<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 1995
REGISTRATION NO. 33-60853
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TERRA INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MARYLAND 2873 52-1145429
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION) 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:
CARTER W. EMERSON
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
(312) 861-2052
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
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- --------------------------------------------------------------------------------
<PAGE>
TERRA INDUSTRIES INC.
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-4)
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<C> <S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back Cover
Cover Pages of Prospectus.... Page
3. Risk Factors, Ratio of Summary; Risk Factors; The Company;
Earnings to Fixed Charges and Selected Financial Data; Exchange Offer;
Other Information............ Tax Considerations
4. Terms of the Transaction...... Outside Front Cover Page; Summary; Exchange
Offer; Description of Exchange Notes; Tax
Considerations
5. Pro-Forma Financial Summary--Summary Financial Data; Selected
Information.................. Financial Data
6. Material Contracts with the
Company Being Acquired....... Inapplicable
7. Additional Information
Required..................... Inapplicable
8. Interests of Named Experts and
Counsel...................... Legal Matters; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Inapplicable
10. Information with Respect to S- Incorporation of Certain Documents by
3 Registrants................ Reference
11. Incorporation of Certain Incorporation of Certain Documents by
Information by Reference..... Reference
12. Information with Respect to S-
3 or S-2 Registrants......... Inapplicable
13. Incorporation of Certain
Information by Reference..... Inapplicable
14. Information with Respect to
Registrants other than S-3 or
S-2 Registrants.............. Inapplicable
15. Information with Respect to S-
3 Companies.................. Inapplicable
16. Information with Respect to S-
3 or S-2 Companies........... Inapplicable
17. Information with Respect to
Companies Other Than S-3 or
S-2 Companies................ Inapplicable
18. Information if Proxies,
Consents or Authorizations
are to be Solicited.......... Inapplicable
19. Information if Proxies,
Consents or Authorizations
are not to be Solicited or in Incorporation of Certain Documents by
an Exchange Offer............ Reference
</TABLE>
<PAGE>
PROSPECTUS
TERRA INDUSTRIES INC.
OFFER TO EXCHANGE ITS 10 1/2% SENIOR NOTES DUE 2005, SERIES B,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING 10 1/2% SENIOR NOTES DUE 2005, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER
14, 1995, UNLESS EXTENDED.
---------------
Terra Industries Inc., a Maryland corporation (the "Company"), hereby offers
(the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 10 1/2%
Senior Notes due 2005, Series B (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which this Prospectus is a
part, for each $1,000 principal amount of its outstanding 10 1/2% Senior Notes
due 2005, Series A (the "Notes"), of which $200,000,000 principal amount is
outstanding. The form and terms of the Exchange Notes are the same as the form
and terms of the Notes (which they replace), except that as of the date hereof
the Exchange Notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not
contain certain provisions included in the terms of the Notes relating to an
increase in the interest rate in certain circumstances relating to the timing
of the Exchange Offer. The Exchange Notes will evidence the same debt as the
Notes (which they replace) and will be issued under and be entitled to the
benefits of the Indenture, dated as of June 22, 1995 (the "Indenture"),
between the Company and First Trust National Association, as Trustee (the
"Trustee"), which also governs the Notes. See "The Exchange Offer" and
"Description of Exchange Notes."
The Company will accept for exchange any and all Notes duly tendered and not
validly withdrawn prior to 5:00 p.m., New York City time, on September 14,
1995, unless extended by the Company in its sole discretion (the "Expiration
Date"). Tenders of Notes may be withdrawn at any time prior to 5:00 p.m. New
York City time on the Expiration Date. The Exchange Offer is subject to
certain customary conditions. The Notes were sold by the Company on June 22,
1995 to the Initial Purchasers (as defined) in transactions not registered
under the Securities Act in reliance upon an exemption from registration under
the Securities Act (the "Offering"). The Initial Purchasers subsequently
resold the Notes to qualified institutional buyers in reliance upon Rule 144A
under the Securities Act and to a limited number of institutional accredited
investors that agreed to comply with certain transfer restrictions and other
conditions. Accordingly, the Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Registration Rights
Agreement (as defined) entered into by the Company in connection with the
offering of the Notes. See "Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "Exchange Offer"
and "--Resale of the Exchange Notes." Each broker-dealer (a "Participating
Broker-Dealer") that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any
such resale and Participating Broker-Dealers shall be authorized to deliver
this Prospectus for a period not exceeding 180 days after the Expiration Date.
See "Plan of Distribution."
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. Holders of
Notes not tendered in the Exchange Offer will not retain any rights under the
Registration Rights Agreement, except in limited circumstances. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"Exchange Offer."
There has not previously been any public market for the Exchange Notes. The
Company does not intend to list the Exchange Notes on any securities exchange
or to seek approval for quotation through any automated quotation system.
There can be no assurance that an active market for the Exchange Notes will
develop. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citicorp
Securities, Inc. (the "Initial Purchasers") have informed the Company that
they currently intend to make a market in the Exchange Notes, but are not
obligated to do so and any such market making may be discontinued at any time
without notice. The Initial Purchasers may act as principal or as agent in
such transactions. If a market for the Exchange Notes should develop, the
Exchange Notes could trade at a discount from their principal amount. See
"Risk Factors--Absence of Public Market ." Moreover, to the extent that Notes
are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Notes could be adversely affected.
---------------
SEE "RISK FACTORS" ON PAGE 14 HEREIN FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 11, 1995
<PAGE>
[MAP OF PRINCIPAL FACILITIES APPEARS HERE]
This map contains the principal facilities associated with the nitrogen products
and methanol business segments of the Company as of March 1995 and does not
contain farm service centers or affiliated dealer locations associated with the
distribution of the Company. The Company's distribution segment serves the
United States and eastern region of Canada and, as of March 1995, includes
approximately 370 farm service centers and 780 affiliated dealer locations.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and consolidated financial
statements (and notes thereto) included and incorporated by reference elsewhere
in this Prospectus. Except as otherwise indicated, all financial information is
presented on the basis of generally accepted accounting principles. Unless
otherwise referred to herein or the context otherwise requires, references to
the "Company" or "Terra" shall mean Terra Industries Inc., including, where the
context so requires, its direct and indirect subsidiaries. Terms defined in
this Summary shall have the same meanings when used elsewhere in this
Prospectus. Prospective investors are urged to read this Prospectus in its
entirety. See "Risk Factors" for a discussion of certain factors that should be
considered carefully by holders who tender their Notes in the Exchange Offer.
THE COMPANY
The Company is a leader in each of its three business segments: (i) the
distribution of crop production inputs and services, (ii) the manufacture of
nitrogen products and (iii) the manufacture of methanol. 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. The Company is also the third largest producer of anhydrous ammonia and
one of the two largest producers of nitrogen solutions in the United States and
Canada. In addition, the Company is one of the largest U.S. manufacturers and
marketers of methanol. In October 1994, the Company acquired Agricultural
Minerals and Chemicals Inc. ("AMCI"), a manufacturer and marketer of both
nitrogen products and methanol. In 1994, on a pro forma basis including AMCI's
operations for the full year, the Company generated revenues and operating
income of $2.1 billion and $266.2 million, respectively.
The Company's distribution network for fertilizer, crop protection products
and seed has grown over the last several years to include, as of March 31,
1995, approximately 370 farm service centers, 100 fertilizer storage facilities
and 780 affiliated dealer locations serving the United States and the eastern
region of Canada. This growth generally has been the result of a healthy farm
economy, acquisitions, additional facilities and aggressive marketing. The
Company's distribution network is supplied by both independent sources and the
Company's own production facilities, which presently include one crop
protection chemical dry flowable and liquid formulation plant and seven other
liquid chemical formulation facilities in addition to its nitrogen production
facilities. In 1994, on a pro forma basis including AMCI's operations for the
full year, distribution revenues constituted approximately 63% of the Company's
total revenues.
Nitrogen fertilizer is a basic crop nutrient which is applied seasonally by
farmers to improve crop yield and quality. Nitrogen fertilizer is produced by
combining gaseous nitrogen with hydrogen to form anhydrous ammonia, the
simplest form of nitrogen fertilizer, which can be further processed or
upgraded into other fertilizer products such as urea and nitrogen solutions.
The Company presently owns five nitrogen fertilizer facilities with total
annual gross production capacity of 2.7 million tons of ammonia. In 1994,
approximately 10% of the Company's fertilizer production tonnage was sold
through its farm service center locations to retail customers, while the rest
was sold to outside customers. The Company believes that it is among the lowest
cost providers of nitrogen fertilizer in the markets it serves, benefiting from
favorable transportation logistics and other operating synergies, in part as a
result of the AMCI acquisition which provided the Company with two fertilizer
plants and 1.4 million tons of annual gross production capacity of ammonia. The
Company suffered a major explosion in December 1994 at one of its nitrogen
fertilizer facilities, for which it was insured. The Company expects the
facility, representing approximately 15% of its annual ammonia production
capacity, to be fully operational in mid-1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Operating Results." In 1994, on a pro forma basis including AMCI's operations
for the full year, nitrogen products revenues (including intercompany sales)
constituted approximately 25% of the Company's total revenues.
Methanol is used primarily as a feedstock in the production of other chemical
products such as formaldehyde, acetic acid, adhesives and plastics. Methanol is
also used as a feedstock in the production of
3
<PAGE>
methyl tertiary butyl ether ("MTBE"), an oxygenate and octane enhancer used as
an additive in reformulated gasoline to provide cleaner burning fuels. The
Company's methanol production capacity is currently approximately 320 million
gallons per year, representing approximately 15% of the total United States
rated capacity. The Company's methanol facility in Beaumont, Texas (the
"Beaumont Facility") is the largest such facility in the U.S. In 1994, on a pro
forma basis including AMCI's operations for the full year, methanol revenues
constituted approximately 12% of the Company's total revenues.
The Company's long-term strategy for growth is to: (i) acquire and upgrade
production and distribution facilities, (ii) increase distribution volumes by
expanding sales from Company-operated locations and its affiliated dealer
network, (iii) change its product mix to include more profitable value-added
products and (iv) continue to build customer loyalty by providing value-added
services. As part of this strategy, in April 1993, the Company acquired a
fertilizer manufacturing facility and 32 farm service centers in Canada; in
December 1993, the Company acquired 12 farm service centers in Florida; in
September 1994, the Company acquired a minority interest in a 100 location
distributor of crop input and protection products in the mid-Atlantic region;
and in October 1994, the Company acquired AMCI.
Terra's common shares are traded on the NYSE and the Toronto Stock Exchange
under the symbol "TRA." As of March 31, 1995, Minorco, an international natural
resources company with operations in gold, base metals, industrial minerals,
paper and packaging and agribusiness ("Minorco"), owned approximately 53% of
Terra's outstanding common shares. Six of the Company's ten directors are also
officers and/or directors of Minorco or its affiliates.
RECENT DEVELOPMENTS
On March 27, 1995, the Company offered to acquire by merger all of the
outstanding Senior Preference Units ("Senior Preference Units" or "SPUs") of
Terra Nitrogen Company, L.P., a subsidiary of the Company ("TNCLP"), for $30.00
per SPU (less the amount of any distributions declared per SPU in excess of
$0.66 per SPU for the quarter ended March 31, 1995). The SPUs, which represent
preferred limited partner interests in TNCLP, are publicly held and traded on
the NYSE under the symbol "TNH." See "Company Structure" and "Description of
Other Indebtedness--TNCLP Senior Preference Units." The Company and an
independent committee of the Board of Directors of Terra Nitrogen Corporation
("TNC") designated to represent the holders of the SPUs were unable to reach an
agreement on price and, on May 11, 1995, the Company withdrew its offer.
On May 11, 1995, the Board of Directors of the Company approved an open
market purchase program pursuant to which the Company may purchase up to five
million SPUs from time to time at prices and in quantities determined by the
Company's management. As of July 31, 1995, the Company had purchased 125,000
SPUs for an aggregate purchase price of $3.6 million. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Open Market Purchase Program for TNCLP SPUs."
The Company reported net income of $85.1 million and revenues of $1.0 billion
for the quarter ended June 30, 1995, a 45% and 5% increase, respectively, over
net income of $58.9 million and revenues of $954.2 million for the comparable
quarter in 1994 on a pro forma basis including AMCI (which was acquired by the
Company in October 1994). Pro forma results reflect the Company's acquisition
of AMCI as though the acquisition had occurred as of January 1, 1994. See
"Selected Financial Data." For the six-month period ended June 30, 1995, net
income was $118.0 million, a 106% increase over net income on a pro forma basis
of $57.2 million for the comparable period in 1994.
4
<PAGE>
Total revenues and operating income by business segment and income from
operations before income taxes for the quarters ended June 30, 1994 and 1995
and for the six-month periods ended June 30, 1994 and 1995 are set forth below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ----------------------------------
1994 1995 1994 1995
------------------ ---------- ---------------------- ----------
PRO
ACTUAL FORMA* ACTUAL PRO FORMA*
-------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Distribution.......... $743,160 $743,160 $ 775,093 $ 949,638 $ 949,638 $1,013,547
Nitrogen Products..... 80,716 174,225 192,478 134,872 288,895 339,666
Methanol.............. 2,594 45,118 47,743 2,594 81,214 113,617
Other--net............ (8,218) (8,301) (11,645) (9,348) (9,457) (19,821)
-------- -------- ---------- ---------- ---------- ----------
$818,252 $954,202 $1,003,669 $1,077,756 $1,310,290 $1,447,009
======== ======== ========== ========== ========== ==========
Operating income:
Distribution.......... $ 63,087 $ 63,087 $ 71,024 $ 50,188 $ 50,188 $ 56,389
Nitrogen Products..... 16,773 40,590 90,378 23,761 61,341 147,762
Methanol.............. 1,044 17,554 13,924 1,044 26,165 53,532
Other expense--net.... (2,243) (2,317) (2,766) (4,118) (4,233) (3,306)
-------- -------- ---------- ---------- ---------- ----------
78,661 118,914 172,560 70,875 133,461 254,377
Interest expense--
net.................. (1,779) (12,321) (13,039) (3,858) (25,021) (24,380)
Minority interest..... -- (9,800) (11,616) -- (15,526) (28,209)
-------- -------- ---------- ---------- ---------- ----------
Income from
operations before
income taxes....... $ 76,882 $ 96,793 $ 147,905 $ 67,017 $ 92,914 $ 201,788
======== ======== ========== ========== ========== ==========
</TABLE>
- --------
*Includes adjustments to give effect to the acquisition of AMCI as of January
1, 1994, including amortization of goodwill, adjustment of depreciation
expense for acquired plant and equipment, adjustment of interest expense for
acquisition borrowing and interest income for cash used in the acquisition
and adjustment of income taxes.
The increase in 1995 results over 1994 results is attributable to
significantly higher nitrogen fertilizer prices, stronger methanol prices in
the first quarter and lower natural gas costs offset by the effects of reduced
planted acres of corn and very wet weather which caused substantial planting
delays. Methanol prices appear to have stabilized and are not expected to
exhibit the extreme fluctuations experienced in the last nine months. Results
for 1995 include the operations of AMCI and do not include any revenues from
the Company's nitrogen fertilizer facility located in Iowa which was the site
of a major explosion in December 1994. Income which would have been generated
by that plant, however, is covered by business interruption insurance and is
included in nitrogen products operating income.
The Company's business is seasonal and is affected by weather and other
factors. Results for the quarter and six-month period ended June 30, 1995 may
not be indicative of results for future periods or the full year. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SOURCES AND USES OF FUNDS
The Company will not receive any cash proceeds from the Exchange Offer. The
Company has announced that on September 1, 1995 it will apply the net proceeds
from the Offering less the amount used to purchase SPUs pursuant to the
Company's open market purchase program to reduce term loans under the Credit
Agreement (as defined in "Description of Other Indebtedness--Credit
Agreement"). See "Use of Proceeds."
5
<PAGE>
COMPANY STRUCTURE
The following chart represents the organization of the Company and certain of
its subsidiaries as of the date hereof. Terra Capital Holdings, Inc. ("Terra
Holdings") and Terra Capital, Inc. ("Terra Capital") are wholly owned
subsidiaries of the Company formed in connection with the acquisition of AMCI
and the financing thereof. Terra International, Inc. ("Terra International")
owns three of the Company's five nitrogen fertilizer plants and also conducts
the distribution segment of the Company's business. Terra International
(Canada) Inc. ("Terra Canada"), a wholly owned subsidiary of Terra
International, conducts the Company's Canadian operations. TNC owns a general
partner interest and limited partner interests consisting of all the
outstanding Junior Preference Units and Common Units (as defined in TNCLP's
limited partnership agreement) of TNCLP, for a total 60.2% equity interest in
TNCLP. The other 39.8% limited partner interest in TNCLP is represented by the
Senior Preference Units. See "Description of Other Indebtedness--TNCLP Senior
Preference Units." All of the operating assets of TNCLP, which include two of
the Company's five nitrogen fertilizer plants, are owned by Terra Nitrogen,
Limited Partnership ("TNLP"), in which TNC holds a 1% general partner interest
and TNCLP holds a 99% limited partner interest. The methanol business of the
Company is conducted principally through Beaumont Methanol, Limited Partnership
("BMLP"). BMC Holdings, Inc. ("BMCH") is the sole limited partner of BMLP and
holds a 99% limited partner interest in BMLP and Terra Methanol Corporation
("TMC") is the general partner of BMLP and holds a 1% general partner interest
in BMLP. The Company acquired the operations of BMLP together with TNC in the
AMCI acquisition. Terra Capital owns 100% of the capital stock of Terra
International, TNC, BMCH and TMC.
[COMPANY STRUCTURE CHART]
6
<PAGE>
THE OFFERING
Notes..................... The Notes were sold by the Company on June 22,
1995 to Merrill Lynch, Pierce, Fenner & Smith
Incorporated and to Citicorp Securities, Inc.
(the "Initial Purchasers") pursuant to a
Purchase Agreement, dated as of June 15, 1995
(the "Purchase Agreement"). The Initial
Purchasers subsequently resold the Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and to a limited
number of institutional accredited investors
that agreed to comply with certain transfer
restrictions and other conditions.
Registration Rights Pursuant to the Purchase Agreement, the Company
Agreement................ and the Initial Purchasers entered into a
Registration Rights Agreement, dated as of June
22, 1995 (the "Registration Rights Agreement"),
which grants the holders of the Notes certain
exchange and registration rights. The Exchange
Offer is being made pursuant to the
Registration Rights Agreement and such exchange
rights terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
Securities Offered........ $200,000,000 aggregate principal amount of 10
1/2% Senior Notes due 2005, Series B.
The Exchange Offer........ $1,000 principal amount of the Exchange Notes
in exchange for each $1,000 principal amount of
Notes. As of the date hereof, $200,000,000
aggregate principal amount of Notes are
outstanding. The Company will issue the
Exchange Notes on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired
in the ordinary course of such holder's
business and that such holder has no
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes and that such holder is not
engaging in or intending to engage in the
distribution of such Exchange Notes.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with
any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an
7
<PAGE>
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Notes where such Notes
were acquired by such Participating Broker-
Dealer as a result of market-making activities
or other trading activities. The Company has
agreed that it will make this Prospectus
available to any Participating Broker-Dealer
for use in connection with any such resale and
Participating Broker-Dealers shall be
authorized to deliver this Prospectus for a
period not exceeding 180 days after the
Expiration Date. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes cannot rely on the position
of the staff of the Commission enunciated in
no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
the holder is not indemnified by the Company.
Expiration Date...........
5:00 p.m., New York City time, on September 14,
1995, unless the Exchange Offer is extended by
the Company in its sole discretion, in which
case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Accrued Interest on the
Exchange Notes and
Notes....................
Interest on each Exchange Note will accrue from
the last date on which interest was paid on the
Notes surrendered in exchange therefor or, if
no interest has been paid on the Notes, from
the date of original issuance of such Note. No
interest will be paid on the Notes accepted for
exchange, and holders of Notes whose Notes are
accepted for exchange will be deemed to have
waived the right to receive any payment in
respect of interest on the Notes accrued up to
the date of the issuance of the Exchange Notes.
Holders of Notes that are not exchanged will
receive the accrued interest payable on
December 15, 1995 in accordance with the
Indenture. See "Exchange Offer--Interest on the
Exchange Notes."
Conditions to the The Exchange Offer is subject to certain
Exchange Offer........... customary conditions, which may be waived by
the Company. See "Exchange Offer--Conditions."
Procedures for Tendering Each holder of Notes wishing to accept the
Notes.................... Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Notes to be exchanged and any other
required documentation to the Exchange Agent
(as defined) at the address set forth herein or
effect a tender of such Notes pursuant to the
procedures for book-entry transfer as provided
herein. By executing the Letter of Transmittal,
each holder
8
<PAGE>
will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person is engaging in
or intends to engage in the distribution of the
Exchange Notes and that neither the holder nor
any such other person has any arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes and
that neither the holder nor any such other
person is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company. See
"Exchange Offer--Purpose and Effect of the
Exchange Offer" and "--Procedures for
Tendering." Each broker-dealer that receives
Exchange Notes for its own account in exchange
for Notes, where such Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange
Notes. See "Exchange Offer--Procedures for
Tendering" and "Plan of Distribution."
Untendered Notes.......... Following the consummation of the Exchange
Offer, holders of Notes eligible to participate
but who do not tender their Notes will not have
any further registration rights and such Notes
will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be
adversely affected.
Consequences of Failure
to Exchange..............
The Notes that are not exchanged pursuant to
the Exchange Offer will remain outstanding and
continue to accrue interest and will also
remain restricted securities. Accordingly, such
Notes may be resold only (i) to the Company,
(ii) pursuant to Rule 144A or Rule 144 under
the Securities Act or pursuant to some other
exemption from registration under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the
requirements of Regulation S under the
Securities Act, or (iv) pursuant to an
effective registration statement under the
Securities Act. See "Exchange Offer--
Consequences of Failure to Exchange."
Shelf Registration In the event that any changes in law or the
Statement................ applicable interpretations of the staff of the
Commission do not permit the Company to effect
the Exchange Offer, if for any other reason the
Exchange Offer is not consummated within 120
days after the original issuance of the Notes,
upon the request of the Initial Purchasers
under certain circumstances or if a holder of
Notes is not permitted to participate in the
Exchange Offer or would not receive fully
tradable Exchange Notes if it were to
participate in the Exchange Offer, subject to
certain conditions, the Company will use its
best efforts to cause to become effective by
the 120th day after the original issue of the
Notes a shelf registration statement with
respect to the resale of the Notes (the "Shelf
Registration Statement") and to keep the Shelf
Registration Statement effective for up to
three years after the date of the original
issue of the Notes. See "Exchange Offer--
Purpose and Effect of the Exchange Offer."
9
<PAGE>
Special Procedures for
Beneficial Owners........
Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee and who
wishes to tender should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Notes,
either make appropriate arrangements to
register ownership of the Notes in such owner's
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable
time.
Guaranteed Delivery Holders of Notes who wish to tender their Notes
Procedures............... and whose Notes are not immediately available
or who cannot deliver their Notes, the Letter
of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for book-
entry transfer) prior to the Expiration Date
must tender their Notes according to the
guaranteed delivery procedures set forth in
"Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Notes and
Delivery of Exchange
Notes.................... The Company will accept for exchange any and
all Notes which are duly tendered in the
Exchange Offer and not validly withdrawn prior
to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "Exchange Offer--Terms of the
Exchange Offer."
Certain Tax Consequences.. The exchange pursuant to the Exchange Offer
should not be a taxable event for Federal
income tax purposes. See "Tax Considerations."
Use of Proceeds........... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer. See "Use of Proceeds."
Exchange Agent............ First Trust National Association.
THE EXCHANGE NOTES
General................... The form and terms of the Exchange Notes are
the same as the form and terms of the Notes
(which they replace) except that (i) the
Exchange Notes have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii)
the Exchange Notes do not include provisions
providing for an increase in the interest rate
in certain circumstances relating to the timing
of the Exchange Offer and (iii) the holders of
Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement,
which rights will terminate when the Exchange
Offer is consummated. The Exchange Notes will
evidence the same debt as the Notes and will be
entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
10
<PAGE>
Securities Offered........ $200,000,000 principal amount of 10 1/2% Senior
Notes due 2005, Series B.
Maturity Date............. June 15, 2005.
Interest Payment Dates.... June 15 and December 15 of each year,
commencing December 15, 1995.
Optional Redemption....... The Exchange Notes will be redeemable at the
option of the Company, in whole or in part, on
or after June 15, 2000, at the redemption
prices set forth herein, together with accrued
and unpaid interest, if any, to the date of
repurchase.
Change of Control.........
Upon the occurrence of a Change of Control (as
defined below), each holder of the Exchange
Notes may require the Company to repurchase all
or a portion of such holder's Exchange Notes at
a cash purchase price equal to 101% of the
principal amount thereof, together with accrued
and unpaid interest, if any, to the date of
repurchase. In such circumstances, there is no
assurance that the Company will have, or be
able to obtain, the necessary funds to
repurchase any Exchange Notes required to be
repurchased or sufficient funds to fulfill
other obligations arising from such Change of
Control. See "Description of Exchange Notes--
Covenants--Repurchase of Notes Upon Change in
Control." See also "Ranking" below and
"Description of Other Indebtedness."
Ranking...................
The Exchange Notes will be senior unsecured
obligations of the Company and will rank pari
passu in right of payment with all senior
indebtedness of the Company and senior in right
of payment to all subordinated indebtedness of
the Company. In addition, the business
operations of the Company are conducted
substantially through its subsidiaries and,
accordingly, the Exchange Notes will be
effectively subordinated to all existing and
future obligations of such subsidiaries. As of
March 31, 1995, on a pro forma basis after
giving effect to the Offering and the Exchange
Offer and the application of the net proceeds
from the Offering to repay bank indebtedness of
the Company's subsidiaries, the Company would
have had $158.8 million in aggregate principal
amount of indebtedness outstanding which ranked
pari passu in right of payment with the
Exchange Notes and no indebtedness outstanding
which ranked subordinate in right of payment to
the Exchange Notes and the aggregate principal
amount of indebtedness of the Company's
subsidiaries would have been approximately
$236.1 million (excluding intercompany
indebtedness), approximately $192.9 million of
which was secured. As of March 31, 1995, the
Company's subsidiaries also had trade payables
of approximately $301.0 million. The Company's
businesses are seasonal and historically the
borrowings and other liabilities of the Company
and its subsidiaries are greatest in the late
spring and fall. Amounts payable to holders of
SPUs also will be effectively senior to the
Exchange Notes. As of the date hereof, the
Company has no outstanding indebtedness that
will rank senior to the Exchange Notes;
however, the rights of the holders of Exchange
Notes to receive the Change of Control Payment
(as defined) for the Exchange Notes or any
other amount due on the Exchange Notes is
effectively subordinated to the holders of
indebtedness of the Company's subsidiaries,
which, as of March 31, 1995, included the
11
<PAGE>
amounts set forth above. See "Description of
Other Indebtedness." See also "Risk Factors--
Holding Company Structure" and "--Leverage."
Restrictive Covenants..... The Indenture contains certain covenants,
including, but not limited to, covenants with
respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on
transactions with affiliates; (iv) limitation
on liens; (v) limitation on sale-leaseback
transactions; (vi) limitation on asset sales;
(vii) limitation on the issuance of capital
stock of subsidiaries; (viii) limitation on
dividend and other payment restrictions
affecting subsidiaries; and (ix) restriction on
consolidation, merger and sale of assets.
Absence of a Public
Market for the Notes.....
The Exchange Notes will be new securities for
which there currently is no market. Although
Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Citicorp Securities, Inc. have
informed the Company that they currently intend
to make a market in the Exchange Notes, they
are not obligated to do so, and any such market
making may be discontinued at any time without
notice. Accordingly, there can be no assurance
as to the development or liquidity of any
market for the Exchange Notes. The Company does
not intend to apply for listing of the Exchange
Notes on any securities exchange or for
quotation through the National Association of
Securities Dealers Automated Quotation System.
RISK FACTORS
Before purchasing the Notes offered hereby, potential investors should
consider the factors described in "Risk Factors."
SUMMARY FINANCIAL DATA
The following table presents: (i) summary consolidated historical financial
data for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 derived
from the Company's audited consolidated financial statements, (ii) summary
consolidated historical financial data for the three months ended March 31,
1994 and 1995 derived from the Company's unaudited consolidated financial
statements for such period, and (iii) unaudited pro forma consolidated data for
each of the periods indicated. The historical data includes the Company's
Canadian acquisition effective as of March 31, 1993, the Company's Florida
acquisition since January 1, 1994 and AMCI from October 20, 1994. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General." The pro forma data for 1994 and the three months ended
March 31, 1994 was prepared to illustrate and give effect to the acquisition of
AMCI and related transactions, including (i) the issuance of 9.7 million common
shares of the Company for aggregate net proceeds of $113.7 million, (ii) the
assumption of the 10 3/4% Senior Notes due 2003 (the "10 3/4% Notes") of AMCI,
and (iii) the incurrence of $310.0 million of debt under the Credit Agreement,
as if such transactions had occurred as of January 1, 1994. In addition, the
unaudited pro forma interest expense and related ratios presented under the
caption "Other Data and Selected Ratios" give effect to the Offering and the
application of the net proceeds therefrom as of January 1, 1994. The unaudited
pro forma financial data are presented for informational purposes only and are
not necessarily indicative of the results that actually would have occurred had
the transactions been consummated on the dates indicated or the results that
may occur or be obtained in the future. In addition, quarterly results may not
be indicative of results for the full year. The following information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Selected Financial Data" and the
consolidated financial statements of the Company and related notes thereto
included elsewhere and incorporated by reference herein.
12
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------- --------------------------------
PRO FORMA PRO FORMA
FOR AMCI FOR AMCI
ACQUISITION ACQUISITION
1990 1991 1992 1993 1994 1994 1994 1994 1995
-------- ---------- ---------- ---------- ---------- ----------- -------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Total revenues...... $962,202 $1,022,597 $1,082,191 $1,238,001 $1,665,947 $2,084,827 $259,504 $356,088 $ 443,340
Cost of sales....... 806,772 849,684 904,246 1,021,187 1,330,202 1,543,212 221,974 280,444 291,772
Depreciation and
amortization....... 14,997 14,399 14,994 15,470 27,218 60,567 4,456 15,006 15,559
Selling, general and
administrative
expenses........... 138,315 132,845 137,232 161,791 193,975 215,624 40,306 45,537 52,995
Operating income.... 2,118 25,669 25,719 41,828 115,295 266,167 (7,786) 14,547 81,817
Net interest
expense............ (17,056) (12,563) (7,533) (9,683) (16,541) (49,367) (2,079) (12,700) (11,341)
Income (loss) from
continuing
operations before
income taxes....... (14,938) 13,106 18,186 32,145 89,945 181,884 (9,865) (3,879) 53,883
Income tax
(provision)
benefit............ 816 (1,073) (7,757) (9,300) (33,700) (71,517) 3,580 1,410 (20,930)
Income (loss) from
continuing
operations......... $(14,122) $ 12,033 $ 10,429 $ 22,845 $ 56,245 $ 110,367 $ (6,285) $ (2,469) $ 32,953
Per Common Share:
Income (loss) from
continuing
operations........ $ (0.21) $ 0.18 $ 0.15 $ 0.33 $ 0.77 $ 1.37 $ (0.09) $ (0.03) $ 0.41
Dividends.......... $ 0.12 -- -- $ 0.02 $ 0.08 $ 0.08 $ 0.02 $ 0.02 $ 0.02
SUMMARY OPERATING
DATA:
Net fertilizer production
(thousands of tons)
Ammonia............ 393.6 399.3 404.2 686.1 780.6 1,217.1 205.4 323.4 262.0
Urea............... 145.3 138.7 126.7 222.6 297.9 623.4 55.3 171.0 154.1
UAN................ 765.1 810.0 759.8 987.3 1,295.2 2,757.3 243.6 760.9 662.5
Methanol production
(millions of
gallons)........... -- -- -- -- 81.2 310.3 -- 69.2 64.9
Revenues by business
segment (1)
Distribution....... $841,742 $ 899,250 $ 958,725 $1,019,438 $1,318,416 $1,318,416 $206,478 $206,478 $ 238,454
Nitrogen Products.. 120,751 126,664 125,659 228,910 296,557 539,152 54,156 114,670 147,188
Methanol........... -- -- -- -- 70,274 246,404 -- 36,096 65,874
OTHER DATA AND
SELECTED RATIOS:
Capital
expenditures....... $ 10,689 $ 12,728 $ 17,620 $ 21,620 $ 31,213 $ 40,509 $ 10,463 $ 11,443 $ 14,007
EBITDA (2).......... 17,115 40,068 40,713 55,023 141,770 325,991 (2,776) 30,107 98,573
EBITDA less SPU
distributions...... 17,115 40,068 40,713 55,023 136,730 305,831 (2,776) 25,067 93,533
Pro forma net
interest expense
(3)................ -- -- -- -- -- 55,753 -- 14,296 12,487
EBITDA/Net interest
expense............ 1.00x 3.19x 5.40x 5.68x 8.57x 6.60x -- 2.37x 8.69x
EBITDA/Pro forma net
interest expense
(3)................ -- -- -- -- -- 5.85 -- 2.11 7.89
EBITDA less SPU
distributions/Pro
forma net interest
expense (3)........ -- -- -- -- -- 5.49 -- 1.75 7.49
Long-term
debt/EBITDA (4).... 10.77 2.87 3.28 2.21 3.94 1.71 -- -- --
Long-term
debt/EBITDA less
SPU distributions
(4)................ 10.77 2.87 3.28 2.21 4.08 1.83 -- -- --
Ratio of earnings to
fixed charges (5).. -- 1.63 2.06 2.35 3.45 3.47 -- -- 4.06
BALANCE SHEET DATA (AT END OF PERIOD):
Net working capital....................................................................................... $ 315,963
Net property, plant and equipment......................................................................... 569,348
Total assets.............................................................................................. 1,964,427
Minority interest......................................................................................... 182,183
Long-term debt (including current maturities)............................................................. 560,522
Total stockholders' equity................................................................................ 450,088
</TABLE>
- -------
(1) Includes intercompany sales and excludes revenues not included in any of
the three business segments.
(2) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents income (loss) from continuing operations before income taxes,
plus minority interest, plus net interest expense, less equity in earnings,
or plus equity in losses, of unconsolidated affiliates, plus depreciation
and amortization. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flow as a measure of liquidity, but rather to provide additional
information related to the Company's ability to service debt.
(3) Pro forma net interest expense is calculated assuming the net proceeds of
the Offering of the Notes were applied to repay term loans under the Credit
Agreement as of January 1, 1994. To the extent such net proceeds are
applied to make open market purchases of SPUs, the amount of such term loan
repayments will be decreased commensurately. Minority interest and SPU
distributions to unaffiliated third parties would also decrease as a result
of any open market purchases of SPUs.
(4) Long-term debt includes current maturities.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) from continuing operations before income taxes
plus fixed charges. Fixed charges consist of interest expense on all debt,
amortization of deferred financing costs and the portion of operating lease
rental expense that is representative of the interest factor (deemed to be
one-third of minimum operating lease rentals). Earnings available for fixed
charges were insufficient to cover fixed charges by $14.9 million for the
year ended December 31, 1990, and $9.2 million and $3.3 million for the
historical and pro forma three-month periods ended March 31, 1994,
respectively. As a result, the financial ratios for such periods are not
meaningful and, therefore, not included.
13
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information in this Prospectus, the following factors before tendering their
Notes in the Exchange Offer.
HOLDING COMPANY STRUCTURE
The Company's assets consist primarily of investments in its subsidiaries. As
a result, the Company's rights, and the rights of its creditors (including
holders of the Exchange Notes), 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. In addition, TNCLP's assets (including cash generated by its business)
are subject to the rights of the holders of Senior Preference Units under the
terms of TNCLP's limited partnership agreement. See "--Rights of TNCLP Limited
Partners." As of March 31, 1995, the Company's subsidiaries had trade payables
of approximately $301.0 million and approximately $430.1 million of
indebtedness (excluding intercompany liabilities and not including amounts
payable with respect to the Senior Preference Units). Indebtedness of the
Company outstanding at March 31, 1995 consisted of $158.8 million in aggregate
principal of the 10 3/4% Notes. The Exchange Notes will rank pari passu with
the Notes, if any, and the 10 3/4% Notes. As of the date hereof, the Company
has no outstanding indebtedness that will rank senior to the Exchange Notes;
however, the rights of the holders of Exchange Notes to receive the Change of
Control Payment (as defined) for the Exchange Notes or any other amount due on
the Exchange Notes is effectively subordinated to the holders of indebtedness
of the Company's subsidiaries, which, as of March 31, 1995, included the
amounts set forth above. See "Description of Other Indebtedness."
The Exchange Notes are obligations exclusively of the Company. Since the
operations of the Company are currently conducted through subsidiaries, the
Company's cash flow and its ability to service its debt, including the Exchange
Notes, the Notes, if any, and the 10 3/4% Notes, is dependent upon the earnings
of its subsidiaries and the distribution of those earnings to the Company or
upon loans or other payments of funds by those subsidiaries to the Company. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay amounts due pursuant to the Exchange Notes, the
Notes, if any, or the 10 3/4% Notes or to make any funds available therefor,
whether by dividends, loans or other payments. In addition, the Company and
certain of its wholly-owned subsidiaries have guaranteed the obligations of
Terra Capital and TNLP under the Credit Agreement. See "Description of Other
Indebtedness--Credit Agreement." Moreover, the payment of dividends and the
making of loan advances to the Company by its subsidiaries are contingent upon
the earnings of those subsidiaries and are subject to various business
considerations and restrictive loan covenants. See "Description of Other
Indebtedness."
RIGHTS OF TNCLP LIMITED PARTNERS
TNCLP's limited partnership agreement requires the quarterly distribution to
the partners of TNCLP of all "Available Cash," which is generally defined to
mean all cash receipts from all sources, less the sum of all cash
disbursements, adjusted for changes in certain reserves established as TNC (as
general partner of TNCLP) determines to be necessary or appropriate in its
reasonable discretion to provide for the proper conduct of the business of
TNCLP or TNLP (including reserves for future capital expenditures) or to
provide funds for distributions with respect to any of the next four calendar
quarters. The Senior Preference Units (which represent a 39.8% interest in
TNCLP) are entitled to receive a minimum quarterly distribution of $0.605 per
unit, plus arrearages, before any amounts are paid to TNC as distributions on
its Junior Preference Units and Common Units. The Senior Preference Units also
participate in distributions greater than $0.605 per unit. Based on the number
of Senior Preference Units currently outstanding, the minimum annual
distributions on Senior Preference Units aggregates $18.5 million. In 1994, an
aggregate of $20.2 million was paid as distributions on the Senior Preference
Units. See "Description of Other Indebtedness--TNCLP Senior Preference Units."
The Indenture will not limit the amount of distributions that may be paid on
the Senior Preference Units pursuant to the terms of TNCLP's limited
partnership agreement or purchases of SPUs by
14
<PAGE>
the Company and its subsidiaries. See "Description of Exchange Notes--
Covenants--Limitation on Restricted Payments." See also "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Open Market Purchase Program for TNCLP SPUs."
The nature of the businesses of the Company and TNCLP may give rise to
conflicts of interest between the two. Conflicts could arise, for example, with
respect to transactions involving purchases, sales and transportation of
fertilizer and natural gas and potential acquisitions of businesses or
properties.
LEVERAGE
As of March 31, 1995, the Company had outstanding long-term debt of $512.8
million and debt due within one year of $76.0 million. See "Capitalization."
The Indenture permits, subject to certain limitations, the Company and its
subsidiaries to incur additional indebtedness, some of which may be secured by
the assets of the Company and its subsidiaries and all of which may be borrowed
at subsidiary levels with the result that such indebtedness would effectively
rank senior to the Exchange Notes. See "Description of Exchange Notes--
Covenants--Limitation on Indebtedness."
