(e), whether the Company will purchase the Securities for cash or
Common Stock, and, if a combination thereof, the percentages of the Purchase
Price of Securities in respect of which it will pay in cash or Common Stock;
provided that the Company will pay cash for fractional interests in Common
Stock. For purposes of determining the existence of potential fractional
interests, all Securities subject to purchase by the Company held by a Holder
shall be considered together (no matter how many separate certificates are to be
presented). Each Holder whose Securities are purchased pursuant to this Section
3.08 shall receive the same percentage of cash or Common Stock in payment of the
Purchase Price for such Securities, except (i) as provided in Section 3.08(d)
with regard to the payment of cash in lieu of fractional shares of Common Stock
and (ii) in the event that the Company is unable to purchase the Securities of a
Holder or Holders for Common Stock because any necessary qualifications or
registrations of the Common Stock under applicable state securities laws cannot
be obtained, the Company may purchase the Securities of such Holder or Holders
for cash. The Company may not change its election with respect to the
consideration (or components or percentages of components thereof) to be paid
once the Company has given notice thereof to Securityholders except pursuant to
this Section 3.08(b) or Section 3.08(d).
At least three Business Days before the Company Notice Date (as defined
below), the Company shall deliver an Officers' Certificate to the Trustee
specifying:
(i) the manner of payment selected by the Company;
(ii) the information required by Section 3.08(e);
(iii) that the conditions to such manner of payment set forth in
Section 3.08(d) have or will be complied with; and
(iv) whether the Company desires the Trustee to give the notice
required by Section 3.08(e).
(c) Purchase with Cash. On the Purchase Date, at the option of the
Company, the Principal Amount of the Securities in respect of which a Purchase
Notice pursuant to Section 3.08(a) has been given, or a specified percentage
thereof, may be purchased by the Company with cash equal to the aggregate
Purchase Price of such Securities.
(d) Payment by Common Stock. On the Purchase Date, at the option of the
Company, the Principal Amount of the Securities in respect of which a Purchase
Notice pursuant to Section 3.08(a) has been given, or a specified percentage
thereof, may be purchased by the Company by the issuance of a number of shares
of Common Stock equal to the quotient obtained by dividing (i) the amount of
cash to which the Securityholders would have been entitled had the Company
elected to pay all or such specified percentage, as the
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<PAGE> 21
case may be, of the Purchase Price of such Securities in cash by (ii) the Market
Price (as defined below) of a share of Common Stock, subject to the next
succeeding paragraph.
The Company will not issue a fractional share of Common Stock in payment of
the Purchase Price. Instead the Company will pay cash in an amount equal to the
current market value of the fractional share. The current market value of a
fraction of a share shall be determined by multiplying the Market Price by such
fraction and rounding the product to the nearest whole cent, with one-half cent
being rounded upward. It is understood that if a Holder elects to have more than
one Security purchased, the number of shares of Common Stock shall be based on
the aggregate amount of Securities to be purchased.
The Company's right to exercise its election to purchase the Securities
pursuant to this Section through the issuance of shares of Common Stock shall be
conditioned upon:
(i) the Company's not having given notice of an election to pay
entirely in cash and its giving of timely notice of election to purchase
all or a specified percentage of the Securities with Common Stock as
provided herein;
(ii) the registration of the shares of Common Stock to be issued in
respect of the payment of the Purchase Price under the Securities Act and
the Exchange Act, in each case if required unless there exists an
applicable exemption to registration thereunder;
(iii) any necessary qualification or registration under applicable
state securities laws or the availability of an exemption from such
qualification and registration;
(iv) the listing of the Common Stock on the Purchase Date on the New
York Stock Exchange or other national or regional securities exchange or
the quotation thereof on the National Association of Securities Dealers
Automated Quotation System; and
(v) the receipt by the Trustee of an Officers' Certificate and an
Opinion of Counsel each stating that (A) the terms of the issuance of the
Common Stock are in conformity with this Indenture and (B) the shares of
Common Stock to be issued by the Company in payment of the Purchase Price
in respect of Securities have been duly authorized and, when issued and
delivered pursuant to the terms of this Indenture in payment of the
Purchase Price in respect of the Securities, will be validly issued, fully
paid and nonassessable and shall be free of any preemptive rights and any
lien or adverse claim (provided that such Opinion of Counsel may state
that, insofar as it relates to the absence of such preemptive rights, liens
and adverse claims, it is given upon the best knowledge of such counsel),
and, in the case of such Officers' Certificate, that conditions (i), (ii),
(iii) and (iv) above have been satisfied and, in the case of such Opinion
of Counsel, that conditions (ii), (iii) and (iv) above have been satisfied.
Such Officers' Certificate shall also set forth the number of shares of Common
Stock to be issued for each $1,000 Principal Amount of Securities and the Sale
Price of a share of Common Stock on each of the seven Business Days prior to the
Purchase Date. The Company may elect to pay in Common Stock only if the
information necessary to calculate the Market Price is reported in The Wall
Street Journal or another daily newspaper of national circulation. If such
conditions are not satisfied prior to or on the Purchase Date and the Company
has elected to purchase the Securities pursuant to this Section 3.08 through the
issuance of shares of Common Stock, the Company shall pay the Purchase Price in
cash.
The "Market Price" means the average of the Sale Prices of the Common Stock
for the five Trading Day period ending on (if the third Business Day prior to
the applicable Purchase Date is a Trading Day, or if not, then on the last
Trading Day prior to) the third Business Day prior to the related Purchase Date,
appropriately adjusted to take into account the actual occurrence, during the
period commencing on the first of such Trading Days during such five Trading Day
period and ending on such Purchase Date, of any event described in Section
10.06, 10.07 or 10.08; subject, however, to the conditions set forth in Sections
10.09 and 10.10.
(e) Notice of Election. The Company shall send notices of its election
(the "Company Notice") to purchase with cash or Common Stock or any combination
thereof to the Holders (and to beneficial owners as required by applicable law)
in the manner provided in Section 11.02. The Company Notice shall be sent to
Holders (and to beneficial owners as required by applicable law) on a date not
less than 20 Business Days
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prior to the Purchase Date (such date not less than 20 Business Days prior to
the Purchase Date being herein referred to as the "Company Notice Date"). Such
notices shall state the manner of payment elected and shall contain the
following information:
In the event the Company has elected to pay the Purchase Price (or any
specified percentage thereof) with Common Stock, the Company Notice shall:
(1) state that each Holder will receive Common Stock with a Market
Price determined as of a specified date prior to the Purchase Date equal to
such specified percentage of the Purchase Price of the Securities held by
such Holder (except for any cash amount to be paid in lieu of fractional
shares);
(2) set forth the method of calculating the Market Price of the Common
Stock; and
(3) state that because the Market Price of Common Stock will be
determined prior to the Purchase Date, Holders will bear the market risk
with respect to the value of the Common Stock to be received from the date
such Market Price is determined to the Purchase Date.
In any case, each notice shall include a form of Purchase Notice to be
completed by the Securityholder and shall state:
(i) the Purchase Price and Conversion Rate;
(ii) the name and address of the Paying Agent and the Conversion Agent
and of the office or agency referred to in Section 4.05;
(iii) that Securities as to which a Purchase Notice has been given may
be converted into Common Stock at any time prior to the close of business
on the applicable Purchase Date only if the applicable Purchase Notice has
been withdrawn in accordance with the terms of this Indenture;
(iv) that Securities must be surrendered to the Paying Agent or to the
office or agency referred to in Section 4.05 to collect payment;
(v) that the Purchase Price for any Security as to which a Purchase
Notice has been given and not withdrawn will be paid by the delivery of
cash no later than the second Business Day, or by the delivery or transfer
of Common Stock (and cash in lieu of any fractional interests therein), if
applicable, no later than the fifteenth Business Day, in each case
following the later of the Purchase Date and the time of surrender (or
transfer by book-entry) of such Security as described in (iv);
(vi) the procedures the Holder must follow to exercise rights under
Section 3.08 and a brief description of those rights;
(vii) briefly, the conversion rights of the Securities and that
Holders who want to convert Securities must satisfy the requirements set
forth in paragraph 8 of the Securities; and
(viii) the procedures for withdrawing a Purchase Notice (including,
without limitation, for a conditional withdrawal pursuant to the terms of
Section 3.08(a)(1)(D) or Section 3.10).
At the Company's written request, the Trustee shall give such notice in the
Company's name and at the Company's expense; provided, however, that, in all
cases, the text of such notice shall be prepared by the Company.
Upon determination of the actual number of shares of Common Stock to be
issued for each $1,000 Principal Amount of Securities, the Company will publish
such determination in The Wall Street Journal or another daily newspaper of
national circulation.
(f) Covenants of the Company. All shares of Common Stock delivered upon
purchase of the Securities shall be newly issued shares or treasury shares,
shall be duly authorized, validly issued, fully paid and nonassessable and shall
be free from preemptive rights and free of any lien or adverse claim.
The Company shall use its best efforts to list or cause to have quoted any
shares of Common Stock to be issued to purchase Securities on the principal
national securities exchange or over-the-counter or other
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<PAGE> 23
domestic market on which any other shares of the Common Stock are then listed or
quoted. The Company will promptly inform the Trustee in writing of any such
listing.
(g) Procedure Upon Purchase. The Company shall deposit cash (in respect of
a cash purchase under Section 3.08(c) or for fractional shares, as applicable)
or shares of Common Stock, or any combination thereof, as applicable, at the
time and in the manner as provided in Section 3.11, sufficient to pay the
aggregate Purchase Price of all Securities to be purchased pursuant to this
Section 3.08. As soon as practicable after the later of the Purchase Date and
the date such Securities are surrendered to the Paying Agent or at the office or
agency referred to in Section 4.05, the Company shall deliver to each Holder, or
to the Holder's nominee's account at DTC entitled to receive Common Stock
through the Paying Agent a certificate for the number of full shares of Common
Stock issuable in payment of the Purchase Price and cash in lieu of any
fractional shares. The person in whose name the certificate for Common Stock is
registered shall be treated as a holder of record of such Common Stock on the
Business Day following the related Purchase Date. Subject to Section 3.08(d), no
payment or adjustment will be made for dividends on the Common Stock the record
date for which occurred prior to the Purchase Date.
(h) Taxes. If a Holder of a Security is paid in Common Stock, the Company
shall pay any documentary, stamp or similar issue or transfer tax due on such
issue of shares of Common Stock. However, the Holder shall pay any such tax
which is due because the Holder requests the shares of Common Stock to be issued
in a name other than the Holder's name. The Paying Agent may refuse to deliver
the certificates representing the Common Stock being issued in a name other than
the Holder's name until the Paying Agent receives a sum sufficient to pay any
tax which will be due because the shares of Common Stock are to be issued in a
name other than the Holder's name. Nothing herein shall preclude any income tax
withholding required by law or regulations.
SECTION 3.09. Purchase of Securities at Option of the Holder Upon Change in
Control. (a) If on or prior to , 1999 there shall have occurred a
Change in Control, Securities shall be purchased, at the option of the Holder
thereof, by the Company at the purchase price specified in paragraph 6 of the
Securities (the "Change in Control Purchase Price"), on the date that is 35
Business Days after the occurrence of the Change of Control (the "Change in
Control Purchase Date"), subject to satisfaction by or on behalf of the Holder
of the requirements set forth in Section 3.09(c).
A "Change in Control" shall be deemed to have occurred at such time as
either of the following events shall occur:
(i) There shall be consummated any consolidation or merger of the
Company (a) in which the Company is not the continuing or surviving
corporation or (b) pursuant to which the Common Stock would be converted
into cash, securities or other property, other than a consolidation or
merger of the Company in which the holders of Common Stock immediately
prior to the consolidation or merger have, directly or indirectly, at least
a majority of the common equity of the continuing or surviving corporation
immediately after such consolidation or merger; or
(ii) There is a report filed by any person (other than a Permitted
Holder), including its Affiliates and Associates, on Schedule 13D or 14D-1
(or any successor schedule, form or report) pursuant to the Exchange Act,
disclosing that such person (for the purposes of this Section 3.09 only,
the term "person" shall include a "person" within the meaning of Section
13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision
to either of the foregoing) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of 50% or more of the voting
power of the Common Stock then outstanding; provided, however, that a
person shall not be deemed beneficial owner of, or to own beneficially, (A)
any securities tendered pursuant to a tender or exchange offer made by or
on behalf of such person or any of such person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange
thereunder, or (B) any securities if such beneficial ownership (1) arises
solely as a result of a revocable proxy delivered in response to a proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations under the Exchange Act, and (2) is not
also then reportable on Schedule 13D (or any successor schedule, form or
report) under the Exchange Act.
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Notwithstanding the foregoing provisions of this Section 3.09, a Change in
Control shall not be deemed to have occurred if at any time the Company, any
Subsidiary, any employee stock ownership plan or any other employee benefit plan
of the Company or any Subsidiary, or any person holding Common Stock for or
pursuant to the terms of any such employee benefit plan files or becomes
obligated to file a report under or in response to Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report) under the Exchange Act
disclosing beneficial ownership by it of shares of Common Stock, whether in
excess of 50% or otherwise.
"Associate" shall have the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act, as in effect on the
date hereof.
"Permitted Holder" means Minorco (U.S.A.) Inc., a Colorado corporation
("Minorco"), and its Affiliates.
(b) Within 15 Business Days after the occurrence of a Change in Control,
(i) the Company shall mail a written notice of such Change in Control by
first-class mail to the Trustee and to each Holder (and to beneficial owners if
required by applicable law) and (ii) the Company shall cause a copy of such
notice to be published in The Wall Street Journal or another daily newspaper of
national circulation. The notice shall include a form of Change in Control
Purchase Notice to be completed by the Securityholder and shall state:
(1) the events causing a Change in Control and the date such Change in
Control is deemed to have occurred for purposes of this Section 3.09;
(2) the date by which the Change in Control Purchase Notice pursuant
to this Section 3.09 must be given;
(3) the Change in Control Purchase Date;
(4) the Change in Control Purchase Price;
(5) the name and address of the Paying Agent and the Conversion Agent
and the office or agency referred to in Section 4.05;
(6) the Conversion Rate and any adjustments thereto;
(7) that Securities as to which a Change in Control Purchase Notice
has been given may be converted into Common Stock (or, in lieu thereof,
cash, if the Company shall so elect) at any time prior to the close of
business on the Change of Control Purchase Date only if the Change in
Control Purchase Notice has been withdrawn in accordance with the terms of
this Indenture;
(8) that Securities must be surrendered to the Paying Agent or the
office or agency referred to in Section 4.05 to collect payment;
(9) that the Change in Control Purchase Price for any Security as to
which a Purchase Notice has been duly given and not withdrawn will be paid
promptly following the later of the Change in Control Purchase Date and the
time of surrender of such Security as described in (8);
(10) the procedures the Holder must follow to exercise rights under
this Section 3.09 and a brief description of those rights;
(11) briefly, the conversion rights of the Securities; and
(12) the procedures for withdrawing a Change in Control Purchase
Notice.
