<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CORN PRODUCTS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
- --------------------------------------------------------------------------------
(5) Total fee paid:
N/A
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
N/A
- --------------------------------------------------------------------------------
(3) Filing party:
N/A
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(4) Date filed:
N/A
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<PAGE> 2
[CORN PRODUCTS LOGO]
6500 SOUTH ARCHER AVENUE, BEDFORD PARK, ILLINOIS 60501-1933
March 31, 1999
Dear Stockholder:
Enclosed are the notice of annual meeting of stockholders and proxy
statement for the 1999 annual meeting of stockholders of Corn Products
International, Inc.
The meeting will be held solely to vote on the matters described in the
proxy statement. We do not expect any other business will be transacted at the
meeting. We will, however, present a brief report on the status of our business
at the conclusion of the meeting.
We urge you to complete and return the enclosed proxy as promptly as
possible. Your vote is important.
Sincerely,
Konrad Schlatter
Chairman and
Chief Executive Officer
[LOGO]
Printed on Recycled Paper
<PAGE> 3
CORN PRODUCTS INTERNATIONAL, INC.
6500 SOUTH ARCHER AVENUE
BEDFORD PARK, ILLINOIS 60501-1933
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1999 annual meeting of stockholders of Corn Products International,
Inc. will be held at the Wyndham Garden Hotel - O'Hare, 5615 North Cumberland
Avenue, Chicago, Illinois, on Wednesday, May 19, 1999, at 9:30 a.m., local time,
for the following purposes:
1. To elect four directors, each for a term of three years, and
one director for a term of one year.
2. To ratify and approve the issuance of common stock of the
Company in connection with the acquisition by the Company of
the remaining interest in Arancia-Corn Products S.A. de C.V.,
the Company's Mexican joint venture.
3. To ratify the appointment of independent auditors for the
Company for 1999.
4. To transact such other business, if any, that is properly
brought before the meeting.
March 22, 1999, is the record date for the meeting. Only stockholders
of record at the close of business on that date may vote at the meeting. For ten
days before the meeting, a list of stockholders will be available for inspection
during ordinary business hours, at our Company headquarters.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN
YOUR PROXY CARD PROMPTLY.
By order of the Board of Directors,
Marcia E. Doane
Vice President, General Counsel
and Corporate Secretary
March 31, 1999
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information..................................................................4
Board of Directors...................................................................5
Security Ownership of Certain Beneficial Owners and Management.......................7
Section 16(a) Beneficial Ownership Reporting Compliance..............................9
Stockholder Return Performance Graph................................................10
Compensation and Nominating Committee Report on Executive Compensation..............10
Executive Compensation..............................................................14
Certain Relationships and Related Transactions......................................18
Matters To Be Acted Upon:
Proposal 1.
Election of Directors......................................................19
Proposal 2.
Ratification and Approval of the Issuance of Common Stock..................24
Proposal 3.
Ratification of Appointment of Auditors....................................35
Other Matters
Stockholder Proposals for 2000 Annual Meeting.......................................35
Additional Information..............................................................36
Exhibit I - Opinion of Lehman Brothers ....................................Exhibit I-1
Exhibit II - Financial Information Regarding the Joint Venture ...........Exhibit II-1
</TABLE>
3
<PAGE> 5
CORN PRODUCTS INTERNATIONAL, INC.
6500 SOUTH ARCHER AVENUE
BEDFORD PARK, ILLINOIS 60501-1933
PROXY STATEMENT
GENERAL INFORMATION
We are sending this proxy statement because the Corn Products Board of
Directors is asking for your proxy to vote your shares at the 1999 annual
meeting of stockholders. On March 22, 1999, the record date for the meeting, **
shares of common stock were issued and outstanding. This proxy statement, the
accompanying proxy card, and the 1998 annual report to stockholders were first
mailed to stockholders on or about March 31, 1999.
WHO CAN VOTE
You may vote at the meeting if you were a stockholder of record of
common stock at the close of business on March 22, 1999. You are entitled to one
vote for each share of common stock that you own. If you are a participant in
the Corn Products stock fund of the Retirement Savings Plan, the proxy
represents shares in your Plan account, as well as shares held of record in your
name.
HOW TO VOTE
You may vote in person at the meeting or by proxy. If you vote by
proxy, please sign and date the enclosed proxy card and return it to us. Specify
your choices on the proxy card. If you return a signed and dated proxy card but
do not specify your choices on it, we will vote your shares in favor of the
proposals. You may revoke your proxy any time before it is voted by (i)
notifying our Corporate Secretary in writing, (ii) returning a later-dated,
signed proxy card, or (iii) voting in person at the meeting.
REQUIRED VOTES
To carry on the business of the meeting, we must have a quorum. This
means at least a majority of the outstanding shares eligible to vote must be
represented at the meeting, in person or by proxy. If a quorum is present, the
director nominees receiving the most votes will be elected. Other proposals
require the favorable vote of a majority of the votes cast. If you withhold your
vote for any or all nominees, your vote will not count either "for" or "against"
the nominee. A vote to abstain on any proposal will be counted as voting
"against" the proposal. If you hold your stock in "street name" and have not
returned a signed proxy card, your broker will have authority to vote your
shares but only on those proposals that are considered discretionary under New
York Stock Exchange rules. If your broker does not have such discretion on any
proposals (broker non-votes), we will count your shares as present at the
meeting for quorum purposes, but they will have the same effect as a vote
"against" such proposals.
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<PAGE> 6
SOLICITATION OF PROXIES
We have retained D. F. King & Co. Inc., 77 Water Street, New York, New
York, 10005, to assist in the distribution of proxy materials and solicitation
of proxies and will pay them $12,500 plus reasonable expenses for these
services. We will pay all costs of soliciting proxies and will reimburse
brokers, banks and other custodians and nominees for their reasonable expenses
for forwarding proxy materials to beneficial owners and obtaining their voting
instructions. In addition to this mailing, directors, officers and other
employees of the Company may solicit proxies electronically, personally or by
telephone.
BOARD OF DIRECTORS
The business of the Company is managed by its Board of Directors. The
Board presently consists of eleven members, eight of whom are outside directors.
The Board is divided into three classes, with one class elected each year for a
three-year term.
The Board held ten meetings in 1998 and each of the directors attended
at least 75 percent of these meetings. Attendance of all directors at meetings
of the Board and of the Committees of the Board on which they served averaged 96
percent.
COMMITTEES OF THE BOARD
The Audit Committee is composed entirely of outside, independent
directors. The Committee reviews the scope and results of the annual audit,
approves the non-audit services rendered by the independent auditors and
considers their effect on the independence of the auditors, and recommends to
the Board appointment of independent auditors subject to ratification by the
stockholders. The Committee also reviews the proposed financial statements for
the annual report to stockholders, accounting policies, internal control systems
and internal auditing procedures, and the process by which unaudited quarterly
financial information is compiled and issued. The independent auditors meet
privately with the Committee on a regular basis. In relation to preservation of
assets, the Committee reviews major risk areas and the Company's policies and
controls to minimize exposure to losses. In relation to corporate governance,
the Committee reviews the Company's policy and performance in relation to
business ethics, disclosure of Company information and insider trading, employee
and community relations, equal employment opportunity, and health and safety
issues. The Committee reviews annually the independence of each outside
director. Members of the Committee are W. C. Ferguson (Chairman), A. C. DeCrane,
Jr., G. E. Greiner and C. B. Storms. The Audit Committee held five meetings last
year.
The Compensation and Nominating Committee is composed entirely of
outside, independent directors. The Committee approves the compensation of all
executive officers and administers executive incentive compensation plans,
reviews employee benefit plans and recommends to the Board proposals for
adoption, amendment or termination of such plans. The Committee recommends to
the Board the compensation arrangements for outside directors and administers
any compensation plans for outside directors. The Committee develops criteria
for Board membership and, with the assistance of outside consultants, considers
candidates for membership on the Board. Stockholders who wish to recommend a
candidate for consideration by the Committee as a nominee for director may do so
by writing to the Corporate Secretary and
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<PAGE> 7
furnishing a statement of the candidate's experience and qualifications. Members
of the Committee are R. G. Holder (Chairman), R. M. Gross and W. S. Norman. The
Compensation and Nominating Committee held five meetings last year.
In February 1999, the Board restructured its Committees and added a new
Corporate Responsibility Committee. The Committee's responsibilities include
certain duties which had been performed by the Audit and Compensation and
Nominating Committees.
The Corporate Responsibility Committee is composed entirely of outside
directors. It oversees the general areas of corporate governance and Company
policies. In relation to corporate governance, it reviews the size, structure
and organization of the Board and its Committees and the flow of information to
and within the Board, and the independence of each outside director. It
establishes criteria for the evaluation of Board performance and effectiveness,
establishes performance parameters and reviews performance of directors and the
guidelines for Board tenure. In relation to Company policies, the Committee
develops criteria for the selection of directors and reviews Board succession
plans, reviews Company policies and performance in relation to the quality of
products and services, customer relations, employee relations, health, safety
and the environment, community relations, compliance with laws, disclosure of
Company information, insider trading and business ethics. It reviews crisis
management organization and corporate communications programs, including
investor relations. Members of the Committee are A. C. DeCrane, Jr., (Chairman),
W. C. Ferguson, G. E. Greiner, R. M. Gross, R. G. Holder, B. H. Kastory, W. S.
Norman and C. B. Storms.
DIRECTOR COMPENSATION AND TENURE
Employee directors do not receive additional compensation for serving
as directors. All directors are reimbursed for Board and Committee meeting
expenses. The following table displays the components of outside director
compensation:
<TABLE>
<S> <C>
Annual Board retainer..............................$35,000 (1)
Annual retainer for Committee chair................ 3,000
Board attendance fee (per meeting)................. 1,000
Committee attendance fee (per meeting)............. 1,000
</TABLE>
- ----------------
(1) One-half is paid in cash and one-half is paid in phantom stock units of the
Company which are mandatorily deferred until retirement under the Deferred
Compensation Plan for Outside Directors. In addition, a director may choose to
defer all or part of the cash portion of the retainer in phantom stock units of
the Company. The phantom stock units for each outside director as of December
31, 1998 are indicated in footnote (3) to the table on page 8.
The Board has a policy that requires outside directors and former chief
executive officers of the Company to retire from the Board at the annual meeting
of stockholders coincident with or next following their 70th birthday. Employee
directors are required to retire from the Board upon retirement as an employee
or other termination of active employment, whether or not their terms have
expired. However, outside directors who were members of the Board on November
19, 1997, and the current chief executive officer, may continue to serve as
directors until the annual meeting of stockholders coincident with or next
following their 72nd birthday.
6
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of December 31, 1998, all persons or
entities that the Company knows are beneficial owners of more than five percent
of the Company's common stock.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Beneficial
Beneficial Owner Ownership Percent of Class
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FMR Corp. 3,576,321 (1) 9.97%
82 Devonshire Street
Boston, Massachusetts
02109-3614
Capital Guardian Trust Company 3,157,210 (2) 8.8%
11100 Santa Monica Boulevard
Los Angeles, California
90025-3384
Federated Investors, Inc. 2,639,500 (3) 7.4%
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania
15222-3779
</TABLE>
(1) The ownership information disclosed above is based on a Schedule 13G
report dated February 1, 1999, that FMR Corp., an investment advisor, filed with
the Securities and Exchange Commission. Through its subsidiaries, Fidelity
Management & Research Company and Fidelity Management Trust Company, FMR Corp.
has sole voting power as to 791,838 of such shares and sole dispositive power as
to 3,576,321 shares.
(2) The ownership information disclosed above is based on a Schedule 13G
report dated February 8, 1999, that Capital Guardian Trust Company, an
investment advisor, filed with the Securities and Exchange Commission. Capital
Guardian Trust Company has sole voting power as to 2,750,110 of such shares and
sole dispositive power as to 3,157,210 shares.
(3) The ownership information disclosed above is based on a Schedule 13G
report dated February 12, 1999, that Federated Investors, Inc. filed with the
Securities and Exchange Commission. Federated Investors, Inc. reported sole
voting and dispositive power over all of the shares. The number of shares
indicated represent shares beneficially owned by mutual funds and/or separate
accounts advised by subsidiaries of Federated Investors, Inc. which have the
power to direct investment and vote the securities. For purposes of the
reporting requirement of Regulation 13D of the Securities and Exchange Act of
1934, Federated Investors, Inc., its principal shareholders and its investment
adviser subsidiaries may be deemed to be beneficial owners of such securities;
however, in accordance with Rule 13d-4 under the 1934 Act,
7
<PAGE> 9
Federated Investors, Inc., its principal shareholders, and its investment
adviser subsidiaries declare that the filing of the Schedule 13G disclosing
beneficial ownership of the securities should not be construed as an admission
that they are the beneficial owners of such securities, and Federated Investors,
Inc., its principal shareholders and its investment adviser subsidiaries
expressly disclaim that they are in fact the beneficial owner of such
securities.
The following table shows the common stock ownership as of March 22,
1999, of each director, each named executive officer, and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
Name Number of Shares (1) (2) (3) Percentage of Class
---- ---------------------------- -------------------
<S> <C> <C>
I. Aranguren-Castiello 1,767,071 4.9%
A. C. DeCrane, Jr. 3,278 *
W. C. Ferguson 9,955 *
G. E. Greiner 322 *
R. M. Gross 1,322 *
R. G. Holder 3,752 *
B. H. Kastory 7,439 *
F. J. Kocun 49,977 (4) *
W. S. Norman 2,905 *
E. J. Northacker 75,705 (4) *
J. W. Ripley 51,544 (4) *
K. Schlatter 270,712 (4) *
S. C. Scott 160,421 (4) *
C. B. Storms 14,144 *
All directors and executive
officers as a group
(20 persons) 2,594,263 (4) 6.7%
</TABLE>
- ----------------------
(1) The total for any individual, except I. Aranguren-Castiello, is less
than 1.0% and the total for the group is 6.7% of the shares of common stock
outstanding. The applicable percentage of ownership is based on a total of **
shares of common stock issued and outstanding on March 22, 1999.
(2) Includes shares held individually, jointly with others or in the name
of an immediate family member.
(3) Includes the following through March 5, 1999:
a. Shares allocated to the Corn Products stock fund accounts of
executive officers in the Retirement Savings Plan: K. Schlatter, 10,482; S. C.
Scott, 14,137; and all directors and executive officers as a group, 71,984.
b. Deferred phantom stock units credited to the accounts of executive
officers: K. Schlatter, 10,890; S. C. Scott, 6,109; E. J. Northacker, 8,936; J.
W. Ripley, 679; and F. J. Kocun, 1,331; and other directors: I.
Aranguren-Castiello, 865; A. C. DeCrane, Jr., 1,153; W. C. Ferguson, 1,252; G.
E. Greiner, 322; R. M. Gross, 322; R. G. Holder, 1,252; B. H. Kastory,
8
<PAGE> 10
577; W.S. Norman, 1,153; and C. B. Storms, 1,153. The executive officers and
other directors have no voting or investment power over these stock units.
(4) Includes shares which may be acquired within 60 days through the
exercise of stock options, as follows: K. Schlatter 154,740; S. C. Scott,
103,153; E. J. Northacker, 60,347; J. W. Ripley, 35,607; and F. J. Kocun,
43,091; and all directors and executive officers as a group, 517,736.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file reports of holdings and
transactions in the Company's stock with the Securities and Exchange Commission
(SEC). Based on a review of the forms filed on behalf of the directors and
executive officers, or written representations that no annual SEC Form 5 was
required, the Company believes that during 1998, all directors and executive
officers complied with the filing requirements on a timely basis, except that
the Company filed one report late reflecting the ownership of an additional 263
shares of stock by J. W. Ripley.
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares total return to stockholders (stock price
appreciation plus reinvested dividends) on the Company's common stock with the
cumulative total return of the S&P Small Cap Basic Materials Index and the
Russell 2000 Index. The S&P Small Cap Basic Materials Index is one of the
Standards & Poor's industry specific stock indices. The Basic Materials index
includes the common stock of 37 small companies in the following industries:
Agricultural Products, Aluminum, Chemicals (Diversified and Specialty),
Construction (Cement and Aggregates), Containers and Packaging (Paper), Gold and
Precious Metals Mining, Iron and Steel, Paper and Forest Products. The Russell
2000 Index is a comprehensive common stock price index representing equity
investments in small USA companies. The index is value weighted and includes
only publicly traded common stocks belonging to corporations domiciled in the
U.S. and its territories. It measures the performance of the 2,000 smallest
companies in the Russell 3000 index which in itself represents approximately 98%
of the total U.S. equity market. The graph assumes that:
- you invested $100 in the Company's common stock at the closing
price on December 15, 1997 (the date on which the Company's common stock began
trading on the New York Stock Exchange), and
- all dividends were reinvested. (The Company began paying
dividends on October 23, 1998.)