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including the following: (i) a
substantial portion of the Company's cash flow from operations must be
dedicated to the payment of the principal of and interest on indebtedness; (ii)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may
be limited; (iii) the Indenture and other agreements governing the Company's
long-term indebtedness contain certain restrictive financial and operating
covenants, including limitations on the amount of acquisitions (which have been
an important part of the Company's growth strategy over the last several
years); (iv) the Company will be more leveraged than certain of its
competitors, which might place the Company at a competitive disadvantage; (v)
pursuant to the Credit Agreement and other debt agreements, a substantial
portion of the Company's borrowings are at floating rates of interest, causing
the Company to be sensitive to increases in interest rates; and (vi) the
Company could be more sensitive to a downturn in general economic conditions or
in the agricultural or methanol industries.
VOTING CONTROL BY PRINCIPAL STOCKHOLDER
As of March 31, 1995, Minorco and its affiliates owned approximately 53% of
the outstanding common shares of the Company. Since the Company became
publicly-owned in 1983, Minorco and its affiliates have owned a majority of the
Company's outstanding equity securities. As a result of its beneficial
ownership of common shares of the Company, Minorco and its affiliates are able
to control the election of the Company's directors and the management and
policies of the Company. As of the date hereof, six of the Company's ten
directors are also officers and/or directors of Minorco or its affiliates.
DEPENDENCE ON NATURAL GAS; INDUSTRY CONSIDERATIONS
The principal raw material used to produce manufactured nitrogen products and
methanol is natural gas. Natural gas costs comprise almost 50% of the Company's
total costs and expenses associated with nitrogen production and in excess of
50% of the Company's total costs and expenses associated with methanol
production. A significant increase in the price of natural gas that could not
be recovered through an increase in nitrogen fertilizer or methanol prices
could have a material adverse effect on the Company's profitability and cash
flow. The Company's natural gas procurement policy is to fix or cap the price
of approximately 40% to 80% of its natural gas requirements for a 12-month
period through various supply contracts, financial derivatives and other
forward-pricing techniques. Depending on market conditions, the Company may
also fix or cap the price for natural gas for longer periods of time. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Operating Results" and "Business--Raw Materials."
The Company's future operating results are also subject to other external
factors which are beyond the Company's control, including the number of planted
acres; the types of crops planted; the effects of general weather patterns on
the timing and duration of field work for crop planting and harvesting; the
supply of crop inputs; the relative balance of worldwide supply and demand for
nitrogen fertilizers and methanol; the U.S. government's agricultural policy;
and market prices of methanol. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
15
<PAGE>
CYCLICAL MARKETS FOR PRODUCTS
The markets for and profitability of the Company's products have been, and
are likely to continue to be, cyclical. Periods of high demand, high capacity
utilization and increasing operating margins tend to result in new plant
investment and increased production until supply exceeds demand, followed by
periods of declining prices and declining capacity utilization until the cycle
is repeated. In addition, markets for the Company's products are affected by
general economic conditions. The cyclicality of the Company's products or a
downturn in the economy could materially adversely affect the Company,
including its ability to service its debt obligations, including the Exchange
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
SEASONALITY AND VOLATILITY
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 Company can reduce purchases,
thereby decreasing inventory carrying costs. In the past, over half of the
Company's sales generally occurred during the second quarter of each year. This
seasonality also generally results in higher fertilizer prices during peak
periods, with prices typically reaching their highest point in the spring,
dropping in the summer, increasing in the fall (as depleted inventories are
restored) and through the spring.
The agricultural products business can also be volatile as a result of a
number of other factors, the most important of which, for U.S. markets, are
weather patterns and field conditions (particularly during periods of high
fertilizer consumption), current and projected grain stocks and prices and the
U.S. government's agricultural policy. Among the governmental policies that
influence the markets for fertilizer are those directly or indirectly
influencing the number of acres planted, the level of grain stocks, the mix of
crops planted and crop prices. In 1994, nitrogen product prices increased
dramatically and have remained at a high level to date. There can be no
assurances that such conditions will continue.
As with any commodity chemical, the price of methanol is volatile. During
1994, increased world demand for methanol combined with a large number of plant
shutdowns and maintenance turnarounds in the industry and the phase-in of U.S.
federally mandated standards for oxygenated gasoline resulted in a tight market
and dramatically increased prices over 1993 levels. Demand for methanol also
increased due to increased demand for wood building products in the
construction industry. Since January 1995, however, methanol prices have
decreased markedly due to lower demand for MTBE production and increased
methanol imports that resulted from the 1994 price increases. See also "--
Factors Affecting Demand For Methanol and MTBE."
FACTORS AFFECTING DEMAND FOR METHANOL AND MTBE
Methanol is used as a feedstock in the production of MTBE, an oxygenate and
octane enhancer used in reformulated gasoline. Reformulated gasoline has lower
volatility and is less aromatic than gasoline. The price of methanol has been
greatly influenced by the demand for MTBE, and future MTBE demand is dependent
on a number of market and regulatory forces that are beyond the control of the
Company and difficult to predict. Demand for methanol also increases with
increases in demand for wood building products in the construction industry.
Federally mandated standards promulgated under amendments to the Clean Air
Act (the "Clean Air Act Amendments") mandate comprehensive specifications for
motor vehicle fuel, including increased oxygenate content and lower volatility.
Since 1992, the Clean Air Act Amendments have required the use of oxygenated
gasoline in over 30 metropolitan areas during the portion of the year,
generally the winter months,
16
<PAGE>
when maximum allowable carbon monoxide levels are likely to be exceeded.
Effective January 1, 1995, the second phase of the Clean Air Act Amendments
requires the year-round use of reformulated gasoline in the nine metropolitan
areas having the highest levels of ozone pollution plus non-attainment areas in
a state that elects to participate in the reformulated gasoline program. The
areas in which reformulated gasoline is required to be sold represented
approximately 30% of total U.S. gasoline demand as of February 1994.
Future demand for MTBE and methanol will depend, in part, on the degree to
which the Clean Air Act Amendments are implemented and enforced, potential
additional legislation, the effect of health concerns regarding the use of MTBE
as a fuel additive, the willingness of regulatory agencies to grant waivers for
specific cities or regions, and the extent to which regions not required to
sell reformulated gasoline opt-in to the program. Certain of the areas that had
initially opted-in to the reformulated gasoline program have already requested
approval from the United States Environmental Protection Agency (the "EPA") to
opt-out of the program, alleging either conflicts with other pollution control
requirements or that they are no longer non-attainment areas. Representatives
of such areas are in discussions with the EPA with respect to these matters.
Additionally, future demand for MTBE will be impacted by the availability and
use of alternative oxygenates, principally ETBE, which is manufactured from
ethanol, a renewable resource. The EPA has mandated that, effective January 1,
1995, 15%, and effective January 1, 1996, 30%, of reformulated gasoline use an
oxygenate from a renewable resource. The EPA anticipates that oxygenates
derived from ethanol feedstocks will be the most utilized renewable oxygenates.
This mandate, however, was reversed by a federal appeals court on April 28,
1995, which ruled that the EPA lacked authority to promulgate a renewable
oxygenate requirement. On June 12, 1995, the EPA appealed the ruling.
Currently, MTBE is the oxygenate most used in the U.S. refining industry.
However, there are alternative oxygenates, principally ethanol, ETBE, an
ethanol derivative, and tertiary amyl methyl ether, a methanol derivative.
Although there is a petroleum industry preference for MTBE, there can be no
assurance that MTBE will not be replaced by alternative oxygenates as a result
of price, regulatory changes or other factors.
COMPETITION
The market for the fertilizer, crop protection products and seed distributed
by the Company is highly competitive. In 1994, sales attributable to the
Company's farm service centers accounted for less than 10% of total crop
production products sold in the U.S. Within the specific market areas served by
its farm service centers, however, the Company's share of the market was
substantially higher in most instances. 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.
Nitrogen fertilizer is a global commodity, and customers, including end-
users, dealers and other fertilizer producers and distributors, base their
purchasing decisions principally on the delivered price and availability of the
product. The Company competes with a number of U.S. producers, and producers in
other countries, including state-owned and government-subsidized entities. Some
of the Company's principal competitors may have greater total resources and may
be less dependent on earnings from nitrogen fertilizer sales than the Company.
Some foreign competitors may have access to lower cost or government-subsidized
natural gas supplies.
The methanol industry, like the fertilizer industry, is highly competitive,
and such competition is based largely on price, reliability and deliverability.
The relative cost and availability of natural gas and the efficiency of
production facilities are important competitive factors. Significant
determinants of a plant's competitive position are the natural gas acquisition
and transportation contracts that a plant negotiates with its major suppliers.
Domestic competitors for methanol include a number of large integrated
petrochemical producers, many of which are better capitalized than the Company.
In addition, the production and trade of methanol has become increasingly
global, and a number of foreign competitors produce methanol primarily for the
export market. See "--Factors Affecting Demand for Methanol and MTBE" and
"Business-- Competition."
17
<PAGE>
DAMAGE TO FACILITIES; NATURAL HAZARDS
The operations of the Company may be subject to significant interruption if
one or more of its facilities were to experience a major accident or were
damaged by severe weather or other natural disaster. However, the Company
currently maintains, and expects that it will, to the extent economically
feasible, continue to maintain, insurance (including business interruption
insurance) in an amount which the Company believes is sufficient to allow the
Company to withstand major damage to any of its facilities.
The Company's nitrogen fertilizer plant in Iowa (the "Port Neal Facility")
was the site of a major explosion on December 13, 1994. An investigative
committee formed by the Company, which included independent experts, has
determined that the explosion was caused by a defect in the design of the
nitric acid sparger in the neutralizer vessel of the ammonium nitrate plant at
the Port Neal Facility. The Company has decided to repair the facility and
expects it to be fully operational in mid-1996. At the time of the explosion,
the Port Neal Facility accounted for approximately 15% of the Company's annual
ammonia production capacity. The Company will recover insurance proceeds for
substantially all of its property damage, third party liability claims and
business interruption losses. The Company has reserved $7.0 million to cover
insurance deductibles and uninsured costs related to the explosion. As a result
of an investigation of the explosion by the Iowa Occupational Safety and Health
Administration ("IOSHA") the Company received allegations of safety and health
violations from IOSHA on May 25, 1995. The allegations of violation were
accompanied by a proposed fine of $461,900. The Company intends to contest
vigorously the alleged violations and the proposed fine. The Company believes
that the IOSHA allegations, including the proposed fine, will not have a
material adverse effect on the Company's business or financial condition.
ENVIRONMENTAL REGULATION
The Company's business activities are subject to stringent U.S. and foreign
environmental regulations. The Company is also involved in the manufacture,
handling, transportation, storage and disposal of materials that are or may be
classified as hazardous or toxic by applicable laws and regulations. If such
materials have been or are disposed of at sites that are targeted for
investigation and remediation by regulatory authorities, the Company or
subsidiaries thereof, as applicable, may be among those responsible under such
laws for all or part of the costs of such cleanup. The Company has been
designated as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), and analogous state laws with respect to a number of sites. Under
such laws, certain classes of persons, including generators of hazardous
substances, are subject to claims for response costs, regardless of fault or
the legality of original disposal. Such persons may be held jointly and
severally liable for such claims. In addition, there can be no assurance that
existing environmental regulations will not be revised or that new regulations
will not be adopted or become applicable so as to have a material adverse
affect on the Company's business or financial condition. See "Business--
Environmental and Other Regulatory Matters."
The Company endeavors to comply (and has incurred substantial costs in
connection with such compliance) in all material respects with applicable
environmental, safety and health regulations. The Company does not expect its
continued operation in compliance with such regulations to have a material
adverse effect on its earnings or competitive position.
ABSENCE OF PUBLIC MARKET
The Exchange Notes will be new securities for which there currently is no
market. Although the Initial Purchasers have informed the Company that they
currently intend to make a market in the Exchange Notes, they are not obligated
to do so, and any such market making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. The Company does not intend to
apply for listing of the Exchange Notes on any securities exchange or for
quotation through the National Association of Securities Dealers Automated
Quotation System.
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<PAGE>
THE COMPANY
The Company is a leader in each of its three business segments: (i) the
distribution of crop production inputs and services, (ii) the manufacture of
nitrogen products and (iii) the manufacture of methanol. 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. The Company is also the third largest producer of anhydrous ammonia and
one of the two largest producers of nitrogen solutions in the United States and
Canada. In addition, the Company is one of the largest U.S. manufacturers and
marketers of methanol. In October 1994, the Company acquired AMCI, a
manufacturer and marketer of both nitrogen products and methanol. In 1994, on a
pro forma basis including AMCI's operations for a full year, the Company
generated revenues and operating income of $2.1 billion and $266.2 million,
respectively.
The Company's distribution network for fertilizer, crop protection products
and seed has grown over the last several years to include, as of March 31,
1995, approximately 370 farm service centers, 100 fertilizer storage facilities
and 780 affiliated dealer locations serving the United States and the eastern
region of Canada. This growth generally has been the result of a healthy farm
economy, acquisitions, additional facilities and aggressive marketing. The
Company's distribution network is supplied by both independent sources and the
Company's own production facilities, which presently include one crop
protection chemical dry flowable and liquid formulation plant and seven other
liquid chemical formulation facilities in addition to its nitrogen production
facilities. In 1994, on a pro forma basis including AMCI's operations for the
full year, distribution revenues constituted approximately 63% of the Company's
total revenues.
Nitrogen fertilizer is a basic crop nutrient which is applied seasonally by
farmers to improve crop yield and quality. Nitrogen fertilizer is produced by
combining gaseous nitrogen with hydrogen to form anhydrous ammonia, the
simplest form of nitrogen fertilizer, which can be further processed or
upgraded into other fertilizer products such as urea and nitrogen solutions.
The Company presently owns five nitrogen fertilizer facilities with total
annual gross production capacity of 2.7 million tons of ammonia. In 1994,
approximately 10% of the Company's fertilizer production tonnage was sold
through its farm service center locations to retail customers, while the rest
was sold to outside customers. The Company believes that it is among the lowest
cost providers of nitrogen fertilizer in the markets it serves, benefiting from
favorable transportation logistics and other operating synergies, in part as a
result of the AMCI acquisition which provided the Company with two fertilizer
plants and 1.4 million tons of annual gross production capacity of ammonia. The
Company suffered a major explosion in December 1994 at the Port Neal Facility,
for which it was insured. The Company expects the facility, representing
approximately 15% of its annual ammonia production capacity, to be fully
operational in mid-1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Operating Results." In
1994, on a pro forma basis including AMCI's operations for the full year,
nitrogen products revenues (including intercompany sales) constituted
approximately 25% of the Company's total revenues.
Methanol is used primarily as a feedstock in the production of other chemical
products such as formaldehyde, acetic acid, adhesives and plastics. Methanol is
also used as a feedstock in the production of MTBE, an oxygenate and octane
enhancer used as an additive in reformulated gasoline to provide cleaner
burning fuels. The Company's methanol production capacity is currently
approximately 320 million gallons per year, representing approximately 15% of
the total United States rated capacity. The Beaumont Facility is the largest
such facility in the U.S. In 1994, on a pro forma basis including AMCI's
operations for the full year, methanol revenues constituted approximately 12%
of the Company's total revenues.
The Company's long-term strategy for growth is to: (i) acquire and upgrade
production and distribution facilities, (ii) increase distribution volumes by
expanding sales from Company-operated locations and its affiliated dealer
network, (iii) change its product mix to include more profitable value-added
products and (iv) continue to build customer loyalty by providing value-added
services. As part of this strategy, in April 1993, the Company acquired a
fertilizer manufacturing facility and 32 farm service centers in Canada; in
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<PAGE>
December 1993, the Company acquired 12 farm service centers in Florida; in
September 1994, the Company acquired a minority interest in a 100 location
distributor of crop input and protection products in the mid-Atlantic region;
and in October 1994, the Company acquired AMCI.
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 Company will not receive any cash proceeds from the Exchange Offer. The
net proceeds from the sale of the Notes, after deducting expenses of the
Offering, including any commissions paid to the Initial Purchasers and any
expenses in connection with the Exchange Offer, are estimated to be
approximately $194.0 million. As of July 31, 1995, the Company had applied $3.6
million of the net proceeds of the Offering to the purchase of an aggregate of
125,000 SPUs. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Open Market Purchase Program of TNCLP SPUs." The
Company has announced that on September 1, 1995 it will apply the net proceeds
of the Offering less the amount used to purchase SPUs to reduce term loans
under the Credit Agreement. For a description of the Credit Agreement, see
"Description of Other Indebtedness--Credit Agreement." Under the terms of the
Credit Agreement, such reduction in term loans is not required until December
31, 1995. After September 1, 1995, the Company would finance any further
purchases of SPUs in the open market with available cash or other financing
which might be available.
20
<PAGE>
CAPITALIZATION
Set forth below is the capitalization of the Company as of March 31, 1995 and
as adjusted to reflect: (i) the issuance and sale by the Company of the Notes
and the issuance of the Exchange Notes pursuant to the Exchange Offer and (ii)
the application of the net proceeds of the Offering to the prepayment of
outstanding term loans under the Credit Agreement. The Company may, however,
use such net proceeds to fund purchases of Senior Preference Units through
December 31, 1995. To the extent such net proceeds are applied to fund open
market purchases of SPUs, the amount of such term loan repayments will be
decreased proportionately. Minority interest and SPU distributions to
unaffiliated third parties would also decrease as a result of any open market
purchases of SPUs. The unaudited information set forth below should be read in
conjunction with the consolidated financial statements of the Company and the
related notes and other financial information included elsewhere and
incorporated by reference herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1995
---------------------
AS
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Long-term debt (including current maturities):
Credit Agreement term loans..................... $ 345,000 $ 151,000
Exchange Notes and Notes, if any................ -- 200,000
10 3/4% Notes................................... 158,755 158,755
Other long-term debt............................ 56,767 56,767
---------- ----------
Total long-term debt.......................... 560,522 566,522
Minority interest................................. 182,183 182,183
Stockholders' equity(1)........................... 450,088 447,388
---------- ----------
Total capitalization(2)....................... $1,192,793 $1,196,093
========== ==========
</TABLE>
- --------
(1) Adjusted to reflect write-off of pro-rata portion of deferred financing
fees for prepayment of Credit Agreement term loans.
(2) Excludes short-term borrowings under revolving credit agreements of $28.3
million and cash and short-term investments of $133.1 million.
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<PAGE>
EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on June 22, 1995 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. As a condition to the closing under the Purchase
Agreement, the Company entered into the Registration Rights Agreement with the
Initial Purchasers, pursuant to which the Company agreed, for the benefit of
the holders of the Notes, at the Company's cost, among other things, (i) to use
its best efforts to cause a registration statement on Form S-4 (the "Exchange
Offer Registration Statement," which term shall encompass all amendments,
exhibits, annexes and schedules thereto and of which this Prospectus is a part)
to be declared effective under the Securities Act within 90 days after the date
of the original issue of the Notes and (ii) to use its best efforts to cause
the Exchange Offer to be consummated not later than 120 days after the date of
the original issue of the Notes. Promptly after the Exchange Offer Registration
Statement has been declared effective, the Company agreed to offer the Exchange
Notes in exchange for Notes.
The Company will keep the Exchange Offer open until the Expiration Date. For
each Note validly tendered to the Company pursuant to the Exchange Offer and
not withdrawn by the holder thereof, the holder of such Note will receive an
Exchange Note having a principal amount equal to that of the tendered Note.
Interest on each Exchange Note will accrue from the last interest payment date
on which interest was paid on the tendered Note in exchange therefor or, if no
interest has been paid on such Note, from the date of the original issue of the
Note.
Based on an interpretation of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof without further compliance with
the registration and prospectus delivery provisions of the Securities Act.
However, any Purchaser of Notes who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes (i) will not be able to rely on the interpretation by the
staff of the Commission set forth in the above referenced no-action letters,
(ii) will not be able to tender Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Notes, unless
such sale or transfer is made pursuant to an exemption from such requirements.
Each holder of the Notes who wishes to exchange Notes for Exchange Notes in
the Exchange Offer will be required to make certain representations, including
that (i) it is neither an affiliate of the Company nor a broker-dealer
tendering Notes acquired directly from the Company for its own account, (ii)
any Exchange Notes to be received by it will be acquired in the ordinary course
of its business, (iii) at the time of commencement of the Exchange Offer, it is
not engaging in nor intends to engage in a distribution (within the meaning of
the Securities Act) of the Exchange Notes and (iv) at the time of commencement
of the Exchange Offer, it has no arrangement with any person to participate in
the distribution (within the meaning of the Securities Act) of the Exchange
Notes. In addition, in connection with any resales of Exchange Notes, any
broker-dealer (a "Participating Broker-Dealer") who acquired the Notes for its
own account as a result of market-making activities or other trading activities
must deliver a prospectus meeting the requirements of the Securities Act. The
Commission has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to the Exchange Notes
(other than a resale of an unsold allotment from the original sale of the
Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company agreed that it
will make this Prospectus available to any Participating Broker-Dealer for use
in connection with any such resale and Participating Broker-Dealers shall be
authorized to deliver this Prospectus for a period not exceeding 180 days after
the Expiration Date.
In the event that any changes in law or the applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer,
if for any other reason the Exchange Offer is not
22
<PAGE>
consummated within 120 days after the original issue of the Notes, upon the
request of the Initial Purchasers under certain circumstances or if a holder of
Notes is not permitted to participate in the Exchange Offer or would not
receive fully tradable Exchange Notes if it were to participate in the Exchange
Offer, subject to certain conditions, the Company will, at its cost, (a) as
promptly as practicable, file with the Commission the Shelf Registration
Statement covering resales of the Notes, (b) use its best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
as promptly as praticable and (c) use its best efforts to keep effective the
Shelf Registration Statement for a period of three years after its effective
date (or for a period of one year after such effective date if such Shelf
Registration Statement is filed at the request of the Initial Purchasers or,
for such shorter period, when all of the Notes covered by the Shelf
Registration Statement have been sold pursuant thereto or cease to be
outstanding). The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Notes copies of the
prospectus which is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement for the Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Notes. A holder of Notes who sells such Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a
selling securityholder in the related prospectus and to deliver the prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each
holder of the Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Notes included in the
Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company and which
is filed as an exhibit to this Exchange Offer Registration Statement. See
"Available Information."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus and
in the Letter of Transmittal, the Company will accept any and all Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes
accepted in the Exchange Offer. Holders may tender some or all of their Notes
pursuant to the Exchange Offer. However, Notes may be tendered only in integral
multiples of $1,000. The Company has fixed the close of business on September
14, 1995 as the record date for the Exchange Offer for purposes of determining
the persons to whom this Prospectus and the Letter of Transmittal will be
mailed initially.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes (which they replace), except that as of the date hereof the
Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting their transfer and will not contain certain
provisions included in the terms of the Notes relating to an increase in the
interest rate in certain circumstances relating to the timing of the Exchange
Offer. The holders of the Exchange Notes will not be entitled to certain rights
under the Registration Rights Agreement, which rights will terminate when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt
as the Notes and will be entitled to the benefits of the Indenture.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Maryland or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
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<PAGE>
The Company shall be deemed to have accepted validly tendered Notes when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned to the
tendering holder thereof, at the Company's expense, as promptly as practicable
after the Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September 14, 1995, unless the Company in its sole discretion extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent, or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
Interest on each Exchange Note will accrue from the last date on which
interest was paid on the Notes surrendered in exchange therefor or, if no
interest has been paid on the Notes, from the date of original issuance of such
Note. No interest will be paid on the Notes accepted for exchange, and holders
of Notes whose Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Notes accrued up
to the date of the issuance of the Exchange Notes. Holders of Notes whose Notes
are not exchanged will receive the accrued interest payable thereon on December
15, 1995, on such date in accordance with the Indenture.
Interest on the Exchange Notes is payable semi-annually on each June 15 and
December 15, commencing on December 15, 1995.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To tender
in the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the
24
<PAGE>
Expiration Date. Delivery of the Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the fourth paragraph under "Purpose and
Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF
THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an other "eligible guarantor institution" within the meaning
of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an
"Eligible Institution"), unless the Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal or (ii) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Book-Entry Transfer Facility's system may make book-
entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the Notes
in accordance with the
25
<PAGE>
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of the Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are compiled with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Notes must
be cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Notes, neither the Company, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
26
<PAGE>
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a telegram, telex,
facsimile transmission or letter must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such delivered Notes, or, in the case of Notes transferred
by book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) state that such Depositor is
withdrawing its election to have the Notes exchanged and specify the name in
which any such Notes are to be registered, if different from that of the
Depositor and (iv) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Notes register the
transfer of such Notes into the name of the person withdrawing the tender. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Notes so withdrawn are
validly retendered. Any Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Notes may be retendered
by following one of the procedures described above under "Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) the Exchange Offer or the making of any exchange by a holder of Notes
violates applicable law or any applicable interpretation by the Staff of
the Commission; or
(b) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the judgment of the Company, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer; or
(c) any law, statute, rule or regulation is adopted or enacted which, in
the judgment of the Company, would reasonably be expected to impair
materially the ability of the Company to proceed with the Exchange Offer.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Notes and return
all tendered Notes to the tendering holders, (ii) extend the Exchange Offer and
retain all Notes theretofore tendered in the Exchange Offer, subject, however,
to the rights of holders to withdraw such Notes (see "Withdrawal of Tenders")
or (iii) waive such unsatisfied conditions with respect to the Exchange Offer
and accept all properly tendered Notes which have not been withdrawn.
27
<PAGE>
EXCHANGE AGENT
First Trust National Association has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
By Registered or Certified Mail, Facsimile Transmission:
Overnight Courier or Hand: (612) 244-1145
First Trust National Association Attention: Theresa Shackett,
180 East Fifth Street Specialized Finance
St. Paul, Minnesota 55101
Attention: Theresa Shackett, Confirm by Telephone:
Specialized Finance (612) 244-1196
For general information contact the Exchange Agent's Bondholder Relations
Department at (612) 244-0444.
Delivery to an address other than as set forth above, or transmission of
instructions via a facsimile number other than the one set forth above, will
not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain outstanding and continue to accrue interest and will also
remain restricted securities. Accordingly, such Notes may be resold only (i) to
the Company, (ii) pursuant to a registration statement which has been declared
effective under the Securities Act, (iii) for so long as the Notes are eligible
for resale pursuant to Rule 144A under the Securities Act, to a person the
seller reasonably believes is a "qualified institutional buyer" within the
meaning of Rule 144A that purchases for its own account or for the account of a
qualified institutional buyer and to whom notice is given that the transfer is
being made in reliance on Rule 144A, (iv) pursuant to offers and sale to non-
U.S. persons that occur outside the United States within the meaning of
Regulation S under the Securities Act, (v) to an institutional "accredited
investor" within the meaning of subparagraphs
28
<PAGE>
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act that is
acquiring the Notes for its own account or for the account of such an
institutional "accredited investor" for investment purposes and not with a view
to, or for offer or sale in connection with, any distribution in violation of
the Securities Act or (vi) pursuant to any other available exemption from the
registration requirements of the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States and in
accordance with the Indenture. Holders of Notes not tendered in the Exchange
Offer will not retain any rights under the Registration Rights Agreement,
except in limited circumstances.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on an interpretation by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company with the meaning of Rule 405 under the Securities
Act), who receives Exchange Notes in exchange for Notes in the ordinary course
of business and who is not participating, does not intend to participate, and
has no arrangement or understanding with a person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Exchange Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the Exchange Notes, such
holder cannot rely on the position of the staff of the Commission enunciated in
such no-action letters or any similar interpretive letters, and must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction, unless an exemption from
registration is otherwise available. Further, each Participating Broker-Dealer
that receives Exchange Notes for its own account in exchange for Notes, where
such Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
Any resales or other transfers of Exchange Notes must also be conducted in
compliance with applicable state securities or blue sky laws.
29
<PAGE>
SELECTED FINANCIAL DATA
The following table presents (i) selected consolidated historical financial
data for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 derived
from the Company's audited consolidated financial statements, (ii) selected
consolidated historical financial data as of and for the three months ended
March 31, 1994 and 1995 derived from the Company's unaudited consolidated
financial statements for such period, and (iii) unaudited pro forma
consolidated data for each of the periods indicated. The historical data
includes the Company's Canadian acquisition effective as of March 31, 1993, the
Company's Florida acquisition since January 1, 1994 and AMCI from October 20,
1994. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General." The pro forma data was prepared to illustrate
and give effect to the acquisition of AMCI and related transactions, including
(i) the issuance of 9.7 million common shares of the Company for aggregate net
proceeds of $113.7 million, (ii) the assumption of the 10 3/4% Notes, and (iii)
the incurrence of $310.0 million of debt under the Credit Agreement as if such
transactions had occurred as of January 1, 1994. In addition, the unaudited pro
forma interest expense and related ratios presented under the caption "Other
Data and Selected Ratios" give effect to the Offering and the application of
the net proceeds therefrom as of January 1, 1994. The unaudited pro forma
financial data are presented for informational purposes only and are not
necessarily indicative of the results that actually would have occurred had the
transactions been consummated on the dates indicated or the results that may
occur or be obtained in the future. In addition, quarterly results may not be
indicative of results for the full year. The information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and related notes thereto and other financial information included
elsewhere and incorporated by reference herein.
30
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------- --------------------------------
PRO FORMA PRO FORMA
FOR AMCI FOR AMCI
ACQUISITION ACQUISITION
1990 1991 1992 1993 1994 1994 1994 1994 1995
-------- ---------- ---------- ---------- ---------- ----------- -------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Total revenues...... $962,202 $1,022,597 $1,082,191 $1,238,001 $1,665,947 $2,084,827 $259,504 $356,088 $ 443,340
Cost of sales....... 806,772 849,684 904,246 1,021,187 1,330,202 1,543,212 221,974 280,444 291,772
Depreciation and
amortization....... 14,997 14,399 14,994 15,470 27,218 60,567 4,456 15,006 15,559
Selling, general and
administrative
expenses........... 138,315 132,845 137,232 161,791 193,975 215,624 40,306 45,537 52,995
Equity in (earnings)
loss of
unconsolidated
affiliates......... -- -- -- (2,275) (743) (743) 554 554 1,197
-------- ---------- ---------- ---------- ---------- ---------- -------- -------- ----------
Income (loss) from
operations......... 2,118 25,669 25,719 41,828 115,295 266,167 (7,786) 14,547 81,817
Net interest
expense............ (17,056) (12,563) (7,533) (9,683) (16,541) (49,367) (2,079) (12,700) (11,341)
Minority interest... -- -- -- -- (8,809) (34,916) -- (5,726) (16,593)
-------- ---------- ---------- ---------- ---------- ---------- -------- -------- ----------
Income (loss) from
continuing
operations before
income taxes....... (14,938) 13,106 18,186 32,145 89,945 181,884 (9,865) (3,879) 53,883
Income tax provision
(benefit).......... 816 (1,073) (7,757) (9,300) (33,700) (71,517) 3,580 1,410 (20,930)
-------- ---------- ---------- ---------- ---------- ---------- -------- -------- ----------
Income (loss) from
continuing
operations......... $(14,122) $ 12,033 $ 10,429 $ 22,845 $ 56,245 $ 110,367 $ (6,285) $ (2,469) $ 32,953
======== ========== ========== ========== ========== ========== ======== ======== ==========
Per Common Share:
Income (loss) from
continuing
operations........ $ (0.21) $ 0.18 $ 0.15 $ 0.33 $ 0.77 $ 1.37 $ (0.09) $ (0.03) $ 0.41
Dividends.......... $ 0.12 -- -- $ 0.02 $ 0.08 $ 0.08 $ 0.02 $ 0.02 $ 0.02
SUMMARY OPERATING
DATA:
Net fertilizer
production
(thousands of tons)
Ammonia............ 393.6 399.3 404.2 686.1 780.6 1,217.1 205.4 323.42 262.0
Urea............... 145.3 138.7 126.7 222.6 297.9 623.4 55.3 171.0 154.1
UAN................ 765.1 810.0 759.8 987.3 1,295.2 2,757.3 243.6 760.9 662.5
Methanol Production
(millions of
gallons)........... -- -- -- -- 81.2 310.3 -- 69.2 64.9
Revenues by business
segment (1)
Distribution....... $841,742 $ 899,250 $ 958,725 $1,019,438 $1,318,416 $1,318,416 $206,478 $206,478 $ 234,454
Nitrogen Products.. 120,751 126,664 125,659 228,910 296,557 539,152 54,156 114,670 147,188
Methanol........... -- -- -- -- 70,274 246,404 -- 36,096 65,874
OTHER DATA AND
SELECTED RATIOS:
Capital
Expenditures....... $ 10,689 $ 12,728 $ 17,620 $ 21,620 $ 31,213 $ 40,509 $ 10,463 $ 11,443 $ 14,007
EBITDA (2).......... 17,115 40,068 40,713 55,023 141,770 325,991 (2,776) 30,107 98,573
EBITDA less SPU
distributions...... 17,115 40,068 40,713 55,023 136,730 305,831 (2,776) 25,067 93,533
Pro forma net
interest expense
(3)................ -- -- -- -- -- 55,753 -- 14,296 12,487
EBITDA/Net interest
expense............ 1.00x 3.19x 5.40x 5.68x 8.57x 6.60x -- 2.37x 8.69x
EBITDA/Pro forma net
interest expense (3) -- -- -- -- -- 5.85 -- 2.11 7.89
EBITDA less SPU
distributions/Pro
forma net interest
expense (3)........ -- -- -- -- -- 5.49 -- 1.75 7.49
Long-term
debt/EBITDA (4).... 10.77 2.87 3.28 2.21 3.94 1.71 -- -- --
Long-term
debt/EBITDA less
SPU distributions
(4)................ 10.77 2.87 3.28 2.21 4.08 1.83 -- -- --
Ratio of earnings to
fixed charges (5).. -- 1.63 2.06 2.35 3.45 3.47 -- -- 4.06
BALANCE SHEET DATA
(AT END OF PERIOD):
Net working capital. $135,374 $ 156,587 $ 215,817 $ 231,287 $ 273,941 -- $150,618 -- $ 315,963
Net property, plant
and equipment...... 327,219 112,195 91,969 110,670 552,843 -- 116,583 -- 569,348
Total assets........ 805,279 517,162 580,192 634,482 1,687,970 -- 817,504 -- 1,964,427
Minority interest... -- -- -- -- 170,630 -- -- -- 182,183
Long-term debt
(including current
maturities)........ 184,324 114,805 133,679 121,384 558,256 -- 48,307 -- 560,522
Total stockholders'
equity............. 321,961 190,296 221,476 242,980 418,429 -- 243,610 -- 450,088
</TABLE>
- -------
(1) Includes intercompany sales and excludes revenues not included in any of
the three business segments.
(2) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents income (loss) from continuing operations before income taxes,
plus minority interest, plus net interest expense, less equity in
earnings, or plus equity in losses, of unconsolidated affiliates, plus
depreciation and amortization. EBITDA should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flow as a measure of liquidity, but rather to
provide additional information related to the Company's ability to service
debt.
(3) Pro forma net interest expense is calculated assuming the net proceeds of
the Offering of the Notes were applied to repay term loans under the
Credit Agreement as of January 1, 1994. To the extent such net proceeds
are applied to make open market purchases of SPUs, the amount of such term
loan repayments will be decreased commensurately. Minority interest and
SPU distributions to unaffiliated third parties would also decrease as a
result of any open market purchases of SPUs.
(4) Long-term debt includes current maturities.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) from continuing operations before income taxes
plus fixed charges. Fixed charges consist of interest expense on all debt,
amortization of deferred financing costs and the portion of operating
lease rental expense that is representative of the interest factor (deemed
to be one-third of minimum operating lease rentals). Earnings available
for fixed charges were insufficient to cover fixed charges by $14.9
million for the year ended December 31, 1990, and $9.2 million and $3.3
million for the historical and pro forma three-month periods ended March
31, 1994, respectively. As a result, the financial ratios for such periods
are not meaningful and, therefore, not included.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
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 and incorporated
by reference herein.
The Company has expanded its operations over the last two years by increasing
its manufacturing capability, expanding its distribution business and
increasing the volume of more profitable value-added products.
On October 20, 1994, the Company acquired the stock of AMCI for $400.0
million in cash plus working capital adjustments approximating $100 million.
Through the AMCI acquisition, the Company acquired TNC, which owns interests in
TNCLP and TNLP. TNLP owns ammonia production and upgrading facilities located
in Verdigris, Oklahoma (the "Verdigris Facility") and Blytheville, Arkansas
(the "Blytheville Facility"). In the AMCI acquisition, the Company also
acquired the Beaumont Facility.
On September 15, 1994, the Company acquired an approximate one-third interest
in Royster-Clark, Inc. ("Royster-Clark") for $12.2 million in cash. Royster-
Clark is a 100 location distributor of crop input and protection products in
the mid-Atlantic region.
On December 31, 1993, the Company's Florida operations ("Terra Asgrow
Florida") purchased the assets and business of Asgrow Florida, Inc. ("Asgrow"),
a distributor of crop input and protection products, for $39 million. Terra
Asgrow Florida operates 16 distribution centers and is a supplier to the
vegetable and ornamental plant markets, primarily in Florida.
Effective as of March 31, 1993, for $19.9 million in cash plus an operating
lease, the Company acquired the rights to an ammonia production and upgrading
facility near Sarnia, Ontario (the "Canadian Facility") and ownership interests
in 32 farm service centers in Ontario, New Brunswick and Nova Scotia. Thirty of
the farm service centers are 50% owned and two are 100% owned.
With the acquisition of AMCI, the Company has classified its operations into
three business segments: Distribution, Nitrogen Products and Methanol. The
Distribution segment includes sales of products purchased from manufacturers,
including the Company, 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 Nitrogen Products segment represents
only those operations directly related to wholesale sales of nitrogen products
from the Company's five ammonia manufacturing and upgrading facilities
(including two owned by TNLP). The Methanol segment represents only wholesale
sales of methanol from the Company's two methanol manufacturing facilities.
FACTORS AFFECTING OPERATING RESULTS
Factors that may affect the Company's future operating results include: the
relative balance of world-wide supply and demand for nitrogen fertilizers and
methanol, 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 availability and cost
of natural gas, the effect of environmental legislation on demand for the
Company's products, the availability of financing sources to fund seasonal
working capital needs, and the potential for interruption to operations due to
accident or natural disaster.
Prices for nitrogen products are influenced by the world supply and demand
balance for ammonia and nitrogen-based products. Demand is affected by
population growth and increasing living standards that
32
<PAGE>
determine food consumption. Supply is affected by worldwide capacity and the
availability of nitrogen product exports from major producing regions such as
the former Soviet Union, the Middle East and South America.
Methanol is used as a raw material in the production of formaldehyde, MTBE,
acetic acid and numerous other chemical derivatives. The price of methanol has
been greatly influenced by the demand for MTBE, an oxygen and octane enhancer
used in reformulated gasoline. Beginning in 1992, federally-mandated standards
(the Clean Air Act Amendments) require the use of oxygenated gasoline in over
30 metropolitan areas during the portion of the year, generally the winter
months, when maximum allowable carbon monoxide levels are likely to be
exceeded. Effective January 1, 1995, the second phase of the Clean Air Act
Amendments require the year-round use of reformulated gasoline in the nine
metropolitan areas having the highest levels of ozone pollution plus any non-
attainment areas in a state that elects to participate in the reformulated
gasoline program. Future demand for MTBE and methanol will depend on the degree
to which the Clean Air Act Amendments are implemented and enforced, potential
additional legislation, the effect of health concerns regarding the use of MTBE
as a fuel additive, the willingness of regulatory agencies to grant waivers,
and the extent to which other regions voluntarily opt-in to the reformulated
gasoline program. Additionally, future demand will be impacted by the
availability and use of alternative oxygenates, principally ETBE which is
manufactured from ethanol, a renewable resource. The EPA anticipates that
oxygenates derived from ethanol feedstocks will be the most utilized renewable
oxygenates. The EPA mandated that, effective January 1, 1995, 15%, and
effective January 1, 1996, 30%, of reformulated gasoline use an oxygenate from
a renewable resource. This mandate, however, was reversed by a federal appeals
court on April 28, 1995, which ruled that the EPA lacked the authority to
promulgate a renewable oxygenate requirement. On June 12, 1995 the EPA appealed
the ruling. Although there is a petroleum industry preference for MTBE, there
can be no assurance that MTBE will not be replaced by alternative oxygenates as
a result of price, regulatory changes, or other factors.
