UNITED STATE$ Of Ae.4ERICA 

COMMODITY fUTURES TRADING COMMISSION 

203.3 K Street, N.W. 

Washington. D.C. 20581 

r .. ,. .. \ I u-·1 ll!. ::· =·· f L\· 1 • • ·.' . .);\. !~ - -

Septe~r 30, 1988 

Rez Proposed Issuance of Floating Rate 

Notes 

~his i• in response to a letter dated August.s, 1988, 

subml tted by (August 5 Letter) , as 

mupplemented by a letter dated September 28, 1988 (September 28 . Letter), on behalf of (Issuer), a 

corporation engaged internationally J.n the business of 

-J'he I•suer i• proposing t.be di•trlbution to its 

•hareholder• of rights (Rights) to purchase floating-rate notes 

(Notes) with interest varying with changes in the price of 

which, together vith certain by-products and 

co-product•, accounted for •ore t.luul 1St of the Issuer's 

consolidated net •ales·in 1987, which exceeded $1.7 billion. 

Your firm has requested that the staff of the Commodity Futures 

Trading Comd ausion (Commission) confU. that it vill mot 

recommend to the Commission that it initiate any enforcement 

action against the Issuer due to it• participation tn the 

offering described in the August 5 and SeptU'!her 28 Letters .. Based upon the representations cont.ained .in t.be August 5 and 

September 28 Letters, •• supplemented by di•cussion• vith 

Commission staffs ve under•t.and that the relevant fact.. include 

the follow!.Dg-.. 

-J'he Is•u•r had con•olidated total •••et• of 110re 'than $3 .. 3 

billion as of June 30, 1988. ~he I•suer'a camaon share• are 

listed on the ~ew York Stock Exchange (NYS!) and on Tarious 

foreign atock exchanges. ~ of Hay 2, 1988, the ls•uer had more 

than .dlllon outstanding •hares of common ateek, of which 

there vere·.ore than holders of record. More than 

holders of record of the Issuer•• outstanding common ahares, 
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representing approximately 55% of the outstanding shares, have 

U.S. addresses. 

The Issuer proposes to distribute to its shareholders Rights 

to purchase up to million aggregate principal amount of · 

floating rate Notes. The Issuer contemplates declaring. a 

dividend of one Right for each common share owned. .A certain 

number of Rights, yet to be determined by the Issuer, would 

entitle the holder to purchase one Note having a principal amount 

of for a cash payment equal to such principal amount. 1/ 

The Rights would be exercisable on and after the date of issuance 

for no less than 21 and no more than 72 days. You anticipate 

that the Rights would be listed on the NYSE and traded on a 

when-issued basis prior to their issuance. The Issuer's 

financial advisor, , anticipates 

that a majority of the Issuer's common shareholders would sell 

their Rights in the open market prior to the expiration of such 

Rights .. 

The Notes will be registered under the Securities .Act of 

1933 (Securities Act) and issued in accordance with the 

requirements of state securities commissions. If listed on the 

NYSE, the Notes also would be registered under the Securities 

Exchange Act of 1934 (Exchange Act). The Issuer will deposit 

cash or Notes to a sinking fund such that the total amount 

deposited would fully amortize the Notes. The Notes will be 

redeemable by the Issuer at its option at any time, and the Notes 

may be subordinated to the Issuer's other indebtedness. 

Interest on the Notes would be payable semi-annually, at an 

annualized·rate equal to a fixed rate of at least (Floor Rate) 

plus· a variable interest component calculated by reference to the 

average market price for on a three-month forward basis, 

as quoted in u.s. dollars on the · during 

the six-month period ending one month prior to the commencement 

of the relevant interest payment period. The Floor Rate would be 

adjusted to equal at least 35% of the rate that the Issuer could 

expect to pay on a fixed-rate debt issue of comparable size. 

11 You have represented that the Issuer may permit holders of 

Rights who are citizens to elect to purchase Notes 

denominated in dollars. You further represent 

that, based on current exchange rates, the minimum 

denomination of Notes of that series would equal 

approximately -
Varia.bl• btttreat pa:YJtenta calculated by :~:eference to the price of · vill Dot exceed 20\ of t.he principal aaount of the 

•otea on an average annualized baaia. 