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<PAGE> 11
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPH]
<TABLE>
<CAPTION>
December 15, 1997 December 31, 1997 December 31, 1998
<S> <C> <C> <C>
Corn Products International $ 100.00 $ 102.79 $ 105.35
Russell 2000 $ 100.00 $ 103.00 $ 100.38
S&P Small Cap Basic Materials $ 100.00 $ 100.97 $ 94.51
</TABLE>
COMPENSATION AND NOMINATING COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Nominating Committee of the Board of Directors, is
composed entirely of outside, independent directors. The Committee approves
compensation policy for the Company and administers the compensation program for
the Company's senior management, including its eleven officers.
Prior to the spin-off of the Company by Bestfoods, the Company's
executives named in the Summary Compensation Table were employees of Bestfoods.
Excluding the 1998 annual bonus, compensation paid to those individuals for
services performed prior to January 1, 1998, was determined solely by Bestfoods.
Since the spin-off, the Company has engaged the services of a
compensation consulting firm to assist in developing the Company's overall
compensation structure and in determining an appropriate and effective
compensation program for the Company's officers. The consulting firm provided
information on base salary levels, annual bonus levels, and long-term incentives
for a broad group of companies and for a group of companies in related
industries of similar size and for which compensation information was available
(the "survey group"). Based on this comparative pay data and the
compensation-related objectives that the Company wishes to foster, the Committee
approved and adopted an executive compensation program that it considers
appropriate for the Company. A description of that program follows.
10
<PAGE> 12
COMPENSATION PHILOSOPHY
The objectives of the Company's compensation programs, including
executive compensation, are to:
- Focus, align and motivate management on the objectives of the
corporation and enhance shareholder value.
- Permit the Company to retain and attract outstanding and talented
executives who are focused on the interests of the Company's shareholders.
- Provide executives with significant opportunity and risk by targeting
their base salaries at a discount to market and their incentive opportunities at
a premium to market.
- Reinforce pay for performance beliefs by aligning the distribution of
compensation programs with results. Adjustments to base salary and the award of
incentives are provided based on the achievement of tangible measurable results.
The key components of the Company's executive compensation program are
base salary, annual incentive compensation, and long-term incentives. The
intention is to maintain base salaries for the executives named in the Summary
Compensation Table and other officers at 10% less than the 50th percentile of
companies in the survey group while providing the opportunity to earn increased
variable compensation. An officer's salary depends upon level of responsibility
and individual performance. Periodically, the Company's executive compensation
targets will be compared against market data to assure alignment with market
conditions and the Company's compensation philosophy. Annual bonus targets are
currently established to deliver approximately 20% above the 50th percentile
annual total cash compensation (equals base pay plus annual bonus) of the survey
group, for the attainment of predetermined performance targets. Long-term
incentive compensation is targeted at the 50th percentile of the survey group.
Long and short-term incentives for other management personnel are targeted at
the 50th percentile of the survey group.
ANNUAL INCENTIVE PROGRAM
The annual incentive program for all management level employees
provides for awards to be determined and paid after the end of the year being
measured. Payment of annual incentives is based on the achievement of
performance targets that are established in the beginning of each year. Each
officer's and bonus eligible employee's annual incentive is calculated according
to the achievement of corporate, business unit and individual performance
results. The Committee approved annual incentive payments based on 1998 results
for the officers and bonus eligible employees in accordance with this plan.
Payments made to each of the reporting officers for 1998 results are indicated
on the Summary Compensation Table on page 15. Prior bonus payments indicated
were made by Bestfoods for results prior to the spin-off.
LONG-TERM INCENTIVES
The Company's long-term incentive program for its officers and selected
senior executives consists of non-qualified stock options and cash. The combined
value is targeted at the 50th
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<PAGE> 13
percentile long-term incentive compensation of the survey group. Non-qualified
stock options are awarded under the Company's 1998 Stock Incentive Plan while
the cash portion is awarded under the Performance Plan.
The Performance Plan (the "Plan") has been established to provide
long-term cash incentives.
The Plan, which becomes effective January 1, 1999, is designed to
provide the opportunity to achieve competitive long-term incentives for the
attainment of long-term performance targets. This year the performance target
is the Company's total shareholder return versus the total shareholder return
of companies in the S&P Small Cap Basic Materials Index. This index was
selected because the Company is part of this index. Periodically, the Committee
will review the performance measures under this Plan and may establish new
measures as necessary or appropriate. The Plan provides for long-term cash
incentives to be granted beginning in 1999. The cash will be awarded based on
the achievement of predetermined targets for relative stock price performance
over a three-year period. Up to one-third of the cash incentive would be earned
in year one (based upon performance of that year), up to two-thirds for year
two (based on the cumulative performance over the two-year period) and up to
100% for year three (based on the cumulative performance over the three-year
period). Cash earned and vested in years one and two cannot together exceed the
cash incentive that can potentially be earned at the 100% target level for the
whole three-year period. However, in the third year, the opportunity exists to
double the total cash incentive. Cash amounts vest as they are earned but are
not payable until after the end of year three.
Non-qualified stock options awarded to officers and selected senior
executives will have a ten-year term and vest 50% per year at the end of years
one and two.
Other management personnel will be awarded non-qualified stock options.
The number of shares awarded will be based on individual's grade and
performance. These options will have a ten-year term and vest 50% at the end of
years one and two.
STOCK OPTIONS AND RESTRICTED STOCK GRANTS
During 1998, the Committee awarded 656,000 non-qualified stock options
to eleven Company officers and 24,100 restricted stock grants to four Company
officers. The award amounts were established based on competitive data for
spin-off companies. In addition, 441,200 stock options and 12,500 restricted
stock grants were granted in 1998 to another 214 management level employees.
The options have a ten-year term and an exercise price equal to the fair market
value of a share of Company common stock on the grant date. The size of the
grants was based upon the level of responsibility and individual performance.
The awards were made to create an immediate sense of ownership in the Company.
The total number of non-qualified stock options and restricted stock grants
awarded in 1998 was 1,133,800 or 32.4% of the shares authorized for
distribution under the 1998 Stock Incentive Plan. Restricted stock awards have
a five-year restriction period.
12
<PAGE> 14
EXECUTIVE STOCK OWNERSHIP TARGETS
In 1998, the Committee approved stock ownership targets for the
officers of the Company. The ownership targets for the officer group are based
on multiples of each individual's base salary. "Ownership" is defined as stock
directly owned, restricted stock grants and the stock equivalents of deferred
accounts referred to in footnote (3) to the Stock Ownership Table on page 8.
Ownership excludes unexercised stock options. Executives will be expected to
attain their ownership targets within three to five years from the time the
targets were established. The ownership target for the Chief Executive Officer
is five times base salary.
COMPENSATION FOR 1998
Base salaries for both Mr. Schlatter, Chief Executive Officer, and Mr.
Scott, Chief Operating Officer, were set by the Committee in January 1998, to
reflect the new responsibilities they were assuming with the Company. During the
course of 1998, the Committee increased the base salaries for the other
executive officers named in the Summary Compensation Table to reflect their
increased responsibilities and individual performance.
The Committee awarded Mr. Schlatter an annual cash incentive award of
$175,000 and awarded Mr. Scott an annual cash incentive award of $110,000
because of the effectiveness of their leadership in the startup of the new
Company and as recognition for the results of 1998 that were achieved despite
difficulty in the US market and global economic pressures. Annual incentive
awards to the other named executive officers were based on their contributions
to the corporation and business unit performance.
As reported last year, the Committee granted Mr. Schlatter 166,000 and
Mr. Scott 118,000 non-qualified stock options in January, 1998. The amounts of
the awards were established according to market data, competitive trends in
spin-off situations and for purposes of motivation and retention.
The stock options exercised by Mr. Schlatter in 1998 were options
granted to him by Bestfoods prior to the spin-off, which he converted into the
Company's stock options and, subsequently, exercised to attain his stock
ownership requirement.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Committee intends to comply with the requirements of Section 162(m)
of the Internal Revenue Code with respect to options, annual incentives and
long-term incentive plans in order to avoid losing the tax deduction for
compensation in excess of $1,000,000 paid to one or more of the executive
officers named on the Summary Compensation Table. The Committee anticipates that
the Company will not lose any tax deductions due to this rule in 1998.
Compensation and Nominating Committee
R. G. Holder, Chairman
R. M. Gross
W. S. Norman
13
<PAGE> 15
EXECUTIVE COMPENSATION
The following table summarizes the compensation awarded or paid to the
chief executive officer and each of the other four most highly compensated
executive officers of the Company (the "named executive officers") during each
of the last three fiscal years. The Company began operating as an independent,
publicly-held company on January 1, 1998, as a result of its spin-off from
Bestfoods (formerly "CPC International Inc.") effective on that date. For all
compensation in 1996 and 1997, the compensation shown in this table was paid by
Bestfoods (or its subsidiaries) for services rendered to Bestfoods and its
subsidiaries prior to the spin-off. All other compensation was paid by the
Company.
14
<PAGE> 16
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE (1)
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
RESTRICTED SECURITIES LONG-TERM ALL OTHER
NAME AND SALARY BONUS STOCK UNDERLYING INCENTIVE COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) AWARDS ($) OPTIONS # PAYOUTS ($)(2) ($)(3)
- ------------------ ---- ------ ----- ----------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
K. Schlatter 1998 500,000 175,000 - 166,000 107,904
Chairman and Chief 1997 435,000 150,000 - 13,500 1,103,047 106,908
Executive Officer 1996 391,250 220,000 - 13,500 750,938 107,006
S. C. Scott 1998 375,000 110,000 - 118,000 68,540
President and Chief 1997 305,000 35,000 - 13,500 735,398 64,255
Operating Officer 1996 286,667 60,000 - 13,500 500,625 49,293
E.J. Northacker 1998 270,000 52,000 - 60,000 44,326
Vice President and President, 1997 245,000 50,000 - 8,000 571,988 51,894
Latin American Division 1996 231,250 50,000 - 8,000 406,737 51,199
J. W. Ripley 1998 248,333 66,000 - 53,000 45,093
Vice President -- Finance 1997 217,500 72,000 - 5,000 - 41,809
and Chief Financial Officer 1996 183,750 72,000 - 5,000 - 39,256
F.J. Kocun 1998 220,000 54,000 - 47,000 48,153
Vice President and President, 1997 198,000 30,000 - 5,500 367,649 57,359
Cooperative Management Group 1996 183,250 29,000 - 5,500 281,581 56,699
</TABLE>
- ---------------
(1) For 1996 and 1997, the compensation shown in this table was paid by
Bestfoods (or its subsidiaries) for services rendered to Bestfoods and
its subsidiaries prior to the spin-off..
(2) During 1998, Long-Term Incentive Payouts were paid by Bestfoods (or its
subsidiaries) for services rendered to Bestfoods and its subsidiaries
prior to the spin-off as follows: K. Schlatter, $1,763,667; S. C.
Scott, $1,322,776; E. J. Northacker, $953,012; J. W. Ripley, $140,026;
and F. J. Kocun, $626,296.
(3) Includes the following for 1998:
a. Matching contributions to defined contribution plans as follows:
K. Schlatter, $38,999; S. C. Scott, $31,583; E. J. Northacker,
$16,550; J. W. Ripley, $19,203; and F. J. Kocun, $14,225.
b. Value of premiums paid by Bestfoods under the Executive Life
Insurance Plan as follows: K. Schlatter, $68,905; S. C. Scott,
$35,774; E. J. Northacker, $26,377; J. W. Ripley, $25,372; and F.
J. Kocun, $33,928.
c. For S. C. Scott, $1,183; E. J. Northacker, $1,399; and J. W.
Ripley, $518 of above-market interest at the rate credited to all
participants in a Corn Products deferred compensation plan,
pursuant to which all or a portion of annual bonus may be deferred
and credited to an interest bearing account and paid over a
fifteen-year period following retirement.
15
<PAGE> 17
STOCK OPTION GRANTS
The following table contains information relating to the Company's stock options
granted in 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OPTION GRANTS IN 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (1)
- ------------------------------------------------------------------------------- ------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees Price Expiration 0% 5% 10%
Name Granted (#)(2) in 1998 ($/Share) Date ($) ($) ($)
- ---- -------------- ------- --------- ---- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
K. Schlatter 166,000 15.12 32.3125 1/21/08 0 3,373,312 8,548,635
S. C. Scott 118,000 10.75 32.3125 1/21/08 0 2,397,897 6,076,741
E. J. Northacker 60,000 5.46 32.3125 1/21/08 0 1,219,269 3,089,868
J. W. Ripley 53,000 4.83 32.3125 1/21/08 0 1,077,021 2,729,384
F. J. Kocun 47,000 4.28 32.3125 1/21/08 0 955,094 2,420,397
</TABLE>
- ------------------------
(1) The amounts shown under these columns are calculated at 0% and at the
5% and 10% rates set by the Securities and Exchange Commission and are not
intended to forecast future appreciation of the Company's stock price.
(2) The number of options shown excludes options granted by Bestfoods in
prior years which were converted to options to purchase the Company's common
stock in connection with the spin-off from Bestfoods on January 1, 1998.
16
<PAGE> 18
STOCK OPTION EXERCISES
The following table contains information relating to exercises of (i) Bestfoods
stock options which were converted to options to purchase the Company's common
stock in connection with the spin-off from Bestfoods on January 1, 1998, and
(ii) the Company's stock options granted in 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 1998
AND OPTION VALUES AS OF DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 1998 (#) December 31, 1998 ($)(2)
--------------------- ------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($)(1) Unexercisable Unexercisable
- ---- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
K. Schlatter 70,912 943,110 100,941/166,000 996,328/ --
S. C. Scott -- -- 63,820/118,000 615,277/ --
E. J. Northacker -- -- 40,346/60,000 402,916/ --
J. W. Ripley -- -- 17,942/53,000 141,856/ --
F. J. Kocun -- -- 27,424/47,000 272,167/ --
</TABLE>
- ---------------------
(1) Amounts shown are based on the difference between the market value of
the Company's stock on the date of exercise and the exercise price.
(2) Amounts shown are based on the difference between the closing price of
the Company's common stock on December 31, 1998 ($30.375) and the exercise
price.
17
<PAGE> 19
PENSION PLANS
The Company has a defined benefit pension plan which is a tax-qualified
plan within the meaning of Section 401(a) of the Internal Revenue Code which is
applicable to U. S. salaried employees, including the named executive officers.
The plan is a "cash balance" pension plan. Accounts of participants in the plan
accrue monthly interest credits using a rate equal to a specified amount above
the interest rate on short-term Treasury notes. The value of the account at
retirement is paid as a life or joint and survivor annuity, or in an optional
form such as a lump sum. The Company also has a nonqualified supplemental
retirement plan which provides benefits in addition to those payable under the
qualified plan. As of March 22, 1999, estimated annual benefits at age 65 for
each of the named executive officers under the qualified and the supplemental
plans are as follows: K. Schlatter, $336,120; S. C. Scott, $246,407; E. J.
Northacker, $192,616; J. W. Ripley, $179,262; and F. J. Kocun, $145,819.
DEFERRED STOCK UNIT PLAN
The Corn Products International, Inc. Deferred Stock Unit Plan allows
certain senior management employees to defer, in the form of phantom stock
units, all or part of their annual bonuses. The phantom stock units credited to
the accounts of the named executive officers as of December 31, 1998, are
indicated in footnote (3) to Stock Ownership Table on page 8.
SPECIAL AGREEMENTS
The Company has severance agreements with each of the named executive
officers, which provide for a lump sum payment equal to three times the sum of
the annual salary and bonus paid in the prior year, and continuation of medical
and insurance plans for a three-year period, if the officer's employment is
terminated involuntarily other than for cause or voluntarily for good reason,
within two years after a change in control of the Company. The severance
agreements also provide that the amount of excise tax, if any, under the
Internal Revenue Code to be paid by any officer upon receipt of a lump sum
payment shall be reimbursed by the Company.
