-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G9hEBBa7+ZmybS2T+O9+kmaRutUT01k/nTKgTSWRTTvGiDJB3zMY/jXdoy/J8oY5 GzgS0eXC0LKrtvQrWllHVA== 0000950152-99-000134.txt : 19990113 0000950152-99-000134.hdr.sgml : 19990113 ACCESSION NUMBER: 0000950152-99-000134 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER HI BRED INTERNATIONAL INC CENTRAL INDEX KEY: 0000078716 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 420470520 STATE OF INCORPORATION: IA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-69285 FILM NUMBER: 99504839 BUSINESS ADDRESS: STREET 1: 700 CAPITAL SQ STREET 2: 400 LOCUST ST CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5152453500 MAIL ADDRESS: STREET 1: 6800 PIONEER PKWY STREET 2: PO BOX 316 CITY: JOHNSTON STATE: IA ZIP: 50131 S-3/A 1 PIONEER HI-BRED INTERNATIONAL--FORM S-3/AMEND. #2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1999. REGISTRATION NO. 333-69285 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PIONEER HI-BRED INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) IOWA (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 42-0470520 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) 800 CAPITAL SQUARE 400 LOCUST STREET DES MOINES, IOWA 50309 (515) 248-4800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) William J. DeMeulenaere, Corporate Counsel 800 Capital Square 400 Locust Street Des Moines, Iowa 50309 (515) 248-4800 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE FOR REGISTRANT) PLEASE SEND COPIES OF ALL COMMUNICATIONS TO: William Appleton, Esq. Joseph A. Stern, Esq. Baker & Hostetler LLP Fried, Frank, Harris, Shriver & Jacobson 312 Walnut Street, Suite 2650 One New York Plaza Cincinnati, Ohio 45202 New York, New York 10004-1980 (513) 929-3400 (212) 859-8000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable following the effective date of the Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JANUARY 12, 1999 $200,000,000 LOGO PIONEER HI-BRED INTERNATIONAL, INC. % SENIOR NOTES DUE JANUARY , 2009 The % Senior Notes due January , 2009 (the "Notes") of Pioneer Hi-Bred International, Inc. will mature on January , 2009. Interest on the Notes will accrue from January , 1999 and is payable semi-annually on and of each year, commencing , 1999. The indebtedness evidenced by the Notes will rank pari passu in right of payment with all of our other senior, unsecured indebtedness, but will be effectively subordinated to indebtedness of our subsidiaries. In addition, the indebtedness evidenced by the Notes will be subordinated to any of our senior, secured indebtedness to the extent of the value of the assets securing such indebtedness. We may redeem all or part of the Notes at any time at a redemption price equal to the greater of (i) 100% of their principal amount or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, plus, in each case, accrued but unpaid interest on the Notes to the Redemption Date. We have applied to list the Notes on the New York Stock Exchange under the symbol " ". ------------------------
PER NOTE TOTAL -------- -------- Public Offering Price....................................... Underwriting Discount....................................... Proceeds, before expenses, to Pioneer Hi-Bred International, Inc.......................................................
Neither the Securities and Exchange Commission nor any state commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We expect the Notes will be ready for delivery in book-entry form only through the facilities of the Depository Trust Company against payment in New York, New York on or about , 1999. ------------------------ LAZARD FRERES & CO. LLC CHASE SECURITIES INC. ------------------------ The date of this prospectus is January , 1999 3 NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL ONLY THE NOTES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING ANY INFORMATION INCORPORATED BY REFERENCE, IS CURRENT ONLY AS OF ITS DATE. TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................................... 3 Use of Proceeds............................................. 5 Capitalization.............................................. 5 Selected Consolidated Financial Data........................ 6 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 8 Business.................................................... 22 Description of the Notes.................................... 25 Underwriting................................................ 37 Experts..................................................... 37 Legal Matters............................................... 38 Available Information....................................... 38 Incorporation of Certain Documents by Reference............. 38 Index to Financial Statements............................... F-1
FORWARD-LOOKING STATEMENTS. This prospectus contains forward-looking statements relating to the Company's operations that are based on management's current expectations, estimates, and projections. Words such as "expects", "anticipates", "plans", "intends", "projects", and similar expressions are used to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. In addition to other factors discussed in this report, some of the important factors that could cause actual results to vary significantly from management's expectations noted in forward-looking statements include the weather, government programs and approvals, commodity prices, changes in corn acreage, intellectual property positions, product performance, product returns, customer preferences, currency fluctuations, costs, the Year 2000 issue, and industry consolidations. 2 4 PROSPECTUS SUMMARY This summary is qualified in its entirety by the more detailed information and consolidated financial statements appearing herein and in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and its quarterly report on Form 10-Q for the quarter ended November 30, 1998, which we incorporate by reference. THE COMPANY Pioneer Hi-Bred International, Inc. ("Pioneer" or the "Company") is a leading plant science company and supplier of agricultural seed genetics. During fiscal year 1998, we recorded sales of $1.8 billion and net income of $270 million. Our two principal products are hybrid seed corn and soybeans. These two products accounted for 89% of our world sales and substantially all of our worldwide operating income in the last five years. In addition, we develop, produce and market hybrids of sorghum, sunflowers and canola, varieties of alfalfa and wheat, and microorganisms that are useful in crop and livestock production. We have sales in nearly 100 countries, but the primary markets for our products are the United States and Canada (the North America region) and Europe. Sales in North America accounted for approximately 71% of 1998 sales, and sales in Europe accounted for approximately 20% of 1998 sales. Pioneer also has operations in Latin America, Mexico, Africa, Asia, the Middle East and the Pacific region. Our market share in the North American hybrid seed corn market in 1998 was approximately 42%. The next seven competitors in the market had a combined share of approximately 34%, with the largest at approximately 11%. We also hold a leading share in most of the countries in which we operate outside of North America. The principal market for soybean seed is North America, where our share of the market was approximately 16% in 1998. Demand for improved seed genetics is expected to continue to rise as world food demand grows and the availability of prime agricultural land declines in most areas. Improved genetics offer the most efficient way to produce more food products on the same or a reduced amount of land. In addition, improved genetics allow farmers to meet rising food demand without opening fragile land for production. Our strategy is to deliver products that consistently out-perform those of our competitors and are able to command a premium price. We are the industry leader in research and product development and own what we believe is the industry's finest collection of crop genetics ("germplasm"). Our germplasm has provided the base for our growth. Our researchers, many of whom are well-established experts in the science of crop genetics, focus on continually improving our germplasm using the latest technologies to perform research and testing around the world. Our research skill is used to develop superior products that deliver outstanding yields and have defensive characteristics that help plants resist damage from insects, disease and other factors. We also have several key research collaborations that allow us to leverage our research investments. In addition to delivering higher yields to our customers, we are increasingly delivering value by incorporating into our seed products quality genetic traits that make our products more valuable to livestock feeders, grain processors and other end-users of grain. Our efforts in this area have been strengthened through a research alliance with DuPont, initiated in early fiscal 1998. The alliance, in part, is designed to facilitate the development of corn, soybeans and other oilseeds that contain quality traits to make them more valuable to these end-users. In addition, Pioneer and DuPont formed a joint venture called Optimum Quality Grains L.L.C., which will seek to create, maximize and capture value for quality traits in seed, grain, grain products and plant materials delivered through corn, soybeans and other selected oil seeds. A key component of this joint venture is a preferred seed support agreement between the joint venture and us. The joint venture is not in the seed business and will look to us to be its preferred worldwide provider and preferred marketer of quality trait seeds. Pioneer, an Iowa corporation founded in 1926, maintains its principal executive offices at 800 Capital Square, 400 Locust Street, Des Moines, Iowa 50309, and its telephone number is (515) 248-4800. Our common stock is traded on the New York Stock Exchange under the symbol PHB. 3 5 THE OFFERING Securities Offered............ $200,000,000 aggregate principal amount of % Senior Notes due January , 2009. Maturity Date................. January , 2009. Interest Payment Dates........ and of each year, commencing , 1999. Ranking....................... The indebtedness evidenced by the Notes will rank pari passu in right of payment with all of our other senior, unsecured indebtedness, but will be effectively subordinated to indebtedness of our subsidiaries. In addition, the indebtedness evidenced by the Notes will be effectively subordinated to any of our senior, secured indebtedness to the extent of the value of the assets securing such indebtedness. Redemption.................... We may redeem all or part of the Notes at any time at a redemption price equal to the greater of (i) 100% of their principal amount or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, plus, in each case, accrued but unpaid interest on the Notes to the Redemption Date. Certain Covenants............. The Indenture under which the Notes will be issued (the "Indenture") will limit our ability and the ability of our restricted subsidiaries to: (i) create liens, (ii) enter into sale and leaseback transactions and (iii) consolidate, merge or transfer all or substantially all of our assets or the assets of our subsidiaries. However, these limitations are subject to a number of important qualifications and exceptions. See "Description of the Notes -- Certain Covenants" commencing on page 28. Use of Proceeds............... The net proceeds received from the sale of the Notes will be used by Pioneer for general corporate purposes, which may include capital expenditures, working capital requirements (inventory and receivables), reduction of outstanding indebtedness, repurchase of shares and acquisitions. The precise amount and timing of the application of such proceeds will depend upon the funding requirements of the Company and the availability and cost of other funds. Pending such application, the net proceeds will be invested in short-term investment grade securities. 4 6 USE OF PROCEEDS The net proceeds received from the sale of the Notes will be used by Pioneer for general corporate purposes, which may include capital expenditures, working capital requirements (inventory and receivables), reduction of outstanding indebtedness, repurchase of shares and acquisitions. The precise amount and timing of the application of such proceeds will depend upon the funding requirements of the Company and the availability and cost of other funds. Pending such application, the net proceeds will be invested in short-term investment grade securities. CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of November 30, 1998, and on a pro forma, as adjusted basis giving effect to the sale of the Notes. See "Use of Proceeds." This table should be read in conjunction with, and is qualified by reference to, the Company's consolidated financial statements and related notes contained herein.
NOVEMBER 30, 1998 --------------------- ACTUAL AS ADJUSTED ------ ----------- (DOLLARS IN MILLIONS) CASH AND CASH EQUIVALENTS:.................................. $ 77 $ 77 ====== ====== SHORT-TERM DEBT: Short-term borrowings(a).................................. $ 289 $ 91 Current maturities of long-term debt...................... 11 11 ------ ------ Total Short-Term Debt................................ $ 300 $ 102 ------ ------ LONG-TERM DEBT (EXCLUDING CURRENT MATURITIES): % Senior Notes....................................... $ -- $ 200 Credit facility........................................... 5 5 ------ ------ Total Long-Term Debt................................. $ 5 $ 205 ------ ------ SHAREHOLDERS' EQUITY: Capital Stock: Preferred -- Authorized 10,000,000 shares; issued -- none........................................ $ -- $ -- Common stock -- par value $1.00 per share -- Authorized -- 600,000,000 shares; issued -- 229,965,014 shares.......................... 230 230 Class B common -- stated value $1.00 per share -- Authorized -- 120,000,000 shares; issued -- 49,333,758 shares........................... 49 49 Additional paid-in-capital................................ 246 246 Retained earnings......................................... 1,329 1,329 Accumulated other comprehensive loss, net................. (36) (36) ------ ------ $1,818 $1,818 Less treasury stock at cost............................... (647) (647) Less unearned compensation................................ (26) (26) ------ ------ Total Shareholders' Equity................................ $1,145 $1,145 ------ ------ TOTAL CAPITALIZATION........................................ $1,450 $1,452 ====== ======
- --------------- (a) Net of offering expenses estimated to be $2 million. 5 7 SELECTED CONSOLIDATED FINANCIAL DATA The selected historical consolidated financial data presented below for each of the five years in the period ended August 31, 1998, and for the three months ended November 30, 1998 and 1997, have been derived from the Company's audited consolidated financial statements for such years, and its unaudited financial statements for such months, are qualified by reference to, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company's consolidated financial statements and notes thereto and the other financial information included in this Prospectus. The unaudited financial statements of the Company have been prepared on the same basis as the audited financial statements and, in the opinion of the Company, contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present the financial position as of November 30, 1998 and 1997, and the results of operations and cash flows for the three months ended November 30, 1998 and 1997. The results of operations for the three months ended November 30, 1998, may not be indicative of the results to be expected for the full year.
THREE MONTHS ENDED NOVEMBER 30, YEARS ENDED AUGUST 31, ---------------- ---------------------------------------------- 1998 1997 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE AND STATISTICAL AMOUNTS) INCOME STATEMENT DATA Net Sales...................................... $ 76 $ 79 $1,835 $1,784 $1,721 $1,532 $1,479 Operating costs and expenses Costs of goods sold.......................... (56) (51) (789) (771) (727) (642) (606) Research and product development............. (40) (34) (155) (146) (136) (130) (114) Selling...................................... (54) (55) (395) (374) (382) (354) (335) General and administrative................... (35) (28) (137) (130) (129) (126) (123) Restructuring and settlements................ -- -- -- -- -- -- 45 ------ ------ ------ ------ ------ ------ ------ Operating income (loss)...................... (109) (89) 359 363 347 280 346 Investment income.............................. 5 18 45 22 22 23 19 Interest expense............................... (5) (2) (13) (8) (11) (13) (11) Net exchange and other gains (losses).......... (5) (5) 16 (4) (4) 1 (5) ------ ------ ------ ------ ------ ------ ------ Income (loss) before items below............. (114) (78) 407 373 354 291 349 Provision for income taxes..................... 39 27 (134) (127) (127) (106) (134) Minority interest and other.................... -- -- (3) (3) (4) (2) (2) ------ ------ ------ ------ ------ ------ ------ Net income (loss).......................... (75) (51) 270 243 223 183 213 Preferred stock dividend....................... -- (4) (9) -- -- -- -- ------ ------ ------ ------ ------ ------ ------ Net income available to common shareholders.... $ (75) $ (55) $ 261 $ 243 $ 223 $ 183 $ 213 ====== ====== ====== ====== ====== ====== ====== Net income (loss) per common share Basic........................................ $(0.31) $(0.24) $ 1.13 $ 0.98 $ 0.89 $ 0.72 $ 0.80 Diluted...................................... $(0.31) $(0.24) $ 1.08 $ 0.98 $ 0.89 $ 0.72 $ 0.80 Average shares outstanding Basic........................................ 240 226 232 247 250 254 266 Diluted...................................... 240 226 250 248 250 254 266 SELECTED BALANCE SHEET DATA Cash and cash equivalents...................... $ 77 $ 76 $ 86 $ 97 $ 99 $ 84 $ 135 Working capital(a)............................. $ 558 $ 675 $ 694 $ 572 $ 496 $ 490 $ 510 Total assets................................... $1,990 $1,897 $1,717 $1,603 $1,422 $1,293 $1,253 Total debt..................................... $ 305 $ 110 $ 95 $ 116 $ 50 $ 129 $ 81 Shareholders' equity........................... $1,145 $1,245 $1,247 $1,148 $1,018 $ 913 $ 881 OTHER FINANCIAL DATA Ratio of earnings to fixed charges(b).......... -- -- 23.4 29.2 23.0 17.9 25.3 EBITDA(c)...................................... $ (82) $ (67) $ 449 $ 452 $ 424 $ 354 $ 421 Capital expenditures........................... $ 37 $ 30 $ 119 $ 127 $ 116 $ 86 $ 79 Depreciation and amortization.................. $ 27 $ 22 $ 90 $ 89 $ 77 $ 74 $ 75 Dividends declared per share................... $ 0.10 $0.087 $ 0.37 $ 0.32 $ 0.28 $ 0.24 $ 0.20
- --------------- (a) Working capital represents the excess of current assets over current liabilities for the periods presented. (b) For purposes of this computation, earnings consist of income before income taxes less minority interest in income plus fixed charges. Fixed charges consist of (i) interest whether expensed or capitalized, (ii) amortization of deferred financing costs whether expensed or capitalized and (iii) that portion of rental expense considered to represent interest (assumed to be one-third). For the three months ended November 30, 1998 and November 30, 1997, earnings were insufficient to cover fixed charges. The deficiency for the three months ended November 30, 1998 was $114 million. (c) For purposes of this computation, EBITDA consists of operating income plus depreciation and amortization. EBITDA does not represent cash flows as defined by generally accepted accounting principles (GAAP) and does not necessarily indicate that cash flows are sufficient to fund all of the Company's cash needs. EBITDA is presented because the Company believes it is a widely accepted financial indicator of a company's ability to incur and service debt. However, EBITDA should not be considered in isolation or as a substitute for net income or cash flow data prepared in accordance with GAAP or as a measure of a company's profitability or liquidity. EBITDA as defined here may differ from EBITDA as defined in other similar registration statements and as such may not be comparable. 6 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto for the three months ended November 30, 1998, and with the Company's audited financial statements and notes thereto for the fiscal year ended August 31, 1998. OVERVIEW The Company continued record-setting financial results in 1998. Current year net income after tax totaled $270 million, or $1.08 per-diluted share, on sales of $1.8 billion. After-tax income in 1997 totaled $243 million, or $0.98 per-diluted share, on sales of $1.8 billion. The result was a per-diluted share earnings growth of 10.2% for 1998. Current year earnings produced a Return on Ending Equity (ROE) of 21.7%, the fifth consecutive year above the targeted level of 20%. This performance enabled the Company to exceed its primary financial goals: double-digit earnings growth over time and maintaining an ROE of 20% or higher. Historically, the Company's growth has primarily been driven by North American seed corn operations. The Company achieved record operating income in 1998 from its North American corn operations, in spite of an unprecedented level of discounting and promotions by competitors. The Company also maintained its 42% share of the North American corn market and improved profit margins in this aggressive environment. In addition, record sales and profits from the Company's soybean business and improved profitability from the Company's other product lines were positive factors affecting 1998 income. Foreign currency devaluations, on a worldwide basis, reduced current year operating income approximately $32 million. YEAR ENDED AUGUST 31, 1998, COMPARED TO YEAR ENDED AUGUST 31, 1997 HYBRID SEED CORN The strong operating performance in North America was offset by a decrease in regions outside North America, which were impacted by local currency devaluation, acreage reduction, and weather. Current year seed corn operating income decreased $6 million, or 1.5%, from prior year results. North America corn continues to dominate the mix of revenue and contribution margins, generating approximately 70% of companywide revenue and 73% of operating income. CORN NET SALES AND PRODUCT LINE OPERATING INCOME
INCREASE 1997 INCREASE 1996 1998 (DECREASE) ------ (DECREASE) ------ (IN MILLIONS) NET SALES: North America.......................... $ 970 $ 63 6.9% $ 907 $ (1) (0.1)% $ 908 Europe................................. 300 (27) (8.3)% 327 (1) (0.3)% 328 Other regions.......................... 123 (28) (18.5)% 151 10 7.1% 141 ------ ----- ------ ---- ------ Total net sales................... $1,393 $ 8 0.6% $1,385 $ 8 0.6% $1,377 ====== ===== ===== ====== ==== ===== ====== OPERATING INCOME: North America.......................... $ 290 $ 24 9.0% $ 266 $(10) (3.6)% $ 276 Europe................................. 98 (15) (13.3)% 113 13 13.0% 100 Other regions.......................... 8 (15) (65.2)% 23 (11) (32.4)% 34 ------ ----- ------ ---- ------ Total operating income............ $ 396 $ (6) (1.5)% $ 402 $ (8) (2.0)% $ 410 ====== ===== ===== ====== ==== ===== ====== UNIT SALES: (80,000-kernel units) North America.......................... 12.0 0.5 4.3% 11.5 (0.6) (4.6)% 12.1 Europe................................. 2.8 (0.1) (3.4)% 2.9 0.1 3.6% 2.8 Other regions.......................... 2.2 (0.3) (12.0)% 2.5 -- --% 2.5 ------ ----- ------ ---- ------ Total unit sales.................. 17.0 0.1 0.6% 16.9 (0.5) (3.0)% 17.4 ====== ===== ===== ====== ==== ===== ====== ACRES: North America.......................... 84.1 0.8 1.0% 83.3 0.6 0.7% 82.7 ====== ===== ===== ====== ==== ===== ======
7 9 The primary drivers affecting North American operations are per-unit price and cost, market share, and market size. Seed corn operating income in North America improved $24 million, or 9%, over 1997 results. The improved results were primarily due to increased revenue. Revenue increased $63 million, or 6.9%, over 1997 as a result of two factors: (i) an increase in the average per-unit selling price, which accounted for $25.1 million of the total increase, and (ii) additional units sold of 500,000, which accounted for $37.7 million of the total increase. Higher investments in research and product development and product promotion also impacted current year results. In addition, the stronger U.S. dollar reduced operating income from Canada by approximately $2.3 million. Despite the competitive environment in North America, the average per-unit net seed corn selling price increased approximately 3%. During 1998, this increase would have been higher had the Company not implemented changes to its replant program. In previous years, the price of seed sold for replant was discounted 50%, while in 1998 replant seed was provided free of charge. In addition to the program change, adverse weather conditions resulted in significantly higher replanting in 1998. Excluding these two factors, the net selling price of seed in North America increased approximately 5% as a result of the introduction of several new premium-priced elite products and a continued shift in the sales mix to higher-priced premium products. Current year per-unit seed corn cost of sales decreased $0.30, largely due to lower inventory reserves and lower commodity costs. When combined with the sales price effect, net seed corn margins increased approximately $2.40 per unit. Provisions for inventory reserves in 1998 were $1.75 per unit compared to $1.98 per unit in 1997. The Company's policy is to provide adequate reserves for inventory obsolescence. Approximately 8% of North American unit sales were reserved in 1998 compared to 9% in 1997. An increase in North American market size impacted current year operating results. Based on information to date, North American market size was estimated at 84.1 million acres, an increase of approximately 1% from 1997. Based on current year unit sales, the Company maintained its 42% share of the North American seed corn market. Increased investments in research and product development and higher selling costs associated with the launch of an unprecedented number of new products reduced operating income approximately $18 million. New genetics accounted for more than 40% of current year unit sales, including 2.4 million units of the Company hybrids with the YieldGard(1) gene for European Corn Borer (ECB) resistance. Operating income in Europe, on a constant dollar basis, increased 2% over 1997. In Europe, seed corn operations were challenged in 1998 by reduced acreage. In addition, results reported in U.S. dollars were negatively impacted by the strengthening of the U.S. dollar against European currencies, reducing 1998 operating income by $17 million compared to 1997. Excluding this effect, the region achieved a new record in operating income. Seed corn market share gains in Italy and Spain and higher per-unit prices in Central Europe contributed to the increase. These factors more than offset the effect of a 6 to 8% reduction in hectares planted to corn. The Company achieved record operating income in several countries within the Africa, Middle East, Asia, and Pacific region. Seed corn operations in South Africa, Turkey, and Pakistan all reported record results in 1998 driven by increases in market share and per unit prices. However, overall results of operations for the region were hampered by reduced market size and by significant devaluation in the local currencies in Southeast Asia. The currency devaluation in Southeast Asia negatively impacted 1998 corn operating income by $5 million. Key markets in Asia and Africa experienced a 10 to 15% reduction in market size due to adverse weather conditions. The Company's corn operations in Latin America experienced an operating loss of $11 million compared to a $2 million loss in 1997. The Company's operations in Brazil continued to be affected by the decrease in market size reported last year. In Argentina, performance issues with key hybrids noted last year continued to impact 1998 operations. As a result, unit sales and price per unit were lower than 1997. To address these performance issues, new products were introduced in 1998 in Brazil and Argentina and additional new products will be introduced in upcoming years. - --------------- 1 Registered trademark of, and used under license from, Monsanto Company. 8 10 Operating income in Mexico decreased $3 million from 1997. This was due to drought and currency devaluation. The drought conditions resulted in fewer acres planted to corn and decreased unit sales in 1998. The stronger U.S. dollar compared to the Mexican peso reduced reported results in 1998 by $2 million. North American Seed Corn Unit Sales (in millions)
1998 1997 1996 - ---- ---- ---- 12.0.. 11.5 12.1
North American Corn Acreage (in millions)
1998 1997 1996 - ---- ---- ---- 84.1.. 83.3 82.7
Estimated North American Seed Corn Market Share
1998 1997 1996 - ---- ---- ---- 42%.. 42% 44%
SOYBEAN SEED Soybean seed is the Company's second largest product in terms of revenue and operating income. The primary drivers for operating income are premium product sales, market size, market share, and price. Current year soybean operating income in North America improved $7 million, or 26%, over 1997 results to a record $33.7 million. Record North American soybean revenues and profits in 1998 were primarily driven by the increased demand for premium-priced glyphosate-resistant soybeans with the Roundup Ready(1) gene. Unit sales of these soybeans more than doubled in the current year. North American Soybean Unit Sales (in millions)
1998 1997 1996 - ---- ---- ---- 13.5.. 13.5 11.3
North American Soybean Acreage (in millions)
1998 1997 1996 - ---- ---- ---- 75.2.. 73.5 66.4
Estimated North American Soybean Market Share
1998 1997 1996 - ---- ---- ---- 15.8%.. 18.1% 17.2%
North America unit sales account for approximately 97% of worldwide soybean unit sales. Unit sales included over 5 million units of glyphosate-resistant products, compared to 2.3 million units in 1997. The Company's current year unit sales of these products totaled approximately 39% of total soybean unit sales compared to 17% in 1997. The strong demand for and available supply of glyphosate-resistant products limited the Company's market share. Higher commodity prices and additional acres available for planting due to acres coming out of conservation programs resulted in additional acres planted to soybeans in the current year. Net margins improved from a year ago despite higher commodity costs. An increase in list prices for the current year, combined with the sales price effect of glyphosate-resistant products, which are sold at a premium, more than offset the increase in unit costs. 9 11 OTHER PRODUCTS Other products' current year operating results improved $4 million over those recorded in 1997. Wheat, sunflower, and canola accounted for most of the change. Wheat operating income increased $4 million over 1997 results. Sunflower operations provided a positive impact to the current year mainly due to operations in North America and Europe. An increase in sunflower operating income of $4 million is the result of a $10 million increase in sales over 1997. Operating income for canola products in 1998 improved $2.5 million from 1997 results primarily due to the increased sales of herbicide resistant products. Operating results decreased $6 million due to the Company's equity ownership in Optimum Quality Grains, L.L.C., which began operations in 1998. OTHER PRODUCTS NET SALES AND COMBINED PRODUCT LINE OPERATING INCOME (LOSS)
INCREASE 1997 INCREASE 1996 1998 (DECREASE) ---- (DECREASE) ---- (IN MILLIONS) NET SALES Alfalfa.............................. $ 46 $ 1 2.2% $ 45 $13 40.6% $ 32 Sorghum.............................. 36 -- --% 36 5 16.1% 31 Wheat................................ 24 4 20.0% 20 (5) (20.0)% 25 Sunflower............................ 34 10 41.7% 24 2 9.0% 22 Microbial products................... 29 (1) (3.3)% 30 2 7.1% 28 Other products....................... 41 5 13.9% 36 (6) (14.3)% 42 ---- --- ---- --- ---- Total net sales.............. $210 $19 9.9% $191 $11 6.1% $180 ==== === ==== ==== === ===== ==== Total combined operating income (loss).............. $ 15 $ 4 $ 11 $14 $ (3) ==== === ==== === ====
These products provide the sales organization a full line of seed products, significantly aiding in the sale of higher-margin products. In addition, the opportunity for some of these product lines to generate greater levels of operating income in the future is promising. CORPORATE AND OTHER ITEMS Current year indirect general and administrative expenses increased $11 million, or 14%, over 1997 levels. Increased employee compensation costs and higher training and development costs resulting from investments in information systems within North America and Europe were a significant part of the current year increase. The protection of research technology through the filing of patents and the cost of litigation associated with the ownership of technology also contributed to this increase. The Company filed 187 patent applications in the United States through September of calendar year 1998 compared to 121 and 109 in calendar years 1997 and 1996, respectively. Net financial income for fiscal 1998 increased $38 million from 1997. Net exchange and other gains and losses in the current year were impacted by a $20 million gain on the sale of two million shares of Mycogen Corporation stock in 1998 compared to a $7 million gain on the sale of one million shares in 1997. The Mycogen transactions, net of expenses, increased diluted earnings per share $0.04 and $0.01 in 1998 and 1997, respectively. In addition, net financial income was impacted by interest earned on the proceeds from equity transactions with DuPont. The decrease in the effective tax rate from 34% in 1997 to 33% in 1998 was primarily attributable to the Company's operations outside the United States and an increase in research tax incentives. The decrease in the effective tax rate between years increased earnings per share by $0.02. The Company's effective tax rate will vary based on the mix of earnings and tax rates from the various countries in which it operates. 10 12 ALLIANCE WITH DUPONT In September 1997, the Company and DuPont finalized an agreement that created one of the world's largest private agricultural research and development collaborations. The companies also formed a joint venture, Optimum Quality Grains, L.L.C., that markets improved quality traits to increase the value of crops for livestock feeders, grain processors, and other end users. The joint venture does not sell seed. The Company is the preferred worldwide provider and marketer of quality trait seed for the joint venture. In connection with the above agreements, DuPont also acquired an equity interest in the Company through the purchase of 164,446 shares of preferred voting stock for $1.7 billion. Effective January 30, 1998, each preferred share was converted into 100 shares of Class B common stock with a stated value of $1.00 per share. As required by the agreement, the Company used approximately $1.5 billion of the proceeds from the DuPont investment to purchase approximately 16.4 million shares of the Company's outstanding common stock through a Dutch auction self-tender. The common shares reacquired by the Company were retired, but remain authorized and unissued. The net effect of these equity transactions, including associated transaction costs, was an increase in Class B common stock of $16.4 million, a decrease in common stock of $16.4 million, and an increase in additional paid-in capital of approximately $170 million, the use of which is unrestricted. Immediately following the completion of the Dutch auction self-tender, DuPont's equity interest in the Company was approximately 20%. The agreements include, among other things, a standstill provision that prohibits DuPont from increasing its ownership interest in the Company for 16 years from the date of the agreement without the consent of the Company. DuPont also gained two seats on the Company's Board of Directors. These agreements with DuPont will bring additional opportunities to compete for corn acres in 1999 and the potential to become a significant supplier in the rapidly growing market for high-oil corn. Financial results for the year ended August 31, 1998 were affected by the completion of the agreement with DuPont. Without the DuPont equity transactions less cash would have been available for investment, short-term borrowings would have been higher, and the Company would not have paid preferred stock dividends. Current year results, excluding the impact from the above equity transactions, were income of $257.9 million, or $1.05 per diluted share. The following table summarizes the components of income per share as reported and excludes the impact from the equity transactions with DuPont:
PRO FORMA AS REPORTED EXCLUDING EQUITY TRANSACTIONS --------------------------------- --------------------------------- SHARES SHARES INCOME (DENOM- PER-SHARE INCOME (DENOM- PER-SHARE YEAR ENDED AUGUST 31, 1998 (NUMERATOR) INATOR) AMOUNT (NUMERATOR) INATOR) AMOUNT -------------------------- ----------- ------- --------- ----------- ------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net income...................... $270 $270 Items resulting from the DuPont equity transactions Preferred stock dividends..... (9) -- Interest benefit from DuPont proceeds*.................. -- (12) ---- ---- Basic earnings per share Net income attributable to common shareholders........ $261 231.5 $1.13 $258 244.4 $1.06 ===== ===== Effect of dilutive securities Convertible preferred stock... 9 17.7 -- -- Stock options................. -- 1.1 -- 1.1 ---- ----- ---- ----- Diluted earnings per share Net income attributable to common shareholders........ $270 250.3 $1.08 $258 245.5 $1.05 ==== ===== ===== ==== ===== =====
