AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
SEPTEMBER 22, 1999 REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TELMARK LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF FORMATION)
DELAWARE
(STATE OF INCORPORATION OR ORGANIZATION)
16-1551523
(I.R.S. EMPLOYER IDENTIFICATION NO.)
333 BUTTERNUT DRIVE, DEWITT, NEW YORK 13214
315-449-7935
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID M. HAYES, ESQ.
TELMARK LLC
BOX 4943, SYRACUSE, NEW YORK 13221
315-449-6436
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: AS SOON AS PRACTICABLE ON OR AFTER THE EFFECTIVE DATE
OF THIS REGISTRATION STATEMENT.
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, check the following box. |X|
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post effective amendment filed pursuant to Rule 462(d)
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. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C>
Debentures, $1,000 minimum denomination
and additional multiples of $100
(minimum 6.0% per annum) due March 31, 2001 * 100% *
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Debentures, $1,000 minimum denomination
and additional multiples of $100
(minimum 6.25% per annum) due March 31, 2002 * 100% *
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Debentures under the Interest Reinvestment Option
(ranging from minimum of 6.0% to 8.5% per annum)
due from March 31, 2000 through March 31, 2003 * 100% *
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TOTAL $20,000,000 $5,560
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</TABLE>
Pursuant to Rule 429, the combined prospectus filed as part of this
registration statement will relate as well to the registrant's Form S-2
registration statement No. 333-62865. $20,000,000 of the $25,000,000 of the
securities previously registered on registration statement No. 333-62865 which
were not sold are being carried forward into this registration statement. A
filing fee of $5,900 relating to the unsold portion of the previously registered
securities was paid on September 3, 1998. Accordingly, a filing fee of $5,560,
relating to the newly registered securities being offered hereby, is being paid
herewith.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
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<PAGE>
PROSPECTUS
$40,000,000*
TELMARK LLC
DEBENTURES
CONSIDER CAREFULLY THE
RISK FACTORS BEGINNING ON
PROSPECTUS PAGE 6.
AGWAY, OUR PARENT, AND
ITS OTHER SUBSIDIARIES DO
NOT GUARANTEE THE PAYMENT
OF INTEREST ON OR THE
PRINCIPAL OF THE
DEBENTURES.
WE CANNOT ASSURE YOU THAT
THE DEBENTURES WE ARE
OFFERING WILL BE SOLD OR
THAT THERE WILL BE A
SECONDARY MARKET FOR
THEM.
We will issue --
<TABLE>
<CAPTION>
INTEREST
6.0% 6.25% REINVESTMENT
DEBENTURES DEBENTURES OPTION
---------- ---------- ------------
<S> <C> <C> <C>
INTEREST RATE 6.0% 6.25% 6.0 - 8.5%
MINIMUM $1,000 $1,000 N/A
DENOMINATIONS
ADDITIONAL $100 $100 N/A
DENOMINATIONS
MATURITY DATE March 31, 2001 March 31, 2002 March 31, 2000 to
March 31, 2003
PRICE TO THE 100% 100% 100%
PUBLIC
UNDERWRITING None None None
COMMISSION OR
DISCOUNT
</TABLE>
WHILE THE DEBENTURES WILL PAY AT LEAST THE APPLICABLE STATED FIXED RATE OF
INTEREST, THE DEBENTURES MAY PAY A HIGHER INTEREST RATE BASED UPON A VARIABLE
TREASURY BILL RATE. The amount of Debentures sold at a particular interest rate
and maturity date and the proceeds realized can vary. However, the aggregate
price to the public will not exceed $40,000,000.
We will not employ any sales people to solicit the sale of these
securities, and we will not pay, nor allow, any commission or discount to be
paid or allowed to anyone in connection with their sale.
We may, from time to time, before the Debenture offering is completed,
change the rate of interest or maturity date offered by filing a supplement with
the Securities and Exchange Commission. We will attach the applicable
supplement, if any, to this prospectus. Any change in the interest rate or
maturity date offered will not affect the rate of interest on or maturity date
of any Debentures previously issued by us.
The Debentures are unsecured obligations and subordinated to all of our
Senior Debt. As of June 30, 1999, $396,100,835 in Senior Debt was outstanding.
Senior Debt includes all of our interest-bearing debt presently outstanding
except with respect to our other outstanding Debentures.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (SEC) NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
September 22, 1999
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.............................................................3
Risk Factors...................................................................6
Special Note Regarding Forward Looking Information............................11
Use of Proceeds...............................................................12
Plan of Distribution..........................................................12
Description of Debentures.....................................................13
Description of Interest Reinvestment Option...................................20
Legal Matters.................................................................20
Experts.......................................................................21
Where You Can Find More Information...........................................21
- 2 -
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about this offering.
It likely does not contain all the information important to an investor. For a
more complete understanding of this offering, we encourage you to read this
entire document and the documents to which we have referred. In this prospectus
or any prospectus supplement, unless otherwise indicated, the Company,
"Telmark," "we," "us," or "our" refer to Telmark LLC and its subsidiaries.
THE COMPANY
We finance agricultural related equipment, vehicles, and buildings
through leases with our customers. As of June 30, 1999, we held over $500
million in leases, and we were one of the largest agricultural lessors in the
Northeast based on the number of leases we hold. The equipment we lease includes
milking machines, tractors, combines, feed processing equipment and forestry
equipment, vehicles (trucks, trailers and fork lifts); and buildings (barn
structures, silos and greenhouses).
We have over 17,000 customers, most of whom are in the dairy, forestry
crops and transportation industries. Our customers are farmers and other rural
businesses as well as manufacturers and independent dealers who serve the
agricultural marketplace.
We operate throughout the continental United States and Canada. Our own
field representatives serve customers in 29 states. We serve customers in other
states through unaffiliated dealers of equipment distributed by selected farm
equipment manufacturers.
We use direct mail, advertisements in trade magazines and referrals
from equipment retailers and building contractors to solicit customers. Our main
competitors are agricultural lenders and other leasing companies. We believe
that we compete effectively because of:
o our special expertise in agricultural equipment financing;
o our close relationship with the farming community;
o our focus on service;
o our financial strength; and
o our credit management.
We are owned and controlled by Agway Inc. ("Agway"), one of the largest
agricultural supply and services cooperatives in the United States, in terms of
revenues, based on a 1998 Co-op 100 Index produced by the National Cooperative
Bank. We are a direct wholly-owned subsidiary of Agway Holdings, Inc., an
indirect subsidiary of Agway. Agway and its other subsidiaries do not guarantee
the payment of interest on or the principal of the Debentures.
We have over 200 employees, including approximately 87 sales people.
Our office is located at 333 Butternut Drive, DeWitt, New York 13214 and our
telephone number is (315) 449-7935.
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<PAGE>
THE OFFERING
We will issue Debentures, as well as provide an Interest Reinvestment
Option, under the terms described below and on the cover page of the prospectus.
The terms of the Debentures are governed by an agreement between us and a bank
trustee known as the "Indenture." The applicable fixed rate of interest and
maturity date can be determined by looking at the cover page.
We may, from time to time, before the completion of the offering of
Debentures, change the interest rate or the maturity date by filing a supplement
with the SEC amending the cover page. We will attach the applicable supplement,
if any, to this prospectus. Any change in the interest rate or maturity date
will not affect the interest rate or the maturity date of any Debentures
previously issued.
The aggregate price of this offering to the public will not exceed
$40,000,000 principal amount of Debentures. The amount of Debentures sold at a
particular interest rate and maturity date and the proceeds earned can vary. As
of June 30, 1999, we had outstanding $37,633,105 of Debentures under the
Indenture.
INTEREST RATE . . . . . . . Interest on the Debentures is payable at an annual
rate equal to the greater of:
(1) the applicable fixed rate of interest stated on
the cover page of this prospectus for a
particular maturity date; or
(2) the variable "Treasury Bill Rate" as described
below.
MATURITY DATE . . . . . . . The Debentures will mature on the applicable date
stated on the cover page of the prospectus which
corresponds to the applicable minimum fixed rate of
interest.
ISSUE DATE . . . . . . . . .The "Issue Date" will be set forth on your Debenture
certificate and is no later than the day on which we
receive your application and check.
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<PAGE>
THE OFFERING (CONTINUED)
INTEREST PAYMENT DATE . We will pay interest quarterly in arrears on January
1, April 1, July 1 and October 1 of each year and on
the "Maturity Date."
OPTIONAL REDEMPTION . . We may redeem the Debentures in whole or in part
at any time at the principal amount, together with
accrued but unpaid interest.
INTEREST REINVESTMENT
OPTION . . . . . . . . . Additional amounts may be added to the principal of the
Debenture pursuant to an election by the holder to have
quarterly interest payments added to the principal of
the Debenture.
Debenture holders who elect the reinvestment option
will receive a statement from us indicating the amounts
added to the principal of the Debentures.
RANKING . . . . . . . . .The Debentures are subordinated to all Senior Debt.
Therefore, if our assets are distributed as a result of
total liquidation or reorganization, the holders of all
Senior Debt will be entitled to receive payment in full
before the holders of the Debentures are entitled to
receive any payment.
APPLICATION PROCESS . . .If you are interested in purchasing Debentures, you
must forward a completed application and a check
(personal, cashiers or certified) or money order
payable to us in an amount equal to the principal
amount of the Debenture to be purchased.
You can obtain an application and prospectus by
contacting us at:
Telmark LLC PHONE: 1-800-253-6729
Securities Department FAX: 1-315-449-7451
P.O. Box 5060 E-MAIL: [email protected]
Syracuse, NY 13220-5060
You may purchase Debentures only if you live in the
states listed under the "Plan of Distribution."
We reserve the right to reject any application
submitted to us.
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<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, as well as the
other information presented in this prospectus, and the documents incorporated
by reference in deciding whether to invest in the Debentures.
OUR BUSINESS OF LEASING EQUIPMENT INVOLVES A HIGH DEGREE OF RISK.
Our principal assets are our portfolio of outstanding leases and the
residual value of equipment or other property under lease as described below. As
a leasing company, there is a risk that our customers will fail to make the
payments required under a lease and that the equipment or property leased might
be sold after the lease expires for less than the residual value anticipated at
the initiation of the lease. Our leasing business may be affected by general
economic conditions, including the level of inflation, fluctuations in general
business conditions, and the availability of financing to us and our customers.
Our business is dependent upon continued demand for leases as a financing option
and would be adversely affected by our customers using other financing methods
to acquire the use of equipment, such as by purchasing the equipment.
WE MAY EXPERIENCE DIFFICULTY IN COLLECTING THE AMOUNTS DUE UNDER OUR LEASES.
We may not receive payments of amounts due under our leases because of
bankruptcies, contract disputes, or defaults by our customers. The ultimate
collectibility of amounts due under our leases is directly dependent upon the
credit practices employed by us and the credit-worthiness of the individual
leases in our portfolio. See "Business of Telmark - Credit Policies" in our
Annual Report to Investors provided with this prospectus. There are other
factors that could significantly impact our lease collection experience and our
earnings. These factors include:
o changes in general economic conditions;
o government farm policy;
o adverse weather conditions; and
o international commodities prices.
Some of these risks are related to the fact that our customers are
concentrated in particular segments of agriculture or specific geographic areas.
Our business is concentrated in agriculture in the New England, Mid-Atlantic,
and Midwest states with approximately 70% of our leases directly related to
agriculture production. At June 30, 1999, approximately 44% of our net lease
investment was in the states of Michigan, New York, Ohio and Pennsylvania.
Adverse developments in any of these areas of concentration could have a
corresponding adverse effect on the collectibility of our lease receivables. See
"Our Business is Indirectly Affected by the Agricultural Economy."
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<PAGE>
OUR ESTIMATED RESALE VALUE OF LEASED EQUIPMENT OR OTHER LEASED PROPERTY THAT WE
EXPECT TO DERIVE FROM LEASES MAY BE LOWER THAN WE EXPECT.
Residual values are the estimated resale value of leased equipment or other
leased property that we expect to derive as leases expire. We estimate the
residual values of leased assets at the time we write the leases. Realization of
residual values depends on several factors not within our control. Such factors
include:
o the condition of the equipment;
o the cost of comparable new equipment; and
o technological or economic obsolescence of the equipment.
We have generally not experienced any losses as a result of the failure to
realize estimated residual values on equipment and property lease expirations.
Although there can be no assurance this experience will continue in the future,
our management monitors residual collections and anticipates this trend to
continue. Failure to realize residual values could have a material adverse
effect on our earnings. See "Business of Telmark - Residual Value," in our
Annual Report to Investors provided with the prospectus.
WE WILL CONTINUE TO NEED ADDITIONAL FINANCING FOR US TO CONTINUE TO GROW.
Our ability to obtain adequate financing to maintain the size of our
current lease portfolio and to permit growth in our lease portfolio is key to
our continuing profitability and stability. Our principal sources of external
financing as of June 30, 1999 were:
PERCENTAGE OF
OUTSTANDING DEBT
----------------
o Banks 44%
o Debt Placements with private institutional investors 34%
o Lease backed asset securitization 13%
o Debentures sold to the public 9%
There can be no assurance, however, that we will be able to obtain future
financing in amounts that are sufficient or on terms which are acceptable. Our
inability to obtain adequate financing would have a material adverse effect on
our operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- Liquidity and Capital Resources," in our Annual
Report to Investors provided with this prospectus.
- 7 -
<PAGE>
CHANGES IN INTEREST RATES MAY AFFECT OUR PROFITABILITY.
We try to limit the effects of changes in interest rates by matching as
closely as possible, on an ongoing basis, the maturity and cost of the funds we
borrow to finance our leasing activities with the maturity and repricing
characteristics of our lease portfolio. However, a rise in interest rates would
increase the cost of funds we borrow to finance our leasing business and could
lower the value of our outstanding leases in the secondary market. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Quantitative and Qualitative
Disclosures About Market Risk," in our Annual Report to Investors provided with
this prospectus. In addition, a rise in interest rates, to the extent that they
would increase the cost of financing our leases, would increase the cost of
leases to potential customers and could decrease the demand for our leases.
WE ARE OFFERING DEBENTURES THAT ARE NOT SECURED OBLIGATIONS AND ARE SUBORDINATE
TO OUR OTHER DEBT.
The Debentures are unsecured obligations of ours and are subordinated to
all Senior Debt. There are no specific assets that you can look to for repayment
of the Debentures. If our assets are distributed as a result of bankruptcy,
liquidation or reorganization, the holders of all Senior Debt will receive
payment in full before the holders of Debentures receive any payment. We may not
have enough assets after paying off our Senior Debt to pay you the amounts owed
to you under the Debenture.
WE HAVE LIMITED RESTRICTIONS ON CERTAIN TYPES OF TRANSACTIONS WHICH MAY
ADVERSELY AFFECT YOU.
In addition to the subordination provisions of the Indenture, holders of
the Debentures may be adversely affected by the fact that the Indenture contains
only limited restrictions on reorganizations, restructuring, mergers or similar
transactions involving us. In addition, the Indenture does not limit the amount
of debt that we may incur.
WE ARE NOT OFFERING THE DEBENTURES THROUGH AN UNDERWRITER.
This offering of Debentures is not being underwritten. Accordingly, no
underwriter, such as an investment bank, has undertaken a review of our
corporate records, evaluated our financial condition, or evaluated the terms of
the Debentures and this offering, including our ability to meet our payment
obligations on the Debentures.
WE ARE CONTROLLED BY AGWAY.
Agway, Inc., through its subsidiary, Agway Holdings, Inc. owns all of the
members equity of Telmark LLC. This ownership permits Agway to control all of
our actions (including the withdrawal of member's equity by Agway) and could
result in us taking actions that would adversely affect our ability to make
payments of principal or interest on the Debentures.
OUR BUSINESS IS INDIRECTLY AFFECTED BY THE AGRICULTURAL ECONOMY.
Our financial condition is indirectly affected by factors influencing
the agricultural economy, since these factors impact the demand for equipment
leased by us and the ability of our customers to make payments on leases. These
factors include:
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<PAGE>
o changes in the level of government expenditures on farm programs and
the elimination of the acreage reduction programs which could reduce
the income of our customers;
o adverse weather-related conditions that negatively impact the
agricultural productivity and income of our customers; and
o oversupply of, or reduced demand for, agricultural commodities produced
by our customers.
Our business may also be affected by major international events, like the
downturn in the Asian economy, which can affect such things as the general level
of interest rates. These factors, to the extent they adversely affect our
customers, could have an adverse effect on our financial condition and our
ability to make payments on the Debentures. See "Business of Telmark -
Agricultural Economy," in our Annual Report to Investors provided with this
prospectus.
OUR BUSINESS MAY BE IMPACTED BY YEAR 2000.
The approach of the year 2000 presents potential issues to all
organizations who use computers in the conduct of their business or depend on
business partners who use computers. To the extent computer use is
date-sensitive, hardware or software that recognizes the year by the last two
digits may erroneously recognize "00" as 1900 rather than 2000, which could
result in errors or system failures.
We utilize a number of computers and computer software programs in the
conduct of its business that are principally involved in the flow of
information. This includes the software for tracking the lease portfolio, the
financial and administration software, and the related hardware and operating
system software. It also includes the personal computers and software used by
the field sales force. All critical hardware and operating software has been
inventoried and made year 2000 ready through replacement or remediation. This
hardware and software has been tested and determined to be year 2000 compliant.
All critical application software has been inventoried and upgraded through
remediation or replacements. The lease portfolio tracking software has been
updated to a new vendor certified year 2000 compliant version. The financial and
administration applications have been replaced by applications that are
vendor-certified as year 2000 compliant. Successful internal testing of the year
2000 compliance of the lease portfolio tracking software and the financial and
administrative software has been completed. The interaction of the new vendor
software with other corporate systems has also been tested in an enterprise wide
test environment which was completed during August 1999. New year 2000 compliant
personal computers and operating systems have been acquired for the field sales
force and the related application software has been replaced or remediated,
successfully tested as year 2000 compliant, and installed. These new fully
tested year 2000 compliant personal computer systems have been distributed to
the field sales force.
In addition to the information technology applications review noted above,
Telmark also reviewed and modified, where appropriate, other areas impacted by
year 2000. External interfaces to internal information technology applications
have been tested and are compliant. There are no embedded chips used in the
business operations. Business continuity plans are complete.
- 9 -
<PAGE>
Our principal sources of capital are banks, insurance companies, and its
customers' repayment of leases. While banks and insurance companies are highly
computer-dependent and are exposed as creditors to a broad array of businesses,
both nationally and internationally, our management considers failure of its
banks and insurance company investors as remote. We have a number of such
creditors which diversifies the risk. Our customer base is widely diversified in
number, geography and industry and in our management's opinion is not highly
exposed to year 2000 related failures. The year 2000 compliance issue is,
however, an uncertainty that is continuously being monitored by us. Based on the
work performed to date, we presently believe that the likelihood of the year
2000 having a material effect on the results of operations, liquidity, or
financial condition is remote.
Notwithstanding the foregoing, it is not presently clear that all parts of
the country's infrastructure, including such things as the national banking
systems, electrical power, transportation of goods, communications, and
governmental activities, will be fully functioning as the year 2000 approaches.
Our research to date gives us increased confidence in many of these
infrastructure components but also persuades us that absolute certainty
regarding their performance will not likely be possible prior to passing into
the year 2000. To the extent failure occurs in such activities, which are
outside the our control, it could affect our ability to service our customers
with the same degree of effectiveness with which they are served presently. We
have identified elements of the infrastructure that are of greater significance
to our operations, is obtaining information on an ongoing basis as to their
expected year 2000 readiness, and have considered alternative solutions if
required.
We have incurred internal staff costs as well as consulting and other
expenses related to its year 2000 efforts. Due to the level of effort required
to complete remediation for the year 2000, non-business critical software
application enhancements have been deferred until the year 2000 efforts have
been completed. The conversion and testing of existing applications and
replacements of hardware has cost Telmark approximately $803,000, all of which
has been incurred as of June 30, 1999. However, additional costs may be incurred
if Telmark is required to invoke continuity plans. Telmark treats non-capital
costs associated with year 2000 as period costs and they have been expensed when
incurred.
In planning for business continuance, the highest priority is our ability
to maintain high quality customer service. All business events were evaluated
for impact of a potential Y2K failure. From this analysis, we developed
continuity plans for all critical events to assure business processes could be
performed in an alternate manner. These plans were approved by our senior
management and include the details of the scope, any preparation steps needed,
plan date of activation, appropriate communications, and procedures. Two tests
are planned to validate these plans in the event of a failure whether facility
or system related.