In order to assure continuity in the management of the Company's
international operations, the Company has employment agreements with F.J. Kocun,
for a term of three years expiring December 31, 2000, and E.J. Northacker, for a
term of two years expiring December 31, 1999, which provide for salary
continuation for a period not to exceed one year following the term of the
agreement plus continuation in certain benefit plans during the period of salary
continuation. These benefits are not payable unless the individuals remain with
the Company in their current positions for the full terms of their agreements.
The agreements will only apply if, at the end of their respective terms, the
individuals do not continue employment with the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A. C. DeCrane, Jr., W. C. Ferguson, R. G. Holder and W. S. Norman are
also directors of Bestfoods and B. H. Kastory is an executive officer of
Bestfoods. In connection with the spin-off from Bestfoods, the Company and
Bestfoods entered into a master supply agreement for a minimum term of two years
to supply certain corn refining products at prices generally at prevailing
market conditions. During 1998, the sales of product amounted to $161 million
dollars.
18
<PAGE> 20
I. Aranguren-Castiello is chairman and chief executive officer of
Arancia-Corn Products S.A. de C.V. ("Arancia"), a joint venture formed in 1994
by the combination of the Mexican operations of the corn refining business of
Bestfoods with Arancia Industrial S.A. de C.V., a Mexican corn refiner
controlled by Mr. Aranguren-Castiello and his family. Arancia is engaged in the
corn refining business and in the past engaged in transactions with the corn
refining business of Bestfoods. During 1998, the Company had $1 million in sales
to Arancia and paid to Arancia $400,000 as commission fees for certain sales
made on the Company's behalf, all in the ordinary course of business. In the
same period, Arancia paid the Company the amount of $4 million in connection
with royalty related to the joint venture arrangement and other payments, also
an additional $365,000 of interest on a $60 million loan made by the Company in
1996 to fund the construction of a production facility by Arancia. Such loan
plus a $3 million facility fee was repaid by Arancia in January 1998. In April
1997, pursuant to the joint venture agreement, the Company made a payment of
$10.9 million to Arancia Industrial S.A. de C.V. relating to the initial
formation of the venture. In addition, the Company made a $10 million capital
contribution to Arancia in January 1997. In connection with his service as
Chairman and Chief Executive Officer of Arancia-Corn Products S.A. de C.V. Mr.
Aranguren-Castiello will be paid an annual salary of $486,000 plus bonuses,
based on Company and individual performance, and certain other benefits which
are usual and customary in Mexico, including holiday/vacation pay and incidental
expenses. The incidental expenses total approximately $16,000.
In addition to the foregoing, as described in more detail below under
"Matters To Be Acted Upon - Proposal 2. Ratification and Approval of the
Issuance of Common Stock", the Company entered into an agreement to acquire the
remaining interest in Arancia.
MATTERS TO BE ACTED UPON
PROPOSAL 1. ELECTION OF DIRECTORS
At the 1999 annual meeting, the terms of four directors are expiring.
These four directors are nominated for reelection to hold office for a
three-year term expiring in 2002. One of these directors, G. E. Greiner, was
elected by the Board in July 1998 and is nominated for initial election by
stockholders. In addition, R. M. Gross, who was also elected by the Board in
July 1998 is nominated for initial election by stockholders, to hold office for
a one-year term expiring in 2000.
All of the nominees for election have consented to being named in this
proxy statement and to serve if elected. If, for any reason, any of the nominees
should not be a candidate for election at the meeting, the proxies will be voted
for substitute nominees designated by the Board unless the Board has reduced its
membership prior to the meeting. The Board does not anticipate that any of the
nominees will be unavailable to serve if elected. The nominees and the directors
continuing in office will normally hold office until the annual meeting of
stockholders in the year indicated on the following pages.
19
<PAGE> 21
- --------------------------------------------------------------------------------
CLASS II NOMINEES FOR THREE-YEAR TERMS EXPIRING IN 2002
- --------------------------------------------------------------------------------
ALFRED C. DECRANE, JR.
Age--67
Director since 1997
Chairman of the Corporate Responsibility Committee and member of the Audit
Committee
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF TEXACO INC.
Mr. DeCrane retired as Chairman and Chief Executive Officer of Texaco Inc. in
1996. He was elected President of Texaco in 1983, Chairman of the Board in 1987
and Chief Executive Officer in 1993. He is also a director of Bestfoods,
Birmingham Steel Corporation, CIGNA Corporation, Harris Corporation, U.S. Global
Leaders Growth Fund, Ltd. and Co-Chairman of the United States--Saudi Arabian
Business Council. Mr. DeCrane is also a member of the Morgan Stanley
International Advisory Board and of the Board of Trustees of the University of
Notre Dame.
- --------------------------------------------------------------------------------
GUENTHER E. GREINER
Age --60
Director since July 1998
Member of the Audit and Corporate Responsibility Committees
PRESIDENT OF INTERNATIONAL CORPORATE CONSULTANCY LLC
Mr. Greiner formed International Corporate Consultancy LLC, a global finance
consulting firm, upon his retirement from Citicorp/Citibank, N.A. in April 1998.
He joined Citibank Germany in 1965 and was appointed a vice president in 1974.
After successive assignments in Europe, North America, Africa and the Middle
East, he became an executive vice president of the World Corporate Group in 1989
and senior group executive and executive vice president of Citibank's Global
Relationship Bank in 1995. He is also a director of Ermenigildo Zegna, Electric
Lightwave and IFIL-Finanziaria di Participazione. In addition, he is a director
of the New York Philharmonic, German American Chamber of Commerce (New York) and
AICG - The John Hopkins University.
- --------------------------------------------------------------------------------
RICHARD G. HOLDER
Age--67
Director since 1997
Chairman of the Compensation and Nominating Committee and member of the
Corporate Responsibility Committee
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF REYNOLDS METALS COMPANY
20
<PAGE> 22
Mr. Holder retired as Chairman and Chief Executive Officer of Reynolds Metals
Company in 1996. Prior thereto, he served as President and Chief Operating
Officer of Reynolds Metals from 1988 until 1992. He is also a director of
Bestfoods and Universal Corp. Mr. Holder is a director of the Virginia Economic
Development Partnership, the Science Museum and Chairman of the Greater Richmond
Chamber of Commerce.
- --------------------------------------------------------------------------------
KONRAD SCHLATTER
Age--63
Director since 1997
CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE COMPANY
Mr. Schlatter served as Senior Vice President of Bestfoods since 1990 and Chief
Financial Officer from 1993 to February 1997. He has served as the Chairman and
Chief Executive Officer of the Company since 1997.
- --------------------------------------------------------------------------------
CLASS III NOMINEE FOR A ONE-YEAR TERM EXPIRING IN 2000
- --------------------------------------------------------------------------------
RONALD M. GROSS
Age --65
Director since July 1998
Member of the Compensation and Nominating and Corporate Responsibility
Committees
CHAIRMAN EMERITUS, FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF RAYONIER INC.
Mr. Gross is Chairman Emeritus, former Chairman and Chief Executive Officer of
Rayonier Inc., a global supplier of specialty pulps, timber and wood products.
He had been Chairman and Chief Executive Officer from 1994, when Rayonier was
spun off from ITT Corporation, until December 31, 1998. Previously, he served as
President, Chief Operating Officer, and a director of ITT Rayonier Inc. from
1978 to 1981. He became Chief Executive Officer in 1981 and Chairman in 1984. He
is a director of Rayonier Inc., the Pittston Company and Fundacion Chile.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES FOR CLASS II
DIRECTORS AND THE NOMINEE FOR CLASS III DIRECTOR.
21
<PAGE> 23
- --------------------------------------------------------------------------------
CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL 2000
- --------------------------------------------------------------------------------
IGNACIO ARANGUREN-CASTIELLO
Age--67
Director since 1997
CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF ARANCIA-CORN PRODUCTS S.A. DE C.V.
Mr. Aranguren-Castiello is Chairman and Chief Executive Officer of Arancia-Corn
Products S.A. de C.V., a joint venture formed in November 1994 by the
combination of the Mexican operations of the Corn Refining Business of Bestfoods
with Arancia Industrial S.A. de C.V., a Mexican company controlled by Mr.
Aranguren-Castiello and his family. As described in more detail under "Matters
To Be Acted Upon - Proposal 2. Ratification and Approval of the Issuance of
Common Stock", on December 2, 1998, Corn Products acquired control of
Arancia-Corn Products S.A. de C.V. and entered into certain agreements providing
for the acquisition of the remaining interest in the joint venture in a series
of transactions occurring over the next several years. Mr. Aranguren-Castiello
has been Chairman and CEO of Arancia Industrial S.A. de C.V. and its
subsidiaries since the late 1970's. He is also a director of Bancomer S.A., a
Mexican bank entity.
- --------------------------------------------------------------------------------
WILLIAM S. NORMAN
Age--60
Director since 1997
Member of the Compensation and Nominating and Corporate Responsibility
Committees
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE TRAVEL INDUSTRY ASSOCIATION OF
AMERICA
Mr. Norman has been President and Chief Executive Officer of the Travel Industry
Association of America since 1994. Previously, he served as Executive Vice
President of the National Railroad Passenger Corporation (AMTRAK) from 1987 to
1994. He is also a director of Bestfoods, the Travel Industry Association of
America, The An-Bryce Foundation, the U.S. Navy Memorial Foundation, the
International Consortium for Research on the Health Effects of Radiation and the
Logistics Management Institute. He is also a member of the Board of Trustees of
West Virginia Wesleyan College and the Board of Visitors of The American
University's Kogod College of Business Administration.
- --------------------------------------------------------------------------------
CLIFFORD B. STORMS
Age--66
Director since 1997
Member of the Audit and Corporate Responsibility Committees
PRIVATE ATTORNEY
22
<PAGE> 24
Mr. Storms was Senior Vice President (since 1988) and General Counsel (since
1975) of Bestfoods until his retirement in June 1997. He is a director of
Atlantic Legal Foundation, Inc. and the Transportation Association of Greenwich,
a member of the Executive Committee of the Yale Law School Association, a past
President of the Association of General Counsel, and a member of the Panel of
Arbitrators of the American Arbitration Association Large Complex Case Program,
the ADR Panel of the Center for Public Resources, the Association of the Bar of
the City of New York, and the American Bar Association.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLASS I DIRECTORS CONTINUING IN OFFICE UNTIL 2001
- --------------------------------------------------------------------------------
WILLIAM C. FERGUSON
Age--68
Director since 1997
Chairman of the Audit Committee and member of the Corporate Responsibility
Committee
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF NYNEX CORPORATION
Mr. Ferguson retired as Chairman of NYNEX Corporation in 1995 and as Chief
Executive Officer in 1994. Prior thereto, Mr. Ferguson served as Vice Chairman
of NYNEX from 1987 to 1989. He is also a director of Bestfoods and serves on the
Advisory Board of Greenwich Street Capital. Mr. Ferguson is a director and
former Chairman of the Board of The United Way of Tri-State, and a trustee and
former Chairman of the Board of Trustees of Albion College.
- --------------------------------------------------------------------------------
BERNARD H. KASTORY
Age--53
Director since 1997
Member of the Corporate Responsibility Committee
SENIOR VICE PRESIDENT - ASIA, BAKING AND LATIN AMERICA OPERATIONS OF BESTFOODS
Mr. Kastory was appointed to his present position with Bestfoods on March 10,
1999. Previously he was Senior Vice President, Finance and Administration since
February, 1997. Mr. Kastory served as Chairman and Chief Executive Officer of
Bestfoods' Baking Business from October, 1995, until February, 1997, and prior
thereto, served as President of its Corn Refining Business and as a Vice
President of Bestfoods since 1992. Mr. Kastory has held various technical,
financial and general management positions in Bestfoods, which he joined in
1967.
23
<PAGE> 25
- --------------------------------------------------------------------------------
SAMUEL C. SCOTT
Age--54
Director since 1997
PRESIDENT AND CHIEF OPERATING OFFICER OF THE COMPANY
Mr. Scott was President of Bestfoods' worldwide Corn Refining Business since
1995 and President of its North American Corn Refining Business since 1989. He
was elected a Vice President of Bestfoods in 1991. He is also a director of
Motorola, Inc. and Reynolds Metals Company. Mr. Scott became President and Chief
Operating Officer of the Company in 1997.
- --------------------------------------------------------------------------------
PROPOSAL 2. RATIFICATION AND APPROVAL OF THE ISSUANCE OF COMMON STOCK
The Board of Directors has approved, and recommends to the
shareholders for their ratification and approval, the issuance of shares of
common stock in connection with the acquisition of the remaining interests in
Arancia-Corn Products S.A. de C.V. (the "Joint Venture"). The Joint Venture is a
Mexican corporation formed in 1994 by the predecessor of the Company and certain
companies controlled by Ignacio Aranguren-Castiello, a director of the Company,
and his family. Prior to the transactions described below (the "Transaction"),
the Company owned 49% of the Joint Venture. On December 2, 1998 the Company
purchased stock that gave it effective control over an additional 30.1% of the
Joint Venture, bringing the Company's total effective ownership of the Joint
Venture to 79.1%. The Company may engage in additional transactions that will
result in the acquisition of the remaining interest in the Joint Venture. In
consummating these transactions, the Company issued, and may issue in the
future, shares of common stock exceeding 1% of the total shares of common stock
outstanding to an entity controlled by a Director of the Company. Under the
rules of the New York Stock Exchange ("NYSE"), the shareholders of the Company
are required to approve such transactions.
THE TRANSACTION
GENERAL
On October 21, 1998, the Company entered into various agreements
(the "Transaction Agreements") providing for the acquisition by the Company of
the remaining interest in the Joint Venture. The acquisition will occur in a
series of transactions over the next several years and will be paid for with a
combination of cash and common stock. In the event that the Company acquires all
of the remaining interest in the Joint Venture, the aggregate purchase price
would consist of (i) US$90 million of cash, plus (ii) 1,764,706 shares of common
stock, plus (iii) at the option of the Company, US$30 million in either cash or
common stock valued at the time of issuance. In addition, an earnout payment not
to exceed US$15 million and not less than US$9 million will be made.
24
<PAGE> 26
Prior to entering into these agreements, the Company owned a 49%
interest in the Joint Venture. The remaining 51% interest was held 41% by
Aracorn S.A. de C.V. ("Aracorn") and 10% by Arancia Industrial, S.A. de C.V.
("Arinsa"). Promociones Industriales Aralia, S.A. de C.V. ("Aralia") owned 100%
of Aracorn. Aracorn is a holding company, the assets of which are limited to the
Joint Venture shares it holds. Each of Aracorn, Arinsa, and Aralia is controlled
by the Aranguren family of Mexico and, in particular, Ignacio
Aranguren-Castiello, a director of the Company.
INITIAL TRANSACTION
The closing of the initial transaction pursuant to the Transaction
Agreements (the "Initial Transaction") occurred on December 2, 1998, at which
time the Company obtained effective control of 79.1% of the Joint Venture. This
Initial Transaction consisted of the acquisition by the Company of:
(i) 49% of the capital stock of Aracorn from Aralia for US$10
million in cash and 1,764,706 shares of common stock;
(ii) 10% of the capital stock of the Joint Venture from Arinsa, for
approximately US$35 million in cash; and
(iii) 91.7% of the capital stock of Poliquimicos del Ecuador, S.A.,
a small Ecuadorian corn wet miller ("Poliecsa"), from Arinsa
for US$2 million in cash.
The total consideration paid by the Company for the purchase of the
stock of Aracorn, the Joint Venture and Poliecsa listed above was 1,764,706
shares of common stock and US$47,054,899 in cash. The source of such funds was
cash on hand.
The Transaction Agreements also provide that the Company will pay
Aralia an earnout with respect to each of the years 2000, 2001 and 2002, the
actual amount of which will be determined by a formula tied to a percentage of
the Board approved Target Bonuses earned in each such year by the Chief
Executive Officer and the Chief Operating Officer of the Company. The aggregate
earnout payment will not exceed US$15 million or be less than US$9 million. In
the event of a change in control of the Company, the earnout payments will be
accelerated.
