<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1999.
REGISTRATION NO. 333-69285
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PIONEER HI-BRED INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
IOWA
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
42-0470520
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
800 CAPITAL SQUARE
400 LOCUST STREET
DES MOINES, IOWA 50309
(515) 248-4800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
William J. DeMeulenaere, Corporate Counsel
800 Capital Square
400 Locust Street
Des Moines, Iowa 50309
(515) 248-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE FOR REGISTRANT)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
William Appleton, Esq. Joseph A. Stern, Esq.
Baker & Hostetler LLP Fried, Frank, Harris, Shriver & Jacobson
312 Walnut Street, Suite 2650 One New York Plaza
Cincinnati, Ohio 45202 New York, New York 10004-1980
(513) 929-3400 (212) 859-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 12, 1999
$200,000,000
LOGO
PIONEER HI-BRED INTERNATIONAL, INC.
% SENIOR NOTES DUE JANUARY , 2009
The % Senior Notes due January , 2009 (the "Notes") of Pioneer
Hi-Bred International, Inc. will mature on January , 2009. Interest on the
Notes will accrue from January , 1999 and is payable semi-annually on
and of each year, commencing , 1999.
The indebtedness evidenced by the Notes will rank pari passu in right of
payment with all of our other senior, unsecured indebtedness, but will be
effectively subordinated to indebtedness of our subsidiaries. In addition, the
indebtedness evidenced by the Notes will be subordinated to any of our senior,
secured indebtedness to the extent of the value of the assets securing such
indebtedness.
We may redeem all or part of the Notes at any time at a redemption price
equal to the greater of (i) 100% of their principal amount or (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
on the Notes discounted to the redemption date on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15
basis points, plus, in each case, accrued but unpaid interest on the Notes to
the Redemption Date.
We have applied to list the Notes on the New York Stock Exchange under the
symbol " ".
------------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- --------
<S> <C> <C>
Public Offering Price.......................................
Underwriting Discount.......................................
Proceeds, before expenses, to Pioneer Hi-Bred International,
Inc.......................................................
</TABLE>
Neither the Securities and Exchange Commission nor any state commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
We expect the Notes will be ready for delivery in book-entry form only
through the facilities of the Depository Trust Company against payment in New
York, New York on or about , 1999.
------------------------
LAZARD FRERES & CO. LLC CHASE SECURITIES INC.
------------------------
The date of this prospectus is January , 1999
<PAGE> 3
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE NOTES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS, INCLUDING ANY INFORMATION INCORPORATED BY REFERENCE, IS CURRENT ONLY
AS OF ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Use of Proceeds............................................. 5
Capitalization.............................................. 5
Selected Consolidated Financial Data........................ 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 8
Business.................................................... 22
Description of the Notes.................................... 25
Underwriting................................................ 37
Experts..................................................... 37
Legal Matters............................................... 38
Available Information....................................... 38
Incorporation of Certain Documents by Reference............. 38
Index to Financial Statements............................... F-1
</TABLE>
FORWARD-LOOKING STATEMENTS. This prospectus contains forward-looking
statements relating to the Company's operations that are based on management's
current expectations, estimates, and projections. Words such as "expects",
"anticipates", "plans", "intends", "projects", and similar expressions are used
to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties, and assumptions
that are difficult to predict. In addition to other factors discussed in this
report, some of the important factors that could cause actual results to vary
significantly from management's expectations noted in forward-looking statements
include the weather, government programs and approvals, commodity prices,
changes in corn acreage, intellectual property positions, product performance,
product returns, customer preferences, currency fluctuations, costs, the Year
2000 issue, and industry consolidations.
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and consolidated financial statements appearing herein and in the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and its
quarterly report on Form 10-Q for the quarter ended November 30, 1998, which we
incorporate by reference.
THE COMPANY
Pioneer Hi-Bred International, Inc. ("Pioneer" or the "Company") is a
leading plant science company and supplier of agricultural seed genetics. During
fiscal year 1998, we recorded sales of $1.8 billion and net income of $270
million.
Our two principal products are hybrid seed corn and soybeans. These two
products accounted for 89% of our world sales and substantially all of our
worldwide operating income in the last five years. In addition, we develop,
produce and market hybrids of sorghum, sunflowers and canola, varieties of
alfalfa and wheat, and microorganisms that are useful in crop and livestock
production. We have sales in nearly 100 countries, but the primary markets for
our products are the United States and Canada (the North America region) and
Europe. Sales in North America accounted for approximately 71% of 1998 sales,
and sales in Europe accounted for approximately 20% of 1998 sales. Pioneer also
has operations in Latin America, Mexico, Africa, Asia, the Middle East and the
Pacific region.
Our market share in the North American hybrid seed corn market in 1998 was
approximately 42%. The next seven competitors in the market had a combined share
of approximately 34%, with the largest at approximately 11%. We also hold a
leading share in most of the countries in which we operate outside of North
America. The principal market for soybean seed is North America, where our share
of the market was approximately 16% in 1998.
Demand for improved seed genetics is expected to continue to rise as world
food demand grows and the availability of prime agricultural land declines in
most areas. Improved genetics offer the most efficient way to produce more food
products on the same or a reduced amount of land. In addition, improved genetics
allow farmers to meet rising food demand without opening fragile land for
production.
Our strategy is to deliver products that consistently out-perform those of
our competitors and are able to command a premium price. We are the industry
leader in research and product development and own what we believe is the
industry's finest collection of crop genetics ("germplasm"). Our germplasm has
provided the base for our growth. Our researchers, many of whom are
well-established experts in the science of crop genetics, focus on continually
improving our germplasm using the latest technologies to perform research and
testing around the world. Our research skill is used to develop superior
products that deliver outstanding yields and have defensive characteristics that
help plants resist damage from insects, disease and other factors. We also have
several key research collaborations that allow us to leverage our research
investments.
In addition to delivering higher yields to our customers, we are
increasingly delivering value by incorporating into our seed products quality
genetic traits that make our products more valuable to livestock feeders, grain
processors and other end-users of grain. Our efforts in this area have been
strengthened through a research alliance with DuPont, initiated in early fiscal
1998. The alliance, in part, is designed to facilitate the development of corn,
soybeans and other oilseeds that contain quality traits to make them more
valuable to these end-users. In addition, Pioneer and DuPont formed a joint
venture called Optimum Quality Grains L.L.C., which will seek to create,
maximize and capture value for quality traits in seed, grain, grain products and
plant materials delivered through corn, soybeans and other selected oil seeds. A
key component of this joint venture is a preferred seed support agreement
between the joint venture and us. The joint venture is not in the seed business
and will look to us to be its preferred worldwide provider and preferred
marketer of quality trait seeds.
Pioneer, an Iowa corporation founded in 1926, maintains its principal
executive offices at 800 Capital Square, 400 Locust Street, Des Moines, Iowa
50309, and its telephone number is (515) 248-4800. Our common stock is traded on
the New York Stock Exchange under the symbol PHB.
3
<PAGE> 5
THE OFFERING
Securities Offered............ $200,000,000 aggregate principal amount of
% Senior Notes due January , 2009.
Maturity Date................. January , 2009.
Interest Payment Dates........ and of
each year, commencing , 1999.
Ranking....................... The indebtedness evidenced by the Notes will
rank pari passu in right of payment with all of
our other senior, unsecured indebtedness, but
will be effectively subordinated to
indebtedness of our subsidiaries. In addition,
the indebtedness evidenced by the Notes will be
effectively subordinated to any of our senior,
secured indebtedness to the extent of the value
of the assets securing such indebtedness.
Redemption.................... We may redeem all or part of the Notes at any
time at a redemption price equal to the greater
of (i) 100% of their principal amount or (ii)
the sum of the present values of the remaining
scheduled payments of principal and interest on
the Notes discounted to the redemption date on
a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the
Treasury Rate plus 15 basis points, plus, in
each case, accrued but unpaid interest on the
Notes to the Redemption Date.
Certain Covenants............. The Indenture under which the Notes will be
issued (the "Indenture") will limit our ability
and the ability of our restricted subsidiaries
to: (i) create liens, (ii) enter into sale and
leaseback transactions and (iii) consolidate,
merge or transfer all or substantially all of
our assets or the assets of our subsidiaries.
However, these limitations are subject to a
number of important qualifications and
exceptions. See "Description of the
Notes -- Certain Covenants" commencing on page
28.
Use of Proceeds............... The net proceeds received from the sale of the
Notes will be used by Pioneer for general
corporate purposes, which may include capital
expenditures, working capital requirements
(inventory and receivables), reduction of
outstanding indebtedness, repurchase of shares
and acquisitions. The precise amount and timing
of the application of such proceeds will depend
upon the funding requirements of the Company
and the availability and cost of other funds.
Pending such application, the net proceeds will
be invested in short-term investment grade
securities.
4
<PAGE> 6
USE OF PROCEEDS
The net proceeds received from the sale of the Notes will be used by
Pioneer for general corporate purposes, which may include capital expenditures,
working capital requirements (inventory and receivables), reduction of
outstanding indebtedness, repurchase of shares and acquisitions. The precise
amount and timing of the application of such proceeds will depend upon the
funding requirements of the Company and the availability and cost of other
funds. Pending such application, the net proceeds will be invested in short-term
investment grade securities.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of November 30, 1998, and on a pro forma, as adjusted basis giving
effect to the sale of the Notes. See "Use of Proceeds." This table should be
read in conjunction with, and is qualified by reference to, the Company's
consolidated financial statements and related notes contained herein.
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
---------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS:.................................. $ 77 $ 77
====== ======
SHORT-TERM DEBT:
Short-term borrowings(a).................................. $ 289 $ 91
Current maturities of long-term debt...................... 11 11
------ ------
Total Short-Term Debt................................ $ 300 $ 102
------ ------
LONG-TERM DEBT (EXCLUDING CURRENT MATURITIES):
% Senior Notes....................................... $ -- $ 200
Credit facility........................................... 5 5
------ ------
Total Long-Term Debt................................. $ 5 $ 205
------ ------
SHAREHOLDERS' EQUITY:
Capital Stock:
Preferred -- Authorized 10,000,000 shares;
issued -- none........................................ $ -- $ --
Common stock -- par value $1.00 per
share -- Authorized -- 600,000,000 shares;
issued -- 229,965,014 shares.......................... 230 230
Class B common -- stated value $1.00 per
share -- Authorized -- 120,000,000 shares;
issued -- 49,333,758 shares........................... 49 49
Additional paid-in-capital................................ 246 246
Retained earnings......................................... 1,329 1,329
Accumulated other comprehensive loss, net................. (36) (36)
------ ------
$1,818 $1,818
Less treasury stock at cost............................... (647) (647)
Less unearned compensation................................ (26) (26)
------ ------
Total Shareholders' Equity................................ $1,145 $1,145
------ ------
TOTAL CAPITALIZATION........................................ $1,450 $1,452
====== ======
</TABLE>
- ---------------
(a) Net of offering expenses estimated to be $2 million.
5
<PAGE> 7
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data presented below for
each of the five years in the period ended August 31, 1998, and for the three
months ended November 30, 1998 and 1997, have been derived from the Company's
audited consolidated financial statements for such years, and its unaudited
financial statements for such months, are qualified by reference to, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's consolidated financial
statements and notes thereto and the other financial information included in
this Prospectus. The unaudited financial statements of the Company have been
prepared on the same basis as the audited financial statements and, in the
opinion of the Company, contain all adjustments (consisting of only normal
recurring accruals) necessary to fairly present the financial position as of
November 30, 1998 and 1997, and the results of operations and cash flows for the
three months ended November 30, 1998 and 1997. The results of operations for the
three months ended November 30, 1998, may not be indicative of the results to be
expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
NOVEMBER 30, YEARS ENDED AUGUST 31,
---------------- ----------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND STATISTICAL AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net Sales...................................... $ 76 $ 79 $1,835 $1,784 $1,721 $1,532 $1,479
Operating costs and expenses
Costs of goods sold.......................... (56) (51) (789) (771) (727) (642) (606)
Research and product development............. (40) (34) (155) (146) (136) (130) (114)
Selling...................................... (54) (55) (395) (374) (382) (354) (335)
General and administrative................... (35) (28) (137) (130) (129) (126) (123)
Restructuring and settlements................ -- -- -- -- -- -- 45
------ ------ ------ ------ ------ ------ ------
Operating income (loss)...................... (109) (89) 359 363 347 280 346
Investment income.............................. 5 18 45 22 22 23 19
Interest expense............................... (5) (2) (13) (8) (11) (13) (11)
Net exchange and other gains (losses).......... (5) (5) 16 (4) (4) 1 (5)
------ ------ ------ ------ ------ ------ ------
Income (loss) before items below............. (114) (78) 407 373 354 291 349
Provision for income taxes..................... 39 27 (134) (127) (127) (106) (134)
Minority interest and other.................... -- -- (3) (3) (4) (2) (2)
------ ------ ------ ------ ------ ------ ------
Net income (loss).......................... (75) (51) 270 243 223 183 213
Preferred stock dividend....................... -- (4) (9) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income available to common shareholders.... $ (75) $ (55) $ 261 $ 243 $ 223 $ 183 $ 213
====== ====== ====== ====== ====== ====== ======
Net income (loss) per common share
Basic........................................ $(0.31) $(0.24) $ 1.13 $ 0.98 $ 0.89 $ 0.72 $ 0.80
Diluted...................................... $(0.31) $(0.24) $ 1.08 $ 0.98 $ 0.89 $ 0.72 $ 0.80
Average shares outstanding
Basic........................................ 240 226 232 247 250 254 266
Diluted...................................... 240 226 250 248 250 254 266
SELECTED BALANCE SHEET DATA
Cash and cash equivalents...................... $ 77 $ 76 $ 86 $ 97 $ 99 $ 84 $ 135
Working capital(a)............................. $ 558 $ 675 $ 694 $ 572 $ 496 $ 490 $ 510
Total assets................................... $1,990 $1,897 $1,717 $1,603 $1,422 $1,293 $1,253
Total debt..................................... $ 305 $ 110 $ 95 $ 116 $ 50 $ 129 $ 81
Shareholders' equity........................... $1,145 $1,245 $1,247 $1,148 $1,018 $ 913 $ 881
OTHER FINANCIAL DATA
Ratio of earnings to fixed charges(b).......... -- -- 23.4 29.2 23.0 17.9 25.3
EBITDA(c)...................................... $ (82) $ (67) $ 449 $ 452 $ 424 $ 354 $ 421
Capital expenditures........................... $ 37 $ 30 $ 119 $ 127 $ 116 $ 86 $ 79
Depreciation and amortization.................. $ 27 $ 22 $ 90 $ 89 $ 77 $ 74 $ 75
Dividends declared per share................... $ 0.10 $0.087 $ 0.37 $ 0.32 $ 0.28 $ 0.24 $ 0.20
</TABLE>
- ---------------
(a) Working capital represents the excess of current assets over current
liabilities for the periods presented.
(b) For purposes of this computation, earnings consist of income before income
taxes less minority interest in income plus fixed charges. Fixed charges
consist of (i) interest whether expensed or capitalized, (ii) amortization
of deferred financing costs whether expensed or capitalized and (iii) that
portion of rental expense considered to represent interest (assumed to be
one-third). For the three months ended November 30, 1998 and November 30,
1997, earnings were insufficient to cover fixed charges. The deficiency for
the three months ended November 30, 1998 was $114 million.
(c) For purposes of this computation, EBITDA consists of operating income plus
depreciation and amortization. EBITDA does not represent cash flows as
defined by generally accepted accounting principles (GAAP) and does not
necessarily indicate that cash flows are sufficient to fund all of the
Company's cash needs. EBITDA is presented because the Company believes it is
a widely accepted financial indicator of a company's ability to incur and
service debt. However, EBITDA should not be considered in isolation or as a
substitute for net income or cash flow data prepared in accordance with GAAP
or as a measure of a company's profitability or liquidity. EBITDA as defined
here may differ from EBITDA as defined in other similar registration
statements and as such may not be comparable.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto for the three
months ended November 30, 1998, and with the Company's audited financial
statements and notes thereto for the fiscal year ended August 31, 1998.
OVERVIEW
The Company continued record-setting financial results in 1998. Current
year net income after tax totaled $270 million, or $1.08 per-diluted share, on
sales of $1.8 billion. After-tax income in 1997 totaled $243 million, or $0.98
per-diluted share, on sales of $1.8 billion. The result was a per-diluted share
earnings growth of 10.2% for 1998. Current year earnings produced a Return on
Ending Equity (ROE) of 21.7%, the fifth consecutive year above the targeted
level of 20%. This performance enabled the Company to exceed its primary
financial goals: double-digit earnings growth over time and maintaining an ROE
of 20% or higher.
Historically, the Company's growth has primarily been driven by North
American seed corn operations. The Company achieved record operating income in
1998 from its North American corn operations, in spite of an unprecedented level
of discounting and promotions by competitors. The Company also maintained its
42% share of the North American corn market and improved profit margins in this
aggressive environment. In addition, record sales and profits from the Company's
soybean business and improved profitability from the Company's other product
lines were positive factors affecting 1998 income. Foreign currency
devaluations, on a worldwide basis, reduced current year operating income
approximately $32 million.
YEAR ENDED AUGUST 31, 1998, COMPARED TO YEAR ENDED AUGUST 31, 1997
HYBRID SEED CORN
The strong operating performance in North America was offset by a decrease
in regions outside North America, which were impacted by local currency
devaluation, acreage reduction, and weather. Current year seed corn operating
income decreased $6 million, or 1.5%, from prior year results. North America
corn continues to dominate the mix of revenue and contribution margins,
generating approximately 70% of companywide revenue and 73% of operating income.
CORN NET SALES AND PRODUCT LINE OPERATING INCOME
<TABLE>
<CAPTION>
INCREASE 1997 INCREASE 1996
1998 (DECREASE) ------ (DECREASE) ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES:
North America.......................... $ 970 $ 63 6.9% $ 907 $ (1) (0.1)% $ 908
Europe................................. 300 (27) (8.3)% 327 (1) (0.3)% 328
Other regions.......................... 123 (28) (18.5)% 151 10 7.1% 141
------ ----- ------ ---- ------
Total net sales................... $1,393 $ 8 0.6% $1,385 $ 8 0.6% $1,377
====== ===== ===== ====== ==== ===== ======
OPERATING INCOME:
North America.......................... $ 290 $ 24 9.0% $ 266 $(10) (3.6)% $ 276
Europe................................. 98 (15) (13.3)% 113 13 13.0% 100
Other regions.......................... 8 (15) (65.2)% 23 (11) (32.4)% 34
------ ----- ------ ---- ------
Total operating income............ $ 396 $ (6) (1.5)% $ 402 $ (8) (2.0)% $ 410
====== ===== ===== ====== ==== ===== ======
UNIT SALES:
(80,000-kernel units)
North America.......................... 12.0 0.5 4.3% 11.5 (0.6) (4.6)% 12.1
Europe................................. 2.8 (0.1) (3.4)% 2.9 0.1 3.6% 2.8
Other regions.......................... 2.2 (0.3) (12.0)% 2.5 -- --% 2.5
------ ----- ------ ---- ------
Total unit sales.................. 17.0 0.1 0.6% 16.9 (0.5) (3.0)% 17.4
====== ===== ===== ====== ==== ===== ======
ACRES:
North America.......................... 84.1 0.8 1.0% 83.3 0.6 0.7% 82.7
====== ===== ===== ====== ==== ===== ======
</TABLE>
7
<PAGE> 9
The primary drivers affecting North American operations are per-unit price
and cost, market share, and market size. Seed corn operating income in North
America improved $24 million, or 9%, over 1997 results. The improved results
were primarily due to increased revenue. Revenue increased $63 million, or 6.9%,
over 1997 as a result of two factors: (i) an increase in the average per-unit
selling price, which accounted for $25.1 million of the total increase, and (ii)
additional units sold of 500,000, which accounted for $37.7 million of the total
increase. Higher investments in research and product development and product
promotion also impacted current year results. In addition, the stronger U.S.
dollar reduced operating income from Canada by approximately $2.3 million.
Despite the competitive environment in North America, the average per-unit
net seed corn selling price increased approximately 3%. During 1998, this
increase would have been higher had the Company not implemented changes to its
replant program. In previous years, the price of seed sold for replant was
discounted 50%, while in 1998 replant seed was provided free of charge. In
addition to the program change, adverse weather conditions resulted in
significantly higher replanting in 1998. Excluding these two factors, the net
selling price of seed in North America increased approximately 5% as a result of
the introduction of several new premium-priced elite products and a continued
shift in the sales mix to higher-priced premium products.
Current year per-unit seed corn cost of sales decreased $0.30, largely due
to lower inventory reserves and lower commodity costs. When combined with the
sales price effect, net seed corn margins increased approximately $2.40 per
unit. Provisions for inventory reserves in 1998 were $1.75 per unit compared to
$1.98 per unit in 1997. The Company's policy is to provide adequate reserves for
inventory obsolescence. Approximately 8% of North American unit sales were
reserved in 1998 compared to 9% in 1997.
An increase in North American market size impacted current year operating
results. Based on information to date, North American market size was estimated
at 84.1 million acres, an increase of approximately 1% from 1997. Based on
current year unit sales, the Company maintained its 42% share of the North
American seed corn market.
Increased investments in research and product development and higher
selling costs associated with the launch of an unprecedented number of new
products reduced operating income approximately $18 million. New genetics
accounted for more than 40% of current year unit sales, including 2.4 million
units of the Company hybrids with the YieldGard(1) gene for European Corn Borer
(ECB) resistance.
Operating income in Europe, on a constant dollar basis, increased 2% over
1997. In Europe, seed corn operations were challenged in 1998 by reduced
acreage. In addition, results reported in U.S. dollars were negatively impacted
by the strengthening of the U.S. dollar against European currencies, reducing
1998 operating income by $17 million compared to 1997. Excluding this effect,
the region achieved a new record in operating income. Seed corn market share
gains in Italy and Spain and higher per-unit prices in Central Europe
contributed to the increase. These factors more than offset the effect of a 6 to
8% reduction in hectares planted to corn.
The Company achieved record operating income in several countries within
the Africa, Middle East, Asia, and Pacific region. Seed corn operations in South
Africa, Turkey, and Pakistan all reported record results in 1998 driven by
increases in market share and per unit prices. However, overall results of
operations for the region were hampered by reduced market size and by
significant devaluation in the local currencies in Southeast Asia. The currency
devaluation in Southeast Asia negatively impacted 1998 corn operating income by
$5 million. Key markets in Asia and Africa experienced a 10 to 15% reduction in
market size due to adverse weather conditions.
The Company's corn operations in Latin America experienced an operating
loss of $11 million compared to a $2 million loss in 1997. The Company's
operations in Brazil continued to be affected by the decrease in market size
reported last year. In Argentina, performance issues with key hybrids noted last
year continued to impact 1998 operations. As a result, unit sales and price per
unit were lower than 1997. To address these performance issues, new products
were introduced in 1998 in Brazil and Argentina and additional new products will
be introduced in upcoming years.
- ---------------
1 Registered trademark of, and used under license from, Monsanto Company.
8
<PAGE> 10
Operating income in Mexico decreased $3 million from 1997. This was due to
drought and currency devaluation. The drought conditions resulted in fewer acres
planted to corn and decreased unit sales in 1998. The stronger U.S. dollar
compared to the Mexican peso reduced reported results in 1998 by $2 million.
North American Seed Corn Unit Sales (in millions)
<TABLE>
<CAPTION>
1998 1997 1996
- ---- ---- ----
<S> <C> <C>
12.0.. 11.5 12.1
</TABLE>
North American Corn Acreage (in millions)
<TABLE>
<CAPTION>
1998 1997 1996
- ---- ---- ----
<S> <C> <C>
84.1.. 83.3 82.7
</TABLE>
Estimated North American Seed Corn Market Share
<TABLE>
<CAPTION>
1998 1997 1996
- ---- ---- ----
<S> <C> <C>
42%.. 42% 44%
</TABLE>
SOYBEAN SEED
Soybean seed is the Company's second largest product in terms of revenue
and operating income. The primary drivers for operating income are premium
product sales, market size, market share, and price. Current year soybean
operating income in North America improved $7 million, or 26%, over 1997 results
to a record $33.7 million. Record North American soybean revenues and profits in
1998 were primarily driven by the increased demand for premium-priced
glyphosate-resistant soybeans with the Roundup Ready(1) gene. Unit sales of
these soybeans more than doubled in the current year.
North American Soybean Unit Sales (in millions)
<TABLE>
<CAPTION>
1998 1997 1996
- ---- ---- ----
<S> <C> <C>
13.5.. 13.5 11.3
</TABLE>
North American Soybean Acreage (in millions)
<TABLE>
<CAPTION>
1998 1997 1996
- ---- ---- ----
<S> <C> <C>
75.2.. 73.5 66.4
</TABLE>
Estimated North American Soybean Market Share
<TABLE>
<CAPTION>
1998 1997 1996
- ---- ---- ----
<S> <C> <C>
15.8%.. 18.1% 17.2%
</TABLE>
North America unit sales account for approximately 97% of worldwide soybean
unit sales. Unit sales included over 5 million units of glyphosate-resistant
products, compared to 2.3 million units in 1997. The Company's current year unit
sales of these products totaled approximately 39% of total soybean unit sales
compared to 17% in 1997. The strong demand for and available supply of
glyphosate-resistant products limited the Company's market share.
Higher commodity prices and additional acres available for planting due to
acres coming out of conservation programs resulted in additional acres planted
to soybeans in the current year. Net margins improved from a year ago despite
higher commodity costs. An increase in list prices for the current year,
combined with the sales price effect of glyphosate-resistant products, which are
sold at a premium, more than offset the increase in unit costs.
9
<PAGE> 11
OTHER PRODUCTS
Other products' current year operating results improved $4 million over
those recorded in 1997. Wheat, sunflower, and canola accounted for most of the
change. Wheat operating income increased $4 million over 1997 results. Sunflower
operations provided a positive impact to the current year mainly due to
operations in North America and Europe. An increase in sunflower operating
income of $4 million is the result of a $10 million increase in sales over 1997.
Operating income for canola products in 1998 improved $2.5 million from 1997
results primarily due to the increased sales of herbicide resistant products.
Operating results decreased $6 million due to the Company's equity ownership in
Optimum Quality Grains, L.L.C., which began operations in 1998.
OTHER PRODUCTS NET SALES AND COMBINED PRODUCT LINE OPERATING INCOME (LOSS)
<TABLE>
<CAPTION>
INCREASE 1997 INCREASE 1996
1998 (DECREASE) ---- (DECREASE) ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES
Alfalfa.............................. $ 46 $ 1 2.2% $ 45 $13 40.6% $ 32
Sorghum.............................. 36 -- --% 36 5 16.1% 31
Wheat................................ 24 4 20.0% 20 (5) (20.0)% 25
Sunflower............................ 34 10 41.7% 24 2 9.0% 22
Microbial products................... 29 (1) (3.3)% 30 2 7.1% 28
Other products....................... 41 5 13.9% 36 (6) (14.3)% 42
---- --- ---- --- ----
Total net sales.............. $210 $19 9.9% $191 $11 6.1% $180
==== === ==== ==== === ===== ====
Total combined operating
income (loss).............. $ 15 $ 4 $ 11 $14 $ (3)
==== === ==== === ====
</TABLE>
These products provide the sales organization a full line of seed products,
significantly aiding in the sale of higher-margin products. In addition, the
opportunity for some of these product lines to generate greater levels of
operating income in the future is promising.
CORPORATE AND OTHER ITEMS
Current year indirect general and administrative expenses increased $11
million, or 14%, over 1997 levels. Increased employee compensation costs and
higher training and development costs resulting from investments in information
systems within North America and Europe were a significant part of the current
year increase. The protection of research technology through the filing of
patents and the cost of litigation associated with the ownership of technology
also contributed to this increase. The Company filed 187 patent applications in
the United States through September of calendar year 1998 compared to 121 and
109 in calendar years 1997 and 1996, respectively.
Net financial income for fiscal 1998 increased $38 million from 1997. Net
exchange and other gains and losses in the current year were impacted by a $20
million gain on the sale of two million shares of Mycogen Corporation stock in
1998 compared to a $7 million gain on the sale of one million shares in 1997.
The Mycogen transactions, net of expenses, increased diluted earnings per share
$0.04 and $0.01 in 1998 and 1997, respectively. In addition, net financial
income was impacted by interest earned on the proceeds from equity transactions
with DuPont.
The decrease in the effective tax rate from 34% in 1997 to 33% in 1998 was
primarily attributable to the Company's operations outside the United States and
an increase in research tax incentives. The decrease in the effective tax rate
between years increased earnings per share by $0.02. The Company's effective tax
rate will vary based on the mix of earnings and tax rates from the various
countries in which it operates.
10
<PAGE> 12
ALLIANCE WITH DUPONT
In September 1997, the Company and DuPont finalized an agreement that
created one of the world's largest private agricultural research and development
collaborations. The companies also formed a joint venture, Optimum Quality
Grains, L.L.C., that markets improved quality traits to increase the value of
crops for livestock feeders, grain processors, and other end users. The joint
venture does not sell seed. The Company is the preferred worldwide provider and
marketer of quality trait seed for the joint venture.
In connection with the above agreements, DuPont also acquired an equity
interest in the Company through the purchase of 164,446 shares of preferred
voting stock for $1.7 billion. Effective January 30, 1998, each preferred share
was converted into 100 shares of Class B common stock with a stated value of
$1.00 per share. As required by the agreement, the Company used approximately
$1.5 billion of the proceeds from the DuPont investment to purchase
approximately 16.4 million shares of the Company's outstanding common stock
through a Dutch auction self-tender. The common shares reacquired by the Company
were retired, but remain authorized and unissued. The net effect of these equity
transactions, including associated transaction costs, was an increase in Class B
common stock of $16.4 million, a decrease in common stock of $16.4 million, and
an increase in additional paid-in capital of approximately $170 million, the use
of which is unrestricted. Immediately following the completion of the Dutch
auction self-tender, DuPont's equity interest in the Company was approximately
20%.
The agreements include, among other things, a standstill provision that
prohibits DuPont from increasing its ownership interest in the Company for 16
years from the date of the agreement without the consent of the Company. DuPont
also gained two seats on the Company's Board of Directors.
These agreements with DuPont will bring additional opportunities to compete
for corn acres in 1999 and the potential to become a significant supplier in the
rapidly growing market for high-oil corn. Financial results for the year ended
August 31, 1998 were affected by the completion of the agreement with DuPont.
Without the DuPont equity transactions less cash would have been available for
investment, short-term borrowings would have been higher, and the Company would
not have paid preferred stock dividends. Current year results, excluding the
impact from the above equity transactions, were income of $257.9 million, or
$1.05 per diluted share. The following table summarizes the components of income
per share as reported and excludes the impact from the equity transactions with
DuPont:
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED EXCLUDING EQUITY TRANSACTIONS
--------------------------------- ---------------------------------
SHARES SHARES
INCOME (DENOM- PER-SHARE INCOME (DENOM- PER-SHARE
YEAR ENDED AUGUST 31, 1998 (NUMERATOR) INATOR) AMOUNT (NUMERATOR) INATOR) AMOUNT
-------------------------- ----------- ------- --------- ----------- ------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income...................... $270 $270
Items resulting from the DuPont
equity transactions
Preferred stock dividends..... (9) --
Interest benefit from DuPont
proceeds*.................. -- (12)
---- ----
Basic earnings per share
Net income attributable to
common shareholders........ $261 231.5 $1.13 $258 244.4 $1.06
===== =====
Effect of dilutive securities
Convertible preferred stock... 9 17.7 -- --
Stock options................. -- 1.1 -- 1.1
---- ----- ---- -----
Diluted earnings per share
Net income attributable to
common shareholders........ $270 250.3 $1.08 $258 245.5 $1.05
==== ===== ===== ==== ===== =====
</TABLE>
11
<PAGE> 13
- ---------------
* Based on the assumption that the proceeds generated by DuPont equity
transactions earned an investment return during the period on the excess funds
and reduced borrowing costs at the Company's after-tax investment and
borrowing rates.
YEAR ENDED AUGUST 31, 1997, COMPARED TO YEAR ENDED AUGUST 31, 1996
HYBRID SEED CORN
August 31, 1997 seed corn operating income decreased $8 million, or 2% from
1996 results. Operations in North America played a significant role in the
decrease, primarily the result of fewer unit sales, increased per-unit net
margins, and higher investments in research and product development. Seed corn
operations outside North America provided increased operating income from 1996
on higher unit sales; however, this was tempered by the stronger U.S. dollar in
1997.
Seed corn market share in North America declined approximately two points
in 1997, bringing the Company's estimated leading share of the North American
market to approximately 42%. The Company introduced a number of new products in
limited volumes in 1997 which were targeted to replace hybrids that had been
leading sellers in recent years. Lower unit sales of these older hybrids were
largely responsible for the estimated 1997 market share decrease.
Delayed regulatory approval for the Company's ECB resistant corn products
also contributed to the 1997 market share decline. Despite regulatory approval
for these products coming late in the selling season, the Company sales
representatives were able to place the Company seed in more than 20% of the
estimated North American acres planted to ECB resistant corn in 1997. However,
due to the late start, the Company was unable to attain its normal market
presence for these products.
The sale of two key hybrids, 3394 and 3489, accounted for approximately 23%
and 28% of the Company's 1997 and 1996 North American hybrid seed corn unit
sales, respectively.
Corn acreage in North America during 1997 rose modestly above 1996 levels
which positively affected operating income. Although operating results in North
America were affected by higher per-unit seed corn costs, the average seed corn
selling price also increased.
In 1997, the average net seed corn selling price per unit to customers in
North America increased 7% resulting from the introduction of several new elite
products, which were priced at a premium, and an increase in list prices across
the entire product line. However, during 1997 a change was made to the Company's
commission program, which eliminated some ties between the commission and
quantity savings discount programs. Reported quantity savings discounts
increased and reported net commission expense decreased accordingly. As a
result, reported net price for 1997 based on reported net sales only reflects an
increase of approximately 5%. Net selling price per unit to customers, North
American seed corn net margin per unit, and net compensation to sales
representatives were essentially unaffected by this program change.
Per-unit seed cost of sales increased approximately $2.50 in 1997,
principally due to the prior year cost of sales mix. Fiscal 1996 cost of sales
included large quantities of lower-priced carryover seed from the 1994 crop
year. When combined with the sales price effect, net seed corn margins increased
approximately $2.25 per unit. Provisions for inventory reserves in 1997 were
$1.98 per unit, compared to $2.22 per unit in 1996. Approximately 9% of North
American unit sales were reserved in 1997.
North American research and product development costs for seed corn
increased $11 million in 1997, or 15%, to $86 million. The increase was the
result of additional spending on classical plant genetic activities and
investments to access technology that will help expand and improve the Company's
germplasm base.
As a result of investments in research and product development, the Company
research program turned out 27 new corn hybrids in limited volumes for the North
American market in 1997. First-year sales of these new hybrids reached nearly
600,000 units, four times more than any previous group of new product
introductions.
Seed corn operating results outside North America increased $2 million
compared to the prior year. European operations (Europe, CIS, and Japan)
provided the largest impact, accounting for $13 million in
12
<PAGE> 14
additional operating income. Strengthening of the U.S. dollar against European
currencies had a significant negative impact on 1997 reported results for
European operations. Excluding this impact, the region reflected an improvement
of $32 million over 1996 results. Additional unit sales in Italy, Southern
Europe, and Central Europe were significant factors in the current year increase
in operating income. Market size and market share increases, individually or in
concert, played roles in these improvements.
Operating income in the Latin American region decreased $23 million
compared to 1996. Supply availability and decreased corn acreage reduced 1997
operating income in Brazil. Also affecting 1997 results was a performance issue
related to the previous year's top selling hybrids in Argentina. As a result,
operating income decreased due to reduced unit sales and higher cost of sales.