PRINCIPAL AND INTEREST PAYMENTS ON THE DEBENTURES ARE NOT GUARANTEED.
Although Agway owns all of our members equity through its subsidiary, Agway
Holdings, neither Agway nor any of its subsidiaries guarantees the payment of
interest on or the principal of the Debentures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," in our Annual Report to Investors provided with this
prospectus.
- 10 -
<PAGE>
THERE IS NO PUBLIC MARKET FOR THE DEBENTURES.
There is no market for the Debentures and we do not intend to create or
encourage a trading mechanism for these Debentures. We do not intend to apply
for listing of the Debentures on any securities exchange. The secondary market
for, and the market value of the Debentures will be affected by a number of
factors independent of our creditworthiness, including:
o the level and direction of interest rates;
o the remaining period to maturity of the Debentures;
o our right to redeem the Debentures; and
o the aggregate principal amount of the Debentures and the availability
of comparable investments.
In addition, the relative value of the Debentures to other debt instruments you
could purchase from other issuers may be affected by numerous other interrelated
factors, including factors that affect the U.S.
corporate debt market generally and us specifically.
There is no assurance that:
o a secondary market value of the Debentures will develop;
o any secondary market will continue;
o the price at which an investor can sell the Debentures will enable the
investor to realize a desired yield on that investment; or
o in the event of redemption, an effective interest rate as high as that
of the Debentures will be paid.
The relative value of the Debentures is likely to fluctuate; such fluctuations
may be significant and could result in significant losses to you. You should
rely solely on our ability to repay principal at maturity of the Debentures as
the source for liquidity in your investment.
WE OPERATE IN A COMPETITIVE MARKET.
We compete with finance affiliates of equipment manufacturers, agricultural
financial institutions, other independent finance and leasing companies, and
commercial banks. Many of these organizations have substantial financial and
other resources and as a consequence are able to compete on a long-term basis
within the market segment which we serve. See "Business of Telmark -
Competition," in our Annual Report to Investors provided with this prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make statements in the prospectus or in the documents incorporated by
reference that may constitute forward-looking statements within the meaning of a
federal law, the Private Securities Litigation Reform Act of 1995. Sometimes
these statements will contain words such as "believes," "expects," "intends,"
"plans" and other similar words. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors that may
cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Some of the factors that may cause such
material differences are set forth under the caption "Risk Factors."
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<PAGE>
USE OF PROCEEDS
We cannot assure you that all or any of the Debentures will be sold. We do
not have a minimum amount of Debentures which must be sold as a condition to the
sale of any of the Debentures. The net proceeds of the sale of the Debentures
offered will be no greater than $40,000,000. We intend to use net proceeds from
the sale of the Debentures for general corporate purposes, which may include
repayment of debt, the financing of capital expenditures, and working capital.
We estimate that the expenses to be incurred in the offering of Debentures
will be approximately $110,560, which includes legal fees, state and federal
registration fees, printing, trustee fees, accounting fees and other
miscellaneous expenses.
PLAN OF DISTRIBUTION
We may sell the Debentures to:
o our customers;
o our employees and former employees;
o employees and former employees of Agway;
o members of Agway;
o non-member patrons of Agway; and
o the general public.
We may solicit the sale of Debentures through direct mailings. We may also
make applications and prospectuses available through Agway retail stores, Agway
dealers and locations of certain affiliates of Agway.
You can obtain applications to purchase the Debentures and this prospectus
by contacting us at:
Telmark LLC PHONE: 1-800-253-6729
Securities Department FAX: 1-315-449-7451
P.O. Box 5060 E-MAIL: [email protected]
Syracuse, NY 13220-5060
You may purchase Debentures only if you live in the states listed below:
o Connecticut o Delaware
o Florida o Maine
o Maryland o Massachusetts
o New York o New Hampshire
o New Jersey o Ohio
o Pennsylvania o Rhode Island
o Vermont
All Telmark employees and the employees of Agway who are involved in
offering the Debentures have other principal duties in connection with the
business of Telmark or Agway, as the case may be, and are not otherwise engaged
in the sale of securities.
- 12 -
<PAGE>
We will not employ any sales people to solicit the sales of securities, and
we will not pay, nor allow, any commission or discount to be paid or allowed to
anyone in connection with their sale. The individual Telmark and Agway employees
who participate in the sale of the Debentures may be deemed to be underwriters
of this offering within the meaning of that term as defined in Section 2(11) of
the Securities Act of 1933, as amended.
DESCRIPTION OF THE DEBENTURES
We are authorized to issue the Debentures under an Indenture dated as of
September 30, 1993, between us and OnBank & Trust Co., as "Trustee."
Manufacturers and Traders Trust Company assumed the Trustee responsibilities of
OnBank & Trust Co. under an Agreement of Resignation, Appointment and Acceptance
by and among OnBank & Trust Co., us, and Manufacturers and Traders Trust
Company. Supplemental Indentures between us and Manufacturers and Traders Trust
Company were executed as of June 30 and July 1, 1998.
The following description is a summary of the material provisions of the
Indenture. This description does not restate the Indenture in its entirety. We
urge you to read the Indenture because it, and not this description, defines
your rights as a holder of the Debentures. We have filed the Indenture as an
exhibit to the registration statement which includes this prospectus.
OFFERING OF THE DEBENTURES. The Debentures to be issued under this
prospectus are limited to $40,000,000 aggregate principal amount. However, the
Indenture does not limit the amount of the Debentures or other securities which
may be issued by us. As of June 30, 1999, we had $37,633,105 principal amount of
Debentures issued and outstanding under the Indenture. The Debentures and any
other securities issued and outstanding under the Indenture are referred to as
"Outstanding Debentures."
PRICE AND DENOMINATIONS. We will issue the Debentures at 100% of their
principal amount. We will issue the Debentures in registered form in minimum
denominations and multiples as shown in the table on the cover page of this
prospectus.
INTEREST. The Debentures will bear interest from their respective Issue
Dates at the per annum rate described below on the basis of a 360-day year of
twelve 30-day months, notwithstanding the terms of the Debentures in the
Indenture.
We may, from time to time, before the offering of the Debentures is
completed, change the rate of interest or maturity date offered by filing a
supplement with the Securities and Exchange Commission. We will attach the
applicable supplement, if any, to this prospectus. Any change in the interest
rate or maturity date offered will not affect the rate of interest on or
maturity of any Debenture previously issued.
The interest rates on the Debentures offered by this prospectus are shown
on the cover page and are at an annual rate equal to the greater of:
o the fixed rate percentage per annum; or
o a variable "Treasury Bill Rate," as defined below.
- 13 -
<PAGE>
The applicable fixed rate of interest will be determined by reference to
the cover page and will be tied to the Maturity Date.
U.S. Treasury bills are issued and traded on a discount basis, the amount
of the discount being the difference between their face value at maturity and
their sales price.
o The per annum discount rate on a U.S. Treasury bill is the
percentage obtained by dividing the amount of the discount on such
U.S. Treasury bill by its face value at maturity and annualizing such
percentage on the basis of a 360-day year.
o The Federal Reserve Board currently publishes such rates weekly
in its Statistical Release H.15 (519).
o Unlike the interest on U.S. Treasury bills, interest on the Debentures
will not be exempt from state and local income taxation.
The "Treasury Bill Rate" for each quarterly interest payment date is the
arithmetic average of the weekly per annum auction average discount rates at
issue date for U.S. Treasury bills with maturities of 26 weeks (which may vary
from the market discount rates for the same weeks), as published for each week
by the Federal Reserve Board, during the following interest determination
periods:
o September 1 to November 30, inclusive, for the January 1 interest
payment date;
o December 1 to February 28 inclusive, for the April 1 interest payment
date;
o March 1 to May 31, for the July 1 interest payment date;
o June 1 to August 31, for the October 1 interest payment date; or
o December 1 to February 28 for interest payable on the maturity date
(each such period, an "Interest Determination Period").
If the Federal Reserve Board does not publish the weekly per annum auction
average discount rate for a particular week, we will select a publication of
such rate by any Federal Reserve Bank or any U.S. Government department or
agency to be used in computing the arithmetic average. We will round the
Treasury Bill Rate to the nearest one hundredth of a percentage point.
If we determine in good faith that for any reason a Treasury Bill Rate is
not published for a particular week in an Interest Determination Period for a
particular interest payment date or the maturity date, as applicable, we will
substitute an "Alternate Rate" for the Treasury Bill Rate for that period and
date. The Alternate Rate will be the arithmetic average of the weekly per annum
auction average discount rates for those weeks in the relevant Interest
Determination Period for which rates are published as described above, if any,
and the weekly per annum auction average discount rates or market discount rates
or stated interest rates for comparable issue(s) of securities which we have
selected, for those weeks in the Interest Determination Period for which no rate
is published as described above. We will round the Alternate Rate to the nearest
one hundredth of a percentage point.
We will pay the interest rate stated on the Debenture if we determine in
good faith that neither the Treasury Bill Rate nor Alternate Rate can be
computed for the following periods:
o September 1 to November 30, inclusive, for the January 1 interest
payment date,
o December 1 to February 28, inclusive, for the April 1 interest payment
date,
o March 1 to May 31, inclusive, for the July 1 interest payment date, or
o June 1 to August 31, inclusive, for the October 1 interest payment date.
- 14 -
<PAGE>
The following chart shows for the periods indicated: (1) the Treasury Bill
Rate, (2) the highest per annum discount rate on six month U.S. Treasury Bills
at one of the 26 auctions during the period used to calculate the "Treasury Bill
Rate," and (3) the lowest per annum discount rate on six month U.S. Treasury
Bills at one of the 26 auctions during the period used to calculate the
"Treasury Bill Rate."
[CHART WITH ATTACHED FIGURES PLOTTED]
<TABLE>
<CAPTION>
AVERAGE
PAYMENT "TREASURY BILL HIGH LOW
DATE RATE"
========================= =============================== ===================== ====================
<S> <C> <C> <C>
JAN. - 89 7.68% 8.36% 7.34%
APR. - 89 8.41% 8.77% 8.21%
JUL. - 89 8.65% 9.12% 8.19%
OCT. - 89 7.75% 8.08% 7.35%
JAN. - 90 7.60% 7.92% 7.40%
APR. - 90 7.57% 7.77% 7.30%
JUL. - 90 7.83% 8.03% 7.74%
OCT. - 90 7.51% 7.75% 7.19%
JAN. - 91 7.18% 7.36% 6.96%
APR. - 91 6.34% 6.96% 5.85%
JUL. - 91 5.75% 6.06% 5.61%
OCT. - 91 5.63% 5.79% 5.23%
JAN. - 92 5.01% 5.39% 4.50%
APR. - 92 3.98% 4.39% 3.80%
JUL. - 92 3.97% 4.27% 3.71%
OCT. - 92 3.46% 3.90% 3.18%
JAN. - 93 3.10% 3.45% 2.78%
APR. - 93 3.23% 3.46% 3.06%
JUL. - 93 3.04% 3.19% 2.95%
OCT. - 93 3.18% 3.30% 3.10%
JAN. - 94 3.16% 3.30% 3.02%
APR. - 94 3.27% 3.53% 3.14%
JUL. - 94 4.15% 4.81% 3.61%
OCT. - 94 4.75% 4.99% 4.53%
JAN. - 95 5.34% 5.85% 4.89%
APR. - 95 6.20% 6.42% 5.86%
JUL. - 95 5.82% 6.00% 5.65%
OCT. - 95 5.43% 5.61% 5.30%
JAN. - 96 5.31% 5.38% 5.22%
Apr. - 96 4.99% 5.25% 4.71%
Jul. - 96 5.01% 5.19% 4.80%
Oct. - 96 5.24% 5.41% 5.08%
Jan. - 97 5.17% 5.38% 5.07%
Apr. - 97 5.07% 5.11% 4.97%
Jul. - 97 5.30% 5.45% 5.00%
Oct. - 97 5.15% 5.26% 5.05%
Jan. - 98 5.11% 5.19% 4.01%
Apr. - 98 5.13% 5.30% 4.91%
Jul. - 98 5.08% 5.17% 4.99%
Oct. - 98 5.06% 5.17% 4.94%
Jan. - 99 4.12% 4.94% 3.87%
Apr. - 99 4.41% 4.53% 4.28%
Jul. - 99 4.46% 4.63% 4.32%
</TABLE>
- 15 -
<PAGE>
FOR EXAMPLE, IF THE DEBENTURES WERE PURCHASED ON SEPTEMBER 1, 1999, THE
DATE OF THE PROSPECTUS, THE FIXED INTEREST RATE WOULD HAVE BEEN PAID. ALTHOUGH
THE PERIOD SEPTEMBER 1, 1999 TO NOVEMBER 30, 1999, IS NOT COMPLETE AS OF THE
DATE OF THIS PROSPECTUS (AND THE TREASURY BILL RATE FOR THE JANUARY 1, 2000
INTEREST PAYMENT DATE CANNOT YET BE DETERMINED), THE AVERAGE TREASURY BILL RATE
AS OF SEPTEMBER 1, 1999 WAS 4.76%.
THE SIX-MONTH U.S. TREASURY BILL RATE HAS FLUCTUATED WIDELY DURING THE
PERIODS SHOWN IN THE CHART. THIS RATE CAN BE EXPECTED TO FLUCTUATE IN THE
FUTURE. WHENEVER THE TREASURY BILL RATE EXCEEDS THE FIXED RATE ON THE
DEBENTURES, THESE FLUCTUATIONS WILL CAUSE THE INTEREST RATE WE WILL PAY ON THE
DEBENTURES TO EXCEED THE FIXED RATE. SEE "RISK FACTORS - THERE IS NO PUBLIC
MARKET FOR THE DEBENTURES."
PAYMENTS OF PRINCIPAL AND INTEREST. Principal amounts of the Debentures
will be due and payable, together with interest accrued but unpaid, on
the"Maturity Date" for these Debentures. The Maturity Date for the Debentures
offered will be in the table on the cover page of this prospectus. We will pay
you the interest on the Debentures quarterly on the following Interest Payment
Dates:
o January 1;
o April 1;
o July 1;
o October 1 and
o on the Maturity Date.
We will pay you principal and interest on the Debentures at the office of
the transfer agent, Agway, in DeWitt, New York.
You may add additional amounts to the principal of the Debenture if you
elect to have quarterly interest payments added to the Debenture and if you
increase the principal amount of the Debenture. If you make such an election, we
will send you a statement which will indicate the amounts you added to the
principal of the Debenture.
If an Interest Payment Date, a Redemption Date (as defined below), a
Maturity Date or other payment date is not a Business Day, we will pay you on
the next Business Day as if made on such Interest Payment Date, Redemption Date,
Maturity Date or other payment date. "Business Day" means any day other than a
Saturday or Sunday or a day on which the Federal Reserve Bank of New York or
commercial banking institutions in New York City are authorized or required by
law or executive order to close.
SUBORDINATION AND COVENANTS. The Debentures are unsecured obligations, and
payment is subordinated to our other debt, except debts similarly subordinated.
The Indenture does not prevent us from incurring additional debt. Also, the
Indenture does not restrict us as to the interest rate or other terms of any
additional debt which we may incur. In addition to its subordination provisions,
the Indenture contains only limited restrictions on highly leveraged
transactions, reorganizations, restructuring, mergers or similar transactions
involving us, which may adversely affect the holders of the Debentures. We are
not limited in our ability to merge into or transfer or lease all or
substantially all of our assets to a corporation or other entity as long as:
o such corporation assumes our obligations under the Debentures and the
Indenture and,
o after the transaction, there exists no event of default under the
Indenture.
- 16 -
<PAGE>
TRANSFER. There are no restrictions on the transfer of the Debentures.
SETTLEMENT AND ISSUE DATE. If you are interested in purchasing Debentures,
you must forward a completed application and a check (personal, cashiers or
certified) or money order payable to us in an amount equal to the principal
amount of the Debenture to be purchased.
You can obtain an application to purchase Debentures offered by this
prospectus by contacting us at the address and phone number listed under the
"Plan of Distribution."
We generally will process applications within five to ten days after we
receive them. We will then forward your application to the Trustee for
authentication. The Trustee will then forward you the Debenture. Your Debenture
certificate will be sent to you approximately three weeks after we receive your
application.
The "Issue Date" will be set forth on your Debenture certificate and is no
later than the day we receive your application and check. For example, if we
receive your application and check on April 15th, your Debenture will earn
interest from April 15.
We reserve the right to reject any application submitted to us.
REDEMPTION PROVISIONS. At any time, on not less than 30 days written
notice, we may, at our option, redeem all, or some of the Debentures at the
principal amount, plus accrued but unpaid interest, from the last Interest
Payment Date to the date fixed for redemption, the "Redemption Date," at the
fixed rate. Should the Debentures be redeemed by lot, all Debentures not
redeemed will be accorded equal treatment in any subsequent redemption.
INTEREST REINVESTMENT OPTION. When you complete an application to purchase
Debentures, or at any time after that date, you may elect to have all the future
interest paid on the Debentures reinvested automatically into the Debentures. If
you elect to have interest reinvested automatically, then we will add the
interest due on each quarterly payment date to the principal amount of the
Debenture on which interest was paid. Your interest that is reinvested will earn
interest on the increased principal amount on the same basis as your original
principal amount. Any interest that you reinvest will be subject to federal and
state income tax as if it had been received by you on the date it was
reinvested. See "Description of the Interest Reinvestment Option."
You may revoke your election for future interest payments at any time by
providing us with written notice. Your election will be effective on the date we
receive it.
SUBORDINATION PROVISIONS. The payment of the principal and interest on the
Debentures is subordinated in right of payment, to the extent required in the
Indenture, to the amounts of principal and interest due on "Senior Debt."
Senior Debt is the principal, and interest on our debt for money which we
have borrowed from or guaranteed to the following:
o banks,
o trust companies,
- 17 -
<PAGE>
o insurance companies, and
o other financial institutions, including dealers in commercial paper,
charitable trusts, pension trusts, and other investing organizations,
unless the instrument creating or evidencing the indebtedness provides that such
indebtedness is not superior or is subordinate in right of payment to the
Debentures.
Senior Debt includes all of our interest-bearing debt presently outstanding
except indebtedness with respect to our other Outstanding Debentures. As of June
30, 1999, Senior Debt of $396,100,835 was outstanding.
If we are liquidated or reorganized, we will pay the holders of all Senior
Debt in full before we pay you any amount. After we pay the Senior Debt in full,
you may be entitled to participate in any distribution of our remaining assets.
Due to the subordination of the Outstanding Debentures to the Senior Debt,
Senior Debt holders may receive more assets on a percentage basis, and holders
of the Outstanding Debentures may receive less assets on a percentage basis,
than our other creditors.
MODIFICATION OF INDENTURE. The Indenture permits the Trustee and us to make
non-material modifications and amendments to the Indenture without your consent.
Other modifications and amendments to the Indenture require the written consent
of holders of 66-2/3% in aggregate principal amount of Outstanding Debentures.
Without this consent, no amendment or modification may:
(1) reduce the amount of Outstanding Debenture required to amend
the Indenture,
(2) reduce the interest rate or time for payment of any interest
on any Outstanding Debenture,
(3) reduce the principal or change the Maturity Date of any
Outstanding Debenture,
(4) make any changes to the Indenture with respect to the waiver
of past defaults thereunder or the rights of holders of
Outstanding Debentures to receive payments,
or
(5) make any changes to the subordination provisions contained in
the Indenture.
COVENANTS. Under the Indenture, we promise to make payments on the
Outstanding Debentures and to file all required reports and other documents with
the SEC. The Indenture does not restrict our ability to distribute member's
equity or require us to maintain any ratios or reserves.
EVENTS OF DEFAULT AND WITHHOLDING OF NOTICE TO DEBENTURE HOLDERS. We will
be in default under the Indenture if any of the following occur:
(1) we fail for a period of 30 days to pay interest upon any of
the Outstanding Debentures when due;
(2) we fail to pay principal of the Outstanding Debentures when
due and payable at maturity, upon redemption or otherwise; or
(3) we fail to perform any other covenant which we have committed
to in the Indenture for a period of 60 days after written
notice by the Trustee or the holders of at least 25% in
aggregate principal amount of the Outstanding Debentures.