DEFERRED TRANSACTIONS
In addition to the Initial Transaction, the Transaction Agreements
provide for reciprocal put and call options with respect to the remaining 51% of
the capital stock of Aracorn, which may be exercised by either the Company or
Aralia in two deferred transactions (the "Deferred Transactions") over the next
5 years. If either of the options is exercised by Aralia or the Company, the
first Deferred Transaction would transfer a 26.6% interest in Aracorn to the
Company and the second Deferred Transaction would transfer the remaining 24.4%
interest in Aracorn to the Company. If both Deferred Transactions are
consummated, the Company would own 100% of Aracorn and, accordingly, would hold
100% of the interest in the Joint Venture.
The first Deferred Transaction must occur between December 3, 1999 and
January 2, 2000. The purchase price for the 26.6% interest in Aracorn will be,
at the Company's option, either (i) cash in the amount approximately equal to
US$38 million plus interest, or (ii) (A) approximately US$18 million plus
interest in cash, plus (B) common stock with a then
25
<PAGE> 27
current market value equal to US$20 million plus interest. Such current market
value is determined based upon the closing sales price of common stock on the
NYSE on the 20 trading days immediately prior to the Closing of the first
Deferred Transaction. There is no maximum number of shares of common stock that
can be issued in the Deferred Transactions.
The second Deferred Transaction must occur between the date June 2,
2000 and December 31, 2003. The purchase price for the 24.4% interest in Aracorn
will be, at the Company's option, either (i) approximately US$35 million plus
interest in cash, or (ii)(A) approximately US$25 million plus interest in cash
plus (B) common stock with a then current market value of US$10 million plus
interest. The current market value of the common stock is determined in the same
manner as applicable to the first Deferred Transaction.
The approval granted by the shareholders of the Company if Proposal 2
is approved will cover the ratification of the shares of common stock that were
issued in the Initial Transaction as well as any shares of common stock that may
be issued in the Deferred Transactions. Based upon the closing price of Corn
Products' common stock on the New York Stock Exchange on March 17, 1999, if the
Company were to elect to issue the maximum number of shares permissible in
connection with the Deferred Transactions, 1,290,323 shares would be issued.
THE PUT
Under the Transaction Agreements, Aralia, and certain related
transferees, have the right (the "Put") to sell to the Company any common stock
acquired in the Transactions. The Put may not be exercised until after December
1999. Thereafter the Put may be exercised from time to time over a period of ten
years, which period may be extended at the option of the Company for an
additional three years. The Put may be exercised only once during any six month
period and must be exercised for a minimum of 250,000 shares of common stock at
any one time. The purchase price for the shares of common stock so sold to the
Company pursuant to the Put will be the then current market value of such shares
payable in cash.
RESTRICTIONS ON TRANSFER
The shares of common stock issued in this transaction were not and will
not be registered under the Securities Act of 1933 and, accordingly, may not be
sold, transferred or otherwise disposed of by the recipients thereof except (i)
pursuant to an effective registration statement under such Act covering such
securities, (ii) pursuant to Rule 144 under such Act, or (iii) in a transaction
that is exempt from the registration and prospectus delivery provisions of such
Act. The certificates representing such shares bear and will bear a legend to
this effect.
During the continuance of the Put, shares of common stock held by
certain members of, or by entities controlled by, the Aranguren family may not
be sold to any of the six largest competitors of the Company. In addition, prior
to any sale of common stock by such members or entities, other than certain
exempt transfers, such shares must first be offered to the Company at a price
stipulated by the selling person. If the Company declines to purchase the
offered shares, the selling person may then, for a period of 120 days, transfer
such shares to a third party on substantially the same terms as offered to the
Company. Thereafter, the shares will again be subject to the restrictions
described above.
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<PAGE> 28
ARANGUREN BOARD REPRESENTATION
Under the Transaction Agreements, the Company has agreed to nominate
Ignacio Aranguren Castiello, or a qualified nominee designated by the Aranguren
family, to its Board of Directors as long as the Aranguren family continues to
hold at least 70% of their original holdings of common stock received in the
Initial Transaction and such holdings represent at least 2.5% of the total
outstanding shares of common stock. Mr. Ignacio Aranguren-Castiello is currently
a member of the Board of Directors of the Company and has been serving on the
Board since the Company was spun-off from Bestfoods at the end of 1997. If the
holdings of the Aranguren family drop below these levels, the Company will have
the option to continue to nominate an Aranguren family representative but will
have no obligation to do so.
THE CALL
The Company has the right to repurchase the shares of common stock
issued in the Transaction in the event that any of the Aranguren related
entities that hold such shares are no longer controlled by the Aranguren family.
VOTING AGREEMENT
For so long as a representative of the Aranguren family is a member of
the Board of Directors of the Company, Aralia and Arinsa and certain of their
transferees are required to (a) attend all meetings of the stockholders of the
Company, and (b) vote all shares of common stock in favor of nominees and
proposals recommended by the Board of Directors of the Company or, at their
option, proportionately with the other stockholders of the Company.
STANDSTILL AGREEMENT
Under the Transaction Agreements, Aralia, Arinsa and certain related
entities and persons are prohibited during the nine years following the
consummation of the Initial Transaction from acquiring, directly or indirectly,
ownership in the Company, soliciting proxies from stockholders of the Company,
taking action to induce a change in control of the Company or taking certain
other related actions. Notwithstanding the foregoing, the restricted persons may
purchase additional shares of common stock if the total shares held by such
persons in the aggregate is less than 9.8% of the total number of issued and
outstanding shares of common stock.
REGISTRATION RIGHTS
The Company has granted Aralia, Arinsa and certain related transferees
the right (the "Demand Right"), commencing after the expiration of the Put, to
demand the registration by the Company under the Securities Act of 1933 of the
shares of common stock held by such persons and issued in the Transactions. The
Company is required to honor no more than two demands with respect to the Demand
Right, and any such demand must be with respect to at least 1% of the total
shares of the common stock issued and outstanding. In addition, the Company has
agreed to register, at any time after the expiration of the Put, such shares if
the Company otherwise registers shares of the common stock for sale (the
"Piggyback Rights"). The Piggyback Rights are subject to certain limitations,
but are not limited in number or duration. The Company
27
<PAGE> 29
generally will be responsible for the expenses of any such registration, other
than underwriters' discounts and commissions, relating to the shares sold
pursuant to the Piggyback Rights.
OTHER CONTRACTUAL PROVISIONS
The following is a brief summary of certain contractual provisions
contained in the Transaction Agreements in addition to the matters described
above. This summary is qualified by reference to the forms of the Transaction
Agreements, which were filed with the Company's Report on Form 8-K, dated
October 21, 1998.
REPRESENTATIONS AND WARRANTIES. The Transaction Agreements contain
representations and warranties from Aralia and Arinsa with respect to (i) the
due incorporation, valid existence and corporate authority of Aralia, Arinsa,
Aracorn and the Joint Venture, (ii) the authorization of the Transaction, (iii)
the validity of the Transaction Agreements, (iv) the absence of conflicts
resulting from the Transaction, (v) the authorized capital of Aracorn and the
Joint Venture, (vi) the subsidiaries of Aracorn and the Joint Venture, (vii)
title to the shares of Aracorn and the Joint Venture, (viii) the absence of
options to purchase shares of Aracorn or the Joint Venture, (ix) the absence of
actions with respect to any of the shares of Aracorn or the Joint Venture
purchased or to be purchased by the Company, (x) the financial statements of
Aralia, Arinsa, Aracorn and the Joint Venture, (xi) title to and condition of
the assets of Aracorn and the Joint Venture, (xii) the intellectual property
rights of Aracorn and the Joint Venture, (xiii) product liability obligations of
Aracorn and the Joint Venture, (xiv) insurance coverage of Aracorn and the Joint
Venture, (xv) the bank accounts of Aracorn and the Joint Venture, (xvi) the
absence of litigation affecting Aracorn or the Joint Venture, (xvii) material
contracts of Aracorn and the Joint Venture and the absence of defaults
thereunder, (xviii) certain tax matters with respect to Aracorn and the Joint
Venture, (xix) certain employees and employee benefit matters, (xx) the
compliance of Aracorn and the Joint Venture with applicable laws, (xxi) the
availability of assets to Aracorn and the Joint Venture, (xxii) transactions
between Aralia, Arinsa and their Affiliates, and Aracorn or the Joint Venture,
(xxiii) the investment intent of Aralia with respect to the shares of Common
Stock of the Company, and (xxiv) certain other matters. The liability of Aralia
and Arinsa with respect to their representations and warranties is joint and
several and survives, with certain exceptions, until six months after the
consummation of the Initial Transaction and is limited to $5 million in the
aggregate, subject to various deductibles.
NON-COMPETITION AGREEMENTS. As part of the Transaction, certain members
of the Aranguren family who are currently employees of the Joint Venture,
including Ignacio Aranguren-Castiello, have agreed not to compete with the Joint
Venture for a period of four years after the consummation of the Initial
Transaction and for a period of three years from the consummation of the Initial
Transaction may not solicit for employment any employee of the Company or the
Joint Venture.
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<PAGE> 30
REGULATORY APPROVALS
The issuance of the shares of common stock to Aralia in the Initial
Transaction was subject to the requirements of the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended. The waiting period under such Act expired
on November 30, 1998 as a result of the granting of early termination. In
addition, the consummation of the Transaction required certain approvals,
consents and assurances from the Mexican Federal Competition Commission and the
Mexican Foreign Investment Commission, all of which were obtained prior to the
consummation of the Initial Transaction.
NYSE LISTING
The Company has filed a Listing Application with the New York Stock
Exchange to list the shares of common stock that were issued in the Initial
Transaction and that may be issued in connection with the Transaction if the
Company exercises its option to issue shares of its common stock as
consideration in either of the Deferred Transactions. Such Listing Application
is currently pending, and the Company has been informed that approval of the
NYSE will not be granted unless the stockholders approve Proposal 2.
ACCOUNTING TREATMENT
The Transaction has been treated as a "purchase" for financial
reporting and accounting purposes. As of December 1, 1998, the results of
operations of the Joint Venture have been included in the consolidated financial
statements of the Company. The purchase price under the Transaction Agreements
has been allocated based on the fair value of the assets acquired and the
liabilities assumed by the Company. Any excess of cost over fair value of the
net tangible assets of the Joint Venture will be recorded as goodwill and other
intangible assets.
BACKGROUND OF THE TRANSACTION
The Joint Venture was formed in 1994 through the contribution by the
Company and certain entities controlled by the Aranguren family of their
respective corn wet-milling businesses to the Joint Venture. The Company held an
approximate 49% interest in the Joint Venture from its inception until the
consummation of the Initial Transaction. In connection with the spin-off of the
Company from Bestfoods at the end of 1997, conversations were held between
Ignacio Aranguren-Castiello and Konrad Schlatter, the Company's Chairman and
Chief Executive Officer, regarding the impact of the spin-off on the Joint
Venture and the position of the Company and the Joint Venture within NAFTA going
forward. In February of 1998, Messrs. Aranguren and Schlatter met further to
discuss the situation and they reached a meeting of the minds that it could be
beneficial to the Company and the Arangurens if the businesses of the Company
and the Joint Venture could be combined. Various alternatives were discussed
including a proposal for the Company to purchase the remaining interest of the
Arangurens in the Joint Venture.
In March 1998, Mr. Schlatter advised the Board that he was exploring
investment opportunities in Mexico and would present a specific proposal to the
Board at a later date. Discussions exploring the structure and consideration for
a proposed transaction continued into early April 1998 among Messrs. Aranguren
and Schlatter, together with Sam Scott, the Company's President and Chief
Operating Officer and Jack Fortnum, the Company's Comptroller.
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<PAGE> 31
On April 9, 1998, Mr. Schlatter sent the Board a report on the proposed
Mexican acquisition which described the essentials of the Joint Venture's
business and financials, the price proposed by Mr. Aranguren and the Company's
negotiating intentions. Subsequently, on April 13, 1998, Mr. Schlatter called a
special meeting of the Board for the sole purpose of reviewing the status of the
proposal. After discussion concerning the benefits expected to accrue from the
acquisition, the Board authorized Mr. Schlatter to continue negotiations with
Mr. Aranguren.
Continued negotiating sessions in April and early May 1998 resulted in
a proposed acquisition price. On May 12, 1998, Mr. Schlatter sent the Board
background materials and a report on the Mexican growth opportunity. These
materials were prepared in order to fully inform the Board of the parameters of
the proposed transaction and its impact on the Company. Subsequently, at the May
20, 1998, Board meeting, the Board heard various presentations by Sam Scott, the
Company's President and Chief Operating Officer, James Ripley, the Company's
Chief Financial Officer and Scott Mohr of Lehman Brothers, the Company's
investment bankers. The presentations dealt with the strategic importance of the
acquisition, the valuation factors, the financial aspects of the transaction,
including the results expected to be achieved in 1999 sales, operating income,
net income and earnings per share. Also presented were a comparable company
analysis based on sales, cash flow and net income, a comparable transaction
summary of recent competitive business combinations and a discounted cash flow
summary. After due deliberation, the Board authorized the transaction based upon
the primary financial terms presented and further authorized officers of the
Company to negotiate and approve additional terms and the form of the
documentation.
Negotiations continued throughout June, July and into August 1998
between Aranguren family members, together with their attorneys and investment
bankers, and Mr. Fortnum, Mr. Eugene Northacker, President of the Company's
Latin America Division, Marcia Doane, the Company's General Counsel and the
Company's attorneys and investment bankers. At the same time, the Company
performed its due diligence, reviewing numerous documents produced by the
Mexican operation and interviewing its management.
On August 10, 1998, Mr. Schlatter called a special meeting of the Board
for the primary purpose of informing the Board of the key issues involved in the
negotiations. These included the transaction structure, the purchase price and
payment schedule, the continued representation of Mr. Aranguren on the Board,
liquidity and standstill provisions, licensing of the Arancia name, management
non-compete agreements and shareholder agreements.
Negotiations continued throughout August and into early September 1998.
These resulted in a proposed Term Sheet, outlining the details of the
transaction, which was sent to the Board in advance of its September 16, 1998,
meeting. At the September Board meeting, various presentations were again made
to the Board by Mr. Ripley and Mr. Mohr. These consisted of information
concerning the components of the purchase price as of September 15, 1998,
compared to June 15, 1998, based on the intervening devaluation of the Mexican
peso and decline in the Company's stock price, the value of the equity to be
acquired and the effect on goodwill. Also presented was a summary of the
purchase price values as multiples of net income, book value, revenues and
earnings before taxes, a comparable company analysis on the basis of sales and
earnings multiples, comparable transactions within the industry and a discounted
cash flow utilizing a range of assumptions. After due deliberation, the Board
approved the transaction and
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<PAGE> 32
authorized the Company's officers to negotiate and execute definitive
documentation of the transaction.
During the Board activity relating to the transaction, Mr. Aranguren
excused himself from each Board meeting, or portion thereof, which dealt with
the transaction and did not participate in any of the Board discussions or
deliberations concerning the matter. In addition, he was not sent any of the
reports, materials or analyses which were prepared to assist the Board in its
deliberations on the transaction.
After the September 1998 Board meeting, draft documents were prepared
and distribute and negotiations on the documentation continued until October 21,
1998, when the Transaction Agreements were executed. Subsequent to the execution
of the agreements, filings were made with the Mexican Federal Competition
Commission, the Mexican Foreign Investment Commission and the U. S. Justice
Department and Federal Trade Commission. All necessary approvals were received
from these agencies during the month of November 1998 and the Initial
Transaction was closed on December 2, 1998.
The Company's Board has unanimously determined that the transaction is
advisable and fair to and in the best interest of the Company and its
stockholders. In making its determination, the Board considered a number of
factors, including: (i) its knowledge of the business, operations, assets,
financial condition, results of operations and prospects of the Joint Venture;
(ii) the strategic fit with the Company's objective of expanding its presence in
areas where there is an above-average growth potential; (iii) the opportunity to
be established in Mexico as a NAFTA-spanning business with a leading market
share; (iv) the ability to make full use of each company's infrastructure to
take advantage of new and untapped market opportunities arising from the
globalization of the corn refining industry generally; (v) the terms of the
Transaction Agreements; (vi) the accounting treatments of the transaction; (vii)
the availability of Mr. Aranguren-Castiello to continue in the employment of the
Joint Venture; and (viii) a fairness opinion on the transaction which was
rendered by Lehman Brothers, the Company's investment bankers.