Operating income in Mexico improved $4 million from 1996 results as
favorable weather conditions and improved water supply resulted in increased
unit sales. Increased selling price per unit also favorably impacted 1997
results.
Volume and price increases in several countries within Asia, Africa, and
the Middle East improved this region's 1997 operating results $3 million.
SOYBEAN SEED
Soybean operating income improved $11 million, or 69%, over 1996 results.
The primary drivers for operating income -- market size, market share, and
price -- had positive impacts on soybean operations.
Unit sales in North America increased 19%, or approximately 2.2 million
units, over 1996 levels as a result of increased acreage and improved market
share. Favorable commodity prices drove an 11% increase in acres planted to
soybeans in 1997. Continued strong product performance and the demand for
glyphosate-resistant varieties contributed to market share gains.
Net margin in North America improved approximately $0.60 per unit from 1996
despite higher commodity costs. An increase in list prices for 1997, combined
with the sales price effect of glyphosate-resistant products that are sold at a
premium, more than offset the increase in unit costs.
The demand for glyphosate-resistant products in North America was strong in
1997. The Company's 1997 unit sales of these products totaled 2.3 million units,
or approximately 17% of total soybean unit sales, compared to unit sales of less
than 100,000 in 1996.
OTHER PRODUCTS
Other products' 1997 operating results improved $14 million over those
recorded a year earlier. Comparisons in 1997 were affected by the elimination of
1996 losses from the sale of the Company's vegetable products line and
liquidation of the specialty oils inventory in 1996 not present in 1997, which
combined to improve 1997 operating results $7 million over 1996 levels.
Operating income for canola products in 1997 improved $3 million from results in
1996 due to increased acreage and higher market share. Microbial product results
improved $2 million for the year on strong performance of premium inoculant
products. Annual results for alfalfa, sorghum, and miscellaneous other seed
products in total improved $5 million from 1996. Decreased 1997 wheat sales in
North America, the result of reduced acreage, lowered operating income $3
million from 1996 levels.
CORPORATE AND OTHER ITEMS
Indirect general and administrative expenses in 1997, which totaled $77
million, were similar to those recorded in 1996. Increased general costs and
higher legal expenses, resulting from technology claims and disputes, were
offset by the one-time effect of adopting FAS116 "Accounting for Contributions
Made and Contributions Received" during 1996, not present in the 1997.
Net financial income increased $3 million from what was recorded in 1996.
The retirement of the medium-term note program in February 1996, combined with a
lower average level of short-term borrowing in 1997, reduced 1997 interest
expense $3 million. A gain in 1997 from the sale of one million shares of
Mycogen
13
<PAGE> 15
Corporation stock improved net financial income $7 million; however, this was
offset almost entirely by an increase in recorded net exchange losses,
principally due to the strengthening of the U.S. dollar against European
currencies.
The decrease in the effective tax rate from 36% in 1996 to 34% in 1997 was
primarily attributable to the Company's operations outside the United States.
THREE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED NOVEMBER
30, 1997
Net loss for the three months ended November 30, 1998, was $75 million, or
$0.31 per share, on sales of $76 million. In the first three months of the prior
fiscal year, the Company recorded a loss of $51 million on sales of $79 million.
After the payment of preferred dividends the net loss attributable to common
shareholders for November 30, 1997 totaled $55 million or $0.24 per share.
Due to the seasonality of the seed business, partial-year results and
quarter-to-quarter comparisons are not always meaningful. Accordingly, such
quarterly comparisons are not emphasized. Typically, most of the Company's
revenue and operating profit are generated in the third quarter. Revenues during
the Company's first quarter are generated mostly from Southern Hemisphere
operations, North American wheat sales, and worldwide microbial product sales
and generally represent less than 5% of the Company's annual sales.
The current operating loss increased $20 million to $109 million largely
due to decreased sales and increased fixed costs. Increased sales in seed corn
were more than offset by decreases in wheat and other products. The increase in
fixed costs of approximately 10% was expected due to planned expenditures in
research and product development, sales and marketing, information management
and other targeted areas. Increased investments in research and product
development of $6 million accounted for approximately 50% of the current year
increase in fixed costs.
NET SALES AND OPERATING LOSS
<TABLE>
<CAPTION>
QUARTER ENDED
NOVEMBER 30,
-------------- INCREASE/
1998 1997 (DECREASE)
----- ----- ----------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C>
NET SALES
Corn................................................... $ 33 $ 23 $ 10
Other.................................................. 43 56 (13)
----- ----- -----
Total Net Sales................................ $ 76 $ 79 $ (3)
===== ===== =====
OPERATING LOSS
Corn................................................... $ (76) $ (68) $ 8
Other.................................................. (10) (1) 9
----- ----- -----
Product line operating loss............................ $ (86) $ (69) $ 17
Indirect general and administrative expenses........... (23) (20) 3
----- ----- -----
Operating loss........................................... $(109) $ (89) $ 20
===== ===== =====
</TABLE>
North American operations had the greatest impact on the current period. An
increase in seed corn sales due to timing of deliveries was more than offset by
a decrease in wheat sales. Wheat sales were down $9 million due to reduced acres
and a decrease in sales price due to low commodity prices resulting in a
decrease in operating profit of $6 million from the prior year. North America
corn operating results decreased $3 million from prior year first quarter
results. Current year results were impacted by additional costs from the
expanded introduction of new corn hybrids and increased investments in corn
research and product development. Corn research expenses increased $4 million
primarily due to increases in compensation costs and expenses associated with
technology acquisitions. Compensation costs were higher due to the hiring of
additional research staff and increases in base compensation as a result of the
competitive environment.
14
<PAGE> 16
Outside North America, operating results were $6 million lower in the
current period compared to a year earlier. The Latin America region accounted
for approximately $3 million of the decrease. Current period unit sales
increased approximately 100,000 units over the same period last year. However,
the operating profit from the increased sales was offset by inventory writedowns
of obsolete corn hybrids in Argentina. In addition, non-recurring cost savings
for the period ended November 30, 1997, contributed to the year-to-year change.
Current period net financial income decreased $16 million from previous
year results due to decreased investment income and increased interest expense.
Investment income decreased $13 million primarily due to fiscal 1998 results
including interest earned on proceeds from DuPont's investment in the Company.
The Company did not have excess cash to invest in the first quarter of the
current year. Typically the Company borrows money during its first quarter to
fund operations. The availability of the excess proceeds from the DuPont
transactions last year reduced borrowings, which reduced prior year interest
expense.
The estimated worldwide tax rate of 34% reflected in the first quarter of
fiscal 1999 is similar to the 33% effective tax rate reflected on an annual
basis for fiscal 1998. The worldwide effective tax rate for the first quarter of
fiscal 1998 was 35%. The lower current year first quarter effective tax rate
increased the current period loss by approximately $1 million compared to last
year's first quarter. The effective tax rate reflected for the first quarter is
based on all information available to date. The effective tax rate on an annual
basis may vary from what is reflected in the current period, in part as a result
of any changes in the mix of earnings between the Company's North American seed
business and other worldwide operations.
LIQUIDITY AND CAPITAL RESOURCES
Due to the seasonal nature of the agricultural seed business, the Company
generates most of its cash from operations during the second and third quarters
of the fiscal year. Cash generated during this time is used to repay commercial
paper borrowings and accounts payable, which are the Company's primary sources
of credit during the first and fourth quarters of the fiscal year. Any excess
funds available are invested, primarily in short-term commercial paper.
Historically, the Company has financed growth through earnings. Cash
provided by operating activities was $240 million in 1998, compared to $176
million and $389 million in 1997 and 1996, respectively. The effect on cash
provided by operating activities of building inventory levels and inventory
liquidation have the greatest impact on the Company in any given year. Excluding
this effect, cash provided by operating activities was $302 million in 1998,
compared to $248 million and $346 million in 1997 and 1996, respectively.
Most of the Company's financing is done through the issuance of commercial
paper in the United States, backed by revolving and seasonal lines of credit. In
addition, foreign lines of credit and direct borrowing agreements are relied
upon to support overseas financing needs. Short-term debt at August 31, 1998
totaled $76 million, a $15 million decrease from 1997. In 1998, short-term
borrowings peaked at $128 million compared to $250 million in 1997. Short-term
borrowings were lower due to the net proceeds of approximately $170 million
resulting from the sale of preferred shares to DuPont and the subsequent Dutch
auction self-tender.
In 1998, including net proceeds available from equity transactions with
DuPont, short-term domestic investments peaked at $429 million compared to $242
million in 1997. The 1998 amount does not include $1.5 billion of the proceeds
from the DuPont equity transaction used in the Dutch auction self-tender due to
the nonrecurring nature of the transaction. Short-term investments are made
through a limited number of reputable institutions after evaluation of their
investment procedures and credit quality. The Company invests in only
high-quality, short-term securities, primarily commercial paper. Individual
securities must meet credit quality standards, and the portfolios are monitored
to ensure diversification among issuers.
The table below sets forth certain information about the domestic lines of
credit available to the Company for fiscal 1998 and fiscal 1999.
15
<PAGE> 17
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revolving................................... $200 $200 $200 $200
Seasonal.................................... 100 100 -- --
---- ---- ---- ----
Total............................. $300 $300 $200 $200
==== ==== ==== ====
</TABLE>
The Company believes the domestic lines of credit available in 1999 are
sufficient to meet domestic borrowing needs. Revolving line of credit agreements
expire August, 2001. The Company also has a seasonal revolving credit facility
to meet peak borrowing needs, which expires August, 1999.
At year end, cash and cash equivalents totaled $86 million, down from $97
million at August 31, 1997. It is the Company's policy to repatriate excess
funds outside the United States not required for operating capital or to fund
asset purchases. The growth in trade receivables at August 31, 1998 was
primarily due to increased participation in the Company's credit programs.
Capital expenditures, including business and technology investments, were
$128 million in 1998 compared to $151 million in 1997 and $164 million in 1996.
The Company's capital expenditures primarily represent continued investment in
production capacity, technology acquisitions, and research collaborations.
Capital expenditures for 1999 are expected to be approximately $160 to $170
million and are expected to be funded through earnings.
The quarterly dividend paid in July of 1998 increased to $0.10 per share,
up 15% from the $0.087 per-share dividend paid the prior four quarters. The
Company's dividend policy is to annually pay out 40% of a four-year rolling
average of earnings.
During 1998, the Company repurchased 6,627,800 shares of its stock under a
Board authorized repurchase plan at a total cost of $234 million, excluding the
Dutch auction self-tender. At August 31, 1998, authorized shares remaining to be
purchased under the plan totaled 4.8 million. At August 31, 1998, there were 240
million shares of common stock and Class B common stock outstanding.
Short-term debt at November 30, 1998, consisted of $208 million in domestic
commercial paper and $81 million in direct short-term borrowings from foreign
banks.
Current year short-term borrowings are not comparable to November 30, 1997
amounts due to the DuPont transactions which reduced the need for short-term
borrowing. However, current year short-term debt is comparable to historical
levels.
The growth in receivables at November 30, 1998, when compared to November
30, 1997, was primarily due to increased participation in the Company's credit
programs.
MARKET RISKS
The Company uses derivative instruments to manage risks associated with its
grower compensation costs and foreign-currency-based transactions.
The Company uses derivative instruments such as commodity futures and
options to hedge the commodity risk involved in compensating growers. The
Company contracts with independent growers to produce the Company's finished
seed inventory. Contracts with growers generally allow them to settle with the
Company for the market price of grain for a period of time following harvest. It
is the Company's policy to hedge commodity risk prior to setting the retail
price of seed. The hedge gains or losses are accounted for as inventory costs
and expensed as cost of goods sold when the associated crop inventory is sold.
At August 31, 1998 and 1997, net unrealized losses on these contracts for corn
and soybeans totaled $13 million and $4 million, respectively. A 10% change in
the market price of the commodity contracts would impact 1998 net unrealized
losses by approximately $1 million. The contract volumes at year end depend upon
the acreage contracted with growers, the crop yield, the percentage growers have
marketed to the Company, and the percentage of crop hedged by the Company. Since
these positions are a hedge to inventory costs, any change in the cost of these
positions is offset by an opposite change in inventory costs.
16
<PAGE> 18
The Company uses derivative instruments such as forward exchange contracts,
purchased options, and cross currency swaps to hedge
foreign-currency-denominated transactions such as exports, contractual flows,
and royalty payments. While derivative hedge instruments are subject to price
fluctuations from exchange and interest rate movements, the Company expects
these price changes to generally be offset by changes in the U.S. dollar value
of foreign sales and cash flows. Therefore, hedging gains and losses are matched
with the costs of the underlying exposures and accounted for in inventory,
sales, or net financial costs. At August 31, 1998 and 1997, net unrealized
losses from foreign-currency hedge contracts totaled $1 million and $4 million,
respectively. A 10% change in exchange rates would impact 1998 net unrealized
losses by approximately $14 million.
The Company does not trade in commodity-based or financial instruments with
the objective of earning financial gain on rate or price fluctuations, nor does
it trade in these instruments when there are no underlying transaction related
exposures.
ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share" effective December 31, 1997. SFAS
No. 128 is retroactive to prior years; however, the adoption did not materially
affect prior years' earnings per share as previously reported under APB Opinion
No. 15.
The Financial Accounting Standards Board (FASB) issued SFAS No. 130,
"Reporting Comprehensive Income"; SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information"; and SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits." These statements
will require revised and/or additional disclosure requirements but will not have
an effect on the results of operations or financial position of the Company. The
Company will adopt the provisions of SFAS No. 130 in the first quarter of fiscal
1999 and the provisions of SFAS No. 131 and SFAS No. 132 for the fiscal year
ending August 31, 1999.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for fiscal
years beginning after December 15, 1998. Therefore, the Company will adopt this
statement for its fiscal year ending August 31, 2000. Due to the recent issuance
and the complexity of the statement, the Company is still in the process of
determining the effect of adopting the statement on the Company's operations and
financial position.
EFFECTS OF INFLATION
Inflation typically is not a major factor in the Company's operations. The
cost of seed products is largely influenced by seed field yields and commodity
prices, which are not impacted by inflation. Costs normally impacted by
inflation -- wages, transportation, and energy -- are a relatively small part of
the total operations.
YEAR 2000
The Year 2000 issue refers to a flaw in software design that results in (a)
errors when systems process dates after December 31, 1999 or (b) a failure to
recognize 2000 as a leap year. The Year 2000 issue presents a unique challenge
to organizations, not because it is technically difficult to resolve, but rather
because it is so difficult to manage. The problem is pervasive, existing
throughout a wide variety of computing systems and hardware devices within
organizations and within their supply chains; and corrective actions must be
taken by a fixed point in time -- no later than January 1, 2000.
The Company is well into its Year 2000 remediation effort, having begun
this process in 1996. The Company expects to see little, if any, direct impact
on operations given the nature of the business and the Company's business
relationships, the corrective steps taken to date, and the contingency plans to
be put in place in 1999. Additionally, the Company has long had a policy of
aggressively investing in and adopting new technologies. As a result, many of
the Company's core and end-user systems were developed or delivered in Year 2000
compliant form, greatly reducing the number of non-compliant legacy systems
requiring corrective measures. For example, the Company recently implemented SAP
AG's R/3 enterprise application software in the United States, Canada, Italy,
and France.
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<PAGE> 19
Management has established a committee to direct the Company's compliance
activities. The committee meets on a regular basis and reports quarterly to the
Board of Directors. The committee has segregated the Company's work on the Year
2000 issue into four phases: 1) inventory, 2) assessment, 3) remediation, and 4)
testing. The Company's Year 2000 compliance program is on schedule. The
following key objectives were met during the first quarter of fiscal 1999: core
infrastructure and core application remediation efforts are estimated to be 95
to 97% complete, the inventory of building systems was completed, the Company
began evaluating responses to inquiries of Year 2000 compliance by third party
suppliers, the network testing structure was completed, and the plans for
testing the remaining systems were completed. Over the next six months, future
efforts will focus on developing and executing test plans, assessment of legacy
data, completion of equipment assessments to include remediation plans, and
completion of initial supplier assessments to include developing formal
contingency plans. The remaining work in these phases is expected to be
completed by February 1999. Integration testing of core applications and
infrastructure is scheduled to begin in February 1999 and is expected to be
completed by the end of September 1999.
At August 31, 1998, the Company had completed an inventory of personal
computer, office automation, laboratory, production, and telecommunication
equipment worldwide. Inventory of building systems was in progress. Assessments
had been completed for 40 to 50% of the components surveyed and assessments for
all remaining components should be completed by the end of 1998. At this point
in time, the Company estimates that a small percentage of the equipment
inventory will require remediation and that upgrades or replacements will be
completed by the end of June 1999.
The Company is also in the process of analyzing the Year 2000 readiness of
material third parties (suppliers). Replacement suppliers will be found in 1999
if the Company determines some suppliers are not likely to be compliant in time.
The Company has spent approximately $1 million to date in direct costs
associated with reaching Year 2000 compliance. Total costs to the Company to
address Year 2000 issues are currently estimated not to exceed $3 million to $5
million and consist primarily of consulting fees for software remediation
activities and expected costs to replace noncompliant hardware components. These
costs are expected to be funded through earnings.
On the basis of research to date, the Company believes that the greatest
potential for disruption lies not in the Company's internal systems but rather
in the external systems of the Company's service providers. The Company
believes, however, that in North America and Europe, where the Company does most
of its business, disruptions in these external systems will be short-lived, and
that through contingency planning the Company can minimize the impact on seed
production and selling activities in the Northern Hemisphere. Analysis to date
also indicates that the vast majority of the Company's supplier and customer
base will likewise not be materially impacted by internal system problems. The
Company believes, however, given the number of supplier options available, that
the Year 2000 challenge will not materially impact the Company's ability to
produce seed products or the ability to sell and distribute these products to
customers for planting in the spring of 2000.
Some of the unique factors of the Year 2000 issue which could impact the
Company's performance are inability of third parties to timely provide
remediation measures, impacts of the failure of businesses other than the
Company or its immediate suppliers that would ultimately have an impact on the
Company, failure of governmental agencies to properly address their own Year
2000 compliance, or misrepresentations of readiness by suppliers or vendors.
EURO CONVERSION
The Company believes the euro conversion will not have a material impact on
the Company's ability to execute transactions during the transition period,
which began January 1, 1999, and ends December 31, 2001. The significant
requirement of companies during this period is the ability to invoice and accept
payment in euro at a customer's request. The Company has systems and processes
in place to manage euro denominated transactions if a customer makes this
request.
The Company continues to evaluate the impact the euro conversion will have
on its business, although the Company believes it will not have a material
impact on its results of operations or financial condition.
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<PAGE> 20
The Company has performed an analysis of the readiness of applicable
computer systems for the euro conversion. Plans are in place to upgrade existing
systems prior to 2001 to meet the needs of full euro conversion. The cost of
these upgrades is not expected to be material to the Company. In addition, the
Company has analyzed changing its hedging of foreign-currency-denominated
transactions in participating countries from their legacy currency to the euro.
Management expects hedging in the euro to reduce the number of hedging contracts
and associated administrative costs.
OUTLOOK FOR 1999 AND BEYOND
The Company's prospects for 1999 and beyond are encouraging. The Company
plans to introduce over 50 new seed corn hybrids in North America in 1999,
including high-oil products and several with the Bt gene for resistance to
European Corn Borer (ECB). Approximately 70% of the units sold in 1999 are
expected to be from hybrids introduced in 1997 or later. List prices of the
Company's hybrid corn seed in North America will not be increased in 1999.
However, the trend of customers to purchase new higher-priced, higher-value
products is expected to increase North America's average per-unit seed corn
selling price and per-unit margin. With the increased introduction of new
products, the Company anticipates more rapid obsolescence of older products.
Low commodity prices create financial stress for farmers in the United
States and around the world. One potential consequence of low corn prices is a
reduction in acres planted to corn, as farmers consider switching to other
crops. A reduction in corn acreage would hinder the Company's ability to grow
earnings. However, the Company anticipates that the 1998 fall harvest in North
America will substantiate continued strong product performance, thereby
positioning the Company for market share growth in 1999 and beyond.
During 1998, there was an unprecedented level of discounting and promotions
of hybrid seed corn by competitors. New alliances, combined with a consolidation
of industry players, have increased the level of uncertainty in the industry.
However, the Company is well positioned against its competitors. The Company
plans to continue to aggressively demonstrate to customers the financial
benefits of the yield advantage of its products.
The Company continues to validate the yield advantage of Pioneer products.
Pioneer has collected over 270,000 side-by-side corn performance comparisons
across its North America market area. The Company's corn hybrids expected to be
the top ten sellers for 1999 on average posted a yield advantage of nearly 8
bushels an acre over the average of the top ten competitor hybrids in
side-by-side comparisons conducted by Pioneer. The program to hold the price of
most of our corn hybrids steady for the 1999 sales season and offer enhanced
credit for qualified customers has been positively received. This program, along
with high returns per acre from our strong product performance will be key in
the Company's effort to gain share in the North American market for 1999.
The same results were present with Pioneer brand soybeans. Based on 28,000
variety comparisons, Pioneer leader soybeans with the Roundup Ready(1) gene on
average held a 2 bushel-per-acre yield advantage over competitive Roundup Ready
products. With the addition of 20 new soybean varieties, management believes
that 1998's strong North American soybean operations should continue into 1999
as the Company's soybean products are performing well against the competition.
The demand for glyphosate-resistant products is expected to increase, and the
Company has adequate supplies of these products available for sale in 1999. As a
result, sales of glyphosate-resistant products are expected to represent a
larger percentage of overall soybean sales in 1999, and margins are expected to
improve because of their premium sales price over elite varieties.
The Company anticipates continued growth in local currency sales and
operating profits outside of North America. Therefore, declines in the value of
foreign currencies against the U.S. dollar could adversely affect operating
income from these operations.
In 1999, the Company plans to introduce ECB resistant corn hybrids in
limited volumes in several countries outside of North America. This should help
position the Company for continued growth in sales and margins within these
countries in the years to come.
- ---------------
1 Registered trademark of, and used under license from, Monsanto Company.
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The Company expects growth in fixed costs to be led by increased
investments in research and product development, information management, and
sales and marketing, as well as an increase in legal costs. The Company expects
that its worldwide research and product development investments as a percentage
of sales will continue to climb, as it enhances its position as the world's
leading supplier of agricultural genetics and as a leading integrator of
technology. Sales and marketing expenses are also expected to increase as the
Company introduces an unprecedented number of new products. Legal costs will
likely climb as the Company continues to protect and defend its intellectual
property positions.
Salary and benefits are another factor that influences fixed costs.
Pioneer's commitment to the work force and responsiveness to the competitive
environment is expected to raise base compensation levels faster than inflation
in the next fiscal year.
In addition, a change in the mix of earnings between the Company's North
American seed business and other worldwide operations may put upward pressure on
the effective tax rate in the future.
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BUSINESS
GENERAL
The business of the Company is the broad application of the science of
genetics. Founded in 1926 to apply then newly-discovered genetic techniques to
hybridize corn, the Company has been the industry leader in research and product
development for more than 70 years. The Company owns what it believes to be the
industry's finest collection of crop genetics (germplasm), which has been the
key to the Company's success in the past and is expected to be the key to its
success in the future. The Company's research and development is focused on
improving the germplasm base by integrating new technology essential to crop
genetic improvements. The Company was the first commercial seed company to
undertake collaborations on a wide scale with other organizations and scientists
throughout the world to improve core germplasm and better understand crop
genetics. The Company believes that its research collaborations improve its
ability to deliver improved products. The Company emphasizes research for
improving the profitability of farmers through both agronomic and end-use grain
improvements. Agronomic traits increase crop yield or reduce growers' costs. The
Company delivers such improvements as increased bushels per acre and increased
resistance to insects, diseases and herbicides. End-use grain improvement is an
area of increasing importance. The Company expects to experience increasing
demand from end users such as livestock feeders, grain processors, food
processors, and others for specific qualities in the crops they use as an input
in developing other products.
PRODUCTS
The Company develops, produces, and markets hybrids of corn, sorghum, and
sunflowers; varieties of soybeans, alfalfa, wheat, and canola; and
microorganisms useful in crop and livestock production. Hybrids, such as corn
and sorghum, are crosses of two or more unrelated inbred lines that can be
reproduced only by crossing the original parent lines. As a result, it is not
beneficial for customers to plant saved seed, because the seed produced will not
have the same genetic attributes as the seed planted. Varietal crops, such as
soybeans and wheat, will reproduce themselves with little or no genetic
variation. Customers frequently plant saved seed from these products, although
they are becoming increasingly aware of the advantages of purchasing new seed
every year.
The Company's principal products are hybrid seed corn and varietal soybean
seed, which together accounted for approximately 89% of net sales and almost all
operating income over the last five fiscal years. These products are expected to
maintain a dominant role in the Company's operations for the foreseeable future.
Seed corn, in terms of both sales and profitability, is the Company's most
significant product. In fiscal 1998, sales of seed corn represented
approximately 76% of total net sales. Approximately 40% of the Company's 1998
North American seed corn volume was from hybrids introduced in 1997, or those
released in 1998. Seed corn net sales were $1.4 billion and seed corn operating
income was $396 million in fiscal 1998.
Soybean seed is the Company's second largest product in terms of sales and
profitability. Soybean seed accounted for approximately 13% of total net sales
in fiscal 1998. A new variety of soybean seed resistant to specific herbicides
accounted for approximately 39% of fiscal 1998 soybean net sales. Soybean net
sales were $232 million and soybean operating income was $36 million in fiscal
1998.
The Company also develops, produces and markets other products such as
wheat, canola, alfalfa, sorghum, sunflower, and microorganisms useful in crop
and livestock production. These products provide the Company's sales
organization with a full line of seed products, significantly aiding in the sale
of higher-margin products. Other product net sales were $210 million and other
product operating income was $15 million in fiscal 1998.
The Company has seed production facilities located throughout the world and
engages in seed production year-round. In the production of its parent and
commercial seed, the Company generally provides the seed stock, detasseling and
roguing labor, and certain other production inputs. The balance of the labor,
equipment, and inputs are supplied by independent growers. The Company is the
first major agricultural seed company in the world to attain ISO 9000
certification, which allows it to move products more easily from country to
country.
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<PAGE> 23
MARKETS
The primary markets for the Company's products are the United States,
Canada and Europe. Approximately 71% of fiscal 1998 net sales were made in North
America and approximately 20% of such sales were made in Europe. The Company
also has operations in Latin America, Mexico, Africa, Asia, the Middle East, and
the Pacific region.
The Company is the industry leader in North American seed corn sales. The
Company estimates that its share of this market in fiscal 1998 was approximately
42%. The next seven competitors held an estimated combined market share of
approximately 34%, with the closest competitor holding approximately 11%. The
remainder of the market was divided among more than 275 companies selling
regionally.
The Company has a leading seed corn market share in most of the countries
outside North America in which it operates. The Company's market shares in
France, Italy, Germany, Hungary, Austria, Mexico, and Brazil ranged from
approximately 10% to more than 60% in fiscal 1998.
The principal market for the Company's soybean seed is North America. The
Company estimates that its share of the soybean seed market in North America in
fiscal 1998 totaled approximately 16%.
In North America, the majority of seed is marketed through independent
sales representatives. In areas outside the traditional corn belt, seed products
are often marketed through dealers and distributors who handle other
agricultural supplies. The Company's products are marketed outside North America
through a network of subsidiaries, joint ventures, and independent
producer-distributors.
DUPONT ALLIANCE
On August 6, 1997, the Company and DuPont agreed to three integrated
transactions involving (1) a research alliance between the two companies; (2)
the formation of a joint venture to exploit business opportunities in quality
grain traits; and (3) an investment by DuPont in the Company under which DuPont
acquired a 20% equity interest in the Company. Pursuant to the research
alliance, the Company and DuPont have agreed to a research alliance and
collaboration to take advantage of the two companies' respective expertise and
technology and know-how concerning quality grain traits, agronomic traits,
industrial use traits, genomics and enabling technology for developing seed,
grain, grain products, plant materials and other crop improvement products. The
Company and DuPont also have established a commercial joint venture called
Optimum Quality Grains, L.L.C. (the "Joint Venture"), in which each party owns a
50% interest, which will seek to create, maximize and capture value for quality
traits in seed, grain, grain products and plant materials delivered through
corn, soybeans and other selected oil seeds. A key component of the Joint
Venture is the Preferred Seed Support Agreement between the Joint Venture and
the Company. The Joint Venture is not in the seed business and will look to the
Company to be the Joint Venture's preferred worldwide provider and preferred
marketer of quality trait seeds pursuant to the Preferred Seed Support
Agreement.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's research and product development activities are directed at
products with significant market potential. The Company believes it possesses
the largest proprietary pool of germplasm in the world from which to develop new
seed products. The Company's seed research is done through classical plant
breeding and biotechnology techniques. Prior to commercial sale, each potential
product passes through four- to five-year testing cycles during which it is
tested in a range of soil types, stresses and climatic conditions.
During the three fiscal years ended August 31, 1998, the Company expended
the following amounts on research and product development:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31, 1998 1997 1996
---------------------- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Corn.................................................. $110 $101 $ 90
Soybean............................................... 14 14 12
Other Products........................................ 31 31 34
---- ---- ----
$155 $146 $136
==== ==== ====
</TABLE>
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Integrating new technology is essential to crop genetic improvements.
Currently, the Company manages more than 2,000 research agreements, over 200 of
which are collaborations with entities specializing in technology that the
Company believes help improve its core germplasm base. Existing agreements,
together with a growing number of new associations and collaborations, have
enabled the Company to be a leader in understanding the functions of important
genes in crops such as corn and soybeans. The Company's objective is to continue
to develop that understanding while improving its ability to incorporate these
genes more efficiently into commercial products.
PATENTS, TRADEMARKS, AND TECHNOLOGY
The Company owns and controls its inbreds and varieties by means of
intellectual property rights, including, but not limited to, patents,
trademarks, licenses, trade secrets, and plant variety protection certificates.
Within the United States, these rights essentially prohibit other parties from
making, using, selling, importing, or exporting seed produced from the Company's
inbreds and varieties until such protection expires, usually well after the
useful life of the inbred or variety. Outside the United States, the level of
protection afforded varies from country to country according to local laws and
international agreements. As of August 31, 1998, the Company held over 250
domestic and 300 foreign patents and had over 900 patent applications pending on
new technologies and products moving toward commercialization.
RISK FACTORS IN THE BUSINESS
The annual volume of seed sold and related profit can be significantly
affected by forces beyond the Company's control. Some of these factors are
government programs/approvals, weather, and commodity prices. Government
programs can affect, among other things, crop acreage and commodity prices.
Government regulatory approvals can affect the timing of bringing new products
to market. Weather and other factors can affect commodity prices, product
performance, the Company's seed field yields, and planting decisions by
customers which ultimately can impact acreage. Commodity prices impact the
Company's pricing opportunities, selling strategies, and collection practices.
Intellectual property positions are becoming increasingly important within
the agricultural seed industry as genetically engineered products become a
larger part of the product landscape. It is likely that no one company will own
all patent rights within the industry for certain recent technology
advancements.
The competitive landscape in the seed genetics business continues to change
as many chemical companies work to transform themselves into higher-value life
sciences companies. The Company is unable to predict what effect the
consolidations in the industry will have on pricing opportunities, selling
strategies, intellectual property, or earnings.
Operating as a global company exposes the Company to the risks resulting
from currency fluctuations. The Company has policies in place to help manage
this risk. Product performance against the competition will continue to be the
key driver of long-term success for the Company. While the Company has been able
to develop products that consistently out-perform the competition, rapid change
in technology and customer preference may result in short product life cycles.
Speed to market with new, higher-value, products will be increasingly important.
EMPLOYEES
As of August 31, 1998, the Company employed approximately 5,000 people
worldwide, of which approximately 1,000 were engaged in research and
development. The Company believes relations with its employees to be good.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture to be dated as of January ,
1999 (the "Indenture"), between the Company and Chase Manhattan Trust Company,
National Association, as trustee for the Notes (the "Trustee"). The Indenture is
subject to and is governed by the Trust Indenture Act of 1939, as amended (the
"TIA"), and the terms of the Notes include those made part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. The following is
a summary of certain provisions of the Notes and the Indenture. The following
description does not purport to be complete and is subject to, and qualified in
its entirety by, reference to the TIA and all the provisions of the Notes and
the Indenture, including the definitions stated therein. Definitions relating to
certain capitalized terms are set forth under "Certain Definitions" and
throughout this description. Terms that are used but not otherwise defined
herein have the meanings assigned to them in the Indenture and such definitions
are incorporated herein by reference.
GENERAL
The Notes will be senior, unsecured obligations of the Company, will be
limited to $200 million aggregate principal amount and, unless previously
redeemed or repurchased, will mature on January , 2009. The Notes will bear
interest at the rate per annum shown on the front cover of this prospectus from
January , 1999 or from the most recent interest payment date to which interest
has been paid or provided for, payable semi-annually on and
of each year, commencing , 1999, to the Person in
whose name a Note (or any predecessor Note) is registered at the close of
business on the preceding or , as the case may be.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be transferable at the corporate trust office or agency of
the Trustee in The City of New York maintained for such purposes at 55 Water
Street, Room 234, North Building, New York, New York 10041. No service charge
will be made for the transfer, exchange or redemption of Notes, except in
certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith.
The Notes will be issued in fully registered form without coupons, in
denominations of $1,000 or integral multiples thereof.
The Indenture does not provide for any debt covenants that would afford
Holders any protection in the event of a highly leveraged transaction involving,
or a change in control of, the Company.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The various restrictive provisions of the Indenture applicable to the
Company and its Restricted Subsidiaries do not apply to Unrestricted
Subsidiaries. The assets and liabilities of Unrestricted Subsidiaries, and
investments by the Company in any Unrestricted Subsidiary, are not consolidated
with those of the Company and its Restricted Subsidiaries in calculating
Consolidated Net Tangible Assets under the Indenture. "Unrestricted
Subsidiaries" are those Subsidiaries which are designated as Unrestricted
Subsidiaries by the Board of Directors from time to time pursuant to the
Indenture and Subsidiaries of Unrestricted Subsidiaries. "Restricted Subsidiary"
means any Subsidiary which owns or leases a Principal Property and any other
Subsidiary which has not been designated an Unrestricted Subsidiary. "Principal
Property" means any real or personal property owned or leased by the Company or
any Subsidiary the net book value of which on the date as of which the
determination is being made exceeds 2% of the Consolidated Net Tangible Assets
of the Company and its Restricted Subsidiaries, provided that Principal Property
shall not include any real or personal property owned or leased by the Company
or any Subsidiary which the Company's Board of Directors has in good faith
determined pursuant to a written resolution is not material, either singly or
together with all other real and personal property owned or leased by all
Unrestricted Subsidiaries, to the Company and its Subsidiaries, taken as a
whole.
RANKING
The indebtedness evidenced by the Notes will rank pari passu in right of
payment with all other senior, unsecured indebtedness of the Company, but will
be effectively subordinated to indebtedness of the Company's
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<PAGE> 26
subsidiaries. In addition, the indebtedness evidenced by the Notes will be
effectively subordinated to any senior, secured indebtedness of the Company to
the extent of the value of the assets securing such indebtedness.
OPTIONAL REDEMPTION
The Notes will be redeemable, as a whole or in part, at the option of the
Company at any time, at a redemption price (a "Redemption Price") equal to the
greater of (i) 100% of the principal amount of such Notes and (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
thereon discounted to the redemption date (the "Redemption Date") on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate plus 15 basis points, plus, in each case, accrued interest
thereon to the Redemption Date.
"Treasury Rate" means, with respect to any Redemption Date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of a comparable maturity to the
remaining term of such Notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with the
Company.