11 13 - --------------- * Based on the assumption that the proceeds generated by DuPont equity transactions earned an investment return during the period on the excess funds and reduced borrowing costs at the Company's after-tax investment and borrowing rates. YEAR ENDED AUGUST 31, 1997, COMPARED TO YEAR ENDED AUGUST 31, 1996 HYBRID SEED CORN August 31, 1997 seed corn operating income decreased $8 million, or 2% from 1996 results. Operations in North America played a significant role in the decrease, primarily the result of fewer unit sales, increased per-unit net margins, and higher investments in research and product development. Seed corn operations outside North America provided increased operating income from 1996 on higher unit sales; however, this was tempered by the stronger U.S. dollar in 1997. Seed corn market share in North America declined approximately two points in 1997, bringing the Company's estimated leading share of the North American market to approximately 42%. The Company introduced a number of new products in limited volumes in 1997 which were targeted to replace hybrids that had been leading sellers in recent years. Lower unit sales of these older hybrids were largely responsible for the estimated 1997 market share decrease. Delayed regulatory approval for the Company's ECB resistant corn products also contributed to the 1997 market share decline. Despite regulatory approval for these products coming late in the selling season, the Company sales representatives were able to place the Company seed in more than 20% of the estimated North American acres planted to ECB resistant corn in 1997. However, due to the late start, the Company was unable to attain its normal market presence for these products. The sale of two key hybrids, 3394 and 3489, accounted for approximately 23% and 28% of the Company's 1997 and 1996 North American hybrid seed corn unit sales, respectively. Corn acreage in North America during 1997 rose modestly above 1996 levels which positively affected operating income. Although operating results in North America were affected by higher per-unit seed corn costs, the average seed corn selling price also increased. In 1997, the average net seed corn selling price per unit to customers in North America increased 7% resulting from the introduction of several new elite products, which were priced at a premium, and an increase in list prices across the entire product line. However, during 1997 a change was made to the Company's commission program, which eliminated some ties between the commission and quantity savings discount programs. Reported quantity savings discounts increased and reported net commission expense decreased accordingly. As a result, reported net price for 1997 based on reported net sales only reflects an increase of approximately 5%. Net selling price per unit to customers, North American seed corn net margin per unit, and net compensation to sales representatives were essentially unaffected by this program change. Per-unit seed cost of sales increased approximately $2.50 in 1997, principally due to the prior year cost of sales mix. Fiscal 1996 cost of sales included large quantities of lower-priced carryover seed from the 1994 crop year. When combined with the sales price effect, net seed corn margins increased approximately $2.25 per unit. Provisions for inventory reserves in 1997 were $1.98 per unit, compared to $2.22 per unit in 1996. Approximately 9% of North American unit sales were reserved in 1997. North American research and product development costs for seed corn increased $11 million in 1997, or 15%, to $86 million. The increase was the result of additional spending on classical plant genetic activities and investments to access technology that will help expand and improve the Company's germplasm base. As a result of investments in research and product development, the Company research program turned out 27 new corn hybrids in limited volumes for the North American market in 1997. First-year sales of these new hybrids reached nearly 600,000 units, four times more than any previous group of new product introductions. Seed corn operating results outside North America increased $2 million compared to the prior year. European operations (Europe, CIS, and Japan) provided the largest impact, accounting for $13 million in 12 14 additional operating income. Strengthening of the U.S. dollar against European currencies had a significant negative impact on 1997 reported results for European operations. Excluding this impact, the region reflected an improvement of $32 million over 1996 results. Additional unit sales in Italy, Southern Europe, and Central Europe were significant factors in the current year increase in operating income. Market size and market share increases, individually or in concert, played roles in these improvements. Operating income in the Latin American region decreased $23 million compared to 1996. Supply availability and decreased corn acreage reduced 1997 operating income in Brazil. Also affecting 1997 results was a performance issue related to the previous year's top selling hybrids in Argentina. As a result, operating income decreased due to reduced unit sales and higher cost of sales. Operating income in Mexico improved $4 million from 1996 results as favorable weather conditions and improved water supply resulted in increased unit sales. Increased selling price per unit also favorably impacted 1997 results. Volume and price increases in several countries within Asia, Africa, and the Middle East improved this region's 1997 operating results $3 million. SOYBEAN SEED Soybean operating income improved $11 million, or 69%, over 1996 results. The primary drivers for operating income -- market size, market share, and price -- had positive impacts on soybean operations. Unit sales in North America increased 19%, or approximately 2.2 million units, over 1996 levels as a result of increased acreage and improved market share. Favorable commodity prices drove an 11% increase in acres planted to soybeans in 1997. Continued strong product performance and the demand for glyphosate-resistant varieties contributed to market share gains. Net margin in North America improved approximately $0.60 per unit from 1996 despite higher commodity costs. An increase in list prices for 1997, combined with the sales price effect of glyphosate-resistant products that are sold at a premium, more than offset the increase in unit costs. The demand for glyphosate-resistant products in North America was strong in 1997. The Company's 1997 unit sales of these products totaled 2.3 million units, or approximately 17% of total soybean unit sales, compared to unit sales of less than 100,000 in 1996. OTHER PRODUCTS Other products' 1997 operating results improved $14 million over those recorded a year earlier. Comparisons in 1997 were affected by the elimination of 1996 losses from the sale of the Company's vegetable products line and liquidation of the specialty oils inventory in 1996 not present in 1997, which combined to improve 1997 operating results $7 million over 1996 levels. Operating income for canola products in 1997 improved $3 million from results in 1996 due to increased acreage and higher market share. Microbial product results improved $2 million for the year on strong performance of premium inoculant products. Annual results for alfalfa, sorghum, and miscellaneous other seed products in total improved $5 million from 1996. Decreased 1997 wheat sales in North America, the result of reduced acreage, lowered operating income $3 million from 1996 levels. CORPORATE AND OTHER ITEMS Indirect general and administrative expenses in 1997, which totaled $77 million, were similar to those recorded in 1996. Increased general costs and higher legal expenses, resulting from technology claims and disputes, were offset by the one-time effect of adopting FAS116 "Accounting for Contributions Made and Contributions Received" during 1996, not present in the 1997. Net financial income increased $3 million from what was recorded in 1996. The retirement of the medium-term note program in February 1996, combined with a lower average level of short-term borrowing in 1997, reduced 1997 interest expense $3 million. A gain in 1997 from the sale of one million shares of Mycogen 13 15 Corporation stock improved net financial income $7 million; however, this was offset almost entirely by an increase in recorded net exchange losses, principally due to the strengthening of the U.S. dollar against European currencies. The decrease in the effective tax rate from 36% in 1996 to 34% in 1997 was primarily attributable to the Company's operations outside the United States. THREE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 1997 Net loss for the three months ended November 30, 1998, was $75 million, or $0.31 per share, on sales of $76 million. In the first three months of the prior fiscal year, the Company recorded a loss of $51 million on sales of $79 million. After the payment of preferred dividends the net loss attributable to common shareholders for November 30, 1997 totaled $55 million or $0.24 per share. Due to the seasonality of the seed business, partial-year results and quarter-to-quarter comparisons are not always meaningful. Accordingly, such quarterly comparisons are not emphasized. Typically, most of the Company's revenue and operating profit are generated in the third quarter. Revenues during the Company's first quarter are generated mostly from Southern Hemisphere operations, North American wheat sales, and worldwide microbial product sales and generally represent less than 5% of the Company's annual sales. The current operating loss increased $20 million to $109 million largely due to decreased sales and increased fixed costs. Increased sales in seed corn were more than offset by decreases in wheat and other products. The increase in fixed costs of approximately 10% was expected due to planned expenditures in research and product development, sales and marketing, information management and other targeted areas. Increased investments in research and product development of $6 million accounted for approximately 50% of the current year increase in fixed costs. NET SALES AND OPERATING LOSS
QUARTER ENDED NOVEMBER 30, -------------- INCREASE/ 1998 1997 (DECREASE) ----- ----- ---------- (UNAUDITED, IN MILLIONS) NET SALES Corn................................................... $ 33 $ 23 $ 10 Other.................................................. 43 56 (13) ----- ----- ----- Total Net Sales................................ $ 76 $ 79 $ (3) ===== ===== ===== OPERATING LOSS Corn................................................... $ (76) $ (68) $ 8 Other.................................................. (10) (1) 9 ----- ----- ----- Product line operating loss............................ $ (86) $ (69) $ 17 Indirect general and administrative expenses........... (23) (20) 3 ----- ----- ----- Operating loss........................................... $(109) $ (89) $ 20 ===== ===== =====
North American operations had the greatest impact on the current period. An increase in seed corn sales due to timing of deliveries was more than offset by a decrease in wheat sales. Wheat sales were down $9 million due to reduced acres and a decrease in sales price due to low commodity prices resulting in a decrease in operating profit of $6 million from the prior year. North America corn operating results decreased $3 million from prior year first quarter results. Current year results were impacted by additional costs from the expanded introduction of new corn hybrids and increased investments in corn research and product development. Corn research expenses increased $4 million primarily due to increases in compensation costs and expenses associated with technology acquisitions. Compensation costs were higher due to the hiring of additional research staff and increases in base compensation as a result of the competitive environment. 14 16 Outside North America, operating results were $6 million lower in the current period compared to a year earlier. The Latin America region accounted for approximately $3 million of the decrease. Current period unit sales increased approximately 100,000 units over the same period last year. However, the operating profit from the increased sales was offset by inventory writedowns of obsolete corn hybrids in Argentina. In addition, non-recurring cost savings for the period ended November 30, 1997, contributed to the year-to-year change. Current period net financial income decreased $16 million from previous year results due to decreased investment income and increased interest expense. Investment income decreased $13 million primarily due to fiscal 1998 results including interest earned on proceeds from DuPont's investment in the Company. The Company did not have excess cash to invest in the first quarter of the current year. Typically the Company borrows money during its first quarter to fund operations. The availability of the excess proceeds from the DuPont transactions last year reduced borrowings, which reduced prior year interest expense. The estimated worldwide tax rate of 34% reflected in the first quarter of fiscal 1999 is similar to the 33% effective tax rate reflected on an annual basis for fiscal 1998. The worldwide effective tax rate for the first quarter of fiscal 1998 was 35%. The lower current year first quarter effective tax rate increased the current period loss by approximately $1 million compared to last year's first quarter. The effective tax rate reflected for the first quarter is based on all information available to date. The effective tax rate on an annual basis may vary from what is reflected in the current period, in part as a result of any changes in the mix of earnings between the Company's North American seed business and other worldwide operations. LIQUIDITY AND CAPITAL RESOURCES Due to the seasonal nature of the agricultural seed business, the Company generates most of its cash from operations during the second and third quarters of the fiscal year. Cash generated during this time is used to repay commercial paper borrowings and accounts payable, which are the Company's primary sources of credit during the first and fourth quarters of the fiscal year. Any excess funds available are invested, primarily in short-term commercial paper. Historically, the Company has financed growth through earnings. Cash provided by operating activities was $240 million in 1998, compared to $176 million and $389 million in 1997 and 1996, respectively. The effect on cash provided by operating activities of building inventory levels and inventory liquidation have the greatest impact on the Company in any given year. Excluding this effect, cash provided by operating activities was $302 million in 1998, compared to $248 million and $346 million in 1997 and 1996, respectively. Most of the Company's financing is done through the issuance of commercial paper in the United States, backed by revolving and seasonal lines of credit. In addition, foreign lines of credit and direct borrowing agreements are relied upon to support overseas financing needs. Short-term debt at August 31, 1998 totaled $76 million, a $15 million decrease from 1997. In 1998, short-term borrowings peaked at $128 million compared to $250 million in 1997. Short-term borrowings were lower due to the net proceeds of approximately $170 million resulting from the sale of preferred shares to DuPont and the subsequent Dutch auction self-tender. In 1998, including net proceeds available from equity transactions with DuPont, short-term domestic investments peaked at $429 million compared to $242 million in 1997. The 1998 amount does not include $1.5 billion of the proceeds from the DuPont equity transaction used in the Dutch auction self-tender due to the nonrecurring nature of the transaction. Short-term investments are made through a limited number of reputable institutions after evaluation of their investment procedures and credit quality. The Company invests in only high-quality, short-term securities, primarily commercial paper. Individual securities must meet credit quality standards, and the portfolios are monitored to ensure diversification among issuers. The table below sets forth certain information about the domestic lines of credit available to the Company for fiscal 1998 and fiscal 1999. 15 17
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- (IN MILLIONS) Revolving................................... $200 $200 $200 $200 Seasonal.................................... 100 100 -- -- ---- ---- ---- ---- Total............................. $300 $300 $200 $200 ==== ==== ==== ====
The Company believes the domestic lines of credit available in 1999 are sufficient to meet domestic borrowing needs. Revolving line of credit agreements expire August, 2001. The Company also has a seasonal revolving credit facility to meet peak borrowing needs, which expires August, 1999. At year end, cash and cash equivalents totaled $86 million, down from $97 million at August 31, 1997. It is the Company's policy to repatriate excess funds outside the United States not required for operating capital or to fund asset purchases. The growth in trade receivables at August 31, 1998 was primarily due to increased participation in the Company's credit programs. Capital expenditures, including business and technology investments, were $128 million in 1998 compared to $151 million in 1997 and $164 million in 1996. The Company's capital expenditures primarily represent continued investment in production capacity, technology acquisitions, and research collaborations. Capital expenditures for 1999 are expected to be approximately $160 to $170 million and are expected to be funded through earnings. The quarterly dividend paid in July of 1998 increased to $0.10 per share, up 15% from the $0.087 per-share dividend paid the prior four quarters. The Company's dividend policy is to annually pay out 40% of a four-year rolling average of earnings. During 1998, the Company repurchased 6,627,800 shares of its stock under a Board authorized repurchase plan at a total cost of $234 million, excluding the Dutch auction self-tender. At August 31, 1998, authorized shares remaining to be purchased under the plan totaled 4.8 million. At August 31, 1998, there were 240 million shares of common stock and Class B common stock outstanding. Short-term debt at November 30, 1998, consisted of $208 million in domestic commercial paper and $81 million in direct short-term borrowings from foreign banks. Current year short-term borrowings are not comparable to November 30, 1997 amounts due to the DuPont transactions which reduced the need for short-term borrowing. However, current year short-term debt is comparable to historical levels. The growth in receivables at November 30, 1998, when compared to November 30, 1997, was primarily due to increased participation in the Company's credit programs. MARKET RISKS The Company uses derivative instruments to manage risks associated with its grower compensation costs and foreign-currency-based transactions. The Company uses derivative instruments such as commodity futures and options to hedge the commodity risk involved in compensating growers. The Company contracts with independent growers to produce the Company's finished seed inventory. Contracts with growers generally allow them to settle with the Company for the market price of grain for a period of time following harvest. It is the Company's policy to hedge commodity risk prior to setting the retail price of seed. The hedge gains or losses are accounted for as inventory costs and expensed as cost of goods sold when the associated crop inventory is sold. At August 31, 1998 and 1997, net unrealized losses on these contracts for corn and soybeans totaled $13 million and $4 million, respectively. A 10% change in the market price of the commodity contracts would impact 1998 net unrealized losses by approximately $1 million. The contract volumes at year end depend upon the acreage contracted with growers, the crop yield, the percentage growers have marketed to the Company, and the percentage of crop hedged by the Company. Since these positions are a hedge to inventory costs, any change in the cost of these positions is offset by an opposite change in inventory costs. 16 18 The Company uses derivative instruments such as forward exchange contracts, purchased options, and cross currency swaps to hedge foreign-currency-denominated transactions such as exports, contractual flows, and royalty payments. While derivative hedge instruments are subject to price fluctuations from exchange and interest rate movements, the Company expects these price changes to generally be offset by changes in the U.S. dollar value of foreign sales and cash flows. Therefore, hedging gains and losses are matched with the costs of the underlying exposures and accounted for in inventory, sales, or net financial costs. At August 31, 1998 and 1997, net unrealized losses from foreign-currency hedge contracts totaled $1 million and $4 million, respectively. A 10% change in exchange rates would impact 1998 net unrealized losses by approximately $14 million. The Company does not trade in commodity-based or financial instruments with the objective of earning financial gain on rate or price fluctuations, nor does it trade in these instruments when there are no underlying transaction related exposures. ACCOUNTING PRONOUNCEMENTS The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" effective December 31, 1997. SFAS No. 128 is retroactive to prior years; however, the adoption did not materially affect prior years' earnings per share as previously reported under APB Opinion No. 15. The Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income"; SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information"; and SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits." These statements will require revised and/or additional disclosure requirements but will not have an effect on the results of operations or financial position of the Company. The Company will adopt the provisions of SFAS No. 130 in the first quarter of fiscal 1999 and the provisions of SFAS No. 131 and SFAS No. 132 for the fiscal year ending August 31, 1999. In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for fiscal years beginning after December 15, 1998. Therefore, the Company will adopt this statement for its fiscal year ending August 31, 2000. Due to the recent issuance and the complexity of the statement, the Company is still in the process of determining the effect of adopting the statement on the Company's operations and financial position. EFFECTS OF INFLATION Inflation typically is not a major factor in the Company's operations. The cost of seed products is largely influenced by seed field yields and commodity prices, which are not impacted by inflation. Costs normally impacted by inflation -- wages, transportation, and energy -- are a relatively small part of the total operations. YEAR 2000 The Year 2000 issue refers to a flaw in software design that results in (a) errors when systems process dates after December 31, 1999 or (b) a failure to recognize 2000 as a leap year. The Year 2000 issue presents a unique challenge to organizations, not because it is technically difficult to resolve, but rather because it is so difficult to manage. The problem is pervasive, existing throughout a wide variety of computing systems and hardware devices within organizations and within their supply chains; and corrective actions must be taken by a fixed point in time -- no later than January 1, 2000. The Company is well into its Year 2000 remediation effort, having begun this process in 1996. The Company expects to see little, if any, direct impact on operations given the nature of the business and the Company's business relationships, the corrective steps taken to date, and the contingency plans to be put in place in 1999. Additionally, the Company has long had a policy of aggressively investing in and adopting new technologies. As a result, many of the Company's core and end-user systems were developed or delivered in Year 2000 compliant form, greatly reducing the number of non-compliant legacy systems requiring corrective measures. For example, the Company recently implemented SAP AG's R/3 enterprise application software in the United States, Canada, Italy, and France. 17 19 Management has established a committee to direct the Company's compliance activities. The committee meets on a regular basis and reports quarterly to the Board of Directors. The committee has segregated the Company's work on the Year 2000 issue into four phases: 1) inventory, 2) assessment, 3) remediation, and 4) testing. The Company's Year 2000 compliance program is on schedule. The following key objectives were met during the first quarter of fiscal 1999: core infrastructure and core application remediation efforts are estimated to be 95 to 97% complete, the inventory of building systems was completed, the Company began evaluating responses to inquiries of Year 2000 compliance by third party suppliers, the network testing structure was completed, and the plans for testing the remaining systems were completed. Over the next six months, future efforts will focus on developing and executing test plans, assessment of legacy data, completion of equipment assessments to include remediation plans, and completion of initial supplier assessments to include developing formal contingency plans. The remaining work in these phases is expected to be completed by February 1999. Integration testing of core applications and infrastructure is scheduled to begin in February 1999 and is expected to be completed by the end of September 1999. At August 31, 1998, the Company had completed an inventory of personal computer, office automation, laboratory, production, and telecommunication equipment worldwide. Inventory of building systems was in progress. Assessments had been completed for 40 to 50% of the components surveyed and assessments for all remaining components should be completed by the end of 1998. At this point in time, the Company estimates that a small percentage of the equipment inventory will require remediation and that upgrades or replacements will be completed by the end of June 1999. The Company is also in the process of analyzing the Year 2000 readiness of material third parties (suppliers). Replacement suppliers will be found in 1999 if the Company determines some suppliers are not likely to be compliant in time. The Company has spent approximately $1 million to date in direct costs associated with reaching Year 2000 compliance. Total costs to the Company to address Year 2000 issues are currently estimated not to exceed $3 million to $5 million and consist primarily of consulting fees for software remediation activities and expected costs to replace noncompliant hardware components. These costs are expected to be funded through earnings. On the basis of research to date, the Company believes that the greatest potential for disruption lies not in the Company's internal systems but rather in the external systems of the Company's service providers. The Company believes, however, that in North America and Europe, where the Company does most of its business, disruptions in these external systems will be short-lived, and that through contingency planning the Company can minimize the impact on seed production and selling activities in the Northern Hemisphere. Analysis to date also indicates that the vast majority of the Company's supplier and customer base will likewise not be materially impacted by internal system problems. The Company believes, however, given the number of supplier options available, that the Year 2000 challenge will not materially impact the Company's ability to produce seed products or the ability to sell and distribute these products to customers for planting in the spring of 2000. Some of the unique factors of the Year 2000 issue which could impact the Company's performance are inability of third parties to timely provide remediation measures, impacts of the failure of businesses other than the Company or its immediate suppliers that would ultimately have an impact on the Company, failure of governmental agencies to properly address their own Year 2000 compliance, or misrepresentations of readiness by suppliers or vendors. EURO CONVERSION The Company believes the euro conversion will not have a material impact on the Company's ability to execute transactions during the transition period, which began January 1, 1999, and ends December 31, 2001. The significant requirement of companies during this period is the ability to invoice and accept payment in euro at a customer's request. The Company has systems and processes in place to manage euro denominated transactions if a customer makes this request. The Company continues to evaluate the impact the euro conversion will have on its business, although the Company believes it will not have a material impact on its results of operations or financial condition. 18 20 The Company has performed an analysis of the readiness of applicable computer systems for the euro conversion. Plans are in place to upgrade existing systems prior to 2001 to meet the needs of full euro conversion. The cost of these upgrades is not expected to be material to the Company. In addition, the Company has analyzed changing its hedging of foreign-currency-denominated transactions in participating countries from their legacy currency to the euro. Management expects hedging in the euro to reduce the number of hedging contracts and associated administrative costs. OUTLOOK FOR 1999 AND BEYOND The Company's prospects for 1999 and beyond are encouraging. The Company plans to introduce over 50 new seed corn hybrids in North America in 1999, including high-oil products and several with the Bt gene for resistance to European Corn Borer (ECB). Approximately 70% of the units sold in 1999 are expected to be from hybrids introduced in 1997 or later. List prices of the Company's hybrid corn seed in North America will not be increased in 1999. However, the trend of customers to purchase new higher-priced, higher-value products is expected to increase North America's average per-unit seed corn selling price and per-unit margin. With the increased introduction of new products, the Company anticipates more rapid obsolescence of older products. Low commodity prices create financial stress for farmers in the United States and around the world. One potential consequence of low corn prices is a reduction in acres planted to corn, as farmers consider switching to other crops. A reduction in corn acreage would hinder the Company's ability to grow earnings. However, the Company anticipates that the 1998 fall harvest in North America will substantiate continued strong product performance, thereby positioning the Company for market share growth in 1999 and beyond. During 1998, there was an unprecedented level of discounting and promotions of hybrid seed corn by competitors. New alliances, combined with a consolidation of industry players, have increased the level of uncertainty in the industry. However, the Company is well positioned against its competitors. The Company plans to continue to aggressively demonstrate to customers the financial benefits of the yield advantage of its products. The Company continues to validate the yield advantage of Pioneer products. Pioneer has collected over 270,000 side-by-side corn performance comparisons across its North America market area. The Company's corn hybrids expected to be the top ten sellers for 1999 on average posted a yield advantage of nearly 8 bushels an acre over the average of the top ten competitor hybrids in side-by-side comparisons conducted by Pioneer. The program to hold the price of most of our corn hybrids steady for the 1999 sales season and offer enhanced credit for qualified customers has been positively received. This program, along with high returns per acre from our strong product performance will be key in the Company's effort to gain share in the North American market for 1999. The same results were present with Pioneer brand soybeans. Based on 28,000 variety comparisons, Pioneer leader soybeans with the Roundup Ready(1) gene on average held a 2 bushel-per-acre yield advantage over competitive Roundup Ready products. With the addition of 20 new soybean varieties, management believes that 1998's strong North American soybean operations should continue into 1999 as the Company's soybean products are performing well against the competition. The demand for glyphosate-resistant products is expected to increase, and the Company has adequate supplies of these products available for sale in 1999. As a result, sales of glyphosate-resistant products are expected to represent a larger percentage of overall soybean sales in 1999, and margins are expected to improve because of their premium sales price over elite varieties. The Company anticipates continued growth in local currency sales and operating profits outside of North America. Therefore, declines in the value of foreign currencies against the U.S. dollar could adversely affect operating income from these operations. In 1999, the Company plans to introduce ECB resistant corn hybrids in limited volumes in several countries outside of North America. This should help position the Company for continued growth in sales and margins within these countries in the years to come. - --------------- 1 Registered trademark of, and used under license from, Monsanto Company. 19 21 The Company expects growth in fixed costs to be led by increased investments in research and product development, information management, and sales and marketing, as well as an increase in legal costs. The Company expects that its worldwide research and product development investments as a percentage of sales will continue to climb, as it enhances its position as the world's leading supplier of agricultural genetics and as a leading integrator of technology. Sales and marketing expenses are also expected to increase as the Company introduces an unprecedented number of new products. Legal costs will likely climb as the Company continues to protect and defend its intellectual property positions. Salary and benefits are another factor that influences fixed costs. Pioneer's commitment to the work force and responsiveness to the competitive environment is expected to raise base compensation levels faster than inflation in the next fiscal year. In addition, a change in the mix of earnings between the Company's North American seed business and other worldwide operations may put upward pressure on the effective tax rate in the future. 20 22 BUSINESS GENERAL The business of the Company is the broad application of the science of genetics. Founded in 1926 to apply then newly-discovered genetic techniques to hybridize corn, the Company has been the industry leader in research and product development for more than 70 years. The Company owns what it believes to be the industry's finest collection of crop genetics (germplasm), which has been the key to the Company's success in the past and is expected to be the key to its success in the future. The Company's research and development is focused on improving the germplasm base by integrating new technology essential to crop genetic improvements. The Company was the first commercial seed company to undertake collaborations on a wide scale with other organizations and scientists throughout the world to improve core germplasm and better understand crop genetics. The Company believes that its research collaborations improve its ability to deliver improved products. The Company emphasizes research for improving the profitability of farmers through both agronomic and end-use grain improvements. Agronomic traits increase crop yield or reduce growers' costs. The Company delivers such improvements as increased bushels per acre and increased resistance to insects, diseases and herbicides. End-use grain improvement is an area of increasing importance. The Company expects to experience increasing demand from end users such as livestock feeders, grain processors, food processors, and others for specific qualities in the crops they use as an input in developing other products. PRODUCTS The Company develops, produces, and markets hybrids of corn, sorghum, and sunflowers; varieties of soybeans, alfalfa, wheat, and canola; and microorganisms useful in crop and livestock production. Hybrids, such as corn and sorghum, are crosses of two or more unrelated inbred lines that can be reproduced only by crossing the original parent lines. As a result, it is not beneficial for customers to plant saved seed, because the seed produced will not have the same genetic attributes as the seed planted. Varietal crops, such as soybeans and wheat, will reproduce themselves with little or no genetic variation. Customers frequently plant saved seed from these products, although they are becoming increasingly aware of the advantages of purchasing new seed every year. The Company's principal products are hybrid seed corn and varietal soybean seed, which together accounted for approximately 89% of net sales and almost all operating income over the last five fiscal years. These products are expected to maintain a dominant role in the Company's operations for the foreseeable future. Seed corn, in terms of both sales and profitability, is the Company's most significant product. In fiscal 1998, sales of seed corn represented approximately 76% of total net sales. Approximately 40% of the Company's 1998 North American seed corn volume was from hybrids introduced in 1997, or those released in 1998. Seed corn net sales were $1.4 billion and seed corn operating income was $396 million in fiscal 1998. Soybean seed is the Company's second largest product in terms of sales and profitability. Soybean seed accounted for approximately 13% of total net sales in fiscal 1998. A new variety of soybean seed resistant to specific herbicides accounted for approximately 39% of fiscal 1998 soybean net sales. Soybean net sales were $232 million and soybean operating income was $36 million in fiscal 1998. The Company also develops, produces and markets other products such as wheat, canola, alfalfa, sorghum, sunflower, and microorganisms useful in crop and livestock production. These products provide the Company's sales organization with a full line of seed products, significantly aiding in the sale of higher-margin products. Other product net sales were $210 million and other product operating income was $15 million in fiscal 1998. The Company has seed production facilities located throughout the world and engages in seed production year-round. In the production of its parent and commercial seed, the Company generally provides the seed stock, detasseling and roguing labor, and certain other production inputs. The balance of the labor, equipment, and inputs are supplied by independent growers. The Company is the first major agricultural seed company in the world to attain ISO 9000 certification, which allows it to move products more easily from country to country. 21 23 MARKETS The primary markets for the Company's products are the United States, Canada and Europe. Approximately 71% of fiscal 1998 net sales were made in North America and approximately 20% of such sales were made in Europe. The Company also has operations in Latin America, Mexico, Africa, Asia, the Middle East, and the Pacific region. The Company is the industry leader in North American seed corn sales. The Company estimates that its share of this market in fiscal 1998 was approximately 42%. The next seven competitors held an estimated combined market share of approximately 34%, with the closest competitor holding approximately 11%. The remainder of the market was divided among more than 275 companies selling regionally. The Company has a leading seed corn market share in most of the countries outside North America in which it operates. The Company's market shares in France, Italy, Germany, Hungary, Austria, Mexico, and Brazil ranged from approximately 10% to more than 60% in fiscal 1998. The principal market for the Company's soybean seed is North America. The Company estimates that its share of the soybean seed market in North America in fiscal 1998 totaled approximately 16%. In North America, the majority of seed is marketed through independent sales representatives. In areas outside the traditional corn belt, seed products are often marketed through dealers and distributors who handle other agricultural supplies. The Company's products are marketed outside North America through a network of subsidiaries, joint ventures, and independent producer-distributors. DUPONT ALLIANCE On August 6, 1997, the Company and DuPont agreed to three integrated transactions involving (1) a research alliance between the two companies; (2) the formation of a joint venture to exploit business opportunities in quality grain traits; and (3) an investment by DuPont in the Company under which DuPont acquired a 20% equity interest in the Company. Pursuant to the research alliance, the Company and DuPont have agreed to a research alliance and collaboration to take advantage of the two companies' respective expertise and technology and know-how concerning quality grain traits, agronomic traits, industrial use traits, genomics and enabling technology for developing seed, grain, grain products, plant materials and other crop improvement products. The Company and DuPont also have established a commercial joint venture called Optimum Quality Grains, L.L.C. (the "Joint Venture"), in which each party owns a 50% interest, which will seek to create, maximize and capture value for quality traits in seed, grain, grain products and plant materials delivered through corn, soybeans and other selected oil seeds. A key component of the Joint Venture is the Preferred Seed Support Agreement between the Joint Venture and the Company. The Joint Venture is not in the seed business and will look to the Company to be the Joint Venture's preferred worldwide provider and preferred marketer of quality trait seeds pursuant to the Preferred Seed Support Agreement. RESEARCH AND PRODUCT DEVELOPMENT The Company's research and product development activities are directed at products with significant market potential. The Company believes it possesses the largest proprietary pool of germplasm in the world from which to develop new seed products. The Company's seed research is done through classical plant breeding and biotechnology techniques. Prior to commercial sale, each potential product passes through four- to five-year testing cycles during which it is tested in a range of soil types, stresses and climatic conditions. During the three fiscal years ended August 31, 1998, the Company expended the following amounts on research and product development:
YEARS ENDED AUGUST 31, 1998 1997 1996 ---------------------- ---- ---- ---- (IN MILLIONS) Corn.................................................. $110 $101 $ 90 Soybean............................................... 14 14 12 Other Products........................................ 31 31 34 ---- ---- ---- $155 $146 $136 ==== ==== ====