LEHMAN BROTHERS OPINION
Lehman Brothers acted as financial advisor to the Company in connection
with the Transaction. On September 16, 1998, Lehman Brothers delivered its oral
opinion to the Board of Directors of the Company that the consideration to be
paid by the Company in the Transaction is fair, from a financial point of view,
to the Company which was confirmed in writing on October 21, 1998.
The full text of Lehman Brothers' written opinion dated October 21,
1998 is attached as Exhibit I to this Proxy Statement (the "Lehman Opinion") and
is incorporated herein by reference. Shareholders may read the Lehman Opinion
for a discussion of assumptions made, matters considered and limitations on the
review undertaken by Lehman Brothers in rendering its Opinion. The summary of
the Lehman Opinion set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of such Opinion.
No limitations were imposed by the Company on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering the Lehman Opinion, except that Lehman Brothers was not authorized to
solicit, and did not solicit, any indications of interest from any third party
with respect to a purchase of all or a part of the [Joint Venture]. Lehman
Brothers was not requested to and did not make any recommendation to the Company
as to the form or amount of consideration to be paid by the Company in the
Transaction, which was determined through negotiations between the Company and
Arancia. In arriving at the Lehman Opinion, Lehman Brothers did not ascribe a
specific range of value to the Joint Venture, but rather made its determination
as to the fairness, from a financial point of view, of the consideration to be
paid by the Company in the Transaction on the basis of the financial and
comparative analyses described below. The Lehman Opinion is for the use and
benefit of the Company and was rendered to it in connection with its
consideration of the Transaction. Lehman Brothers was not requested to opine as
to, and the Lehman Opinion does not in any manner address, the Company's
underlying business decision to proceed with or effect the Transaction.
In arriving at the Lehman Opinion, Lehman Brothers has reviewed and
analyzed: (1) the Stock Purchase Agreement relating to the Transaction, (2) the
Arancia-CPC Joint Ownership Agreement ("Joint Ownership Agreement"), including
the terms relating to Arancia's rights to purchase the Company's 49% interest in
the Joint Venture, (3) publicly available information concerning the Company
that Lehman Brothers believed to be relevant to its analysis, (4) financial and
operating information with respect to the business, operations and prospects of
the Joint Venture and the Company furnished to Lehman Brothers by the Company,
(5) a comparison of the historical financial results and present financial
condition of the Joint Venture with those of other companies that Lehman
Brothers deemed relevant, (6) a comparison of the financial terms of the
Transaction with the financial terms of certain other transactions that Lehman
Brothers deemed relevant and (7) the pro forma impact of the Transaction on the
Company. In addition, Lehman Brothers had discussions with the management of the
Company concerning the businesses, operations, assets, financial condition and
prospects of the Joint Venture and the Company and the strategic rationale of
the Transaction from the Company's standpoint, and has undertaken such other
studies, analyses and investigations as Lehman Brothers deemed appropriate.
In arriving at the Lehman Opinion, Lehman Brothers assumed and relied
upon the accuracy and completeness of the financial and other information used
by Lehman Brothers without assuming any responsibility for independent
verification of such information and further relied upon the assurances of
management of the Company that they are not aware of any facts or circumstances
that would make such information inaccurate or misleading. With respect to the
financial projections of the Joint Venture, upon advice of the Company, Lehman
Brothers assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Joint
Venture and that the Joint Venture would perform substantially in accordance
with such projections. In arriving at the Lehman Opinion, Lehman Brothers did
not conduct a physical inspection of the properties and facilities of the Joint
Venture and did not make or obtain any evaluations or appraisals of the assets
or liabilities of the Joint Venture. The Lehman Opinion was necessarily based
upon market, economic and other conditions as they exist on, and could be
evaluated as of, the date of the Lehman Opinion.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial and comparative
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at the Lehman Opinion, Lehman Brothers did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevancy of
each analysis and factor. Accordingly, Lehman Brothers believes that its
analyses must be considered as a whole and that considering any portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying the Lehman Opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the Company's and the
Joint Venture's control. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. Additionally, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold. Certain of the analyses include information presented in tabular
format. In order to fully understand the financial analyses used by Lehman
Brothers, the tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the financial analyses.
DISCOUNTED CASH FLOW ANALYSIS. Lehman Brothers performed a discounted
cash flow analysis on the projected financial information of the Joint Venture
for the fiscal years 1999 through 2003 based upon operating and financial
assumptions, forecasts and other information provided to Lehman Brothers by the
management of the Company. Using this information, Lehman Brothers discounted to
present value the projected stream of unleveraged net income (earnings before
interest and after taxes) for the fiscal years 1999 through 2003 as adjusted
for: (i) certain projected non-cash items (such as depreciation and
amortization); (ii) forecasted capital expenditures (including discretionary
capital expenditures); and (iii) forecasted non-cash working capital. To
estimate the residual value of the Company at the end of the forecast (the
"Terminal Value"), Lehman Brothers applied a range of 6.5x-7.5x multiples to
projected fiscal 2003 EBITDA.
Lehman Brothers applied ranges of discount rates that varied from 12% to
16%. The value of Arancia's 51% interest in the Joint Venture resulting from
these analyses ranged from $160 million to $180 million.
($ in millions) Terminal Multiple
-------------------------------------------
6.5x 7.0x 7.5x
-----------------------------------------------------
12% $178.4 $194.2 $210.0
Discount
Rate
-----------------------------------------------------
14% $157.0 $171.4 $185.9
-----------------------------------------------------
16% $137.6 $150.8 $164.1
-----------------------------------------------------
COMPARABLE PUBLIC COMPANY ANALYSIS. Lehman Brothers compared the
historical financial, operating and stock market performances of certain
publicly traded companies that it considered relevant with the historical
financial and operating performance of the Joint Venture, based upon information
that was publicly available at that time and based upon information provided to
Lehman Brothers by management of the Company. The companies that Lehman Brothers
included in its universe of comparable companies were Archer-Daniels-Midland
Company, Corn Products International, Eridania Beghin-Say S.A., Gruma S.A.,
Grupo Industrial Maseca, S.A. de C.V., Mavesa, S.A., Perdigao S.A., Sadia
Concordia S.A. and Tate & Lyle PLC (collectively the "Comparable Companies").
Lehman Brothers calculated a range of market multiples for the
Comparable Companies by dividing the aggregate value (total common shares
outstanding multiplied by the closing market price per share on September 11,
1998, plus the latest reported debt, preferred stock and minority interest minus
latest reported cash and cash equivalents) ("Aggregate Value") of each of the
Comparable Companies by such company's net sales, earnings before interest,
taxes, depreciation and amortization ("EBITDA") and earnings before interest and
taxes ("EBIT") as reported in publicly available information. In addition,
Lehman Brothers divided the equity value per share on September 11, 1998 of each
of the Comparable Companies by EPS as projected for 1999 calendar year as
represented by the mean estimate reported by IBES. This analysis indicated that
the relevant ranges of multiples derived from the Comparable Public Companies
were (i) net sales: 0.22x to 0.86x; (ii) EBITDA: 4.3x to 8.7x; (iii) EBIT: 6.9x
to 16.2x; and (ii) 1999 EPS: 3.3x to 14.0x.
Lehman Brothers then calculated imputed valuation ranges of the
Company. This analysis resulted in a range of values of Arancia's 51% interest
in the Joint Venture of $120 million to $170 million.
-------------------------------------------------------
Derived Multiple Implied Value
-------------------------------------------------------
Net Sales
(0.22x to 0.86x) NM - 73.2
-------------------------------------------------------
EBITDA
(4.3x to 8.7x) 50.4 - 188.2
-------------------------------------------------------
EBIT
(6.9x to 16.2x) 68.1 - 273.5
-------------------------------------------------------
1999 EPS
(3.3x to 14.0x) 38.4 - 162.8
-------------------------------------------------------
Because of the inherent differences between the business, operations
and prospects of the Comparable Companies, on the one hand, and the Joint
Venture, on the other, Lehman Brothers believed that it was inappropriate to,
and therefore did not, rely solely on the quantitative results of the analysis
but rather also made qualitative judgments concerning differences between the
financial and operating characteristics and prospects of the Company and the
Comparable Companies, on the one hand, and the Joint Venture, on the other, that
would affect the public trading values of each.
COMPARABLE TRANSACTIONS ANALYSIS. Lehman Brothers compared the
financial and operating performance of certain companies that had engaged in
recent merger transactions since December 1987, which Lehman Brothers considered
relevant, with the historical financial and operating performance of the
Company. Lehman Brothers analyzed the purchase prices and multiples paid or
proposed to be paid in selected merger and acquisition transactions using
publicly available information. The transactions that Lehman Brothers considered
comparable to the Transaction included the transactions by
Archer-Daniels-Midland Company with the Venezuela Foods unit of International
Multifoods, by Archer-Daniels-Midland Company with Moorman Manufacturing
Company, by Bunge International Inc. with Ceval Alimentos S.A., by
Archer-Daniels-Midland Company with ED&F Man PLC (cocoa unit), by
Archer-Daniels-Midland Company with Minnesota Corn Processors, by
Archer-Daniels-Midland Company with Grace Cocoa (a division of W.R. Grace &
Co.), by Archer-Daniels-Midland Company with Grupo Maseca S.A. de C.V., by
ConAgra Inc. with Canadian Malting Co. Ltd., by Associated British Foods PLC
with Kraft Foods' specialty oils operations, by Eridania Beghin-Say, S.A. with
American Maize Products Company, by American Maize Products Company with
American Fructose Corporation and by Tate & Lyle PLC with Staley Continental,
Inc. (the "Selected Acquisitions").
Lehman Brothers calculated the purchase price as a multiple of net
sales, EBITDA and EBIT for each acquired company for the four fiscal quarters
immediately preceding the announcement of the transaction. This analysis
indicated that the relevant ranges of multiples derived from the Selected
Acquisitions were (i) net sales: 0.30x to 2.64x; (ii) EBITDA: 3.8x to 25.4x; and
(iii) EBIT: 5.2x to 19.7x. Lehman Brothers then calculated the imputed valuation
ranges of the Company by applying the results for the preceding four fiscal
quarters of the Company to the mean multiples derived from its analysis of the
Selected Acquisitions. This analysis resulted in a range of values of Arancia's
51% interest in the Joint Venture of $165 million to $200 million.
-------------------------------------------------------
Derived Multiple Implied Value
-------------------------------------------------------
Net Sales
(0.30x to 2.61x) NM - 399.1
-------------------------------------------------------
EBITDA
(3.8x to 25.4x) 34.7 - 711.1
-------------------------------------------------------
EBIT
(5.2x to 19.7x) 30.6 - 350.8
-------------------------------------------------------
Because the market conditions, rationale and circumstances surrounding
each of the transactions analyzed were specific to each transaction and because
of the inherent differences between the businesses, operations and prospects of
the Joint Venture and the acquired businesses analyzed, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgements concerning differences between the characteristics of these
transactions and the Transaction that would affect the acquisition value of
Arancia's 51% interest in the Joint Venture and such acquired companies.
Lehman Brothers is an internationally recognized investment banking
firm and, as part of its investment banking activities, is regularly engaged in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Company selected Lehman
Brothers because of its expertise, reputation and familiarity with the Company
and because its investment banking professionals have substantial experience in
transactions similar to the Transaction.
As compensation for its services in connection with the Transaction,
the Company has agreed to pay Lehman Brothers a fee of $750,000 upon
consummation of the Transaction. In addition, the Company has agreed to
reimburse Lehman Brothers for reasonable out-of-pocket expenses incurred in
connection with the Transaction and to indemnify Lehman Brothers for certain
liabilities that may arise out of its engagement by the Company and the
rendering of its opinion.
Lehman Brothers has also performed various investment banking services
for the Company in the past and has received customary fees for such services.
In the ordinary course of its business, Lehman Brothers actively trades in the
Common stock for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Ignacio Aranguren-Castiello is a director of the Company and is the
controlling shareholder of each of Aralia and Arinsa. See "Certain Relationships
and Related Transactions".
ADDITIONAL INFORMATION ABOUT THE JOINT VENTURE
The Joint Venture was formed in 1994 through the contribution by CPC
International Inc. and certain entities controlled by the Aranguren family of
their respective Mexican corn wet-milling businesses to the Joint Venture. CPC
International Inc. was the predecessor of Bestfoods. The 49% interest of
Bestfoods in the Joint Venture was transferred to the Company in connection with
the spin-off of the corn refining business of Bestfoods.
The Joint Venture is a leading producer in Mexico of a large variety of
food ingredients and industrial products derived from the wet milling of corn.
It is headquartered in Guadalajara,
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Mexico and has plants located in Guadalajara, San Juan Del Rio and Mexico City.
The Joint Venture's annual sales total approximately $330 million. The Aranguren
family has been in the corn refining business for more than 70 years. The total
corn grinding capacity of the Joint Venture is 3,600 tons per day, equivalent to
144 thousand bushels a day.
The business of the Joint Venture includes the manufacturing,
marketing, distribution, sales and trading of all types of products derived from
the corn wet milling process, such as corn starch, glucose corn syrups, corn
syrup blends, high fructose sweeteners, caramel color, maltodextrins, dextrose,
sorbitol, gluten meal, gluten feed and corn oil. It is the market leader in corn
starch, dextrose, glucose corn syrup, maltodextrin, high fructose 55 syrups,
sorbitol and caramel color.
The Joint Venture's operations, consisting of 4 plants, produce regular
and modified starches, dextrose, high fructose and high maltose corn syrups and
corn syrup solids and maltodextrins, caramel color and sorbitol. The Joint
Venture is Mexico's largest corn refiner. It was the first corn refiner in
Mexico to produce HFCS-55 for sale to the soft drink bottling industry.
The corn refining industry in Mexico is highly competitive. Most of the
Joint Venture's products compete with virtually identical products and
derivatives manufactured by other companies in the industry. Several of the
Joint Venture's products also compete with products made from raw materials
other than corn. High fructose corn syrup competes principally with cane sugar
products. Co-products such as corn oil and gluten meal compete with soybean oil
and soybean meal. Fluctuations in prices of these competing products may affect
prices of, and profits derived from, the Joint Venture's products.
The Company supplies a broad range of customers in the soft drink,
brewing, baking, paper and pharmaceutical industries. Historically, only one
customer accounts for more than 10% of total annual sales.
The basic raw material of the corn refining industry is yellow dent
corn. The Company sources most of its corn from the United States, although corn
can also be sourced locally as required. The supply of imported corn in Mexico
has been, and is anticipated to continue to be, adequate for the Company's
domestic needs. The price of corn, which is determined by reference to prices on
the Chicago Board of Trade, fluctuates as a result of three primary supply
factors -- farmer planting decisions, climate and government policies -- and
three major market demand factors -- livestock feeding, shortages or surpluses
of world grain supplies and domestic and foreign government policies and trade
agreements.
Due to the competitive nature of the corn refining industry and the
availability of substitute products not produced from corn, such as sugar from
cane or beets, end product prices may not necessarily fluctuate in relation to
raw material costs of corn.
Over 8% of the Joint Venture's starch and refinery products are sold at
prices established in supply contracts lasting for periods of up to one year.
The remainder of the Company's starch and refinery products are not sold under
firm pricing arrangements and actual pricing for those products is affected by
market conditions and by the cost of corn at the time of production and sale.
32
<PAGE> 34
The Joint Venture engages in business primarily in Mexico.
The Joint Venture's products are sold directly to manufacturers and
distributors by salaried sales personnel, who are generally dedicated to
customers in a geographic region. In addition, the Joint Venture has a staff
that provides technical support to the sales personnel on an industry basis. The
Joint Venture generally utilizes contract truckers to deliver bulk products to
customer destinations but also has some of its own trucks for product delivery.
In North America, the trucks generally ship to nearby customers.
Pursuant to certain patent and trademark licenses, the Joint Venture
has the right to use a number of patents which relate to a variety of products
and processes and a number of established trademarks under which the Joint
Venture markets its products. The Joint Venture does not believe that any
individual patent or trademark is material. There is not currently any pending
challenge to the use or registration of any of the Joint Venture's significant
patents or trademarks that would have a material adverse impact on the Joint
Venture or its results of operations.