Xn an Advance lllotice of Propoaed RuleaakiDg Jtelatirag to the 

Jtegulation of Certain Bybrid and·Related Inatru.ents (Advance 

•otice), 52 ~. ~· 47022 (December 11, 1987), the Commission 

baa requeated e~nt on a propoattd ~:egulatory framework vhich, 

among other thinga, would provide an exemption from Commission 

regulation for certain •otherviae-regulated• ~natruments ~aving 

only incidental option-like component•. In.view of the fact that _ t.he Advance aotice :~:emains pending and t.hat t.he Commlsaion has 

not reached a final determination vitb :~:espect t.o t.be proposals 

aet forth t.herein, t.he ataff believes that it ia appropriate, in 

limited circumstances such as this, to addre•• certain instruaents on a ease-by-case basis. Baaed upon t.he representations contained ~n t.he August 5 and September 28 Letters, as 

aupplemented by diacussions vith Commission ataff, t.be staff has 

compared the proposed offering to t.he criteria aet forth in the 

Advance Notice, as summarized below. 1../ 

(1) ~erm to Matprity 

You ~ave r~presented that the Notes vill have a maturity of 

either or years, which is in excess of the ~nimum 

three-year term specified in the Advance Notice. 

(2) Maximum Commodity-Baled Betuin and Minimum tion-Comm9dity Based Return 

AI propoaed in the Advance Notice, the exemption £or certain 

otherwi1e-regulated instrument• would be conditioned upon compliance vith a requirement that the hybrid instrument have a 

2inimum annual yield or return independent of ~ts commodity- related component equal to at least lSt of the eatimated annual 

yield at t.he t.ime of isauance for a comparable pure debt or 

depository inatrument and a aaximum average potential return on 

1..1 ~ represented t.o as, the Rights vill have Do value except 

as a J~Dechanism enabling the purchase of . a Mote. In view of 

t.he facti and circumstances of the propoaed-Dffering, the 

staff has not aeparately analyzed the Rights againat the 

criteria set forth in the Advance Notice. We note, however, 

that in .other circumstances, right1 offerings ~y 

potentially warrant separate scrutiny. 

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it.• ~- odit:y-relat.ftd CCi!lllpODent of 20\ on an arwualizftd ba111i111 of 

the total principal or face aaount of the llybrid i!ullt.rv..ent.. As 

de•cribed in the August 5 Letter, the Wotea would bear intere111t, 

payable eud-am1ually 11 at olllD ~ualized rate between t.he l'loor ~te 11 which vill be fixed at DO 1eaa than and a ceiling rate 

anticipatftd to be but 11 .ln any event, affordi.Dg a commodity- related return DO greater than the 20\ ~xfwua a~erage annualized 

return proposed in the Advance IJotictt.. !rhus 11 subject to the 18\ 

(or adjuated) ceiling, .i.Dterest payable on the Wotea vlll be 

compriaed of the fixed, Don-commodity :rield (Floor bte) ..t!Uld a 

Yariahle component 11 calculated by reference to the average price of on a three-~nth forward basi• during the aix-month - period ending one aonth prior to the commencement of the relevant 

i.nterest-payment period.. _ _ . 

~ atated in the August 5 Letter, the %111111uer and its financial advi•or have indicated that the •otelll vill have • floor, 

mon-c:::ommodity-indexed interest rate that will not be 1••• than \ 

and that thi• rate vill be fixed in 111uch a aanner that it will 

equal or exceed 35\ of the eatimated annual yield for comparable fixed-rate debt of the %asuer at the time of i111111Uance of the 

tiotes.. You have further represented that although the 18\ 

ceiling rate for the aggregate commodity-related and Don-comJIIIOdity-related return ~DAY be adju111ted, ill DO event vill the 

Notes' commodity-related return exceed the maximum 20\ average annualized return propo111ed in the Advance ~otice• 

(3) Line of Busineps 

~be %111auer 1• engaged in the busine•• of 

products. The commodity-related return on the ~otes ia indexed 

to t.he price of vhich ac:::counted for aore 'than "'S\ of the 

Iaauer'a conaoli~tea met aale• in 1987.. · 

(~) ptberwl•e-Regulpted 

Yhe August· 5 Letter etates that the I111111uer ha111 been 

regi111tued vith the Securitie• and bch&Dge Ccmrmi111sion (S!C) fo:r 

IIWl:f yeua and file• periodic nport111 under the Bxch&Dge Act and 

pursuant to •ariou• foreig-n •ecu:rities regulatory. and atock 

exchange requirement•. ~he 1Jote111 vill be regi111tered under the 

Securities Act, and appropriate filings vill be aade vith atate 

aecuritiea eommiaaions.. %ou anticipate that the-tiotes will be 

liated for trading on the HYS!.. If the ~otes are liated on the ~SE, they also v~uld be registered ander the Exchange Act.. Yhe 

