Registration No.1-13479
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
AGRIBRANDS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1794250
(State of Incorporation (I.R.S.Employer
Identification No.)
------------------------
9811 South Forty Drive
St. Louis, Missouri 63124
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 812-0500
--------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class to be so registered each class is to be
registered
Common Stock, $.01 par value New York Stock Exchange, Inc.
Common Stock Purchase Rights New York Stock Exchange, Inc.
Securities to be registered pursuant to Section 12(g) of the Act: None
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AGRIBRANDS INTERNATIONAL, INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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Item
No. Item Caption Location in Information Statement
1. Business BUSINESS AND PROPERTIES
2. Financial Information SUMMARY SELECTED HISTORICAL
FINANCIAL INFORMATION;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
3. Properties BUSINESS AND PROPERTIES--Properties
4. Security Ownership of Certain Beneficial
Owners and Management SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF AGRIBRANDS
STOCK
5. Directors and Executive Officers MANAGEMENT
6. Executive Compensation EXECUTIVE COMPENSATION; AGRIBRANDS
COMPENSATION AND BENEFIT PLANS;
RALSTON COMPENSATION PROGRAMS
7. Certain Relationships and Related Transactions AGREEMENTS BETWEEN RALSTON AND
AGRIBRANDS; CERTAIN TRANSACTIONS
8. Legal Proceedings BUSINESS AND PROPERTIES--Litigation
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters THE DISTRIBUTION--Listing and Trading of
Agribrands Stock
11. Description of Registrant's Securities to be
Registered DESCRIPTION OF AGRIBRANDS CAPITAL
STOCK; ANTI-TAKEOVER EFFECTS OF
CERTAIN PROVISIONS
12. Indemnification of Directors and Officers INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
OF AGRIBRANDS
13. Financial Statements and Supplementary Data INDEX TO FINANCIAL INFORMATION OF
AGRIBRANDS INTERNATIONAL, INC.
II-1
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II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
Item 10. Recent Sales of Unregistered Securities.
Agribrands International, Inc., ("Agribrands") was incorporated as a
Missouri corporation under the name of Tradico Missouri, Inc. on October 6,
1997. It issued 1000 shares of its $.01 par value common stock to Ralston
Purina International Holding Company, Inc. ("RPIHCI") on that date in
consideration of a capital contribution of $10. Such issuance was exempt from
registration under the Securities Act of 1933, as amended, (the "Act"),
pursuant to Section 4(2) of the Act, because such issuance did not involve any
public offering of securities.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements--See Index to Financial Information
(b) Exhibits:
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Exhibit No. Description
2.1 Form of Agreement and Plan of Reorganization
2.2 Form of Tax Sharing Agreement*
2.3 Form of Bridging Agreement *
2.4 Form of Technology Agreement *
2.5 Form of Trademark Agreement *
3.1 Articles of Incorporation of Agribrands International, Inc.
3.2 Bylaws of Agribrands International, Inc.
4.1 Form of Rights Agreement between Agribrands International, Inc. and Continental
10.1 Form of Agribrands International Inc. Incentive Stock Plan *
10.2 Form of Agribrands International Inc. Non-Qualified Deferred Compensation Plan*
10.3 Form of Management Continuity Agreements
10.4 Form of Indemnification Agreements with Executive Officers and Directors *
10.5 Form of Agribrands International Inc. Savings Investment Plan*
10.6 Form of Credit Agreement
21 List of Agribrands Subsidiaries
27 Financial Data Schedule*
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AGRIBRANDS INTERNATIONAL, INC.
9811 South Forty Drive
St. Louis, Missouri 63124
April 1, 1998
Dear Shareholder:
I am pleased to welcome you as a shareholder of Agribrands International,
Inc. ("Agribrands"), a company which is the successor to the international
animal feeds and agricultural products business formerly operated as part of
Ralston Purina Company ("Ralston").
Although Agribrands is a new public company, its businesses are well
established. Ralston has been engaged in the animal feeds and agricultural
products business since its inception in 1894. The legacy we inherit from
Ralston--highly dedicated employees experienced in meeting customer needs and
providing high quality products and services--remains our greatest strength.
I welcome your participation as an Agribrands shareholder and look
forward to continuing our tradition of working on your behalf.
Sincerely,
William P. Stiritz
Chief Executive Officer and President
Agribrands International, Inc.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 3 to Form 10
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized.
AGRIBRANDS INTERNATIONAL, INC.
By: /s/ David R. Wenzel
David R. Wenzel
Chief Financial Officer
Agribrands International, Inc.
March 19, 1998
II-3
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RALSTON PURINA COMPANY
Ralston Purina Company W. Patrick McGinnis
Checkerboard Square J. Patrick Mulcahy
St. Louis, Missouri 63164 Co - Chief Executive Officers
April 1, 1998
Dear Ralston Purina Shareholder:
We are pleased to inform you that on March 19, 1998, the Board of
Directors of Ralston Purina Company ("Ralston") declared a distribution by
Ralston to holders of its common stock ("Ralston Stock") of shares of the $.01
par value common stock and related Common Stock Purchase Rights ("Agribrands
Stock") of Agribrands International, Inc. ("Agribrands"), a subsidiary of
Ralston. The distribution will occur as of 12:01 a.m. CST on April 1, 1998.
Agribrands and its subsidiaries will own and operate the international
animal feeds and agricultural products business presently conducted by
Ralston. Following the distribution, Agribrands will conduct that business as
a separate, publicly-owned company.
If you are a shareholder of record of Ralston Stock as of 12:01 a.m.
CST on April 1, 1998, the record date for the distribution, you will
receive one share of Agribrands Stock for every 10 shares of Ralston Stock you
own (and a cash payment in lieu of any fractional share of Agribrands Common
Stock). No action is required on your part in order to receive your
distribution. The distribution of Agribrands Stock will be tax-free to you
for federal income tax purposes, but any cash that you receive in lieu of
fractional shares will be taxable to you. A book entry system is being used
to distribute shares of Agribrands Stock. In a book entry system, ownership
of stock is recorded in the records maintained by Agribrands' Transfer Agent
(Continental Stock Transfer & Trust Company), but physical certificates will
not be issued unless requested. You will receive a statement of the shares of
Agribrands Stock credited to your account (and any cash payment in lieu of any
fractional shares) in a separate mailing shortly after April 1, 1998. If you
request to receive physical certificates instead of participating in the book
entry system, certificates will be issued, following the Distribution, for
each full share credited to you.
The attached Information Statement, which is being distributed to all
holders of Ralston Stock in connection with the distribution, describes the
transaction in detail and contains important information about Agribrands,
including financial statements and other financial information.
Agribrands Stock will be listed and traded on the New York Stock
Exchange, Inc., and its stock symbol will be "AGX".
Your Board of Directors has carefully considered the spin-off of the
Agribrands business and believes the spin-off is in the best interests of the
shareholders of Ralston, and will result in organizational and operational
changes that should benefit both Agribrands and Ralston. After the spin-off,
Ralston and Agribrands will each be an independent company with its own
management group able to be more focused on the operational characteristics
and competitive dynamics of their respective businesses.
Sincerely,
J. Patrick Mulcahy W. Patrick McGinnis
Co- Chief Executive Officer Co - Chief Executive Officer
Ralston Purina Company Ralston Purina Company
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INFORMATION STATEMENT
AGRIBRANDS INTERNATIONAL, INC.
COMMON STOCK
($.01 par value)
This Information Statement is being furnished by Ralston Purina Company
("Ralston") in connection with the distribution (the "Distribution") by
Ralston to holders of its $.10 par value common stock ("Ralston Stock") of
shares of the $.01 par value common stock and related Common Stock Purchase
Rights ("Agribrands Stock") of its subsidiary, Agribrands International, Inc.
("Agribrands").
The Distribution will be made as of 12:01 a.m. CST on April 1, 1998
on the basis of one share of Agribrands Stock for every ten shares of
Ralston Stock held at 4:30 p.m. CST on the preceding day. Ralston has
received a ruling from the U.S. Internal Revenue Service ("IRS") to the
effect that the Distribution will qualify as a tax-free spin-off for
Federal income tax purposes (see "THE DISTRIBUTION--Certain Federal Income Tax
Consequences of the Distribution").* No consideration will be required to be
paid by holders of Ralston Stock for the shares of Agribrands Stock to be
received by them in the Distribution, nor will they be required to
surrender or exchange shares of Ralston Stock in order to receive Agribrands
Stock in the Distribution. Neither Ralston nor Agribrands will receive any
cash or other proceeds from the Distribution.
Following the Distribution, Ralston will not own any shares of Agribrands
Stock and Agribrands will cease to be a subsidiary of Ralston and will operate
as an independent, publicly held company. Agribrands Stock will be listed and
traded on the New York Stock Exchange, Inc. ("NYSE") under the symbol "AGX".
Prior to the date hereof, there has not been a trading market for Agribrands
Stock. Holders of Ralston Stock receiving shares of Agribrands Stock in the
Distribution should consider carefully the matters described under the caption
"THE DISTRIBUTION -- Risk Factors ".
NO VOTE OF STOCKHOLDERS OF RALSTON OR AGRIBRANDS IS REQUIRED IN CONNECTION
WITH THE DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Information Statement is March 20, 1998.
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AVAILABLE INFORMATION
Ralston is (and, following the Distribution, Agribrands will be) subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files (and
Agribrands will file) reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Ralston (and to be filed by
Agribrands) with the Commission may be inspected and copied at the Public
Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C., 20549, as well as at the public reference
facilities maintained at the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
information may be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission also maintains an Internet site on the World Wide Web at
http://www.sec.gov that contains reports, proxy statements and other
information regarding public companies. Shares of Ralston Stock are listed,
and shares of Agribrands Stock have been approved for listing, on the NYSE and
reports, proxy statements and other information concerning Ralston and
Agribrands can also be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
Agribrands intends to furnish holders of Agribrands Stock with annual
reports beginning with its fiscal year ending August 31, 1998, containing
consolidated financial statements audited by an independent public accounting
firm.
Agribrands has filed with the Commission a Registration Statement on Form
10 (the "Registration Statement") under the Exchange Act covering the
Agribrands Stock. This Information Statement does not contain all of the
information in the Registration Statement and the related exhibits and
schedules thereto, to which reference is hereby made. Statements in this
Information Statement as to the contents of any contract, agreement or other
document are summaries only and are not necessarily complete. For more
complete information as to any contract, agreement or other document filed
with the Registration Statement, reference is made to the applicable exhibit
or schedule to the Registration Statement. The Registration Statement and the
related exhibits filed by Agribrands may be inspected at the public reference
facilities of the Commission listed above.
The principal office of Agribrands is located at 9811 South Forty Drive,
St. Louis, Missouri 63124 (telephone: 314/812-0500).
Questions concerning the Distribution should be directed to Ralston's
Investor Relations Department, Ralston Purina Company, Checkerboard Square,
7T, St. Louis, Missouri 63164 (telephone: 314/982-2161). After the
Distribution, holders of Agribrands Stock having inquiries related to their
investment in Agribrands should contact Shareholder Inquiries, Agribrands
International, Inc., 9811 South Forty Drive, St. Louis, Missouri 63124
(telephone: 314/812-0590).
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED.
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INFORMATION STATEMENT
TABLE OF CONTENTS
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Page
AVAILABLE INFORMATION 2
QUESTIONS AND ANSWERS ABOUT THE
SPIN-OFF OF AGRIBRANDS STOCK 3
SUMMARY OF CERTAIN INFORMATION 6
SUMMARY OF SELECTED HISTORICAL
FINANCIAL INFORMATION 9
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION 10
FORWARD-LOOKING STATEMENTS 14
INTRODUCTION 14
THE DISTRIBUTION 14
Background and Reasons for the
Distribution 14
Risk Factors 17
No Operating History as an Independent
Company 17
No Prior Market for Agribrands
Stock 18
Possibility of Substantial Sales of
Agribrands Stock 18
Risks Associated with Foreign
Operations 18
Risks Associated with the Animal
Feeds Industry 19
Significant Competitive Activity 19
Raw Material Price Volatility 20
Effect of Restrictions in Credit
Facilities 20
Potential Financing Requirements 20
Agribrands Dividend Policy 20
Certain Anti-takeover Effects 20
Effects on Ralston Stock 20
Certain Federal Income Tax
Considerations 21
Manner of Effecting the Distribution 21
Certain Federal Income Tax Consequences
of the Distribution 23
Listing and Trading of Agribrands Stock 24
Disposition of Agribrands Stock Received by
Benefit Plans 24
REGULATORY APPROVALS 25
AGREEMENTS BETWEEN RALSTON AND
AGRIBRANDS 25
Agreement and Plan of Reorganization 25
Tax Sharing Agreement 30
Bridging Agreement 31
Trademark Agreement 31
Technology Agreement 31
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 32
BUSINESS AND PROPERTIES . 40
Background 40
Agribrands' Objectives and Strategy 42
Distribution System 43
Competition 44
Employees 45
Raw Materials 45
Governmental Regulation; Environmental
Matters 45
Properties 46
Litigation and Regulatory Matters 48
MANAGEMENT 49
Directors of Agribrands 49
Directors' Meetings, Fees
and Committees 51
Compensation Committee Interlocks
and Insider Participation 52
Executive Officers of Agribrands 52
EXECUTIVE COMPENSATION 53
AGRIBRANDS COMPENSATION AND BENEFIT
PLANS 55
Incentive Stock Plan 55
Savings Investment Plan 59
Deferred Compensation Plan 59
Management Continuity Agreements 60
RALSTON COMPENSATION PROGRAMS 60
CERTAIN TRANSACTIONS 61
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF AGRIBRANDS
STOCK 62
DESCRIPTION OF AGRIBRANDS CAPITAL
STOCK 64
Authorized Capital Stock 64
Agribrands Common Stock 64
Agribrands Preferred Stock 64
Common Stock Purchase Rights 65
ANTI-TAKEOVER EFFECTS OF CERTAIN
PROVISIONS 67
Limitations on Changes in Board
Composition and Other Actions by
Shareholders 67
Preferred and Common Stock 69
Business Combinations 69
Amendment of Certain Provisions of the
Agribrands Articles and Bylaws 70
Rights 70
Management Continuity Agreements;
Other Severance Arrangements 70
Statutory Provisions 70
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES OF AGRIBRANDS 71
SHAREHOLDER PROPOSALS 72
INDEPENDENT ACCOUNTANTS 72
INDEX TO FINANCIAL INFORMATION
OF AGRIBRANDS INTERNATIONAL, INC. F-1
ANNEX A - AGRIBRANDS INCENTIVE
STOCK PLAN A-1
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QUESTIONS AND ANSWERS ABOUT THE SPINOFF OF AGRIBRANDS STOCK
Q. When will the spinoff occur?
A. The spinoff of Agribrands will occur as of 12:01 a.m. on April 1, 1998.
In the spinoff, Ralston will distribute shares of Agribrands Stock to each
Ralston shareholder. The spinoff is generally referred to as the
"Distribution" throughout the rest of this document.
Q. What will I receive in the Distribution?
A. For every share of Ralston Stock, you will receive 1/10 of a share of
Agribrands Stock, with a cash payment in lieu of any fractional share of
Agribrands Stock. All fractional share interests which would otherwise be
distributed will be aggregated and sold by the Continental Stock Transfer &
Trust Company, a distribution agent (the "Distribution Agent") and the cash
proceeds will be distributed to shareholders. A book entry system is being
used to distribute shares of Agribrands Stock. In such book entry system,
ownership of Agribrands Stock will be recorded in the records maintained by
Continental Stock Transfer & Trust Company, as transfer agent (the "Transfer
Agent"), but physical certificates will not be issued unless requested. You
will receive a statement of the shares of Agribrands Stock credited to your
account with the Transfer Agent, or, if requested, physical certificates (and
any cash payment in lieu of any fractional shares) in a separate mailing
shortly after April 1, 1998. See "THE DISTRIBUTION -- Manner of Effecting
the Distribution".
You will also receive an associated common stock purchase right (a
"Right") similar to the rights you have with your existing Ralston Stock
(references herein to Agribrands Stock include a reference to the associated
Rights). These rights are designed to encourage a potential acquiror of a
large percentage of Agribrands Stock to negotiate with the Agribrands Board of
Directors before making a large purchase. They are also designed to protect
shareholders in the event that someone makes a large purchase of Agribrands
Stock that the Agribrands Board of Directors concludes is not in the best
interests of the Company and its shareholders. See "DESCRIPTION OF AGRIBRANDS
CAPITAL STOCK--Common Stock Purchase Rights".
Q. How do I request certificates for my shares?
A. Following the Distribution, you may obtain a certificate for all or a
portion of your book-entry shares by completing the transaction portion of the
statement you receive regarding the shares of Agribrands Stock credited to
your account and returning it to the Transfer Agent. A certificate will be
mailed to you within approximately forty-eight hours of the Transfer Agent's
receipt of your request. The ownership name on the certificate will be
identical to that shown on the statement.
Q. How do I transfer my Agribrands Stock?
A. Individuals may transfer shares by completing the applicable portion of
the statement they receive regarding shares of Agribrands Stock credited to
their account and returning it to the Transfer Agent, Continental Stock
Transfer & Trust Company at 2 Broadway, New York, New York 10004.
Corporations, partnerships, trusts, IRA's, and others may require additional
documents for transfers. These may be obtained by calling the Transfer Agent
at (888) 509-5580 and asking for the transfer department. All transfer
requests must contain a Medallion signature guarantee. This guarantee can be
obtained through your stock broker or a participating financial institution.
Q. Will Agribrands pay dividends?
A. The Board of Directors of Agribrands does not expect initially to pay
cash dividends on the Agribrands Stock following the Distribution. Any excess
cash generated by the Agribrands businesses is expected to be used to fund
working capital, payment of debt, possible future acquisitions and capital
expenditures, and possible purchases of Agribrands Stock from shareholders.
However, the Board of Directors may change its dividend policy at any time.
Ralston's Board of Directors, at its March 19, 1998 regular meeting,
declared a quarterly dividend of $.30 per share to shareholders of Ralston
Stock. Ralston currently is paying $1.20 per year on each share of Ralston
Stock.
Q. Do I have to pay taxes on the receipt of Agribrands Stock?
A. Ralston has received a ruling from the IRS that the Distribution of
Agribrands Stock will be tax-free to Ralston shareholders for Federal income
tax purposes. However, any cash that you receive instead of fractional
portions of Agribrands Stock will be taxable. In addition, Agribrands Stock
which is distributed with respect to shares of restricted Ralston Stock will
be taxable at the time that restrictions lapse. To review the tax
consequences of the Distribution in greater detail, see "THE DISTRIBUTION -
Certain Federal Income Tax Consequences of the Distribution."
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Q. Will Agribrands Stock be listed on any exchange?
A. Yes, the Agribrands Stock has been approved for listing on the NYSE and
will trade under the symbol "AGX".
Q. What will happen to the trading of Ralston and Agribrands Stock?
A. Beginning on or about March 27, 1998, and continuing through March 31,
1998, you will only be able to sell your Ralston Stock with due bills for
Agribrands Stock. This means that you will give up your right to receive
Agribrands Stock if you sell your Ralston Stock during this time. The shares
of Agribrands Stock you would have received must be delivered by you to the
buyer by electronically transferring ownership with the Transfer Agent as soon
as you receive the statement of shares of Agribrands Stock credited to your
book entry account by reason of the Distribution.
Beginning on or about March 27, 1998, we expect that investors will be
able to buy and sell Agribrands Stock on a when-issued basis until the
statements of shares so credited are actually issued.
You should consult your own broker if you intend to sell your Ralston
Stock after March 27, 1998 and before you receive your statement of your shares
of Agribrands Stock in the Distribution and make sure that your broker
understands your intentions with respect to such sales.
SUMMARY OF CERTAIN INFORMATION
This summary highlights selected information from this document. It may not
contain all of the information that is important to you. To better understand
the Distribution and for a more complete description of the terms of the
Distribution, you should read carefully this entire Information Statement and
the other documents referred to in this Information Statement.
The Distribution -- In the Distribution, Ralston shareholders will receive one
share of Agribrands Stock together with an associated common stock purchase
right for every 10 shares of Ralston Stock that they own on the record date
for the Distribution. The shares and rights represent a continuing interest
in the Agribrands business. See "BUSINESS AND PROPERTIES -- Background".
A book entry system will be used to distribute shares of Agribrands Stock in
the Distribution. In a book entry system, ownership of stock is recorded in
the records maintained by the issuer's transfer agent, but physical
certificates are not issued unless requested. Following the Distribution,
each Ralston stockholder of record on the Distribution record date will
receive a statement of the shares of Agribrands Stock credited to the
stockholder's book entry account with Agribrands' Transfer Agent, Continental
Stock Transfer & Trust Company. If physical certificates are thereafter
requested, they will be delivered to the shareholder within approximately
forty-eight hours of the receipt of the request by the Transfer Agent.
Fractional share interests will not be issued in the Distribution. The
Distribution Agent will aggregate fractional shares into whole shares and sell
them in the open market at then prevailing prices on behalf of all
shareholders otherwise entitled to be credited with a fractional share of
Agribrands Stock, and such persons will receive instead a cash payment in the
amount of their pro rata share of the total sale proceeds. See "THE
DISTRIBUTION - Manner of Effecting the Distribution".
If you have questions about Ralston or the Distribution, please contact:
Ralston Purina Company
Investor Relations Department
Checkerboard Square, 7T
St. Louis, Missouri 63164
(314) 982-2161
If, following the Distribution, you have questions about the shares of
Agribrands Stock which will be credited to your book entry account with the
Transfer Agent, please contact:
Shareholder Inquiries
Agribrands International, Inc.
9811 South Forty Drive
St. Louis, Missouri 63124
(314) 812-0590
Following the Distribution, Continental Stock Transfer & Trust Company will
serve as Transfer Agent and Registrar for Agribrands.
The Agribrands Business -- Following the Distribution, Agribrands will be a
leading international producer and marketer of formula animal feeds and other
agricultural products. With a worldwide network of approximately 3500
independent dealers, as well as independent and direct sales forces,
Agribrands and its subsidiaries market a broad line of animal feeds and
nutrition products, including feeds for hogs, dairy cows, cattle, poultry
(broilers and layers), rabbits, horses, shrimp and fish. Agribrands and its
subsidiaries and joint venture partners operate 70 manufacturing plants in 16
countries on 4 continents (the "Agribrands Business"). For a more detailed
discussion of the Agribrands Business, please see the Sections titled
"BUSINESS AND PROPERTIES", and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
Reasons for the Distribution -- Since the sale by Ralston of its U.S. animal
feeds business in 1986, the international animal feeds and agricultural
products business which Ralston retained has not been a significant part of
Ralston's overall business strategy. The animal feeds and agricultural
products business is fundamentally different from Ralston's core pet foods and
batteries businesses, and Ralston has concluded that its centralized
management is not the most efficient or effective way of managing the
Agribrands Business. The Board of Directors of Ralston believes that the
Distribution of Agribrands Stock will allow the Agribrands Business to be
managed and operated more effectively as a separate independent publicly-owned
company. It is expected that the spinoff will result in changes in
organization and operation of both the Agribrands Business and Ralston's
international pet products business, to the benefit of both businesses. In
addition, Agribrands will be able to compensate its management with Agribrands
Stock-based awards, the value of which will depend upon the operating results
of Agribrands alone. Agribrands may also be able to raise capital to make
acquisitions by the issuance of additional Agribrands Stock, or it may be able
to use Agribrands Stock. For a more detailed discussion of the reasons for
the spinoff, please read the Section titled "THE DISTRIBUTION - Background and
Reasons for the Distribution".
Risk Factors -- An investment in Agribrands Stock is subject to a number of
risks, among which are (i) Agribrands' lack of an operating history as an
independent company; (ii) the potential of a decrease in value, or wide
fluctuations in market price, of the Agribrands Stock; (iii) the potential
negative effect on the Agribrands Business from competition; industry
consolidation; decline in the demand for agricultural products and increases
in the price of commodities and raw materials; (iv) the potential negative
effect on the Agribrands Business of government intervention or regulation,
currency fluctuations, foreign and US tax laws, tariffs or quotas, and
restrictions on the flow of capital; (v) political and economic instability in
countries or regions where the Agribrands Business is conducted, such as the
recent Asian economic crises; and (vi) the potential anti-takeover effects of
certain terms of Agribrands' Articles of Incorporation, Bylaws and Rights
Agreement. Shareholders should carefully review the matters discussed under
the Section titled "THE DISTRIBUTION - Risk Factors".
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Relationship between Agribrands and Ralston after the Distribution--After the
Distribution, Agribrands will be a separate company. Agribrands and Ralston
will enter into agreements to assist in the separation and transition of the
international animal feeds and agricultural products business and Ralston's
other businesses. The agreements deal with many operational issues,
including:
(a) the separation of the Agribrands Business from Ralston's other
domestic and international businesses;
(b) the terms of mutual non-compete covenants between Ralston and
Agribrands;
(c) transitional services to be provided by Ralston and its
affiliates,
on the one hand, and Agribrands and its affiliates, on the other
hand, following the
Distribution;
(d) the royalty-free transfer or license of technology and trademark
rights from Ralston to
Agribrands and its affiliates; and
(e) the allocation of certain tax and other liabilities between
Agribrands and Ralston.