"Comparable Treasury Price" means, with respect to any Redemption Date, (A)
the average of the Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any Redemption Date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 3:30 p.m., New York time, on the third
Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lazard Freres & Co. LLC, Chase
Securities Inc. and two other primary U.S. Government securities dealers in The
City of New York to be selected by the Company, and their respective successors.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Notes to be redeemed.
Unless the Company defaults in payment of the Redemption Price on and after
the Redemption Date, interest will cease to accrue on the Notes or portions
thereof called for redemption.
If less than all of the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed on a pro rata basis, by lot or by such other method as
the Trustee shall deem fair and appropriate. The Trustee may select for
redemption Notes and portions of Notes in amounts of whole multiples of $1,000.
BOOK-ENTRY DELIVERY AND FORM
GLOBAL NOTES
Except as set forth below, the Notes will initially be issued in the form
of one or more registered Notes in global form (the "Global Notes"). Each Global
Note will be deposited on the date of the closing of the sale of the Notes with,
or on behalf of, The Depository Trust Company ("DTC" or the "Depositary") and
registered in the name of Cede & Co., as nominee of DTC.
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<PAGE> 27
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" with the meaning
of the New York Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC holds
securities that its participants ("Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Underwriters with an interest in the
applicable Global Notes and (ii) ownership of the Notes evidenced by the Global
Notes will be shown on, and the transfer of that ownership will be effected only
through, records, maintained by the Depositary (with respect to Participants'
interests), the Participants and the Indirect Participants. The laws of some
states require that certain Persons take physical delivery in definitive form of
securities that they own and that security interests in negotiable instruments
can only be perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes evidenced by the Global Notes will
be limited to such extent.
So long as the Depositary or it nominee is the registered owner of a Note,
the Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by the Global Notes for all purposes
under the Indenture. Except as provided below, owners of beneficial interests in
a Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in certificated form ("Certificated Notes"), and will not be
considered the owners or holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. As a result, the ability of a Person having
a beneficial interest in Notes represented by a Global Note to pledge such
interest to Persons or entities that do not participate in the Depositary's
system, or to otherwise take actions with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Note represented by a Global Note registered in the name of the
Depositary or its nominee, on the applicable record date will be payable by the
Trustee to, or at the direction of, the Depositary or it nominee in its capacity
as the registered holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the Persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Notes (including principal, premium, if
any, or interest), or for immediately crediting the accounts of the relevant
Participants with such payment, in amount proportionate to their respective
holdings in principal amount of beneficial interests in the Global Note as shown
on the records of the Depositary. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
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CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that the Depositary is
unwilling, unable or ineligible to act as a depositary and the Company is unable
to locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
certificated form under the Indenture, or (iii) any Event of Default has
occurred or is continuing, then, upon surrender by the Depositary of the
applicable Global Notes, Certificated Notes will be issued to each Person that
the Depositary identifies as the beneficial owner of the Notes represented by
such Global Notes. Upon any such issuance, the Trustee is required to register
such Certificated Notes in the name of such Person or Persons (or the nominee of
any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Direct Participant or Indirect Participant in identifying the
beneficial owners of the Notes, and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company will have no responsibility for the
performance by the Depositary or its Participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.
SAME-DAY FUNDS SETTLEMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. Payments in respect of Notes represented by Global Notes
(including principal, premium, if any, and interest) will be made in immediately
available funds to the accounts specified by the Depositary. With respect to
Notes represented by Certificated Notes, the Company will make all payments of
principal, premium, if any, and interest, by mailing a check to the registered
address of each Holder. The Notes will trade in the Depositary's Same-Day Funds
Settlement System until maturity, or until the Notes are issued in certificated
form, and secondary market trading activity in the Notes will therefore be
required by the Depositary to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Notes.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
CERTAIN COVENANTS
LIMITATION ON LIENS
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, incur any Lien upon property or assets of the Company or any
Restricted Subsidiary of the Company to secure Indebtedness without making, or
causing such Restricted Subsidiary to make, effective provision for securing the
Notes equally and ratably with (or prior to) such Indebtedness as to such
property for as long as such Indebtedness will be so secured unless such
Indebtedness is subordinate in right of payment to the Notes, in which case the
Notes will be secured prior to such Indebtedness as to such property for as long
as such Indebtedness will be so secured.
The foregoing restrictions will not apply to (a) Permitted Liens or (b)
Liens securing Indebtedness if, after giving pro forma effect to the Incurrence
of such Indebtedness (and the receipt and application of the proceeds therefrom)
or the securing of outstanding Indebtedness, the sum of (without duplication)
(A) all Indebtedness (valued at the lesser of the outstanding obligation of such
secured Indebtedness or the fair market value of the properties securing such
Indebtedness) of the Company and its Restricted Subsidiaries secured by Liens
(other than Permitted Liens) and (B) all Attributable Indebtedness (other than
Attributable Indebtedness secured by Liens that are Permitted Liens under clause
(i) of the definition thereof or permitted under clause (ii) below under
"Limitation on Sale and Leaseback Transactions") of the Company and its
Restricted Subsidiaries in respect of
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Sale and Leaseback Transactions, at the time of determination, does not exceed
15% of Consolidated Net Tangible Assets.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, enter into any Sale and Leaseback Transaction unless (i) the Company
or such Restricted Subsidiary would be entitled to create a Lien securing
Indebtedness in an amount equal to the Attributable Indebtedness with respect to
such Sale and Leaseback Transaction without securing the Notes or (ii) the
Company or such Restricted Subsidiary, within six months from the effective date
of such Sale and Leaseback Transaction, applies to the voluntary defeasance,
prepayment (in whole or in part) or retirement (excluding retirement of Notes
and other Indebtedness ranking pari passu with the Notes as a result of
conversion or pursuant to mandatory sinking fund or mandatory prepayment
provisions or by payment at maturity) of Notes or other Indebtedness ranking
senior to or pari passu with the Notes an amount equal to the Attributable
Indebtedness in respect of such Sale and Leaseback Transaction.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not, in a single transaction or through a series of
transactions, consolidate, amalgamate or combine with or merge with or into or,
directly or indirectly, sell, assign, convey, lease, transfer or otherwise
dispose of all or substantially all of its properties and assets to any Person
or Persons, and the Company will not permit any of the Restricted Subsidiaries
to enter into any such transaction or series of transactions if such transaction
or series of transactions, in the aggregate, would result in the sale,
assignment, conveyance, lease, transfer or disposition of all or substantially
all of the properties and assets of the Company and its Restricted Subsidiaries
taken as a whole, to any Person or Persons, unless at the time and after giving
effect thereto (a) either (i) the Company shall be the continuing Person in the
case of a merger or consolidation or (ii) the resulting, surviving or transferee
Person, if other than the Company (the "Successor Company"), shall be a
corporation organized and existing under the laws of the United States, any
state thereof or the District of Columbia and shall expressly assume by a
supplemental indenture all of the obligations of the Company under the Notes and
the Indenture, and in each case, the Indenture shall remain in full force and
effect; (b) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness Incurred or anticipated to be Incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event of
Default would occur or be continuing and the Company shall have delivered to the
Trustee an officer's certificate to that effect; and (c) the Company or the
Successor Company, as the case may be, shall have delivered to the Trustee an
officer's certificate and an opinion of counsel stating that such transaction or
series of transactions, and, if a supplemental indenture is required in
connection with such transaction or series of transactions to effectuate such
assumption, such supplemental indenture, complies with this covenant and that
all conditions precedent in the Indenture relating to the transaction or series
of transactions have been satisfied. Notwithstanding the foregoing, any
Restricted Subsidiary may consolidate, amalgamate or combine with or merge with
or into or, directly or indirectly, sell, assign, convey, lease, transfer or
otherwise dispose of all or substantially all of its properties and assets to
the Company or, subject to the condition set forth in clause (b) in the
preceding sentence, to any other Restricted Subsidiary.
EVENTS OF DEFAULT AND REMEDIES
The following events are "Events of Default" with respect to the Notes:
(a) Default in the payment of any installment of interest on any Note as
and when the same shall become due and payable and continuance of such
default for a period of 30 days;
(b) Default in the payment of all or any part of the principal or
premium, if any, with respect to any Note as and when the same shall become
due and payable, whether at maturity, upon redemption, by declaration, upon
required purchase or otherwise;
(c) Failure on the part of the Company to comply with the provisions of
the Indenture relating to consolidations, mergers or sales of all or
substantially all of its assets;
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(d) Failure on the part of the Company or any Restricted Subsidiary duly
to observe or perform any other of the covenants or agreements on the part
of the Company or any Restricted Subsidiary in the Indenture or the Notes
continuing for a period of 60 days after the date on which written notice
to the Company specifying such failure and requiring the Company or any
Restricted Subsidiary to remedy the same shall have been given to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in aggregate principal amount of the Notes at the time
outstanding;
(e) Indebtedness of the Company or any Restricted Subsidiary of the
Company is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default, the total
amount of such Indebtedness unpaid or accelerated exceeds $20 million at
the time and such default remains uncured or such acceleration is not
rescinded for 10 days;
(f) Certain voluntary or involuntary events of bankruptcy, insolvency or
reorganization of the Company or any of its "Significant Subsidiaries"
(defined as any subsidiary of the Company that would be a "significant
subsidiary" as defined in Rule 405 under the Securities Act as in effect on
the date of the Indenture); and
(g) Any final judgment or decree for the payment of money in excess of
$20 million at the time is entered against the Company or any Significant
Subsidiary of the Company by a court or courts of competent jurisdiction,
which judgment is not covered by insurance, and is not discharged and
either (A) an enforcement proceeding has been commenced by any creditor
upon such judgment or decree or (B) there is a period of 60 days following
the entry of such judgment or decree during which such judgment or decree
is not discharged, vacated, waived or the execution thereof stayed.
If an Event of Default described in clause (a), (b), (c), (d), (e) or (g)
above occurs and is continuing, unless the principal and interest with respect
to the Notes shall have already become due and payable, either the Trustee or
the Holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare the principal amount of and interest on all the Notes
due and payable immediately. If an Event of Default described in clause (f)
above occurs, unless the principal and interest with respect to all the Notes
have become due and payable, the principal amount of and interest on the Notes
then outstanding shall become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
In the event of a declaration of acceleration because of an Event of
Default set forth in clause (e) 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 (e) above
shall be remedied or cured by the Company or the relevant 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 occurs and is continuing, the Trustee shall be
entitled and empowered to institute any action or proceeding for the collection
of the sums so due and unpaid or to enforce the performance of any provision of
the Notes or the Indenture, to prosecute any such action or proceeding to
judgment or final decree, and to enforce any such judgment or final decree
against the Company or any other obligor on the Notes. In addition, if there
shall be pending proceedings for the bankruptcy or reorganization of the Company
or if a receiver, trustee, or similar official shall have been appointed for its
property, the Trustee shall be entitled and empowered to file and prove a claim
for the whole amount of principal, premium, if any, and interest owing and
unpaid with respect to the Notes. No Holder shall have any right to institute
any action or proceeding upon or under or with respect to the Indenture, for the
appointment of a receiver or trustee, or for any other remedy, unless (a) such
Holder previously shall have given to the Trustee written notice of an Event of
Default with respect to the Notes and of the continuance thereof, (b) the
Holders of not less than 25% in aggregate principal amount of the outstanding
Notes shall have made written request to the Trustee to institute such action or
proceeding with respect to such Event of Default and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses,
and liabilities to be incurred therein or thereby, and (c) the Trustee, for 60
days after its receipt of such notice, request, and offer of indemnity shall
have failed to institute such action or proceeding and no direction inconsistent
with such written request shall have been given to the Trustee pursuant to the
provisions of the Indenture.
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Prior to the acceleration of the maturity of the Notes, the Holders of a
majority in aggregate principal amount of the Notes at the time outstanding may,
on behalf of the holders of all Notes, waive any past default or Event of
Default and its consequences for that series, except (a) a default in the
payment of the principal, premium, if any, interest with respect to the Notes or
(b) a default with respect to a provision of the Indenture that cannot be
amended without the consent of each Holder affected thereby. In case of any such
waiver, such default shall cease to exist, any Event of Default arising
therefrom shall be deemed to have been cured for all purposes, and the Company,
the Trustee, and the Holders shall be restored to their former positions and
rights under the Indenture.
The Trustee shall, within 90 days after the occurrence of a default known
to it with respect to the Notes, give to the Holders notice of all uncured
defaults with respect to the Notes known to it, unless such defaults shall have
been cured or waived before the giving of such notice; provided, however, that
except in the case of default in the payment of principal, premium, if any, or
interest with respect to the Notes, the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the Holders.
MODIFICATION OF THE INDENTURE
The Company and the Trustee may enter into supplemental Indentures without
the consent of the Holders for one or more of the following purposes:
(a) To evidence the succession of another Person to the Company pursuant
to the provisions of the Indenture relating to consolidations,
amalgamations, combinations, mergers, and sales of assets and the
assumption by such successor of the covenants, agreements, and obligations
of the Company in the Indenture and in the Notes;
(b) To surrender any right or power conferred upon the Company by the
Indenture, to add to the covenants of the Company such further covenants,
restrictions, conditions, or provisions for the protection of the Holders
as the Board of Directors of the Company shall consider to be for the
protection of the Holders, and to make the occurrence, or the occurrence
and continuance, of a default in any of such additional covenants,
restrictions, conditions, or provisions a default or an Event of Default
under the Indenture (provided, however, that with respect to any such
additional covenant, restriction, condition, or provision, such
supplemental Indenture may provide for a period of grace after default,
which may be shorter or longer than that allowed in the case of other
defaults, may provide for an immediate enforcement upon such default, may
limit the remedies available to the Trustee upon such default, or may limit
the right of Holders of a majority in aggregate principal amount of the
Notes to waive such default);
(c) To cure any ambiguity or to correct or supplement any provision
contained in the Indenture, in any supplemental Indenture, or in the Notes
that may be defective or inconsistent with any other provision contained
therein, to convey, transfer, assign, mortgage, or pledge any property to
or with the Trustee, or to make such other provisions in regard to matters
or questions arising under the Indenture as shall not adversely affect the
interests of any Holders;
(d) To modify or amend the Indenture in such a manner as to permit the
qualification of the Indenture or any supplemental Indenture under the
Trust Indenture Act as then in effect;
(e) To comply with the provisions of the Indenture relating to
consolidations, amalgamations, combinations, mergers, and sales of assets;
(f) To add guarantees with respect to the Notes or to secure the Notes;
(g) To make any change that does not adversely affect the rights of any
Holder; and
(h) To evidence and provide for the acceptance of appointment by a
successor or separate Trustee with respect to the Notes and to add to or
change any of the provisions of the Indenture as shall be necessary to
provide for or facilitate the administration of the Indenture by more than
one Trustee.
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With the consent of the Holders of a majority in aggregate principal amount
of the outstanding Notes, the Company and the Trustee may from time to time and
at any time enter into a supplemental Indenture for the purpose of adding any
provisions to, changing in any manner, or eliminating any of the provisions of
the Indenture or of any supplemental Indenture or modifying in any manner the
rights of the Holders; provided, however, that without the consent of the
Holders of each Note so affected, no such supplemental Indenture shall (a)
reduce the percentage in principal amount of Notes whose Holders must consent to
an amendment, (b) reduce the rate of or extend the time for payment of interest
on the Notes or reduce the amount of any payment of interest on the Notes, (c)
reduce the principal of or extend the Stated Maturity of the Notes, (d) reduce
the premium payable upon the redemption of the Notes or change the time at which
the Notes may or shall be redeemed, (e) make the Notes payable in a currency
other than U.S. dollars, (f) release any security that may have been granted
with respect to the Notes, or (g) make any change in the provisions of the
Indenture relating to waivers of defaults or amendments that require unanimous
consent.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Indenture shall generally cease to be of any further effect with
respect to the Notes if (a) the Company has delivered to the Trustee for
cancellation all the Notes (with certain limited exceptions) or (b) all Notes
not theretofore delivered to the Trustee for cancellation shall have become due
and payable, or are by their terms to become due and payable within one year or
are to be called for redemption within one year, and the Company shall have
deposited with the Trustee as trust funds the entire amount sufficient (in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee) without
consideration of any reinvestment and after payment of all taxes or other
charges and assessments in respect thereof payable by the Trustee, to pay at
maturity or upon redemption all such Notes and any interest thereon, no default
with respect to the Notes has occurred and is continuing on the date of such
deposit, such deposit does 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 and the Company delivers to the Trustee an officers'
certificate and opinion of counsel each stating that such conditions have been
complied with (and if, in either case, the Company shall also pay or cause to be
paid all other sums payable under the Indenture by the Company).
In addition, the Company shall have a "legal defeasance option" (pursuant
to which it may terminate, with respect to the Notes, all of its obligations
under the Notes and the Indenture) and a "covenant defeasance option" (pursuant
to which it may terminate, with respect to the Notes, its obligations with
respect to the Notes under certain specified covenants contained in the
Indenture). If the Company exercises its legal defeasance option with respect to
the Notes, payment of the Notes may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option with respect to
the Notes, payment of the Notes may not be accelerated because of an Event of
Default related to the specified covenants.
The Company may exercise its legal defeasance option or its covenant
defeasance option with respect to the Notes if (a) the Company irrevocably
deposits in trust with the Trustee cash or U.S. Government Obligations (as
defined in the Indenture) for the payment of principal, premium, if any, and
interest with respect to the Notes to maturity or redemption, as the case may
be, (b) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal, premium, if any, and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any deposited
money without investment will provide cash at such times and in such amounts as
will be sufficient to pay the principal, premium, if any, and interest when due
with respect to all the Notes to maturity or redemption, as the case may be, (c)
91 days pass after the deposit is made and during the 91-day period no default
described in clause (f) under " -- Events of Default and Remedies" with respect
to the Company occurs that is continuing at the end of such period, (d) no
Default or Event of Default has occurred and is continuing on the date of such
deposit and after giving effect thereto, (e) the deposit does not constitute a
default under the Indenture or any other agreement binding on the Company, (f)
the Company delivers to the Trustee an opinion of counsel to the effect that the
trust resulting from the deposit does not constitute, or is qualified or exempt
as, a regulated investment company under the Investment Company Act of 1940, as
amended, (g) the Company delivers to the Trustee an opinion of counsel
addressing certain Federal income tax matters relating to the
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defeasance, and (h) the Company delivers to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes as contemplated by the Indenture have been
complied with.
The Trustee shall hold in trust cash or U.S. Government Obligations
deposited with it as described above and shall apply the deposited cash and the
proceeds from deposited U.S. Government Obligations to the payment of principal,
premium, if any, and interest with respect to the Notes.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder 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.
The Indenture and the provisions of the TIA incorporated by reference
therein contain limitations on the rights of the Trustee thereunder, 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 (as
defined in the Indenture) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York, without regard to the principles of conflicts of law.
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 a full definition of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
"Attributable Indebtedness" is defined to mean, when used in connection
with a Sale and Leaseback Transaction referred to in the "Limitation on Sale and
Leaseback Transactions" covenant described above, at any date of determination,
the present value (discounted according to GAAP at the cost of indebtedness
implied in the lease) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such Sale and Leaseback
Transaction (including any period for which such lease has been extended).
"Board of Directors" is defined to mean either the Board of Directors of
the Company or any duly authorized committee or subcommittee of such Board,
except as the context may otherwise require.
"Business Day" is defined to mean any day that is not a Saturday, a Sunday
or a day on which banking institutions or trust companies in New York City are
authorized or obligated by law to close.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests (including partnership interests) in (however
designated) the equity of such Person, including any Preferred Stock, but
excluding any debt securities convertible into such equity.
"Capitalized Lease Obligation" is defined to mean, as applied to any
Person, any obligation that is required to be classified and accounted for as a
capitalized lease for financial reporting purposes in accordance with GAAP; and
the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
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"Common Stock" of any Person is defined to mean capital stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated Net Tangible Assets" is defined to mean, as of any date, the
total amount of assets of the Company and its Restricted Subsidiaries on a
consolidated basis at the end of the fiscal quarter immediately preceding such
date, as determined in accordance with GAAP, less (i) Intangible Assets and (ii)
appropriate adjustments on account of minority interests of other Persons
holding equity investments in Restricted Subsidiaries, in the case of each of
clauses (i) and (ii) above as reflected on the consolidated balance sheet of the
Company and its Restricted Subsidiaries as of the end of the fiscal quarter
immediately preceding such date.
"Exchange Act" is defined to mean the United States Securities Exchange Act
of 1934, as amended.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect on the Issue Date.
"Hedging Obligations" of any Person is defined to mean the obligations of
such Person pursuant to any interest rate protection agreement, currency
exchange protection agreement, commodity price protection agreement or other
similar agreement.
"Holder" is deemed to mean the registered holder of any Note.
"Incur" is defined to mean, issue, assume, guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such Person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. The terms "Incurred," "Incurrence" and "Incurring" shall each have a
correlative meaning.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), indebtedness for borrowed money or
indebtedness evidenced by bonds, notes, debentures or other similar instruments
given to finance the acquisition of any businesses, properties or assets of any
kind (including, without limitation, capital stock or other equity interests in
any Person).
"Intangible Assets" is defined to mean all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights, write-ups of assets over their carrying value at
the end of the last fiscal quarter ended prior to the Issue Date or the date of
acquisition, if acquired subsequent thereto, and all other items which would be
treated as intangibles on the consolidated balance sheet of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP.
"Issue Date" is defined to mean the date on which the Notes are originally
issued under the Indenture.
"Lien," with respect to any property or assets, is defined to mean any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing), but not
including the interest of a lessor under a lease that is an operating lease
under GAAP.
"Permitted Liens" is defined to mean, with respect to any Person, (a) Liens
existing on or provided for under the terms of agreements existing on the Issue
Date; (b) Liens on property at the time the Company or any of its Restricted
Subsidiaries acquired the property or the entity owning such property, including
any acquisition by means of a merger, amalgamation, combination or consolidation
with or into the Company; provided, however, that any such Lien may not extend
to any other property owned by the Company or any of its Restricted
Subsidiaries; (c) Liens on accounts receivable, inventory or containers,
returnable packaging cases to secure
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working capital or revolving credit indebtedness incurred in the ordinary course
of business; (d) Purchase Money Liens and Liens arising in connection with
Capitalized Lease Obligations that do not arise in connection with Sale and
Leaseback Transactions; (e) Liens securing only Indebtedness of a Wholly-Owned
Restricted Subsidiary of the Company to the Company or one or more Wholly-Owned
Restricted Subsidiaries of the Company; (f) Liens resulting from the deposit of
funds or evidences of Indebtedness in trust for the purpose of defeasing
Indebtedness of the Company or any of its Restricted Subsidiaries; (g) legal or
equitable encumbrances deemed to exist by reason of negative pledges; (h) Liens
on property or shares of stock of another Person at the time such other Person
becomes a Restricted Subsidiary of such Person; provided, however, that such
Liens are not created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming such a Restricted Subsidiary of
such Person; provided further, however, that such Lien may not extend to any
other property owned by such Person or any of its Restricted Subsidiaries; (i)
Liens arising in connection with Capitalized Lease Obligations in Sale and
Leaseback Transactions with respect to which the Attributable Indebtedness
outstanding at any time shall not exceed $25 million in the aggregate; and (j)
Liens to secure any refinancing, refunding, extension, substitution, renewal or
replacement (or successive refinancings, refundings, extensions, substitutions,
renewals or replacements), as a whole, or in part, of any Indebtedness secured
by any Lien referred to in the foregoing clauses (a) through (h); provided,
however, that (i) such new Lien shall be limited to all or part of the same
property that secured the original Lien (plus improvements on or to such
property) and (ii) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (A) the outstanding principal
amount or, if greater, committed amount of the Indebtedness described under
clauses (a) through (h) at the time the original Lien became a Permitted Lien
under this Indenture and (B) any amount necessary to pay any fees and expenses,
including premiums, related to such refinancing, refunding, extension, removal
or replacement.
"Person" is defined to mean any individual, corporation, partnership, joint
venture, trust, unincorporated organization, government or any agency or
political subdivision thereof.
"Preferred Stock" is defined to mean, 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,
whether now outstanding or issued after the date of the Indenture, including,
without limitation, all series and classes of such preferred or preference
stock.
"Purchase Money Lien" is defined to mean a Lien on property securing
Indebtedness Incurred by the Company or any of its Restricted Subsidiaries to
provide funds for all or any portion of the cost of acquiring, constructing,
altering, expanding, improving or repairing such property or assets used in
connection with such property.
"Related Person" of any Person is defined to mean any other Person that
owns, or any controlling Affiliate of any other Person that owns, (a) 5% or more
of the outstanding Common Stock of such Person or (b) 5% or more of the Voting
Stock of such Person.
"Sale and Leaseback Transaction" of any Person is defined to mean an
arrangement with any lender or investor or to which such lender or investor is a
party providing for the leasing by such Person of any property or asset of such
Person which has been or is being sold or transferred by such Person more than
180 days after the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any Person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset. The Stated Maturity of such arrangement will
be the date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be terminated
by the lessee without payment of a penalty. Notwithstanding the foregoing,
neither (a) a transaction involving a lease with a term of less than three years
or (b) a transaction between the Company and a Restricted Subsidiary of the
Company or between Restricted Subsidiaries of the Company shall be deemed a Sale
and Leaseback Transaction.
"Securities Act" is defined to mean the Securities Act of 1933, as amended.
"Stated Maturity" is defined to mean, when used with respect to any
security, the date specified in such security as the fixed date on which the
payment of principal of such security is due and payable, including
34
<PAGE> 36
pursuant to any mandatory redemption provision (but excluding any provision
providing for the repurchase of such security at the option of the holder
thereof upon the happening of any contingency beyond the control of the issuer
unless such contingency has occurred).
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association, partnership or other business entity of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person, or (iii) one or more Subsidiaries of such Person.
"Voting Stock" is defined to mean Capital Stock of any class or kind
ordinarily having the power to vote for the election of directors of the
Company.
"Wholly-Owned Restricted Subsidiary" is defined to mean, with respect to
any Person, any Restricted Subsidiary of such Person if all of the Common Stock
or other similar equity ownership interests (but not including Preferred Stock)
in such Restricted Subsidiary (other than any directors' qualifying shares or
shares issued to Persons to comply with local laws) is owned directly or
indirectly by such Person.
35
<PAGE> 37
UNDERWRITING
Under the terms and conditions of the Underwriting Agreement, the Company
has agreed to sell to each of the Underwriters named below, and each of such
Underwriters has severally agreed to purchase from the Company, the respective
principal amount of Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Lazard Freres & Co. LLC.....................................
Chase Securities Inc........................................
Total.............................................
--------
========
</TABLE>
The Underwriting Agreement provides that the several obligations of the
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to purchase all Notes if any are
purchased.
The Company has been advised by the Underwriters that the Underwriters
propose initially to offer the Notes offered hereby directly to the public at
the public offering price set forth on the cover page of this prospectus and to
certain dealers at such price less a concession not in excess of % of the
principal amount of the Notes. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of % of the amount of the Notes to
other Underwriters or to certain other dealers. After this offering, the public
offering price and such concessions may be changed by the Underwriters.
The expenses of this offering (exclusive of Underwriters' discount) are
estimated at $ and are payable by the Company.
The Notes are a new issue of securities with no established trading market.
The Company intends to apply for listing of the Notes on the New York Stock
Exchange. In the event the Notes are not so listed, the Underwriters have
indicated that they intend to make a market in the Notes, subject to applicable
laws and regulations. However, the Underwriters are not obligated to do so and
any such market making may be discontinued at any time, without notice, at their
sole discretion. Accordingly, no assurance can be given as to the liquidity of
the trading market for the Notes.
The Company has agreed that, subject to certain limited exceptions, during
the period beginning on the date of this prospectus and continuing to and
including the date 90 days after the date of this prospectus, it will not offer,
sell, contract to sell, or otherwise dispose of any securities of the Company
that are substantially similar to the Notes without the prior written consent of
the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
In connection with this offering, the Underwriters may effect transactions
which stabilize or maintain the market prices of the Notes at levels above those
which might otherwise prevail in the open market. Such transactions may be
effected on the New York Stock Exchange or otherwise. Such stabilizing, if
commenced, may be discontinued at any time.
Lazard Freres & Co. LLC and Chase Securities Inc. and their affiliates have
engaged and may in the future engage in various general financing and banking
transactions with the Company and its affiliates.
EXPERTS
The consolidated financial statements and schedule of Pioneer Hi-Bred
International, Inc. and subsidiaries as of August 31, 1998 and 1997, and for
each of the years in the three-year period ended August 31, 1998, have been
included herein and/or incorporated by reference herein and in the registration
statement in reliance upon
36
<PAGE> 38
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
included herein and/or incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
LEGAL MATTERS
Baker & Hostetler LLP, Cincinnati, Ohio, will pass upon the legality of the
Notes offered hereby for the Company. Fried, Frank, Harris, Shriver & Jacobson
(a partnership including professional corporations), New York, New York, will
pass upon certain legal matters for the Underwriters. Fried, Frank, Harris,
Shriver & Jacobson from time to time performs legal services for the Company.
Baker & Hostetler LLP may rely as to matters of New York law upon the opinion of
Fried, Frank, Harris, Shriver & Jacobson. Fried, Frank, Harris, Shriver &
Jacobson may rely as to matters of Iowa law upon the opinion of Leon R. Shearer,
Vice President and General Counsel for the Company.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the Company
may 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 Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Information regarding the operation
of the Public Reference Section of the Commission may be obtained by calling the
Commission at 1 (800) SEC-6330. The Commission maintains a World Wide Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that submit
electronic filings to the Commission. Such material may also be inspected and
copied at the offices of the New York Stock Exchange, on which the Common Stock
of the Company is listed, at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits thereto, referred to as
the "Registration Statement") under the Act, with respect to the Notes offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Notes offered by this Prospectus, reference is
made to the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete; and with respect to each such contract, agreement or other
document filed, or incorporated by reference, as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved and each such statement shall be deemed qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1998, as amended by Form 10-K/A dated December 18, 1998; and
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1998, dated January 7, 1999.
All documents filed by the Company pursuant to Sections 13 (a), 13 (c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Notes shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such
37
<PAGE> 39
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 the Registration Statement or this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all documents which have been incorporated by reference herein, other
than exhibits to such documents which are not specifically incorporated by
reference therein. Requests should be directed to Pioneer Hi-Bred International,
Inc., Attn: William J. DeMeulenaere, 800 Capital Square, 400 Locust Street, Des
Moines, Iowa 50309 (Telephone: (515) 248-4800).