(c) A Holder may exercise its rights specified in Section 3.09(a) upon
delivery of a written notice of purchase (a "Change in Control Purchase Notice")
to the Paying Agent or to the office or agency referred to in Section 4.05 at
any time prior to the close of business on the Business Day prior to the Change
in Control Purchase Date, stating:
(1) if applicable, any certificate number of the Security which the
Holder will deliver to be purchased;
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<PAGE> 25
(2) the portion of the Principal Amount of the Security which the
Holder will deliver to be purchased, which portion must be $1,000 or an
integral multiple thereof; and
(3) that such Security shall be purchased on the Change in Control
Purchase Date pursuant to the terms and conditions specified in paragraph 6
of the Securities.
The delivery (or transfer by book-entry) of such Security to the Paying
Agent prior to, on or after the Change in Control Purchase Date (together with
all necessary endorsements), at the offices of the Paying Agent or to the office
or agency referred to in Section 4.05 shall be a condition to the receipt by the
Holder of the Change in Control Purchase Price therefor; provided, however, that
such Change in Control Purchase Price shall be so paid pursuant to this Section
3.09 only if the Security so delivered to the Paying Agent or such office or
agency shall conform in all respects to the description thereof set forth in the
related Change in Control Purchase Notice.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.09, a portion of a Security if the Principal Amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Security also apply to the purchase of such
portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions of this
Section 3.09 shall be consummated by the delivery of the consideration to be
received by the Holder promptly following the later of the Change in Control
Purchase Date and the date such Securities are surrendered to the Paying Agent
or at the office or agency referred to in Section 4.05.
Notwithstanding anything herein to the contrary, any Holder delivering to
the Paying Agent or to the office or agency referred to in Section 4.05 the
Change in Control Purchase Notice contemplated by this Section 3.09(c) shall
have the right to withdraw such Change in Control Purchase Notice at any time
prior to or on the Business Day prior to the Change in Control Purchase Date by
delivery of a written notice of withdrawal to the Paying Agent or to such office
or agency in accordance with Section 3.10.
The Paying Agent shall promptly notify the Company of the receipt by it of
any Change in Control Purchase Notice or written withdrawal thereof.
SECTION 3.10. Effect of Purchase Notice or Change in Control Purchase
Notice. Upon receipt by the Paying Agent of the Purchase Notice or Change in
Control Purchase Notice specified in Section 3.08(a) or Section 3.09(c), as
applicable, the Holder of the Security in respect of which such Purchase Notice
or Change in Control Purchase Notice, as the case may be, was given shall
(unless such Purchase Notice or Change in Control Purchase Notice is withdrawn
as specified in the following two paragraphs) thereafter be entitled to receive
solely the Purchase Price or Change in Control Purchase Price, as the case may
be, with respect to such Security. Such Purchase Price or Change in Control
Purchase Price shall be paid to such Holder promptly following the later of (x)
the close of business on the Purchase Date or the Change in Control Purchase
Date, as the case may be, with respect to such Security (provided the conditions
in Section 3.08(a) or Section 3.09(c), as applicable, have been satisfied) and
(y) the time of delivery of such Security to the Paying Agent or to the office
or agency referred to in Section 4.05 by the Holder thereof in the manner
required by Sections 3.08(a) and (g) or Section 3.09(c), as applicable.
Securities in respect of which a Purchase Notice or Change in Control Purchase
Notice, as the case may be, has been given by the Holder thereof may not be
converted into shares of Common Stock on or after the date of the delivery of
such Purchase Notice or Change in Control Purchase Notice, as the case may be,
unless such Purchase Notice or Change in Control Purchase Notice, as the case
may be, has first been validly withdrawn as specified in the following two
paragraphs.
A Purchase Notice or Change in Control Purchase Notice, as the case may be,
may be withdrawn by means of a written notice of withdrawal delivered to the
office of the Paying Agent or to the office or agency
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<PAGE> 26
referred to in Section 4.05 at any time on or prior to the close of business on
the Business Day immediately preceding the Purchase Date or the Change in
Control Purchase Date, as the case may be, specifying:
(1) if applicable, any certificate number of the Security in respect
of which such notice of withdrawal is being submitted;
(2) the Principal Amount of the Security with respect to which such
notice of withdrawal is being submitted; and
(3) the Principal Amount, if any, of such Security which remains
subject to the original Purchase Notice or Change in Control Purchase
Notice, as the case may be, and which has been or will be delivered for
purchase by the Company.
A written notice of withdrawal of a Purchase Notice may be in the form set
forth in the preceding paragraph or may be in the form of (i) a conditional
withdrawal contained in a Purchase Notice pursuant to the terms of Section
3.08(a)(1)(D) or (ii) a conditional withdrawal containing the information set
forth in Section 3.08(a)(1)(D) and the preceding paragraph and contained in a
written notice of withdrawal delivered to the Paying Agent as set forth in the
preceding paragraph.
There shall be no purchase of any Securities pursuant to Sections 3.08
(other than through the issuance of Common Stock) or 3.09 if there has occurred
(prior to, on or after, as the case may be, the giving, by the Holders of such
Securities, of the required Purchase Notice or Change in Control Purchase
Notice, as the case may be) and is continuing an Event of Default (other than a
default in the payment of the Purchase Price or Change in Control Purchase
Price, as the case may be, with respect to such Securities). The Paying Agent
will promptly return to the respective Holders thereof any Securities (x) with
respect to which a Purchase Notice or Change in Control Purchase Notice, as the
case may be, has been withdrawn in compliance with this Indenture, or (y) held
by it during the continuance of an Event of Default (other than a default in the
payment of the Purchase Price or Change in Control Purchase Price, as the case
may be, with respect to such Securities) in which case, upon such return, the
Purchase Notice or Change in Control Purchase Notice with respect thereto shall
be deemed to have been withdrawn.
SECTION 3.11. Deposit of Purchase Price or Change in Control Purchase
Price. Prior to the close of business on the Business Day following the
Purchase Date or the Change in Control Purchase Date, as the case may be, the
Company shall deposit with the Trustee or with the Paying Agent (or, if the
Company or a Subsidiary or an Affiliate of either of them is acting as Paying
Agent, shall segregate and hold in trust as provided in Section 2.04) an amount
of cash in immediately available funds or Common Stock, if expressly permitted
hereunder, sufficient to pay the aggregate Purchase Price or Change in Control
Purchase Price, as the case may be, of all the Securities or portions thereof
which are to be purchased as of the Purchase Date or Change in Control Purchase
Date, as the case may be.
SECTION 3.12. Securities Purchased in Part. Any Security which is to be
purchased only in part shall be surrendered at the office of the Paying Agent or
the office or agency referred to in Section 4.05. (with, if the Company or the
Trustee so requires, due endorsement, or a written instrument of transfer in
form satisfactory to the Company and the Trustee executed by the Holder or such
Holder's attorney duly authorized in writing) and the Company shall execute and
the Trustee shall authenticate and deliver to the Holder of such Security,
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate Principal Amount equal to,
and in exchange for, the portion of the Principal Amount of the Security so
surrendered which is not purchased.
SECTION 3.13. Covenant to Comply with Securities Laws Upon Purchase of
Securities. In connection with any offer to purchase or redeem or redemption or
purchase of Securities under Section 3.01, 3.08 or 3.09 hereof, the Company
shall (i) comply with Rule 13e-4 and Rule 14e-l under the Exchange Act, if
applicable, (ii) file the related Schedule 13E-4 (or any successor schedule,
form or report) under the Exchange Act, if applicable, and (iii) otherwise
comply with all applicable federal and state securities laws regulating the
offer and delivery of shares of Common Stock upon purchase of the Securities so
as to permit the rights and obligations under Sections 3.01, 3.08 and 3.09 to be
exercised in the time and in the manner specified in Sections 3.01, 3.08 and
3.09.
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SECTION 3.14. Repayment to the Company. The Trustee and the Paying Agent
shall return to the Company any cash or shares of Common Stock, together with
interest on such cash, if any, or dividends on such shares of Common Stock, if
any, (subject to the provisions of Section 7.01(f)) held by them for the payment
of a Purchase Price or Change in Control Purchase Price, as the case may be, of
the Securities that remain unclaimed as provided in paragraph 12 of the
Securities; provided, however, that to the extent that the aggregate amount of
cash or shares of Common Stock deposited by the Company pursuant to Section 3.11
exceeds the aggregate Purchase Price or Change in Control Purchase Price, as the
case may be, of the Securities or portions thereof to be purchased, then
promptly after the Business Day immediately following the Purchase Date or
Change in Control Purchase Date, as the case may be, the Trustee shall return
any such excess to the Company together with interest or dividends, if any,
thereon (subject to the provisions of Section 7.01(f)).
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities. The Company shall promptly make all
payments in respect of the Securities on the dates and in the manner provided in
the Securities or pursuant to this Indenture. Principal Amount, Issue Price,
accrued Original Issue Discount, Redemption Price, Purchase Price, Change in
Control Purchase Price, conversion price and interest, if any, shall be
considered paid on the applicable date due if on such date (or, in the case of a
Purchase Price or Change in Control Purchase Price, on the Business Day
following the applicable Purchase Date or Change in Control Purchase Date, as
the case may be) the Trustee or the Paying Agent holds, in accordance with this
Indenture, cash or securities, if expressly permitted hereunder, sufficient to
pay all such amounts then due.
The Company shall, to the extent permitted by law, pay interest on overdue
amounts at the per annum rate of interest set forth in paragraph l of the
Securities, compounded semi-annually, which interest shall accrue from the date
such overdue amount was originally due to the date payment of such amount,
including interest thereon, has been made or duly provided. All such interest
shall be payable on demand. The accrual of such interest on overdue amounts
shall be in lieu of, and not in addition to, the continued accrual of Original
Issue Discount.
SECTION 4.02. SEC Reports. The Company shall file with the Trustee, within
15 days after it files such annual and quarterly reports, information, documents
and other reports with the SEC, copies of its annual and quarterly reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
the Company is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act (or any such successor provisions thereto). In the event the
Company is at any time no longer subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act (or any such successor provisions), it
shall continue to provide the Trustee and the SEC with reports containing
substantially the same information as would have been required to be filed with
the SEC had the Company continued to have been subject to the requirements of
Section 13 of the Exchange Act, and the Trustee shall make any such reports
available to Securityholders upon request. In such event, such reports shall be
provided at the times the Company would have been required to provide such
reports had it continued to have been subject to such reporting requirements.
The Company also shall comply with the other provisions of TIA Section 314(a),
to the extent such provisions are applicable.
SECTION 4.03. Compliance Certificate; Notice of Defaults. (a) The Company
shall deliver to the Trustee within 120 days after the end of each fiscal year
of the Company (beginning with the fiscal year ending on December 31, 1994) a
certificate of the principal executive officer, the principal financial officer
or the principal accounting officer of the Company stating whether or not, to
the knowledge of the signer, the Company has complied with all conditions and
covenants on its part contained in this Indenture and, if the signer has
obtained knowledge of any failure by the Company to comply with any such
condition or covenant, specifying each such Default and the nature thereof. For
the purpose of this Section 4.03, compliance shall be determined without regard
to any grace period or requirement of notice provided pursuant to the terms of
this Indenture.
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(b) The Company shall file with the Trustee written notice of the
occurrence of any Default or Event of Default within five Business Days of its
becoming aware of such Default or Event of Default.
SECTION 4.04. Further Instruments and Acts. Upon request of the Trustee,
the Company will execute and deliver such further instruments and do such
further acts as my be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
SECTION 4.05. Maintenance of Office or Agency. The Company will maintain
in the Borough of Manhattan, The City of New York, in such location as may be
required by the rules of any securities exchange or quotation system on which
the Securities may from time to time be listed, an office or agency of the
Trustee, Registrar, Paying Agent and Conversion Agent where Securities my be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer, exchange, purchase, redemption or conversion and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office of the Trustee in The City of New York, at
which at any particular time its corporate trust business shall be principally
administered, which office on the date hereof is located at
, shall be such office or agency for all of the
aforesaid purposes unless the Company shall maintain some other office or agency
for such purposes and shall give prompt written notice to the Trustee of the
location, and any change of location, of such other 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 my be made or served at the address of the
Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more other offices
or agencies where the Securities 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 The City of New
York, for such purposes.
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge or Transfer Assets. The Company shall
not consolidate with or merge with or into any other person or transfer (by
lease, assignment, sale or otherwise) all or substantially all of its properties
and assets to another person or group of affiliated persons, unless:
(a) either (1) the Company shall be the continuing corporation or (2)
the person (if other than the Company) formed by such consolidation or into
which the Company is merged or to which all or substantially all of the
properties and assets of the Company are transferred (i) shall be a
corporation, partnership or trust organized and validly existing under the
laws of the United States or any State thereof or the District of Columbia
and (ii) shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all of the obligations of the Company under the Securities and this
Indenture;
(b) immediately after giving effect to such transaction, and the
assumption contemplated by clause (a) above, no Default or Event of Default
shall have occurred and be continuing; and
(c) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with this Article and that all conditions precedent herein provided
for relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of the properties and assets of one or more Subsidiaries (other than
to the Company or another Subsidiary), which, if such assets were owned by the
Company, would constitute all or substantially all of the properties and assets
of the Company, shall be deemed to be the transfer of all or substantially all
of the properties and assets of the Company.
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The successor person formed by such consolidation or into which the Company
is merged or the successor person to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor had been named as the Company herein; and thereafter, except in the
case of (i) a lease of its properties and assets substantially as an entirety
and (ii) obligations the Company may have under a supplemental indenture
pursuant to Section 10.14, the Company shall be discharged and released from all
obligations and covenants under this Indenture and the Securities. Subject to
Section 9.06, the Trustee shall enter into a supplemental indenture to evidence
the succession and substitution of such successor person and such discharge and
release of the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Company Defaults in the payment of the Principal Amount, Issue
Price plus accrued Original Issue Discount, Redemption Price, Purchase
Price or Change in Control Purchase Price on any Security when the same
becomes due and payable at its Stated Maturity, upon redemption, upon
declaration, when due for purchase by the Company or otherwise;
(2) the Company fails to deliver Common Stock or pay cash in lieu
thereof when such Common Stock is required to be delivered or paid, as the
case may be, following conversion of a Security in accordance with Article
10;
(3) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in clause (1) or
clause (2) above) and such failure continues for 60 days after receipt by
the Company of a Notice of Default;
(4) the Company or any Consolidated Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding or the commencement of any case against
it;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors;
(E) files a petition in bankruptcy or answer or consent seeking
reorganization or relief; or
(F) consents to the filing of such petition or the appointment of
or taking possession by a Custodian;
(5) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Consolidated
Subsidiary in an involuntary case or proceeding, or adjudicates the
Company or any Consolidated Subsidiary insolvent or bankrupt;
(B) appoints a Custodian of the Company or any Consolidated
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Consolidated Subsidiary;
and the order or decree remains unstayed and in effect for 60 days; or
(6) a default shall occur under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any
Consolidated Subsidiary in an aggregate principal amount exceeding
$7,500,000, whether such indebtedness now exists or shall hereafter be
created, which default
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shall have accrued at final maturity or which default shall have resulted
in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise have become due and payable, without
such indebtedness having been discharged, such default or acceleration
having been rescinded or annulled or there having been deposited in trust a
sum of money sufficient to discharge in full such indebtedness within a
period of 30 days after receipt by the Company of a Notice of Default.