Under these agreements, Agribrands and Ralston agree to compensate each other
after the Distribution for certain losses, damages, claims and liabilities
resulting from the operation of their respective businesses, as well as for
certain tax liabilities. Detailed information about these agreements can be
found in the Section titled "AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS."
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth Summary Selected Historical Financial Information for Agribrands International, Inc. The
historical financial information presented may not necessarily be indicative of the results of operations or financial
position that would have been obtained if Agribrands had been an independent company during the periods shown or of
Agribrands' future performance as an independent company. The financial data set forth below should be read in conjunction
with Agribrands' Combined Financial Statements and the notes thereto found elsewhere in this Information Statement. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
and "INDEX TO FINANCIAL INFORMATION". Earnings per share data is presented elsewhere in this Information
Statement on a pro forma basis only (see "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION").
AGRIBRANDS INTERNATIONAL, INC.
Summary of Selected Historical Financial Information
(In millions except percentage data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
For the three months ended
November 30, For the year ended August 31,
------------- -----------------------------------------------
1997 1996 1997 1996 1995 1994 1993
--------- -------- --------- --------- --------- --------- --------
Net Sales
$ 374.8 $ 390.0 $1,527.6 $1,401.3 $1,147.2 $1,024.5 $1,033.8
Depreciation and Amortization
5.0 5.5 21.9 20.4 17.5 16.8 16.0
Earnings Before Income Taxes
9.4 14.8 33.1 24.9 33.4 32.4 18.7
As a Percent of Sales
2.5% 3.8% 2.2% 1.8% 2.9% 3.2% 1.8%
Income Taxes
$ 5.4 $ 7.8 $ 24.4 $ 14.0 $ 18.7 $25.8 $ 20.2
Net Earnings (a,b)
4.0 7.0 8.7 10.9 14.7 6.6 (1.5)
BALANCE SHEET DATA
November 30, August 31,
------------ -------------------------------------------
1997 1997 1996 1995 1994 1993
------ --------- --------- --------- --------- --
Working Capital $ 31.2 $ 46.7 $ 59.4 $ 37.4 $ 43.4 $ 19.0
Net Property 150.3 156.9 145.6 137.1 139.0 143.6
Additions (during the period)
10.9 44.1 28.5 27.1 24.9 21.7
Depreciation (during the period)
4.5 19.6 19.1 17.3 16.8 16.0
Total Assets 473.3 481.2 497.8 407.8 364.2 334.0
Long-Term Debt 19.3 22.8 41.3 34.3 45.2 45.2
Ralston Equity Investment
179.4 198.1 190.3 139.9 130.1 111.4
</TABLE>
(a) After-tax provisions for restructuring reduced net earnings by $3.2 in
the year ended August 31, 1997, $7.2 in 1996, $1.0 in 1995,
$2.8 in 1994, and $1.3 in 1993.
(b) After-tax gain on the sale of property increased net earnings by $0.3
in the three months ended November 30, 1997, $2.9 in the year ended
August 31, 1996, $1.1 in 1995, $3.8 in 1994, and $4.3 in 1993.
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Ralston will transfer its international animal feeds and agricultural products
business to Ralston's wholly owned subsidiary, Agribrands International, Inc.
The stock of Agribrands International, Inc. will be spun-off to the Ralston
shareholders in a tax-free transaction. Agribrands was established by the
merger of a corporation organized for the purpose of effecting the merger, and
Tradico, Inc., a Delaware corporation which supplied ingredients and equipment
primarily to affiliates of Agribrands. The historical combined financial
statements of Agribrands reflect periods during which the various spun-off
businesses operated as divisions or subsidiaries of Ralston.
The pro forma combined statement of earnings for the three months ended
November 30, 1997, presents the combined results of Agribrands' operations
assuming that the Distribution had occurred as of September 1, 1997. Such
statement of earnings has been prepared by adjusting the historical statement
of earnings to indicate the effect of estimated costs and expenses and the
recapitalization associated with the Distribution as if the Distribution had
occurred as of September 1, 1997.
The pro forma combined statement of earnings for the year ended August 31,
1997, presents the combined results of Agribrands' operations assuming that
the Distribution had occurred as of September 1, 1996. Such statement of
earnings has been prepared by adjusting the historical statement of earnings
to indicate the effect of costs estimated and expenses and the
recapitalization associated with the Distribution as if the Distribution had
occurred as of September 1, 1996.
The pro forma combined balance sheet at November 30, 1997, presents the
combined financial position of Agribrands assuming the Distribution had
occurred at that date. Such balance sheet has been prepared by adjusting the
historical balance sheet for the effect of changes in assets, liabilities, and
capital structure associated with the Distribution as if the Distribution had
occurred on November 30, 1997.
The pro forma financial statements may not necessarily reflect the combined
results of operations or financial position that would have existed had the
Distribution been effected on the dates specified nor are they necessarily
indicative of future results.
<PAGE>
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
Pro Forma Combined Statement of Earnings
(In millions except per share data)
Year Ended August 31, 1997
(Unaudited)
Adjustments
Related to
Historical Distribution Pro Forma
<S> <C> <C> <C>
Net Sales $ 1,527.6 $ 1,527.6
Costs and Expenses
Cost of products sold 1,322.0 0.9 (b) 1,322.9
Selling, general and administrative 158.9 3.9 (a) 163.2
0.4 (b)
Interest 10.9 (4.4)(c) 9.5
3.0 (d)
Provisions for restructuring 3.2 3.2
Other (income)/expense, net (0.5) - (e) (0.5)
1,494.5 3.8 1,498.3
Earnings before Income Taxes 33.1 (3.8) 29.3
Income Taxes 24.4 (3.0)(f) 21.4
Net Earnings $ 8.7 $ (0.8) $ 7.9
======= ========= ======
Earnings per share (g) $ 0.77
=======
Weighted average shares of common stock(g) 10.2
=======
</TABLE>
(a) To reflect the incremental costs associated with becoming a
stand-alone public company.
(b) To reflect the increase in net pension costs from the transfer of
certain international retirement plan assets and obligations to Ralston as set
out in the Agreement and Plan of Reorganization.
(c) To reflect reduction in interest expense associated with debt levels
to be assumed at Distribution Date at an average rate of 12.6%.
(d) To reflect annual credit facility fee and amortization of
deferred financing costs.
(e) No interest income has been imputed on excess cash and
marketable securities generated by the Distribution due to the number of
alternative uses for such funds.
(f) To reflect tax effect of the above pro forma adjustments and to
reflect taxes as if Agribrands was a single, stand-alone U.S. taxpayer.
(g) The number of shares used to compute earnings per share is based on
the weighted average number of primary shares of Ralston Stock outstanding
during the twelve months ended September 30, 1997, adjusted for the
anticipated 1 for 10 stock distribution.
<PAGE>
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
Pro Forma Combined Balance Sheet
(Dollars in millions - unaudited)
Historical Pro Forma Pro Forma
November 30, Adjustments November 30, 1997
1997
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 30.2 $ 53.0 (a) 83.2
Marketable securities 6.1 10.7 (a) 16.8
Receivables, less allowance
for doubtful accounts 112.2 112.2
Inventories 110.1 110.1
Other current assets 10.9 10.9
----- -----
Total Current Assets 269.5 63.7 333.2
----- ---- -----
Investments and Other Assets 53.5 (8.8) (a) 47.2
2.5 (c)
Property at Cost 319.7 319.7
Accumulated Depreciation (169.4) (169.4)
------ ------ ------
150.3 - 150.3
------ ------ ------
Total $ 473.3 $ 57.4 $530.7
====== ====== =======
Liabilities and Net Investment in Agribrands
Current Liabilities
Current maturities of long-term debt
18.3 18.3
Notes payable 55.2 (17.8) (b) 37.4
Accounts payable and accrued liabilities
156.7 156.7
Income taxes 8.1 8.1
----- ----- -----
Total Current Liabilities 238.3 (17.8) 220.5
----- ----- -----
Long-Term Debt 19.3 19.3
Deferred Income Taxes 11.5 11.5
Other Liabilities 24.8 24.8
Net Investment in Agribrands 179.4 (179.4) (d) -
Shareholders Equity 254.6 (d) 254.6
----- ------ -----
Total $ 473.3 $ 57.4 $530.7
===== ====== =====
</TABLE>
(a) To reflect the increase in cash and marketable securities and the
transfer of certain international retirement plan assets and obligations to
Ralston in accordance with the Agreement and Plan of Reorganization. Assumed
the increase in cash and marketable securities would be ratable.
(b) To reflect debt levels to be assumed by Agribrands at the Distribution
Date.
(c) To reflect deferred financing costs associated with the debt to be
assumed at the Distribution Date.
(d) To reflect the planned liquidation of the remaining investment by
Ralston and the issuance of Agribrands Stock.
<PAGE>
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
Pro Forma Combined Statement of Earnings
(In Millions except per share data)
Three Months Ended November 30, 1997
(Unaudited)
Adjustments
Related to
Historical Distribution Pro Forma
<S> <C> <C> <C>
Net Sales $ 374.8 $ 374.8
Costs and Expenses
Cost of products sold 318.7 0.3 (b) 319.0
Selling, general and
administrative 39.5 0.2 (a) 39.9
0.2 (b)
Interest 3.1 - (c) 3.8
0.7 (d)
Gain on sale of property (0.4) (0.4)
Other (income)/expense, net 4.5 - (e) 4.5
----- ----- -----
365.4 1.4 366.8
----- ----- -----
Earnings before Income Taxes 9.4 (1.4) 8.0
Income Taxes 5.4 (1.3)(f) 4.1
----- ----- -----
Net Earnings $ 4.0 $ (0.1) $ 3.9
===== ===== =====
Earnings per share (g) $ 0.38
=====
Weighted average shares of common stock (g) 10.2
=====
</TABLE>
______________________________
(a) To reflect the incremental costs associated with becoming a
stand-alone public company.
(b) To reflect the increase in net pension costs resulting from the
transfer of certain international retirement plan assets and obligations to
Ralston as set out in the Agreement and Plan of Reorganization.
(c) Reflecting an insignificant reduction in interest expense associated
with debt levels to be assumed at Distribution Date.
(d) To reflect annual credit facility fee and amortization of
deferred financing costs.
(e) No interest income has been imputed on excess cash and marketable
securities generated by the Distribution due to the number of alternative uses
for such funds.
(f) To reflect tax effect of the above pro forma adjustments and to
reflect taxes as if Agribrands was a single, stand-alone U.S. taxpayer.
(g) The number of shares used to compute earnings per share is based on
the weighted average number of primary shares of Ralston stock outstanding
during the three months ended December 31, 1997, adjusted for the anticipated
1 for 10 stock distribution.
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this Information
Statement under the captions "The Distribution", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business and
Properties", and elsewhere in this Information Statement which are not
historical facts, are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, that involve risks and
uncertainties. Management cautions the reader that such forward-looking
statements, such as the future availability and prices of raw materials, the
availability of capital on acceptable terms, the competitiveness of the animal
feeds and agricultural products industry, potential liabilities and
Agribrands' strategies, are only predictions. Because such forward-looking
statements involve risks and uncertainties, there are important factors that
could cause actual events or results to differ materially from those expressed
or implied by such forward-looking statements. Factors that could cause
actual results to differ materially include, but are not limited to, changes
in general economic and business conditions (including agricultural markets)
in the various regions of the world in which Agribrands operates, Agribrands'
ability to recover its raw material costs in the pricing of its products, the
availability of capital on acceptable terms, actions of competitors and
government entities, political and economic instability in countries or
regions where the Agribrands Business is conducted, the level of demand for
Agribrands' products, changes in Agribrands' business strategies and other
factors discussed under "THE DISTRIBUTION -- Risk Factors".
INTRODUCTION
On March 28, 1996, the Board of Directors of Ralston ("Ralston Board")
approved in principle a plan to spin-off its international animal feeds and
agricultural products business to holders of Ralston Stock (see "BUSINESS AND
PROPERTIES"). On March 19, 1998, the Ralston Board authorized the
contribution to Agribrands of the capital securities of Ralston's various
international subsidiaries engaged in the animal feeds and agricultural
products business, and the acquisition by Agribrands or its subsidiaries of
other assets utilized in that business, including assets of the animal feeds
and agricultural products business in Canada and Brazil (together, the
"Agribrands Business"). Following the Distribution, Agribrands will be a
leading international producer and marketer of animal feeds and other
agricultural products, and a successor to Ralston's over 100 years of
experience in the animal feeds and agricultural products industry. Since 1927,
Ralston has built and maintained its industry position by consistently
providing high-quality products and customer service.
On March 19, 1998, the Ralston Board formally approved the Distribution
and declared a dividend payable on April 1, 1998 (the "Distribution Date"),
to each holder of record of Ralston Stock as of 12:01 a.m. CST on April 1,
1998, of one share of Agribrands Stock, together with an associated Right for
every 10 shares of Ralston Stock held.
THE DISTRIBUTION
Background and Reasons for the Distribution
The production and sale of animal feed was the primary business of
Ralston when it was established in 1894. Although Ralston's business expanded
into the human foods market with the introduction of hot cereals and other
breakfast foods, the animal feeds and agricultural products business continued
to be dominant until the 1950's. The development at that time of a new
extruded dry dog food by Ralston revolutionized the pet food industry and
transformed Ralston into primarily a consumer products company. Since then,
the pet food business has continued to grow in importance to Ralston while the
relative contribution of the animal feeds and agricultural products business
declined. In the 1980's, Ralston's focus became increasingly directed away
from the animal feeds and agricultural products business as Ralston acquired
Continental Baking Company, the nation's largest wholesale baker, in 1984, and
the worldwide Eveready battery business in 1986. The intention of Ralston's
management to focus on consumer packaged goods and its stable of leading
brands culminated in the sale of its U.S. animal feeds and agricultural
products business to a subsidiary of British Petroleum in 1986. British
Petroleum did not acquire Ralston's international animal feeds and
agricultural products business, which became a non-core business, having
limited synergies with Ralston's other international businesses.
Ralston continually reviews its businesses for means by which it can enhance
the long-term interests of its stockholders. Ralston's management has focused
primarily on its core businesses - pet products and battery products - seeking
to gain competitive advantage by serving world-wide markets through
globally-coordinated production, purchasing, distribution and marketing
initiatives. Following considerable review during the past several years, the
Ralston Board has approved the divestment of certain significant businesses in
order to increase this focus. In 1994, Ralston spun-off Ralcorp Holdings,
Inc., a subsidiary to which Ralston had contributed its breakfast cereal, baby
food, cracker and cookie, coupon redemption and all-seasons resort businesses.
In 1995, Ralston sold all of the capital stock of Continental Baking Company.
In 1996, Ralston sold its assets associated with its cereal business in the
Asia Pacific region (which it had retained in the Ralcorp spin-off), and
terminated its European cereal operations. In 1997, Ralston sold its
international soy protein technologies business. In line with this focus on
its core businesses, Ralston attempted to sell its international animal feeds
and agricultural products business to PM Holdings Corporation in 1994, but
negotiations broke off as the parties were unable to agree on key terms of the
transaction.
The Ralston Board believes that, after the Distribution, Ralston and
Agribrands will each be able to be more focused in responding to the differing
operational characteristics and competitive dynamics of their respective
businesses. The Agribrands Business requires different management,
distribution, production and marketing strategies than Ralston has adopted in
connection with its core global and predominantly consumer product-oriented
businesses. The Agribrands Business functions mostly as a collection of
separate entities, competing in a highly fragmented industry, which produce
and sell their products to diverse customer groups in numerous foreign
countries, often under different local conditions. Agribrands' animal feed
customers generally are located in rural farming regions, and are either
wholesalers who purchase for resale or bulk volume purchasers who purchase for
use on their own farms. These customers typically require and expect a high
level of technical support in connection with their purchases. The Agribrands
Business has other significant differences from Ralston's other businesses: it
has less intensive capital requirements; for its product distribution it
relies significantly on local networks of independent dealers with whom there
are long standing relationships; each local subsidiary has historically
sourced its needs for raw materials locally instead of on a global basis; and
although large direct consumer accounts are becoming increasingly important in
certain countries, advertising and marketing to the ultimate consumer has
historically been less significant than in Ralston's other businesses.
Manufacturing is done locally, and because of the greater need to have
products customized for local conditions, the Agribrands Business has a far
wider product line than Ralston's other businesses. As a commodity based
business with numerous product ingredient alternatives, the animal feeds
industry is generally a lower-margin business compared to Ralston's other
businesses.
However, even though each of Agribrands' operating units requires customized
approaches to unique circumstances, they clearly benefit from their
association with one another in terms of commodities sourcing, research and
know-how, financial management and other management practices. With
Agribrands as a separate independent company, Agribrands' management will be
able to concentrate its efforts and resources on the Agribrands Business, and
to tailor its business strategies, capital investments and employee benefit
plans to its specific requirements and the unique competitive demands of the
animal feed and agricultural products industry, without regard to the
corporate objectives, policies and investment standards of Ralston's other
operations. In addition, it is expected that, as an independent publicly-held
company, Agribrands will be able to recruit key personnel more effectively,
and design more effective equity-based incentive compensation programs for its
management and employees by linking their compensation much more directly to
the performance of the Agribrands Business. It is anticipated that grants of
stock options and restricted stock awards by Agribrands will place a
meaningful number of shares of Agribrands Stock in the hands of Agribrands
employees. In connection with its request for Rulings that the Distribution
would qualify as a tax-free spin-off, Ralston has represented to the IRS
that key management personnel and other key employees of Agribrands will own,
or have options to acquire, approximately 0.5% of the outstanding Agribrands
Stock within one year of the Distribution, at least 3% within three years of
the Distribution, and at least 5% within five years of the Distribution.
Ralston believes that the separation of Agribrands from Ralston's
international pet products business will be beneficial to that business as
well. Ralston believes that it will be better able to implement globally
coordinated production, purchasing, distribution and marketing initiatives
with respect to the pet products business, free of concerns about the effect
of those initiatives on the international animal feed and agricultural
products business. Ralston will be better able to distribute its products
through a number of channels, as it does in the United States, without the
restrictions and constraints of the Agribrands dealer network. Ralston also
believes that its managers in local countries will be more focused on pet
products operations without being concerned with the animal feed and
agricultural products business, and their efforts will be visible on a
stand-alone basis, separated from animal feed results.
Despite the above benefits of separation, Agribrands believes that there is a
need to retain a complete species product line in its agricultural dealer
channels. Accordingly, Agribrands will continue to manufacture and offer,
exclusively in those channels in Canada, certain lines of pet food which the
Agribrands Business has historically produced in that country for such limited
distribution. In all other countries in which Agribrands operates, it
may offer dog and cat foods supplied by Ralston. If Ralston declines to
supply basic, maintenance dog and cat foods in any country on terms
acceptable to Agribrands, Agribrands may manufacture such pet foods for
exclusive distribution through its agricultural dealer channels. The facility
in Canada which has historically produced the limited line of pet food
described above, as well as animal feeds, will be retained by Agribrands
following the Distribution. Facilities in Colombia and Korea which have
historically produced both animal feeds and pet food products will remain with
Agribrands' subsidiaries in those countries, while facilities in Venezuela and
Italy which produce both animal feeds and pet food will be acquired by Ralston
subsidiaries effective as of the Distribution. Because of the intermingled
nature and shared manufacturing infrastructure at those facilities, Ralston
and Agribrands believe it is not advisable to incur the expense of separation
at this time. Agribrands will tollmill pet food for Ralston at the
Colombian facility for a period of up to three years following the Distribution,
and Ralston will tollmill animal feed for Agribrands at the Venezuelan and
Italian facilities for a more limited period of time following the
Distribution. See "AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS -- Agreement and
Plan of Reorganization -- The Reorganization" and "--Covenants Not to Compete".
The Distribution will afford holders of Ralston Stock the opportunity to
continue their investment in either or both of Ralston Stock and Agribrands
Stock, depending on their investment objectives, and the separate reporting of
the results of the Agribrands Business and the remaining Ralston operations
(i.e., pet products and battery products) should create a framework for
increased and more focused equity research coverage of both companies by the
investment community. Agribrands will be able to implement a capital
structure appropriate for its business performance, and access capital markets
directly. In addition, Agribrands may be able to utilize the issuance of
Agribrands Stock for acquisitions. However, for a period of three years
following the Distribution, Agribrands will be subject to certain restrictions
on its ability to issue its capital stock. See "AGREEMENTS BETWEEN RALSTON
AND AGRIBRANDS--Agreement and Plan of Reorganization--Certain
Post-Distribution Covenants".
Ralston and Agribrands have agreed that, as of the Distribution Date,
the amount of the cash and marketable securities of Agribrands and its
subsidiaries will exceed their outstanding indebtedness by $25 million. The
Reorganization Agreement provides that Ralston and Agribrands will determine
the amount of Agribrands cash, marketable securities and outstanding
indebtedness as of that date and that payment will be made by Ralston or
Agribrands, as the case may be, of a cash settlement to the extent required to
ensure that the agreed level of excess cash and marketable securities will be
met. It is currently anticipated that Agribrands will bear approximately $75
million of indebtedness as of the Distribution Date. As soon as practicable
following the Distribution, Agribrands expects, subject to satisfaction of
closing conditions (primarily local regulatory approvals), to have in place
committed revolving credit facilities with a syndicate of international
lenders (the "Credit Facilities"), the proceeds of which will be used to
provide working capital for general corporate purposes and letters of credit
to support Agribrands' international operations. Ralston will continue to
guarantee certain Agribrands' debt until such approvals can be obtained, or,
at latest, until May 31, 1998. The Credit Facilities will include up to
$40 million which will be available as advances to Agribrands and certain of
its subsidiaries (other than Purina Korea, Inc., its Korean subsidiary), or
as letters of credit, and up to $70 million which will be available for
letters of credit for Agribrands subsidiaries or for direct advances to its
Korean subsidiary. $20 million of one facility will be extended as a three
year revolving credit, extendible, by mutual agreement, for one additional
year on each anniversary of the closing of the facility, and the remaining
$35 million of that facility will be extended as a 364-day revolving credit
facility, renewable quarterly by mutual agreement. The remaining $55
million facility will be extended as a 364-day revolving credit extendible,
by mutual agreement, at maturity and at any extended maturity date for
additional 364-day periods. Under the terms of the Credit Facilities,
Agribrands will be subject to a number of restrictions, including (i)
Agribrands and its subsidiaries may not invest by acquisition and/or merger
an amount exceeding $20 million (including assumed debt) per individual
transaction, or $80 million (including assumed debt) in the aggregate,
during the term of the Credit Facilities; (ii) Agribrands, at all times
during the term of the Credit Facilities, must maintain at least $25
million in a cash collateral account for the benefit of the lenders; (iii)
capital expenditures by Agribrands and its subsidiaries may not exceed
approximately $81 million the first year, $40 million the second year,
and $29 million the third year of the term; and (iv) Agribrands must
maintain certain debt and interest coverage ratios and minimum net worth
requirements. See "Risk Factors - Potential Financing Requirements".
The Ralston Board believes that the cash retained by Agribrands at
Distribution, as well as cash generated from Agribrands' operations should be
sufficient to fund Agribrands' presently anticipated operating and capital
expenditures, as well as its debt service obligations. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION --
Financial Condition".
Risk Factors
No Operating History as an Independent Company
The assets associated with Ralston's international animal feeds and
agricultural products business were first contributed to Agribrands in March
of 1998 for the purpose of effecting the Distribution. As a result,
Agribrands does not have an operating history as an independent company.
While the Agribrands Business in the aggregate has been profitable as part of
Ralston, there is no assurance that it can be operated profitably as a
stand-alone public company. In addition, from time to time, certain local
operations of the Agribrands Business have operated at a loss. Thresholds of
materiality for the Agribrands Business will be substantially lower than for
Ralston, magnifying the effect of other Risk Factors described below.
Internal control systems will need to be refined and enhanced to reflect the
increased financial sensitivity of local operations. Such enhancement may be
made more difficult by the geographical dispersion and autonomous management
structure of the Agribrands Business. Following the Distribution, the
Agribrands Business will no longer be able to rely on Ralston for financial
support or benefit from its relationship with Ralston to obtain credit or
receive favorable terms for the purchase or sale of certain goods and
services. In addition, except for certain transitional services, Agribrands
will be responsible for obtaining its own sources of financing and for its own
corporate administrative services such as tax, treasury, accounting, legal,
research and development, information systems and human resources. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Financial Condition" and "AGREEMENTS BETWEEN RALSTON AND
AGRIBRANDS -- Bridging Agreement" below.
<PAGE>
No Prior Market for Agribrands Stock
There has been no prior trading market for Agribrands Stock, and there
can be no assurance as to the prices at which the Agribrands Stock will trade
before or after the Distribution Date. The shares of Agribrands Stock have
been approved for listing on the NYSE under the symbol "AGX." Until the
Agribrands Stock is fully distributed and an orderly market develops, the
prices at which the Agribrands Stock trades may fluctuate significantly.