As with any commodity chemical, the price of methanol is volatile. During
1994, increased world demand for methanol combined with a large number of plant
shutdowns and maintenance turnarounds in the industry and the phase-in of U.S.
federally-mandated standards for oxygenated gasoline resulted in a tight market
and dramatically increased prices over 1993 levels. Demand for methanol also
increased due to increased demand for wood building products in the
construction industry. Since January 1995, however, methanol prices have
decreased markedly due to lower demand for MTBE production and increased
methanol imports that resulted from the 1994 price increases. See also "Risk
Factors--Factors Affecting Demand For Methanol and MTBE."
With the acquisition of AMCI, the Company raised its annual production
capacity for methanol from 40 million to 320 million gallons. BMLP is a party
to a methanol hedging agreement (the "Methanol Hedging Agreement") entered into
in October 1994, at which time the Company received $4 million in cash.
Approximately 45% of the Company's methanol production capacity is subject to
the Methanol Hedging Agreement, which will affect margins on this portion of
the Company's methanol production through December 31, 1997 should average
methanol prices exceed average natural gas prices by certain amounts. See
"Business--Methanol--Methanol Contracts" and Note 12 to the Company's
consolidated financial statements included elsewhere and incorporated by
reference herein.
The number of acres planted and types of crops planted are influenced by
government programs designed to manage carryover stocks and commodity prices of
certain crops. Due to the higher quantities 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. 1994 was a record year for
corn in both the number of planted acres and crop yields. Based upon industry
sources, planted corn acreage decreased from 79.2 million acres in 1994 to 72
million acres in 1995 and planted cotton acreage increased from 13.7 million
acres in 1994 to 16.6 million acres in 1995.
Weather can have a significant effect on operations. Weather conditions that
delay or intermittently disrupt field work during the planting and growing
season may result in fewer crop inputs being applied than
33
<PAGE>
normal and/or shift plantings to crops with shorter growing seasons. Similar
conditions following harvest may delay or eliminate opportunities to apply
fertilizer in the fall. Weather can also have an adverse effect on crop yields,
which lowers the income of growers and could impair their ability to pay for
inputs purchased from the Company. During 1994, favorable conditions prevailed
during most of the spring and fall and allowed for unimpeded application of
fertilizer and other crop inputs.
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 manufacturers
without the capability to distribute products to the North American grower. The
Company has entered into annual purchase agreements intended to provide an
adequate supply of products for its grower and dealer customers through 1995.
The principal raw material used to produce manufactured nitrogen products and
methanol is natural gas. Natural gas costs comprise almost 50% of the total
costs and expenses associated with nitrogen production and in excess of 50% of
the total costs and expenses associated with methanol production. The Company's
natural gas procurement policy is to fix or cap the price of approximately 40%
to 80% of its natural gas requirements for a 12-month period through various
supply contracts, financial derivatives and other forward pricing techniques.
Depending on market conditions, the Company may also fix or cap the price for
natural gas for longer periods of time. In the first quarter of 1995, due to
the decline in natural gas prices, the Company extended its forward pricing
positions for natural gas. The Company believes that there is sufficient supply
to allow stable costs for the foreseeable future and has entered into firm
contracts to minimize the risk of interruption or curtailment of natural gas
supplies during the heating season. As of March 31, 1995, the Company had fixed
prices for approximately 65% of its natural gas requirements for the remainder
of 1995, 42% for 1996 and 22% for 1997. At March 31, 1995, liquidation of these
financial derivatives based on market prices would have resulted in a loss of
$10.0 million. As of March 31, 1995, realized losses of $3.1 million relating
to future periods had been deferred.
The Company's distribution business segment 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 during which products can be used by customers, the
Company builds inventories during the first quarter of the year 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 higher margins. 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 credit facilities are adequate for expected 1995 sales levels.
The Company's operations may be subject to significant interruption if one or
more of its facilities were to experience a major accident or were damaged by
severe weather or other natural disaster. The Company currently maintains
insurance (including business interruption insurance) and expects that it will
continue to do so in an amount which it believes is sufficient to allow the
Company to withstand major damage to any of its facilities.
The Port Neal Facility was the site of a major explosion on December 13,
1994. An investigative committee formed by the Company, which included
independent experts, has determined that the explosion was caused by a defect
in the design of the nitric acid sparger in the neutralizer vessel of the
ammonium nitrate plant at the Port Neal Facility. The Company has decided to
repair the facility and expects it to be fully operational in mid-1996. At the
time of the explosion, the Port Neal Facility accounted for approximately 15%
of the Company's annual ammonia production capacity. The Company will recover
insurance proceeds for substantially all its property damage, third party
liability claims and business interruption losses. The Company has reserved
$7.0 million to cover insurance deductibles and uninsured costs related to the
explosion. As a result of an investigation of the explosion by IOSHA the
Company received allegations of safety and health violations from IOSHA on May
25, 1995. The allegations of violation were accompanied by a proposed fine of
$461,900. The Company intends to contest vigorously the alleged violations and
the proposed fine. The Company believes that the IOSHA allegations, including
the proposed fine, will not have a material adverse effect on the Company's
business or financial condition.
34
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage risk in the areas
of (a) foreign currency fluctuations, (b) changes in natural gas supply prices,
(c) changes in interest rates and (d) the effect of methanol prices relative to
natural gas prices. See Note 12 to the Company's consolidated financial
statements included elsewhere and incorporated by reference herein for
information on the use of derivative financial instruments.
RESULTS OF CONTINUING OPERATIONS
First Quarter 1995 Compared with First Quarter 1994
Consolidated Results. The Company reported income from continuing operations
of $33.0 million on revenues of $443.3 million for the first quarter of 1995,
compared with a loss from continuing operations before extraordinary items of
$6.3 million on revenues of $259.5 million in the first quarter of 1994. 1995
results include the operations of AMCI, which was acquired by the Company in
October 1994. The AMCI acquisition added approximately $144.0 million to
revenues and $25.0 million to operating income during the first quarter 1995.
Excluding the impact of the AMCI acquisition, revenues increased $40.0 million,
or 15%, over the comparable period in 1994 and operating income increased $14.2
million primarily as a result of improved selling prices for nitrogen products
caused by tight supplies.
Total revenues and operating income (loss) by business segment and income
(loss) from continuing operations before income taxes for the three month
periods ended March 31, 1994 and 1995 were as set forth below. Pro forma
results for the 1994 period including AMCI are included in "Selected Financial
Data."
<TABLE>
<CAPTION>
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Distribution........................................ $206,478 $238,454
Nitrogen Products................................... 54,156 147,188
Methanol............................................ -- 65,874
Other--net.......................................... (1,130) (8,176)
-------- --------
$259,504 $443,340
======== ========
Operating income (loss):
Distribution........................................ $(12,899) $(14,635)
Nitrogen Products................................... 6,988 57,384
Methanol............................................ -- 39,608
Other expense--net.................................. (1,875) (540)
-------- --------
(7,786) 81,817
Interest expense--net............................... (2,079) (11,341)
Minority interest................................... -- (16,593)
-------- --------
Income (loss) from continuing operations before
income taxes..................................... $ (9,865) $ 53,883
======== ========
</TABLE>
Distribution. Distribution revenues were $238.5 million during the first
quarter of 1995, an increase of $32 million, or 15%, over 1994 results for the
comparable period. Approximately $10 million of the growth relates to a 7.6%
increase in chemical sales resulting principally from sales to new dealer
affiliates and expansion into new locations. Growth in the Company's own brand
of Riverside(R) chemical products accounted for $5 million of the increase.
Distributed fertilizer, seed and other sales and services increased $22.0
million primarily as a result of expansion of the Company's distribution
network.
35
<PAGE>
The operating loss for the Distribution business was $14.6 million in the
first quarter of 1995 compared with an operating loss of $12.9 million in the
first quarter of 1994. Higher volumes added $5.9 million to operating income
which was more than offset by a $7.6 million increase in selling and general
and administrative expenses. The increased expenses included an increase in
compensation costs of $2.8 million due to additional personnel resulting from
expansion activities and normal wage increases. In addition, equipment leasing,
facilities costs, and operating and maintenance expenses increased $2.5
million. The Distribution segment's operations are seasonal, coincident with
crop plantings, which generally results in an operating loss for the first
calendar quarter.
Nitrogen Products. Nitrogen Products revenues increased 172% to $147.2
million in the first quarter of 1995 from $54.2 million in the first quarter of
1994. The acquisition of the Blytheville Facility and the Verdigris Facility as
part of the AMCI acquisition increased the Company's annual production capacity
from 1.3 million tons to 2.7 million tons of ammonia (including the Port Neal
Facility). The AMCI acquisition contributed $89.8 million to first quarter
revenue growth. Excluding the impact of the AMCI acquisition, revenues
increased $3.2 million or 5.9%. Due to the conversion of approximately 30% of
the capacity of the Company's Woodward, Oklahoma plant (the "Woodward
Facility") from ammonia production to methanol production, Nitrogen Products
revenues for the first quarter of 1995 were reduced by $1.7 million. In
addition, revenues for the first quarter of 1995 were reduced approximately $10
million due to the loss of production at the Port Neal Facility as a result of
the December 1994 explosion. See "--Factors Affecting Operating Results."
Operating income for the Nitrogen Products business was $57.4 million in the
first quarter of 1995 compared with $7 million in the 1994 first quarter. The
acquisition of AMCI contributed $37.3 million to the increase in operating
income. Excluding the AMCI acquisition, operating income increased $13.1
million due to price increases of $12.4 million and lower natural gas costs of
$4.2 million, offset by higher manufacturing costs for salaries and wages and
maintenance expenses.
Methanol. As described above, in April 1994, approximately 30% of the
production capacity of the Woodward Facility was converted from the production
of ammonia to the production of methanol. Additionally, through the acquisition
of AMCI in October 1994, the Company acquired the Beaumont Facility. Currently,
the annual methanol production capacity of the Woodward Facility is 40 million
gallons and of the Beaumont Facility is 280 million gallons. The Company had no
methanol operations in the first quarter of 1994.
Methanol revenues were $65.9 million and operating income for the Methanol
business was $39.6 million in the first quarter of 1995. Methanol revenues in
the first quarter of 1995 attributable to the conversion of the Woodward
Facility were $11.6 million. The market price for methanol increased
significantly in the second half of 1994 as a result of sharply higher
production of MTBE. During the first quarter of 1995, methanol prices have
decreased substantially from the unprecedented high levels reached in late
1994. Average realized prices (including the effect of the Methanol Hedging
Agreement) were $0.98 in the first quarter of 1995 as compared to $1.14 in the
fourth quarter of 1994. As of March 31, 1995, $31.3 million was reserved as
payable under the Methanol Hedging Agreement based on average prices of
methanol and natural gas for the period from October 20, 1994 through March 31,
1995. The actual amount payable for the period ending December 31, 1995
(payable in 1996) will depend on average prices for the full period of October
20, 1994 through December 31, 1995. See "Business--Methanol--Methanol
Contracts" and Note 12 to the Company's consolidated financial statements
included elsewhere and incorporated by reference herein.
The Company sold 67.2 million gallons of methanol during the 1995 first
quarter, of which 57.8 million gallons were produced at the Beaumont Facility.
During the second quarter of 1995, a scheduled maintenance turnaround was
performed at the Beaumont Facility. The costs incurred to perform the
turnaround are estimated to be $5.0 million and will be deferred and amortized
based on the Company's accounting policies.
36
<PAGE>
Other Operating Expense--Net. Other operating expense was $0.5 million in the
1995 first quarter compared with $1.9 million in the comparable 1994 period.
Other operating expense includes expenses not directly related to individual
business segments, including certain insurance coverages, corporate finance
fees and other costs. The decrease in 1995 is primarily the result of lower
costs for general administrative functions, including reduced incentive
compensation expense.
Interest Expense--Net. Interest expense, net of interest income, totaled
$11.3 million in the first quarter of 1995, compared with $2.1 million in the
first quarter of 1994. The increase is principally the result of the assumption
of the 10 3/4% Notes and the incurrence of $270 million of additional debt in
connection with the acquisition of AMCI.
Income Taxes. First quarter 1995 income tax expense was recorded at an
effective rate of 38.8% as compared with 36.3% in the first quarter of 1994.
The increased rate is the result of goodwill amortization which is not
deductible for income tax purposes.
1994 Compared With 1993
Consolidated Results. The Company reported income from continuing operations
of $56.2 million on revenues of $1.67 billion in 1994 compared with income from
continuing operations of $22.8 million on revenues of $1.24 billion in 1993.
1994 results include a full year of the operations of Asgrow acquired by Terra
on December 31, 1993, and operations of AMCI subsequent to its acquisition on
October 20, 1994. These operations added approximately $190 million to revenue
and $21 million to income from continuing operations in 1994. Excluding the
impact of these acquisitions, revenues increased 19% over 1993 and income from
continuing operations increased 46%.
Total revenues and operating income by business segment and income from
continuing operations before income taxes for the years ended December 31, 1993
and 1994 are set forth below. Results of operations for AMCI are included only
from the date of the Company's acquisition of AMCI (October 20, 1994). Pro
forma results of operations including AMCI for a full year in 1994 are included
in "Selected Financial Data."
<TABLE>
<CAPTION>
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Distribution..................................... $1,019,438 $1,318,416
Nitrogen Products................................ 228,910 296,557
Methanol......................................... -- 70,274
Other--net....................................... (10,347) (19,300)
---------- ----------
$1,238,001 $1,665,947
========== ==========
Operating income:
Distribution..................................... $ 16,903 $ 33,784
Nitrogen Products................................ 28,654 48,369
Methanol......................................... -- 42,679
Other expense--net............................... (3,729) (9,537)
---------- ----------
41,828 115,295
Interest expense--net............................ (9,683) (16,541)
Minority interest................................ -- (8,809)
---------- ----------
Income from continuing
operations before income taxes................ $ 32,145 $ 89,945
========== ==========
</TABLE>
Distribution. Distribution revenues were $1.32 billion in 1994, an increase
of $298 million, or 29%, over 1993 results of $1.02 billion. Approximately $198
million of the growth relates to a 30% increase in chemical sales resulting
principally from the operations of Asgrow acquired by Terra on December 31,
1993, which
37
<PAGE>
added approximately $80 million, expansion into new locations and higher
planted acreage. Growth in the Company's own brand of Riverside(R) products
accounted for $22 million of the increase. Distributed fertilizer sales
increased $55 million and seed and other sales and services increased $45
million as a result of higher planted acreage in 1994 and favorable weather
conditions. 1993 revenues were generally reduced by the flooding and wet
weather conditions in the central United States which reduced planted acres and
input application rates.
Operating income for the Distribution business was $33.8 million in 1994
compared with $16.9 million in 1993. Gross margin percentages within the
Distribution business remained relatively constant. Overall gross profit
increased approximately $46.5 million. Selling and general and administrative
expenses increased $24.4 million. This includes an increase in compensation
costs of $17.4 million due to additional personnel resulting from expansion
activities and normal wage increases. In addition, equipment leasing and
facilities costs increased $4.2 million.
Nitrogen Products. Nitrogen Products revenues increased 29.6% to $296.6
million in 1994 from $228.9 million in 1993. The AMCI acquisition in October
1994 accounted for $60.4 million of revenue growth. Excluding the impact of the
AMCI acquisition, revenues increased $7.3 million or 3.2%. 1994 revenues were
reduced by approximately $10 million due to the conversion of 30% of the
capacity of the Woodward Facility from ammonia production to methanol
production.
Operating income for the Nitrogen Products business was $48.4 million in 1994
compared with $28.7 million in 1993. The acquisition of AMCI contributed $18.9
million to the increase in operating income. Excluding the AMCI acquisition and
before the $7.0 million non-recurring charge related to the Port Neal Facility
explosion, operating income increased $7.8 million due to price increases of
$15.3 million, partially offset by higher natural gas costs and the conversion
of ammonia production capacity to methanol production. Operating results were
also affected by the explosion at the Port Neal Facility which occurred on
December 13, 1994.
Methanol. In 1994, Methanol revenues were $70.3 million and operating income
for the Methanol business was $42.7 million in 1994. Methanol revenues in 1994
attributable to the conversion of the Woodward Facility were $20.7 million.
Gross profit on methanol was $44.8 million and selling and general and
administrative expenses were $2.1 million. The Company had no methanol
operations in 1993.
The market price for methanol increased significantly in the second half of
1994 as a result of sharply higher production of MTBE. As of December 31, 1994,
$15.9 million was recorded as payable under the Methanol Hedging Agreement.
(See "Business--Methanol--Methanol Contracts" and Note 12 to the Company's
consolidated financial statements included elsewhere and incorporated by
reference herein).
Other Operating Expense--Net. Other operating expense was $9.5 million in
1994 compared with $3.7 million in 1993. The increase over 1993 is primarily
the result of a non-recurring 1993 gain of $4.2 million on the settlement of a
dispute with a vendor.
Interest Expense--Net. Interest expense, net of interest income, totaled
$16.5 million in 1994 compared with $9.7 million in 1993. The increase is
principally the result of higher interest expense due to the assumption of the
10 3/4% Notes and the incurrence of $270 million of additional debt, both in
connection with the acquisition of AMCI.
Income Taxes. The income tax provision increased in 1994 due to higher pretax
book income and the utilization during 1993 of previously unrecognized capital
loss carryforwards.
Extraordinary Loss. 1994 net income included an extraordinary loss of $3.1
million for the early retirement of debt.
Accounting Changes. 1994 net income includes a net gain of $3.4 million to
recognize the cumulative effect of a change in the method of accounting for
plant turnaround costs and adoption of Statement of Financial Accounting
Standards ("SFAS") 112, "Employers Accounting for Post-Employment Benefits."
38
<PAGE>
1993 Compared With 1992
Consolidated Results. The Company reported income from continuing operations
of $22.8 million on revenues of $1.24 billion in 1993, compared with income
from continuing operations of $10.4 million on revenues of $1.08 billion in
1992. The 1993 results include nine months of operation of the Canadian
Facility and farm service centers acquired in Canada effective as of March
1993, which added $98.3 million to revenues and $8.9 million to income from
continuing operations.
Total revenues and operating income by segment and income from continuing
operations before income taxes for the years ended December 31, 1992 and 1993
by segment were as set forth in the table below. The Company had no methanol
operations in 1992 or 1993.
<TABLE>
<CAPTION>
1992 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Distribution.................................... $ 958,725 $1,019,438
Nitrogen Products............................... 125,659 228,910
Other--net...................................... (2,193) (10,347)
---------- ----------
$1,082,191 $1,238,001
========== ==========
Operating income:
Distribution.................................... $ 16,568 $ 16,903
Nitrogen Products............................... 14,841 28,654
Other expense--net.............................. (5,690) (3,729)
---------- ----------
25,719 41,828
Interest expense--net........................... (7,533) (9,683)
---------- ----------
Income from continuing operations before
income taxes................................. $ 18,186 $ 32,145
========== ==========
</TABLE>
Distribution. Distribution revenues were $1.02 billion in 1993, an increase
of $60.7 million or 6.3% from 1992 Distribution revenues of $959 million.
Approximately $17.7 million of the sales increase reflected a 3% increase in
chemical sales, while the acquisition of the Canadian Facility 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 Facility
added $4.0 million to Distribution operating income. U.S. operating income also
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 an $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.
Nitrogen Products. Nitrogen Products revenues increased 82% to $228.9 million
in 1993 from $125.7 million in 1992. The acquisition of the Canadian Facility
added $78.2 million of manufactured nitrogen sales. Excluding such acquisition,
Nitrogen Products revenues increased 20% to $150.7 million, with sales volumes
39
<PAGE>
adding 15% to revenues and higher selling prices for nitrogen fertilizer and
feed products increasing 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 Nitrogen Products business in 1993 was $28.7
million, compared with $14.8 million in 1992. The Canadian Facility contributed
$9.5 million to the increase in 1993 operating income. Additional higher U.S.
sales volumes contributed $4.0 million to earnings for 1993. Expanded 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 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 Expense--Net. Other operating expense was $3.7 million in
1993, compared with $5.7 million in 1992. The $2.0 million reduction was
primarily the result of reversing $4.2 million of product liability reserves
expensed in 1989, reflecting the settlement of litigation with E.I. du Pont de
Nemours and Company ("DuPont") over the fungicide, Benlate, and a $2.4 million
increase in corporate and unallocated expenses, including $1.4 million related
to losses on dispositions of short-term investments prior to maturity and $0.8
million in compensation expense tied to increases in the market price of the
Company's stock.
Interest Expense--Net. Interest expense, net of interest income, totaled $9.7
million in 1993, compared with $7.5 million in 1992. Interest expense increased
due to the November 1992 issuance of $30.0 million of unsecured notes.
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 net operating loss carryforwards of $55 million and tax credits of
$1.7 million to offset taxable income and regular tax liabilities,
respectively.
Accounting Changes. 1992 net income included a credit of $22.3 million to
recognize the combined effect of changes in accounting for income taxes and
retiree medical benefits. The credit resulted principally from the recognition
of income tax benefits from net operating loss ("NOL") and tax credit
carryforward positions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses for cash are to fund its working capital needs,
make payments on its indebtedness and other obligations, pay quarterly
dividends to the Company's stockholders and make quarterly distributions on
TNCLP's Senior Preference Units, and make capital expenditures. The Company's
principal sources of funds are cash flow from operations and borrowings under
the Credit Agreement. The Company believes that cash from operations and
available financing sources will be sufficient to meet anticipated cash
requirements for seasonal operating needs, capital expenditures and expansion
strategies. Cash generated from operations during 1995 is expected to be
adequate to meet normal business requirements and pay down debt. Cash balances
as of March 31, 1995 and December 31, 1994 were $133.1 million and $158.4
million, respectively, of which $9.6 million was used to collateralize letters
of credit supporting recorded liabilities.
Quarterly dividends on the Company's common shares of $0.02 per share were
paid during 1994 and the first quarter of 1995, representing cash outlays of
$5.8 million and $1.6 million, respectively. On August 2, 1995, the Company
increased its regular quarterly dividend to $0.03 per common share. The holders
of TNCLP's Senior Preference Units are entitled to receive a minimum quarterly
distribution of $0.605 per unit, or $4.6 million, plus arrearages before any
distribution to the Company with respect to its Junior Preference Units or
Common Units. In 1995, distributions to holders of the SPUs were $0.66 per SPU
or $5.0 million in the aggregate during the first quarter and $1.14 per SPU or
approximately $8.7 million in the aggregate during the second quarter. In
addition, a distribution has been declared payable August 29, 1995 of $1.73 per
SPU or approximately $13.0 million in the aggregate. As of July 31, 1995, there
were no distributions on SPUs in arrears.
40
<PAGE>
During 1994, the Company utilized cash from operations, proceeds from a stock
issuance and cash available under the Credit Agreement to purchase AMCI, retire
existing debt, fund capital expenditures, invest in additional farm service
centers and provide for seasonal working capital requirements. AMCI was
acquired for $400 million plus working capital adjustments of approximately
$100 million. As part of the AMCI acquisition, the Company assumed $175 million
aggregate principal amount of the 10 3/4% Notes. The Company received net
proceeds of $113.0 million from the issuance of 9.7 million of the Company's
common shares, which was used to fund in part the AMCI acquisition. The Credit
Agreement was used to finance the remainder of the AMCI acquisition, retire $75
million of debt, replace certain revolving credit agreements and redeem $16.2
million of the 10 3/4% Notes. Cash used for acquisitions in the first quarter
of 1995 included a $6.1 million payment made as the final working capital
adjustment in connection with the AMCI acquisition.
As of March 31, 1995 and December 31, 1994, borrowings under the Credit
Agreement totaled $369.0 million and $359.0 million, respectively. Interest
charged under the Credit Agreement is based on LIBOR. The Company has acquired
an interest rate collar that has the effect of capping interest costs at 8.5%
to 9% on a cumulative basis through December 31, 1997 for $190.0 million of
outstanding indebtedness. The amount of principal subject to the interest rate
collar declines over such period. Principally as a result of financing the AMCI
acquisition, the Company's debt, including current maturities, as a percentage
of total capital, including minority interest, was 48% and 50% as of March 31,
1995 and December 31, 1994, respectively, as compared with 35% as of December
31, 1993. See "Capitalization" and "Description of Other Indebtedness."
In addition to amounts related to the AMCI acquisition, the Company funded
from available cash $4.2 million to acquire new locations for its distribution
network in the first quarter of 1995 and $16.3 million of farm service center
acquisitions (including the interest in Royster-Clark) in 1994. In 1993, the
Company acquired interests in 32 farm service centers and the rights to the
Canadian Facility through an operating lease and payment of $19.9 million cash.
Additionally, the Company purchased the assets and business of Asgrow on
December 31, 1993 with $39 million paid from available cash.
Purchases of property, plant and equipment totaled $31.2 million in 1994
compared with $21.6 million in 1993. The capital expenditures in 1994 included
$16.4 million for expansions and routine equipment replacements within the
Distribution business and $14.8 million for improvements at manufacturing
facilities. The capital expenditures in 1993 included $14.7 million for
expansions and routine replacements within the Distribution business and $6.9
million for improvements at manufacturing facilities. The improvements at
manufacturing facilities included $8.6 million in 1994 and $6.9 million in 1993
for the conversion of a portion of the capacity of the Woodward Facility from
ammonia production to methanol production.
The Company expects 1995 capital expenditures to be approximately $40
million, consisting of the acquisition of service centers, routine replacement
of equipment and efficiency improvements at manufacturing facilities. In
addition, the Company expects capital expenditures in 1995 of approximately $30
million for expansion and design improvements at the Port Neal Facility.
Furthermore, as a result of an ongoing plant upgrade project, the Canadian
Facility's liquid urea and granulation capacities are expected to increase. The
project is expected to be completed in the 1995 fourth quarter and will enable
the replacement of 65,000 tons of annual ammonia sales with higher margin urea
and UAN sales. The project cost is estimated to be approximately $20 million
and is expected to be funded principally through lease financing.
Asset sales in 1993 generated $24.4 million, including $18.5 million from the
sale of the Company's construction materials business and $5.9 million from the
sale of the remaining leasing business, both of which were discontinued
businesses.
Accounts receivable increased from year end 1993 to year end 1994 by $34.3
million due, in part, to $53.8 million in receivables added through
acquisitions. Excluding the impact of acquisitions, accounts
41
<PAGE>
receivable declined due to the sale of $50.0 million of a designated pool of
outstanding receivables which more than offset the effect of increased fourth
quarter sales. Accounts receivables were $213.9 million as of March 31, 1995 as
compared to $157.0 million as of December 31, 1994. The increase was due to
seasonal first quarter sales of the Company's nitrogen fertilizer and chemical
products as well as higher nitrogen fertilizer prices. Inventories increased
$88.0 million in 1994 as compared to 1993, including $28.6 million related to
acquisitions. The remaining increase is the result of off-season purchasing to
obtain discounts and to meet anticipated product demand. Accounts payable also
increased as a result of such purchases. Inventories were $538.1 million at
March 31, 1995 as compared to $333.0 million at December 31, 1994. The
inventory increase was attributable to the seasonal inventory build-up in
anticipation of the spring planting season and the higher cost of nitrogen
products purchased from manufacturers other than the Company. The ratio of
current assets to current liabilities declined from 2.0 to 1 at December 31,
1993 to 1.6 to 1 at December 31, 1994, primarily as the result of 1994
acquisition activity. The ratio of current assets to current liabilities was
1.5 to 1 at March 31, 1995.
The Company's 8.5% Convertible Subordinated Debentures (the "Debentures")
were convertible into common shares of the Company any time prior to maturity
at a conversion price of $8.083 per share. The Debentures were 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 Company. During March 1994, the Company
redeemed $72.1 million of the Debentures at the redemption price of 103.4% of
par value. During the 20-day notice period, holders of $5.9 million chose to
convert their debentures into common stock of the Company. The Company issued
730,768 of its common shares and paid cash for fractional shares. No Debentures
remain outstanding.
In July 1993, the Company's Board of Directors authorized a share repurchase
program for up to two million of the Company's common shares. No shares were
repurchased in 1994 or in the first quarter of 1995. During 1993, 106,900
shares were repurchased for $0.5 million.
OPEN MARKET PURCHASE PROGRAM FOR TNCLP SPUS
On March 27, 1995, the Company proposed to the Board of Directors of TNC a
transaction in which the Company would acquire by merger all of the outstanding
Senior Preference Units of TNCLP for $30.00 per Senior Preference Unit (less
the amount of any distributions declared per SPU in excess of $0.66 per SPU for
the quarter ended March 31, 1995). The Company and an independent committee of
the Board of Directors of TNC designated to represent the holders of the SPUs
were unable to reach an agreement on price and, on May 11, 1995, the Company
withdrew its offer. For a description of certain projections provided to the
TNC independent committee and its representatives in connection with such
proposal, see the Company's Current Report on Form 8-K dated May 11, 1995
incorporated by reference herein.
On May 11, 1995, the Board of Directors of the Company approved an open
market purchase program pursuant to which the Company may purchase up to five
million SPUs from time to time at prices and in quantities as determined by the
Company's management. As of March 31, 1995, there were 7,636,364 SPUs
outstanding. Prior to the commencement of the open market purchase program, the
Company and its subsidiaries did not own any SPUs. As of July 31, 1995, the
Company had applied $3.6 million of the net proceeds of the Offering to the
purchase of an aggregate of 125,000 SPUs. See "Use of Proceeds" and
"Description of Other Indebtedness."
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BUSINESS
GENERAL
The Company is a leader in each of its three business segments: (i) the
distribution of crop production inputs and services, (ii) the manufacture of
nitrogen products and (iii) the manufacture of methanol. 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. The Company is also the third largest producer of anhydrous ammonia and
one of the two largest producers of nitrogen solutions in the United States and
Canada. In addition, the Company is one of the largest U.S. manufacturers and
marketers of methanol.
The Company's distribution network serves the United States and eastern
region of Canada and has grown over the last several years to include, as of
March 31, 1995, approximately:
. 370 farm service centers;
. 100 fertilizer storage facilities, most of which are leased and
approximately half of which are operated by TNLP; and
. 780 affiliated dealer locations.
The Company's production facilities are comprised of:
. five nitrogen fertilizer plants, which are located in Oklahoma (the
Woodward Facility and the Verdigris Facility), Iowa (the Port Neal
Facility), Ontario, Canada (the Canadian Facility) and Arkansas (the
Blytheville Facility) (the Verdigris Facility and the Blytheville
Facility are owned by TNLP);
. a methanol production plant, which is located in Texas (the Beaumont
Facility) (the Woodward Facility also includes some methanol
production capacity);
. a crop protection chemical formulation plant, which is located in
Arkansas (the "Blytheville Formulation Facility"); and
. seven additional liquid chemical formulation facilities.
The Port Neal Facility was the site of a major explosion on December 13, 1994
and is expected to be fully operational again in mid-1996. At the time of the
explosion, the Port Neal Facility accounted for approximately 15% of the
Company's annual ammonia fertilizer production capacity. The Company will
recover insurance proceeds for substantially all of its property damage, third-
party liability claims and business interruption losses. The Company has
reserved $7 million to cover insurance deductibles and uninsured costs related
to the explosion.
DISTRIBUTION
The Company's farm service center network is a distribution and marketing
system for a comprehensive line of fertilizers, crop protection products, seeds
and services. The Company's customers are primarily farmers and dealers located
in the midwestern and southern regions of the United States, and the eastern
region of Canada.
Products
The Company markets a comprehensive line of crop protection products
(herbicides, insecticides, fungicides, adjuvants, plant growth regulators,
defoliants, desiccants and other agricultural chemicals), fertilizer (nitrogen,
phosphates, potash and micronutrients) and seed.
Although most crop protection products marketed by the Company are
manufactured by unaffiliated suppliers, the Company also markets its own
Riverside(R) brand products. Riverside(R) products represented
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approximately 15% of the Company's total crop protection product sales in 1994.
As of March 31, 1995, the Riverside(R) line includes approximately 150
products, of which 30 were added in the past twelve months, and consists of
herbicides, insecticides, fungicides, adjuvants, seed treatments, plant growth
regulators, defoliants and desiccants. The majority of Riverside(R) products
are formulated or 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
generally provide higher margins for the Company than products manufactured by
unaffiliated suppliers. The sale of such products, however, involves additional
indirect costs, including the cost of maintaining and disposing of excess
inventory and potentially greater liability for product defects. The Company
possesses and processes the registrations required by the EPA for Riverside(R)
pesticide products.
The Company markets several major seed brands and, in its United States
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. These products
represented approximately 15% of total seed sales in 1994. The Company also has
an exclusive retail storefront marketing and distribution agreement for DEKALB
brand seed in the Midwest, which accounted for approximately 10% of total 1994
seed sales.
Services
In addition to selling products required to grow crops, the Company's farm
service centers offer a wide variety of services to grower customers. These
services include soil and plant tissue analysis, crop production program
recommendations, custom blending of fertilizers, field application services,
field inspections for pest control and crop program performance follow-up. The
farm service centers utilize the Company's Ag Analytical Services laboratory in
Elida, Ohio to analyze nutrient levels in soil and plant tissue samples. The
results of these tests are used by the Company's proprietary CropMaster(R)
program to provide specific, localized soil fertility recommendations for
specific crops on a field-by-field basis. Crop input recommendations are
provided through 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 markets. 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.
In connection with product sales to dealers, the Company provides warehousing
and delivery services. For selected dealer customers, the Company offers a
service package called MarketMaster(TM). The package includes environmental and
safety audits, business management and agronomic training courses, access to
the Company's Ag Analytical Services laboratory, use of the CropMaster(R)
program and other services. There were 517 MarketMaster(TM) dealer sites at
March 31, 1995.
Marketing and Distribution
The Company markets its products primarily to agricultural customers,
including both dealers and growers. For 1994, approximately 65% of the
Company's distribution revenues were attributable to retail sales through farm
service center locations and approximately 35% were attributable to wholesale
sales to dealers.
The Company also markets its products through its Professional Products(R)
group to non-farm customers, including turf growers, nurseries, golf courses,
parks, athletic facilities and utility companies. The Company offers these
customers herbicides, insecticides, fungicides, fertilizer, adjuvants, plant
growth regulators, seed and agronomic services. The Professional Products(R)
personnel generally work through the Company's farm service centers, using
established delivery systems and product lines.
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The Company's distribution operations are organized into Northern and
Southern Divisions, which include 13 separate geographical 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 the Ag Analytical Services laboratory, a staff of Technical
Service Representatives and a research station where the efficacy of various
crop protection products and the performance of numerous seed varieties are
tested.
Properties
The Company's farm service centers are located on a combination of owned and
leased properties and a majority of the buildings and other improvements
thereon are owned in fee. The leases have varying expiration dates through the
year 2007.
Product Formulations
The Company's Blytheville Formulation Facility formulates dry flowable ("DF")
crop protection products and liquid crop protection chemicals in separate
production lines at the same location. DF formulations are dry, water-
dispersible granules that are mixed with water before application. Because of
their dry form, 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 Formulation
Facility is one of the 13 known DF plants in the U.S. and formulates eight DF
products and six liquid products. Approximately 50% of the plant's volume in
1994 was attributable to the Company's own Riverside(R) brand product line. The
Company has developed several DF formulations which are 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 Formulation Facility.
NITROGEN PRODUCTS
Nitrogen is one of three primary nutrients essential for plant growth.
Nitrogen fertilizer products must be reapplied each year in areas of extensive
agricultural usage because of absorption by crops and its tendency to escape
from the soil. There are currently no substitutes for nitrogen fertilizer in
the cultivation of high-yield crops.
The Company is a major producer and distributor of nitrogen products,
principally fertilizers. The Company's principal nitrogen products are ammonia,
urea and UAN. A significant portion of the Company's ammonia production is
upgraded into other nitrogen fertilizer products such as urea and UAN.
Products
Although, to some extent, the various nitrogen fertilizer products are
interchangeable, each has its own distinct characteristics which produce
agronomic preferences among end users. Farmers decide which type of nitrogen
fertilizer to apply based on the crop planted, soil and weather conditions,
regional farming practices, relative nitrogen fertilizer prices and the cost
and availability of appropriate storage, handling and application equipment.
Ammonia. Anhydrous ammonia is the simplest form of nitrogen fertilizer and is
the feedstock for the production of most other nitrogen fertilizer, including
urea and UAN. It is produced by reacting natural gas with steam and air at high
temperatures and pressures in the presence of catalysts. It has a nitrogen
content of 82% by weight and is generally the least expensive form of
fertilizer per unit of nitrogen.
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Urea. Solid urea is produced for both the feed and fertilizer market by
converting ammonia into liquid urea, which can be turned into a solid which is
either prilled or granulated. Urea has a nitrogen content of 46% by weight, the
highest level for any solid nitrogen product. Granular urea is generally sold
as fertilizer and prilled urea is generally sold as a feed supplement. The
Company produces both granular and prilled urea.
UAN Solution. The Company produces UAN at all five of its fertilizer
manufacturing facilities. The Verdigris Facility in Oklahoma is the largest UAN
production facility in the United States. UAN is produced by combining liquid
urea and ammonium nitrate in water. The nitrogen content of UAN is typically
28% to 32% by weight. UAN is a liquid fertilizer and, unlike ammonia, is
generally odorless and does not need to be refrigerated or pressurized for
transportation or storage.
UAN may be applied separately or may be mixed with various crop protection
products, permitting the application of several materials simultaneously, and
thus reducing energy and labor costs. In addition, UAN may be applied from
ordinary tanks and trucks and can be sprayed or injected into the soil, or
applied through irrigation systems, throughout the growing season. UAN is
relatively expensive to transport and store because of its high water content.
Due to its stable nature, UAN may be used for no-till row crops where
fertilizer is spread upon the surface but may be subject to volatilization
losses. The use of conservation tilling, which reduces erosion, is increasing
in the United States, and the Company believes this trend, if continued, should
have a positive impact on UAN demand.
The Company's sales mix of nitrogen products (including TNLP on a pro forma
basis) for the years ended December 31, 1992, 1993 and 1994 were approximately
as follows (based on tons sold):
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Ammonia.................................................... 21% 23% 25%
Urea....................................................... 15% 16% 16%
UAN........................................................ 64% 61% 59%
</TABLE>
Plants
All of the Company's Facilities, are integrated facilities for the production
of ammonia, liquid urea and UAN and other nitrogen fertilizer solutions. In
addition, the Canadian Facility produces solid urea. The total annual gross
ammonia production capacity of the Company's nitrogen fertilizer facilities is
currently 2.7 million tons, including the Port Neal Facility which was damaged
by an explosion in December 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Each of the Company's five fertilizer manufacturing facilities is designed to
operate continuously, except for planned biennial shutdowns for maintenance and
installation of efficiency improvements. Capacity utilization (gross tons
produced divided by capacity tons at expected operating rates and on stream
factors) of Terra International's manufacturing facilities for the years ended
December 31, 1994, 1993 and 1992, in the aggregate, was approximately 93%, 102%
and 99%, respectively. Capacity utilization of TNLP's manufacturing facilities
for the years ended December 31, 1994, 1993 and 1992, in the aggregate, was
approximately 96%, 101% and 107%, respectively.
The Canadian Facility's liquid urea and granulation capacities are expected
to increase as a result of an ongoing plant upgrade project. The project is
expected to be completed in the 1995 fourth quarter and will enable the
replacement of 65,000 tons of annual ammonia sales with urea and UAN sales. The
project cost is estimated to be approximately $20 million and is expected to be
funded through lease financing.
Marketing and Distribution
The Company's principal customers for its manufactured nitrogen products are
large independent dealers, national retail chains, cooperatives and industrial
customers. Industrial customers accounted for approximately 13% of the
Company's total 1994 sales of its manufactured nitrogen products. In 1994,
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approximately 10% of the Company's fertilizer production was sold through its
farm service center locations to retail customers, while the rest was sold to
outside customers. In 1994, no customer accounted for greater than 10% of total
manufactured nitrogen fertilizer sales.
The Company has production facilities and significant storage capacity in
major fertilizer consuming regions which allow it to be a major supplier of
nitrogen fertilizers.
METHANOL
The Company substantially increased its participation in the methanol
production industry in October 1994 with the acquisition of the Beaumont
Facility as part of the acquisition of AMCI. The Company has approximately 320
million gallons of annual methanol production capacity, representing
approximately 15% of the total United States rated capacity in production at
the end of 1994.