22 24 Integrating new technology is essential to crop genetic improvements. Currently, the Company manages more than 2,000 research agreements, over 200 of which are collaborations with entities specializing in technology that the Company believes help improve its core germplasm base. Existing agreements, together with a growing number of new associations and collaborations, have enabled the Company to be a leader in understanding the functions of important genes in crops such as corn and soybeans. The Company's objective is to continue to develop that understanding while improving its ability to incorporate these genes more efficiently into commercial products. PATENTS, TRADEMARKS, AND TECHNOLOGY The Company owns and controls its inbreds and varieties by means of intellectual property rights, including, but not limited to, patents, trademarks, licenses, trade secrets, and plant variety protection certificates. Within the United States, these rights essentially prohibit other parties from making, using, selling, importing, or exporting seed produced from the Company's inbreds and varieties until such protection expires, usually well after the useful life of the inbred or variety. Outside the United States, the level of protection afforded varies from country to country according to local laws and international agreements. As of August 31, 1998, the Company held over 250 domestic and 300 foreign patents and had over 900 patent applications pending on new technologies and products moving toward commercialization. RISK FACTORS IN THE BUSINESS The annual volume of seed sold and related profit can be significantly affected by forces beyond the Company's control. Some of these factors are government programs/approvals, weather, and commodity prices. Government programs can affect, among other things, crop acreage and commodity prices. Government regulatory approvals can affect the timing of bringing new products to market. Weather and other factors can affect commodity prices, product performance, the Company's seed field yields, and planting decisions by customers which ultimately can impact acreage. Commodity prices impact the Company's pricing opportunities, selling strategies, and collection practices. Intellectual property positions are becoming increasingly important within the agricultural seed industry as genetically engineered products become a larger part of the product landscape. It is likely that no one company will own all patent rights within the industry for certain recent technology advancements. The competitive landscape in the seed genetics business continues to change as many chemical companies work to transform themselves into higher-value life sciences companies. The Company is unable to predict what effect the consolidations in the industry will have on pricing opportunities, selling strategies, intellectual property, or earnings. Operating as a global company exposes the Company to the risks resulting from currency fluctuations. The Company has policies in place to help manage this risk. Product performance against the competition will continue to be the key driver of long-term success for the Company. While the Company has been able to develop products that consistently out-perform the competition, rapid change in technology and customer preference may result in short product life cycles. Speed to market with new, higher-value, products will be increasingly important. EMPLOYEES As of August 31, 1998, the Company employed approximately 5,000 people worldwide, of which approximately 1,000 were engaged in research and development. The Company believes relations with its employees to be good. 23 25 DESCRIPTION OF THE NOTES The Notes will be issued under an Indenture to be dated as of January , 1999 (the "Indenture"), between the Company and Chase Manhattan Trust Company, National Association, as trustee for the Notes (the "Trustee"). The Indenture is subject to and is governed by the Trust Indenture Act of 1939, as amended (the "TIA"), and the terms of the Notes include those made part of the Indenture by reference to the TIA as in effect on the date of the Indenture. The following is a summary of certain provisions of the Notes and the Indenture. The following description does not purport to be complete and is subject to, and qualified in its entirety by, reference to the TIA and all the provisions of the Notes and the Indenture, including the definitions stated therein. Definitions relating to certain capitalized terms are set forth under "Certain Definitions" and throughout this description. Terms that are used but not otherwise defined herein have the meanings assigned to them in the Indenture and such definitions are incorporated herein by reference. GENERAL The Notes will be senior, unsecured obligations of the Company, will be limited to $200 million aggregate principal amount and, unless previously redeemed or repurchased, will mature on January , 2009. The Notes will bear interest at the rate per annum shown on the front cover of this prospectus from January , 1999 or from the most recent interest payment date to which interest has been paid or provided for, payable semi-annually on and of each year, commencing , 1999, to the Person in whose name a Note (or any predecessor Note) is registered at the close of business on the preceding or , as the case may be. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes will be transferable at the corporate trust office or agency of the Trustee in The City of New York maintained for such purposes at 55 Water Street, Room 234, North Building, New York, New York 10041. No service charge will be made for the transfer, exchange or redemption of Notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection therewith. The Notes will be issued in fully registered form without coupons, in denominations of $1,000 or integral multiples thereof. The Indenture does not provide for any debt covenants that would afford Holders any protection in the event of a highly leveraged transaction involving, or a change in control of, the Company. RESTRICTED AND UNRESTRICTED SUBSIDIARIES The various restrictive provisions of the Indenture applicable to the Company and its Restricted Subsidiaries do not apply to Unrestricted Subsidiaries. The assets and liabilities of Unrestricted Subsidiaries, and investments by the Company in any Unrestricted Subsidiary, are not consolidated with those of the Company and its Restricted Subsidiaries in calculating Consolidated Net Tangible Assets under the Indenture. "Unrestricted Subsidiaries" are those Subsidiaries which are designated as Unrestricted Subsidiaries by the Board of Directors from time to time pursuant to the Indenture and Subsidiaries of Unrestricted Subsidiaries. "Restricted Subsidiary" means any Subsidiary which owns or leases a Principal Property and any other Subsidiary which has not been designated an Unrestricted Subsidiary. "Principal Property" means any real or personal property owned or leased by the Company or any Subsidiary the net book value of which on the date as of which the determination is being made exceeds 2% of the Consolidated Net Tangible Assets of the Company and its Restricted Subsidiaries, provided that Principal Property shall not include any real or personal property owned or leased by the Company or any Subsidiary which the Company's Board of Directors has in good faith determined pursuant to a written resolution is not material, either singly or together with all other real and personal property owned or leased by all Unrestricted Subsidiaries, to the Company and its Subsidiaries, taken as a whole. RANKING The indebtedness evidenced by the Notes will rank pari passu in right of payment with all other senior, unsecured indebtedness of the Company, but will be effectively subordinated to indebtedness of the Company's 24 26 subsidiaries. In addition, the indebtedness evidenced by the Notes will be effectively subordinated to any senior, secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness. OPTIONAL REDEMPTION The Notes will be redeemable, as a whole or in part, at the option of the Company at any time, at a redemption price (a "Redemption Price") equal to the greater of (i) 100% of the principal amount of such Notes and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date (the "Redemption Date") on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, plus, in each case, accrued interest thereon to the Redemption Date. "Treasury Rate" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a comparable maturity to the remaining term of such Notes. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to any Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 3:30 p.m., New York time, on the third Business Day preceding such Redemption Date. "Reference Treasury Dealer" means each of Lazard Freres & Co. LLC, Chase Securities Inc. and two other primary U.S. Government securities dealers in The City of New York to be selected by the Company, and their respective successors. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed. Unless the Company defaults in payment of the Redemption Price on and after the Redemption Date, interest will cease to accrue on the Notes or portions thereof called for redemption. If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of whole multiples of $1,000. BOOK-ENTRY DELIVERY AND FORM GLOBAL NOTES Except as set forth below, the Notes will initially be issued in the form of one or more registered Notes in global form (the "Global Notes"). Each Global Note will be deposited on the date of the closing of the sale of the Notes with, or on behalf of, The Depository Trust Company ("DTC" or the "Depositary") and registered in the name of Cede & Co., as nominee of DTC. 25 27 DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" with the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Commission. The Company expects that pursuant to procedures established by the Depositary (i) upon deposit of the Global Notes, the Depositary will credit the accounts of Participants designated by the Underwriters with an interest in the applicable Global Notes and (ii) ownership of the Notes evidenced by the Global Notes will be shown on, and the transfer of that ownership will be effected only through, records, maintained by the Depositary (with respect to Participants' interests), the Participants and the Indirect Participants. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own and that security interests in negotiable instruments can only be perfected by delivery of certificates representing the instruments. Consequently, the ability to transfer Notes evidenced by the Global Notes will be limited to such extent. So long as the Depositary or it nominee is the registered owner of a Note, the Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by the Global Notes for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a Global Note will not be entitled to have Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Notes in certificated form ("Certificated Notes"), and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. As a result, the ability of a Person having a beneficial interest in Notes represented by a Global Note to pledge such interest to Persons or entities that do not participate in the Depositary's system, or to otherwise take actions with respect to such interest, may be affected by the lack of a physical certificate evidencing such interest. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of Notes by the Depositary, or for maintaining, supervising or reviewing any records of the Depositary relating to such Notes. Payments with respect to the principal of, premium, if any, and interest on, any Note represented by a Global Note registered in the name of the Depositary or its nominee, on the applicable record date will be payable by the Trustee to, or at the direction of, the Depositary or it nominee in its capacity as the registered holder of the Global Note representing such Notes under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the Persons in whose names the Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Notes (including principal, premium, if any, or interest), or for immediately crediting the accounts of the relevant Participants with such payment, in amount proportionate to their respective holdings in principal amount of beneficial interests in the Global Note as shown on the records of the Depositary. Payments by the Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practice and will be the responsibility of the Participants or the Indirect Participants. 26 28 CERTIFICATED NOTES If (i) the Company notifies the Trustee in writing that the Depositary is unwilling, unable or ineligible to act as a depositary and the Company is unable to locate a qualified successor within 90 days, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in certificated form under the Indenture, or (iii) any Event of Default has occurred or is continuing, then, upon surrender by the Depositary of the applicable Global Notes, Certificated Notes will be issued to each Person that the Depositary identifies as the beneficial owner of the Notes represented by such Global Notes. Upon any such issuance, the Trustee is required to register such Certificated Notes in the name of such Person or Persons (or the nominee of any thereof), and cause the same to be delivered thereto. Neither the Company nor the Trustee shall be liable for any delay by the Depositary or any Direct Participant or Indirect Participant in identifying the beneficial owners of the Notes, and the Company and the Trustee may conclusively rely on, and shall be protected in relying on, instructions from the Depositary for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the Notes to be issued). The information in this section concerning the Depositary and the Depositary's book-entry system has been obtained from sources that the Company believes to be reliable. The Company will have no responsibility for the performance by the Depositary or its Participants of their respective obligations as described hereunder or under the rules and procedures governing their respective operations. SAME-DAY FUNDS SETTLEMENT Settlement for the Notes will be made by the Underwriters in immediately available funds. Payments in respect of Notes represented by Global Notes (including principal, premium, if any, and interest) will be made in immediately available funds to the accounts specified by the Depositary. With respect to Notes represented by Certificated Notes, the Company will make all payments of principal, premium, if any, and interest, by mailing a check to the registered address of each Holder. The Notes will trade in the Depositary's Same-Day Funds Settlement System until maturity, or until the Notes are issued in certificated form, and secondary market trading activity in the Notes will therefore be required by the Depositary to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlement in immediately available funds on trading activity in the Notes. SINKING FUND The Notes will not be entitled to the benefit of any sinking fund. CERTAIN COVENANTS LIMITATION ON LIENS The Company will not, and will not permit any Restricted Subsidiary of the Company to, incur any Lien upon property or assets of the Company or any Restricted Subsidiary of the Company to secure Indebtedness without making, or causing such Restricted Subsidiary to make, effective provision for securing the Notes equally and ratably with (or prior to) such Indebtedness as to such property for as long as such Indebtedness will be so secured unless such Indebtedness is subordinate in right of payment to the Notes, in which case the Notes will be secured prior to such Indebtedness as to such property for as long as such Indebtedness will be so secured. The foregoing restrictions will not apply to (a) Permitted Liens or (b) Liens securing Indebtedness if, after giving pro forma effect to the Incurrence of such Indebtedness (and the receipt and application of the proceeds therefrom) or the securing of outstanding Indebtedness, the sum of (without duplication) (A) all Indebtedness (valued at the lesser of the outstanding obligation of such secured Indebtedness or the fair market value of the properties securing such Indebtedness) of the Company and its Restricted Subsidiaries secured by Liens (other than Permitted Liens) and (B) all Attributable Indebtedness (other than Attributable Indebtedness secured by Liens that are Permitted Liens under clause (i) of the definition thereof or permitted under clause (ii) below under "Limitation on Sale and Leaseback Transactions") of the Company and its Restricted Subsidiaries in respect of 27 29 Sale and Leaseback Transactions, at the time of determination, does not exceed 15% of Consolidated Net Tangible Assets. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS The Company will not, and will not permit any Restricted Subsidiary of the Company to, enter into any Sale and Leaseback Transaction unless (i) the Company or such Restricted Subsidiary would be entitled to create a Lien securing Indebtedness in an amount equal to the Attributable Indebtedness with respect to such Sale and Leaseback Transaction without securing the Notes or (ii) the Company or such Restricted Subsidiary, within six months from the effective date of such Sale and Leaseback Transaction, applies to the voluntary defeasance, prepayment (in whole or in part) or retirement (excluding retirement of Notes and other Indebtedness ranking pari passu with the Notes as a result of conversion or pursuant to mandatory sinking fund or mandatory prepayment provisions or by payment at maturity) of Notes or other Indebtedness ranking senior to or pari passu with the Notes an amount equal to the Attributable Indebtedness in respect of such Sale and Leaseback Transaction. CONSOLIDATION, MERGER AND SALE OF ASSETS The Company will not, in a single transaction or through a series of transactions, consolidate, amalgamate or combine with or merge with or into or, directly or indirectly, sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of its properties and assets to any Person or Persons, and the Company will not permit any of the Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, lease, transfer or disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries taken as a whole, to any Person or Persons, unless at the time and after giving effect thereto (a) either (i) the Company shall be the continuing Person in the case of a merger or consolidation or (ii) the resulting, surviving or transferee Person, if other than the Company (the "Successor Company"), shall be a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia and shall expressly assume by a supplemental indenture all of the obligations of the Company under the Notes and the Indenture, and in each case, the Indenture shall remain in full force and effect; (b) immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness Incurred or anticipated to be Incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default would occur or be continuing and the Company shall have delivered to the Trustee an officer's certificate to that effect; and (c) the Company or the Successor Company, as the case may be, shall have delivered to the Trustee an officer's certificate and an opinion of counsel stating that such transaction or series of transactions, and, if a supplemental indenture is required in connection with such transaction or series of transactions to effectuate such assumption, such supplemental indenture, complies with this covenant and that all conditions precedent in the Indenture relating to the transaction or series of transactions have been satisfied. Notwithstanding the foregoing, any Restricted Subsidiary may consolidate, amalgamate or combine with or merge with or into or, directly or indirectly, sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of its properties and assets to the Company or, subject to the condition set forth in clause (b) in the preceding sentence, to any other Restricted Subsidiary. EVENTS OF DEFAULT AND REMEDIES The following events are "Events of Default" with respect to the Notes: (a) Default in the payment of any installment of interest on any Note as and when the same shall become due and payable and continuance of such default for a period of 30 days; (b) Default in the payment of all or any part of the principal or premium, if any, with respect to any Note as and when the same shall become due and payable, whether at maturity, upon redemption, by declaration, upon required purchase or otherwise; (c) Failure on the part of the Company to comply with the provisions of the Indenture relating to consolidations, mergers or sales of all or substantially all of its assets; 28 30 (d) Failure on the part of the Company or any Restricted Subsidiary duly to observe or perform any other of the covenants or agreements on the part of the Company or any Restricted Subsidiary in the Indenture or the Notes continuing for a period of 60 days after the date on which written notice to the Company specifying such failure and requiring the Company or any Restricted Subsidiary to remedy the same shall have been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Notes at the time outstanding; (e) Indebtedness of the Company or any Restricted Subsidiary of the Company is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default, the total amount of such Indebtedness unpaid or accelerated exceeds $20 million at the time and such default remains uncured or such acceleration is not rescinded for 10 days; (f) Certain voluntary or involuntary events of bankruptcy, insolvency or reorganization of the Company or any of its "Significant Subsidiaries" (defined as any subsidiary of the Company that would be a "significant subsidiary" as defined in Rule 405 under the Securities Act as in effect on the date of the Indenture); and (g) Any final judgment or decree for the payment of money in excess of $20 million at the time is entered against the Company or any Significant Subsidiary of the Company by a court or courts of competent jurisdiction, which judgment is not covered by insurance, and is not discharged and either (A) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (B) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, vacated, waived or the execution thereof stayed. If an Event of Default described in clause (a), (b), (c), (d), (e) or (g) above occurs and is continuing, unless the principal and interest with respect to the Notes shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding may declare the principal amount of and interest on all the Notes due and payable immediately. If an Event of Default described in clause (f) above occurs, unless the principal and interest with respect to all the Notes have become due and payable, the principal amount of and interest on the Notes then outstanding shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. In the event of a declaration of acceleration because of an Event of Default set forth in clause (e) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (e) above shall be remedied or cured by the Company or the relevant Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default occurs and is continuing, the Trustee shall be entitled and empowered to institute any action or proceeding for the collection of the sums so due and unpaid or to enforce the performance of any provision of the Notes or the Indenture, to prosecute any such action or proceeding to judgment or final decree, and to enforce any such judgment or final decree against the Company or any other obligor on the Notes. In addition, if there shall be pending proceedings for the bankruptcy or reorganization of the Company or if a receiver, trustee, or similar official shall have been appointed for its property, the Trustee shall be entitled and empowered to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid with respect to the Notes. No Holder shall have any right to institute any action or proceeding upon or under or with respect to the Indenture, for the appointment of a receiver or trustee, or for any other remedy, unless (a) such Holder previously shall have given to the Trustee written notice of an Event of Default with respect to the Notes and of the continuance thereof, (b) the Holders of not less than 25% in aggregate principal amount of the outstanding Notes shall have made written request to the Trustee to institute such action or proceeding with respect to such Event of Default and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses, and liabilities to be incurred therein or thereby, and (c) the Trustee, for 60 days after its receipt of such notice, request, and offer of indemnity shall have failed to institute such action or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to the provisions of the Indenture. 29 31 Prior to the acceleration of the maturity of the Notes, the Holders of a majority in aggregate principal amount of the Notes at the time outstanding may, on behalf of the holders of all Notes, waive any past default or Event of Default and its consequences for that series, except (a) a default in the payment of the principal, premium, if any, interest with respect to the Notes or (b) a default with respect to a provision of the Indenture that cannot be amended without the consent of each Holder affected thereby. In case of any such waiver, such default shall cease to exist, any Event of Default arising therefrom shall be deemed to have been cured for all purposes, and the Company, the Trustee, and the Holders shall be restored to their former positions and rights under the Indenture. The Trustee shall, within 90 days after the occurrence of a default known to it with respect to the Notes, give to the Holders notice of all uncured defaults with respect to the Notes known to it, unless such defaults shall have been cured or waived before the giving of such notice; provided, however, that except in the case of default in the payment of principal, premium, if any, or interest with respect to the Notes, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interest of the Holders. MODIFICATION OF THE INDENTURE The Company and the Trustee may enter into supplemental Indentures without the consent of the Holders for one or more of the following purposes: (a) To evidence the succession of another Person to the Company pursuant to the provisions of the Indenture relating to consolidations, amalgamations, combinations, mergers, and sales of assets and the assumption by such successor of the covenants, agreements, and obligations of the Company in the Indenture and in the Notes; (b) To surrender any right or power conferred upon the Company by the Indenture, to add to the covenants of the Company such further covenants, restrictions, conditions, or provisions for the protection of the Holders as the Board of Directors of the Company shall consider to be for the protection of the Holders, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions, conditions, or provisions a default or an Event of Default under the Indenture (provided, however, that with respect to any such additional covenant, restriction, condition, or provision, such supplemental Indenture may provide for a period of grace after default, which may be shorter or longer than that allowed in the case of other defaults, may provide for an immediate enforcement upon such default, may limit the remedies available to the Trustee upon such default, or may limit the right of Holders of a majority in aggregate principal amount of the Notes to waive such default); (c) To cure any ambiguity or to correct or supplement any provision contained in the Indenture, in any supplemental Indenture, or in the Notes that may be defective or inconsistent with any other provision contained therein, to convey, transfer, assign, mortgage, or pledge any property to or with the Trustee, or to make such other provisions in regard to matters or questions arising under the Indenture as shall not adversely affect the interests of any Holders; (d) To modify or amend the Indenture in such a manner as to permit the qualification of the Indenture or any supplemental Indenture under the Trust Indenture Act as then in effect; (e) To comply with the provisions of the Indenture relating to consolidations, amalgamations, combinations, mergers, and sales of assets; (f) To add guarantees with respect to the Notes or to secure the Notes; (g) To make any change that does not adversely affect the rights of any Holder; and (h) To evidence and provide for the acceptance of appointment by a successor or separate Trustee with respect to the Notes and to add to or change any of the provisions of the Indenture as shall be necessary to provide for or facilitate the administration of the Indenture by more than one Trustee. 30 32 With the consent of the Holders of a majority in aggregate principal amount of the outstanding Notes, the Company and the Trustee may from time to time and at any time enter into a supplemental Indenture for the purpose of adding any provisions to, changing in any manner, or eliminating any of the provisions of the Indenture or of any supplemental Indenture or modifying in any manner the rights of the Holders; provided, however, that without the consent of the Holders of each Note so affected, no such supplemental Indenture shall (a) reduce the percentage in principal amount of Notes whose Holders must consent to an amendment, (b) reduce the rate of or extend the time for payment of interest on the Notes or reduce the amount of any payment of interest on the Notes, (c) reduce the principal of or extend the Stated Maturity of the Notes, (d) reduce the premium payable upon the redemption of the Notes or change the time at which the Notes may or shall be redeemed, (e) make the Notes payable in a currency other than U.S. dollars, (f) release any security that may have been granted with respect to the Notes, or (g) make any change in the provisions of the Indenture relating to waivers of defaults or amendments that require unanimous consent. SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE The Indenture shall generally cease to be of any further effect with respect to the Notes if (a) the Company has delivered to the Trustee for cancellation all the Notes (with certain limited exceptions) or (b) all Notes not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year, and the Company shall have deposited with the Trustee as trust funds the entire amount sufficient (in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee) without consideration of any reinvestment and after payment of all taxes or other charges and assessments in respect thereof payable by the Trustee, to pay at maturity or upon redemption all such Notes and any interest thereon, no default with respect to the Notes has occurred and is continuing on the date of such deposit, such deposit does not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party and the Company delivers to the Trustee an officers' certificate and opinion of counsel each stating that such conditions have been complied with (and if, in either case, the Company shall also pay or cause to be paid all other sums payable under the Indenture by the Company). In addition, the Company shall have a "legal defeasance option" (pursuant to which it may terminate, with respect to the Notes, all of its obligations under the Notes and the Indenture) and a "covenant defeasance option" (pursuant to which it may terminate, with respect to the Notes, its obligations with respect to the Notes under certain specified covenants contained in the Indenture). If the Company exercises its legal defeasance option with respect to the Notes, payment of the Notes may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option with respect to the Notes, payment of the Notes may not be accelerated because of an Event of Default related to the specified covenants. The Company may exercise its legal defeasance option or its covenant defeasance option with respect to the Notes if (a) the Company irrevocably deposits in trust with the Trustee cash or U.S. Government Obligations (as defined in the Indenture) for the payment of principal, premium, if any, and interest with respect to the Notes to maturity or redemption, as the case may be, (b) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal, premium, if any, and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay the principal, premium, if any, and interest when due with respect to all the Notes to maturity or redemption, as the case may be, (c) 91 days pass after the deposit is made and during the 91-day period no default described in clause (f) under " -- Events of Default and Remedies" with respect to the Company occurs that is continuing at the end of such period, (d) no Default or Event of Default has occurred and is continuing on the date of such deposit and after giving effect thereto, (e) the deposit does not constitute a default under the Indenture or any other agreement binding on the Company, (f) the Company delivers to the Trustee an opinion of counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified or exempt as, a regulated investment company under the Investment Company Act of 1940, as amended, (g) the Company delivers to the Trustee an opinion of counsel addressing certain Federal income tax matters relating to the 31 33 defeasance, and (h) the Company delivers to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes as contemplated by the Indenture have been complied with. The Trustee shall hold in trust cash or U.S. Government Obligations deposited with it as described above and shall apply the deposited cash and the proceeds from deposited U.S. Government Obligations to the payment of principal, premium, if any, and interest with respect to the Notes. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee thereunder will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and the provisions of the TIA incorporated by reference therein contain limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided however, that if it acquires any conflicting interest (as defined in the Indenture) it must eliminate such conflict or resign. GOVERNING LAW The Indenture and the Notes will be governed by the laws of the State of New York, without regard to the principles of conflicts of law. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of the Indenture. Reference is made to the Indenture for a full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. "Attributable Indebtedness" is defined to mean, when used in connection with a Sale and Leaseback Transaction referred to in the "Limitation on Sale and Leaseback Transactions" covenant described above, at any date of determination, the present value (discounted according to GAAP at the cost of indebtedness implied in the lease) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended). "Board of Directors" is defined to mean either the Board of Directors of the Company or any duly authorized committee or subcommittee of such Board, except as the context may otherwise require. "Business Day" is defined to mean any day that is not a Saturday, a Sunday or a day on which banking institutions or trust companies in New York City are authorized or obligated by law to close. "Capital Stock" is defined to mean, with respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (including partnership interests) in (however designated) the equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligation" is defined to mean, as applied to any Person, any obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP; and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. 32 34 "Common Stock" of any Person is defined to mean capital stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Consolidated Net Tangible Assets" is defined to mean, as of any date, the total amount of assets of the Company and its Restricted Subsidiaries on a consolidated basis at the end of the fiscal quarter immediately preceding such date, as determined in accordance with GAAP, less (i) Intangible Assets and (ii) appropriate adjustments on account of minority interests of other Persons holding equity investments in Restricted Subsidiaries, in the case of each of clauses (i) and (ii) above as reflected on the consolidated balance sheet of the Company and its Restricted Subsidiaries as of the end of the fiscal quarter immediately preceding such date. "Exchange Act" is defined to mean the United States Securities Exchange Act of 1934, as amended. "GAAP" is defined to mean generally accepted accounting principles in the United States of America as in effect on the Issue Date. "Hedging Obligations" of any Person is defined to mean the obligations of such Person pursuant to any interest rate protection agreement, currency exchange protection agreement, commodity price protection agreement or other similar agreement. "Holder" is deemed to mean the registered holder of any Note. "Incur" is defined to mean, issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The terms "Incurred," "Incurrence" and "Incurring" shall each have a correlative meaning. "Indebtedness" is defined to mean, with respect to any Person at any date of determination (without duplication), indebtedness for borrowed money or indebtedness evidenced by bonds, notes, debentures or other similar instruments given to finance the acquisition of any businesses, properties or assets of any kind (including, without limitation, capital stock or other equity interests in any Person). "Intangible Assets" is defined to mean all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, write-ups of assets over their carrying value at the end of the last fiscal quarter ended prior to the Issue Date or the date of acquisition, if acquired subsequent thereto, and all other items which would be treated as intangibles on the consolidated balance sheet of the Company and its Restricted Subsidiaries prepared in accordance with GAAP. "Issue Date" is defined to mean the date on which the Notes are originally issued under the Indenture. "Lien," with respect to any property or assets, is defined to mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing), but not including the interest of a lessor under a lease that is an operating lease under GAAP. "Permitted Liens" is defined to mean, with respect to any Person, (a) Liens existing on or provided for under the terms of agreements existing on the Issue Date; (b) Liens on property at the time the Company or any of its Restricted Subsidiaries acquired the property or the entity owning such property, including any acquisition by means of a merger, amalgamation, combination or consolidation with or into the Company; provided, however, that any such Lien may not extend to any other property owned by the Company or any of its Restricted Subsidiaries; (c) Liens on accounts receivable, inventory or containers, returnable packaging cases to secure 33 35 working capital or revolving credit indebtedness incurred in the ordinary course of business; (d) Purchase Money Liens and Liens arising in connection with Capitalized Lease Obligations that do not arise in connection with Sale and Leaseback Transactions; (e) Liens securing only Indebtedness of a Wholly-Owned Restricted Subsidiary of the Company to the Company or one or more Wholly-Owned Restricted Subsidiaries of the Company; (f) Liens resulting from the deposit of funds or evidences of Indebtedness in trust for the purpose of defeasing Indebtedness of the Company or any of its Restricted Subsidiaries; (g) legal or equitable encumbrances deemed to exist by reason of negative pledges; (h) Liens on property or shares of stock of another Person at the time such other Person becomes a Restricted Subsidiary of such Person; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming such a Restricted Subsidiary of such Person; provided further, however, that such Lien may not extend to any other property owned by such Person or any of its Restricted Subsidiaries; (i) Liens arising in connection with Capitalized Lease Obligations in Sale and Leaseback Transactions with respect to which the Attributable Indebtedness outstanding at any time shall not exceed $25 million in the aggregate; and (j) Liens to secure any refinancing, refunding, extension, substitution, renewal or replacement (or successive refinancings, refundings, extensions, substitutions, renewals or replacements), as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (a) through (h); provided, however, that (i) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on or to such property) and (ii) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (a) through (h) at the time the original Lien became a Permitted Lien under this Indenture and (B) any amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, removal or replacement. "Person" is defined to mean any individual, corporation, partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof. "Preferred Stock" is defined to mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or nonvoting) of such Person's preferred or preference stock, whether now outstanding or issued after the date of the Indenture, including, without limitation, all series and classes of such preferred or preference stock. "Purchase Money Lien" is defined to mean a Lien on property securing Indebtedness Incurred by the Company or any of its Restricted Subsidiaries to provide funds for all or any portion of the cost of acquiring, constructing, altering, expanding, improving or repairing such property or assets used in connection with such property. "Related Person" of any Person is defined to mean any other Person that owns, or any controlling Affiliate of any other Person that owns, (a) 5% or more of the outstanding Common Stock of such Person or (b) 5% or more of the Voting Stock of such Person. "Sale and Leaseback Transaction" of any Person is defined to mean an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such Person of any property or asset of such Person which has been or is being sold or transferred by such Person more than 180 days after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The Stated Maturity of such arrangement will be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangement may be terminated by the lessee without payment of a penalty. Notwithstanding the foregoing, neither (a) a transaction involving a lease with a term of less than three years or (b) a transaction between the Company and a Restricted Subsidiary of the Company or between Restricted Subsidiaries of the Company shall be deemed a Sale and Leaseback Transaction. "Securities Act" is defined to mean the Securities Act of 1933, as amended. "Stated Maturity" is defined to mean, when used with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including 34 36 pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subsidiary" is defined to mean, with respect to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person, or (iii) one or more Subsidiaries of such Person. "Voting Stock" is defined to mean Capital Stock of any class or kind ordinarily having the power to vote for the election of directors of the Company. "Wholly-Owned Restricted Subsidiary" is defined to mean, with respect to any Person, any Restricted Subsidiary of such Person if all of the Common Stock or other similar equity ownership interests (but not including Preferred Stock) in such Restricted Subsidiary (other than any directors' qualifying shares or shares issued to Persons to comply with local laws) is owned directly or indirectly by such Person. 35 37 UNDERWRITING Under the terms and conditions of the Underwriting Agreement, the Company has agreed to sell to each of the Underwriters named below, and each of such Underwriters has severally agreed to purchase from the Company, the respective principal amount of Notes set forth opposite its name below:
PRINCIPAL AMOUNT UNDERWRITER OF NOTES ----------- ---------------- Lazard Freres & Co. LLC..................................... Chase Securities Inc........................................ Total............................................. -------- ========