Prices for the Agribrands Stock will be determined in the trading markets, and
may be influenced by many factors, including the depth and liquidity of the
market for Agribrands Stock (which may be affected by its unique status as a
United States corporation with exclusively foreign operations), investor
perceptions of Agribrands and its business, Agribrands' dividend policy, and
general economic and market conditions throughout the world. In addition, the
stock market often experiences significant price fluctuations that are
unrelated to the operating performance of the specific companies whose stock
is traded. Such fluctuations have affected the share prices of many newly
public issuers. Market fluctuations, as well as economic conditions, may
adversely affect the market price of the shares of Agribrands Stock. See "--
Listing and Trading of Agribrands Stock", below.
Possibility of Substantial Sales of Agribrands Stock
The planned Distribution will involve the distribution of an aggregate of
approximately 10.6 million shares of Agribrands Stock to the shareholders of
Ralston on the Distribution Date, representing all of the outstanding shares
of Agribrands Stock. Substantially all of such shares of Agribrands Stock
will be eligible for immediate resale in the public market. Investment
criteria of certain large holders of Ralston Stock may dictate the immediate
sale of Agribrands Stock received by them in the Distribution. In addition,
fractional shares which would otherwise be issued in the Distribution will be
aggregated by the Distribution Agent and sold on the open market as soon as
practicable following the Distribution. Neither Ralston nor Agribrands is
able to predict whether substantial amounts of Agribrands Stock will be sold
in the open market following the Distribution. Any such sales, whether as a
result of the Distribution or otherwise, could adversely affect the market
price of Agribrands Stock. See " -- Manner of Effecting the Distribution",
below.
Risks Associated with Foreign Operations
The Agribrands Business is currently conducted almost exclusively outside
of the United States. Consequently, Agribrands is subject to a number of
significant risks associated with foreign operations. The operating profits
of Agribrands may be negatively affected by changes in the value of local
currencies in the countries in which operations are conducted, as well as by
hyperinflationary conditions such as those which have occurred in the past in
several of such countries, notably Brazil, Mexico and Venezuela. The recent
devaluation of the Korean currency, in conjunction with restrictions on the
ability to increase selling prices and other negative economic conditions in
Asian countries in general, has resulted in a significant negative effect on
operating profits in the affected countries as well as for the Agribrands
Business as a whole, which effect may intensify unless current conditions
improve. The failure of any European country in which the Agribrands Business
is conducted to join the European Union or the European Monetary Union, or
delay in the expansion or formation, respectively, of those Unions, may have a
negative effect on borrowing and exchange rates and economic stability in
Europe. Other risks and considerations include the effect of foreign income
and withholding taxes and the U.S. tax implications of foreign source income
and losses; the possibility of expropriation, confiscatory taxation or price
controls; the possibility of an order from the Philippine government ordering
a divestiture of a majority of the equity ownership of Agribrands' subsidiary
in the Philippines; adverse changes in local investment or exchange control
regulations; difficulties inherent in operating in less developed legal
systems; political instability, government nationalization of business or
industries, government corruption and civil unrest; and potential restrictions
on the flow of international capital. In many developing countries in which
the Agribrands Business is operated there has not been significant
governmental regulation relating to the environment, occupational safety,
employment practices or other business matters routinely regulated in the
United States. As such economies develop, it is possible that new regulations
may increase the expense and risk of doing business in such countries. In
addition, social legislation in many countries in which the Agribrands
Business operates may result in significantly higher expenses associated with
terminating employees, distributors, joint ventures and closing manufacturing
facilities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS --Inflation" and "-- Outlook", and "BUSINESS AND
PROPERTIES - Litigation and Regulatory Matters", below.
Risks Associated with the Animal Feeds Industry
The Agribrands Business, as a supplier of animal feeds and other
agricultural products, is subject to the risks and uncertainties associated
with the animal production industry and the resulting fluctuations in demand
for Agribrands' products. The animal production industry, and consequently
the animal feeds industry, in a particular country, can be negatively affected
by a number of factors, including urban development; weather conditions; the
prices of commodities; alternative feed sources; the market price of
livestock, poultry and other animals and their food products; animal diseases
(such as BSE or "Mad Cow" disease and Hong Kong Flu Virus); changes in
consumer demand; real estate values; government farm programs; government
regulations; restrictive quota and trade policies and tariffs; production
difficulties, including capacity and supply constraints; and general economic
conditions, either locally, regionally or globally. In certain markets, the
increasing efficiency of available feeds has resulted in lower volume demand
for feeds. Profit pressure and overcapacity in various markets has led to
consolidation of both the feed production and animal production industries in
those markets. Larger animal producers have tended to integrate their
business by acquiring or constructing feed production facilities to meet some
or all of their feed requirements, and consequently have relied less on
outside suppliers of animal feeds. See "BUSINESS AND PROPERTIES -- Background"
below.
Significant Competitive Activity
The Agribrands Business faces intense competition from other
international as well as local and regional feed manufacturers, cooperatives,
single-owner establishments and, in the case of many markets, government feed
companies. Because of limited technological or capital constraints on entry
to the animal feed industry and the extremely fragmented nature of that
industry, new competitors with relatively modest return objectives can arise
in any market at any time. In addition, lower priced alternative feed sources
or methods of feeding may be elected by Agribrands' customers during times of
weak economic conditions affecting their markets and operations. Competition
is based upon price, product quality and efficiency, customer service and the
ability to identify and satisfy animal production needs in particular
countries. The Agribrands Business from time to time experiences price
pressure in certain of its markets as a result of competitors' pricing
practices. As the Agribrands Business operates on an international basis and
markets a broad line of animal feeds and other agricultural products, it bears
higher costs associated with a multi-layered distribution system, a complex
production system, and tax and financing obligations imposed by its
international and multi-currency structure. Such higher costs may restrict
its ability to compete in particular markets on the basis of price. See
"BUSINESS AND PROPERTIES -- Competition" below.
<PAGE>
Raw Material Price Volatility
Production requirements generally dictate that the principal raw
materials used in the Agribrands Business -- grain, grain products and protein
ingredients -- be sourced locally rather than regionally or globally, and as a
result the costs associated with raw materials procurement are especially
susceptible to currency fluctuations and fluctuations due to the local labor
market, transportation, weather conditions, government regulations, price
controls, economic climate, pestilence or diseases affecting yields at
harvest, or other unforeseen local circumstances. Operating results may be
affected by the price volatility of raw materials which constitute a
substantial component of the cost of goods sold for the Agribrands Business.
The rapid turnover of certain raw material inventory items and, for certain
products, the ability to substitute alternative lower cost ingredients to
produce feeds with specified nutritional characteristics at a lower total cost
may provide Agribrands with some protection against fluctuating raw material
prices. Agribrands believes that adequate supplies of its necessary raw
materials are available at the present time, but cannot predict future
availability or prices of such products and materials. There can be no
assurance that Agribrands will be able to pass increases in raw material costs
through to its customers in the form of price increases, and any such
inability would have an adverse impact upon the profitability of Agribrands.
See "BUSINESS AND PROPERTIES -- Raw Materials" below.
Effect of Restrictions in Credit Facilities
Restrictions on the size and aggregate amount of acquisitions by Agribrands
and its subsidiaries, as well as restrictions on capital expenditures, set
forth in the Credit Facilities may affect the ability of Agribrands to pursue
its business strategies of further penetration of existing markets, expansion
into broader geographic markets, and strategic investment in new product
development. Additional restrictions on its use of cash, and required
interest and debt coverage ratios may limit its flexibility to make
opportunistic investments, as well as its ability to pay dividends to
shareholders. To the extent that Ralston remains contingently liable with
respect to any pre-existing debt of Agribrands' subsidiaries, Agribrands
has agreed to indemnify Ralston for any payments Ralston may be required to
make with respect to such debt. See "-Background and Reasons for the
Distribution", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION -- Financial Condition" and "BUSINESS AND PROPERTIES
- -- Agribrands' Objectives and Strategy".
Potential Financing Requirements
If Agribrands is unable to satisfy the closing conditions for the
establishment of the Credit Facilities, it will be required to obtain
alternative financing commitments and letter of credit supports no later
than May 31, 1998 when Ralston's interim guarantee of certain Agribrands'
indebtedness will expire. There is no assurance that such alternatives
will be able to be obtained on terms acceptable to Agribrands. See
"-Background and Reasons for the Distribution".
In addition, each of the lenders under the Credit Facilities has the right,
in its sole discretion, not to agree to any request of Agribrands for the
extension of such facilities. In such event, if Agribrands' cash flow from
operations is insufficient to repay the maturing indebtedness in full,
Agribrands may need to obtain refinancing of such indebtedness. The ability
of Agribrands and its subsidiaries to meet its debt service requirements
and to effect any needed refinancing will be dependent upon, among other
things, their future performance, which will be subject to prevailing
economic conditions in the countries in which they operate and to financial,
business, regulatory and other factors, including factors beyond the control
of Agribrands.
Under the Credit Facilities, Agribrands and its subsidiaries are required
to maintain certain debt and interest coverage ratios and minimum net worth
requirements. Failure to comply with these covenants could limit the
ability of Agribrands and its subsidiaries to obtain additional advances and
letters of credit thereunder, or could result in a default allowing the
lenders to accelerate the maturity of the indebtedness thereunder. There is
no assurance that Agribrands and its subsidiaries will be able to maintain
compliance with such covenants or, if required, be able to repay such
indebtedness or effect any needed refinancing. See "-Background and Reasons
for the Distribution".
Agribrands Dividend Policy
The payment and level of cash dividends, if any, by Agribrands after the
Distribution will be at the discretion of the Agribrands Board of Directors.
It is expected that this decision will be based primarily upon the earnings,
cash flow and financial requirements of the Agribrands Business. Restrictions
on the flow of international capital may restrict the amount of funds
available in the United States for the payment of dividends. In addition,
although the Credit Facilities do not prohibit the payment of dividends by
Agribrands, restrictions in the Credit Facilities may significantly limit the
amount of funds available for the payment of dividends. The Agribrands
Board of Directors currently intends that initially no cash dividends will be
paid on Agribrands Stock in order to make funds available for working capital,
repayment of debt, possible future acquisitions, capital expenditures, and
possible repurchases of Agribrands Stock. The Agribrands Board of Directors
may change its policy on dividends at any time. See "-Background and
Reasons for the Distribution".
Certain Anti-takeover Effects
The Agribrands Articles of Incorporation, Bylaws and Rights, and The
General and Business Corporation Law of Missouri ("GBCL"), contain several
provisions that could have the effect of delaying, deferring or preventing a
change of control of Agribrands in a transaction not approved by the
Agribrands Board of Directors. In addition, the Agribrands Board of Directors
has adopted certain other programs, plans and agreements with its management
and employees which may make such a change of control more expensive. See
"ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS", below.
Effects on Ralston Stock
After the Distribution, Ralston Stock will continue to be listed and
traded on the NYSE and certain other stock exchanges. As a result of the
Distribution, the trading price of Ralston Stock is expected to be
correspondingly lower than the trading price of Ralston Stock immediately
prior to the Distribution. The combined trading prices of Ralston Stock and
Agribrands Stock after the Distribution may be less than, equal to or greater
than the trading price of Ralston Stock prior to the Distribution. The Board
of Directors of Ralston, at its March 19, 1998 meeting, elected to maintain
the level of cash dividends paid on each outstanding share of Ralston Stock at
$.30 quarterly. Future dividend levels are, of course, at the discretion of
the Board of Directors of Ralston.
Certain Federal Income Tax Considerations
Ralston has received rulings from the IRS to the effect that, among other
things, for Federal income tax purposes, the transfer of assets and
liabilities of the Agribrands Business to Agribrands and its subsidiaries will
be tax free under Sections 368(a)(1)(D) and 361 of the Internal Revenue Code
of 1986, as amended (the "Code") and that the Distribution will be tax-free
under Section 355 of the Code.*
* The rulings have not been received as of the date of this filing but it
is anticipated that they will be received prior to the time the Information
Statement is provided to shareholders.
As discussed below, cash received in lieu of fractional share interests in
Agribrands Stock will generally be taxable to recipients. IRS rulings were
not requested or received concerning the tax treatment of Agribrands Stock
received in the Distribution by Ralston employees who hold restricted shares
of Ralston Stock previously awarded as compensation. Ralston intends to treat
the Agribrands Stock distributed to holders of restricted Ralston Stock as
compensatory. As such, these shares of Agribrands Stock will not qualify for
tax-free treatment under section 355 of the Code. Rather, pursuant to Section
83 of the Code and the underlying Treasury regulations, unrestricted shares of
Agribrands Stock so distributed will be taxable to the distributee upon
receipt as ordinary compensation income. The continuing validity of the IRS
rulings received is subject to certain factual representations and
assumptions. Ralston is not aware of any facts or circumstances which
should cause such representations and assumptions to be untrue. Agribrands
and Ralston have also agreed to certain restrictions on their respective
future actions for a period of time following the Distribution to provide
further assurances that the Distribution will qualify as a tax-free
distribution. See "AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS -- Agreement
and Plan of Reorganization--Certain Post-Distribution Covenants". If the
Distribution were taxable, then (i) corporate level income taxes would be
payable by the consolidated group of which Ralston is the common parent,
based upon the amount by which the fair market value of the Agribrands Stock
distributed in the Distribution exceeds Ralston's basis therein, and (ii)
each holder of Ralston Stock who receives shares of Agribrands Stock in
the Distribution would be treated as if such shareholder received a taxable
distribution, taxed as a dividend to the extent of such shareholder's pro rata
share of Ralston's current and accumulated earnings and profits. Agribrands
has agreed to indemnify Ralston and the Ralston shareholders if its
actions or the actions of any of its affiliates result in such tax liability.
Ralston has agreed to indemnify Agribrands for any losses which it may incur
in the event that Ralston or any of its affiliates take any action which
adversely impacts the tax-free nature of the Distribution. See "-- Certain
Federal Income Tax Consequences of the Distribution" below and "AGREEMENTS
BETWEEN RALSTON AND AGRIBRANDS -- Tax Sharing Agreement".
The potential corporate tax liability which could arise from an
acquisition of Agribrands for a period of time following the Distribution,
together with the foregoing indemnification arrangements, could have an
anti-takeover effect on the acquisition of control of either company.
Manner of Effecting the Distribution
The Distribution will be made as of 12:01 a.m. CST on April 1,
1998 (the "Distribution Date") on a pro rata basis to holders of record of
issued and outstanding Ralston Stock at 12:01 a.m. CST on that date. A
book entry system will be used to implement the distribution of Agribrands
Stock in the Distribution. Ralston shareholders will not receive physical
certificates representing shares of Agribrands Stock unless requested. On the
Distribution Date, one certificate representing all issued and outstanding
shares of Agribrands Stock, other than fractional shares, will be delivered by
Ralston to the Distribution Agent. As soon as practicable thereafter, an
account statement will be mailed to each shareholder stating the number of
shares of Agribrands Stock received by such shareholder in the Distribution.
Following the Distribution, stockholders may request physical certificates for
their shares of Agribrands Stock. Holders of record of Ralston Stock will
receive shares of Agribrands Stock on the basis of one share of Agribrands
Stock for every 10 shares of Ralston Stock held. No fractional shares of
Agribrands Stock will be issued to shareholders. The Distribution Agent will
aggregate fractional shares into whole shares and sell them in the open
market at then prevailing prices on behalf of holders who otherwise would be
entitled to receive fractional share interests, and such shareholders will
receive instead a cash payment in the amount of their pro rata share of
the total sale proceeds. Proceeds from sales of fractional shares will be
paid by the Distribution Agent based upon the average gross selling price
per share of Agribrands Stock of all such sales. See "- Certain Federal
Income Tax Consequences of the Distribution" below. Ralston will bear the
cost of commissions incurred in connection with such sales. Such sales are
expected to be made as soon as practicable after the Distribution Date.
None of Ralston, Agribrands or the Distribution Agent will guarantee any
minimum sale price for the shares of Agribrands Stock, and no interest will
be paid on the proceeds of the sale of fractional interests.
Based on the number of shares of Ralston Stock issued and outstanding at
March 6, 1998, approximately 10.6 million shares of Agribrands Stock will be
issued. All such shares of Agribrands Stock will be fully paid, nonassessable
and free of preemptive rights.
The Board of Directors of Agribrands has also declared a distribution of one
common stock purchase right (a "Right") for every outstanding share of
Agribrands Stock, which Rights will be indicated on each shareholder's account
statement reflecting ownership of Agribrands Stock, or, if requested, on
physical certificates of Agribrands Stock. See "DESCRIPTION OF AGRIBRANDS
CAPITAL STOCK--Common Stock Purchase Rights".
Agribrands Stock distributed in respect of Ralston Stock held in the
Ralston Purina Dividend Reinvestment Plan will be registered with the Transfer
Agent in the name of the participants in that plan, and an account statement
will be issued, indicating stock ownership. Participants may thereafter
request physical certificates for the shares so registered. Cash payable in
lieu of fractional shares of Agribrands Stock will be distributed to the
participants in that plan. The number of whole shares and fractional share
interests, if any, of Agribrands Stock which each participant is entitled to
receive on the Distribution Date, will be determined by adding the number of
shares of Ralston Stock that each such person holds of record to the number of
shares of Ralston Stock then held for that person's account in the Ralston
Purina Dividend Reinvestment Plan, and dividing the total by 10.
Following the Distribution, approximately 39.4 million shares of
Agribrands Stock will remain authorized but unissued, of which approximately
16.1 million will be reserved for issuance pursuant to Rights, stock awards and
stock options.
No holder of Ralston Stock will be required to (i) pay any cash or other
consideration for the shares of Agribrands Stock to be received in the
Distribution; (ii) surrender or exchange shares of Ralston Stock; or (iii)
take any other action in order to receive Agribrands Stock. The Distribution
will not affect the number of outstanding shares of Ralston Stock.
<PAGE>
Certain Federal Income Tax Consequences of the Distribution
As indicated above, Ralston has received rulings from the IRS (the "Tax
Rulings") to the effect, among other things, that the Distribution will
qualify as a tax-free transaction under Section 355 of the Code.
The Tax Rulings provide that, among other things, for Federal income tax
purposes:
(1) No gain or loss will be recognized by or be includable in the
income of a holder of Ralston Stock solely as a result of the receipt of
Agribrands Stock upon the Distribution;
(2) No gain or loss will be recognized by Ralston upon the Distribution;
(3) Assuming that a holder of Ralston Stock holds such Ralston Stock
as a capital asset, such holder's holding period for the Agribrands Stock
received in the Distribution will include the period during which such Ralston
Stock was held;
(4) The tax basis of Ralston Stock held by a Ralston shareholder
immediately prior to the Distribution will be apportioned (based upon relative
market values at the time of the Distribution) between the Ralston Stock held
immediately after the Distribution and the Agribrands Stock received by such
shareholder in the Distribution; and
(5) Cash received in lieu of fractional share interests in Agribrands
Stock will be taxable to the recipient shareholders as a sale or exchange of
the fractional share interests.
IRS rulings were not requested concerning the tax treatment of Agribrands
Stock received in the Distribution by Ralston employees who hold restricted
shares of Ralston Stock previously awarded as compensation. Ralston intends to
treat the Agribrands Stock distributed to holders of restricted Ralston Stock
as compensatory. As such, these shares of Agribrands Stock will not qualify
for tax-free treatment under Section 355 of the Code. Rather, pursuant to
Section 83 of the Code and the underlying Treasury regulations, unrestricted
shares of Agribrands Stock so distributed will be taxable to the distributee
upon receipt as ordinary compensation income; and restricted shares of
Agribrands Stock so distributed will be taxed as compensation when the shares
become unrestricted.
As soon as practicable following the Distribution, Ralston intends to
make available to its shareholders information regarding the allocation of tax
basis between Ralston Stock and Agribrands Stock.
For a description of the agreements pursuant to which Ralston and
Agribrands have provided for various tax matters, see "AGREEMENTS BETWEEN
RALSTON AND AGRIBRANDS --Agreement and Plan of Reorganization and "AGREEMENTS
BETWEEN RALSTON AND AGRIBRANDS -- Tax Sharing Agreement".
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED FOR GENERAL
INFORMATION ONLY. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS
TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER,
INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
Listing and Trading of Agribrands Stock
There is currently no public trading market for Agribrands Stock. Prices
at which Agribrands Stock may trade prior to the Distribution on a
"when-issued" basis, or after the Distribution, cannot be predicted. In
particular, until the Agribrands Stock is fully distributed and an orderly
market develops, the prices at which trading in such stock occurs may
fluctuate significantly. The prices at which Agribrands Stock trades will be
determined in the securities trading markets and may be influenced by many
factors, including among others, the depth and liquidity of the market for
Agribrands Stock, investor perceptions of Agribrands and the Agribrands
Business, Agribrands' dividend policy and general economic and market
conditions. Such prices may also be affected by certain provisions of
Agribrands' Articles of Incorporation, Bylaws and Rights, as each will be in
effect following the Distribution, and of the GBCL. See "-- Risk Factors --
No Prior Market for Agribrands Stock", "-- Risk Factors -- Agribrands Dividend
Policy" and "ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS".
The shares of Agribrands Stock have been approved for listing on the NYSE
under the symbol "AGX". As of the Distribution Date, Agribrands initially is
expected to have approximately 17,000 shareholders of record, based upon the
number of holders of record of Ralston Stock as of March 6, 1998. The
Transfer Agent and Registrar for the Agribrands Stock will be Continental
Stock Transfer & Trust Company, located at Two Broadway, New York, New York
10004.
Shares of Agribrands Stock distributed to shareholders of Ralston Stock in the
Distribution will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of Agribrands under the
Securities Act of 1933, as amended (the "Securities Act"). Persons who may be
deemed to be affiliates of Agribrands after the Distribution generally include
individuals or entities that control, are controlled by, or are under common
control with, Agribrands, and may include certain officers and directors of
Agribrands as well as principal shareholders of Agribrands, if any. Persons
who are affiliates of Agribrands will be permitted to sell their shares of
Agribrands Stock only pursuant to an effective registration statement under
the Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemptions afforded by Section 4(2) of the
Securities Act and Rule 144 thereunder (exclusive of the holding period
requirements thereunder).
Disposition of Agribrands Stock Received By Benefit Plans
Agribrands Stock distributed in respect of Ralston Stock held in the
Ralston Purina Master Collective Trust for the Ralston Purina Retirement Plan
will be either sold over time or retained in the trust at the discretion of
the Retirement Plan trustees, J.R. Elsesser, L.L. Fraley, C.S. Sommer and A.M.
Wray, all of whom are employees of Ralston. Shares of Agribrands Stock
distributed in respect of Ralston Stock held by the trustee for the Ralston
Purina Company Savings Investment Plan ("Ralston SIP"), Vanguard Fiduciary
Trust Company, will be maintained in the Ralston SIP or sold as directed by
the individual participants to whom such shares are attributed pursuant to the
terms of the Ralston SIP. Participants will not be permitted to invest
additional monies in Agribrands Stock, and after a period of time all shares
of Agribrands Stock still retained by the Ralston SIP will be sold and the
proceeds invested, according to participants' elections, in other funds
offered by the Plan. With respect to participants in the Ralston SIP who will
become employees of Agribrands, shares of Agribrands Stock allocated to them
in the Ralston SIP will be transferred, along with such participants' other
account balances, to a defined contribution plan to be established by
Agribrands ("Agribrands SIP"). In addition, shares of Ralston's Series A ESOP
Convertible Preferred Stock ("ESOP Stock") which are allocated to such
participants will be converted into or redeemed for shares of Ralston Stock,
pursuant to the terms of the ESOP Stock, at a time determined by investment
fiduciaries of the Ralston SIP, and such shares, along with the shares of
Agribrands Stock which will be distributed with respect to such shares of
Ralston Stock received in such conversion or exchange, will also be
transferred to the Agribrands SIP. After a period of time, the shares of
Ralston Stock and Agribrands Stock still retained by the Agribrands SIP
will be sold and the proceeds invested, according to participants'
elections, in other funds offered by the Agribrands SIP. Agribrands
Stock distributed in respect of restricted stock awards of Ralston Stock
granted to employees of Ralston and its subsidiaries at the discretion of the
Human Resources Committee of Ralston's Board of Directors ("Ralston HRC"),
be distributed directly to such employees free of restrictions. See
"AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS".
REGULATORY APPROVALS
All material federal, state or foreign regulatory approvals required in
connection with the Distribution have been obtained.
AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS
For the purpose of effecting the Distribution and governing certain of
the relationships between Ralston and Agribrands after the Distribution,
Ralston and Agribrands have entered into the various agreements described
below. The agreements summarized below have been filed as exhibits to the
Registration Statement. The following descriptions do not purport to be
complete and are qualified in their entirety by reference to such agreements.
Agreement and Plan of Reorganization
Ralston and Agribrands have entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") providing for, among other
things, the principal corporate transactions required to effect the
Distribution and certain other agreements governing the relationship between
Ralston and Agribrands with respect to or in consequence of the Distribution.