"Bankruptcy Law" means Title 11, United States Code, or any similar federal
or state law for the relief of debtors.
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy law.
A Default under clause (3) or clause (6) above is not an Event of Default
until the Trustee notifies the Company, or the Holders of at least 25% in
aggregate Principal Amount of the Securities at the time outstanding notify the
Company and the Trustee, of the Default and the Company does not cure such
Default within the time specified in clause (3) or clause (6) above after
receipt of such notice. Any such notice must specify the Default, demand that it
be remedied and state that such notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after it becomes
aware of the occurrence thereof, written notice of any event which with the
giving of notice and the lapse of time or both would become an Event of Default
under clause (3) or clause (6), its status and what action the Company is taking
or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.01(4) or (5)) occurs and is continuing, unless
the Principal Amount of all the Securities shall have already become due and
payable, either the Trustee by notice to the Company, or the Holders of at least
25% in aggregate Principal Amount of the Securities at the time outstanding by
notice to the Company and the Trustee, may declare the Issue Price and accrued
Original Issue Discount to the date of declaration on all the Securities to be
immediately due and payable, whereupon such Issue Price and accrued Original
Issue Discount shall be due and payable immediately; provided that, if an Event
of Default specified in Section 6.01(4) or (5) occurs and is continuing, the
Issue Price and accrued Original Issue Discount on all the Securities to the
date of the occurrence of such Event of Default shall become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Securityholders. The Holders of a majority in aggregate Principal Amount
of the Securities at the time outstanding, by notice to the Trustee (and without
notice to any other Securityholder) may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of the Issue Price and accrued Original Issue Discount that have
become due solely as a result of acceleration and if all amounts due to the
Trustee under Section 7.07 have been paid. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of the Issue Price and accrued Original Issue Discount on the Securities or to
enforce the performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if the Trustee does not possess
any of the Securities or does not produce any of the Securities in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of, or acquiescence in, the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
aggregate Principal Amount of the Securities at the time outstanding, by notice
to the Trustee (and without notice to any other Securityholder), may waive an
existing Default and its consequences except (a) an Event of Default described
in Section 6.01(1) or (2), (b) a Default in respect of a provision that under
Section 9.02 cannot be amended without the consent of each Securityholder
affected or (c) a Default which constitutes a failure to convert any Security in
accordance with Article 10. When a Default is waived, it is deemed cured and
shall cease to exist, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right. This
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Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the TIA and such
Section 316(a)(1)(B) is hereby expressly excluded from this Indenture, as
permitted by the TIA.
SECTION 6.05. Control by Majority. The Holders of a majority in aggregate
Principal Amount of the Securities at the time outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture or that the Trustee determines in good faith is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability unless the Trustee shall have been provided with reasonable security
or indemnity against such liability satisfactory to the Trustee. This Section
6.05 shall be in lieu of Section 316(a)(1)(A) of the TIA and such Section
316(a)(1)(A) is hereby expressly excluded from this Indenture, as permitted by
the TIA.
SECTION 6.06. Limitation on Suits. A Securityholder may not pursue any
remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in aggregate Principal Amount of the
Securities at the time outstanding make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense satisfactory to the
Trustee;
(4) the Trustee does not comply with the request within 60 days after
receipt of the notice, the request and the offer of security or indemnity;
and
(5) the Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of any
other Securityholder or to obtain a preference or priority over any other
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
the Principal Amount, Issue Price plus accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or interest,
if any, in respect of the Securities held by such Holder, on or after the
respective due dates expressed in the Securities or any Redemption Date, and to
receive Common Stock upon conversion or to bring suit for the enforcement of any
such payment on or after such respective dates or the right to convert, shall
not be impaired or affected adversely without the consent of each such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default described
in Section 6.01(l) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
for the whole amount owing with respect to the Securities and the amounts
provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the property of the
Company or of such other obligor or their creditors, the Trustee (irrespective
of whether the Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or interest,
if any, in respect of the Securities shall then be due and payable is therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of any such amount)
shall be entitled and empowered, by intervention in such proceeding or
otherwise:
(a) to file and prove a claim for the whole amount of the Principal
Amount, Issue Price, accrued Original Issue Discount, Redemption Price,
Purchase Price, Change in Control Purchase Price or interest, if any, and
to file such other papers or documents as may be necessary or advisable in
order to
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have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding;
and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant to
this Article 6, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Securityholders for amounts due and unpaid on the
Securities for the Principal Amount, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price, Change in Control Purchase
Price, conversion price or interest, if any, as the case may be, ratably,
without preference or priority of any kind, according to such amounts due
and payable on the Securities; and
Third: the balance, if any, to any persons entitled thereto, including
the Company provided that all amounts due and owing to the Holders and the
Trustee have been paid as required by this Indenture.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section 6.10 and shall provide the Company at
least 20 days prior written notice of such record date. At least 15 days before
such record date, the Company shall mail to each Securityholder and the Trustee
a notice that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant (other than the Trustee) in the suit of
an undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit initiated by the Trustee, a suit by a Holder pursuant to Section 6.07
or a suit by Holders of more than 10% in aggregate Principal Amount of the
Securities at the time outstanding. This Section 6.11 shall be in lieu of
Section 315(e) of the TIA and such Section 315(e) is hereby expressly excluded
from this Indenture, as permitted by the TIA.
SECTION 6.12. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent it may lawfully do so) that it shall not at any time
insist upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law or any usury or other law, wherever
enacted, now or at any time hereafter in force, that would prohibit or forgive
the Company from paying all or any portion of the Principal Amount, Issue Price,
accrued Original Issue Discount, Redemption Price, Purchase Price or Change in
Control Purchase Price in respect of the Securities, or any interest on any such
amounts, as contemplated herein, or that may affect the covenants or the
performance of this Indenture or the Securities; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, on the basis of any such
law, delay or impede the execution of any power herein granted to the Trustee,
but will suffer and permit the execution of every such power as though no such
law had been enacted.
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SECTION 6.13. 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,
then and in every case the Company, the Trustee and the Holder shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holder shall continue as though no such proceeding had been
instituted.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the
Trustee or any Holder to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Article 6 or by law to the Trustee or to the Holders may be exercised from
time to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and use the same degree of care and skill in its exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of in Event of Default:
(1) the Trustee need perform only those duties that are specifically
set forth in this Indenture and no others; 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. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
This Section 7.01(b) shall be in lieu of Section 315(a) of the TIA and such
Section 315(a) is hereby expressly excluded from this Indenture, as permitted by
the TIA.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:
(1) this paragraph (c) does not limit the effect of paragraph (b) of
this Section 7.01;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
Subparagraphs (c)(1), (2) and (3) shall be in lieu of Sections 315(d)(1), 315
(d)(2) and 315(d)(3) of the TIA and such Sections 315(d)(1), 315(d)(2) and
315(d)(3) are hereby expressly excluded from this Indenture, as permitted by the
TIA.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.01.
(e) The Trustee may refuse to perform any duty or exercise any right or
power or extend or risk its own funds or otherwise incur any financial liability
unless it receives indemnity satisfactory to it against any loss, liability or
expense.
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(f) Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee (acting in
any capacity hereunder) shall be under no liability for interest on any money
received by it hereunder unless otherwise agreed in writing with the Company.
SECTION 7.02. Rights of Trustee. Subject to its duties and
responsibilities under the TIA, (a) the Trustee may rely on any document
believed by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) Subject to the provisions of Section 7.01(c) 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.
(e) The Trustee may consult with counsel selected by it and any advice or
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by the Trustee in good faith
and in accordance with such advice or Opinion of Counsel.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request, order or direction of
any of the Holders, pursuant to the provisions of this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual
or any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee. Any Paying Agent, Registrar or Conversion Agent may
do the same with like rights. However, the Trustee must comply with Sections
7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee makes no representation as
to the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities, it shall
not be responsible for any statement in the registration statement (other than
the Statement of Eligibility and Qualification under the Trust Indenture Act of
1939 on Form T-1 attached as an exhibit thereto) for the Securities under the
Securities Act or in the Indenture or the Securities (other than its certificate
of authentication), or the determination as to which beneficial owners are
entitled to receive any notices hereunder.
SECTION 7.05. Notice of Defaults. The Trustee shall, within 90 days after
the occurrence of any Default, mail to all Holders of Securities, as the names
and addresses of such Holders appear on the books of registry of the Company,
notice of all Defaults of which the Trustee shall be aware, unless such Defaults
shall have been cured or waived before the giving of such notice; provided that,
except in the case of a Default in the payment of amounts described in Section
6.01(1) above or a Default in the delivery of shares of Common Stock (or cash in
lieu thereof) described in Section 6.01(2) above, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee, or a trust committee of directors or Trust Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of Securities.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May
15 beginning with the May 15 following the date of this Indenture, the Trustee
shall mail to each Securityholder a brief report dated as of such May 15 that
complies with TIA Section 313(a), if required by said Section. The Trustee also
shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Securityholders shall
be provided to the Company and shall be filed with the SEC and each stock
exchange on which the Securities are listed. The Company agrees
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promptly to notify the Trustee whenever the Securities become listed on any
stock exchange and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company agrees:
(a) to pay to the Trustee from time to time such reasonable
compensation for all services rendered by it hereunder (which compensation
shall not (to the extent permitted by law) be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(b) to reimburse the Trustee upon its request and, if required by the
Company, submission of reasonable documentation for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, advances and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(c) to indemnify each of the Trustee or any predecessor Trustee for,
and to hold it harmless against, any and all loss, liability, damage, claim
or expense, including taxes (other than taxes based upon, measured or
determined by the income of the Trustee), incurred without negligence or
bad faith on its part, arising out of or in connection with the acceptance
or administration of this trust, including the reasonable costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.
The Trustee shall give the Company notice of any claim or liability for
which the Trustee might be entitled to indemnification under subparagraph (c) of
this Section 7.07, within a reasonable amount of time after a Trust Officer of
the Trustee becomes aware of such claim or liability. To secure the Company's
payment obligations in this Section 7.07, the Trustee shall have a lien prior to
the Securities on all money or property held or collected by the Trustee.
The Company's payment obligations pursuant to this Section 7.07 shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(4) or (5), the expenses
are intended to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign by so
notifying the Company; provided, however, that no such resignation shall be
effective until a successor Trustee has accepted its appointment pursuant to
this Section 7.08. The Holders of a majority in aggregate Principal Amount of
the Securities at the time outstanding may remove the Trustee by so notifying
the Trustee and may appoint a successor Trustee (subject to the consent of the
Company, such consent not to be unreasonably withheld). The Company shall remove
the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint, by resolution of
its Board of Directors, a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.07.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of a majority in aggregate Principal Amount of the
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Securities at the time outstanding may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation, the resulting,
surviving or transferee corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Sections 310(a)(1) and 310(b). The Trustee
shall have a combined capital and surplus of at least $100,000,000 as set forth
in its most recent published annual report of condition. Neither the Company nor
any Affiliate of the Company may serve as Trustee. Nothing herein contained
shall prevent the Trustee from filing with the Commission the application
referred to in the penultimate paragraph of TIA Section 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Discharge of Liability on Securities. When (i) the Company
delivers to the Trustee all outstanding Securities (other than Securities
replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding
Securities have become due and payable and the Company deposits with the Trustee
cash or, if expressly permitted by the terms hereof, Common Stock sufficient to
pay all amounts due and owing on all outstanding Securities (other than
Securities replaced pursuant to Section 2.07), and if in either case the Company
pays all other sums payable hereunder by the Company (including, without
limitation, sums payable by delivery of shares of Common Stock pursuant to
Section 3.08), then this Indenture shall, subject to Section 7.07, cease to be
of further effect. The Trustee shall join in the execution of a document
prepared by the Company acknowledging satisfaction and discharge of this
Indenture on demand of the Company accompanied by an Officers' Certificate and
an Opinion of Counsel and at the cost and expense of the Company.
SECTION 8.02. Repayment to the Company. The Trustee and the Paying Agent
shall return to the Company upon written request any money or securities held by
them for the payment of any amount with respect to the Securities that remains
unclaimed for two years; provided, however, that the Trustee or such Paying
Agent, before being required to make any such return, may, at the expense of the
Company, cause to be published once in The Wall Street Journal or another daily
newspaper of national circulation or mail to each such Holder notice that such
money or securities remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such mailing, any
unclaimed money or securities then remaining will be returned to the Company.
After return to the Company, Holders entitled to the money or securities must
look to the Company for payment as general creditors unless an applicable
abandoned property law designates another person, and the Trustee and the Paying
Agent shall have no further liability with respect to such money or securities
for that period commencing after the return thereof.
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without the consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
provided, however, that such amendment does not adversely affect the rights
of any Securityholder;
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(2) to comply with Article 5 or Section 10.14;
(3) to provide for certificated Securities in addition to or in place
of uncertificated Securities, as amended;
(4) to make any change that does not adversely affect the rights of
any Securityholder;
(5) to add to the covenants or obligations of the Company hereunder or
to surrender any right, power or option herein conferred upon the Company;
or
(6) to make any change to comply with the TIA, or any amendment
thereafter, or any requirement of the SEC in connection with the
qualification of this Indenture under the TIA or any amendment thereof.