Note• will be iasued pursuant to an indenture complying with the 

requirements of the Trust Indenture Act of 1939 and of the 
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Xssuer•a jurisdiction of incorporation. A prospectus relating to 

the Botes will be filed with the S!C, certain atate aecurities ~ssionera and the aecur!tles regulator of the Iasuer'a 

jurisdict.ion of hcorporation. 

(5) ~rketing and Pltelppnro 

Yhe lRotes will be IIUldceted as aeeuri ties, vi t.b t.he .indexing ~eature of the ilotee t.o be disclosed as required by the - disclosure zequir.-ents of applicable aeeurit.ies lave. 

(6) Special Call• 

~he exemptive relief proposed in th2 Advance Notice would 

also be conditioned upon the Issuer's a.nderta.'king to submit to 

special calla for information to demonstrate compliance with the 

conditions of the ataff'a no-action position. You have represen- ted that t.he Issuer will agree to comply with aucb requests for 

.info:t'JW!ltion by the Cnmmi as ion. 

(7) Fet Worth and Cpyer 

%n t.he Advance 5otice, t.he Commission proposed to condition 

exemptive relief upon compliance vit.h a requirement that the 

Issuer have at least $100 million of net worth and BAintain 

specified cover to ensure performance of the commodity-related obligations created by the hybrid .instrument.. Yhe August 5 

Letter states that, as of June lO, 1988, t.he Issuer's 

consolidated net worth exceeded $1.3 billion. The August 5 

Letter further represents that the ·xaeuer has sufficient . . reaerves t.o sustain production of at 1987 

levels for more than 30 years. Xn addition,~rou have repreaented that assuming (i) a $300 Billion offering, (1 ) prices at 

but not higher than the price preaenili expected to trigger the 

BA.Ximum possible interest rate a.nd ( ) production at constant 

1981 levels, the commodity related component of the bterest ~nae ($«2 aillion per am:a'Wi) would account for _1eea t.}lan 10' 

of the value of the Iaauer'a annual production of · and ita 

pr!Dcipal co-product. You bve further represented that. the · Iaauer intends to aaintain reserves adequate t.o cover 

the ~ty-related portion of ita obligations on the 5otes. 

(8) tilnimum unit Price 

~e Advance aotice propoaes a ainLmum unit price for 

qualifying hybrid instruments of $20,000. The Ieauer propoaes to 

issue the Notes in a minimum denomination of $500. Notes can 

only be purchaaed by accumulating a sufficient number of Rights, 
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which rights will accrue only to existing shareholders. 

Therefore, effectively, there is Do public offeriD9 of the ~otes 

independent of 'the %sauu'e COIIIII:mOn stock.. · 

You have cited several Z'4UUiona ~or 'the proposed $500 

denomination of the Motes. The Xasuer repreaents 'that if 

aillion of Motes ~• offered in $20,000 denomination•, More 

than t9\ of the %aauer's individual shareholders would receive 

too ffiW llighta to enable purchase of a Mote.. ::11 Baaed apon.t.he currently anticipated size of the offering, mllion, only 0.7\ of the %ssuer's individual shareholders would receive ~ufficient Rights to enable them to purchase a $20,000 Mote. 

Bowever, virtually all shareholders holding 100 or BOre common 

shares, approximately l5t of all common ahareholders, would 

r.ceive a aufficient. Dumber of Might.s to purchase one or acre 

$500 Notes .in a to · · Billion offering. 