The Reorganization. The Reorganization Agreement provides for the
completion of the following transactions prior to the Distribution: (i) the
merger of Ralston Purina International Holding Company, Inc. ("RPIHCI"), a
wholly owned subsidiary of Ralston, into Ralston, with Ralston as the
surviving corporation and successor to the assets and liabilities of RPIHCI,
including all of the outstanding capital stock of Agribrands and of the
subsidiaries engaged in the Agribrands Business throughout the world which are
currently held by RPIHCI; (ii) the contribution by Ralston to Agribrands or
one of its subsidiaries of the outstanding capital stock of the subsidiaries
engaged in the Agribrands Business (other than in Canada and Brazil), which
subsidiaries had an aggregate net book value, as of January 31, 1998, of
$146 million, as well as approximately $13 million, the estimated appraised
value of the net assets utilized in the Canadian and Brazilian Agribrands
Businesses (which assets will then be acquired by Agribrands or one of its
subsidiaries from the Ralston subsidiaries currently owning those assets);
(iii) the purchase by subsidiaries of Ralston of certain assets and
liabilities associated with the pet products operations currently conducted
by subsidiaries of Agribrands in Guatemala, Colombia, Peru, France and
Venezuela for an aggregate amount equal to the net book value of such
assets and liabilities, which value was approximately $9 million as of
January 31, 1998; (iv) the contribution by Ralston to Agribrands or one of
its subsidiaries of certain other assets utilized by Ralston and its
subsidiaries in the operation of the Agribrands Business; and (v) the
assumption by Agribrands and its subsidiaries of certain employee benefit plan
liabilities associated with the operation of such contributed businesses.
(See "AGRIBRANDS INTERNATIONAL, INC. Pro Forma Combined Balance Sheet" for the
pro forma capital structure of Agribrands.) In addition, the Reorganization
Agreement provides that Ralston itself will retain or assume certain other
liabilities associated with the Agribrands Business, including certain
employee benefit plan liabilities associated with U.S. employees or former
employees of the Agribrands Business.
The Reorganization Agreement provides that, as of the Distribution Date, the
amount of the cash and marketable securities of Agribrands and its
subsidiaries will exceed their outstanding indebtedness by $25 million. It
also provides that Ralston and Agribrands will determine the amount of
Agribrands cash, marketable securities and outstanding indebtedness as of that
date and that payment will be made by Ralston or Agribrands, as the case may
be, of a cash settlement to the extent required to ensure that the agreed
level of excess cash and marketable securities will be met.
Indemnification. Subject to certain exceptions, the Reorganization
Agreement provides for indemnification by the parties as follows:
Ralston has agreed to indemnify Agribrands against any liabilities
assumed or retained by Ralston pursuant to the Reorganization Agreement and
liabilities relating to (i) any breach by Ralston or any of its subsidiaries
of any covenant made in the Reorganization Agreement or any other agreement
referred to therein (the "Ancillary Agreements"); (ii) any third party claim
primarily relating to the actions of the Ralston Board in authorizing the
Distribution; (iii) the operation of the businesses conducted, or to be
conducted, by Ralston and its subsidiaries or the ownership of its assets
(other than businesses and assets to be contributed to Agribrands and other
former businesses associated with Ralston's international animal feeds
business) both prior to and following the Distribution, except to the extent
the liabilities therefor are assumed or retained by Agribrands or one of its
subsidiaries pursuant to the Reorganization Agreement or any Ancillary
Agreement; (iv) with respect to employee benefit plans sponsored by Ralston,
the failure of Ralston to comply with provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or of the Code, and (v) any
violations of the Code, or of Federal or state securities laws, in connection
with the Distribution or with any filings made with governmental agencies
with respect thereto, except to the extent that such violations, or
allegations of violations, result from, or are related to, the disclosure,
or failure to disclose, information to Ralston's corporate staff by officers,
directors, employees, agents, consultants and representatives of the
Agribrands Business.
Agribrands has agreed to indemnify Ralston against any liabilities
assumed or retained by Agribrands or its subsidiaries pursuant to the
Reorganization Agreement, and liabilities relating to (i) any breach by
Agribrands or any of its subsidiaries of any covenant made in the
Reorganization Agreement or any Ancillary Agreement, (ii) the operation of the
Agribrands Business and other former businesses associated with Ralston's
international animal feeds operations, or the ownership of the assets utilized
in those businesses, except to the extent the liabilities therefor are assumed
or retained by Ralston or one of its subsidiaries pursuant to the
Reorganization Agreement or any Ancillary Agreement, (iii) with respect to
employee benefit plans sponsored by Agribrands, the failure of Agribrands
to comply with the provisions of ERISA or the Code, and (iv) any violations,
or allegations of violations, of Federal or state securities laws in
connection with the Distribution or with any filings made with governmental
agencies with respect thereto, to the extent that such violations, or
allegations of violations, result from, or are related to, the
disclosure, or failure to disclose, information to Ralston's corporate staff
by officers, directors, employees, agents, consultants and representatives
of the Agribrands Business. In addition, Agribrands has agreed to
indemnify Ralston for all liabilities arising out of Ralston's continuing
guarantee of any obligation of Agribrands or any Agribrands subsidiary.
The indemnities described above will be limited to the amount of the loss,
less insurance proceeds, net of deductibles and allocated paid loss
retro-premiums received by the indemnified party.
Notwithstanding the foregoing, neither Ralston nor Agribrands will have
any liability to the other for taxes except as provided in the Tax Sharing
Agreement, described below.
Certain Post-Distribution Covenants. The Reorganization Agreement also
provides that, in order to avoid adversely affecting the intended tax
consequences of the Distribution, neither Agribrands nor any of its
subsidiaries will engage in certain transactions for a period of three years
following the Distribution Date unless, in the sole discretion of Ralston,
either (a) an opinion in form and substance satisfactory to Ralston is
obtained from counsel to Agribrands, the selection of which counsel is agreed
to by Ralston or (b) a supplemental ruling is obtained from the IRS, in either
case to the effect that such transactions would not adversely affect the
Federal income tax consequences, as set forth in the Tax Rulings, of the
Distribution and related transactions to Ralston or the Ralston shareholders.
Agribrands expects that these limitations will not significantly inhibit its
activities or its ability to respond to unanticipated developments. The
transactions subject to this provision are: (i) making a material disposition
(including intra-company transfers) by means of a sale or exchange of assets,
a distribution to shareholders, or otherwise, of any of its assets (other than
as contemplated by the Reorganization Agreement), except in the ordinary
course of business, (ii) repurchasing any Agribrands capital stock, unless
such repurchase satisfies certain Federal tax requirements, (iii) issuing any
Agribrands capital stock that in the aggregate exceeds twenty percent (20%)
of the issued and outstanding stock of Agribrands immediately following
the Distribution, (iv) liquidating or merging with any other corporation
(including a subsidiary), or (v) ceasing to engage in the active conduct of a
trade or business within the meaning of Section 355 of the Code.
In addition, the Reorganization Agreement provides that, if Agribrands
engages in any of the transactions referred to above, and if the Distribution
fails to qualify as tax-free under the provisions of the Code by reason
thereof, Agribrands will indemnify Ralston and its shareholders as of the
Distribution Date against all tax liabilities, including interest and
penalties, incurred by reason of the Distribution being a taxable event.
Ralston has agreed to indemnify Agribrands against losses which it may incur
in the event that Ralston or any of its subsidiaries take any action which
adversely impacts the tax-free nature of the Distribution. In the event that
the Distribution failed to so qualify as tax-free, Ralston would recognize
gain upon the Distribution equal to the excess, if any, of the fair market
value of the Agribrands Stock distributed on the Distribution Date over
Ralston's net tax basis for the assets contributed to Agribrands by Ralston.
See "THE DISTRIBUTION -- Risk Factors -- Certain Federal Income Tax
Considerations".
Covenants Not To Compete. The Reorganization Agreement provides that, for a
period of five years following the Distribution, Ralston and its subsidiaries
will not compete anywhere in the world, directly or indirectly, in the
international animal feeds and agricultural products business. The
Reorganization Agreement also provides that, for a period of five years
following the Distribution, Agribrands and its subsidiaries will not compete
anywhere in the world, directly or indirectly, in the pet products, battery
and lighting products businesses. Agribrands may, however, manufacture and
offer, exclusively in its agricultural dealer channels in Canada, certain
lines of pet food which the Agribrands Business has historically produced in
that country for such limited distribution, as well as pet foods supplied by
Ralston. In all other countries in which Agribrands operates, it may offer
dog and cat foods supplied by Ralston, or, if Ralston declines to supply
basic maintenance dog and cat foods in any country on terms acceptable to
Agribrands, Agribrands may manufacture such pet foods for exclusive
distribution through its agricultural dealer channels in order to retain
a complete product line in such channels. The Reorganization Agreement also
provides that Agribrands will comply with the terms of the non-compete
provisions applicable to Ralston and its affiliates under an agreement with
E.I. Du Pont de Nemours and Company ("DuPont") relating to Ralston's sale of
its protein technologies business.
Despite the covenants not to compete, however, and subject to the terms of the
agreement with Du Pont, either party may acquire no more than a 15% voting,
profits or equity interest in any entity engaged in an otherwise prohibited
competitive business, or may acquire or own any voting, profits or equity
interest in any entity as long as no more than 10% of the entity's gross sales
are derived from a competitive business.
If during the term of the above covenants not to compete, any other
person acquires a voting or equity interest of 20% or more in either Ralston
or Agribrands, as the case may be, the other party will be relieved of its
non-compete restrictions (other than those arising under the agreement with
DuPont). In addition to any other remedies at law or equity, upon breach of
the covenants not to compete, and failure to cure such breach, by either
party, the non-breaching party may elect to cancel all or any of the Ancillary
Agreements.
Additional Covenants. The Reorganization Agreement provides that all
expenses associated with the transfer of assets and businesses to Agribrands
will be borne by Ralston, subject to the terms of the Ancillary Agreements.
The Reorganization Agreement also provides that, by the Distribution Date,
Agribrands' Articles of Incorporation and Bylaws will be in the forms filed as
exhibits to the Registration Statement, and that the parties will take all
actions that may be required to elect or otherwise appoint as directors
of Agribrands the seven persons identified herein. See "MANAGEMENT --
Directors of Agribrands"- The Reorganization Agreement further provides that
each of Ralston and Agribrands will be granted access to certain records and
information in the possession of the other party and requires retention
for a period of seven years following the Distribution of all such
information in its possession, and thereafter requires that each party give
the other party prior notice of the intention to dispose of such information.
Employee Benefit Arrangements. The Reorganization Agreement contains
certain agreements relating to employee benefit and compensation matters in
connection with the Distribution. Generally, except as noted herein, from and
after the Distribution Date, Ralston will cease to have any liability or
obligation to individuals who become employees of Agribrands or one of its
subsidiaries ("Agribrands Employees"), and their beneficiaries, under any
Ralston benefit plans, programs or practices, and Agribrands will assume and
be solely responsible for liabilities and obligations to such Agribrands
Employees, and their beneficiaries, under benefit plans, programs and
practices adopted by Agribrands.
Severance Pay. Subject to local laws or regulations, Ralston and
Agribrands have agreed that, with respect to individuals who, in connection
with the Distribution, cease to be employees of Ralston or one of its
subsidiaries and become Agribrands Employees, or vice versa, such cessation
will not be deemed a severance of employment for purposes of any plan
providing for the payment of severance or salary continuation, and Ralston and
Agribrands will, in connection with the Distribution, if and to the extent
appropriate, obtain waivers from individuals against any such assertion.
To the extent severance becomes payable with respect to Agribrands Employees,
or employees of Ralston or one of its subsidiaries, Agribrands or Ralston
respectively, shall be responsible for such liability.
Retirement Plans. Agribrands Employees who, prior to the Distribution,
are participants in the Ralston Retirement Plan or the Ralston
Internationalist Retirement Plan will remain credited with the term of
service and any accrued benefit credited to such Agribrands Employee as of
the Distribution Date under the terms of such Plans and upon retirement will
receive retirement benefits from such Plans in accordance with their terms.
However, Agribrands Employees who are participants in the Ralston Retirement
Plan and who are between the ages of 50 and 54, or who have a combination of
age and years of service equal to 65, will have up to the lesser of (a) five
years, or (b) the number of years necessary to attain age 55, added to their
years of service for purposes of determining their accrued benefit under such
Plan. Agribrands will not offer a defined benefit retirement plan to
its United States employees following the Distribution.
With respect to other foreign funded pension plans, Agribrands and
Ralston have agreed that assets and liabilities related to current and former
employees of their respective businesses shall be transferred to (or retained
in, as the case may be) the Agribrands or Ralston plan applicable to each of
such current and former employees. All of such current and former employees
will remain credited with the term of service and any accrued benefit credited
to them as of the Distribution Date under the terms of such Plans, and upon
retirement will receive pension benefits from such Plans in accordance with
their terms.
Savings Plan. Agribrands has agreed to establish the Agribrands
International, Inc. Savings Investment Plan (the "Agribrands SIP"), a defined
contribution plan which is intended to be a qualified plan subject to Section
401(k) of the Code, and to include therein all Agribrands Employees who
immediately prior to the Distribution Date were participants in the Ralston
SIP. Each Agribrands Employee will be credited with the term of service and
any account balance credited to such Agribrands Employee as of the
Distribution Date under the terms of the Ralston SIP as if such account balance
had originally been credited to such Agribrands Employee under the
Agribrands SIP. The Agribrands SIP will provide a 50% matching contribution
for the first 6% of participant elective deferrals. Agribrands will have
the option of contributing an additional amount to the Agribrands SIP in
the form of profit sharing contributions ("Profit Sharing Contributions").
Ralston has agreed to transfer to the Agribrands SIP an amount equal to
the account balances (as of the date of transfer) attributable to the
participants in the Ralston SIP who become Agribrands Employees, plus the
applicable portion of any unallocated contributions and trust earnings, other
than those with respect to the Ralston Purina Series A ESOP Convertible
Preferred Stock ("ESOP Stock"). The Agribrands SIP will contain certain
provisions deemed by Agribrands and Ralston to be necessary or appropriate to
accept the transfer from the trusts funding the Ralston SIP of the account
balances of Agribrands Employees. All shares of the ESOP Stock held by the
trustee for the Ralston SIP on behalf of Agribrands Employees will be
converted into or redeemed for shares of Ralston Stock pursuant to the terms
of the ESOP Stock, at a time determined by investment fiduciaries of the
Ralston SIP, and the shares of Ralston Stock received upon such conversion or
redemption, and any shares of Agribrands Stock distributed in respect of
such shares of Ralston Stock, will be transferred to accounts for such
employees in the Agribrands SIP.
Welfare Plans. Agribrands has agreed that, as of the Distribution Date,
it will adopt such welfare benefit plans as it deems desirable to provide
welfare benefits to Agribrands Employees as of that date, and Agribrands
Employees will be credited with the terms of service and eligibility for
benefits that they possessed under similar Ralston plans. Agribrands will
assume and be responsible for all welfare benefit claims of Agribrands
Employees incurred following the Distribution, and Ralston will retain
liability for all welfare benefit claims of Agribrands Employees incurred
under Ralston welfare plans prior to the Distribution. Ralston will also
retain liability for all benefits, including retiree medical and life
insurance benefits, payable under the Ralston plans, to employees of the
Agribrands Business who retired or became disabled prior to the Distribution
Date.
Ralston Stock Options and Restricted Stock. As of the Distribution
Date, (i) options to acquire Ralston Stock held by Agribrands Employees will,
by their terms, accelerate and become exercisable and will continue to be
exercisable for a period of time after the Distribution Date in accordance
with the terms of the options, (ii) restricted shares of Ralston Stock granted
under a Ralston incentive compensation plan and held by Agribrands Employees
will, by their terms, immediately vest and thereafter the holders will
receive shares of Agribrands Stock in the Distribution on the same
basis as all other shareholders of Ralston Stock, and (ii) all other
employees of Ralston who immediately prior thereto are the holders of any
restricted shares of Ralston Stock will receive shares of Agribrands Stock in
the Distribution on the same basis as all other shareholders of Ralston Stock,
and the shares of Agribrands Stock so received will, at the discretion of
the Ralston HRC, be distributed directly to such employees free of
restrictions.
Incentive Stock Plan. Agribrands has agreed that, effective as of the
Distribution Date, it will establish and administer an Incentive Stock Plan
("Agribrands ISP") under which the Nominating and Compensation Committee
of the Agribrands Board of Directors (the "Agribrands Committee") may make
stock awards and grant stock options to key employees and directors of
Agribrands.
Deferred Compensation Plans. Agribrands has agreed that, as soon as
practicable and effective as of the Distribution Date, Agribrands will
establish and administer a non-qualified deferred compensation plan (the
"Agribrands Deferred Compensation Plan") which will provide benefits to
Agribrands Employees and non-employee Directors. Account balances of
Agribrands Employees under the Ralston Purina Deferred Compensation Plan
for Key Employees (other than balances under the Fixed Benefit Option)
and the Ralston Purina Company Executive Savings Investment Plan will be
transferred to the Agribrands Deferred Compensation Plan, into funds
elected by the Agribrands participants, and Agribrands will indemnify
Ralston against any further liability with respect to such
transferred accounts.
Vacation Pay. Agribrands will assume all liability for unpaid vacation pay
accrued by Agribrands Employees as of the Distribution.
Tax Sharing Agreement
Through the Distribution Date the business operations to be contributed
to Agribrands by Ralston as of that date will continue to be included in the
consolidated Federal income tax returns of Ralston. As part of the
Distribution, Ralston and Agribrands will enter into a Tax Sharing Agreement
(the "Tax Sharing Agreement") providing, among other things, for the
allocation among the parties thereto of Federal, state, local and foreign tax
liabilities for all periods through 12:01 a.m. on the Distribution Date, and
reimbursement by each party for any of its taxes which may have been or will
be paid or advanced by the other. The Tax Sharing Agreement provides that
Ralston will be liable for certain tax liabilities up to the Distribution
Date, including any such liabilities resulting from the audit or other
adjustment to previously filed tax returns, that Agribrands will be liable
for certain foreign tax liabilities attributable to the operation of the
Agribrands Business prior to the Distribution Date, and that Agribrands
will be responsible for all Federal, state, local and foreign taxes
attributable to the Agribrands Business on and after the Distribution Date.
Though valid as between the parties thereto, the Tax Sharing Agreement is not
binding on the IRS or foreign tax authorities and does not affect the joint
and several liability of Ralston and Agribrands, and their respective
subsidiaries, to the IRS or foreign tax authorities for all taxes of
the consolidated group of which Ralston is the common parent, relating to
periods prior to the Distribution Date.
Bridging Agreement
Ralston and Agribrands will enter into a Bridging Agreement pursuant to
which Ralston may continue to provide certain administrative services,
including but not limited to, government affairs, internal audit, library
and information and other services, and Ralston and Agribrands will each
provide certain other administrative and tollmilling services to the other in
individual countries in which the Agribrands Business and Ralston's
international pet products business are conducted, for a limited period of
time following the Distribution Date, subject to renewal rights. It is also
currently contemplated that employees of Ralston will administer insurance
plans and programs for Agribrands on an ongoing basis following the
Distribution, and that Ralston's offshore insurance subsidiary will provide
certain reinsurance coverage for assets and operations of Agribrands. Charges
for such services will be similar to those arrived at by similarly
situated independent parties bargaining at arms' length.
Trademark Agreement
Ralston and Agribrands will enter into a Trademark Agreement pursuant to
which (i) Ralston will assign to Agribrands or one or more of its subsidiaries
all of Ralston's rights in certain trademarks associated solely with the
Agribrands Business, and (ii) Ralston will perpetually license to Agribrands,
on a royalty-free basis, the right to use the trademarks "Purina", "Chow",
the Checkerboard logo, and certain trademarks similar to such trademarks, with
respect to agricultural and certain other products, subject to the rights of
Purina Mills, Inc. which utilizes such trademarks in the United States.
Agribrands will not be permitted to use such trademarks, however, on pet food
products which it may produce or distribute, other than products tollmilled
for Ralston, or provided by Ralston. Certain pet food trademarks owned by
subsidiaries of Agribrands will be acquired by Ralston or its subsidiaries.
Technology Agreement
Ralston and Agribrands will enter into a Technology Agreement pursuant
to which Ralston will license to Agribrands or one or more of its
subsidiaries the perpetual right to utilize Ralston's technology for animal
feed and other agricultural products on a royalty-free basis, subject to the
rights of Purina Mills, Inc. which utilizes such technology in the United
States, and to certain rights of E.I. Du Pont de Nemours and Company which
were assigned by Ralston in connection with its sale of its protein
technologies business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is a summary of the key factors management considers
necessary in reviewing Agribrands results of operations, liquidity, capital
resources, and operating segment results. This discussion should be read in
conjunction with the Geographic Segment Information and the Combined Financial
Statements and related notes found elsewhere in this Information Statement.
The audited Combined Financial Statements included herein may not necessarily
be indicative of the results of operations, financial position and cash flows
of Agribrands had it operated as a separate, independent company during the
periods presented or in the future. The audited Combined Financial Statements
included herein do not reflect any changes that may occur in the financing and
operations of Agribrands as a result of the Distribution.
Business Overview
Agribrands is one of the leading international producers and marketers of
animal feeds and agricultural products. Agribrands' business is currently
conducted almost exclusively outside of the United States. Agribrands
primarily produces and sells its products in sixteen foreign countries under
different local conditions. The markets in which Agribrands operates are
highly competitive and sensitive to both pricing and promotion.
Agricultural products sales prices and percent of sales gross profit margins
are directly influenced by changes in the underlying commodity prices for the
raw materials used to formulate animal feeds. Typically, the industry
operates on a unit margin basis with frequent price changes based on the
underlying commodity price movements.
Agribrands, as a supplier of animal feeds and other agricultural products, is
subject to the risks and uncertainties associated with the animal production
industry and the resulting fluctuations in demand for Agribrands' products.
The animal production industry in a particular country can be negatively
affected by a number of factors, including weather conditions, commodity
prices, price controls, alternative feed sources, the market price of
livestock, poultry and other animals, animal diseases, changes in consumer
demand, real estate values, government farm programs and other government
regulations, restrictive quota and trade policies and tariffs, production
difficulties, including capacity and supply constraints, labor disputes and
general economic conditions.
Consolidation of the animal feed and animal production industries around the
world will continue to bring about significant changes in the product
production and distribution pattern. Such changes will affect the growth
prospects and pricing practices of Agribrands. Future growth opportunities
for Agribrands are expected to depend on its ability to implement strategies
for expanding in growing, lesser-developed agricultural markets, making
strategic acquisitions and divestitures, particularly in more mature markets,
maintaining effective cost control programs, and developing and implementing
more efficient manufacturing and distribution methodologies, while at the same
time maintaining aggressive pricing and promotion of its products.
THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
Operating Results
Net earnings for the three months ended November 30, 1997 were $4.0 million
compared to $7.0 million for the same period in the prior year. Operating
margins improved as gains in the Americas and Asia Pacific regions were only
partially offset by lower margins in the European region. Despite the
improvement in margins, net earnings declined on higher pretax foreign
currency exchange and translation losses, principally in Korea and Colombia,
which totaled $5.5 million for the current quarter compared to only $0.4
million during the same period last year.
<TABLE>
<CAPTION>
<S> <C> <C>
Americas (excluding United States)
1997 1996
Net sales $156.2 $147.2
Operating profit $ 8.0 $ 5.1
Operating profit as % of net sales 5.1% 3.5%
</TABLE>
The increase in net sales of the Americas operations for the three months
ended November 30, 1997 is primarily attributable to increased volume in
Mexico and Venezuela. Agribrands' operations in both of these countries
experienced increased demand resulting from improved economic conditions when
compared to the same period last year.
Operating profit increased $2.9 million on increased volume and improved
margins. The improvement in operating margins was broad-based across all
operations in the Americas, but most notable in Mexico where increased shrimp
feed sales, with their overall higher margins, helped to increase
profitability.
<TABLE>
<CAPTION>
<S> <C> <C>
Europe
1997 1996
Net sales $102.1 $126.4
Operating profit $ 2.1 $ 3.7
Operating profit as % of net sales 2.1% 2.9%
</TABLE>
The decrease in net sales of the European operations for the three months
ended November 30, 1997 is attributable to a combination of lower prices and
declines in volume. The lower selling prices were a result of lower commodity
prices and currency devaluation. The decline in volume is principally
attributable to an export program in Italy during 1996 that was not continued
in 1997.
The European operations experienced an erosion of operating margins as gains
in Hungary and Italy were more than offset by declines in France, Spain,
Portugal and Turkey.
<TABLE>
<CAPTION>
<S> <C> <C>
Asia Pacific
1997 1996
Net sales $116.5 $116.4
Operating profit $ 10.0 $ 9.8
Operating profit as % of net sales 8.6% 8.4%
</TABLE>
Net sales in U.S. dollars in the Asia Pacific operations remained constant
between the two periods as increased volume in units was offset by currency
devaluation against the dollar of 24% and 13% in Korea and the Philippines,
respectively, during the quarter ended November 30, 1997.