SECTION 9.02. With Consent of Holders. With the written consent of the
holders of at least a majority in aggregate Principal Amount of the Securities
at the time outstanding, the Company and the Trustee may amend this Indenture or
the Securities. However, without the consent of each Securityholder affected, an
amendment or supplement to this Indenture or the Securities may not:
(1) make any change to the Principal Amount of Securities whose
Holders must consent to an amendment;
(2) make any change to the rate of accrual in connection with Original
Issue Discount, reduce the rate of interest referred to in paragraph l of
the Securities or extend the time for payment of accrued Original Issue
Discount or interest, if any, on any Security;
(3) reduce the Principal Amount or the Issue Price of or extend the
Stated Maturity of any Security;
(4) reduce the amount of the Redemption Price, Purchase Price or
Change in Control Purchase Price of any Security or extend the date on
which the Purchase Price or Change in Control Purchase Price of any
Security is payable;
(5) make any Security payable in money or securities other than that
stated in the Security;
(6) make any change in Section 6.04 or this Section 9.02, except to
increase any percentage referred to therein, or make any change in Section
6.07;
(7) make any change that adversely affects the right to convert any
Security (including the right to receive cash in lieu of Common Stock);
(8) make any change that adversely affects the right to require the
Company to purchase the Securities in accordance with the terms thereof and
this Indenture (including the right to receive cash if the Company has
elected to pay cash upon such purchase);
(9) make any change to the provisions of this Indenture relating to
the purchase of Securities at the option of the Holder pursuant to Section
3.08 or 3.09 which change would result in a violation of applicable federal
or state securities laws (including positions of the SEC under applicable
no-action letters), whether as a result of the exercise or performance of
any rights or obligations under such provisions or otherwise; or
(10) impair the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the Securities.
It shall not be necessary for the consent of the Holders under this Section
9.02 to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
After an amendment under this Section 9.02 becomes effective, the Company
shall mail to each Holder a notice briefly describing the amendment.
SECTION 9.03. Compliance with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article shall comply with the TIA as then in
effect.
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SECTION 9.04. Revocation and Effect of Consents, Waivers and
Actions. Until an amendment or waiver becomes effective, a consent to it or any
other action by a Holder of a Security hereunder is a continuing consent by the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same obligation as the consenting Holder's Security, even if
notation of the consent, waiver or action is not made on the Security. However,
any such Holder or subsequent Holder may revoke the consent, waiver or action as
to such Holder's Security or portion of the Security if the Trustee receives the
notice of revocation before the date the amendment, waiver or action becomes
effective. After an amendment, waiver or action becomes effective, it shall bind
every Securityholder.
SECTION 9.05. Notation on or Exchange of Securities. Securities
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 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.
SECTION 9.06. Trustee to Sign Supplemental Indentures. The Trustee shall
sign any supplemental indenture authorized pursuant to this Article 9 if the
amendment does not materially adversely affect the rights, duties, liabilities
or immunities of the Trustee. In signing such amendment the Trustee shall be
entitled to receive, and (subject to the provisions of Section 7.01) shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that such amendment is authorized or permitted by this
Indenture.
SECTION 9.07. 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.
ARTICLE 10
CONVERSION
SECTION 10.01. Conversion Privilege. A Holder of a Security may convert
such Security into Common Stock at any time during the period stated in
paragraph 8 of the Securities. The number of shares of Common Stock issuable
upon conversion of a Security per $1,000 of Principal Amount thereof (the
"Conversion Rate") shall be that set forth in paragraph 8 in the Securities,
subject to adjustment as herein set forth.
A Holder's right to convert Securities into Common Stock is subject to the
Company's right to elect to instead pay such Holder the amount of cash set forth
in the next succeeding sentence, in lieu of delivering such shares of Common
Stock; provided, however, that if such payment of cash is not allowed pursuant
to the provisions of this Indenture or otherwise, the Company shall deliver
shares of Common Stock (and cash in lieu of fractional shares of Common Stock)
in accordance with this Article 10, whether or not the Company has delivered its
notice of whether such Security shall be converted into Common Stock or cash
pursuant to Section 10.02. The amount of cash to be paid per $1,000 Principal
Amount of a Security upon conversion shall be equal to the Sale Price of a share
of Common Stock on the Trading Day immediately prior to the related Conversion
Date multiplied by the Conversion Rate in effect on such Trading Day. Such cash
payment will be made to the Holder surrendering such Securities no later than
the fifth Business Day following such Conversion Date.
The Company shall not pay cash in lieu of delivering shares of Common Stock
upon the conversion of any Security pursuant to the terms of this Article 10
(other than cash in lieu of fractional shares pursuant to Section 10.03) if
there has occurred (prior to, on or after, as the case may be, the Conversion
Date or the date on which the Company delivers its notice of whether such
Security shall be converted into Common Stock or cash pursuant to Section 10.02)
and is continuing an Event of Default (other than a default in such payment on
such Securities).
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A Holder may convert a portion of the Principal Amount of a Security if the
portion is $1,000 or an integral multiple of $1,000. Provisions of this
Indenture that apply to conversion of all of a Security also apply to conversion
of a portion of a Security.
SECTION 10.02. Conversion Procedure. To convert a Security a Holder must
satisfy the requirements in paragraph 8 of the Securities. The date on which the
Holder satisfies all those requirements is the conversion date (the "Conversion
Date"). Upon notification to the Company by the conversion agent (the
"Conversion Agent") of such satisfaction and conversion of Securities the
Company shall inform the Holder through the Conversion Agent of its election to
deliver shares of Common Stock or to pay cash in lieu of delivery of such shares
no later than two Business Days following the Conversion Date. If the Company
elects to deliver shares of Common Stock, the Company shall deliver to the
Holder no later than the seventh Business Day following the Conversion Date,
through the Conversion Agent, a certificate or certificates for the number of
full shares of Common Stock issuable upon the conversion and cash in lieu of any
fractional share determined pursuant to Section 10.03. If the Company elects to
pay cash to such Holder in lieu of such shares of Common Stock, such cash
payment will be made to such Holder no later than the fifth Business Day
following the Conversion Date. A Holder may not withdraw his election to convert
a Security if the Company elects to pay cash in lieu of delivering Common Stock.
The person in whose name the certificate is registered shall be treated as
a shareholder of record on and after the Conversion Date; provided, however,
that no surrender of a Security on any date when the stock transfer books of the
Company shall be closed shall be effective to constitute the person or persons
entitled to receive the shares of Common Stock upon such conversion as the
record holder or holders of such shares of Common Stock on such date, but such
surrender shall be effective to constitute the person or persons entitled to
receive such shares of Common Stock as the record holder or holders thereof for
all purposes at the close of business on the next succeeding day on which such
stock transfer books are open; provided, further, that such conversion shall be
at the Conversion Rate in effect on the date that such Security shall have been
surrendered for conversion, as if the stock transfer books of the Company had
not been closed. Upon conversion of a Security, such person shall no longer be a
Holder of such Security.
Unless otherwise provided in this Indenture, Holders converting Securities
shall surrender such Securities for conversion by means of book entry delivery
in accordance with paragraph 8 of the Securities and the regulations of the
applicable book entry facility.
No payment or adjustment will be made for dividends on, or other
distributions with respect to, any Common Stock except as provided in this
Article 10. On conversion of a Security, that portion of accrued Original Issue
Discount attributable to the period from the Issue Date of the Security to the
Conversion Date with respect to the converted Security shall not be canceled,
extinguished or forfeited, but rather shall be deemed to be paid in full to the
Holder thereof through delivery of the Common Stock (together with the cash
payment, if any, in lieu of fractional shares) or of cash, as the case may be,
in exchange for the Security being converted pursuant to the provisions hereof.
If the Holder converts more than one Security at the same time, the number
of shares of Common Stock issuable upon the conversion shall be computed based
on the total Principal Amount of the Securities converted.
Upon surrender of a Security that is converted in part, the Company shall
execute, and the Trustee shall authenticate and deliver to the Holder, a new
Security in an authorized denomination equal in Principal Amount to the
unconverted portion of the Security surrendered.
If the last day on which a Security may be converted is a Legal Holiday in
a place where the Conversion Agent is located, the Security may be surrendered
to such Conversion Agent on the next succeeding day that is not a Legal Holiday.
SECTION 10.03. Fractional Shares. The Company will not issue a fractional
share of Common Stock upon conversion of a Security. Instead, the Company will
deliver cash for the current market value of the fractional share. The current
market value of a fractional share shall be determined to the nearest 1/1,000th
of
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a share by multiplying the Sale Price, on the last Trading Day prior to the
Conversion Date, of a full share by the fractional amount and rounding the
product to the nearest whole cent.
SECTION 10.04. Taxes on Conversion. If a Holder converts a Security, the
Company shall pay any documentary, stamp or similar issue or transfer tax due on
the issue of shares of Common Stock upon such conversion. However, the Holder
shall pay any such tax which is due because the Holder requests the shares to be
issued in a name other than the Holder's name. The Conversion Agent may refuse
to deliver the certificates representing the Common Stock being issued in a name
other than the Holder's name until the Conversion Agent receives a sum
sufficient to pay any tax which will be due because the shares are to be issued
in a name other than the Holder's name. Nothing herein shall preclude any tax
withholding required by law or regulations.
SECTION 10.05. Company to Provide Stock. The Company shall, prior to
issuance of any Securities hereunder, and from time to time as may be necessary,
reserve out of its authorized but unissued Common Stock a sufficient number of
shares of Common Stock to permit the conversion of the Securities for shares of
Common Stock.
All shares of Common Stock delivered upon conversion of the Securities
shall be newly issued shares or treasury shares, shall be duly and validly
issued and fully paid and nonassessable and shall be free from preemptive rights
and free of any lien or adverse claim.
The Company will endeavor promptly to comply with all federal and state
securities laws regulating the offer and delivery of shares of Common Stock upon
conversion of Securities, if any, and will list or cause to have quoted such
shares of Common Stock on each national or regional securities exchange or in
the over-the-counter market or such other market on which the Common Stock is
then listed or quoted.
SECTION 10.06. Adjustment for Change in Capital Stock. If, after the Issue
Date, the Company:
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares;
(4) pays a dividend or makes a distribution on its Common Stock in
shares of its Capital Stock (other than Common Stock or rights, warrants or
options for its Capital Stock); or
(5) issues by reclassification of its Common Stock any shares of its
Capital Stock (other than rights, warrants or options for its Capital
Stock),
then the conversion privilege and the Conversion Rate in effect immediately
prior to such action shall be adjusted so that the Holder of a Security
thereafter converted may receive the number of shares or other units of Capital
Stock of the Company which such Holder would have owned immediately following
such action if such Holder had converted the Security immediately prior to such
action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Security upon conversion of such
Security may receive shares or other units of two or more classes or series of
Capital Stock of the Company, the Conversion Rate shall thereafter be subject to
adjustment upon the occurrence of an action taken with respect to any such class
or series of Capital Stock as is contemplated by this Article 10 with respect to
the Common Stock, on terms comparable to those applicable to Common Stock in
this Article 10.
SECTION 10.07. Adjustment for Rights Issue. If, after the Issue Date, the
Company distributes any rights, warrants or options to all holders of its Common
Stock entitling them, for a period expiring within 60 days after the record date
for such distribution, to purchase shares of Common Stock at a price per share
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<PAGE> 41
less than the Sale Price as of the Time of Determination, the Conversion Rate
shall be adjusted in accordance with the formula:
(O + N)
R' = R X -----------
O + (N X P)
-------
M
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
O = the number of shares of Common Stock outstanding on the record
date for the distribution.
N = the number of additional shares of Common Stock offered
pursuant to the distribution.
P = the offering price per share of such additional shares.
M = the Average Sale Price, minus, in the case of (i) a distribution
to which Section 10.06(4) applies or (ii) a distribution to which
Section 10.08 applies, for which, in each case, (x) the record
date shall occur on or before the record date for the distribution
to which this Section 10.07 applies and (y) the Ex-Dividend Time
shall occur on or after the date of the Time of Determination for
the distribution to which this Section 10.07 applies, the fair
market value (on the record date for the distribution to which
this Section 10.07 applies) of:
(1) the Capital Stock of the Company distributed in respect of
each share of Common Stock in such Section 10.06(4) distribution, and
(2) the assets of the Company or debt securities or any rights,
warrants or options to purchase securities of the Company distributed
in respect of each share of Common Stock in such Section 10.08
distribution.
The Board of Directors shall determine fair market values for the purposes of
this Section 10.07.
The adjustment shall become effective immediately after the record date for
the determination of shareholders entitled to receive the rights, warrants or
options to which this Section 10.07 applies. If all of the shares of Common
Stock subject to such rights, warrants or options have not been issued when such
rights, warrants or options expire, then the Conversion Rate shall promptly be
readjusted to the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights, warrants or options been made on
the basis of the actual number of shares of Common Stock issued upon the
exercise of such rights, warrants or options.
No adjustment shall be made under this Section 10.07 if the application of
the formula stated above in this Section 10.07 would result in a value of R'
that is equal to or less than the value of R.
SECTION 10.08. Adjustment for Other Distributions. If, after the Issue
Date, the Company distributes to all holders of its Common Stock any of its
assets or debt securities or any rights, warrants or options to purchase
securities of the Company (including securities or cash, but excluding (x)
distributions of Capital Stock referred to in Section 10.06 and distributions of
rights, warrants or options referred to in Section 10.07 and (y) cash dividends
or other cash distributions that are paid out of consolidated current net
earnings or earnings retained in the business as shown on the books of the
Company unless such cash dividends or other cash distributions are Extraordinary
Cash Dividends (as defined below)), the Conversion Rate shall be adjusted,
subject to the provisions of the last paragraph of this Section 10.08, in
accordance with the formula:
M
R' = R X -------------
M-F
where:
R' = the adjusted Conversion Rate.
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R = the current Conversion Rate.
M = the Average Sale Price, minus, in the case of a distribution to
which Section 10.06(4) applies for which (i) the record date shall
occur on or before the record date for the distribution to which
this Section 10.08 applies and (ii) the Ex-Dividend Time shall
occur on or after the date of the Time of Determination for the
distribution to which this Section 10.08 applies, the fair market
value (on the record date for the distribution to which this
Section 10.08 applies) of any Capital Stock of the Company
distributed in respect of each share of Common Stock in such
Section 10.06(4) distribution.
F = the fair market value (on the record date for the distribution to
which this Section 10.08 applies) of the assets, securities,
rights, warrants or options to be distributed in respect of each
share of Common Stock in the distribution to which this Section
10.08 is being applied (including, in the case of cash dividends
or other cash distributions giving rise to an adjustment, all such
cash distributed concurrently).
The Board of Directors shall determine fair market values for the purpose of
this Section 10.08.
The adjustment shall become effective immediately after the record date for
the determination of shareholders entitled to receive the distribution to which
this Section 10.08 applies.