Product
Methanol is a liquid petrochemical made primarily from natural gas. It is
used primarily as a feedstock in the production of other chemical products such
as formaldehyde, acetic acid and chemicals used in the building products
industry. Methanol is also used as a feedstock in the production of MTBE, an
oxygenate and octane enhancer used as an additive in reformulated gasoline.
Reformulated gasoline has lower volatility and is less aromatic than gasoline.
The methanol manufacturing process involves heating the natural gas feedstock,
mixing it with steam and passing it over a nickel-based catalyst, which breaks
it down into carbon monoxide, carbon dioxide and hydrogen. This reformed gas is
then cooled, compressed and passed over a copper-zinc based catalyst to produce
crude methanol. Crude methanol consists of approximately 80% methanol and 20%
water. In order to convert it to high-purity chemical grade methanol suitable
for sale, the crude methanol is distilled to remove the water and other
impurities.
Plants
During the first half of 1994, the Company completed the capital improvements
necessary to produce methanol instead of ammonia for a portion of the Woodward
Facility's capacity. The unique design of the Woodward Facility enabled this
conversion to be accomplished for $16.0 million of capital spending, which the
Company believes is approximately half the capital cost required to convert
other ammonia plants to methanol production. The Company currently has
approximately 40 million gallons of annual methanol capacity at the Woodward
Facility.
The Beaumont Facility is the largest methanol production plant in the United
States, with approximately 280 million gallons of annual methanol capacity. The
plant and processing equipment at the Beaumont facility are owned by BMLP, and
the land is leased from E.I. du Pont de Nemours and Company ("DuPont") for a
nominal annual rental under a lease agreement which expires in 2090. Because
the Beaumont Facility is entirely contained in a complex owned and operated by
DuPont (the "Beaumont Complex"), BMLP depends on DuPont for access to the
Beaumont Facility. BMLP also relies on DuPont for access and certain essential
services relating to the wharf located at the Beaumont Complex through which
most of the finished methanol product is shipped to customers and the pipelines
used to transport it and to obtain natural gas, as well as for certain
utilities and waste water treatment facilities and other essential services.
Marketing and Distribution
Effective February 2, 1995, BMLP terminated a marketing services agreement
pursuant to which the marketing of methanol from the Beaumont Facility had been
conducted for over a year on an exclusive basis by Trammochem, a division of
Transammonia, Inc. The services provided by Trammochem included analysis of
market conditions for methanol, marketing and sales on a contract basis and
sales on a spot basis,
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arrangement of transportation of methanol to customers and customer relations
activities. BMLP retained responsibility for the invoicing and collection of
payments from customers and for loading transportation equipment in accordance
with customer requirements. BMLP paid Trammochem a fee based on the Beaumont
Facility's earnings and sales. Employees of the Company have assumed all
functions previously provided by Trammochem. The Company does not believe that
its aggregate marketing costs for methanol will be materially different from
those under the Trammochem agreement.
Methanol customers are primarily large chemical or MTBE producers located in
the United States; however, some sales have been made to customers in Central
and South America.
Methanol Contracts
BMLP has a number of long-term methanol sales contracts, the most significant
of which is with DuPont (the "DuPont Contract"). In 1994, BMLP sold
approximately 60% of its production under such contracts. For 1995, BMLP has
contracted to sell approximately 75% of its production at prices indexed to
published sources. Most of the these sales contracts (other than the DuPont
Contract) cover fixed volumes and have terms of up to three years.
Under the DuPont Contract, DuPont has agreed to purchase 108 million gallons
of methanol each year until 2001 (representing 39% of the Beaumont Facility
capacity). The DuPont Contract will continue in effect after the initial term
unless terminated by either party on two year's notice. Commencing in 1998,
BMLP and DuPont will each have the unilateral right (exercisable one time only
for the remaining term of the contract on not less than two years prior written
notice) to reduce permanently the contract quantity to be delivered by BMLP to
DuPont in any year by up to 54 million gallons. The price for the methanol
delivered under the DuPont Contract is generally indexed to a published source.
Under the Methanol Hedging Agreement, BMLP received a $4 million lump sum
payment in exchange for agreeing to make payments based on the market prices of
methanol and natural gas for the periods October 20, 1994 to December 31, 1995,
calendar year 1996 and calendar year 1997. Payments are generally due five
business days after the end of the applicable period. BMLP will be required to
make payments under the Methanol Hedging Agreement if methanol prices remain
high relative to natural gas prices as compared with historical price levels.
Through the Beaumont Facility and the Company's other methanol production
capabilities, the Company will benefit from such market price differences at
any time at which it is required to make payments under the Methanol Hedging
Agreement. As a result of making such payments, however, BMLP will not benefit
fully from increases in the price of methanol during the term of the Methanol
Hedging Agreement. As of March 31, 1995, $31.3 million was reserved as payable
under the Methanol Hedging Agreement based on average prices of methanol and
natural gas for the period from October 20, 1994 through March 31, 1995. The
actual amount payable for the period October 20, 1994 through December 31, 1995
(payable in 1996) will depend on average prices for the full period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Operating Results." See also Note 12 to the
Company's consolidated financial statements included elsewhere and incorporated
by reference herein.
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
secured, interest bearing financing to qualified grower customers for their
operating and crop input requirements on extended payment terms. The Company
provided approximately $25 million in 1993 and $65 million in 1994 in credit
lines to grower customers under this program. Although the Company does not
believe it has sufficient experience with the program to provide a meaningful
evaluation of the associated credit risk, to date it has not experienced any
significant bad debts in its grower finance program.
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RAW MATERIALS
The principal raw material used to produce nitrogen fertilizer and methanol
is natural gas. The Company estimates that natural gas costs comprised nearly
50% of the total costs and expenses associated with the Company's manufactured
fertilizer operations in 1994. The Company estimates that natural gas
represents over 50% of the costs and expenses associated with its methanol
operations. A significant increase in the price of natural gas that could not
be recovered through an increase in nitrogen fertilizer or methanol prices
could have a material adverse effect on the Company's profitability and cash
flow. The Company's natural gas procurement policy is to fix or cap the price
of approximately 40% to 80% of its natural gas requirements for a 12-month
period through various supply contracts, financial derivatives and other
forward pricing techniques. Depending on market conditions, the Company may
also fix or cap the price for natural gas for longer periods of time. In the
first quarter of 1995, due to the decline in natural gas prices, the Company
extended its forward pricing positions for natural gas. The settlement dates
are scheduled to coincide with gas purchases during such future periods. The
Company believes that there is sufficient supply to allow stable costs for the
foreseeable future and has entered into firm contracts to minimize the risk of
interruption or curtailment of natural gas supplies during the heating season.
As of March 31, 1995, the Company had fixed prices for approximately 65% of its
natural gas requirements for the remainder of 1995, 42% for 1996 and 22% for
1997. Liquidation of these financial derivatives based on March 31, 1995 market
prices would have resulted in a loss of $10.0 million.
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 manufacturers of
the products without an internal capability to distribute products to the North
American grower.
TRANSPORTATION
The Company uses several modes of transportation to receive and distribute
products to customers and its own locations, including railroad cars, common
carrier trucks, barges, common carrier pipelines and Company-owned or leased
vehicles. The Company utilizes approximately 100 liquid, dry and anhydrous
ammonia fertilizer terminal storage facilities (some of which are in the same
locations and some of which are operated by TNLP) in numerous states and in
Ontario, Canada. The Company also has varying amounts of warehouse space at
each of its farm service centers and has one methanol storage facility in
Beaumont, Texas.
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-
operators and 15 Company drivers to deliver fertilizer, crop protection
products, seed, feed ingredients and other products to its own facilities and
customers. At its manufacturing facilities, Blytheville Formulation Facility
and liquid fertilizer storage locations, the Company utilizes railcars as the
major method of transportation. All of the Company's approximately 2,000
railcars are leased.
Purchased natural 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; however, the Company has
retained its alternative connection to a local utility service to preserve some
flexibility. The Company transports purchased natural gas for the Woodward
Facility and the Verdigris 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, and has
limited access to supplies outside the state. The Canadian 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. The Company transports purchased natural gas for the
Blytheville Facility through a natural gas pipeline company under an agreement
that extends through September 1998.
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For the Beaumont Facility, the Company transports products primarily by
marine transport via the Neches River to the Intercoastal Canal and the Gulf of
Mexico and via pipeline to selected customers. Access to the wharf and the
pipeline used at the Beaumont Facility is provided through agreements with
DuPont.
RESEARCH AND DEVELOPMENT
The Company operates a 70-acre Agronomy Research Station near its Port Neal
Facility for program development and product 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 Blytheville Formulation Facility.
COMPETITION
The market for the fertilizer, crop protection products and seed distributed
by the Company is highly competitive. In 1994, sales attributable to the
Company's farm service centers accounted for less than 10% of total crop
production products sold in the U.S. Within the specific market areas served by
its farm service centers, however, the Company's share of the market was
substantially higher in most instances. 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 in its
Distribution business primarily on the basis of providing a comprehensive line
of products and by providing what the Company believes to be superior services
to growers and dealers as well as on the basis of price.
Nitrogen fertilizer is a global commodity and customers, including end-users,
dealers and other fertilizer producers, base their purchasing decisions
principally on the delivered price and availability of the product. The Company
competes with a number of U.S. producers, and producers in other countries,
including state-owned and government-subsidized entities. Some of the Company's
principal competitors may have greater total resources and may be less
dependent on earnings from nitrogen fertilizer sales than the Company. Some
foreign competitors may have access to lower cost or governmental-subsidized
natural gas supplies. The Company believes that it competes with other
manufacturers of nitrogen fertilizer on the basis of delivery terms and
availability of products as well as on price.
The methanol industry, like the fertilizer industry, is highly competitive
and such competition is based largely on price, reliability and deliverability.
The relative cost and availability of natural gas and the efficiency of
production facilities are important competitive factors. Significant
determinants of a plant's competitive position are the natural gas acquisition
and transportation contracts that a plant negotiates with its major suppliers.
Domestic competitors for methanol include a number of large integrated
petrochemical producers, many of which are better capitalized than the Company.
In addition, the production and trade of methanol has become increasingly
global, and a number of foreign competitors produce methanol primarily for the
export market.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's operations are subject to various federal, state and local
environmental, safety and health laws and regulations, including laws relating
to air quality, hazardous and solid wastes and water quality. The operations of
Terra Canada are subject to various federal and provincial regulations
regarding such matters, including the Canadian Environmental Protection Act
administered by Environment Canada, and the Ontario Environmental Protection
Act administered by the Ontario Ministry of the Environment. The Company is
also involved in the manufacture, handling, transportation, storage and
disposal of materials that are or may be classified as hazardous or toxic by
federal, state, provincial or other regulatory agencies. Precautions are taken
to reduce the likelihood of accidents involving these materials. If such
materials have been or are disposed of at sites that are targeted for
investigation and remediation by federal or state regulatory authorities, the
Company may be responsible under CERCLA or analogous state laws for all or part
of the costs of such investigation and remediation.
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Terra International has been designated as a PRP under CERCLA and its state
analogues with respect to various sites. Under such laws, all PRP's may be held
jointly and severally liable for the costs of investigation and remediation of
an environmentally damaged site regardless of fault or legality of original
disposal. After consideration of such factors as the number and levels of
financial responsibility of other PRP's, the existence of contractual
indemnities, the availability of defenses and the speculative nature of the
costs involved, the Company's management believes that its liability with
respect to these matters will not be material.
Certain state regulatory agencies have enacted requirements to provide
secondary containment for bulk agricultural chemical storage facilities present
at the Company's farm service centers and terminals. It is expected that other
states will adopt similar requirements pursuant to federal mandate. The Company
has commenced construction of these facilities at its farm service centers and
terminals, and estimates that the future cost of complying with these
regulations in 1995 and beyond will be approximately $6.5 million.
With respect to the Verdigris Facility and Blytheville Facility, Freeport-
McMoRan Resource Partners, Limited Partnership ("FMRP") (a former owner and
operator of such facilities) retains liability for certain environmental
matters. With respect to the Beaumont Facility, DuPont retains responsibility
for certain environmental costs and liabilities stemming from conditions or
operations to the extent such conditions or operations existed or occurred
prior to the 1991 disposition by DuPont. The Company does not believe that such
environmental costs and liabilities whether or not retained by FMRP or DuPont,
will have a material effect on the Company's financial condition or results of
operations.
Insulation and other construction or building materials at certain Company
plants contain asbestos. Over 400 suits have been filed by contractors'
employees against DuPont based on exposure to asbestos-containing material at
the complex in which the Beaumont Facility is located. At least nine of these
are directly related to the Beaumont Facility. An estimate of potential
liability associated with these suits is not available. DuPont retains
responsibility for all claims based on exposure to hazardous materials,
including asbestos, occurring prior to the 1991 disposition by DuPont. Although
no suit relating to asbestos exposure has been filed against the Company to
date, the possibility exists that liability could be incurred in the future for
claims based on exposure to asbestos-containing material after such
acquisition.
The Company may be required to install additional air and water quality
control equipment, such as low nitrous oxide burners, scrubbers, ammonia
sensors and continuous emission monitors, at certain of its facilities in order
to maintain compliance with Clean Air Act and Clean Water Act requirements.
These equipment requirements are also typically applicable to competitors as
well. The Company estimates that the cost of complying with these requirements
will total approximately $11 million to $13 million through 1997.
The Company endeavors to comply (and has incurred substantial costs in
connection with such compliance) in all material respects with applicable
environmental, safety and health regulations. The Company does not expect its
continued compliance with such regulations to have a material adverse effect on
its earnings or competitive position.
EMPLOYEES
The Company had approximately 3,200 full-time employees at December 31, 1994,
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 1994.
LITIGATION
Various legal proceedings are pending against the Company and its
subsidiaries. Management of the Company considers that the aggregate liability
resulting from these proceedings will not be material to the Company.
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<PAGE>
MANAGEMENT
Set forth below is certain information with respect to the directors and
executive officers of the Company as of March 31, 1995.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Reuben F. 65 Chairman and Director
Richards
Burton M. 53 President, Chief Executive Officer and Director
Joyce
Michael L. 41 Senior Vice President, Distribution
Bennett
John S. 54 Vice President, Human Resources
Burchfield
Francis G. 43 Vice President and Chief Financial Officer
Meyer
Paula C. 49 Vice President, Corporate and Investor Relations
Norton
W. Mark Ro- 47 Executive Vice President (and President of TNC)
senbury
Robert E. 43 Vice President, Controller
Thompson
George H. 46 Vice President, General Counsel and Corporate Secretary
Valentine
Edward G. 62 Director
Beimfohr
Carol L. 51 Director
Brookins
Edward M. 65 Director
Carson
David E. 52 Director
Fisher
Basil T. A. 68 Director
Hone
Anthony W. 46 Director
Lea
John R. Nor- 65 Director
ton III
Henry R. 45 Director
Slack
</TABLE>
Reuben F. Richards has been a director of the Company since 1982. Mr.
Richards has served as Chairman since December 1982 and was Chief Executive
Officer from December 1982 to May 1991 and President from July 1983 to May
1991. He has been a director of Engelhard Corporation since prior to 1990 and
served as Chairman of the Board thereof from May 1985 to December 1994. He has
served as Chairman of the Board of Minorco (U.S.A.) Inc. since May 1990 and
Chief Executive Officer and President thereof since February 1994.
Burton M. Joyce has been a director of the Company since 1986. Mr. Joyce has
served as President and Chief Executive Officer since May 1991 and served as
Executive Vice President and Chief Operating Officer from February 1988 to May
1991.
Michael L. Bennett has served as Senior Vice President, Distribution of the
Company since February 1995. Mr. Bennett has served as Senior Vice President,
Distribution of Terra International since October 1994 and served as Vice
President, Northern Division from January 1992 to October 1994 and Vice
President, Wholesale Fertilizer Division from January 1990 to January 1992.
John S. Burchfield has served as Vice President, Human Resources of the
Company since March 1992. Mr. Burchfield served as Vice President, Human
Resources of AON Corporation from January 1989 to November 1991 and Vice
President, Human Resources for Denny's International, National Education Corp.
and American Hospital Supply Corp. prior thereto.
Francis G. Meyer has served as Vice President and Chief Financial Officer of
the Company since November 1993. Mr. Meyer served as Controller from August
1991 to November 1993. He served as Vice President, Controller of Terra
International from June 1986 to August 1991.
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<PAGE>
Paula C. Norton has served as Vice President, Corporate and Investor
Relations of the Company since February 1995. Ms. Norton served as Director,
Corporate Relations from January 1993 to February 1995. She served as Director,
Corporate Communication of Universal Foods Corp. prior thereto.
W. Mark Rosenbury has served as President of TNC since November 1994 and
Executive Vice President of the Company since November 1993. Mr. Rosenbury
served as Chief Operating Officer of the Company from November 1993 to November
1994. He served as Vice President and Chief Financial Officer from August 1991
to November 1993 and Vice President and Corporate Controller from January 1987
to August 1991.
Robert E. Thompson has served as Vice President, Controller of the Company
since February 1995. Mr. Thompson joined the Company in November 1994. He
served as Vice President, Finance and Controller of Ameritech Custom Business
Services from April 1993 to June 1994, Controller of Ameritech Services, Inc.
from October 1990 to April 1993 and Controller of Ameritech Applied
Technologies prior thereto.
George H. Valentine has served as Vice President, General Counsel and
Corporate Secretary of the Company since November 1993. Mr. Valentine served as
Assistant General Counsel of Household International, Inc. from February 1986
to November 1993.
Edward G. Beimfohr has been a director of the Company since 1994. Mr.
Beimfohr has been partner in the law firm of Lane & Mittendorf since prior to
1990.
Carol L. Brookins has been a director of the Company since 1993. Ms. Brookins
founded World Perspectives, Incorporated and has served as Chairman and Chief
Executive Officer thereof since 1980.
Edward M. Carson has been a director of the Company since 1983. Mr. Carson
has served as Chairman of the Board and Chief Executive Officer of First
Interstate Bancorp since June 1990 and served as President thereof from January
1985 to May 1990.
David E. Fisher has been a director of the Company since 1993. Mr. Fisher has
served as Finance Director of Minorco since January 1990.
Basil T. A. Hone has been a director of the Company since 1986. Mr. Hone was
serving as Vice President, Metal Division of Union Carbide Corporation at his
retirement in 1984.
Anthony W. Lea has been a director of the Company since 1994. Mr. Lea has
served as Executive Director and a member of the Executive Committee of Minorco
since prior to 1990 and served as Joint Managing Director thereof from January
1990 to December 1992.
John R. Norton III has been a director of the Company since 1993. Mr. Norton
has served as Chairman and Chief Executive Officer of J.R. Norton Company since
1972. Between May 1985 and February 1986, Mr. Norton served as a U.S. Deputy
Secretary of Agriculture and was not an officer of J. R. Norton Company during
that period.
Henry R. Slack has been a director of the Company since 1983. Mr. Slack has
served as Chief Executive of Minorco since December 1992 and President thereof
since September 1985.
53
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued under an Indenture, dated as of June 22,
1995 (the "Indenture"), between Terra Industries Inc. (the "Company") and First
Trust National Association, as trustee (the "Trustee"), which also governs the
Notes. The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Indenture, including the definitions
of certain terms therein. On the effective date of this Exchange Offer
Registration Statement, the Indenture will be subject to and governed by the
provisions of the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Wherever particular Sections or defined terms of the Indenture not
otherwise defined herein are referred to, such Sections or defined terms shall
be incorporated herein by reference, and those terms made a part of the
Indenture by the Trust Indenture Act are also incorporated herein by reference.
For purposes of the following description, the Exchange Notes and Notes are at
times collectively referred to as the "Notes." A copy of the form of Indenture
will be made available to holders of Notes upon request, and is filed as an
exhibit to this Exchange Offer Registration Statement. See "Available
Information."
The Exchange Notes will be unsecured senior obligations of the Company and
will mature on June 15, 2005. The Exchange Notes will be limited to $200
million in aggregate principal amount. Interest on the Exchange Notes is
payable semiannually (to Holders of record at the close of business on June 1
or December 1 immediately preceding the Interest Payment Date) on June 15 and
December 15 of each year, commencing December 15, 1995. (Sections 2.01, 2.04
and 2.06). Each Exchange Note will bear interest at the rate per annum shown on
the front cover of this Prospectus from the last date on which interest was
paid on the Notes surrendered in exchange therefor or, if no interest has been
paid on the Notes, from the date of original issuance of the Notes. No interest
will be paid on the Notes accepted for exchange, and holders of Notes whose
Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on the Notes accrued up to the date
of the issuance of the Exchange Notes.
The Exchange Notes and any Notes that remain outstanding after consummation
of the Exchange Offer will be treated as a single class of securities under the
Indenture.
RANKING
The Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment with all senior indebtedness of the Company and
senior in right of payment to all subordinated indebtedness of the Company. In
addition, the business operations of the Company are conducted substantially
through its subsidiaries and, accordingly, the Notes will be effectively
subordinated to all existing and future obligations of such subsidiaries. As of
March 31, 1995, on a pro forma basis, after giving effect to the Offering and
the application of the estimated net proceeds therefrom to repay bank
indebtedness of the Company's subsidiaries, the Company would have had $158.8
million in aggregate principal amount of indebtedness outstanding which ranked
pari passu in right of payment with the Notes and no indebtedness outstanding
which ranked subordinate in right of payment to the Notes and the aggregate
principal amount of indebtedness of the Company's subsidiaries would have been
approximately $236.1 million (excluding intercompany indebtedness),
approximately $192.9 million of which was secured. As of the date hereof, the
Company has no outstanding indebtedness that will rank senior to the Exchange
Notes; however, the rights of the holders of Exchange Notes to receive the
Change of Control Payment for the Exchange Notes or any other amount due on the
Exchange Notes is effectively subordinated to the holders of indebtedness of
the Company's subsidiaries, which, as of March 31, 1995, included the amounts
set forth above. See "Description of Other Indebtedness." As of March 31, 1995,
the Company's subsidiaries also had trade payables of $301.0 million. The
Company's businesses are seasonal and historically the borrowings and other
liabilities of the Company and its subsidiaries are greatest in late spring and
fall. Amounts payable to holders of SPUs are also effectively senior to the
Notes. See "Risk Factors--Holding Company Structure."
OPTIONAL REDEMPTION
General. The Notes will be redeemable, at the Company's option, in whole or
in part, at any time on or after June 15, 2000, and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed
54
<PAGE>
by first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period beginning June 15 of
the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000.......................... 105.250%
2001.......................... 102.625%
2002 and thereafter........... 100.000%
</TABLE>
plus accrued and unpaid interest, if any, to the Redemption Date.
Selection. In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem fair and appropriate; provided, however, that no Note of
$1,000 in original principal amount or less shall be redeemed in part. If any
Note is to be redeemed in part only, the notice of redemption relating to such
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note. (Sections 3.03, 3.04 and 3.08)
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all such terms as well as any other
capitalized terms used herein for which no definition is provided. (Section
1.01)
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person became a Subsidiary and not Incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of any Person and its consolidated Subsidiaries for such
period determined in conformity with GAAP; provided, however, that the
following items shall be excluded in computing Adjusted Consolidated Net Income
(without duplication): (a) the net income (or loss) of such Person (other than
net income (or loss) attributable to a Subsidiary of such Person) in which any
other Person (other than such Person or any of its Subsidiaries) has a joint
interest, except to the extent of the amount of dividends or other
distributions actually paid to such Person or any of its Subsidiaries by such
other Person during such period; (b) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to clause (iii) of the
first paragraph of the "Limitation on Restricted Payments" covenant described
below (and in such case, except to the extent includable pursuant to the
foregoing clause (a)), the net income (or loss) of such Person accrued prior to
the date it becomes a Subsidiary of any other Person or is merged into or
consolidated with such other Person or any of its Subsidiaries or all or
substantially all the property and assets of such Person are acquired by such
other Person or any of its Subsidiaries; (c) the net income (or loss) of any
Subsidiary of any Person to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Subsidiary; (d) any gains or losses (on an after-
tax basis) attributable to Asset Sales; (e) except for purposes of calculating
the amount of Restricted Payments that may be made pursuant to clause (iii) of
the first paragraph of the "Limitation on Restricted Payments" covenant
described below, any amounts paid or accrued as dividends on Preferred Stock of
such Person or Preferred Stock of any Subsidiary (other than the Partnerships)
of such Person owned by Persons other than such Person or any of its
Subsidiaries; (f) all extraordinary gains and extraordinary losses; and (g) all
noncash charges reducing net income of such Person that relate to stock options
or stock
55
<PAGE>
appreciation rights and all cash payments reducing net income of such Person
that relate to stock options or stock appreciation rights; provided, however,
that, solely for the purpose of calculating the Interest Coverage Ratio (and in
such case, except to the extent includable pursuant to the foregoing clause
(a)), "Adjusted Consolidated Net Income" of such Person shall include the
amount of all cash dividends or other cash distributions received by such
Person or any Subsidiary of such Person from an Unrestricted Subsidiary.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (a) an investment by the Company or any of its
Subsidiaries in any other Person pursuant to which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged or
consolidated with the Company or any of its Subsidiaries; or (b) an acquisition
by the Company or any of its Subsidiaries of the assets of any Person other
than the Company or any of its Subsidiaries that constitutes substantially all
of a division or line of business of such Person.
"Asset Disposition" means the sale or other disposition by the Company or any
of its Subsidiaries (other than to the Company or another Subsidiary of the
Company) of (a) all or substantially all the Capital Stock of any Subsidiary of
the Company or (b) all or substantially all the assets that constitute a
division or line of business of the Company or any of its Subsidiaries.
"Asset Sale" means, with respect to any Person, any sale, transfer or other
disposition (including by way of merger, consolidation or sale-leaseback
transaction) in one transaction or a series of related transactions by such
Person or any of its Subsidiaries to any Person other than the Company or any
of its Subsidiaries of (a) all or any of the Capital Stock of any Subsidiary of
such Person; (b) all or substantially all the assets of an operating unit or
business of such Person or any of its Subsidiaries; or (c) any other assets of
such Person or any of its Subsidiaries outside the ordinary course of business
of such Person or such Subsidiary and, in each case, that is not governed by
the provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all the assets of the Company; provided,
however, that, for purposes of determining the restrictions under the
"Limitation on Asset Sales" covenant described below, sales, transfers or other
dispositions of inventory, receivables and other current assets shall not be
included within the meaning of "Asset Sale."
"Attributable Indebtedness" means, when used in connection with a sale-
leaseback transaction referred to in the "Limitation on Sale-Leaseback
Transactions" covenant described below, at any date of determination, the
product of (a) the net proceeds from such sale-leaseback transaction, and (b) a
fraction, the numerator of which is the number of full years of the term of the
lease relating to the property involved in such sale-leaseback transaction
(without regard to any options to renew or extend such term) remaining at the
date of the making of such computation, and the denominator of which is the
number of full years of the term of such lease (without regard to any options
to renew or extend such term) measured from the first day of such term.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (a) the sum of the product of (i)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security multiplied by (ii)
the amount of such principal payment, by (b) the sum of all such principal
payments.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under the
Indenture.
56
<PAGE>
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in The City of New York, or in the city of the Corporate Trust
Office of the Trustee, are authorized or obligated by law to be closed.
"Canadian Credit Agreement" means the Revolving Term Credit Facility dated as
of April 2, 1993, as amended, between Terra Canada and The Bank of Nova Scotia
(or any successors thereto), together with all the other documents related
thereto (including, without limitation, any Guarantees and security documents),
in each case as such agreements may be amended (including any amendment and
restatement thereof), supplemented, extended, renewed, replaced or otherwise
modified from time to time, including, without limitation, any agreement
increasing the amount thereof in accordance with the limitations in the
Indenture and any agreement extending the maturity of, refinancing or otherwise
restructuring (including, but not limited to, the inclusion of additional
borrowers or Guarantors thereunder that are Subsidiaries of the Company) all or
any portion of the Indebtedness under such agreements or any successor
agreements.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or nonvoting) of such Person's capital stock or equity interests in a
partnership, joint venture, limited liability company or other equity that is
outstanding or issued on or after the date of the Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person as lessee of which, in conformity with GAAP,
is required to be capitalized on the balance sheet of such Person; and
"Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Change of Control" means such time as (a) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than Minorco
or any of its Affiliates, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 50% of the total voting power of the
then outstanding Voting Stock of the Company; or (b) individuals who at the
beginning of any period of two consecutive calendar years constituted the board
of directors of the Company (together with any new directors whose election by
the board of directors of the Company or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the board of directors of the Company then still in office who
either were members of the board of directors of the Company at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of the
board of directors of the Company then in office.
"Closing Date" means the date on which the Notes are originally issued under
the Indenture.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or nonvoting) of such Person's common stock, whether now outstanding or
issued after the date of the Indenture, or common equity interests in a
partnership, including, without limitation, all series and classes of such
common stock, all the Common Units and the general partnership interests in the
Partnerships.
"Common Unit" means a Common Unit as defined in the TNCLP Limited Partnership
Agreement.
"Consolidated EBITDA" means, with respect to any Person for any period, the
sum of the amounts for such period of (a) Adjusted Consolidated Net Income, (b)
Consolidated Interest Expense, (c) income taxes (other than income taxes
(either positive or negative) attributable to extraordinary and nonrecurring
gains or losses or sales of assets), (d) depreciation expense, (e) amortization
expense, (f) minority interest and (g) all other noncash items reducing
Adjusted Consolidated Net Income, less all noncash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for such
Person and its Subsidiaries in conformity with GAAP; provided, however, that,
if a Person has any Subsidiary (other than the Partnerships)
57
<PAGE>
that is not a Wholly Owned Subsidiary of such Person, Consolidated EBITDA of
such Person shall be reduced (to the extent not otherwise excluded by the
definition of Adjusted Consolidated Net Income) by an amount equal to (i) the
Adjusted Consolidated Net Income of such Subsidiary multiplied by (ii) the
quotient of (A) the number of shares of outstanding Common Stock of such
Subsidiary not owned on the last day of such period by such Person or any
Subsidiary of such Person divided by (B) the total number of shares of
outstanding Common Stock of such Subsidiary on the last day of such period; and
provided further, however, that Consolidated EBITDA of such Person shall be
reduced by amounts paid as distributions on limited partnership interests of
either Partnership owned by Persons other than the Company or any of its
Subsidiaries.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate amount of interest in respect of Indebtedness (including
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation (excluding, without limitation,
amounts deferred by trade creditors until the occurrence of certain events)
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; the net costs associated with
Interest Rate Agreements; and Indebtedness that is Guaranteed by such Person)
and all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by such
Person and its consolidated Subsidiaries during such period; excluding,
however, (a) any amount of such interest of any Subsidiary of such Person if
the net income (or loss) of such Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income for such Person pursuant to clause (c) of the
proviso in the definition thereof (but only in the same proportion as the net
income (or loss) of such Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income for such Person pursuant to clause (c) of the
proviso in the definition thereof) and (b) any premiums, fees and expenses (and
any amortization thereof) payable in connection with the recapitalization of
the Company consummated in 1994, the Company's proposal to acquire all of the
outstanding Senior Preference Units which was terminated in May 1995 and the
Company's open market purchase program for up to five million Senior Preference
Units approved in May 1995, all as determined on a consolidated basis in
conformity with GAAP.
"Consolidated Net Tangible Assets" means the total amount of assets of the
Company and its Subsidiaries (less applicable depreciation, amortization and
other valuation reserves), except to the extent resulting from write-ups of
capital assets (excluding write-ups in connection with accounting for
acquisitions in conformity with GAAP), after deducting therefrom (a) all
current liabilities of the Company and its consolidated Subsidiaries (excluding
intercompany items) and (b) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recently available quarterly or year-end consolidated balance
sheet of the Company and its consolidated Subsidiaries, prepared in conformity
with GAAP.
"Consolidated Net Worth" means, at any date of determination, shareholders'
equity as set forth on the most recently available quarterly or year-end
consolidated balance sheet of the Company and its consolidated Subsidiaries,
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
Capital Stock of the Company or any Subsidiary of the Company, each item to be
determined in accordance with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Credit Agreements" means the Terra Credit Agreement and the Canadian Credit
Agreement.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to
or under which the Company or any of its Subsidiaries is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
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<PAGE>
"GAAP" means generally accepted accounting principles in the United States of
America as in effect as of the date of the Indenture, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
based on GAAP contained in the Indenture shall be computed in conformity with
GAAP, except that calculations made for purposes of determining compliance with
the terms of the covenants described below and with other provisions of the
Indenture shall be made without giving effect to (a) the amortization of any
expenses incurred in connection with the recapitalization of the Company
consummated in 1994, the Company's proposal to acquire all of the outstanding
Senior Preference Units which was terminated in May 1995 and the Company's open
market purchase program for up to five million Senior Preference Units approved
in May 1995; and (b) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion Nos. 16
and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (b)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Holder" or "Securityholder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness;
provided, however, that neither the accrual of interest (whether such interest
is payable in cash or in kind) nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of determination
(without duplication), (a) all indebtedness of such Person for borrowed money;
(b) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments; (c) all obligations of such Person in respect of
letters of credit, banker's acceptances, or other similar instruments
(including reimbursement obligations with respect thereto); (d) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services, which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables; (e) all obligations of such
Person as lessee under Capitalized Leases; (f) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person, provided, however, that the amount of
such Indebtedness shall be the lesser of (i) the fair market value of such
asset at such date of determination and (ii) the amount of such Indebtedness;
(g) all Indebtedness of other Persons Guaranteed by such Person to the extent
such Indebtedness is Guaranteed by such Person; (h) all obligations in respect
of borrowed money under the Credit Agreements and any Guarantees thereof; (i)
to the extent not otherwise included in this definition, obligations under
Currency Agreements and Interest Rate Agreements; and (j) any Redeemable Stock.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability determined by such Person's board of directors, in good
faith, as reasonably likely to occur, upon the occurrence of the contingency
giving rise to the obligation, of any contingent obligations at such date;
provided, however, that the amount outstanding at any time of any Indebtedness
issued with original issue discount is the face amount of such Indebtedness
less the remaining unamortized portion of the original issue discount of such
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Indebtedness at such time as determined in conformity with GAAP; and provided
further, however, that Indebtedness shall not include (x) any liability for
Federal, state, local or other taxes, (y) obligations of the Company or any of
its Restricted Subsidiaries pursuant to Receivables Programs, or (z)
obligations of the Company or any of its Restricted Subsidiaries pursuant to
contracts for, or options, puts or similar arrangements relating to, the
purchase of raw materials or the sale of inventory at a time in the future.
"Interest Coverage Ratio" means, with respect to any Person on any
Transaction Date, the ratio of (x) the aggregate amount of Consolidated EBITDA
of such Person for the four fiscal quarters for which financial statements in
respect thereof are available immediately prior to such Transaction Date to (y)
the aggregate Consolidated Interest Expense of such Person during such four
fiscal quarters. In making the foregoing calculation (which shall be made
without duplication), (a) pro forma effect shall be given to (i) any
Indebtedness Incurred subsequent to the end of the four-fiscal-quarter period
referred to in clause (x) and prior to the Transaction Date (other than
Indebtedness Incurred under a revolving credit or similar arrangement to the
extent of the commitment thereunder (or under any predecessor revolving credit
or similar arrangement) on the last day of such period), (ii) any Indebtedness
Incurred during such period to the extent such Indebtedness is outstanding at
the Transaction Date (with Indebtedness Incurred under a revolving credit or
similar arrangement calculated as described in clause (c) below), and (iii) any
Indebtedness to be Incurred on the Transaction Date (excluding Indebtedness to
be Incurred under a revolving credit or similar arrangement in connection with
an acquisition to the extent that Indebtedness under a revolving credit or
similar arrangement was theretofore repaid with the proceeds of an offering of
Capital Stock (other than Redeemable Stock) in which it was contemplated that
the amount of such repayment would later be Incurred in connection with such
acquisition), in each case as if such Indebtedness had been Incurred on the
first day of such four-fiscal-quarter period and after giving pro forma effect
to the application of the proceeds thereof as if such application had occurred
on such first day; (b) Consolidated Interest Expense attributable to interest
on any Indebtedness (whether existing or being Incurred) computed on a pro
forma basis and bearing a floating interest rate shall be computed as if the
average borrowing rate in effect during such four-fiscal-quarter period (taking
into account any Interest Rate Agreement applicable to such Indebtedness) had
been the applicable rate for the entire period; (c) Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
or similar facility computed on a pro forma basis shall be computed based upon
the average daily balance of such Indebtedness during the applicable period, as
adjusted to eliminate the effects of any temporary repayment of such
Indebtedness from proceeds of an offering of Capital Stock (other than
Redeemable Stock) later applied to an acquisition as described in clause
(a)(iii) above; (d) there shall be excluded on a pro forma basis from
Consolidated Interest Expense any Consolidated Interest Expense related to any
amount of Indebtedness that was outstanding during such four-fiscal-quarter
period or thereafter but that is not outstanding or is to be repaid on the
Transaction Date, except for Consolidated Interest Expense accrued (as adjusted
pursuant to clause (b)) during such four-fiscal-quarter period under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any successor revolving credit or similar arrangement) on
the Transaction Date; (e) pro forma effect shall be given to Asset Dispositions
and Asset Acquisitions (including giving pro forma effect to the application of
proceeds of any Asset Disposition) that occur during such four-fiscal-quarter
period or thereafter and prior to the Transaction Date as if they had occurred
and such proceeds had been applied on the first day of such four-fiscal-quarter
period; (f) with respect to any such four-fiscal-quarter period commencing
prior to the Closing Date, the Closing Date shall be deemed to have taken place
on the first day of such period; and (g) pro forma effect shall be given to
Asset Dispositions and Asset Acquisitions (including giving pro forma effect to
the application of proceeds of any asset disposition) that have been made by
any Person that has become a Subsidiary of the Company or has been merged with
or into the Company or any Subsidiary of the Company during the four-fiscal-
quarter period referred to above or subsequent to such period and prior to the
Transaction Date and that would have been Asset Dispositions or Asset
Acquisitions had such transactions occurred when such Person was a Subsidiary
of the Company as if such asset dispositions or asset acquisitions were Asset
Dispositions or Asset Acquisitions that occurred on the first day of such
period; provided, however, that, to the extent that clause (e) or (g) of this
sentence requires that pro forma effect be given to an Asset Acquisition or an
Asset Disposition, such pro forma calculation shall be based upon the four full
fiscal
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quarters immediately preceding the Transaction Date of the Person, or division
or line of business of the Person, that is acquired for which financial
statements are available.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement
designed to protect the Company or any of its Subsidiaries against fluctuations
in interest rates to or under which the Company or any of its Subsidiaries is a
party or a beneficiary on the date of the Indenture or becomes a party or a
beneficiary thereafter.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of such
Person or its Subsidiaries) or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, any other Person. For purposes of the definition
of "Unrestricted Subsidiary" and the "Limitation on Restricted Payments"
covenant described below, (a) the designation of a Subsidiary of the Company as
an Unrestricted Subsidiary shall be deemed an "Investment" by the Company in
such newly designated Unrestricted Subsidiary in an amount (the "Investment
Amount") equal to the fair market value of the assets of such Subsidiary that
are required to be reflected on such Subsidiary's balance sheet in accordance
with GAAP, less the total liabilities of such Subsidiary that are required to
be reflected on such Subsidiary's balance sheet in accordance with GAAP, in
each case on a consolidated basis, at the time that such Subsidiary is
designated an Unrestricted Subsidiary, (b) the designation of an Unrestricted
Subsidiary as a Restricted Subsidiary shall be deemed a reduction of
Investments by the Company in Unrestricted Subsidiaries in an amount equal to
the Investment Amount with respect to such Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the
Company and (c) any property, other than cash or services, transferred to or
from an Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, with such value to be determined by the Board of
Directors in good faith (whose determination shall be conclusive and evidenced
by a Board Resolution) in any case in which the value of the properties
transferred individually or in a series of related transactions exceeds $10
million.
"Junior Preference Unit" means a Junior Preference Units as defined in the
TNCLP Limited Partnership Agreement.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"Limited Partnership Agreement" means either the TNCLP Limited Partnership
Agreement or the TNLP Limited Partnership Agreement.