The Joint Venture has approximately 1,300 employees, all of whom are
located in Mexico. Approximately 50% of the employees are unionized. The Joint
Venture believes that its employee relations are good.
The Joint Venture operates 4 manufacturing facilities, each of which is
owned by the Joint Venture. In addition, the Joint Venture leases its corporate
headquarters in Guadalajara, Mexico. The Joint Venture's plants are located in
Guadalajara, San Juan Del Rio and Mexico City, Mexico.
While the Joint Venture has achieved high capacity utilization, the
Joint Venture believes its manufacturing facilities are sufficient to meet its
current production needs.
Historical and pro forma financial information with respect to the
Joint Venture is included in Exhibit II.
SELECTED HISTORICAL FINANCIAL DATA OF THE JOINT VENTURE
In the tables below, we provide you with selected historical financial
data of the Joint Venture. We prepared this data using the consolidated
financial statements of the Joint Venture.
<TABLE>
<CAPTION>
Unaudited (in millions) 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Summary of Operations
-------------------------------------------------------------------------------------------------------------
Net Sales 338 328 272 196
-------------------------------------------------------------------------------------------------------------
Net Income (loss) 8 (7) (27) (1)
-------------------------------------------------------------------------------------------------------------
Dividends Paid - - - -
-------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Balance Sheet Data 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Working Capital 44 91 8 (18)
-------------------------------------------------------------------------------------------------------------
Plants and Properties - net 268 269 271 178
-------------------------------------------------------------------------------------------------------------
Total Assets 359 436 386 253
-------------------------------------------------------------------------------------------------------------
Stockholders' Equity 136 128 103 130
-------------------------------------------------------------------------------------------------------------
</TABLE>
SHAREHOLDER VOTE REQUIREMENT
The NYSE Rules, Paragraph 312.03 of the Listed Company Manual, require
shareholder approval prior to the time of issuance when a listed company issues
additional shares of common stock if the common stock to be issued has (or will
have upon issuance) voting power greater than 1% of the total voting power of
the shares of the company's common stock outstanding and such stock is being
issued to a director of the company or an entity controlled by a director of the
company. At December 31, 1998, 37,610,553 shares of common stock and no shares
of preferred stock were outstanding. The Company issued 1,764,706 shares of
common stock, representing approximately 4.69% of the total voting power
outstanding, in the Initial Transaction. The recipient of such shares, Aralia,
is an entity controlled by Ignacio Aranguren-Castiello, a member of the
Company's Board of Directors. In addition, at the option of the Company,
additional shares of common stock may be issued in the Deferred Transactions.
Although there is no maximum number of shares that can be issued in the Deferred
Transactions, the total number of shares so issued will not have a current
market value at the time of issuance in excess of US$30 million plus interest
from the date of the Initial Transaction. Accordingly, the ratification of the
issuance of such common stock is being submitted for approval by the Company's
stockholders at the 1999 annual meeting in order to comply with the NYSE Rules.
In the event that stockholders do not ratify this issuance of common
stock, the Company would be required to consider the alternatives available to
it at the time. Such alternatives could include attempting to renegotiate the
Transaction to substitute another form of consideration for the common stock
issued in the Initial Transaction. No assurance can be given that any such
renegotiation could be successfully completed on terms acceptable to the
Company. Any such renegotiation would be agreed to by the Company only if the
renegotiated terms resulted in an economic impact on the Company at least as
favorable to the Company as the original Transaction. If the stockholders failed
to approve Proposal 2 and any such renegotiations were not successful, the
common stock issued and to be issued in the Transaction would not be listed on
the NYSE and the Company could be held to be in violation of the NYSE's rules,
which could result in the NYSE taking action against the Company, including the
possibility of a proceeding under NYSE Rule 499 for suspension or delisting. The
Company cannot predict what action the NYSE would take under those
circumstances.
Under paragraph 312.07 of the NYSE Listed Company Manual, approval of
Proposal 2 requires the affirmative vote of a majority of the votes cast on the
Proposal, provided that the total vote cast represents more than 50% in interest
of all securities entitled to vote on the Proposal. Mr. Aranguren has informed
the Company that he intends to vote his shares in favor of Proposal 2 in the
same proportion as all other stockholders of the Company voting on Proposal 2.
34
<PAGE> 36
The Board of Directors believes that the issuance of common stock as
part of the consideration for the Initial Transaction was fair to, and in the
best interests of, the Company and that any issuance of Common Stock of the
Company in either of the Deferred Transactions will be fair to, and in the best
interests of, the Company. Accordingly, the Board of Directors, with Mr.
Aranguren abstaining, recommends that stockholders vote for approval of this
Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPOSAL 3. RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, in accordance with the recommendation of its
Audit Committee, has appointed KPMG LLP ("KPMG") as independent auditors of the
Company's operations in 1999, subject to ratification by the stockholders. A
partner of KPMG will be at the stockholders' meeting and will have an
opportunity to make a statement and answer appropriate questions. KPMG also
performs non-audit services for the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
- --------------------------------------------------------------------------------
OTHER MATTERS
We do not know of any other matters to be presented or acted upon at
the meeting. If other proposals are properly presented, the persons named in the
proxy card are authorized to vote on them using their best judgment.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders that are intended to be presented at the 2000
Annual Meeting and that a stockholder wishes to be included in the Company's
Proxy Statement for that meeting, must comply with certain rules and regulations
promulgated by the Securities and Exchange Commission. The deadline for
submitting to us any such proposal (which is otherwise in compliance with these
rules and regulations) for inclusion in our Proxy Statement for the 2000 Annual
Meeting is December 1, 1999.
Under our By-laws, a stockholder may present at the 2000 Annual Meeting
any other business, including the nomination of candidates for director, only if
the stockholder has notified the Company's Corporate Secretary, in writing, of
the business or candidates not earlier than February 16, 2000, and not later
than March 18, 2000. There are other procedural requirements in our By-laws
pertaining to stockholder nominations and proposals. Any stockholder may receive
a copy of the By-laws, without charge, by writing to the Corporate Secretary.
35
<PAGE> 37
ADDITIONAL INFORMATION
If you plan to attend the annual meeting, please check the box on your
proxy card and indicate the number of persons who will attend.
The 1998 annual report to stockholders accompanies this proxy
statement. If you receive more than one annual report at your address and you
wish to reduce the number of annual reports you receive, please mark the
Discontinue Annual Report Mailing box in the Special Action area on the proxy
card.
The Company files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that we file at the SEC's public
reference rooms in Washington, DC, New York, New York, and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0300 for further information on the public
reference rooms. The Company also files such reports and other information with
the NYSE, on which the Company Common Stock is traded. Copies of such material
can be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005. Our SEC filings are also available to the public from commercial document
retrieval services and at the Internet web site maintained by the SEC at
"http://www.sec.gov."
The SEC allows us to "incorporate by reference" information into this
Proxy Statement, which means that we can disclose important information to you
by referring you to another documents filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings made with the SEC under Sections 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
THE COMPANY FILINGS (FILE NO. 1-13397 ) PERIOD
-----------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Fiscal Year Ended December 31, 1998.
Current Reports on Form 8-K Dated October 21, 1998 and December 16,
1998, as amended.
</TABLE>
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Corn Products International, Inc.
Attention: Corporate Secretary
6500 South Archer Avenue
Bedford Park, Illinois, 60501-1933
Telephone: 708-563-2400.
36
<PAGE> 38
PLEASE COMPLETE THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
By order of the Board of Directors,
Marcia E. Doane
Vice President, General Counsel
and Corporate Secretary
March 31, 1999
37
<PAGE> 39
EXHIBIT I
[LEHMAN BROTHERS LETTERHEAD]
October 21, 1998
Board of Directors
Corn Products International, Inc.
6500 south archer Road
Bedford Park, IL 60501-1933
Members of the Board:
We understand that Corn Products International, Inc. (the "Company") and Arancia
Industrial, S.A. de C.V. ("Arancia") have entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") whereby the company will purchase
Arancia's 51% interest in Arancia-CPC, a joint-venture between the Company and
Arancia in which the Company currently owns the other 49% interest (the "JV"),
for consideration of (i) $120 million in cash, (ii) 1,764,706 shares of common
stock of the Company and (iii) contingent earn-out payments ranging from $9
million to $15 million in aggregate based upon the Company's actual earnings per
share and the Company's North American operating income for fiscal years 2000,
2001 and 2002 (the "Proposed Transaction"). The terms and conditions of the
Proposed Transaction are set forth in more detail in the Stock Purchase
Agreement.
We have been requested by the Board of Directors of the Company to render our
opinion with respect to the fairness, from a financial point of view, to the
Company of the consideration to be paid by the Company in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does not
in any manner address, the Company's underlying business decision to proceed
with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Stock Purchase
Agreement, (2) the Arancia-CPC Joint Ownership Agreement ("Joint Ownership
Agreement"), including the terms relating to Arancia's rights to purchase the
Company's 49% interest in the JV, (3) publicly available information concerning
the Company that we believe to be relevant to our analysis, (4) financial and
operating information with respect to the business, operations and prospects of
the JV and the Company furnished to us by the Company, (5) a comparison of the
historical financial results and present financial condition of the JV with
those of other companies that we deemed relevant, (6) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other transactions that we deemed relevant and (7) the pro forma impact of the
Proposed Transaction on the Company. In addition, we have had discussions with
the
<PAGE> 40
management of the Company concerning the businesses, operations, assets,
financial condition and prospects of the JV and the Company and the strategic
rationale of the Proposed Transaction from the Company's standpoint, and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company that they are
not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the JV,
upon advice of the Company we have assumed that such projections have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the JV and that the JV will perform substantially in
accordance with such projections. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the JV and
have not made or obtained any evaluations or appraisals of the assets or
liabilities of the JV. Our opinion necessarily is based upon market, economic
and other conditions as they exist on, and can be evaluated as of the date of
this letter.
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that, from a financial point of view, the consideration to be paid by the
Company in the Proposed Transaction is fair to the Company.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In the ordinary course of our business, we actively
trade in the equity securities of the Company for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
This opinion is for the use and benefit of the Board of Directors of the Company
and is rendered to the Board of Directors in connection with its consideration
of the Proposed Transaction. If a stockholder vote is required with respect to
the Proposed Transaction, this opinion should not be deemed to constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Proposed Transaction.
Very truly yours,
/s/ Lehman Brothers
LEHMAN BROTHERS
Exhibit I - Page 2
<PAGE> 41
EXHIBIT II
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
1998 ANNUAL REPORT
NAME CHANGED TO "ARANCIA-CORN PRODUCTS S.A. DE C.V" EFFECTIVE MARCH 1, 1999
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
OVERVIEW AND OUTLOOK
Arancia-CPC S.A. de C.V. is the largest corn refiner in Mexico and the only
local producer of high fructose corn syrup (HFCS). Arancia-CPC principally
manufactures and sells starch and starch derived products including, modified
starch, glucose, dextrose, maltodextrins, and HFCS. Arancia-CPC completed a
major expansion of the San Juan del Rio plant in 1997, adding the production of
HFCS and electric co-generation facilities.
In 1998, Arancia-CPC returned to profitability after experiencing losses in 1997
and 1996. The return to profitability resulted from improved profit margins from
lower corn costs and the local production of HFCS.
RESULTS OF OPERATIONS
Net sales. 1998 net sales grew 3 percent to $338 million from $328 million in
1997, with approximately 10 percent higher volume. 1998 pricing was generally
lower than 1997, reflecting the pass through of lower corn costs.
1997 net sales were up 20 percent from $272 million in 1996 on 25% volume
growth, reflecting the completion of the San Juan del Rio plant expansion and
the production and sale of HFCS.
Cost of sales and operating expenses. Cost of sales for 1998 was 5% lower than
1997 despite the 3 percent increase in volumes. Lower cost of sales resulted
from lower corn costs and operating efficiencies. Consequently, 1998 gross
profit margins improved to 18 percent of sales, from 11 percent in 1997 and
1996. Cost of Sales in 1997 were up 21% from 1996 associated with the higher
volumes.
Selling and Administrative. Selling and administrative expenses increased to 6
percent of sales in 1998 after declining to 5 percent of sales in 1997 from 9%
percent of sales in 1996. The 1998 increase is attributable to severance costs
and expenses incurred with the implementation of certain management information
systems. 1996 selling and administrative expenses included a charge for deferred
employee statutory profit sharing.
Interest expense and translation. 1998 financing costs decreased approximately
11 percent to $24 million from $27 million in 1997, resulting from a 31 percent
reduction in interest expense offset by losses in currency translation.
Lower interest expense resulted from reduced borrowings.
Net income. Net income for 1998 totaled $8 million compared to a loss of $7
million in 1997. The improvement in net income largely reflects the increased
gross profit margin. 1996 net loss was $27 million, reflecting adverse corn
prices.
Exhibit II - Page 2
<PAGE> 43
LIQUIDITY & CAPITAL RESOURCES
Total assets decreased to $359 million from $436 million at December 31, 1997
principally due to the use of cash to pay down long-term debt. Over the past
three years, Arancia-CPC invested $136 million in capital expenditures primarily
related to the expansion and production of HFCS at the San Juan del Rio
facility.
Net cash flows. 1998 cash flows from operations was $34 million, 74 percent
higher than 1997 and reflecting the improved profitability and a reduction in
inventories. 1997 cash flow from operations of $20 million came largely from a
reduction in the large inventories built up in 1996. In 1996, Arancia-CPC used
$40 million in cash largely to finance an inventory build-up. In 1997,
Arancia-CPC issued common stock to its then current shareholders the proceeds of
which were to finance the capital expenditure plan and pay down debt.
Arancia-CPC had $159 and $209 million of long term debt at December 31, 1998 and
1997 respectively. In addition, Arancia-CPC has access to short term credit
facilities. Arancia-CPC expects these credit facilities, together with cash
flows from operations, to provide sufficient operating funds for normal capital
expenditures in support of its business strategies.
RISK AND UNCERTAINTIES
Arancia-CPC operates in one business segment and in one country. The business
and assets are subject to varying degrees of risk and uncertainty. Arancia-CPC
insures its business and assets against insurable risk in a manner that it deems
appropriate. Arancia-CPC believes there is no concentration of risk with any
single customer or supplier, or small group of customers or suppliers, whose
failure to non-performance would materially affect Arancia-CPC's results.
Arancia-CPC also has policies to handle other financial risks discussed below.
Commodity Costs. Arancia-CPC makes finished products primarily from corn. In
order to minimize the effect of volatility in the cost of corn, Arancia-CPC
enters into derivative financial instruments in the form of corn futures
contracts, or takes hedging positions in the corn futures market. These
contracts typically mature within one year. While these hedging instruments are
subject to fluctuations in value, changes in the value of the underlying
exposures the Company is hedging generally offset such fluctuations. While the
corn futures contracts or hedging position are intended to minimize the
volatility of corn costs on operating profits, occasionally the hedging activity
can result in losses, some of which may be material.
International Operations and Foreign Exchange. Arancia-CPC sells primarily world
commodities and; therefore, believes that local prices will adjust relatively
quickly to offset the effect of a local devaluation. Arancia-CPC generally
hedges its US Dollar transactions utilizing forward contracts to lock in the
exchange rates between the Mexican Peso and the US Dollar.
Interest Rate Exposure. Approximately 94% percent of the Company's borrowings
are long-term loans payable in US Dollars. About 38% of these Long-term loans
are at fixed interest rate, the rest are variable rates based on LIBOR or Prime.
Approximately 6% of Arancia-CPC's
Exhibit II - Page 3
<PAGE> 44
borrowings are short-term Mexican Peso bank loans with interest rates varying
from 35.84% to 38.26%.
Readiness for the Year 2000. The Year 2000 issue is the result of certain
computer programs using two digits rather than four to define the applicable
year. Arancia-CPC is aware of the Year 2000 issue and has established a team
with appropriate senior management support to identify and correct Year 2000
issues. Arancia-CPC expects to fix or replace internal software with
non-compliant codes. This includes software in all of Arancia-CPC's
manufacturing plants, building facilities and business systems. If not
corrected, affected computer applications could fail or create erroneous
results.
The Year 2000 plan involves assessment, evaluation, testing and remediation.