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<PAGE>
Within 60 days after the default, the Trustee is required to give the
Outstanding Debenture holders notice of all defaults known to the Trustee.
However, the Trustee does not have to give notice if we cure the default before
the Trustee gives the notice. If we fail to pay the payment of principal or
interest on any of the Outstanding Debentures, the Trustee may withhold notice
of our default, as long as the Trustee in good faith determines that withholding
the notice is in the interest of the Outstanding Debenture holders.
When a default occurs, or during the continuation of a default, the Trustee
or the holders of 25% in aggregate principal amount of the Outstanding
Debentures may declare the principal of all the Outstanding Debentures and the
interest accrued thereon due and payable. However, the holders of a majority of
the aggregate principal amount of the Outstanding Debentures may waive all
defaults and rescind such declaration if we cure the default.
Subject to the provisions of the Indenture covering the Trustees duties on
any default or continuation of default, the Trustee has no obligation to
exercise any of its rights or powers at the request, order or direction of any
holders of Outstanding Debentures, unless they shall have offered to the Trustee
reasonable security or indemnity. Also, subject to such provisions of the
Indenture regarding the Trustee's right to reasonable security or indemnity, a
majority of the holders of the aggregate principal amount of the Outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee.
NO GUARANTEE BY AGWAY. Neither Agway nor any of its other subsidiaries have
guaranteed the payment of principal of or interest on the Debentures.
THE TRUSTEE. The Indenture contains certain limitations on the right of the
Trustee, as our creditor, to obtain payment of claims in certain cases. It also
limits the ability to obtain certain property as security or otherwise in
relation to those claims.
AUTHENTICATION AND DELIVERY. We may authenticate the Debentures and have
them delivered to you upon our written order without any further corporate
action.
SATISFACTION AND DISCHARGE OF INDENTURE. The Indenture may be discharged
upon payment or redemption of all Outstanding Debentures or if we deposit
sufficient funds with the Trustee to pay off or redeem all the Outstanding
Debentures.
EVIDENCE AS TO COMPLIANCE WITH CONDITIONS AND COVENANTS. We are required to
provide to the Trustee certificates from our officers stating that we have
complied with all promises and conditions under the Indenture.
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<PAGE>
DESCRIPTION OF THE INTEREST REINVESTMENT OPTION
GENERAL. If you have elected to have all interest paid on your Debentures
reinvested automatically, the interest due on each quarterly interest payment
date will be added to the principal amount of the Debentures and will earn
interest after that date on the same basis as the original principal amount. You
may revoke this election for future interest payments at any time providing us
with written notice. Your election will be effective on the date it is received
by us. Interest reinvested will be subject to federal and state income tax as if
it had been received by you on the date it is reinvested.
RATES ON PREVIOUSLY ISSUED DEBENTURES. The fixed interest rate on
previously issued Outstanding Debentures by us are as follows:
STATED INTEREST MATURITY
RATE DUE
================================ ====================================
7.25% March 31, 2000
8.00% March 31, 2000
8.25% March 31, 2000
8.50% March 31, 2000
6.00% March 31, 2001
6.50% March 31, 2001
7.50% March 31, 2001
8.00% March 31, 2001
6.25% March 31, 2002
6.75% March 31, 2002
7.50% March 31, 2002
8.00% March 31, 2003
8.50% March 31, 2003
The holders of any of the Debentures referenced above may elect the
reinvestment option.
Interest on these Outstanding Debentures is payable quarterly on January 1,
April 1, July 1 and October 1, and at maturity, at the rate per annum for each
quarterly period equal to the greater of the Debentures' fixed rate or the
Treasury Bill Rate.
LEGAL MATTERS
David M. Hayes, Esq., our Legal Counsel, will issue an opinion to us about
the legality of the Debentures. Mr. Hayes is Senior Vice President, General
Counsel and Secretary of Agway Inc.
- 20 -
<PAGE>
EXPERTS
The consolidated balance sheets as of June 30, 1999 and 1998 and the
consolidated statements of income, member's equity, and cash flows for each of
the three years in the period ended June 30, 1999, incorporated by reference in
this prospectus, have been incorporated herein, in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports
and other information with the SEC. You may read and copy any document we file
at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549, Seven World Trade Center, New York, New York 10048 and 500 West Madison
Street, Chicago, Illinois 60606. You can request copies of these documents by
writing to the SEC and paying a fee for the copying cost. Please call the SEC at
1/800-SEC-0330 for more information about the public reference rooms. Our SEC
filings are also available at the SEC's web site at "http://www.sec.gov."
We have filed a registration statement and related exhibits with the SEC
under the Securities Act of 1933, as amended. The registration statement
contains additional information about us and the debt securities. You may
inspect the registration statement and exhibits without charge at the office of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and you may obtain
copies from the SEC at prescribed rates.
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this information. We incorporate by reference the documents
listed below:
o Annual Report to Investors for the year ended June 30, 1999.
o Annual Report on Form 10-K for the year ended June 30, 1999.
o Quarterly Reports on Form 10-Q filed subsequent to the date of
such Annual Report to the Investors.
We will provide you with the Annual Report to Investors containing audited
financial statements and quarterly reports on Form 10-Q containing unaudited
financial statements.
You may also request a copy of these filings at no cost by writing or
telephoning us at the address or telephone number listed above under "Plan of
Distribution."
This prospectus is part of a larger registration statement we file with the
SEC. You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front cover of these documents.
- 21 -
<PAGE>
TELMARK LLC
PROSPECTUS
Until ____________ all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligations of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- 22 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*:
Registration Fee.........................................$ 5,560
Printing and Engraving................................... 20,000
Registration Service and Trustee Expense................. 10,000
Accounting Fees and Expenses............................. 10,000
"Blue Sky" Fees and Expenses............................. 20,000
Mailing Costs............................................ 10,000
Legal Fees and Expenses.................................. 25,000
Miscellaneous Expenses................................... 10,000
---------
$ 110,560
---------
---------
*Approximate
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
(a) Section 18 of the Limited Liability Company Agreement of
Telmark LLC states as follows:
18. Exculpation and Indemnification.
a. No Member, Officer, Director, employee or agent of the
Company and no employee, representative, agent or Affiliate of the
Member (collectively, the "Covered Persons") shall be liable to
the Company or any other Person who has an interest in or claim
against the Company for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Covered
Person in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of the authority
conferred on such Covered Person by this Agreement, except that a
Covered Person shall be liable for any such loss, damage or claim
incurred by reason of such Covered Person's gross negligence or
willful misconduct.
b. To the fullest extent permitted by applicable law, a
Covered Person shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Covered
Person by reason of any act or omission performed or omitted by
such Covered Person in good faith on behalf of the Company and in
a manner reasonably believed to be within the scope of the
authority conferred on such Covered Person by this Agreement,
except that no Covered Person shall be entitled to be indemnified
in respect of any loss, damage or claim incurred by such Covered
Person by reason of such Covered Person's gross negligence or
willful misconduct with respect to such acts or omissions;
provided, however, that any indemnity under this Section 18 shall
be provided out of and to the extent of Company assets only, and
no Member shall have personal liability on account thereof.
c. To the fullest extent permitted by applicable law,
expenses (including legal fees) incurred by a Covered Person
defending any claim, demand, action, suit or proceeding shall,
from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding upon
receipt by the Company of an undertaking by or on behalf of the
Covered Person to repay such amount if it shall be determined that
the Covered Person is not entitled to be indemnified as authorized
in this Section 18.
d. A Covered Person shall be fully protected in relying in
good faith upon the records of the Company and upon such
information, opinions, reports or statements presented to the
Company by any Person as to matters the Covered Person reasonably
believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on
behalf of the Company, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities,
or any other facts pertinent to the existence and amount of assets
from which distributions to the Member might properly be paid.
- 23 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS (CONTINUED)
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS (CONTINUED)
e. To the extent that, at law or in equity, a Covered Person
has duties (including fiduciary duties) and liabilities relating
thereto to the Company or to any other Covered Person, a Covered
Person acting under this Agreement shall not be liable to the
Company or to any other Covered Person for its good faith reliance
on the provisions of this Agreement or any approval or
authorization granted by the Company or any other Covered Person.
The provisions of this Agreement, to the extent that they restrict
the duties and liabilities of a Covered Person otherwise existing
at law or in equity, are agreed by the Member to replace such
other duties and liabilities of such Covered Person.
f. The foregoing provisions of this Section 18 shall survive
any termination of this Agreement. (b) Section 18-108 of the
Delaware Limited Liability Company Act permits a limited liability
company to indemnify and hold harmless any member or manager or
other person from and against any and all claims and demands
whatsoever. Under the terms of a Directors and Officers Liability
and Corporation Reimbursement Policy purchased for Telmark LLC,
each of the directors and officers of Telmark LLC is insured
against loss arising from any claim or claims which may be made
during the policy period by reason of any wrongful act (as defined
in the policy) in their capacities as directors or officers. In
addition, Telmark LLC is insured against loss arising from any
claim or claims which may be made during the policy period against
any director or officer of Telmark LLC by reason of any wrongful
act (as defined in the policy) in their capacity as directors or
officers, but only when the directors or officers shall have been
entitled to indemnification by Telmark LLC.
ITEM 16. EXHIBITS
(i) The following required exhibits are filed as a part of this
Registration Statement on Form S-2. Certain of these exhibits
are hereby incorporated by reference.
4 - INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4(a) - The Indenture dated as of September 30, 1993,
between Telmark Inc. and OnBank & Trust Co. of
Syracuse, New York, Trustee, filed by reference to
Exhibit 4 of the Registration Statement (Form S-1),
File No. 33-70732, dated October 22, 1993.
4(b) - Telmark Inc. Board of Director resolutions
authorizing the issuance of Debentures under the
Indenture dated as of June 21, 1995, filed by
reference to Exhibit 4 of the post effective
Amendment No. 1 to the Registration Statement (Form
S-1), File No. 33-84442, dated August 28, 1995.
4(c) - Supplemental Indenture dated as of June 30, 1998
between Telmark Inc. and Manufacturers and Traders
Trust Company, filed by reference to Exhibit 4 of
the Current Report (Form 8-K), File No. 33-70732,
dated July 6, 1998.
4(d) - Supplemental Indenture dated July 1, 1998 between
Telmark Inc. and Telmark LLC and Manufacturers and
Traders Trust Company, filed by reference to
Exhibit 4 of the Current Report (Form 8-K), File
No. 33-70732, dated July 6, 1998.
- 24 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS (CONTINUED)
ITEM 16. EXHIBITS (CONTINUED)
(ii) The following required exhibits are hereby attached to this
Registration Statement on Form S-2.
5 - OPINION REGARDING LEGALITY, FILED HEREWITH.
12 - STATEMENTS REGARDING COMPUTATION OF RATIOS, FILED HEREWITH.
13 - ANNUAL REPORT TO INVESTORS, FILED HEREWITH.
23 - CONSENT OF EXPERTS AND COUNSEL, FILED HEREWITH.
25 - STATEMENT OF ELIGIBILITY AND QUALIFICATION OF TRUSTEE ON
FORM T-1 - of Manufacturers and Traders Trust Company, the
Successor Trustee, pursuant to Section 7.08 of the Indenture.
(iii)Financial Statement schedules have been omitted as they are
not required, inapplicable, or the required information is
provided in the financial statements including the notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrants hereby undertake:
A. 1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
a. To include any Prospectus required by section
10(a)(3) of the Securities Act of 1933;
b. To reflect in the Prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospects filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum
aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement;
c. To include any material information with respect
to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement, including (but not limited
to) any addition or deletion of a managing
underwriter;
- 25 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS (CONTINUED)
ITEM 17. UNDERTAKINGS (CONTINUED)
2. That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof;
B. That, for purposes of determining liability under the
Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 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.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrants pursuant
to the foregoing provisions, or otherwise, the registrants
have 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 either of
the registrants of expenses incurred or paid by a director,
officer or controlling person of such registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the questions whether such
indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of
such issue.
D. To remove from registration by means of a post-effective
amendment any of the securities which remain unsold at the
termination of the offering.
E. The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the Prospectus, to each person to
whom the Prospectus is sent or given, the latest annual
report, to security holders that is incorporated by reference
in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the
Prospectus is sent or given, the latest quarterly report that
is specifically incorporated by reference in the Prospectus
to provide such interim financial information.
- 26 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that is meets all the
requirements for filing on Form S-2 and has duly caused this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of DeWitt, and the State of New York, on
September 21, 1999.
TELMARK LLC
(Registrant)
By DANIEL J. EDINGER
President
(Principal Executive Officer)
Date September 21, 1999
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
DANIEL J. EDINGER President 9/21/99
(Principal Executive Officer)
PETER J. O'NEILL Senior Vice President-Finance &Control 9/21/99
(Principal Financial Officer
& Principal Accounting Officer)
ANDREW J. GILBERT Director 9/21/99
SAMUEL F. MINOR Director 9/21/99
GARY K. VANSLYKE Director 9/21/99
WILLIAM W. YOUNG Director 9/21/99
- 27 -
<PAGE>
EXHIBIT 5
<PAGE>
(315) 449-6436
September 20, 1999
Telmark LLC
333 Butternut Drive
DeWitt, NY 13214
Re: Subordinated Debentures: $20,000,000
Registration Statement on Form S-2
Ladies and Gentlemen:
Reference is made to a Registration Statement on Form S-2 (such Registration
Statement and all amendments thereto hereinafter referred to as the
"Registration Statement") of Telmark LLC, a Delaware limited liability company
(the "Company") filed with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Act"), in connection with a
proposed sale by the Company of $20,000,000 aggregate principal amount of its
debentures, with such maturity dates and interest rates as set forth in the
prospectus included in the Registration Statement or as established by the
Company's Board of Directors or a duly authorized committee thereof and
reflected in a prospectus supplement filed with the SEC (the "Debentures"). The
Debentures are to be issued pursuant to an Indenture dated as of September 30,
1993 (such Indenture and all amendments and supplements thereto hereinafter
referred to as the "Indenture") between the Company and OnBank and Trust
Company, as Trustee, as amended on August 21, 1997, by Agreement of Resignation,
Appointment and Acceptance, under which Manufacturers and Traders Trust Company
replaces OnBank & Trust Co. as Trustee. Supplemental Indentures dated as of June
30 and July 1, 1998 have been executed by the Company and Manufacturers and
Traders Trust Company, as Trustee.
As legal counsel to the Company, I have examined the corporate proceedings
and such other legal matters relating to the Indenture and the Debentures as I
deemed relevant to the opinions expressed below.
<PAGE>
Telmark LLC
Page 2
September 20, 1999
Based on such examination, I am of the opinion that:
1. The Company is a limited liability company duly organized and existing
under the laws of the State of Delaware.
2. The Company has corporate power to execute and deliver the Indenture and
to authorize and sell the Debentures.
3. The Debentures will be legally issued and binding obligations of the
Company (except as may be limited by bankruptcy, insolvency, reorganization, or
other laws of general applicability relating to or affecting creditors' rights
or by general equity principles) so long as (i) the Registration Statement
remains effective under the Act and the Indenture continues to qualify under the
Trust Indenture Act of 1939, as amended, and (ii) the Debentures shall have been
duly executed and authenticated as provided in the Indenture and shall have been
duly delivered to the purchasers thereof against payment of the agreed
consideration therefor.
I hereby consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to my name under the caption "Legal Matters" in
the Prospectus.
Very truly yours,
/s/ David M. Hayes
David M. Hayes
Legal Counsel
DMH/bs
EXHIBIT 12
<PAGE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TELMARK INC.
FOR THE YEARS ENDED JUNE 30,
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before income taxes $ 18,158 $ 15,412 $ 13,003 $ 11,502 $ 9,272
Fixed charges - Interest 27,626 26,871 23,486 20,305 17,675
Rentals 439 421 386 145 130
-------- -------- -------- -------- --------
Total fixed charges 28,065 27,292 23,872 20,450 17,805
-------- -------- -------- -------- ------
Adjusted earnings $ 46,223 $ 42,704 $ 36,875 $ 31,952 $ 27,077
======== ======== ======== ======== ========
Ratio of earnings to fixed charges* 1.6 1.6 1.5 1.6 1.5
</TABLE>
* REPRESENTS ADJUSTED EARNINGS DIVIDED BY FIXED CHARGES.
<PAGE>
EXHIBIT 13
<PAGE>
TELMARK LLC
1999 ANNUAL REPORT
TO INVESTORS
This Annual Report To Investors contains forward-looking statements that
involve certain risks and uncertainties. Actual results could differ materially
from those statements. Certain factors that could cause actual results to differ
materially from those projected include, but are not limited to, uncertainties
of economic, competitive and market decisions and future business decisions, as
well as those factors discussed in Telmark's annual report on Form 10-K for the
year ended June 30, 1999.
<PAGE>
Annual Report Letter
Telmark Investors:
I am pleased to report another year with significant increases in all of
Telmark's key financial measurements, including our managed portfolio, which is
now at $570 million.
Pre-tax net income was $18.2 million: a $2.7 million increase over the prior
year. Telmark's portfolio quality continues strong with currency over 97% for
the fourth consecutive year.
Telmark is a farmer-owned organization. It is important for farmers to have a
lender that is dedicated to serving their needs. We stay true to these roots by
focusing on financing production agriculture. Production agriculture continues
to be our core business, representing 60% of Telmark's portfolio. At the same
time, we recognize that growth and diversification brings financial strength.
The remainder of the portfolio is primarily in forestry operations and
commercial businesses that support agriculture.
Telmark's success involves several factors, with one common denominator: our
people. Success comes from good implementation by talented people. We have
employees who desire to take ownership of their customers' needs. This focus on
the customer has resulted in an employee group that is highly motivated to find
financial solutions for a customer's business.
While other lenders seek efficiencies by becoming larger merely for the sake of
size, they further remove themselves from the customer. Telmark is committed to
the philosophy that "people buy from people." Our sales representatives work and
live in the communities they serve. All of our employees are dedicated to taking
the time to understand and meet our customers' needs.
On behalf of all Telmark employees and customers, thanks for your continued
support.
Daniel J. Edinger
President
Telmark LLC
2
<PAGE>
BUSINESS OF TELMARK
Telmark LLC ("Telmark," "we," "our," "us" or "Company") was organized in 1964 as
Telmark Inc. under the Business Corporation Law of the State of New York.
Effective July 1, 1998, Telmark Inc. was merged into Telmark LLC, a Delaware
limited liability company which was formed to carry on the business of Telmark
in limited liability company, rather than corporate, form. We are owned and
controlled by Agway Inc. ("Agway"), one of the largest agricultural supply and
services cooperatives in the United States, in terms of revenues, based on a
1998 Co-op 100 Index produced by the National Cooperative Bank. We are a direct
wholly-owned subsidiary of Agway Holdings, Inc., an indirect subsidiary of
Agway. Telmark currently employs 215 persons.
Our operations are comprised almost exclusively of direct finance leasing of
agricultural related equipment, vehicles and buildings to farmers or other rural
businesses that serve the agricultural marketplace. Our leases offer customers
an alternative to directly purchasing or borrowing to purchase as a means of
acquiring the use of equipment, vehicles or buildings.
o We branded our leasing service with the registered trademark,
Agrilease(R). We also use TFS(SM) to identify our services
through dealers of selected manufacturer products.
o We highlight our service-oriented approach, using the tagline
"The Flexible Financing Alternative(SM)" in our advertisements
and product brochures.
We offer a variety of lease financing packages, with varying payment schedules
on a monthly, quarterly, semiannual or annual basis, depending on the expected
timing of customer cash flows and customer credit quality and the customer's
individual preferences.
With a direct finance lease the customers have use of the leased property over a
specified term for a periodic rental charge: the lease payment. Customers make
lease payments in advance. In most cases, at least two months of the lease
payments are collected in advance before the lease starts. We offer most direct
finance leases for a period which does not exceed our estimate of the useful
life (based on our estimate of customers use) of the equipment or the building
leased. We offer equipment and vehicle leases typically for a period of 3 to 6
years, and generally do not exceed eight years. We offer building leases
typically for longer terms (e.g., 5 to 10 years), up to maximum terms of 15
years. As of June 30, 1999, our outstanding leases had an average original term
of approximately 5.5 years and average remaining term of approximately 4 years.