"Minorco" means Minorco, a company incorporated under the laws of Luxembourg
as a societe anonyme.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of (a) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale; (b) provisions for all taxes (whether
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or not such taxes will actually be paid or are payable) as a result of such
Asset Sale without regard to the consolidated results of operations of the
Company and its Subsidiaries, taken as a whole; (c) payments made to repay
unsubordinated Indebtedness of the Company or Indebtedness of any Restricted
Subsidiary outstanding at the time of such Asset Sale that either (i) is
secured by a Lien on the property or assets sold or (ii) is required to be paid
as a result of such sale; and (d) appropriate amounts to be provided by the
Company or any Subsidiary of the Company as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP.
"Operating Lease" means, as applied to any Person, any lease of any property
(whether real, personal or mixed) that is not a Capitalized Lease.
"Partnership" means either TNCLP or TNLP.
"Permitted Distribution" means (a) the declaration and payment of any
dividend or distribution by either Partnership on any of the Capital Stock of
either thereof pursuant to the terms of either Limited Partnership Agreement;
or (b) the purchase, redemption, retirement or other acquisition for value of
outstanding Senior Preference Units, Junior Preference Units or Common Units
(or any successor equity interest of either Partnership or any successor
limited partnership, including any such equity interest received upon
conversion or exchange of any Senior Preference Unit, Junior Preference Unit or
Common Unit).
"Permitted Investment" means (a) the making of an Investment by the Company
or any Restricted Subsidiary (other than the general partner of the
Partnerships) in a Restricted Subsidiary that is not a Wholly Owned Subsidiary
of the Company, so long as such Investment is for a valid business purpose and
not for the primary purpose of making distributions on the Senior Preference
Units from the proceeds of such Investment to any Person other than the Company
or any of its Restricted Subsidiaries (as determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
Resolution); (b) the making of an Investment by the general partner of either
Partnership in either thereof; or (c) the making of an Investment by one
Partnership in the other Partnership.
"Permitted Liens" means (a) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (b) statutory Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (c) Liens incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (d) Liens incurred
or deposits made to secure the performance of tenders, bids, leases, statutory
or regulatory obligations, bankers' acceptances, surety and appeal bonds,
governmental contracts, performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (e) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Subsidiaries; (f) Liens (including extensions and renewals thereof) upon real
or tangible personal property acquired after the Closing Date; provided,
however, that (i) such Lien is created solely for the purpose of securing
Indebtedness Incurred (A) to finance the cost (including the cost of
improvement or construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within 12 months after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property or (B) to refinance any Indebtedness previously
so secured, (ii) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (iii) any such Lien shall not extend to
or cover any
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property or assets other than such item of property or assets and any
improvements on such item; (g) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company or
any of its Subsidiaries; (h) Liens encumbering property or assets under
construction arising from progress or partial payments by a customer of the
Company or any of its Subsidiaries relating to such property or assets; (i) any
interest or title of a lessor in the property subject to any Capitalized Lease
or Operating Lease; provided, however, that any sale-leaseback transaction
related thereto complies with the "Limitation on Sale-Leaseback Transactions"
covenant described below; (j) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (k) Liens on property of, or on Capital
Stock or Indebtedness of, any entity existing at the time such entity becomes,
or becomes a part of, any Restricted Subsidiary; (l) Liens in favor of the
Company or any Restricted Subsidiary; (m) Liens securing any real property or
other assets of the Company or any Subsidiary of the Company in favor of the
United States of America or any State, or any department, agency,
instrumentality or political subdivision thereof, in connection with the
financing of industrial revenue bond facilities or of any equipment or other
property designed primarily for the purpose of air or water pollution control;
provided, however, that any such Lien on such facilities, equipment or other
property shall not apply to any other assets of the Company or such Subsidiary
of the Company; (n) Liens arising from the rendering of a final judgment or
order against the Company or any Subsidiary of the Company that does not give
rise to an Event of Default; (o) Liens securing reimbursement obligations with
respect to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof; (p)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(q) Liens encumbering customary initial deposits and margin deposits, and other
Liens that are either within the general parameters customary in the industry
and incurred in the ordinary course of business or otherwise permitted under
the terms of the Credit Agreements, in each case securing Indebtedness under
Interest Rate Agreements and Currency Agreements and forward contracts,
options, futures contracts, futures options or similar agreements or
arrangements designed to protect the Company or any of its Subsidiaries from
fluctuations in the price of commodities; (r) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of
goods entered into by the Company or any of its Subsidiaries in the ordinary
course of business in accordance with the past practices of the Company and its
Subsidiaries prior to the Closing Date; and (s) Liens on or sales of
receivables and other Liens reasonably related to a Receivables Program.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means any employee benefit plan, pension plan, management equity plan,
stock option plan or similar plan or arrangement of the Company or any
Subsidiary of the Company, or any successor plan thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or nonvoting) of such Person's preferred or preference stock, or
preference equity interests in a partnership, whether now outstanding or issued
after the date of the Indenture, including, without limitation, all series and
classes of such preferred or preference stock, all the Senior Preference Units
and all the Junior Preference Units.
"Principal Property" means any real property (including related fixtures),
plant or equipment owned or leased by the Company or any Restricted Subsidiary,
other than real property, plant or equipment that, in the good faith
determination of the Board of Directors (whose determination shall be
conclusive and evidenced by a Board Resolution), is not of material importance
to the respective businesses conducted by the Company or any Restricted
Subsidiary as of the date of such determination; provided, however, that,
unless otherwise specified by the Board of Directors, any real property
(including related fixtures), plant or equipment with a fair market value of
less than $5 million shall not be a "Principal Property."
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"Receivables Program" means, with respect to any Person, obligations of such
Person or its Subsidiaries pursuant to accounts or notes receivable
securitization programs and any extension, renewal, modification or replacement
of such programs, including, without limitation, any agreement increasing the
amount of, extending the maturity of, refinancing or otherwise restructuring
all or any portion of the obligations under such programs or any successor
agreement or agreements.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (a) required to be redeemed prior to the
Stated Maturity of the Notes, (b) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (c) convertible into or exchangeable for Capital Stock referred
to in clause (a) or (b) above or Indebtedness having a scheduled maturity prior
to the Stated Maturity of the Notes.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Preference Units" means a Senior Preference Unit as defined in the
TNCLP Limited Partnership Agreement.
"Significant Subsidiary" means, at any date of determination, any Subsidiary
of the Company that, together with its Subsidiaries, (a) for the most recent
fiscal year of the Company, accounted for more than 10% of the consolidated
revenues of the Company; or (b) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of the Company, in each case
as reflected on the most recently available quarterly or year end consolidated
financial statements of the Company for such fiscal year.
"Stated Maturity" means, (a) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (b) with
respect to any scheduled installment of principal or interest on any debt
security, the date specified in such security as the fixed date on which such
installment of principal or interest is due and payable.
"Subsidiary" means, with respect to any Person, any corporation of which more
than 50% of the outstanding Voting Stock is owned, directly or indirectly, by
the Company or by one or more other Subsidiaries of the Company, or by such
Person and one or more other Subsidiaries of such Person, and any partnership,
association, joint venture, limited liability company or other entity in which
the Company or one or more other Subsidiaries of the Company, or such Person
and one or more other Subsidiaries of such Person, owns a general partnership
interest or more than 50% of the equity interests; provided, however, that,
except as the term "Subsidiary" is used in the definitions of "Significant
Subsidiary" and "Unrestricted Subsidiary," an Unrestricted Subsidiary shall not
be deemed to be a direct or indirect Subsidiary of the Company for purposes of
the Indenture.
"Terra Canada" means Terra International (Canada) Inc., an Ontario
corporation, and its successors.
"Terra Capital" means Terra Capital, Inc., a Delaware corporation, and its
successors.
"Terra Credit Agreement" means the Amended and Restated Credit Agreement
dated as of May 12, 1995, among Terra Capital, TNLP, certain guarantors, the
issuing banks and the lenders and the agent named therein (or any successors
thereto), together with all the other documents related thereto (including,
without limitation, any Guarantees and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented, extended, renewed, replaced or otherwise modified from
time to time, including, without limitation, any agreement increasing the
amount thereof in accordance with the limitations of the Indenture and any
agreement extending the maturity of, refinancing or otherwise restructuring
(including, but not limited to, the inclusion of additional borrowers or
Guarantors thereunder that are Subsidiaries of the Company and whose
obligations are Guaranteed by the Company thereunder) all or any portion of the
Indebtedness under such agreements or any successor agreements.
"TNC" means Terra Nitrogen Corporation, a Delaware corporation, and its
successors.
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"TNCLP" means Terra Nitrogen Company, L.P., a Delaware limited partnership,
and its successors.
"TNCLP Limited Partnership Agreement" means the Agreement of Limited
Partnership of Terra Nitrogen Company, L.P. (formerly Agricultural Minerals
Company, L.P.), dated as of December 4, 1991, among TNC (formerly Agricultural
Minerals Corporation), the Company and any other persons who become partners in
TNCLP as provided therein, as such agreement may be amended, supplemented, or
otherwise modified from time to time as permitted by the Indenture.
"TNLP" means Terra Nitrogen, Limited Partnership, a Delaware limited
partnership, and its successors.
"TNLP Limited Partnership Agreement" means the Agreement of Limited
Partnership of Terra Nitrogen, Limited Partnership, dated as of December 4,
1991, among TNC (formerly Agricultural Minerals Corporation), the Company and
TNCLP (formerly Agricultural Minerals Company, L.P.) as such agreement may be
amended, supplemented or otherwise modified from time to time as permitted by
the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services and shall specifically include amounts owed to but deferred by trade
creditors until the occurrence of certain events.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by the Company or any of its Subsidiaries, the date such Indebtedness is to be
Incurred and, with respect to any Restricted Payment, the date such Restricted
Payment is to be made.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company that, at
the time of determination, shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; and (b) any Subsidiary of
an Unrestricted Subsidiary; provided that, in case of clauses (a) and (b),
neither the Company nor any of its other Subsidiaries (other than another
Unrestricted Subsidiary) (i) provides credit support for, or Guarantees of, any
Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (ii)
is directly or indirectly liable for any Indebtedness of such Subsidiary or any
Subsidiary of such Subsidiary, except to the extent that the Company and its
Restricted Subsidiaries would otherwise, in each case, be permitted to make a
Restricted Payment pursuant to, or an Investment in such Subsidiary permitted
by, the "Limitation on Restricted Payments" covenant. The Board of Directors
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary,
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided, however, that
either (i) the Subsidiary to be so designated has total assets of $1,000 or
less at the time of designation or (ii) if such Subsidiary has assets greater
than $1,000 at the time of designation, that such designation would be
permitted under the "Limitation on Restricted Payments" covenant described
below. The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of the Company; provided, however, that immediately after
giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described below and (y) no Event of Default, or event
that after notice or passage of time or both would become an Event of Default,
shall have occurred and be continuing. All such designations by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors or
other governing body of such Person, or any general partnership interest in any
partnership.
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"Wholly Owned Subsidiary" means, with respect to any Person, any Subsidiary
of such Person if all the Common Stock or other similar equity ownership
interests (but not including Preferred Stock) in such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated
by applicable law) is owned directly or indirectly by such Person.
COVENANTS
Limitation on Indebtedness
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that
the Company and its Restricted Subsidiaries may Incur Indebtedness if, after
giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Interest Coverage Ratio of the
Company would be greater than 2:1x.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary may
Incur each and all of the following: (a)(i) Indebtedness outstanding at any
time under any term loan portion of the Credit Agreements; provided, however,
that the aggregate principal amount of such Indebtedness outstanding at any
time under this clause (a)(i) shall not exceed $300 million, (ii) Indebtedness
outstanding at any time under any revolving credit facility under the Credit
Agreements or under any other revolving credit or similar arrangements;
provided, however, that the aggregate principal amount of such Indebtedness
outstanding at any time under this clause (a)(ii) shall not exceed the greater
of (x) $250 million and (y) the sum of 75% of the Company's and its Restricted
Subsidiaries' accounts and notes receivables and 40% of the Company's and its
Restricted Subsidiaries' inventory (based on the average accounts and notes
receivables (excluding, without duplication, accounts and notes receivables
subject to a Receivables Program) and inventory over the last twelve months
preceding the date of incurrence), and (iii) additional Indebtedness
outstanding at any time in an aggregate principal amount not to exceed $50
million; (b) Indebtedness of the Company to any of its Restricted Subsidiaries,
or of a Restricted Subsidiary to the Company or to any other Restricted
Subsidiary; (c) Indebtedness the net proceeds of which are used to refinance
outstanding Indebtedness of the Company or any of its Restricted Subsidiaries,
other than Indebtedness Incurred under clause (a), (d) or (e) and any
refinancings thereof, in an amount (or, if such new Indebtedness provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, with an original issue price) not to
exceed the amount so refinanced (plus premiums, accrued interest, fees and
expenses); provided, however, that Indebtedness the proceeds of which are used
to refinance the Notes or other Indebtedness of the Company that is
subordinated in right of payment to the Notes shall only be permitted under
this clause (c) if (i) in case the Notes are refinanced in part, such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is expressly made pari passu
with, or subordinate in right of payment to, the Notes, (ii) in case the
Indebtedness to be refinanced is subordinated in right of payment to the Notes,
such Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is expressly made subordinate in
right of payment to the Notes, at least to the extent that the Indebtedness to
be refinanced is subordinated to the Notes, and (iii) in case the Notes are
refinanced in part or the Indebtedness to be refinanced is subordinated in
right of payment to the Notes, such Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to six months after
the Stated Maturity of the Notes and the Average Life of such Indebtedness is
six months greater than the remaining time before the Stated Maturity of the
Notes; and provided further, however, that in no event may Indebtedness of the
Company that is pari passu with, or subordinated in right of payment to, the
Notes be refinanced by means of Indebtedness of any Restricted Subsidiary of
the Company pursuant to this clause (c); (d) Indebtedness directly or
indirectly Incurred to finance capital expenditures of the Company or any of
its Restricted Subsidiaries in an aggregate principal amount not to exceed $10
million in any fiscal year of the Company, and any refinancing of any such
Indebtedness; provided, however, that the amount of the Indebtedness that may
be Incurred in any fiscal year of the Company pursuant to this clause (d) shall
be increased by the amount of Indebtedness that could have been Incurred in the
prior fiscal year (including by reason of this proviso) of the Company pursuant
to
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this clause (d) but was not so Incurred; (e) Indebtedness of the Company
outstanding at any time in an aggregate amount not to exceed $20 million;
provided, however, that such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, (i) is
expressly made subordinate in right of payment to the Notes, and (ii) provides
that no payments of principal of such Indebtedness by way of sinking fund,
mandatory redemption or otherwise (including defeasance) may be made by the
Company (including, without limitation, at the option of the holder thereof,
other than an option given to such holder pursuant to an "asset sale" or
"change of control" provision that is no more favorable (except with respect to
any premium payable) to the holders of such Indebtedness than the provisions
contained in the "Limitation on Asset Sales" and "Repurchase of Notes upon
Change of Control" covenants described below and such Indebtedness specifically
provides that the Company will not repurchase or redeem such Indebtedness
pursuant to such provisions prior to the Company's repurchase of the Notes
required to be repurchased by the Company under the "Limitation on Asset Sales"
and "Repurchase of Notes upon Change of Control" covenants) at any time prior
to the Stated Maturity of the Notes; (f) Indebtedness Incurred by the Company
in connection with the purchase, redemption, acquisition, cancelation or other
retirement for value of shares of Capital Stock of the Company, options on any
such shares or related stock appreciation rights or similar securities, or the
satisfaction of put, call, liquidity or other similar rights with respect to
any such securities, held by officers, directors or employees or former
officers, directors or employees (or their estates or beneficiaries under their
estates or their permitted transferees) or by any Plan, upon death, disability,
retirement, termination of employment or pursuant to the terms of such Plan or
any other agreement under which such shares of stock or related rights were
issued or otherwise exist; provided, however, that (i) such Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, is expressly made subordinate in right of payment to
the Notes, (ii) such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, provides
that no payments of principal of such Indebtedness by way of sinking fund,
mandatory redemption or otherwise (including defeasance) may be made by the
Company at any time prior to the Stated Maturity of the Notes, and (iii) the
scheduled maturity of all principal of such Indebtedness is after the Stated
Maturity of the Notes; and provided further, however, that any such
Indebtedness may provide for payment or prepayment of principal and interest
which when aggregated with all principal and interest payable or prepayable on
all other such Indebtedness (plus all cash payments permitted to be made under
clause (c) of the second paragraph of the "Limitation on Restricted Payments"
covenant) does not exceed $10 million in any fiscal year; (g) Indebtedness (i)
in respect of performance bonds, bankers' acceptances, letters of credit and
surety or appeal bonds provided in the ordinary course of business, (ii) under
Currency Agreements and Interest Rate Agreements; provided, however, that, in
the case of Currency Agreements that relate to other Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company outstanding
at any time other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable thereunder,
and (iii) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of the Company or
any Subsidiary of the Company pursuant to such agreements, in any case Incurred
in connection with the acquisition or disposition of any business, assets or
Subsidiary of the Company, other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or Subsidiary
of the Company for the purpose of financing such acquisition; (h) Indebtedness
under Guarantees Incurred by the Company or any of its Restricted Subsidiaries
in respect of obligations of Unrestricted Subsidiaries outstanding at any time
in an aggregate amount not to exceed $5 million; (i) Indebtedness of the
Company or any of its Restricted Subsidiaries the net proceeds of which are
used to pay Federal, state or local taxes arising as a result of any
recharacterization of either Partnership as an association taxable as a
corporation; (j) Acquired Indebtedness; provided, however, that, at the time of
the Incurrence thereof, after giving pro forma effect to such Incurrence, the
Company could Incur at least $1.00 of Indebtedness under the first paragraph of
this "Limitation on Indebtedness" covenant and refinancings of any thereof;
provided, however, that such refinancing Indebtedness may not be Incurred by
any Person other than the Company or the Restricted Subsidiary that is the
obligor on such Acquired Indebtedness; and (k) Indebtedness outstanding or as
to which commitments are in place on the date of the Indenture other than
Indebtedness described in clause (a)(i) or (ii) above.
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Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, (a) the maximum amount of Indebtedness that the Company or any
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies; (b) the Company shall not
Incur any Indebtedness that is expressly subordinated to any other Indebtedness
of the Company, unless such Indebtedness, by its terms or the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, is also
expressly made subordinate to the Notes at least to the extent it is
subordinated to such other Indebtedness; and (c) upon any refinancing of any
Indebtedness permitted to be Incurred under clause (c) or clause (j) of the
second paragraph of this "Limitation on Indebtedness" covenant, the amount of
Indebtedness permitted to be Incurred pursuant to such clause shall be
increased by the amount of premiums, fees and expenses incurred in connection
with such refinancing and by the amount of accrued interest on such
Indebtedness at the time of such refinancing.
For purposes of determining any particular amount of Indebtedness under this
"Limitation on Indebtedness" covenant, the following amounts shall not be
included: (a) Guarantees of, contingent obligations (including obligations of a
general partner for liabilities of a partnership) with respect to, or
obligations with respect to letters of credit supporting, Indebtedness
otherwise included in the determination of such particular amount; and (b) any
Liens granted pursuant to the equal and ratable provisions referred to in the
first paragraph of the "Limitation on Liens" covenant. For purposes of
determining compliance with this "Limitation of Indebtedness" covenant, (a) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, the Company, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses; (b)
Indebtedness permitted under this "Limitation on Indebtedness" covenant need
not be permitted solely by reference to one provision permitting such
Indebtedness but may be permitted in part by reference to one such provision
and in part by reference to one or more other provisions of this "Limitation on
Indebtedness" covenant permitting such Indebtedness; and (c) the amount of
Indebtedness issued at a price that is less than the principal amount thereof
shall be equal to the amount of the liability in respect thereof determined in
conformity with GAAP. (Section 4.03)
Limitation on Restricted Payments
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, (a) declare or pay any
dividend or make any distribution on its Capital Stock (other than (i) on the
Capital Stock of Restricted Subsidiaries that are Wholly Owned Subsidiaries of
the Company, and (ii) dividends or distributions payable solely in shares of
its, or any Restricted Subsidiary's, Capital Stock (other than Redeemable
Stock) of the same class held by such holders or in options, warrants or other
rights to acquire such shares of Capital Stock) held by Persons other than the
Company or another Restricted Subsidiary, (b) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of the Company, any
Restricted Subsidiary or any Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by
Persons other than the Company or another Restricted Subsidiary, (c) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes, (d) make any Investment in any Restricted Subsidiary that is not a
Wholly Owned Subsidiary of the Company, other than a Permitted Investment, or
(e) make any Investment in any Unrestricted Subsidiary (such payments or any
other actions described in clauses (a) through (e) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (i) an Event of Default or event that, after
notice or passage of time or both, would become an Event of Default, shall have
occurred and be continuing, (ii) the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant, or (iii) the aggregate amount expended for all Restricted Payments
(the amount so expended, if other than in cash, to be determined in good faith
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) after the Closing Date shall exceed the sum of
(A) 50% of the aggregate
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amount of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of such amount) of the Company
(determined by excluding income resulting from the transfers of assets received
by the Company or a Restricted Subsidiary from an Unrestricted Subsidiary)
accrued on a cumulative basis during the period (taken as one accounting
period) beginning on January 1, 1995 and ending on the last day of the last
fiscal quarter preceding the Transaction Date, plus (B) the aggregate net
proceeds (including the fair market value of noncash proceeds as determined in
good faith by the Board of Directors) received by the Company or any of its
Restricted Subsidiaries from any issuance and sale permitted by the Indenture
of its Capital Stock (not including Redeemable Stock) to a Person that is not a
Subsidiary of the Company, including an issuance or sale permitted by the
Indenture for cash or other property upon the conversion of any Indebtedness of
the Company or any of its Restricted Subsidiaries subsequent to the Closing
Date, or from the issuance of any options, warrants or other rights to acquire
Capital Stock of the Company or any of its Restricted Subsidiaries (in each
case, exclusive of any Redeemable Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the Notes), plus (C) an amount equal
to the net reduction in Investments in Unrestricted Subsidiaries (other than
Unrestricted Subsidiaries so designated pursuant to clause (g) of the second
paragraph of this "Limitation on Restricted Payments" covenant and other than
Investments made in Unrestricted Subsidiaries pursuant to such clause (g))
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed in
the case of any Unrestricted Subsidiary the amount of Investments previously
made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, plus (D) $25 million.
The foregoing provision shall not take into account, and shall not be
violated by reason of: (a) the payment of any dividend within 120 days after
the date of declaration thereof if, at such date of declaration, such payment
would comply with the foregoing provision; (b) the redemption, repurchase,
defeasance or other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes, including premium, if any, and
accrued and unpaid interest, with the proceeds of Indebtedness Incurred under
the first paragraph of the "Limitation on Indebtedness" covenant or clause (c)
or (e) of the second paragraph of the "Limitation on Indebtedness" covenant;
(c) the repurchase, redemption, acquisition, cancelation or other retirement
for value of shares of Capital Stock of the Company, any Restricted Subsidiary
or any Unrestricted Subsidiary, options on any such shares or related stock
appreciation rights or similar securities, or the satisfaction of put, call,
liquidity or other similar rights with respect to any such securities, held by
officers, directors or employees or former officers, directors or employees (or
their estates or beneficiaries under their estates or their permitted
transferees) or by any Plan, upon death, disability, retirement, termination of
employment or pursuant to the terms of such Plan or any other agreement under
which such shares of stock or related rights were issued or otherwise exist;
provided, however, that the aggregate cash payment made for all such
repurchases, redemptions, acquisitions, cancellations, retirements or other
satisfactions of or with respect to such shares, options or other rights after
the Closing Date (plus payments or prepayments of principal and interest
permitted on Indebtedness Incurred under clause (f) of the second paragraph of
the "Limitation on Indebtedness" covenant) does not exceed $10 million in any
fiscal year and that any consideration in excess of such $10 million is in the
form of Indebtedness that would be permitted to be Incurred under clause (f) of
the second paragraph of the "Limitation on Indebtedness" covenant; (d) the
repurchase, redemption or other acquisition of Capital Stock of the Company in
exchange for, or out of the proceeds of a substantially concurrent offering of,
shares of Capital Stock of the Company (other than Redeemable Stock); (e) the
repurchase, redemption, retirement or other acquisition of Indebtedness of the
Company that is subordinated in right of payment to the Notes in exchange for,
or out of the net proceeds of a substantially concurrent offering of, shares of
Capital Stock of the Company (other than Redeemable Stock); (f) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially all
the property and assets of the Company; (g) the making of (i) up to $10 million
of Investments in Unrestricted Subsidiaries plus the amount of any reduction in
such
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Investments in such Unrestricted Subsidiaries made pursuant to this clause (g)
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed, in
the case of any Unrestricted Subsidiary, the amount of Investments previously
made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary pursuant to this clause (g), (ii) Investments in the Company,
Unrestricted Subsidiaries or Restricted Subsidiaries with the proceeds of any
sale of Capital Stock of the Company or (in the case of Investments in the
Company or any Restricted Subsidiaries) of any Restricted Subsidiary permitted
by the Indenture, and (iii) Investments in Unrestricted Subsidiaries in the
form of loans or advances from the Company or any Restricted Subsidiary
representing capitalized labor costs for services performed by the Company or
any Restricted Subsidiary to such Unrestricted Subsidiaries in the ordinary
course of business; (h) the purchase, redemption, acquisition, cancellation or
other retirement for a nominal value per right of any rights granted to all the
holders of Common Stock of the Company pursuant to any shareholders' rights
plan adopted for the purpose of protecting shareholders from unfair takeover
tactics; provided, however, that any such purchase, redemption, acquisition,
cancellation or other retirement of such rights shall not be for the purpose of
evading the limitations of this "Limitation on Restricted Payments" covenant
(all as determined in good faith by the Board of Directors); (i) any Permitted
Distribution; (j) payments by the Company or any Restricted Subsidiary in
respect of Indebtedness of the Company or any Restricted Subsidiary owed to the
Company or another Restricted Subsidiary; (k) the application of proceeds as
provided in the "Limitation on Asset Sales" covenant; or (l) the application of
proceeds as provided in clause (c) of the "Limitation on the Issuance of
Capital Stock of Restricted Subsidiaries" covenant; and provided, however,
that, in the case of clauses (b), (c) (except with respect to the Incurrence of
Indebtedness complying with the first proviso of clause (f) of the second
paragraph of the "Limitation on Indebtedness" covenant), (d), (e), (f) (other
than with respect to either Partnership), or (g) (other than Investments in
Unrestricted Subsidiaries any of the Capital Stock of which is held by either
Partnership, the general partner of either thereof or any Unrestricted
Subsidiary of either Partnership), no Event of Default, or event that after
notice or passage of time or both would become an Event of Default, shall have
occurred and be continuing or shall occur as a consequence thereof. (Section
4.04)
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary;
(b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary; (c) make loans or advances to the Company or any other Restricted
Subsidiary; or (d) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provision shall not restrict or prohibit any encumbrances or
restrictions existing: (a) in the Credit Agreements or in any other agreements
in effect on the Closing Date, including extensions, refinancings, renewals or
replacements thereof; provided; however, that the encumbrances and restrictions
in any such extensions, refinancings, renewals or replacements are no less
favorable in any material respect to the Holders than those encumbrances or
restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (b) under any Receivables Program or any other agreement
providing for the Incurrence of Indebtedness; provided, however, that the
encumbrances and restrictions in any such agreement are no less favorable in
any material respect to the Holders than those encumbrances and restrictions
contained in the agreement referred to in clause (a) above that is least
favorable to the Holders as of the Closing Date; (c) under or by reason of
applicable law; (d) with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary that existed
at the time of such acquisition and were not created in connection with or in
contemplation of such acquisition, so long as
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such encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired; (e) in the case of clause (d) of the first
paragraph of the "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant, (i) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that is
a lease, license, conveyance or contract of similar property or asset, (ii) by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Indenture, or (iii) arising or
agreed to in the ordinary course of business and that do not, individually or
in the aggregate, materially detract from the value of property or assets of
the Company or any Restricted Subsidiary; (f) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or (g) in either Limited
Partnership Agreement. Nothing contained in this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent the Company or any Restricted Subsidiary from (x) entering into any
agreement permitting the Incurrence of Liens otherwise permitted in the
"Limitation on Liens" covenant or (y) restricting the sale or other disposition
of property or assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted Subsidiaries.
(Section 4.05)
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
Under the terms of the Indenture, the Company will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell any shares of its Capital
Stock (including options, warrants or other rights to purchase shares of such
Capital Stock) except (a) to the Company or another Restricted Subsidiary that
is a Wholly Owned Subsidiary of the Company; (b) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary; (c) if the Net Cash Proceeds from such
issuance or sale are applied, to the extent required to be applied, pursuant to
the "Limitation on Asset Sales" covenant; (d) in the case of TNLP, to TNCLP; or
(e) in the case of either Partnership, as otherwise permitted by either Limited
Partnership Agreement, so long as any such issuance or sale is for a valid
business purpose and not for the primary purpose of making distributions on the
Senior Preference Units from the Net Cash Proceeds of such issuance or sale to
any Person other than the Company or any of its Restricted Subsidiaries (as
determined in good faith by the Board of Directors, whose determination shall
be conclusive and evidenced by a Board Resolution). (Section 4.06)
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale,
lease or exchange of property or assets, or the rendering of any service) with
any holder (or any Affiliate of such holder) of 5% or more of any class of
Capital Stock of the Company or any Restricted Subsidiary or with any Affiliate
of the Company or any Restricted Subsidiary, except upon fair and reasonable
terms no less favorable to the Company or such Restricted Subsidiary than could
be obtained in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate of such a holder.
The foregoing limitation does not limit, and shall not apply to, (a) any
transaction or series of related transactions (i) approved by a majority of the
disinterested members of the Board of Directors or (ii) for which the Company
or Restricted Subsidiary delivers to the Trustee a written opinion of a
nationally recognized investment banking firm stating that the transaction is
fair to the Company or such Restricted Subsidiary from a financial point of
view; (b) any transaction between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries; (c) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(d) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant; (e) any payments or other transactions pursuant to any tax
sharing agreement between the Company or any Restricted Subsidiary and any
other
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Person with which the Company or such Restricted Subsidiary is required or
permitted to file a consolidated tax return or with which the Company or such
Restricted Subsidiary is or could be part of a consolidated group for tax
purposes; (f) any transaction between the Company or any Restricted Subsidiary
and any holder of any Senior Preference Units (or any Affiliate thereof) that
would be restricted by this "Limitation on Transactions with Shareholders and
Affiliates" covenant as a result of such holder's ownership of Senior
Preference Units, Junior Preference Units or Common Units; or (g) the provision
of management, financial and operational services by the Company and its
Subsidiaries to Affiliates of the Company in which the Company or its
Subsidiaries have Investments and the payment of compensation for such
services; provided, however, that the Board of Directors has determined that
the provision of such services is in the best interests of the Company and its
Subsidiaries. Notwithstanding the foregoing, any transaction or series of
related transactions covered by the first paragraph of this "Limitation on
Transactions with Shareholders and Affiliates" covenant the aggregate amount of
which does not exceed $3 million in value need not be approved in the manner
provided for in clause (a) of this paragraph. (Section 4.07)
Limitation on Liens
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
on any Principal Property, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all the Notes
and all other amounts due under the Indenture to be directly secured equally
and ratably with (or prior to) the obligation or liability secured by such Lien
unless, after giving effect thereto, the aggregate amount of any Indebtedness
so secured, plus the Attributable Indebtedness for all sale-leaseback
transactions restricted as described in the "Limitation on Sale-Leaseback
Transactions" covenant, does not exceed 10% of Consolidated Net Tangible
Assets.
The foregoing limitation does not apply to, and any computation of
Indebtedness secured under such limitation shall exclude, (a) Liens securing
obligations under the Credit Agreements up to the amount of Indebtedness
permitted to be Incurred under clause (a) of the second paragraph of the
"Limitation on Indebtedness" covenant; (b) other Liens existing on the Closing
Date; (c) Liens securing Indebtedness of Restricted Subsidiaries (other than
Acquired Indebtedness and refinancings thereof); (d) Receivables Programs; (e)
Liens securing Indebtedness (other than subordinated Indebtedness) Incurred
under clause (g) of the second paragraph of the "Limitation on Indebtedness"
covenant; (f) Liens granted in connection with the extension, renewal or
refinancing, in whole or in part, of any Indebtedness described in clauses (a)
through (e) above; provided, however, that the amount of Indebtedness secured
by such Lien is not increased thereby (except to the extent that Indebtedness
under clause (a) above is increased to the maximum amount permitted to be
outstanding under clause (a) of the second paragraph of the "Limitation on
Indebtedness" covenant); and provided further, however, that the extension,
renewal or refinancing of Indebtedness of the Company may not be secured by
Liens on assets of any Restricted Subsidiary other than to the extent the
Indebtedness being extended, renewed or refinanced was at any time previously
secured by Liens on assets of such Restricted Subsidiary; (g) Liens with
respect to Acquired Indebtedness and refinancings thereof permitted under
clause (j) of the second paragraph of the "Limitation on Indebtedness"
covenant; provided, however, that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets of the Subsidiary acquired; or (h) Permitted Liens. (Section
4.08)
Limitation on Sale-Leaseback Transactions
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, enter into any sale-leaseback transaction
involving any Principal Property, unless the aggregate amount of all
Attributable Indebtedness with respect to such transactions, plus all
Indebtedness secured by Liens on Principal Properties (excluding secured
Indebtedness that is excluded as described in the "Limitation on Liens"
covenant) does not exceed 10% of Consolidated Net Tangible Assets.
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The foregoing restriction does not apply to, and any computation of
Attributable Indebtedness under such limitation shall exclude, any sale-
leaseback transaction if: (a) the lease is for a period, including renewal
rights, of not in excess of three years; (b) the sale or transfer of the
Principal Property is entered into prior to, at the time of, or within 12
months after the later of the acquisition of the Principal Property or the
completion of construction thereof; (c) the lease secures or relates to
industrial revenue or pollution control bonds; (d) the transaction is between
the Company and any Restricted Subsidiary or between Restricted Subsidiaries;
or (e) the Company or such Restricted Subsidiary, within 12 months (24 months
in the case of sales of plants or facilities) after the sale of any Principal
Property is completed, applies an amount not less than the net proceeds
received from such sale to the retirement of unsubordinated Indebtedness, to
Indebtedness of a Restricted Subsidiary, or to the purchase of other property
that will constitute a Principal Property or improvements thereto, or, in the
case of either Partnership, to such investment, reinvestment or other use as
shall be permitted or required by either Limited Partnership Agreement.
(Section 4.09)
Limitation on Asset Sales
Under the terms of the Indenture, in the event and to the extent that the Net
Cash Proceeds received by the Company or any of its Restricted Subsidiaries
from one or more Asset Sales occurring on or after the Closing Date in any
period of 12 consecutive months (other than Asset Sales by the Company or any
Restricted Subsidiary to the Company or another Restricted Subsidiary) exceed
10% of Consolidated Net Tangible Assets in any one fiscal year (determined as
of the date closest to the commencement of such 12-month period for which a
balance sheet of the Company and its Subsidiaries has been prepared), then the
Company will, or will cause such Restricted Subsidiary to, (a) within 12 months
(or, in the case of Asset Sales of plants or facilities, 24 months) after the
date Net Cash Proceeds so received exceed 10% of Consolidated Net Tangible
Assets in any one fiscal year (determined as of the date closest to the
commencement of such 12-month period for which a balance sheet of the Company
and its Subsidiaries has been prepared) (i) apply an amount equal to such
excess Net Cash Proceeds, or the amount not applied pursuant to clause (ii) or
(iii), to repay unsubordinated Indebtedness of the Company or Indebtedness of
any Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Subsidiaries; (ii) invest an equal amount, or the amount
not applied pursuant to clause (i) or (iii) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets that are of a nature or type or are used in a
business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Company and its Subsidiaries existing on
the date thereof (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution); or
(iii) in the case of either Partnership, apply an equal amount, or the amount
not applied pursuant to clause (i) or (ii), to such investment, reinvestment or
other use as shall be permitted or required by either Limited Partnership
Agreement, and (b) apply such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (a)) as provided in the following paragraphs of this
"Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period or 24-month period, as the case may be, as set forth in clause
(i), (ii) or (iii) of the next preceding sentence and not applied as so
required by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of Excess
Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below)
totals at least $10 million, the Company must, not later than the fifteenth
Business Day of such month, make an offer (an "Excess Proceeds Offer") to
purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
101% of the principal amount thereof, plus accrued interest (if any) to the
date of purchase (the "Excess Proceeds Payment").
The Company will commence an Excess Proceeds Offer by mailing a notice to the
Trustee and each Holder stating: (a) that the Excess Proceeds offer is being
made pursuant to this "Limitation on Asset Sales" covenant and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (b) the
purchase
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price and that date of purchase (which shall be a Business Day no earlier than
30 days nor later than 40 days from the date such notice is mailed) (the
"Excess Proceeds Payment Date"); (c) that any Note not tendered will continue
to accrue interest pursuant to its terms; (d) that, unless there shall be a
default in the payment of the Excess Proceeds Payment, any Note accepted for
payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on
the Excess Proceeds Payment Date; (e) that Holders electing to have a Note
purchased pursuant to the Excess Proceeds Offer will be required to surrender
the Note, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the Note or comparable form completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Excess Proceeds Payment
Date; (f) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such Notes
purchased; and (g) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided, however, that each Note purchased and each
new Note issued shall be in an original principal amount of $1,000 or integral
multiples thereof.
On the Excess Proceeds Payment Date, the Company will (a) accept for payment
on a pro rata basis Notes or portions thereof tendered pursuant of the Excess
Proceeds Offer; (b) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (c) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent will
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee will promptly (i) authenticate and mail to
such Holders a new Note equal in principal amount to any unpurchased portion of
the certificated Note surrendered and (ii) make arrangements with DTC to
reflect on DTC's records Notes in book-entry form equal in principal amount to
any unpurchased portion of the Global Note; provided that each Note purchased
and each new Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
the Excess Proceeds Offer as soon as practicable after the Excess Proceeds
Payment Date. For purposes of this "Limitation on Asset Sales" covenant, the
Trustee shall act as the Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under this "Limitation on Asset Sales" covenant and the Company
is required to repurchase Notes as described above. The Company may modify any
of the foregoing provisions of this "Limitation on Asset Sales" covenant to the
extent it is advised by independent counsel that such modification is necessary
or appropriate in order to ensure such compliance. (Section 4.10)
Repurchase of Notes upon Change of Control
Upon the occurrence of a Change of Control, each Holder shall have the right
to require the repurchase of its Notes by the Company in cash pursuant to the
offer described below (the "Change of Control Offer") at a purchase price equal
to 101% of the principal amount thereof, plus accrued interest (if any) to the
date of purchase (the "Change of Control Payment"). The definition of Change of
Control excludes changes in the beneficial ownership of the Voting Stock of the
Company by Minorco and its Affiliates.
Within 45 days following any Change of Control, the Company shall mail a
notice to the Trustee and each Holder stating: (a) that a Change of Control has
occurred, that the Change of Control Offer is being made pursuant to this
"Repurchase of Notes upon Change of Control" covenant and that all Notes
validly tendered will be accepted for payment; (b) the purchase price and the
date of purchase (which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Change of Control
Payment Date"); (c) that any Note not tendered will continue to accrue interest
pursuant to its terms; (d) that, unless there shall be a default in the payment
of the Change of Control Payment, any Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest on the Change
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of Control Payment Date; (e) that Holders electing to have any Note or portion
thereof purchased pursuant to the Change of Control Offer will be required to
surrender such Note, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of such Note or comparable form completed,
to the Paying Agent at the address specified in the notice prior to the close
of business on the Business Day immediately preceding the Change of Control
Payment Date; (f) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such Notes
purchased; and (g) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided, however, that each Note purchased and each
new Note issued shall be in an original principal amount of $1,000 or integral
multiples thereof.