For purposes of this Section 10.08, the term "Extraordinary Cash Dividend"
shall mean any cash dividend with respect to the Common Stock the amount of
which, together with the aggregate amount of cash dividends on the Common Stock
to be aggregated with such cash dividend in accordance with the provisions of
this paragraph, equals or exceeds the threshold percentages set forth in item
(i) or (ii) below:
(i) If, upon the date prior to the Ex-Dividend Time with respect to a
cash dividend on the Common Stock, the aggregate amount of such cash
dividend together with the amounts of all cash dividends on the Common
Stock with Ex-Dividend Times occurring in the eighty-five (85) consecutive
day period ending on the date prior to the Ex-Dividend Time with respect to
the cash dividend to which this provision is being applied equals or
exceeds 12.5% of the average of the Sale Prices during the period beginning
on the date after the first such Ex-Dividend Time in such period and ending
on the date prior to the Ex-Dividend Time with respect to the cash dividend
to which this provision is being applied (except that if no other cash
dividend has had an Ex-Dividend Time occurring in such period, the period
for calculating the average of the Sale Prices shall be the period
commencing 85 days prior to the date prior to the Ex-Dividend Time with
respect to the cash dividend to which this provision is being applied),
such cash dividend together with each other cash dividend with an
Ex-Dividend Time occurring in such 85-day period shall be deemed to be an
Extraordinary Cash Dividend and for purposes of applying the formula set
forth above in this Section 10.08, the value of "F" shall be equal to (w)
the aggregate amount of such cash dividend together with the amounts of the
other cash dividends with Ex-Dividend Times occurring in such period minus
(x) the aggregate amount of such other cash dividends with Ex-Dividend
Times occurring in such period for which a prior adjustment in the
Conversion Rate was previously made under this Section 10.08.
(ii) If upon the date prior to the Ex-Dividend Time with respect to a
cash dividend on the Common Stock, the aggregate amount of such cash
dividend, together with the amounts of all cash dividends on the Common
Stock with Ex-Dividend Times occurring in the 365 consecutive day period
ending on the date prior to the Ex-Dividend Time with respect to the cash
dividend to which this provision is being applied equals or exceeds 25% of
the average of the Sale Prices during the period beginning on the date
after the first such Ex-Dividend Time in such period and ending on the date
prior to the Ex-Dividend Time with respect to the cash dividend to which
this provision is being applied (except that if no other cash dividend has
had an Ex-Dividend Time occurring in such period, the period for
calculating the average of the Sale Prices shall be the period commencing
365 days prior to the date prior to the Ex-Dividend Time with respect to
the cash dividend to which this provision is being applied), such cash
dividend together with each other cash dividend with an Ex-Dividend Time
occurring in such 365-day period shall be deemed to be an Extraordinary
Cash Dividend and for purposes of applying the formula
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set forth above in this Section 10.08, the value of "F" shall be equal to
(y) the aggregate amount of such cash dividend together with amounts of the
other cash dividends with Ex-Dividend Times occurring in such period minus
(z) the aggregate amount of such other cash dividends with Ex-Dividend
Times occurring in such period for which a prior adjustment in the
Conversion Rate was previously made under this Section 10.08.
In making the determinations required by items (i) and (ii) above, the
amount of cash dividends paid on a per share basis and the average of the Sale
Prices, in each case during the period specified in item (i) or (ii) above, as
applicable, shall be appropriately adjusted to reflect the occurrence during
such period of any event described in Section 10.06.
In the event that, with respect to any distribution to which this Section
10.08 would otherwise apply, the difference "M-F" as defined in the above
formula is less than $1.00 or "F" is greater than "M", then the adjustment
provided by this Section 10.08 shall not be made and in lieu thereof the
provisions of Section 10.14 shall apply to such distribution.
SECTION 10.09. When Adjustment May Be Deferred. No adjustment in the
Conversion Rate need be made unless the adjustment would require an increase or
decrease of at least 1% (e.g., if the Conversion Rate is 4, an increase or
decrease of .04 (1% of 4)) in the Conversion Rate. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment.
All calculations under this Article 10 shall be made to the nearest cent or
to the nearest 1/1,000th of a share, as the case may be, with one-half of a cent
and 5/10,000ths of a share being rounded upwards.
SECTION 10.10. When No Adjustment Required. No adjustment need be made for
a transaction referred to in Section 10.06, 10.07, 10.08 or 10.14 if
Securityholders are to participate in the transaction on a basis and with notice
that the Board of Directors determines to be fair and reasonable in light of the
basis and notice on which holders of Common Stock participate in the
transaction. Such participation by Securityholders may include participation
upon conversion provided that an adjustment shall be made at such time as the
Securityholders are no longer entitled to participate.
No adjustment need be made for rights to purchase Common Stock pursuant to
a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no par value of
the Common Stock.
To the extent the Securities become convertible into cash pursuant to the
terms of Section 10.08 or 10.14, no adjustment need be made thereafter as to the
cash. Interest will not accrue on the cash.
Notwithstanding any provision to the contrary in this Indenture, no
adjustment shall be made in the Conversion Rate to the extent, but only to the
extent, such adjustment results in the following quotient being less than the
par value of the Common Stock: (i) the Issue Price plus accrued Original Issue
Discount as of the date such adjustment would otherwise be effective divided by
(ii) the Conversion Rate as so adjusted.
SECTION 10.11. Notice of Adjustment. Whenever the Conversion Rate is
adjusted, the Company shall file with the Trustee and the Conversion Agent a
notice of such adjustment and a certificate from the Company's independent
public accountants briefly stating the facts requiring the adjustment and the
manner of computing it. The Conversion Agent will promptly mail such notice to
Securityholders at the Company's expense. The certificate shall be conclusive
evidence that the adjustment is correct. Neither the Trustee nor any Conversion
Agent shall be under any duty or responsibility with respect to any such
certificate except to exhibit the same to any Holder desiring inspection
thereof.
SECTION 10.12. Voluntary Increase. The Company from time to time may
increase the Conversion Rate by any amount and for any period of time (provided,
that such period is not less than 20 Business Days). Whenever the Conversion
Rate is increased, the Company shall mail to Securityholders and file with the
Trustee and the Conversion Agent a notice of the increase. The Company shall
mail the notice at least 15 days before the date the increased Conversion Rate
takes effect. The notice shall state the increased Conversion Rate and the
period it will be in effect.
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A voluntary increase of the Conversion Rate does not change or adjust the
Conversion Rate otherwise in effect for purposes of Section 10.06, 10.07 or
10.08.
SECTION 10.13. Notice of Certain Transactions. If:
(1) the Company takes any action that would require an adjustment in
the Conversion Rate pursuant to Section 10.06, 10.07 or 10.08 (unless no
adjustment is to occur pursuant to Section 10.10); or
(2) the Company takes any action that would require a supplemental
indenture pursuant to Section 10.14; or
(3) there is a liquidation or dissolution of the Company;
then the Company shall mail to Securityholders and file with the Trustee and the
Conversion Agent a notice stating the proposed record date for a dividend or
distribution or the proposed effective date of a subdivision, combination,
reclassification, consolidation, merger, binding share exchange, transfer,
liquidation or dissolution. The Company shall file and mail the notice at least
15 days before such date. Failure to file or mail the notice or any defect in it
shall not affect the validity of the transaction.
SECTION 10.14. Reorganization of Company: Special Distributions. If the
Company is a party to a transaction subject to Section 5.01 (other than a sale
of all or substantially all of the assets of the Company in a transaction in
which the holders of Common Stock immediately prior to such transaction do not
receive securities, cash or other assets of the Company or any other person) or
a merger or binding share exchange which reclassifies or changes its outstanding
Common Stock, the person obligated to deliver securities, cash or other assets
upon conversion of Securities shall enter into a supplemental indenture. If the
issuer of securities deliverable upon conversion of Securities is an Affiliate
of the successor Company, that issuer shall join in the supplemental indenture.
The supplemental indenture shall provide that the Holder of a Security may
convert it into the kind and amount of securities, cash or other assets which
such Holder would have received immediately after the consolidation, merger,
binding share exchange or transfer if such Holder had converted the Security
immediately before the effective date of the transaction, assuming (to the
extent applicable) that such Holder (i) was not a constituent person or an
Affiliate of a constituent person to such transaction; (ii) made no election
with respect thereto; and (iii) was treated alike with the plurality of
non-electing Holders. The supplemental indenture shall provide for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in this Article 10. The successor Company shall mail to
Securityholders a notice briefly describing the supplemental indenture.
If this Section applies, neither Section 10.06 nor 10.07 applies.
If the Company makes a distribution to all holders of its Common Stock of
any of its assets, or debt securities or any rights, warrants or options to
purchase securities of the Company that, but for the provisions of the last
paragraph of Section 10.08, would otherwise result in an adjustment in the
Conversion Rate pursuant to the provisions of Section 10.08, then, from and
after the record date for determining the holders of Common Stock entitled to
receive the distribution, a Holder of a Security that converts such Security in
accordance with the provisions of this Indenture shall upon such conversion be
entitled to receive, in addition to the shares of Common Stock into which the
Security is convertible, the kind and amount of securities, cash or other assets
comprising the distribution that such Holder would have received if such Holder
had converted the Security immediately prior to the record date for determining
the holders of Common Stock entitled to receive the distribution.
SECTION 10.15. Company Determination Final. Any determination that the
Company or the Board of Directors must make pursuant to this Article 10 is
conclusive.
SECTION 10.16. Trustee's Adjustment Disclaimer. The Trustee has no duty to
determine when an adjustment under this Article 10 should be made, how it should
be made or what it should be. The Trustee has no duty to determine whether a
supplemental indenture under Section 10.14 need be entered into or whether any
provisions of any supplemental indenture are correct. The Trustee shall not be
accountable for and makes
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no representation as to the validity or value of any securities or assets issued
upon conversion of Securities. The Trustee shall not be responsible for the
Company's failure to comply with this Article 10. Each Conversion Agent (other
than the Company or an Affiliate of the Company) shall have the same protection
under this Section 10.16 as the Trustee.
SECTION 10.17. Simultaneous Adjustments. If this Article 10 requires
adjustments to the Conversion Rate under more than one of Sections 10.06(4),
10.07 or 10.08, and the record dates for the distributions giving rise to such
adjustments shall occur on the same date, then such adjustments shall be made by
applying, first, the provisions of Section 10.06, second, the provisions of
Section 10.08 and, third, the provisions of Section 10.07.
SECTION 10.18. Successive Adjustments. After an adjustment to the
Conversion Rate under this Article 10, any subsequent event requiring an
adjustment under this Article 10 shall cause an adjustment to the Conversion
Rate as so adjusted.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TIA Controls. If any provision hereof limits, qualifies or
conflicts with any provision of the TIA or another provision which is required
or deemed to be included in this Indenture by any of the provisions of the TIA,
the provision or requirement of the TIA shall control. If any provision of this
Indenture modifies or excludes any provision of the TIA that may be so modified
or excluded, such provision of the TIA shall be deemed to apply to this
Indenture as so modified or to be excluded, as the case may be.
SECTION 11.02. Notices. Any notice or communication shall be in writing
and delivered in person or mailed by first-class mail, postage prepaid,
addressed as follows or transmitted by facsimile transmission (confirmed by
guaranteed overnight courier) to the following facsimile numbers:
if to the Company:
Terra Industries, Inc.
P.O. Box 6000
600 Fourth Street
Sioux City, Iowa 51102-6000
Attention: George Valentine
Telephone: (712) 277-1340
Facsimile No.: (712) 279-8719
if to the Trustee:
NationsBank of Texas, N.A.
901 Main Street, 18th Floor
Dallas, Texas 75202
Attention: Carrie L. Sherwood
Telephone: (214) 508-2129
Facsimile No.: (214) 508-3430
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication given to a Securityholder shall be mailed by
first-class mail to the Securityholder at the Securityholder's address as it
appears on the registration books of the Registrar and shall be sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not received by the addressee.
39
<PAGE> 46
If the Company mails a notice or communication to the Securityholders, it
shall mail a copy to the Trustee and each Registrar, Paying Agent, Conversion
Agent or co-registrar.
SECTION 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar, the Paying Agent, the
Conversion Agent and anyone else shall have the protection of TIA Section
312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
Officers' Certificate or Opinion of Counsel with respect to compliance with a
covenant or condition provided for in this Indenture shall include:
(1) a statement that each person making such Officers' Certificate or
Opinion of Counsel has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
Officers' Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such person, he has made
such examination or investigation as is necessary to enable such person to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such covenant or condition has been complied with.
SECTION 11.06. Separability Clause. In case any provision in this
Indenture or in 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 11.07. Rules By Trustee, Paying Agent, Conversion Agent and
Registrar. The Trustee may make reasonable rules for action by or a meeting of
the Securityholders. The Registrar, Conversion Agent and the Paying Agent may
make reasonable rules for their functions.
SECTION 11.08. Legal Holiday. A "Legal Holiday" is any day other than a
Business Day. If any specified date (including a date for giving notice) is a
Legal Holiday, the action shall be taken on the next succeeding day that is not
a Legal Holiday, and to the extent applicable no Original Issue Discount or
interest, if any, shall accrue for the intervening period.
SECTION 11.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 11.10. No Recourse Against Others. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this Indenture
and the Securities shall bind its successor. All agreements of the Trustee in
this Indenture shall bind its successor.
40
<PAGE> 47
SECTION 11.12. Benefits of Indenture. Nothing in this Indenture or in the
Securities, express or implied, shall give to any person (other than the parties
hereto and their successors hereunder, any Paying Agent and the Holders) any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 11.13. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall by an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed
this Indenture on behalf of the respective parties hereto as of the date first
above written.
TERRA INDUSTRIES INC.
By:
------------------------------------
Title:
Attest:
- --------------------------------------
Title:
[SEAL]
NATIONSBANK OF TEXAS, N.A.,
as Trustee
By:
------------------------------------
Title:
Attest:
- --------------------------------------
Title:
41
<PAGE> 48
EXHIBIT A
[FORM OF FACE OF LYON]
FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF
PRINCIPAL AMOUNT OF THIS SECURITY IS $ , THE ISSUE DATE IS
, 1994, AND THE YIELD TO MATURITY IS %.
TERRA INDUSTRIES INC.
LIQUID YIELD OPTION(TM) NOTE DUE 2009
(ZERO COUPON -- SENIOR)
<TABLE>
<S> <C> <C>
No.
Issue Date: , 1994 Cusip No.:
Issue Price: $
Original Issue Discount: $
(for each $1,000 Principal amount)
</TABLE>
TERRA INDUSTRIES INC., a Maryland corporation, promises to pay to
, or registered assigns, the Principal Amount of
on , 2009.
This Security shall not bear interest except as specified on the other side
of this Security. Original Issue Discount will accrue as specified on the other
side of this Security. This Security is convertible as specified on the other
side of this Security. All capitalized terms used herein without definition
shall have the respective meanings assigned thereto in the Indenture referred to
on the other side of this Security.
Additional provisions of this Security are set forth on the other side of
this Security.
TERRA INDUSTRIES INC.
By:
------------------------------------
Title:
ATTEST:
- --------------------------------------
(Seal)
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
,
as Trustee, certifies that this Security
is one of the Securities referred to
in the within-mentioned Indenture.
By:
Authorized Signatory
Dated:
- ---------------
(TM) Trademark of Merrill Lynch & Co., Inc.