Currently, Arancia-CPC is engaged in assessment, evaluation, testing and
remediation. Evaluation involves the analysis of identified IT and non-IT
systems for Year 2000 compliance. Remediation includes rewriting code in
existing software, installation of new software and replacement of non-compliant
equipment. As of December 31, 1998, considerable progress has been made in
remediation. Arancia-CPC will modify or replace systems, as appropriate, which
appear non-compliant, particularly those of high or medium priority.
Year 2000 compliance depends not only on our internal manufacturing and
administrative processes, but also on the ability of the different participants
in the supply chain to interchange products, services, and information without
interruption. Arancia-CPC is communicating with suppliers and service providers
to ascertain whether the equipment and services provided by them will be Year
2000 compliant. Until Arancia-CPC receives and analyzes responses from suppliers
and providers, Arancia-CPC cannot assess the potential impact of third party
supplier and service provider Year 2000 issues.
Arancia-CPC is exploring alternative solutions and developing contingency plans
for handling mission critical areas in the event that remediation is
unsuccessful. Arancia-CPC anticipates that contingency plans may include the
stockpiling of necessary supplies, the build-up of inventory, creation of
computerized or manual back-up systems, replacement of vendors, and addition of
new vendors. Arancia-CPC expects to complete the Program, including
establishment of contingency plans, in 1999.
Arancia-CPC currently estimates the total costs of program activities to achieve
Year 2000 readiness at $4 million.
Arancia-CPC's Year 2000 Program is subject to a variety of risks and
uncertainties. Some of the risks and uncertainties, such as the Year 2000
preparedness of third party vendors and service providers and unidentified
issues with hardware, software and embedded systems, are beyond Arancia-CPC's
control. Arancia-CPC can not assure that it will successfully complete the
Program on a timely basis, achieving Year 2000 readiness prior to January 1,
2000 or a prior critical failure date. Arancia-CPC's failure to complete
successfully the Year 2000 project could have a material adverse impact on its
ability to manufacture and/or deliver its products.
Exhibit II - Page 4
<PAGE> 45
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements concerning Arancia-CPC's
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations as well as other statements
including words such as "anticipate," "believe," "plan," "estimate," "expect,"
"intend," and other similar expressions. These statements contain certain
inherent risks and uncertainties. Although Arancia-CPC believes its expectations
reflected in such forward-looking statements are based on reasonable
assumptions, stockholders are cautioned that no assurance can be given that such
expectations will prove correct and that actual results and developments may
differ materially from those conveyed in such forward-looking statements.
Important factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements herein include
fluctuations in worldwide commodities markets and the associated risks of
hedging against such fluctuations; fluctuations in aggregate industry supply and
market demand; general economic, business and market conditions in the various
geographic regions and countries in which Arancia-CPC manufactures and sells its
products, including fluctuations in the value of the local currency; increased
competitive and/or customer pressure in the corn refining industry; and Year
2000 preparedness. Such forward-looking statements speak only as of the date on
which they are made and Arancia-CPC does not undertake any obligation to update
any forward-looking statement to reflect events or circumstances after the date
of this Report. If Arancia-CPC does update or correct one or more
forward-looking statements, investors and others should not conclude that
Arancia-CPC will make additional updates or corrections with respect thereto or
with respect to other forward-looking statements. See "Risk and Uncertainties"
above.
Exhibit II - Page 5
<PAGE> 46
[KPMG CARDENAS DOSAL, S.C. LETTERHEAD]
The Board of Directors and Stockholders
Corn Products International, Inc.:
We have audited the accompanying consolidated balance sheets of ARANCIA - CPC,
S.A. de C.V. and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
each of the years in the three-year period ended December 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 ARANCIA - CPC, S.A.
de C.V. and subsidiary as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles in the United States of America.
KPMG CARDENAS DOSAL, S.C.
Guillermo Ochoa Maciel
January 15, 1999
Guadalajara, Jalisco, Mexico
Exhibit II - Page 6
<PAGE> 47
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31
(Thousands of US Dollars)
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- --------------
<S> <C> <C> <C>
Net sales $ 338,445 $ 327,668 $ 271,833
Cost of sales 276,691 292,789 242,145
----------------- ---------------- --------------
Gross profit 61,764 34,879 29,688
Selling and administrative expenses 21,359 16,963 25,380
----------------- ---------------- --------------
Operating income 40,405 17,916 4,308
----------------- ---------------- --------------
Other income and expense:
Interest expense, net 17,437 25,525 10,142
Translation loss (gain) 6,810 1,862 (642)
----------------- ---------------- --------------
24,247 27,387 9,500
----------------- ---------------- --------------
Income (loss) before taxes 16,158 (9,471) (5,192)
----------------- ---------------- --------------
Income tax expense (benefit)
Current 139 42 --
Deferred 7,878 (2,944) 21,703
----------------- ---------------- --------------
8,017 (2,902) 21,703
----------------- ---------------- --------------
Net income (loss) 8,141 $(6,569) $(26,895)
================= ================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Exhibit II - Page 7
<PAGE> 48
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
(Thousands of US Dollars)
<TABLE>
<CAPTION>
Assets 1998 1997
------ ----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,285 79,864
Accounts receivable, net of allowance of $1,253
and $439, respectively 39,769 38,048
Inventories, net 37,624 43,801
Prepaid expenses 95 107
----------------- -----------------
Total current assets 85,774 161,820
Plants and properties, net 268,540 268,783
Other assets, net 4,481 5,869
----------------- -----------------
Total assets $ 358,795 436,472
================= =================
<CAPTION>
Liabilities and Stockholders' Equity 1998 1997
------------------------------------ ----------------- -----------------
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 8,102 35,381
Current portion of long-term debt 12,732 11,956
Accounts payable 12,028 11,369
Accrued liabilities 7,609 9,475
Due to affiliated companies 487 661
Deferred income taxes 565 2,024
----------------- -----------------
Total current liabilities 41,523 70,866
Long-term debt 146,745 209,299
Deferred income taxes 34,185 26,986
Other non-current liabilities 672 1,792
----------------- -----------------
Total liabilities 223,125 308,943
----------------- -----------------
Stockholders' equity
Common stock 88,466 88,466
Additional paid-in capital 31,913 31,913
Retained earnings 15,291 7,150
----------------- -----------------
Total stockholders' equity 135,670 127,529
----------------- -----------------
Contingent liabilities (note 10)
$ 358,795 436,472
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
Exhibit II - Page 8
<PAGE> 49
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
Years ended December 31, 1998 and 1997
(Thousands of US dollars)
<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained stockholders'
stock Capital earnings equity
------------------ -------------------- --------------- --------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $ 68,466 20,726 (28,580) 130,015
-
Additional paid-in capital - 209 209
Dividends paid - - (209) (209)
Net loss - - (26,695) (26,695)
---------------- -------------------- ------------- --------------------
Balances at December 31, 1996 $ 68,466 20,935 13,719 103,120
================ ==================== ============= ====================
Increase in common stock 20,000 - - 20,000
Additional paid-in capital - 10,978 - 10,978
Net loss - - (6,569) (6,569)
---------------- -------------------- ------------- --------------------
Balances at December 31, 1997 $ 88,466 31,913 7,150 127,529
================ ==================== ============= ====================
Net income - - 8,141 8,141
---------------- -------------------- ------------- --------------------
Balances at December 31, 1998 $ 88,466 31,913 15,291 135,670
================= ==================== ============= ====================
</TABLE>
See accompanying notes to consolidated financial statements.
Exhibit II-Page 9
<PAGE> 50
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(Thousands of US Dollars)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
------------------ --------------- --------------
<S> <C> <C> <C>
Cash flows from (used for) operating activities
Net income (loss) $ 8,141 (6,569) (26,895)
Non-cash charges (credits) to net income
Depreciation and amortization 17,473 16,817 9,882
Deferred taxes 5,740 (4,211) 33,221
Changes in working capital
Accounts receivable and prepaid items (1,709) (3,299) (6,282)
Inventories 6,176 18,023 (49,333)
Due from affiliated companies (174) 926 (1,030)
Accounts payable and accrued liabilities (1,207) (1,914) 199
------------------- -------------- --------------
Net cash flows from operating activities 34,440 19,773 (40,238)
------------------- -------------- --------------
Cash flows from (used for) investing activities
Acquisition of machinery (17,230) (14,515) (104,507)
Decrease (increase) in other noncurrent assets 1,388 1,081 (776)
------------------- -------------- --------------
Net cash flows used for investing activities (15,842) (13,434) (105,283)
------------------- -------------- --------------
Cash flows from (used for) financing activities
Issuance of common stock - 20,000 -
Increase in additional paid-in capital - 10,978 209
Dividends paid - - (209)
Increase in debt - 31,497 137,104
Reduction in debt (89,057) - -
Change in other non-current liabilities (1,120) - -
------------------- -------------- --------------
Net cash flows from (used for) financing (90,177) 62,475 137,104
activities ------------------- -------------- --------------
(Decrease) Increase in cash and cash equivalents (71,579) 68,814 (8,417)
Cash and cash equivalents, beginning of period 79,864 11,050 19,467
------------------- -------------- --------------
Cash and cash equivalents, end of period $ 8,285 79,864 11,050
=================== ============== ===============
Supplemental disclosures of cash flow information
Interest paid $ 17,958 23,700 22,315
Income taxes paid 139 - -
------------------- -------------- -------------
$ 18,097 23,700 22,315
=================== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
Exhibit II-Page 10
<PAGE> 51
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
(1) Operations and summary of significant accounting policies:
The Company and subsidiary's main activity is the manufacturing and
sale of starch, glucose and cornstarch. Some operations are carried out
with affiliated companies.
Below is a description of the significant accounting policies and
practices followed by the Company, which affect the main captions of
the financial statements:
a. Financial statement presentation - The accompanying financial
statements have been translated from Mexican pesos to U.S. dollars
using the reporting currency as the functional currency,
therefore, the translation loss was booked in the statements of
income.
b. Translation method - The Company used the following exchange
rates to translate into U.S. dollars the financial statements:
<TABLE>
<S> <C>
Monetary assets, liabilities and tax loss - At the balance sheet date
Fixed assets and capital stock - At the historical date
Revenues, expenses, gain and losses - Weighted average for the period
</TABLE>
c. Consolidated financial statements - The consolidated financial
statements include the assets, liabilities and operating results
of those subsidiaries where ARANCIA-CPC, S.A. de C.V. holds the
majority of capital stock. All significant intercompany
transactions have been eliminated in the consolidated financial
statements.
The consolidated financial statements as of December 31, 1998 and
1997 include financial statements of ARANCIA-CPC, S.A. de C.V. and
Arrendadora Gefemesa, S.A. de C.V.
d. Cash and cash equivalents - Cash equivalents consist of all
investments purchased with an original maturity of three months or
less, and which have virtually no risk of loss in value.
e. Inventories - Inventories in the balance sheet are stated at
the lower of cost or market. Corn is valued at average cost.
The Company's policy is to determine raw material costs by
contracting raw material futures, securing purchases of raw
materials in the United States of America according to its
production needs in the short-term and minimizing market price
fluctuation risks. Such raw materials have a hedge effect; thus,
gains or losses derived from such contracts are included in the
unit cost of raw materials.
f. Plants and properties - Plants and properties are stated at
cost. Depreciation is generally computed on the straight-line
method over the estimated useful lives of
Exhibit II-Page 11
<PAGE> 52
ARANCIA - CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
depreciable assets at rates ranging from 25 years for buildings
and 3 to 16 years for all other assets. Where permitted by law,
accelerated depreciation methods are used for tax purposes.
Long-lived assets are reviewed for impairment whenever the facts
and circumstances indicate that the carrying amount may not be
recoverable.
g. Income taxes - Deferred income taxes reflect the differences
between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes.
Deferred taxes are based on tax laws as currently enacted. The
Company makes provisions for estimated income tax, less available
tax credits and deductions.
h. Seniority premiums and severance payments - Seniority premiums
to which employees may be entitled upon retirement after fifteen
years of service or more, pursuant to the Federal Labor Law, are
recognized as cost of the years in which services are rendered,
based on actuarial calculations. To this end, the companies have
established an irrevocable trust. Contributions to the trust are
charged to operations.
Any other compensation to which employees may be entitled in case
of separation, disability or death, are charged to operations of
the years in which paid.
i. Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
these estimates.
j. Risk and uncertainties - The Company operates in one business
segment. The business is subject to varying degrees of risk and
uncertainty. It insures its business and assets against insurable
risks in a manner that it deems appropriate. The Company believes
that the risk of loss from non-insurable events would not have a
material adverse effect on the Company's operations as a whole.
(2) Foreign currency exposure:
At December 31, 1998 and 1997, the companies have $11million and $13.5
million, respectively, under exchange coverage. These hedge agreements
provide that the financial institutions will be liable to pay (in
domestic currency for each U.S. Dollar covered by the agreement), the
difference between the official rate of exchange at the original and
maturing dates.
The exchange rate of the Mexican Peso to the U.S. Dollar at
December 31, 1998 and 1997 was 9.87 and 8.06, respectively.
Exhibit II-Page 12
<PAGE> 53
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
(3) Transactions with affiliated companies:
Transactions carried out during 1998 and 1997 with affiliated companies
were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Sales $ 7,881 8,377
Income on services 2,350 2,083
Interest expense 98 7,406
Royalties Expense 6,934 7,072
Freight expense 11,762 --
Other expense 1,809 786
</TABLE>
(4) Inventories:
Inventories at December 31, 1998 and 1997 are comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Finished goods $ 9,582 11,028
Raw materials 8,638 9,958
Material, packing and containers 1,614 1,973
Spare parts 3,666 4,352
Goods in transit 16,449 17,323
Advances to suppliers -- 56
--------------- ---------------
39,949 44,690
Less allowance for obsolescence 2,324 889
--------------- ---------------
Inventories, net $ 37,625 43,801
=============== ===============
</TABLE>
Exhibit II-Page 13
<PAGE> 54
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
(5) Plants and Properties:
Plants and properties at December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Land $ 7,567 7,567
Buildings and leasehold improvements 50,727 49,748
Machinery and equipment 242,337 226,452
Other 3,370 4,064
Construction in progress 18,546 17,404
---------------- ----------------
322,547 305,235
Less accumulated depreciation 54,007 36,452
---------------- ----------------
Plants and properties, net $ 268,540 268,783
================ ================
</TABLE>
In 1998 and 1997, the Company capitalized $521 and $891, respectively,
in interest cost as a component of the cost of construction in
progress.
(6) Financial Instruments
The carrying values of cash equivalents, accounts receivable, accounts
payable and debt approximate fair values.
Raw material futures contracts:
At December 31, 1998, the Company had entered into raw material futures
contracts for purchases aggregating $34,390. Contracts to buy raw
materials after March 1999 amount to $11,395 and after July 1998 to
$9,623. At December 31, 1998 there are unrealized losses of $886.
Exhibit II-Page 14
<PAGE> 55
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
(7) Notes payable and Long-term debt:
Long-term debt at December 31, 1998 and 1997 is comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
<S> <C> <C>
Payable in U.S. Dollars:
Commercial loans for imports, financing and mortgage loans
bearing variable interest rates based on the LIBOR or Prime
rate plus a differential, secured by property, plant and
equipment and due in semi-yearly installments, and maturity
through December, 2007. $ 93,725 127,172
Commodity Credit Corporation (CCC) loans for specific
business purposes current through January 2001 for the
purchase of corn through the subscription of new documents
and the preceding documents every six months, bearing at
LIBOR rate plus the amount determinate by the parties at the
time of disposing of funds and subject to a review of credit
terms by the intermediary bank in August of each year and
secured by inventories. Due to the nature of the agreement,
it was considered that no current installments exist. 5,752 31,106
Commercial mortgage loans for the purchase of machinery and
equipment with fixed interest rate, secured by industrial
plant, payable semi-annually and maturity through the
year 2006. 60,000 62,977
----------------- -----------------
159,477 221,255
Less current installments 12,732 11,956
----------------- -----------------
Long-term debt, excluding current installments $ 146,745 209,299
================= =================
</TABLE>
Exhibit II-Page 15
<PAGE> 56
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
Maturity dates of long-term debt over the following five years are as
follows:
<TABLE>
<S> <C>
2000 $ 38,480
2001 54,480
2002 11,283
2003 10,001
2004 and thereafter 32,501
--------------
$ 146,745
==============
</TABLE>
The Company has several notes payable to banks which are unsecured and
with maturities of less than one year. The total of $8,102 incurs
interest at 35.84 to 38.26% at December 31, 1998.