On the Change of Control Payment Date, the Company will: (a) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer; (b) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and (c) deliver, or cause
to be delivered, to the Trustee all Notes or portions thereof so accepted
together with an Officers' Certificate specifying the Notes or portions thereof
accepted for payment by the Company. The Paying Agent will promptly mail to the
Holders of Notes so accepted payment in an amount equal to the purchase price,
and the Trustee will (i) promptly authenticate and mail to such Holders a new
certificated Note equal in principal amount to any unpurchased portion of the
Note surrendered and (ii) make arrangements with DTC to reflect on DTC's
records Notes in book-entry form equal in principal amount to any unpurchased
portion of the Global Note; provided, however, that each Note purchased and
each new Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. For purposes of this "Repurchase of Notes upon Change of
Control" covenant, the Trustee shall act as Paying Agent. The failure of the
Company to make or consummate a Change of Control Offer or pay the Change of
Control Payment when due will give the Trustee and the Holders of the Notes the
rights described under "--Events of Default."
None of the provisions relating to a purchase upon a Change of Control are
waivable by the Board of Directors of the Company. If a Change of Control were
to occur, there can be no assurance that the Company would have sufficient
funds to pay the redemption price for all Notes that the Company is required to
redeem or sufficient funds to fulfill other obligations arising from such
Change of Control, including any required redemption of the 10 3/4% Notes. In
the event that the Company were required to purchase outstanding Notes pursuant
to a Change of Control Offer, the Company expects that it would need to seek
third-party financing to the extent it does not have available funds to meet
its purchase obligations. There can be no assurance, however, that the Company
would be able to obtain such financing.
Under the present terms of the Terra Credit Agreement, the Company would be
required to obtain a consent from the lenders thereunder to incur any
Indebtedness to repurchase Notes pursuant to a Change of Control Offer. In
addition, the Company's ability to repurchase Notes may be limited by other
then-existing borrowing agreements. There can be no assurance that the Company
will be able to obtain a consent or a waiver of any such limitation. A Change
of Control may result in an event of default under the Terra Credit Agreement
and permit the lenders thereunder to declare all amounts outstanding thereunder
to be immediately due and payable. As of the date hereof, the Company has no
outstanding indebtedness that will rank senior to the Exchange Notes; however,
the rights of the Holders to receive the Change of Control Payment for the
Notes or any other amount due on the Notes is effectively subordinated to the
holders of Indebtedness of the Company's subsidiaries. See "Ranking." Thus,
there can be no assurance that the Company would have sufficient funds to
fulfill its obligations to repurchase Exchange Notes upon a Change of Control.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs under
this "Repurchase of Notes upon Change of Control" covenant and the Company is
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required to repurchase Notes as described above. The Company may modify any of
the foregoing provisions of this "Repurchase of Notes upon Change of Control"
covenant to the extent it is advised by independent counsel that such
modification is necessary or appropriate in order to ensure such compliance.
(Section 4.11)
Amendments to Limited Partnership Agreements
Under the terms of the Indenture, the Company will not permit the general
partner of either Partnership to make or propose any amendment, supplement or
other modification to either Limited Partnership Agreement that would have a
material adverse effect on the interests of the Holders, except as shall be
required by either Limited Partnership Agreement. (Section 4.16)
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the Indenture:
(a) the Company defaults in the payment of the principal of, or premium, if
any, on, any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise; (b) the Company defaults in the payment
of interest on any Note when the same is due and payable, and such default
continues for a period of 30 days; (c) the Company defaults in the performance
of or breaches any other covenant or agreement of the Company in the Indenture
or under the Notes and such default or breach continues for a period of 30
consecutive days after written notice to the Company by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes; (d) there
occurs with respect to any issue or issues of Indebtedness of the Company
and/or one or more Significant Subsidiaries having an outstanding principal
amount of $10 million or more in the aggregate, whether such Indebtedness now
exists or shall hereafter be created, an event of default that has caused the
holder or holders thereof, or representatives of such holder or holders, to
declare such Indebtedness to be due and payable prior to its Stated Maturity
and such Indebtedness has not been discharged in full or such acceleration has
not been rescinded or annulled within 30 days of such acceleration; (e) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $10 million in the aggregate for all such final judgments or orders
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company or any Significant Subsidiary and shall not be
discharged, and there shall be any period of 30 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding against all such Persons to exceed
$10 million during which a stay of enforcement of such final judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; (f) a court
having jurisdiction in the premises enters a decree or order for (i) relief in
respect of the Company or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all the property and assets
of the Company or any Significant Subsidiary or (iii) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; (g) the Company or any Significant Subsidiary
(i) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (ii) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all the property and assets
of the Company or any Significant Subsidiary or (iii) effects any general
assignment for the benefit of creditors; (h) the Company and/or one or more
Significant Subsidiaries fails to make (i) at the final (but not any interim)
fixed maturity of any issue of Indebtedness a principal payment of $10 million
or more or (ii) at the final (but not any interim) fixed maturity of more than
one issue of such Indebtedness principal payments aggregating $10 million or
more and, in the case of clause (i), such defaulted payment shall not have been
made, waived or extended within 30 days of the payment default and, in the case
of clause (ii), all such defaulted payments shall not have been made, waived or
extended within 30 days of the payment default that causes the amount described
in clause (ii) to exceed $10 million; or (i) the nonpayment of any two or more
items of Indebtedness that would constitute at the time of such nonpayments,
but for the individual amounts of such Indebtedness, an Event of
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Default under clause (d) or clause (h) above, or both, and which items of
Indebtedness aggregate $10 million or more. (Section 6.01)
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders (the
"Acceleration Notice")), may, and the Trustee at the request of the Holders
will, declare the entire unpaid principal of, premium, if any, and accrued
interest on, the Notes to be immediately due and payable. Upon a declaration of
acceleration, such principal, premium, if any, and accrued interest shall
become and be immediately due and payable without presentment, demand, protest
or further notice or act (all of which are expressly waived by the Company). In
the event of a declaration of acceleration because an Event of Default set
forth in Clause (d) or (h) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (d) or
(h) shall be remedied, cured by the Company and/or such Significant Subsidiary
or waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (f) or (g) above occurs with respect to the Company, all
unpaid principal of, premium, if any, and accrued interest on, the Notes then
outstanding shall become and be immediately due and payable automatically,
without any declaration, presentment, demand, protest, notice or other act on
the part of the Trustee or any Holder (all of which are expressly waived by the
Company). The Holders of at least a majority in principal amount of the
outstanding Notes, by written notice to the Company and to the Trustee, may
waive all past defaults or events that, after the passage of time or the giving
of notice or both, would be an Event of Default and rescind and annul a
declaration of acceleration and its consequences if (a) all existing Events of
Default, other than the nonpayment of the principal of, premium, if any, and
accrued interest on the Notes that have become due solely by such declaration
of acceleration, have been cured or waived and (b) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction.
(Section 6.02) For information as to the waiver of defaults, see "Modification
and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes 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. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith may
be unduly prejudicial to the rights of Holders not joining in the giving of
such direction. (Section 6.05) A Holder may not pursue any remedy with respect
to the Indenture or the Notes unless: (a) the Holder gives the Trustee written
notice of a continuing Event of Default; (b) the Holders of at least 25% in
aggregate principal amount of outstanding Notes make a written request to the
Trustee to pursue the remedy; (c) such Holder or Holders offer the Trustee
indemnity satisfactory to the Trustee against any costs, liability or expense;
(d) the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and (e) during such 60-day period,
the Holders of a majority in aggregate principal amount of the outstanding
Notes do not give the Trustee a direction that is inconsistent with the
request. (Section 6.06) However, such limitations do not apply to the right of
any Holder of a Note to receive payment of the principal of, premium, if any,
or interest on, such Holder's Note or to bring suit for the enforcement of any
such payment, on or after the respective due dates expressed in the Notes,
which rights shall not be impaired or affected without the consent of the
Holder. (Section 6.07) The Holders and the Trustee may exercise their rights
and remedies under the Indenture and under the Notes against the capital stock
of TNC or the assets of TNC and its subsidiaries only in a manner consistent
with the fiduciary obligations of TNC and the Company associated with the
general partnership interests in the Partnerships (including, without
limitation, the interests of the Partnerships and the partners thereof);
provided that the foregoing shall not require the Holders or the Trustee to
take any action with respect to any other assets of the Company. (Section 6.03)
The Indenture will require certain officers of the Company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company
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and its subsidiaries and the Company's performance under the Indenture and that
the Company has fulfilled all obligations thereunder, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
and the nature and status thereof. The Company will also be obligated to notify
the Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture. (Section 4.17)
For additional information concerning the terms and conditions of, and events
of default relating to, the Credit Agreements, see "Description of Other
Indebtedness."
Except as described in "Repurchase of Notes upon Change of Control," the
Indenture does not contain any provision that would provide protection of the
holders of the Notes against a sudden and dramatic decline in credit quality
resulting from a takeover, recapitalization or similar restructuring of the
Company.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Under the terms of the Indenture, the Company will not consolidate with,
merge with or into, or sell, convey, transfer, lease or otherwise dispose of
all or substantially all its property and assets (as an entirety or
substantially as an entirety in one transaction or a series of related
transactions) to, any Person (other than a Restricted Subsidiary that is a
Wholly Owned Subsidiary of the Company with a positive net worth; provided,
however, that, in connection with any merger of the Company with a Restricted
Subsidiary that is a Wholly Owned Subsidiary of the Company, no consideration
(other than Common Stock in the Surviving Person or the Company) shall be
issued or distributed to the shareholders of the Company), or permit any Person
to merge with or into the Company, unless: (a) the Company shall be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company on all the Notes and under the Indenture; (b)
immediately after giving effect to such transaction, no Event of Default and no
event that, after notice or passage of time or both, will become an Event of
Default shall have occurred and be continuing; (c) immediately after giving
effect to such transaction on a pro forma basis, the Interest Coverage Ratio of
the Company (or any Person becoming the successor obligor of the Notes) is at
least 1.10:1, or, if less, at least equal to the Interest Coverage Ratio of the
Company immediately prior to such transaction; provided, however, that, if the
Interest Coverage Ratio of the Company before giving effect to such transaction
is within the range set forth in column (A) below, then the pro forma Interest
Coverage Ratio of the Company (or any Person becoming the successor obligor of
the Notes) shall be at least equal to the lesser of (i) the ratio determined by
multiplying the percentage set forth in column (B) below by the Interest
Coverage Ratio of the Company prior to such transaction and (ii) the ratio set
forth in column (C) below:
<TABLE>
<CAPTION>
(A) (B) (C)
--- -- --
<S> <C> <C>
1.11:1 to 1.99:1........................................ 90% 1.6:1
2.00:1 to 2.99:1........................................ 80% 2.1:1
3.00:1 to 3.99:1........................................ 70% 2.4:1
4.00:1 or more.......................................... 60% 2.5:1;
</TABLE>
and provided further, however, that, if the pro forma Interest Coverage Ratio
of the Company (or any Person becoming the successor obligor of the Notes) is
3:1 or more, the calculation in the next preceding proviso shall be
inapplicable and such transaction shall be deemed to have complied with the
requirements of this clause (c); (d) immediately after giving effect to such
transaction on a pro forma basis, the Company (or any Person that becomes the
successor obligor of the Notes) shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to
such transaction; and (e) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clauses (c) and (d)) and an Opinion of Counsel, in each case stating that
such
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consolidation, merger or transfer and such supplemental indenture comply with
this provision and that all conditions precedent provided for therein relating
to such transaction have been complied with; provided, however, that clauses
(c) and (d) above do not apply if, in the good faith determination of the Board
of Directors, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state of incorporation
of the Company; and provided further, however, that any such transaction shall
not have as one of its purposes the evasion of the foregoing limitations.
(Section 5.01)
DEFEASANCE
Defeasance and Discharge
The Indenture will provide that the Company will be deemed to have paid and
will be discharged from any and all obligations in respect of the Notes and the
provisions of the Indenture will no longer be in effect with respect to the
Notes on the one hundred twenty-third day after the deposit described below
(except for, among other matters, certain obligations to register the transfer
or exchange of the Notes, to replace stolen, lost or mutilated Notes, to
maintain paying agencies and to hold monies for payment in trust) if, among
other things, (a) the Company has irrevocably deposited with the Trustee, in
trust, money and/or U.S. Government Obligations that, through the payment of
interest and principal in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes; (b) the Company has
delivered to the Trustee (i) either an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for Federal income tax purposes
as a result of the Company's exercise of its option under this "Defeasance"
provision and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which Opinion of Counsel
must be accompanied by a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable Federal income tax law
after the date of the Indenture such that a ruling is no longer required, or a
ruling directed to the Company or the Trustee received from the Internal
Revenue Service to the same effect as the aforementioned Opinion of Counsel,
and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law; (c) immediately after
giving effect to such deposit on a pro forma basis, no Event of Default, or
event that after notice or passage of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the one hundred twenty-third day after the date of
such deposit, (d) such deposit shall not result in a breach or violation of, or
constitute a default under, the Indenture or any other agreement or instrument
to which the Company is a party or by which the Company is bound; and (e) if at
such time the Notes are listed on a national securities exchange, the Company
has delivered to the Trustee an Opinion of Counsel to the effect that the Notes
will not be delisted as a result of such deposit, defeasance and discharge.
(Section 8.02)
Defeasance of Certain Covenants and Certain Events of Default
The Indenture further will provide that the provisions of the Indenture will
no longer be in effect with respect to clauses (c) and (d) under
"Consolidation, Merger and Sale of Assets" and all the covenants described
herein under "Covenants" and clause (c) under "Events of Default" (with respect
to such covenants and clauses (c) and (d) under "Consolidation, Merger and Sale
of Assets") and clauses (d), (e), (h) and (i) under "Events of Defaults" shall
be deemed not to be Events of Default upon, among other things, the irrevocable
deposit with the Trustee, in trust, of money and/or U.S. Government Obligations
that through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on, the Notes on the
Stated Maturity of such payments in accordance with the terms of the Indenture
and the Notes, the satisfaction of the provisions described in clauses (b)(ii),
(c) and (d) of the next preceding paragraph and the delivery by the
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Company to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for Federal income
tax purposes as a result of such deposit and defeasance of certain covenants
and Events of Default and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred. (Section 8.03)
Defeasance and Certain Other Events of Default
In the event the Company exercises its option to omit compliance with certain
covenants and provisions of the Indenture, as described in the next preceding
paragraph, and the Notes are declared due and payable because of the occurrence
of an Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on the Notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the Notes at the time of the acceleration
resulting from such Event of Default. However, the Company shall remain liable
for such payment.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the written consent of the Holders of not less than a majority
in aggregate principal amount of the outstanding Notes; provided, however, that
no such modification or amendment may, without the consent of each Holder
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (b) reduce the principal amount of, or
premium, if any, or interest on, any Note, (c) change the place or currency of
payment of principal of, premium, if any, or interest on, any Note, (d) impair
the right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or in the case of a redemption, on or after the Redemption
Date) of any Note, (e) reduce the percentage of outstanding Notes the consent
of whose Holders is necessary to modify or amend the Indenture, (f) waive a
default in the payment of principal of, premium, if any, or interest on, the
Notes or (g) reduce the percentage of aggregate principal amount of outstanding
Notes the consent of whose Holders is necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults. (Article
Nine)
COMMISSION REPORTS AND REPORTS TO HOLDERS
The Indenture provides that the Company will furnish copies of the periodic
reports required to be filed with the Commission under the Exchange Act to the
Trustee. If the Company is not subject to the periodic reporting and
informational requirements of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission, and the Company
will provide to the Trustee, annual reports containing the information required
to be contained in a Form 10-K under the Exchange Act, quarterly reports
containing the information required to be contained in a Form 10-Q under the
Exchange Act, and from time to time such other information as is required to be
contained in a Form 8-K under the Exchange Act. The Company shall also furnish
all such reports to Holders of the Notes or to the Trustee for forwarding to
each Holder of Notes. If filing such reports by the Company with the Commission
is not permitted under the Exchange Act, the Company will promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such reports to any person the Company reasonably believes is a
prospective holder of Notes. (Section 4.18)
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on, any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator,
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shareholder, officer, director, employee or controlling person of the Company
or of any successor Person thereof. Each Holder, by accepting such Notes,
waives and releases all such liability. (Section 10.09)
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. If an Event of Default has occurred and is continuing,
the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs. (Section 7.01)
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims
as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
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DESCRIPTION OF OTHER INDEBTEDNESS
The following is a brief description of the basic terms of and instruments
governing certain indebtedness and other obligations of the Company and its
subsidiaries. Capitalized terms used in such instruments but not defined herein
have the meaning ascribed to them in such instruments. These summaries do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, the instruments governing such indebtedness and other
obligations.
10 3/4% NOTES
The Company presently has outstanding $158.8 million in aggregate principal
amount of the 10 3/4% Notes. The 10 3/4% Notes are issued under an Indenture
dated as of October 15, 1993 (the "1993 Indenture") between the Company (as
successor by merger to AMCI) and Society National Bank, as trustee, and will
mature on September 30, 2003. The Company assumed the obligations under the 10
3/4% Notes and the 1993 Indenture as a result of the acquisition of AMCI by the
Company. The 10 3/4% Notes are senior, unsecured obligations of the Company,
ranking pari passu in right of payment with all other senior indebtedness of
the Company, including the Exchange Notes and the Notes, if any. Because the
Company is a holding company, all existing and future liabilities of the
Company's subsidiaries, including those under the Credit Agreement, are
effectively senior to the 10 3/4% Notes.
The 10 3/4% Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after September 30, 1998, initially at 105.375% of
their principal amount, plus accrued interest, declining to 100% of their
principal amount on September 30, 2000. In addition, at any time prior to
September 30, 1996, the Company may, at its option, redeem up to $61.25 million
aggregate principal amount of 10 3/4% Notes out of the proceeds of one or more
underwritten public offerings of equity securities at a redemption price of
110% of their principal amount, plus accrued interest.
The 1993 Indenture provides that upon a Change of Control (as defined in the
1993 Indenture) each holder may require the repurchase of its 10 3/4% Notes in
cash at a purchase price of 101% of the principal amount thereof, plus accrued
interest, pursuant to an offer to repurchase which must be mailed within 45
days after the Change of Control. The Company's acquisition of AMCI constituted
a Change of Control under the 1993 Indenture. The Company purchased $16.2
million aggregate principal amount of 10 3/4% Notes in the related repurchase
offer made pursuant to the 1993 Indenture.
The 1993 Indenture contains certain covenants, which are substantially
similar to those in the Indenture, that limit various actions by the Company
and certain of its subsidiaries, including the incurrence of indebtedness, the
payment of dividends and other distributions on capital stock, the purchase,
redemption or retirement of capital stock or subordinated indebtedness, the
making of certain investments, the extent to which the Company and its
subsidiaries may agree to consensual restrictions on the ability of
subsidiaries to pay dividends and indebtedness owed to the Company and other
subsidiaries, the sale of subsidiary stock to third parties, transactions with
affiliates and shareholders, the incurrence of liens, the participation in
sale-leaseback transactions, sales of assets, mergers and amendments to the
limited partnership agreements of TNCLP and TNLP.
CREDIT AGREEMENT
Following is a description of the Amended and Restated Credit Agreement dated
as of May 12, 1995 (as amended from time to time, the "Credit Agreement") among
Terra Capital, TNLP, certain guarantors, the issuing banks and the lenders
named therein and Citibank, as agent. The Credit Agreement was initially
entered into in connection with the Company's acquisition of AMCI. The Credit
Agreement is filed as an exhibit to this Exchange Offer Registration Statement.
See "Available Information."
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The Facilities
The Credit Agreement provides for the following credit facilities: a $209.3
million term loan facility maturing in October 1999 ("Terra Facility A"), a
$79.5 million term loan facility maturing in October 2001 ("Terra Facility B"),
a $175.0 million revolving credit facility maturing in October 1999 ("Terra
Working Capital Facility") and a $25.0 million revolving credit facility
maturing in October 1999 ("TNLP Working Capital Facility").
Terra Facilities A and B were used to finance the acquisition of AMCI and to
refinance certain outstanding indebtedness of the Company and AMCI and their
respective subsidiaries at the time of the AMCI acquisition. The Terra Working
Capital Facility is available to provide for the on-going working capital needs
of Terra Capital, Terra International and BMLP and, until December 31, 1995, up
to $40 million may be used to finance the purchase of SPUs. The TNLP Working
Capital Facility is available to provide for the on-going working capital needs
of TNLP. The primary obligor with respect to the Credit Agreement is Terra
Capital (with the exception of the TNLP Working Capital Facility). See
"Summary--Company Structure."
Interest and Commitment Fees
Loans under the Credit Agreement bear interest at one, three or six-month
LIBOR, plus the Applicable Margin (as defined in the Credit Agreement). The
Applicable Margin is 1.5% for all of the Facilities except Terra Facility B
until April 1996; thereafter the Applicable Margin will be subject to
adjustment up to 2% and down to 1% depending on the Company's consolidated
ratio of debt to cash flow. The Applicable Margin for Terra Facility B is 2.5%.
Interest rates based on Citibank's Base Rate are also available under the
Credit Agreement. Commitment fees of 0.5% per annum (subject to reduction if
the ratio of debt to cash flow falls to a certain level) are charged for unused
facilities.
Amortization
Subject to prepayment as summarized below, the loans under the Facilities are
due as follows: Terra Facility A--semiannual payments of approximately
$23,254,000 through October 20, 1999; Terra Facility B--semiannual payments of
$500,000 through April 1999, and $15,100,000 thereafter through October 20,
2001; Terra Working Capital Facility--October 20, 1999 and TNLP Working Capital
Facility--October 20, 1999. Prepayments on Terra Facility A and Terra Facility
B will be required in an amount equal to 75% of Terra Capital's consolidated
annual Excess Cash Flow (earnings before interest, taxes, depreciation and
amortization less the sum of cash interest expense, minority interest payments,
capital expenditures, "Specified Payments" (meaning all interest due on the
Notes, the Exchange Notes and the 10 3/4% Notes, dividends on the common shares
of the Company not exceeding $10 million in 1995, $13 million in 1996, $17
million in 1997, $20 million in 1998 and $23 million thereafter, dividends on
equity securities issued to retire loans under the Credit Agreement and
ordinary expenses of the Company plus up to $5 million per year for other pre-
existing obligations), scheduled payments of principal on indebtedness, cash
payments of taxes and certain optional prepayments of term loans under the
Credit Agreement, with additional adjustments for changes in non-cash working
capital), reducing to 50% after $20 million has been so paid (and, for 1995,
subject to reduction based on any amount (excluding borrowed amounts) paid to
purchase SPUs); 100% of the net proceeds over $10 million per year of non-
ordinary course asset sales, reducing to 75% after the date on which the
aggregate principal amount of term loans outstanding under the Credit Agreement
has been reduced to $238,750,000 (the "Specified Paydown Date"); 100% of the
net proceeds of any equity security or public debt issuances (excluding the
Notes and the Exchange Notes) until the Specified Paydown Date; and 100% of the
net insurance and condemnation proceeds from casualty events (net of expenses,
liens and repair and replacement costs), reducing to 75% after the Specified
Paydown Date. The Company does not expect to apply any of the insurance
proceeds received as a result of the December 1994 explosion at the Port Neal
Facility to the prepayment of the Facilities. On December 31, 1995, the Company
is obligated to make a prepayment on Terra Facility A and Terra Facility B in
an amount equal to 100% of
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the net proceeds of the Offering to the extent such proceeds have not been
applied to the purchase of SPUs. Optional prepayments of loans under the Credit
Agreement may also be made without premium or penalty.
Collateral
Loans under the Credit Agreement are currently guaranteed by the Company,
Terra Holdings, Terra Capital, TNC, BMLP, BMCH and TMC, and are secured by
pledges of the stock of Terra Capital, Terra International, TNC, TMC and BMCH
and the limited partner interests in BMLP and security interests in
substantially all of the personal property of BMCH, TMC and TNLP; provided that
the security interests in TNLP's assets currently secure only the TNLP Working
Capital Facility.
Covenants
The Credit Agreement contains covenants customary for financings of this type
including, without limitation: (a) a limitation on annual capital expenditures
of $40 million, subject to a one year carryover of any unused amounts and as
adjusted for unused acquisition amounts (provided that the Company may apply an
amount equal to the insurance proceeds with respect to the explosion of the
Port Neal Facility plus $30 million to the rebuilding of the Port Neal
Facility), (b) a prohibition on optional redemptions and repurchases of
subordinated indebtedness, (c) limitations on additional debt, liens, asset
sales, investments, changes in lines of business and transactions with
affiliates and (d) an annual limitation on acquisitions of $15.0 million
(increasing to $50.0 million when Terra Facilities A and B have been paid down
to $150.0 million or less and the debt to cash flow ratio has reached 2.5 to 1
or better), subject to a 50% carryover for one year of any unused amount.
The Credit Agreement also includes financial covenants requiring the Company
to meet and maintain certain financial tests. These include requirements that
the Company maintain, on a consolidated basis: (a) a ratio of earnings before
interest, taxes, amortization and depreciation to interest charges of greater
than 4.0 to 1, increasing to 4.50 to 1 in 1998 and 5.0 to 1 in 2001, (b) until
the Specified Paydown Date, a ratio of debt to cash flow of not more than 3.75
to 1 in 1995 and 3.0 to 1 thereafter, (c) after the Specified Paydown Date, a
ratio of debt to capital of not more than 0.65 to 1 until September 30, 1995,
decreasing periodically thereafter to 0.50 to 1.00 for periods on and after
October 1, 1997, (d) a current ratio of at least 1.25 to 1 through 1997 and
1.50 to 1 thereafter and (e) a minimum net worth of $375.0 million plus
increases in capital stock and 50% of net income in fiscal year 1994 and
thereafter.
Events of Default and Other Matters
The Credit Agreement also contains customary events of default, including,
without limitation, those relating to failure to pay amounts due, breach of a
representation or warranty, failure to perform covenants, bankruptcy or
insolvency, litigation and unsatisfied judgments, certain defaults under other
debt agreements, and violations of the Employee Retirement Income Security Act
of 1974 (as amended, "ERISA") and environmental laws. There will also be an
event of default under the Credit Agreement if, prior to the Specified Paydown
Date, Minorco ceases to own a majority of the outstanding voting stock of the
Company and, after the Specified Paydown Date, if Minorco ceases to own at
least 20% of the outstanding voting stock of the Company or Minorco ceases to
be the single largest holder of capital stock of the Company.
Under an agreement between the Company and Citibank, as agent for the lenders
under the Credit Agreement, if dividends and other payments with respect to the
capital stock of Terra Capital exceed the sum of Specified Payments plus 50% of
the portion of Excess Cash Flow from the previous year that is not required to
be used to prepay the facilities, the lenders under the Credit Agreement may
choose to terminate their commitments to lend or cause the Company to
repurchase their loans.
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TERRA CANADA REVOLVING CREDIT FACILITY
Terra Canada has a $35 million (Canadian) revolving credit facility (as
amended, the "Canadian Revolving Facility") with the Bank of Nova Scotia to
provide for working capital needs and general corporate purposes. The Canadian
Revolving Facility expires November 23, 1995 and is renewable at the discretion
of the bank. Indebtedness under the Canadian Revolving Facility is guaranteed
by Terra International. Under this guarantee, Terra International is subject
to, among other things, certain financial covenants and restrictions on
indebtedness. U.S. dollar denominated loans under the Canadian Revolving
Facility bear interest at one, two, three or six-month LIBOR plus 0.625%.
Alternative interest rates based on the Canadian prime rate and the greater of
the annual base rate of the Bank of Canada or a federal funds rate are also
available. A facility fee of 0.125% per annum computed on the committed limit
of the Canadian Revolving Facility, whether used or unused, is also payable.
The Canadian Revolving Facility contains covenants customary for financings
of this type including, but not limited to, (a) covenants by Terra Canada to
maintain a consolidated tangible net worth (shareholders' equity less the value
of all intangible assets on a consolidated basis) of $5.5 million (Canadian)
and a ratio of consolidated aggregate current assets to current liabilities of
not less than 1:1 and (b) limitations on additional liens and indebtedness. The
Canadian Revolving Facility contains customary events of default, including,
but not limited to, those related to failure to pay amounts due, certain
defaults under other debt agreements and bankruptcy or insolvency. An event of
default also occurs if Terra International ceases (or if such has been
announced or is pending) to own all of the outstanding shares of capital stock
of Terra Canada or if the Company ceases (or if such has been announced or is
pending) to own, directly or indirectly, all of the issued and outstanding
shares of capital stock of Terra International.
OTHER OBLIGATIONS OF THE COMPANY'S SUBSIDIARIES
The following briefly describes certain other indebtedness and obligations of
Terra International and Terra Canada. See also the Company's financial
statements and the notes thereto included and incorporated by reference herein.
Terra International is a party to a receivables purchase agreement dated as
of March 31, 1994, which expires March 31, 1996, allowing for the sale of an
undivided interest in a designated revolving pool of accounts receivable up to
$50 million in proceeds. As of March 31, 1995, $50 million of proceeds had been
received.
Terra International also has outstanding $9.2 million Industrial Development
Revenue Bonds dated April 1, 1992 which bear interest at an average of 6.8% and
are subject to sinking fund requirements of $165,000 in 1995 and increasing to
$1,240,000 for the final payment in 2011. The bonds are secured by a first
mortgage on the Company's headquarters building in Sioux City, Iowa.
Terra International has $35.5 million unsecured notes outstanding as of March
31, 1995 with various institutional investors. Such notes bear interest at
rates between 8.48% and 9.625% and mature between 1996 and 2005. Terra
International is also a party to various non-cancelable operating leases for
agricultural equipment, rail cars and office, production and storage facilities
expiring on various dates through 2001. In addition, it is a party to various
letters of credit and swap agreements and financial derivatives to manage
exposure to interest rates and natural gas prices.
Terra Canada has a $37 million lease arrangement covering certain assets of
the Canadian Facility, which will be increased by approximately $20 million to
provide for an expanded urea plant. Current annual lease payments are
approximately $4 million (Canadian). The lease expires April 8, 1997, but can
be extended for up to an additional five years with the consent of the lessor
and is guaranteed by Terra International.
Terra Canada has various 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. It also has various swap agreements to manage exposure
to interest rates.
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TNCLP SENIOR PREFERENCE UNITS
TNC holds a 2% interest as general partner in TNCLP and TNLP on a combined
basis. TNCLP's limited partnership interests are divided into (i) Senior
Preference Units with a 39.8% limited partner interest and (ii) Junior
Preference Units and Common Units with a combined 58.2% limited partner
interest. TNC owns all the outstanding Junior Preference Units and Common
Units. The Senior Preference Units are entitled to receive a minimum quarterly
distribution of $0.605 per unit, plus arrearages, before any amounts are paid
to TNC on its Junior Preference Units and Common Units. In addition, as
required under the limited partnership agreement, an $18.5 million reserve has
been funded from excess available cash to support the payment of future
distributions on the Senior Preference Units. This reserve remained fully
funded at March 31, 1995. After payment of the minimum quarterly distribution
on the Senior Preference Units, assuming the reserve is fully funded, the
Junior Preference Units are entitled to receive the minimum quarterly
distribution, plus arrearages, and after the Junior Preference Units are paid,
the Common Units are entitled to receive the minimum quarterly distribution,
plus arrearages other than arrearages outstanding on June 30 of any year on or
prior to the Junior Conversion Date (as defined in TNCLP's limited partnership
agreement), which shall be eliminated. Available cash remaining after the
Common Units have received the minimum quarterly distribution is distributed to
all unit holders pro rata, except that the right of the Senior Preference Units
to participate in any such additional distribution terminates on the Senior
Conversion Date, which is generally defined as the date (but no sooner than
December 31, 1996) on which cash distributions of at least $2.64 per Senior
Preference Unit have been paid for three consecutive 12-month periods. TNC, as
general partner, also receives 2% of all distributions of Available Cash and is
entitled, as an incentive, to larger percentage interests to the extent that
distributions significantly exceed the minimum quarterly distributions. TNCLP's
limited partnership agreement provides that if the Company or its affiliates
were to acquire 75% or more of the Senior Preference Units, TNCLP would have
the right to call, or to assign to the Company the right to acquire, all Senior
Preference Units not held by the Company and its affiliates at a price based on
recent market prices. TNCLP's limited partnership agreement also provides that,
on or after the Senior Conversion Date but no earlier than March 31, 1997,
TNCLP will have the right to redeem all outstanding Senior Preference Units at
a price based on recent market prices. In such event, holders of Senior
Preference Units would have the right to convert their Senior Preference Units
into Common Units (subject to certain listing requirements). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Open
Market Purchase Program for TNCLP SPUs."
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale and
Participating Broker-Dealers shall be authorized to deliver this Prospectus for
a period not exceeding 180 days after the Expiration date. In addition, until
October 9, all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange
Notes or a combination of such methods of resale, at market prices prevailing
at the time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer and/or the
purchasers of any such Exchange Notes. Any Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any omissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "Exchange
Offer--Purpose and Effect of the Exchange Offer."
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AVAILABLE INFORMATION
The Company has filed with the Commission the Exchange Offer Registration
Statement pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Company and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Exchange Offer Registration Statement, reference is made to the
exhibit for a more complete description of the document or matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.
The Company and TNCLP are subject to the information requirements of the
Exchange Act and in accordance therewith are required to file periodic reports
and other information with the Commission. Reports, proxy statements and other
information filed by the Company and TNCLP as well as the Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at 75 Park Place, New York, New York 10007 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, reports, proxy statements and other information
may be inspected, with respect to the Company and TNCLP, at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005 and, with
respect to the Company, at the offices of the Toronto Stock Exchange, Exchange
Tower, 2 First Canadian Place, Toronto, Ontario M5X1J2 Canada, upon which the
common stock of the Company is listed.
The Indenture provides that the Company will furnish copies of the periodic
reports required to be filed with the Commission under the Exchange Act to the
Trustee. If the Company is not subject to the periodic reporting and
information requirements of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission, and the Company
will provide to the Trustee, annual reports containing the information required
to be contained in a Form 10-K under the Exchange Act, quarterly reports
containing the information required to be contained in a Form 10-Q under the
Exchange Act and from time to time such other information as is required to be
contained in a Form 8-K under the Exchange Act. The Company shall also furnish
all such reports to Holders of the Exchange Notes or to the Trustee for
forwarding to each Holder of Exchange Notes. If filing such reports by the
Company with the Commission is not permitted under the Exchange Act, the
Company will promptly upon written request and payment of the reasonable cost
of duplication and delivery, supply copies of such reports to any person the
Company reasonably believes is a prospective holder of Exchange Notes.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-8520) are
incorporated herein by reference: (i) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, (ii) the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1995; and (iii) the
Company's Current Reports on Form 8-K dated March 27, 1995, May 11, 1995, as
amended by the Company's Current Report on Form 8-K/A dated May 12, 1995, and
July 17, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the date on which the Exchange Offer is consummated shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. 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 any subsequently filed document which also
is or is deemed to be incorporated by reference herein modified 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.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE FROM
GEORGE H. VALENTINE, 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 ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE FIVE BUSINESS DAYS PRIOR
TO THE EXPIRATION DATE.
TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary
view, and no ruling from the Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. The Company
recommends that each holder consult such holder's own tax advisor as to the
particular tax consequences of exchanging such holder's Notes for Exchange
Notes, including the applicability and effect of any state, local or foreign
tax laws.
The exchange of the Notes for Exchange Notes pursuant to the Exchange Offer
should not be treated as an "exchange" for federal income tax purposes because
the Exchange Notes should not be considered to differ materially in kind or
extent from the Notes. Rather, the Exchange Notes received by a holder should
be treated as a continuation of the Notes in the hands of such holder. As a
result, there should be no federal income tax consequences to holders
exchanging Notes for Exchange Notes pursuant to the Exchange Offer.
LEGAL MATTERS
Certain legal matters regarding the issuance of the Notes pursuant to the
Offering will be passed upon for the Company by Kirkland & Ellis, Chicago,
Illinois.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company as of December 31, 1994 and 1993, for each of the
three years in the period ended December 31, 1994, included and incorporated by
reference in this Prospectus and in the Exchange Offer Registration Statement,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are included and incorporated by reference herein (which
reports express an unqualified opinion and include an explanatory paragraph
referring to the Company's change in its method of accounting for major
maintenance turnarounds and post-employment benefits effective January 1,
1994), and have been so included and incorporated by reference in reliance upon
the reports of such firm given upon their authority as experts in accounting
and auditing.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Terra Industries Inc. Consolidated Financial Statements:
Independent Auditors' Report............................................ F-2
Consolidated Statements of Financial Position--March 31, 1995
(unaudited) and
December 31, 1994 and 1993............................................. F-3
Consolidated Statements of Income--Three Months Ended March 31, 1995 and
1994 (unaudited), Year Ended December 31, 1994, 1993 and 1992.......... F-4
Consolidated Statements of Changes in Stockholders' Equity--Three Months
Ended March 31, 1995 and 1994 (unaudited), Year Ended December 31,
1994, 1993 and 1992.................................................... F-5
Consolidated Statements of Cash Flows--Three Months Ended March 31, 1995
and 1994 (unaudited), Year Ended December 31, 1994, 1993 and 1992...... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Terra Industries Inc.