Operating profit remained strong as a result of the increased volume and
favorable product mix which more than offset the decline in operating profit
dollars resulting from currency devaluation. Operations in Korea remained
dominant in the Asia Pacific region accounting for approximately 75% of the
net sales and 60% of the region's operating profit during the most recent
quarter.
Other Income/Expense
Other income/expense, net, was unfavorable by $5.2 million for the three
months ended November 30, 1997 compared to the same period last year. This is
primarily attributable to higher foreign currency exchange losses on dollar
denominated debt in Korea and Colombia and higher translation losses due to
hyper-inflationary accounting in Mexico. Exchange losses were greatest in
Korea. Continued devaluation of the Korean Won will result in additional
exchange losses for the Korean operations.
Income taxes
Income taxes, which include United States and foreign taxes, were 57% of
pre-tax earnings for the three months ended November 30, 1997 compared to 53%
of pre-tax earnings for the same period in the prior year. The increase in
the effective rate resulted from changes in the earnings mix including
increased foreign losses in countries for which no tax benefit could be
recognized.
Financial Condition
Cash flows from operations were $7.0 million and $27.2 million for the three
months ended November 30, 1997 and 1996, respectively. The 1996 cash flows
were substantially higher due to a $20.0 million decline in inventory levels
experienced during the three months ended November 30, 1996 in response to
declining commodity prices. Inventory levels increased during the three
months ended November 30, 1997 but remain in line with anticipated demand.
During the three months ended November 30, 1997 cash flows used by investing
activities were $11.9 million compared to $3.1 million of cash flows provided
by investing activities during the same period last year. Capital
expenditures, primarily to replace or enhance existing production facilities
and equipment, totaled $10.9 million and $6.1 million for the three months
ended November 30, 1997 and 1996, respectively. The 1996 cash flows were
higher due to $8.1 million of proceeds from the sale of marketable securities.
Agribrands' capital investments and working capital needs have been partially
funded with investments by and advances from Ralston. During the three months
ended November 30, 1997 net cash flows provided by financing activities were
$12.9 million net of $10.4 million in payments to Ralston. During the three
months ended November 30, 1996 net cash flows used by financing were $7.7
million net of $15.6 million in proceeds from Ralston.
Subsequent events
Agribrands is continually evaluating new investment opportunities. In
December 1997, Agribrands invested $5.0 million in Agribrands Purina
(Langfang) Feedmill Company Ltd., a new wholly owned foreign subsidiary. The
new subsidiary utilized the funds along with $2 million in proceeds from the
issuance of debt to acquire a feed mill in Langfang, Peoples' Republic of
China. In January 1998, Agribrands acquired a feed mill in Maracay, Venezuela
for approximately $5.0 million. In January 1998, Agribrands also acquired a
feed mill in Spessa, Italy for approximately $8.0 million. Agribrands had
previously leased the feed mills in both Maracay and Spessa. These
acquisitions were funded through a combination of net proceeds from Ralston
and local country borrowings. Assuming these acquisitions had occurred as of
September 1, 1996, they would not have had a material effect on net sales or
net earnings.
Outlook
The Americas region experienced significant improvement in operating results
during its most recent quarter. The overall market conditions have improved
in the region and management anticipates the Americas will continue to
contribute to the overall profitability of Agribrands during 1998.
Consolidation of both the animal feed and animal production industries is
accelerating throughout Europe. Agribrands has responded to this trend by
restructuring and streamlining its European operations over the last few
years. This has been especially prevalent in France, Spain, Portugal and
Italy where this trend is likely to continue. At the same time, Turkey and
Hungary have provided opportunities for growth. In December, 1997, Agribrands
completed construction of its second feed mill plant in Hungary. With this
increased capacity, the Hungarian operations should continue to provide strong
financial results during 1998.
In recent years, the Asia Pacific region has been Agribrands' most profitable
region. However, the current financial crises in the Asia Pacific region will
continue to have an adverse effect on Agribrands near term results. It will
be especially prevalent with the Korean operations, which represent
approximately 75% of the Company's Asia Pacific net sales volume. Further
devaluation of the Korean won will result in lower dollar profits for the
Korean operations and increased foreign exchange losses on its dollar
denominated debt. During December 1997, the won devalued an additional 33%
against the dollar resulting in approximately $5 million of additional
exchange losses on dollar denominated debt in Korea. The Korean operations
import approximately 70% of the ingredients used in its manufacturing process.
The local currency costs of these imported ingredients increase as the Korean
won devalues. At the same time, the Korean operations generally request
government cooperative approval before increasing its selling prices. Although
this restricts management's ability to respond quickly to changing market
conditions, Korean operations have been able to obtain price increases to
partially offset increased ingredient costs. In spite of these current
conditions, Agribrands remains committed to the Asia Pacific market and views
the current financial crises as an opportunity to strengthen its market
position within the region.
<PAGE>
YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
Operating Results
Net earnings were $8.7 million for the year ended August 31, 1997 compared to
$10.9 million in 1996 and $14.7 million in 1995. In 1997, net earnings
declined as favorable margins and increased volume in the Asia Pacific and
European regions were more than offset by decreased volume and lower margins
in the Americas region and a $2.0 million charge incurred in connection with
exiting an unsuccessful joint venture in Chile. Lower interest expense, lower
restructuring costs and lower translation and exchange losses were offset by
higher taxes. The increase in taxes resulted from changes in the earnings mix
including increased foreign losses in countries for which no tax benefit could
be currently recognized.
In 1996, net profit declined as higher volumes in most world areas were more
than offset by restructuring costs associated with the streamlining of
operations in advance of the planned Distribution. In addition, improved
margins in the Asia Pacific region were offset by unfavorable margins in
Europe and the Americas.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Americas (excluding United States)
1997 1996 1995
Net sales $599.6 $573.7 $521.0
Operating profit $ 16.0 $ 20.8 $ 22.7
Operating profit as % of net sales 2.7% 3.6% 4.4%
</TABLE>
In 1997, net sales were up 4.5% on increased prices to cover rising commodity
prices. Volume in units was down in the Americas region for the year ended
August 31, 1997, primarily due to declines in Mexico and Venezuela where
difficult economic conditions had the greatest impact. Included in operating
profit for 1997 is a $2 million charge incurred in connection with exiting an
unsuccessful joint venture in Chile. The competitive pressure in Mexico and
Venezuela also contributed to the decline in operating profit in 1997.
Agribrands' Americas operations experienced a 10% increase in net sales in
1996. The increase in 1996 was primarily attributable to price increases to
cover rising ingredient costs. The Americas operations experienced erosion of
operating profit over the 1995 through 1997 period as higher selling prices
and tight control over operating expenses were more than offset by higher
commodity prices.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Europe
1997 1996 1995
Net sales $467.7 $461.5 $327.5
Operating profit $ 1.9 $ 0.1 $ 5.8
Operating profit as % of net sales 0.4% 0.0% 1.8%
</TABLE>
In 1997, net sales increased due to an acquisition in France and impact of a
full year of consolidated results in Spain which were partially offset by
declines in net sales in Italy and Portugal. Italy experienced declines
mainly in the dairy and cattle segments which suffered from red meat concerns
due to BSE or "Mad Cow" disease and reduced milk production quotas imposed by
the European Union. In Portugal, volume declined in connection with a
restructuring and streamlining of its operations.
European agricultural industries are mature and highly competitive.
Consolidation is accelerating in both the feed production and animal
production industries. As a result of these conditions, Agribrands' European
operating profits have lagged the other regions of Agribrands. The operations
in Hungary continue to be the largest contributor to earnings in the region.
In 1997, the European operations include a $3.2 million pre-tax and after tax
restructuring charge in Portugal.
The 41% increase in net sales of the European operations for 1996 is primarily
attributable to the January 1, 1996 acquisition of the remaining interest of
Agribrands' joint venture agribusiness in Spain. Despite the significant
increase in volume in 1996, European operating profits declined as Agribrands
incurred $6.4 million of pre-tax restructuring charges associated with
streamlining the European operations.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Asia Pacific
1997 1996 1995
Net sales $460.3 $366.1 $298.7
Operating profit $ 32.8 $ 24.3 $ 19.3
Operating profit as % of net sales 7.1% 6.6% 6.5%
</TABLE>
Net sales of Agribrands' Asia Pacific operations increased 26% in 1997 after
increasing 23% in 1996. The increases are primarily attributable to increased
market share by Agribrands' operations in Korea, the Philippines and the
People's Republic of China as Agribrands has pursued an aggressive growth
strategy in the Asia Pacific market. In addition, a portion of the increases
resulted from increased prices to cover higher commodity costs.
In 1997, operating profit increased 35% on higher volume and improved margins.
The margin improvement was most notable in the Philippines where Agribrands
experienced favorable ingredient costs, gains in production efficiency and
strong end-product markets. Operations also remained strong in Korea
accounting for approximately 75% of the net sales and 50% of the region's
operating profit during 1997.
In 1996, the increase in operating profit is generally attributable to the
increase in volume.
Restructuring Activities
In 1997, Agribrands recorded provisions for restructuring which reduced
earnings before income taxes and net earnings by $3.2 million. In 1996,
Agribrands recorded provisions for restructuring which reduced earnings before
income taxes and net earnings by $8.3 million and $7.2 million, respectively.
These charges represented primarily asset write-downs and severance costs and
were associated with the streamlining of the Agribrands operations in advance
of the planned spin-off. The provisions provided for the severance of
approximately 300 employees, most of whom were severed prior to August 31,
1997. Severance costs related to these restructuring provisions were
substantially paid by August 31, 1997. The pre-tax cost savings from these
restructuring activities approximated $7.0 million in 1997 and are expected to
approximate $8.0 million annually beginning in 1998.
Interest Expense and Other Income/Expense
Interest expense totaled $10.9 million in 1997 compared to $13.0 million in
1996 and $12.1 million in 1995. The decrease in 1997 resulted from lower
average outstanding borrowings and lower interest rates. The 1996 increase
resulted primarily from higher average outstanding borrowings.
In 1997, other income/expense, net, improved by $3.8 million on lower foreign
currency exchange losses in Mexico and lower translation losses in Venezuela.
Other income/expense, net, was unfavorable by $7.3 million in 1996 due to
higher foreign currency translation in Venezuela and higher exchange losses in
Mexico and Korea.
Income Taxes
Income taxes, which include United States and foreign taxes, were 74% of
pre-tax earnings in 1997 and 56% in 1996 and 1995. The increase in the
effective rate for 1997 resulted from changes in the earnings mix including
increased foreign losses in countries for which no tax benefit could be
currently recognized. In addition, Agribrands experienced higher taxes in
1997 because of increased repatriation of foreign earnings to the United
States.
Financial Condition
Cash flows from operations totaled $67.8 million in 1997 on increased cash
earnings coupled with lower inventory and other working capital requirements.
Lower inventory levels were most notable in Korea where strong fourth quarter
sales volume combined with timely inventory purchases to result in a very
favorable inventory position at August 31, 1997. Cash flows from operations
decreased in 1996 as Agribrands experienced significant increases in
receivables and inventory as a result of substantial increases in commodity
prices and in support of the growth of the business.
Capital expenditures, primarily to replace or enhance existing production
facilities and equipment, totaled $44.1 million, $28.5 million and $27.1
million in fiscal years 1997, 1996 and 1995, respectively.
Agribrands' capital investments and acquisitions have been partially funded
with investments by and advances from Ralston. Net proceeds from Ralston were
$13.7 million, $51.3 million and $0.9 million in fiscal years 1997, 1996 and
1995, respectively. The significant increase in 1996 was to support the
growth of the business, including acquisitions from joint venture partners of
the remaining interest in Agribrands' operations in both Spain and Hungary for
$25.6 million.
Projected capital expenditures of approximately $50 million in 1998 are
expected to be financed with net proceeds from Ralston as well as from funds
generated from operations and borrowings from banks.
As soon as practicable following the Distribution, Agribrands expects, subject
to satisfaction of closing conditions (primarily local regulatory approvals),
to have in place $110 million of secured revolving credit facilities with a
syndicate of international lenders (the "Credit Facilities"), the proceeds of
which will be used to provide working capital for general corporate purposes
and letters of credit to support Agribrands' international operations.
Ralston will continue to guarantee certain Agribrands' debt until such
approvals can be obtained or, at the latest, until May 31, 1998. The Credit
Facilities will include up to $40 million which will be available as advances
to Agribrands and certain of its subsidiaries (other than Purina Korea, Inc.,
its Korean subsidiary), or as letters of credit, and up to $70 million which
will be available for letters of credit for Agribrands subsidiaries or for
direct advances to its Korean subsidiary. $20 million of one facility will be
extended as a three year revolving credit, extendible, by mutual agreement,
for one additional year on each anniversary of the closing, and the remaining
$35 million of that facility will be extended as a 364-day revolving credit,
renewable quarterly by mutual agreement. The remaining $55 million facility
will be extended as a 364-day revolving credit extendible, by mutual
agreement, at maturity and at an extended maturity date for additional 364-
day periods. Under the terms of the Credit Facilities, Agribrands will be
subject to a number of restrictions, including (i) Agribrands and its
subsidiaries may not invest by acquisition and/or merger an amount exceeding
$20 million (including assumed debt) per individual transaction, or $80
million (including assumed debt) in the aggregate, during the term of the
Credit Facilities; (ii) Agribrands, at all times during the term of the
Credit Facilities, must maintain at least $25 million in a cash collateral
account for the benefit of the lenders; (iii) capital expenditures by
Agribrands and its subsidiaries may not exceed approximately $81 million
the first year, $40 million the second year, and $29 million the third
year of the term; and (iv) Agribrands must maintain certain debt and
interest coverage ratios and minimum net worth requirements. Ralston has
committed to funding Agribrands with a positive balance of cash and
marketable securities net of outstanding external debt. Under this
arrangement, management anticipates that Agribrands will have
approximately $100 million of cash and marketable securities and $75
million of external debt at Distribution.
Cash flow from operations, net proceeds from Ralston and borrowings under
various lines of credit are Agribrands' primary sources of liquidity.
Management has a strong orientation on cash flows and the effective use of
excess cash flows. The combined operating, cash and equity position of
Agribrands should continue to provide the capital flexibility necessary to
fund future opportunities as well as to meet existing obligations.
Foreign Exchange
International operations account for almost all of Agribrands' revenue and
operating income. Foreign currency exposures arise from transactions,
including firm commitments and anticipated transactions, denominated in a
currency other than an entity's functional currency and from foreign
denominated revenues and profits translated into US dollars.
Agribrands periodically enters into foreign exchange forward contracts to
mitigate Agribrands' economic exposure to changes in exchange rates. Company
policy allows foreign currency hedging transactions only for identifiable
foreign currency exposures and, therefore, Agribrands does not enter into
foreign currency contracts for trading purposes where the objective is to
generate profits. At August 31, 1997 and 1996, the notional value of the
forward exchange contracts outstanding was $1.4 and $3.1, respectively. The
calculated fair values of foreign currency contracts outstanding at August 31,
1997 approximates the notional value and all of the outstanding contracts had
matured by November 15, 1997.
Agribrands generally views as long-term its investments in foreign
subsidiaries with a functional currency other than the U.S. Dollar. As a
result, Agribrands does not generally hedge these net investments. However,
Agribrands uses capital structuring techniques to manage its net investment in
foreign currencies as considered necessary. Additionally, Agribrands attempts
to limit its U.S. Dollar net monetary liabilities in currencies of
hyperinflationary countries.
The net investment in Agribrands' Korean operations translated into dollars
using the year end exchange rates is approximately $36 million at August 31,
1997. The potential loss in value of Agribrands' net investment in Korean
operations resulting from a hypothetical 10% adverse change in the quoted
Korean won currency exchange rate at August 31, 1997 amounts to $3.6 million.
The net investment in all of Agribrands' foreign subsidiaries and affiliates
translated into dollars using the year end exchange rates is approximately
$160 million at August 31, 1997. The potential loss in value of Agribrands'
net investment in foreign subsidiaries resulting from a hypothetical 10%
adverse change in quoted foreign currency exchange rates at August 31, 1997
amounts to $16.0 million.
Year 2000 Costs
Many computer systems process dates in application software and data files are
based on two digits for the year of a transaction rather than a full four
digits. These systems are unable to properly process dates in the year 2000
and beyond. Agribrands has developed plans to address the impact by replacing
or modifying its key information and operational systems to deal with this
issue. Several new information technologies have been and are being installed
to achieve further productivity and cost improvements. These systems will be
year 2000 compliant. Agribrands plans that all systems necessary to manage
the Agribrands Business effectively will be replaced, modified or upgraded
before the year 2000. Because of the significant system enhancements and
replacements currently underway, Agribrands believes the costs to modify
current systems to be year 2000 compliant will not be significant to
Agribrands' financial results.
Inflation
Management recognizes that inflationary pressures may have an adverse effect
on Agribrands through higher asset replacement costs and related depreciation
and higher material costs. In addition, hyperinflationary conditions have
occurred in many of the countries in which Agribrands operates. Agribrands
tries to minimize these effects through geographical diversification, cost
reductions and productivity improvements as well as price increases to
maintain reasonable profit margins. It is management's view however, that
inflation has not had a significant impact on the consolidated operations in
the three years ended August 31, 1997.
Seasonal Factors
Sales prices and volume are both impacted by seasonal factors. As mentioned
earlier, agricultural product sales prices are directly influenced by changes
in the underlying commodity prices for the raw materials used to formulate
animal feeds. Commodity prices are usually at their lowest in the months
immediately following the fall harvest. Sales volume fluctuates somewhat
seasonally as temperature affects caloric intake and weather factors
influence, for example, the quantity of commercial animal feed rations
purchased for cattle.
Overall, seasonal factors have a minimal impact on Agribrands' total
performance in any given quarter as the factors not only have a mitigating
effect on each other but they are also mitigated by the geographical
diversification of Agribrands' operations
BUSINESS AND PROPERTIES
Background
Agribrands International, Inc. ("Agribrands"), a Missouri corporation and
wholly owned subsidiary of Ralston Purina Company ("Ralston"), was originally
incorporated as Tradico Missouri, Inc. on October 6, 1997. On November 18,
1997, Tradico, Inc., a Delaware corporation which was also a wholly owned
subsidiary of Ralston, was merged with and into Tradico Missouri, Inc., with
Tradico Missouri, Inc. as the surviving corporation. (Prior to the merger,
Tradico, Inc. was engaged in the business of purchasing, on a global basis
from independent third parties, both raw materials in bulk and equipment used
in the manufacture of animal feeds, and selling such material and equipment to
foreign-based affiliates of Ralston for use primarily in animal feed
operations.) Following the merger, the name of Tradico Missouri, Inc. was
changed to Agribrands International, Inc. Immediately prior to the
Distribution, Ralston will transfer to Agribrands (i) all of the outstanding
capital stock of its international subsidiaries engaged in the agricultural
products and animal feed business, and (ii) an amount equal to the appraised
value of the net assets utilized in the Canadian and Brazilian animal feed
businesses, (which assets will subsequently be acquired by Agribrands or
one of its subsidiaries from the Ralston subsidiary currently owning those
assets) In addition, Agribrands subsidiaries will retain certain production
assets historically shared with Ralston's international pet products business
in Songtan, Korea and Mosquera, Colombia. Effective as of the Distribution,
subsidiaries of Ralston will acquire certain assets and liabilities
associated with the pet products operations currently conducted by
subsidiaries of Agribrands in Guatemala, Colombia, Peru, France and
Venezuela. (See "AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS -- Agreement
and Plan of Reorganization") All of the businesses to be contributed to or
retained, and subsequently operated by, Agribrands and its subsidiaries are
herein referred to as the "Agribrands Business".
Following the Distribution, Agribrands will be a leading international
producer and marketer of animal feeds and agricultural products, and a
successor to Ralston's over 100 years of experience in the animal feeds and
agricultural products industry. Over the past 100 years, Ralston has built
and maintained its industry position by consistently providing high-quality
products and customer service. Although the business originated in the United
States, it expanded throughout the world, entering the Americas (outside of
the United States) in 1927, Europe in 1957, and Asia in 1967. Other than the
procurement of both raw materials and finished goods for export, and minor
import sales, the Agribrands Business is currently conducted exclusively
outside of the United States. Ralston's United States animal feed operations
were sold in 1986.
Because of high transportation costs, animal feeds, as a general rule, are
produced locally - close to their end markets - using available local
ingredients with imported ingredients as necessary. The local markets served
by the Agribrands Business vary dramatically with respect to locally available
ingredients, animal species being raised, climate, real estate values and
economic conditions. In order to manage effectively in this environment,
day-to-day operating decisions must be made with in-depth knowledge of local
factors. Consequently, the Agribrands Business has been organized as a
collection of highly autonomous units on a country by country basis in sixteen
foreign countries, each under the direction of a Managing Director responsible
for all functions within the country. The animal feed customers of the
Agribrands Business generally are located in rural farming regions, and are
either wholesalers who purchase for resale or bulk volume purchasers who
purchase for use on their own farms. These customers typically require and
expect a high level of technical support in connection with their purchases.
The Agribrands Business develops feed products, programs and information
targeted to local conditions and customer needs in each of the countries in
which it operates. Agribrands' staff of trained sales representatives and
technicians work closely with dealers and customers to help ensure that its
feed products and services are matched with the animal producer's facilities
and overall management practices, as well as the nutritional needs of the
particular animal species. The Agribrands Business' extensive experience and
knowledge of the nutritional requirements of animals enable it to provide
high-performance products that can often command a premium over other feed
alternatives. Agribrands' products are designed to provide the essential
nutrients that meet the needs of a particular species of animal at each phase
of its life cycle. It continually strives to maintain a desirable
cost-effective balance between weight gain, feed efficiency, yield, animal
health and price.
The Agribrands Business currently markets a broad line of animal feeds and
other nutrition products, including products for hogs, dairy cows, cattle,
poultry (broilers and layers), rabbits, horses, shrimp and fish. Agribrands,
through its subsidiaries and joint venture partners, operates 70 manufacturing
plants in 16 countries on four continents. Agribrands' products are sold as
complete feeds or as concentrates which are mixed with the customer's base
ingredients. Agribrands' products are generally those marketed under the
widely recognized brand names "Purina" and "Chow" and the "Checkerboard" logo,
and product names such as "Omolene". Prior to the Distribution, Ralston will
transfer to Agribrands a number of trademarks related to product names, and
will perpetually license, on a royalty-free basis, other trademarks used in
association with animal feed products. See "AGREEMENTS BETWEEN RALSTON AND
AGRIBRANDS--Trademark Agreement".
The basic feed manufacturing process consists of grinding various grains and
protein sources into a meal form and then mixing it with nutritional
additives, such as vitamins, minerals and synthetic amino acids and, in some
cases, medications. The resulting products are sold in a variety of forms,
including meal, pellets, blocks and liquids. The combination of the
nutritional value of the ingredients and the animal's ability to absorb that
nutrition determines the effectiveness of a feed product. The value of a
particular feed, relative to its price, is determined not only by its effect
on the animal's health, but also by the efficiency with which it is converted
into milk, meat or eggs, and any impact it has on the quality of those
end-products. However, the premium available for higher quality animal feeds
has been relatively modest, either because the differences in effectiveness
are relatively modest, or because feed customers are sometimes unwilling or
unable to pay higher unit prices. The challenge for the feed producer, given
the relatively modest margins, is to develop products with greater
effectiveness and ultimate value, but with minimal additional production cost.
Agribrands' feed formulas are based upon proprietary scientific research into
the nutrient content and animal absorption of the various grains and additives
utilized, and it has been able to utilize this research to produce feeds with
specified nutritional characteristics at a lower total cost.
The demand for particular products of Agribrands is affected by a number of
factors, including urban development; weather conditions; the prices of
commodities and alternative feed sources; the market price of livestock,
poultry and other animals; animal diseases; changes in consumer demand; real
estate values; government farm programs and other government regulations;
restrictive quota and trade policies and tariffs; production difficulties,
including capacity and supply constraints; and general economic conditions.
When the price of grain commodities in a local market have been high, many of
Agribrands' customers have in the past chosen to purchase complete rations.
This often results in higher tonnage but lower margins, reflecting the higher
cost of raw materials. Conversely, when commodity prices have been relatively
low, animal producers have tended to provide their own grains (resulting in
decreased volume) but have often purchased concentrated, nutritional
additives, with higher per unit margins. Historically, the effect on
profitability of lower volume during periods of low commodity prices has
tended to be offset by this increase in overall unit margins. In addition,
the Agribrands Business operates on an international basis, and weaknesses in
particular markets can be offset by strengths in other markets.
Profit pressure and overcapacity in various markets has led to consolidation
of both the animal feeds and animal production industries in those markets.
Particularly in the more economically developed regions in which Agribrands
operates, larger animal producers have tended to vertically integrate their
businesses by acquiring or constructing feed production facilities to meet
some or all of their feed requirements, and consequently have relied less on
outside suppliers of animal feeds. Agribrands believes that the superiority
of its products and its reputation for service and knowledgeability about
animal nutrition needs allow it to effectively compete in the face of such
trends.