Generally, the customer selects the supplier of the equipment or other property
to be leased and we are not responsible for its suitability, performance, life,
or any other characteristics. In some cases, the financing is offered to the
ultimate customer through a dealer of a selected manufacturer. Our primary
responsibility is to buy the property from the supplier, lease it to the
customer, and collect the lease payments, although in certain circumstances we
have agreed to indemnify customers if certain adverse tax consequences arise in
connection with a lease. We cannot predict our liability under these
indemnification provisions, but we believe that our liability is remote and the
net effect of any liability is not material. The customers assume all
obligations of insurance, repairs, maintenance, service, and property taxes.
Historically, in most of our lease transactions, the lessee has purchased the
leased property or equipment upon termination of the lease. However, at the
expiration of the direct finance lease term, the customers have an option to
o purchase the leased property,
o renew the lease, or
o return the leased property to us.
We realize net earnings, if revenues from our leases, exceed our operating
expenses and income taxes. Our "revenue" from a lease is the sum of all payments
due under the lease plus the residual value of the leased property, less the
cost of purchasing the leased property.
3
<PAGE>
o "Operating expenses" include interest expense, provision for
credit losses (the dollar amount we set aside to cover its
estimated losses should a lessee fail to make required
payments under a lease), and selling and general and
administrative expenses including the our payroll costs, rent,
advertising costs and fees paid for credit checking and legal
and accounting services.
o "Interest expense" is the single largest operating cost of
Telmark and is primarily the interest we must pay on the
amounts borrowed from banks and other investors to finance our
leases.
An example of how a direct finance lease transaction generates profits for us
is set forth below:
o A potential customer determines that he needs to acquire a
machine to harvest his corn. He selects a harvester and enters
into a lease with us for that particular machine.
o We purchase the harvester using funds we borrow or with
available cash on hand. Under terms of the lease, the customer
agrees to make lease payments to us.
o At the end of the lease term, the customer may (1) purchase
the harvester from us for its fair market value, (2) extend
the lease on terms agreed to by us, or (3) return the
harvester to us. We make a profit on the lease to the extent
that the sum of the lease payments collected during the lease
term plus the proceeds from the sale or re-lease of the
equipment after the initial lease term exceeds the cost of the
equipment and other operating expenses.
PORTFOLIO MIX
We finance agricultural and related equipment, vehicles and buildings of both a
general and specialized nature. As exemplified by the following four schedules.
We have a portfolio of leases which are diverse with respect to the type of
equipment to which they relate, their dollar amount, the industry involved and
their geographic origination. Such diversification helps mitigate adverse
circumstances affecting particular industry, geographic and other segments of
our business, to the extent that such circumstances do not adversely affect our
entire business.
"Leases" in our portfolio are defined by us for the following statistical
purposes as amounts due to it by lessees under all of our outstanding leases
(known as "gross lease receivables") and excludes imputed unearned interest and
finance charges.
As of June 30, 1999, we had approximately $551 million of leases and notes
outstanding. We lease equipment which includes milking machines, tractors,
combines, feed processing equipment and forestry equipment (e.g., log skidders
and log harvesting equipment); vehicles leased include trucks, trailers and fork
lifts; and buildings leased include barn structures, silos and greenhouses.
Approximately 10% of the equipment leases are for used equipment. The percentage
of leases by equipment type has generally remained constant and we do not
anticipate significant changes in the types of equipment to be leased. Given the
nature of the equipment leased and the generally short-term duration of our
leases, we have not been adversely affected by, and do not anticipate being
adversely affected by significant technological developments that may affect the
value of the equipment leased to customers. The breakdown of leases by equipment
type is as follows:
SCHEDULE OF LEASES
BY EQUIPMENT TYPE
- --------------------------------------------------------------------------------
June 30, 1999
- --------------------------------------------------------------------------------
(Percentages are of dollar amounts due under outstanding Leases)
- --------------------------------------------------------------------------------
Equipment Type %
- -------------- ------
Farm equipment, machinery and tractors.................................... 38%
Highway vehicles.......................................................... 17%
Buildings................................................................. 31%
Forestry related equipment................................................ 8%
Other 5% or less of total................................................. 6%
------
Total............................................................... 100%
------
------
4
<PAGE>
BUSINESS OF TELMARK (CONTINUED)
We maintain a large customer base which includes over 17,000 customers. The
minimum purchase price of equipment which we finance is $1,500. Approximately
30% of our customers hold more than one lease with us. In order to limit its
credit exposure to particular customers, our Board of Directors maintains a
policy which precludes any one customer from accounting for more than 2.5% of
the dollar amount of our outstanding Leases. Currently, no customer accounts for
more than 1.0% of the dollar amount of our outstanding Leases. Our average lease
size at origination is approximately $30,000. The breakdown of leases by size is
as follows:
SCHEDULE OF LEASES BY SIZE
Dollar Amounts and Corresponding Percentages are of Leases Entered into During
Year Ended June 30, 1999
- --------------------------------------------------------------------------------
Dollars
Original Size Transaction (In Millions) %
- ------------------------- ---------------- -------------
Under $7,500 $ 8.3 3%
$ 7,500 - $24,999 59.8 24%
$25,000 - $49,999 55.7 22%
$50,000 - $99,999 45.4 18%
$100,000 - $249,999 48.0 19%
$250,000 & Over 34.9 14%
---------------- -------------
Total $252.1 100%
---------------- -------------
---------------- -------------
The largest industry concentrations are in dairy, crops, forestry, livestock,
and transportation. These industries may be impacted differently by various
factors including changing economic conditions, technological advances in the
equipment and agricultural sector, government regulation and subsidies, and
domestic and international consumer demand, among others. Generally, we serve
diverse enterprises which helps us keep any single adverse trend from having an
adverse effect on the ability of all customers to meet their lease obligations.
For example, a long period of low grain prices could reduce the ability of grain
farmers to meet their obligations, but the low grain prices would reduce the
feed costs paid by dairy farmers, thereby making it easier to meet their lease
obligations. The breakdown of leases by industry is as follows:
SCHEDULE OF LEASES
BY INDUSTRY
- --------------------------------------------------------------------------------
June 30, 1999
- --------------------------------------------------------------------------------
(Percentages are of dollar amounts due under outstanding Leases)
- --------------------------------------------------------------------------------
Industry %
- -------- -----
Crops...................................................................... 22%
Dairy...................................................................... 17%
Livestock.................................................................. 17%
Forestry................................................................... 12%
Transportation............................................................. 9%
Construction............................................................... 6%
Other less than 5% of total................................................ 17%
Total................................................................ 100%
5
<PAGE>
BUSINESS OF TELMARK (CONTINUED)
PORTFOLIO MIX (CONTINUED)
The aforementioned industries are defined as follows: Dairy is the production of
milk; it is sold in the raw state to a processor. Forestry is the harvesting and
initial processing of forest products. The wood is sold in the form of logs or
rough cut lumber. Crops is the production of grain or hay; it is sold in bulk.
Livestock is the production of animals. The animals are generally sold live to a
processor. Transportation is the movement of products by truck. Products being
moved are generally farm input (e.g., fertilizer, feed) items being transported
to farms or farm products going to market. Other is the aggregate of all other
types of accounts.
At June 30, 1999, leases originated in the states of Michigan, New York, Ohio
and Pennsylvania accounted for approximately 44% of the total lease portfolio.
Pennsylvania and New York have historically been the most significant in terms
of lease activity due to the large number of dairy farms located there. However,
our business continues to expand geographically and its concentration of leases
in Pennsylvania and New York has been reduced from approximately 68% in 1984 to
24% in 1999. Our continued expansion into new geographic markets mitigates the
potential adverse effect on circumstances which may impact these markets such as
state and local regulations, local economic conditions, and weather conditions
(i.e., floods, drought). For example, if poor growing conditions such as early
or late frost, hail, or lack of rain reduce the apple crop in western New York,
the orchard enterprises located there could lose part of their normal crop;
however, the Michigan orchard enterprises might enjoy higher prices and income
because of higher demand for their apples. The geographic distribution of leases
is as follows:
SCHEDULE OF LEASES
BY GEOGRAPHIC DISTRIBUTION
- --------------------------------------------------------------------------------
June 30, 1999
- --------------------------------------------------------------------------------
(Percentages are of dollar amounts due under outstanding Leases)
- --------------------------------------------------------------------------------
State %
- ----- ----
New York.................................................................... 14%
Pennsylvania................................................................ 11%
Michigan.................................................................... 10%
Ohio........................................................................ 9%
Illinois.................................................................... 6%
Indiana..................................................................... 5%
Virginia.................................................................... 5%
Wisconsin................................................................... 5%
Maryland.................................................................... 4%
Delaware.................................................................... 4%
North Carolina.............................................................. 3%
West Virginia............................................................... 3%
All Others less than 3%..................................................... 21%
Total.................................................................100%
CREDIT POLICIES
Potential lessees undergo a thorough credit approval process after our field
representative completes a financial application. Our representative is
responsible for obtaining the most accurate information possible for a proper
application review. Personal observation and meetings with the customer assist
the our representative in providing a comprehensive evaluation of the lease
application.
6
<PAGE>
BUSINESS OF TELMARK (CONTINUED)
CREDIT POLICIES (CONTINUED)
The credit search usually begins with electronic credit bureau systems such as
TRW, Inc. and local or regional creditors such as banks. For Agway cooperative
members, the Agway credit system provides additional information. For
contemplated transactions of over $100,000, a county court house search provides
records of any existing liens against the lessee. We retain title to the
equipment or building leased. In addition, we often obtain a lien on the real
estate owned by the farmer or lessee as collateral for payments under a building
lease. If a customer defaults on a lease, the real estate lien entitles us to
foreclose on the real estate property and take title subject to any and all
prior liens on the property. Upon foreclosure, if this collateral is
insufficient to cover all existing liens, prior lienholders may receive more
than us. Thus, we look first to the lessee's historical and future ability to
service its debt and lease payments, and then to the mortgage position of a
lease collateralized by real estate.
Credit approvals are made based on the total amount outstanding to the customer.
Lending authority is assigned to members of management depending on position,
training, and experience. The Board of Directors must approve all applications
over $1,000,000.
We maintain monthly delinquency reports which monitor leases that have been
delinquent (i.e., payment due has not been made) for over 30 days, and
non-earning leases. Generally, accounts past due at least 120 days, as well as
accounts in foreclosure or bankruptcy, are transferred to non-earning status.
Non-earning accounts cannot become current unless all past due lease payments
are paid or the lease is amended. As of June 30, 1999, non-earning leases were
.9% of our net investment in leases before allowances for credit losses. The
potential losses from non-earning leases are mitigated by our ability to
repossess leased property and to foreclose on other property in which we are
granted a security interest. See "Business of Telmark - Portfolio Mix." Leases
may be amended by us and a lessee to change the terms, remaining amount, and
payment schedule for the remaining lease balance. There is generally a fee
collected for the amendment. All lease amendments are supported by legal
documentation and, as management deems appropriate, a new credit evaluation.
We maintain financial reserves (provision for credit losses) to cover losses in
our existing lease portfolio from default or nonpayment. Our allowance for
credit losses is based on a periodic review of the collection history of past
lessees, current credit practices, an analysis of delinquent accounts and
current economic conditions. The provision reflects management's estimates of
the inherent credit risk within the portfolio.
RESIDUAL VALUE
We generally estimate the residual value at the end of a lease to be 10% of the
purchase price on a piece of new equipment and 15% of the market value at
inception for a building. It is not possible to forecast with certainty the
value of any equipment upon termination of the lease. The market value of used
equipment depends upon, among other things, its physical condition, the supply
and demand for equipment of its type and its remaining useful life in relation
to the cost of new equipment at the time the lease terminates. We have generally
not experienced any losses as a result of the failure to realize estimated
residual values on equipment and property lease expirations.
During the past ten years, we have collected slightly over 100% of the net lease
receivable for all leases which terminated. The net lease receivable with
respect to a lease equals the sum of payments due to us under the lease, the
estimated residual value of the leased property at the end of the lease and the
net costs incurred by us in entering into the lease, less imputed unearned
interest and finance charges with respect to the lease. This residual
performance can be attributed to our ability to sell the equipment, vehicle or
building to the original lessee at the end of the lease in most transactions.
Management believes that obsolescence factors, such as technological
sophistication and computerization have only a moderate effect on the farming
equipment sector and that agricultural equipment will continue to show strong
residual values.
7
<PAGE>
BUSINESS OF TELMARK (CONTINUED)
INSURANCE COVERAGE
Under a Telmark lease, the customer assumes the obligation to insure the leased
property against claims arising from the customer's use of the leased property.
We may be exposed to liability from claims by lessees and third parties
including claims due to the customers' use of the property or defects in the
property. However, in general direct finance lessors such as us have not been
held liable for such claims. In addition, the leases provide us protection
against such liability claims. Under the terms of each lease, we disclaim such
liability and the customer agrees to indemnify us for any claim or action
arising in connection with the manufacture, selection, purchase, delivery,
possession, use, operation, maintenance, leasing, and return of the equipment
leased. We require the customer to provide insurance coverage naming us as an
additional insured in certain circumstances and we have insurance coverage for
most liability claims against us through insurance policies purchased by Agway.
AGRICULTURAL ECONOMY
We are indirectly affected by factors that affect the agricultural economy in
which our customers operate. These factors include
o governmental agricultural programs,
o weather conditions, and
o supply and demand conditions with respect to agricultural commodities.
These factors may affect the economic vitality of our customers and consequently
their decisions to lease equipment or property for their businesses as well as
the ability of these customers to make the required payments on their leases.
Government Subsidies. In the 1990's, federal budgetary constraints have resulted
in decreased government spending programs, including the farm subsidies and
programs participated in by certain customers. Government program changes that
may affect Telmark include elimination of price supports and acreage reduction
programs. Price support programs included the establishment of minimum prices
for certain commodities as well as the purchase by the Government of excess
supplies of such commodities. Under the enacted Federal Agricultural Improvement
and Reform (FAIR) Act, in 1996, farmers of crops covered under previous programs
can utilize "contract acreage" the way they choose as opposed to having the use
dictated by a government subsidy program. This will require the farmer to have
marketing management skills that capitalize on the free market approach, and
could yield both a greater profit potential and greater risk.
Generally, FAIR is expected to improve the U.S. farm outlook by providing crop
farmers with more control over their growing plans and provides more opportunity
in the world market based on market demand. Over seven years, farmers will
adjust from past government programs through declining market transition
payments. The dairy portion of FAIR reduces subsidies over four years to avoid a
sudden drop-out of dairy farms and give businesses time to adjust over four
years. Farmers will need to develop management and marketing skills to control
their marketplace.
All the new FAIR programs increase the profit and the risk potential of
participating farmers and the existence and magnitude of these programs may
influence those farmers' decisions to lease equipment and the ability of those
farmer customers to continue to make payments on their leases.
The overall impact of these programs on us is uncertain. The availability of
these programs varies widely by crop, commodity and geographic region as does
the level of benefits received by a particular farmer. In addition, elimination
of programs, such as acreage reduction programs, may increase demand for
equipment leased by us to the extent that such changes result in farmers
increasing their production of certain crops.
8
<PAGE>
BUSINESS OF TELMARK (CONTINUED)
COMMODITIES DEMAND (CONTINUED)
Weather. Adverse weather conditions can have varying effect on our customers
depending on the region experiencing such conditions. When adverse conditions
occur in the region served by us, the effect can be negative as was the case in
1992 when many parts of the Northeast, our primary territory, experienced a
relatively cold summer and a wet fall. This adversely impacted grape farmers
(whose crops never matured and had poorer sugar content), as well as potato,
vegetable and grain farmers. However, adverse weather conditions occurring in
other regions may be advantageous to our customers. For example, the floods
occurring in parts of the Midwest and the droughts which occurred in parts of
the West and Southwest in 1993 reduced output in those areas which increased the
demand for crops grown by our customers. Inclement weather can also benefit our
food processor customers to the extent that it increases demand for frozen or
canned products as opposed to fresh products.
Commodities Demand. Supply and demand conditions with respect to agricultural
commodities produced by our customers can be affected by a number of factors.
These factors include both national and international economic conditions,
local, national and international weather conditions (e.g., the floods in the
Midwest discussed above), and technological changes which increase farmer
productivity (e.g., the growth hormone BST which increases milk production in
cows). The income of our customers is in part determined by the demand for the
commodities and the amount of such commodities they produce. Generally, any of
the above factors which increase demand may increase the income of our customers
to the benefit of us. Conversely, any of the above factors which decrease demand
may decrease such income to our detriment.
Historically, our customers have produced products which are marketed within the
United States. Domestic demand for these products, in addition to being affected
by the availability and demand for competing products, may be affected by the
state of the United States economy. However, the economic condition of foreign
countries and their demand for the type of products produced by our customers
may also influence the demand for products of our customers. For example,
economic recessions in Europe and Japan have contributed to soft foreign demand
for U. S. agricultural products, as has the transition to market economies in
Eastern Europe, the republics of the former Soviet Union, and China. This
softened demand has been offset by government export support programs. A
discontinuation of these export support programs may result in a surplus of
certain commodities due to reduced exports which may reduce the demand and price
of products produced by our customers.
Our customers may also be affected by agreements between the United States and
foreign governments, such as the North American Free Trade Agreement and the
General Agreement on Tariffs and Trade which may impact indirectly demand for
our customers' products. The impact of these agreements on our customers is
unclear. To the extent that these agreement's result in an increase in competing
imports or greater domestic supply, our customers and thus we may be adversely
affected. However, to the extent these agreements increase demand for
commodities of the type produced by our customers, we and our customers may be
beneficially affected.
MARKETING AND SALES
We use both direct mail and advertising campaigns routed through our parent's
publications and other agricultural publications as a means of promoting our
leasing products to farmers and other rural businesses that serve the
agricultural marketplace. In addition, leasing product brochures are available
at many equipment dealer franchises. Advertising and communication efforts for
non-Agway businesses are typically targeted towards special market segments such
as forestry and trucking via magazines and trade shows.
Much of our business comes from referrals to us by equipment retailers and
building contractors of customers wishing to purchase equipment, vehicles or
buildings. The retailer or contractor refers the customer to Telmark, where a
field representative will complete a credit application and seek credit approval
in a day. Upon approval, the retailer or contractor is paid by us for the
equipment, vehicles or buildings which are then "acquired" by the customer.
Using the identification TFS(SM), we provide financing through the dealers of
selected manufacturers of equipment. In the cases where financing is through
manufacturer sponsored financing programs, the dealer rather than our field
representative completes the credit application.
9
<PAGE>
BUSINESS OF TELMARK (CONTINUED)
FACILITIES
We lease all of the office space we use from Agway. We do not own any of the
real property we use for office facilities.
COMPETITION
Our main competitors are agricultural financial institutions and other leasing
companies. Many of these organizations have greater financial and other
resources than us and as a consequence are able to obtain funds on terms more
favorable than those available to us. Our strongest competitors are agricultural
financial institutions such as the Banks of the Farm Credit System and their
affiliates, federal government sponsored enterprises ("GSEs") which are the
largest agricultural lenders in the nation, and local and regional banks
servicing the agricultural sector. These competitors may enjoy a relative
advantage in financing their leasing business. Banks of the Farm Credit System
as GSEs may be able to raise funds in the public debt market at a lower interest
rate than we can. Similarly, commercial banks may be able to raise funds more
cheaply than us through their offering of Federal Deposit Insurance Corporation
insured deposit accounts.
Other leasing companies competing with us include equipment manufacturers with
finance subsidiaries, and independent leasing companies. Finance subsidiaries of
equipment manufacturers frequently charge reduced interest rates on equipment
leases to stimulate sales of equipment produced by their parent companies. We
compete with our competitors by focusing on agricultural equipment financing,
service to our customers, and tailoring our portfolio of products to address the
specific needs of farmers and other rural businesses which serve the
agricultural marketplace.
SELECTED FINANCIAL DATA
The following "Selected Financial Data" of Telmark and consolidated subsidiaries
have been derived from consolidated financial statements audited by
PricewaterhouseCoopers LLP, whose report for the years ended June 30, 1999, 1998
and 1997 is included in the Annual Report on Form 10-K, and should be read in
conjunction with the full consolidated financial statements of Telmark and Notes
thereto.