38
<PAGE> 40
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of August 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Income for the years ended August
31, 1998, 1997 and 1996................................... F-4
Consolidated Statements of Cash Flows for the years ended
August 31, 1998, 1997 and 1996............................ F-5
Consolidated Statements of Shareholders' Equity for the
years ended August 31, 1998, 1997 and 1996................ F-6
Notes to Consolidated Financial Statements.................. F-8
Consolidated Condensed Balance Sheets -- November 30, 1998,
August 31, 1998 and November 30, 1997..................... F-21
Consolidated Condensed Statements of Operations -- Three
Months Ended November 30, 1998 and 1997................... F-22
Consolidated Condensed Statements of Cash Flows -- Three
Months Ended November 30, 1998 and 1997................... F-23
Notes to Consolidated Condensed Financial Statements........ F-24
</TABLE>
F-1
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Pioneer Hi-Bred International, Inc.:
We have audited the accompanying consolidated balance sheets of Pioneer
Hi-Bred International, Inc. and subsidiaries as of August 31, 1998 and 1997, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended August 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pioneer
Hi-Bred International, Inc. and subsidiaries as of August 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended August 31, 1998, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Des Moines, Iowa
September 18, 1998
F-2
<PAGE> 42
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
------------------
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 86 $ 97
Receivables
Trade................................................... 346 256
Other................................................... 54 45
Inventories............................................... 481 440
Deferred income taxes..................................... 69 57
Other current assets...................................... 3 6
------ ------
Total current assets............................... $1,039 $ 901
------ ------
LONG-TERM ASSETS............................................ $ 47 $ 93
------ ------
PROPERTY AND EQUIPMENT
Land and land improvements................................ $ 66 $ 64
Buildings................................................. 387 377
Machinery and equipment................................... 580 539
Construction in progress.................................. 63 60
------ ------
$1,096 $1,040
Less accumulated depreciation............................. 520 495
------ ------
$ 576 $ 545
------ ------
INTANGIBLES................................................. $ 55 $ 64
------ ------
$1,717 $1,603
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings..................................... $ 76 $ 91
Current maturities of long-term debt...................... 14 6
Accounts payable, trade................................... 81 85
Accrued compensation...................................... 61 60
Income taxes payable...................................... 46 26
Other..................................................... 67 61
------ ------
Total current liabilities.......................... $ 345 $ 329
------ ------
LONG-TERM DEBT.............................................. $ 5 $ 19
------ ------
DEFERRED ITEMS
Retirement benefits....................................... $ 94 $ 80
Income taxes.............................................. 19 20
------ ------
$ 113 $ 100
------ ------
CONTINGENCIES
MINORITY INTEREST IN SUBSIDIARIES........................... $ 7 $ 7
------ ------
SHAREHOLDERS' EQUITY
Capital stock
Preferred, authorized 10,000,000 shares; issued none.... $ -- $ --
Common, $1 par value; authorized 600,000,000 shares;
issued 1998 -- 229,945,014 shares; 1997 -- 278,846,889
shares................................................ 230 93
Class B common, $1 stated value; authorized 120,000,000
shares; issued 1998 -- 49,333,758 shares;
1997 -- none.......................................... 49 --
Additional paid-in capital................................ 246 43
Retained earnings......................................... 1,428 1,436
Unrealized (loss) gain on available-for-sale securities,
net..................................................... (2) 19
Cumulative translation adjustment......................... (44) (26)
------ ------
$1,907 $1,565
Less
Cost of common shares acquired for the treasury,
1998 -- 38,951,380 shares; 1997 -- 32,178,084
shares................................................ (631) (393)
Unearned compensation................................... (29) (24)
------ ------
$1,247 $1,148
------ ------
$1,717 $1,603
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 43
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET SALES................................................... $1,835 $1,784 $1,721
------ ------ ------
Operating costs and expenses
Cost of goods sold........................................ $ 789 $ 771 $ 727
Research and product development.......................... 155 146 136
Selling................................................... 395 374 382
General and administrative................................ 137 130 129
------ ------ ------
$1,476 $1,421 $1,374
------ ------ ------
Operating income.......................................... $ 359 $ 363 $ 347
Investment income........................................... 45 22 22
Interest expense............................................ (13) (8) (11)
Net exchange and other gains (losses)....................... 16 (4) (4)
------ ------ ------
Income before items below................................. $ 407 $ 373 $ 354
Provision for income taxes.................................. (134) (127) (127)
Minority interest and other................................. (3) (3) (4)
------ ------ ------
Net income................................................ $ 270 $ 243 $ 223
====== ====== ======
Preferred stock dividend.................................... $ 9 $ -- $ --
Net income available to common shareholders................. $ 261 $ 243 $ 223
Net income per common share
Basic..................................................... $ 1.13 $ .98 $ .89
Diluted................................................... $ 1.08 $ .98 $ .89
Average shares outstanding
Basic..................................................... 231.5 246.9 249.5
Diluted................................................... 250.3 247.5 249.8
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 44
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------------
1998 1997 1996
------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 270 $ 243 $ 223
Noncash items included in net income
Depreciation and amortization.......................... 90 89 77
Provision for doubtful accounts........................ 6 6 5
Gain on disposal of assets............................. (24) (5) (4)
Other noncash items, net............................... (5) 7 1
Change in assets and liabilities, net
Receivables............................................ (108) (77) (46)
Inventories............................................ (62) (72) 43
Accounts payable and accrued expenses.................. 4 (4) 61
Income taxes payable................................... 20 (38) 40
Other assets and liabilities........................... 49 27 (11)
------- ----- -----
Net cash provided by operating activities.............. $ 240 $ 176 $ 389
------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets.............................. $ 50 $ 29 $ 15
Capital expenditures...................................... (119) (127) (116)
Technology investments.................................... (9) (24) (48)
Other, net................................................ (12) (7) 5
------- ----- -----
Net cash used in investing activities.................. $ (90) $(129) $(144)
------- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings (payments)...................... $ (7) $ 81 $ (42)
Proceeds from long-term borrowings........................ 1 -- 1
Principal payments on long-term borrowings................ (6) (11) (55)
Purchase of common stock.................................. (1,756) (25) (62)
Issuance of common and convertible preferred stock........ 1,706 -- --
Cash dividends paid....................................... (92) (79) (69)
------- ----- -----
Net cash used in financing activities.................. $ (154) $ (34) $(227)
------- ----- -----
Effect of foreign currency exchange rate changes on cash and
cash equivalents.......................................... $ (7) $ (15) $ (3)
------- ----- -----
Net increase (decrease) in cash and cash equivalents... $ (11) $ (2) $ 15
Cash and cash equivalents, beginning........................ 97 99 84
------- ----- -----
CASH AND CASH EQUIVALENTS, ENDING........................... $ 86 $ 97 $ 99
======= ===== =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments
Interest............................................... $ 12 $ 7 $ 14
Income taxes........................................... $ 129 $ 158 $ 93
Noncash investing and financing activities
Technology investments acquired by the issuance of
long-term debt and the assumption of liabilities..... $ -- $ 10 $ 20
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 45
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
PREFERRED STOCK
Balance, beginning........................................ $ -- $ -- $ --
Issuance of 164,446 shares............................. 16 -- --
Conversion of 164,446 shares to Class B common stock... (16) -- --
------ ------ ------
Balance, ending........................................... $ -- $ -- $ --
------ ------ ------
COMMON STOCK
Balance, beginning........................................ $ 93 $ 93 $ 93
Issuance for restricted stock plan: (1998 -- 496,266
shares; 1997 -- 766,155 shares; 1996 -- none)........ -- -- --
Issuance of 153,296,674 shares in connection with a
three-for-one stock split effected in the form of a
200% stock dividend.................................. 153 -- --
Repurchase of common stock (1998 -- 49,398,135 shares;
1997 and 1996 -- none)............................... (16) -- --
------ ------ ------
Balance ending............................................ $ 230 $ 93 $ 93
------ ------ ------
CLASS B COMMON STOCK
Balance, beginning........................................ $ -- $ -- $ --
Conversion of preferred shares......................... 16 -- --
Issuance of 32,889,172 shares in connection with a
three-for-one stock split effected in the form of a
200% stock dividend.................................. 33 -- --
------ ------ ------
Balance, ending........................................... $ 49 $ -- $ --
------ ------ ------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning........................................ $ 43 $ 23 $ 18
Common stock issued from treasury for restricted stock
plan................................................. -- 18 3
Common stock issued for restricted stock plan.......... 17 -- --
Issuance of common and preferred stock................. 1,690 -- --
Repurchase of common stock............................. (1,507) -- --
Tax benefits related to restricted stock plan.......... 3 2 2
------ ------ ------
Balance, ending........................................... $ 246 $ 43 $ 23
------ ------ ------
RETAINED EARNINGS
Balance, beginning........................................ $1,436 $1,272 $1,118
Net income............................................. 270 243 223
Cash dividends on common stock (1998 -- $.37 per share;
1997 -- $.32 per share; 1996 -- $.28 per share)...... (83) (79) (69)
Cash dividends on preferred stock (1998 -- $52.00 per
share; 1997 and 1996 -- none)........................ (9) -- --
Three-for-one stock split in the form of a 200% stock
dividend............................................. (186) -- --
------ ------ ------
Balance, ending........................................... $1,428 $1,436 $1,272
------ ------ ------
UNREALIZED (LOSS) GAIN ON AVAILABLE-FOR-SALE SECURITIES, NET
Balance, beginning........................................ $ 19 $ 11 $ --
Change in unrealized (loss) gain....................... (21) 8 11
------ ------ ------
Balance, ending........................................... $ (2) $ 19 $ 11
------ ------ ------
</TABLE>
F-6
<PAGE> 46
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, beginning........................................ $ (26) $ (3) $ 1
Current translation adjustment......................... (18) (23) (4)
------ ------ ------
Balance, ending........................................... $ (44) $ (26) $ (3)
------ ------ ------
TREASURY STOCK
Balance, beginning........................................ $ (393) $ (364) $ (303)
Purchase of common stock for the treasury
(1998 -- 6,627,800 shares; 1997 -- 1,107,000 shares;
1996 -- 3,446,700 shares)............................ (234) (25) (62)
Common stock issued from (acquired for) the treasury:
For restricted stock plan (1998 -- none;
1997 -- 52,566 shares; 1996 -- 391,077 shares).... -- -- 4
From restricted stock forfeitures and stock used to
satisfy withholding taxes (1998 -- 199,843 shares;
1997 -- 209,550 shares; 1996 -- 238,230 shares)... (4) (4) (3)
------ ------ ------
Balance, ending........................................... $ (631) $ (393) $ (364)
------ ------ ------
UNEARNED COMPENSATION
Balance, beginning........................................ $ (24) $ (14) $ (14)
Net additions of common stock to restricted stock
plan................................................. (17) (18) (6)
Amortization of unearned compensation.................. 12 8 6
------ ------ ------
Balance, ending........................................... $ (29) $ (24) $ (14)
------ ------ ------
TOTAL SHAREHOLDERS' EQUITY AT YEAR END...................... $1,247 $1,148 $1,018
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 47
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business -- The Company's business is the broad application of
the science of genetics. Pioneer was founded in 1926 to apply newly discovered
genetic techniques to hybridize corn. Today the Company develops, produces, and
markets hybrids of corn, sorghum, and sunflowers; varieties of soybeans,
alfalfa, wheat, and canola; and microorganisms useful in crop and livestock
production. Approximately 90 percent of the Company's total net sales are from
the sale of hybrid seed corn and soybean seed primarily within the regions of
North America and Europe.
Consolidation policy -- The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates.
Cash equivalents -- The Company considers all liquid investments with a
maturity at purchase of three months or less to be cash equivalents.
Receivables -- Receivables are stated net of an allowance for doubtful
accounts of $27 million and $23 million at August 31, 1998 and 1997,
respectively.
Inventories -- Inventories are valued at the lower of cost (first-in,
first-out method) or market. Independent growers are contracted to produce the
Company's finished seed inventory. In accordance with the contract, the Company
compensates growers with bushel equivalents that can be marketed to the Company
for the market price of grain for a period of time following harvest. The
Company uses derivative instruments such as commodity futures and options that
have a high correlation to the underlying commodity to hedge the commodity risk
involved in compensating growers. Commodity contracts the Company enters into
meet the criteria for hedge accounting and are accounted for on this basis. The
Company regularly monitors its exposures and ensures that commodity contract
amounts do not exceed the amounts of the underlying exposures. The Company does
not hold or issue commodity contracts for trading purposes.
It is the Company's policy to hedge commodity risk prior to setting the
retail price of seed. The hedge position gains or losses are accounted for as
inventory costs and expensed as cost of goods sold when the associated crop
inventory is sold. In the event of early settlement of hedge contracts, gains or
losses through that date continue to be deferred as a component of inventory. If
the contract ceases to meet the specific criteria for use of hedge accounting,
any deferred gains or losses through that date continue to be deferred; gains
and losses after that date are recognized in income. Cash flows arising in
respect to hedging transactions are recognized within the financial statements
under cash flows from operating activities.
Property and equipment -- Property and equipment is recorded at cost, net
of an allowance for loss on plant closings of $3 million and $4 million at
August 31, 1998 and 1997, respectively. Depreciation is computed primarily by
the straight-line method over estimated service lives of two to forty years.
Long-term assets -- Certain long-term assets were classified as
available-for-sale securities. Available-for-sale securities held at August 31,
1998, consisted of an equity security with a cost basis of $8 million and an
unrealized loss of $2 million. Available-for-sale securities held at August 31,
1997, consisted of an equity security with a cost basis of $20 million and an
unrealized gain of $30 million; this security was sold in 1998 for $40 million,
resulting in a gain on sale of $20 million.
The Company owns various other equity security investments which are not
publicly traded. Therefore, the fair value of these investments is not readily
available. The majority of these investments are due to collaborative
F-8
<PAGE> 48
agreements. As a result, it is not practicable to estimate the fair value of the
Company's other equity security investments. These investments are carried at
approximately $1 million, which is their original cost basis net of any
applicable valuation allowance.
Intangibles -- Intangible assets are stated at amortized cost and are
amortized by the straight-line method over one- to twenty-year periods, with the
weighted-average amortization period approximating eight years for the year
ended August 31, 1998. Accumulated amortization of $45 million and $38 million
at August 31, 1998 and 1997, respectively, has been netted against these assets.
Basis of accounting -- Subsidiary and asset acquisitions are accounted for
by the purchase method.
Translation of foreign currencies and foreign exchange hedging -- All
assets and liabilities in the balance sheets of foreign subsidiaries whose
functional currency is other than the U.S. dollar are translated at year-end
exchange rates. Translation gains and losses are not included in determining net
income but are accumulated as a separate component of shareholders' equity.
However, for subsidiaries considered to be operating in highly inflationary
countries and for certain other subsidiaries, the U.S. dollar is the functional
currency, and translation gains and losses are included in determining net
income. Foreign currency transaction gains and losses are included in
determining net income.
The Company uses a combination of derivative instruments such as forward
exchange contracts, purchased options, and cross currency swaps that have a high
correlation to the underlying currency to hedge future firm commitments such as
exports, contractual flows, and royalties. Foreign exchange contracts the
Company enters into meet the criteria for hedge accounting and are accounted for
on this basis. The Company regularly monitors its currency exposures and ensures
that currency contract amounts do not exceed the amounts of the underlying
exposures. The Company does not hold or issue foreign currency contracts for
trading purposes.
While derivative hedge instruments are subject to price fluctuations from
exchange and interest rate movements, these price changes would generally be
offset by changes in the U.S. dollar value of foreign sales and cash flows.
Therefore, hedging gains and losses on existing foreign-dominated payables or
receivables are included in other assets or liabilities and are recognized in
net exchange gain (loss) in conjunction with the revaluation of the
foreign-currency-dominated transaction. Unrealized gains and losses related to
qualifying hedges of firm sales and purchase commitments are deferred and
recognized in income when the future sales or purchases are recognized, or
immediately if the commitment is canceled. Option premiums paid are amortized to
income over the life of the contract.
Income taxes -- Income taxes are computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. Deferred income taxes have been
provided on temporary differences in the financial statement and income tax
bases of certain assets and liabilities.
Deferred taxes have not been recorded on $124 million in undistributed
earnings from foreign subsidiaries that have not been subjected to taxation in
the United States. The Company intends to reinvest such undistributed earnings
indefinitely or to repatriate them only to the extent that no additional income
tax liability is created. It is not practicable to estimate the income tax
liability that would be incurred if such earnings were distributed in a manner
subjecting them to United States taxation. The Company files consolidated U.S.
Federal income tax returns with its domestic subsidiaries; therefore, no
deferred income taxes have been provided or are required for the undistributed
earnings of those subsidiaries.
Pension plans -- The Company's domestic and Canadian operations have
defined benefit pension plans covering substantially all their employees. The
plans provide benefits that are based on average monthly earnings of the
employees. The funding policy is to contribute annually an amount to fund
pension cost as actuarially determined by an independent pension consulting
firm.
Other postretirement benefits -- The Company sponsors a health care plan
and a life insurance plan which provide benefits to eligible retirees. The
Company's contribution is based on age and years of service at retirement. The
health insurance plan contains the cost-sharing features of coinsurance and/or
deductibles. The life insurance plan is paid for by the Company. Benefits under
both plans are based on eligibility status for
F-9
<PAGE> 49
pension and length of service. Substantially all of the Company's U.S. and
Canadian full-time employees may become eligible for these benefits upon
reaching age 55 and having worked for the Company at least five years.
Deferred executive compensation and supplemental retirement benefit
plans -- The estimated liability for the deferred executive compensation and
supplemental retirement benefit plans is being accrued over the expected
remaining years of active employment.
Restricted stock and stock option plans -- The Company has restricted stock
plans and a non-qualified stock option plan. The Company amortizes as
compensation expense the cost of stock acquired for the restricted stock plans
by the straight-line method over three- and five-year restriction periods. No
compensation expense is recorded under the non-qualified stock option plan.
In 1997 the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," as required for
disclosure purposes only. The Company will continue applying the accounting
treatment prescribed by the provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Pro forma disclosures have been provided as if SFAS
No. 123 were adopted for all stock-based compensation plans.
Earnings per share -- Basic earnings per share have been computed by
dividing net earnings by the weighted-average outstanding common stock and Class
B common stock during each of the years presented. Diluted earnings per share
have been calculated by also including in the computation the effect of employee
stock options granted to employees as potential common shares.
NOTE 2. ALLIANCE WITH DUPONT
In September 1997, the Company and E.I. du Pont de Nemours and Company
(DuPont) executed an agreement that created one of the world's largest private
agricultural research and development collaborations. A joint venture, Optimum
Quality Grains, L.L.C., was formed that markets improved quality traits to
increase the value of crops for livestock feeders, grain processors, and other
end users. The joint venture does not sell seed. Pioneer is the preferred
worldwide provider and marketer of quality trait seed for the joint venture. The
joint venture began operations January 1, 1998, and is being accounted for on
the equity method of accounting. The Company's fifty percent equity interest in
the joint venture's operations for the eight months ended August 31, 1998, was a
loss of $6 million. During fiscal 1998, the Company loaned the joint venture $8
million at a variable interest rate with the principal and unpaid interest due
at December 31, 2001.
In connection with the above agreements, DuPont also acquired an equity
interest in Pioneer through the purchase of 164,446 shares of convertible
preferred voting stock for $1.71 billion. Effective January 30, 1998, each
preferred share was converted into 100 shares of Class B common stock with a
stated value of $1 per share, or $16.4 million. As required by the agreement,
Pioneer used approximately $1.52 billion of the proceeds from the DuPont
investment to purchase approximately 16.4 million shares of the Company's
outstanding common stock through a Dutch auction self-tender. Immediately
following the completion of the Dutch auction self-tender, DuPont's equity
interest in Pioneer was approximately 20 percent.
The agreement includes, among other things, a standstill provision that
prohibits DuPont from increasing its ownership interest in the Company for 16
years from the date of the agreement without the consent of the Company. DuPont
also gained two seats on the Company's Board of Directors.
F-10
<PAGE> 50
NOTE 3. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
--------------
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Finished seed.................................. $273 $245
Unfinished seed................................ 201 186
Supplies and other............................. 7 9
---- ----
$481 $440
==== ====
</TABLE>
Unfinished seed represents the cost of parent seed, detasseling and roguing
labor, and certain other production costs incurred by the Company to produce its
seed supply. Much of the balance of the labor, equipment, and production costs
associated with planting, growing, and harvesting the seed is supplied by
independent growers, who contract specific acreage for the production of seed
for the Company. The compensation of the independent growers is determined based
upon yield, contracted acreage, and commodity prices. The commitment for grower
compensation is accrued as seed is delivered to the Company. Accrued grower
compensation was $13 million at August 31, 1998 and 1997.
The Company uses derivative instruments such as commodity futures and
options to hedge grower compensation costs. At August 31, 1998 and 1997, the
Company had futures contracts with brokers on notional quantities amounting to
31 million bushels and 32 million bushels, respectively for corn, and 8 million
and 6 million bushels, respectively for soybeans. At August 31, 1998 and 1997,
inventories included $13 million and $4 million of unrealized losses on all open
contracts, respectively.
NOTE 4. CURRENT BORROWINGS, LINES OF CREDIT, LONG-TERM DEBT, AND GUARANTEES
At August 31, 1998, the Company had domestic lines of credit totaling $200
million available to be used as support for the issuance of the Company's
commercial paper. There was no commercial paper outstanding at August 31, 1998.
Commercial paper outstanding at August 31, 1997, was $63 million at a
weighted-average interest rate of 5.6 percent.
In addition, the Company's foreign subsidiaries have lines of credit and
direct borrowing agreements totaling $116 million, substantially all of which
are unsecured. At August 31, 1998, short-term borrowings of $76 million were
outstanding under foreign subsidiary agreements at a weighted-average interest
rate of 13.7 percent. At August 31, 1997, short-term borrowings of $28 million
were outstanding under these agreements at a weighted-average interest rate of
13.3 percent.
Long-term debt at August 31, 1998, bears interest at varying rates and
requires annual principal payments through fiscal 2011. The maturities of
long-term debt for the next five fiscal years, in millions, are as follows:
$14.4, $0.6, $1.6, $0.4, and $0.3.
The Company has guaranteed the repayment of principal and interest on
certain obligations of Village Court Associates, an affiliated real estate
venture. At August 31, 1998 and 1997, such guarantees totaled approximately $23
million.
F-11
<PAGE> 51
NOTE 5. INCOME TAXES
The provision for income taxes is based on income before income taxes as
follows:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
United States............................................... $331 $308 $266
Foreign..................................................... 76 65 88
---- ---- ----
$407 $373 $354
==== ==== ====
</TABLE>
The provision for income taxes is composed of the following components:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Current
Federal................................................ $ 88 $ 80 $ 83
State.................................................. 12 9 11
Foreign................................................ 32 31 44
---- ---- ----
$132 $120 $138
---- ---- ----
Deferred
Federal................................................ $ (2) $ 8 $ (9)
State.................................................. -- 1 (1)
Foreign................................................ 4 (2) (1)
---- ---- ----
$ 2 $ 7 $(11)
---- ---- ----
$134 $127 $127
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August 31,
1998 and 1997, are presented below:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Allowance for doubtful accounts........................... $ 7 $ 6
Inventories............................................... 22 29
Benefits/compensation..................................... 48 40
Deferred profit........................................... 12 9
Nondeductible reserves.................................... 7 9
Net operating loss carryforwards.......................... 8 6
Other..................................................... 11 11
---- ----
Total gross deferred tax asset.................... $115 $110
Less valuation allowance.......................... (4) (8)
---- ----
Total deferred tax asset.......................... $111 $102
---- ----
Deferred tax liabilities
Property and equipment.................................... $(61) $(55)
Unrealized gain on available-for-sale securities.......... -- (10)
---- ----
Total deferred tax liability...................... $(61) $(65)
---- ----
Net deferred tax asset............................ $ 50 $ 37
==== ====
</TABLE>
The net operating loss carryforwards result from various international
subsidiaries. The expiration of these net operating losses range from 1999 to
indefinite. Utilization of these losses is dependent upon earnings
F-12
<PAGE> 52
generated in the respective subsidiaries. A valuation allowance has been
established where appropriate for the losses and certain other items.
The net change in the total valuation allowance for the year ended August
31, 1998, was a decrease of $4 million. There was no change in the total
valuation allowance for the year ended August 31, 1997.
Following is a reconciliation of the statutory U.S. Federal income tax rate
to the Company's actual worldwide effective income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory U.S. Federal income tax rate...................... 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax benefit....... 1.9 1.8 1.8
Effect of taxes on foreign earnings......................... (1.9) (1.5) --
Foreign Sales Corporation................................... (1.3) (1.4) (0.5)
Other....................................................... (0.7) 0.1 (0.3)
----- ----- -----
Actual effective income tax rate....................... 33.0% 34.0% 36.0%
===== ===== =====
</TABLE>
NOTE 6. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
QUALIFIED PENSION PLANS:
The components of pension expense relating to qualified defined benefit
pension plans for the years ended August 31, 1998, 1997, and 1996, consisted of
the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost................................................ $ 10 $ 8 $ 7
Interest cost on projected benefit obligation............... 15 12 11
Actual return on plan assets................................ (48) (16) (14)
Net amortization and deferral............................... 27 (1) (1)
---- ---- ----
Pension expense........................................ $ 4 $ 3 $ 3
==== ==== ====
</TABLE>
The following table sets forth the plans' funded status as of June 30, 1998
and 1997, respectively:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation................................. $151 $121
==== ====
Accumulated benefit obligation............................ $160 $129
==== ====
Plan assets at fair value, primarily stocks and bonds....... $254 $214
Projected benefit obligation................................ 221 187
---- ----
Plan assets in excess of projected benefit obligation....... $ 33 $ 27
Unrecognized net gain....................................... (26) (16)
Unrecognized prior service cost............................. 3 2
Unrecognized transition asset, net (recognized over 16
years).................................................... (5) (7)
---- ----
Pension asset.......................................... $ 5 $ 6
==== ====
</TABLE>
Plan assets include common stock of the Company totaling $32 million and
$21 million at June 30, 1998 and 1997, respectively.
F-13
<PAGE> 53
The following actuarial assumptions were used to determine the present
value of benefit obligations for 1998 and 1997 respectively: discount rate of 7
percent and 8 percent, expected long-term rate of return on plan assets of 9.5
percent and 9 percent, and rate of increase in compensation levels of 5.5
percent and 6.5 percent.
NON-QUALIFIED PENSION PLANS:
The components of pension expense relating to non-qualified pension plans
for the years ended August 31, 1998, 1997, and 1996, consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost................................................ $2 $2 $1
Interest cost on projected benefit obligation............... 4 3 3
Net amortization and deferral............................... 1 1 1
-- -- --
Pension expense........................................ $7 $6 $5
== == ==
</TABLE>
The following table sets forth the plans' funded status as of August 31,
1998 and 1997, respectively:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation................................. $ 21 $ 17
==== ====
Accumulated benefit obligation............................ $ 21 $ 17
==== ====
Plans' assets at fair value................................. $ -- $ --
Projected benefit obligation................................ 61 50
---- ----
Plans' assets less than projected benefit obligation........ $(61) $(50)
Unrecognized net loss....................................... 19 13
Unrecognized prior service cost............................. 10 11
Unrecognized transition asset, net.......................... 1 1
---- ----
Accrued pension liabilities............................ $(31) $(25)
==== ====
</TABLE>
In determining the present value of benefit obligations, a discount rate of
7 percent and 8 percent was used in 1998 and 1997, respectively. The assumed
rate of increase in compensation levels used was 8 percent in both years.
OTHER POSTRETIREMENT BENEFIT PLANS:
The components of postretirement benefits cost expensed for the years ended
August 31, 1998, 1997, and 1996, consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $2 $2 $2
Interest cost on accumulated postretirement benefit
obligation................................................ 4 3 3
Return on assets............................................ -- -- --
Net amortization and deferral............................... -- -- --
-- -- --
Other postretirement benefits cost..................... $6 $5 $5
== == ==
</TABLE>
F-14
<PAGE> 54
The following table sets forth the plans' funded status as of August 31,
1998 and 1997, respectively:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees.................................................... $(16) $(15)
Other fully eligible plans' participants.................... (12) (10)
Other active plans' participants............................ (34) (23)
---- ----
$(62) $(48)
Plans' assets at fair value................................. -- --
---- ----
Accumulated postretirement benefit obligation in excess of
plans' assets............................................. $(62) $(48)
Unrecognized prior service cost............................. (2) (2)
Unrecognized net loss....................................... 16 7
---- ----
Accrued postretirement benefits cost................... $(48) $(43)
==== ====
</TABLE>
For 1998 and 1997, the discount rate used in determining the accumulated
postretirement benefit obligation was 7 percent and 8 percent, respectively. An
8.5 percent annual rate of increase in the per capita cost of covered health
care benefits was assumed for 1998. This rate was assumed to decrease gradually
to 5.5 percent in year 2004 and remain at that level thereafter. A
one-percentage-point increase in the assumed health care cost trend rates would
increase the accumulated postretirement benefit obligation as of August 31,
1998, by approximately $12 million and the total of the service and interest
cost components of net postretirement health care cost for the year then ended
by approximately $1 million.
NOTE 7. LEGAL MATTERS
Since April, 1996, DeKalb Genetics Corporation ("DeKalb") has filed five
lawsuits against Pioneer. The lawsuits allege that insect resistant corn
products that use a Bt gene, and corn products resistant to a glufosinate
herbicide, infringe on certain DeKalb patents.
After reviewing the Company's intellectual property position, DeKalb's
patent filings, DeKalb's lawsuits, and conducting extensive discovery, Pioneer
continues to believe all DeKalb's claims are without merit. Pioneer has denied
DeKalb's allegations and raised defenses that, if successful, would render
DeKalb's patents invalid. Pioneer believes that disposition of the lawsuits will
not have a materially adverse effect on the consolidated financial position and
results of operations of the Company. Pioneer also does not expect delays in the
introductions of advanced corn hybrids with insect and herbicide resistance
because of these lawsuits.
NOTE 8. FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE:
The Company uses derivative instruments such as forward exchange contracts,
purchased options, and cross currency swaps to hedge
foreign-currency-denominated transactions such as exports, contractual flows,
and royalty payments. In some countries, these derivative hedge instruments are
not available or are cost prohibitive. The exposures in these countries are
addressed through managing net asset positions, borrowing in local currency, or
investing in U.S. dollars.
While derivative hedge instruments are subject to risk of loss from
exchange and interest rate movements, we expect these changes would generally be
offset by changes in the U.S. dollar value of foreign sales and/or cash flows.
The Company does not hold these instruments with the objective of earning
financial gains on the exchange rate price fluctuations alone, nor does it enter
into derivative hedge instruments for which there are no underlying transaction
related exposures.
F-15
<PAGE> 55
The notional amounts for contracts in place at August 31, 1998 and 1997,
are shown in the following table in U.S. dollars. These contracts generally
mature in less than one year.
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Forwards.................................................... $286 $229
Options purchased........................................... 7 15
Swaps....................................................... -- 19
---- ----
$293 $263
==== ====
</TABLE>
At August 31, 1998, the Company had deferred unrealized gains of $4 million
and losses of $5 million from hedging firm purchase and sale commitments, based
on broker quoted prices.
CREDIT RISK:
The Company's financial instruments subject to credit risk are primarily
trade accounts receivable, cash and cash equivalents, and foreign currency
exchange contracts. The Company is exposed to credit risk of nonperformance by
counterparties. Generally, the Company does not require collateral or other
security to support customer receivables or foreign currency exchange contracts.
The counterparties to the Company's derivative hedge instruments are major
financial institutions. The Company evaluates the creditworthiness of the
counterparties to these instruments and has never experienced, nor does it
anticipate, nonperformance by any of its counterparties.
The Company had the following significant concentrations of trade accounts
receivables, and cash and cash equivalents subject to credit risk:
<TABLE>
<CAPTION>
AUGUST 31,
--------------
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
United States............................................... $212 $151
Italy....................................................... $ 79 $ 69
Brazil...................................................... $ 18 $ 19
Argentina................................................... $ 35 $ 27
Central Europe.............................................. $ 23 $ 16
</TABLE>
Within the U.S., the majority of the Company's business is conducted with
individual farm operators located throughout the country. Outside the U.S., the
majority of the Company's business is transacted with distributors and
cooperatives, some being government sponsored.
FAIR VALUE:
The Company estimated the fair value of its financial instruments by
discounting the expected future cash flows using the current interest rates that
would apply to each class of financial instruments, except for foreign currency
contracts, for which quotes from brokers were used.
The fair value of cash equivalents, receivables, short-term borrowings,
long-term debt, and foreign currency contracts approximates carrying value at
August 31, 1998.
NOTE 9. CAPITAL STOCK
VOTING RIGHTS:
As a result of equity transactions with DuPont, the Company issued
convertible preferred stock which was subsequently converted to Class B common
stock. Except for the calculation of votes per share, shareholder rights and
preferences are substantially the same for both common stock and Class B common
stock. Each share of common stock is generally entitled to five votes if it has
been beneficially owned continuously by the same holder for a period of 36
months. All other shares are entitled to one vote per share. Holders of Class B
common
F-16
<PAGE> 56
stock are entitled to cast votes equal to their percentage of common stock
equivalent economic ownership interest in the Company, not to exceed 20 percent.
Class B common stock is convertible to common stock only upon sale of the Class
B common stock by DuPont.
STOCK SPLIT:
On March 10, 1998, the Board of Directors approved a three-for-one stock
split effected in the form of a 200 percent stock dividend. The stock dividend
was paid on April 23, 1998, to shareholders of record on March 27, 1998. All
share and per share data have been adjusted to reflect this stock split.
SHARE REPURCHASE:
At August 31, 1998, authorized shares remaining to be purchased under a
Board authorized repurchase plan approximated 4.8 million.
RESTRICTED STOCK PLANS:
The Company has a restricted stock plan under which shares of the Company's
common stock are held by officers and key employees. Such stock is subject to an
agreement requiring forfeiture by the employee in the event of termination of
employment within five years of the date of grant other than as a result of
retirement, death, or disability. The maximum number of shares authorized for
grant under this plan is 5,250,000 shares, of which 1,257,162 had been granted
as of August 31, 1998. There are 1,227,825 shares outstanding under a previous
restricted stock plan.
The Company also has a restricted stock plan under which shares of the
Company's common stock are held by non-employee directors of the Company in lieu
of cash compensation. The maximum number of shares authorized for grant under
this plan is 75,000, of which 42,918 have been granted as of August 31, 1998.
STOCK OPTION PLAN:
During 1996, the Company adopted a non-qualified stock option plan. The
plan authorizes options covering nine million shares of the Company's common
stock. All options outstanding as of August 31, 1998, become exercisable
one-third in each of years three, four, and five from the date of grant. The
options expire after ten years from the date of grant. Options are forfeited
upon termination for reasons other than retirement, death, or disability.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the fixed stock option plan. Accordingly, no compensation cost
has been recognized for the plan. Had compensation cost for the Company's fixed
stock option plan been determined consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts as follows:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net Income as reported...................................... $ 270 $ 243 $ 223
Pro forma net income........................................ $ 267 $ 240 $ 221
Earnings per share as reported.............................. $1.08 $0.98 $0.89
Pro forma earnings per share................................ $1.07 $0.97 $0.88
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997, and 1996, respectively: risk-free
interest rate of 5.7 percent, 6.7 percent, and 6.4 percent; expected life of 7.5
each year; expected volatility of 26 percent, 22 percent, and 22 percent; and
dividend yield of 1.4 percent, 1.4 percent, and 1.5 percent.
F-17
<PAGE> 57
A summary of the status of the Company's fixed stock option plan as of
August 31, 1998, 1997, and 1996, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ------------------------ ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 2,991,000 $15 2,919,000 $14 -- $--
Granted............................. 207,000 $35 72,000 $26 2,919,000 $14
---------- ---------- ----------
Outstanding at end of year.......... 3,198,000 $16 2,991,000 $15 2,919,000 $14
========== === ========== === ========== ===
Options exercisable at year end..... -- -- --
Weighted-average fair value of
options granted during the year..... $ 12.42 $ 9.16 $ 4.96
</TABLE>
The following table summarizes information about fixed stock options
outstanding at August 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------------------------
NUMBER
OUTSTANDING AT WEIGHTED-AVERAGE
WEIGHTED-AVERAGE AUGUST 31, REMAINING
EXERCISE PRICE 1998 CONTRACTUAL LIFE
- ---------------- -------------- ----------------
<S> <C> <C>
$14 2,919,000 7.0 years
$26 72,000 8.8 years
$35 207,000 9.2 years
</TABLE>
On September 14, 1998 the Board of Directors authorized the issuance of
1,055,150 options under this plan. These options have an exercise price of $32,
the market value of the stock on the date of grant. One third of the options
become exercisable one year after the date of grant, a second third two years
after the date of grant, and the remaining third three years after the date of
grant.
There are no options exercisable at August 31, 1998.
NOTE 10. EARNINGS PER SHARE
Both common stock and Class B common stock are included jointly in all
reference to common stock. The following tables provide a reconciliation of the
numerators and denominators of the basic and diluted earnings per share
computations for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- -------------------------------- --------------------------------
PER- PER- PER-
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT
-------------------------------- -------------------------------- --------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Net Income.............. $270 $243 $233
Preferred stock
dividends............. (9) -- --
---- ---- ----
Net income attributable
to common shareholders $261 231.5 $1.13 $243 246.9 $ .98 $223 249.5 $ .89
===== ====== ======
Effect of dilutive
securities
Convertible preferred
stock................. 9 17.7 -- -- -- --
Stock options........... -- 1.1 -- 0.6 -- 0.3
---- ----- ---- ----- ---- ------
Diluted earnings per share
Net income attributable
to common shareholders $270 250.3 $1.08 $243 247.5 $ .98 $223 249.8 $ .89
==== ===== ===== ==== ===== ====== ==== ====== ======
</TABLE>
F-18
<PAGE> 58
NOTE 11. GEOGRAPHIC DATA
Certain financial information concerning the Company's domestic and foreign
operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales (by source)
United States............................................. $1,818 $1,626 $1,435
Europe.................................................... 349 391 387
Other..................................................... 250 240 222
------ ------ ------
$2,417 $2,257 $2,044
Less intergeographical sales, primarily United States..... 582 473 323
------ ------ ------
$1,835 $1,784 $1,721
====== ====== ======
Operating income (by source) United States.................. $ 355 $ 365 $ 334
Europe.................................................... 53 49 56
Other..................................................... 39 26 33
------ ------ ------
$ 447 $ 440 $ 423
Indirect general and administrative expense............... (88) (77) (76)
------ ------ ------
$ 359 $ 363 $ 347
====== ====== ======
Identifiable assets at August 31
United States............................................. $ 867 $ 843 $ 701
Europe.................................................... 240 228 224
Other..................................................... 369 322 244
------ ------ ------
$1,476 $1,393 $1,169
Corporate................................................. 241 210 253
------ ------ ------
$1,717 $1,603 $1,422
====== ====== ======
Export sales:
Primarily Europe.......................................... $ 18 $ 18 $ 20
====== ====== ======
</TABLE>
NOTE 12. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31
------------------ ----------- ----------- ------ ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.......................................... $ 79 $ 302 $1,317 $ 137
Gross profit....................................... $ (6) $ 117 $ 757 $ 22
Net income (loss).................................. $ (51) $ 4 $ 366 $ (49)
Preferred stock dividend........................... $ 4 $ 5 $ -- $ --
Net income (loss) available to common
shareholders..................................... $ (55) $ (1) $ 366 $ (49)
Net income (loss) per common share (a)(b)
Basic......................................... $(.24) $(.01) $ 1.50 $(.20)
Diluted....................................... $(.24) $(.01) $ 1.50 $(.20)
Cash Dividends per common share (b)................ $.087 $.087 $ .087 $ .10
</TABLE>
F-19
<PAGE> 59
Summarized unaudited quarterly financial data for 1997 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31
------------------ ----------- ----------- ------ ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.......................................... $ 90 $ 264 $1,288 $ 142
Gross profit....................................... $ 10 $ 94 $ 735 $ 28
Net income (loss).................................. $ (45) $ (2) $ 332 $ (42)
Preferred stock dividend........................... $ -- $ -- $ -- $ --
Net income (loss) available to common
shareholders..................................... $ (45) $ (2) $ 332 $ (42)
Net income (loss) per common share
Basic......................................... $(.18) $(.01) $ 1.35 $(.17)
Diluted....................................... $(.18) $(.01) $ 1.35 $(.17)
Cash dividends per common share(b)................. $.077 $.077 $ .077 $.087
</TABLE>
- ---------------
(a) Due to the conversion of preferred stock to Class B common stock late in the
second quarter, the total of the four quarters' basic earnings per share
does not equal the basic earnings per share for the year. As the first six
months of fiscal 1998 reflect a loss available to common shareholders, the
effect of convertible preferred stock and stock options are not included in
the calculation of diluted earnings per share because their effects are
anti-dilutive. As a result, the total of the four quarters' diluted earnings
per share may not equal the diluted earnings per share for the year.