We have audited the accompanying consolidated statements of financial
position of Terra Industries Inc. and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income, cash flows and changes
in stockholders' equity for each of the three years in the period ended
December 31, 1994. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial statements present fairly, in all
material respects, the financial position of Terra Industries Inc. and
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, the Corporation changed
its method of accounting for major maintenance turnarounds and post-employment
benefits effective January 1, 1994.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 1, 1995
F-2
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1995 1994 1993
----------- ---------- ---------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Cash and short-term investments............. $ 133,145 $ 158,384 $ 65,102
Accounts receivable, less allowance for
doubtful accounts of $9,739, $8,224 and
$5,788..................................... 213,881 157,026 122,774
Inventories................................. 538,094 332,952 244,995
Deferred tax asset--current................. 49,641 43,992 26,011
Other current assets........................ 53,566 31,069 10,586
---------- ---------- ---------
Total current assets.................... 988,327 723,423 469,468
---------- ---------- ---------
Equity and other investments................ 12,764 14,181 2,218
Property, plant and equipment, net.......... 569,348 552,843 110,670
Deferred tax asset--non-current............. -- -- 24,742
Excess of cost over net assets of acquired
businesses................................. 320,908 320,559 12,353
Partnership distribution reserve fund....... 18,480 18,480 --
Net assets of discontinued operations....... -- -- 3,488
Other assets................................ 54,600 58,484 11,543
---------- ---------- ---------
Total assets............................ $1,964,427 $1,687,970 $ 634,482
========== ========== =========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C>
Debt due within one year.................... $ 76,009 $ 67,658 $ 9,636
Accounts payable............................ 301,039 181,050 99,886
Accrued and other liabilities............... 295,316 200,774 128,659
---------- ---------- ---------
Total current liabilities............... 672,364 449,482 238,181
---------- ---------- ---------
Long-term debt.............................. 512,820 511,706 119,061
Deferred income taxes....................... 93,656 84,246 451
Other liabilities........................... 53,316 53,477 33,809
Minority interest........................... 182,183 170,630 --
Commitments and contingencies (Note 11)..... -- -- --
---------- ---------- ---------
Total liabilities....................... 1,514,339 1,269,541 391,502
---------- ---------- ---------
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C>
Capital stock
Common Shares, authorized 133,500 shares;
outstanding 81,018, 80,965 and 69,455
shares................................... 133,800 133,770 122,257
Paid-in capital............................. 630,241 630,111 516,128
Cumulative translation adjustment........... (1,093) (1,259) (488)
Accumulated deficit......................... (312,860) (344,193) (394,917)
---------- ---------- ---------
Total stockholders' equity.............. 450,088 418,429 242,980
---------- ---------- ---------
Total liabilities and stockholders'
equity................................. $1,964,427 $1,687,970 $ 634,482
========== ========== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-3
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------ ----------------------------------
1995 1994 1994 1993 1992
-------- -------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Net sales............. $434,121 $255,264 $1,633,499 $1,212,510 $1,062,045
Other income, net..... 9,219 4,240 32,448 25,491 20,146
-------- -------- ---------- ---------- ----------
443,340 259,504 1,665,947 1,238,001 1,082,191
-------- -------- ---------- ---------- ----------
Cost and Expenses
Cost of sales......... 291,772 221,974 1,330,202 1,021,187 904,246
Depreciation and
amortization......... 15,559 4,456 27,218 15,470 14,994
Selling, general and
administrative
expense.............. 52,995 40,306 193,975 161,791 137,232
Equity in loss
(earnings) of
unconsolidated
affiliates........... 1,197 554 (743) (2,275) --
-------- -------- ---------- ---------- ----------
361,523 267,290 1,550,652 1,196,173 1,056,472
-------- -------- ---------- ---------- ----------
Income (loss) from
operations........... 81,817 (7,786) 115,295 41,828 25,719
Interest income....... 2,666 856 5,541 3,261 3,084
Interest expense...... (14,007) (2,935) (22,082) (12,944) (10,617)
Minority interest..... (16,593) -- (8,809) -- --
-------- -------- ---------- ---------- ----------
Income (loss) from
continuing operations
before income taxes.. 53,883 (9,865) 89,945 32,145 18,186
Income tax provision
(benefit)............ 20,930 (3,580) 33,700 9,300 7,757
-------- -------- ---------- ---------- ----------
Income (loss) from
continuing
operations........... 32,953 (6,285) 56,245 22,845 10,429
Loss from discontinued
operations:
(Loss) income from
operations, net of
taxes.............. -- -- -- -- (4,025)
Gain (loss) on
disposition, net of
taxes.............. -- -- -- -- 2,360
-------- -------- ---------- ---------- ----------
Income (loss) before
extraordinary items
and cumulative effect
of accounting
changes.............. 32,953 (6,285) 56,245 22,845 8,764
Extraordinary gain
(loss) on early
retirement of debt... -- (2,614) (3,060) -- --
Cumulative effect of
accounting changes... -- 3,376 3,376 -- 22,265
-------- -------- ---------- ---------- ----------
Net Income (Loss)....... $ 32,953 $ (5,523) $ 56,561 $ 22,845 $ 31,029
======== ======== ========== ========== ==========
Weighted average number
of shares outstanding.. 81,215 69,961 72,870 69,064 69,103
======== ======== ========== ========== ==========
Income (Loss) Per Share:
Continuing operations. $ 0.41 $ (0.09) $ 0.77 $ 0.33 $ 0.15
Discontinued
operations........... -- -- -- -- (0.02)
-------- -------- ---------- ---------- ----------
Income (loss) before
extraordinary items.. 0.41 (0.09) 0.77 0.33 0.13
Extraordinary gain
(loss) on early
retirement of debt... -- (0.04) (0.04) -- --
Cumulative effect of
accounting changes... -- 0.05 0.05 -- 0.32
-------- -------- ---------- ---------- ----------
Net Income (Loss)....... $ 0.41 $ (0.08) $ 0.78 $ 0.33 $ 0.45
======== ======== ========== ========== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-4
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON TRUST PAID-IN TRANSLATION ACCUMULATED
SHARES SHARES CAPITAL ADJUSTMENT DEFICIT TOTAL
-------- ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
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
Conversion of
debentures........... 731 -- 5,176 -- -- 5,907
Exercise of stock
options.............. 847 -- 3,819 -- -- 4,666
Issuance of Common
Shares............... 9,700 -- 103,300 -- -- 113,000
Translation
adjustment........... -- -- -- (771) -- (771)
Stock Incentive Plan.. 235 -- 1,688 -- -- 1,923
Dividends............. -- -- -- -- (5,837) (5,837)
Net Income............ -- -- -- -- 56,561 56,561
-------- ------- -------- ------- --------- --------
December 31, 1994....... 133,770 -- 630,111 (1,259) (344,193) 418,429
Unaudited:
Stock Incentive Plan.. 30 -- 130 -- -- 160
Translation
adjustment........... -- -- -- 166 -- 166
Dividends............. -- -- -- -- (1,620) (1,620)
Net Income............ -- -- -- -- 32,953 32,953
-------- ------- -------- ------- --------- --------
March 31, 1995........ $133,800 $ -- $630,241 $(1,093) $(312,860) $450,088
======== ======= ======== ======= ========= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-5
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------ ---------------------------
1995 1994 1994 1993 1992
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss)........... $ 32,953 $ (5,523) $ 56,561 $22,845 $ 31,029
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Depreciation and
amortization............. 16,174 4,456 27,218 15,470 14,994
Income taxes.............. 3,761 (2,759) 20,956 5,500 6,313
Cumulative effect of
accounting changes....... -- (3,376) (3,376) -- (22,265)
Minority interest in
earnings................. 16,593 -- 8,809 -- --
Other non-cash items...... (4,060) 3,765 10,923 (839) 2,826
Change in current assets and
liabilities, excluding
working capital
purchased/sold:
Accounts receivable....... (59,703) (53,478) 19,615 (24,540) (1,764)
Inventories............... (201,662) (143,609) (59,303) (6,718) (32,136)
Other current assets...... (4,489) (955) (13,056) (2,893) (875)
Accounts payable.......... 119,989 151,361 60,478 (9,945) (2,071)
Accrued and other
liabilities.............. 83,071 42,870 39,405 2,452 38
Debt issuance costs......... -- (2,533) (13,581) -- --
Other....................... (2,744) (489) 212 (2,354) 684
-------- -------- -------- ------- --------
Net Cash (Used In) Provided by
Operating Activities......... (117) (10,270) 154,861 (1,022) (3,227)
-------- -------- -------- ------- --------
Investing Activities
Acquisitions, net of cash
acquired................... (10,340) (11,306) (373,722) (58,260) --
Purchase of property, plant
and equipment.............. (14,007) (10,463) (31,213) (21,620) (17,620)
Proceeds from asset sales... -- -- -- 24,391 23,065
Discontinued operations..... (478) (988) (2,138) 5,630 (5,504)
Proceeds from investments... 246 573 690 537 --
-------- -------- -------- ------- --------
Net Cash (Used In) Provided By
Investing Activities......... (24,579) (22,184) (406,383) (49,322) (59)
-------- -------- -------- ------- --------
Financing Activities
Net short-term borrowings... 7,199 69,758 13,795 7,313 --
Proceeds from issuance of
long-term debt............. -- -- 326,407 250 30,000
Principal payments on long-
term debt.................. (1,403) (67,171) (101,416) (12,545) (5,842)
Stock issuance/repurchase--
net........................ 155 1,131 117,666 513 --
Distribution to minority
interests.................. (5,040) -- (5,040) -- --
Dividends................... (1,620) (1,392) (5,837) (1,386) --
-------- -------- -------- ------- --------
Net Cash (Used In) Provided by
Financing Activities......... (709) 2,326 345,575 (5,855) 24,158
-------- -------- -------- ------- --------
Foreign exchange effect on
cash and short-term
investments.................. 166 (454) (771) (488) --
-------- -------- -------- ------- --------
(Decrease) Increase in Cash
and Short-Term Investments... (25,239) (30,582) 93,282 (56,687) 20,872
Cash and Short-Term
Investments at Beginning of
Period....................... 158,384 65,102 65,102 121,789 100,917
-------- -------- -------- ------- --------
Cash and Short-Term
Investments at End of Period. $133,145 $ 34,520 $158,384 $65,102 $121,789
======== ======== ======== ======= ========
Interest Paid................. $ 16,500 $11,800 $ 10,400
======== ======= ========
Taxes Paid.................... $ 22,600 $ 3,800 $ 6,000
======== ======= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-6
<PAGE>
TERRA INDUSTRIES INC.
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. 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--
Discontinued Operations.
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.
Plant turnaround costs:
Costs related to the periodic scheduled major maintenance of continuous
process production facilities (plant turnarounds) are deferred and charged to
product costs on a straight-line basis during the period to the next scheduled
turnaround, generally two years.
Hedging transactions:
Realized gains and losses from hedging activities are deferred and recognized
in the month to which the hedge transactions relate.
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 outstanding. The dilutive effect of the Corporation's outstanding
restricted shares, stock options and convertible debentures was not
significant.
Interim Financial Information:
The unaudited consolidated financial statements as of March 31, 1995 contain
all adjustments necessary to summarize fairly the financial position of the
Corporation and all majority-owned subsidiaries and the results of the
Corporation's operations for the three months ended March 31, 1995 and 1994.
All such adjustments are of a normal recurring nature. Because of the seasonal
nature of the Corporation's operations and effects of weather-related
conditions in several of its marketing areas, earnings of any single reporting
period should not be considered as indicative of results for a full year.
F-7
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS
On October 20, 1994, the Corporation acquired Agricultural Minerals and
Chemicals Inc. (AMCI) for $400 million plus an estimated working capital
adjustment approximating $100 million. AMCI, through its subsidiaries
manufactures nitrogen-based fertilizers and industrial use products, and
methanol. The subsidiaries controlled by the Corporation as a result of the
AMCI acquisition include Terra Nitrogen Corporation (TNC) and Terra Methanol
Corporation (TMC). TNC has a 60.2 percent ownership interest in Terra Nitrogen
Company, L.P. (TNCLP), formerly Agricultural Minerals Company, L.P., which
operates nitrogen products manufacturing facilities in Verdigris, Oklahoma and
Blytheville, Arkansas through an investment in an operating partnership, Terra
Nitrogen, Limited Partnership (TNLP), formerly Agricultural Minerals, Limited
Partnership. TMC is the general partner of Beaumont Methanol Limited
Partnership (BMLP) which operates a methanol production facility in Beaumont,
Texas. The acquisition has been accounted for using the purchase method of
accounting. The excess of purchase price over the fair value of net assets
acquired will be amortized on a straight-line basis over 18 years which is
estimated to be the average remaining useful life of the manufacturing plants
acquired.
To finance the acquisition of AMCI, the Corporation issued 9.7 million Common
Shares for aggregate net proceeds of approximately $113 million, entered into
credit arrangements to issue $310 million of long-term debt, and refinanced
certain bank debt and credit lines of the Corporation, AMCI and AMCI's
subsidiaries aggregating $260 million of which $152 million in borrowings were
outstanding. The Corporation used $40 million of the new debt issue to
refinance short-term debt. The credit agreement provides for a $175 million
revolving line of credit for use by Terra International, Inc. and BMLP and a
$50 million revolving line of credit for TNLP. As a result of the acquisition
of AMCI, the Corporation also assumed AMCI's obligations including its $175
million in aggregate principal of 10.75% Senior Notes due 2003 (see Note 10--
Long Term Debt).
On September 15, 1994, the Corporation acquired an approximate one-third
interest in Royster-Clark, Inc. for $12.2 million in cash. Royster-Clark is a
100 location distributor of crop input and protection products in the mid-
Atlantic region.
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 $39.8 million. Terra Asgrow
Florida operates 16 distribution centers and is a supplier to the vegetable and
ornamental plant markets, mostly in Florida.
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 interest 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 (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.
Operating results of the acquired businesses subsequent to the respective
dates of each acquisition are included in the Consolidated Statements of
Income. The following represents unaudited pro forma summary
F-8
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
results of operations as if the acquisitions of AMCI, Terra Asgrow Florida and
Terra Canada had occurred at the beginning of 1993:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
THREE MONTHS ENDED ---------------------
MARCH 31, 1994 1994 1993
------------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C>
Revenues........................ $356,088 $2,084,800 $1,716,300
Income (loss) before extraordi-
nary items and cumulative ef-
fect of accounting changes..... $ (2,469) $ 110,370 $ 14,060
Net income (loss)............... $ (1,707) $ 110,680 $ 11,510
Income (loss) per share before
extraordinary items............ $ (0.03) $ 1.37 $ 0.18
Net income (loss) per share..... $ (0.02) $ 1.37 $ 0.15
</TABLE>
The pro forma operating results were adjusted to include lease expense rather
than depreciation for the Terra Canada nitrogen plant, increased costs of seed
sales, depreciation of the fair value of capital assets acquired based on
estimated useful lives at respective acquisition dates, amortization of
intangibles, reduction of incentive compensation expense for plans terminated
at acquisition, interest expense on the acquisition borrowings, the issuance of
common stock 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 periods, and is not intended to be a projection of future
operating results or trends.
3. ACCOUNTING CHANGES
Coincident with the 1994 acquisition of AMCI (see Note 2--Acquisitions), the
Corporation changed its method of accounting for major maintenance turnarounds
at manufacturing facilities and recorded a $4.2 million credit, net of income
taxes of $2.7 million, as the cumulative effect at January 1, 1994 of the
change in accounting principle. Excluding the cumulative effect, this change
increased net income for 1994 by approximately $1.0 million or $0.01 per share.
Under the new accounting principle the Corporation defers the cost of
turnarounds when incurred and charges the costs to production ratably over the
period until the next scheduled turnaround. Previously, estimated costs of
turnarounds were charged to product costs over the period preceding each
scheduled major maintenance, generally two years. The change was made to charge
turnaround costs to production over the period most clearly benefited by the
turnaround.
In 1994, the Corporation adopted Statement of Financial Accounting Standard
(SFAS) 112, "Employers Accounting for Post-Employment Benefits." This change
required the Corporation to recognize future liabilities of $0.8 million, net
of income taxes of $0.5 million, for benefits to disabled employees. In 1992,
the Corporation adopted SFAS 106, "Employers Accounting for Post-Retirement
Benefits Other than Pensions." 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 the changes in accounting for SFAS
106 and 112, the Corporation recognized expense in the period the benefits were
paid. These benefit costs were not significant in prior years.
In 1992, the Corporation also adopted SFAS 109, "Accounting for Income
Taxes." Accounting for income taxes under SFAS 109 requires recognition of
deferred tax assets and liabilities for the effect of future
F-9
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
A $28.0 million credit was recorded as the cumulative 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
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, discontinued in 1990, the Corporation
realized a $2.4 million gain on disposition of discontinued operations in 1992.
During 1993, the Corporation sold the leasing and construction materials
businesses.
Financial results of the coal, leasing and other discontinued businesses for
1994 and 1993 have been applied against their respective reserves and 1992
amounts have been included in discontinued operations and are as follows:
<TABLE>
<CAPTION>
1992
-------------
(IN MILLIONS)
<S> <C>
Revenues:
Leasing................................................... $ 5.9
Construction materials.................................... 27.8
-----
$33.7
=====
Income (loss) from operations, net of income taxes:
Leasing................................................... $(2.8)
Construction materials.................................... (0.8)
Other..................................................... (0.4)
-----
$(4.0)
=====
</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 1994, Minorco
purchased 56% of the Corporation's common share offering at the offering price
less underwriter's discount. 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.
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 totaled $4.6
million in 1994, $4.7 million in 1993 and $4.5 million in 1992.
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1995 1994 1993
---------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials............................... $ 44,855 $ 38,988 $ 22,983
Finished goods.............................. 493,239 293,964 222,012
-------- -------- --------
Total................................... $538,094 $332,952 $244,995
======== ======== ========
</TABLE>
F-10
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1995 1994 1993
---------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings..................... $ 89,964 $ 89,154 $ 66,343
Plant and equipment.................... 631,330 605,900 179,095
Finance leases......................... 7,471 7,471 --
--------- --------- ---------
728,765 702,525 245,438
Less accumulated depreciation and
amortization.......................... (159,417) (149,682) (134,768)
--------- --------- ---------
Total.............................. $ 569,348 $ 552,843 $ 110,670
========= ========= =========
</TABLE>
8. DEBT DUE WITHIN ONE YEAR
Debt due within one year consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
1995 1994 1993
----------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings....................... $28,307 $21,108 $ 7,313
Current maturities of long-term debt........ 47,702 46,550 2,323
------- ------- -------
Total................................... $76,009 $67,658 $ 9,636
======= ======= =======
Weighted average short-term borrowings...... $49,242 $23,163
======= =======
Weighted average interest rate.............. 6.5% 4.5%
======= =======
</TABLE>
The Corporation has entered into a credit agreement to provide Bank Term
Loans (see Note 10--Long-Term Debt) and $225 million in short-term domestic
revolving credit facilities, which are used primarily to provide for domestic
seasonal working capital needs. The Corporation also has a $24.9 million ($35
million Cdn) revolving credit facility used to provide for working capital
needs for its Canadian operations. There was $14 million outstanding at
December 31, 1994 under the domestic facilities and $7.1 million outstanding
under the Canadian facility. Interest on borrowings under these lines is
charged at current market rates.
Under the credit agreement, the Corporation has agreed, among other things,
to maintain certain financial covenants including minimum net worth and maximum
debt leverage as well as minimum current and interest coverage ratios, and to
adhere to certain limitations on additional debt, capital expenditures,
acquisitions, liens, asset sales, investments, prepayment of subordinated
indebtedness, changes in lines of business and transactions with affiliates.
The Corporation's domestic revolving credit facilities expire October 20, 1999.
A commitment fee is charged on the unused portion of the facilities under the
credit agreement, initially 1/2 percent reducing to 3/8 percent when a certain
debt to cash flow ratio is achieved. The credit agreement is secured by the
stock of certain of the Corporation's principal subsidiaries as well as the
personal property of the acquired subsidiaries.
Under the 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 Canadian facility expires November 23, 1995 and is
renewable every 120 days for a 360-day term. A commitment fee of 1/8 percent is
paid on the facility.
F-11
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1995 1994 1993
---------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Customer deposits........................... $134,579 $ 66,470 $ 50,714
Payroll and benefit costs................... 26,574 45,630 17,072
Income taxes................................ 27,654 8,727 17,025
Other....................................... 106,509 79,947 43,848
-------- -------- --------
Total................................... $295,316 $200,774 $128,659
======== ======== ========
</TABLE>
10. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------
1995 1994 1993
---------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Unsecured Senior Notes, 10.75%, due 2003. $158,755 $158,755 $ --
Bank term loans, floating rate, due in
installments through 2001............... 310,000 310,000 --
Bank term loan, floating rate, due 1999.. 35,000 35,000 --
8.5% Convertible Subordinated Debentures. -- -- 72,057
Unsecured Senior Notes, 8.48%, due 2005.. 30,000 30,000 30,000
Industrial Development Revenue Bonds
bearing interest at an average 6.8% with
increasing payments from 1995 to 2011... 9,210 9,210 9,355
Unsecured Notes, 8.75% to 9.63%, due 1996
to 1998................................. 5,500 6,500 8,500
Other.................................... 12,057 8,791 1,472
-------- -------- --------
560,522 558,256 121,384
Less current maturities.................. (47,702) (46,550) (2,323)
-------- -------- --------
Total................................ $512,820 $511,706 $119,061
======== ======== ========
</TABLE>
Scheduled principal payments for each of the five years 1995 through 1999 are
$46.5 million, $46.8 million, $44.9 million, $44.9 million and $93.4 million,
respectively.
In conjunction with the October 1994 acquisition of AMCI, the Corporation
assumed the obligations under the $175 million unsecured 10.75% Senior Notes
due in full September 30, 2003. Under the 10.75% Senior Notes Indenture, the
holders have a 30-day option to require the Corporation to purchase their notes
at a price of 101% of the principal amount upon a change of control. Following
the Corporation's acquisition of AMCI, $16.2 million of notes were redeemed.
The 10.75% Senior Notes are redeemable at the option of the Corporation, in
whole or part, at any time on or after September 30, 1998, initially at
105.375% of their principal amount, plus accrued interest, declining to
102.688% on or after September 30, 1999, and declining to 100% on or after
September 30, 2000. In addition, at any time prior to September 30, 1996, the
Corporation may, at its option, redeem up to $61.25 million aggregate principal
amount out of the proceeds of one or more public offerings of equity securities
at a redemption price of 110% of their principal amount,
F-12
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
plus accrued interest. The 10.75% Senior Notes Indenture contains certain
restrictions, including the issuance of additional debt, payment of dividends,
issuance of capital stock, certain transactions with affiliates, incurrence of
liens, sale of assets, and sale-leaseback transactions.
The Corporation entered into a credit agreement with financial institutions
to provide several Bank Term Loans (Loans) to finance a portion of its
acquisition of AMCI and to refinance existing debt of $40 million at the
Corporation and $35 million at TNLP. Interest on the Loans is at current market
rates, a portion of which has been fixed (see Note 12--Derivative Financial
Instruments). Loans are secured by the stock of certain of the Corporation's
principal subsidiaries as well as the personal property of subsidiaries
acquired from AMCI. The Loans are generally to be repaid over their five- to
seven-year terms in semi-annual payments and can be repaid without penalty or
premium at any time at the option of the Corporation. The Loans are required to
be reduced by mandatory prepayments based on certain cash flow levels as
defined in the credit agreement. The credit agreement also contains covenants
similar to the domestic revolving credit agreement described in Note 8--Debt
Due Within One Year.
The Corporation's 8.5% Convertible Subordinated Debentures (Debentures) were
convertible into Common Shares any time prior to maturity at a conversion price
of $8.083 per share. The Debentures were 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. During March 1994, the Corporation redeemed $72.1
million of the Debentures at the redemption price of 103.4% of par value.
During the 20-day notice period, holders of $5.9 million chose to convert their
debentures into Common Stock of the Corporation. The Corporation issued 730,768
Common Shares and paid cash for fractional shares.
During 1992, the Corporation entered into a long-term note purchase agreement
of $30 million in 8.48% 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 terminate on April 15,
2003. The debt agreement includes covenants similar to the revolving credit
agreement described in Note 8--Debt Due Within One Year 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.
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>
1995....................................................... $ 39,840
1996....................................................... 32,606
1997....................................................... 26,909
1998....................................................... 11,723
1999 and thereafter........................................ 16,531
--------
Total...................................................... $127,609
========
</TABLE>
F-13
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. Additionally, Terra Canada has entered into an agency
agreement to act as construction agent to make certain plant improvements not
to exceed $31 million (Cdn). 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 $37.3 million, $24.7 million and $19.4
million for the years ended December 31, 1994, 1993 and 1992, respectively.
On December 13, 1994, the Corporation's Port Neal facility in Iowa was
extensively damaged as a result of an explosion. The Corporation and regulatory
officials are investigating the cause of the explosion. It is possible that the
regulatory agencies may assess fines and penalties against the Corporation as a
result of their investigations. As of the date of loss, insurance was in force
to cover damage to the Corporation's property, business interruption, and third
party liability claims. The Corporation has recognized a $7 million pretax
charge against 1994 earnings to cover its aggregate expected unrecoverable
costs associated with the incident, including deductibles and other uninsured
costs.
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, 1994. 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.
During March 1994, the Corporation entered into an agreement to sell its
receivables. Under this agreement, which expires March 31, 1996, the
Corporation may sell with limited recourse an undivided interest in a
designated pool of its accounts receivable and receive up to $50 million in
proceeds. Undivided interests in new receivables may be sold as collections
reduce previously sold interests. The Corporation retains collection and
administrative responsibility on the participating interests sold. The
undivided interests are sold at a discount that is included in selling general
and administrative expense in the Consolidated Statements of Income. At
December 31, 1994 and March 31, 1995, the proceeds of the uncollected balance
of receivables sold totaled $50 million.
The Corporation is involved in various legal actions and claims, including
environmental matters, arising from the normal course of business. It is the
opinion of management that the ultimate resolution of these matters will not
have a material adverse effect on either the results of operations, financial
position or net cash flows of the Corporation.
F-14
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation manages four categories of risk using derivative financial
instruments: (a) foreign currency fluctuations (b) changes in natural gas
supply prices (c) interest rate fluctuations and (d) the effect of fluctuations
in methanol prices relative to natural gas prices.
Foreign Currency Fluctuations--The Corporation enters into foreign exchange
forward and option contracts to manage risk associated with foreign currency
exchange rate fluctuations. The contracts are designated as hedges of fixed
obligations and hedges of net foreign currency positions. Contract maturities
are consistent with the settlement dates of items being hedged. Gains and
losses on these contracts are deferred and included as a component of the
related transaction. The contracts have no recorded value and would cost $0.8
million to liquidate at December 31, 1994. The contracts had a recorded value
of $0.1 million and a fair value of $0.9 million at December 31, 1993. Fair
value of foreign exchange contracts is based on quotations received from a
quotation service and computations prepared by the Corporation. The following
describes the specific areas of risk being managed:
(a) Canadian dollar lease commitments under the Corporation's Canadian
nitrogen plant lease, aggregating $81.1 million (Cdn), which extend through
April 1997, have been hedged (converted into U.S. dollar obligations) with
forward exchange and basis swap contracts.
(b) A significant portion of the Corporation's Canadian production is
sold in the U.S., or is based on U.S. prices, but many of the production
costs are in Canadian dollars. As a result, the Corporation's earnings will
decline when the Canadian dollar increases in value compared with the U.S.
dollar. Consequently, the Corporation buys Canadian dollars forward, or
uses derivatives to fix future exchange rates, for about 50% of its
estimated net Canadian dollar requirements over a twelve-month period.
Estimated 1995 and 1994 net Canadian dollar cash disbursements were
approximately $30 million (Cdn) and $38 million (Cdn), respectively, as of
December 31, 1994 and 1993.
Natural Gas Prices--Natural gas supplies to fill production requirements at
the Corporation's production facilities are purchased at market prices. Natural
gas market prices, as with other commodities, are volatile and the Corporation
fixes prices for a portion of its natural gas requirements through the use of
swap agreements, futures contracts and options. These contracts are traded up
to eighteen months forward and settlement dates are scheduled to coincide with
gas purchases during that future period. A swap agreement is an agreement
between the Corporation and a third party to exchange cash based on a
designated price, which price is referenced to market natural gas prices or
appropriate NYMEX futures contract prices. Option contracts are agreements
giving the holder of the contract the right to either own or sell a futures or
swap contract at a designated price. The futures contracts require maintenance
of cash balances generally 10% to 20% of the contract value while option
contracts also require initial premiums payments ranging from 2% to 5% of
contract value.
The following summarizes open natural gas contracts at December 31, 1994 and
1993:
<TABLE>
<CAPTION>
1994 1993
-------------------- -------------------
CONTRACT UNREALIZED CONTRACT UNREALIZED
MMBTU GAIN (LOSS) MMBTU GAIN (LOSS)
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Futures........................ 5,080 $ (1,838) 12,020 $(545)
Swaps.......................... 59,855 (18,793) -- --
Options........................ 11,926 (709) -- --
------- -------- ------ -----
76,861 $(21,340) 12,020 $(545)
======= ======== ====== =====
Projected required MMBtu....... 126,000 30,000
======= ======
Percent hedged................. 61% 40%
======= ======
</TABLE>
F-15
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gains and losses on settlement of these contracts and agreements are credited
or charged to manufacturing cost in the month in which the hedged transaction
relates. The risk associated with outstanding natural gas positions is directly
related to increases or decreases in natural gas prices in relation to the
underlying NYMEX natural gas contract prices. Realized losses on closed
contracts of $4.5 million relating to future periods have been deferred.
During 1994, natural gas related hedging activities resulted in average cost
increases compared with spot prices of approximately $15.5 million, or 11%, for
total natural gas purchases. During 1993, natural gas related hedging
activities resulted in average cost reductions compared with spot prices of
approximately $5.8 million, or 6%, for total natural gas purchases, including
an estimated $7.0 million effect of favorable purchase contracts for the
Courtright plant.
In the first quarter of 1995, due to the decline in natural gas prices, the
Corporation extended its forward pricing positions for natural gas. At March
31, 1995, the Corporation had entered into forward pricing positions covering
approximately 65% of its natural gas requirements for the remainder of 1995,
42% of its requirements for 1996 and 22% of its requirements for 1997. At March
31, 1995, liquidation of the Corporation's open positions would have resulted
in a loss of $10 million. As of March 31, 1995, realized losses of $3.1 million
relating to future periods had been deferred.
Interest Rate Fluctuations--The Corporation has limited the effect of
interest rate fluctuations for a portion of its debt through the use of
interest rate collar agreements. The agreements require payments to the
Corporation for the amount, if any, that interest costs, on a cumulative basis,
exceed 8.5% to 9.0% (LIBOR) and requires payments by the Corporation for the
amount that interest costs fall below 5.65% (LIBOR). At December 31, 1994, the
Corporation had $366.0 million of debt subject to variable interest at the
LIBOR rate. The interest rate collar agreements, with an initial notional
amount of $190 million (which declines over a 3-year period), cover 52% of the
variable interest rate debt at December 31, 1994.
The unamortized cost of the collar agreements is $1.1 million at December 31,
1994 and is carried in other assets in the consolidated statement of financial
position. No payments are receivable or due under the agreements at December
31, 1994. The unamortized cost approximates market value.
The Corporation has also entered into interest rate swap agreements to
convert $15 million of its fixed-rate, long-term borrowings to variable rates
through April 15, 2003. For 1993, the net interest rate effect of the swap
arrangements totaled 2.9% effectively reducing the interest rate on its $30
million of 8.48% Senior Notes to 7.0%. For 1994, the net interest rate effect
of the swap arrangements totaled 2.2% effectively reducing the interest rate to
7.39%. Additionally, the Corporation has entered into an interest rate swap
agreement to convert fixed U.S. dollar lease payments to variable rates based
on LIBOR through April 8, 1997. At December 31, 1994, the notional amount of
the swap agreement was approximately $36.6 million and would cost $2.2 million
to liquidate.
As a result of debt retirement in previous years, BMLP has an interest rate
swap agreement which is no longer associated with outstanding debt. Under the
interest rate swap agreement, BMLP makes 6.1% fixed rate payments and receives
variable-rate interest rate payments (6.5% at December 31, 1994). At December
31, 1994, the notional amount of the swap agreement was $29 million and the
agreement expired March 31, 1995.
Methanol Prices--BMLP entered into a methanol hedging agreement (the Methanol
Hedging Agreement) effective October 1994. Pursuant to the agreement, BMLP
received $4 million in cash and agreed to make payments to the extent that
average methanol prices exceed the sum of $0.65 per gallon plus 0.113 times the
average spot price index, in cents per MMBtu for natural gas during the periods
October 20, 1994 to December 31, 1995, calendar year 1996, and calendar year
1997. The quantities subject to the agreement
F-16
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for each of these periods are 155.5 million, 140 million and 130 million
gallons, respectively. BMLP's methanol production facility has a production
capacity of 280 million gallons of methanol per year. Payments are due five
days after the end of each period.
The $4 million received pursuant to the Methanol Hedging Agreement is being
recognized as income over the term of the agreement. Accruals for payments are
recorded as a reduction of revenue. As of December 31, 1994, $15.9 million has
been recorded as payable under the Methanol Hedging Agreement based on average
prices, for the period October 20, 1994 through December 31, 1994. The actual
amount that will be paid is dependent upon average methanol and natural gas
prices during each of the periods. The estimated fair value of the agreement
representing the amount that BMLP would expect to pay at December 31, 1994 to
liquidate the agreement for its remaining term, is approximately $41 million,
based on an appraisal.
As of March 31, 1995, an additional $15.4 million has been recorded as
payable under the Methanol Hedging Agreement for the period January 1, 1995
through March 31, 1995. The estimated fair value of the agreement, representing
the amount that BMLP would expect to pay at March 31, 1995 to liquidate the
agreement for its remaining term, is approximately $5 million based on a
management estimate.
13. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The following table presents the carrying amounts and estimated fair values
of the Corporation's financial instruments at December 31, 1994 and 1993. SFAS
107, "Disclosures about Fair Value of Financial Instruments," defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial Assets
Cash and short-term investments..... $ 158.4 $ 158.4 $ 65.1 $ 65.1
Receivables......................... 157.0 157.0 122.8 122.8
Equity and other investments........ 14.2 16.6 2.2 4.0
Other assets........................ 16.0 16.2 11.6 12.0
Financial Liabilities
Long-term debt...................... (558.3) (555.4) (121.4) (121.5)
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and receivables: The carrying amounts approximate fair value because of
the short maturity of those instruments.
Equity and other investments: Investments in untraded companies are valued on
the basis of management's estimates and comparisons with similar companies
whose shares are publicly traded when available.
Other assets: The amounts reported relate to notes receivable obtained from
sale of previous operating assets. The fair value is estimated based on current
interest rates and repayment terms of the individual notes.
Long-term debt: The fair value of the Corporation's long-term debt is
estimated based on the quoted market prices for similar issues or by
discounting expected cash flows at the rates currently offered to the
Corporation for debt of the same remaining maturities.
F-17
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Concentration 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.
Financial Instruments--At December 31, 1994, the Corporation had letters of
credit outstanding totaling $27.6 million, guaranteeing various insurance and
financing activities. Short-term investments of $9.6 million and $13.0 million
at December 31, 1994 and 1993, respectively, are restricted to collateralize
certain of the letters of credit.
14. STOCKHOLDERS' EQUITY
The Corporation allocates $1.00 per share upon the issuance of Common Shares
to the Common Share capital account.
In 1994, the Corporation issued 372,000 restricted Common Shares under its
1992 Stock Incentive Plan to certain key employees of the Corporation. During
1994, 229,218 shares issued in 1992 vested with plan participants and 139,282
shares were canceled. At December 31, 1994, all of the 1994 issued unvested
shares remain outstanding. Under terms of the issuance, vesting of stock
granted is contingent upon the attainment, prior to February 2001, of pre-
established market price objectives for the Corporation's shares. 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.
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.
The Corporation has authorized 16,500,000 Trust Shares for issuance. All
Trust Shares previously outstanding were canceled in July 1993.
F-18
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of changes in the Corporation's outstanding capital stock follows:
<TABLE>
<CAPTION>
COMMON TRUST TOTAL
SHARES SHARES SHARES
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
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
Issuance of common shares....................... 9,700 -- 9,700
Exercise of stock options....................... 847 -- 847
Convertible debt redemption..................... 731 -- 731
Stock Incentive Plan............................ 232 -- 232
------ ------ ------
December 31, 1994................................. 80,965 -- 80,965
====== ====== ======
</TABLE>
At December 31, 1994, 2.1 million Common Shares were reserved for issuance
upon award of restricted shares and exercise of employee stock options.
15. 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, 1994, 1,251,982 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
UNDER OPTION PER SHARE
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
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 4.13 to 13.11
Exercised.................................. 213 3.38 to 6.75
----- ---------------
Balance at December 31, 1993................. 2,145 $3.38 to $11.38
Granted.................................... 289 10.50
Expired/terminated......................... 54 3.38 to 11.38
Exercised.................................. 847 3.38 to 9.63
----- ---------------
Balance at December 31, 1994................. 1,533 $3.38 to $10.50
===== ===============
</TABLE>
F-19
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The number of options exercisable at December 31 for each of the past three
years follows:
<TABLE>
<CAPTION>
PRICE RANGE
OPTIONS PER SHARE
------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
1992.............................................. 2,255 $3.38 to $13.11
1993.............................................. 1,777 3.38 to 11.38
1994.............................................. 1,244 3.38 to 9.63
</TABLE>
16. 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>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current service cost........................... $ 3,248 $ 2,627 $ 2,019
Interest on projected benefit obligation....... 3,971 3,539 2,322
Actual loss (return) on assets................. 361 (4,629) (2,290)
Net amortization and other..................... (4,764) 853 28
------- ------- -------
Pension expense................................ $ 2,816 $ 2,390 $ 2,079
======= ======= =======
</TABLE>
Net periodic pension expense for 1994 includes components of expense for the
former AMCI plan for the period from acquisition through December 31, 1994.
The following table reconciles the plans' funded status to amounts included
in the Consolidated Statements of Financial Position at December 31:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
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
---------------- ----------- ---------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value
of:
Vested benefit
obligations.......... $(35,301) $(1,780) $(32,550) $(1,532)
Accumulated benefit
obligations.......... $(39,084) $(1,933) $(36,213) $(1,680)
Projected benefit
obligations.......... $(53,344) $(2,257) $(51,173) $(1,993)
Plan assets at fair
value.................. 48,312 -- 45,626 --
-------- ------- -------- -------
Funded status........... (5,032) (2,257) (5,547) (1,993)
Unrecognized net
experience loss (gain). (219) (333) 4,061 295
Unrecognized prior
service cost........... 254 347 636 107
Unrecognized net
transition (asset)
obligation............. (3,103) 586 (3,469) 645
Additional minimum
liability.............. -- (276) -- (734)
-------- ------- -------- -------
Pension liability
included in the
Consolidated Statements
of Financial Position.. $ (8,100) $(1,933) $ (4,319) $(1,680)
======== ======= ======== =======
</TABLE>
F-20
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the Canadian purchase agreement, the Corporation
established a pension plan for transferring employees, whereby the seller
transferred assets, which approximated the projected benefit obligation 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, 1994 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate............................. 8.5% 7.5% 8.5%
Long-term per annum compensation increase.................. 5.0% 5.0% 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 $1.9 million in 1994, $1.4 million in 1993 and $1.1 million in 1992.
17. POST-RETIREMENT BENEFITS
The Corporation also provides health care benefits for eligible retired
employees of one of its wholly owned subsidiaries. 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 Statements of
Financial Position at December 31, 1994:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated post-retirement medical benefit
obligation:
Retirees......................................... $ (2,133) $ (2,054)
Fully eligible active plan participants.......... (1,615) (1,946)
Other active participants........................ (4,430) (5,305)
-------- --------
Funded status.................................... (8,178) (9,305)
Unrecognized net gain (loss)..................... (2,071) 149
Unrecognized prior service benefit............... (1,912) (2,040)
-------- --------
Accrued post-retirement benefit cost............... $(12,161) $(11,196)
======== ========
</TABLE>
Net periodic post-retirement medical benefit cost consisted of the following
components:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost of benefits earned................... $ 534 $ 526 $ 723
Interest cost on accumulated post-retirement
medical benefit obligation....................... 624 614 730
Net amortization and other........................ (127) (127) --
------ ------ ------
Net periodic post-retirement medical benefit cost. $1,031 $1,013 $1,453
====== ====== ======
</TABLE>
F-21
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 8.5% in 1994,
7.5% in 1993 and 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.
18. OTHER INCOME, NET
Other income consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fertilizer service revenue....................... $17,294 $13,531 $10,354
Service charge income............................ 6,008 3,930 3,963
Other, net....................................... 9,146 8,030 5,829
------- ------- -------
Total........................................ $32,448 $25,491 $20,146
======= ======= =======
</TABLE>
19. INCOME TAXES
Components of the income tax provision (benefit) applicable to continuing
operations are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal....................................... $ 9,925 $ 4,884 $ 640
Foreign....................................... 2,416 3,750 --
State......................................... 4,291 4,709 804
------- ------- ------
16,632 13,343 1,444
------- ------- ------
Deferred:
Federal....................................... 15,197 (4,126) 6,288
Foreign....................................... 2,533 451 --
State......................................... (662) (368) 25
------- ------- ------
17,068 (4,043) 6,313
------- ------- ------
Total income tax provision...................... $33,700 $ 9,300 $7,757
======= ======= ======
</TABLE>
F-22
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The income tax provision differs from the federal statutory provision for the
following reasons:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations before
taxes:
U.S........................................ $75,842 $19,046 $18,186
Canada..................................... 14,103 13,099 --
------- ------- -------
$89,945 $32,145 $18,186
======= ======= =======
Statutory income tax:
U.S........................................ $26,545 $ 6,666 $ 6,183
Canada..................................... 5,359 4,978 --
------- ------- -------
31,904 11,644 6,183
Non-deductible expenses...................... 650 698 710
State and local income taxes................. 2,545 3,061 547
Benefit of loss carryforwards................ (613) (4,494) --
Change in federal tax rates.................. -- (1,233) --
Undistributed equity earnings................ (430) (865) --
Other........................................ (356) 489 317
------- ------- -------
Income tax provision......................... $33,700 $ 9,300 $ 7,757
======= ======= =======
</TABLE>
Deferred tax assets totaled $44.0 million and $50.8 million at December 31,
1994 and 1993, respectively, while deferred tax liabilities totaled $84.2
million and $0.5 million at December 31, 1994 and 1993, respectively.