<TABLE>
<CAPTION>
(Thousands of Dollars Except Ratio Amounts)
-----------------------------------------------------------------------
Years Ended June 30,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues............... $ 70,006 $ 65,476 $ 56,943 $ 48,627 $ 41,942
Income before income taxes $ 18,158 $ 15,412 $ 13,003 $ 11,502 $ 9,272
Provision for income taxes .. $ 7,756 $ 6,654 $ 5,112 $ 4,745 $ 4,240
Net income .................. $ 10,402 $ 8,758 $ 7,891 $ 6,757 $ 5,032
Leases and notes, net........ $ 551,071 $ 495,626 $ 445,770 $ 374,561 $ 333,091
Total Assets................. $ 575,987 $ 518,316 $ 470,606 $ 398,198 $ 358,634
Senior Debt.................. $ 396,101 $ 371,677 $ 340,158 $ 273,000 $ 255,467
Debentures (1)............... $ 37,633 $ 34,006 $ 31,044 $ 24,258 $ 8,174
Member's Equity.............. $ 105,566 $ 95,164 $ 86,406 $ 78,514 $ 44,758
Ratio of earnings to fixed charges (2) 1.6 1.6 1.5 1.6 1.5
Ratio of Debt to member's equity (3) 4.1 4.3 4.3 3.8 3.7
</TABLE>
(1) Certain amounts reported in fiscal years ended June 30, 1995-1998, have been
reclassified to conform to the current year presentation. (2) For purposes of
this ratio, earnings represents operating income before income taxes, interest
charges, and rental expense. Fixed charges include interest on all senior and
subordinated debt. (3) Under Senior Debt agreements, subordinated debt payable
to Agway Holdings, Inc. is included in the definition of equity for purposes of
this ratio. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (000 OMITTED)
1999 COMPARED TO 1998.
- ----------------------
NET INCOME
Our Net Income Increased by 1,600 (18%) from $8,800 in 1998 to $10,400 in 1999.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Net income $10,400 $8,800 $1,600 18%
</TABLE>
The increase was principally due to increased revenue from a larger outstanding
portfolio of leases and notes receivable during 1999 as compared to 1998.
TOTAL REVENUES
Total Revenues of $70,000 in 1999 Increased $4,500 (7%) as Compared to $65,500
in 1998.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Total revenues $70,000 $65,500 $4,500 7%
</TABLE>
The increase is attributable in part to a $55,400 (11%) increase in net leases
and notes in 1999 as compared to 1998. Total revenue as a percentage of average
net leases and notes decreased from 13.5% in 1998 to 13.1% in 1999. This decline
was consistent with a decline in prevailing market interest rates.
INCREASE IN LEASE PORTFOLIO
Increases in the lease portfolio resulting from new booked lease volume of
$252,100 in 1999 and $227,300 in 1998 exceeded lease reductions from leases
repaid and provision for credit losses of $196,700 and $177,400 in 1999 and
1998, respectively.
FY 1999 FY 1998
------- -------
New booked lease volume $252,100 $227,300
Leases repaid (188,700) (169,800)
Provision for credit losses ( 8,000) ( 7,600)
Portfolio increase $ 55,400 $ 49,900
========= =========
The increase in new booked lease volume in excess of leases repaid and provision
for credit losses had the effect of increasing the size of the lease portfolio,
thereby increasing total revenues. The increased volume of new leases resulted
from development of Telmark's existing markets and the addition of new
employees.
INTEREST EXPENSE
Interest expense increased from $26,900 in 1998 to $27,600 in 1999. While the
weighted average interest rate paid on debt decreased from 7.2% to 6.9%, total
interest rate expense increased due to increased borrowings required to finance
the growth of the lease portfolio noted above.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Interest expense $27,600 $26,900 $700 3%
</TABLE>
Total debt outstanding at June 30, 1999 increased by $28,100 to $433,700 as
compared to total debt outstanding at June 30, 1998.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (000 OMITTED) (CONTINUED)
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses of $16,200 in 1999 increased by
$600 (3%) compared to $15,600 in 1998.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Selling, general, PERCENTAGE
and administrative
expenses $16,200 $15,600 $600 3%
</TABLE>
The increase in total selling, general, and administrative expenses was
primarily the result of additional personnel and incentives paid to certain
employees relating to additional new business. Expenses which are determined to
be related to origination of new lease business are deferred and recorded over
the term of the leases.
PROVISION FOR CREDIT LOSSES
The provision for credit losses of $8,000 in 1999 represents an increase of $400
(5%) compared to $7,600 in 1998.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1999 FY 1998 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Provision for Credit Losses $8,000 $7,600 $400 5%
</TABLE>
This increase is based on our analysis of reserves required to provide for
uncollectible receivables. Telmark's allowance for credit losses is based on a
periodic review of the collection history of past leases, current credit
practices, an analysis of delinquent accounts, and current economic conditions.
At June 30, 1999, the allowance for credit losses was $30,000 compared to
$27,100 at June 30, 1998. During 1998 and 1999, the general economy remained
strong, however, the total value of non-earning accounts increased from $3,000
in 1998 to $4,900 in 1999. Reserves are established at a level sufficient to
cover estimated losses in the portfolio.
1998 COMPARED TO 1997.
- ----------------------
NET INCOME
Our net income increased by $900 (11%) from $7,900 in 1997 to $8,800 in 1998.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1998 FY 1997 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Net income $8,800 $7,900 $900 11%
</TABLE>
The increase was principally due to increased revenue from a larger outstanding
portfolio of leases during 1998 as compared to 1997.
TOTAL REVENUES
Total revenues of $65,500 in 1998 increased $8,600 (15%) as compared to $56,900
in 1997.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1998 FY 1997 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Total revenues $65,500 $56,900 $8,600 15%
</TABLE>
The increase is attributable in part to a $49,900 (11%) increase in net leases
and notes in 1998 as compared to 1997. Total revenue, as a percentage of average
net leases and notes, decreased slightly from 13.7% in 1997 to 13.5% in 1998.
INCREASE IN LEASE PORTFOLIO
Increases in the least portfolio resulting from new booked volume of $227,300 in
1998 and $231,000 million in 1997 exceeded lease reductions from leases repaid
and net bad debt expense of $177,400 and $159,800 in 1998 and 1997,
respectively.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (000 OMITTED) (CONTINUED)
INCREASE IN LEASE PORTFOLIO (CONTINUED)
Increase In Lease Portfolio FY 1998 FY 1997
-------- --------
New booked volume $227,300 $231,000
Leases repaid (169,800) (151,900)
Provision for credit losses ( 7,600) ( 7,900)
--------- ---------
Portfolio increase $ 49,900 $ 71,200
========= =========
The increase in new booked volume in excess of leases repaid and bad debt
provisions had the effect of increasing total revenues.
INTEREST EXPENSE
While the weighted average interest rate paid on debt decreased from 7.5% to
7.2%, total interest expense increased due to increased borrowings required to
finance the growth of the lease portfolio noted above.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1998 FY 1997 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Interest expense $26,900 $23,500 $3,400 14%
</TABLE>
Total debt outstanding at June 30, 1998 increased by $34,500 to $405,700 as
coupled to total debt at June 30, 1997.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses of $15,600 in 1998 increased by
$3,100 (25%) compared to $12,500 in 1997.
<TABLE>
<CAPTION>
PERCENTAGE
FY 1998 FY 1997 INCREASE CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Selling, general, PERCENTAGE
and administrative
expenses $15,600 $12,500 $3,100 25%
</TABLE>
The increase was primarily the result of additional personnel and incentive
costs relating to the additional new business booked as we expand our territory.
PROVISION FOR CREDIT LOSSES
The provision for credit losses of $7,600 in 1998 represents a decrease of $300
(4%) compared to $7,900 in 1997.
<TABLE>
<CAPTION>
INCREASE PERCENTAGE
FY 1998 FY 1997 (DECREASE) CHANGE
------- ------- -------- ------
<S> <C> <C> <C> <C>
Provision for Credit Losses $7,600 $7,900 (300) 4%
</TABLE>
This decrease is based on our analysis of reserves required to provide for
uncollectible receivables. Telmark's allowance for credit losses is based on a
periodic review of the collection history of past leases, current credit
practices, an analysis of delinquent accounts, and current economic conditions.
During 1997 and 1998, the general economy remained strong and the total value of
non-earning accounts increased only slightly from $2,700 in 1997 to $3,000 in
1998. Reserves are established at a level sufficient to cover estimated losses
in the portfolio.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (000 OMITTED) (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The ongoing availability of adequate financing to maintain the size of our
portfolio and to permit lease portfolio growth is key to our continuing
profitability and stability. We have principally financed our operations,
including the growth of our lease portfolio, through borrowings under our lines
of credit, private placements of debt with institutional investors and other
term debt, lease backed notes, principal collections on leases and cash provided
from operations. Total assets have grown at an average annual rate of 16% over
the past fifteen years. The debt to equity ratio decreased from 4.3 in both 1997
and 1998 to 4.1 in 1999.
CASH IN FLOWS FY 1999 FY 1998 FY 1997
-------- ------- -------
Cash flows from operations $22,800 $21,200 $15,200
Cash flows from financing 41,000 36,800 64,500
-------- -------- -------
Total cash in flows 63,800 58,000 79,700
CASH OUT FLOWS
Cash flows from investing (63,800) (58,000) (79,700)
Virtually all of the cash flows from both operations and financing activities
was invested in growth of our lease portfolio. Telmark has been successful in
arranging its past financing needs and believes that its current financing
arrangements are adequate to meet its foreseeable operating requirements. There
can be no assurance, however, that Telmark will be able to obtain future
financing in amounts or on terms that are acceptable. Our inability to obtain
adequate financing would have a material adverse effect on our operations.
Management conducts ongoing discussions and negotiations with existing and
potential lenders for future financing needs. See footnote 5 to the Consolidated
Financial Statements "Borrowing under Lines of Credit and Term Debt."
OTHER MATTERS
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995 We are including the following
cautionary statement in this Form 10-K to make applicable and take advantage of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statement made by, or on behalf of, Telmark. Where
any such forward-looking statement includes a statement of the assumptions or
basis underlying such forward-looking statement, Telmark cautions that, while it
believes such assumptions or basis to be reasonable and makes them in good
faith, assumed facts or basis almost always vary from actual results, and the
differences between assumed facts or basis and actual results can be material,
depending upon the circumstances. Certain factors that could cause actual
results to differ materially from those projected have been discussed herein and
include the factors set forth below. Other factors that could cause actual
results to differ materially include uncertainties of economic, competitive and
market decisions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
Telmark. Where, in any forward-looking statement, Telmark, or its management,
expresses an expectation or belief as to future results, such expectation or
belief is expressed in good faith and believed to have a reasonable basis, but
there can be no assurance that the statement of expectation or belief will
result or be achieved or accomplished. The words "believe," "expect" and
"anticipate" and similar expressions identify forward-looking statements.
YEAR 2000
The approach of the year 2000 presents potential issues to all organizations who
use computers in the conduct of their business or depend on business partners
who use computers. To the extent computer use is date-sensitive, hardware or
software that recognizes the year by the last two digits may erroneously
recognize "00" as 1900 rather than 2000, which could result in errors or system
failures.
Telmark utilizes a number of computers and computer software programs in the
conduct of its business that are principally involved in the flow of
information. This includes the software for tracking the lease portfolio, the
financial and administration software, and the related hardware and operating
system software. It also includes the personal computers and software used by
the field sales force. All critical hardware and operating software has been
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (000 OMITTED) (CONTINUED)
YEAR 2000 (CONTINUED)
inventoried and made year 2000 ready through replacement or remediation. This
hardware and software has been tested and determined to be year 2000 compliant.
All critical application software has been inventoried and upgraded through
remediation or replacements. The lease portfolio tracking software has been
updated to a new vendor certified year 2000 compliant version. The financial and
administration applications have been replaced by applications that are
vendor-certified as year 2000 compliant. Successful internal testing of the year
2000 compliance of the lease portfolio tracking software and the financial and
administrative software has been completed. The interaction of the new vendor
software with other corporate systems has also been tested in an enterprise wide
test environment which was completed during August 1999. New year 2000 compliant
personal computers and operating systems have been acquired for the field sales
force and the related application software has been replaced or remediated,
successfully tested as year 2000 compliant, and installed. These new fully
tested year 2000 compliant personal computer systems have been distributed to
the field sales force.
In addition to the information technology applications review noted above,
Telmark also reviewed and modified, where appropriate, other areas impacted by
year 2000. External interfaces to internal information technology applications
have been tested and are compliant. There are no embedded chips used in the
business operations. Business continuity plans are complete.
Telmark's principal sources of capital are banks, insurance companies, and its
customers' repayment of leases. While banks and insurance companies are highly
computer-dependent and are exposed as creditors to a broad array of businesses,
both nationally and internationally, Telmark management considers failure of its
banks and insurance company investors as remote. Telmark has a number of such
creditors which diversifies the risk. Telmark's customer base is widely
diversified in number, geography and industry and in Telmark management's
opinion is not highly exposed to year 2000 related failures. The year 2000
compliance issue is, however, an uncertainty that is continuously being
monitored by Telmark. Based on the work performed to date, we presently believe
that the likelihood of the year 2000 having a material effect on the results of
operations, liquidity, or financial condition is remote.
Notwithstanding the foregoing, it is not presently clear that all parts of the
country's infrastructure, including such things as the national banking systems,
electrical power, transportation of goods, communications, and governmental
activities, will be fully functioning as the year 2000 approaches. Our research
to date gives us increased confidence in many of these infrastructure components
but also persuades us that absolute certainty regarding their performance will
not likely be possible prior to passing into the year 2000. To the extent
failure occurs in such activities, which are outside the our control, it could
affect our ability to service our customers with the same degree of
effectiveness with which they are served presently. We have identified elements
of the infrastructure that are of greater significance to our operations, is
obtaining information on an ongoing basis as to their expected year 2000
readiness, and have considered alternative solutions if required.
We have incurred internal staff costs as well as consulting and other expenses
related to its year 2000 efforts. Due to the level of effort required to
complete remediation for the year 2000, non-business critical software
application enhancements have been deferred until the year 2000 efforts have
been completed. The conversion and testing of existing applications and
replacements of hardware has cost Telmark approximately $803, all of which has
been incurred as of June 30, 1999. However, additional costs may be incurred if
Telmark is required to invoke continuity plans. Telmark treats non-capital costs
associated with year 2000 as period costs and they have been expensed when
incurred.
In planning for business continuance, the highest priority is our ability to
maintain high quality customer service. All business events were evaluated for
impact of a potential Y2K failure. From this analysis, we developed continuity
plans for all critical events to assure business processes could be performed in
an alternate manner. These plans were approved by Telmark's senior management
and include the details of the scope, any preparation steps needed, plan date of
activation, appropriate communications, and procedures. Two tests are planned to
validate these plans in the event of a failure whether facility or system
related.
15
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table provides information about the Telmark's debt securities and
loans that are sensitive to changes in interest rates. The table presents
principal cash flows (in 000's) and related weighted average interest rates by
contractual maturity dates.
<TABLE>
<CAPTION>
FIXED INTEREST RATE Fair Value
Liabilities 2000 2001 2002 2003 2004 Thereafter Total 6/30/99
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Term Bank
Lines of Credit 43,300 - - - - - 43,300 43,300
Weighted Average
Interest Rate 5.79% - - - - -
Long-Term Debt,
including current portion 91,461 84,431 68,581 48,608 57,529 2,191 352,801 361,086
Weighted Average
Interest Rate 7.05% 6.75% 6.67% 6.70% 6.65% 6.62% - -
Subordinated Debentures,
including current portion 18,200 3,766 4,650 11,017 - - 37,633 37,887
Weighted Average
Interest Rate 8.23% 7.49% 7.29% 8.00% - - - -
</TABLE>
Telmark does not use derivatives or other financial instruments to hedge
interest rate risk in its portfolio. Telmark endeavors to limit the effects of
changes in interest rates by matching as closely as possible, on an ongoing
basis, the maturity and repricing characteristics of funds borrowed to finance
its leasing activities with the maturity and repricing characteristics of its
lease portfolio. However, a rise in interest rates would increase the cost of
that portion of the debt which is not precisely matched to the characteristics
of the portfolio. Telmark has a formal risk management policy which limits the
short-term exposure to an amount which is immaterial to the results of
operations or cash flows. The subordinated debentures' interest rate is at the
greater of the quoted rate or a rate based upon the discount rate for U.S.
Government Treasury Bills (T-Bill), with maturities of 26 weeks. Based on the
T-Bill rate of 4.9% as of June 30, 1999, as compared to the stated rates of the
debentures, which range from 6.0% to 8.5% at June 30, 1999, we believe a
reasonably possible near-term change in interest rates and the conversion of
debt to a variable rate would not cause material near-term losses in future
earnings or cash flows. Finally, for the portion of debt which is not precisely
matched as of June 30, 1999, we do not believe that reasonably possible
near-term changes in interest rates will result in a material effect on future
earnings, fair values, or cash flows of Telmark.
LEGAL PROCEEDINGS
Telmark is not a party to any litigation or legal proceedings pending, or to the
best of its knowledge threatened, which in the opinion of its management,
individually or in the aggregate, would have a material adverse affect on its
operations, financial condition, or liquidity.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There were none.
ADDITIONAL INFORMATION
Telmark will provide a copy of the annual report on Form 10-K, without charge to
each person to whom a copy of this Prospectus is delivered, upon the written or
oral request of any such person to: Patricia Edwards, Assistant Secretary, P.O.
Box 5060, Syracuse, New York 13220-5060, Telephone: 315-449-6311.
16
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES:
<S> <C>
Report of Independent Accountants.......................................................................18
Consolidated Balance Sheets, June 30, 1999 and 1998.....................................................19
Consolidated Statements of Income and Member's Equity,
for the years ended June 30, 1999, 1998 and 1997...............................................20
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1999, 1998 and 1997...........21
Notes to Consolidated Financial Statements..............................................................22
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Telmark LLC:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and member's equity and cash flows present
fairly, in all material respects, the financial position of TELMARK LLC (a
wholly-owned subsidiary of Agway Holdings, Inc.) and its subsidiaries at June
30, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Telmark's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Syracuse, New York
July 30, 1999
18
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
JUNE 30, 1999 AND 1998
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Restricted cash........................................$ 4,480 $ 1,704
Leases and notes receivable, net....................... 551,071 495,626
Investments............................................ 12,780 11,850
Equipment, net......................................... 868 1,000
Deferred income taxes.................................. 5,443 7,030
Other assets........................................... 1,345 1,106
------------ ------------
Total Assets...........................................$575,987 $518,316
============ ============
LIABILITIES AND MEMBER'S EQUITY
1999 1998
------------ ------------
Borrowings under lines of credit and term debt.........$396,101 $371,677
Subordinated debentures................................ 37,633 34,006
Accounts payable....................................... 6,692 5,108
Payable to Agway Inc................................... 22,337 4,443
Accrued expenses, including interest of
$3,258 - 1999 and $4,262 - 1998 ................. 7,658 7,918
------------ ------------
Total Liabilities...................................... 470,421 423,152
Commitments & Contingencies
Member's Equity........................................ 105,566 95,164
------------ ------------
Total Liabilities and Member's Equity.............$575,987 $518,316
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME AND MEMBER'S EQUITY
FISCAL YEARS ENDED JUNE 30, 1999, 1998, AND 1997
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Interest and finance charges........$ 68,337 $ 63,872 $ 55,451
Service fees and other income....... 1,669 1,604 1,492
-------- -------- --------
Total revenues.................. 70,006 65,476 56,943
-------- -------- --------
Expenses:
Interest expense.................... 27,626 26,871 23,486
Provision for credit losses......... 8,024 7,587 7,947
Selling, general and administrative. 16,198 15,606 12,507
-------- -------- --------
Total expenses.................. 51,848 50,064 43,940
-------- -------- --------
Income before income taxes...... 18,158 15,412 13,003
Provision for income taxes............... 7,756 6,654 5,112
-------- -------- --------
Net income...................... 10,402 8,758 7,891
Member's equity, beginning of year....... 95,164 86,406 78,515
-------- -------- --------
Member's equity, end of year.............$105,566 95,164 $ 86,406
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 1999, 1998, AND 1997
(THOUSANDS OF DOLLARS)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................... $ 10,402 $ 8,758 $ 7,891
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization ........ 510 607 529
Deferred taxes ....................... 1,587 3,614 1,259
Provision for credit losses .......... 8,024 7,587 7,947
Patronage refund received in stock ... (930) (1,043) (769)
Changes in assets and liabilities:
Other assets .................... (239) (169) (1,283)
Payables ........................ 1,584 709 (246)
Income taxes payable ............ 2,153 1,330 (2,136)
Accrued expenses ................ (260) (231) 2,028
---------- ---------- ----------
Net cash flow provided by
operating activities ............ 22,831 21,162 15,220
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated ........................ (252,107) (227,270) (231,006)
Leases repaid ............................ 188,637 169,827 151,851
Purchases of equipment, net .............. (378) (552) (523)
---------- ---------- ----------
Net cash flow used
in investing activities ......... (63,848) (57,995) (79,678)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings under
short term line of credit ............ 15,000 16,000 4,000
Net change under revolving line of credit (8,700) (25,900) 44,900
Proceeds from notes payable .............. 0 100,000 38,000
Repayment of notes payable ............... (23,000) (50,723) (45,122)
Proceeds from lease backed notes ......... 48,384 0 25,944
Repayment of lease backed notes .......... (7,243) (7,785) (499)
Repayment of capital lease ............... (17) (73) (66)
Net change payable to Agway Inc. ......... 15,742 2,663 (8,092)
Repayment of debentures .................. 0 (11,208) 0
Proceeds from sale of debentures ......... 3,627 14,170 6,786
Net change in restricted cash ............ (2,776) (311) (1,393)
---------- ---------- ----------
Net cash flow provided by
financing activities .......... 41,017 36,833 64,458
---------- ---------- ----------
Net change in cash ....................... 0 0 0
Cash at beginning of year ................ 0 0 0
---------- ---------- ----------
Cash at end of year ...................... $ 0 $ 0 $ 0
========== ========== ==========
Cash paid during period for:
Interest ............................. $ 28,629 $ 27,395 $ 22,761
Income Taxes ......................... $ 3,556 $ 2,972 $ 6,968
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
Operations
Telmark LLC ("Telmark" or the "Company") was organized in 1964 as Telmark
Inc. under the Business Corporation Law of the State of New York. Effective July
1, 1998, Telmark Inc. was merged into Telmark LLC, a Delaware limited liability
company. Telmark is in the business of leasing agricultural related equipment,
vehicles, and buildings. Telmark's customers are farmers and other rural
businesses as well as manufacturers and independent dealers that serve the
agricultural marketplace. We are indirectly owned and controlled by Agway Inc.