(b) As a result of rounding, the total of the four quarters' earnings and cash
dividends per share may not equal the earnings and cash dividends per share
for the year.
NOTE 13. UNAUDITED SUBSEQUENT EVENT
On November 10, 1998, two lawsuits filed by DeKalb (see Note 7) were
dismissed with prejudice. These lawsuits alleged the Company had infringed on
DeKalb patents by using glufosinate resistant products in developing corn
hybrids.
F-20
<PAGE> 60
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
1998 1998 1997
------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 77 $ 86 $ 76
Accounts and notes receivable, net.................. 261 400 237
Inventories:
Finished seed.................................... 435 273 429
Unfinished seed.................................. 407 201 372
Other............................................ 12 7 11
Income taxes receivable............................. 12 -- --
Deferred income taxes............................... 61 69 63
Prepaid expenses and other current assets........... 11 3 11
------ ------ ------
Total current assets........................ $1,276 $1,039 $1,199
------ ------ ------
LONG-TERM ASSETS...................................... 51 47 79
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and allowances
November 30, 1998 -- $536; August 31, 1998 -- $520;
November 30, 1997 -- $509........................... 598 576 554
INTANGIBLES........................................... 65 55 65
------ ------ ------
$1,990 $1,717 $1,897
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings............................... $ 289 $ 76 $ 85
Current maturities of long-term debt................ 11 14 6
Accounts payable, trade............................. 344 81 340
Accrued compensation................................ 34 61 33
Income taxes payable................................ -- 46 9
Other accruals...................................... 40 67 51
------ ------ ------
Total current liabilities................... $ 718 $ 345 $ 524
------ ------ ------
LONG-TERM DEBT........................................ $ 5 $ 5 $ 19
------ ------ ------
DEFERRED ITEMS
Retirement benefits................................. $ 96 $ 94 $ 84
Income taxes........................................ 19 19 19
------ ------ ------
$ 115 $ 113 $ 103
------ ------ ------
MINORITY INTEREST IN SUBSIDIARIES..................... $ 7 $ 7 $ 6
------ ------ ------
SHAREHOLDERS' EQUITY
Preferred stock, $100 stated value.................. $ -- $ -- $ 16
Common stock, $1 par value.......................... 230 230 76
Class B Common, $1 stated value..................... 49 49 --
Additional paid-in capital.......................... 246 246 227
Retained earnings................................... 1,329 1,428 1,360
Accumulated other comprehensive loss, net........... (36) (46) (19)
------ ------ ------
$1,818 $1,907 $1,660
Less:
Cost of common shares acquired for the treasury..... (647) (631) (393)
Unearned compensation............................... (26) (29) (22)
------ ------ ------
$1,145 $1,247 $1,245
------ ------ ------
$1,990 $1,717 $1,897
====== ====== ======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
F-21
<PAGE> 61
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
--------------------------
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
(IN MILLIONS)
<S> <C> <C>
NET SALES................................................... $ 76 $ 79
------- -------
Operating costs and expenses:
Cost of goods sold........................................ $ 56 $ 51
Research and product development.......................... 40 34
Selling................................................... 54 55
General and administrative................................ 35 28
------- -------
$ 185 $ 168
------- -------
Operating loss............................................ $ (109) $ (89)
Investment income........................................... 5 18
Interest expense............................................ (5) (2)
Net exchange loss........................................... (5) (5)
------- -------
Loss before items shown below............................. $ (114) $ (78)
Provision for income taxes.................................. 39 27
Minority interest and other................................. -- --
------- -------
Net loss.................................................. $ (75) $ (51)
======= =======
Preferred stock dividend.................................... $ -- $ 4
Net loss attributable to common shareholders.............. $ (75) $ (55)
Basic and diluted net loss per common share*................ $ (.31) $ (.24)
Dividends per common share*................................. $ .10 $ .087
Average common shares outstanding........................... 240.0 226.0
</TABLE>
- ---------------
* Not in millions
See Notes to Consolidated Condensed Financial Statement.
F-22
<PAGE> 62
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
--------------------------
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)................................................ $ (75) $ (51)
Noncash items included in net (loss)
Depreciation and amortization.......................... 27 22
Other.................................................. (4) (12)
Net change in assets and liabilities...................... (84) (104)
------- -------
Net cash used in operating activities.................. $ (136) $ (145)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... $ (37) $ (30)
Other..................................................... (14) 8
------- -------
Net cash used in investing activities.................. $ (51) $ (22)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on short-term borrowings.......... $ 220 $ (4)
Purchase of common stock.................................. (16) (1,525)
Dividends paid............................................ (24) (26)
Net proceeds from issuance of preferred stock............. -- 1,701
Net (payments) proceeds on long-term debt................. (3) --
------- -------
Net cash provided by financing activities.............. $ 177 $ 146
------- -------
Net decrease in cash and cash equivalents.............. $ (9) $ (21)
Cash and cash equivalents, beginning........................ 86 97
------- -------
CASH AND CASH EQUIVALENTS, ENDING........................... $ 77 $ 76
======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest............................................... $ 5 $ 1
======= =======
Income taxes........................................... $ 10 $ 9
======= =======
NONCASH FINANCING ACTIVITIES:
Retirement of 16,466,045 shares of treasury stock:
Common stock........................................... $ -- $ 16
Additional paid-in capital -- 1,509
------- -------
Treasury stock......................................... $ -- $ 1,525
======= =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
F-23
<PAGE> 63
PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to fairly present the financial position
as of November 30, 1998 and 1997, and the results of operations and cash
flows for the three months ended November 30, 1998 and 1997. Because of the
seasonal nature of the Company's business, the results of operations for the
three months ended November 30, 1998, may not be indicative of the results to
be expected for the full year.
2. Pioneer has guaranteed the repayment of principal and interest on certain
obligations of Village Court Associates, an affiliated real estate venture.
Such guarantees totaled approximately $23 million at November 30, 1998 and
1997.
3. Since April, 1996, DeKalb Genetics Corporation ("DeKalb") has filed six
lawsuits against Pioneer. The lawsuits allege that insect resistant corn
products that use a Bt gene, and corn products resistant to a glufosinate
herbicide, infringe on certain DeKalb patents. On November 10, 1998, two of
the six lawsuits filed were dismissed with prejudice. These two lawsuits
alleged the Company had infringed on DeKalb patents by using glufosinate
resistant products in developing corn hybrids.
After reviewing the Company's intellectual property position, DeKalb's patent
filings, DeKalb's lawsuits, and conducting extensive discovery, Pioneer
continues to believe all DeKalb's claims are without merit. Pioneer has
denied DeKalb's allegations and raised defenses that, if successful, would
render DeKalb's patents invalid. Pioneer believes that disposition of the
lawsuits will not have a materially adverse effect on the consolidated
financial position and results of operations of the Company. Pioneer also
does not expect delays in the introductions of advanced corn hybrids with
insect and herbicide resistance because of these lawsuits.
4. The following table summarizes the computation of weighted average shares
outstanding:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
--------------
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Number of shares of common stock outstanding at beginning of
the period.................................................. 240.3 246.7
Weighted average number of shares of common stock issued
during the period......................................... -- --
Weighted average number of shares of common stock purchased
for the treasury.......................................... (0.3) (20.7)
----- -----
Weighted average number of shares of common stock
outstanding during the period............................. 240.0 226.0
===== =====
</TABLE>
F-24
<PAGE> 64
5. The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations for the
periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
---------------------------------------------------------------------------------
1998 1997
--------------------------------------- ---------------------------------------
INCOME/(LOSS) SHARES PER-SHARE INCOME/(LOSS) SHARES PER-SHARE
NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT
------------- ----------- --------- ------------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net (loss)................ $(75) $(51)
Less: Preferred stock
dividends............... -- 4
---- ----
BASIC EARNINGS (LOSS) PER
SHARE:
(Loss) attributable to
common shareholders..... $(75) 240.0 $(.31) $(55) 226.0 $(.24)
===== =====
EFFECT OF DILUTIVE
SECURITIES:
Convertible preferred
stock................... -- -- -- --
Stock options............. -- -- -- --
---- ------ ---- -----
DILUTED EARNINGS (LOSS)
PER SHARE:
(Loss) attributable to
common shareholders..... $(75) 240.0 $(.31) $(55) 226.0 $(.24)
==== ====== ===== ==== ===== =====
</TABLE>
The periods presented reflect a loss attributable to common shareholders. As
a result, the effect of convertible preferred stock and stock options are not
included in the calculation of diluted earnings per share as their effects
are anti-dilutive.
6. ACCOUNTING PRONOUNCEMENTS
As of September 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement has no
impact on a company's net income (loss) or shareholders' equity. SFAS No. 130
requires other comprehensive income to include foreign currency translation
adjustments and unrealized gains and losses on certain investments in debt
and equity securities classified as available-for-sale securities, which
prior to adoption were reported separately in shareholders' equity. The
November 30, 1997, and August 31, 1998, financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
During the first quarter of 1999 and 1998, total comprehensive loss, which
includes net loss and other comprehensive income (loss), amounted to $65
million and $53 million, respectively.
F-25
<PAGE> 65
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
PIONEER HI-BRED INTERNATIONAL, INC.
$200,000,000
% SENIOR NOTES DUE
---------------------------
LAZARD FRERES & CO. LLC
CHASE SECURITIES INC.
JANUARY , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Except for the Registration Fee, all expenses are estimated:
<TABLE>
<S> <C>
Registration fee............................................ $ 55,600
Trustee's fees and expenses (including counsel fees)........ 5,000
Accounting fees and expenses................................ 60,000
Legal fees and expenses..................................... 75,000
Blue sky fees and expenses.................................. 7,000
Printing expenses........................................... 65,000
Rating agency fees.......................................... 130,000
Miscellaneous............................................... 2,400
--------
Total expenses......................................... $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Iowa Business Corporation Act (the "IBCA") provides for or permits
indemnification of directors and officers for acts in their capacities as such
in certain situations summarized below.
Unless limited by articles of incorporation, a corporation must indemnify a
director or an officer who is wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he or she was a party against reasonable
expenses incurred by him or her in connection with such proceeding. In addition,
unless the articles of incorporation provide otherwise, a court may order a
company to indemnify a director or officer if it determines that such director
or officer is fairly and reasonably entitled to indemnification in view of all
the relevant circumstances, whether or not he or she has met the applicable
standard of conduct or was adjudged liable in a derivative action or for
receiving an improper personal benefit. In such case, if the director or officer
was adjudged liable, the court must limit indemnification to reasonable expenses
incurred.
The IBCA permits indemnification if a director or officer acted in good
faith and in a manner reasonably believed to be in the Company's best interests,
and, in a criminal action, if such person had no reasonable cause to believe
that his or her conduct was unlawful. No indemnification is permitted in
connection with a proceeding by or in the right of a corporation in which the
person was adjudged liable to the corporation or in connection with any
proceeding in which the director or officer was adjudged liable for receiving an
improper personal benefit.
The IBCA permits advancement of expenses to a director or officer upon (i)
receipt of an undertaking to repay all amounts advanced if it shall be
determined ultimately that he or she is not entitled to be indemnified by the
corporation; (ii) the person furnishes the corporation a written affirmation of
the person's good faith belief that he or she has met the applicable standard of
conduct; or (iii) determination is made that the facts then known to those
making the determination would not preclude indemnification.
The IBCA provides that, subject to certain limitations, its indemnification
provisions shall not be deemed exclusive of any other right to indemnification
to which a director or officer may be entitled under the articles of
incorporation or bylaws, or any agreement, vote of shareholders or disinterested
directors, or otherwise. Notwithstanding the foregoing, indemnification cannot
be provided in the case of (i) a breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) an act or omission not in good faith;
(iii) intentional misconduct; (iv) a knowing violation of law; (v) a transaction
from which the person seeking indemnification derives an improper personal
benefit; (vi) liability for certain unlawful distributions; and (vii) liability
in a proceeding by or in the right of the corporation.
The bylaws of the Company provide for indemnification of directors and
officers of the Company to the fullest extent permitted by Iowa law.
II-1
<PAGE> 67
The Company has entered into contracts with each of its directors and
executive officers providing for indemnification and reimbursement of expenses
to the fullest extent permitted by Iowa law in connection with actions against
them in their capacities as such.
Reference is made to the Underwriting Agreement, filed as Exhibit 1 to this
Registration Statement, for information concerning indemnification arrangements
among the Company and the underwriters.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1 Form of Underwriting Agreement
4.1 Form of Indenture
4.2 Forms of Notes (included in Exhibit 4.1)
5 Opinion of Baker & Hostetler LLP*
12 Computation of Ratio of Earnings to Fixed Charges*
23.1 Consent of KPMG Peat Marwick LLP*
23.2 Consent of Baker & Hostetler LLP (contained in Exhibit 5)*
24 Power of Attorney*
25 Statement of Eligibility and Qualification on Form T-1 of
Chase Manhattan Trust Company, National Association, as
Trustee under the Indenture*
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of any 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
Company pursuant to the provisions described under Item 15 above or otherwise,
the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The Company hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b) (l)
or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be
part of the registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pioneer Hi-Bred
International, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Des Moines, State of
Iowa, on January 12, 1999.
PIONEER HI-BRED INTERNATIONAL, INC.
*
--------------------------------------
Charles S. Johnson, Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons on behalf of Pioneer Hi-Bred International, Inc. in the capacities
indicated, on January 12, 1999.
<TABLE>
<S> <C> <C>
* Chairman, President and Chief
- ------------------------------------------------ Executive Officer
Charles S. Johnson
* Executive Vice President, Chief
- ------------------------------------------------ Operating Officer and Director
Jerry L. Chicoine
* Corporate Controller
- ------------------------------------------------
Duane A. Suess
* Vice President and Chief Financial
- ------------------------------------------------ Officer
Brian G. Hart
* Director
- ------------------------------------------------
Nancy Y. Bekavac
* Director
- ------------------------------------------------
C. Robert Brenton
* Director
- ------------------------------------------------
Fred S. Hubbell
* Director
- ------------------------------------------------
Luiz Kaufmann
* Director
- ------------------------------------------------
Dr. F. Warren McFarlan
* Director
- ------------------------------------------------
Dr. Owen J. Newlin
* Director
- ------------------------------------------------
Thomas N. Urban
* Director
- ------------------------------------------------
Dr. Virginia Walbot
</TABLE>
II-3
<PAGE> 69
<TABLE>
<S> <C> <C>
* Director
- ------------------------------------------------
H. Scott Wallace
* Director
- ------------------------------------------------
Fred W. Weitz
* Director
- ------------------------------------------------
Herman H.F. Wijffels
* Director
- ------------------------------------------------
Charles O. Holliday, Jr.
* Director
- ------------------------------------------------
William F. Kirk
</TABLE>
*William J. DeMeulenaere, by signing his name hereto, does sign this
Registration Statement on behalf of the persons indicated above pursuant to a
power of attorney duly executed by such persons and filed as an exhibit to this
Registration Statement.
By: /s/ WILLIAM J. DEMEULENAERE
-------------------------------
William J. DeMeulenaere,
Attorney-In-Fact
II-4
<PAGE> 1
Exhibit 1
$200,000,000
PIONEER HI-BRED INTERNATIONAL, INC.
___% Senior Note due 2009
UNDERWRITING AGREEMENT
----------------------
January __, 1999
Lazard Freres & Co. LLC
Chase Securities Inc.
c/o Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, New York 10020
Dear Sirs:
SECTION 1. INTRODUCTORY. Pioneer Hi-Bred International, Inc.,
an Iowa corporation (the "Company"), proposes to issue and sell to the several
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
$200,000,000 principal amount of its ___% Senior Notes due 2009 (the
"Securities"). The Securities are to be issued pursuant to the provisions of an
Indenture, to be dated as of January __, 1999 (hereinafter called the
"Indenture"), between the Company and Chase Manhattan Trust Company, National
Association, as Trustee (the "Trustee"). The Company hereby agrees with the
Underwriters as follows:
SECTION 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
COMPANY. The Company represents and warrants to, and agrees with, the several
Underwriters that:
(a) A registration statement on Form S-3 (No. 333-69285),
including a prospectus, relating to the Securities has been filed with
the
<PAGE> 2
Securities and Exchange Commission (the "Commission"). Such
registration statement either (i) is not proposed to be amended and has
been declared effective under the Securities Act of 1933, as amended
(the "Act"), and any post-effective amendments filed with the
Commission prior to the execution and delivery of this Agreement have
been declared effective or (ii) is proposed to be amended by amendment
or post-effective amendment. For purposes of this Agreement, "Effective
Time" means, in the case of clause (i) in the preceding sentence, the
date and time as of which such registration statement or the most
recent post-effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement was declared effective by the
Commission or, in the case of clause (ii) in the preceding sentence,
the date and time as of which such registration statement, as amended
by such amendment or post-effective amendment, as the case may be, is
declared effective by the Commission. "Effective Date" means the date
of the Effective Time. If the Effective Time is prior to the execution
and delivery of this Agreement, no other document relating to such
registration statement has been filed with the Commission; and no
proceeding for the purpose of suspending such effectiveness has been
initiated or threatened or, to the knowledge of the Company, is
contemplated by the Commission. Such registration statement as amended
at the Effective Time, including all material incorporated by reference
therein and all exhibits thereto and including all information (if any)
contained in a prospectus subsequently filed with the Commission and
deemed to be part of the registration statement at the Effective Time
pursuant to Rule 430A under the Act, is hereinafter referred to as the
"Registration Statement," and the prospectus, in the form first filed
pursuant to Rule 424(b) under the Act ("Rule 424(b)") or, if no such
filing is required, as included in the Registration Statement,
including all material incorporated by reference in such prospectus, is
hereinafter referred to as the "Prospectus." The terms "supplement" and
"amendment" or "amend" as used in this Agreement shall include all
documents subsequently filed by the Company with the Commission
pursuant to the Exchange Act that are incorporated by reference in the
Prospectus. (Any preliminary prospectus included in such Registration
Statement or filed with the Commission pursuant to Rule 424(a) under
the Act is hereinafter referred to as a "Preliminary Prospectus.")
(b) If the Effective Time is prior to the execution and
delivery of this Agreement: (i) on the Effective Date, the Registration
Statement conformed, on the date of this Agreement, the Registration
Statement conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b), the Registration Statement and the Prospectus
will conform in all
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<PAGE> 3
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder (the "Rules and Regulations") and the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
and the rules and regulations of the Commission thereunder (the "TIA
Rules and Regulations"), (ii) on the Effective Date, neither the
Registration Statement nor the Prospectus included any untrue statement
of a material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, (iii) any amendment to the Registration Statement, as of
its date and as of its effective date, did not and will not include any
untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and (iv) the Prospectus on the date of this
Agreement, as of its date, as of the date of any amendment or
supplement thereto, and as amended or supplemented at the Closing Date
(as defined in Section 3), does not and will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If the
Effective Time is subsequent to the execution and delivery of this
Agreement: (i) on the Effective Date, the Registration Statement and
the Prospectus will conform in all respects to the requirements of the
Act and the Rules and Regulations and the Trust indenture Act and the
TIA Rules and Regulations, and neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or
will omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any
amendment to the Registration Statement, as of its date and as of its
effective date, will not include any untrue statement of material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) the
Prospectus, as of its date, as of the date of any amendment or
supplement thereto, and as amended or supplemented at the Closing Date,
will not contain any untrue statement of any material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The foregoing representations and warranties do not
apply to statements or omissions in the Registration Statement or any
amendment thereto or the Prospectus, as amended or supplemented, if
applicable, based upon the information furnished to the Company by you
specified in Section 8(a).
(c) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all respects to the requirements of the Act
and the
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<PAGE> 4
Rules and Regulations or the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and regulations of the Commission
thereunder (the "Exchange Act Rules and Regulations"), as applicable,
and none of such documents when they became effective or were so filed,
as the case may be, contained any untrue statement of any material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and any
further documents so filed and incorporated by reference in the
Prospectus or any further amendment or supplement thereto, when such
documents become effective or are filed with the Commission, as the
case may be, will conform in all respects to the requirements of the
Act and the Rules and Regulations or the Exchange Act and the Exchange
Act Rules and Regulations, as applicable, and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(d) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and no
proceedings for that purpose shall have been instituted or threatened
or, to the knowledge of the Company, contemplated by the Commission,
and each Preliminary Prospectus, at the time of filing thereof,
conformed in all respects to the requirements of the Act and the Rules
and Regulations and the Trust Indenture Act and the TIA Rules and
Regulations, and did not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; except that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with the information furnished to the Company by you
specified in Section 8(a).
(e) The consolidated financial statements included in the
Registration Statement and Prospectus present fairly the consolidated
financial position of the Company and its consolidated subsidiaries as
of the dates indicated and the results of their operations and the
statements of their cash flows for the periods specified; such
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis during the
periods involved, except as indicated therein; and the supporting
schedules included in the Registration Statement present fairly the
information required to be stated therein.
(f) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated
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<PAGE> 5
therein, (i) there has been no material adverse change in the
condition, financial or otherwise, earnings, business or prospects of
the Company and its subsidiaries considered as a whole, whether or not
arising in the ordinary course of business ("Material Adverse Effect"),
and (ii) there have been no material transactions entered into by the
Company or any of its subsidiaries other than those in the ordinary
course of business.
(g) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Iowa with
power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement and
Prospectus; and the Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in
which it owns or leases properties or in which the conduct of its
business requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
Material Adverse Effect.
(h) Each of the subsidiaries of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has power and
authority to own, lease and operate its properties and conduct its
business as described in the Registration Statement and Prospectus and
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which it owns or leases
properties or in which the conduct of its business requires such
qualification, except to the extent that the failure to be so qualified
or be in good standing would not have a Material Adverse Effect on the
Company and its subsidiaries considered as a whole; all of the issued
and outstanding capital stock of each subsidiary has been duly
authorized and validly issued and is fully paid and non-assessable, and
(except as set forth in the Company's Report on Form 10-K for the 1998
fiscal year), all such capital stock of each subsidiary is owned,
directly or through subsidiaries, by the Company, free and clear of any
mortgage, pledge, lien, encumbrance, adverse claim or equity.
(i) Neither the Company nor any of its subsidiaries is in
violation of its or any of their charters or bylaws or other
organizational documents or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument to which it or any of them is a party or
by which it or any of them or their properties may be bound; no
consent, approval, authorization, order, registration, filing or
qualification of or with any court or governmental
-5-
<PAGE> 6
authority or agency is required for the issue and sale of the
Securities as contemplated herein and in the Indenture or the
consummation by the Company of the transactions contemplated by this
Agreement and the Indenture, except such as may be required under the
Act and the Rules and Regulations, the Trust Indenture Act and the TIA
Rules and Regulations or state securities or Blue Sky laws in
connection with the distribution of the Securities by the Underwriters;
and the issue and sale of the Securities as contemplated herein and in
the Indenture, the execution and delivery of this Agreement and the
Indenture and the consummation of the transactions contemplated herein
and therein will not conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
of its subsidiaries pursuant to, any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it or any
of them may be bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will any such action
result in any violation of, or constitute a "change of control" under
the provisions of the charter or by-laws of the Company or any law,
administrative regulation or administrative or court decree or order
applicable to the Company or any of its subsidiaries.
(j) The Company and its subsidiaries possess all certificates,
authorities or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct in all
material respects the business now operated by them, and neither the
Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.
(k) Except as set forth in the Prospectus, as amended or
supplemented, there is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending,
or, to the knowledge of the Company, contemplated or threatened against
the Company or any of its subsidiaries, which is reasonably likely to
have a Material Adverse Effect, or is reasonably likely to
materially and adversely affect the properties or assets thereof or
which might adversely affect the offering of the Securities in the
manner contemplated by the Prospectus; and there are no material
contracts or other documents which are required to be described in the
Registration Statement or the Prospectus or filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations or
by the Trust Indenture Act or the
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<PAGE> 7
TIA Rules and Regulations which have not been so described or have not
been so filed.
(l) Each of the Company and its subsidiaries has good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by it, in each case
free and clear of all liens, encumbrances and defects except (i) such
as are referred to in the Prospectus or (ii) such as do not materially
and adversely affect the value of such property to the Company or such
subsidiary, and do not materially interfere with the use made and
proposed to be made of such property by the Company or such subsidiary;
and any real property and buildings held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made by the Company and
its subsidiaries.
(m) The Company has an authorized capitalization as set forth
in the Prospectus, and the shares of capital stock of the Company
outstanding prior to the issuance of the Securities have been duly
authorized, are validly issued, fully paid and non-assessable.
(n) This Agreement has been duly authorized, executed and
delivered by the Company.
(o) The indenture, which will be substantially in the form
filed as an exhibit to the Registration Statement, has been duly
authorized and duly qualified under the Trust Indenture Act and when
executed and delivered by the Company and the Trustee, the Indenture
will have been duly authorized, executed and delivered by the Company
and will constitute a valid and legally binding agreement of the
Company, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and
to general equity principles; and the Indenture will conform to the
description thereof in the Prospectus.
(p) The Securities have been duly authorized and, when
executed and authenticated in accordance with the terms of the
Indenture and issued and delivered in accordance with the terms of this
Agreement, will have been duly authorized, executed, authenticated,
issued and delivered by the Company, will constitute valid and binding
obligations of the Company, enforceable in accordance with their terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization
and other laws of general
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<PAGE> 8
applicability relating to or affecting creditors' rights and to general
equity principles, will conform to the description thereof contained in
the Prospectus, will be substantially in the form filed as an exhibit
to the Registration Statement, and will be entitled to the benefits of
the Indenture.
(q) KPMG Peat Marwick LLP who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the Rules and Regulations.
(r) Except as otherwise disclosed in the Prospectus, the
Company and its subsidiaries own or possess sufficient trademarks,
trade names, patent rights, copyrights, licenses, approvals, trade
secrets and other similar rights (collectively, "Intellectual Property
Rights") reasonably necessary to conduct their businesses as now
conducted; and the expected expiration of any of such Intellectual
Property Rights will not have a Material Adverse Effect. Neither the
Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted Intellectual Property Rights of
others, which infringement or conflict is reasonably likely to have a
Material Adverse Effect.
(s) The Company and each subsidiary possess such valid and
current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, as presently
conducted, and neither the Company nor any subsidiary has received any
notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
(t) All disclosure regarding year 2000 compliance and the Euro
conversion that is required to be described in a registration statement
on Form S-3 under the 1933 Act (including disclosures required by Staff
Legal Bulletin No. 6, SEC Release No. 33-7558 (July 29, 1998) and SEC
Release No. 33-7609 (November 9, 1998)) has been included in the
Prospectus. Neither the Company nor any of its subsidiaries will incur
significant operating expenses or costs to ensure that its information
systems will be year 2000 compliant or to adjust its operating and
information systems to the conversion to a single currency in Europe,
other than as disclosed in the Prospectus.
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<PAGE> 9
(u) Except such matters as would not, singly or in the
aggregate, materially affect the Company and its subsidiaries, (A) none
of the Company and its subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance,
code, policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products or nuclear or radioactive material (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws"), (B) the Company and its
subsidiaries have all permits, licenses, authorizations and approvals
currently required for their respective businesses under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events, facts or circumstances that
might reasonably be expected to form the basis of any liability or
obligation of the Company or its subsidiaries, including, without
limitation, any order, decree, plan or agreement requiring clean-up or
remediation, or any action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to any Hazardous Materials or Environmental
Laws.
(v) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus will be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
SECTION 3. PURCHASE, SALE AND DELIVERY OF SECURITIES. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company hereby agrees
to issue and sell to the Underwriters, and each Underwriter agrees, severally
and not jointly, to purchase from the Company the Securities at __% of their
principal
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<PAGE> 10
amount, plus accrued interest, if any, to the Closing Date (as defined below)
hereunder.
The Securities to be purchased by each Underwriter hereunder,
in definitive form, and in such authorized denominations and registered in such
names as Lazard Freres & Co. LLC may request upon at least forty-eight hours'
prior notice to the Company, shall be delivered by or on behalf of the Company
to you for the account of such Underwriter, against payment by such Underwriter
or on its behalf of the purchase price therefor by wire transfer in immediately
available funds to the account specified by the Company, all at the office of
Fried, Frank, Harris, Shriver & Jacobson, New York, New York, at 9:30 a.m., New
York City time, on January __ 1999 or at such other time and date as you and the
Company may agree upon in writing, such time and date being herein called the
"Closing Date". Certificates representing the Securities will be made available
for checking and packaging at least twenty-four hours prior to the Closing Date
at the office of the Trustee.
SECTION 4. OFFERING BY UNDERWRITERS. After the Registration
Statement becomes effective the several Underwriters will offer the Securities
for sale to the public on the terms and conditions as set forth in the
Prospectus.
SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the several Underwriters that:
(a) If the Effective Time is prior to the execution and
delivery of this Agreement, the Company will file the Prospectus with
the Commission pursuant to and in accordance with subparagraph (1) (or,
if applicable, and with your consent, subparagraph (4)) of Rule 424(b)
not later than the second business day following the earlier of (i) the
date of execution and delivery of this Agreement or (ii) the date a
Prospectus is first used after the Effective Date. The Company will
advise you promptly of any proposal to amend or supplement the
Registration Statement as filed, or the related Prospectus, prior to
the Closing Date, and will not effect such amendment or supplement
without your consent; the Company will also advise you promptly of the
effectiveness of the Registration Statement (if the Effective Time is
subsequent to the execution and delivery of this Agreement), of any
amendment or supplement to the Registration Statement or the
Prospectus, and of receipt of notification of the institution by the
Commission of any stop order proceedings in respect of the Registration
Statement or of any order preventing or suspending the use of any
Preliminary Prospectus or any prospectus relating to the Securities, of
the suspension of the qualification of the Securities for offering or
sale in any jurisdiction or the
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<PAGE> 11
initiation or threatening of any proceeding for such purpose, or of any
request by the Commission to amend or supplement the Registration
Statement or Prospectus or for additional information and will use its
best efforts to prevent the issuance of any such stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
any prospectus relating to the securities or suspending any such
qualification and to obtain as soon as possible its lifting, if issued.
(b) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then amended or supplemented
would, in the judgment of the Underwriters, include an untrue statement
of a material fact, or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it is necessary at any time to
amend or supplement the Prospectus to comply with the Act, the Exchange
Act, the Trust Indenture Act or any other law, the Company promptly
will prepare and file, subject to Section 5(a) of the Act, with the
Commission an amendment or supplement which will correct such statement
or omission or an amendment which will effect such compliance and will
notify you and, upon your request prepare and furnish without charge to
each Underwriter and to any dealer in securities as many copies as you
may from time to time reasonably request, of an amended Prospectus or a
supplement to the Prospectus complying with Section 10(a) of the Act
which will correct such statement or omission or effect such
compliance.
(c) The Company will make generally available to the Company's
security holders as soon as practicable an earning statement covering
the twelve-month period ending February 29, 2000 that satisfies the
provisions of Section 11(a) of the Act and the Rules and Regulations
(including Rule 158).
(d) The Company will deliver to each of you as many signed and
conformed copies of the Registration Statement (as originally filed)
and of each amendment thereto (including exhibits filed therewith and
documents incorporated therein by reference as you may reasonably
request and will also deliver to you a conformed copy of the
Registration Statement and each amendment thereto for each of the
Underwriters (including documents incorporated therein by reference).
(e) The Company will take such action as you may reasonably
request, in cooperation with you, to qualify the Securities for
offering and
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<PAGE> 12
sale under the applicable securities laws of such states and other
jurisdictions of the United States as you may designate, and will
maintain such qualifications in effect for as long as may be required
for the distribution of the Securities. The Company will file such
statements and reports as may be required by the laws of each
jurisdiction in which the Securities have been qualified as above
provided.
(f) During the period of five years hereafter, the Company
will furnish to you and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year,
a copy of its annual report to stockholders for such year, and the
Company will furnish to you (i) as soon as available, a copy of each
report or definitive proxy statement of the Company filed with the
Commission under the Securities Exchange Act of 1934 (the "Exchange
Act") or mailed to stockholders and (ii) from time to time, such other
information concerning the Company as you may reasonably request.
(g) During the period beginning from the date hereof and
continuing to and including the later of (i) the termination of trading
restrictions on the Securities, as notified to the Company by you, and
(ii) the Closing Date, not to offer, sell, contract to sell or
otherwise dispose of any debt securities of the Company which mature
more than one year after the Closing Date, without your prior written
consent.
(h) The Company, during the period when the prospectus
relating to the Securities is required to be delivered under the Act,
will file promptly all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Act.
(i) The Company shall use its reasonable best efforts to list
the Securities on the New York Stock Exchange.
SECTION 6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the
Securities on the Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company herein as of the date
hereof and as of the Closing Date with the same force and effect as if made as
of that date, to the performance by the Company of its obligations hereunder and
to the following additional conditions precedent:
(a) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Effective Time shall have occurred not
later than 5:00 P.M., New York time, on the date of this Agreement, or
such later time
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<PAGE> 13
or date as shall have been consented to by you. If the Effective Time
is prior to the execution and delivery of this Agreement, the Company
shall have filed the Prospectus with the Commission pursuant to Rule
424(b) within the applicable time period prescribed for such filing by
the Rules and Regulations and in accordance with Section 5(a) hereof.
In either case, prior to the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or
threatened, or to the knowledge of the Company or you, shall be
contemplated by the Commission; and the Company shall have complied
with all requests for additional information on the part of the
Commission to your reasonable satisfaction.
(b) You shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment or supplement
thereto, contains any untrue statement of fact or omits to state any
fact which, you have concluded, is material and in the case of an
omission is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) You shall have received favorable opinions of Leon R.
Shearer, Vice President and General Counsel for the Company and Baker &
Hostetler LLP, special counsel for the Company, in a form agreed
between Mr. Shearer and Baker & Hostetler LLP and the Underwriters,
dated the Closing Date, to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of Iowa with corporate power and authority to own, lease
and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus;
and the Company is duly qualified to transact business and is
in good standing in each jurisdiction in which it owns or
leases property or in which the conduct of its business
requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not
have a Material Adverse Effect.
(ii) Each of the subsidiaries of the Company has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease
and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus,
and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in
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<PAGE> 14
which it owns or leases properties or in which the conduct of
its business requires such qualification, except to the extent
that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect; all of the issued
and outstanding capital stock of each subsidiary has been duly
authorized and validly issued and is fully paid and
non-assessable, and except as set forth in the Company's
Annual Report on Form 10-K for the 1998 fiscal year, all of
such capital stock, is owned by the Company free and clear of
any pledge, lien, encumbrance, adverse claim or equity.
(iii) This Agreement has been duly authorized,
executed and delivered by the Company.
(iv) The Securities have been duly and validly
authorized, executed, authenticated, issued and delivered and
constitute valid and binding obligations of the Company,
enforceable in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, conform in
all material respects to the description thereof in the
Prospectus and are entitled to the benefits of the Indenture;
(v) The Indenture has been duly authorized, executed
and delivered by the Company and constitutes a valid and
legally binding agreement of the Company, enforceable in
accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors'
rights and to general equity principles, conforms in all
material respects to the description thereof in the
Prospectus, and has been duly qualified under the Trust
Indenture Act.
(vi) The Registration Statement is effective under
the Act and, to the best of their knowledge and information,
no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued under the Act or
proceedings therefor initiated or threatened or are pending or
contemplated by the Commission.
(vii) Statements set forth in the Prospectus under
the headings "Description of the Notes" and "Underwriting" and
in the Registration Statement under Item 15 insofar as such
statements constitute a summary of the legal matters,
documents or proceedings
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<PAGE> 15
referred to therein fairly present the information called for
with respect to such legal matters, documents and proceedings.