Agribrands' Objectives and Strategy
Agribrands' objective is to enhance revenue growth and profitability by
delivering premium quality products and services to its dealers and customers,
expanding its strong market positions into new growing agricultural markets,
maintaining effective cost control programs, and developing and implementing
methods for more efficient manufacturing and distribution operations, while at
the same time maintaining aggressive pricing and promotion of its products.
Agribrands plans to achieve its objective through the following key
strategies:
- - Increase Market Share and Expand Geographically. Agribrands intends to
increase sales through further penetration of existing markets and expansion
into broader geographic markets. Agribrands has established fast-growing
operations in the Peoples' Republic of China, Southeast Asia and Eastern
Europe, and believes that, notwithstanding on-going economic crises in Asia
Pacific markets, each of those regions presents significant opportunities for
expansion and growth on a profitable basis. Agribrands also will continue to
pursue acquisitions to expand or complement its current market areas and
product lines, and to strategically invest in the development of new products.
Agribrands has recently signed a letter of intent to acquire a feed mill
operation in Jiangxi Province, People's Republic of China.
- - Accelerate Transfer of Best Practices. The decentralized management of
the Agribrands Business and its organization into highly autonomous regions
permits quick, focused response to the needs of local customers and to trends
in each country or region, while its international affiliation permits local
Agribrands businesses to benefit from their association with one another in
terms of commodities sourcing, product development and know-how, financial
management and other management practices. Agribrands management believes
that the communication and application of such "best practices" throughout its
operations can be improved and accelerated in order to optimize the individual
performance of each local affiliate.
- - Leverage Existing Distribution System. Agribrands' existing
distribution network of over 3500 independent and primarily exclusive dealers
represents a core strength of the Agribrands Business, and presents
significant opportunities for introducing new products and product line
extensions as well as developing new business relationships. Agribrands will
continue to utilize these dealers as a valuable resource for identifying
customer needs and product opportunities, as well as a efficient means, in
terms of both costs and time, of bringing new product developments to market.
- - Maximize Operating Efficiencies. Agribrands intends to embark on a
number of cost-saving and productivity programs as part of its strategy to
maximize operating efficiencies. Since 1995, the Agribrands Business has
restructured or divested underperforming assets, and is actively reviewing
measures to reduce excess capacity and exit unprofitable markets. Agribrands
will operate with a minimal management staff, and intends to take other steps
which will reduce its selling and distribution expenses, including reducing
administrative and operating costs. Regional management is continually
reviewing the development and implementation of more efficient manufacturing
and distribution practices. Management also intends to utilize Agribrands'
global market knowledge to source commodities at lower cost and maintain
research and development and training of technical support staff on an
efficient basis.
- - Introduce Better Workforce Incentives. Agribrands is redesigning its
compensation programs to motivate its workforce to achieve Agribrands'
strategic goals. By providing its workforce, and especially its executives
and key management personnel, with compensation programs that contain a
significant equity component, Agribrands intends to align their personal
interests with those of Agribrands' shareholders, thereby motivating them to
enhance long-term value. In connection with its request for the Tax Rulings,
Ralston has represented to the IRS that key management personnel and other
employees of Agribrands will own, or have options to acquire, approximately
0.5% of the outstanding Agribrands Stock within one year of the Distribution,
at least 3% within three years of the Distribution, and at least 5% within
five years of the Distribution. See "EXECUTIVE COMPENSATION" and
"AGRIBRANDS COMPENSATION AND BENEFIT PLANS -- Incentive Stock Plan".
Distribution System
Products of the Agribrands Business are distributed primarily through a
network of over 3500 independent dealers and over 1800 direct or indirect
sales personnel throughout the world. In some countries, particularly in the
Americas, products are sold directly to over 5000 large customer accounts.
Agribrands products are available through approximately 50,000 independently
owned sales and retail locations.
Competition
The animal feed business, which has substantial excess capacity in
certain regions of the world, is extremely fragmented and generally highly
competitive. The Agribrands Business faces intense competition in most of its
markets from other large feed manufacturers, including, in certain countries,
large multinational corporations such as Cargill, Inc. and Charoen Pokphand,
cooperatives, single-owner establishments and, in a number of countries,
government feed companies. Some of these competitors are larger and have
greater financial resources than Agribrands will have following the
Distribution, and in some countries government feed companies may have
significant financial and political advantages. Because of limited
technological or capital constraints on entry into the animal feed business,
new competitors with relatively modest return objectives can arise in any
market at any time. In addition, less effective but lower priced feed sources
become an especially attractive alternative to Agribrands' products when
livestock, poultry and other animal prices are low and customers are unwilling
to pay a premium for quality feeds. Although the strength of competitors
varies by geographic area and product line, Agribrands believes that no other
current competitor produces and markets as broad a line of animal feed
products in as many countries as Agribrands.
Both the animal feeds and animal production industries are consolidating, and
this trend is expected to continue. In the past, the Agribrands Business has
been successful in generating sales to large producers. However, the tendency
of large producers to vertically integrate their businesses by acquiring or
constructing feed production facilities has at times led to significantly less
reliance on outside suppliers of feed. As the consolidation of animal
producers continues, competition is likely to increase among independent feed
suppliers, and that industry is also likely to consolidate.
Much of the competition in the animal feeds and agricultural products industry
centers around price due to the commodity-like aspects of basic animal feed.
The Agribrands Business generally bears higher costs associated with a
multi-layered distribution system, a complex production system, and tax and
financing obligations imposed by its international and multi-currency
structure. Such higher costs may restrict its ability to compete in particular
markets on the basis of price. However, Agribrands believe that product
quality, customer service and the ability to identify and satisfy animal
production needs in individual markets are also significant competitive
factors. Agribrands also believes it has significant advantages due to
its extensive dealer distribution network, its nutritional expertise, its
ability to convert its research and technology into products which meet the
diverse requirements of its customers in different markets under different
economic circumstances, its high level of customer service and the
responsiveness of its locally autonomous structure, and the breadth, quality
and efficacy of its product lines. The animal feeds and agricultural products
business is expected to remain highly competitive in the foreseeable future.
Future growth opportunities for the Agribrands Business are expected to depend
on Agribrands' ability to implement its strategies for competing effectively
in new, growing agricultural markets, maintaining effective cost control
programs, making strategic acquisitions, and developing and implementing
methods for more efficient manufacturing and distribution operations, while at
the same time maintaining aggressive pricing and promotion of its products.
In 1986, Ralston sold the outstanding capital stock of its Purina Mills, Inc.
subsidiary, which was engaged in the animal feed and agricultural products
business in the United States to a subsidiary of British Petroleum. In
connection with that sale, Purina Mills, Inc. was granted a perpetual license
in the United States with respect to certain significant trademarks which are
currently used in the Agribrands Business outside of the United States.
Although Agribrands does not currently compete with Purina Mills, Inc. in the
United States, there are no legal restrictions on Agribrands' expanding into
that market, subject to the exclusive rights of Purina Mills, Inc. to utilize
such trademarks and trade names, and certain technologies, in the United
States.
Employees
After the Distribution, Agribrands will employ approximately 50
administrative employees in the United States, and approximately 5500
production, sales, marketing and administrative employees throughout the
world. Approximately 26% of Agribrands' international employees are
represented by labor unions. Agribrands believes it has good relations with
its union and nonunion employees.
Raw Materials
Agribrands manufactures its feed products from raw ingredients ranging
from widely-traded commodities, such as corn, milo, meat meal, soybean meal
and wheat middlings, to more specialized ingredients such as vitamins,
minerals and medications, and synthetic amino acids, such as lysine and
methionine. Historically the Agribrands Business has purchased most of its
requirements locally through purchasing agents based regionally or in local
countries. It is anticipated that purchases of some of these ingredients will
be shifted to a central purchasing operation so that the Agribrands Business
may further reduce the delivered cost of such ingredients.
The raw materials used by the Agribrands Business are generally available from
a number of different sources. In the past the Agribrands Business has not
experienced any significant interruption in availability of raw materials.
Agribrands affiliates do not typically enter into long-term contracts for the
purchase of ingredients. The cost of raw materials used in the products
manufactured by the Agribrands Business may fluctuate due to weather
conditions, crop disease or pestilence, government regulations, economic
climate, labor disputes or other unforeseen circumstances, and such
fluctuation may be volatile. Sales prices of agricultural products, a large
portion of the production cost of which are represented by the costs of raw
materials, are adjusted frequently to reflect changes in raw material costs;
price controls in certain local markets can, however, restrict the ability to
fully recover increases in the costs of raw materials. The rapid turnover of
certain raw material inventory items, and the ability to substitute
ingredients in some of these products, can provide further protection against
fluctuating raw material prices. The Agribrands Business has used the futures
markets, options and other risk management tools designed to protect its
margins on firm purchase price sales contracts with customers and to lock in
prices to support promotions on various products. Management has extensive
experience in purchasing ingredients in the commodity markets. From time to
time, management has taken positions in various ingredients to assure supply
and to protect margins on anticipated sales volume. Although Agribrands
intends to continue to use these risk management tools to hedge or protect
against such risks, it does not intend to speculate in the commodity markets,
and intends to maintain a relatively low dollar level of risk related to open
market positions.
Governmental Regulation; Environmental Matters
The operations of the Agribrands Business are subject to regulation by various
common market and local governmental entities and agencies and various common
market and local laws and regulations with respect to environmental matters,
including air and water quality, noise pollution, underground fuel storage
tanks, waste handling and disposal and other regulations intended to protect
public health and the environment. Many European countries, as well as the
European Union, have been very active in adopting and enforcing environmental
regulations. In many developing countries in which the Agribrands Business
operates, there has not been significant governmental regulation relating to
the environment, occupational safety, employment practices or other business
matters routinely regulated in the United States. As such economies develop,
it is possible that new regulations may increase the risk and expense of doing
business in such countries.
While it is difficult to quantify with certainty the potential financial
impact of actions regarding expenditures for environmental matters,
particularly remediation, and future capital expenditures for environmental
control equipment, in the opinion of management, based upon the information
currently available, the ultimate liability arising from such environmental
matters, taking into account established accruals for estimated liabilities,
will not have a material effect on Agribrands' financial position but could
be material to capital expenditures or earnings.
Properties
Agribrands' principal properties are its animal feed manufacturing
locations. Shown below are the locations of the principal properties of
Agribrands, all of which, except as indicated, will be owned by Agribrands or
its wholly owned subsidiaries following the Distribution. Agribrands will
lease the office space in St. Louis County, Missouri where its principal
executive offices will be located. Although a substantial number of these
manufacturing facilities are more than twenty years old, the management of
Agribrands believes its facilities are adequately maintained and are suitable
and adequate for the purposes for which they are used. During the fiscal year
ended August 31, 1997, the utilization of these facilities averaged
approximately 70% of capacity, and management believes that existing capacity
should be sufficient.
<PAGE>
BRAZIL
Canoas
Carmo do Cajaru (1)
Inhumas
Maringa
Paulinia
Recife
Volta Redonda
CANADA
Addison, Ontario
Courtice, Ontario (1)
Drummondville, Quebec
Palmerston, Ontario
St. Romuald, Quebec
Strathroy, Ontario
Woodstock, Ontario
COLOMBIA
Bucaramanga (1)
Buga
Cartagena
Ibaque (1)
Medellin (1)
Mosquera
FRANCE
Chatillon (2)
Courchelettes
Limoges (2)
Longue
Pommevic
St. Ybard (2)
Sorcy
GUATEMALA
Guatemala City
HUNGARY
Kaposvar
Karcag
ITALY
Borgoratto
Sospiro
Spessa
San Felice
Termoli
KOREA
Kunsan
Pusan
Songtan
MEXICO
Cuautitlan
Guadalajara
Merida (2)
Mexicali
Monterrey
Obregon
Salamanca
Tehuacan
PEOPLE'S REPUBLIC OF CHINA
Fushun (2) (3)
Langfang
Nanjing (2)
Yantai (2)
PERU
Arequipa (1)
Chiclayo
Lima
PHILIPPINES
Pulilan
Villasis
PORTUGAL
Benavente (4)
Cantenhede
SPAIN
Benavente
Dos Hermanas
La Coruna
Marcilla
Merida
Torrejon
Valencia
TURKEY
Gonen
Luleburgaz
VENEZUELA
Barcelona
Cabimas (2)(4)
Maracaibo
Maracay
Hatcheries
Valencia, Venezuela
In addition to the properties identified above, Agribrands and its
subsidiaries will own and/or operate sales offices, regional offices, storage
facilities, distribution centers and terminals and related properties.
In addition, Agribrands has recently signed a letter of intent to acquire a
feed mill operation in Jiangxi Province, People's Republic of China.
(1) Leased (2) Joint Venture (3) Under Construction (4)To be
Divested
Litigation and Regulatory Matters
In October of 1997, Agribrands' subsidiary in the Philippines applied for
a renewal of its license to warehouse corn, rice and by-products thereof at
its facility in Pulilan. The Philippine National Food Authority (the "NFA")
denied the renewal, although it has subsequently granted a temporary permit to
continue such operations, and also asserted that the Agribrands subsidiary has
violated applicable law regarding limited foreign ownership of Philippine
businesses engaged in the corn/rice industry. The NFA requested that the U.S.
parent of the Agribrands subsidiary, which owns 100% of the subsidiary's
outstanding capitol stock, file a plan for the divestiture of at least 60% of
its equity ownership. An administrative appeal of the denial of the license
has been filed, and, based upon the opinion of its Philippines counsel,
Agribrands believes that it will prevail. The denial of the license has not
disrupted the transaction of business pending a final decision. Agribrands is
challenging the NFA interpretation that the restrictions regarding foreign
ownership, and its request for a plan of divestiture, apply to Agribrands'
operations in the Philippines. Agribrands believes that in the event it is
ultimately unsuccessful in its challenge, it will have a substantial period
of time in which to complete the divestiture.
Various tax and labor claims have been asserted against the Agribrands
Business in Brazil. The claims arose principally from monetary corrections
made in connection with the institution of economic plans by prior Brazilian
administrations to control inflation.
A claim has been asserted against the Agribrands Business in connection
with its withdrawal from an unsuccessful joint venture in Chile. Efforts
to settle the claim have heretofore been unsuccessful and it is anticipated
that the parties will submit the dispute to arbitration in Santiago, Chile.
Ralston or local subsidiaries engaged in the Agribrands Business are
parties to a number of other legal proceedings in various foreign
jurisdictions arising out of the operations of the Agribrands Business.
Liability for these proceedings will be assumed by Agribrands except to the
extent liability is assumed by Ralston in the Reorganization Agreement.
Many of the foregoing legal matters are in preliminary stages, involve
complex issues of law and fact and may proceed for protracted periods of time.
The amount of alleged liability, if any, from these proceedings cannot be
determined with certainty; however, in the opinion of Agribrands management,
based upon the information presently known, as well as upon the limitation of
its liabilities set forth in the Reorganization Agreement, the ultimate
liability of Agribrands, if any, arising from the pending legal proceedings,
as well as from asserted legal claims and known potential legal claims which
are probable of assertion, taking into account established accruals for
estimated liabilities, should not be material to the financial position of
Agribrands but could be material to results of operations or cash flows for a
particular quarter or annual period.
MANAGEMENT
Directors of Agribrands
Pursuant to the Agribrands Articles of Incorporation and Bylaws, the
Board of Directors of Agribrands (the "Agribrands Board") will consist of not
less than three and no more than twelve individuals, divided into three
approximately equal classes, with each class serving a three year term. The
exact number of directors will be set from time to time by resolution of the
Board. Initially following the Distribution, the Agribrands Board will consist
of seven individuals, only one of whom will be an employee of Agribrands and
three of whom will be officers or directors of Ralston. The following table
sets forth information as to the persons who will serve as directors of
Agribrands following the Distribution, their class membership, and their
original terms (the directors' ages are as of December 31, 1997). It is
presently intended that Mr. Stiritz will serve as Chairman of the Board of
Directors.
Initial
Term
Age Expires Information
David R. Banks 60 1999 Chairman of the Board and Chief
Executive Officer, Beverly
Enterprises, Inc. (health care
services). Also a director
of Nationwide Health Properties,
Inc., Ralston Purina Company and
Wellpoint Health Networks, Inc.
Jay W. Brown 52 1999 President and Chief Executive
Officer, Protein Technologies
International, Inc., a subsidiary
of E.I. DuPont de Nemours and
Company (soy protein products)and
former Vice President, Ralston
Purina Company and former
Chairman and Chief Executive
Officer, Continental Baking
Company (fresh bakery products).
Also a director of Foodmaker, Inc.
M. Darrell Ingram 65 1999 Chairman of the Board, Red Fox
Environmental Services, Inc.
(pollution control services).
Retired President and Chief
Executive Officer, Petrolite
Corporation. Also a director of
Ralston Purina Company.
H. Davis McCarty 57 2000 Private Consultant for agri
business marketing and strategic
planning. Former President,
Consolidated Nutrition, LC.,
subsidiary of Archer Daniels
Midland and AGP, Inc. (animal
feed manufacturing). Former
Chairman and President of
Innovative Pork concepts
subsidiary of Central Soya.
Former Chief Executive of
Genetics and Trading Businesses,
BP Nutrition division of British
Petroleum PLC and former Vice
President, Purina Mills, Inc.
Joe R. Micheletto 61 2000 Chief Executive Officer and
President, Ralcorp Holdings,
Inc.(food company). Former Vice
President and Controller,
Ralston Purina Company. Also a
director of Ralcorp Holdings,
Inc. and Vail Resorts, Inc.
Martin K. Sneider 55 2001 Adjunct Professor of Retailing,
Washington University of St.
Louis, Missouri. Former
President of Edison Brothers
Stores, Inc. (retail operation).
Also a Director of CPI
Corporation. In November, 1995,
Edison Brothers filed for
protection under Chapter 11 of
the Federal Bankruptcy Code.
Mr. Sneider had been President
until April, 1995.
William P. Stiritz 63 2001 Chairman of the Board, Chief
Executive Officer and
President, Agribrands
International, Inc. Chairman
of the Board and former Chief
Executive Officer and
President of Ralston Purina
Company. Also a director of
Angelica Corporation, Ball
Corporation, The May
Department Stores Company,
Ralcorp Holdings, Inc.,
Reinsurance Group of America,
Inc. and Vail Resorts, Inc.
Directors' Meetings, Fees and Committees
The Agribrands Board expects to have four regularly scheduled meetings
per year, and will hold such special meetings as it deems advisable, to review
significant matters affecting Agribrands and to act upon matters requiring
Board approval. Non-management directors will receive an annual retainer of
$20,000, and will also be paid $1,000 for attending each regular or special
Board meeting and $1,000 for attending each standing committee meeting.
Agribrands will also pay the premiums on Directors' and Officers' Liability
and Travel Accident insurance policies insuring directors.
Agribrands will adopt the Agribrands Deferred Compensation Plan.
Under the Agribrands Deferred Compensation Plan (in which key employees,
Executive Officers and Directors are eligible to participate), any non-
management Director may elect to defer, with certain limitations, all
retainers and fees. Deferrals will be invested in accordance with the
investment elections made by the participant in his or her annual deferral
election. Investment options will mirror the investment funds offered by the
Agribrands SIP. Each participant's account will be increased or decreased to
reflect the gain or loss on the funds invested pursuant to his or her
investment election. Any assets set aside by Agribrands to satisfy its
obligations under the Agribrands Deferred Compensation Plan will remain
subject to the general creditors of Agribrands. Deferrals and related
earnings will be paid out in a lump sum in cash to the Director at the
Director's termination of service, or total disability or to the Director's
estate or beneficiary upon the Director's death.
The Agribrands ISP also provides that non-management directors may be
granted non-qualified stock options to acquire shares of Agribrands Stock and
other Agribrands Stock awards. For a more complete description of the
Agribrands ISP and the tax consequences to participants of awards under that
plan, see "AGRIBRANDS COMPENSATION AND BENEFIT PLANS--Incentive Stock Plan".
Presently no awards under the Agribrands ISP have been made or are
contemplated to be made to any of the non-management Directors, although a
stock option award will be granted to Mr. Stiritz. "AGRIBRANDS COMPENSATION
AND BENEFIT PLANS -- Incentive Stock Plan".
Prior to the Distribution, the Agribrands Board is expected to establish and
designate specific functions and areas of oversight to a Nominating and
Compensation Committee and an Audit Committee. Directors who are also
employees or officers of Agribrands will not be permitted to serve on either
committee. A description of these standing committees and the identity of
their expected members follows:
Nominating and Compensation Committee - M.D. Ingram (Chairman), D.R.
Banks, J.W. Brown, H.D. McCarty, M.K. Sneider.
The Nominating and Compensation Committee will consist entirely of
non-management Directors free from interlocking or other relationships that
might be considered a conflict of interest. It will recommend to the Board
nominees for election as Directors and Executive Officers of the Company.
Additionally, it will make recommendations to the Board regarding election of
Directors to positions on committees of the Board and compensation and
benefits for Directors. The Nominating and Compensation Committee will
consider suggestions from shareholders regarding possible Director candidates.
This Committee will also set the compensation of all Executive Officers and
administer the Agribrands Deferred Compensation Plan and the Agribrands ISP,
including the granting of awards under the latter plan. It will also review
the competitiveness of management compensation and benefit programs, and
principal employee relations policies and procedures.
Audit Committee - D.R. Banks (Chairman), J.W. Brown, M.D. Ingram, H.D.
McCarty, J.R. Micheletto, M.K. Sneider.
The Audit Committee will consist entirely of non-management Directors. It
will be responsible for matters relating to accounting policies and practices,
financial reporting, and internal controls. It will recommend to the Board the
appointment of a firm of independent accountants to examine the financial
statements of Agribrands, and will review with representatives of the
independent accountants and the Chief Financial Officer the scope of the
examination of Agribrands financial statements, results of audits, audit
costs, and recommendations with respect to internal controls and financial
matters. It will also review non-audit services rendered by Agribrands'
independent accountants and will periodically meet with or receive reports
from principal corporate officers.
Compensation Committee Interlocks and Insider Participation
Mr. Stiritz, Chief Executive Officer and Chairman of the Board of
Agribrands, is Chairman of the Nominating and Compensation Committee of the
Board of Directors of Ralcorp Holdings, Inc. Mr. Micheletto, a director of
the Company, is the Chief Executive Officer and President of Ralcorp Holdings,
Inc.
Executive Officers of Agribrands
Agribrands' senior management team (the "Executive Officers") will
consist primarily of individuals currently responsible for the management of
the Agribrands Businesses. Ages shown are as of December 31, 1997.
William P. Stiritz will be Chief Executive Officer, President and
Chairman of the Board for Agribrands. Mr. Stiritz joined Ralston in 1963 and
served as Chief Executive Officer and President of Ralston from 1982 until his
retirement in 1997. Age: 63.
David R. Wenzel will be Chief Financial Officer for Agribrands. Mr.
Wenzel joined Ralston's Protein Technologies subsidiary as Director of
Corporate Planning in 1993 and in 1994 became Director of Strategic Planning
for Ralston. Prior to joining Ralston, Mr. Wenzel was a Manager, Tax
Services, for Price Waterhouse LLP in their St. Louis office. He has served
as the Chief Financial Officer for Ralston's international agricultural
products business since 1996. Age: 34.
Bill G. Armstrong will be Chief Operating Officer for Agribrands. Mr.
Armstrong re-joined Ralston in 1989. He served as Managing Director of
Ralston's international agricultural products Philippine operations from 1992
to 1995; international agricultural products Regional Chief Executive Officer
- - South Asia from 1995 to 1997; and as Executive Vice President of Operations
for Ralston's international agricultural products business since 1997. Age:
49.
Gonzalo Dal Borgo will be Vice President, Strategic Project Development
for Agribrands. Mr. Dal Borgo joined Ralston in 1968. He served as President
and Managing Director for Ralston's international agricultural products
Brazilian and South American operations from 1991 to 1994; and
international agricultural products Regional Chief Executive Officer - Americas
from 1994 to 1998. He has held his current position since March of 1998. Age:
57.
Kim Ki Yong will be Chief Operating Officer-North Asia Region for
Agribrands. Mr. Kim re-joined Ralston in 1980. He served as President and
Chief Executive Officer of Ralston's international agricultural products
Korean operations from 1993 to 1995; and international agricultural products
Regional Chief Executive Officer - North Asia since 1995. Age: 52.
Eric Poole will be Chief Operating Officer - Europe Region for
Agribrands. Mr. Poole re-joined Ralston in 1978. He served as Vice President
- - Americas for Ralston's international agricultural products operations from
1993 to 1995; and as international agricultural products Regional Chief
Executive Officer - Europe since 1995. Age: 52.
Michael J. Costello will be Secretary and General Counsel for Agribrands.
Mr. Costello joined Ralston in 1989 and has served as International Counsel
for Ralston's international agricultural products business since that time.
Mr. Costello practiced international, corporate and commercial finance law at
the law firm of Thompson & Mitchell (now Thompson & Coburn) in St. Louis,
Missouri from 1982 to 1989, and specialized in international transactions at
Nordic Law Consultants in Brussels, Belgium from 1977 to 1980. Age: 45.