("Agway"), one of the largest agricultural supply and services cooperatives in
the United States. Telmark is a wholly-owned subsidiary of Agway Holdings, Inc.
("Holdings"), a subsidiary of Agway. Telmark operates throughout the continental
United States and the Telmark's field representatives serve customers in 29
states including Alabama, Connecticut, Delaware, Florida, Georgia, Illinois,
Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina,
Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia,
West Virginia and Wisconsin.
Basis of Consolidation
The consolidated financial statements include the accounts of all wholly
owned subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation.
Cash and Equivalents
Telmark considers all investments with a maturity of three months or less
when purchased to be cash equivalents. Certain cash accounts amounting to $4,480
and $1,704 at June 30, 1999, and 1998 respectively related to securitized leases
are held in segregated cash accounts pending distribution to the lease-backed
note holders and are restricted in their use.
Lease Accounting
Completed lease contracts, which qualify as direct finance leases as
defined by Statement of Financial Accounting Standards ("SFAS") No. 13
"Accounting for Leases," are accounted for by recording on the balance sheet the
total future minimum lease payments receivable, plus the estimated unguaranteed
residual value of leased equipment, less the unearned interest and finance
charges. Unearned interest and finance charges represent the excess of the total
future minimum lease payments plus the estimated unguaranteed residual value
expected to be realized at the end of the lease term over the cost of the
related equipment. Interest and finance charge income is recognized as revenue,
by using the interest method over the term of the lease, which for most
commercial and agricultural leases is 60 months or less with a maximum of 180
months for buildings. Income recognition is suspended on all leases and notes
which become past due greater than 120 days. As of June 30, 1999, and 1998, the
recognition of interest income was suspended on leases and notes totaling
approximately $4,890 and $3,046, respectively.
Initial direct costs incurred in consummating a lease are not recorded
when the lease is booked. The expense is capitalized and amortized over the life
of the lease. This deferral of expenses has the effect of reducing the expense
recorded in the period the lease is booked, and increasing the expense
recognized over the remaining life of the lease.
<TABLE>
<CAPTION>
FY1999 FY1998 FY1997
------ ------ ------
<S> <C> <C> <C>
Expenses not recognized this year
are deferred to later years 6,745 5,256 5,354
Expenses from prior years amortized
this year 4,969 4,553 4,168
</TABLE>
Provisions for credit losses are charged to income in amounts sufficient
to maintain the allowance at a level considered adequate to cover losses in the
existing portfolio. The net investment in a lease is charged against the
allowance for credit losses when determined to be uncollectible, generally
within one year of becoming past due.
22
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT )
Investments
Investments comprise capital stock of a cooperative bank acquired from the
bank at par or stated value. This stock is not traded and is historically
redeemed on a periodic basis by the bank at cost. By its nature, this stock is
held for redemption and is reported at cost. Dividends on this stock are
recorded as a reduction of interest expense and totalled $1,329, $1,489, and
$1,099 for the years ended June 30, 1999, 1998, and 1997, respectively.
Equipment
Depreciation is calculated using the straight-line method over the
estimated useful lives of the equipment.
Advertising Costs
We expense advertising costs as incurred. Advertising expense for the
years ended June 30, 1999, 1998, and 1997, was approximately $1,008, $877, and
$829.
Income Taxes
Telmark provides for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the liability method specified by SFAS No. 109, deferred
tax assets and liabilities are based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the tax rates
which are anticipated to be in effect when these differences reverse. The
deferred tax provision represents the net change in the assets and liabilities
for deferred tax.
We are included in a consolidated federal tax return filed by Agway Inc.
Under the Telmark's tax sharing agreement, the provision for income taxes and
related credits and carry forwards are calculated on a separate company basis
and billed to us as appropriate on an interim basis. Through June 30, 1998,
Telmark filed separate state tax returns. Effective July 1, 1998, for income tax
filing purposes, Telmark is included as a business division of Holdings.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to conform prior year financial
statements with the current year presentation.
23
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
2. LEASES, NOTES AND ALLOWANCE FOR CREDIT LOSSES
Leases and notes as of June 30 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Leases:
Commercial and agricultural $740,011 $667,222
Leasing to Agway Inc. and subsidiaries 220 302
-------- --------
740,231 667,524
Retail installment loans 28,349 21,464
-------- --------
Total leases and notes $768,580 $688,988
======== ========
Net investment in leases and notes at June 30 are summarized as follows:
1999 1998
--------- ---------
Leases and notes $768,580 $688,988
Unearned interest and finance charges (199,122) (175,887)
Net deferred origination costs 11,591 9,596
--------- ---------
Net investment 581,049 522,697
Allowance for credit losses (29,978) (27,071)
--------- ---------
Leases and notes, net $551,071 $495,626
========= =========
</TABLE>
Included within the above leases and notes is unguaranteed estimated residual
values of leased property approximating $82,100 and $72,400 at June 30, 1999,
and 1998, respectively.
Contractual maturities of leases and notes were as follows at June 30,
1998:
<TABLE>
<CAPTION>
Leases
--------------------------
Commercial To Agway Retail
and Inc. and Installment
Agricultural Subsidiaries Loans Total
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
2000 $211,902 $ 69 $ 8,217 $220,188
2001 164,513 58 6,839 171,410
2002 122,969 51 3,481 126,501
2003 81,389 26 2,110 83,525
2004 50,550 16 1,347 51,913
Thereafter 108,688 0 6,355 115,043
-------- -------- -------- ---------
Totals $740,011 $ 220 $ 28,349 $768,580
======== ======== ======== =========
</TABLE>
Changes in the allowance for credit losses for the years ended June 30
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 27,071 $ 24,014 $ 19,776
Provision for credit losses charged to operations 8,024 7,587 7,947
Charge-offs (6,820) (6,513) (5,481)
Recoveries 1,703 1,983 1,771
--------- --------- ---------
Balance, end of year $ 29,978 $ 27,071 $ 24,014
========= ========= =========
</TABLE>
24
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
3. EQUIPMENT
Equipment, at cost, including capital leases, consisted of the following
at June 30:
<TABLE>
<CAPTION>
1999 Owned Leased Combined
---- ------------- ------------- -------------
<S> <C> <C> <C>
Office and other equipment................. $ 2,571 $ 0 $ 2,571
Less accumulated depreciation
and amortization................... (1,703) 0 (1,703)
------------- ------------- -------------
$ 868 $ 0 $ 868
============= ============= =============
1998
Office and other equipment................. $ 2,413 $ 203 $ 2,616
Less accumulated depreciation
and amortization................... (1,430) (186) (1,616)
------------- ------------- -------------
$ 983 $ 17 $ 1,000
============= ============= =============
4. INCOME TAXES
The provision for income taxes consists of the following:
1999 1998 1997
------------- ------------- -------------
Currently payable:
Federal.................. $ 4,451 $ 2,321 $ 3,215
State.................... 1,718 719 638
Deferred...................... 1,587 3,614 1,259
------------- ------------- -------------
$ 7,756 $ 6,654 $ 5,112
============= ============= =============
</TABLE>
Telmark's effective income tax rate on pre-tax income differs from the federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Currently payable:
Statutory federal income tax rate ........ 34.0% 34.0% 34.0%
Tax effects of:
State taxes, net of federal benefit 8.0 8.7 5.4
Other items........................... .7 .5 (.1)
------------- ------------- -------------
Effective income tax rate 42.7% 43.2% 39.3%
============= ============= =============
</TABLE>
25
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
4. INCOME TAXES (CONT.)
The components of the net deferred tax asset as of June 30 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Lease receivable reserves...... $ 11,849 $ 10,726
Other reserves................. 305 761
Alternative minimum tax
credit carry forward........ 3,574 3,462
Other.......................... 655 456
------------- -------------
Total deferred tax assets 16,383 15,405
------------- -------------
Deferred tax liabilities:
Difference between book and
tax treatment of leases.... 10,745 8,192
Other.......................... 195 183
------------- -------------
Total deferred tax liabilities 10,940 8,375
------------- -------------
Net deferred tax asset $ 5,443 $ 7,030
============= =============
</TABLE>
Based on our history of taxable earnings and its expectations for the future,
management has determined that operating income will more likely than not be
sufficient to recognize its deferred tax assets. At June 30, 1999, Telmark's
federal AMT credit can be carried forward indefinitely.
5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT
As of June 30, 1999, we have credit facilities available from banks which allow
us to borrow up to an aggregate of $315,000. Uncommitted short-term line of
credit agreements permit us to borrow up to $65,000 on an unsecured basis with
interest paid upon maturity. The lines bear interest at money market variable
rates. A committed $250,000 partially collateralized revolving term loan
facility permits us to draw short-term funds bearing interest at money market
rates or draw long-term debt at rates appropriate for the term of the note
drawn. The total amount outstanding as of June 30, 1999, under the short-term
lines of credit and the revolving term loan facility was $35,000 and $156,300,
respectively.
Telmark has issued lease-backed notes, through two wholly owned special purpose
funding subsidiaries. In 1997, Telmark Lease Funding I, LLC issued $24,000 of
Class A lease-backed notes and $2,000 of Class B lease-backed notes to three
insurance companies. Telmark Lease Funding I, LLC pays interest at 6.58% on the
Class A notes and 7.01% on the Class B notes. In 1999, Telmark Lease Funding II,
LLC issued $44,800 of Class A lease-backed notes and $3,600 of Class B
lease-backed notes to an insurance company. Telmark Lease Funding II, LLC pays
interest at 6.54% on the Class A notes and 7.61% on the Class B notes. The notes
are collateralized by leases having an aggregate present value of contractual
lease payments equal to the principal balance of the notes, and the notes are
further collateralized by the residual values of these leases.
Telmark borrows under its short-term line of credit agreements and its revolving
term agreement from time to time to fund its operations. Short-term debt serves
as interim financing between the issuances of long-term debt. Telmark renews its
lines of credit annually. The $65,000 lines of credit all have terms expiring
during the next 12 months. The $250,000 revolving term loan facility is
available through August 1, 2000. The scheduled maturity of these notes is
December 2007.
At June 30, 1999, we had balances outstanding on unsecured senior note private
placements totaling $146,000. Interest is payable semiannually on each senior
note. Principal payments are both semiannual and annual. The note agreements are
similar to each other and each contain financial covenants, the most restrictive
of which prohibit (I) tangible net worth, defined as consolidated tangible
assets less total liabilities (excluding notes payable to Agway Holdings, Inc.),
from being less than $75,000, (ii) the ratio of total liabilities less
subordinated notes payable to Agway Holdings, Inc. to member's equity plus
subordinated notes payable to Agway Holdings, Inc. from exceeding 5:1, (iii) the
ratio of earnings available for fixed charges from being less than 1.25:1, and
(iv) dividend distributions and restricted investments (as defined) made after
September 30, 1997 that exceed 75% of consolidated net income for the period
beginning on October 1, 1997 through the date of determination, inclusive. As of
June 30, 1999, $13,000 of member's equity was free of this restriction. Telmark
has complied with all covenants contained in its borrowing agreements.
26
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT (CONT.)
At June 30, term debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Notes payable to banks due in varying amount and dates through
April 12, 2004 with interest ranging from 5.56% to 7.67%....... $ 191,300 $ 185,000
Unsecured notes payable to insurance companies due in varying
amount and dates through May 29, 2004, with interest
ranging from 6.47% to 7.64%.................................... 146,000 169,000
Lease-backed notes payable to insurance companies in varying
amounts and dates through December 15, 2007 with interest
rates ranging from 6.54% to 7.61%.............................. 58,801 17,660
Capital lease payable in 1999..................................... 0 17
---------- ----------
Total Term Debt.............................................. 396,101 371,677
Subordinated debentures due in varying amount and dates through
March 31, 2003, with interest ranging from 6.00% to 8.50%...... 37,633 34,006
---------- ----------
Total Debt................................................... $ 433,734 $ 405,683
========== ==========
</TABLE>
The notes payable to banks represents the portion outstanding at June 30, 1999,
and 1998, of the amount available under credit facilities totaling $315,000 and
$294,000 respectively. Of the amount outstanding at June 30, 1999, $156,300 is
partially collateralized by our investment in a cooperative bank having a book
value of $12,780 at June 30, 1999. The subordinated debentures represent the
outstanding balance of registered debentures offered to and held by the general
public. The debentures are unsecured and are subordinate to all senior debt of
Telmark.
The carrying amounts and estimated fair values of our significant financial
instruments held for purposes other than trading at June 30, were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ --------- -------------------------
<S> <C> <C> <C> <C>
Liabilities:
Lines of Credit and
Term Debt (excluding capital leases) $ 396,101 $404,386 $ 371,660 $377,628
Subordinated Debentures 37,633 37,887 34,006 34,605
</TABLE>
The aggregate amounts of notes payable, and subordinated debentures maturing
after June 30, 1999, are as follows:
<TABLE>
<CAPTION>
Notes Payable
--------------------------------- Subordinated
Year Ending June 30, Bank Ins. Companies Debentures Total
--------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
2000 $ 102,300 $ 32,461 $ 18,200 $ 152,961
2001 33,000 51,431 3,766 88,197
2002 10,000 58,581 4,650 73,231
2003 16,000 32,608 11,017 59,625
2004 30,000 27,529 0 57,529
Thereafter 0 2,191 0 2,191
--------------- ---------------- ------------- -------------
$ 191,300 $ $204,801 $ 37,633 $ 433,734
=============== ================ ============= =============
</TABLE>
27
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
6. EMPLOYEE BENEFIT PLANS
Employees of Telmark participate in Agway's employee benefit plans, which
include a defined benefit retirement plan, a defined contribution 401(K) plan, a
medical and dental benefit plan, a postretirement medical plan, and a life and
health insurance plan. Total benefit costs under these plans are allocated by
Agway to Telmark primarily based on payroll costs. Benefit costs for those plans
included in selling, general and administrative expense were approximately
$1,400, $1,100, and $1,200 for the periods ended June 30, 1999, 1998, and 1997,
respectively.
7. RELATED PARTY TRANSACTIONS
Cash Management
In lieu of having our own cash account we utilizes the depository accounts of
its parent, Agway Inc., drawing checks against these accounts and making
deposits to them. The balance represented by the Payable to Agway Inc. is
dependant on the timing of deposits and the drawing of checks.
Inter-Company Transactions
Selected amounts related to transactions with Agway Inc. and Subsidiaries are
separately disclosed in the financial statements. Certain other transactions for
the years ended June 30 with Agway Inc. and Subsidiaries were approximately:
(Revenue) Expense 1999 1998 1997
----------------- ------- ------ -------
Interest and finance charges..................$ (27) $ (49) $ (38)
Administrative and general expense............ 1,691 1,638 1,780
Interest and finance charges are earned on equipment leases to Agway Inc. and
subsidiaries. The administrative and general expense caption described above
includes certain shared expenses incurred by Agway Inc. on behalf of Telmark,
including the corporate insurance program, information services, payroll,
benefits, and accounts payable administration and facilities management. These
expenses were allocated to us and management believes the methodology used is
reasonable.
During the years ended June 30, 1999, 1998, and 1997, Telmark paid no dividends
with respect to its common stock and there was no distribution of member's
equity.
8. COMMITMENTS & CONTINGENCIES
COMMITMENTS
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since some
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Outstanding commitments to extend lease financing at June 30, 1999 approximated
$12,581.
LEGAL PROCEEDINGS
Telmark is not a party to any litigation or legal proceedings pending, or to the
best of its knowledge threatened, which, in the opinion of its management,
individually or in the aggregate, would have a material adverse affect on its
results of operations, financial position or liquidity.
28
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
9. FINANCIAL INSTRUMENTS
Off Balance-Sheet Risk
Telmark is a party to financial instruments with off-balance sheet risk in the
normal course of its business to meet the financing needs of its customers.
These financial instruments consist of commitments to extend credit not
recognized in the balance sheet. In the event of non-performance by the other
party to the financial instrument, Telmark's credit risk is limited to the
amount of Telmark's commitment to extend credit. Our exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual amount of the
instrument. We use the same credit and collateral policies in making commitments
as it does for on-balance sheet instruments.
Market Risk
Telmark's business is concentrated in agriculture in the New England,
Mid-Atlantic, and Midwest states with approximately 70% of its leases directly
related to production agriculture. However, the portfolio of agricultural leases
is diversified into many different kinds of agriculture. As of June 30, 1999,
the largest concentration was in crops enterprises which represented 19% of the
portfolio, dairy enterprises which represented 17% of the portfolio, and wood
products enterprises which represented 12% of the portfolio. At June 30, 1999,
approximately 44% of our net lease investment was in the states of Michigan, New
York, Ohio, and Pennsylvania. Developments in any of these areas of
concentration could affect operating results adversely.
Telmark endeavors to limit the effects of changes in interest rates by matching
as closely as possible, on an ongoing basis, the maturity and repricing
characteristics of funds borrowed to finance its leasing activities with the
maturity and repricing characteristics of its lease portfolio. However, a rise
in interest rates would increase the cost of that portion of the debt which is
not precisely matched to the characteristics of the portfolio and could lower
the value of our outstanding leases in the secondary market.
29
<PAGE>
EXHIBIT 23
<PAGE>
CONSENT OF COUNSEL
The consent of David M. Hayes, legal counsel to the Company, is included in
his opinion, a copy of which is filed as Exhibit 5.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the 1999 Annual Report to Investors which is
included as Exhibit 13 in this Registration Statement on Form S-2 of our report
dated July 30, 1999 relating to the financial statements of Telmark LLC, which
appears in such Registration Statement. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Registration
Statement.
PricewaterhouseCoopers LLP
Syracuse, New York
September 21, 1999
EXHIBIT 25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a Trustee
pursuant to Section 305(b)(2) X
----------
----------
MANUFACTURERS AND TRADERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 16-0538020
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a national bank) identification No.)
One M&T Plaza
Buffalo, New York 14240-2399
(Address of principal executive offices) (Zip Code)
----------
----------
TELMARK LLC
(Exact name of obligor as specified in its charter)
DELAWARE 16-1551523
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
333 Butternut Drive
Dewitt, New York 13214
(Address of principal executive offices) (Zip Code)
----------
----------
SUBORDINATED DEBENTURES
(Title of indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Superintendent of Banks of the State of New York, 2 World
Trade Center, New York, NY 10047 and Albany, NY 12203.