A-1
<PAGE> 49
[FORM OF REVERSE SIDE OF LYON]
LIQUID YIELD OPTION(TM) NOTE DUE 2009
(ZERO COUPON -- SENIOR)
1. INTEREST
This Security shall not bear interest, except that if the Principal Amount
hereof or any portion of such Principal Amount is not paid when due (whether
upon acceleration pursuant to Section 6.02 of the Indenture, upon the date set
for payment of the Redemption Price pursuant to paragraph 5 hereof, upon the
date set for payment of a Purchase Price or Change in Control Purchase Price
pursuant to paragraph 6 hereof or upon the Stated Maturity of this Security) or
if shares of Common Stock (or cash in lieu of such shares, including fractional
shares) in respect of a conversion of this Security in accordance with the terms
of Article 10 of the Indenture is not delivered when due, then in each such case
the overdue amount shall bear interest at the rate of % per annum,
compounded semiannually (to the extent that the payment of such interest shall
be legally enforceable), which interest shall accrue from the date such overdue
amount was originally due through the date payment of such amount, including
interest thereon, has been made or duly provided for. All such interest shall be
payable on demand. The accrual of such interest on overdue amounts shall be in
lieu of, and not in addition to, the continued accrual of Original Issue
Discount.
Original Issue Discount (the difference between the Issue Price and the
Principal Amount of the Security), in the period during which a Security remains
outstanding, shall accrue at % per annum, on a semiannual bond equivalent
basis using a 360-day year composed of twelve 30-day months, commencing on the
Issue Date of this Security.
2. METHOD OF PAYMENT
Subject to the terms and conditions of the Indenture, Terra Industries Inc.
(the "Company") will make payments in respect of the Securities to the persons
who are registered Holders of Securities at the close of business on the
Business Day immediately preceding the Redemption Date or Stated Maturity, as
the case may be, or at the close of business on a Purchase Date, Change in
Control Purchase Date or Conversion Date, as the case may be. Holders must
surrender or arrange for book-entry transfer of Securities to a Paying Agent to
collect such payments in respect of the Securities. The Company will pay cash
amounts in money of The United States of America that at the time of payment is
legal tender for payment of public and private debts. However, the Company may
make such cash payments by check payable in such money.
3. PAYING AGENT, CONVERSION AGENT AND REGISTRAR
Initially, NationsBank of Texas, N.A, as trustee (the "Trustee"), will act
as Paying Agent, Conversion Agent and Registrar. The Company may appoint and
change any Paying Agent, Conversion Agent, Registrar or co-registrar, without
notice, other than notice to the Trustee except that the Company will maintain
at least one Paying Agent in the State of New York, City of New York, Borough of
Manhattan. The Company or any of its Subsidiaries or any of their Affiliates may
act as Paying Agent, Conversion Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture, dated as of
, 1994 (the "Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as in
effect from time to time (the "TIA"). Capitalized terms used herein or on the
face hereof and not defined herein have the meanings ascribed thereto in the
Indenture. The Securities are subject to all such terms, and Securityholders are
referred to the Indenture and the TIA for a statement of those terms.
- ---------------
(TM) Trademark of Merrill Lynch & Co., Inc.
A-2
<PAGE> 50
The Securities are senior unsecured obligations of the Company limited to
the aggregate Principal Amount specified in Section 2.02 of the Indenture
(subject to Section 2.07 of the Indenture). The Indenture does not limit other
indebtedness of the Company, secured or unsecured.
5. REDEMPTION AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Securities. The Securities are
redeemable as a whole, or from time to time in part, at any time at the option
of the Company at the Redemption Prices set forth below, provided that the
Securities are not redeemable prior to , 1999.
The table below shows the Redemption Prices of a Security per $1,000
Principal Amount at Stated Maturity on the dates shown below and at Stated
Maturity, which prices reflect accrued Original Issue Discount calculated
through each such date. The Redemption Price of a Security redeemed between such
dates shall include an additional amount reflecting the additional Original
Issue Discount accrued from and including the next preceding date in the table
through the Redemption Date.
<TABLE>
<CAPTION>
(2)
ACCRUED (3)
(1) ORIGINAL REDEMPTION
LYON ISSUE DISCOUNT PRICE
REDEMPTION DATE ISSUE PRICE AT % (1) + (2)
------------------------------------------------ ----------- -------------- -----------
<S> <C> <C> <C>
, 1999.............................. $ $ $
, 2000..............................
, 2001..............................
, 2002..............................
, 2003..............................
, 2004..............................
, 2005..............................
, 2006..............................
, 2007..............................
, 2008..............................
At Stated Maturity.............................. 1,000.00
</TABLE>
6. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER
Subject to the terms and conditions of the Indenture, the Company shall
become obligated to purchase, at the option of the Holder, the Securities held
by such Holder on the following Purchase Dates and at the following Purchase
Price per $1,000 Principal Amount at Stated Maturity of such Securities, upon
delivery of a Purchase Notice containing the information set forth in the
Indenture, at any time from the opening of business on the date that is 20
Business Days prior to such Purchase Date until the close of business on the
Business Day prior to such Purchase Date and upon book-entry transfer of the
Securities to the Paying Agent by the Holder as set forth in the Indenture. Such
Purchase Price may be paid, at the option of the Company, in cash or by the
issuance and delivery or book-entry transfer of shares of Common Stock of the
Company, or in any combination thereof.
<TABLE>
<CAPTION>
PURCHASE DATE PURCHASE PRICE
----------------------------------------------------------------------- --------------
<S> <C>
, 1999....................................................... $
, 2004.......................................................
</TABLE>
Subject to the terms and conditions of the Indenture, if any Change in
Control occurs on or prior to , 1999, the Company shall, at the option
of the Holder, purchase all Securities held by such Holder for which a Change in
Control Purchase Notice shall have been delivered as provided in the Indenture
and not withdrawn, on the date that is 35 Business Days after the occurrence of
such Change in Control, for a Change in Control Purchase Price equal to the
Issue Price plus accrued Original Issue Discount to the Change in Control
Purchase Date, which Change in Control Purchase Price shall be paid in cash.
A-3
<PAGE> 51
Holders have the right to withdraw any Purchase Notice or Change in Control
Purchase Notice, as the case may be, by delivering to the Paying Agent a written
notice of withdrawal in accordance with the provisions of the Indenture.
If cash (and/or securities if permitted under the Indenture) sufficient to
pay the Purchase Price or Change in Control Purchase Price of all Securities or
portions thereof to be purchased as of the Purchase Date or the Change in
Control Purchase Date, as the case may be, is deposited with the Paying Agent on
the Business Day following the Purchase Date or the Change in Control Purchase
Date, as the case may be, Original Issue Discount ceases to accrue on such
Securities (or portions thereof) immediately after such date, and the Holders
thereof shall have no other rights as such (other than the right to receive the
Purchase Price or Change in Control Purchase Price, as the case may be, upon
surrender of such Security).
7. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than 60
days before the Redemption Date to each Holder of Securities to be redeemed at
the Holder's registered address. If money sufficient to pay the Redemption Price
of all Securities (or portions thereof) to be redeemed on the Redemption Date is
deposited with the Paying Agent prior to or on the Redemption Date, immediately
after such date Original Issue Discount ceases to accrue on such Securities or
portions thereof. Securities in denominations larger than $1,000 of Principal
Amount may be redeemed in part but only in integral multiples of $1,000 of
Principal Amount.
8. CONVERSION
Subject to the next two succeeding sentences, a Holder of a Security may
convert it into Common Stock of the Company at any time before the close of
business on , 2009 provided, however, that if a Security is called for
redemption, the Holder may convert it at any time before the close of business
on the Redemption Date. The number of shares of Common Stock to be delivered
upon conversion of a Security into Common Stock per $1,000 of Principal Amount
shall be equal to the Conversion Rate. The Holder's right to convert Securities
into Common Stock is subject to the Company's right to elect to pay a Holder
surrendering a Security pursuant to Article 10 of the Indenture an amount of
cash as set fourth in the next succeeding sentence, in lieu of delivering such
shares of Common Stock. The amount of cash to be paid per $1,000 of Principal
Amount of a Security upon conversion of such Security shall be equal to the Sale
Price of a share of Common Stock on the Trading Day immediately prior to the
related Conversion Date multiplied by the Conversion Rate in effect on such
Trading Day. A Security in respect of which a Holder has delivered a Purchase
Notice or Change in Control Purchase Notice exercising the option of such Holder
to require the Company to purchase such Security may be converted only if the
notice of exercise is withdrawn in accordance with the terms of the Indenture.
The initial Conversion Rate is shares of Common Stock per $1,000
Principal Amount, subject to adjustment in certain events described in the
Indenture. The Company will deliver cash or a check in lieu of any fractional
share of Common Stock.
To convert a Security a Holder must (i) complete and manually sign a
conversion notice and deliver such notice to the Conversion Agent (or the office
or agency referred to in Section 4.05 of the Indenture) or, if applicable,
complete and deliver to The Depository Trust Company ("DTC", which term includes
any successor thereto) the appropriate instruction form for conversion pursuant
to DTC's book entry conversion program, (ii) surrender the Security to a
Conversion Agent by physical or book entry delivery (which is not necessary in
the case of conversion pursuant to DTC's book entry conversion program), (iii)
furnish appropriate endorsements and transfer documents if required by the
Conversion Agent, the Company or the Trustee and (iv) pay any transfer or
similar tax, if required. Upon completion of the procedures set forth in this
paragraph, a Holder may not withdraw his conversion notice if the Company elects
to pay cash in lieu of delivering Common Stock. Book entry delivery of a
Security to the Conversion Agent may be made by any financial institution that
is a participant in DTC; conversion through DTC's book entry conversion program
is available for any Security that is held in an account maintained at DTC by
any such participant.
A-4
<PAGE> 52
A Holder may convert a portion of a Security if the Principal Amount of
such portion is $1,000 or an integral multiple of $1,000. No payment or
adjustment will be made for dividends on the Common Stock except as provided in
the Indenture. On conversion of a Security, that portion of accrued Original
Issue Discount attributable to the period from the Issue Date to the Conversion
Date with respect to the converted Security shall not be canceled, extinguished
or forfeited, but rather shall be deemed paid in full to the Holder thereof
through the delivery of the Common Stock in exchange for the Security being
converted pursuant to the terms hereof.
The Conversion Rate will be adjusted for dividends or distributions on
Common Stock payable in Common Stock or other Capital Stock; subdivisions,
combinations or certain reclassifications of Common Stock; distributions to all
holders of Common Stock of certain rights to purchase Common Stock for a period
expiring within 60 days at less than the Sale Price at the Time of
Determination; and distributions to such holders of assets or debt securities of
the Company or certain rights to purchase securities of the Company (excluding
certain cash dividends or distributions). However, no adjustment need be made if
Securityholders may participate in the transaction or in certain other cases.
The Company from time to time may voluntarily increase the Conversion Rate.
If the Company is a party to a consolidation, merger or binding share
exchange of the type specified in the Indenture, or certain transfers of all or
substantially all of its assets to another person, or in certain other
circumstances described in the Indenture, the right to convert a Security into
Common Stock may be changed into a right to convert it into securities, cash or
other assets of the Company or another person.
9. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION
Any Securities called for redemption, unless surrendered for conversion
before the close of business on the Redemption Date, may be deemed to be
purchased from the Holders of such Securities at an amount not less than the
Redemption Price, by one or more investment bankers or other purchasers who may
agree with the Company to purchase such Securities from the Holders and to make
payment for such Securities to the Trustee in trust for such Holders.
10. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in fully registered form, without coupons, in
denominations of $1,000 of Principal Amount and integral multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or exchange
any securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities in respect of which a Purchase Notice or Change in Control Purchase
Notice has been given and not withdrawn (except, in the case of a Security to be
purchased in part, the portion of the Security not to be purchased) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed.
11. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of this
Security for all purposes.
12. UNCLAIMED MONEY OR SECURITIES
The Trustee and the Paying Agent shall return to the Company upon written
request any money or securities held by them for the payment of any amount with
respect to the Securities that remains unclaimed for two years, provided,
however, that the Trustee or such Paying Agent, before being required to make
any such return, may at the expense of the Company cause to be published once in
The Wall Street Journal or another newspaper of national circulation or mail to
each such Holder notice that such money or securities remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication or mailing, any unclaimed money or securities then
remaining will be returned to the Company. After return to the Company, Holders
entitled to the money or securities must look to the
A-5
<PAGE> 53
Company for payment as general creditors unless an applicable abandoned property
law designates another person, and the Trustee and the Paying Agent shall have
no further liability with respect to such money or securities for that period
commencing after the return thereof.
13. AMENDMENT; WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended with the written consent of the Holders of at
least a majority in aggregate Principal Amount of the Securities at the time
outstanding and (ii) certain defaults or noncompliance with certain provisions
may be waived with the written consent of the Holders of a majority in aggregate
Principal Amount of the Securities at the time outstanding. Subject to certain
exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to, among other things, cure any ambiguity, omission, defect or
inconsistency, comply with Article 5 or Section 10.14 of the Indenture, provide
for certificated Securities in addition to or in lieu of uncertificated
Securities or make any change that does not adversely affect the rights of any
Securityholder or comply with the TIA.
14. DEFAULTS AND REMEDIES
Under the Indenture, an Event of Default occurs if (i) the Company Defaults
in the payment of the Principal Amount, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price or Change in Control Price on any
Security when the same becomes due and payable at its Stated Maturity, upon
redemption, upon declaration, when due for purchase by the Company or otherwise;
(ii) the Company fails to deliver Common Stock or pay cash in lieu thereof when
such Common Stock is required to be delivered or paid, as the case may be,
following conversion of a Security in accordance with Article 10 of the
Indenture: (iii) the Company fails to comply with any of its agreements in the
Securities or the Indenture (other than those referred to in clause (i) or
clause (ii) above) and such failure continues for 60 days after receipt by the
Company of a Notice of Default; (iv) a Default shall occur under any bond,
debenture, note or other evidence of indebtedness for money borrowed by the
Company or any Consolidated Subsidiary in an aggregate principal amount
exceeding $7,500,000, whether such indebtedness now exists or shall hereafter be
created, which Default if not already matured at its final maturity in
accordance with its terms, shall have resulted in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable, without such indebtedness having been discharged,
such Default or acceleration having been rescinded or annulled or there having
been deposited in trust a sum of money sufficient to discharge in full such
indebtedness within a period of 30 days after receipt by the Company of a Notice
of Default; or (v) certain events of bankruptcy or insolvency occur. If an Event
of Default occurs and is continuing, the Trustee, or the Holders of at least 25%
in aggregate Principal Amount of the Securities at the time outstanding, may
declare all the Securities to be due and payable immediately. Certain events of
bankruptcy or insolvency are Events of Default which will result in the
Securities becoming due and payable immediately upon the occurrence of such
Events of Default.