(8) Stockholders' equity:
The main characteristics of the accounts that comprise stockholders'
equity are described below:
a. At December 31, 1998 capital stock is represented by 1,000,000
common, registered shares with no par value, divided in two
series: 510,000 Series "I" and 490,000 Series "II" shares.
b. 5% of earnings for each period must be appropriated to create
a legally required reserve until the reserve reaches one fifth of
capital stock and is therefore not available for distribution to
the shareholders.
c. The updated amount on the tax basis of contributions made by
shareholders and retained earnings on which income tax has already
been paid, as applicable, may be refunded or distributed tax free.
Other refunds and distributions in excess of such amounts,
according to the procedure set forth in the Law, are subject to a
dividend tax at a 35% rate, therefore, stockholders may only
dispose of 65% of such amounts.
(9) Income tax (IT), tax on assets (TA), employees' statutory profit
sharing (ESPS) and unamortized tax losses:
The companies file individual IT and TA returns; therefore, the
combined statement of earnings includes a summary of the IT and TA
expense.
Promociones Industriales Aralia, S.A. de C.V., as holding and
ARANCIA-CPC, S.A. de C.V. and its Subsidiary as subsidiaries obtained
authorization from the Ministry of Finance and Public Credit to
consolidate for tax purposes.
Exhibit II-Page 16
<PAGE> 57
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
Pursuant to the current tax provisions, corporations must pay the greater
of IT and TA. Both taxes recognize the effects of inflation although
differently than accounting principles generally accepted in Mexico.
ESPS is practically computed on the same bases as IT but without
recognizing the effects of inflation.
ESPS costs are reflected as compensation costs in the consolidated
Statements of Income.
TA payable in excess of IT for the period may be recovered in the
succeeding ten periods, updated by inflation, provided IT exceeded TA
in any of those periods. At December 31, 1998 of ARANCIA-CPC, S.A. de
C.V. there is recoverable TA in the future as follows:
<TABLE>
<CAPTION>
Amount
---------------------------------------------
Originated Restated at Expire
In Original December 31, 1998 in
------------------ -------------- -------------------------- --------------
<S> <C> <C> <C>
1994 $ 502 561 2004
============== ============
</TABLE>
Through a Presidential Decree to promote investments published on
November 1, 1995, up to 100% of some investments in fixed assets made
in 1996 by taxpayers that had been operating prior to November 1, 1995
may be immediately deducted for tax purposes.
Company investments in 1996 that are subject to immediate deduction
gave rise to a loss for income tax purposes of $99,832.
On the other hand, through a mechanism provided by the application
rules of said Decree, the aforesaid immediate deduction results in the
reduction of the TA liability of 1998 and 1997 and, if such tax exceeds
tax due, the updated difference may be used to reduce estimated tax
payments for the current and five succeeding years.
As a result of the aforesaid deduction, TA for 1998 and 1997 of $4,041
and $4,368 respectively, was eliminated leaving $24,099 to be applied
to the succeeding three years.
Pursuant to the current IT Law, it is possible that a tax loss, updated
by inflation, be carried forward to the taxable income of the ten
succeeding periods. Tax losses have no effect on ESPS. Of the tax
losses sustained in previous periods $21,450 was applied to 1998 and
$33,932 was applied to 1997 taxable income, giving rise to a tax
benefit of $7,293 and $11,537 in the respective years.
Exhibit II-Page 17
<PAGE> 58
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
At December 31 1998, unamortized tax losses of Arancia-CPC, S.A. de
C.V. and Arrendadora Gefemesa, S.A. de C.V. and the years in which
their right to use them expires are as follows:
<TABLE>
<CAPTION>
Amount
-------------------------------------------------
Originated Restated at Expire
In Original December 31, 1998 In
----------------- ------------ ----------------- -------------
<S> <C> <C> <C>
1996 $ 92,411 100,596 2006
------------ ----------------
$ 92,411 100,596
============ ================
</TABLE>
The temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the
deferred tax asset and liability are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Assets:
Tax loss carryforwards $ 38,263 44,159
Allowance for doubtful accounts 564 193
Accrued expenses 1,530 861
---------------- ----------------
Gross deferred tax assets 40,357 45,213
---------------- ----------------
Liabilities:
Inventories 10,312 11,910
Fixed assets 63,596 60,624
Other 1,199 1,689
---------------- ----------------
Gross deferred tax liabilities 75,107 74,223
---------------- ----------------
Deferred tax liability $ 34,750 29,010
================ ================
</TABLE>
The Company has not recorded a valuation allowance as management
believes it is more likely than not that all tax assets will be
utilized. The statutory tax rate for Mexico is 34%. The effective tax
rate in 1998 was 50%.
(10) Contingent liabilities:
In 1998, the Company developed a plan to deal with the Year 2000
problem and began converting its computer systems to be Year 2000
compliant. The plan provides for the conversion efforts to be completed
by the end of 1999. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. The total cost of the project is estimated to be $4
million and is being funded through operating cash flows.
Exhibit II-Page 18
<PAGE> 59
ARANCIA-CPC, S.A. DE C.V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Thousands of US dollars)
(11) Subsequent events:
a) On January 1, 1999 the income tax rate was increased from 34% to
35%. Additionally, certain distributions to stockholders will be
subject to a 5% withholding tax.
b) On December 2, 1998, the stockholders of the Company voted to change
the name of the Company to Arancia-Corn Products, S.A. de C.V.
effective March 1, 1999.
Exhibit II-Page 19
<PAGE> 60
CORN PRODUCTS INTERNATIONAL, INC.
Pro Forma Financial Information
The following unaudited pro forma consolidated condensed balance sheet as of
December 31, 1997, gives effect to the acquisition of 100% of Arancia-CPC, S.A.
de C.V. ("Arancia") by Corn Products International, Inc. ("the "Company") as of
December 31, 1997 as if the acquisition had occurred January 1, 1997. The
following unaudited pro forma consolidated condensed statements of income for
the years ended December 31, 1997 and 1998 are presented as if 100% of the
acquisition of Arancia had occurred, and the operations of the Company and
Arancia had been consolidated, as of January 1, 1997. The future installment
payments of $73 million, for the remaining 20.9% of Arancia and the minimum
contingent payments of $9 million are reflected as minority interest. Interest
on the installment payments of $73 million is recorded as minority income and
accrues at the same rate of interest as the Company's short term U.S. credit
facility. The unaudited pro forma consolidated condensed financial statements
are presented for comparative purposes only and do not purport to be indicative
of the combined financial position or results of operations which would have
been realized had the acquisition of Arancia been consummated as of the date or
during the periods for which unaudited pro forma financial statements are
presented or for any future period or date. The unaudited pro forma financial
information should be read in conjunction with the Company's previously filed
year end and interim financial statements and the audited financial statement
and notes thereto for Arancia that appear elsewhere in this proxy statement.
Exhibit II-Page 20
<PAGE> 61
CORN PRODUCTS INTERNATIONAL, INC.
Unaudited Proforma Consolidated Balance Sheets
December 31, 1997
(Thousands of US Dollars)
<TABLE>
<CAPTION>
Historical Historical Proforma Proforma
Corn Products Arancia Adjustments Consolidated
Assets ------------------ ------------------- ------------- ----------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 85 79 (48) (a) 116
Accounts receivable, net 182 38 220
Inventories 123 44 167
Deferred tax asset 20 - 20
Prepaid expenses 13 - 13
------------------ ------------------- ----------------
Total current assets 423 161 536
Plants and properties, net 1,057 269 1,326
Goodwill - - 131 (b) 181
Investments in and loans to
unconsolidated affiliates 168 - (74)(c) 94
Other assets, net 18 6 24
------------------ ------------------- ----------------
Total assets $ 1,666 436 2,111
================== =================== ================
Liabilities and Stockholders' Equity
Current liabilities:
Short term borrowings and current $
portion of long-term debt 337 47 384
Accounts payable and accrued
liabilities 159 22 181
Taxes payable on income - 2 2
------------------ ------------------- ----------------
Total current liabilities 496 71 567
Long-term debt 13 209 160
Deferred taxes on income - non-current 128 27 175
Other non-current liabilities 37 2 39
Minority stockholder's interest 6 - 82 (d) 88
------------------ ------------------- ----------------
Total liabilities 680 309 1,029
------------------ ------------------- ----------------
</TABLE>
Exhibit II-Page 21
<PAGE> 62
CORN PRODUCTS INTERNATIONAL, INC.
Unaudited Proforma Consolidated Balance Sheets
December 31, 1997
(Thousands of US Dollars)
<TABLE>
<CAPTION>
Historical Historical Proforma Proforma
Corn Products Arancia Adjustments Consolidated
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stockholders' equity:
Common stock 1 88 (88) (e) 1
Additional paid-in capital 1,008 32 64 (f) 1,104
Cumulative translation adjustment (23) - (23)
Retained earnings - 7 (7) (g) -
--------------- ------------------ --------------
Total stockholders' equity 986 127 1,082
$ 1,666 436 2,111
=============== ================== ==============
=============== ================== ==============
</TABLE>
See accompanying notes to unaudited pro forma consolidated Financial Statements
Exhibit II-Page 22
<PAGE> 63
CORN PRODUCTS INTERNATIONAL, INC.
Unaudited Proforma Consolidated Statements of Income
For Year Ending December 31, 1998
(Millions of US Dollars, except per share amounts)
<TABLE>
<CAPTION>
Historical Historical Proforma Proforma
Corn Products Arancia Adjustments Consolidated
-------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,488 338 (2) (aa) 1,784
Cost of sales 1,277 276 (2) (aa) 1,551
--------------- --------------- --------------
Gross profit $ 171 62 233
Selling, general and administrative
expenses 101 22 3 (bb), (7) (cc) 119
Income from unconsolidated subsidiaries (14) - 9 (dd) (5)
--------------- --------------- --------------
Operating income $ 84 40 119
--------------- --------------- --------------
Other (income) and expenses $ 13 24 1 (gg) 38
--------------- --------------- --------------
Income(loss) before income
tax and minority interest 71 16 81
Provision (benefit) for income taxes
25 8 (5) (ee) 28
Minority stockholder interest 3 - 4 (ff) 7
--------------- --------------- --------------
Net income $ 43 8 46
=============== =============== ==============
Earnings per share:
Basic $ 1.19 1.22
Diluted $ 1.19 1.22
</TABLE>
See accompanying notes to unaudited pro forma consolidated Financial Statements
Exhibit II-Page 23
<PAGE> 64
CORN PRODUCTS INTERNATIONAL, INC.
Unaudited Proforma Consolidated Statements of Income
For Year Ending December 31, 1997
(Millions of US Dollars, except per share amounts)
<TABLE>
<CAPTION>
Historical Historical Proforma Proforma
Corn Products Arancia Adjustments Consolidated
---------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,418 328 (2) (aa) 1,744
Cost of sales 1,280 293 (2) (aa) 1,571
----------------- --------------- ------------------
Gross profit $ 138 35 173
Selling, general and administrative expenses 90 17 3 (bb), (7) (cc) 103
Restructuring and spin-off charges, net 109 - 109
Income from unconsolidated subsidiaries - - -
----------------- --------------- ------------------
Operating income (loss) $ (61) 18 (39)
----------------- --------------- ------------------
Other (income) and expenses $ 28 27 1 (gg) 56
----------------- --------------- ------------------
Income(loss) before income tax and
minority interest (9) (95)
Provision (benefit) for income taxes (19) (3) 1 (ee) (21)
Minority stockholder interest 2 - 5 (ff) 7
----------------- --------------- ------------------
Net income before change in accounting
principle (72) (6) (81)
================= =============== ==================
Cumulative effective of change in
accounting principle - 3
Net income (loss) $ (75) (6) (84)
================= =============== ==================
Earnings per share:
Basic and Diluted:
Net loss before change in
accounting principle (2.02) (2.22)
Cumulative effect of change in
accounting principle (0.08)
------------------
Net income $(2.10) (2.30)
</TABLE>
See accompanying notes to unaudited pro forma consolidated Financial Statements
Exhibit II-Page 24
<PAGE> 65
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying historical financial statements of Arancia were prepared in
accordance with U.S. generally accepted accounting principles and are presented
in U.S. dollars. Arancia amounts presented in the pro forma consolidated balance
sheet consist of the Arancia historical balance sheet amounts which were
converted into U.S. dollars at the year end exchange rate. Arancia amounts
presented in the pro forma condensed consolidated statement of income consist of
the Arancia historical statement of income amounts, which were converted into
U.S. dollars at the average exchange rate for the year.
NOTE 2 - PROFORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
a) To record cash consideration paid for acquisition
b) To record goodwill arising as a result of purchase of net assets
c) To eliminate investment under equity method
d) To record balance owed for purchase
e) To record issuance of common stock at par value and eliminate Arancia
common stock
f) To record additional paid-in-capital in excess of par on issue of
1,764,705 shares, $51 million and eliminate Arancia APIC
g) To eliminate Arancia retained earnings
NOTE 3 - PROFORMA CONSOLIDATED STATEMENTS OF INCOME ADJUSTMENTS
aa) To eliminate intercompany transactions
bb) To record income effect of amortization of goodwill - 12 mos.
cc) To eliminate royalties for trademark and technology acquired
dd) To eliminate income from investment (under equity method)
ee) To record tax effect of goodwill deduction, royalty income, interest,
at Company's effective tax rate
ff) To record interest on outstanding amount owed on purchase
gg) To record incremental interest expense, net of reduced interest for
Arancia debt reduction (1997)
Exhibit II-Page 25
<PAGE> 66
CORN PRODUCTS INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
P THE COMPANY FOR ANNUAL MEETING ON MAY 19, 1999
R
O The undersigned hereby appoints KONRAD SCHLATTER and MARCIA E. DOANE, as
X Proxies, each with the power to appoint his or her substitute, and hereby
Y authorizes each of them to represent and to vote, as designated on the
reverse side hereof, all the shares of common stock of Corn Products
International, Inc., which the undersigned is entitled to vote at the
annual meeting of stockholders to be held at the Wyndham Garden
Hotel-O'Hare, 5615 N. Cumberland Avenue, Chicago, Illinois, on May 19, 1999
at 9:30 a.m., local time, or any adjournment thereof, and in their
discretion, upon any other matters which may properly come before the
meeting.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Election of four Directors, each for a term of three years. (change of address)
<S> <C>
Nominees: --------------------------------------------------------
Alfred C. DeCrane, Jr. --------------------------------------------------------
Guenther E. Greiner --------------------------------------------------------
Richard G. Holder --------------------------------------------------------
Konrad Schlatter (if you have written in the above space, please mark the
corresponding box on the reverse side of this card)
Election of one Director for a term of one year.
Nominee: Ronald M. Gross
- ------------------------------------------------------------
[LOGO OF PRINTED ON RECYCLED PAPER] -------------
SEE REVERSE
SIDE
-------------
</TABLE>
v FOLD AND DETACH HERE v
IMPORTANT: PLEASE VOTE AND SIGN YOUR
PROXY AND RETURN IT IN THE ENVELOPE PROVIDED
<PAGE> 67
<TABLE>
<CAPTION>
[X] Please mark your |
votes as in this | 2356
example. |
-----
This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is
made, this proxy will be voted FOR Proposals 1, 2 and 3.
- ------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratification and / / / / / / 3. Appointment of / / / / / /
Directors Approval of the KPMG LLP as
(See reverse) issuance of Independent
Common Stock Auditors
|----------------------------------------------
For, except vote withheld from the following nominee(s) | --------------------------------------------
| | Special Action
| | Discontinue Annual / / Change of / /
----------------------------------------------------- | | Report Mailing for Address on
- -------------------------------------------------------------------------------------| | this Account Reverse Side
|
|
| Admission Ticket / / No. of
| Request Persons ____
|
|
--------------------------------------------
Please date, sign exactly as name appears
hereon and return promptly in the enclosed
envelope. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
--------------------------------------------
--------------------------------------------
SIGNATURE(S) DATE
</TABLE>
v FOLD AND DETACH HERE v