Federal Reserve Bank of New York, 33 Liberty Street, New
York, NY 10045.
Federal Deposit Insurance Corporation, Washington, D.C.
20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR
If the obligor is an affiliate of the trustee, describe
each such affiliation.
None.
[Items 3 through 15 omitted pursuant to General Instruction B to Form T-1]
1
<PAGE>
ITEM 16. LIST OF EXHIBITS
Exhibit 1. Organization Certificate of the Trustee as
now in effect.*
Exhibit 2. Certificate of Authority of the Trustee to
commence business (contained in Exhibit 1).
Exhibit 3. Authorization of the Trustee to exercise
corporate trust powers (contained in
Exhibit 1).
Exhibit 4. Existing By-Laws of the Trustee.*
Exhibit 5. Not Applicable.
Exhibit 6. Consent of the Trustee.*
Exhibit 7. Report of Condition of the Trustee.*
Exhibit 8. Not Applicable.
Exhibit 9. Not Applicable
* Filed Herewith
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Manufacturers and Traders Trust Company, a banking corporation
organized and existing under the laws of the State of New York, has duly caused
this statement of eligibility and qualification to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of Buffalo, and
State of New York, on the ____ day of September, 1999.
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /s/ RUSSELL T. WHITLEY
-----------------------------------
Russell T. Whitley
Assistant Vice President
2
<PAGE>
EXHIBIT 1
ORGANIZATION CERTIFICATE OF THE TRUSTEE
RESTATED ORGANIZATION CERTIFICATE
OF
MANUFACTURERS AND TRADERS TRUST COMPANY
UNDER SECTION 8007 OF THE BANKING LAW
DATED: May 18, 1992
FILER: Richard A. Lammert, Esq.
Senior Vice President, General Counsel and Secretary
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14240
Exhibit 1, Page 1
<PAGE>
RESTATED ORGANIZATION CERTIFICATE
OF
MANUFACTURERS AND TRADERS TRUST COMPANY
UNDER SECTION 8007 OF THE BANKING LAW
The undersigned, being, respectively, the Chairman of the Board, President
and Chief Executive Officer and the Senior Vice President, General Counsel and
Secretary of MANUFACTURERS AND TRADERS TRUST COMPANY, pursuant to Section 8007
of the Banking Law of the State of New York, do hereby restate, certify and set
forth as follows:
(1) The name of the corporation is MANUFACTURERS AND TRADERS TRUST COMPANY.
The name under which the corporation was originally incorporated was The
Fidelity Trust and Guaranty Company of Buffalo.
(2) The organization certificate of the corporation was filed in the Office
of the Superintendent of Banks of the State of New York on September 13, 1892,
and in the Office of the Clerk of Erie County, New York on September 14, 1892,
and the certificate of authorization of the Superintendent of Banks of the State
of New York was issued on June 27, 1893.
A first restated organization certificate of the corporation was approved
and filed in the Office of the Superintendent of Banks of the State of New York
on August 6, 1954. Such restated organization certificate was amended from time
to time thereafter.
A second restated organization certificate of the corporation was approved
and filed in the Office of the Superintendent of Banks of the State of New York
on February 26, 1991.
(3) The restated organization certificate is hereby further amended to
effect an amendment authorized by Section 8001 of the Banking Law in order to
increase the corporation's capital stock to $200,000,000 and to increase the par
value of all authorized shares, whether issued or unissued, to $40. In order to
effect such amendment, Article 3 of the corporation's organization certificate
is hereby amended in its entirety to read as follows:
"3. The amount of the corporation's capital stock is $200,000,000.
The number of shares into which such capital stock shall be divided
is 5,000,000 common shares of the par value of $40 per share."
(4) The text of the corporation's organization certificate, as amended
heretofore, is hereby restated without further change to read as hereinafter set
forth in full:
Exhibit 1, Page 2
<PAGE>
ORGANIZATION CERTIFICATE
OF
MANUFACTURERS AND TRADERS TRUST COMPANY
1. The name by which the said corporation shall be known is MANUFACTURERS
AND TRADERS TRUST COMPANY.
2. The place where the principal office of the corporation is to be located
is the City of Buffalo, County of Erie and State of New York.
3. The amount of the corporation's capital stock is $200,000,000. The
number of shares into which such capital stock shall be divided is 5,000,000
common shares of the par value of $40 per share.
4. The number of directors which the corporation shall have shall be not
less than seven (7) nor more than thirty (30).
5. The term of existence of the corporation shall be perpetual.
6. The corporation shall exercise the fiduciary powers conferred by Section
100 of the Banking Law, as amended from time to time, in addition to the other
powers conferred upon banks and trust companies pursuant to the Banking Law or
other applicable law."
-------------------------------------
(5) This restatement of the organization certificate was authorized
pursuant to Section 6015 of the Banking Law by the written consent, setting
forth the action taken, of the holder of all of the outstanding shares entitled
to vote thereon.
IN WITNESS WHEREOF, the undersigned have hereunto signed this Restated
Organization Certificate on May 18, 1992.
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /S/ ROBERT G. WILMERS
--------------------------------------
Robert G. Wilmers
Chairman of the Board, President
and Chief Executive Officer
By: /S/ RICHARD A. LAMMERT
--------------------------------------
Richard A. Lammert
Senior Vice President, General Counsel
and Secretary
Exhibit 1, Page 3
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
Robert G. Wilmers and Richard A. Lammert, being first duly sworn,
depose and say that they are, respectively, the Chairman of the Board, President
and Chief Executive Officer and Senior Vice President, General Counsel and
Secretary of MANUFACTURERS AND TRADERS TRUST COMPANY, that they have read the
foregoing certificate and know the contents thereof and that the statements
therein contained are trust.
/S/ ROBERT G. WILMERS
--------------------------------------
Robert G. Wilmers
/S/ RICHARD A. LAMMERT
--------------------------------------
Richard A. Lammert
Sworn to before me the 18th day of May, 1992.
/S/ MARY ELLEN SMITH
- --------------------
Notary Public
Mary Ellen Smith
Notary Public, State of New York
No. 4991329
Qualified in Erie County
Commission Expires February 3, 1994
Exhibit 1, Page 4
<PAGE>
EXHIBIT 4
BY-LAWS OF THE TRUSTEE
BY-LAWS
of
MANUFACTURERS AND TRADERS TRUST COMPANY
ARTICLE I
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 1. ANNUAL MEETING: The Annual Meeting of the Corporation, for the
election of directors and for transaction of such other business as may be set
forth in the notice of meeting, shall be held at the principal office of the
Corporation or at such other place in the City of Buffalo, New York at 10:30
a.m. in the forenoon on the third Tuesday of March in each year, or on such date
and at such time as the Board of Directors shall determine.
SECTION 2. SPECIAL MEETINGS: Special meetings of the stockholders may be
called to be held at the principal office of the Corporation or elsewhere within
the State of New York at any time by the Board of Directors or the Chairman of
the Board or the President, and shall be called by the Chairman of the Board or
the President or the Secretary or an Assistant Secretary at the request in
writing of five or more members of the Board of Directors, or at the request in
writing of the holders of record of at least 25% of the outstanding shares of
the Corporation entitled to vote. Such request shall state the purpose or
purposes for which the meeting is to be called.
SECTION 3. NOTICE OF MEETINGS: Written notice of each meeting of the
stockholders shall be given by depositing in the United States mail, postage
prepaid, not less than 10 nor more than 50 days before such meeting, a copy of
the notice of such meeting directed to each stockholder of record entitled to
vote at the meeting, at his address as it appears on the record of stockholders,
or, if he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, then directed to
him at such other address. The notice shall state the place, date and hour of
the meeting, the purpose or purposes for which the meeting is called and, unless
it is the annual meeting, indicate that the notice is being issued by or at the
direction of the person or persons calling the meeting. If action is proposed to
be taken at any meeting which would, if taken, entitle dissenting stockholders
to receive payment for their shares, the notice shall include a statement of
that purpose and to that effect. At each meeting of stockholders only such
business may be transacted which is related to the purpose or purposes set forth
in the notice of meeting.
Exhibit 4, Page 1
<PAGE>
SECTION 4. WAIVER OF NOTICE: Whenever under any provisions of these
by-laws, the organization certificate, the terms of any agreement or instrument,
or law, the Corporation or the Board of Directors or any committee thereof is
authorized to take any action after notice to any person or persons or after the
lapse of a prescribed period of time, such action may be taken without notice
and without the lapse of such period of time, if at any time before or after
such action is completed the person or persons entitled to such notice or
entitled to participate in the action to be taken or, in the case of a
stockholder, by his attorney-in-fact, submit a signed waiver of notice of such
requirements. The attendance of any stockholder at any meeting, in person or by
proxy, without protesting prior to the conclusion the lack of notice of such
meeting, shall constitute a waiver of notice by him.
SECTION 5. PROCEDURE: At every meeting of stockholders the order of
business and all other matters of procedure may be determined by the person
presiding at the meeting.
SECTION 6. LIST OF STOCKHOLDERS: A list of stockholders as of the record
date, certified by the officer of the Corporation responsible for its
preparation or by a transfer agent, shall be produced at any meeting of
stockholders upon the request thereat or prior thereto of any stockholder. If
the right to vote at any meeting is challenged, the inspectors of election, or
person presiding thereat, shall require such list of stockholders to be produced
as evidence of the right of the persons challenged to vote at such meeting, and
all persons who appear from such list to be stockholders entitled to vote
thereat may vote at such meeting.
SECTION 7. QUORUM: At all meetings of the stockholders of the Corporation a
quorum must be present for the transaction of business and, except as otherwise
provided by law, a quorum shall consist of the holders of record of not less
than a majority of the outstanding shares of the Corporation entitled to vote
thereat, present either in person or by proxy. When a quorum is once present to
organize a meeting of the stockholders, it is not broken by the subsequent
withdrawal of any stockholders.
SECTION 8. ADJOURNMENTS: The stockholders entitled to vote who are present
in person or by proxy at any meeting of stockholders, whether or not a quorum
shall be present or represented at the meeting, shall have power by a majority
vote to adjourn the meeting from time to time without further notice other than
announcement at the meeting. At any adjourned meeting at which a quorum shall be
present in person or by proxy any business may be transacted that might have
been transacted on the original date of the meeting, and the stockholders
entitled to vote at the meeting on the original date (whether or not they were
present thereat), and no others, shall be entitled to vote at such adjourned
meeting.
SECTION 9. VOTING; PROXIES: Each stockholder of record entitled to vote
shall be entitled at every meeting of stockholders of the Corporation to one
vote for each share of stock having voting power standing in his name on the
record of stockholders on the record date fixed pursuant to Section 3 of Article
VI of these by-laws. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent without a meeting may do so either
in person or by proxy appointed by instrument executed in writing by such
stockholder or his duly authorized attorney-in-fact and delivered to the
secretary of the meeting. No director, officer, clerk, teller or bookkeeper of
the Corporation shall act as proxy at any meeting. No proxy shall be valid after
the expiration of 11 months from the date of its execution unless otherwise
Exhibit 4, Page 2
<PAGE>
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it except as otherwise provided by law. Directors elected
at any meeting of the stockholders shall be elected by a plurality of the votes
cast. All other corporate action to be taken by vote of the stockholders shall,
except as otherwise provided by law or these by-laws, be authorized by a
majority of the votes cast. The vote for directors shall be by ballot, but
otherwise the vote upon any question before a meeting shall not be by ballot
unless the person presiding at such meeting shall so direct or any stockholder,
present in person or by proxy and entitled to vote thereon, shall so demand.
SECTION 10. APPOINTMENT OF INSPECTORS OF ELECTION: The Board of Directors
may, in advance of any meeting of the stockholders, appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors are
not so appointed in advance of the meeting, the person presiding at such meeting
may, and on the request of any stockholder entitled to vote thereat shall,
appoint one or more inspectors. In case any inspector appointed fails to appear
or act, the vacancy may be filled by appointment made by the Board of Directors
in advance of the meeting or at the meeting by the person presiding thereat. No
director, officer or candidate for the office of director of the Corporation
shall be eligible to act as an inspector of an election of directors of the
Corporation. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
SECTION 11. DUTIES OF INSPECTORS OF ELECTION: The inspectors of election
shall determine the number of shares outstanding and entitled to vote, the
shares represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all stockholders.
ARTICLE II
DIRECTORS
---------
SECTION 1. NUMBER AND QUALIFICATIONS: The number of directors of the
Corporation shall be not less than seven (7) nor more than twenty-five (25),
with the exact number to be fixed from time to time by resolution of a majority
of the directors, provided that the number of directors shall not be reduced so
as to shorten the term of any director at the time in office. If the number of
directors be increased at any time, within the limits above set forth, the
vacancy or vacancies in the board arising from such increase shall be filled as
provided in Section 4 of this Article II. Each such vacancy, and each reduction
in the number of directors, shall be reported to the Superintendent of Banks in
the manner prescribed by law. All of the directors shall be of full age, and all
except three of them shall be citizens of the United States, and at least
one-third of them shall be citizens and residents of the State of New York and
at least three-fourths of them shall be citizens and residents of the State of
New York or a contiguous state, at the time of their election and during their
continuance in office, unless otherwise permitted by law. No more than one-third
of the directors shall be active officers or employees of the Corporation. Every
director shall be a stockholder of the Corporation or of any company owning more
than 80% of the capital stock of such Corporation, owning in his own right, free
Exhibit 4, Page 3
<PAGE>
from pledge, lien or charge, shares of capital stock of such Corporation or of
such company, at least ten (10) in number and having an aggregate par value of
at least $1,000.
SECTION 2. ELECTION AND TENURE OF OFFICE: Except as otherwise provided by
law or these by-laws, each director of the Corporation shall be elected at an
annual meeting of the stockholders or at any meeting of the stockholders held in
lieu of such annual meeting, which meeting, for the purposes of these by-laws,
shall be deemed the annual meeting, and shall hold office until the next annual
meeting of stockholders and until his successor has been elected and qualified.
Each person who shall be elected a director of the Corporation shall, before
participating in any manner as a director of the Corporation, qualify in the
manner prescribed by law and take and subscribe the oath prescribed by law.
SECTION 3. RESIGNATION: Any director of the Corporation may resign at any
time by giving his resignation to the Chairman of the Board or the President or
the Secretary. Such resignation shall take effect at the time specified therein;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 4. VACANCIES: Except as hereinafter provided, all vacancies in the
office of director shall be filled by election by the stockholders entitled to
vote at any meeting of the stockholders notice of which shall have referred to
the proposed election. Vacancies not exceeding one-third of the entire board may
be filled by the affirmative vote of a majority of the directors then in office,
and the directors so elected shall hold office for the balance of the unexpired
term; or two vacancies may, with the consent of the Superintendent of Banks of
the State of New York, be left unfilled until the next annual election. Each
vacancy in the office of director and each election by the Board of Directors to
fill any such vacancy shall be reported to the Superintendent of Banks in the
manner provided by law.
SECTION 5. DIRECTORS' FEES: Directors, including salaried officers of the
Corporation who are directors, may receive a fee for their services as directors
and traveling and other out-of-pocket expenses incurred in attending any regular
or special meeting of the board. The fee may be a fixed sum for attending each
meeting of the Board of Directors or a fixed sum paid monthly, quarterly, or
semiannually, irrespective of the number of meetings attended or not attended.
The amount of the fee and the basis on which it shall be paid shall be
determined by resolution of the Board of Directors. Nothing herein contained
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation for such services.
SECTION 6. MEETINGS OF DIRECTORS: A regular meeting of the Board of
Directors shall be held at least once in each month. The first meeting of the
Board of Directors after each annual meeting of the stockholders shall be held
immediately after the adjournment of such annual meeting and shall constitute
the regular meeting of the Board of Directors for the month in which such first
meeting is held. No notice of such first meeting shall be necessary. The Board
of Directors may, at any time and from time to time, by resolution designate the
place, date and hour for the holding of a regular meeting but, in the absence of
any such designation, regular meetings of the Board of Directors shall be held
at the principal office of the Corporation in the City of Buffalo, New York, at
11:30 o'clock a.m., on the Thursday following the first Tuesday of each month.
If that day be a legal holiday in any month, the meeting shall be held at the
same hour on the next following business day, other than Saturday. No notice
Exhibit 4, Page 4
<PAGE>
need be given of such regular meetings except such notice as these by-laws or
the Board of Directors by resolution may require. Special meetings of the Board
of Directors shall be held at such times and at such places as the Board of
Directors or the Chairman of the Board or, in his absence, the President, may
determine, and shall also be held upon the request of any 4 directors made in
writing to the Chairman of the Board or the President.
SECTION 7. NOTICE OF SPECIAL MEETINGS OF THE BOARD OF DIRECTORS: Notice of
each special meeting of the Board of Directors stating the time and place
thereof, shall be given by the Chairman of the Board, the President, the
Secretary, or an Assistant Secretary, or by any member of the board to each
member of the board not less than 3 days before the meeting by depositing the
same in the United States mail, postage prepaid, addressed to each member of the
board at his residence or usual place of business, or not less than 1 day before
the meeting by telephoning or by delivering the same to each member of the board
personally, or by sending the same by telegraph to his residence or usual place
of business. Notice of a meeting need not be given to any director who submits a
signed waiver of notice whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to him. The notice of any special meeting of the Board of Directors need
not specify the purpose or purposes for which the meeting is called, except as
provided in Article IX of these by-laws.
SECTION 8. QUORUM: At all meetings of the Board of Directors, except as
otherwise provided by law or these by-laws, a quorum shall be required for the
transaction of business and shall consist of not less than one-third of the
entire board, and the vote of a majority of the directors present shall decide
any question which may come before the meeting. A majority of the directors
present at any meeting, although less than a quorum, may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
SECTION 9. MEETINGS BY CONFERENCE TELEPHONE: Any one or more members of the
Board of Directors or any committee thereof may participate in a meeting of such
board or committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation in a meeting by such means shall constitute
presence in person at such meeting.
SECTION 10. PROCEDURE: The order of business and all other matters of
procedure at every meeting of directors may be determined by the person
presiding at the meeting.
ARTICLE III
COMMITTEES
----------
SECTION 1. EXECUTIVE COMMITTEE: The Board of Directors shall, by resolution
adopted by a majority of the entire board, designate from among its members an
Executive Committee consisting of five or more directors. The Board of Directors
may designate one or more directors as alternate members of the Executive
Committee, who may replace any absent member or members of the Executive
Committee at any meeting thereof. In the interim between meetings of the Board
of Directors, the Executive Committee shall have all the authority of the Board
of Directors except as otherwise provided by law. All acts done and powers and
authority
Exhibit 4, Page 5
<PAGE>
conferred by the Executive Committee from time to time within the scope of its
authority shall be, and may be deemed to be, and may be certified as being, the
act and under the authority of the Board of Directors. The Chairman of the
Board, or the President in the absence of the Chairman of the Board, shall
preside at all meetings of the Executive Committee. The Executive Committee
shall elect from its members a chairman to preside at any meeting of the
Executive Committee at which the Chairman of the Board and the President shall
be absent. Four members of the Executive Committee shall constitute a quorum for
the transaction of business.
SECTION 2. EXAMINING COMMITTEE: The Board of Directors shall, by
resolution adopted by a majority of the entire board, designate from among its
members an Examining Committee consisting of not less than 3 directors to
examine fully the books, papers and affairs of the Corporation, and the loans
and discounts thereof, as provided by law. The Examining Committee shall have
the power to employ such assistants as it may deem necessary to enable it to
perform its duties.
SECTION 3. OTHER COMMITTEES: The Board of Directors may from time to
time, by resolution or resolutions, appoint or provide for one or more other
committees consisting of such directors, officers, or other persons as the board
may determine. Each committee, to the extent provided in said resolution or
resolutions, shall have such powers and functions in the management of the
Corporation as may be lawfully delegated by the Board of Directors in the
interim between meetings of the board. Each committee shall have such name as
may be provided from time to time in said resolution or resolutions, and shall
serve at the pleasure of the Board of Directors.
SECTION 4. MINUTES OF MEETINGS OF COMMITTEES: The Executive Committee, the
Examining Committee, and each other committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors at the next meeting
thereof, or as soon thereafter as may be practicable under the circumstances.