. %f the Rotea were offered in' $20,000 denominations, you 

represent that. it is likely that. BOat amall shareholders would 

receive insufficient Rights to permit. purchase of a Mote, 

~I You have represented in your September 28 Letter that 

approximately 65' of the Issuer'• total shareholders hold 

fewer than 100 sharea each. · . · the Iaauer'• financial advisor, baa calculated 

that ln the event of a Rilion offering, a shareholder 

vould.need approximately 1 1 050 Rights to purchase one Note 

vitb a $20,000 denomination. Baaed on recent ~ket prices, the 7,050 common sharea neceasary to obtain such Dumber of 

Rights would be worth ~re than $19l,too .. · Only 0 .. 7\ of the 

Isauer'• record shareholders would receive sufficient Right.• 

to purchase a Mote h those circu..mat.&Dcea. You also have 

calculated that if the Motes vera offered at a $20,000 

denomination h a aillion offering, only 0.6\ of the 

%sauer'• record shareholders would receiYe sufficient Rights 

to permit them to purchaae a Mote. Thus, if llidllion of 

Motes were offered in $20,000 denominations, IIIOH than t9\ 

of the Issuer'• record shareholders would receive too few 

Rights to enable purchase of the Motes. 'fw lulve ooted, 

however, that approximately 56\ and 64t of all record 

ahareholder• holding 100 or acre common sbar_.-

(approximately 35' of all ccmmo~ shareholders are at least 

•round-lot• holder•) would receive a aufficient number of 

Rights to purchase one or ~ore $500 Notes in, respectively, 

a ~llion and a Rdllion Rights offering. 
Page 1 

potentially adversely affecting the value of the ~gbts and 

tending to frustrate the Xasuer'• attempt to achieve a vide 

distribution of Mote a to facilitate developeent ·of a liquid exchange aarket for the benefit of Don-institutional ~tote 

holders.. Xn addition, as t.he proposed offeriDg .ls Dot an 

andervritten offering, if the liotes were Dot accessible t..o 

purch&IIIUI by the %a suer' a amall. sbarttholders, the ablleDCa of a 

atandby andervriting COIII"ft.J!Mmt with n~ to the proposed offering could result in a shortfall .in the .ubscription of · llotes to a degree below the offering size sought by t.be :tsl"uer .. 

Baaed upon our understanding of the representations in your August S and September 28 Letters, as aupplemented by diacua11iona 

vith Commi~sion staff, the staff has concluded that the pro~aed 

· offering aa outlined in your letters is consistent vit.h t.he 

criteria for exemptive relief set forth in the Advance Motice 

except the requirement of a ainiaum unit size of $20 1 000. ~he 

staff is of the view, however, that the special circmutancea of 

the proposed offering, vhich is to be I!Ulde to existing common 

shareholders of the Iaauer, render application of the minimum 

denomination requirement proposed in the Advance Notice 

unwarranted. Rather than providing a protection to potential purchasers. of hybrid inatrw:Denta, the proposed B.inimum unit size 

could, in the ci~tancea of this proposed offering, cause a 

reduction in the value of the Right• to be distributed to 

existing shareholders. ~he lower unit size proposed for the 

Notes haa the potential to enhance the ability of a broader class 

of shareholders to realize the value of the Rights distributed to 

them, vhile alae facilitating the listing and trading of the 

Notes on a national securities exchange .. 

~herefore, the staff will not recommend to the Commission 

that it initiate any enforcement action under Section 4c of the 

Commodity Exchange Act, 1 u.s.c. 16c (1982), based solely upon the distribution of Rights and issuance and offering of ltotea as 

specified in the August 5 and September 28 Letters.. IJ'his 

position does not. excuse the Issuer from camplyag with any otherwise applicable provisions of the Commodity Exchange Act or 

Commission regulations thereunder, Dor does it. address any other instru~~Mnt. or proposed hst~nt... IJ'his posi t.ion is based upon 

our understanding of t.he facts as contained in your letters, as 

supplemented by discussions vit.h the staff.. Any different, 

omitted or change~ facts or conditions BAY requ~a different 

conclusion. In this regard, you should notify the ataff in the 

event that the proposed offering of Rights or Notes differs in 

any respect from the particulars contained in your letters and 

discussions with the staff. . 
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Finally, ~t •hould be Doted that this position Lu that of 

the staff and iu Dot binding upon t.he ("ommi uuion and that any 

•ubuequent determination.by the CommSuuion with regard to the 

rulemaking proceeding initiated by the Advance llotice aay requir( 

a reconuideration of this •t.a.ff pouition .. 

~I!~.{ ·paula A. Tosini 

Co-Chairman 

Off-Exchange ~ask Force