(viii) No consent, approval, authorization, order,
filing, registration or qualification of or with any court or
governmental authority or agency is required for the issue and
sale of the Securities or the consummation of the transactions
contemplated by this Agreement, except such as may be required
and have been obtained under the Act and the Rules and
Regulations and the Trust Indenture Act and the TIA Rules and
Regulations and such as may be required under state securities
or Blue Sky laws in connection with the distribution of the
Securities by the Underwriters; and, the issue and sale of the
Securities, the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein will
constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of its
subsidiaries pursuant to, any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument or
agreement known to such counsel to which the Company or any of
its subsidiaries is a party or by which it or any of them may
be bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the
charter or by-laws of the Company, or any law or
administrative regulation or, to such counsel's knowledge,
administrative or court decree or order, applicable to the
Company or any of its subsidiaries.
(ix) After due inquiry, such counsel does not know of
(x) any legal or governmental action, suit or proceeding
pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of
the Company or any subsidiary is subject which is reasonably
likely, individually or in the aggregate, to have a Material
Adverse Effect, or to adversely affect the offering of the
Securities or that is required to be described in the
Registration Statement or the Prospectus and is not so
described or (y) of any material contract or other document
that is required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not so described or filed as
required.
(x) Such counsel (1) (a) is of the opinion that each
document incorporated by reference in the Registration
Statement
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<PAGE> 16
and the Prospectus (other than the financial statements, as to
which no opinion need be rendered) complied as to form when
filed with the Commission in all material respects with the
Exchange Act and the Exchange Act Rules and Regulations and
(b) has no reason to believe that any such document contained
any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading, (2) is of the opinion that the
Registration Statement, as of the Effective Date, any
amendment to the Registration Statement, as of its date or as
of its effective date, and the Prospectus, as of the Effective
Date and as of its date (other than the financial statements
included therein, as to which no opinion need be expressed)
complies as to form in all material respects with the
requirements of the Act and the Rules and Regulations and the
Trust Indenture Act and the TIA Rules and Regulations, and (3)
has no reason to believe that (other than the financial
statements included therein, as to which no belief need be
expressed) the Registration Statement, as of the Effective
Date, any amendment to the Registration Statement, as of its
date or as of its effective date, and the Prospectus, as of
the Effective Date, contained any untrue statement of a
material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements
therein not misleading and that the Prospectus, as of its
date, as of the date of any amendment or supplement thereto,
and as amended or supplemented at the Closing Date, contained
or contains any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) You shall have received from Fried, Frank, Harris, Shriver
& Jacboson, counsel for the Underwriters, opinions, dated the Closing
Date, with respect to such matters as you may reasonably request.
(e) You shall have received from the President or any Senior
Vice President and a principal financial or accounting officer of the
Company a certificate, dated the Closing Date, in which such officers,
to the best of their knowledge and after reasonable investigation,
shall state that there has not been, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, (i) a Material Adverse Effect or (ii) any material
transactions entered into by the Company or any of its subsidiaries
other than those in the ordinary course
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<PAGE> 17
of business, except in the case of clause (i) and clause (ii) as set
forth in or contemplated by the Prospectus; the representations and
warranties of the Company contained in Section 2 are true and correct
with the same force and effect as though made on and as of the Closing
Date and the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or
prior to the Closing Date; and no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or threatened or are
contemplated by the Commission.
(f) You shall have received from KPMG Peat Marwick LLP
independent public accountants, two letters, the first dated the date
of this Agreement and the other dated such Closing Date, addressed to
the Underwriters (with conformed copies for each of the Underwriters),
substantially in the form of Annex I hereto with such variations as are
reasonably acceptable to you.
(g) At the Closing Date counsel for the Underwriters shall
have been furnished with such other documents and opinions as they may
reasonably require.
SECTION 7. PAYMENT OF EXPENSES. The Company will pay all
costs, expenses, fees, disbursements and taxes incident to (i) the preparation
by the Company, printing, filing and distribution of the Registration Statement
(including financial statements and exhibits), the Prospectus, each Preliminary
Prospectus and all amendments and supplements to any of them prior to or during
the period specified in Section 5(b), (ii) the preparation, printing (including
word processing and duplication costs) and delivery of any Agreement Among
Underwriters, this Agreement, the Indenture, Preliminary and Supplemental Blue
Sky Memoranda, Legal investment Survey and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection with the
offering of the Securities, (iii) the registration with the Commission, and the
issuance by the Company, of the Securities, (iv) the registration or
qualification of the Securities for offer and sale under the securities or Blue
Sky laws of the several states (including the reasonable fees and disbursements
of your counsel relating to such registration or qualification), (v) fees and
expenses, if any, incurred in connection with the listing of the Securities on
any stock exchange, (vi) filings and clearance with the National Association of
Securities Dealers, Inc. in connection with the offering, (vii) any fees charged
by securities rating services for rating the Securities, (viii) the fees and
expenses of the Trustee and any agent of the Trustee and the fees and
disbursements of counsel for the Trustee in connection with the Indenture and
the securities and (x) the performance by the
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<PAGE> 18
Company of its other obligations under this Agreement, and all other costs and
expenses incident to the performance of its obligations hereunder which are not
specifically provided for in this Section 7.
If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 6 hereof is not satisfied, because of any termination pursuant
to Section 10 hereof or because of any refusal, failure or inability of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any Underwriter, the Company shall
reimburse you for all of your reasonable out-of-pocket expenses incurred in
connection with marketing and preparing for the offering of the Securities,
including the reasonable fees and disbursements of counsel for the Underwriters,
but the Company shall be under no further liability to any Underwriter except as
provided in Section 8 hereof.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (or actions in respect thereof) (including, without
limiting the foregoing, the reasonable legal and other expenses
incurred in connection with investigating or defending any action, suit
or proceeding or any claim asserted, as such expenses are incurred)
arising out of or based on any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
the Prospectus or any Preliminary Prospectus or any other prospectus
with respect to the Securities, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses are
caused by any such untrue statement or omission or alleged untrue
statement or omission based upon the following information furnished to
the Company by you in (i) the seventh paragraph under the table of the
Underwriters under the caption "Underwriting" in the Prospectus
concerning stabilization by the Underwriters, (ii) the second sentence
of the fourth paragraph of text under the table of the Underwriters
under the caption "Underwriting" in the Prospectus relating to market
making by the representatives and (iii) the second and third sentences
of the second paragraph under the table of the Underwriters under the
caption "Underwriting" in the Prospectus concerning the terms of the
offering by the Underwriters. This indemnity agreement will be in
addition to any
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<PAGE> 19
liability which the Company may otherwise have to the persons referred
to above in this Section 8(a).
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the directors of the Company,
the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (or actions
in respect thereof) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
the Prospectus or any Preliminary Prospectus, or caused by any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but only with reference to the information furnished to the
Company by such Underwriter set forth in the first sentence of Section
8(a). This indemnity agreement will be in addition to any liability
which the Underwriters may otherwise have to the persons referred to
above in this Section 8(b).
(c) In case any action or proceeding (including any
governmental or regulatory investigation or proceeding) shall be
instituted involving any person in respect of which indemnity may be
sought pursuant to any of the two preceding paragraphs, such person
(hereinafter called the indemnified party) shall promptly notify the
person against whom such indemnity may be sought (hereinafter called
the indemnifying party) in writing; however, the omission to so notify
the indemnifying party shall relieve the indemnifying party from
liability under the two preceding paragraphs only to the extent the
indemnifying party is materially prejudiced thereby. The indemnifying
party, upon request of the indemnified party, shall assume the defense
thereof, including the employment of counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any
others that the indemnifying party may designate and shall pay the fees
and disbursements of such counsel related to such proceeding. In any
such action or proceeding any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying
party fails to appoint counsel reasonably satisfactory
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<PAGE> 20
to the indemnified party within a reasonable time after receiving
notice of the commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for (a) the
reasonable fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if
any, who control Underwriters within the meaning of either Section 15
of the Act or Section 20 of the Exchange Act, and (b) the reasonable
fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the
Company within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In the case
of any such separate firm for the Underwriters and such control persons
of Underwriters, such firm shall be designated in writing by Lazard
Freres & Co. LLC In the case of any such separate firm for the Company,
and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company.
(d) If the indemnification provided for in this Section 8 is
insufficient or unavailable to an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law or if the indemnified party shall have
failed to the material prejudice of the indemnifying party to give the
notice required by Section 8(c), in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportions
as the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault of
the Company on the one hand and the Underwriters on the other shall be
determined by reference to, among other things, whether
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<PAGE> 21
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to Section 8(d) were
determined by PRO RATA allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to in
the immediately preceding paragraph shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of Section 8(d), in no event shall any
Underwriter be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by
it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to Section 8(d) are several in proportion to the
respective principal amounts of Securities set forth opposite their
names in Schedule I hereto and not joint.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties and agreements contained in
the Agreement, or contained in certificates of officers of the Company submitted
hereto, including indemnity and contribution agreements, shall remain operative
and in full force and effect, regardless of any termination of this Agreement,
or any investigation, or any statement as to the results thereof, made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or controlling persons, and
shall survive acceptance of and payment for Securities hereunder.
If this Agreement is terminated pursuant to Section 10 or if
for any reason the purchase of Securities by the Underwriters is not
consummated, the Company shall remain responsible for the expenses to be paid or
reimbursed by it
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<PAGE> 22
pursuant to Section 7 and the respective obligations of the Company and the
Underwriters pursuant to Section 8 shall remain in effect.
Anything herein to the contrary notwithstanding, the indemnity
agreement of the Company in subsection (a) of Section 8 hereof, the
representations and warranties in subsections (b) and (c) of Section 2 and any
representation or warranty as to the accuracy of the Registration Statement or
the Prospectus contained in any certificate furnished by the Company pursuant to
Section 6 hereof, insofar as they may constitute a basis for indemnification for
liabilities (other than payment by the Company of expenses incurred or paid in
the successful defense of any action, suit or proceeding) arising under the Act,
shall not extend to the extent of any interest therein of a controlling person
or partner of any Underwriter who is a director, officer or controlling person
of the Company when the Registration Statement has become effective or who, with
his consent, is named in the Registration Statement as about to become a
director of the Company, except in each case to the extent that an interest of
such character shall have been determined by a court of appropriate jurisdiction
as not against public policy as expressed in the Act. Unless in the opinion of
counsel for the Company the matter has been settled by controlling precedent,
the Company will, if a claim for such indemnification is asserted, submit to a
court of appropriate jurisdiction the question whether such interest is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SECTION 10. TERMINATION. This Agreement may be terminated for
any reason at any time prior to the delivery and payment of the Securities on
the Closing Date by Lazard Freres & Co. LLC upon the giving of written notice of
such termination to the Company, if prior to such time (i) there has been, since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, (A) any Material Adverse Effect or (B) any
material transaction entered into by the Company or any subsidiary other than in
the ordinary course of business, or (ii) there has occurred any outbreak or
escalation of hostilities or other calamity or crisis or material change in
existing national or international financial, political, economic or securities
market conditions, the effect of which is such as to make it, in the judgment of
Lazard Freres & Co. LLC, impracticable or inadvisable to market the Securities
in the manner contemplated in the Prospectus or enforce contracts for the sale
of the Securities, or (iii) reporting of bid and asked prices of the Common
Stock of the Company has been suspended by the National Association of
Securities Dealers, Inc., or trading in the Common Stock of the Company has been
suspended by the Commission or a national securities exchange, or trading
generally on either the American Stock Exchange or the New York Stock Exchange
has been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges
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<PAGE> 23
for prices for securities have been required, by either of said exchanges or by
order of the Commission or any other governmental authority, or if a banking
moratorium has been declared by either Federal or New York authorities or (iv)
any downgrading shall have occurred in the rating accorded any of the Company's
debt securities by any "nationally recognized statistical rating organization,
as that term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act or any organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of any
of the Company's debt securities. In the event of any such termination, the
provisions of Section 7, the indemnity agreement and contribution provisions set
forth in Section 8, and the provisions of Sections 9 and 14 shall remain in
effect.
SECTION 11. DEFAULT. If, on the Closing Date any one or more
of the Underwriters shall fail or refuse to purchase Securities that it or they
have agreed to purchase hereunder on such date, and the aggregate principal
amount of Securities which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase is not more than one-tenth of the aggregate
principal amount of the Securities to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the principal
amount of Securities set forth opposite their respective names in Schedule I
bears to the aggregate principal amount of Securities set forth opposite the
names of all such non-defaulting Underwriters, or in such other proportions as
you may specify, to purchase the Securities which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the principal amount of Securities that any Underwriter
has agreed to purchase pursuant to Section 3 be increased pursuant to this
Section 11 by an amount in excess of one-ninth of such principal amount of
Securities without the written consent of such Underwriter. If, on the Closing
Date any Underwriter or Underwriters shall fail or refuse to purchase Securities
and the aggregate principal amount of Securities with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of
Securities to be purchased on such date, and arrangements satisfactory to you
and the Company for the purchase of such Securities are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting underwriter from liability in respect of any default of
such Underwriter under this Agreement.
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<PAGE> 24
SECTION 12. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to you c/o Lazard Freres & Co. LLC, One
Rockefeller Plaza, New York, NY 10020, Attention: Syndicate Department; and
notices to the Company shall be directed to it at Pioneer Hi-Bred International,
Inc., 800 Capital Square, P.O. Box 14456, Des Moines, IA 50306-3456, telephone
no. (515) 248-4800, facsimile transmission no. (515) 248-4999, attention of the
Secretary with copy to the Treasurer.
SECTION 13. PARTIES. This Agreement shall inure to the benefit
of and be binding upon the Company, its directors and officers who signed the
Registration Statement, the Underwriters, any controlling persons referred to
herein and their respective successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person, firm or corporation any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained. No purchaser
of Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
SECTION 14. GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the law of the State of New York.
SECTION 15. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
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<PAGE> 25
If the foregoing is in accordance with your understanding of
our agreement, please sign this Agreement and return to us counterparts hereof.
Very truly yours,
PIONEER HI-BRED INTERNATIONAL, INC.
By
---------------------------
Name:
Title:
Confirmed and Accepted, as of the
date first above written:
LAZARD FRERES & CO. LLC
CHASE SECURITIES INC.
Acting severally on behalf of themselves
and the several Underwriters named herein.
- -----------------------
Lazard Freres & Co. LLC
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<PAGE> 26
SCHEDULE I
PRINCIPAL AMOUNT
OF SECURITIES
UNDERWRITER TO BE PURCHASED
- ----------- ---------------------
Lazard Freres & Co. LLC............................
Chase Securities Inc...............................
Total
=====================
I-1
<PAGE> 27
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 6(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the
meaning of the Act and the applicable published rules and
regulations thereunder;
(ii) In their opinion, the financial statements and
any supplementary financial information and schedules audited
(and, if applicable, prospective financial statements and/or
pro forma financial information examined) by them and included
in the Prospectus or the Registration Statement comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations; and, if applicable, they have made a review in
accordance with standards established by the American
Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, selected financial
data, pro forma financial information, prospective financial
statements and/or condensed financial statements derived from
audited financial statements of the Company for the periods
specified in such letter, as indicated in their reports
attached to such letters, copies of which have been furnished
to the Underwriters;
(iii) On the basis of limited procedures, not
constituting an audit in accordance with generally accepted
auditing standards, consisting of a reading of the unaudited
financial statements and other information referred to below,
a reading of the latest available interim financial statements
of the Company and its subsidiaries, inspection of the minute
books of the Board of Directors and the committees thereof of
the Company and its subsidiaries since the date of the latest
audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to
believe that:
II-1
<PAGE> 28
(A) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus
do not comply as to form in all material respects
with the applicable accounting requirements of the
Act and the related published Rules and Regulations,
or are not in conformity with generally accepted
accounting principles applied on a basis
substantially consistent with the basis for the
audited consolidated statements of income,
consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus;
(B) any other unaudited income statement
data and balance sheet items included in the
Prospectus do not agree with the corresponding items
in the unaudited consolidated financial statements
from which such data and items were derived, and any
such unaudited data and items were not determined on
a basis substantially consistent with the basis for
the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which
were not included in the Prospectus but from which
were derived any unaudited condensed financial
statements referred to in paragraph (A) and any
unaudited income statement data and balance sheet
items included in the Prospectus and referred to in
paragraph (B) were not determined on a basis
substantially consistent with the basis for the
audited consolidated financial statements included in
the Prospectus;
(D) any unaudited pro forma consolidated
condensed financial statements included in the
Prospectus do not comply as to form in all material
respects with the applicable accounting requirements
of the Act and the published Rules and Regulations or
the pro forma adjustments have not been properly
applied to the historical amounts in the compilation
of those statements;
(E) as of a specified date not more than
five days prior to the date of such letter, there
have been any changes in the consolidated capital
stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights
II-2
<PAGE> 29
and upon earn-outs of performance shares, in each
case which were outstanding on the date of the latest
financial statements included in the Prospectus) or
any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in
consolidated net current assets or net assets or
other items specified by the Underwriters, or any
increases in any items specified by the Underwriters,
in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus,
except in each case for changes, increases or
decreases which the Prospectus discloses have
occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the
latest financial statements included in the
Prospectus to the specified date referred to in
paragraph (E) there were any decreases in
consolidated net revenues or operating profit or the
total or per share amounts of consolidated net income
or other items specified by the Underwriters, or any
increases in any items specified by the Underwriters,
in each case as compared with the comparable period
of the preceding year and with any other period of
corresponding length specified by the Underwriters,
except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur
or which are described in such letter;
(G) certain sections of the Prospectus did
not comply in all material respects with the
disclosure obligations under Regulation S-K under the
Act (e.g., "Selected Financial Data" (Item 301),
"Supplementary Financial Information" (Item 302),
"Ratio of Earnings to Fixed Charges" (Item 503(d))
and "Executive Compensation" (Item 402);
(iv) In addition to the audit referred to in their
report(s) included in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (ii) and (iii) above,
they have carried out certain specified procedures, not
constituting an audit in accordance with generally accepted
auditing standards, with respect to certain amounts,
percentages and financial information specified by the
Underwriters, which are derived from the general accounting
records of the Company and its subsidiaries, which appear in
the Prospectus, or in
II-3
<PAGE> 30
Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information
with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
II-4
<PAGE> 1
Exhibit 4.1
PIONEER HI-BRED INTERNATIONAL, INC., AS ISSUER,
AND
CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION,
AS TRUSTEE
-------
INDENTURE
DATED AS OF , 1999
-------
% SENIOR NOTES DUE 2009
<PAGE> 2
INDENTURE, dated as of , 1999, between Pioneer
Hi-Bred International, Inc. and Chase Manhattan Trust Company, National
Association, as trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of %
Senior Notes due 2009 (the "Securities"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture and the Securities;
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act that are required to be part of and to
govern indentures qualified under the Trust Indenture Act;
All acts and things necessary have been done to make (i) the
Securities, when duly issued and executed by the Company and authenticated and
delivered hereunder, the valid obligations of the Company and (ii) this
Indenture a valid agreement of the Company;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
<PAGE> 3
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(e) all references to $, US$, dollars or United States dollars
shall refer to the lawful currency of the United States of America; and
(f) all references herein to particular Sections or Articles
refer to this Indenture unless otherwise so indicated.
Certain terms used principally in Article Four are defined in
Article Four.
"Affiliate" means, with respect to any specified Person: (i)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person; (ii) any other
Person that owns, directly or indirectly, 5% or more of such specified Person's
Capital Stock or any officer or director of any such specified Person or other
Person or, with respect to any natural Person, any person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin; or (iii) any other Person 5% or more of the Voting Stock of which is
beneficially owned or held directly or indirectly by such specified Person. For
the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security to the extent
applicable to such transaction and as in effect at the time of such transfer or
transaction.
"Attributable Indebtedness" means, when used in connection
with a Sale and Leaseback Transaction, at any date of determination, the present
value (discounted according to GAAP at the cost of indebtedness implied in the
lease) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale and Leaseback Transaction
(including any period for which such lease has been extended).
"Bankruptcy Law" means Title 11, United States Bankruptcy Code
of 1978, as amended, or any similar United States federal or state law or
foreign law relating to
2
<PAGE> 4
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means either the Board of Directors of
the Company or any duly authorized committee or subcommittee of such Board,
except as the context may otherwise require.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company, as the case may be, to
have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
"Book-Entry Security" means any Global Securities bearing the
legend specified in Section 202 evidencing all or part of a series of
Securities, authenticated and delivered to the Depositary for such series or its
nominee, and registered in the name of such Depositary or nominee.
"Business Day" means any day that is not a Saturday, a Sunday
or a day on which banking institutions or trust companies in New York City and
Cleveland are authorized or obligated by law to close.
"Capitalized Lease Obligation" means, as applied to any
Person, any obligation that is required to be classified and accounted for as a
capitalized lease for financial reporting purposes in accordance with GAAP; and
the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests (including partnership interests) in (however
designated) the equity of such Person, including any Preferred Stock, but
excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Securities Act, Exchange Act
and Trust Indenture Act then the body performing such duties at such time.
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<PAGE> 5
"Common Stock" of any Person means capital stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Company" means Pioneer Hi-Bred International, Inc., until a
successor Person shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Company" shall mean such successor Person. To
the extent necessary to comply with the requirements of the provisions of
Sections 310 through 317 of the Trust Indenture Act as they are applicable to
the Company, the term "Company" shall include any other obligor with respect to
the Securities for purposes of complying with such provisions.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by any one of its Chairman of the
Board, its President, its Chief Executive Officer, its Chief Financial Officer
or a Vice President (regardless of Vice Presidential designation), and by any
one of its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary and delivered to the Trustee.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker as having a maturity
comparable to the remaining term of the Securities to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of a comparable
maturity to the remaining term of such Notes. "Independent Investment Banker"
means one of the Reference Treasury Dealers appointed by the Trustee after
consultation with the Company.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for
such Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer Quotations" mean, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 3:30 p.m., New York
time, on the third Business Day preceding such Redemption Date.
"Consolidated Net Tangible Assets" means as of any date, the
total amount of assets of the Company and its Restricted Subsidiaries on a
consolidated basis at the end of the fiscal quarter immediately preceding such
date, as determined in accordance with GAAP, less (i) Intangible Assets and (ii)
appropriate adjustments on account of minority
4
<PAGE> 6
interests of other Persons holding equity investments in Restricted
Subsidiaries, in the case of each of clauses (i) and (ii) above as reflected on
the consolidated balance sheet of the Company and its Restricted Subsidiaries as
of the end of the fiscal quarter immediately preceding such date.
"Consolidation" means, with respect to any Person, the
consolidation of the accounts of such Person and each of its subsidiaries if and
to the extent the accounts of such Person and each of its subsidiaries would
normally be consolidated with those of such Person, all in accordance with GAAP.
The term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 250 West
Huron Road, Suite 220, Cleveland, Ohio 44113.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Depositary" means, with respect to the Securities issued in
the form of one or more Book-Entry Securities, The Depository Trust Company
("DTC"), its nominees and successors, or another Person designated as Depositary
by the Company, which must be a clearing agency registered under the Exchange
Act.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an arm's-length free market
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy. Fair Market Value
shall be determined by the Board of Directors of the Company acting in good
faith and shall be evidenced by a resolution of the Board of Directors.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in the United States as in effect on
the Issue Date.
"Global Securities" means Global Securities to be issued as
Book-Entry Securities issued to the Depositary in accordance with Section 306.
"Holder" means the registered holder of any Security.
5
<PAGE> 7
"Incur" means issue, assume, guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such Person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. The terms "Incurred," "Incurrence" and "Incurring" shall each have a
correlative meaning.
"Indebtedness" means with respect to any Person at any date of
determination (without duplication), indebtedness for borrowed money or
indebtedness evidenced by bonds, notes, debentures or other similar instruments
given to finance the acquisition of any businesses, properties or assets of any
kind (including, without limitation, capital stock or other equity interests in
any Person).
"Indenture" means this instrument as originally executed
(including all exhibits and schedules thereto) and as it may from time to time
be supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company
and any other obligor under this Indenture or under the Securities, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with this Indenture, the
Securities and the performance of all other obligations to the Trustee and the
Holders under this Indenture and the Securities, according to the respective
terms hereof and thereof.
"Intangible Assets" means all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights, write-ups of assets over their carrying value at
the end of the last fiscal quarter ended prior to the Issue Date or the date of
acquisition, if acquired subsequent thereto, and all other items which would be
treated as intangibles on the consolidated balance sheet of the consolidated
balance sheet of the Company and its Restricted Subsidiaries prepared in
accordance with GAAP.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Issue Date" means the original issue date of the Securities
under this Indenture.
"Lien" with respect to any property or assets, means any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or
6
<PAGE> 8
preferential arrangement of any kind or nature whatsoever on or with respect to
such property or assets (including, without limitation, any conditional sale or
other title retention agreement having substantially the same economic effect as
any of the foregoing), but not including the interest of a lessor under a lease
that is an operating lease under GAAP.
"Maturity" means, when used with respect to the Securities,
the date on which the principal of the Securities becomes due and payable as
therein provided or as provided in this Indenture, whether at Stated Maturity or
the Redemption Date and whether by declaration of acceleration, call for
redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any
successor rating agency.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the President, the Chief Executive Officer, the Chief
Financial Officer or a Vice President (regardless of Vice Presidential
designation), and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company and in form and substance reasonably
satisfactory to, and delivered to, the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, or the Trustee, unless an Opinion of Independent
Counsel is required pursuant to the terms of this Indenture, and who shall be
reasonably acceptable to the Trustee, and which opinion shall be in form and
substance reasonably satisfactory to the Trustee.
"Opinion of Independent Counsel" means a written opinion of
counsel which is issued by a Person who is not an employee, director or
consultant (other than non-employee legal counsel) of the Company and who shall
be reasonably acceptable to the Trustee, and which opinion shall be in form and
substance reasonably satisfactory to the Trustee.
"Outstanding" when used with respect to Securities means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company or any Affiliate thereof) in
trust or set aside and segregated in trust by the Company or any Affiliate
thereof (if the Company or any
7
<PAGE> 9
Affiliate thereof shall act as its own Paying Agent) for the Holders of such
Securities; provided that if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision therefor
reasonably satisfactory to the Trustee has been made;
(c) Securities, to the extent provided in Sections 402 and
403, with respect to which the Company has effected defeasance or covenant
defeasance as provided in Article Four; and
(d) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this Indenture,
other than any such Securities in respect of which there shall have been
presented to the Trustee and the Company proof reasonably satisfactory to each
of them that such Securities are held by a bona fide purchaser in whose hands
the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the reasonable
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person (including the Company)
authorized by the Company to pay the principal of, premium, if any, or interest
on, any Securities on behalf of the Company.
"Permitted Lien" means with respect to any Person, (a) Liens
existing on or provided for under the terms of agreements existing on the Issue
Date; (b) Liens on property at the time the Company or any of its Restricted
Subsidiaries acquired the property or the entity owning such property, including
any acquisition by means of a merger, amalgamation, combination or consolidation
with or into the Company; provided, however, that any such Lien may not extend
to any other property owned by the Company or any of its Restricted
Subsidiaries; (c) Liens on accounts receivable, inventory or containers,
returnable packaging or cases to secure working capital or revolving credit
indebtedness incurred in the ordinary course of business; (d) Purchase Money
Liens and Liens arising in connection with Capitalized Lease Obligations that do
not arise in
8
<PAGE> 10
connection with Sale and Leaseback Transactions; (e) Liens securing only
Indebtedness of a Wholly-Owned Restricted Subsidiary of the Company to the
Company or one or more Wholly-Owned Restricted Subsidiaries of the Company; (f)
Liens resulting from the deposit of funds or evidences of Indebtedness in trust
for the purpose of defeasing Indebtedness of the Company or any of its
Restricted Subsidiaries; (g) legal or equitable encumbrances deemed to exist by
reason of negative pledges; (h) Liens on property or shares of stock of another
Person at the time such other Person becomes a Restricted Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or assumed
in connection with, or in contemplation of, such other Person becoming such a
Restricted Subsidiary of such Person; provided further, however, that such Lien
may not extend to any other property owned by such Person or any of its
Restricted Subsidiaries; (i) Liens arising in connection with Capitalized Lease
Obligations in Sale and Leaseback Transactions with respect to which the
Attributable Indebtedness outstanding at any time shall not exceed $25 million
in the aggregate; and (j) Liens to secure any refinancing, refunding, extension,
substitution, renewal or replacement (or successive refinancings, refundings,
extensions, substitutions, renewals or replacements), as a whole, or in part, of
any Indebtedness secured by any Lien referred to in the foregoing clauses (a)
through (h); provided, however, that (i) such new Lien shall be limited to all
or part of the same property that secured the original Lien (plus improvements
on or to such property) and (ii) the Indebtedness secured by such Lien at such
time is not increased to any amount greater than the sum of (A) the outstanding
principal amount or, if greater, committed amount of the Indebtedness described
under clauses (a) through (h) at the time the original Lien became a Permitted
Lien under this Indenture and (B) any amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding, extension,
removal or replacement.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization, government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 307 in exchange for a
mutilated Security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"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,
whether now outstanding or issued after the date of the Indenture, including,
without limitation, all series and classes of such preferred or preference
stock.
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<PAGE> 11
"Principal Property" means any real or personal property owned
or leased by the Company or any Subsidiary the net book value of which on the
date as of which the determination is being made exceeds 2% of the Consolidated
Net Tangible Assets of the Company and its Restricted Subsidiaries, provided
that Principal Property shall not include any real or personal property owned or
leased by the Company or any Subsidiary which the Company's Board of Directors
has in good faith determined pursuant to a written resolution is not material,
either singly or together with all other real and personal property owned or
leased by all Unrestricted Subsidiaries, to the Company and its Subsidiaries,
taken as a whole.
"Purchase Money Lien" means a Lien on property securing
Indebtedness Incurred by the Company or any of its Restricted Subsidiaries to
provide funds for all or any portion of the cost of acquiring, constructing,
altering, expanding, improving or repairing such property or assets used in
connection with such property.
"Redemption Date" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to
be redeemed pursuant to any provision in this Indenture means the price at which
it is to be redeemed pursuant to this Indenture.
"Reference Treasury Dealer" means each of Lazard Freres & Co.
LLC, Chase Securities Inc. and two other primary U.S. Government securities
dealers in The City of New York to be selected by the Company, and their
respective successors.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the ________ or ___________ (whether or not a Business Day)
next preceding such Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee
means any officer or employee assigned to the Corporate Trust Office or any
agent of the Trustee appointed hereunder, including any vice president,
assistant vice president, secretary, assistant secretary, or any other officer
or assistant officer of the Trustee or any agent of the Trustee appointed
hereunder to whom any corporate trust matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means, as of any date, any Subsidiary
which owns or leases a Principal Property and any other Subsidiary which is not
then currently designated as an Unrestricted Subsidiary by the Company.
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<PAGE> 12
"Sale and Leaseback Transaction" of any Person means an
arrangement with any lender or investor or to which such lender or investor is a
party providing for the leasing by such Person of any property or asset of such
Person which has been or is being sold or transferred by such Person more than
180 days after the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any Person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset. The Stated Maturity of such arrangement will
be the date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be terminated
by the lessee without payment of a penalty. Notwithstanding the foregoing,
neither (a) a transaction involving a lease with a term of less than three years
or (b) a transaction between the Company and a Restricted Subsidiary of the
Company or between Restricted Subsidiaries of the Company shall be deemed a Sale
and Leaseback Transaction.
"S&P" means Standard & Poor's Rating Group, a division of
McGraw Hill, Inc. or any successor rating agency.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means any Indebtedness of the Company or
any Guarantor which is not expressly subordinated in right of payment to any
other Indebtedness of the Company.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 308.
"Stated Maturity" means, when used with respect to any
security, the date specified in such security as the fixed date on which the
payment of principal of such security is due and payable, including pursuant to
any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency beyond the control of the issuer unless such
contingency has occurred).
"Subsidiary" of a Person means, with respect to any Person,
any corporation, association, partnership or other business entity of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person, or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means (i) any evidence of
Indebtedness, maturing not more than one year after the date of acquisition,
issued by the United States of America, or an instrumentality or agency thereof,
and guaranteed fully as to principal,
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<PAGE> 13
premium, if any, and interest by the United States of America, (ii) any
certificate of deposit, maturing not more than one year after the date of
acquisition, issued by, or time deposit of, a commercial banking institution
that is a member of the Federal Reserve System and that has combined capital and
surplus and undivided profits of not less than $500,000,000, whose debt has a
rating, at the time as of which any investment therein is made, of "P-1" (or
higher) according to Moody's or any successor rating agency or "A-1" (or higher)
according to S&P or any successor rating agency, including the Trustee or any of
its affiliates, (iii) commercial paper, maturing not more than one year after
the date of acquisition, issued by a corporation (other than an Affiliate or
Subsidiary of the Company) organized and existing under the laws of the United
States of America with a rating, at the time as of which any investment therein
is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, including the Trustee or any of its affiliates and (iv) any
money market deposit accounts issued or offered by a domestic commercial bank
having capital and surplus in excess of $500,000,000; provided that the short
term debt of such commercial bank has a rating, at the time of investment, of
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P.
"Treasury Rate" means, with respect to any Redemption Date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended, or any successor statute.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such by the Board of Directors from time to time and in compliance
with Sections 1005 and 1006 herein.
"Voting Stock" of a Person means Capital Stock of any class or
kind ordinarily having the power to vote for the election of directors of the
Company.
"Wholly-Owned Restricted Subsidiary" is defined to mean, with
respect to any Person, any Restricted Subsidiary of such Person if all of the
Common Stock or other similar equity ownership interests (but not including
Preferred Stock) in such Restricted Subsidiary (other than any directors'
qualifying shares or shares issued to Persons to comply with local laws) is
owned directly or indirectly by such Person.
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Section 102. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Term Defined in Section
- ---- ------------------
<S> <C>
"Act" 105
"Agent Members" 306
"CUSIP" 309
"Defaulted Interest" 308
"Defeased Securities" 401
"Securities" Recitals
"Security Register" 305
"Security Registrar" 305
"Significant Subsidiary" 501
"Special Payment Date" 309
"Successor Person" 801
"U.S. Government Obligations" 404
</TABLE>
Section 103. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company and any
other obligor on the Securities (if applicable) shall furnish to the Trustee an
Officers' Certificate in a form and substance reasonably acceptable to the
Trustee stating that all conditions precedent, if any, provided for in this
Indenture (including any covenant compliance with which constitutes a condition
precedent) relating to the proposed action have been complied with, and an
Opinion of Counsel in a form and substance reasonably acceptable to the Trustee
stating that in the opinion of such counsel all such conditions precedent, if
any, have been complied with, except that, in the case of any such application
or request as to which the furnishing of such certificates or opinions is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(a) a statement that each individual signing such certificate
or individual or firm signing such opinion has read and understands such
covenant or condition and the definitions herein relating thereto;
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<PAGE> 15
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual
or such firm, he or it has made such examination or investigation as is
necessary to enable him or it to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been complied with.
Section 104. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate of an officer of the Company or other obligor
on the Securities may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or
other obligor on the Securities stating that the information with respect to
such factual matters is in the possession of the Company or other obligor on the
Securities, unless such officer or counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous. Opinions of Counsel required to be
delivered to the Trustee may have qualifications customary for opinions of the
type required and counsel delivering such Opinions of Counsel may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, including certificates certifying as to matters
of fact, including that various financial covenants have been complied with.
Any certificate or opinion of an officer of the Company or
other obligor on the Securities may be based, insofar as it relates to
accounting matters, upon a certificate or opinion of, or representations by, an
accountant or firm of accountants in the employ of the Company, unless such
officer knows, or in the exercise of reasonable care should
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know, that the certificate or opinion or representations with respect to the
accounting matters upon which his certificate or opinion may be based are
erroneous. Any certificate or opinion of any independent firm of public
accountants filed with the Trustee shall contain a statement that such firm is
independent with respect to the Company.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Section 105. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section 105.