SECTION 5. FEES TO MEMBERS OF COMMITTEES: Members of committees, including
salaried officers of the Corporation who are members of committees, may receive
a fee for their services as members of committees and traveling and other
out-of-pocket expenses incurred in attending any regular or special meeting of a
committee. The fee may be a fixed sum for attending each committee meeting or a
fixed sum paid monthly, quarterly, or semiannually, irrespective of the number
of meetings attended or not attended. The amount of the fee and the basis on
which it shall be paid shall be determined by resolution of the Board of
Directors. Nothing herein contained shall preclude any member of a committee
from serving the Corporation in any other capacity and receiving compensation
for such services.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS: The Board of Directors shall annually, at the first
meeting of the board after the Annual Meeting of Stockholders, elect from its
own number a Chairman of the Board and a President who may be one and the same
person, and appoint or elect one or more Vice Presidents, a Secretary, a
Treasurer, and an Auditor. The Chief Executive Officer shall be either the
Exhibit 4, Page 6
<PAGE>
Chairman of the Board or the President, as designated by the Board of Directors.
The Board of Directors, or the Executive Committee, may also from time to time
elect or appoint such additional officers as it may determine, including
(without limitation as to title or number) one or more Trust Officers, Assistant
Vice Presidents, Assistant Secretaries, Assistant Treasurers, and Assistant
Auditors.
SECTION 2. TERM OF OFFICE: The Chairman of the Board, the President, each
Vice President, the Secretary, the Treasurer, and the Auditor shall, unless
otherwise determined by the Board of Directors, hold office until the first
meeting of the board following the next annual meeting of stockholders and until
their successors have been elected and qualified. Each additional officer
appointed or elected by the Board of Directors, or by the Executive Committee,
shall hold office for such term as shall be determined from time to time by the
Board of Directors or the Executive Committee. Any officer, however, may be
removed at any time by the Board of Directors, or his authority suspended by the
Board of Directors, with or without cause. If the office of any officer becomes
vacant for any reason, the Board of Directors shall have the power to fill such
vacancy.
SECTION 3. THE CHIEF EXECUTIVE OFFICER: The Chief Executive Officer shall,
under control of the Board of Directors and the Executive Committee, have the
general management of the Corporation's affairs and shall exercise general
supervision over all activities of the Corporation. The Chief Executive Officer
shall have the power to appoint or hire, to remove, and to determine the
compensation of, all employees of the Corporation who are not officers.
SECTION 4. THE CHAIRMAN OF THE BOARD: The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors and
shall be entitled to vote upon all questions. If he is not the Chief Executive
Officer, the Chairman of the Board shall perform such additional duties and be
vested with such additional powers as shall be assigned to him from time to time
by the Board of Directors, the Executive Committee or the Chief Executive
Officer, and in the absence or incapacity of the Chief Executive Officer shall
have the powers and exercise the duties of that officer.
SECTION 5. THE PRESIDENT: The President, subject to the control and
direction of the Board of Directors, shall have immediate supervision over the
business, affairs, and properties of the Corporation, shall have and exercise
general authority with respect thereto, shall perform all duties and exercise
all powers generally incident to his office and shall perform such additional
duties and be vested with such additional powers as shall be assigned to him
from time to time by the Board of Directors, the Executive Committee, and if he
is not the Chief Executive Officer, by such officer. In the absence or
incapacity of the Chairman of the Board he shall have the powers and exercise
the duties of that officer, including the powers of Chief Executive Officer if
the Chairman of the Board is the Chief Executive Officer.
SECTION 6. THE VICE PRESIDENTS: The Vice Presidents shall have such powers
and perform such duties as may be assigned to them respectively by the Board of
Directors, the Executive Committee, the Chairman of the Board or the President.
Any one or more of the Vice Presidents may be designated by the Board of
Directors as "Executive Vice President," "Senior Vice President," or "Assistant
to the President," or by such other title or titles as the Board of Directors
Exhibit 4, Page 7
<PAGE>
may determine. In the absence or incapacity of both the Chairman of the Board
and the President, the Vice Presidents shall exercise the powers and perform the
duties of those officers in such order of precedence as shall be determined by
the Board of Directors, the Executive Committee, the Chairman of the Board or
the President.
SECTION 7. THE SECRETARY AND ASSISTANT SECRETARIES: The Secretary shall
issue notices of all meetings of stockholders, the Board of Directors and the
Executive Committee, where notices of such meetings are required by law or these
by-laws. He shall attend all meetings of stockholders, the Board of Directors
and the Executive Committee and keep the minutes thereof in proper books
provided for that purpose. He shall affix the corporate seal to and sign such
instruments as require the seal and his signature and shall perform such other
duties as usually pertain to his office or as are properly required of him by
the Board of Directors, the Chairman of the Board or the President.
The Assistant Secretaries may, in the absence or disability of the
Secretary or at his request, perform the duties and exercise the powers of the
Secretary, and shall perform such other duties as the Board of Directors, the
Chairman of the Board or the President shall prescribe.
SECTION 8. THE TREASURER AND ASSISTANT TREASURERS: The Treasurer shall keep
permanent records of the assets and liabilities and of all matters and
transactions bearing upon the financial affairs of the Corporation. He shall,
whenever required by the Board of Directors, present a statement of the business
of the Corporation, a balance sheet thereof as of the end of the last preceding
month or such other date as may be so required. He shall make and sign such
reports, statements and instruments as may be required of him by the Board of
Directors or the President or by law and shall perform such other duties as
usually pertain to his office or as are properly required of him by the Board of
Directors, the Chairman of the Board or the President.
The Assistant Treasurers may, in the absence or disability of the Treasurer
or at his request, perform the duties and exercise the powers of the Treasurer,
and shall perform such other duties as the Board of Directors, the Chairman of
the Board or the President shall prescribe.
SECTION 9. THE AUDITOR: The Auditor shall be responsible to the Chairman of
the Board, the President and, through the directors' Examining Committee, to the
Board of Directors for the safety of all operations and for the systems of
internal audits and protective controls; he shall perform such other duties as
the Chairman of the Board or the President may prescribe and shall make such
examinations and reports as may be required by the directors' Examining
Committee. He shall have the duty to report to the Chairman of the Board and the
President on all matters concerning the safety of the operations of the
Corporation which he deems advisable or which the Chairman of the Board or the
President may request. In addition, the Auditor shall have the duty of reporting
independently of all officers of the Corporation to the directors' Examining
Committee whenever he deems it necessary or desirable to do so, but in any event
not less often than annually on all matters concerning the safety of the
operations of the Corporation.
The Assistant Auditors may, in the absence or disability of the Auditor, or
at his request, perform the duties and exercise the powers of the Auditor, and
shall perform such other duties as the Board of Directors, the Chairman of the
Board or the President shall prescribe.
Exhibit 4, Page 8
<PAGE>
SECTION 10. OTHER OFFICERS: All other officers that may be elected or
appointed by the Board of Directors or the Executive Committee shall exercise
such powers and perform such duties as the Board of Directors, the Executive
Committee, the Chairman of the Board or the President shall prescribe.
SECTION 11. OFFICERS HOLDING TWO OR MORE OFFICES: Any two or more offices
may be held by the same person, except the offices of President and Secretary.
No officer shall execute or verify any instrument in more than one capacity if
such instrument be required by law or otherwise to be executed or verified by
any two or more officers.
SECTION 12. DUTIES OF OFFICERS MAY BE DELEGATED: In case of the absence or
disability of any officer of the Corporation, or in case of a vacancy in any
office or for any other reason that the Board of Directors, the Chairman of the
Board or the President may deem sufficient, the Board of Directors, the Chairman
of the Board or the President, except as otherwise provided by law or these
by-laws, may delegate, for the time being, the powers or duties of any officer
to any other officer or to any director.
SECTION 13. COMPENSATION OF OFFICERS: The Board of Directors shall
determine the compensation to be paid to the Chairman of the Board and the
President, respectively, and it may also determine the compensation to be paid
to any or all of the other officers of the Corporation. In the event and to the
extent that the Board of the Directors shall not exercise such discretionary
power the compensation to be paid to the other officers shall be determined by
the Chief Executive Officer.
SECTION 14. SPECIAL POWERS: The Chairman of the Board, the President, any
Vice President, any Assistant Vice President, the Secretary, any Assistant
Secretary, the Treasurer and any Trust Officer shall each have power and
authority:
To sign, countersign, certify, issue, assign, endorse,
transfer and/or deliver notes, checks, drafts, bills of
exchange, certificates of deposit, acceptances, letters of
credit, advices for the transfer or payment of funds, orders
for the sale and for delivery of securities, guarantees of
signatures, and all other instruments, documents and
writings in connection with the business of the Corporation
in its corporate or in any trust or fiduciary capacity;
To sign the name of the Corporation and affix its seal,
or cause the same to be affixed, to deeds, mortgages,
satisfactions, assignments, releases, proxies, powers of
attorney, trust agreements, and all other instruments,
documents or papers necessary for the conduct of the
business of the Corporation, either in its corporate
capacity or in any trust or fiduciary capacity;
To endorse, sell, assign, transfer and deliver any
stocks, bonds, mortgages, notes, certificates of interest,
certificates of indebtedness, certificates of deposit and
any evidences of indebtedness or of any rights or privileges
which now are or may hereafter be held by or stand in the
Exhibit 4, Page 9
<PAGE>
name of the Corporation, either in its corporate capacity,
or in any fiduciary or trust capacity, and to execute
proxies, powers of attorney or other authority with respect
thereto;
To accept on behalf of the Corporation any
guardianship, receivership, executorship or any general or
special trust specified in the Banking Law of the State of
New York;
To authenticate or certificate any bonds, debentures,
notes, or other instruments issued under or in connection
with any mortgage, deed of trust or other agreement or
instrument under which the Corporation is acting as trustee
or in any other fiduciary capacity;
To sign, execute and deliver certificates, reports,
checks, orders, receipts, certificates of deposit, interim
certificates, and other documents in connection with its
duties and activities as registrar, transfer agent,
disbursing agent, fiscal agent, depositary, or in any other
corporate fiduciary capacity.
The powers and authority above conferred may at any time be modified,
changed, extended or revoked, and may be conferred in whole or in part on other
officers and employees by the Board of Directors or the Executive Committee.
SECTION 15. BONDS: The Board of Directors may require any officer, agent or
employee of the Corporation to give a bond to the Corporation, conditional upon
the faithful performance of his duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Directors.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. RIGHT OF INDEMNIFICATION: Each director and officer of the
Corporation, whether or not then in office, each director and officer of a
subsidiary of the Corporation, whether or not then in office, and any person
whose testator or intestate was such a director or officer, shall be indemnified
by the Corporation for the defense of, or in connection with, any threatened,
pending or completed actions or proceedings and appeals therein, whether civil,
criminal, governmental, administrative or investigative, in accordance with and
to the fullest extent permitted by the Banking Law of the State of New York or
other applicable law, as such law now exists or may hereafter be amended;
provided, however, that the Corporation shall provide indemnification in
connection with an action or proceeding (or part thereof) initiated by such a
director or officer only if such action or proceeding (or part thereof) was
authorized by the Board of Directors.
Exhibit 4, Page 10
<PAGE>
SECTION 2. ADVANCEMENT OF EXPENSES: Expenses incurred by a director or
officer in connection with any action or proceeding as to which indemnification
may be given under Section 1 of this Article V may be paid by the Corporation in
advance of the final disposition of such action or proceeding upon (a) receipt
of an undertaking by or on behalf of such director or officer to repay such
advancement in the event that such director or officer is ultimately found not
to be entitled to indemnification as authorized by this Article V and (b)
approval by the Board of Directors acting by a quorum consisting of directors
who are not parties to such action or proceeding or, if such a quorum is not
obtainable, then approval by stockholders. To the extent permitted by law, the
Board of Directors or, if applicable, the stockholders, shall not be required
under this Section 2, to find that the director or officer has met the
applicable standard of conduct provided by law for indemnification in connection
with such action or proceeding.
SECTION 3. AVAILABILITY AND INTERPRETATION: To the extent permitted under
applicable law, the rights of indemnification and to the advancement of expenses
provided in this Article V (a) shall be available with respect to events
occurring prior to the adoption of this Article V, (b) shall continue to exist
after any recision or restrictive amendment of this Article V with respect to
events occurring prior to such recision or amendment, (C) may be interpreted on
the basis of applicable law in effect at the time of the occurrence of the event
or events giving rise to the action or proceeding, or on the basis of applicable
law in effect at the time such rights are claimed, and (d) are in the nature of
contract rights which may be enforced in any court of competent jurisdiction as
if the Corporation and the director or officer for whom such rights are sought
were parties to a separate written agreement.
SECTION 4. OTHER RIGHTS: The rights of indemnification and to the
advancement of expenses provided in this Article V shall not be deemed exclusive
of any other rights to which any such director, officer or other person may now
or hereafter be otherwise entitled whether contained in the organization
certificate, these by-laws, a resolution of stockholders, a resolution of the
Board of Directors, or an agreement providing such indemnification, the creation
of such other rights being hereby expressly authorized. Without limiting the
generality of the foregoing, the rights of indemnification and to the
advancement of expenses provided in this Article V shall not be deemed exclusive
of any rights, pursuant to statute or otherwise, of any such director, officer
or other person in any such action or proceeding to have assessed or allowed in
his or her favor, against the Corporation or otherwise, his or her costs and
expenses incurred therein or in connection therewith or any part thereof.
SECTION 5. SEVERABILITY: If this Article V or any part hereof shall be held
unenforceable in any respect by a court of competent jurisdiction, it shall be
deemed modified to the minimum extent necessary to make it enforceable, and the
remainder of this Article V shall remain fully enforceable.
ARTICLE VI
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK: The shares of stock of the Corporation
shall be represented by certificates which shall be numbered and shall be
entered in the books of the Corporation as they are issued. Each stock
Exhibit 4, Page 11
<PAGE>
certificate shall when issued state the name of the person or persons to whom
issued and the number of shares and shall be signed by the Chairman of the Board
or the President or a Vice President and by the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer, and shall be sealed with
the seal of the Corporation or a facsimile thereof. The signatures of the
officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issue. No certificate of stock shall be valid
until countersigned by a transfer agent if the Corporation has a transfer agent,
or until registered by a registrar, if the Corporation has a registrar.
SECTION 2. TRANSFERS OF SHARES: Shares of stock shall be transferable on
the books of the Corporation by the holder thereof, in person or by duly
authorized attorney, upon the surrender of the certificate representing the
shares to be transferred, properly endorsed. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the owner
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof, save as
specifically provided by the laws of the State of New York. The Board of
Directors, to the extent permitted by law, shall have power and authority to
make all such rules and regulations as it may deem expedient concerning the
issue, transfer and registration of certificates of stock and may appoint one or
more transfer agents and registrars of the stock of the Corporation.
SECTION 3. FIXING OF RECORD DATE: The Board of Directors may fix, in
advance, a day and hour not more than 50 days before the date on which any
meeting of stockholders is to be held, as the time as of which stockholders
entitled to notice of and to vote at such meeting and at all adjournments
thereof shall be determined; and, in the event such record date and time is
fixed by the Board of Directors, no one other than the holders of record on such
date and time of stock entitled to notice of or to vote at such meeting shall be
entitled to notice of or to vote at such meeting or any adjournment thereof. If
a record date and time shall not be fixed by the Board of Directors for the
determination of stockholders entitled to notice of and to vote at any meeting
of stockholders, stockholders of record at the close of business on the day next
preceding the day on which notice of such meeting is given, and no others, shall
be entitled to notice of and to vote at such meeting or any adjournment thereof.
The Board of Directors may fix, in advance, a day and hour, not exceeding 50
days preceding the date fixed for the payment of a dividend of any kind or the
allotment of any rights, as the record time for the determination of the
stockholders entitled to receive any such dividend or rights, and in such case
only stockholders of record at the time so fixed shall be entitled to receive
such dividend or rights.
SECTION 4. RECORD OF STOCKHOLDERS: The Corporation shall keep at its office
in the State of New York, or at the office of its transfer agent or registrar in
this state, a record containing the names and addresses of all stockholders, the
number and class of shares held by each and the dates when they respectively
became the owner of record thereof.
SECTION 5. LOST STOCK CERTIFICATES: The holder of any certificate
representing shares of stock of the Corporation shall immediately notify the
Corporation of any mutilation, loss or destruction thereof, and the Board of
Exhibit 4, Page 12
<PAGE>
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such holder upon the surrender
of the mutilated certificate, or, in case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction and the deposit
of indemnity by way of bond or otherwise in such form and amount and with such
sureties or security as the Board of Directors may require to protect the
Corporation against loss or liability by reason of the issuance of such new
certificates; but the Board of Directors may in its discretion refuse to issue
such new certificates save upon the order of the court having jurisdiction in
such matters.
ARTICLE VII
CORPORATE SEAL
SECTION 1. FORM OF SEAL: The seal of the Corporation shall be circular in
form, with the words "Manufacturers and Traders Trust Company" in the margin
thereof, and the numerals "1856" and the word "seal" and the numerals "1892" in
the center thereof. The seal on any corporate obligation for the payment of
money may be facsimile.
ARTICLE VIII
EMERGENCY OPERATIONS
Whenever the provisions of Article 7 of the New York State Defense
Emergency Act (L. 1961, c. 654) become operative by reason of an "acute
emergency," as defined in said Act, the following provision shall also become
operative:
1. If the Chief Executive Officer of the Corporation shall not be
available, his powers and authority shall vest in and may be exercised by other
officers of the Corporation in the following order:
a. The Chairman of the Board;
b. The President;
c. The Executive Vice Presidents in the order of seniority determined
by length of service;
d. The Senior Vice Presidents in the order of seniority determined by
length of service;
e. A Vice President selected from and by those Vice Presidents who
shall be available.
2. The directors and acting directors present at any meeting held as
provided by statute may by resolution alter the foregoing order of succession or
designate the person from among the foregoing group who shall act as Chief
Executive Officer; provided, however, that the directors and acting directors
shall have no power to remove any officer or to fill any vacancy on a permanent
basis or to cause the Corporation to enter into any contract of employment for a
term of over one year.
Exhibit 4, Page 13
<PAGE>
3. The directors and acting directors shall take such action as counsel may
advise in order that the normal operations of the Corporation shall be restored
as promptly as practicable.
ARTICLE IX
AMENDMENTS
SECTION 1. PROCEDURE FOR AMENDING BY-LAWS: These by-laws may be added to,
amended or repealed at any meeting of stockholders notice of which shall have
referred to the proposed action, by the vote of the holders of record of a
majority of the outstanding shares of the Corporation entitled to vote, or at
any meeting of the Board of Directors notice of which shall have referred to the
proposed action, by the vote of a majority of the Board of Directors; provided,
however, that if any by-law regulating an impending election of directors is
adopted or amended or repealed by the Board of Directors, there shall be set
forth in the notice of the next meeting of stockholders for the election of
directors the by-law so adopted or amended or repealed, together with a concise
statement of the changes made.
Exhibit 4, Page 14
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Manufacturers and Traders Trust Company hereby consents, in accordance with
the provisions of Section 321(b) of the Trust Indenture Act of 1939, that
reports of examinations by federal, state, territorial and district authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon its request therefor.
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /s/ RUSSELL T. WHITLEY
----------------------------------------------
Russell T. Whitley
Assistant Vice President
Exhibit 6, Page 1
<PAGE>
EXHIBIT 7
REPORT OF CONDITION OF THE TRUSTEE
MANUFACTURERS AND TRADERS TRUST COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
Dollars in thousands 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS Cash and due from banks $ 543,655
Money-market assets 868,446
Investment securities
Available for sale (cost: $1,792,980) 1,767,918
Held to maturity (market value: $85,985) 86,561
Other (market value: $111,707) 111,707
---------------------------------------------------------------------------------------------
Total investment securities 1,966,186
---------------------------------------------------------------------------------------------
Loan and leases, net of unearned discount 16,010,453
Allowance for possible credit losses (309,672)
---------------------------------------------------------------------------------------------
Loan and leases, net 15,700,781
Other assets 1,489,418
---------------------------------------------------------------------------------------------
Total assets $20,568,486
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES Deposits
Non-interest-bearing $2,199,370
Interest-bearing 12,174,387
---------------------------------------------------------------------------------------------
Total deposits 14,373,757
Short-term borrowings 1,964,301
Accrued interest and other liabilities 740,217
Long-term borrowings 1,502,541
---------------------------------------------------------------------------------------------
Total liabilities 18,580,816
- -----------------------------------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY 1,987,670
---------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $20,568,486
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit 7, Page 1
<PAGE>