Undistributed earnings of the Canadian subsidiary, considered permanently
invested, for which deferred income taxes have not been provided, were $18.0
million at December 31, 1994. The tax effect of net operating loss (NOL) and
tax credit carryforwards and significant temporary differences between reported
and taxable earnings that gave rise to net deferred tax (liabilities) assets
were as follows:
<TABLE>
<CAPTION>
1994 1993
--------- -------
(IN THOUSANDS)
<S> <C> <C>
NOL, capital loss and tax credit carryforwards........ $ 41,402 $28,937
Discontinued business costs........................... 5,792 7,295
Unfunded employee benefits............................ 10,130 8,146
Accrued liabilities................................... 10,497 8,658
Inventory valuation................................... 4,899 4,059
Account receivable allowances......................... 3,091 2,176
Investments in subsidiaries........................... 6,008 --
Depreciation.......................................... (120,770) (6,297)
Valuation allowance................................... (2,170) (2,765)
Other................................................. 867 93
--------- -------
$(40,254) $50,302
========= =======
</TABLE>
Remaining unutilized NOL carryforwards were approximately $4.8 million and
$55 million at December 31, 1994 and 1993, 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 (AMT) paid of $36.7 million are available to offset future tax
liabilities and have an indefinite life. The Corporation acquired $26.9 million
of its AMT credits with the AMCI acquisition. The
F-23
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Corporation's capital loss carryforwards totaled $6.2 million and $7.9 million
at December 31, 1994 and 1993, 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. 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>
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $(1,647) $ -- $ 120
State........................................ (44) -- 5,479
------- ------- --------
(1,691) -- 5,599
------- ------- --------
Deferred:
Federal...................................... 1,816 -- (18,887)
State........................................ 331 -- (2,001)
------- ------- --------
2,147 -- (20,888)
------- ------- --------
$ 456 $ -- $(15,289)
======= ======= ========
</TABLE>
Current tax benefits in 1994 result from losses on early retirement or
refinancing of long-term debt. Deferred income taxes in 1994 are provided for
the net cumulative effect of changes in accounting principles.
F-24
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. INDUSTRY SEGMENT DATA
The Corporation operates in three principal industry segments--Distribution,
Nitrogen Products and Methanol. The Distribution segment sells crop inputs--
fertilizer, crop protection products, seed and services--through its farm
service center network. These inputs include both Terra's own brands and vendor
products from virtually all other agricultural chemical and seed suppliers.
Terra has the largest company-operated farm service center network in North
America. The Nitrogen Products business produces and distributes ammonia, urea,
urea ammonium nitrate solution, and urea feed which are used by farmers to
provide crops with nitrogen, an essential nutrient for plant growth and as a
feed additive for livestock. The Methanol business manufactures and distributes
methanol, which is principally used as a raw material in the production of a
variety of chemical derivatives and in the production of methyl tertiary butyl
ether (MTBE), an oxygenate and an octane enhancer for gasoline. Segment
revenues and costs for Distribution, Nitrogen Products and Methanol include
inter-segment transactions. Included in Other are eliminations of inter-segment
sales and unallocated portions of the business. The following summarizes
additional information about the Corporation's industry segments:
<TABLE>
<CAPTION>
NITROGEN
DISTRIBUTION PRODUCTS METHANOL OTHER TOTAL
------------ -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994
Sales................. $1,318,416 $296,557 $ 70,274 $(19,300) $1,665,947
Operating earnings.... 33,784 48,369 42,679 (9,537) 115,295
Identifiable assets... 502,921 713,209 347,147 124,693 1,687,970
Depreciation and
amortization......... 9,497 9,575 4,263 3,883 27,218
Capital expenditures.. 16,374 6,086 8,732 21 31,213
1993
Sales................. $1,019,438 $228,910 $ -- $(10,347) $1,238,001
Operating earnings.... 16,903 28,654 -- (3,729) 41,828
Identifiable assets... 379,268 91,887 -- 163,327 634,482
Depreciation and
amortization......... 6,427 5,139 -- 3,904 15,470
Capital expenditures.. 9,818 2,349 6,903 2,550 21,620
1992
Sales................. $ 958,725 $125,659 $ -- $ (2,193) $1,082,191
Operating earnings.... 16,568 14,841 -- (5,690) 25,719
Identifiable assets... 266,190 95,880 -- 218,122 580,192
Depreciation and
amortization......... 6,495 4,609 -- 3,890 14,994
Capital expenditures.. 7,974 9,042 -- 604 17,620
</TABLE>
21. AGREEMENTS OF LIMITED PARTNERSHIP
In accordance with the Agreement of Limited Partnership of TNCLP, quarterly
distributions to Unitholders and the General Partner are made in an amount
equal to 100% of its Available Cash, as defined, unless Available Cash is
required to fund a reserve amount. TNCLP must fund and maintain a reserve of
$18.5 million to support Minimum Quarterly Distributions on the Senior
Preference Units (the Reserve Amount). Such Reserve Amount was fully funded at
December 31, 1994 and is invested in Eurodollar deposits at a major financial
institution.
During the period which commenced December 4, 1991, and not ending prior to
December 31, 1996 (the Preference Period), Senior Preference, Junior Preference
and Common Units participate equally in distributions after each class of units
has received its Minimum Quarterly Distribution, subject to the General
Partner's right to receive cash distributions.
F-25
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The General Partner receives a combined minimum 2% of total cash
distributions, and as an incentive, the General Partner's participation
increases if cash distributions exceed specified target levels. During the
Preference Period, distributions are subject to the rights of Senior Preference
Units to receive the Minimum Quarterly Distribution of $0.605 per unit plus any
arrearages, before any other distributions. After such amounts have been paid,
the Reserve Amount must be funded before distributions to Junior or Common
Unitholders. Distributions to Common Unitholders are subject to the
preferential rights of the Junior Preference Units to receive Minimum Quarterly
Distributions plus arrearages. Subject to certain conditions, the Junior
Preference Units will become Senior Preference Units on December 31, 1995. As a
result of this conversion, distributions on the converted Junior Preference
Units will be made with, and not after, distributions on the Senior Preference
Units and payment of the Minimum Quarterly Distributions on the converted
Junior Preference Units will also be supported by the Reserve Amount. In
addition, the converted Junior Preference Units will be entitled to receive
Minimum Quarterly Distributions before funds are set aside, if necessary, to
restore the Reserve Amount to its required level.
After the Preference Period the Senior Units will still be entitled to the
Minimum Quarterly Distribution, but will not participate with the Common Units
in any distributions above the Minimum Quarterly Distribution.
For a 90-day period after the end of the Preference Period, the holders of
Senior Preference Units will have the right, subject to fulfillment of certain
stock exchange listing requirements, to convert their Senior Preference Units
into fully participating Common Units.
To maintain classification as a partnership for federal income tax purposes,
TNC, as General Partner, must maintain a minimum level of net worth without
regard to its interest in TNCLP. To meet the requirement, TNC maintains certain
cash and short-term investment balances.
F-26
<PAGE>
[Inside back Cover Page.]
[GRAPHIC OF AGRICULTURAL BUSINESS CYCLE BY QUARTER]
First Quarter
-------------
. Wholesale sales of fertilizer and chemicals occur to fill storage and build
inventory.
. Crop input planning with growers continues.
. Dealer program sign-ups continue.
. Planting in the Southwest begins.
. Winter vegetable harvesting continues in Florida.
Second Quarter
--------------
. Planting in the Corn Belt and mid-South begins.
. Custom application of fertilizer and chemicals occurs in the Corn Belt and
mid-South.
. Over half of the year's agricultural sales occur.
Third Quarter
-------------
. Side dressing and winter wheat fertilizer applied.
. Fields inspected; insecticides and late, post-emergent herbicides applied.
. Harvesting begins.
. Majority of turf and nursery sales occur.
. Seed ordering begins in Midwest.
. Fall/winter vegetable planting begins in Florida.
Fourth Quarter
--------------
. Harvesting continues.
. Soil tested; crop input plans developed with growers.
. Wholesale chemical sales begin.
. Supplier programs negotiated; sales strategies developed.
. Dealer program sign-ups begin.
. Seed sales begin nationwide.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER
TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION 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 ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 14
The Company............................................................... 19
Use of Proceeds........................................................... 20
Capitalization............................................................ 21
Exchange Offer............................................................ 22
Selected Financial Data................................................... 30
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 43
Management................................................................ 52
Description of Exchange Notes............................................. 54
Description of Other Indebtedness......................................... 82
Plan of Distribution...................................................... 87
Tax Considerations........................................................ 89
Legal Matters............................................................. 89
Experts................................................................... 89
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL OCTOBER 9, 1995 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO
TERRA INDUSTRIES INC.
---------------------
PROSPECTUS
---------------------
OFFER TO EXCHANGE ITS
10 1/2% SENIOR NOTES DUE 2005, SERIES B FOR ANY AND ALL OF ITS OUTSTANDING 10
1/2% SENIOR NOTES DUE 2005, SERIES A
AUGUST 11, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland General Corporate Law provides the following with respect to the
indemnification of directors and officers:
(a) Any director made a party to any proceeding in his or her capacity as
a director, may be indemnified against judgments, penalties, fines,
settlements and reasonable expenses actually incurred in connection with
the proceeding 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; (ii) the director
actually received an improper personal benefit in money, property or
services or (iii) in the case of criminal proceedings, the director had
reasonable cause to believe that the act or omission was unlawful. A
director may not be indemnified in respect of any proceeding charging
improper personal benefit and in which the director was so adjudged.
(b) Directors who have been successful, on the merits or otherwise, in
the defense of any proceeding by reason of service in that capacity shall
be (unless limited by charter) indemnified against reasonable expenses
incurred by the director in such proceeding. Officers of the Company shall
(unless limited by charter) be indemnified as and to the same extent.
(c) Articles of Incorporation may expand subject to certain restrictions
or limit the liability of directors and officers.
The indemnification provided by Maryland General Corporate Law is not
exclusive of any other rights to which a director or officer may be entitled.
The Company's Articles of Incorporation provide with respect to
indemnification of directors and officers that 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 Company also carries directors' and officers'
liability insurance.
The foregoing shall not limit the authority of the Company to indemnify other
employees and agents consistent with law.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<S> <C>
4.1** Indenture, dated as of June 22, 1995, between the Company and First Trust
National Association, as trustee.
4.2** Form of Exchange Note (included in Exhibit 4.1).
4.3** Registration Rights Agreement, dated as of June 22, 1995, among the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citicorp
Securities, Inc.
4.4 Indenture, dated as of October 15, 1993 between Terra Industries (as
successor by merger to AMCI) and Society National Bank, as trustee, filed
as Exhibit 99.2 to the Company's S-3 dated October 13, 1994 (File No. 33-
52493), is incorporated herein by reference.
4.5** Amended and Restated Credit Agreement, dated as of May 12, 1995, among
Terra Capital, TNLP, certain guarantors, the issuing banks and the lenders
named therein and Citibank, as agent, without exhibits or schedules.
5* Opinion of Kirkland & Ellis.
12** Statement of Computation of Ratios.
23.1* Consent of Kirkland & Ellis (included in Exhibit 5).
23.2* Consent of Deloitte & Touche LLP.
24** Power of Attorney.
25** Statement of Eligibility of Trustee.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Instructions to Registered Holder.
</TABLE>
- --------
*Filed herewith.
**Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Not Applicable.
II-2
<PAGE>
ITEM 22. 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.
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 20, 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the Company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN SIOUX CITY, STATE OF IOWA, ON AUGUST
11, 1995.
Terra Industries Inc.
/s/ George H. Valentine
By: _________________________________
George H. Valentine
Its: 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>
* Chairman of the Board August 11, 1995
____________________________________
Reuben F. Richards
* Chief Executive Officer, August 11, 1995
____________________________________ President and Director
Burton M. Joyce (Principal Executive
Officer)
* Vice President and Chief August 11, 1995
____________________________________ Financial Officer
Francis G. Meyer (Principal Financial
Officer)
/s/ Robert E. Thompson Vice President, Controller August 11, 1995
____________________________________ (Principal Accounting
Robert E. Thompson Officer)
* Director August 11, 1995
____________________________________
Edward G. Beimfohr
* Director August 11, 1995
____________________________________
Carol L. Brookins
* Director August 11, 1995
____________________________________
Edward M. Carson
* Director August 11, 1995
____________________________________
David E. Fisher
* Director August 11, 1995
____________________________________
Basil T.A. Hone
* Director August 11, 1995
____________________________________
Anthony W. Lea
* Director August 11, 1995
____________________________________
John R. Norton III
* Director August 11, 1995
____________________________________
Henry R. Slack
</TABLE>
/s/ George H. Valentine
*By: __________________________
George H. Valentine
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
4.1 Indenture, dated as of June 22, 1995, between the
Company and First Trust National Association, as
trustee. **
4.2 Form of Exchange Note (included in Exhibit 4.1). **
4.3 Registration Rights Agreement, dated as of June 22,
1995, among the Company, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Citicorp Securities,
Inc. **
4.4 Indenture, dated as of October 15, 1993 between Terra
Industries (as successor by merger to AMCI) and Soci-
ety National Bank, as trustee, filed as Exhibit 99.2
to the Company's S-3 dated October 13, 1994 (File No.
33-52493), is incorporated herein by reference.
4.5 Amended and Restated Credit Agreement, dated as of
May 12, 1995, among Terra Capital, TNLP, certain
guarantors, the issuing banks and the lenders named
therein and Citibank, as agent, without exhibits or
schedules. **
5 Opinion of Kirkland & Ellis. *
12 Statement of Computation of Ratios. **
23.1 Consent of Kirkland & Ellis (included in Exhibit 5). *
23.2 Consent of Deloitte & Touche LLP. *
24 Power of Attorney. **
25 Statement of Eligibility of Trustee. **
99.1 Form of Letter of Transmittal. *
99.2 Form of Notice of Guaranteed Delivery. *
99.3 Form of Instructions to Registered Holder. *
</TABLE>
- --------
*Filed herewith.
**Previously filed.
<PAGE>
Exhibit 5
[Kirkland & Ellis Letterhead]
August 11, 1995
Terra Industries Inc.
600 Fourth Street
Terra Centre
Sioux City, IA 51101
Re: Terra Industries Inc.
Registration Statement on Form S-4
Registration No. 33-60853
Ladies and Gentlemen:
We are acting as special counsel to Terra Industries Inc., a Maryland
corporation (the "Company"), in connection with the proposed registration by the
Company of up to $200,000,000 principal amount of the Company's 10 1/2% Senior
Notes due 2005, Series B (the "Exchange Notes") pursuant to a Registration
Statement on Form S-4 (Registration No. 33-60853) filed with the Securities and
Exchange Commission (the "Commission") on July 3, 1995 under the Securities Act
of 1933, as amended (the "Act") (such Registration Statement, as amended or
supplemented, is hereinafter referred to as the "Registration Statement"). The
Exchange Notes are to be issued pursuant to the Indenture, dated as of June 22,
1995 (the "Indenture"), between the Company and First Trust National
Association, as Trustee (the "Trustee"), in exchange for and in replacement of
the Company's outstanding 10 1/2% Senior Notes due 2005, Series A (the "Notes"),
of which $200,000,000 principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we
<PAGE>
Terra Industries Inc.
August 11, 1995
Page 2
have deemed necessary for the purposes of this opinion, including (i) the
Restated Articles of Incorporation and by-laws, each as amended to date, of the
Company, (ii) minutes and records of the corporate proceedings of the Company
with respect to the issuance of the Exchange Notes, (iii) the Registration
Statement and exhibits thereto, (iv) the Indenture and (v) the Registration
Rights Agreement, dated as of June 22, 1995, among the Company, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Citicorp Securities, Inc.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have further assumed the genuineness of
the signatures of persons signing all documents and instruments in connection
with which this opinion is rendered, the authority of such persons signing on
behalf of the parties thereto and the due authorization, execution and delivery
of all documents by the parties thereto other than the Company. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Company and others.
Our opinions expressed below are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of:
(i) any bankruptcy, insolvency, reorganization, fraudulent transfer and
conveyance, moratorium and other similar laws affecting the rights of creditors
generally, (ii) general principles of equity, regardless of whether
enforceability of any obligation is considered in a proceeding in equity or at
law, (iii) implied covenants of good faith, diligence, reasonableness and fair
dealing, (iv) public policy considerations which may limit the rights of parties
to obtain certain remedies and (vii) any laws
<PAGE>
Terra Industries Inc.
August 11, 1995
Page 3
except the laws of the State of New York and the federal laws of the United
States.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that when (i) the Registration Statement becomes effective, (ii) the Indenture
has been duly qualified under the Trust Indenture Act of 1939, as amended, and
(iii) the Exchange Notes have been duly executed and authenticated in accordance
with the provisions of the Indenture and duly delivered to the purchasers
thereof in exchange for the Notes, the Exchange Notes will be legally issued,
fully paid and non-assessable and will be binding obligations of the Company.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion in the event of a
change in law as a result of legislative action, judicial decision or otherwise.
<PAGE>
Terra Industries Inc.
August 11, 1995
Page 4
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
/s/ KIRKLAND & ELLIS
KIRKLAND & ELLIS
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement
of Terra Industries Inc. on Form S-4 of our reports dated February 1, 1995
(which reports express an unqualified opinion and include an explanatory
paragraph referring to the Company's change in its method of accounting for
major maintenance turnarounds and post-employment benefits effective January 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, 1994, and to the
use of our report dated February 1, 1995, 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.
/s/ Deloitte & Touche LLP
-------------------------------------
Deloitte & Touche LLP
Omaha, Nebraska
August 3, 1995
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10 1/2% SENIOR NOTES DUE 2005, SERIES A
OF
TERRA INDUSTRIES INC.
PURSUANT TO THE PROSPECTUS DATED , 1995
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ONSEPTEMBER
14, 1995, UNLESS EXTENDED.
To: First Trust National Association, the Exchange Agent
By Registered or Certified Mail, Overnight Courier or Hand:
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Theresa Shackett, Specialized Finance
or
Confirm by Telephone:
By Facsimile: (612) 244-1196
(612) 244-1145
Attention: Theresa Shackett,
Specialized Finance
For general information contact the Exchange Agent's Bondholder Relations
Department at (612) 244-0444.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS INSTRUMENT VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus dated August 11, 1995
(the "Prospectus") of Terra Industries Inc. (the "Company") and this Letter of
Transmittal (the "Letter of Transmittal"), which together describe the
Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of
its 10 1/2% Senior Notes due 2005, Series B (the "Exchange Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement, for each $1,000 principal amount
of its outstanding 10 1/2% Senior Notes due 2005, Series A (the "Notes"), of
which $200,000,000 principal amount is outstanding. The term "Expiration Date"
shall mean 5:00 p.m., New York City time, on September 14, 1995, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term shall mean the latest date and time to which the Exchange Offer is
extended. The term "Holder" with respect to the Exchange Offer means any person
in whose name Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. Capitalized terms used but not defined herein have the respective
meanings set forth in the Prospectus.
This Letter of Transmittal is to be used by holders of Notes if (i)
certificates representing the Notes are to be physically delivered to the
Exchange Agent herewith, (ii) tender of the Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "Exchange Offer-- Procedures for Tendering" by any
financial institution that is a participant in the Book-Entry Transfer Facility
and whose name appears on a security position listing as the owner of Notes
(such participants acting on behalf of holders are referred to herein, together
with such holders, as "Authorized Holders") or (iii) tender of the Notes is to
be made according to the guaranteed delivery procedures described in the
Prospectus under the caption "Exchange Offer--Guaranteed Delivery Procedures."
See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
<PAGE>
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Notes must complete
this Letter of Transmittal in its entirety.
[_] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ______________________________________________
Account Number: _____________________________________________________________
Transaction Code Number: ____________________________________________________
Principal Amount of Tendered Notes: _________________________________________
If Holders desire to tender Notes pursuant to the Exchange Offer and (i) time
will not permit this Letter of Transmittal, certificates representing Notes or
other required documents to reach the Exchange Agent prior to the Expiration
Date, or (ii) the procedures for book-entry transfer cannot be completed prior
to the Expiration Date, such Holders may effect a tender of such Notes in
accordance with the guaranteed delivery procedures set forth in the Prospectus
under the caption "Exchange Offer--Guaranteed Delivery Procedures." See
Instruction 2 below.
[_] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING (See Instruction 2):
Name of Registered Holder(s): _______________________________________________
Window Ticket No. (if any): _________________________________________________
Date of Execution of Notice of Guaranteed Delivery: _________________________
Name of Eligible Institution
that Guaranteed Delivery: ___________________________________________________
If Delivered by Book Entry Transfer,
the Account Number: _________________________________________________________
Transaction Code Number: ____________________________________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: _______________________________________________________________________
Address: ____________________________________________________________________
----------------------------------------------------------------------
Attention: __________________________________________________________________
Listed below are the Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and principal
amount of Notes should be listed on a separate signed schedule affixed hereto.
2
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
DESCRIPTION OF 10 1/2% SENIOR NOTES DUE 2005, SERIES A*
<TABLE>
- ---------------------------------------------------------------------------------------
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF PRINCIPAL TENDERED (MUST BE
REGISTERED HOLDER(S) CERTIFICATE AMOUNT REPRESENTED AN INTEGRAL MULTIPLE
(PLEASE FILL IN, IF BLANK) NUMBER(S) BY CERTIFICATE(S) OF $1,000)**
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------
</TABLE>
*Need not be completed by Holders tendering by book-entry transfer.
**Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of 10 1/2% Senior Notes due 2005, Series A will be deemed
to have tendered the entire aggregate principal amount represented by the
column labeled "Aggregate Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of 10 1/2%
Senior Notes due 2005, Series A. All tenders must be in integral multiples
of $1,000.
BOX 2 BOX 3
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE
(SEE INSTRUCTIONS 4, 5 AND 6) INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if To be completed ONLY if
certificates for Notes in a certificates for Notes in a
principal amount not tendered, or principal amount not tendered, or
Exchange Notes issued in exchange Exchange Notes issued in exchange
for Notes accepted for exchange, for Notes accepted for exchange,
are to be issued in the name of are to be sent to someone other
someone other than the than the undersigned, or to the
undersigned. undersigned at an address other
than that shown above.
Issue certificate(s) to:
Deliver certificate(s) to:
Name: _____________________________
(Please Print) Name: _____________________________
(Please Print)
Address: __________________________
Address: __________________________
-----------------------------------
----------------------------------- (Include Zip Code)
(Include Zip Code)
-----------------------------------
----------------------------------- (Tax Indemnification or Social
(Tax Indemnification or Social Security Number)
Security Number)
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to Terra Industries Inc., a Maryland corporation (the
"Company"), the principal amount of Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Notes with the
full power of substitution to (i) present such Notes and all evidences of
transfer and authenticity to, or transfer ownership of, such Notes on the
account books maintained by the Book-Entry Transfer Facility to, or upon, the
order of, the Company, (ii) deliver certificates for such Notes to the Company
and deliver all accompanying evidences of transfer and authenticity to, or upon
the order of, the Company and (iii) present such Notes for transfer on the
books of the Company and receive all benefits and otherwise exercise all rights
of beneficial ownership of such Notes, all in accordance with the terms of the
Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Notes tendered
hereby and that the Company will acquire good, valid and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claims, when the same are acquired by the
Company. The undersigned hereby further represents that any Exchange Notes
acquired in exchange for Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is the undersigned, that neither the undersigned nor
any other such person is engaging in or intends to engage in a distribution of
the Exchange Notes, that neither the undersigned nor any other such person has
any arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of such Exchange Notes
and that neither the undersigned nor any such other person is an "affiliate,"
as defined in Rule 405 under the Securities Act of the Company nor a broker-
dealer tendering notes acquired directly from the Company for its own account.
In addition, the undersigned and any such person acknowledge that (a) any
person participating the Exchange Offer for the purpose of distributing the
Exchange Notes must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale of the Exchange Notes and cannot rely on the
position of the staff of the Commission enunciated in no-action letters and (b)
failure to comply with such requirements in such instance could result in the
undersigned or such person incurring liability under the Securities Act for
which the undersigned or such person is not indemnified by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Exchange Agent or the Company to be necessary or desirable to
complete the assignment, transfer and purchase of the Notes tendered hereby. If
the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Notes when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
If any Notes tendered herewith are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Notes will
be returned, without expense, to the undersigned at the address shown below or
to a different address as may be indicated herein in Box 3 under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
4
<PAGE>
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representative, successors and assigns.
The undersigned understands that tenders of Notes pursuant to the procedures
described under the caption "Exchange Offer--Procedures for Tendering" in the
Prospectus and in the instructions hereto will constitute a binding agreement
between the undersigned and the Company upon the terms and subject to the
conditions of the Exchange Offer, subject only to withdrawal of such tenders on
the terms set forth in the Prospectus under the caption "Exchange Offer--
Withdrawal of Tenders."
Unless otherwise indicated in Box 2 under "Special Registration
Instructions," please issue the certificates (or electronic transfers)
representing the Exchange Notes issued in exchange for the Notes accepted for
exchange and any certificates (or electronic transfers) for Notes not tendered
or not exchanged, in the name(s) of the undersigned. Similarly, unless
otherwise indicated in Box 3 under "Special Delivery Instructions," please send
the certificates, if any, representing the Exchange Notes issued in exchange
for the Notes accepted for exchange and any certificates for Notes not tendered
or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address shown below in the undersigned's signature(s). In
the event that both "Special Registration Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Notes accepted for exchange in the
name(s) of, and return any certificates for Notes not tendered or not exchanged
to, the person(s) so indicated. The undersigned understands that the Company
has no obligation pursuant to the "Special Registration Instructions" and
"Special Delivery Instructions" to transfer any Notes from the name of the
registered Holder(s) thereof if the Company does not accept for exchange any of
the Notes so tendered.
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available or (ii) who cannot deliver the Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date, may tender their Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "Exchange
Offer--Guaranteed Delivery Procedures." See Instruction 2 regarding the
completion of this Letter of Transmittal printed below.
5
<PAGE>
PLEASE SIGN HERE WHETHER OR NOT
NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X
- --------------------------------------------------------------- --------------
Date
X
- --------------------------------------------------------------- --------------
Date
Area Code and Telephone Number: _______________________________
The above lines must be signed by the registered holder(s) exactly as their
name(s) appear(s) on the Notes or by a participant in the Book-Entry Transfer
Facility, exactly as such participant's name appears on a security position
listing as the owner of the Notes, or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If Notes to which this Letter of Transmittal relate are held of record by two
or more joint holders, then all such holders must sign this Letter of
Transmittal. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, then such person must (i) set forth his
or her full title below and (ii) submit evidence satisfactory to the Company of
such person's authority so to act. See Instruction 5 regarding the completion
of this Letter of Transmittal printed below.
Name(s): _______________________________________________________________________
(Please Print)
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
(Include Zip Code)
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(If required by Instruction 5)
Certain Signatures must be Guaranteed by an Eligible Institution
Signature(s) Guaranteed by an Eligible Institution: ____________________________
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address, Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: _________________________________________________________________________
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR NOTES OR BOOK-
ENTRY CONFIRMATIONS. Certificates representing the tendered Notes (or a
confirmation of book-entry transfer into the Exchange Agent's account with the
Book-Entry Transfer Facility for tendered Notes transferred electronically), as
well as a properly completed and duly executed copy of this Letter of
Transmittal (or facsimile thereof), a Substitute Form W-9 (or facsimile
thereof) and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at its address set forth herein prior to the
Expiration Date. The method of delivery of certificates for Notes and all other
required documents is at the election and sole risk of the tendering holder and
delivery will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. As an alternative to delivery by mail, the holder may
wish to use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure timely delivery. Neither the Company nor the
Exchange Agent is under an obligation to notify any tendering holder of the
Company's acceptance of tendered Notes prior to the consummation of the
Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes but
whose Notes are not immediately available and who cannot deliver their
certificates for Notes (or comply with the procedures for book-entry transfer
prior to the Expiration Date), the Letter of Transmittal and any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date must tender their Notes according to the guaranteed
delivery procedures set forth below. Pursuant to such procedures:
(i) such tender must be made by or through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States, or is otherwise an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (an "Eligible Institution");
(ii) prior to the Expiration Date, the Exchange Agent must have received
from the holder and the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail, or
hand delivery) setting forth the name and address of the holder, the
certificate number or numbers of the tendered Notes, and the principal
amount of tendered Notes and stating that the tender is being made thereby
and guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the tendered Notes (or a confirmation of book-entry
transfer into the Exchange Agent's account with the Book-Entry Transfer
Facility for Notes transferred electronically) and any other required
documents will be deposited by the Eligible Institution with the Exchange
Agent; and
(iii) such properly completed and executed Letter of Transmittal and
certificates representing the tendered Notes in proper form for transfer
(or a confirmation of book-entry transfer into the Exchange Agent's account
with the Book-Entry Transfer Facility for Notes transferred electronically)
must be received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Any holder who wishes to tender Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery relating to such Notes prior to the Expiration
Date. Failure to complete the guaranteed delivery procedures outlined above
will not, of itself, affect the validity or effect a revocation of any Letter
of Transmittal form properly completed and executed by a Holder who attempted
to use the guaranteed delivery person.
3. TENDER BY HOLDER. Only a holder of Notes may tender such Notes in the
Exchange Offer. Any beneficial owner of Notes who is not the registered holder
and who wishes to tender should arrange with
7
<PAGE>
such holder to execute and deliver this Letter of Transmittal on such owner's
behalf or must, prior to completing and executing this Letter of Transmittal
and delivering such Notes, either make appropriate arrangements to register
ownership of the Notes in such owner's name or obtain a properly completed bond
power from the registered holder.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes is tendered, the tendering holder should fill in the principal
amount tendered in the column labeled "Aggregate Principal Amount Tendered" of
the box entitled "Description of 10 1/2% Senior Notes due 2005, Series A" (Box
1) above. The entire principal amount of Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of Notes is not tendered, Notes for the principal amount of
Notes not tendered and Exchange Notes exchanged for any Notes tendered will be
sent to the holder at his or her registered address (or transferred to the
account of the Book-Entry Facility designated above), unless a different
address (or account) is provided in the appropriate box on this Letter of
Transmittal, as soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Notes tendered herewith, the signatures must
correspond with the name(s) as written on the face of the tendered Notes
without alteration, enlargement, or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Book-Entry Transfer Facility, the
signature must correspond with the name as it appears on the security position
listing as the owner of the Notes.
If any of the tendered Notes are owned of record by two or more joint owners,
all such owners must sign this Letter of Transmittal. If any tendered Notes are
held in different names on several Notes, it will be necessary to complete,
sign, and submit as many separate copies of the Letter of Transmittal documents
as there are names in which tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder, and
Exchange Notes are to be issued and any untendered or unaccepted principal
amount of Notes are to be reissued or returned to the registered holder, then
the registered holder need not and should not endorse any tendered Notes nor
provide a separate bond power. In any other case the registered holder must
either properly endorse the Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal (in either case, executed
exactly as the name(s) of the registered holder(s) appear(s) on such Notes,
and, with respect to a participant in the Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of Notes, exactly as
the name(s) of the participant(s) appear(s) on such security position
listings), with the signature(s) on the endorsement or bond power guaranteed by
an Eligible Institution unless such certificates or bond powers are signed by
an Eligible Institution.
If this Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and evidence satisfactory to the
Company of their authority to so act must be submitted with this Letter of
Transmittal.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Notes tendered herewith (or by a
participant in the Book-Entry Transfer Facility whose appears on a security
position listing as the owner of the Tendered Notes) and the issuance of
Exchange Notes (and any Notes not tendered or not accepted) are to be issued
directly to such registered holder(s) (or, if signed by a participant in the
Book-Entry Transfer Facility, any Exchange Notes or Notes not tendered or not
accepted are to be deposited to such participant's account at such Book-Entry
Transfer Facility) and neither the "Special Delivery Instructions" (Box 3) nor
the "Special Registration Instructions" (Box 2) has been completed, or (ii)
such Notes are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal must be guaranteed by
an Eligible Institution.
8
<PAGE>
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the applicable box, the name and address (or account at the Book-
Entry Transfer Facility) in which the Exchange Notes and/or substitute Notes
for principal amounts not tendered or not accepted for exchange are to be sent
(or deposited), if different from the name and address or account of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the employer identification number or social security number of the
person named must also be indicated and the indicated and the tendering holders
should complete the applicable box.
If no such instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the holder
of the Notes or deposited at such holders' account at the Book-Entry Transfer
Facility.
7. TRANSFER TAXES. Transfer taxes, if any, with respect to the exchange of
Notes pursuant to the Exchange Offer will be payable by the Company.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder
of any Notes which are accepted for exchange must provide the Company (as
payor) with its correct taxpayer identification number "TIN"), which, in the
case of a holder who is an individual is his or her social security number. If
the Company is not provided with the correct TIN, the holder may be subject to
a $50 penalty imposed by Internal Revenue Service. (If withholding results in
an over-payment of taxes, a refund may be obtained.) Certain holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these backup withholding and reporting requirements. See the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the Notes are registered in more than one name or are not in
the name of the actual owner, see the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for information on which
TIN to report.
The Company reserves the right in its sole discretion to take whatever steps
are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of tendered Notes will be
determined by the Company, in its sole discretion, which determination will be
final and binding. The Company reserves the right to reject any and all Notes
not validly tendered or any Notes, the Company's acceptance of which would, in
the opinion of the Company or its counsel, be unlawful. The Company also
reserves the right to waive any conditions of the Exchange Offer or defects or
irregularities in tenders of Notes as to any ineligibility of any holder who
seeks to tender Notes in the Exchange Offer. The interpretation of the terms
and conditions of the Exchange Offer (including this Letter of Transmittal and
the instructions hereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Notes must be cured within such time as the Company shall determine.
The Company will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of Notes, but shall not incur any
liability for failure to give such notification.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive, or modify specified conditions in the Exchange Offer in the case of any
tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes on transmittal of this Letter of Transmittal will be
accepted.
9
<PAGE>
12. MUTILATED, LOST, STOLEN, OR DESTROYED NOTES. Any tendering holder whose
Notes have been mutilated, lost, stolen, or destroyed should contact the
Exchange Agent at the address indicated above for further instruction.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF
NOTES. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Notes as soon as practicable
after the Expiration Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted tendered Notes when, as and if the Company has given
written and oral notice thereof to the Exchange Agent. If any tendered Notes
are not exchanged pursuant to the Exchange Offer for any reason, such
unexchanged Notes will be returned, without expense, to the undersigned at the
address shown above (or credited to the undersigned's account at the Book-Entry
Transfer Facility designated above) or at a different address as may be
indicated under "Special Delivery Instructions."
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "Exchange
Offer--Withdrawal of Tenders."
PAYOR'S NAME: TERRA INDUSTRIES INC.
- --------------------------------------------------------------------------------
Name (if joint names, list
first and circle the name
of the person or entity
whose number you enter in
Part 1 below. See
instructions if your name
has changed.)
SUBSTITUTE --------------------------------------------------------
FORM W-9 Address
--------------------------------------------------------
DEPARTMENT OF THE TREASURY
City, State and Zip Code
INTERNAL REVENUE SERVICE
--------------------------------------------------------
PAYER'S REQUEST FOR --------------------------------------------------------
PART 2--Check the box if you are NOT subject to
backup withholding under the provisions of section
3408(a)(1)(C) of the Internal Revenue Code because
(1) you have not been notified that you are subject
to backup withholding as a result of failure to
report all interest of dividends or (2) the Internal
Revenue Service has notified you that you are no
longer subject to backup withholding. [_]
TAXPAYER List account number(s) here (optional)
IDENTIFICATION --------------------------------------------------------
NUMBER (TIN) PART 1--PLEASE PROVIDE Social Security Number or
YOUR TAXPAYER TIN
IDENTIFICATION NUMBER
("TIN") IN THE BOX AT
RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW
--------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF
PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM IS
TRUE, CORRECT AND COMPLETE.
PART 3--
Awaiting
TIN [_]
SIGNATURE ___________DATE ____________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
10
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
10 1/2% SENIOR NOTES DUE 2005, SERIES A
OF
TERRA INDUSTRIES INC.
This form must be used by a holder of 10 1/2% Senior Notes due 2005, Series A
(the "Notes") of Terra Industries Inc. (the "Company") who wishes to tender
Notes to the Exchange Agent pursuant to the guaranteed delivery procedures
described in the "Exchange Offer--Guaranteed Delivery Procedures" of the
Prospectus dated August 11, 1995 (the "Prospectus") and in Instruction 2 to the
related Letter of Transmittal. Any holder who wishes to tender Notes pursuant
to such guaranteed delivery procedures must ensure that the Exchange Agent
receives this Notice of Guaranteed Delivery prior to the Expiration Date of the
Exchange Offer. Capitalized terms not defined herein have the meanings ascribed
to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON SEPTEMBER 14, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE").
FIRST TRUST NATIONAL ASSOCIATION
(THE "EXCHANGE AGENT")
By Registered or Certified Mail,
Overnight Courier or Hand Delivery:
First Trust National Association By Facsimile:
180 East Fifth Street (612) 244-1145
St. Paul, Minnesota 55101 Attention: Theresa Shackett,
Attention: Theresa Shackett, Specialized Finance
Specialized Finance
Confirm by Telephone:
For general information contact the (612) 244-1196
Exchange Agent's Bondholder Relations
Department at (612) 244-0444.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF
NOTES OR
ACCOUNT NUMBER AT THE BOOK-ENTRY AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- -----------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
PLEASE SIGN AND COMPLETE
Signatures of Registered Holder(s) Date: ________________________, 1995
or
Address: ___________________________
Authorized Signature: ______________ ------------------------------------
------------------------------------
------------------------------------ Area Code and Telephone No. ________
Name(s) of Registered Holder(s): ___
------------------------------------
------------------------------------
------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Notes or on a security position
listing as the owner of Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _____________________________________________________________________
-----------------------------------------------------------------------------
Capacity: ____________________________________________________________________
Address(es): _________________________________________________________________
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., or is a commercial bank or trust company having an office or
correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent
of the Letter of Transmittal (or facsimile thereof), together with the Notes
tendered hereby in proper form for transfer (or confirmation of the book-
entry transfer of such Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility described in the Prospectus under the caption
"Exchange Offer--Guaranteed Delivery Procedures" and in the Letter of
Transmittal) and any other required documents, all by 5:00 p.m., New York
City time, on the third New York Stock Exchange trading day following the
Expiration Date.
Name of Firm: ______________________ ------------------------------------
Authorized Signature
Address: ___________________________ Name: ______________________________
------------------------------------
Title: _____________________________
Area Code and Telephone No.: _______
Date: ________________________, 1995
DO NOT SEND NOTES WITH THIS FORM, ACTUAL SURRENDER OF NOTES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
2
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and sole risk
of the holder, and the delivery will be deemed made only when actually received
by the Exchange Agent. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. As an alternative to
delivery by mail, the holders may wish to consider using an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
timely delivery. For a description of the guaranteed delivery procedures, see
Instruction 2 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face
of the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the
owner of Notes, the signature must correspond with the name shown on the
security position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
3
<PAGE>
Exhibit 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
TERRA INDUSTRIES INC.
10 1/2% SENIOR NOTES DUE 2005, SERIES A
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated August
11, 1995 (the "Prospectus") of Terra Industries Inc., a Maryland corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the 10 1/2% Senior Notes due 2005, Series A (the
"Notes") held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (fill in amount):
$ of the 10 1/2% Senior Notes due 2005, Series A.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] TO TENDER the following Notes held by you for the account of the
undersigned (insert principal amount of Notes to be tendered if any):
$
[_] NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instructs you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representation and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to, the representations that (i)
the undersigned is acquiring the Exchange Notes in the ordinary course of
business of the undersigned, (ii) the undersigned is not participating, does
not intend to participate, and has no arrangement or understanding with any
person to participate in the distribution of the Exchange Notes, (iii) the
undersigned acknowledges that any person participating in the Exchange Offer
for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Act"), in connection with a secondary resale transaction
of the Exchange Notes acquired by such person and cannot rely on the position
of the Staff of the Securities and Exchange Commission set forth in no action
letters that are discussed in the section of the Prospectus entitled "Exchange
Offer--Resales of the Exchange Notes" and (iv) the undersigned is not an
"affiliate," as defined in Rule 405 under the Act, of the Company or a broker-
dealer tendering Notes acquired directly from the Company for its own account;
(b) to agree, on behalf of the undersigned, as set forth in the Letter of
Transmittal; and (c) to take such other action as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such
Notes.
SIGN HERE
Name of beneficial owner(s): ________________________________________________
Signature(s): _______________________________________________________________
Name (please print): ________________________________________________________
Address: ____________________________________________________________________
----------------------------------------------------------------------
----------------------------------------------------------------------
Telephone Number: ___________________________________________________________
Taxpayer Identification or Social Security Number: __________________________
Date: _______________________________________________________________________