(b) The ownership of Securities shall be proved by the
Security Register.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holder of any Security shall bind every
future Holder of the same Security or the Holder of every Security issued upon
the transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company or any other obligor of the Securities in reliance thereon,
whether or not notation of such action is made upon such Security.
(d) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
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(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding Trust
Indenture Act Section 316(c), any such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such first solicitation is
completed.
If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for purposes of
determining whether Holders of the requisite proportion of Securities then
Outstanding have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for this
purpose the Securities then Outstanding shall be computed as of such record
date; provided that no such request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after such record date.
(f) For purposes of this Indenture, any action by the Holders
which may be taken in writing may be taken by electronic means or as otherwise
reasonably acceptable to the Trustee.
Section 106. NOTICES, ETC., TO THE TRUSTEE, THE COMPANY.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any other
obligor on the Securities shall be sufficient for every purpose (except as
provided in Section 501(d), in which case, the notice shall be delivered by
certified mail) hereunder if in writing and mailed, first-class postage prepaid,
or delivered by recognized overnight courier, to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trust Department, or at any other
address previously furnished in writing to the Holders or the Company, or any
other obligor on the Securities by the Trustee; or
(b) the Company by the Trustee or any Holder shall be
sufficient for every purpose (except as provided in Section 501(d), in which
case, the notice shall be delivered by certified mail) hereunder if in writing
and mailed, first-class postage prepaid,
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or delivered by recognized overnight courier, to the Company addressed to
Pioneer Hi-Bred International, Inc., 400 Locust Street, Suite 800, Des Moines,
Iowa 50309, Attention: Chief Financial Officer, or at any other address
previously furnished in writing to the Trustee by the Company.
Section 107. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, or
delivered by recognized overnight courier, to each Holder affected by such
event, at its address as it appears in the Security Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner shall
be conclusively deemed to have been received by such Holder whether or not
actually received by such Holder. Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Indenture, then any method of giving
such notice as shall be reasonably satisfactory to the Trustee shall be deemed
to be a sufficient giving of such notice.
Section 108. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with
any provision of the Trust Indenture Act or another provision which is required
or deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
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Section 110. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
and the Trustee shall bind their respective successors and assigns, whether so
expressed or not.
Section 111. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 112. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person (other than the parties hereto and their
successors hereunder, any Paying Agent and the Holders) any benefit or any legal
or equitable right, remedy or claim under this Indenture.
SECTION 113. GOVERNING LAW.
THIS INDENTURE, THE SECURITIES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
Section 114. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date,
Maturity or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on such Interest Payment Date or Redemption Date, or at
the Maturity or Stated Maturity and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 115. INDEPENDENCE OF COVENANTS.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
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Section 116. SCHEDULES AND EXHIBITS.
All schedules and exhibits attached hereto are by this
reference made a part hereof with the same effect as if herein set forth in
full.
Section 117. COUNTERPARTS.
This Indenture may be executed in any number of counterparts,
each of which shall be deemed an original; but all such counterparts shall
together constitute but one and the same instrument.
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ARTICLE TWO
SECURITY FORMS
Section 201. FORMS GENERALLY.
The Securities and the Trustee's certificate of authentication
thereon shall be in substantially the forms set forth in this Article Two, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted hereby and may have such letters, numbers or other
marks of identification and such legends or endorsements placed thereon as may
be required to comply with the rules of any securities exchange, any
organizational document or governing instrument or applicable law or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
The Securities shall be issued initially in the form of one or
more Global Securities, substantially in the form set forth in Section 202,
deposited upon issuance with the Trustee, as custodian for the Depositary,
registered in the name of the Depositary or its nominee, in each case for credit
to an account of a direct or indirect participant of the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Section 202. FORM OF FACE OF SECURITY.
The form of the face of any Securities authenticated and
delivered hereunder shall be substantially as follows:
[Legend if Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A
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SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES
OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
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PIONEER HI-BRED INTERNATIONAL, INC.
------------------
_____% SENIOR NOTE DUE 2009
CUSIP NO. ______________
No. __________ $_______________________
Pioneer Hi-Bred International, Inc., an Iowa corporation
(herein called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to or registered assigns, the principal sum of United States dollars on
_________, 2009, at the office or agency of the Company referred to below, and
to pay interest thereon from ______, 1999, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, semiannually
on ______ and _________ in each year, commencing _________, 1999 at the rate of
______% per annum, in United States dollars, until the principal hereof is paid
or duly provided for. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security is registered at the close of business
on the Regular Record Date for such interest, which shall be the _________ or
_________ (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid, or duly
provided for, and interest on such defaulted interest at the interest rate borne
by the Securities, to the extent lawful, shall forthwith cease to be payable to
the Holder on such Regular Record Date, and may either be paid to the Person in
whose name this Security (or any Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in this
Indenture.
Payment of the principal of, premium, if any, and interest on,
this Security, and exchange or transfer of the Security, will be made at the
office or agency of the Company in The City of New York maintained for such
purpose (which initially will be a corporate trust office of the Trustee or its
affiliate located at 55 Water Street, Room 234, North Building, New York, NY),
or at such other office or agency as may be maintained
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for such purpose, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided, however, that payment of interest may be made at the option of the
Company by check mailed to the address of the Person entitled thereto as such
address shall appear on the Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
PIONEER HI-BRED INTERNATIONAL, INC.
[Seal] By:
--------------------------------
Name:
Title:
Attest:
- ----------------------------
Authorized Officer
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the _____% Senior Notes due 2009 referred to in
the within-mentioned Indenture.
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
By: ____________________________
Authorized Signer
Dated:
Section 203. FORM OF REVERSE OF SECURITIES.
The form of the reverse of the Securities shall be substantially as follows:
PIONEER HI-BRED INTERNATIONAL, INC.
___% Senior Note due 2009
This Security is one of a duly authorized issue of Securities
of the Company designated as its _____% Senior Notes due 2009 (herein called the
"Securities"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $200,000,000, issued under and
subject to the terms of an indenture (herein called the "Indenture") dated as of
_________, 1999, between the Company and Chase Manhattan Trust Company, National
Association, as trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties, obligations and immunities thereunder of
the Company, the Trustee and the Holders of the Securities, and of the terms
upon which the Securities are, and are to be, authenticated and delivered.
The Securities may be redeemed at any time, at the option of
the Company, in whole or from to time in part, upon not less than 30 and not
more than 60 days' notice to the Holders thereof as provided in the Indenture,
at a Redemption Price equal to the greater of (i) 100% of the principal amount
of the Securities and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the
Redemption Date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 15 basis points, plus, in
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each case, accrued interest to the Redemption Date (subject to the right of
holders of record of such Securities on relevant record dates to receive
interest due on an interest payment date), if any.
If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities or portions thereof to be redeemed on a pro
rata basis, by lot or by any other method the Trustee shall deem fair and
appropriate.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time
of (a) the entire Indebtedness on the Securities and (b) certain covenants and
Defaults and Events of Default, in each case upon compliance with certain
conditions set forth therein.
The Indenture permits, with certain exceptions (including
certain amendments permitted without the consent of any Holders and certain
amendments which required the consent of all of the Holders) as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Indenture and
the Securities at any time by the Company and the Trustee with the consent of
the Holders of at least a majority in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of at least a majority in aggregate principal amount of
the Securities (100% of the Holders in certain circumstances) at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and the Securities and
certain past Defaults and Events of Default under the Indenture and the
Securities and their consequences. Any such consent or waiver by or on behalf of
the Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security
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issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, any Guarantor or any other obligor on the Securities (in the event such
Guarantor or such other obligor is obligated to make payments in respect of the
Securities), which is absolute and unconditional, to pay the principal of, and
premium, if any, and interest on, this Security at the times, place, and rate,
and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company in the Borough of Manhattan, The
City of New York, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or its attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Securities are exchangeable for a like
aggregate principal amount of Securities of a differing authorized denomination,
as requested by the Holder surrendering the same.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security is overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
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ARTICLE THREE
THE SECURITIES
Section 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $200,000,000 in
principal amount of Securities, except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 303, 304, 305, 307, 906 or 1108.
The Securities shall be known and designated as the "_____%
Senior Notes due 2009" of the Company. The Stated Maturity of the Securities
shall be _______, 2009, and the Securities shall each bear interest at the rate
of _____% per annum, as such interest rate may be adjusted as set forth in the
Securities, from _______, 1999, or from the most recent Interest Payment Date to
which interest has been paid, payable semiannually on ________ and _________ in
each year, commencing _________, 1999, until the principal thereof is paid or
duly provided for.
The principal of, premium, if any, and interest on, the
Securities shall be payable and the Securities shall be exchangeable and
transferable at an office or agency of the Company in The City of New York
maintained for such purposes (which initially will be a corporate trust office
of the Trustee or its affiliate located at 55 Water Street, Room 234, North
Building, New York, NY); provided, however, that payment of interest may be made
at the option of the Company by check mailed to addresses of the Persons
entitled thereto as shown on the Security Register.
The Securities shall be redeemable as provided in Article
Eleven and in the Securities.
The Indebtedness evidenced by the Securities shall rank pari
passu in right of payment with all other Senior Indebtedness.
At the election of the Company, the entire Indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Defaults and Events of Default thereunder may be defeased as provided in Article
Four.
Section 302. DENOMINATIONS.
The Securities shall be issuable only in fully registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
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Section 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by
one of its Chairman of the Board, its President, its Chief Executive Officer,
its Chief Financial Officer or one of its Vice Presidents under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signatures of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as
provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security endorsed thereon shall be entitled to any benefit
under this Indenture or be valid or obligatory for any purpose unless there
appears on such Security a certificate of authentication substantially in the
form provided for herein duly executed by the Trustee by manual signature of an
authorized officer, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall, in a
single transaction or through a series of related transactions, be consolidated,
amalgamated, combined or merged with or into any other Person or shall sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person, and the successor Person resulting
from such consolidation, amalgamation, or combination or surviving such merger,
or into which the Company shall have been merged, or the successor Person which
shall have participated in the sale, assignment, conveyance, transfer, lease or
other disposition as aforesaid, shall have executed an indenture supplemental
hereto with the Trustee pursuant to Article Eight, any of the Securities
authenticated or delivered prior to such consolidation, amalgamation,
combination, merger, sale, assignment, conveyance, transfer, lease or other
disposition may, from time to time, at the request of the successor Person, be
exchanged for other Securities executed in the name of the successor Person with
such changes in phraseology and form as may
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be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section 303 in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities on behalf of the Trustee. Unless limited
by the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Security Registrar or Paying
Agent to deal with the Company and its Affiliates.
If an officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates such Security such Security
shall be valid nevertheless.
Section 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as conclusively evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged the temporary Securities shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities.
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Section 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause the Trustee to keep, so long as it is
the Security Registrar, at the Corporate Trust Office of the Trustee, or such
other office as the Trustee may designate, a register (the register maintained
in such office or in any other office or agency designated pursuant to Section
1002 being herein sometimes referred to as the "Security Register") in which,
subject to such reasonable regulations as the Security Registrar may prescribe,
the Company shall provide for the registration of Securities and of transfers of
Securities. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Company may change the Security Registrar or appoint one or more
co-Security Registrars without notice.
Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series of any authorized denomination or denominations, of a like
aggregate principal amount.
Furthermore, any Holder of the Global Security shall, by
acceptance of such Global Security, agree that transfers of beneficial interests
in such Global Security may be effected only through a book-entry system
maintained by the Holder of such Global Security (or its agent), and that
ownership of a beneficial interest in a Security shall be required to be
reflected in a book entry.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination or denominations, of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any Securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver,
Securities of the same series which the Holder making the exchange is entitled
to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same Indebtedness, and entitled to the same benefits under this Indenture,
as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer, or for exchange, repurchase or redemption, shall (if so required by
the Company or the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
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No service charge shall be made to a Holder for any
registration of transfer, exchange or redemption of Securities, except for any
tax or other governmental charge that may be imposed in connection therewith,
other than exchanges pursuant to Sections 303, 304, 906 or 1108 not involving
any transfer.
The Company shall not be required (a) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of the Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing or (b) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of Securities being redeemed in part.
Any Security authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, any Global Security, whether
pursuant to this Section 305, Sections 303, 304, 307, 906 or 1108 or otherwise,
shall also be a Global Security and bear the legend specified in Section 202.
Section 306. BOOK ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) Each Global Security initially shall (i) be registered in
the name of the Depositary for such Global Security or the nominee of such
Depositary, (ii) be deposited with, or on behalf of, the Depositary or with the
Trustee as custodian for such Depositary and (iii) bear legends as set forth in
Section 202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under such Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a holder of any
Security.
(b) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities registered,
and no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or a
nominee thereof unless (i) such Depositary (A) has notified the Company that it
is unwilling or unable to continue as Depositary for such Global Security or (B)
has ceased to be a clearing agency registered
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as such under the Exchange Act, and in either case the Company fails to appoint
a successor Depositary, (ii) the Company, at its option, executes and delivers
to the Trustee a Company Order stating that it elects to cause the issuance of
the Securities in certificated form and that all Global Securities shall be
exchanged in whole for Securities that are not Global Securities (in which case
such exchange shall be effected by the Trustee) or (iii) there shall have
occurred and be continuing an Event of Default or any Default.
(c) If any Global Security is to be exchanged for other
Securities or canceled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Trustee, as Security Registrar, for exchange or
cancellation as provided in this Article Three. If any Global Security is to be
exchanged for other Securities or canceled in part, or if another Security is to
be exchanged in whole or in part for a beneficial interest in any Global
Security, then either (i) such Global Security shall be so surrendered for
exchange or cancellation as provided in this Article Three or (ii) the principal
amount thereof shall be reduced or increased by an amount equal to the portion
thereof to be so exchanged or canceled, or equal to the principal amount of such
other Security to be so exchanged for a beneficial interest therein, as the case
may be, by means of an appropriate adjustment made on the records of the
Trustee, as Security Registrar, whereupon the Trustee, in accordance with the
Applicable Procedures, shall instruct the Depositary or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Security, the Trustee shall, subject to this
Section 306(c) and as otherwise provided in this Article Three, authenticate and
deliver any Securities issuable in exchange for such Global Security (or any
portion thereof) to or upon the order of, and registered in such names as may be
directed by, the Depositary or its authorized representative. Upon the request
of the Trustee in connection with the occurrence of any of the events specified
in the preceding paragraph, the Company shall promptly make available to the
Trustee a reasonable supply of Securities that are not in the form of Global
Securities. The Trustee shall be entitled to rely upon any order, direction or
request of the Depositary or its authorized representative which is given or
made pursuant to this Article Three if such order, direction or request is given
or made in accordance with the Applicable Procedures.
(d) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global Security
or any portion thereof, whether pursuant to this Article Three or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all purposes
under this Indenture
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and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members.
Section 307. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If (a) any mutilated Security is surrendered to the Trustee,
or (b) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee, such security or indemnity, in each case, as may be
required by them to save each of them harmless, then, in the absence of notice
to the Company or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and upon a Company Request the Trustee
shall authenticate and deliver, in exchange for any such mutilated Security or
in lieu of any such destroyed, lost or stolen Security, a replacement Security
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a replacement Security, pay or purchase such Security,
as the case may be.
Upon the issuance of any replacement Securities under this
Section, the Company may require the payment of a sum sufficient to pay all
documentary, stamp or similar issue or transfer taxes or other governmental
charges that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 308. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on the Stated Maturity of such interest shall be paid
to the Person in whose
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name the Security (or any Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest payment.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on the Stated Maturity of such interest,
and interest on such defaulted interest at the then applicable interest rate
borne by the Securities, to the extent lawful (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest"), shall
forthwith cease to be payable to the Holder on the Regular Record Date; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or any
relevant Predecessor Securities) are registered at the close
of business on a Special Record Date for the payment of such
Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each
Security and the date (not less than 30 days after such
notice) of the proposed payment (the "Special Payment Date"),
and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such
deposit prior to the Special Payment Date, such money when
deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Subsection
provided. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be
not more than 15 days and not less than 10 days prior to the
date of the Special Payment Date and shall fix the Special
Record Date not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company in writing of such Special
Record Date. In the name and at the expense of the Company,
the Trustee shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at its
address as it appears in the Security Register, not less than
10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special
Record Date and Special Payment Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities are registered on such Special
Record Date and shall no longer be payable pursuant to the
following Subsection (b).
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(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by this
Indenture not inconsistent with the requirements of such
exchange, if, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this Subsection,
such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 308, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
Section 309. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers
(if then generally in use), and the Company, or the Trustee on behalf of the
Company, shall use CUSIP numbers in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice shall state that
no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other identification
numbers printed on the Securities; and provided further, however, that failure
to use CUSIP numbers in any notice of redemption or exchange shall not affect
the validity or sufficiency of such notice.
Section 310. PERSONS DEEMED OWNERS.
Prior to and at the time of due presentment of a Security for
registration of transfer, the Company, the Trustee and any agent of the Company,
or the Trustee may treat the Person in whose name any Security is registered as
the owner of such Security for the purpose of receiving payment of principal of,
premium, if any, and (subject to Section 308) interest on, such Security and for
all other purposes whatsoever, whether or not such Security is overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
Section 311. CANCELLATION.
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of
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or in exchange for any Securities canceled as provided in this Section 311,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall, upon written request of the Company, be destroyed and
certification of their destruction delivered to the Company, unless by a Company
Order received by the Trustee prior to such destruction, the Company shall
direct that the canceled Securities be returned to it. The Trustee shall provide
the Company a list of all Securities that have been canceled from time to time
as requested by the Company.
Section 312. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
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ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option by Board Resolution, at any
time, with respect to the Securities, elect to have either Section 402 or
Section 403 be applied to all of the Outstanding Securities (the "Defeased
Securities"), upon compliance with the conditions set forth below in this
Article Four.
Section 402. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 401 of the option
applicable to this Section 402, the Company and any other obligor upon the
Securities, if any, shall be deemed to have been discharged from its obligations
with respect to the Defeased Securities on the date the conditions set forth in
Section 404 below are satisfied (hereinafter, "defeasance"). For this purpose,
such defeasance means that the Company and any other obligor under this
Indenture shall be deemed to have paid and discharged the entire Indebtedness
represented by the Defeased Securities, which shall thereafter be deemed to be
"Outstanding" only for the purposes of Section 405 and the other Sections of
this Indenture referred to in (a) and (b) below, and to have satisfied all its
other obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company and
upon Company Request, shall execute proper instruments acknowledging the same),
except for the following which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of Defeased Securities to
receive, solely from the trust fund described in Section 404 and as more fully
set forth in such Section, payments in respect of the principal of, premium, if
any, and interest on, such Securities, when such payments are due, (b) the
Company's obligations with respect to such Defeased Securities under Sections
304, 305, 307, 1002 and 1003, (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder, including, without limitation, the
Trustee's rights under Section 607, and (d) this Article Four. Subject to
compliance with this Article Four, the Company may exercise its option under
this Section 402 notwithstanding the prior exercise of its option under Section
403 with respect to the Securities.
Section 403. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 401 of the option
applicable to this Section 403, the Company shall be released from its
obligations under any covenant or provision contained or referred to in Sections
1005 and 1006, with respect to the Defeased Securities, on and after the date
the conditions set forth in Section 404 below are satisfied (hereinafter,
"covenant defeasance"), and the Defeased Securities shall
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thereafter be deemed to be not "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder, and the Events of Default under
Section 501(d), (e) and (f) shall cease to be in full force and effect with
respect to the Securities. For this purpose, such covenant defeasance means
that, with respect to the Defeased Securities, the Company may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such Section, whether directly or indirectly, by reason of any
reference elsewhere herein to any such Section or by reason of any reference in
any such Section to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(d), (e) and (f) but, except as specified above, the remainder of
this Indenture and such Defeased Securities shall be unaffected thereby.
Section 404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 402 or Section 403 to the Defeased Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, (a) cash in United
States dollars in an amount, (b) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in accordance
with their terms and with no further reinvestment will provide, not later than
one day before the due date of payment, money in an amount, or (c) a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and which
shall be applied by the Trustee to pay and discharge, the principal of, premium,
if any, and interest on, the Defeased Securities, on the Stated Maturity of such
principal or interest. For this purpose, "U.S. Government Obligations" means
securities that are (i) direct obligations of the United States of America for
the timely payment of which its full faith and credit is pledged or (ii)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt issued
by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian
with respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by such
custodian for the account of the holder of such depository receipt, provided
that (except as required by law) such custodian is not authorized to
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make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt;
(2) In the case of an election under Section 402, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in the
United States stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date
hereof, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Independent
Counsel in the United States shall confirm that, the Holders of the Outstanding
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
(3) In the case of an election under Section 403, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in the
United States to the effect that the Holders of the Outstanding Securities will
not recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred;
(4) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Section 501(g) is
concerned, at any time during the period ending on the 91st day after the date
of deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period);
(5) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Company or any Restricted
Subsidiary is a party or by which it is bound;
(6) Such defeasance or covenant defeasance shall not result in
the trust arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(7) The Company shall have delivered to the Trustee an Opinion
of Independent Counsel in the United States to the effect that after the 91st
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
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(8) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Securities over the other creditors
of the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others;
(9) No event or condition shall exist that would prevent the
Company from making payments of the principal of, premium, if any, and interest
on the Securities on the date of such deposit or at any time ending on the 91st
day after the date of such deposit; and
(10) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Independent Counsel, each stating that
all conditions precedent provided for relating to either the defeasance under
Section 402 or the covenant defeasance under Section 403 (as the case may be)
have been complied with.
Opinions of Counsel or Opinions of Independent Counsel
required to be delivered under this Section shall be in form and substance
reasonably satisfactory to the Trustee and may have qualifications customary for
opinions of the type required and counsel delivering such opinions may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, which certificates shall be limited as to matters
of fact, including that various financial covenants have been complied with.
Section 405. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section
1003, all United States dollars and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 404 in respect
of the Defeased Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (excluding the Company or
any of its Affiliates acting as Paying Agent), as the Trustee may determine, to
the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 404 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is imposed, assessed or for the account of the Holders of the Defeased
Securities.
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Anything in this Article Four to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 404 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect defeasance or covenant defeasance.
Section 406. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or U.S. Government Obligations in accordance with Section 402 or
403, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated, with present and prospective effect,
as though no deposit had occurred pursuant to Section 402 or 403, as the case
may be, until such time as the Trustee or Paying Agent is permitted to apply all
such United States dollars or U.S. Government Obligations in accordance with
Section 402 or 403, as the case may be; provided, however, that if the Company
makes any payment to the Trustee or Paying Agent of principal of, premium, if
any, or interest on any Security following the reinstatement of its obligations,
the Trustee or Paying Agent shall promptly pay any such amount to the Holders of
the Securities and the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the United States dollars and
U.S. Government Obligations held by the Trustee or Paying Agent.
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ARTICLE FIVE
REMEDIES
Section 501. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) there shall be a default in the payment of any installment
of interest on any Security when it becomes due and payable, and such default
shall continue for a period of 30 days;
(b) there shall be a default in the payment of the principal
of (or premium, if any, on) any Security when it becomes due and payable,
whether at Maturity, upon redemption by declaration, upon required repurchase or
otherwise);
(c) there shall be a failure on the part of the Company to
comply with the provisions of the Indenture relating to consolidations, mergers
or sales of all or substantially all of its assets;
(d) there shall be a default in the performance, or breach, of
any covenant or agreement of the Company under this Indenture (other than a
default in the performance, or breach, of a covenant or agreement which is
specifically dealt with in clause (a), (b) and (c)) and such default or breach
shall continue for a period of 60 days after written notice to the Company
specifying such failure and requiring the Company or any Restricted Subsidiary
to remedy the same has been given, by certified mail, (x) to the Company by the
Trustee or (y) to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Outstanding Securities;
(e) any Indebtedness of the Company or any Restricted
Subsidiary of the Company shall not have been paid within applicable grace
period after final maturity or is accelerated by the holders thereof because of
default and the total amount of such Indebtedness unpaid or accelerated exceeds
$20,000,000 individually or in the aggregate at the time and such default
remains uncured or such acceleration is not rescinded for 10 days;
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(f) any final judgment, order or decree of any court or courts
of competent jurisdiction for the payment of money in excess of $20,000,000,
shall be rendered against the Company or any "Significant Subsidiary" (defined
as any Subsidiary of the Company that would be a "significant subsidiary" as
defined in Rule 405 under the Securities Act as in effect on the date of the
Indenture) or any of their respective properties, which judgment is not covered
by insurance, and is not discharged and either (A) an enforcement proceeding has
been commenced by any creditor upon such judgment or decree or (B) there is a
period of 60 days following the entry of such judgment or decree during which
such judgment or decree is not discharged, vacated, waived or the execution
thereof stayed;
(g) (i) there shall have been the entry by a court of
competent jurisdiction of (A) a decree or order for relief in respect of the
Company or any of its Significant Subsidiaries in an involuntary case or
proceeding under any applicable Bankruptcy Law or (B) a decree or order
adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company or any Significant Subsidiary under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or any Significant
Subsidiary or of any substantial part of their respective properties, or
ordering the winding up or liquidation of their affairs, and any such decree or
order for relief shall continue to be in effect, or any such other decree or
order shall be unstayed and in effect, for a period of 60 consecutive days or
(ii) (A) the Company or any Significant Subsidiary commences a voluntary case or
proceeding under any applicable Bankruptcy Law or any other case or proceeding
to be adjudicated bankrupt or insolvent, (B) the Company or any Significant
Subsidiary consents to the entry of a decree or order for relief in respect of
the Company or such Significant Subsidiary in an involuntary case or proceeding
under any applicable Bankruptcy Law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, (C) the Company or any Significant
Subsidiary files a petition or answer or consent seeking reorganization or
relief under any applicable federal or state law, (D) the Company or any
Significant Subsidiary (1) consents to the filing of such petition or the
appointment of, or taking possession by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or such
Significant Subsidiary or of any substantial part of their respective
properties, (2) makes an assignment for the benefit of creditors or (3) admits
in writing its inability to pay its debts generally as they become due or (E)
the Company or any Significant Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (g)(ii).
Section 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default
specified in Sections 501(g)) shall occur and be continuing, unless the
principal and interest with respect to the
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Securities shall have already become due and payable, with respect to this
Indenture, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities then Outstanding may, and the Trustee at the
request of such Holders shall, declare all unpaid principal of, premium, if any,
and accrued interest on all Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by the Holders of
the Securities) and upon any such declaration, such principal, premium, if any,
and interest shall become due and payable immediately. If an Event of Default
specified in clause (g) of Section 501 occurs and is continuing, unless the
principal and interest with respect to the Securities shall have already become
due and payable, then all the Securities shall ipso facto become and be due and
payable immediately in an amount equal to the principal amount of the
Securities, together with accrued and unpaid interest, if any, to the date the
Securities become due and payable, without any declaration or other act on the
part of the Trustee or any Holder. Thereupon, the Trustee may, at its
discretion, proceed to protect and enforce the rights of the Holders of the
Securities by appropriate judicial proceedings.
In the event of a declaration of acceleration because of an
Event of Default set forth in clause (e) of Section 501 has occurred and is
continuing, such declaration acceleration shall be automatically rescinded and
annulled if the Event of Default triggering such Event of Default pursuant to
clause (e) above shall be remedied or cured by the Company or the relevant
Subsidiary or waived by the holders of the relevant Indebtedness within 60 days
after the declaration of acceleration with respect thereto.
At any time after a declaration of acceleration with respect
to the Securities, but before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided, the
holders of a majority in aggregate principal amount of the Securities
Outstanding, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all sums paid or advanced by the Trustee
under this Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its
agents and counsel,
(ii) all overdue interest on all Outstanding
Securities,
(iii) the principal of and premium, if any,
on any Outstanding Securities which have become due otherwise
than by such declaration of acceleration and interest thereon
at the rate borne by the Securities, and
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(iv) to the extent that payment of such
interest is lawful, interest upon overdue interest at the rate
borne by the Securities;
(b) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of
principal of, premium, if any, and interest on the Securities which have become
due solely by such declaration of acceleration, have been cured or waived as
provided in Section 513. No such rescission shall affect any subsequent Default
or impair any right consequent thereon.
Section 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(a) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or
(b) default is made in the payment of the principal of or
premium, if any, on any Security at the Stated Maturity thereof or otherwise,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, with interest upon
the overdue principal and premium, if any, and, to the extent that payment of
such interest shall be legally enforceable, upon overdue installments of
interest, at the rate borne by the Securities; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and unpaid
and may prosecute such proceeding to judgment or final decree, and may enforce
the same against the Company or any other obligor upon the Securities and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Securities,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders under this Indenture by such appropriate private or judicial
proceedings as the Trustee shall deem
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most effectual to protect and enforce such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein or therein, or to enforce any other proper
remedy or to enforce any other proper remedy, subject however to Section 512. No
recovery of any such judgment upon any property of the Company shall affect or
impair any rights, powers or remedies of the Trustee or the Holders.
Section 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor, upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal, and premium, if any, and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
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Section 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or in
lieu of any proceeding contemplated by this Article shall be applied, subject to
applicable law, in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid upon
the Securities for principal, premium, if any, and interest, in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company, provided that all sums due and owing to the
Holders and the Trustee have been paid in full as required by this Indenture.
Section 507. LIMITATION ON SUITS.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
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(b) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as trustee hereunder;
(c) such Holder or Holders have offered to the Trustee a
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer (and if requested, provision) of indemnity has failed to
institute any such proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Security to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture or any Security,
except in the manner provided in this Indenture and for the equal and ratable
benefit of all the Holders.
Section 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right based on the terms stated herein,
which is absolute and unconditional, to receive payment of the principal of,
premium, if any, and (subject to Section 308) interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption or repurchase, on the Redemption Date or the repurchase date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
Section 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, any
other obligor on the Securities, the Trustee and the Holders shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all
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rights and remedies of the Trustee and the Holders shall continue as though no
such proceeding had been instituted.
Section 510. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
Section 512. CONTROL BY HOLDERS.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture (including, without limitation, Section 507), expose
the Trustee to personal liability, or be unduly prejudicial to Holders not
joining therein; and
(b) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 513. WAIVER OF PAST DEFAULTS.
Prior to the acceleration of the maturity of the Securities,
the Holders of not less than a majority in aggregate principal amount of the
Outstanding Securities may on behalf of the Holders of all Outstanding
Securities waive any past Default or Event of Default and its consequences,
except a Default or Event of Default
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(a) in the payment of the principal of, premium, if any, or
interest on any Security (which may only be waived with the consent of each
Holder of Securities effected); or
(b) in respect of a covenant or a provision hereof which under
this Indenture cannot be modified or amended without the consent of the Holder
of each Security Outstanding affected by such modification or amendment.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Section 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant,
but the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on, any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
Section 515. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury or other law wherever enacted, now or at any time hereafter in
force, which would prohibit or forgive the Company from paying all or any
portion of the principal of, premium, if any, or interest on the Securities
contemplated herein or in the Securities or which may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
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Section 516. REMEDIES SUBJECT TO APPLICABLE LAW.
All rights, remedies and powers provided by this Article Five
may be exercised only to the extent that the exercise thereof does not violate
any applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable or
not entitled to be recorded, registered or filed under the provisions of any
applicable law.
ARTICLE SIX
THE TRUSTEE
Section 601. DUTIES OF TRUSTEE.
Subject to the provisions of Trust Indenture Act Sections
315(a) through 315(d):
(a) if a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs;
(b) except during the continuance of a Default or an Event of
Default:
(1) the Trustee need perform only those
duties as are specifically set forth in this Indenture and no
covenants or obligations shall be implied in this Indenture
that are adverse to the Trustee; and
(2) in the absence of bad faith or willful
misconduct on its part, the Trustee may conclusively rely, as
to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they
conform to the requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this Subsection (c) does not limit the
effect of Subsection (b) of this Section 601;
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(2) the Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer,
unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with
respect to any action it takes or omits to take in good faith,
in accordance with a direction of the Holders of a majority in
principal amount of Outstanding Securities relating to the
time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or
power confirmed upon the Trustee under this Indenture;
(d) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it;
(e) whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
Subsections (a), (b), (c) and (d) of this Section 601; and
(f) the Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
Section 602. NOTICE OF DEFAULTS.
Within 90 days after a Responsible Officer of the Trustee
receives notice of the occurrence of any Default, the Trustee shall transmit by
mail to all Holders and any other Persons entitled to receive reports pursuant
to Section 313(c) of the Trust Indenture Act, as their names and addresses
appear in the Security Register, notice of such Default hereunder known to the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of a Default in the payment of the principal of,
premium, if any, or interest on any Security, the Trustee shall be protected in
withholding such notice if and so long as a trust committee of Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders.
Section 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601 hereof and Trust
Indenture Act Sections 315(a) through 315(d):
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(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon receipt by it of any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of Indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) the Trustee may consult with counsel of its selection and
any advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon in accordance with such
advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee security or indemnity satisfactory to the
Trustee against the costs, expenses and liabilities which might be incurred
therein;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of the negligence, bad faith or willful misconduct of
the Trustee;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security or other paper or
document unless requested in writing to do so by the Holders of not less than a
majority in aggregate principal amount of the Securities then Outstanding;
provided that, if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such expenses or liabilities as
a condition to proceeding; the reasonable expenses of every such investigation
so requested by the Holders of not less than 25% in aggregate principal amount
of the Securities Outstanding shall be paid by the Company or, if paid by the
Trustee or any predecessor Trustee, shall be repaid by the Company upon demand;
provided, further, the Trustee in its discretion may make such further inquiry
or investigation into such facts or matters as it may deem fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it shall
be entitled to
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examine the books, records and premises of the Company, personally or by agent
or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder.
(h) the Trustee shall not be required to take notice, and
shall not be deemed to have notice, of any Default or Event of Default
hereunder, except Events of Default described in paragraphs (a) and (b) of
Section 501 hereof unless the Trustee shall be notified specifically of the
Default or Event of Default on a written instrument or document delivered to it
at its Notice Address by the Company or by the Holders of at least 10% of the
aggregate principal amount of the Securities then outstanding. In the absence of
delivery of notice satisfying those requirements, the Trustee may assume
conclusively that there is no Default or Event of Default, except as noted
above.
Section 604. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITIONS OF
SECURITIES OR APPLICATION OF PROCEEDS THEREOF.
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in any Statement of Eligibility and Qualification on Form T-1 to be supplied
to the Company will be true and accurate subject to the qualifications set forth
therein. The Trustee shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
Section 605. TRUSTEE AND AGENTS MAY HOLD SECURITIES; COLLECTIONS; ETC.
The Trustee, any Paying Agent, Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities, with the same rights it would have if it were
not the Trustee, Paying Agent, Security Registrar or such other agent and,
subject to Trust Indenture Act Sections 310 and 311, may otherwise deal with the
Company and receive, collect, hold and retain collections from the Company with
the same rights it would have if it were not the Trustee, Paying Agent, Security
Registrar or such other agent.
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Section 606. MONEY HELD IN TRUST.
All moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Except for funds or securities
deposited with the Trustee pursuant to Article Four, the Trustee shall be
required to invest all moneys received by the Trustee, until used or applied as
herein provided, in Temporary Cash Investments in accordance with the directions
of the Company.
Section 607. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS
PRIOR CLAIM.