The Underwriting Agreement provides that the several obligations of the Underwriters to pay for and accept delivery of the Notes offered hereby are subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to purchase all Notes if any are purchased. The Company has been advised by the Underwriters that the Underwriters propose initially to offer the Notes offered hereby directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at such price less a concession not in excess of % of the principal amount of the Notes. The Underwriters may allow, and such dealers may reallow, a concession not in excess of % of the amount of the Notes to other Underwriters or to certain other dealers. After this offering, the public offering price and such concessions may be changed by the Underwriters. The expenses of this offering (exclusive of Underwriters' discount) are estimated at $ and are payable by the Company. The Notes are a new issue of securities with no established trading market. The Company intends to apply for listing of the Notes on the New York Stock Exchange. In the event the Notes are not so listed, the Underwriters have indicated that they intend to make a market in the Notes, subject to applicable laws and regulations. However, the Underwriters are not obligated to do so and any such market making may be discontinued at any time, without notice, at their sole discretion. Accordingly, no assurance can be given as to the liquidity of the trading market for the Notes. The Company has agreed that, subject to certain limited exceptions, during the period beginning on the date of this prospectus and continuing to and including the date 90 days after the date of this prospectus, it will not offer, sell, contract to sell, or otherwise dispose of any securities of the Company that are substantially similar to the Notes without the prior written consent of the Underwriters. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. In connection with this offering, the Underwriters may effect transactions which stabilize or maintain the market prices of the Notes at levels above those which might otherwise prevail in the open market. Such transactions may be effected on the New York Stock Exchange or otherwise. Such stabilizing, if commenced, may be discontinued at any time. Lazard Freres & Co. LLC and Chase Securities Inc. and their affiliates have engaged and may in the future engage in various general financing and banking transactions with the Company and its affiliates. EXPERTS The consolidated financial statements and schedule of Pioneer Hi-Bred International, Inc. and subsidiaries as of August 31, 1998 and 1997, and for each of the years in the three-year period ended August 31, 1998, have been included herein and/or incorporated by reference herein and in the registration statement in reliance upon 36 38 the reports of KPMG Peat Marwick LLP, independent certified public accountants, included herein and/or incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. LEGAL MATTERS Baker & Hostetler LLP, Cincinnati, Ohio, will pass upon the legality of the Notes offered hereby for the Company. Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional corporations), New York, New York, will pass upon certain legal matters for the Underwriters. Fried, Frank, Harris, Shriver & Jacobson from time to time performs legal services for the Company. Baker & Hostetler LLP may rely as to matters of New York law upon the opinion of Fried, Frank, Harris, Shriver & Jacobson. Fried, Frank, Harris, Shriver & Jacobson may rely as to matters of Iowa law upon the opinion of Leon R. Shearer, Vice President and General Counsel for the Company. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such materials can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Information regarding the operation of the Public Reference Section of the Commission may be obtained by calling the Commission at 1 (800) SEC-6330. The Commission maintains a World Wide Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as the Company, that submit electronic filings to the Commission. Such material may also be inspected and copied at the offices of the New York Stock Exchange, on which the Common Stock of the Company is listed, at 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits thereto, referred to as the "Registration Statement") under the Act, with respect to the Notes offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Notes offered by this Prospectus, reference is made to the Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; and with respect to each such contract, agreement or other document filed, or incorporated by reference, as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved and each such statement shall be deemed qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission pursuant to the Exchange Act are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, as amended by Form 10-K/A dated December 18, 1998; and 2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1998, dated January 7, 1999. All documents filed by the Company pursuant to Sections 13 (a), 13 (c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Notes shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such 37 39 documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of the Registration Statement or this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Registration Statement or this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon written or oral request of such person, a copy of any or all documents which have been incorporated by reference herein, other than exhibits to such documents which are not specifically incorporated by reference therein. Requests should be directed to Pioneer Hi-Bred International, Inc., Attn: William J. DeMeulenaere, 800 Capital Square, 400 Locust Street, Des Moines, Iowa 50309 (Telephone: (515) 248-4800). 38 40 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ F-2 Consolidated Balance Sheets as of August 31, 1998 and 1997...................................................... F-3 Consolidated Statements of Income for the years ended August 31, 1998, 1997 and 1996................................... F-4 Consolidated Statements of Cash Flows for the years ended August 31, 1998, 1997 and 1996............................ F-5 Consolidated Statements of Shareholders' Equity for the years ended August 31, 1998, 1997 and 1996................ F-6 Notes to Consolidated Financial Statements.................. F-8 Consolidated Condensed Balance Sheets -- November 30, 1998, August 31, 1998 and November 30, 1997..................... F-21 Consolidated Condensed Statements of Operations -- Three Months Ended November 30, 1998 and 1997................... F-22 Consolidated Condensed Statements of Cash Flows -- Three Months Ended November 30, 1998 and 1997................... F-23 Notes to Consolidated Condensed Financial Statements........ F-24
F-1 41 INDEPENDENT AUDITORS' REPORT To the Shareholders Pioneer Hi-Bred International, Inc.: We have audited the accompanying consolidated balance sheets of Pioneer Hi-Bred International, Inc. and subsidiaries as of August 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended August 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pioneer Hi-Bred International, Inc. and subsidiaries as of August 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended August 31, 1998, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Des Moines, Iowa September 18, 1998 F-2 42 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AUGUST 31, ------------------ 1998 1997 ------ ------ (IN MILLIONS) ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 86 $ 97 Receivables Trade................................................... 346 256 Other................................................... 54 45 Inventories............................................... 481 440 Deferred income taxes..................................... 69 57 Other current assets...................................... 3 6 ------ ------ Total current assets............................... $1,039 $ 901 ------ ------ LONG-TERM ASSETS............................................ $ 47 $ 93 ------ ------ PROPERTY AND EQUIPMENT Land and land improvements................................ $ 66 $ 64 Buildings................................................. 387 377 Machinery and equipment................................... 580 539 Construction in progress.................................. 63 60 ------ ------ $1,096 $1,040 Less accumulated depreciation............................. 520 495 ------ ------ $ 576 $ 545 ------ ------ INTANGIBLES................................................. $ 55 $ 64 ------ ------ $1,717 $1,603 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings..................................... $ 76 $ 91 Current maturities of long-term debt...................... 14 6 Accounts payable, trade................................... 81 85 Accrued compensation...................................... 61 60 Income taxes payable...................................... 46 26 Other..................................................... 67 61 ------ ------ Total current liabilities.......................... $ 345 $ 329 ------ ------ LONG-TERM DEBT.............................................. $ 5 $ 19 ------ ------ DEFERRED ITEMS Retirement benefits....................................... $ 94 $ 80 Income taxes.............................................. 19 20 ------ ------ $ 113 $ 100 ------ ------ CONTINGENCIES MINORITY INTEREST IN SUBSIDIARIES........................... $ 7 $ 7 ------ ------ SHAREHOLDERS' EQUITY Capital stock Preferred, authorized 10,000,000 shares; issued none.... $ -- $ -- Common, $1 par value; authorized 600,000,000 shares; issued 1998 -- 229,945,014 shares; 1997 -- 278,846,889 shares................................................ 230 93 Class B common, $1 stated value; authorized 120,000,000 shares; issued 1998 -- 49,333,758 shares; 1997 -- none.......................................... 49 -- Additional paid-in capital................................ 246 43 Retained earnings......................................... 1,428 1,436 Unrealized (loss) gain on available-for-sale securities, net..................................................... (2) 19 Cumulative translation adjustment......................... (44) (26) ------ ------ $1,907 $1,565 Less Cost of common shares acquired for the treasury, 1998 -- 38,951,380 shares; 1997 -- 32,178,084 shares................................................ (631) (393) Unearned compensation................................... (29) (24) ------ ------ $1,247 $1,148 ------ ------ $1,717 $1,603 ====== ======
See Notes to Consolidated Financial Statements. F-3 43 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, --------------------------------------- 1998 1997 1996 --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NET SALES................................................... $1,835 $1,784 $1,721 ------ ------ ------ Operating costs and expenses Cost of goods sold........................................ $ 789 $ 771 $ 727 Research and product development.......................... 155 146 136 Selling................................................... 395 374 382 General and administrative................................ 137 130 129 ------ ------ ------ $1,476 $1,421 $1,374 ------ ------ ------ Operating income.......................................... $ 359 $ 363 $ 347 Investment income........................................... 45 22 22 Interest expense............................................ (13) (8) (11) Net exchange and other gains (losses)....................... 16 (4) (4) ------ ------ ------ Income before items below................................. $ 407 $ 373 $ 354 Provision for income taxes.................................. (134) (127) (127) Minority interest and other................................. (3) (3) (4) ------ ------ ------ Net income................................................ $ 270 $ 243 $ 223 ====== ====== ====== Preferred stock dividend.................................... $ 9 $ -- $ -- Net income available to common shareholders................. $ 261 $ 243 $ 223 Net income per common share Basic..................................................... $ 1.13 $ .98 $ .89 Diluted................................................... $ 1.08 $ .98 $ .89 Average shares outstanding Basic..................................................... 231.5 246.9 249.5 Diluted................................................... 250.3 247.5 249.8
See Notes to Consolidated Financial Statements. F-4 44 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, ----------------------------- 1998 1997 1996 ------- ----- ----- (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 270 $ 243 $ 223 Noncash items included in net income Depreciation and amortization.......................... 90 89 77 Provision for doubtful accounts........................ 6 6 5 Gain on disposal of assets............................. (24) (5) (4) Other noncash items, net............................... (5) 7 1 Change in assets and liabilities, net Receivables............................................ (108) (77) (46) Inventories............................................ (62) (72) 43 Accounts payable and accrued expenses.................. 4 (4) 61 Income taxes payable................................... 20 (38) 40 Other assets and liabilities........................... 49 27 (11) ------- ----- ----- Net cash provided by operating activities.............. $ 240 $ 176 $ 389 ------- ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of assets.............................. $ 50 $ 29 $ 15 Capital expenditures...................................... (119) (127) (116) Technology investments.................................... (9) (24) (48) Other, net................................................ (12) (7) 5 ------- ----- ----- Net cash used in investing activities.................. $ (90) $(129) $(144) ------- ----- ----- CASH FLOWS FROM FINANCING ACTIVITIES Net short-term borrowings (payments)...................... $ (7) $ 81 $ (42) Proceeds from long-term borrowings........................ 1 -- 1 Principal payments on long-term borrowings................ (6) (11) (55) Purchase of common stock.................................. (1,756) (25) (62) Issuance of common and convertible preferred stock........ 1,706 -- -- Cash dividends paid....................................... (92) (79) (69) ------- ----- ----- Net cash used in financing activities.................. $ (154) $ (34) $(227) ------- ----- ----- Effect of foreign currency exchange rate changes on cash and cash equivalents.......................................... $ (7) $ (15) $ (3) ------- ----- ----- Net increase (decrease) in cash and cash equivalents... $ (11) $ (2) $ 15 Cash and cash equivalents, beginning........................ 97 99 84 ------- ----- ----- CASH AND CASH EQUIVALENTS, ENDING........................... $ 86 $ 97 $ 99 ======= ===== ===== SUPPLEMENTAL CASH FLOW INFORMATION Cash payments Interest............................................... $ 12 $ 7 $ 14 Income taxes........................................... $ 129 $ 158 $ 93 Noncash investing and financing activities Technology investments acquired by the issuance of long-term debt and the assumption of liabilities..... $ -- $ 10 $ 20
See Notes to Consolidated Financial Statements. F-5 45 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, ------------------------------ 1998 1997 1996 ------ ------ ------ (IN MILLIONS) PREFERRED STOCK Balance, beginning........................................ $ -- $ -- $ -- Issuance of 164,446 shares............................. 16 -- -- Conversion of 164,446 shares to Class B common stock... (16) -- -- ------ ------ ------ Balance, ending........................................... $ -- $ -- $ -- ------ ------ ------ COMMON STOCK Balance, beginning........................................ $ 93 $ 93 $ 93 Issuance for restricted stock plan: (1998 -- 496,266 shares; 1997 -- 766,155 shares; 1996 -- none)........ -- -- -- Issuance of 153,296,674 shares in connection with a three-for-one stock split effected in the form of a 200% stock dividend.................................. 153 -- -- Repurchase of common stock (1998 -- 49,398,135 shares; 1997 and 1996 -- none)............................... (16) -- -- ------ ------ ------ Balance ending............................................ $ 230 $ 93 $ 93 ------ ------ ------ CLASS B COMMON STOCK Balance, beginning........................................ $ -- $ -- $ -- Conversion of preferred shares......................... 16 -- -- Issuance of 32,889,172 shares in connection with a three-for-one stock split effected in the form of a 200% stock dividend.................................. 33 -- -- ------ ------ ------ Balance, ending........................................... $ 49 $ -- $ -- ------ ------ ------ ADDITIONAL PAID-IN CAPITAL Balance, beginning........................................ $ 43 $ 23 $ 18 Common stock issued from treasury for restricted stock plan................................................. -- 18 3 Common stock issued for restricted stock plan.......... 17 -- -- Issuance of common and preferred stock................. 1,690 -- -- Repurchase of common stock............................. (1,507) -- -- Tax benefits related to restricted stock plan.......... 3 2 2 ------ ------ ------ Balance, ending........................................... $ 246 $ 43 $ 23 ------ ------ ------ RETAINED EARNINGS Balance, beginning........................................ $1,436 $1,272 $1,118 Net income............................................. 270 243 223 Cash dividends on common stock (1998 -- $.37 per share; 1997 -- $.32 per share; 1996 -- $.28 per share)...... (83) (79) (69) Cash dividends on preferred stock (1998 -- $52.00 per share; 1997 and 1996 -- none)........................ (9) -- -- Three-for-one stock split in the form of a 200% stock dividend............................................. (186) -- -- ------ ------ ------ Balance, ending........................................... $1,428 $1,436 $1,272 ------ ------ ------ UNREALIZED (LOSS) GAIN ON AVAILABLE-FOR-SALE SECURITIES, NET Balance, beginning........................................ $ 19 $ 11 $ -- Change in unrealized (loss) gain....................... (21) 8 11 ------ ------ ------ Balance, ending........................................... $ (2) $ 19 $ 11 ------ ------ ------
F-6 46 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED AUGUST 31, ------------------------------ 1998 1997 1996 ------ ------ ------ (IN MILLIONS) CUMULATIVE TRANSLATION ADJUSTMENT Balance, beginning........................................ $ (26) $ (3) $ 1 Current translation adjustment......................... (18) (23) (4) ------ ------ ------ Balance, ending........................................... $ (44) $ (26) $ (3) ------ ------ ------ TREASURY STOCK Balance, beginning........................................ $ (393) $ (364) $ (303) Purchase of common stock for the treasury (1998 -- 6,627,800 shares; 1997 -- 1,107,000 shares; 1996 -- 3,446,700 shares)............................ (234) (25) (62) Common stock issued from (acquired for) the treasury: For restricted stock plan (1998 -- none; 1997 -- 52,566 shares; 1996 -- 391,077 shares).... -- -- 4 From restricted stock forfeitures and stock used to satisfy withholding taxes (1998 -- 199,843 shares; 1997 -- 209,550 shares; 1996 -- 238,230 shares)... (4) (4) (3) ------ ------ ------ Balance, ending........................................... $ (631) $ (393) $ (364) ------ ------ ------ UNEARNED COMPENSATION Balance, beginning........................................ $ (24) $ (14) $ (14) Net additions of common stock to restricted stock plan................................................. (17) (18) (6) Amortization of unearned compensation.................. 12 8 6 ------ ------ ------ Balance, ending........................................... $ (29) $ (24) $ (14) ------ ------ ------ TOTAL SHAREHOLDERS' EQUITY AT YEAR END...................... $1,247 $1,148 $1,018 ====== ====== ======
See Notes to Consolidated Financial Statements. F-7 47 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business -- The Company's business is the broad application of the science of genetics. Pioneer was founded in 1926 to apply newly discovered genetic techniques to hybridize corn. Today the Company develops, produces, and markets hybrids of corn, sorghum, and sunflowers; varieties of soybeans, alfalfa, wheat, and canola; and microorganisms useful in crop and livestock production. Approximately 90 percent of the Company's total net sales are from the sale of hybrid seed corn and soybean seed primarily within the regions of North America and Europe. Consolidation policy -- The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Cash equivalents -- The Company considers all liquid investments with a maturity at purchase of three months or less to be cash equivalents. Receivables -- Receivables are stated net of an allowance for doubtful accounts of $27 million and $23 million at August 31, 1998 and 1997, respectively. Inventories -- Inventories are valued at the lower of cost (first-in, first-out method) or market. Independent growers are contracted to produce the Company's finished seed inventory. In accordance with the contract, the Company compensates growers with bushel equivalents that can be marketed to the Company for the market price of grain for a period of time following harvest. The Company uses derivative instruments such as commodity futures and options that have a high correlation to the underlying commodity to hedge the commodity risk involved in compensating growers. Commodity contracts the Company enters into meet the criteria for hedge accounting and are accounted for on this basis. The Company regularly monitors its exposures and ensures that commodity contract amounts do not exceed the amounts of the underlying exposures. The Company does not hold or issue commodity contracts for trading purposes. It is the Company's policy to hedge commodity risk prior to setting the retail price of seed. The hedge position gains or losses are accounted for as inventory costs and expensed as cost of goods sold when the associated crop inventory is sold. In the event of early settlement of hedge contracts, gains or losses through that date continue to be deferred as a component of inventory. If the contract ceases to meet the specific criteria for use of hedge accounting, any deferred gains or losses through that date continue to be deferred; gains and losses after that date are recognized in income. Cash flows arising in respect to hedging transactions are recognized within the financial statements under cash flows from operating activities. Property and equipment -- Property and equipment is recorded at cost, net of an allowance for loss on plant closings of $3 million and $4 million at August 31, 1998 and 1997, respectively. Depreciation is computed primarily by the straight-line method over estimated service lives of two to forty years. Long-term assets -- Certain long-term assets were classified as available-for-sale securities. Available-for-sale securities held at August 31, 1998, consisted of an equity security with a cost basis of $8 million and an unrealized loss of $2 million. Available-for-sale securities held at August 31, 1997, consisted of an equity security with a cost basis of $20 million and an unrealized gain of $30 million; this security was sold in 1998 for $40 million, resulting in a gain on sale of $20 million. The Company owns various other equity security investments which are not publicly traded. Therefore, the fair value of these investments is not readily available. The majority of these investments are due to collaborative F-8 48 agreements. As a result, it is not practicable to estimate the fair value of the Company's other equity security investments. These investments are carried at approximately $1 million, which is their original cost basis net of any applicable valuation allowance. Intangibles -- Intangible assets are stated at amortized cost and are amortized by the straight-line method over one- to twenty-year periods, with the weighted-average amortization period approximating eight years for the year ended August 31, 1998. Accumulated amortization of $45 million and $38 million at August 31, 1998 and 1997, respectively, has been netted against these assets. Basis of accounting -- Subsidiary and asset acquisitions are accounted for by the purchase method. Translation of foreign currencies and foreign exchange hedging -- All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at year-end exchange rates. Translation gains and losses are not included in determining net income but are accumulated as a separate component of shareholders' equity. However, for subsidiaries considered to be operating in highly inflationary countries and for certain other subsidiaries, the U.S. dollar is the functional currency, and translation gains and losses are included in determining net income. Foreign currency transaction gains and losses are included in determining net income. The Company uses a combination of derivative instruments such as forward exchange contracts, purchased options, and cross currency swaps that have a high correlation to the underlying currency to hedge future firm commitments such as exports, contractual flows, and royalties. Foreign exchange contracts the Company enters into meet the criteria for hedge accounting and are accounted for on this basis. The Company regularly monitors its currency exposures and ensures that currency contract amounts do not exceed the amounts of the underlying exposures. The Company does not hold or issue foreign currency contracts for trading purposes. While derivative hedge instruments are subject to price fluctuations from exchange and interest rate movements, these price changes would generally be offset by changes in the U.S. dollar value of foreign sales and cash flows. Therefore, hedging gains and losses on existing foreign-dominated payables or receivables are included in other assets or liabilities and are recognized in net exchange gain (loss) in conjunction with the revaluation of the foreign-currency-dominated transaction. Unrealized gains and losses related to qualifying hedges of firm sales and purchase commitments are deferred and recognized in income when the future sales or purchases are recognized, or immediately if the commitment is canceled. Option premiums paid are amortized to income over the life of the contract. Income taxes -- Income taxes are computed in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Deferred income taxes have been provided on temporary differences in the financial statement and income tax bases of certain assets and liabilities. Deferred taxes have not been recorded on $124 million in undistributed earnings from foreign subsidiaries that have not been subjected to taxation in the United States. The Company intends to reinvest such undistributed earnings indefinitely or to repatriate them only to the extent that no additional income tax liability is created. It is not practicable to estimate the income tax liability that would be incurred if such earnings were distributed in a manner subjecting them to United States taxation. The Company files consolidated U.S. Federal income tax returns with its domestic subsidiaries; therefore, no deferred income taxes have been provided or are required for the undistributed earnings of those subsidiaries. Pension plans -- The Company's domestic and Canadian operations have defined benefit pension plans covering substantially all their employees. The plans provide benefits that are based on average monthly earnings of the employees. The funding policy is to contribute annually an amount to fund pension cost as actuarially determined by an independent pension consulting firm. Other postretirement benefits -- The Company sponsors a health care plan and a life insurance plan which provide benefits to eligible retirees. The Company's contribution is based on age and years of service at retirement. The health insurance plan contains the cost-sharing features of coinsurance and/or deductibles. The life insurance plan is paid for by the Company. Benefits under both plans are based on eligibility status for F-9 49 pension and length of service. Substantially all of the Company's U.S. and Canadian full-time employees may become eligible for these benefits upon reaching age 55 and having worked for the Company at least five years. Deferred executive compensation and supplemental retirement benefit plans -- The estimated liability for the deferred executive compensation and supplemental retirement benefit plans is being accrued over the expected remaining years of active employment. Restricted stock and stock option plans -- The Company has restricted stock plans and a non-qualified stock option plan. The Company amortizes as compensation expense the cost of stock acquired for the restricted stock plans by the straight-line method over three- and five-year restriction periods. No compensation expense is recorded under the non-qualified stock option plan. In 1997 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," as required for disclosure purposes only. The Company will continue applying the accounting treatment prescribed by the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees." Pro forma disclosures have been provided as if SFAS No. 123 were adopted for all stock-based compensation plans. Earnings per share -- Basic earnings per share have been computed by dividing net earnings by the weighted-average outstanding common stock and Class B common stock during each of the years presented. Diluted earnings per share have been calculated by also including in the computation the effect of employee stock options granted to employees as potential common shares. NOTE 2. ALLIANCE WITH DUPONT In September 1997, the Company and E.I. du Pont de Nemours and Company (DuPont) executed an agreement that created one of the world's largest private agricultural research and development collaborations. A joint venture, Optimum Quality Grains, L.L.C., was formed that markets improved quality traits to increase the value of crops for livestock feeders, grain processors, and other end users. The joint venture does not sell seed. Pioneer is the preferred worldwide provider and marketer of quality trait seed for the joint venture. The joint venture began operations January 1, 1998, and is being accounted for on the equity method of accounting. The Company's fifty percent equity interest in the joint venture's operations for the eight months ended August 31, 1998, was a loss of $6 million. During fiscal 1998, the Company loaned the joint venture $8 million at a variable interest rate with the principal and unpaid interest due at December 31, 2001. In connection with the above agreements, DuPont also acquired an equity interest in Pioneer through the purchase of 164,446 shares of convertible preferred voting stock for $1.71 billion. Effective January 30, 1998, each preferred share was converted into 100 shares of Class B common stock with a stated value of $1 per share, or $16.4 million. As required by the agreement, Pioneer used approximately $1.52 billion of the proceeds from the DuPont investment to purchase approximately 16.4 million shares of the Company's outstanding common stock through a Dutch auction self-tender. Immediately following the completion of the Dutch auction self-tender, DuPont's equity interest in Pioneer was approximately 20 percent. The agreement includes, among other things, a standstill provision that prohibits DuPont from increasing its ownership interest in the Company for 16 years from the date of the agreement without the consent of the Company. DuPont also gained two seats on the Company's Board of Directors. F-10 50 NOTE 3. INVENTORIES The composition of inventories is as follows:
AUGUST 31, -------------- 1998 1997 ----- ----- (IN MILLIONS) Finished seed.................................. $273 $245 Unfinished seed................................ 201 186 Supplies and other............................. 7 9 ---- ---- $481 $440 ==== ====
Unfinished seed represents the cost of parent seed, detasseling and roguing labor, and certain other production costs incurred by the Company to produce its seed supply. Much of the balance of the labor, equipment, and production costs associated with planting, growing, and harvesting the seed is supplied by independent growers, who contract specific acreage for the production of seed for the Company. The compensation of the independent growers is determined based upon yield, contracted acreage, and commodity prices. The commitment for grower compensation is accrued as seed is delivered to the Company. Accrued grower compensation was $13 million at August 31, 1998 and 1997. The Company uses derivative instruments such as commodity futures and options to hedge grower compensation costs. At August 31, 1998 and 1997, the Company had futures contracts with brokers on notional quantities amounting to 31 million bushels and 32 million bushels, respectively for corn, and 8 million and 6 million bushels, respectively for soybeans. At August 31, 1998 and 1997, inventories included $13 million and $4 million of unrealized losses on all open contracts, respectively. NOTE 4. CURRENT BORROWINGS, LINES OF CREDIT, LONG-TERM DEBT, AND GUARANTEES At August 31, 1998, the Company had domestic lines of credit totaling $200 million available to be used as support for the issuance of the Company's commercial paper. There was no commercial paper outstanding at August 31, 1998. Commercial paper outstanding at August 31, 1997, was $63 million at a weighted-average interest rate of 5.6 percent. In addition, the Company's foreign subsidiaries have lines of credit and direct borrowing agreements totaling $116 million, substantially all of which are unsecured. At August 31, 1998, short-term borrowings of $76 million were outstanding under foreign subsidiary agreements at a weighted-average interest rate of 13.7 percent. At August 31, 1997, short-term borrowings of $28 million were outstanding under these agreements at a weighted-average interest rate of 13.3 percent. Long-term debt at August 31, 1998, bears interest at varying rates and requires annual principal payments through fiscal 2011. The maturities of long-term debt for the next five fiscal years, in millions, are as follows: $14.4, $0.6, $1.6, $0.4, and $0.3. The Company has guaranteed the repayment of principal and interest on certain obligations of Village Court Associates, an affiliated real estate venture. At August 31, 1998 and 1997, such guarantees totaled approximately $23 million. F-11 51 NOTE 5. INCOME TAXES The provision for income taxes is based on income before income taxes as follows:
YEARS ENDED AUGUST 31, ----------------------- 1998 1997 1996 ----- ----- ----- (IN MILLIONS) United States............................................... $331 $308 $266 Foreign..................................................... 76 65 88 ---- ---- ---- $407 $373 $354 ==== ==== ====
The provision for income taxes is composed of the following components:
YEARS ENDED AUGUST 31, ----------------------- 1998 1997 1996 ----- ----- ----- (IN MILLIONS) Current Federal................................................ $ 88 $ 80 $ 83 State.................................................. 12 9 11 Foreign................................................ 32 31 44 ---- ---- ---- $132 $120 $138 ---- ---- ---- Deferred Federal................................................ $ (2) $ 8 $ (9) State.................................................. -- 1 (1) Foreign................................................ 4 (2) (1) ---- ---- ---- $ 2 $ 7 $(11) ---- ---- ---- $134 $127 $127 ==== ==== ====
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at August 31, 1998 and 1997, are presented below:
1998 1997 ----- ----- (IN MILLIONS) Deferred tax assets Allowance for doubtful accounts........................... $ 7 $ 6 Inventories............................................... 22 29 Benefits/compensation..................................... 48 40 Deferred profit........................................... 12 9 Nondeductible reserves.................................... 7 9 Net operating loss carryforwards.......................... 8 6 Other..................................................... 11 11 ---- ---- Total gross deferred tax asset.................... $115 $110 Less valuation allowance.......................... (4) (8) ---- ---- Total deferred tax asset.......................... $111 $102 ---- ---- Deferred tax liabilities Property and equipment.................................... $(61) $(55) Unrealized gain on available-for-sale securities.......... -- (10) ---- ---- Total deferred tax liability...................... $(61) $(65) ---- ---- Net deferred tax asset............................ $ 50 $ 37 ==== ====
The net operating loss carryforwards result from various international subsidiaries. The expiration of these net operating losses range from 1999 to indefinite. Utilization of these losses is dependent upon earnings F-12 52 generated in the respective subsidiaries. A valuation allowance has been established where appropriate for the losses and certain other items. The net change in the total valuation allowance for the year ended August 31, 1998, was a decrease of $4 million. There was no change in the total valuation allowance for the year ended August 31, 1997. Following is a reconciliation of the statutory U.S. Federal income tax rate to the Company's actual worldwide effective income tax rate:
YEARS ENDED AUGUST 31, ----------------------- 1998 1997 1996 ----- ----- ----- Statutory U.S. Federal income tax rate...................... 35.0% 35.0% 35.0% State income taxes, net of Federal income tax benefit....... 1.9 1.8 1.8 Effect of taxes on foreign earnings......................... (1.9) (1.5) -- Foreign Sales Corporation................................... (1.3) (1.4) (0.5) Other....................................................... (0.7) 0.1 (0.3) ----- ----- ----- Actual effective income tax rate....................... 33.0% 34.0% 36.0% ===== ===== =====
NOTE 6. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS QUALIFIED PENSION PLANS: The components of pension expense relating to qualified defined benefit pension plans for the years ended August 31, 1998, 1997, and 1996, consisted of the following:
1998 1997 1996 ---- ---- ---- (IN MILLIONS) Service cost................................................ $ 10 $ 8 $ 7 Interest cost on projected benefit obligation............... 15 12 11 Actual return on plan assets................................ (48) (16) (14) Net amortization and deferral............................... 27 (1) (1) ---- ---- ---- Pension expense........................................ $ 4 $ 3 $ 3 ==== ==== ====
The following table sets forth the plans' funded status as of June 30, 1998 and 1997, respectively:
1998 1997 ---- ---- (IN MILLIONS) Actuarial present value of benefit obligations Vested benefit obligation................................. $151 $121 ==== ==== Accumulated benefit obligation............................ $160 $129 ==== ==== Plan assets at fair value, primarily stocks and bonds....... $254 $214 Projected benefit obligation................................ 221 187 ---- ---- Plan assets in excess of projected benefit obligation....... $ 33 $ 27 Unrecognized net gain....................................... (26) (16) Unrecognized prior service cost............................. 3 2 Unrecognized transition asset, net (recognized over 16 years).................................................... (5) (7) ---- ---- Pension asset.......................................... $ 5 $ 6 ==== ====
Plan assets include common stock of the Company totaling $32 million and $21 million at June 30, 1998 and 1997, respectively. F-13 53 The following actuarial assumptions were used to determine the present value of benefit obligations for 1998 and 1997 respectively: discount rate of 7 percent and 8 percent, expected long-term rate of return on plan assets of 9.5 percent and 9 percent, and rate of increase in compensation levels of 5.5 percent and 6.5 percent. NON-QUALIFIED PENSION PLANS: The components of pension expense relating to non-qualified pension plans for the years ended August 31, 1998, 1997, and 1996, consisted of the following:
1998 1997 1996 ---- ---- ---- (IN MILLIONS) Service cost................................................ $2 $2 $1 Interest cost on projected benefit obligation............... 4 3 3 Net amortization and deferral............................... 1 1 1 -- -- -- Pension expense........................................ $7 $6 $5 == == ==
The following table sets forth the plans' funded status as of August 31, 1998 and 1997, respectively:
1998 1997 ---- ---- (IN MILLIONS) Actuarial present value of benefit obligations Vested benefit obligation................................. $ 21 $ 17 ==== ==== Accumulated benefit obligation............................ $ 21 $ 17 ==== ==== Plans' assets at fair value................................. $ -- $ -- Projected benefit obligation................................ 61 50 ---- ---- Plans' assets less than projected benefit obligation........ $(61) $(50) Unrecognized net loss....................................... 19 13 Unrecognized prior service cost............................. 10 11 Unrecognized transition asset, net.......................... 1 1 ---- ---- Accrued pension liabilities............................ $(31) $(25) ==== ====
In determining the present value of benefit obligations, a discount rate of 7 percent and 8 percent was used in 1998 and 1997, respectively. The assumed rate of increase in compensation levels used was 8 percent in both years. OTHER POSTRETIREMENT BENEFIT PLANS: The components of postretirement benefits cost expensed for the years ended August 31, 1998, 1997, and 1996, consisted of the following:
1998 1997 1996 ---- ---- ---- (IN MILLIONS) Service cost -- benefits earned during the year............. $2 $2 $2 Interest cost on accumulated postretirement benefit obligation................................................ 4 3 3 Return on assets............................................ -- -- -- Net amortization and deferral............................... -- -- -- -- -- -- Other postretirement benefits cost..................... $6 $5 $5 == == ==
F-14 54 The following table sets forth the plans' funded status as of August 31, 1998 and 1997, respectively:
1998 1997 ---- ---- (IN MILLIONS) Accumulated postretirement benefit obligation Retirees.................................................... $(16) $(15) Other fully eligible plans' participants.................... (12) (10) Other active plans' participants............................ (34) (23) ---- ---- $(62) $(48) Plans' assets at fair value................................. -- -- ---- ---- Accumulated postretirement benefit obligation in excess of plans' assets............................................. $(62) $(48) Unrecognized prior service cost............................. (2) (2) Unrecognized net loss....................................... 16 7 ---- ---- Accrued postretirement benefits cost................... $(48) $(43) ==== ====
For 1998 and 1997, the discount rate used in determining the accumulated postretirement benefit obligation was 7 percent and 8 percent, respectively. An 8.5 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998. This rate was assumed to decrease gradually to 5.5 percent in year 2004 and remain at that level thereafter. A one-percentage-point increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation as of August 31, 1998, by approximately $12 million and the total of the service and interest cost components of net postretirement health care cost for the year then ended by approximately $1 million. NOTE 7. LEGAL MATTERS Since April, 1996, DeKalb Genetics Corporation ("DeKalb") has filed five lawsuits against Pioneer. The lawsuits allege that insect resistant corn products that use a Bt gene, and corn products resistant to a glufosinate herbicide, infringe on certain DeKalb patents. After reviewing the Company's intellectual property position, DeKalb's patent filings, DeKalb's lawsuits, and conducting extensive discovery, Pioneer continues to believe all DeKalb's claims are without merit. Pioneer has denied DeKalb's allegations and raised defenses that, if successful, would render DeKalb's patents invalid. Pioneer believes that disposition of the lawsuits will not have a materially adverse effect on the consolidated financial position and results of operations of the Company. Pioneer also does not expect delays in the introductions of advanced corn hybrids with insect and herbicide resistance because of these lawsuits. NOTE 8. FINANCIAL INSTRUMENTS FOREIGN EXCHANGE: The Company uses derivative instruments such as forward exchange contracts, purchased options, and cross currency swaps to hedge foreign-currency-denominated transactions such as exports, contractual flows, and royalty payments. In some countries, these derivative hedge instruments are not available or are cost prohibitive. The exposures in these countries are addressed through managing net asset positions, borrowing in local currency, or investing in U.S. dollars. While derivative hedge instruments are subject to risk of loss from exchange and interest rate movements, we expect these changes would generally be offset by changes in the U.S. dollar value of foreign sales and/or cash flows. The Company does not hold these instruments with the objective of earning financial gains on the exchange rate price fluctuations alone, nor does it enter into derivative hedge instruments for which there are no underlying transaction related exposures. F-15 55 The notional amounts for contracts in place at August 31, 1998 and 1997, are shown in the following table in U.S. dollars. These contracts generally mature in less than one year.