Securityholders may not enforce any remedy under the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in aggregate
Principal Amount of the Securities at the time outstanding may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing Default (except a Default in payment of
amounts specified in clause (i) above or a Default in the delivery of shares of
Common Stock (or cash in lieu thereof) specified in clause (ii) above) if it
determines that withholding notice is in their interests.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
A-6
<PAGE> 54
16. NO RECOURSE AGAINST OTHERS
A director, officer, employee or shareholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Securities
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. AUTHENTICATION
This Security shall not be valid until an authorized officer of the Trustee
manually signs the Trustee's Certificate of Authentication on the other side of
this Security.
18. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= custodian) and U/G/M/A (= Uniform Gift to Minors
Act).
19. GOVERNING LAW
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND TO BE PERFORMED WITHIN THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS) AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES.
A-7
<PAGE> 55
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- ------------------------------------------------------
(Insert assignee's soc. sec. or tax ID no.)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
CONVERSION NOTICE
To convert this Security into Common Stock of the Company, check the box:
/ /
To convert only part of this Security, state the Principal Amount to be
converted (which must be $1,000 or an integral multiple of $1,000):
------------------------------------------------------
:$ :
------------------------------------------------------
If you want the stock certificate made out in another person's name, fill in the
form below:
------------------------------------------------------
: :
------------------------------------------------------
(Insert person's soc. sec. or tax ID no.)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(Print or type other person's name, address and zip code)
- --------------------------------------------------------------------------------
Date: Your Signature: *
------------------------------------ ------------------
- --------------------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Security)
- ---------------
* Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP, all
in accordance with the Securities Exchange Act of 1934, as amended.
SIGNATURE GUARANTEE
Signature Guaranteed by:
- --------------------------------------
By:
- --------------------------------------
A-8
<PAGE> 1
EXHIBIT #12
TERRA INDUSTRIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN 000'S)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income from continuing operations
before income taxes, extraordinary
items and cumulative effect of
accounting changes $32,145 $18,186 $13,106 ($14,938) ($ 4,953)
Add:
(a) Fixed charges per item (B) below 22,483 17,237 20,701 24,297 23,438
(b) Minority interest in the income of
over 50 percent owned subsidiaries
which themselves have fixed charges 0 0 0 0 0
(c) Amortization of previously
capitalized interest 0 0 0 0 0
(d) Dividends of unconsolidated
affiliates 537 0 0 0 0
Deduct:
(a) Interest capitalized during period 0 0 0 0 0
(b) Undistributed income from
unconsolidated affiliates (2,275) 0 0 0 0
----------- ---------- ---------- ---------- -----------
$52,890 $35,423 $33,807 $ 9,359 $18,485
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
(B) Fixed charges:
Interest on indebtedness, expense or
capitalized $12,944 $10,617 $14,352 $17,629 $17,643
Amortization of debt discount and
expense and premium on
indebtedness, expense or capitalized 250 47 40 40 40
Portion or rents representative of the
interest factor 9,289 6,573 6,309 6,628 5,755
Preferred dividend requirements of
consolidated subsidiaries not
eliminated in consolidation 0 0 0 0 0
----------- ---------- ---------- ---------- -----------
Fixed charges, for computation purposes $22,483 $17,237 $20,701 $24,297 $23,438
----------- ---------- ---------- ---------- -----------
Ratios of earnings to fixed charges 2.352% 2.055% 1.633% 0.385% 0.789%
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Terra Industries Inc. on Form S-3 of our reports dated February 1, 1994,
appearing in and incorporated by reference in the Annual Report on Form 10-K of
Terra Industries Inc. for the year ended December 31, 1993, and to the use of
our report dated February 1, 1994, appearing in the Prospectus, which is part
of this Registration Statement. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
Deloitte & Touche
Omaha, Nebraska
February 28, 1994
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated February 13, 1992 appearing on page S-3 of Terra Industries Inc. Annual
Report on Form 10-K for the year ended December 31, 1993. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
Price Waterhouse
New York, New York
March 1, 1994
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
CAROL L. BROOKINS
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Registration
Statement on Form S-3, and any amendments (including post-effective amendments)
or supplements thereto, relating to a public offering of Liquid Yield Option
Notes and Common Shares of the Company which may be issued upon the conversion
thereof to be issued and sold by the Company, and to file said Registration
Statement, and any amendment (including any post-effective amendment) or
supplement thereto, with the Securities and Exchange Commission in connection
with the registration of the Liquid Yield Option Notes and the Common Shares
under the Securities Act of 1933, as amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 28th day of February, 1994.
/s/ CAROL L. BROOKINS
___________________________________
CAROL L. BROOKINS
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
EDWARD M. CARSON
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign
my name as a director of Terra Industries Inc. (the "Company") to the
Registration Statement on Form S-3, and any amendments (including
post-effective amendments) or supplements thereto, relating to a public
offering of Liquid Yield Option Notes and Common Shares of the Company which
may be issued upon the conversion thereof to be issued and sold by the Company,
and to file said Registration Statement, and any amendment (including any
post-effective amendment) or supplement thereto, with the Securities and
Exchange Commission in connection with the registration of the Liquid Yield
Option Notes and the Common Shares under the Securities Act of 1933, as
amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 28th day of February, 1994.
/s/ EDWARD M. CARSON
-----------------------
EDWARD M. CARSON
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
DAVID E. FISHER
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign
my name as a director of Terra Industries Inc. (the "Company") to the
Registration Statement on Form S-3, and any amendments (including
post-effective amendments) or supplements thereto, relating to a public
offering of Liquid Yield Option Notes and Common Shares of the Company which
may be issued upon the conversion thereof to be issued and sold by the Company,
and to file said Registration Statement, and any amendment (including any
post-effective amendment) or supplement thereto, with the Securities and
Exchange Commission in connection with the registration of the Liquid Yield
Option Notes and the Common Shares under the Securities Act of 1933, as
amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 28th day of February, 1994.
/s/ DAVID E. FISHER
---------------------------------------------
DAVID E. FISHER
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
BASIL T.A. HONE
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Registration
Statement on Form S-3, and any amendments (including post-effective amendments)
or supplements thereto, relating to a public offering of Liquid Yield Option
Notes and Common Shares of the Company which may be issued upon the conversion
thereof to be issued and sold by the Company, and to file said Registration
Statement, and any amendment (including any post-effective amendment) or
supplement thereto, with the Securities and Exchange Commission in connection
with the registration of the Liquid Yield Option Notes and the Common Shares
under the Securities Act of 1933, as amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 26th day of February, 1994.
/s/ BASIL T.A. HONE
_______________________
BASIL T.A. HONE
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
BURTON M. JOYCE
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign
my name as a director of Terra Industries Inc. (the "Company") to the
Registration Statement on Form S-3, and any amendments (including
post-effective amendments) or supplements thereto, relating to a public
offering of Liquid Yield Option Notes and Common Shares of the Company which
may be issued upon the conversion thereof to be issued and sold by the Company,
and to file said Registration Statement, and any amendment (including any
post-effective amendment) or supplement thereto, with the Securities and
Exchange Commission in connection with the registration of the Liquid Yield
Option Notes and the Common Shares under the Securities Act of 1933, as
amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 28th day of February, 1994.
/s/ BURTON M. JOYCE
__________________________________________________
BURTON M. JOYCE
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
FRANCIS G. MEYER
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Registration
Statement on Form S-3, and any amendments (including post-effective amendments)
or supplements thereto, relating to a public offering of Liquid Yield Option
Notes and Common Shares of the Company which may be issued upon the conversion
thereof to be issued and sold by the Company, and to file said Registration
Statement, and any amendment (including any post-effective amendment) or
supplement thereto, with the Securities and Exchange Commission in connection
with the registration of the Liquid Yield Option Notes and the Common Shares
under the Securities Act of 1933, as amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 28th day of February, 1994.
/s/ FRANCIS G. MEYER
________________________________
FRANCIS G. MEYER
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
JOHN R. NORTON III
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Registration
Statement on Form S-3, and any amendments (including post-effective amendments)
or supplements thereto, relating to a public offering of Liquid Yield Option
Notes and Common Shares of the Company which may be issued upon the conversion
thereof to be issued and sold by the Company, and to file said Registration
Statement, and any amendment (including any post-effective amendment) or
supplement thereto, with the Securities and Exchange Commission in connection
with the registration of the Liquid Yield Option Notes and the Common Shares
under the Securities Act of 1933, as amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 28th day of February, 1994.
/s/ JOHN R. NORTON III
________________________________________________
JOHN R. NORTON III
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
REUBEN F. RICHARDS
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Registration
Statement on Form S-3, and any amendments (including post-effective amendments)
or supplements thereto, relating to a public offering of Liquid Yield Option
Notes and Common Shares of the Company which may be issued upon the conversion
thereof to be issued and sold by the Company, and to file said Registration
Statment, and any amendment (including any post-effective amendment) or
supplement thereto, with the Securities and Exchange Commission in connection
with the registration of the Liquid Yield Option Notes and the Common Shares
under the Securities Act of 1933, as amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 27th day of February, 1994.
/s/ REUBEN F. RICHARDS
_______________________________________________
REUBEN F. RICHARDS
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I,
HENRY R. SLACK
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Registration
Statement on Form S-3, and any amendments (including post-effective amendments)
or supplements thereto, relating to a public offering of Liquid Yield Option
Notes and Common Shares of the Company which may be issued upon the conversion
thereof to be issued and sold by the Company, and to file said Registration
Statement, and any amendment (including any post-effective amendment) or
supplement thereto, with the Securities and Exchange Commission in connection
with the registration of the Liquid Yield Option Notes and the Common Shares
under the Securities Act of 1933, as amended.
I hereby ratify and confirm all that said attorneys, or each of them,
or his substitute or substitutes, have done or shall lawfully do by virtue of
this Power of Attorney.
WITNESS my hand this 28th day of February, 1994.
/s/ HENRY R. SLACK
___________________________________________________
HENRY R. SLACK
<PAGE> 1
EXHIBIT 25
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION 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)
NATIONSBANK OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
901 MAIN STREET 75-2238693
DALLAS, TEXAS 75202 (I.R.S. employer
(Address, including zip code identification no.)
of principal executive offices)
NOT APPLICABLE NOT APPLICABLE
(Jurisdiction of incorporation (Name, address and
or organization if not a telephone number of
U.S. national bank) agent for service)
TERRA INDUSTRIES INC.
(Exact Name of obligor as specified in its charter)
MARYLAND 52-1145429
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
600 FOURTH STREET
SIOUX CITY, IA 51102-6000
(Address, including zip code, of principal executive offices)
Liquid Yield Option Notes Due 2009 (Zero Coupon -- Senior)
(Title of indenture securities)
<PAGE> 2
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.
NAME ADDRESS
---- -------
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank Dallas, Texas
Federal Deposit Insurance Corporation Washington, D.C.
National Bank Examiners Dallas, Texas
(b) Whether it is authorized to exercise corporate trust
powers. Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
such affiliation. None.
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
(a) Furnish the following information as to each class of
voting securities of the trustee.
AS OF
(within 31 days)
COL. A COL. B
-------------- ------------------
TITLE OF CLASS AMOUNT OUTSTANDING
-------------- ------------------
Not applicable
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture.
Not Applicable
2
<PAGE> 3
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310(b)(1) of the Act arises as a
result of the trusteeship under any such other
indentures, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indentures.
Not applicable.
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR
OR UNDERWRITERS.
If the trustee or any of the directors or executive officers of
the trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the
nature of each such connection.
Not applicable.
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS
OFFICIALS.
Furnish the following information as to the voting securities
of the trustee owned beneficially by the obligor and each director,
partner and executive officer of the obligor:
AS OF
(within 31 days)
COL. A COL. B COL. C COL. D
------------- -------------- ------------ ----------------------
PERCENTAGE OF VOTING
SECURITIES REPRESENTED
AMOUNT OWNED BY AMOUNT GIVEN
NAME OF OWNER TITLE OF CLASS BENEFICIALLY IN COL. C
------------- -------------- ------------ ----------------------
Not applicable.
3
<PAGE> 4
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE UNDERWRITERS OR THEIR
OFFICIALS.
Furnish the following information as to the voting securities
of the trustee owned beneficially by each underwriter for the obligor
and each director, partner, and executive officer of each such
underwriter.
AS OF
(within 31 days)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
------------- -------------- ------------ ----------------------
PERCENTAGE OF VOTING
SECURITIES REPRESENTED
AMOUNT OWNED BY AMOUNT GIVEN
NAME OF OWNER TITLE OF CLASS BENEFICIALLY IN COL. C
------------- -------------- ------------ ----------------------
<S> <C> <C> <C>
Not applicable.
</TABLE>
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Furnish the following information as to securities of the
obligor owned beneficially or held as collateral security for
obligations in default by the trustee:
AS OF
(within 31 days)
<TABLE>
<Caption
COL. A COL. B COL. C COL. D
- -------------- ------------------- -------------------------- ---------
WHETHER THE AMOUNT OWNED PERCENT OF CLASS
SECURITIES ARE BENEFICIALLY OR HELD REPRESENTED
VOTING OR NONVOTING AS COLLATERAL SECURITY BY AMOUNT GIVEN
TITLE OF CLASS SECURITIES FOR OBLIGATIONS IN DEFAULT IN COL. C
- -------------- ------------------- -------------------------- ---------
<S> <C> <C> <C>
Not applicable.
</TABLE>
4
<PAGE> 5
ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
If the trustee owns beneficially or holds as collateral security
for obligations in default any securities of an underwriter for the
obligor, furnish the following information as to each class of
securities of such underwriter, any of which are so owned or held by
the trustee:
AS OF
(within 31 days)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
------ ------ ------ ------
AMOUNT OWNED
BENEFICIALLY OR HELD PERCENT OF CLASS
AS COLLATERAL SECURITY REPRESENTED BY
NAME OF ISSUER AND FOR OBLIGATIONS IN AMOUNT GIVEN
TITLE OF CLASS AMOUNT OUTSTANDING DEFAULT BY TRUSTEE IN COL. C
-------------- ------------------ ------------------ ---------
<S> <C> <C> <C>
Not applicable.
</TABLE>
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF
CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
If the trustee owns beneficially or holds as collateral
security for obligations in default voting securities of a
person who, to the knowledge of the trustee (1) owns 10
percent or more of the voting securities of the obligor or (2)
is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities
of such person:
AS OF
(within 31 days)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
------ ------ ------ ------
AMOUNT OWNED
BENEFICIALLY OR HELD AS PERCENT OF CLASS
COLLATERAL SECURITY FOR REPRESENTED BY
NAME OF ISSUER AND OBLIGATIONS IN DEFAULT AMOUNT GIVEN
TITLE OF CLASS AMOUNT OUTSTANDING BY TRUSTEE IN COL. C
-------------- ------------------ ---------- ---------
<S> <C> <C> <C>
Not applicable.