Robert W. Rickert, Jr. will be Treasurer for Agribrands. Mr. Rickert
joined Ralston in 1975. Mr. Rickert served as Ralston's Manager,
International Finance from 1986 to 1988; Director International Finance -
Latin America, Middle East, and Africa from 1988 to 1992; and as Director of
International Finance Services for the international agricultural products
business since 1990. Age: 46.
All of the individuals named above that are currently employed by Ralston or
one of its subsidiaries will resign from such positions effective as of the
Distribution Date.
EXECUTIVE COMPENSATION
All direct and indirect remuneration of all Executive Officers and
certain other executives will be approved by the Nominating and Compensation
Committee of the Agribrands Board (the "Agribrands Committee"). The Agribrands
Committee consists entirely of non-management directors. It is anticipated
that compensation for the Executive Officers and for other executives will
consist principally of base salary, annual cash bonus and long-term
stock-based incentive awards.
Salaries will be based, among other factors, on the Agribrands Committee's
assessment of the executive's responsibilities, experience and performance;
compensation data of other companies; and the competitive environment for
attracting and retaining executives.
It has been determined, however, that for the first five years of
operations, and thereafter at the discretion of the Agribrands Committee, Mr.
Stiritz will not receive a salary, but instead will be granted within 30
days of the Distribution Date, under the terms of the Agribrands ISP, an option
to acquire from 1 million to 1.75 million shares of Agribrands Stock based on
the average closing price of the Agribrands Stock from April 1 to April 14,
1998. The exact number of shares will be determined based upon a formula
whereby the number of shares granted will increase or decrease as the average
price during that period decreases or increases. The option will be granted
with an exercise price equal to the average closing price of the Agribrands
Stock during that period. The option will become exercisable on the fifth
anniversary of the date of grant and remain exercisable for a period of ten
years after the date of grant.
It is anticipated that cash bonuses will be set each year at or following
the end of Agribrands' fiscal year. Factors, among others, to be considered in
determining the amount of cash bonuses will be the officer's individual
performance (including the quality of strategic plans, organizational and
management development, special project leadership and similar manifestations
of individual performance); the financial performance of the officer's
business unit relative to the business plan (including such areas as sales
volume, revenues, costs, cash flow and operating profit); and Agribrands
financial performance (including the measures of business unit performance
listed above and, in addition, earnings per share, return on equity and total
return to the shareholders in the form of stock price appreciation).
Stock-based incentive awards will consist principally of stock options and
restricted stock awards which will be granted from time to time under the
Agribrands ISP. The Agribrands Committee will base its decisions on the
granting of stock-based incentives on, among other factors, the number of
shares of Agribrands Stock outstanding, the number of shares of Agribrands
Stock authorized under the Agribrands ISP, the number of options and shares of
restricted stock held by the executive for whom an award is being considered
and the other elements of the executive's compensation. In connection with
its request for the Tax Rulings Ralston has represented to the IRS that key
management personnel and other key employees of Agribrands will own or have
options to acquire approximately 0.5% of the outstanding Agribrands Stock
within one year of the Distribution, at least 3% within three years of the
Distribution, and at least 5% within five years of the Distribution.
Although the Agribrands Business was owned in all substantial respects by
Ralston or its affiliates during Ralston's last fiscal year, Agribrands was
not incorporated nor in existence, nor did it employ any personnel, at any
time during that year. Certain individuals who are expected to serve as
Executive Officers of Agribrands, although employed by Ralston, were not
dedicated exclusively to the Agribrands Business and, in fact, devoted
substantial time and effort to other Ralston businesses. Accordingly, no
historical information on Ralston compensation for such individuals is
reported. Agribrands' proxy statement for its 1999 Annual Meeting of
Shareholders will contain information on compensation paid to the Executive
Officers in fiscal year 1998.
<PAGE>
AGRIBRANDS COMPENSATION AND BENEFIT PLANS
The following is a description of the compensation and benefit plans
adopted or expected to be adopted by Agribrands, some of which are
substantially similar to plans in effect at Ralston. The compensation and
benefit plans of Agribrands are intended to attract and retain employees and
to reward such employees through emphasis on performance and incentive
criteria. It is anticipated that the Executive Officers and other key
employees of Agribrands will participate in such plans. After the
Distribution, none of the officers of Agribrands will participate in any of
the employee benefit plans of Ralston, except to the extent such officers are
entitled to accrued benefits pursuant to such plans; Mr. Stiritz, however, as
a Director of Ralston, may participate in Ralston compensation plans and
programs available to its Directors.
Incentive Stock Plan
Prior to the Distribution, Ralston, as sole shareholder of the
outstanding capital stock of Agribrands, approved the Agribrands ISP which is
administered by Agribrands. The Agribrands Committee has sole discretion,
subject to the terms of the Agribrands ISP, to determine those eligible to
receive awards and the amount and type of awards. Members of the Committee
are not eligible for awards unless approved by the Board as a whole. The
Agribrands ISP provides for the granting of stock options, restricted stock
awards and other awards of Agribrands Stock or Agribrands Stock
equivalents payable to Agribrands employees, including Executive Officers, and
to Agribrands non-employee Directors. The purpose of the Agribrands ISP is
to enhance the profitability and value of Agribrands for the benefit of its
shareholders by providing stock awards to attract, retain and motivate
officers, other key employees and in certain circumstances, non-management
Directors, who make important contributions to the success of Agribrands.
Terms and conditions of awards will be set forth in written agreements,
the terms of which will be consistent with the terms of the Agribrands
ISP.
Any key employee of Agribrands or any of its subsidiaries is eligible for an
award under the Agribrands ISP if selected by the Committee. Subject to the
provisions of the Agribrands ISP, the Agribrands Committee would have full
authority and discretion to determine the individuals to whom awards will be
granted and the amount and form of such awards. It is estimated that there are
approximately 250 persons employed by Agribrands and its subsidiaries who
would be eligible for selection for participation by the Agribrands Committee.
The Agribrands ISP will continue until the shares reserved for award have
been granted in awards or until December 31, 2007, if earlier. Under the
Agribrands ISP the maximum number of shares of Agribrands Stock granted or
subject to awards will be 2,750,000 (approximately 25% of the issued and
outstanding shares of Agribrands Stock as of the Distribution Date).
Since there is no current market for shares of the Agribrands Stock, the
market value of such securities cannot be determined. Upon the
cancellation or expiration of an award, the unissued shares of Agribrands
Stock subject to such awards will again be available for additional awards
under the Agribrands ISP.
Under the Agribrands ISP the Agribrands Committee is authorized (i) to
grant stock options that qualify as "Incentive Stock Options" under Section
422 of the Code, and (ii) to grant stock options that do not so qualify. The
Agribrands Committee is entitled to set the option price of stock options at
any price it determines equal to or in excess of the fair market value of
Agribrands Stock on the date of grant. Stock options entitle the recipient to
purchase a specific number of shares of Agribrands Stock after a specified
period of time at an option price set by the Agribrands Committee. No stock
option can be exercised more than ten years after the date such option is
granted. In the case of Incentive Stock Options, the aggregate fair market
value of the stock with respect to which options are exercisable for the first
time by any recipient during any calendar year cannot, under present tax
rules, exceed $100,000.
The shares which may be granted pursuant to a restricted stock award will be
restricted and will not be able to be sold, pledged, transferred or otherwise
disposed of until such restrictions lapse. Shares of stock issued pursuant to
a restricted stock award will be issued for no monetary consideration. Other
stock awards which may be issued under the Agribrands ISP include, but are not
limited to, stock appreciation rights, restricted and performance share units
and stock-related deferred compensation.
The Agribrands ISP generally provides that it may be amended by the
Agribrands Board of Directors. Such amendment can be made without
shareholder approval unless such approval is required by applicable law or
regulation. The Agribrands Committee may make appropriate adjustments to the
number of shares available for awards and the terms of outstanding awards
under the Agribrands ISP to reflect: any change in capital stock of
Agribrands; issuance f any targeted stock; stock split-up; stock dividend;
exercisability of stock purchase rights; special distribution to shareholders;
combinations or reclassifications with respect to any outstanding series or
class of stock; or consolidation, merger or sale of all or substantially all
of the assets of Agribrands.
Stock options to be issued under the Agribrands ISP as Incentive Stock
Options ("ISO") will satisfy the requirements of Section 422 of the Code.
Under the provisions of that Section, the optionee will not be deemed to
receive any income at the time an ISO is granted or exercised. If the optionee
disposes of the shares more than two years after the grant and one year after
the exercise of the ISO, the gain, if any (i.e., the excess of the amount
realized for the shares over the option price) will be treated for tax
purposes as capital gain. If the optionee disposes of the shares acquired on
exercise of an ISO within two years after the date of grant or within one year
after the exercise of the ISO, the disposition will constitute a
"disqualifying disposition", and the optionee will have ordinary income in the
year of the disqualifying disposition equal to the fair market value of the
stock on the date of exercise minus the option price. The excess of the amount
received for the shares over the fair market value of the stock at the time of
exercise will be treated for tax purposes as capital gain. If the optionee
disposes of the shares in a disqualifying disposition, and such disposition is
a sale or exchange which would result in a loss to the optionee, then the
amount treated as ordinary income is the excess (if any) of the amount
realized in such sale or exchange over the adjusted basis of such shares.
Agribrands is not entitled to a deduction as a result of the grant or
exercise of an ISO. If an optionee has ordinary income as a result of a
disqualifying disposition, Agribrands will have a corresponding deductible
expense in an equivalent amount in the taxable year of Agribrands in which the
disqualifying disposition occurs.
The difference between the fair market value of the option at the time of
exercise and the option price is a tax preference item for alternative minimum
tax purposes. The basis in an ISO for alternative minimum tax purposes is
increased by the amount of the preference.
Stock options issued under the Agribrands ISP which do not satisfy the
requirements of Section 422 of the Code will have the following tax
consequences:
(i) the optionee will have ordinary income at the time the option is
exercised in an amount equal to the excess of the fair market value at the
date of exercise over the option price;
(ii) Agribrands will have a deductible expense in an amount equal to
the ordinary income of the optionee;
(iii) no amount other than the price paid under the option shall be
considered as received by Agribrands for shares so transferred;
and
(iv) any gain from the subsequent sale of the shares by the optionee
for an amount in excess of fair market value on the date the
option is exercised will be treated for tax purposes as capital
gain and any loss will be a capital loss.
In general, a recipient of other stock awards, other than restricted
stock awards (see below), will have ordinary income equal to the cash or fair
market value of the Agribrands Stock on the date received in the year in
which the award is actually paid. Agribrands will have a corresponding
deductible expense in the same year in an amount equal to that reported by
the recipient as ordinary income. The recipient's basis in the Agribrands
Stock received will be equal to the fair market value of the stock when
received and the recipient's holding period will begin on that date.
With respect to restricted stock awards, such awards do not constitute taxable
income under existing Federal tax law until such time as restrictions lapse
with respect to the total award or any installment. When any installment of
securities are released from restriction, the market value of such shares on
the date the restrictions lapse constitutes income to the recipient in that
year and is taxable at ordinary income rates, and Agribrands will have a
corresponding deductible expense in an amount equal to that reported by the
recipient as ordinary income and in the same year.
The Code, however, permits a recipient of a restricted stock award to
elect to have the award treated as taxable income in the year of the award and
to be subject to tax at ordinary income rates on the fair market value of all
of the shares awarded, based on the price of the shares on the date the
recipient receives a beneficial interest in such shares. The election must be
made promptly within time limits prescribed by the Code and the regulations
thereunder. Any appreciation in value thereafter would be taxed at capital
gain rates when the restrictions lapse and the stock is subsequently sold.
However, should the market value of the stock at the time the restrictions
lapse and the stock is sold, be lower than at the date the award was acquired,
the recipient would have a capital loss, to the extent of the difference. In
addition, if after electing to pay tax on the award in the year the award was
received the recipient subsequently forfeits the award for any reason, the tax
previously paid is not recoverable.
Since the lapse of restrictions on restricted stock awards is accelerated in
the event of a change of control of Agribrands, such an acceleration may
result in an excess parachute payment, as defined in Section 280 (G) of the
Code. In such event, Agribrands' deduction with respect to such payment is
denied and the recipient is subject to a nondeductible 20% excise tax on such
excess parachute payment.
The tax treatment upon disposition of Agribrands Stock acquired under the
Agribrands ISP will depend upon the type of award and how long the shares have
been held. The tax treatment also will depend on whether or not the shares
were acquired by exercising an ISO. There are no tax consequences to
Agribrands upon a participant's disposition of shares acquired under the
Agribrands ISP except that Agribrands may take a deduction equal to the amount
the participant must recognize as ordinary income in the case of the
disposition of shares acquired under ISO's before the applicable ISO holding
period has been satisfied.
The Agribrands Committee has the sole discretion to determine that awards
under the Agribrands ISP contain provisions regarding the treatment of awards
in the event of a change in ownership or of a change in control of Agribrands.
The Agribrands Committee may provide that upon a change in ownership or change
in control, all terms, conditions, restrictions and limitations in effect with
respect to any unexercised award will immediately lapse and no other terms and
conditions will be applied. Any unexercised, unvested, unearned or unpaid
award will automatically become 100% vested. The Agribrands Committee may also
provide that awards with performance periods will be treated as if the
performance objectives have been obtained at a level of 100%.
In connection with its request for the Tax Rulings, Ralston has represented to
the IRS, among other things, that within one year after the date of the
Distribution, key management personnel and other key employees of Agribrands
will own or have options to acquire Agribrands Stock aggregating approximately
0.5% of the outstanding Agribrands Stock, at least 3% within three years after
the date of the Distribution, and at least 5% within five years after the date
of the Distribution, in order to align the interests of management with those
of stockholders and foster significant stock ownership by Agribrands' key
executives. Such awards will be made to certain of the Executive Officers and
other key executives; however, the total number of shares to be granted, their
value and how they will be allocated has not been determined at this time. The
Agribrands Committee may make additional awards of restricted stock or stock
options to the Executive Officers and other directors and employees of
Agribrands.
It has been determined, however, that for the first five years of operations,
and thereafter at the discretion of the Agribrands Committee, Mr. Stiritz will
not receive a salary, but instead will be granted, within 30 days of the
Distribution Date, under the terms of the Agribrands ISP, an option to
acquire from 1 million to 1.75 million shares of Agribrands Stock, based
upon the average closing price of the Agribrands Stock during the period from
April 1 to April 14, 1998. The exact number of shares will be determined
based upon a formula whereby the number of shares granted will increase or
decrease as the average price during that period decreases or increases. The
option will be granted with an exercise price equal to the average closing
price of the Agribrands Stock during that period. The option will become
exercisable on the fifth anniversary of the date of grant and will remain
exercisable for a period of ten years after the date of grant.
A copy of the Agribrands ISP is attached as Annex A to this Information
Statement. The foregoing description of the Agribrands ISP is intended only as
a summary and is qualified in its entirety by reference to the Agribrands ISP.
Savings Investment Plan
Agribrands also intends to adopt the Agribrands SIP, a defined
contribution plan which is intended to be a 401(k) Plan. Pursuant to the
Agribrands SIP, any eligible employee of Agribrands may elect to
have his or her employer contribute to the Agribrands SIP, on his or her
behalf, contributions of up to 12% of their compensation, in 1% increments,
rather than receive such amounts in cash ("Elective Contributions").
Agribrands will contribute a Company Matching Contribution equal to 50%
of each participant's Elective Contribution, but only to the extent that
the participant's Contributions do not exceed 6% of compensation. Agribrands
will have the option of contributing an additional amount to the Agribrands
SIP in the form of Profit Sharing Contributions. Neither the Elective
Contributions, the Company Matching Contributions nor Profit Sharing
Contributions will be subject to Federal income tax in the year contributed;
however, the total Contributions will be subject to limitation as
required by Section 415 of the Code.
Amounts contributed to the Agribrands SIP will be invested by the trustee
in one or more funds as directed by the participant. It is contemplated that
initially there will be approximately 8 such funds offering a variety of
investment options. Shares of Ralston Stock and Agribrands Stock allocated
to participants in the Ralston SIP who become employees of Agribrands will be
transferred to, and maintained in the Agribrands SIP, or sold as directed by
the individual participants to whom such shares are attributed. Participants
will not be permitted to invest additional monies in either Ralston Stock or
Agribrands Stock, and after a period of time all shares of either Stock still
retained by the Agribrands SIP will be sold and the proceeds invested,
according to participants' elections, in other funds offered by the Plan.
A participant's Elective Contributions will be vested from the time made.
Company Matching Contributions will be fully vested for those individuals
employed on or before April 15, 1998, and, for employees hired after April 15,
1998, will vest at the rate of 20% per year, commencing in their second
year of service. Company Matching and Profit Sharing Contributions are also
fully vested upon attainment of age 65 or death, or in the case of termination
of the Agribrands SIP. Upon termination of employment, retirement,
disability or death, that portion of the trust fund credited to a
participant which is vested will be made available to the participant, or,
in the case of death, to the appropriate beneficiary.
The Code imposes limits on deferrals permitted in tax-qualified plans
such as the Agribrands SIP. Any participant whose deferrals in the
Agribrands SIP are limited during a calendar year by the limitations imposed
under the Code may have the excess deferred into the Agribrands Deferred
Compensation Plan.
Deferred Compensation Plan
Agribrands intends to adopt the Agribrands Deferred Compensation Plan
which will be administered by Agribrands. Under the Agribrands Deferred
Compensation Plan, all or any part of an eligible employee's salary and
bonus may be deferred by the participant until retirement, termination
of employment, total disability or death, or in the case of bonuses only,
until the following calendar year. Participation in the Agribrands Deferred
Compensation Plan will be offered to certain key employees (including the
Executive Officers) of Agribrands and certain of its subsidiaries, as well
as to non-management Directors. The purpose of the Agribrands Deferred
Compensation Plan is to afford the participant the opportunity to create
post-retirement benefits. The Agribrands Deferred Compensation Plan
initially will provide that all or any part of the participant's compensation
may be deferred in various investment options which will mirror the
performance of the investment funds offered by the Agribrands SIP. Benefits
under the Agribrands Deferred Compensation Plan will be distributed to the
participant in the following calendar year or following retirement,
termination of employment or total disability. In the event of the
participant's death, benefits will be paid to the participant's beneficiary
or legal representative.
Management Continuity Agreements
Agribrands intends to enter into management continuity agreements with
the Executive Officers and possibly other key employees. The purpose of these
agreements is to provide severance compensation in the event of voluntary or
involuntary termination after a change in control of Agribrands, which is
generally defined as the acquisition of 50% or more of the outstanding shares
of Agribrands Stock, or the failure of the initial Directors or their
recommended or appointed successors to constitute a majority of the Agribrands
Board of Directors. The compensation provided may be in the form of (i) a lump
sum payment equal to the present value of continuing their respective salaries
and bonuses throughout an applicable period following termination of
employment, and (ii) the continuation of other employee benefits for the same
period. It is anticipated that the initial applicable period will be two
years for Executive Officers, and one year for other key employees, in the
event of an involuntary termination of employment (including a constructive
termination), and one year and six months, respectively, in the event of a
voluntary termination of employment, which periods will be subject to
reduction for periods the relevant individual remains employed following a
change in control. No payments would be made in the event termination is due
to death, disability or normal retirement, or is for cause; nor would any
payments be calculated for periods beyond a participant's normal retirement
age.
RALSTON COMPENSATION PROGRAMS
The Reorganization Agreement contains provisions for the assumption by
Agribrands of certain employee benefit obligations and liabilities to
Agribrands employees, including the Executive Officers, pursuant to certain
Ralston incentive and compensation programs and plans. See "AGREEMENTS BETWEEN
RALSTON AND AGRIBRANDS -- Agreement and Plan of Reorganization ".
An investment fiduciary for the Ralston SIP will, at a time deemed appropriate
by it, cause to be converted or redeemed all shares of Ralston's Series A ESOP
Convertible Preferred Stock ("ESOP Stock") held on behalf of Agribrands
employees who, prior to the Distribution Date, are participants in the Ralston
SIP. The ESOP Stock will be converted (at the rate of 2.29 shares of Ralston
Stock for each share of ESOP Stock) or redeemed into shares of Ralston Stock,
in accordance with the terms of the ESOP Stock, and all shares of Ralston
Stock held pursuant to the Ralston SIP, whether in accounts under the Ralston
Stock Fund or received by the Ralston SIP upon the conversion or redemption of
the ESOP Stock will receive shares of Agribrands Stock pursuant to the
Distribution. As soon as practicable following the Distribution, shares of
Ralston Stock and Agribrands Stock (received in the Distribution) held in the
Ralston SIP on behalf of Agribrands employees will be transferred to the
Agribrands SIP and held in accounts established for such employees pursuant to
the Agribrands SIP.
Amounts credited to Agribrands employees, including the Executive
Officers, pursuant to Ralston's Deferred Compensation Plan for Key Employees
and its Executive Savings Investment Plan will be credited to funds
elected by the participants in the Agribrands Deferred Compensation Plan.
Agribrands will indemnify Ralston against any liability for obligations to
Agribrands Employees under Ralston's Deferred Compensation Plan for Key
Employees, Executive Savings Investment Plan or the Agribrands Deferred
Compensation Plan.
For a discussion of the treatment of outstanding options to acquire shares of
Ralston Stock and restricted shares of Ralston Stock granted by Ralston to
Agribrands Employees, including the Executive Officers, see AGREEMENTS
BETWEEN RALSTON AND AGRIBRANDS--Agreement and Plan of Reorganization--
Stock Options and Restricted Stock".
CERTAIN TRANSACTIONS
The Agribrands Business has in the past engaged in numerous transactions
with other Ralston divisions and subsidiaries. (See "AGRIBRANDS
INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS -- RELATED PARTY ACTIVITY".)
Such transactions have included, among other things, the extension of
intercompany loans, purchases of raw materials or additives, the provision
of various other types of financial support by or to Ralston, and the
sharing of services and administration and the costs thereof. In addition,
affiliates of Ralston or of Agribrands have distributed products
manufactured by the other in certain countries.
At or following the Distribution, Agribrands and Ralston may enter into
various local agreements concerning the continued distribution by Agribrands
subsidiaries of pet food products produced by Ralston and its affiliates. In
addition, Agribrands' subsidiary in Colombia will tollmill pet food for
Ralston for up to three years following the Distribution, and Ralston's
subsidiaries in Venezuela and Italy will tollmill animal feeds for Agribrands
for a more limited period of time following the Distribution. It is
currently contemplated that employees of Ralston will administer insurance
plans and programs for Agribrands on an ongoing basis following the
Distribution, and that Ralston's offshore insurance subsidiary will provide
certain reinsurance coverage for assets and operations of Agribrands. Terms
and conditions of such agreements are expected to be similar to those
negotiated by unrelated parties at arm's length. In addition, Ralston will
perpetually license certain trademarks and technology on a royalty-free
basis to Agribrands.
Except as provided in any such agreements and except as provided in the
Bridging Agreement, administrative services provided by Ralston to Agribrands
affiliates, or by Agribrands affiliates to Ralston affiliates, will be
discontinued. All other administrative services currently provided by Ralston
will be either assumed by Agribrands or obtained by it from unaffiliated third
parties.
W. P. Stiritz, the Chief Executive Officer, President and Chairman of the
Board of Agribrands, is also Chairman of the Board of Ralston; D.R. Banks and
M.D. Ingram, Directors of Agribrands, are also Directors of Ralston.
See generally, "AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS".
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF AGRIBRANDS STOCK
All of the outstanding Agribrands Stock is currently held by Ralston. To
the best knowledge of Agribrands, the following table sets forth projected
Agribrands Stock ownership information with respect to each of the Agribrands
Directors and to all Agribrands Directors and Executive Officers as a group,
and with respect to each person who is projected to own more than 5% of the
Agribrands Stock immediately after the Distribution. Such projections are
based on the anticipated distribution of one share of Agribrands Stock for
every 10 shares of Ralston Stock beneficially owned by such parties as of
January 1, 1998 (including shares of Ralston Stock held in the Ralston SIP for
the accounts of Executive Officers and Mr. Brown, unless otherwise indicated).
The projections also include shares of Agribrands Stock which may be acquired
as a result of a distribution with respect to shares of Ralston Stock which
will be acquired at the Distribution upon conversion of ESOP Stock held in the
Ralston SIP on such date for the accounts of such Executive Officers, which
conversion will be, under the terms of the ESOP Stock, at the rate of 2.29
shares of Ralston Stock for each share of ESOP Stock. See "THE
DISTRIBUTION--Manner of Effecting the Distribution" and "RALSTON COMPENSATION
PROGRAMS".
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of Shares
Name and to be % of Shares Explanatory
Address Beneficially Owned Outstanding (A) Notes
Nationsbank, N.A. 632,061 5.9% (B)
One Nationsbank Plaza
St. Louis, Missouri
J.P. Morgan & Co. Incorporated 614,951 5.7% (C)
60 Wall Street
New York, NY 10260
William P. Stiritz 119,465 1.11% (D)
David R. Bank 20
Jay W. Brown 29,859 * (E)
M. Darrell Ingram 368 * (F)
H. Davis McCarty 633 * (G)
Joe R. Micheletto 0 *
Martin K. Sneider 0 *
All Directors and Executive
Officers as a group (14 persons) 152,644 1.43% (H)
</TABLE>
(A) Shares Outstanding were based on the anticipated distribution of
Agribrands Stock in respect of shares of Ralston Stock actually outstanding on
January 1, 1998. An asterisk in this column indicates the person would own
less than 1% of the Agribrands Stock.