1998 1997 ---- ---- (IN MILLIONS) Forwards.................................................... $286 $229 Options purchased........................................... 7 15 Swaps....................................................... -- 19 ---- ---- $293 $263 ==== ====
At August 31, 1998, the Company had deferred unrealized gains of $4 million and losses of $5 million from hedging firm purchase and sale commitments, based on broker quoted prices. CREDIT RISK: The Company's financial instruments subject to credit risk are primarily trade accounts receivable, cash and cash equivalents, and foreign currency exchange contracts. The Company is exposed to credit risk of nonperformance by counterparties. Generally, the Company does not require collateral or other security to support customer receivables or foreign currency exchange contracts. The counterparties to the Company's derivative hedge instruments are major financial institutions. The Company evaluates the creditworthiness of the counterparties to these instruments and has never experienced, nor does it anticipate, nonperformance by any of its counterparties. The Company had the following significant concentrations of trade accounts receivables, and cash and cash equivalents subject to credit risk:
AUGUST 31, -------------- 1998 1997 ---- ---- (IN MILLIONS) United States............................................... $212 $151 Italy....................................................... $ 79 $ 69 Brazil...................................................... $ 18 $ 19 Argentina................................................... $ 35 $ 27 Central Europe.............................................. $ 23 $ 16
Within the U.S., the majority of the Company's business is conducted with individual farm operators located throughout the country. Outside the U.S., the majority of the Company's business is transacted with distributors and cooperatives, some being government sponsored. FAIR VALUE: The Company estimated the fair value of its financial instruments by discounting the expected future cash flows using the current interest rates that would apply to each class of financial instruments, except for foreign currency contracts, for which quotes from brokers were used. The fair value of cash equivalents, receivables, short-term borrowings, long-term debt, and foreign currency contracts approximates carrying value at August 31, 1998. NOTE 9. CAPITAL STOCK VOTING RIGHTS: As a result of equity transactions with DuPont, the Company issued convertible preferred stock which was subsequently converted to Class B common stock. Except for the calculation of votes per share, shareholder rights and preferences are substantially the same for both common stock and Class B common stock. Each share of common stock is generally entitled to five votes if it has been beneficially owned continuously by the same holder for a period of 36 months. All other shares are entitled to one vote per share. Holders of Class B common F-16 56 stock are entitled to cast votes equal to their percentage of common stock equivalent economic ownership interest in the Company, not to exceed 20 percent. Class B common stock is convertible to common stock only upon sale of the Class B common stock by DuPont. STOCK SPLIT: On March 10, 1998, the Board of Directors approved a three-for-one stock split effected in the form of a 200 percent stock dividend. The stock dividend was paid on April 23, 1998, to shareholders of record on March 27, 1998. All share and per share data have been adjusted to reflect this stock split. SHARE REPURCHASE: At August 31, 1998, authorized shares remaining to be purchased under a Board authorized repurchase plan approximated 4.8 million. RESTRICTED STOCK PLANS: The Company has a restricted stock plan under which shares of the Company's common stock are held by officers and key employees. Such stock is subject to an agreement requiring forfeiture by the employee in the event of termination of employment within five years of the date of grant other than as a result of retirement, death, or disability. The maximum number of shares authorized for grant under this plan is 5,250,000 shares, of which 1,257,162 had been granted as of August 31, 1998. There are 1,227,825 shares outstanding under a previous restricted stock plan. The Company also has a restricted stock plan under which shares of the Company's common stock are held by non-employee directors of the Company in lieu of cash compensation. The maximum number of shares authorized for grant under this plan is 75,000, of which 42,918 have been granted as of August 31, 1998. STOCK OPTION PLAN: During 1996, the Company adopted a non-qualified stock option plan. The plan authorizes options covering nine million shares of the Company's common stock. All options outstanding as of August 31, 1998, become exercisable one-third in each of years three, four, and five from the date of grant. The options expire after ten years from the date of grant. Options are forfeited upon termination for reasons other than retirement, death, or disability. The Company applies APB Opinion No. 25 and related interpretations in accounting for the fixed stock option plan. Accordingly, no compensation cost has been recognized for the plan. Had compensation cost for the Company's fixed stock option plan been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts as follows:
YEARS ENDED AUGUST 31, ------------------------------ 1998 1997 1996 ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net Income as reported...................................... $ 270 $ 243 $ 223 Pro forma net income........................................ $ 267 $ 240 $ 221 Earnings per share as reported.............................. $1.08 $0.98 $0.89 Pro forma earnings per share................................ $1.07 $0.97 $0.88
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998, 1997, and 1996, respectively: risk-free interest rate of 5.7 percent, 6.7 percent, and 6.4 percent; expected life of 7.5 each year; expected volatility of 26 percent, 22 percent, and 22 percent; and dividend yield of 1.4 percent, 1.4 percent, and 1.5 percent. F-17 57 A summary of the status of the Company's fixed stock option plan as of August 31, 1998, 1997, and 1996, and changes during the years ended on those dates is presented below:
1998 1997 1996 ---------------------- ------------------------ ---------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- --------- ---------- --------- ---------- --------- Outstanding at beginning of year.... 2,991,000 $15 2,919,000 $14 -- $-- Granted............................. 207,000 $35 72,000 $26 2,919,000 $14 ---------- ---------- ---------- Outstanding at end of year.......... 3,198,000 $16 2,991,000 $15 2,919,000 $14 ========== === ========== === ========== === Options exercisable at year end..... -- -- -- Weighted-average fair value of options granted during the year..... $ 12.42 $ 9.16 $ 4.96
The following table summarizes information about fixed stock options outstanding at August 31, 1998.
OPTIONS OUTSTANDING - ---------------------------------------------------- NUMBER OUTSTANDING AT WEIGHTED-AVERAGE WEIGHTED-AVERAGE AUGUST 31, REMAINING EXERCISE PRICE 1998 CONTRACTUAL LIFE - ---------------- -------------- ---------------- $14 2,919,000 7.0 years $26 72,000 8.8 years $35 207,000 9.2 years
On September 14, 1998 the Board of Directors authorized the issuance of 1,055,150 options under this plan. These options have an exercise price of $32, the market value of the stock on the date of grant. One third of the options become exercisable one year after the date of grant, a second third two years after the date of grant, and the remaining third three years after the date of grant. There are no options exercisable at August 31, 1998. NOTE 10. EARNINGS PER SHARE Both common stock and Class B common stock are included jointly in all reference to common stock. The following tables provide a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented:
YEAR ENDED AUGUST 31, ------------------------------------------------------------------------------------------------------ 1998 1997 1996 -------------------------------- -------------------------------- -------------------------------- PER- PER- PER- INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT -------------------------------- -------------------------------- -------------------------------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Basic earnings per share Net Income.............. $270 $243 $233 Preferred stock dividends............. (9) -- -- ---- ---- ---- Net income attributable to common shareholders $261 231.5 $1.13 $243 246.9 $ .98 $223 249.5 $ .89 ===== ====== ====== Effect of dilutive securities Convertible preferred stock................. 9 17.7 -- -- -- -- Stock options........... -- 1.1 -- 0.6 -- 0.3 ---- ----- ---- ----- ---- ------ Diluted earnings per share Net income attributable to common shareholders $270 250.3 $1.08 $243 247.5 $ .98 $223 249.8 $ .89 ==== ===== ===== ==== ===== ====== ==== ====== ======
F-18 58 NOTE 11. GEOGRAPHIC DATA Certain financial information concerning the Company's domestic and foreign operations is as follows:
YEARS ENDED AUGUST 31, ------------------------------ 1998 1997 1996 ------ ------ ------ (IN MILLIONS) Net sales (by source) United States............................................. $1,818 $1,626 $1,435 Europe.................................................... 349 391 387 Other..................................................... 250 240 222 ------ ------ ------ $2,417 $2,257 $2,044 Less intergeographical sales, primarily United States..... 582 473 323 ------ ------ ------ $1,835 $1,784 $1,721 ====== ====== ====== Operating income (by source) United States.................. $ 355 $ 365 $ 334 Europe.................................................... 53 49 56 Other..................................................... 39 26 33 ------ ------ ------ $ 447 $ 440 $ 423 Indirect general and administrative expense............... (88) (77) (76) ------ ------ ------ $ 359 $ 363 $ 347 ====== ====== ====== Identifiable assets at August 31 United States............................................. $ 867 $ 843 $ 701 Europe.................................................... 240 228 224 Other..................................................... 369 322 244 ------ ------ ------ $1,476 $1,393 $1,169 Corporate................................................. 241 210 253 ------ ------ ------ $1,717 $1,603 $1,422 ====== ====== ====== Export sales: Primarily Europe.......................................... $ 18 $ 18 $ 20 ====== ====== ======
NOTE 12. UNAUDITED QUARTERLY FINANCIAL DATA Summarized unaudited quarterly financial data for 1998 is as follows:
THREE MONTHS ENDED NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31 ------------------ ----------- ----------- ------ --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net sales.......................................... $ 79 $ 302 $1,317 $ 137 Gross profit....................................... $ (6) $ 117 $ 757 $ 22 Net income (loss).................................. $ (51) $ 4 $ 366 $ (49) Preferred stock dividend........................... $ 4 $ 5 $ -- $ -- Net income (loss) available to common shareholders..................................... $ (55) $ (1) $ 366 $ (49) Net income (loss) per common share (a)(b) Basic......................................... $(.24) $(.01) $ 1.50 $(.20) Diluted....................................... $(.24) $(.01) $ 1.50 $(.20) Cash Dividends per common share (b)................ $.087 $.087 $ .087 $ .10
F-19 59 Summarized unaudited quarterly financial data for 1997 is as follows:
THREE MONTHS ENDED NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31 ------------------ ----------- ----------- ------ --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net sales.......................................... $ 90 $ 264 $1,288 $ 142 Gross profit....................................... $ 10 $ 94 $ 735 $ 28 Net income (loss).................................. $ (45) $ (2) $ 332 $ (42) Preferred stock dividend........................... $ -- $ -- $ -- $ -- Net income (loss) available to common shareholders..................................... $ (45) $ (2) $ 332 $ (42) Net income (loss) per common share Basic......................................... $(.18) $(.01) $ 1.35 $(.17) Diluted....................................... $(.18) $(.01) $ 1.35 $(.17) Cash dividends per common share(b)................. $.077 $.077 $ .077 $.087
- --------------- (a) Due to the conversion of preferred stock to Class B common stock late in the second quarter, the total of the four quarters' basic earnings per share does not equal the basic earnings per share for the year. As the first six months of fiscal 1998 reflect a loss available to common shareholders, the effect of convertible preferred stock and stock options are not included in the calculation of diluted earnings per share because their effects are anti-dilutive. As a result, the total of the four quarters' diluted earnings per share may not equal the diluted earnings per share for the year. (b) As a result of rounding, the total of the four quarters' earnings and cash dividends per share may not equal the earnings and cash dividends per share for the year. NOTE 13. UNAUDITED SUBSEQUENT EVENT On November 10, 1998, two lawsuits filed by DeKalb (see Note 7) were dismissed with prejudice. These lawsuits alleged the Company had infringed on DeKalb patents by using glufosinate resistant products in developing corn hybrids. F-20 60 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
NOVEMBER 30, AUGUST 31, NOVEMBER 30, 1998 1998 1997 ------------ ------------- ------------ (UNAUDITED) (UNAUDITED) (IN MILLIONS) ASSETS CURRENT ASSETS Cash and cash equivalents........................... $ 77 $ 86 $ 76 Accounts and notes receivable, net.................. 261 400 237 Inventories: Finished seed.................................... 435 273 429 Unfinished seed.................................. 407 201 372 Other............................................ 12 7 11 Income taxes receivable............................. 12 -- -- Deferred income taxes............................... 61 69 63 Prepaid expenses and other current assets........... 11 3 11 ------ ------ ------ Total current assets........................ $1,276 $1,039 $1,199 ------ ------ ------ LONG-TERM ASSETS...................................... 51 47 79 PROPERTY AND EQUIPMENT, net of accumulated depreciation and allowances November 30, 1998 -- $536; August 31, 1998 -- $520; November 30, 1997 -- $509........................... 598 576 554 INTANGIBLES........................................... 65 55 65 ------ ------ ------ $1,990 $1,717 $1,897 ====== ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings............................... $ 289 $ 76 $ 85 Current maturities of long-term debt................ 11 14 6 Accounts payable, trade............................. 344 81 340 Accrued compensation................................ 34 61 33 Income taxes payable................................ -- 46 9 Other accruals...................................... 40 67 51 ------ ------ ------ Total current liabilities................... $ 718 $ 345 $ 524 ------ ------ ------ LONG-TERM DEBT........................................ $ 5 $ 5 $ 19 ------ ------ ------ DEFERRED ITEMS Retirement benefits................................. $ 96 $ 94 $ 84 Income taxes........................................ 19 19 19 ------ ------ ------ $ 115 $ 113 $ 103 ------ ------ ------ MINORITY INTEREST IN SUBSIDIARIES..................... $ 7 $ 7 $ 6 ------ ------ ------ SHAREHOLDERS' EQUITY Preferred stock, $100 stated value.................. $ -- $ -- $ 16 Common stock, $1 par value.......................... 230 230 76 Class B Common, $1 stated value..................... 49 49 -- Additional paid-in capital.......................... 246 246 227 Retained earnings................................... 1,329 1,428 1,360 Accumulated other comprehensive loss, net........... (36) (46) (19) ------ ------ ------ $1,818 $1,907 $1,660 Less: Cost of common shares acquired for the treasury..... (647) (631) (393) Unearned compensation............................... (26) (29) (22) ------ ------ ------ $1,145 $1,247 $1,245 ------ ------ ------ $1,990 $1,717 $1,897 ====== ====== ======
See Notes to Consolidated Condensed Financial Statements. F-21 61 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, -------------------------- 1998 1997 (UNAUDITED) (UNAUDITED) ----------- ----------- (IN MILLIONS) NET SALES................................................... $ 76 $ 79 ------- ------- Operating costs and expenses: Cost of goods sold........................................ $ 56 $ 51 Research and product development.......................... 40 34 Selling................................................... 54 55 General and administrative................................ 35 28 ------- ------- $ 185 $ 168 ------- ------- Operating loss............................................ $ (109) $ (89) Investment income........................................... 5 18 Interest expense............................................ (5) (2) Net exchange loss........................................... (5) (5) ------- ------- Loss before items shown below............................. $ (114) $ (78) Provision for income taxes.................................. 39 27 Minority interest and other................................. -- -- ------- ------- Net loss.................................................. $ (75) $ (51) ======= ======= Preferred stock dividend.................................... $ -- $ 4 Net loss attributable to common shareholders.............. $ (75) $ (55) Basic and diluted net loss per common share*................ $ (.31) $ (.24) Dividends per common share*................................. $ .10 $ .087 Average common shares outstanding........................... 240.0 226.0
- --------------- * Not in millions See Notes to Consolidated Condensed Financial Statement. F-22 62 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED NOVEMBER 30, -------------------------- 1998 1997 ----------- ----------- (UNAUDITED) (UNAUDITED) (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss)................................................ $ (75) $ (51) Noncash items included in net (loss) Depreciation and amortization.......................... 27 22 Other.................................................. (4) (12) Net change in assets and liabilities...................... (84) (104) ------- ------- Net cash used in operating activities.................. $ (136) $ (145) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... $ (37) $ (30) Other..................................................... (14) 8 ------- ------- Net cash used in investing activities.................. $ (51) $ (22) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) proceeds on short-term borrowings.......... $ 220 $ (4) Purchase of common stock.................................. (16) (1,525) Dividends paid............................................ (24) (26) Net proceeds from issuance of preferred stock............. -- 1,701 Net (payments) proceeds on long-term debt................. (3) -- ------- ------- Net cash provided by financing activities.............. $ 177 $ 146 ------- ------- Net decrease in cash and cash equivalents.............. $ (9) $ (21) Cash and cash equivalents, beginning........................ 86 97 ------- ------- CASH AND CASH EQUIVALENTS, ENDING........................... $ 77 $ 76 ======= ======= SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest............................................... $ 5 $ 1 ======= ======= Income taxes........................................... $ 10 $ 9 ======= ======= NONCASH FINANCING ACTIVITIES: Retirement of 16,466,045 shares of treasury stock: Common stock........................................... $ -- $ 16 Additional paid-in capital -- 1,509 ------- ------- Treasury stock......................................... $ -- $ 1,525 ======= =======
See Notes to Consolidated Condensed Financial Statements. F-23 63 PIONEER HI-BRED INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present the financial position as of November 30, 1998 and 1997, and the results of operations and cash flows for the three months ended November 30, 1998 and 1997. Because of the seasonal nature of the Company's business, the results of operations for the three months ended November 30, 1998, may not be indicative of the results to be expected for the full year. 2. Pioneer has guaranteed the repayment of principal and interest on certain obligations of Village Court Associates, an affiliated real estate venture. Such guarantees totaled approximately $23 million at November 30, 1998 and 1997. 3. Since April, 1996, DeKalb Genetics Corporation ("DeKalb") has filed six lawsuits against Pioneer. The lawsuits allege that insect resistant corn products that use a Bt gene, and corn products resistant to a glufosinate herbicide, infringe on certain DeKalb patents. On November 10, 1998, two of the six lawsuits filed were dismissed with prejudice. These two lawsuits alleged the Company had infringed on DeKalb patents by using glufosinate resistant products in developing corn hybrids. After reviewing the Company's intellectual property position, DeKalb's patent filings, DeKalb's lawsuits, and conducting extensive discovery, Pioneer continues to believe all DeKalb's claims are without merit. Pioneer has denied DeKalb's allegations and raised defenses that, if successful, would render DeKalb's patents invalid. Pioneer believes that disposition of the lawsuits will not have a materially adverse effect on the consolidated financial position and results of operations of the Company. Pioneer also does not expect delays in the introductions of advanced corn hybrids with insect and herbicide resistance because of these lawsuits. 4. The following table summarizes the computation of weighted average shares outstanding:
PERIOD ENDED NOVEMBER 30, -------------- 1998 1997 ----- ----- (IN MILLIONS) Number of shares of common stock outstanding at beginning of the period.................................................. 240.3 246.7 Weighted average number of shares of common stock issued during the period......................................... -- -- Weighted average number of shares of common stock purchased for the treasury.......................................... (0.3) (20.7) ----- ----- Weighted average number of shares of common stock outstanding during the period............................. 240.0 226.0 ===== =====
F-24 64 5. The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented:
THREE MONTHS ENDED NOVEMBER 30, --------------------------------------------------------------------------------- 1998 1997 --------------------------------------- --------------------------------------- INCOME/(LOSS) SHARES PER-SHARE INCOME/(LOSS) SHARES PER-SHARE NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT ------------- ----------- --------- ------------- ----------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net (loss)................ $(75) $(51) Less: Preferred stock dividends............... -- 4 ---- ---- BASIC EARNINGS (LOSS) PER SHARE: (Loss) attributable to common shareholders..... $(75) 240.0 $(.31) $(55) 226.0 $(.24) ===== ===== EFFECT OF DILUTIVE SECURITIES: Convertible preferred stock................... -- -- -- -- Stock options............. -- -- -- -- ---- ------ ---- ----- DILUTED EARNINGS (LOSS) PER SHARE: (Loss) attributable to common shareholders..... $(75) 240.0 $(.31) $(55) 226.0 $(.24) ==== ====== ===== ==== ===== =====
The periods presented reflect a loss attributable to common shareholders. As a result, the effect of convertible preferred stock and stock options are not included in the calculation of diluted earnings per share as their effects are anti-dilutive. 6. ACCOUNTING PRONOUNCEMENTS As of September 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement has no impact on a company's net income (loss) or shareholders' equity. SFAS No. 130 requires other comprehensive income to include foreign currency translation adjustments and unrealized gains and losses on certain investments in debt and equity securities classified as available-for-sale securities, which prior to adoption were reported separately in shareholders' equity. The November 30, 1997, and August 31, 1998, financial statements have been reclassified to conform to the requirements of SFAS No. 130. During the first quarter of 1999 and 1998, total comprehensive loss, which includes net loss and other comprehensive income (loss), amounted to $65 million and $53 million, respectively. F-25 65 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOGO PIONEER HI-BRED INTERNATIONAL, INC. $200,000,000 % SENIOR NOTES DUE --------------------------- LAZARD FRERES & CO. LLC CHASE SECURITIES INC. JANUARY , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 66 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Except for the Registration Fee, all expenses are estimated: Registration fee............................................ $ 55,600 Trustee's fees and expenses (including counsel fees)........ 5,000 Accounting fees and expenses................................ 60,000 Legal fees and expenses..................................... 75,000 Blue sky fees and expenses.................................. 7,000 Printing expenses........................................... 65,000 Rating agency fees.......................................... 130,000 Miscellaneous............................................... 2,400 -------- Total expenses......................................... $400,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Iowa Business Corporation Act (the "IBCA") provides for or permits indemnification of directors and officers for acts in their capacities as such in certain situations summarized below. Unless limited by articles of incorporation, a corporation must indemnify a director or an officer who is wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party against reasonable expenses incurred by him or her in connection with such proceeding. In addition, unless the articles of incorporation provide otherwise, a court may order a company to indemnify a director or officer if it determines that such director or officer is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he or she has met the applicable standard of conduct or was adjudged liable in a derivative action or for receiving an improper personal benefit. In such case, if the director or officer was adjudged liable, the court must limit indemnification to reasonable expenses incurred. The IBCA permits indemnification if a director or officer acted in good faith and in a manner reasonably believed to be in the Company's best interests, and, in a criminal action, if such person had no reasonable cause to believe that his or her conduct was unlawful. No indemnification is permitted in connection with a proceeding by or in the right of a corporation in which the person was adjudged liable to the corporation or in connection with any proceeding in which the director or officer was adjudged liable for receiving an improper personal benefit. The IBCA permits advancement of expenses to a director or officer upon (i) receipt of an undertaking to repay all amounts advanced if it shall be determined ultimately that he or she is not entitled to be indemnified by the corporation; (ii) the person furnishes the corporation a written affirmation of the person's good faith belief that he or she has met the applicable standard of conduct; or (iii) determination is made that the facts then known to those making the determination would not preclude indemnification. The IBCA provides that, subject to certain limitations, its indemnification provisions shall not be deemed exclusive of any other right to indemnification to which a director or officer may be entitled under the articles of incorporation or bylaws, or any agreement, vote of shareholders or disinterested directors, or otherwise. Notwithstanding the foregoing, indemnification cannot be provided in the case of (i) a breach of the director's duty of loyalty to the corporation or its shareholders; (ii) an act or omission not in good faith; (iii) intentional misconduct; (iv) a knowing violation of law; (v) a transaction from which the person seeking indemnification derives an improper personal benefit; (vi) liability for certain unlawful distributions; and (vii) liability in a proceeding by or in the right of the corporation. The bylaws of the Company provide for indemnification of directors and officers of the Company to the fullest extent permitted by Iowa law. II-1 67 The Company has entered into contracts with each of its directors and executive officers providing for indemnification and reimbursement of expenses to the fullest extent permitted by Iowa law in connection with actions against them in their capacities as such. Reference is made to the Underwriting Agreement, filed as Exhibit 1 to this Registration Statement, for information concerning indemnification arrangements among the Company and the underwriters. ITEM 16. EXHIBITS. 1 Form of Underwriting Agreement 4.1 Form of Indenture 4.2 Forms of Notes (included in Exhibit 4.1) 5 Opinion of Baker & Hostetler LLP* 12 Computation of Ratio of Earnings to Fixed Charges* 23.1 Consent of KPMG Peat Marwick LLP* 23.2 Consent of Baker & Hostetler LLP (contained in Exhibit 5)* 24 Power of Attorney* 25 Statement of Eligibility and Qualification on Form T-1 of Chase Manhattan Trust Company, National Association, as Trustee under the Indenture*
- --------------- * Previously filed. ITEM 17. UNDERTAKINGS. The Company hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Company's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of any employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Company pursuant to the provisions described under Item 15 above or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The Company hereby undertakes that: (1) For the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (l) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 68 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Pioneer Hi-Bred International, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Des Moines, State of Iowa, on January 12, 1999. PIONEER HI-BRED INTERNATIONAL, INC. * -------------------------------------- Charles S. Johnson, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed below by the following persons on behalf of Pioneer Hi-Bred International, Inc. in the capacities indicated, on January 12, 1999. * Chairman, President and Chief - ------------------------------------------------ Executive Officer Charles S. Johnson * Executive Vice President, Chief - ------------------------------------------------ Operating Officer and Director Jerry L. Chicoine * Corporate Controller - ------------------------------------------------ Duane A. Suess * Vice President and Chief Financial - ------------------------------------------------ Officer Brian G. Hart * Director - ------------------------------------------------ Nancy Y. Bekavac * Director - ------------------------------------------------ C. Robert Brenton * Director - ------------------------------------------------ Fred S. Hubbell * Director - ------------------------------------------------ Luiz Kaufmann * Director - ------------------------------------------------ Dr. F. Warren McFarlan * Director - ------------------------------------------------ Dr. Owen J. Newlin * Director - ------------------------------------------------ Thomas N. Urban * Director - ------------------------------------------------ Dr. Virginia Walbot
II-3 69 * Director - ------------------------------------------------ H. Scott Wallace * Director - ------------------------------------------------ Fred W. Weitz * Director - ------------------------------------------------ Herman H.F. Wijffels * Director - ------------------------------------------------ Charles O. Holliday, Jr. * Director - ------------------------------------------------ William F. Kirk
*William J. DeMeulenaere, by signing his name hereto, does sign this Registration Statement on behalf of the persons indicated above pursuant to a power of attorney duly executed by such persons and filed as an exhibit to this Registration Statement. By: /s/ WILLIAM J. DEMEULENAERE ------------------------------- William J. DeMeulenaere, Attorney-In-Fact II-4 EX-1 2 EXHIBIT 1 1 Exhibit 1 $200,000,000 PIONEER HI-BRED INTERNATIONAL, INC. ___% Senior Note due 2009 UNDERWRITING AGREEMENT ---------------------- January __, 1999 Lazard Freres & Co. LLC Chase Securities Inc. c/o Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, New York 10020 Dear Sirs: SECTION 1. INTRODUCTORY. Pioneer Hi-Bred International, Inc., an Iowa corporation (the "Company"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of $200,000,000 principal amount of its ___% Senior Notes due 2009 (the "Securities"). The Securities are to be issued pursuant to the provisions of an Indenture, to be dated as of January __, 1999 (hereinafter called the "Indenture"), between the Company and Chase Manhattan Trust Company, National Association, as Trustee (the "Trustee"). The Company hereby agrees with the Underwriters as follows: SECTION 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company represents and warrants to, and agrees with, the several Underwriters that: (a) A registration statement on Form S-3 (No. 333-69285), including a prospectus, relating to the Securities has been filed with the 2 Securities and Exchange Commission (the "Commission"). Such registration statement either (i) is not proposed to be amended and has been declared effective under the Securities Act of 1933, as amended (the "Act"), and any post-effective amendments filed with the Commission prior to the execution and delivery of this Agreement have been declared effective or (ii) is proposed to be amended by amendment or post-effective amendment. For purposes of this Agreement, "Effective Time" means, in the case of clause (i) in the preceding sentence, the date and time as of which such registration statement or the most recent post-effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement was declared effective by the Commission or, in the case of clause (ii) in the preceding sentence, the date and time as of which such registration statement, as amended by such amendment or post-effective amendment, as the case may be, is declared effective by the Commission. "Effective Date" means the date of the Effective Time. If the Effective Time is prior to the execution and delivery of this Agreement, no other document relating to such registration statement has been filed with the Commission; and no proceeding for the purpose of suspending such effectiveness has been initiated or threatened or, to the knowledge of the Company, is contemplated by the Commission. Such registration statement as amended at the Effective Time, including all material incorporated by reference therein and all exhibits thereto and including all information (if any) contained in a prospectus subsequently filed with the Commission and deemed to be part of the registration statement at the Effective Time pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement," and the prospectus, in the form first filed pursuant to Rule 424(b) under the Act ("Rule 424(b)") or, if no such filing is required, as included in the Registration Statement, including all material incorporated by reference in such prospectus, is hereinafter referred to as the "Prospectus." The terms "supplement" and "amendment" or "amend" as used in this Agreement shall include all documents subsequently filed by the Company with the Commission pursuant to the Exchange Act that are incorporated by reference in the Prospectus. (Any preliminary prospectus included in such Registration Statement or filed with the Commission pursuant to Rule 424(a) under the Act is hereinafter referred to as a "Preliminary Prospectus.") (b) If the Effective Time is prior to the execution and delivery of this Agreement: (i) on the Effective Date, the Registration Statement conformed, on the date of this Agreement, the Registration Statement conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b), the Registration Statement and the Prospectus will conform in all -2- 3 respects to the requirements of the Act and the rules and regulations of the Commission thereunder (the "Rules and Regulations") and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules and regulations of the Commission thereunder (the "TIA Rules and Regulations"), (ii) on the Effective Date, neither the Registration Statement nor the Prospectus included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) any amendment to the Registration Statement, as of its date and as of its effective date, did not and will not include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iv) the Prospectus on the date of this Agreement, as of its date, as of the date of any amendment or supplement thereto, and as amended or supplemented at the Closing Date (as defined in Section 3), does not and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Effective Time is subsequent to the execution and delivery of this Agreement: (i) on the Effective Date, the Registration Statement and the Prospectus will conform in all respects to the requirements of the Act and the Rules and Regulations and the Trust indenture Act and the TIA Rules and Regulations, and neither the Registration Statement nor the Prospectus will include any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any amendment to the Registration Statement, as of its date and as of its effective date, will not include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) the Prospectus, as of its date, as of the date of any amendment or supplement thereto, and as amended or supplemented at the Closing Date, will not contain any untrue statement of any material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing representations and warranties do not apply to statements or omissions in the Registration Statement or any amendment thereto or the Prospectus, as amended or supplemented, if applicable, based upon the information furnished to the Company by you specified in Section 8(a). (c) The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all respects to the requirements of the Act and the -3- 4 Rules and Regulations or the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the Commission thereunder (the "Exchange Act Rules and Regulations"), as applicable, and none of such documents when they became effective or were so filed, as the case may be, contained any untrue statement of any material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all respects to the requirements of the Act and the Rules and Regulations or the Exchange Act and the Exchange Act Rules and Regulations, as applicable, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (d) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Company, contemplated by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all respects to the requirements of the Act and the Rules and Regulations and the Trust Indenture Act and the TIA Rules and Regulations, and did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the information furnished to the Company by you specified in Section 8(a). (e) The consolidated financial statements included in the Registration Statement and Prospectus present fairly the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the statements of their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved, except as indicated therein; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. (f) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated -4- 5 therein, (i) there has been no material adverse change in the condition, financial or otherwise, earnings, business or prospects of the Company and its subsidiaries considered as a whole, whether or not arising in the ordinary course of business ("Material Adverse Effect"), and (ii) there have been no material transactions entered into by the Company or any of its subsidiaries other than those in the ordinary course of business. (g) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Iowa with power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and Prospectus; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which it owns or leases properties or in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. (h) Each of the subsidiaries of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which it owns or leases properties or in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect on the Company and its subsidiaries considered as a whole; all of the issued and outstanding capital stock of each subsidiary has been duly authorized and validly issued and is fully paid and non-assessable, and (except as set forth in the Company's Report on Form 10-K for the 1998 fiscal year), all such capital stock of each subsidiary is owned, directly or through subsidiaries, by the Company, free and clear of any mortgage, pledge, lien, encumbrance, adverse claim or equity. (i) Neither the Company nor any of its subsidiaries is in violation of its or any of their charters or bylaws or other organizational documents or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which it or any of them is a party or by which it or any of them or their properties may be bound; no consent, approval, authorization, order, registration, filing or qualification of or with any court or governmental -5- 6 authority or agency is required for the issue and sale of the Securities as contemplated herein and in the Indenture or the consummation by the Company of the transactions contemplated by this Agreement and the Indenture, except such as may be required under the Act and the Rules and Regulations, the Trust Indenture Act and the TIA Rules and Regulations or state securities or Blue Sky laws in connection with the distribution of the Securities by the Underwriters; and the issue and sale of the Securities as contemplated herein and in the Indenture, the execution and delivery of this Agreement and the Indenture and the consummation of the transactions contemplated herein and therein will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will any such action result in any violation of, or constitute a "change of control" under the provisions of the charter or by-laws of the Company or any law, administrative regulation or administrative or court decree or order applicable to the Company or any of its subsidiaries. (j) The Company and its subsidiaries possess all certificates, authorities or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct in all material respects the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. (k) Except as set forth in the Prospectus, as amended or supplemented, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, contemplated or threatened against the Company or any of its subsidiaries, which is reasonably likely to have a Material Adverse Effect, or is reasonably likely to materially and adversely affect the properties or assets thereof or which might adversely affect the offering of the Securities in the manner contemplated by the Prospectus; and there are no material contracts or other documents which are required to be described in the Registration Statement or the Prospectus or filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations or by the Trust Indenture Act or the -6- 7 TIA Rules and Regulations which have not been so described or have not been so filed. (l) Each of the Company and its subsidiaries has good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by it, in each case free and clear of all liens, encumbrances and defects except (i) such as are referred to in the Prospectus or (ii) such as do not materially and adversely affect the value of such property to the Company or such subsidiary, and do not materially interfere with the use made and proposed to be made of such property by the Company or such subsidiary; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made by the Company and its subsidiaries. (m) The Company has an authorized capitalization as set forth in the Prospectus, and the shares of capital stock of the Company outstanding prior to the issuance of the Securities have been duly authorized, are validly issued, fully paid and non-assessable. (n) This Agreement has been duly authorized, executed and delivered by the Company. (o) The indenture, which will be substantially in the form filed as an exhibit to the Registration Statement, has been duly authorized and duly qualified under the Trust Indenture Act and when executed and delivered by the Company and the Trustee, the Indenture will have been duly authorized, executed and delivered by the Company and will constitute a valid and legally binding agreement of the Company, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the Indenture will conform to the description thereof in the Prospectus. (p) The Securities have been duly authorized and, when executed and authenticated in accordance with the terms of the Indenture and issued and delivered in accordance with the terms of this Agreement, will have been duly authorized, executed, authenticated, issued and delivered by the Company, will constitute valid and binding obligations of the Company, enforceable in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general -7- 8 applicability relating to or affecting creditors' rights and to general equity principles, will conform to the description thereof contained in the Prospectus, will be substantially in the form filed as an exhibit to the Registration Statement, and will be entitled to the benefits of the Indenture. (q) KPMG Peat Marwick LLP who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the Rules and Regulations. (r) Except as otherwise disclosed in the Prospectus, the Company and its subsidiaries own or possess sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals, trade secrets and other similar rights (collectively, "Intellectual Property Rights") reasonably necessary to conduct their businesses as now conducted; and the expected expiration of any of such Intellectual Property Rights will not have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any notice of infringement or conflict with asserted Intellectual Property Rights of others, which infringement or conflict is reasonably likely to have a Material Adverse Effect. (s) The Company and each subsidiary possess such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, as presently conducted, and neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. (t) All disclosure regarding year 2000 compliance and the Euro conversion that is required to be described in a registration statement on Form S-3 under the 1933 Act (including disclosures required by Staff Legal Bulletin No. 6, SEC Release No. 33-7558 (July 29, 1998) and SEC Release No. 33-7609 (November 9, 1998)) has been included in the Prospectus. Neither the Company nor any of its subsidiaries will incur significant operating expenses or costs to ensure that its information systems will be year 2000 compliant or to adjust its operating and information systems to the conversion to a single currency in Europe, other than as disclosed in the Prospectus. -8- 9 (u) Except such matters as would not, singly or in the aggregate, materially affect the Company and its subsidiaries, (A) none of the Company and its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products or nuclear or radioactive material (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its subsidiaries have all permits, licenses, authorizations and approvals currently required for their respective businesses under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its subsidiaries and (D) there are no events, facts or circumstances that might reasonably be expected to form the basis of any liability or obligation of the Company or its subsidiaries, including, without limitation, any order, decree, plan or agreement requiring clean-up or remediation, or any action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its subsidiaries relating to any Hazardous Materials or Environmental Laws. (v) The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). SECTION 3. PURCHASE, SALE AND DELIVERY OF SECURITIES. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company hereby agrees to issue and sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from the Company the Securities at __% of their principal -9- 10 amount, plus accrued interest, if any, to the Closing Date (as defined below) hereunder. The Securities to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Lazard Freres & Co. LLC may request upon at least forty-eight hours' prior notice to the Company, shall be delivered by or on behalf of the Company to you for the account of such Underwriter, against payment by such Underwriter or on its behalf of the purchase price therefor by wire transfer in immediately available funds to the account specified by the Company, all at the office of Fried, Frank, Harris, Shriver & Jacobson, New York, New York, at 9:30 a.m., New York City time, on January __ 1999 or at such other time and date as you and the Company may agree upon in writing, such time and date being herein called the "Closing Date". Certificates representing the Securities will be made available for checking and packaging at least twenty-four hours prior to the Closing Date at the office of the Trustee. SECTION 4. OFFERING BY UNDERWRITERS. After the Registration Statement becomes effective the several Underwriters will offer the Securities for sale to the public on the terms and conditions as set forth in the Prospectus. SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters that: (a) If the Effective Time is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable, and with your consent, subparagraph (4)) of Rule 424(b) not later than the second business day following the earlier of (i) the date of execution and delivery of this Agreement or (ii) the date a Prospectus is first used after the Effective Date. The Company will advise you promptly of any proposal to amend or supplement the Registration Statement as filed, or the related Prospectus, prior to the Closing Date, and will not effect such amendment or supplement without your consent; the Company will also advise you promptly of the effectiveness of the Registration Statement (if the Effective Time is subsequent to the execution and delivery of this Agreement), of any amendment or supplement to the Registration Statement or the Prospectus, and of receipt of notification of the institution by the Commission of any stop order proceedings in respect of the Registration Statement or of any order preventing or suspending the use of any Preliminary Prospectus or any prospectus relating to the Securities, of the suspension of the qualification of the Securities for offering or sale in any jurisdiction or the -10- 11 initiation or threatening of any proceeding for such purpose, or of any request by the Commission to amend or supplement the Registration Statement or Prospectus or for additional information and will use its best efforts to prevent the issuance of any such stop order or of any order preventing or suspending the use of any Preliminary Prospectus or any prospectus relating to the securities or suspending any such qualification and to obtain as soon as possible its lifting, if issued. (b) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then amended or supplemented would, in the judgment of the Underwriters, include an untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend or supplement the Prospectus to comply with the Act, the Exchange Act, the Trust Indenture Act or any other law, the Company promptly will prepare and file, subject to Section 5(a) of the Act, with the Commission an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance and will notify you and, upon your request prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request, of an amended Prospectus or a supplement to the Prospectus complying with Section 10(a) of the Act which will correct such statement or omission or effect such compliance. (c) The Company will make generally available to the Company's security holders as soon as practicable an earning statement covering the twelve-month period ending February 29, 2000 that satisfies the provisions of Section 11(a) of the Act and the Rules and Regulations (including Rule 158). (d) The Company will deliver to each of you as many signed and conformed copies of the Registration Statement (as originally filed) and of each amendment thereto (including exhibits filed therewith and documents incorporated therein by reference as you may reasonably request and will also deliver to you a conformed copy of the Registration Statement and each amendment thereto for each of the Underwriters (including documents incorporated therein by reference). (e) The Company will take such action as you may reasonably request, in cooperation with you, to qualify the Securities for offering and -11- 12 sale under the applicable securities laws of such states and other jurisdictions of the United States as you may designate, and will maintain such qualifications in effect for as long as may be required for the distribution of the Securities. The Company will file such statements and reports as may be required by the laws of each jurisdiction in which the Securities have been qualified as above provided. (f) During the period of five years hereafter, the Company will furnish to you and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year, and the Company will furnish to you (i) as soon as available, a copy of each report or definitive proxy statement of the Company filed with the Commission under the Securities Exchange Act of 1934 (the "Exchange Act") or mailed to stockholders and (ii) from time to time, such other information concerning the Company as you may reasonably request. (g) During the period beginning from the date hereof and continuing to and including the later of (i) the termination of trading restrictions on the Securities, as notified to the Company by you, and (ii) the Closing Date, not to offer, sell, contract to sell or otherwise dispose of any debt securities of the Company which mature more than one year after the Closing Date, without your prior written consent. (h) The Company, during the period when the prospectus relating to the Securities is required to be delivered under the Act, will file promptly all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act. (i) The Company shall use its reasonable best efforts to list the Securities on the New York Stock Exchange. SECTION 6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of the several Underwriters to purchase and pay for the Securities on the Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company herein as of the date hereof and as of the Closing Date with the same force and effect as if made as of that date, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) If the Effective Time is not prior to the execution and delivery of this Agreement, the Effective Time shall have occurred not later than 5:00 P.M., New York time, on the date of this Agreement, or such later time -12- 13 or date as shall have been consented to by you. If the Effective Time is prior to the execution and delivery of this Agreement, the Company shall have filed the Prospectus with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the Rules and Regulations and in accordance with Section 5(a) hereof. In either case, prior to the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened, or to the knowledge of the Company or you, shall be contemplated by the Commission; and the Company shall have complied with all requests for additional information on the part of the Commission to your reasonable satisfaction. (b) You shall not have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains any untrue statement of fact or omits to state any fact which, you have concluded, is material and in the case of an omission is required to be stated therein or is necessary to make the statements therein not misleading. (c) You shall have received favorable opinions of Leon R. Shearer, Vice President and General Counsel for the Company and Baker & Hostetler LLP, special counsel for the Company, in a form agreed between Mr. Shearer and Baker & Hostetler LLP and the Underwriters, dated the Closing Date, to the effect that: (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of Iowa with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus; and the Company is duly qualified to transact business and is in good standing in each jurisdiction in which it owns or leases property or in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. (ii) Each of the subsidiaries of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus, and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in -13- 14 which it owns or leases properties or in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary has been duly authorized and validly issued and is fully paid and non-assessable, and except as set forth in the Company's Annual Report on Form 10-K for the 1998 fiscal year, all of such capital stock, is owned by the Company free and clear of any pledge, lien, encumbrance, adverse claim or equity. (iii) This Agreement has been duly authorized, executed and delivered by the Company. (iv) The Securities have been duly and validly authorized, executed, authenticated, issued and delivered and constitute valid and binding obligations of the Company, enforceable in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles, conform in all material respects to the description thereof in the Prospectus and are entitled to the benefits of the Indenture; (v) The Indenture has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles, conforms in all material respects to the description thereof in the Prospectus, and has been duly qualified under the Trust Indenture Act. (vi) The Registration Statement is effective under the Act and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued under the Act or proceedings therefor initiated or threatened or are pending or contemplated by the Commission. (vii) Statements set forth in the Prospectus under the headings "Description of the Notes" and "Underwriting" and in the Registration Statement under Item 15 insofar as such statements constitute a summary of the legal matters, documents or proceedings -14- 15 referred to therein fairly present the information called for with respect to such legal matters, documents and proceedings. (viii) No consent, approval, authorization, order, filing, registration or qualification of or with any court or governmental authority or agency is required for the issue and sale of the Securities or the consummation of the transactions contemplated by this Agreement, except such as may be required and have been obtained under the Act and the Rules and Regulations and the Trust Indenture Act and the TIA Rules and Regulations and such as may be required under state securities or Blue Sky laws in connection with the distribution of the Securities by the Underwriters; and, the issue and sale of the Securities, the execution and delivery of this Agreement and the consummation of the transactions contemplated herein will constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any material contract, indenture, mortgage, loan agreement, note, lease or other instrument or agreement known to such counsel to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the charter or by-laws of the Company, or any law or administrative regulation or, to such counsel's knowledge, administrative or court decree or order, applicable to the Company or any of its subsidiaries. (ix) After due inquiry, such counsel does not know of (x) any legal or governmental action, suit or proceeding pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any subsidiary is subject which is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, or to adversely affect the offering of the Securities or that is required to be described in the Registration Statement or the Prospectus and is not so described or (y) of any material contract or other document that is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that is not so described or filed as required. (x) Such counsel (1) (a) is of the opinion that each document incorporated by reference in the Registration Statement -15- 16 and the Prospectus (other than the financial statements, as to which no opinion need be rendered) complied as to form when filed with the Commission in all material respects with the Exchange Act and the Exchange Act Rules and Regulations and (b) has no reason to believe that any such document contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (2) is of the opinion that the Registration Statement, as of the Effective Date, any amendment to the Registration Statement, as of its date or as of its effective date, and the Prospectus, as of the Effective Date and as of its date (other than the financial statements included therein, as to which no opinion need be expressed) complies as to form in all material respects with the requirements of the Act and the Rules and Regulations and the Trust Indenture Act and the TIA Rules and Regulations, and (3) has no reason to believe that (other than the financial statements included therein, as to which no belief need be expressed) the Registration Statement, as of the Effective Date, any amendment to the Registration Statement, as of its date or as of its effective date, and the Prospectus, as of the Effective Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading and that the Prospectus, as of its date, as of the date of any amendment or supplement thereto, and as amended or supplemented at the Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) You shall have received from Fried, Frank, Harris, Shriver & Jacboson, counsel for the Underwriters, opinions, dated the Closing Date, with respect to such matters as you may reasonably request. (e) You shall have received from the President or any Senior Vice President and a principal financial or accounting officer of the Company a certificate, dated the Closing Date, in which such officers, to the best of their knowledge and after reasonable investigation, shall state that there has not been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) a Material Adverse Effect or (ii) any material transactions entered into by the Company or any of its subsidiaries other than those in the ordinary course -16- 17 of business, except in the case of clause (i) and clause (ii) as set forth in or contemplated by the Prospectus; the representations and warranties of the Company contained in Section 2 are true and correct with the same force and effect as though made on and as of the Closing Date and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened or are contemplated by the Commission. (f) You shall have received from KPMG Peat Marwick LLP independent public accountants, two letters, the first dated the date of this Agreement and the other dated such Closing Date, addressed to the Underwriters (with conformed copies for each of the Underwriters), substantially in the form of Annex I hereto with such variations as are reasonably acceptable to you. (g) At the Closing Date counsel for the Underwriters shall have been furnished with such other documents and opinions as they may reasonably require. SECTION 7. PAYMENT OF EXPENSES. The Company will pay all costs, expenses, fees, disbursements and taxes incident to (i) the preparation by the Company, printing, filing and distribution of the Registration Statement (including financial statements and exhibits), the Prospectus, each Preliminary Prospectus and all amendments and supplements to any of them prior to or during the period specified in Section 5(b), (ii) the preparation, printing (including word processing and duplication costs) and delivery of any Agreement Among Underwriters, this Agreement, the Indenture, Preliminary and Supplemental Blue Sky Memoranda, Legal investment Survey and all other agreements, memoranda, correspondence and other documents printed and delivered in connection with the offering of the Securities, (iii) the registration with the Commission, and the issuance by the Company, of the Securities, (iv) the registration or qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states (including the reasonable fees and disbursements of your counsel relating to such registration or qualification), (v) fees and expenses, if any, incurred in connection with the listing of the Securities on any stock exchange, (vi) filings and clearance with the National Association of Securities Dealers, Inc. in connection with the offering, (vii) any fees charged by securities rating services for rating the Securities, (viii) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of counsel for the Trustee in connection with the Indenture and the securities and (x) the performance by the -17- 18 Company of its other obligations under this Agreement, and all other costs and expenses incident to the performance of its obligations hereunder which are not specifically provided for in this Section 7. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, failure or inability of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any Underwriter, the Company shall reimburse you for all of your reasonable out-of-pocket expenses incurred in connection with marketing and preparing for the offering of the Securities, including the reasonable fees and disbursements of counsel for the Underwriters, but the Company shall be under no further liability to any Underwriter except as provided in Section 8 hereof. SECTION 8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (or actions in respect thereof) (including, without limiting the foregoing, the reasonable legal and other expenses incurred in connection with investigating or defending any action, suit or proceeding or any claim asserted, as such expenses are incurred) arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or any Preliminary Prospectus or any other prospectus with respect to the Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any such untrue statement or omission or alleged untrue statement or omission based upon the following information furnished to the Company by you in (i) the seventh paragraph under the table of the Underwriters under the caption "Underwriting" in the Prospectus concerning stabilization by the Underwriters, (ii) the second sentence of the fourth paragraph of text under the table of the Underwriters under the caption "Underwriting" in the Prospectus relating to market making by the representatives and (iii) the second and third sentences of the second paragraph under the table of the Underwriters under the caption "Underwriting" in the Prospectus concerning the terms of the offering by the Underwriters. This indemnity agreement will be in addition to any -18- 19 liability which the Company may otherwise have to the persons referred to above in this Section 8(a). (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (or actions in respect thereof) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or any Preliminary Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to the information furnished to the Company by such Underwriter set forth in the first sentence of Section 8(a). This indemnity agreement will be in addition to any liability which the Underwriters may otherwise have to the persons referred to above in this Section 8(b). (c) In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be instituted involving any person in respect of which indemnity may be sought pursuant to any of the two preceding paragraphs, such person (hereinafter called the indemnified party) shall promptly notify the person against whom such indemnity may be sought (hereinafter called the indemnifying party) in writing; however, the omission to so notify the indemnifying party shall relieve the indemnifying party from liability under the two preceding paragraphs only to the extent the indemnifying party is materially prejudiced thereby. The indemnifying party, upon request of the indemnified party, shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others that the indemnifying party may designate and shall pay the fees and disbursements of such counsel related to such proceeding. In any such action or proceeding any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party fails to appoint counsel reasonably satisfactory -19- 20 to the indemnified party within a reasonable time after receiving notice of the commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for all Underwriters and all persons, if any, who control Underwriters within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, and (b) the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Underwriters and such control persons of Underwriters, such firm shall be designated in writing by Lazard Freres & Co. LLC In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. (d) If the indemnification provided for in this Section 8 is insufficient or unavailable to an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the indemnified party shall have failed to the material prejudice of the indemnifying party to give the notice required by Section 8(c), in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportions as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other shall be determined by reference to, among other things, whether -20- 21 the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to Section 8(d) were determined by PRO RATA allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in the immediately preceding paragraph shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of Section 8(d), in no event shall any Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to Section 8(d) are several in proportion to the respective principal amounts of Securities set forth opposite their names in Schedule I hereto and not joint. SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in the Agreement, or contained in certificates of officers of the Company submitted hereto, including indemnity and contribution agreements, shall remain operative and in full force and effect, regardless of any termination of this Agreement, or any investigation, or any statement as to the results thereof, made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or controlling persons, and shall survive acceptance of and payment for Securities hereunder. If this Agreement is terminated pursuant to Section 10 or if for any reason the purchase of Securities by the Underwriters is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it -21- 22 pursuant to Section 7 and the respective obligations of the Company and the Underwriters pursuant to Section 8 shall remain in effect. Anything herein to the contrary notwithstanding, the indemnity agreement of the Company in subsection (a) of Section 8 hereof, the representations and warranties in subsections (b) and (c) of Section 2 and any representation or warranty as to the accuracy of the Registration Statement or the Prospectus contained in any certificate furnished by the Company pursuant to Section 6 hereof, insofar as they may constitute a basis for indemnification for liabilities (other than payment by the Company of expenses incurred or paid in the successful defense of any action, suit or proceeding) arising under the Act, shall not extend to the extent of any interest therein of a controlling person or partner of any Underwriter who is a director, officer or controlling person of the Company when the Registration Statement has become effective or who, with his consent, is named in the Registration Statement as about to become a director of the Company, except in each case to the extent that an interest of such character shall have been determined by a court of appropriate jurisdiction as not against public policy as expressed in the Act. Unless in the opinion of counsel for the Company the matter has been settled by controlling precedent, the Company will, if a claim for such indemnification is asserted, submit to a court of appropriate jurisdiction the question whether such interest is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SECTION 10. TERMINATION. This Agreement may be terminated for any reason at any time prior to the delivery and payment of the Securities on the Closing Date by Lazard Freres & Co. LLC upon the giving of written notice of such termination to the Company, if prior to such time (i) there has been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, (A) any Material Adverse Effect or (B) any material transaction entered into by the Company or any subsidiary other than in the ordinary course of business, or (ii) there has occurred any outbreak or escalation of hostilities or other calamity or crisis or material change in existing national or international financial, political, economic or securities market conditions, the effect of which is such as to make it, in the judgment of Lazard Freres & Co. LLC, impracticable or inadvisable to market the Securities in the manner contemplated in the Prospectus or enforce contracts for the sale of the Securities, or (iii) reporting of bid and asked prices of the Common Stock of the Company has been suspended by the National Association of Securities Dealers, Inc., or trading in the Common Stock of the Company has been suspended by the Commission or a national securities exchange, or trading generally on either the American Stock Exchange or the New York Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges -22- 23 for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by either Federal or New York authorities or (iv) any downgrading shall have occurred in the rating accorded any of the Company's debt securities by any "nationally recognized statistical rating organization, as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act or any organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities. In the event of any such termination, the provisions of Section 7, the indemnity agreement and contribution provisions set forth in Section 8, and the provisions of Sections 9 and 14 shall remain in effect. SECTION 11. DEFAULT. If, on the Closing Date any one or more of the Underwriters shall fail or refuse to purchase Securities that it or they have agreed to purchase hereunder on such date, and the aggregate principal amount of Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of the Securities to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the principal amount of Securities set forth opposite their respective names in Schedule I bears to the aggregate principal amount of Securities set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; PROVIDED that in no event shall the principal amount of Securities that any Underwriter has agreed to purchase pursuant to Section 3 be increased pursuant to this Section 11 by an amount in excess of one-ninth of such principal amount of Securities without the written consent of such Underwriter. If, on the Closing Date any Underwriter or Underwriters shall fail or refuse to purchase Securities and the aggregate principal amount of Securities with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting underwriter from liability in respect of any default of such Underwriter under this Agreement. -23- 24 SECTION 12. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to you c/o Lazard Freres & Co. LLC, One Rockefeller Plaza, New York, NY 10020, Attention: Syndicate Department; and notices to the Company shall be directed to it at Pioneer Hi-Bred International, Inc., 800 Capital Square, P.O. Box 14456, Des Moines, IA 50306-3456, telephone no. (515) 248-4800, facsimile transmission no. (515) 248-4999, attention of the Secretary with copy to the Treasurer. SECTION 13. PARTIES. This Agreement shall inure to the benefit of and be binding upon the Company, its directors and officers who signed the Registration Statement, the Underwriters, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 14. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. SECTION 15. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. -24- 25 If the foregoing is in accordance with your understanding of our agreement, please sign this Agreement and return to us counterparts hereof. Very truly yours, PIONEER HI-BRED INTERNATIONAL, INC. By --------------------------- Name: Title: Confirmed and Accepted, as of the date first above written: LAZARD FRERES & CO. LLC CHASE SECURITIES INC. Acting severally on behalf of themselves and the several Underwriters named herein. - ----------------------- Lazard Freres & Co. LLC -25- 26 SCHEDULE I PRINCIPAL AMOUNT OF SECURITIES UNDERWRITER TO BE PURCHASED - ----------- --------------------- Lazard Freres & Co. LLC............................ Chase Securities Inc............................... Total ===================== I-1 27 ANNEX I FORM OF COMFORT LETTER Pursuant to Section 6(f) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules audited (and, if applicable, prospective financial statements and/or pro forma financial information examined) by them and included in the Prospectus or the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited consolidated interim financial statements, selected financial data, pro forma financial information, prospective financial statements and/or condensed financial statements derived from audited financial statements of the Company for the periods specified in such letter, as indicated in their reports attached to such letters, copies of which have been furnished to the Underwriters; (iii) On the basis of limited procedures, not constituting an audit in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Board of Directors and the committees thereof of the Company and its subsidiaries since the date of the latest audited financial statements included in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: II-1 28 (A) the unaudited consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations, or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with the basis for the audited consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included in the Prospectus; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived any unaudited condensed financial statements referred to in paragraph (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in paragraph (B) were not determined on a basis substantially consistent with the basis for the audited consolidated financial statements included in the Prospectus; (D) any unaudited pro forma consolidated condensed financial statements included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published Rules and Regulations or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights II-2 29 and upon earn-outs of performance shares, in each case which were outstanding on the date of the latest financial statements included in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or net assets or other items specified by the Underwriters, or any increases in any items specified by the Underwriters, in each case as compared with amounts shown in the latest balance sheet included in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest financial statements included in the Prospectus to the specified date referred to in paragraph (E) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Underwriters, or any increases in any items specified by the Underwriters, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Underwriters, except in each case for decreases or increases which the Prospectus discloses have occurred or may occur or which are described in such letter; (G) certain sections of the Prospectus did not comply in all material respects with the disclosure obligations under Regulation S-K under the Act (e.g., "Selected Financial Data" (Item 301), "Supplementary Financial Information" (Item 302), "Ratio of Earnings to Fixed Charges" (Item 503(d)) and "Executive Compensation" (Item 402); (iv) In addition to the audit referred to in their report(s) included in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (ii) and (iii) above, they have carried out certain specified procedures, not constituting an audit in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Underwriters, which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus, or in II-3 30 Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. II-4 EX-4.1 3 EXHIBIT 4.1 1 Exhibit 4.1 PIONEER HI-BRED INTERNATIONAL, INC., AS ISSUER, AND CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE ------- INDENTURE DATED AS OF , 1999 ------- % SENIOR NOTES DUE 2009 2 INDENTURE, dated as of , 1999, between Pioneer Hi-Bred International, Inc. and Chase Manhattan Trust Company, National Association, as trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of % Senior Notes due 2009 (the "Securities"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture and the Securities; This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act that are required to be part of and to govern indentures qualified under the Trust Indenture Act; All acts and things necessary have been done to make (i) the Securities, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company and (ii) this Indenture a valid agreement of the Company; NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; 3 (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (e) all references to $, US$, dollars or United States dollars shall refer to the lawful currency of the United States of America; and (f) all references herein to particular Sections or Articles refer to this Indenture unless otherwise so indicated. Certain terms used principally in Article Four are defined in Article Four. "Affiliate" means, with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person that owns, directly or indirectly, 5% or more of such specified Person's Capital Stock or any officer or director of any such specified Person or other Person or, with respect to any natural Person, any person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin; or (iii) any other Person 5% or more of the Voting Stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Security to the extent applicable to such transaction and as in effect at the time of such transfer or transaction. "Attributable Indebtedness" means, when used in connection with a Sale and Leaseback Transaction, at any date of determination, the present value (discounted according to GAAP at the cost of indebtedness implied in the lease) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended). "Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as amended, or any similar United States federal or state law or foreign law relating to 2 4 bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law. "Board of Directors" means either the Board of Directors of the Company or any duly authorized committee or subcommittee of such Board, except as the context may otherwise require. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company, as the case may be, to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Book-Entry Security" means any Global Securities bearing the legend specified in Section 202 evidencing all or part of a series of Securities, authenticated and delivered to the Depositary for such series or its nominee, and registered in the name of such Depositary or nominee. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banking institutions or trust companies in New York City and Cleveland are authorized or obligated by law to close. "Capitalized Lease Obligation" means, as applied to any Person, any obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP; and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" means, with respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (including partnership interests) in (however designated) the equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Securities Act, Exchange Act and Trust Indenture Act then the body performing such duties at such time. 3 5 "Common Stock" of any Person means capital stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Company" means Pioneer Hi-Bred International, Inc., until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. To the extent necessary to comply with the requirements of the provisions of Sections 310 through 317 of the Trust Indenture Act as they are applicable to the Company, the term "Company" shall include any other obligor with respect to the Securities for purposes of complying with such provisions. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by any one of its Chairman of the Board, its President, its Chief Executive Officer, its Chief Financial Officer or a Vice President (regardless of Vice Presidential designation), and by any one of its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a comparable maturity to the remaining term of such Notes. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to any Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" mean, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 3:30 p.m., New York time, on the third Business Day preceding such Redemption Date. "Consolidated Net Tangible Assets" means as of any date, the total amount of assets of the Company and its Restricted Subsidiaries on a consolidated basis at the end of the fiscal quarter immediately preceding such date, as determined in accordance with GAAP, less (i) Intangible Assets and (ii) appropriate adjustments on account of minority 4 6 interests of other Persons holding equity investments in Restricted Subsidiaries, in the case of each of clauses (i) and (ii) above as reflected on the consolidated balance sheet of the Company and its Restricted Subsidiaries as of the end of the fiscal quarter immediately preceding such date. "Consolidation" means, with respect to any Person, the consolidation of the accounts of such Person and each of its subsidiaries if and to the extent the accounts of such Person and each of its subsidiaries would normally be consolidated with those of such Person, all in accordance with GAAP. The term "Consolidated" shall have a similar meaning. "Corporate Trust Office" means the office of the Trustee or an affiliate or agent thereof at which at any particular time the corporate trust business for the purposes of this Indenture shall be principally administered, which office at the date of execution of this Indenture is located at 250 West Huron Road, Suite 220, Cleveland, Ohio 44113. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Depositary" means, with respect to the Securities issued in the form of one or more Book-Entry Securities, The Depository Trust Company ("DTC"), its nominees and successors, or another Person designated as Depositary by the Company, which must be a clearing agency registered under the Exchange Act. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's-length free market transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. Fair Market Value shall be determined by the Board of Directors of the Company acting in good faith and shall be evidenced by a resolution of the Board of Directors. "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles in the United States as in effect on the Issue Date. "Global Securities" means Global Securities to be issued as Book-Entry Securities issued to the Depositary in accordance with Section 306. "Holder" means the registered holder of any Security. 5 7 "Incur" means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The terms "Incurred," "Incurrence" and "Incurring" shall each have a correlative meaning. "Indebtedness" means with respect to any Person at any date of determination (without duplication), indebtedness for borrowed money or indebtedness evidenced by bonds, notes, debentures or other similar instruments given to finance the acquisition of any businesses, properties or assets of any kind (including, without limitation, capital stock or other equity interests in any Person). "Indenture" means this instrument as originally executed (including all exhibits and schedules thereto) and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Indenture Obligations" means the obligations of the Company and any other obligor under this Indenture or under the Securities, to pay principal of, premium, if any, and interest when due and payable, and all other amounts due or to become due under or in connection with this Indenture, the Securities and the performance of all other obligations to the Trustee and the Holders under this Indenture and the Securities, according to the respective terms hereof and thereof. "Intangible Assets" means all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, write-ups of assets over their carrying value at the end of the last fiscal quarter ended prior to the Issue Date or the date of acquisition, if acquired subsequent thereto, and all other items which would be treated as intangibles on the consolidated balance sheet of the consolidated balance sheet of the Company and its Restricted Subsidiaries prepared in accordance with GAAP. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Issue Date" means the original issue date of the Securities under this Indenture. "Lien" with respect to any property or assets, means any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or 6 8 preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing), but not including the interest of a lessor under a lease that is an operating lease under GAAP. "Maturity" means, when used with respect to the Securities, the date on which the principal of the Securities becomes due and payable as therein provided or as provided in this Indenture, whether at Stated Maturity or the Redemption Date and whether by declaration of acceleration, call for redemption or otherwise. "Moody's" means Moody's Investors Service, Inc. or any successor rating agency. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President, the Chief Executive Officer, the Chief Financial Officer or a Vice President (regardless of Vice Presidential designation), and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and in form and substance reasonably satisfactory to, and delivered to, the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, or the Trustee, unless an Opinion of Independent Counsel is required pursuant to the terms of this Indenture, and who shall be reasonably acceptable to the Trustee, and which opinion shall be in form and substance reasonably satisfactory to the Trustee. "Opinion of Independent Counsel" means a written opinion of counsel which is issued by a Person who is not an employee, director or consultant (other than non-employee legal counsel) of the Company and who shall be reasonably acceptable to the Trustee, and which opinion shall be in form and substance reasonably satisfactory to the Trustee. "Outstanding" when used with respect to Securities means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company or any Affiliate thereof) in trust or set aside and segregated in trust by the Company or any Affiliate thereof (if the Company or any 7 9 Affiliate thereof shall act as its own Paying Agent) for the Holders of such Securities; provided that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor reasonably satisfactory to the Trustee has been made; (c) Securities, to the extent provided in Sections 402 and 403, with respect to which the Company has effected defeasance or covenant defeasance as provided in Article Four; and (d) Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee and the Company proof reasonably satisfactory to each of them that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the reasonable satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person (including the Company) authorized by the Company to pay the principal of, premium, if any, or interest on, any Securities on behalf of the Company. "Permitted Lien" means with respect to any Person, (a) Liens existing on or provided for under the terms of agreements existing on the Issue Date; (b) Liens on property at the time the Company or any of its Restricted Subsidiaries acquired the property or the entity owning such property, including any acquisition by means of a merger, amalgamation, combination or consolidation with or into the Company; provided, however, that any such Lien may not extend to any other property owned by the Company or any of its Restricted Subsidiaries; (c) Liens on accounts receivable, inventory or containers, returnable packaging or cases to secure working capital or revolving credit indebtedness incurred in the ordinary course of business; (d) Purchase Money Liens and Liens arising in connection with Capitalized Lease Obligations that do not arise in 8 10 connection with Sale and Leaseback Transactions; (e) Liens securing only Indebtedness of a Wholly-Owned Restricted Subsidiary of the Company to the Company or one or more Wholly-Owned Restricted Subsidiaries of the Company; (f) Liens resulting from the deposit of funds or evidences of Indebtedness in trust for the purpose of defeasing Indebtedness of the Company or any of its Restricted Subsidiaries; (g) legal or equitable encumbrances deemed to exist by reason of negative pledges; (h) Liens on property or shares of stock of another Person at the time such other Person becomes a Restricted Subsidiary of such Person; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming such a Restricted Subsidiary of such Person; provided further, however, that such Lien may not extend to any other property owned by such Person or any of its Restricted Subsidiaries; (i) Liens arising in connection with Capitalized Lease Obligations in Sale and Leaseback Transactions with respect to which the Attributable Indebtedness outstanding at any time shall not exceed $25 million in the aggregate; and (j) Liens to secure any refinancing, refunding, extension, substitution, renewal or replacement (or successive refinancings, refundings, extensions, substitutions, renewals or replacements), as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (a) through (h); provided, however, that (i) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on or to such property) and (ii) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (a) through (h) at the time the original Lien became a Permitted Lien under this Indenture and (B) any amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, removal or replacement. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 307 in exchange for a mutilated Security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or nonvoting) of such Person's preferred or preference stock, whether now outstanding or issued after the date of the Indenture, including, without limitation, all series and classes of such preferred or preference stock. 9 11 "Principal Property" means any real or personal property owned or leased by the Company or any Subsidiary the net book value of which on the date as of which the determination is being made exceeds 2% of the Consolidated Net Tangible Assets of the Company and its Restricted Subsidiaries, provided that Principal Property shall not include any real or personal property owned or leased by the Company or any Subsidiary which the Company's Board of Directors has in good faith determined pursuant to a written resolution is not material, either singly or together with all other real and personal property owned or leased by all Unrestricted Subsidiaries, to the Company and its Subsidiaries, taken as a whole. "Purchase Money Lien" means a Lien on property securing Indebtedness Incurred by the Company or any of its Restricted Subsidiaries to provide funds for all or any portion of the cost of acquiring, constructing, altering, expanding, improving or repairing such property or assets used in connection with such property. "Redemption Date" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" when used with respect to any Security to be redeemed pursuant to any provision in this Indenture means the price at which it is to be redeemed pursuant to this Indenture. "Reference Treasury Dealer" means each of Lazard Freres & Co. LLC, Chase Securities Inc. and two other primary U.S. Government securities dealers in The City of New York to be selected by the Company, and their respective successors. "Regular Record Date" for the interest payable on any Interest Payment Date means the ________ or ___________ (whether or not a Business Day) next preceding such Interest Payment Date. "Responsible Officer" when used with respect to the Trustee means any officer or employee assigned to the Corporate Trust Office or any agent of the Trustee appointed hereunder, including any vice president, assistant vice president, secretary, assistant secretary, or any other officer or assistant officer of the Trustee or any agent of the Trustee appointed hereunder to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Subsidiary" means, as of any date, any Subsidiary which owns or leases a Principal Property and any other Subsidiary which is not then currently designated as an Unrestricted Subsidiary by the Company. 10 12 "Sale and Leaseback Transaction" of any Person means an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such Person of any property or asset of such Person which has been or is being sold or transferred by such Person more than 180 days after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The Stated Maturity of such arrangement will be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangement may be terminated by the lessee without payment of a penalty. Notwithstanding the foregoing, neither (a) a transaction involving a lease with a term of less than three years or (b) a transaction between the Company and a Restricted Subsidiary of the Company or between Restricted Subsidiaries of the Company shall be deemed a Sale and Leaseback Transaction. "S&P" means Standard & Poor's Rating Group, a division of McGraw Hill, Inc. or any successor rating agency. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" means any Indebtedness of the Company or any Guarantor which is not expressly subordinated in right of payment to any other Indebtedness of the Company. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 308. "Stated Maturity" means, when used with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subsidiary" of a Person means, with respect to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person, or (iii) one or more Subsidiaries of such Person. "Temporary Cash Investments" means (i) any evidence of Indebtedness, maturing not more than one year after the date of acquisition, issued by the United States of America, or an instrumentality or agency thereof, and guaranteed fully as to principal, 11 13 premium, if any, and interest by the United States of America, (ii) any certificate of deposit, maturing not more than one year after the date of acquisition, issued by, or time deposit of, a commercial banking institution that is a member of the Federal Reserve System and that has combined capital and surplus and undivided profits of not less than $500,000,000, whose debt has a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's or any successor rating agency or "A-1" (or higher) according to S&P or any successor rating agency, including the Trustee or any of its affiliates, (iii) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate or Subsidiary of the Company) organized and existing under the laws of the United States of America with a rating, at the time as of which any investment therein is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, including the Trustee or any of its affiliates and (iv) any money market deposit accounts issued or offered by a domestic commercial bank having capital and surplus in excess of $500,000,000; provided that the short term debt of such commercial bank has a rating, at the time of investment, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P. "Treasury Rate" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture, until a successor trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or any successor statute. "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such by the Board of Directors from time to time and in compliance with Sections 1005 and 1006 herein. "Voting Stock" of a Person means Capital Stock of any class or kind ordinarily having the power to vote for the election of directors of the Company. "Wholly-Owned Restricted Subsidiary" is defined to mean, with respect to any Person, any Restricted Subsidiary of such Person if all of the Common Stock or other similar equity ownership interests (but not including Preferred Stock) in such Restricted Subsidiary (other than any directors' qualifying shares or shares issued to Persons to comply with local laws) is owned directly or indirectly by such Person. 12 14 Section 102. OTHER DEFINITIONS.