The Company covenants and agrees to pay to the Trustee from
time to time, and the Trustee shall be entitled to the compensation agreed to in
writing by the Company and the Trustee and reasonable compensation for all other
services rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of all express
trust), and the Company covenants and agrees to pay or reimburse the Trustee and
each predecessor Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by or on behalf of the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all agents and other persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence, bad faith or
willful misconduct. The Company also covenants and agrees to indemnify the
Trustee and its directors, officers, agents and employees and each predecessor
Trustee (the "Indemnitees") for, and to hold it harmless against, any claim,
loss, liability, tax, assessment or other governmental charge (other than taxes
applicable to the Trustee's compensation hereunder) or expense incurred without
negligence, bad faith or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder, including enforcement of this Section 607
and also including any liability which the Indemnitees may incur as a result of
failure to withhold, pay or report any tax, assessment, fine, penalty, damages
or other governmental charge, and the costs and expenses of defending itself
against or investigating any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The obligations of the
Company under this Section 607 to compensate and indemnify the Indemnitees and
each predecessor Trustee and to pay or reimburse the Trustee and each
predecessor Trustee for reasonable expenses, disbursements and advances shall
constitute an additional obligation hereunder and shall survive the satisfaction
and discharge of this Indenture and the resignation or removal of the Trustee
and each predecessor Trustee.
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Section 608. CONFLICTING INTERESTS.
The Trustee shall comply with the provisions of Section 310(b)
of the Trust Indenture Act.
Section 609. TRUSTEE ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a) and which
shall have a combined capital and surplus of at least $100,000,000, to the
extent there is an institution eligible and willing to serve. If the Trustee
does not have a Corporate Trust Office in The City of New York, the Trustee may
appoint an agent in The City of New York reasonably acceptable to the Company to
conduct any activities which the Trustee may be required under this Indenture to
conduct in The City of New York. If such Trustee publishes reports of condition
at least annually, pursuant to law or to the requirements of federal, state,
territorial or District of Columbia supervising or examining authority, then for
the purposes of this Section 609, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
609, the Trustee shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
TRUSTEE.
(a) No resignation or removal of the Trustee and no
appointment of a successor trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor trustee under
Section 611.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may at any time resign by giving written notice thereof to the
Company no later than 30 Business Days prior to the proposed date of
resignation. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee by written instrument executed by authority
of the Board of Directors of the Company, a copy of which shall be delivered to
the resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance by a successor trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may, or any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper, appoint and prescribe a successor trustee.
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(c) The Trustee may be removed at any time for any cause or
for no cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with
the provisions of Trust Indenture Act Section 310(b) after
written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for at least six
months,
(2) the Trustee shall cease to be eligible
under Section 609 and shall fail to resign after written
request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(3) the Trustee shall become incapable of
acting or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed
or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 514, the Holder of any Security who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor trustee and shall comply with the applicable requirements of Section
611. If, within 60 days after such resignation, removal or incapability, or the
occurrence of such vacancy, the Company has not appointed a successor Trustee, a
successor trustee shall be appointed by the Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the Company and the
retiring Trustee. Such successor trustee so appointed shall forthwith upon its
acceptance of such appointment become the successor trustee and supersede the
successor trustee appointed by the Company. If no successor trustee shall have
been so appointed by the Company or the Holders of the Securities and accepted
appointment in the manner hereinafter provided, the Trustee or the Holder of any
Security who has been a bona fide Holder for at least six months may, subject to
Section 514, on behalf of himself and all
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others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor trustee and the
address of its Corporate Trust Office or agent hereunder.
Section 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee as if originally named as
Trustee hereunder; but, nevertheless, on the written request of the Company or
the successor trustee, upon payment of its charges pursuant to Section 607 then
unpaid, such retiring Trustee shall pay over to the successor trustee all
moneys, Temporary Cash Investments and other property relating thereto at the
time held by it hereunder and shall execute and deliver an instrument
transferring to such successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers.
No successor trustee with respect to the Securities shall
accept appointment as provided in this Section 611 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 609.
Upon acceptance of appointment by any successor trustee as
provided in this Section 611, the Company shall give notice thereof to the
Holders of the Securities, by mailing such notice to such Holders at their
addresses as they shall appear on the Security Register. If the acceptance of
appointment is substantially contemporaneous with the appointment, then the
notice called for by the preceding sentence may be combined with the notice
called for by Section 610. If the Company fails to give such notice within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be given at the expense of the Company.
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Section 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee (including the trust created by this
Indenture) shall be the successor of the Trustee hereunder, provided that such
corporation shall be eligible under Trust Indenture Act Section 310(a) and this
Article Six and shall have a combined capital and surplus of at least
$100,000,000 and have a Corporate Trust Office or an agent selected in
accordance with Section 609, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Securities shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor Trustee and deliver
such Securities so authenticated; and, in case at that time any of the
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor trustee; and in all such cases such certificate
shall have the full force which it is anywhere in the Securities or in this
Indenture provided that the certificate of the Trustee shall have; provided that
the right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
Section 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the
Company (or other obligor under the Securities), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor). A Trustee who has resigned or
been removed shall be subject to Trust Indenture Act Section 311(a) to the
extent indicated therein, as qualified by Trust Indenture Act Section 311(b).
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS.
The Company will furnish or cause to be furnished to the
Trustee
(a) semiannually, not more than 10 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request
in writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content to that in subsection (a) hereof as of a date
not more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 702. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Holders may communicate pursuant to Trust Indenture Act
Section 312(b) with other Holders with respect to their rights under this
Indenture or the Securities, and the Trustee shall comply with Trust Indenture
Act Section 312(b). The Company, the Trustee, the Security Registrar and any
other Person shall have the protection of Trust Indenture Act Section 312(c).
Further, every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any information as to the names and addresses of the Holders in accordance with
Trust Indenture Act Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Trust Indenture
Act Section 312.
Section 703. REPORTS BY TRUSTEE.
(a) Within 60 days after ____________ of each year commencing
with the first ______________ after the issuance of Securities, the Trustee, if
so required under the Trust Indenture Act, shall transmit by mail to all
Holders, in the manner and to the extent provided in Trust Indenture Act Section
313(c), a brief report dated as of such ____________ in accordance with and with
respect to the matters required by Trust
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Indenture Act Section 313(a). The Trustee shall also transmit by mail to all
Holders, in the manner and to the extent provided in Trust Indenture Act Section
313(c), a brief report in accordance with and with respect to the matters
required by Trust Indenture Act Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to
this Section 703 shall, at the time of such transmission, be mailed to the
Company and filed with each stock exchange, if any, upon which the Securities
are listed and also with the Commission. The Company will notify the Trustee
promptly if the Securities are listed on any stock exchange.
Section 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission,
and transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; PROVIDED that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission.
The Trustee shall be under no obligation to analyze or make
any credit decision with respect to any financial statements or reports received
by it hereunder, but shall hold such financial statements or reports solely for
the benefit of and/or review by the holders of the Securities.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 801. COMPANY AND GUARANTORS MAY CONSOLIDATE, ETC., ONLY
ON CERTAIN TERMS.
The Company will not, in a single transaction or through a
series of related transactions, consolidate, amalgamate, combine or merge with
or into any other Person or, directly or indirectly, sell, assign, convey,
lease, transfer or otherwise dispose of all or substantially all of its
properties and assets to any Person or group of Persons, or permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions, if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, lease, transfer or disposition
of all or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a Consolidated basis to any other Person or group of
Persons, unless at the time and after giving effect thereto:
(i) either (a) the Company will be the
continuing corporation in the case of a merger, combination or
consolidation or (b) the Person (if other than the Company)
formed by such consolidation or the resulting, surviving or
transferee Person, if other than the Company (the "Successor
Company") will be a corporation or a limited liability company
duly organized and validly existing under the laws of the
United States of America, any state thereof or the District of
Columbia and such Person expressly assumes, by a supplemental
indenture, in a form reasonably satisfactory to the Trustee,
all the obligations of the Company under the Securities and
this Indenture, and in each case, the Securities and the
Indenture will remain in full force and effect as so
supplemented;
(ii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis,
including, without limitation, any Indebtedness Incurred or
anticipated to be Incurred in connection with or in respect of
such transaction or series of transactions, no Default or
Event of Default will have occurred and be continuing and the
Company will have delivered to the Trustee an Officer's
Certificate to that effect;
(iii) at the time of the transaction the
Company or the Successor Company will have delivered, or
caused to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each to the effect that
such transaction or series of transactions, and, if a
supplemental indenture is
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required in connection with such transaction or series of
transactions to effectuate such assumption, such supplemental
indenture in respect thereof comply with this covenant and
that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
Notwithstanding the foregoing, any Restricted Subsidiary may
consolidate, amalgamate or combine with or merge with or into or, directly or
indirectly, sell assign, convey, lease, transfer or otherwise dispose of all or
substantially all of its properties and assets to the Company or, subject to the
condition set forth in clause (ii) in the preceding sentence, to any other
Restricted Subsidiary.
Section 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation, combination, amalgamation or merger,
or any sale, assignment, conveyance, transfer, lease or disposition of all or
substantially all of the properties and assets of the Company, if any, in
accordance with Section 801, the successor Person formed by such consolidation
or into which the Company is merged or the successor Person to which such sale,
assignment, conveyance, transfer, lease or disposition is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture and the Securities with the same effect as if such
successor had been named as the Company herein, in the Securities and the
Company shall be discharged from all obligations and covenants under the
Indenture and the Securities; provided that in the case of a transfer by lease,
the predecessor shall not be released from the payment of principal and interest
on the Securities.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITHOUT
CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and any other
obligor under the Securities when authorized by a Board Resolution, and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto or agreements or other instruments with respect
to the Indenture or the Securities, in form and substance satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company pursuant to the provisions of Article Eight and the assumption by such
successor of the covenants, agreements, and obligations of the Company in the
Indenture and in the Securities;
(b) to surrender any right or power conferred upon the Company
by the Indenture, to add to the covenants of the Company such further covenants,
restrictions, conditions, or provisions for the protection of the Holders as the
Board of Directors of the Company shall consider to be for the protection of the
Holders, and to make the occurrence, or the occurrence and continuance, of a
default in any of such additional covenants, restrictions, conditions, or
provisions a default or an Event of Default under the Indenture (provided,
however, that with respect to any such additional covenant, restriction,
condition, or provision, such supplemental indenture may provide for a period of
grace after default, which may be shorter or longer than that allowed in the
case of other defaults, may provide for an immediate enforcement upon such
default, may limit the remedies available to the Trustee upon such default, or
may limit the right of Holders of a majority in aggregate principal amount of
the Securities to waive such default);
(c) to cure any ambiguity or to correct or supplement any
provision contained in the Indenture, in any supplemental indenture, or in the
Securities that may be defective or inconsistent with any other provision
contained herein or therein, to convey, transfer, assign, mortgage, or pledge
any property to or with the Trustee, or to make such other provisions in regard
to matters or questions arising under the Indenture as shall not adversely
affect the interests of any Holders;
(d) to modify or amend the Indenture in such a manner as to
permit the qualification of the Indenture or any supplemental indenture under
the Trust Indenture Act as then in effect;
(e) to comply with the provisions of Article Eight;
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(f) to add guarantees with respect to the Securities or to
secure the Securities;
(g) to make any change that does not adversely affect the
rights of any Holder; and
(h) to evidence and provide for the acceptance of appointment
by a successor or separate Trustee with respect to the Securities and to add to
or change any of the provisions of the Indenture as shall be necessary to
provide for or facilitate the administration of the Indenture by more than one
Trustee.
Section 902. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITH CONSENT OF
HOLDERS.
Except as permitted by Section 901, with the consent of the
Holders of at least a majority in aggregate principal amount of the Outstanding
Securities, by Act of said Holders delivered to the Company and the Trustee, the
Company when authorized by Board Resolutions, and the Trustee may (i) enter into
an indenture or indentures supplemental hereto or agreements in form and
substance reasonably satisfactory to the Trustee, for the purpose of adding any
provisions to, amending, modifying or changing in any manner, or eliminating any
of the provisions of the Indenture, of any supplemental indenture or the
Securities (including but not limited to, for the purpose of modifying in any
manner the rights of the Holders under this Indenture or the Securities or (ii)
waive compliance with any provision in the Indenture or the Securities (other
than waivers of past defaults covered by Section 513 and waivers of covenants
covered by Section 1008); PROVIDED, HOWEVER, that no such supplemental
indenture, agreement or instrument shall, without the consent of the Holder of
each Outstanding Security affected thereby:
(a) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver or compliance with certain provisions of this Indenture;
(b) reduce the rate of or extend the time for payment of
interest on the Securities or reduce the amount of any payment of interest on
the Securities;
(c) reduce the principal of or extend the Stated Maturity of
the Securities;
(d) reduce the premium payable upon the redemption of the
Securities or change the time at which the Securities may or shall be redeemed;
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(e) impair the right to institute suit for enforcement of any
payment of principal, premium, if any, or interest on the Securities after the
Stated Maturity thereof (or in the case of redemption, on or after the
Redemption Date);
(f) make the Securities payable in a currency other than U.S.
dollars;
(g) modify any of the provisions of this Section 902 or
Section 513 or 1008, except to increase the percentage of such Outstanding
Securities required for such actions or to provide that certain other provisions
of this Indenture cannot be modified or waived without the consent of the Holder
of each such Security affected thereby;
(h) amend or modify any of the provisions of this Indenture in
any manner which subordinates the Securities issued hereunder in right of
payment to any other Indebtedness of the Company;
(i) release any security that may have been granted with
respect to the Securities; or
(j) make any change in the provisions of the Indenture
relating to waivers of defaults or amendments that require unanimous consent.
Upon the written request of the Company, accompanied by a copy
of Board Resolutions authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Holders as aforesaid, the Trustee shall join with the Company in the execution
of such supplemental indenture.
It shall not be necessary for any Act of Holders under this
Section 902 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Section 903. EXECUTION OF SUPPLEMENTAL INDENTURES AND AGREEMENTS.
In executing, or accepting the additional trusts created by,
any supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Trust
Indenture Act Sections 315(a) through 315(d) and Section 602 hereof) shall be
fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate stating that the execution of such supplemental indenture, agreement
or instrument (a) is authorized or permitted by this Indenture and (b) does not
violate the provisions of any agreement or instrument evidencing any other
Indebtedness of the Company or any Restricted Subsidiary. The Trustee may, but
shall not be
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obligated to, enter into any such supplemental indenture, agreement or
instrument which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the Trust Indenture Act as then in
effect.
Section 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article Nine may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplemental indenture may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities.
Section 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
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ARTICLE TEN
COVENANTS
Section 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall duly and punctually pay the principal of,
premium, if any, and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
Section 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency where
Securities may be presented or surrendered for payment. The Company also will
maintain in The City of New York an office or agency where Securities may be
surrendered for registration of transfer, redemption or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office of the Trustee or its affiliates, at its
corporate trust office initially located at 55 Water Street, Room 234, North
Building, New York, New York _______, will be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will give prompt written
notice to the Trustee of the location and any change in the location of any such
offices or agencies. If at any time the Company shall fail to maintain any such
required offices or agencies or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the office of the Trustee or its affiliates and the Company hereby
appoints the Trustee or its affiliates such agent as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes, and may from time
to time rescind such designation. The Company will give prompt written notice to
the Trustee of any such designation or rescission and any change in the location
of any such office or agency.
The Trustee shall initially act as Paying Agent for the
Securities.
Section 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company or any of its Affiliates shall at any time act
as Paying Agent, it will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities, segregate and hold in
trust for the benefit of the Holders entitled thereto a sum sufficient to pay
the principal, premium, if any, or interest so becoming due
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until such sums shall be paid to such Persons or otherwise disposed of as herein
provided, and will promptly notify the Trustee of its action or failure so to
act.
If the Company or any of its Affiliates is not acting as
Paying Agent, the Company will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities, deposit with a Paying
Agent a sum in same day funds sufficient to pay the principal, premium, if any,
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of such
action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will
cause each Paying Agent other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on the Securities in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company or
any Guarantor (or any other obligor upon the Securities) in the making of any
payment of principal, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights and
liabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Security and remaining unclaimed for two years after
such principal and premium, if
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any, or interest has become due and payable shall promptly be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in the NEW YORK TIMES and THE WALL STREET JOURNAL (national
edition), and mail to each such Holder, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification, publication and mailing, any unclaimed
balance of such money then remaining will promptly be repaid to the Company.
Section 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence and related rights and franchises (charter and statutory) of
the Company and each Restricted Subsidiary; provided, however, that the Company
shall not be required to preserve any such right or franchise or the corporate
existence of any such Restricted Subsidiary or any trademark, trade name or
service mark of the Company or any Restricted Subsidiary if the Board of
Directors of the Company shall determine that the preservation thereof is no
longer necessary or desirable in the conduct or the business of the Company and
its Restricted Subsidiaries taken as a whole and that the loss thereof is not
adverse in any material respect to the ability of the Company to perform its
obligations hereunder.
Section 1005. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted
Subsidiary of the Company to, Incur any Lien upon property or assets of the
Company or any Restricted Subsidiary of the Company to secure Indebtedness
without making, or causing such Restricted Subsidiary to make, effective
provision for securing the Securities equally and ratably with (or prior to)
such Indebtedness as to such property for as long as such Indebtedness will be
so secured unless such Indebtedness is subordinate in right of payment to the
Securities, in which case the Securities will be secured prior to such
Indebtedness as to such property for as long as such Indebtedness will be so
secured.
The foregoing restrictions will not apply to (a) Permitted Liens or (b)
Liens securing Indebtedness if, after giving pro forma effect to the Incurrence
of such Indebtedness (and the receipt and application of the proceeds therefrom)
or the securing of outstanding
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Indebtedness, the sum of (without duplication) (A) all Indebtedness (valued at
the lesser of the outstanding obligation of such secured Indebtedness or the
Fair Market Value of the properties securing such Indebtedness) of the Company
and its Restricted Subsidiaries secured by Liens (other than Permitted Liens)
and (B) all Attributable Indebtedness (other than Attributable Indebtedness
secured by Liens that are Permitted Liens under clause (i) of the definition
thereof or permitted under clause (ii) of Section 1006 hereof) of the Company
and its Restricted Subsidiaries in respect of Sale and Leaseback Transactions,
at the time of determination, does not exceed 15% of Consolidated Net Tangible
Assets.
Section 1006. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Restricted
Subsidiary of the Company to, enter into any Sale and Leaseback Transaction
unless (i) the Company or such Restricted Subsidiary would be entitled to create
a Lien securing Indebtedness in an amount equal to the Attributable Indebtedness
with respect to such Sale and Leaseback Transaction without securing the
Securities or (ii) the Company or such Restricted Subsidiary, within six months
from the effective date of such Sale and Leaseback Transaction, applies to the
voluntary defeasance, prepayment (in whole or in part) or retirement (excluding
retirement of Securities and other Indebtedness ranking PARI PASSU with the
Securities as a result of conversion or pursuant to mandatory sinking fund or
mandatory prepayment provisions or by payment at maturity) of Securities or
other Indebtedness ranking senior to or PARI PASSU with the Securities an amount
equal to the Attributable Indebtedness in respect of such Sale and Leaseback
Transaction.
Section 1007. PROVISIONS OF FINANCIAL STATEMENTS.
Whether or not the Company is subject to Section 13(a) or
15(d) of the Exchange Act, the Company will, to the extent permitted under the
Exchange Act, file with the Commission the annual reports, quarterly reports and
other documents which the Company would have been required to file with the
Commission pursuant to Sections 13(a) or 15(d) if the Company was so subject,
such documents to be filed with the Commission on or prior to the date (the
"Required Filing Date") by which the Company would have been required so to file
such documents if the Company was so subject. The Company will also in any event
(x) within 15 days of each Required Filing Date (i) transmit by mail to all
holders, as their names and addresses appear in the security register, without
cost to such holders and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to Sections 13(a) or 15(d) of the
Exchange Act if the Company were subject to either of such Sections and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and
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delivery, supply copies of such documents to any prospective holder at the
Company's cost.
Section 1008. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with
any covenant or condition set forth in Sections 1005 and 1006 if, before or
after the time for such compliance, the Holders of not less than a majority in
aggregate principal amount of the Securities at the time Outstanding shall, by
Act of such Holders, waive such compliance in such instance with such covenant
or provision, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. RIGHTS OF REDEMPTION.
The Securities will be redeemable, as a whole or in part, at
the option of the Company at any time, at a Redemption Price (a "Redemption
Price") equal to the greater of (i) 100% of the principal amount of such
Securities and (ii) the sum of the present values of the remaining scheduled
payments of principal and interest thereon discounted to the Redemption Date
(the "Redemption Date") on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points,
plus, in each case, accrued interest thereon to the Redemption Date.
Section 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article Eleven.
Section 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Company Order and an Officers'
Certificate. In case of any redemption at the election of the Company, the
Company shall, not less than 30 nor more than 60 days prior to the Redemption
Date fixed by the Company (unless a shorter notice period shall be satisfactory
to the Trustee), notify the Trustee in writing of such Redemption Date and of
the principal amount of Securities to be redeemed.
Section 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the
particular Securities or portions thereof to be redeemed shall be selected not
more than 30 days prior to the Redemption Date. The Trustee shall select the
Securities or portions thereof to be redeemed on a PRO RATA basis, by lot or by
any other method the Trustee shall deem fair and appropriate. The amounts to be
redeemed shall be equal to $1,000 or any integral multiple thereof.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security
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redeemed or to be redeemed only in part, to the portion of the principal amount
of such Security which has been or is to be redeemed.
Section 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at its address
appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be
redeemed, the identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the
principal amount of such Security to be redeemed and that after the Redemption
Date upon surrender of such Security, new Security or Securities in the
aggregate principal amount equal to the unredeemed portion thereof will be
issued;
(e) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security or portion thereof to be
redeemed, and that (unless the Company shall default in payment of the
Redemption Price) interest thereon shall cease to accrue on and after said date;
(g) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 1002 where such Securities are to be
surrendered for payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Securities; and
(i) the procedures that a Holder must follow to surrender the
Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
written request, by the Trustee in the name and at the expense of the Company.
If the Company elects to give
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notice of redemption, it shall provide the Trustee with a certificate stating
that such notice has been given in compliance with the requirements of this
Section 1105.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
Section 1106. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company or any of its
Affiliates is acting as Paying Agent, segregate and hold in trust as provided in
Section 1003) an amount of money in same day funds sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date or Special Payment Date) accrued interest on, all the Securities or
portions thereof which are to be redeemed on that date. The Paying Agent shall
promptly mail or deliver to Holders of Securities so redeemed payment in an
amount equal to the Redemption Price of the Securities purchased from each such
Holder. All money, if any, earned on funds held in trust by the Trustee or any
Paying Agent shall be remitted to the Company.
Section 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued interest) such Securities shall cease to bear interest. Upon surrender
of any such Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price together with
accrued interest to the Redemption Date; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such on the relevant Regular Record Dates and Special
Record Dates according to the terms and the provisions of Section 308.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Security.
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Section 1108. SECURITIES REDEEMED OR PURCHASED IN PART.
Any Security which is to be redeemed or purchased only in part
shall be surrendered to the Paying Agent at the office or agency maintained for
such purpose pursuant to Section 1002 (with, if the Company, the Security
Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company, the Security
Registrar or the Trustee, as the case may be, duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder of
such Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to, and in exchange for, the unredeemed portion of the principal of
the Security so surrendered that is not redeemed or purchased.
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ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 1201. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall be discharged and shall cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities as expressly provided for herein) as to all Outstanding
Securities hereunder, and the Trustee, upon Company Request and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(1) all the Securities theretofore authenticated and
delivered (other than (i) lost, stolen or destroyed Securities
which have been replaced or paid as provided in Section 308 or
(ii) all Securities for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged
from such trust as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(2) all such Securities not theretofore delivered to the
Trustee for cancellation (i) have become due and payable, (ii)
will become due and payable at their Stated Maturity within
one year or (iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company; and the Company has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust an amount in United States
dollars sufficient (in the opinion of a nationally recognized
firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee) to pay and
discharge (without consideration of any reinvestment and after
payment of all taxes or other charges and assessments in
respect thereof payable by the Trustee) the entire
Indebtedness on the Securities not theretofore delivered to
the Trustee for cancellation, including the principal of,
premium, if any, and accrued interest on, such Securities at
such Maturity, Stated Maturity or Redemption Date;
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
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(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, in form and substance
satisfactory to the Trustee, each stating that (i) all conditions precedent
herein relating to the satisfaction and discharge hereof have been complied
with, (ii) no default with respect to the Securities has occurred and is
continuing on the date of such deposit, and (iii) such deposit does 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.
Notwithstanding the satisfaction and discharge hereof, the
obligations of the Company to the Trustee under Section 607 and, if United
States dollars shall have been deposited with the Trustee pursuant to subclause
(2) of subsection (a) of this Section 1201, the obligations of the Trustee under
Section 1202 and the last paragraph of Section 1003 shall survive.
Section 1202. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph Section 1003,
all United States dollars deposited with the Trustee pursuant to Section 1201
shall be held in trust and applied by it, in accordance with the provisions of
the Securities and this Indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal of,
premium, if any, and interest on, the Securities for whose payment such United
States dollars have been deposited with the Trustee.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
PIONEER HI-BRED INTERNATIONAL, INC.
By:
------------------------------------
Name:
Title:
Attest:
-------------------------
Name:
Title:
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CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
By:
------------------------------
Name:
Title:
80
<PAGE> 82
STATE OF ________________________ )
) ss.:
COUNTY OF _____________________ )
On the _____ day of _______, 1999, before me personally came
___________, to me known, who, being by me duly sworn, did depose and say that
he resides at _________________________; that he is ___________________ of
Pioneer Hi-Bred International, Inc. which is a corporation described in and
which executed the foregoing instrument; and that he signed his name thereto
pursuant to authority of the Board of Directors of each of such corporations.
(NOTARIAL
SEAL)
----------
<PAGE> 83
STATE OF ________________________ )
) ss.:
COUNTY OF _____________________ )
On the _____ day of ______, 1999, before me personally came
___________, to me known, who, being by me duly sworn, did depose and say that
he resides at _________________________; that he is ___________________ of Chase
Manhattan Trust Company, National Association, a corporation described in and
which executed the foregoing instrument; and that he signed his name thereto
pursuant to authority of the Board of Directors of such corporation.
(NOTARIAL
SEAL)
----------
<PAGE> 84
TABLE OF CONTENTS
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<TABLE>
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ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..............................................1
SECTION 101. DEFINITIONS......................................................................................1
"Affiliate"................................................................................................2
"Applicable Procedures"....................................................................................2
"Attributable Indebtedness"................................................................................2
"Bankruptcy Law"...........................................................................................2
"Board of Directors".......................................................................................3
"Board Resolution".........................................................................................3
"Book-Entry Security"......................................................................................3
"Business Day".............................................................................................3
"Capitalized Lease Obligation".............................................................................3
"Capital Stock"............................................................................................3
"Code".....................................................................................................3
"Commission"...............................................................................................3
"Commodity Price Protection Agreement"..........................................Error! Bookmark not defined.
"Common Stock".............................................................................................4
"Company"..................................................................................................4
"Company Request" or "Company Order".......................................................................4
"Comparable Treasury Issue"................................................................................4
"Comparable Treasury Price"................................................................................4
"Consolidated Net Tangible Assets".........................................................................4
"Consolidation"............................................................................................5
"Corporate Trust Office"...................................................................................5
"Default"..................................................................................................5
</TABLE>
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<TABLE>
<S> <C>
"Depositary"...............................................................................................5
"Event of Default".........................................................................................5
"Exchange Act".............................................................................................5
"Fair Market Value"........................................................................................5
"Generally Accepted Accounting Principles" or "GAAP".......................................................5
"Global Securities"........................................................................................5
"Holder"...................................................................................................5
"Incur"....................................................................................................6
"Indebtedness".............................................................................................6
"Indenture"................................................................................................6
"Indenture Obligations"....................................................................................6
"Intangible Assets"........................................................................................6
"Interest Payment Date"....................................................................................6
"Issue Date"...............................................................................................6
"Lien".....................................................................................................6
"Maturity".................................................................................................7
"Moody's"..................................................................................................7
"Officers' Certificate"....................................................................................7
"Opinion of Counsel".......................................................................................7
"Opinion of Independent Counsel"...........................................................................7
"Outstanding"..............................................................................................7
"Paying Agent".............................................................................................8
"Permitted Lien"...........................................................................................8
"Person"...................................................................................................9
"Predecessor Security".....................................................................................9
"Preferred Stock"..........................................................................................9
"Principal Property"......................................................................................10
</TABLE>
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<TABLE>
<S> <C>
"Purchase Money Lien".....................................................................................10
"Redemption Date".........................................................................................10
"Redemption Price"........................................................................................10
"Reference Treasury Dealer"...............................................................................10
"Regular Record Date".....................................................................................10
"Responsible Officer".....................................................................................10
"Restricted Subsidiary"...................................................................................10
"Sale and Leaseback Transaction"..........................................................................11
"S&P".....................................................................................................11
"Securities Act"..........................................................................................11
"Senior Indebtedness".....................................................................................11
"Special Record Date".....................................................................................11
"Stated Maturity".........................................................................................11
"Subsidiary"..............................................................................................11
"Temporary Cash Investments"..............................................................................11
"Treasury Rate"...........................................................................................12
"Trustee".................................................................................................12
"Trust Indenture Act".....................................................................................12
"Unrestricted Subsidiary".................................................................................12
"Voting Stock"............................................................................................12
"Wholly-Owned Restricted Subsidiary"......................................................................12
SECTION 102. OTHER DEFINITIONS...............................................................................13
SECTION 103. COMPLIANCE CERTIFICATES AND OPINIONS............................................................13
SECTION 104. FORM OF DOCUMENTS DELIVERED TO TRUSTEE..........................................................14
SECTION 105. ACTS OF HOLDERS.................................................................................15
SECTION 106. NOTICES, ETC., TO THE TRUSTEE, THE COMPANY......................................................16
SECTION 107. NOTICE TO HOLDERS; WAIVER.......................................................................17
</TABLE>
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<TABLE>
<S> <C>
SECTION 108. CONFLICT WITH TRUST INDENTURE ACT...............................................................17
SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS........................................................17
SECTION 110. SUCCESSORS AND ASSIGNS..........................................................................18
SECTION 111. SEPARABILITY CLAUSE.............................................................................18
SECTION 112. BENEFITS OF INDENTURE...........................................................................18
SECTION 113. GOVERNING LAW...................................................................................18
SECTION 114. LEGAL HOLIDAYS..................................................................................18
SECTION 115. INDEPENDENCE OF COVENANTS.......................................................................18
SECTION 116. SCHEDULES AND EXHIBITS..........................................................................19
SECTION 117. COUNTERPARTS....................................................................................19
ARTICLE TWO SECURITY FORMS......................................................................................20
SECTION 201. FORMS GENERALLY.................................................................................20
SECTION 202. FORM OF FACE OF SECURITY........................................................................20
SECTION 203. FORM OF REVERSE OF SECURITIES...................................................................24
ARTICLE THREE THE SECURITIES....................................................................................27
SECTION 301. TITLE AND TERMS.................................................................................27
SECTION 302. DENOMINATIONS...................................................................................27
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING..................................................28
SECTION 304. TEMPORARY SECURITIES............................................................................29
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.............................................30
SECTION 306. BOOK ENTRY PROVISIONS FOR GLOBAL SECURITIES.....................................................31
SECTION 307. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES................................................33
SECTION 308. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED..................................................33
SECTION 309. CUSIP NUMBERS...................................................................................35
SECTION 310. PERSONS DEEMED OWNERS...........................................................................35
SECTION 311. CANCELLATION....................................................................................35
</TABLE>
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<TABLE>
<S> <C>
SECTION 312. COMPUTATION OF INTEREST.........................................................................36
ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE.................................................................37
SECTION 401. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE....................................37
SECTION 402. DEFEASANCE AND DISCHARGE........................................................................37
SECTION 403. COVENANT DEFEASANCE.............................................................................37
SECTION 404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.................................................38
SECTION 405. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS
PROVISIONS......................................................................................40
SECTION 406. REINSTATEMENT...................................................................................41
ARTICLE FIVE REMEDIES...........................................................................................42
SECTION 501. EVENTS OF DEFAULT...............................................................................42
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT..............................................43
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.................................45
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM................................................................46
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.....................................47
SECTION 506. APPLICATION OF MONEY COLLECTED..................................................................47
SECTION 507. LIMITATION ON SUITS.............................................................................47
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST.......................48
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES..............................................................48
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE..................................................................49
SECTION 511. DELAY OR OMISSION NOT WAIVER....................................................................49
SECTION 512. CONTROL BY HOLDERS..............................................................................49
SECTION 513. WAIVER OF PAST DEFAULTS.........................................................................49
SECTION 514. UNDERTAKING FOR COSTS...........................................................................50
SECTION 515. WAIVER OF STAY, EXTENSION OR USURY LAWS.........................................................50
SECTION 516. REMEDIES SUBJECT TO APPLICABLE LAW..............................................................51
</TABLE>
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<TABLE>
<S> <C>
ARTICLE SIX THE TRUSTEE.........................................................................................51
SECTION 601. DUTIES OF TRUSTEE...............................................................................51
SECTION 602. NOTICE OF DEFAULTS..............................................................................52
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.......................................................................52
SECTION 604. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITIONS OF SECURITIES OR APPLICATION OF PROCEEDS
THEREOF........................................................................................ 54
SECTION 605. TRUSTEE AND AGENTS MAY HOLD SECURITIES; COLLECTIONS; ETC........................................54
SECTION 606. MONEY HELD IN TRUST.............................................................................55
SECTION 607. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR CLAIM.................................55
SECTION 608. CONFLICTING INTERESTS...........................................................................56
SECTION 609. TRUSTEE ELIGIBILITY.............................................................................56
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE.......................................56
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR..........................................................58
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.....................................59
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...............................................59
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.................................................60
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.......................................60
SECTION 702. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS....................................................60
SECTION 703. REPORTS BY TRUSTEE..............................................................................60
SECTION 704. REPORTS BY COMPANY..............................................................................61
ARTICLE EIGHT CONSOLIDATION, MERGER, SALE OF ASSETS.............................................................62
SECTION 801. COMPANY AND GUARANTORS MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.............................62
SECTION 802. SUCCESSOR SUBSTITUTED...........................................................................63
ARTICLE NINE SUPPLEMENTAL INDENTURES............................................................................64
SECTION 901. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITHOUT CONSENT OF HOLDERS...............................64
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SECTION 902. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITH CONSENT OF HOLDERS..................................65
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES AND AGREEMENTS.............................................66
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES...............................................................67
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.............................................................67
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES..............................................67
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES...............................................................67
ARTICLE TEN COVENANTS...........................................................................................68
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.....................................................68
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY................................................................68
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST................................................68
SECTION 1004. CORPORATE EXISTENCE............................................................................70
SECTION 1005. LIMITATION ON LIENS............................................................................70
SECTION 1006. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS..................................................71
SECTION 1007. PROVISIONS OF FINANCIAL STATEMENTS.............................................................71
SECTION 1008. WAIVER OF CERTAIN COVENANTS....................................................................72
ARTICLE ELEVEN REDEMPTION OF SECURITIES.........................................................................73
SECTION 1101. RIGHTS OF REDEMPTION...........................................................................73
SECTION 1102. APPLICABILITY OF ARTICLE.......................................................................73
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE..........................................................73
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED..............................................73
SECTION 1105. NOTICE OF REDEMPTION...........................................................................74
SECTION 1106. DEPOSIT OF REDEMPTION PRICE....................................................................75
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE..........................................................75
SECTION 1108. SECURITIES REDEEMED OR PURCHASED IN PART.......................................................76
ARTICLE TWELVE SATISFACTION AND DISCHARGE.......................................................................77
SECTION 1201. SATISFACTION AND DISCHARGE OF INDENTURE........................................................77
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SECTION 1202. APPLICATION OF TRUST MONEY.....................................................................78
</TABLE>
TESTIMONIUM
SIGNATURES AND SEALS
ACKNOWLEDGMENTS
viii