</TABLE>
5
<PAGE> 6
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A
PERSON OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF
THE OBLIGOR.
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of a person
who, to the knowledge of the trustee, owns 50 percent or more
of the voting securities of the obligor, furnish the following
information as to each class of securities of such person, any
of which are so owned or held by the trustee:
AS OF
(within 31 days)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
------ ------ ------ ------
AMOUNT OWNED
BENEFICIALLY OR HELD AS PERCENT OF CLASS
COLLATERAL SECURITY FOR REPRESENTED BY
NAME OF ISSUER AND OBLIGATIONS IN DEFAULT AMOUNT GIVEN
TITLE OF CLASS AMOUNT OUTSTANDING BY TRUSTEE IN COL. C
-------------- ------------------ ---------- ---------
<S> <C> <C> <C> <C>
Not applicable.
</TABLE>
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Except as noted in the instructions, if the obligor is
indebted to the trustee, furnish the following information:
COL. A COL. B COL. C
------ ------ ------
NATURE OF INDEBTEDNESS AMOUNT OUTSTANDING DATE DUE
---------------------- ------------------ --------
Not applicable.
ITEM 13. DEFAULTS BY THE OBLIGOR.
(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
None.
6
<PAGE> 7
(b) If the trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the
indenture, state whether there has been a default
under any such indenture or series, identify the
indenture or series affected, and explain the nature
of any such default.
None
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not applicable.
ITEM 15. FOREIGN TRUSTEE.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not applicable.
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
is now in effect.*
2. A copy of the certificate of authority of the trustee
to commence business, if not contained in the
articles of association.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers, if such
authorization is not contained in the documents
specified in paragraph (1) or (2) above.*
4. A copy of the existing bylaws of the trustee, or
instruments corresponding thereto.*
7
<PAGE> 8
5. Not applicable.
6. The consents of United States institutional trustees
required by Section 321(b) of the Act.
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.
8. Not applicable.
9. Not applicable.
8
<PAGE> 9
In answering any item in this statement of eligibility and
qualification which relates to matters peculiarly within the knowledge of the
obligor or of its partners, directors or executive officers, the undersigned,
NationsBank of Texas, N.A., has relied upon information furnished to it by the
obligor and the undersigned disclaims responsibility for the accuracy or
completeness of such information.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, NationsBank of Texas, N.A., 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 Dallas, and State of Texas on the 1st day of March, 1994.
NATIONSBANK OF TEXAS N.A.
By: /s/ CARRIE L. SHERWOOD
Vice President
9
<PAGE> 10
EXHIBIT 1
A copy of the current effective Articles of Association and amendments
for NationsBank of Texas, National Association is attached as Exhibit 1 to
Statement of Eligibility and Qualification (Form T-1) Executed by NationsBank
of Dallas, N.A. and filed as part of a Registration Statement (Registration No.
33-47621) for the registration under the Securities Act of 1933, as amended, of
Life Partners Group, Inc. 12 3/4% Senior Subordinated Notes due 2002. Such
exhibit is hereby incorporated herein by reference.
EXHIBIT 2
A copy of the certificate of authority of the trustee to commence
business as a national bank issued by the Comptroller of the Currency under
date of July 29, 1988 is attached as Exhibit 2 to Statement of Eligibility and
Qualification (Form T-1) executed by NationsBank of Dallas, N.A. and filed as
part of a Registration Statement (Registration No. 33-47621) for the
registration under the Securities Act of 1933, as amended, of Life Partners
Group, Inc. 12 1/4% Senior Subordinated Notes due 2002. Such exhibit is hereby
incorporated herein by reference.
EXHIBIT 3
A copy of the authorization of the trustee to exercise corporate trust
powers issued by the Comptroller of the Currency is attached as Exhibit 3 to
Statement of Eligibility and Qualification (Form-T1) executed by NationsBank of
Dallas, N.A. and filed as part of Registration Statement (Registration No.
33-47621) for the registration under the Securities Act of 1993, as amended, of
Life Partners Group, Inc., 12 3/4% Senior Subordinated Notes due 2002, and is
hereby incorporated herein by reference.
EXHIBIT 4
A copy of the currently effective Bylaws of NationsBank of Texas,
National Association is attached as Exhibit 4 to Statement of Eligibility and
Qualification (Form-T1) executed by NationsBank of Dallas, N.A. and filed as
part of Registration Statement (Registration No. 33-47621) for the
registration under the Securities Act of 1933, as amended, of Life Partners
Group, Inc., 12 3/4% Senior Subordinated Notes due 2002, and is hereby
incorporated herein by reference.
<PAGE> 11
EXHIBIT 6
NationsBank of Texas, N.A., as a condition to qualification under the
Trust Indenture Act of 1939, consents that reports of examination by federal,
state, territorial, or district authorities may be furnished by such
authorities to the Securities and Exchange Commission of the United States upon
request of said Commission for said reports, as provided in Section 321 of said
Trust Indenture Act of 1939.
NATIONSBANK OF TEXAS N.A.
By: /s/ CARRIE L. SHERWOOD
Vice President
Date: March 1, 1994.
<PAGE> 12
EXHIBIT 7
Attached is a copy of the applicable portion of the latest report of
condition of the trustee published pursuant to law or the requirements
of its supervising or examining.
<PAGE> 13
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires February 28, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
1
[LOGO] Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
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<CAPTION>
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES -- FFIEC 031
<S> <C>
(930930)
Report at the close of busines September 30, 1993 --------
This report is required by law: 12 U.S.C. Section 324 (State This report form is to be filed by banks with branches and
member banks); 12 U.S.C. Section 1817 (State nonmember consolidated subsidiaries in U.S. territories and
banks); and 12 U.S.C. Section 161 (National banks). possessions, Edge or Agreement subsidiaries, foreign branches,
consolidated foreign subsidiaries, or International Banking
Facilities.
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NOTE: The Reports of Condition and Income must be signed The Reports of Condition and Income are to be prepared in
by an authorized officer and the Report of Condition must be accordance with Federal regulatory authority instructions.
attested to by not less than two directors (trustees) for State NOTE: These instructions may in some cases differ from
nonmember banks and three directors for State member and generally accepted accounting principles.
National banks.
I, Joe L. Price, Senior Vice President We, the undersigned directors (trustees), attest to the
--------------------------------------------------- correctness of this Report of Condition (including the
Name and Title of Officer Authorized to Sign Report supporting schedules) and declare that it has been
examined by us and to the best of our knowledge and belief
of the named bank do hereby declare that these Reports of has been prepared in conformance with the instructions
Condition and Income (including the supporting schedules) issued by the appropriate Federal regulatory authority and
have been prepared in conformance with the instructions is true and correct.
issued by the appropriate Federal regulatory authority and /s/
are true to the best of my knowledge and belief. -------------------------------------------------------
/s/ JOE L. PRICE, SVP Director (Trustee)
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Signature of Officer Authorized to Sign Report -------------------------------------------------------
October 25, 1993 Director (Trustee)
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Date of Signature -------------------------------------------------------
Director (Trustee)
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For Banks Submitting Hard Copy Report Forms:
STATE MEMBER BANKS: Return the original and one copy to the NATIONAL BANKS: Return the original only in the special return
appropriate Federal Reserve District Bank. address envelope provided. If express mail is used in lieu of
the special return address envelope, return the original only
STATE NONMEMBER BANKS: Return the orignal only in the to the FDIC, c/o Quality Data Systems, 2139 Espey Court,
special return address envelope provided. If express mail is used Crofton, MD 21114.
in lieu of the special return address envelope, return the
original only to the FDIC, c/o Quality Data Systems, 2139
Espey Court, Crofton, MD 21114.
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FDIC Certificate Number 27306 Cert No. 27306
NationsBank of Texas, National Assoc
One NationsBank Plaza, NC1-002-17-17
Charlotte, NC 28255
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
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<PAGE> 14
NATIONSBANK OF TEXAS, N.A. Call Date: 09/30/93 ST-BK: 48-2132 FFIEC 031
ONE NATIONSBANK PLAZA NC1-002-17-17 Page RC-2
CHARLOTTE, NC 28255 Vendor ID: D CERT: 27306
12
Transit Number: 11000055
Schedule RC - Continued
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<CAPTION>
Dollar Amounts in Thousands
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LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C RCON
from Schedule RC-E, Part I)______________________________ 2200 .............. 23,284,686 13.a
(1) Noninterest-bearing (1)______________________________ 6631 .... 4,713,609 ............ 13.a.1
(2) Interest-bearing ____________________________________ 6636 .... 18,571,077 ............ 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and RCFN
IBFs (from Schedule RC-E, part II)_______________________ 2200 ............... 946,182 13.b
(1) Noninterest-bearing__________________________________ 6631 .... 3,107 ............ 13.b.1
(2) Interest-bearing_____________________________________ 6636 .... 943,075 ............ 13.b.2
14. 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 IBFs: RCFD
a. Federal funds purchased__________________________________ 0278 ............... 8,323,947 14.a
b. Securites sold under agreements to repurchase_____________ 0279 ............... 1,534,967 14.b
15. Demand notes issued to the RCON
U.S. Treasury________________________________________________ 2840 ............... 2,000,270 15.
16. Other borrowed RCFD
money________________________________________________________ 2850 ............... 977,657 16.
17. Mortgage indebtedness and obligations under capitalized
leases_______________________________________________________ 2910 ............... 11,004 17.
18. Bank's liability on acceptances executed and outstanding_____ 2920 ............... 115,652 18.
19. Subordinated notes and debentures____________________________ 3200 ............... 301,434 19.
20. Other liabilities (from Schedule RC-G)_______________________ 2930 ............... 541,657 20.
21. Total liabilities (sum of items 13 through 20)_______________ 2948 ............... 38,037,456 21.
22. Limited-life preferred stock and related surplus_____________ 3282 ............... 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus________________ 3838 ............... 0 23.
24. Common stock_________________________________________________ 3230 ............... 500,000 24.
25. Surplus (exclude all surplus related to preferred stock)_____ 3839 ............... 803,992 25.
26. a. Undivided profits and capital reserves___________________ 3632 ............... 946,694 26.a
b. LESS: Net unrealized loss on marketable equity securites_ 0297 ............... 0 26.b
27. Cumulative foreign currency translation adjustments__________ 3284 ............... 0 27.
28. Total equity capital (sum of items 23 through 27)____________ 3210 ............... 2,250,686 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22, and 28)________________________ 3300 ............... 40,288,142 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the
statement below that best describes the most
comprehensive level of auditing work performed for the bank RCFD Number
by independent external auditors as of any date during 1992__ 6724 .... N/A ............ M.1
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1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance 8 = No external audit work
with generally accepted auditing standards by a certified
public accounting firm (may be required by state charter-
ing authority)
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____________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits
<PAGE> 15
NATIONSBANK OF TEXAS, N.A. CALL DATE: 09/30/93 ST-BK: 48-2132
ONE NATIONSBANK PLAZA NC1-002-17-17
CHARLOTTE, NC 28255 VENDOR ID: D CERT: 27306
Transit Number: 11000055
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND
STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1993
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
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<CAPTION>
C400
Dollar Amounts in Thousands
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ASSETS
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1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD
a. Noninterest-bearing balances and currency and coin (1) 0061 . . 1,837,213 1.a
b. Interest-bearing balances (2) 0071 . . 525,858 1.b
2. Securities (from Schedule RC-B) 0390 . . 8,019,898 2.
3. 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:
a. Federal funds sold 0276 . . 3,584,044 3.a
b. Securities purchased under agreements to resell 0277 . . 57,000 3.b
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income RCFD
(from Schedule RC-C) 2122 . . 24,225,262 . . . . . 4.a
b. LESS: Allowance for loan and lease losses 3123 . . 166,500 . . . . . 4.b
c. LESS: Allocated transfer risk reserve 3128 . . 440 . . . . . 4.c
d. Loans and leases, net of uneared income,
allowance, and reserve (item 4.a minus 4.b and 4.c) 2125 . . 24,058,322 4.d
5. Assets held in trading accounts 2146 . . 7,101 5.
6. Premises and fixed assets (including capitalized leases) 2145 . . 533,666 6.
7. Other real estate owned (from Schedule RC-M) 2150 . . 10,863 7.
8. Investments in unconsolidated subsidiaries and associated companies (from
Schedule RC-M) 2130 . . 3 8.
9. Customers' liability to this bank on acceptance outstanding 2155 . . 115,652 9.
10. Intangible assets (from Schedule RC-M) 2143 . . 288,914 10.
11. Other assets (from Schedule RC-F) 2160 . . 1,249,608 11.
12. Total assets (sum of items 1 through 11) 2170 . . 40,288,142 12.
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(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
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<PAGE> 16
NATIONSBANK OF TEXAS, N.A. CALL DATE: 09/30/93 ST-BK:48-2132 FFIEC 031
ONE NATIONSBANK PLAZA NC 1-002-17-17 PAGE RC-24
CHARLOTTE, NC 28255 VENDOR ID:D CERT:27306 34
Transit Number: 11000055
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
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OMS No. For OCC: 1557-0081
OMS No. For FDIC: 3064-0052
OMS No. For Federal Reserve: 7100-0036
Expiration Date: 02/28/95
Special Report
(Dollar Amounts in Thousands)
CLOSE OF BUSINESS DATE: FDIC Certificate Number:
September 30, 1993 27306 C700
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LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
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The following information is required by Public Laws 90-44 and 102-242, but
does not constitute a part of the Report of Condition. With each Report of
Condition, these Laws require all banks to furnish a report of all loans or
other extensions of credit to its executive officers made since the date of the
previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of
credit were made during the period, insert "none" against subitem(a). (Exclude
the first $ 5,000 of indebtedness of each executive officer under bank credit
card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal
Regulations (Federal Reserve Board Regulation 0) for the definitions of
"executive officer" and "extension of credit," respectively. Exclude loans and
other extensions of credit to directors and principal shareholders who are not
executive officers.
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RCFD
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a. Number of Loans made to executive officers since the previous Call Report date_3561. . NONE a.
b. Total dollar amount of above loans (in thousands of dollars)___________________3562. . 0 b.
c. Range of interest charged on above loans (example: 9-3/4% = 9.75)_________7701/7702. . 0.00% to 0.00% c.
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Joe L. Price, Senior Vice President
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SIGNATURE AND TITLE OF OFFICER DATE (Month, Day, Year)
AUTHORIZED TO SIGN REPORT
/s/ JOE L. PRICE, SVP October 25, 1993
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NAME AND TITLE OF PERSON TO WHOM AREA CODE/PHONE NUMBER (TEXT 8904)
INQUIRIES MAY BE DIRECTED (TEXT 8903) (704) 386-9424
PATRICK BRENNAN, ASSISTANT VICE PRESIDENT
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FDIC 8040/53 (12-92)