Term Defined in Section - ---- ------------------ "Act" 105 "Agent Members" 306 "CUSIP" 309 "Defaulted Interest" 308 "Defeased Securities" 401 "Securities" Recitals "Security Register" 305 "Security Registrar" 305 "Significant Subsidiary" 501 "Special Payment Date" 309 "Successor Person" 801 "U.S. Government Obligations" 404
Section 103. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company and any other obligor on the Securities (if applicable) shall furnish to the Trustee an Officers' Certificate in a form and substance reasonably acceptable to the Trustee stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with, and an Opinion of Counsel in a form and substance reasonably acceptable to the Trustee stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such certificates or opinions is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or individual or firm signing such opinion has read and understands such covenant or condition and the definitions herein relating thereto; 14 15 (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual or such firm, he or it has made such examination or investigation as is necessary to enable him or it to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual or such firm, such condition or covenant has been complied with. Section 104. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate of an officer of the Company or other obligor on the Securities may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or other obligor on the Securities stating that the information with respect to such factual matters is in the possession of the Company or other obligor on the Securities, unless such officer or counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Opinions of Counsel required to be delivered to the Trustee may have qualifications customary for opinions of the type required and counsel delivering such Opinions of Counsel may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Any certificate or opinion of an officer of the Company or other obligor on the Securities may be based, insofar as it relates to accounting matters, upon a certificate or opinion of, or representations by, an accountant or firm of accountants in the employ of the Company, unless such officer knows, or in the exercise of reasonable care should 14 16 know, that the certificate or opinion or representations with respect to the accounting matters upon which his certificate or opinion may be based are erroneous. Any certificate or opinion of any independent firm of public accountants filed with the Trustee shall contain a statement that such firm is independent with respect to the Company. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 105. ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 105. (b) The ownership of Securities shall be proved by the Security Register. (c) Any request, demand, authorization, direction, notice, consent, waiver or other Act by the Holder of any Security shall bind every future Holder of the same Security or the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, suffered or omitted to be done by the Trustee, any Paying Agent or the Company or any other obligor of the Securities in reliance thereon, whether or not notation of such action is made upon such Security. (d) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. 15 17 (e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of such Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding Trust Indenture Act Section 316(c), any such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not more than 30 days prior to the first solicitation of Holders generally in connection therewith and no later than the date such first solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for purposes of determining whether Holders of the requisite proportion of Securities then Outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for this purpose the Securities then Outstanding shall be computed as of such record date; provided that no such request, demand, authorization, direction, notice, consent, waiver or other Act by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after such record date. (f) For purposes of this Indenture, any action by the Holders which may be taken in writing may be taken by electronic means or as otherwise reasonably acceptable to the Trustee. Section 106. NOTICES, ETC., TO THE TRUSTEE, THE COMPANY. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Holder or by the Company or any other obligor on the Securities shall be sufficient for every purpose (except as provided in Section 501(d), in which case, the notice shall be delivered by certified mail) hereunder if in writing and mailed, first-class postage prepaid, or delivered by recognized overnight courier, to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department, or at any other address previously furnished in writing to the Holders or the Company, or any other obligor on the Securities by the Trustee; or (b) the Company by the Trustee or any Holder shall be sufficient for every purpose (except as provided in Section 501(d), in which case, the notice shall be delivered by certified mail) hereunder if in writing and mailed, first-class postage prepaid, 16 18 or delivered by recognized overnight courier, to the Company addressed to Pioneer Hi-Bred International, Inc., 400 Locust Street, Suite 800, Des Moines, Iowa 50309, Attention: Chief Financial Officer, or at any other address previously furnished in writing to the Trustee by the Company. Section 107. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, or delivered by recognized overnight courier, to each Holder affected by such event, at its address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be conclusively deemed to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event as required by any provision of this Indenture, then any method of giving such notice as shall be reasonably satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. Section 108. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with any provision of the Trust Indenture Act or another provision which is required or deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, the provision or requirement of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 17 19 Section 110. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company and the Trustee shall bind their respective successors and assigns, whether so expressed or not. Section 111. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 112. BENEFITS OF INDENTURE. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person (other than the parties hereto and their successors hereunder, any Paying Agent and the Holders) any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 113. GOVERNING LAW. THIS INDENTURE, THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. Section 114. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date, Maturity or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal or premium, if any, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date or Redemption Date, or at the Maturity or Stated Maturity and no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date, Redemption Date, Maturity or Stated Maturity, as the case may be, to the next succeeding Business Day. Section 115. INDEPENDENCE OF COVENANTS. All covenants and agreements in this Indenture shall be given independent effect so that if a particular action or condition is not permitted by any such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. 18 20 Section 116. SCHEDULES AND EXHIBITS. All schedules and exhibits attached hereto are by this reference made a part hereof with the same effect as if herein set forth in full. Section 117. COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be deemed an original; but all such counterparts shall together constitute but one and the same instrument. 19 21 ARTICLE TWO SECURITY FORMS Section 201. FORMS GENERALLY. The Securities and the Trustee's certificate of authentication thereon shall be in substantially the forms set forth in this Article Two, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted hereby and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange, any organizational document or governing instrument or applicable law or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. The Securities shall be issued initially in the form of one or more Global Securities, substantially in the form set forth in Section 202, deposited upon issuance with the Trustee, as custodian for the Depositary, registered in the name of the Depositary or its nominee, in each case for credit to an account of a direct or indirect participant of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Section 202. FORM OF FACE OF SECURITY. The form of the face of any Securities authenticated and delivered hereunder shall be substantially as follows: [Legend if Security is a Global Security] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A 20 22 SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 21 23 PIONEER HI-BRED INTERNATIONAL, INC. ------------------ _____% SENIOR NOTE DUE 2009 CUSIP NO. ______________ No. __________ $_______________________ Pioneer Hi-Bred International, Inc., an Iowa corporation (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to or registered assigns, the principal sum of United States dollars on _________, 2009, at the office or agency of the Company referred to below, and to pay interest thereon from ______, 1999, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on ______ and _________ in each year, commencing _________, 1999 at the rate of ______% per annum, in United States dollars, until the principal hereof is paid or duly provided for. Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security is registered at the close of business on the Regular Record Date for such interest, which shall be the _________ or _________ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid, or duly provided for, and interest on such defaulted interest at the interest rate borne by the Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or any Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in this Indenture. Payment of the principal of, premium, if any, and interest on, this Security, and exchange or transfer of the Security, will be made at the office or agency of the Company in The City of New York maintained for such purpose (which initially will be a corporate trust office of the Trustee or its affiliate located at 55 Water Street, Room 234, North Building, New York, NY), or at such other office or agency as may be maintained 22 24 for such purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof or by the authenticating agent appointed as provided in the Indenture by manual signature of an authorized signer, this Security shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the manual or facsimile signature of its authorized officers and its corporate seal to be affixed or reproduced hereon. PIONEER HI-BRED INTERNATIONAL, INC. [Seal] By: -------------------------------- Name: Title: Attest: - ---------------------------- Authorized Officer 23 25 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the _____% Senior Notes due 2009 referred to in the within-mentioned Indenture. CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: ____________________________ Authorized Signer Dated: Section 203. FORM OF REVERSE OF SECURITIES. The form of the reverse of the Securities shall be substantially as follows: PIONEER HI-BRED INTERNATIONAL, INC. ___% Senior Note due 2009 This Security is one of a duly authorized issue of Securities of the Company designated as its _____% Senior Notes due 2009 (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $200,000,000, issued under and subject to the terms of an indenture (herein called the "Indenture") dated as of _________, 1999, between the Company and Chase Manhattan Trust Company, National Association, as trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities may be redeemed at any time, at the option of the Company, in whole or from to time in part, upon not less than 30 and not more than 60 days' notice to the Holders thereof as provided in the Indenture, at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Securities and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, plus, in 24 26 each case, accrued interest to the Redemption Date (subject to the right of holders of record of such Securities on relevant record dates to receive interest due on an interest payment date), if any. If less than all of the Securities are to be redeemed, the Trustee shall select the Securities or portions thereof to be redeemed on a pro rata basis, by lot or by any other method the Trustee shall deem fair and appropriate. In the case of any redemption or repurchase of Securities in accordance with the Indenture, interest installments whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities of record as of the close of business on the relevant Regular Record Date or Special Record Date referred to on the face hereof. Securities (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the Redemption Date. In the event of redemption or repurchase of this Security in accordance with the Indenture in part only, a new Security or Securities for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal amount of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture contains provisions for defeasance at any time of (a) the entire Indebtedness on the Securities and (b) certain covenants and Defaults and Events of Default, in each case upon compliance with certain conditions set forth therein. The Indenture permits, with certain exceptions (including certain amendments permitted without the consent of any Holders and certain amendments which required the consent of all of the Holders) as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture and the Securities at any time by the Company and the Trustee with the consent of the Holders of at least a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of at least a majority in aggregate principal amount of the Securities (100% of the Holders in certain circumstances) at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and the Securities and certain past Defaults and Events of Default under the Indenture and the Securities and their consequences. Any such consent or waiver by or on behalf of the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security 25 27 issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, any Guarantor or any other obligor on the Securities (in the event such Guarantor or such other obligor is obligated to make payments in respect of the Securities), which is absolute and unconditional, to pay the principal of, and premium, if any, and interest on, this Security at the times, place, and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities in certificated form are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities of a differing authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. All terms used in this Security which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 26 28 ARTICLE THREE THE SECURITIES Section 301. TITLE AND TERMS. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $200,000,000 in principal amount of Securities, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 303, 304, 305, 307, 906 or 1108. The Securities shall be known and designated as the "_____% Senior Notes due 2009" of the Company. The Stated Maturity of the Securities shall be _______, 2009, and the Securities shall each bear interest at the rate of _____% per annum, as such interest rate may be adjusted as set forth in the Securities, from _______, 1999, or from the most recent Interest Payment Date to which interest has been paid, payable semiannually on ________ and _________ in each year, commencing _________, 1999, until the principal thereof is paid or duly provided for. The principal of, premium, if any, and interest on, the Securities shall be payable and the Securities shall be exchangeable and transferable at an office or agency of the Company in The City of New York maintained for such purposes (which initially will be a corporate trust office of the Trustee or its affiliate located at 55 Water Street, Room 234, North Building, New York, NY); provided, however, that payment of interest may be made at the option of the Company by check mailed to addresses of the Persons entitled thereto as shown on the Security Register. The Securities shall be redeemable as provided in Article Eleven and in the Securities. The Indebtedness evidenced by the Securities shall rank pari passu in right of payment with all other Senior Indebtedness. At the election of the Company, the entire Indebtedness on the Securities or certain of the Company's obligations and covenants and certain Defaults and Events of Default thereunder may be defeased as provided in Article Four. Section 302. DENOMINATIONS. The Securities shall be issuable only in fully registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. 27 29 Section 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities shall be executed on behalf of the Company by one of its Chairman of the Board, its President, its Chief Executive Officer, its Chief Financial Officer or one of its Vice Presidents under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signatures of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as provided in this Indenture and not otherwise. Each Security shall be dated the date of its authentication. No Security endorsed thereon shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to Article Eight, shall, in a single transaction or through a series of related transactions, be consolidated, amalgamated, combined or merged with or into any other Person or shall sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person, and the successor Person resulting from such consolidation, amalgamation, or combination or surviving such merger, or into which the Company shall have been merged, or the successor Person which shall have participated in the sale, assignment, conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, amalgamation, combination, merger, sale, assignment, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may 28 30 be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section 303 in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities on behalf of the Trustee. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Security Registrar or Paying Agent to deal with the Company and its Affiliates. If an officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates such Security such Security shall be valid nevertheless. Section 304. TEMPORARY SECURITIES. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. 29 31 Section 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The Company shall cause the Trustee to keep, so long as it is the Security Registrar, at the Corporate Trust Office of the Trustee, or such other office as the Trustee may designate, a register (the register maintained in such office or in any other office or agency designated pursuant to Section 1002 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as the Security Registrar may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee shall initially be the "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. The Company may change the Security Registrar or appoint one or more co-Security Registrars without notice. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 1002, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denomination or denominations, of a like aggregate principal amount. Furthermore, any Holder of the Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by the Holder of such Global Security (or its agent), and that ownership of a beneficial interest in a Security shall be required to be reflected in a book entry. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, Securities of the same series which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer, or for exchange, repurchase or redemption, shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. 30 32 No service charge shall be made to a Holder for any registration of transfer, exchange or redemption of Securities, except for any tax or other governmental charge that may be imposed in connection therewith, other than exchanges pursuant to Sections 303, 304, 906 or 1108 not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Securities selected for redemption under Section 1104 and ending at the close of business on the day of such mailing or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of Securities being redeemed in part. Any Security authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, any Global Security, whether pursuant to this Section 305, Sections 303, 304, 307, 906 or 1108 or otherwise, shall also be a Global Security and bear the legend specified in Section 202. Section 306. BOOK ENTRY PROVISIONS FOR GLOBAL SECURITIES. (a) Each Global Security initially shall (i) be registered in the name of the Depositary for such Global Security or the nominee of such Depositary, (ii) be deposited with, or on behalf of, the Depositary or with the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 202. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or shall impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Security. (b) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (i) such Depositary (A) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (B) has ceased to be a clearing agency registered 31 33 as such under the Exchange Act, and in either case the Company fails to appoint a successor Depositary, (ii) the Company, at its option, executes and delivers to the Trustee a Company Order stating that it elects to cause the issuance of the Securities in certificated form and that all Global Securities shall be exchanged in whole for Securities that are not Global Securities (in which case such exchange shall be effected by the Trustee) or (iii) there shall have occurred and be continuing an Event of Default or any Default. (c) If any Global Security is to be exchanged for other Securities or canceled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Security Registrar, for exchange or cancellation as provided in this Article Three. If any Global Security is to be exchanged for other Securities or canceled in part, or if another Security is to be exchanged in whole or in part for a beneficial interest in any Global Security, then either (i) such Global Security shall be so surrendered for exchange or cancellation as provided in this Article Three or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Security to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Trustee, as Security Registrar, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Security, the Trustee shall, subject to this Section 306(c) and as otherwise provided in this Article Three, authenticate and deliver any Securities issuable in exchange for such Global Security (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in the preceding paragraph, the Company shall promptly make available to the Trustee a reasonable supply of Securities that are not in the form of Global Securities. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article Three if such order, direction or request is given or made in accordance with the Applicable Procedures. (d) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article Three or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. (e) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under this Indenture 32 34 and the Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Agent Members. Section 307. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee, such security or indemnity, in each case, as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon a Company Request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a replacement Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a replacement Security, pay or purchase such Security, as the case may be. Upon the issuance of any replacement Securities under this Section, the Company may require the payment of a sum sufficient to pay all documentary, stamp or similar issue or transfer taxes or other governmental charges that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every replacement Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 308. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Interest on any Security which is payable, and is punctually paid or duly provided for, on the Stated Maturity of such interest shall be paid to the Person in whose 33 35 name the Security (or any Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest payment. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on the Stated Maturity of such interest, and interest on such defaulted interest at the then applicable interest rate borne by the Securities, to the extent lawful (such defaulted interest and interest thereon herein collectively called "Defaulted Interest"), shall forthwith cease to be payable to the Holder on the Regular Record Date; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Subsection (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or any relevant Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date (not less than 30 days after such notice) of the proposed payment (the "Special Payment Date"), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the Special Payment Date, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Subsection provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the Special Payment Date and shall fix the Special Record Date not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company in writing of such Special Record Date. In the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at its address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special Payment Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities are registered on such Special Record Date and shall no longer be payable pursuant to the following Subsection (b). 34 36 (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by this Indenture not inconsistent with the requirements of such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this Subsection, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 308, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 309. CUSIP NUMBERS. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and the Company, or the Trustee on behalf of the Company, shall use CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Securities; and provided further, however, that failure to use CUSIP numbers in any notice of redemption or exchange shall not affect the validity or sufficiency of such notice. Section 310. PERSONS DEEMED OWNERS. Prior to and at the time of due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company, or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 308) interest on, such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 311. CANCELLATION. All Securities surrendered for payment, purchase, redemption, registration of transfer or exchange shall be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of 35 37 or in exchange for any Securities canceled as provided in this Section 311, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall, upon written request of the Company, be destroyed and certification of their destruction delivered to the Company, unless by a Company Order received by the Trustee prior to such destruction, the Company shall direct that the canceled Securities be returned to it. The Trustee shall provide the Company a list of all Securities that have been canceled from time to time as requested by the Company. Section 312. COMPUTATION OF INTEREST. Interest on the Securities shall be computed on the basis of a 360-day year comprised of twelve 30-day months. 36 38 ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE Section 401. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at its option by Board Resolution, at any time, with respect to the Securities, elect to have either Section 402 or Section 403 be applied to all of the Outstanding Securities (the "Defeased Securities"), upon compliance with the conditions set forth below in this Article Four. Section 402. DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 401 of the option applicable to this Section 402, the Company and any other obligor upon the Securities, if any, shall be deemed to have been discharged from its obligations with respect to the Defeased Securities on the date the conditions set forth in Section 404 below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company and any other obligor under this Indenture shall be deemed to have paid and discharged the entire Indebtedness represented by the Defeased Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 405 and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company and upon Company Request, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of Defeased Securities to receive, solely from the trust fund described in Section 404 and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on, such Securities, when such payments are due, (b) the Company's obligations with respect to such Defeased Securities under Sections 304, 305, 307, 1002 and 1003, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 607, and (d) this Article Four. Subject to compliance with this Article Four, the Company may exercise its option under this Section 402 notwithstanding the prior exercise of its option under Section 403 with respect to the Securities. Section 403. COVENANT DEFEASANCE. Upon the Company's exercise under Section 401 of the option applicable to this Section 403, the Company shall be released from its obligations under any covenant or provision contained or referred to in Sections 1005 and 1006, with respect to the Defeased Securities, on and after the date the conditions set forth in Section 404 below are satisfied (hereinafter, "covenant defeasance"), and the Defeased Securities shall 37 39 thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder, and the Events of Default under Section 501(d), (e) and (f) shall cease to be in full force and effect with respect to the Securities. For this purpose, such covenant defeasance means that, with respect to the Defeased Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 501(d), (e) and (f) but, except as specified above, the remainder of this Indenture and such Defeased Securities shall be unaffected thereby. Section 404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to application of either Section 402 or Section 403 to the Defeased Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) cash in United States dollars in an amount, (b) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms and with no further reinvestment will provide, not later than one day before the due date of payment, money in an amount, or (c) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee to pay and discharge, the principal of, premium, if any, and interest on, the Defeased Securities, on the Stated Maturity of such principal or interest. For this purpose, "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to 38 40 make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt; (2) In the case of an election under Section 402, the Company shall have delivered to the Trustee an Opinion of Independent Counsel in the United States stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Independent Counsel in the United States shall confirm that, the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (3) In the case of an election under Section 403, the Company shall have delivered to the Trustee an Opinion of Independent Counsel in the United States to the effect that the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (4) No Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Section 501(g) is concerned, at any time during the period ending on the 91st day after the date of deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (5) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any Restricted Subsidiary is a party or by which it is bound; (6) Such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended, unless such trust shall be registered under such Act or exempt from registration thereunder; (7) The Company shall have delivered to the Trustee an Opinion of Independent Counsel in the United States to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; 39 41 (8) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Securities over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; (9) No event or condition shall exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the Securities on the date of such deposit or at any time ending on the 91st day after the date of such deposit; and (10) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Independent Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 402 or the covenant defeasance under Section 403 (as the case may be) have been complied with. Opinions of Counsel or Opinions of Independent Counsel required to be delivered under this Section shall be in form and substance reasonably satisfactory to the Trustee and may have qualifications customary for opinions of the type required and counsel delivering such opinions may rely on certificates of the Company or government or other officials customary for opinions of the type required, which certificates shall be limited as to matters of fact, including that various financial covenants have been complied with. Section 405. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the last paragraph of Section 1003, all United States dollars and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 404 in respect of the Defeased Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (excluding the Company or any of its Affiliates acting as Paying Agent), as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 404 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is imposed, assessed or for the account of the Holders of the Defeased Securities. 40 42 Anything in this Article Four to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any United States dollars or U.S. Government Obligations held by it as provided in Section 404 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect defeasance or covenant defeasance. Section 406. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 402 or 403, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated, with present and prospective effect, as though no deposit had occurred pursuant to Section 402 or 403, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such United States dollars or U.S. Government Obligations in accordance with Section 402 or 403, as the case may be; provided, however, that if the Company makes any payment to the Trustee or Paying Agent of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, the Trustee or Paying Agent shall promptly pay any such amount to the Holders of the Securities and the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the United States dollars and U.S. Government Obligations held by the Trustee or Paying Agent. 41 43 ARTICLE FIVE REMEDIES Section 501. EVENTS OF DEFAULT. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) there shall be a default in the payment of any installment of interest on any Security when it becomes due and payable, and such default shall continue for a period of 30 days; (b) there shall be a default in the payment of the principal of (or premium, if any, on) any Security when it becomes due and payable, whether at Maturity, upon redemption by declaration, upon required repurchase or otherwise); (c) there shall be a failure on the part of the Company to comply with the provisions of the Indenture relating to consolidations, mergers or sales of all or substantially all of its assets; (d) there shall be a default in the performance, or breach, of any covenant or agreement of the Company under this Indenture (other than a default in the performance, or breach, of a covenant or agreement which is specifically dealt with in clause (a), (b) and (c)) and such default or breach shall continue for a period of 60 days after written notice to the Company specifying such failure and requiring the Company or any Restricted Subsidiary to remedy the same has been given, by certified mail, (x) to the Company by the Trustee or (y) to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Outstanding Securities; (e) any Indebtedness of the Company or any Restricted Subsidiary of the Company shall not have been paid within applicable grace period after final maturity or is accelerated by the holders thereof because of default and the total amount of such Indebtedness unpaid or accelerated exceeds $20,000,000 individually or in the aggregate at the time and such default remains uncured or such acceleration is not rescinded for 10 days; 42 44 (f) any final judgment, order or decree of any court or courts of competent jurisdiction for the payment of money in excess of $20,000,000, shall be rendered against the Company or any "Significant Subsidiary" (defined as any Subsidiary of the Company that would be a "significant subsidiary" as defined in Rule 405 under the Securities Act as in effect on the date of the Indenture) or any of their respective properties, which judgment is not covered by insurance, and is not discharged and either (A) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (B) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, vacated, waived or the execution thereof stayed; (g) (i) there shall have been the entry by a court of competent jurisdiction of (A) a decree or order for relief in respect of the Company or any of its Significant Subsidiaries in an involuntary case or proceeding under any applicable Bankruptcy Law or (B) a decree or order adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of their respective properties, or ordering the winding up or liquidation of their affairs, and any such decree or order for relief shall continue to be in effect, or any such other decree or order shall be unstayed and in effect, for a period of 60 consecutive days or (ii) (A) the Company or any Significant Subsidiary commences a voluntary case or proceeding under any applicable Bankruptcy Law or any other case or proceeding to be adjudicated bankrupt or insolvent, (B) the Company or any Significant Subsidiary consents to the entry of a decree or order for relief in respect of the Company or such Significant Subsidiary in an involuntary case or proceeding under any applicable Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or proceeding against it, (C) the Company or any Significant Subsidiary files a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, (D) the Company or any Significant Subsidiary (1) consents to the filing of such petition or the appointment of, or taking possession by, a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or such Significant Subsidiary or of any substantial part of their respective properties, (2) makes an assignment for the benefit of creditors or (3) admits in writing its inability to pay its debts generally as they become due or (E) the Company or any Significant Subsidiary takes any corporate action in furtherance of any such actions in this paragraph (g)(ii). Section 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default (other than an Event of Default specified in Sections 501(g)) shall occur and be continuing, unless the principal and interest with respect to the 43 45 Securities shall have already become due and payable, with respect to this Indenture, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities then Outstanding may, and the Trustee at the request of such Holders shall, declare all unpaid principal of, premium, if any, and accrued interest on all Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders of the Securities) and upon any such declaration, such principal, premium, if any, and interest shall become due and payable immediately. If an Event of Default specified in clause (g) of Section 501 occurs and is continuing, unless the principal and interest with respect to the Securities shall have already become due and payable, then all the Securities shall ipso facto become and be due and payable immediately in an amount equal to the principal amount of the Securities, together with accrued and unpaid interest, if any, to the date the Securities become due and payable, without any declaration or other act on the part of the Trustee or any Holder. Thereupon, the Trustee may, at its discretion, proceed to protect and enforce the rights of the Holders of the Securities by appropriate judicial proceedings. In the event of a declaration of acceleration because of an Event of Default set forth in clause (e) of Section 501 has occurred and is continuing, such declaration acceleration shall be automatically rescinded and annulled if the Event of Default triggering such Event of Default pursuant to clause (e) above shall be remedied or cured by the Company or the relevant Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. At any time after a declaration of acceleration with respect to the Securities, but before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the holders of a majority in aggregate principal amount of the Securities Outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Outstanding Securities, (iii) the principal of and premium, if any, on any Outstanding Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and 44 46 (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities; (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the non-payment of principal of, premium, if any, and interest on the Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent Default or impair any right consequent thereon. Section 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if (a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of or premium, if any, on any Security at the Stated Maturity thereof or otherwise, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and premium, if any, and interest, with interest upon the overdue principal and premium, if any, and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest, at the rate borne by the Securities; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders under this Indenture by such appropriate private or judicial proceedings as the Trustee shall deem 45 47 most effectual to protect and enforce such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy or to enforce any other proper remedy, subject however to Section 512. No recovery of any such judgment upon any property of the Company shall affect or impair any rights, powers or remedies of the Trustee or the Holders. Section 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor, upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal, and premium, if any, and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 46 48 Section 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. All rights of action and claims under this Indenture the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 506. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article or otherwise on behalf of the Holders or the Trustee pursuant to this Article or through any proceeding or any arrangement or restructuring in anticipation or in lieu of any proceeding contemplated by this Article shall be applied, subject to applicable law, in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium, if any, or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; SECOND: To the payment of the amounts then due and unpaid upon the Securities for principal, premium, if any, and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest; and THIRD: The balance, if any, to the Person or Persons entitled thereto, including the Company, provided that all sums due and owing to the Holders and the Trustee have been paid in full as required by this Indenture. Section 507. LIMITATION ON SUITS. No Holder of any Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or the Securities, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; 47 49 (b) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as trustee hereunder; (c) such Holder or Holders have offered to the Trustee a reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer (and if requested, provision) of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture, any Security to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture or any Security, except in the manner provided in this Indenture and for the equal and ratable benefit of all the Holders. Section 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right based on the terms stated herein, which is absolute and unconditional, to receive payment of the principal of, premium, if any, and (subject to Section 308) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or the repurchase date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Section 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, any other obligor on the Securities, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all 48 50 rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 510. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 512. CONTROL BY HOLDERS. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture (including, without limitation, Section 507), expose the Trustee to personal liability, or be unduly prejudicial to Holders not joining therein; and (b) subject to the provisions of Section 315 of the Trust Indenture Act, the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 513. WAIVER OF PAST DEFAULTS. Prior to the acceleration of the maturity of the Securities, the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all Outstanding Securities waive any past Default or Event of Default and its consequences, except a Default or Event of Default 49 51 (a) in the payment of the principal of, premium, if any, or interest on any Security (which may only be waived with the consent of each Holder of Securities effected); or (b) in respect of a covenant or a provision hereof which under this Indenture cannot be modified or amended without the consent of the Holder of each Security Outstanding affected by such modification or amendment. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 514. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant, but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest on, any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). Section 515. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Securities contemplated herein or in the Securities or which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 50 52 Section 516. REMEDIES SUBJECT TO APPLICABLE LAW. All rights, remedies and powers provided by this Article Five may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law in the premises, and all the provisions of this Indenture are intended to be subject to all applicable mandatory provisions of law which may be controlling in the premises and to be limited to the extent necessary so that they will not render this Indenture invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. ARTICLE SIX THE TRUSTEE Section 601. DUTIES OF TRUSTEE. Subject to the provisions of Trust Indenture Act Sections 315(a) through 315(d): (a) if a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs; (b) except during the continuance of a Default or an Event of Default: (1) the Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture that are adverse to the Trustee; and (2) in the absence of bad faith or willful misconduct on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture; (c) the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this Subsection (c) does not limit the effect of Subsection (b) of this Section 601; 51 53 (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith, in accordance with a direction of the Holders of a majority in principal amount of Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power confirmed upon the Trustee under this Indenture; (d) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it; (e) whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to Subsections (a), (b), (c) and (d) of this Section 601; and (f) the Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. Section 602. NOTICE OF DEFAULTS. Within 90 days after a Responsible Officer of the Trustee receives notice of the occurrence of any Default, the Trustee shall transmit by mail to all Holders and any other Persons entitled to receive reports pursuant to Section 313(c) of the Trust Indenture Act, as their names and addresses appear in the Security Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. Section 603. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of Section 601 hereof and Trust Indenture Act Sections 315(a) through 315(d): 52 54 (a) the Trustee may rely and shall be protected in acting or refraining from acting upon receipt by it of any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) the Trustee may consult with counsel of its selection and any advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred therein; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture other than any liabilities arising out of the negligence, bad faith or willful misconduct of the Trustee; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, appraisal, bond, debenture, note, coupon, security or other paper or document unless requested in writing to do so by the Holders of not less than a majority in aggregate principal amount of the Securities then Outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such investigation so requested by the Holders of not less than 25% in aggregate principal amount of the Securities Outstanding shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand; provided, further, the Trustee in its discretion may make such further inquiry or investigation into such facts or matters as it may deem fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to 53 55 examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (h) the Trustee shall not be required to take notice, and shall not be deemed to have notice, of any Default or Event of Default hereunder, except Events of Default described in paragraphs (a) and (b) of Section 501 hereof unless the Trustee shall be notified specifically of the Default or Event of Default on a written instrument or document delivered to it at its Notice Address by the Company or by the Holders of at least 10% of the aggregate principal amount of the Securities then outstanding. In the absence of delivery of notice satisfying those requirements, the Trustee may assume conclusively that there is no Default or Event of Default, except as noted above. Section 604. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITIONS OF SECURITIES OR APPLICATION OF PROCEEDS THEREOF. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in any Statement of Eligibility and Qualification on Form T-1 to be supplied to the Company will be true and accurate subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. Section 605. TRUSTEE AND AGENTS MAY HOLD SECURITIES; COLLECTIONS; ETC. The Trustee, any Paying Agent, Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities, with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent and, subject to Trust Indenture Act Sections 310 and 311, may otherwise deal with the Company and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent. 54 56 Section 606. MONEY HELD IN TRUST. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Except for funds or securities deposited with the Trustee pursuant to Article Four, the Trustee shall be required to invest all moneys received by the Trustee, until used or applied as herein provided, in Temporary Cash Investments in accordance with the directions of the Company. Section 607. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR CLAIM. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to the compensation agreed to in writing by the Company and the Trustee and reasonable compensation for all other services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of all express trust), and the Company covenants and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence, bad faith or willful misconduct. The Company also covenants and agrees to indemnify the Trustee and its directors, officers, agents and employees and each predecessor Trustee (the "Indemnitees") for, and to hold it harmless against, any claim, loss, liability, tax, assessment or other governmental charge (other than taxes applicable to the Trustee's compensation hereunder) or expense incurred without negligence, bad faith or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including enforcement of this Section 607 and also including any liability which the Indemnitees may incur as a result of failure to withhold, pay or report any tax, assessment, fine, penalty, damages or other governmental charge, and the costs and expenses of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section 607 to compensate and indemnify the Indemnitees and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for reasonable expenses, disbursements and advances shall constitute an additional obligation hereunder and shall survive the satisfaction and discharge of this Indenture and the resignation or removal of the Trustee and each predecessor Trustee. 55 57 Section 608. CONFLICTING INTERESTS. The Trustee shall comply with the provisions of Section 310(b) of the Trust Indenture Act. Section 609. TRUSTEE ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be eligible to act as trustee under Trust Indenture Act Section 310(a) and which shall have a combined capital and surplus of at least $100,000,000, to the extent there is an institution eligible and willing to serve. If the Trustee does not have a Corporate Trust Office in The City of New York, the Trustee may appoint an agent in The City of New York reasonably acceptable to the Company to conduct any activities which the Trustee may be required under this Indenture to conduct in The City of New York. If such Trustee publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 609, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 609, the Trustee shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE. (a) No resignation or removal of the Trustee and no appointment of a successor trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor trustee under Section 611. (b) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice thereof to the Company no later than 30 Business Days prior to the proposed date of resignation. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument executed by authority of the Board of Directors of the Company, a copy of which shall be delivered to the resigning Trustee and a copy to the successor trustee. If an instrument of acceptance by a successor trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may, or any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper, appoint and prescribe a successor trustee. 56 58 (c) The Trustee may be removed at any time for any cause or for no cause by an Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of Trust Indenture Act Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, the Holder of any Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor trustee and shall comply with the applicable requirements of Section 611. If, within 60 days after such resignation, removal or incapability, or the occurrence of such vacancy, the Company has not appointed a successor Trustee, a successor trustee shall be appointed by the Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee. Such successor trustee so appointed shall forthwith upon its acceptance of such appointment become the successor trustee and supersede the successor trustee appointed by the Company. If no successor trustee shall have been so appointed by the Company or the Holders of the Securities and accepted appointment in the manner hereinafter provided, the Trustee or the Holder of any Security who has been a bona fide Holder for at least six months may, subject to Section 514, on behalf of himself and all 57 59 others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities as their names and addresses appear in the Security Register. Each notice shall include the name of the successor trustee and the address of its Corporate Trust Office or agent hereunder. Section 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every successor trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee as if originally named as Trustee hereunder; but, nevertheless, on the written request of the Company or the successor trustee, upon payment of its charges pursuant to Section 607 then unpaid, such retiring Trustee shall pay over to the successor trustee all moneys, Temporary Cash Investments and other property relating thereto at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. No successor trustee with respect to the Securities shall accept appointment as provided in this Section 611 unless at the time of such acceptance such successor trustee shall be eligible to act as trustee under the provisions of Trust Indenture Act Section 310(a) and this Article Six and shall have a combined capital and surplus of at least $100,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 609. Upon acceptance of appointment by any successor trustee as provided in this Section 611, the Company shall give notice thereof to the Holders of the Securities, by mailing such notice to such Holders at their addresses as they shall appear on the Security Register. If the acceptance of appointment is substantially contemporaneous with the appointment, then the notice called for by the preceding sentence may be combined with the notice called for by Section 610. If the Company fails to give such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be given at the expense of the Company. 58 60 Section 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee (including the trust created by this Indenture) shall be the successor of the Trustee hereunder, provided that such corporation shall be eligible under Trust Indenture Act Section 310(a) and this Article Six and shall have a combined capital and surplus of at least $100,000,000 and have a Corporate Trust Office or an agent selected in accordance with Section 609, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificate shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have; provided that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If and when the Trustee shall be or become a creditor of the Company (or other obligor under the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). A Trustee who has resigned or been removed shall be subject to Trust Indenture Act Section 311(a) to the extent indicated therein, as qualified by Trust Indenture Act Section 311(b). 59 61 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee (a) semiannually, not more than 10 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date; and (b) at such other times as the Trustee may reasonably request in writing, within 30 days after receipt by the Company of any such request, a list of similar form and content to that in subsection (a) hereof as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Security Registrar, no such list need be furnished. Section 702. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS. Holders may communicate pursuant to Trust Indenture Act Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities, and the Trustee shall comply with Trust Indenture Act Section 312(b). The Company, the Trustee, the Security Registrar and any other Person shall have the protection of Trust Indenture Act Section 312(c). Further, every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders in accordance with Trust Indenture Act Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Trust Indenture Act Section 312. Section 703. REPORTS BY TRUSTEE. (a) Within 60 days after ____________ of each year commencing with the first ______________ after the issuance of Securities, the Trustee, if so required under the Trust Indenture Act, shall transmit by mail to all Holders, in the manner and to the extent provided in Trust Indenture Act Section 313(c), a brief report dated as of such ____________ in accordance with and with respect to the matters required by Trust 60 62 Indenture Act Section 313(a). The Trustee shall also transmit by mail to all Holders, in the manner and to the extent provided in Trust Indenture Act Section 313(c), a brief report in accordance with and with respect to the matters required by Trust Indenture Act Section 313(b)(2). (b) A copy of each report transmitted to Holders pursuant to this Section 703 shall, at the time of such transmission, be mailed to the Company and filed with each stock exchange, if any, upon which the Securities are listed and also with the Commission. The Company will notify the Trustee promptly if the Securities are listed on any stock exchange. Section 704. REPORTS BY COMPANY. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; PROVIDED that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. The Trustee shall be under no obligation to analyze or make any credit decision with respect to any financial statements or reports received by it hereunder, but shall hold such financial statements or reports solely for the benefit of and/or review by the holders of the Securities. 61 63 ARTICLE EIGHT CONSOLIDATION, MERGER, SALE OF ASSETS Section 801. COMPANY AND GUARANTORS MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Company will not, in a single transaction or through a series of related transactions, consolidate, amalgamate, combine or merge with or into any other Person or, directly or indirectly, sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of its properties and assets to any Person or group of Persons, or permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions, if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, lease, transfer or disposition of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries on a Consolidated basis to any other Person or group of Persons, unless at the time and after giving effect thereto: (i) either (a) the Company will be the continuing corporation in the case of a merger, combination or consolidation or (b) the Person (if other than the Company) formed by such consolidation or the resulting, surviving or transferee Person, if other than the Company (the "Successor Company") will be a corporation or a limited liability company duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and such Person expressly assumes, by a supplemental indenture, in a form reasonably satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture, and in each case, the Securities and the Indenture will remain in full force and effect as so supplemented; (ii) immediately after giving effect to such transaction or series of transactions on a pro forma basis, including, without limitation, any Indebtedness Incurred or anticipated to be Incurred in connection with or in respect of such transaction or series of transactions, no Default or Event of Default will have occurred and be continuing and the Company will have delivered to the Trustee an Officer's Certificate to that effect; (iii) at the time of the transaction the Company or the Successor Company will have delivered, or caused to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each to the effect that such transaction or series of transactions, and, if a supplemental indenture is 62 64 required in connection with such transaction or series of transactions to effectuate such assumption, such supplemental indenture in respect thereof comply with this covenant and that all conditions precedent in the Indenture relating to such transaction have been satisfied. Notwithstanding the foregoing, any Restricted Subsidiary may consolidate, amalgamate or combine with or merge with or into or, directly or indirectly, sell assign, convey, lease, transfer or otherwise dispose of all or substantially all of its properties and assets to the Company or, subject to the condition set forth in clause (ii) in the preceding sentence, to any other Restricted Subsidiary. Section 802. SUCCESSOR SUBSTITUTED. Upon any consolidation, combination, amalgamation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company, if any, in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Securities with the same effect as if such successor had been named as the Company herein, in the Securities and the Company shall be discharged from all obligations and covenants under the Indenture and the Securities; provided that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal and interest on the Securities. 63 65 ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders, the Company and any other obligor under the Securities when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto or agreements or other instruments with respect to the Indenture or the Securities, in form and substance satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company pursuant to the provisions of Article Eight and the assumption by such successor of the covenants, agreements, and obligations of the Company in the Indenture and in the Securities; (b) to surrender any right or power conferred upon the Company by the Indenture, to add to the covenants of the Company such further covenants, restrictions, conditions, or provisions for the protection of the Holders as the Board of Directors of the Company shall consider to be for the protection of the Holders, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions, conditions, or provisions a default or an Event of Default under the Indenture (provided, however, that with respect to any such additional covenant, restriction, condition, or provision, such supplemental indenture may provide for a period of grace after default, which may be shorter or longer than that allowed in the case of other defaults, may provide for an immediate enforcement upon such default, may limit the remedies available to the Trustee upon such default, or may limit the right of Holders of a majority in aggregate principal amount of the Securities to waive such default); (c) to cure any ambiguity or to correct or supplement any provision contained in the Indenture, in any supplemental indenture, or in the Securities that may be defective or inconsistent with any other provision contained herein or therein, to convey, transfer, assign, mortgage, or pledge any property to or with the Trustee, or to make such other provisions in regard to matters or questions arising under the Indenture as shall not adversely affect the interests of any Holders; (d) to modify or amend the Indenture in such a manner as to permit the qualification of the Indenture or any supplemental indenture under the Trust Indenture Act as then in effect; (e) to comply with the provisions of Article Eight; 64 66 (f) to add guarantees with respect to the Securities or to secure the Securities; (g) to make any change that does not adversely affect the rights of any Holder; and (h) to evidence and provide for the acceptance of appointment by a successor or separate Trustee with respect to the Securities and to add to or change any of the provisions of the Indenture as shall be necessary to provide for or facilitate the administration of the Indenture by more than one Trustee. Section 902. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITH CONSENT OF HOLDERS. Except as permitted by Section 901, with the consent of the Holders of at least a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company when authorized by Board Resolutions, and the Trustee may (i) enter into an indenture or indentures supplemental hereto or agreements in form and substance reasonably satisfactory to the Trustee, for the purpose of adding any provisions to, amending, modifying or changing in any manner, or eliminating any of the provisions of the Indenture, of any supplemental indenture or the Securities (including but not limited to, for the purpose of modifying in any manner the rights of the Holders under this Indenture or the Securities or (ii) waive compliance with any provision in the Indenture or the Securities (other than waivers of past defaults covered by Section 513 and waivers of covenants covered by Section 1008); PROVIDED, HOWEVER, that no such supplemental indenture, agreement or instrument shall, without the consent of the Holder of each Outstanding Security affected thereby: (a) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver or compliance with certain provisions of this Indenture; (b) reduce the rate of or extend the time for payment of interest on the Securities or reduce the amount of any payment of interest on the Securities; (c) reduce the principal of or extend the Stated Maturity of the Securities; (d) reduce the premium payable upon the redemption of the Securities or change the time at which the Securities may or shall be redeemed; 65 67 (e) impair the right to institute suit for enforcement of any payment of principal, premium, if any, or interest on the Securities after the Stated Maturity thereof (or in the case of redemption, on or after the Redemption Date); (f) make the Securities payable in a currency other than U.S. dollars; (g) modify any of the provisions of this Section 902 or Section 513 or 1008, except to increase the percentage of such Outstanding Securities required for such actions or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each such Security affected thereby; (h) amend or modify any of the provisions of this Indenture in any manner which subordinates the Securities issued hereunder in right of payment to any other Indebtedness of the Company; (i) release any security that may have been granted with respect to the Securities; or (j) make any change in the provisions of the Indenture relating to waivers of defaults or amendments that require unanimous consent. Upon the written request of the Company, accompanied by a copy of Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture. It shall not be necessary for any Act of Holders under this Section 902 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. EXECUTION OF SUPPLEMENTAL INDENTURES AND AGREEMENTS. In executing, or accepting the additional trusts created by, any supplemental indenture, agreement, instrument or waiver permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Trust Indenture Act Sections 315(a) through 315(d) and Section 602 hereof) shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate stating that the execution of such supplemental indenture, agreement or instrument (a) is authorized or permitted by this Indenture and (b) does not violate the provisions of any agreement or instrument evidencing any other Indebtedness of the Company or any Restricted Subsidiary. The Trustee may, but shall not be 66 68 obligated to, enter into any such supplemental indenture, agreement or instrument which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the Trust Indenture Act as then in effect. Section 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Nine may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. Section 907. NOTICE OF SUPPLEMENTAL INDENTURES. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 902, the Company shall give notice thereof to the Holders of each Outstanding Security affected, in the manner provided for in Section 106, setting forth in general terms the substance of such supplemental indenture. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. 67 69 ARTICLE TEN COVENANTS Section 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company shall duly and punctually pay the principal of, premium, if any, and interest on the Securities in accordance with the terms of the Securities and this Indenture. Section 1002. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain an office or agency where Securities may be presented or surrendered for payment. The Company also will maintain in The City of New York an office or agency where Securities may be surrendered for registration of transfer, redemption or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The office of the Trustee or its affiliates, at its corporate trust office initially located at 55 Water Street, Room 234, North Building, New York, New York _______, will be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of the location and any change in the location of any such offices or agencies. If at any time the Company shall fail to maintain any such required offices or agencies or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the office of the Trustee or its affiliates and the Company hereby appoints the Trustee or its affiliates such agent as its agent to receive all such presentations, surrenders, notices and demands. The Company may from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes, and may from time to time rescind such designation. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such office or agency. The Trustee shall initially act as Paying Agent for the Securities. Section 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST. If the Company or any of its Affiliates shall at any time act as Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Holders entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due 68 70 until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. If the Company or any of its Affiliates is not acting as Paying Agent, the Company will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, deposit with a Paying Agent a sum in same day funds sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. If the Company is not acting as Paying Agent, the Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of, premium, if any, or interest on the Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any Default by the Company or any Guarantor (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest on the Securities; (c) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (d) acknowledge, accept and agree to comply in all aspects with the provisions of this Indenture relating to the duties, rights and liabilities of such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal and premium, if 69 71 any, or interest has become due and payable shall promptly be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the NEW YORK TIMES and THE WALL STREET JOURNAL (national edition), and mail to each such Holder, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification, publication and mailing, any unclaimed balance of such money then remaining will promptly be repaid to the Company. Section 1004. CORPORATE EXISTENCE. Subject to Article Eight, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and related rights and franchises (charter and statutory) of the Company and each Restricted Subsidiary; provided, however, that the Company shall not be required to preserve any such right or franchise or the corporate existence of any such Restricted Subsidiary or any trademark, trade name or service mark of the Company or any Restricted Subsidiary if the Board of Directors of the Company shall determine that the preservation thereof is no longer necessary or desirable in the conduct or the business of the Company and its Restricted Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the ability of the Company to perform its obligations hereunder. Section 1005. LIMITATION ON LIENS. The Company will not, and will not permit any Restricted Subsidiary of the Company to, Incur any Lien upon property or assets of the Company or any Restricted Subsidiary of the Company to secure Indebtedness without making, or causing such Restricted Subsidiary to make, effective provision for securing the Securities equally and ratably with (or prior to) such Indebtedness as to such property for as long as such Indebtedness will be so secured unless such Indebtedness is subordinate in right of payment to the Securities, in which case the Securities will be secured prior to such Indebtedness as to such property for as long as such Indebtedness will be so secured. The foregoing restrictions will not apply to (a) Permitted Liens or (b) Liens securing Indebtedness if, after giving pro forma effect to the Incurrence of such Indebtedness (and the receipt and application of the proceeds therefrom) or the securing of outstanding 70 72 Indebtedness, the sum of (without duplication) (A) all Indebtedness (valued at the lesser of the outstanding obligation of such secured Indebtedness or the Fair Market Value of the properties securing such Indebtedness) of the Company and its Restricted Subsidiaries secured by Liens (other than Permitted Liens) and (B) all Attributable Indebtedness (other than Attributable Indebtedness secured by Liens that are Permitted Liens under clause (i) of the definition thereof or permitted under clause (ii) of Section 1006 hereof) of the Company and its Restricted Subsidiaries in respect of Sale and Leaseback Transactions, at the time of determination, does not exceed 15% of Consolidated Net Tangible Assets. Section 1006. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company will not, and will not permit any Restricted Subsidiary of the Company to, enter into any Sale and Leaseback Transaction unless (i) the Company or such Restricted Subsidiary would be entitled to create a Lien securing Indebtedness in an amount equal to the Attributable Indebtedness with respect to such Sale and Leaseback Transaction without securing the Securities or (ii) the Company or such Restricted Subsidiary, within six months from the effective date of such Sale and Leaseback Transaction, applies to the voluntary defeasance, prepayment (in whole or in part) or retirement (excluding retirement of Securities and other Indebtedness ranking PARI PASSU with the Securities as a result of conversion or pursuant to mandatory sinking fund or mandatory prepayment provisions or by payment at maturity) of Securities or other Indebtedness ranking senior to or PARI PASSU with the Securities an amount equal to the Attributable Indebtedness in respect of such Sale and Leaseback Transaction. Section 1007. PROVISIONS OF FINANCIAL STATEMENTS. Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Sections 13(a) or 15(d) if the Company was so subject, such documents to be filed with the Commission on or prior to the date (the "Required Filing Date") by which the Company would have been required so to file such documents if the Company was so subject. The Company will also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all holders, as their names and addresses appear in the security register, without cost to such holders and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Sections 13(a) or 15(d) of the Exchange Act if the Company were subject to either of such Sections and (y) if filing such documents by the Company with the Commission is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and 71 73 delivery, supply copies of such documents to any prospective holder at the Company's cost. Section 1008. WAIVER OF CERTAIN COVENANTS. The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 1005 and 1006 if, before or after the time for such compliance, the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding shall, by Act of such Holders, waive such compliance in such instance with such covenant or provision, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. 72 74 ARTICLE ELEVEN REDEMPTION OF SECURITIES Section 1101. RIGHTS OF REDEMPTION. The Securities will be redeemable, as a whole or in part, at the option of the Company at any time, at a Redemption Price (a "Redemption Price") equal to the greater of (i) 100% of the principal amount of such Securities and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the Redemption Date (the "Redemption Date") on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15 basis points, plus, in each case, accrued interest thereon to the Redemption Date. Section 1102. APPLICABILITY OF ARTICLE. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article Eleven. Section 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem any Securities pursuant to Section 1101 shall be evidenced by a Company Order and an Officers' Certificate. In case of any redemption at the election of the Company, the Company shall, not less than 30 nor more than 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice period shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date and of the principal amount of Securities to be redeemed. Section 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less than all the Securities are to be redeemed, the particular Securities or portions thereof to be redeemed shall be selected not more than 30 days prior to the Redemption Date. The Trustee shall select the Securities or portions thereof to be redeemed on a PRO RATA basis, by lot or by any other method the Trustee shall deem fair and appropriate. The amounts to be redeemed shall be equal to $1,000 or any integral multiple thereof. The Trustee shall promptly notify the Company and the Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security 73 75 redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. Section 1105. NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at its address appearing in the Security Register. All notices of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities are to be redeemed, the identification of the particular Securities to be redeemed; (d) in the case of a Security to be redeemed in part, the principal amount of such Security to be redeemed and that after the Redemption Date upon surrender of such Security, new Security or Securities in the aggregate principal amount equal to the unredeemed portion thereof will be issued; (e) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (f) that on the Redemption Date the Redemption Price will become due and payable upon each such Security or portion thereof to be redeemed, and that (unless the Company shall default in payment of the Redemption Price) interest thereon shall cease to accrue on and after said date; (g) the names and addresses of the Paying Agent and the offices or agencies referred to in Section 1002 where such Securities are to be surrendered for payment of the Redemption Price; (h) the CUSIP number, if any, relating to such Securities; and (i) the procedures that a Holder must follow to surrender the Securities to be redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of the Company. If the Company elects to give 74 76 notice of redemption, it shall provide the Trustee with a certificate stating that such notice has been given in compliance with the requirements of this Section 1105. The notice if mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. Section 1106. DEPOSIT OF REDEMPTION PRICE. On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company or any of its Affiliates is acting as Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in same day funds sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date or Special Payment Date) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date. The Paying Agent shall promptly mail or deliver to Holders of Securities so redeemed payment in an amount equal to the Redemption Price of the Securities purchased from each such Holder. All money, if any, earned on funds held in trust by the Trustee or any Paying Agent shall be remitted to the Company. Section 1107. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates and Special Record Dates according to the terms and the provisions of Section 308. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid, bear interest from the Redemption Date at the rate borne by such Security. 75 77 Section 1108. SECURITIES REDEEMED OR PURCHASED IN PART. Any Security which is to be redeemed or purchased only in part shall be surrendered to the Paying Agent at the office or agency maintained for such purpose pursuant to Section 1002 (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company, the Security Registrar or the Trustee, as the case may be, duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the unredeemed portion of the principal of the Security so surrendered that is not redeemed or purchased. 76 78 ARTICLE TWELVE SATISFACTION AND DISCHARGE Section 1201. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall be discharged and shall cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities as expressly provided for herein) as to all Outstanding Securities hereunder, and the Trustee, upon Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (1) all the Securities theretofore authenticated and delivered (other than (i) lost, stolen or destroyed Securities which have been replaced or paid as provided in Section 308 or (ii) all Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in Section 1003) have been delivered to the Trustee for cancellation; or (2) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable at their Stated Maturity within one year or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust an amount in United States dollars sufficient (in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee) to pay and discharge (without consideration of any reinvestment and after payment of all taxes or other charges and assessments in respect thereof payable by the Trustee) the entire Indebtedness on the Securities not theretofore delivered to the Trustee for cancellation, including the principal of, premium, if any, and accrued interest on, such Securities at such Maturity, Stated Maturity or Redemption Date; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and 77 79 (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Independent Counsel, in form and substance satisfactory to the Trustee, each stating that (i) all conditions precedent herein relating to the satisfaction and discharge hereof have been complied with, (ii) no default with respect to the Securities has occurred and is continuing on the date of such deposit, and (iii) such deposit does not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party. Notwithstanding the satisfaction and discharge hereof, the obligations of the Company to the Trustee under Section 607 and, if United States dollars shall have been deposited with the Trustee pursuant to subclause (2) of subsection (a) of this Section 1201, the obligations of the Trustee under Section 1202 and the last paragraph of Section 1003 shall survive. Section 1202. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph Section 1003, all United States dollars deposited with the Trustee pursuant to Section 1201 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal of, premium, if any, and interest on, the Securities for whose payment such United States dollars have been deposited with the Trustee. * * * 78 80 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. PIONEER HI-BRED INTERNATIONAL, INC. By: ------------------------------------ Name: Title: Attest: ------------------------- Name: Title: 79 81 CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION By: ------------------------------ Name: Title: 80 82 STATE OF ________________________ ) ) ss.: COUNTY OF _____________________ ) On the _____ day of _______, 1999, before me personally came ___________, to me known, who, being by me duly sworn, did depose and say that he resides at _________________________; that he is ___________________ of Pioneer Hi-Bred International, Inc. which is a corporation described in and which executed the foregoing instrument; and that he signed his name thereto pursuant to authority of the Board of Directors of each of such corporations. (NOTARIAL SEAL) ---------- 83 STATE OF ________________________ ) ) ss.: COUNTY OF _____________________ ) On the _____ day of ______, 1999, before me personally came ___________, to me known, who, being by me duly sworn, did depose and say that he resides at _________________________; that he is ___________________ of Chase Manhattan Trust Company, National Association, a corporation described in and which executed the foregoing instrument; and that he signed his name thereto pursuant to authority of the Board of Directors of such corporation. (NOTARIAL SEAL) ---------- 84 TABLE OF CONTENTS ----------------- ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..............................................1 SECTION 101. DEFINITIONS......................................................................................1 "Affiliate"................................................................................................2 "Applicable Procedures"....................................................................................2 "Attributable Indebtedness"................................................................................2 "Bankruptcy Law"...........................................................................................2 "Board of Directors".......................................................................................3 "Board Resolution".........................................................................................3 "Book-Entry Security"......................................................................................3 "Business Day".............................................................................................3 "Capitalized Lease Obligation".............................................................................3 "Capital Stock"............................................................................................3 "Code".....................................................................................................3 "Commission"...............................................................................................3 "Commodity Price Protection Agreement"..........................................Error! Bookmark not defined. "Common Stock".............................................................................................4 "Company"..................................................................................................4 "Company Request" or "Company Order".......................................................................4 "Comparable Treasury Issue"................................................................................4 "Comparable Treasury Price"................................................................................4 "Consolidated Net Tangible Assets".........................................................................4 "Consolidation"............................................................................................5 "Corporate Trust Office"...................................................................................5 "Default"..................................................................................................5
i 85 "Depositary"...............................................................................................5 "Event of Default".........................................................................................5 "Exchange Act".............................................................................................5 "Fair Market Value"........................................................................................5 "Generally Accepted Accounting Principles" or "GAAP".......................................................5 "Global Securities"........................................................................................5 "Holder"...................................................................................................5 "Incur"....................................................................................................6 "Indebtedness".............................................................................................6 "Indenture"................................................................................................6 "Indenture Obligations"....................................................................................6 "Intangible Assets"........................................................................................6 "Interest Payment Date"....................................................................................6 "Issue Date"...............................................................................................6 "Lien".....................................................................................................6 "Maturity".................................................................................................7 "Moody's"..................................................................................................7 "Officers' Certificate"....................................................................................7 "Opinion of Counsel".......................................................................................7 "Opinion of Independent Counsel"...........................................................................7 "Outstanding"..............................................................................................7 "Paying Agent".............................................................................................8 "Permitted Lien"...........................................................................................8 "Person"...................................................................................................9 "Predecessor Security".....................................................................................9 "Preferred Stock"..........................................................................................9 "Principal Property"......................................................................................10
ii 86 "Purchase Money Lien".....................................................................................10 "Redemption Date".........................................................................................10 "Redemption Price"........................................................................................10 "Reference Treasury Dealer"...............................................................................10 "Regular Record Date".....................................................................................10 "Responsible Officer".....................................................................................10 "Restricted Subsidiary"...................................................................................10 "Sale and Leaseback Transaction"..........................................................................11 "S&P".....................................................................................................11 "Securities Act"..........................................................................................11 "Senior Indebtedness".....................................................................................11 "Special Record Date".....................................................................................11 "Stated Maturity".........................................................................................11 "Subsidiary"..............................................................................................11 "Temporary Cash Investments"..............................................................................11 "Treasury Rate"...........................................................................................12 "Trustee".................................................................................................12 "Trust Indenture Act".....................................................................................12 "Unrestricted Subsidiary".................................................................................12 "Voting Stock"............................................................................................12 "Wholly-Owned Restricted Subsidiary"......................................................................12 SECTION 102. OTHER DEFINITIONS...............................................................................13 SECTION 103. COMPLIANCE CERTIFICATES AND OPINIONS............................................................13 SECTION 104. FORM OF DOCUMENTS DELIVERED TO TRUSTEE..........................................................14 SECTION 105. ACTS OF HOLDERS.................................................................................15 SECTION 106. NOTICES, ETC., TO THE TRUSTEE, THE COMPANY......................................................16 SECTION 107. NOTICE TO HOLDERS; WAIVER.......................................................................17
iii 87 SECTION 108. CONFLICT WITH TRUST INDENTURE ACT...............................................................17 SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS........................................................17 SECTION 110. SUCCESSORS AND ASSIGNS..........................................................................18 SECTION 111. SEPARABILITY CLAUSE.............................................................................18 SECTION 112. BENEFITS OF INDENTURE...........................................................................18 SECTION 113. GOVERNING LAW...................................................................................18 SECTION 114. LEGAL HOLIDAYS..................................................................................18 SECTION 115. INDEPENDENCE OF COVENANTS.......................................................................18 SECTION 116. SCHEDULES AND EXHIBITS..........................................................................19 SECTION 117. COUNTERPARTS....................................................................................19 ARTICLE TWO SECURITY FORMS......................................................................................20 SECTION 201. FORMS GENERALLY.................................................................................20 SECTION 202. FORM OF FACE OF SECURITY........................................................................20 SECTION 203. FORM OF REVERSE OF SECURITIES...................................................................24 ARTICLE THREE THE SECURITIES....................................................................................27 SECTION 301. TITLE AND TERMS.................................................................................27 SECTION 302. DENOMINATIONS...................................................................................27 SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING..................................................28 SECTION 304. TEMPORARY SECURITIES............................................................................29 SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.............................................30 SECTION 306. BOOK ENTRY PROVISIONS FOR GLOBAL SECURITIES.....................................................31 SECTION 307. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES................................................33 SECTION 308. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED..................................................33 SECTION 309. CUSIP NUMBERS...................................................................................35 SECTION 310. PERSONS DEEMED OWNERS...........................................................................35 SECTION 311. CANCELLATION....................................................................................35
iv 88 SECTION 312. COMPUTATION OF INTEREST.........................................................................36 ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE.................................................................37 SECTION 401. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE....................................37 SECTION 402. DEFEASANCE AND DISCHARGE........................................................................37 SECTION 403. COVENANT DEFEASANCE.............................................................................37 SECTION 404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.................................................38 SECTION 405. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS......................................................................................40 SECTION 406. REINSTATEMENT...................................................................................41 ARTICLE FIVE REMEDIES...........................................................................................42 SECTION 501. EVENTS OF DEFAULT...............................................................................42 SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT..............................................43 SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.................................45 SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM................................................................46 SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.....................................47 SECTION 506. APPLICATION OF MONEY COLLECTED..................................................................47 SECTION 507. LIMITATION ON SUITS.............................................................................47 SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST.......................48 SECTION 509. RESTORATION OF RIGHTS AND REMEDIES..............................................................48 SECTION 510. RIGHTS AND REMEDIES CUMULATIVE..................................................................49 SECTION 511. DELAY OR OMISSION NOT WAIVER....................................................................49 SECTION 512. CONTROL BY HOLDERS..............................................................................49 SECTION 513. WAIVER OF PAST DEFAULTS.........................................................................49 SECTION 514. UNDERTAKING FOR COSTS...........................................................................50 SECTION 515. WAIVER OF STAY, EXTENSION OR USURY LAWS.........................................................50 SECTION 516. REMEDIES SUBJECT TO APPLICABLE LAW..............................................................51
v 89 ARTICLE SIX THE TRUSTEE.........................................................................................51 SECTION 601. DUTIES OF TRUSTEE...............................................................................51 SECTION 602. NOTICE OF DEFAULTS..............................................................................52 SECTION 603. CERTAIN RIGHTS OF TRUSTEE.......................................................................52 SECTION 604. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITIONS OF SECURITIES OR APPLICATION OF PROCEEDS THEREOF........................................................................................ 54 SECTION 605. TRUSTEE AND AGENTS MAY HOLD SECURITIES; COLLECTIONS; ETC........................................54 SECTION 606. MONEY HELD IN TRUST.............................................................................55 SECTION 607. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR CLAIM.................................55 SECTION 608. CONFLICTING INTERESTS...........................................................................56 SECTION 609. TRUSTEE ELIGIBILITY.............................................................................56 SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE.......................................56 SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR..........................................................58 SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.....................................59 SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...............................................59 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.................................................60 SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.......................................60 SECTION 702. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS....................................................60 SECTION 703. REPORTS BY TRUSTEE..............................................................................60 SECTION 704. REPORTS BY COMPANY..............................................................................61 ARTICLE EIGHT CONSOLIDATION, MERGER, SALE OF ASSETS.............................................................62 SECTION 801. COMPANY AND GUARANTORS MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.............................62 SECTION 802. SUCCESSOR SUBSTITUTED...........................................................................63 ARTICLE NINE SUPPLEMENTAL INDENTURES............................................................................64 SECTION 901. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITHOUT CONSENT OF HOLDERS...............................64
vi 90 SECTION 902. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITH CONSENT OF HOLDERS..................................65 SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES AND AGREEMENTS.............................................66 SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES...............................................................67 SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.............................................................67 SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES..............................................67 SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES...............................................................67 ARTICLE TEN COVENANTS...........................................................................................68 SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.....................................................68 SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY................................................................68 SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST................................................68 SECTION 1004. CORPORATE EXISTENCE............................................................................70 SECTION 1005. LIMITATION ON LIENS............................................................................70 SECTION 1006. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS..................................................71 SECTION 1007. PROVISIONS OF FINANCIAL STATEMENTS.............................................................71 SECTION 1008. WAIVER OF CERTAIN COVENANTS....................................................................72 ARTICLE ELEVEN REDEMPTION OF SECURITIES.........................................................................73 SECTION 1101. RIGHTS OF REDEMPTION...........................................................................73 SECTION 1102. APPLICABILITY OF ARTICLE.......................................................................73 SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE..........................................................73 SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED..............................................73 SECTION 1105. NOTICE OF REDEMPTION...........................................................................74 SECTION 1106. DEPOSIT OF REDEMPTION PRICE....................................................................75 SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE..........................................................75 SECTION 1108. SECURITIES REDEEMED OR PURCHASED IN PART.......................................................76 ARTICLE TWELVE SATISFACTION AND DISCHARGE.......................................................................77 SECTION 1201. SATISFACTION AND DISCHARGE OF INDENTURE........................................................77
vii 91 SECTION 1202. APPLICATION OF TRUST MONEY.....................................................................78
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