(B) Based on information set forth in shareholder's Schedule 13G filed
with respect to its ownership of Ralston Stock and dated as of December 31,
1997, this amount includes shares of Agribrands Stock which would be owned
by subsidiaries of Nationsbank Corporation ("Nationsbank"), including
Boatmen's Trust Company. Of these shares, Nationsbank would have voting
and investment powers as follows: sole voting -- 169,271 shares; shared voting
- -- 461,879 shares; sole investment -- 66,596 shares; and shared
investment -- 544,916 shares.
(C) Based on information set forth in shareholder's Schedule 13G filed
with respect to its ownership of Ralston Stock and dated as of December 31,
1997. Of these shares, J.P. Morgan would have voting and investment powers
as follows: sole voting -- 406,694 shares; shared voting -- 4051 shares;
sole investment -- 602,382 shares; and shared investment -- 12,429 shares.
(D) Includes 4,616 shares of Agribrands Stock which would be owned by
Mr. Stiritz' wife and 912 shares which would be owned jointly with his
child, and 57,977 shares which could be acquired at Distribution by the
exercise of exercisable Ralston stock options prior to that date.
(E) Includes 1,065 shares of Agribrands Stock which would be owned by
Mr. Brown's wife and 27,007 shares which could be acquired at Distribution
by the exercise of exercisable Ralston stock options prior to that date.
Also includes 474 shares which is an approximation of the number of shares
which Mr. Brown would be credited under the terms of the Ralston SIP.
(F) Includes 26 shares which would be held in IRA accounts.
(G) Includes 493 shares which would be held in trust for which Mr.
McCarty serves as co-trustee.
(H) Includes 33 shares which such other Executive Officers would share
ownership with other parties, and 379 shares which could be acquired at
Distribution by the exercise of exercisable Ralston stock options prior to
that date. Also includes 138 shares, which is an approximation of the
number of shares which the Executive Officers would be credited under the
terms of the Ralston SIP, and 1,110 shares which would be credited to
accounts of the Executive Officers under the terms of the Ralston SIP upon
conversion of the 4,845 shares of ESOP Stock credited to such
Executive Officers into shares of Ralston Stock immediately prior to the
Distribution.
DESCRIPTION OF AGRIBRANDS CAPITAL STOCK
Authorized Capital Stock
Under Agribrands' Articles of Incorporation, a copy of which have been
filed as an exhibit to the Registration Statement (the "Agribrands Articles"),
the total number of shares of all classes of stock that Agribrands will have
authority to issue under the Agribrands Articles will be 60 million, of which
10 million will be shares of $.01 par value preferred stock, and 50 million
will be shares of $.01 par value Agribrands Stock. No shares of Agribrands
preferred stock will be issued in connection with the Distribution. Based on
the number of shares of Ralston Stock outstanding at March 6, 1998,
approximately 10.6 million shares of Agribrands Stock will be issued to
shareholders of Ralston in the Distribution. All of the shares of Agribrands
Stock issued in the Distribution will be validly issued, fully paid and
nonassessable.
Agribrands Common Stock
The holders of Agribrands Stock will be entitled to one vote for each
share held of record on the applicable record date on all matters voted on by
shareholders, including elections of Directors and, except as otherwise
required by law or provided in any resolution adopted by the Agribrands Board
with respect to any shares of Agribrands preferred stock, the holders of such
shares will exclusively possess all voting power. The Agribrands Articles do
not provide for cumulative voting in the election of Directors or any
preemptive rights to purchase or subscribe for any stock or other securities,
and there are no conversion rights or redemption or sinking fund provisions
with respect to such stock. Subject to any preferential rights of any
outstanding series of Agribrands preferred stock created by the Agribrands
Board from time to time, the holders of Agribrands Stock on the applicable
record date will be entitled to such dividends as may be declared from time to
time by the Agribrands Board from funds available therefor, and upon
liquidation will be entitled to receive pro rata all assets of Agribrands
available for distribution to such holders. See "THE DISTRIBUTION -- Risk
Factors -- Agribrands Dividend Policy", and "THE DISTRIBUTION -- Manner of
Effecting the Distribution".
The Agribrands Articles, Bylaws and Rights Agreement contain certain
provisions which may have the effect of discouraging certain types of
transactions that involve an actual or threatened change of control of
Agribrands. See "-- Common Stock Purchase Rights" below and "ANTI-TAKEOVER
EFFECTS OF CERTAIN PROVISIONS".
Agribrands Preferred Stock
The Agribrands Board has the authority to establish and issue shares of
Agribrands preferred stock in one or more series and to determine, by
resolution, with respect to any series of preferred stock, the voting powers
(which may be full, limited or eliminated), designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, including liquidation
preferences, dividend rates, conversion rights and redemption provisions,
without any further vote or action by the shareholders. Any shares of
Agribrands preferred stock so authorized and issued could have priority over
the Agribrands Stock with respect to dividend and/or liquidation rights.
<PAGE>
Common Stock Purchase Rights
The Agribrands Board has declared a dividend distribution of one Right
for each outstanding share of Agribrands Stock. Each Right will entitle the
registered holder to purchase from Agribrands one share of Agribrands Stock at
a price of $125 per share, subject to adjustment (the "Purchase Price"). The
terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between Agribrands and Continental Stock Transfer & Trust Company,
as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of Agribrands Stock constituting
20% or more of the outstanding Agribrands Stock, or (ii) 10 business days (or
such later date as may be determined by action of the Agribrands Board prior
to such time as any Person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer, the consummation of which would result in a person or group
acquiring beneficial ownership of 20% or more of such outstanding Agribrands
Stock (the earlier of such dates being called the "Rights Distribution Date"),
the Rights will be evidenced by the shareholder's most recent account
statement issued by the Transfer Agent (the "Account Statement") with respect
to book entry shares, or by the shareholder's physical stock certificates. An
Acquiring Person does not include Agribrands, any of its subsidiaries, any
employee benefit plan of Agribrands or any of its subsidiaries, or certain
"grandfathered" persons" (being the members of Agribrands' Board of Directors
at the time of the Distribution and their immediate families, for so long as
they remain on the Board of Directors, and thereafter, provided that, after
they are no longer members of the Board of Directors, they do not acquire any
more shares of Agribrands Stock, except in certain limited circumstances).
The Rights Agreement provides that, until the Rights Distribution Date
(or earlier redemption, exchange or expiration of the Rights), each issued
Account Statement or physical stock certificate will contain a notation
incorporating the Rights Agreement by reference. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), the transfer of any
shares of Agribrands Stock will also constitute the transfer of the Rights
associated with such shares of Agribrands Stock. As soon as practicable
following the Rights Distribution Date, separate certificates ("Rights
Certificates") evidencing the Rights will be mailed to, or if the Agribrands
Board deems appropriate, such other documents or book-entries evidencing the
Rights will be made for the benefit of, holders of record of the Agribrands
Stock as of the close of business on the Rights Distribution Date and
thereafter such separate Rights Certificate, or Account Statement, as
applicable, alone will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on April 1, 2008 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by Agribrands, in each case as described below.
In the event that any person becomes an Acquiring Person (except pursuant
to a tender or exchange offer which is for all outstanding shares of
Agribrands Stock at a price and on terms which a majority of the members of
the Agribrands Board who are not officers of Agribrands and who are not (or
would not be, if the offer were consummated) Acquiring Persons or affiliates,
associates, nominees or representatives of an Acquiring Person, which the
Agribrands Board determines to be adequate and in the best interests of
Agribrands, its stockholders and other relevant constituencies, other than
such Acquiring Person, its affiliates and associates), each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to acquire a share of
Agribrands Stock at 33 1/3% of its then current market value. In the event
that at any time following the Rights Distribution Date, Agribrands is
acquired in a merger or other business combination transaction in which the
holders of all of the outstanding shares of Agribrands Stock immediately prior
to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or 50% or more of its consolidated
assets or earning power are sold, proper provision will be made so that each
holder of a Right will thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the Right, that number of shares
of common stock of the acquiring company which at the time of such transaction
will have a market value of two times the exercise price of the Right.
The Purchase Price payable, and the number of shares of Agribrands Stock or
other securities or property issuable, upon the exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Agribrands Stock, (ii) upon the grant to holders of the Agribrands Stock
of certain rights or warrants to subscribe for or purchase Agribrands Stock at
a price, or securities convertible into Agribrands Stock with a conversion
price, less than the then current market price of the Agribrands Stock, or
(iii) upon the distribution to holders of the Agribrands Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Agribrands Stock) or of
subscription rights or warrants (other than those referred to above).
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding
Agribrands Stock, the Agribrands Board may exchange the Rights (other than
Rights owned by such person or group which have become void), in whole or in
part, at an exchange ratio of one share of Agribrands Stock per Right (subject
to adjustment).
No adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such Purchase Price. No
fractional shares of Agribrands Stock will be issued and in lieu thereof, an
adjustment in cash will be made based on the market price of Agribrands Stock
on the last trading day prior to the date of exercise.
At any time prior to the time a person becomes an Acquiring Person, the
Agribrands Board may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (the "Redemption Price"). The redemption of the Rights may
be made effective at such time, on such basis and with such conditions as the
Agribrands Board in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption
Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Agribrands, including, without limitation, the right to
vote or to receive dividends.
All of the provisions of the Rights Agreement may be amended prior to the
Rights Distribution Date by the Agribrands Board for any reason it deems
appropriate. Prior to the Rights Distribution Date, the Agribrands Board is
also authorized, as it deems appropriate, to lower the thresholds for causing
the Rights to be distributed to not less than the greater of (i) any
percentage greater than the largest percentage then held by any shareholder,
or (ii) 10%. After the Rights Distribution Date, the provisions of the Rights
Agreement may be amended by the Agribrands Board in order to cure any
ambiguity, defect or inconsistency, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person), or, subject to certain limitations, to shorten or lengthen
any time period under the Rights Agreement.
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Agribrands
on terms not approved by the Agribrands Board. The Rights should not interfere
with any merger or other business combination approved by the Agribrands Board
since the Rights may be redeemed by Agribrands at the Redemption Price prior
to the time that a person or group has become an Acquiring Person.
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the form of the Rights Agreement, a copy of which has
been filed as an exhibit to the Registration Statement.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
The Agribrands Articles, Bylaws, Rights and the GBCL contain certain
provisions that could have the effect of delaying, deferring or preventing a
change in control of Agribrands by various means such as a tender offer or
merger not approved by the Agribrands Board. These provisions are designed to
enable the Agribrands Board, particularly in the initial years of Agribrands'
existence as an independent, publicly-owned company, to develop Agribrands'
business in a manner that will foster its long-term growth without the
potential disruption that might be entailed by the threat of a takeover not
deemed by the Agribrands Board to be in the best interests of Agribrands and
its shareholders. See also "AGREEMENTS BETWEEN RALSTON AND
AGRIBRANDS--Agreement and Plan of Reorganization---Certain Post-Distribution
Covenants" for a discussion of certain covenants that could also deter a
takeover proposal.
The description set forth below is intended as a summary of these
provisions only and is qualified in its entirety by reference to such
provisions. A copy of the Agribrands Articles and Bylaws have been filed as
exhibits to the Registration Statement.
Limitations on Changes in Board Composition and Other Actions by Shareholders
The Agribrands Bylaws provide that the number of directors will be fixed
from time to time exclusively by the Agribrands Board, but shall consist of
not less than three and no more than twelve directors (initially the
Agribrands Board will be comprised of seven directors). The Agribrands
Articles provide for the Agribrands Board to be divided into three classes, as
nearly equal in size as possible, serving staggered terms so that the terms of
three of the initial directors of Agribrands will expire at the 1999 annual
meeting of Agribrands' shareholders, and the terms of two of the initial
directors will expire at each of the 2000 and 2001 annual meetings. Starting
with the 1999 annual meeting of Agribrands' shareholders, one class of
directors will be elected each year for a three year term. As a result, at
least two annual meetings of shareholders may be required for shareholders to
change a majority of the directors, whether or not a majority of Agribrands'
shareholders believes that such a change would be desirable. See
"MANAGEMENT--Directors of Agribrands".
The GBCL provides that, unless a corporation's articles of incorporation or
bylaws provide otherwise, the holders of a majority of the corporation's
voting stock may remove any Director from office. The Agribrands Articles
provide that (1) any Director, or the entire Board of Directors may be removed
from office only for cause and by the affirmative vote of the holders of
record of outstanding shares representing not less than two-thirds of all of
the then outstanding shares of capital stock of Agribrands; and (2) any
Director may be removed from office by the affirmative vote of a majority of
the entire Board of Directors, as provided by law, in the event that the
Director fails to meet any qualifications stated in the bylaws for election as
a Director or in the event that the Director is in breach of any agreement
between the Director and Agribrands relating to the Director's service as a
Director or employee of Agribrands. The GBCL also provides that, unless a
corporation's articles of incorporation or bylaws provide otherwise, all
vacancies on a corporation's Board of Directors, including any vacancies
resulting from an increase in the number of Directors, may be filled by a
majority of the Directors then in office, although less than a quorum, until
the next election of Directors by the shareholders of Agribrands. The
Agribrands Articles provide that, subject to any rights of holders of
Agribrands preferred stock, vacancies may be filled only by a majority of the
remaining Directors.
Under the Agribrands Bylaws only persons who are nominated by or at the
direction of the Agribrands Board, or by a shareholder who has given notice in
accordance therewith, which generally requires notice not less than ninety
days prior to a meeting at which directors are to be elected, will be eligible
for election as directors at that meeting. The Agribrands Bylaws also
establish such advance notice procedure with regard to other matters which any
shareholder may desire to be brought before any meeting of shareholders. See
"SHAREHOLDER PROPOSALS".
The GBCL provides that special meetings of shareholders may be called by
the Board of Directors or by such other person or persons as may be authorized
by a corporation's Articles of Incorporation or Bylaws. The Agribrands Bylaws
provide that special meetings of Agribrands' shareholders may be called by the
Chairman of the Board, the President of Agribrands, the Secretary of
Agribrands or in any other manner permitted by law. The Agribrands Bylaws also
provide that the proposed purposes of any special meeting of Agribrands'
shareholders shall be specified in the notice of meeting.
The GBCL and the Agribrands Bylaws provide that any action by
written consent of shareholders in lieu of a meeting must be unanimous.
The provisions of the Agribrands Articles and Bylaws with respect to the
classification of Directors, the advance notice requirements for Director
nominations or other proposals of shareholders, the requirement of unanimity
for shareholder action by written consent, and the limitations on the ability
of shareholders to increase the size of the board, remove Directors and fill
vacancies, will have the effect of making it more difficult for shareholders
to change the composition of the Agribrands Board or otherwise to bring a
matter before shareholders without the Agribrands Board's consent, and thus
will reduce the vulnerability of Agribrands to an unsolicited takeover
proposal.
Preferred and Common Stock
Agribrands Articles authorize the Agribrands Board to establish and issue
shares of Agribrands preferred stock in one or more series, and to determine
by resolution, with respect to any series of preferred stock, the voting
powers (full, limited, or eliminated), and such designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, including liquidation
preferences, dividend rights, conversion rights and redemption provisions. In
addition, the Agribrands Articles authorize the Agribrands Board to issue up
to approximately 39.4 million additional shares of Agribrands Stock after the
Distribution (which is inclusive of shares reserved for the Rights and
outstanding options). The number of authorized but unissued shares will
provide Agribrands with the ability to meet future capital needs and to
provide shares for possible acquisitions and stock dividends or stock splits.
Agribrands believes that the preferred stock will provide Agribrands with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs which might arise. Having
such authorized shares available for issuance will allow Agribrands to issue
shares of preferred stock without the expense and delay of a special
shareholders' meeting. The authorized and unissued shares of preferred stock,
as well as the authorized and unissued shares of Agribrands Stock, will be
available for issuance without further action by shareholders, unless such
action is otherwise required by applicable law. Although the Agribrands Board
has no intention at the present time of doing so, it could issue a series of
preferred stock that could, subject to certain limitations imposed by law,
depending on the terms of such series, impede the completion of a merger,
tender offer or other takeover attempt. The Agribrands Board will make any
determination to issue such shares based on its judgment as to the best
interests of Agribrands and its then-existing shareholders at the time of the
issuance. The Agribrands Board, in so acting, could issue preferred stock
having terms which could discourage an acquisition attempt or other
transaction that some, or a majority, of the shareholders might believe to be
in their best interests or in which shareholders might receive a premium for
their stock over the then market price of such stock.
Business Combinations
In order to ensure Agribrands shareholders receive a fair price for their
shares of Agribrands Stock upon significant change in the ownership of
Agribrands, Article Four of the Agribrands Articles contain a business
combination provision requiring the affirmative vote of not less than
two-thirds of all of the outstanding shares of capital stock of Agribrands
then entitled to vote, and a majority of the voting power of all such shares
of which an interested shareholder (as defined) is not the beneficial owner,
to approve certain business combinations. Business combinations covered by the
provision include a merger or consolidation, sale or other disposition of a
substantial amount of Agribrands assets, a plan of liquidation or dissolution
of Agribrands, or other transactions involving the transfer, issuance,
reclassification or recapitalization of Agribrands securities, in each case
benefiting an individual or entity that, together with its affiliates and
associates, is the beneficial owner of more than 20% of the outstanding shares
entitled to vote in the election of directors (a "Substantial Shareholder").
A "Substantial Shareholder", however, does not include certain "grandfathered"
persons" (being the members of Agribrands' Board of Directors at the time of
the Distribution and their immediate families, for so long as they remain on
the Board of Directors, and thereafter, provided that, after they are no
longer members of the Board of Directors, they do not acquire any more shares
of Agribrands Stock, except in certain limited circumstances). In certain
circumstances, the Agribrands Board of Directors may approve any of the above
business combinations with Substantial Shareholders in lieu of the described
super-majority shareholder approval provision.
Amendment of Certain Provisions of the Agribrands Articles and Bylaws
The Agribrands Articles provide that the Bylaws may only be amended or
repealed by a majority of the Agribrands Board of Directors. Except as
otherwise provided, any amendment of the Agribrands Articles requires a vote
of a majority of the outstanding shares of Agribrands capital stock entitled
to vote. Amendment of the provisions of the Agribrands Articles relating to
(a) the Business Combinations provisions, (b) the Directors of the
corporation, (c) the By-laws of the corporation, (d) the indemnification of
Directors, officers and employees, and (e) amendment of the Articles, requires
the vote of two-thirds of the outstanding shares of Agribrands capital stock
entitled to vote.
Rights
As described above, the Rights will permit disinterested shareholders to
acquire shares of Agribrands Stock or common stock of an acquiring company at
a substantial discount in the event of certain described acquisitions of
Agribrands Stock and other changes in control. See "DESCRIPTION OF AGRIBRANDS
CAPITAL STOCK--Common Stock Purchase Rights".
Management Continuity Agreements; Other Severance Arrangements
Agribrands will enter into Management Continuity Agreements with its
executive officers and other key management employees providing severance
compensation and continuation of benefits in the event of termination
following a change in control of Agribrands, with the amount of payments to be
received being dependent upon the voluntary or involuntary nature of such
termination. See "AGRIBRANDS COMPENSATION AND BENEFIT PLANS--Management
Continuity Agreements".
Statutory Provisions
Agribrands is subject to the business combination provisions of Section
351.459 of the GBCL, which allows the Agribrands Board to retain discretion
over the approval of certain business combinations. That Section, together
with the provisions of Section 351.347 of the GBCL permitting the Agribrands
Board to consider the interests of non-shareholder constituencies in
connection with acquisition proposals, may make it more difficult for there to
be a change in control of Agribrands or for Agribrands to enter into certain
business combinations than if Agribrands were not subject to such sections.
In its Bylaws, Agribrands has elected not to be subject to the control shares
acquisition provisions of Section 351.407 of the GBCL, which denies an
acquiror voting rights with respect to any shares of voting stock which
increase its equity ownership to more than specified thresholds.
<PAGE>
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES OF AGRIBRANDS
Under Section 351.355 of the GBCL and the Agribrands Articles, Agribrands
must indemnify any person (other than a party plaintiff suing on his or her
behalf or in the right of Agribrands) who is or was a director, officer or
employee of Agribrands, or is or was serving at the request of Agribrands as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, trade or industry association or other enterprise, to
the maximum extent permitted by law, against any and all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually
and reasonably incurred by such person in connection with any civil, criminal,
administrative or investigative action, proceeding or claim (including an
action by or in the right of Agribrands), by reason of the fact that such
person is or was serving in such capacity, provided that such person's conduct
is not finally adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct. Agribrands' Directors and Executive Officers
also have indemnification contracts with Agribrands which will become
effective as of the Distribution Date. Pursuant to those agreements, the
Company agrees to indemnify the Directors and Executive Officers to the full
extent authorized or permitted by the GBCL. The agreements also provide for
indemnification to the extent not covered by the GBCL or insurance policies
purchased and maintained by Agribrands (e.g. if the GBCL is amended to change
the scope of indemnification). Such indemnification would be coextensive with
the indemnification currently permitted by the GBCL, as described above, but
no indemnity would be paid (i) in respect to remuneration paid to the
Director, or Executive Officer or Employee if it shall be finally judicially
adjudged that such remuneration was in violation of law; (ii) on account of
any suit for an accounting of profits made from the purchase or sale by the
Director, Executive Officer or Employee of securities of the Company pursuant
to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or similar provisions of any state or local statutory law; (iii) on
account of the Director's, Executive Officer's, or Employee's conduct which is
finally judicially adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct; or (iv) if a final decision by a Court having
jurisdiction in the matter (all appeals having been denied or none having been
taken) shall determine that such indemnification is not lawful.
The agreements also provide for the advancement of expenses of defending
any civil or criminal action, claim, suit or proceeding against the Director,
Executive Officer or Employee and for repayment of such expenses by the
Director, Executive Officer or Employee to the Company if it is ultimately
judicially determined that the Director, Executive Officer or Employee is not
entitled to such indemnification.
Agribrands will have, following the Distribution, directors' and
officers' insurance which protects each director and officer from liability
for actions taken in their capacity as directors or officers. This insurance
may provide broader coverage for such individuals than may be required by the
provisions of the Agribrands Articles.
The foregoing represents a summary of the general effect of the
indemnification provisions of GBCL and the Agribrands Articles and such
agreements and insurance. Additional information regarding indemnification of
directors and officers can be found in Section 351.355 of the GBCL,
Agribrands' Articles and its pertinent agreements, copies of which have been
filed as exhibits to the Registration Statement.
<PAGE>
SHAREHOLDER PROPOSALS
Article I, Section 4 and Article II, Section 1 of the Agribrands Bylaws ,
which are filed as an exhibit to the Registration Statement, provide that
shareholders desiring to nominate candidates for directors or to present a
proposal or bring other business before an Agribrands shareholders meeting
must give advanced written notice not less than 90 days prior to the meeting.
In each case the notice must be given to the Secretary of Agribrands, whose
address is 9811 South Forty Drive, St. Louis, Missouri 63124. The 1999 Annual
Meeting of Agribrands Shareholders is expected to be held on January 29, 1999.
To be considered, notice of any such nomination or proposal must be received
by November 1, 1998. To be included in Agribrands' proxy statement and form of
proxy for that meeting, any such proposal must also comply in all respects
with the rules and regulations of the Commission.
INDEPENDENT ACCOUNTANTS
The Agribrands Board has appointed Price Waterhouse LLP as Agribrands'
independent accountants to audit Agribrands' financial statements for the
fiscal year ending August 31, 1998. Price Waterhouse LLP has audited the
financial statements of Ralston since 1955.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL INFORMATION
OF AGRIBRANDS INTERNATIONAL, INC.
<S> <C>
Page
Report of Independent Accountants F-2
Combined Statement of Earnings F-3
Combined Balance Sheet F-4
Combined Statement of Cash Flows F-5
Notes to Combined Financial Statements F-6
Quarterly Financial Information F-22
Condensed Combined Statement of Earnings F-23
Condensed Combined Balance Sheet F-24
Condensed Combined Statement of Cash Flows F-25
Notes to Condensed Combined Financial Statements F-26
</TABLE>
F-1
Report of Independent Accountants
To the Shareholders and Board of Directors of
Ralston Purina Company
In our opinion, the accompanying combined balance sheet and the related
combined statements of earnings and of cash flows present fairly, in all
material respects, the financial position of Agribrands International, Inc.,
comprised of businesses of Ralston Purina Company as described in the Basis of
Presentation note to the combined financial statements, at August 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended August 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
St. Louis, Missouri
January 23, 1998
F-2
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
COMBINED STATEMENT OF EARNINGS
Year ended August 31
(Dollars in Millions)
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Net Sales $1,527.6 $1,401.3 $1,147.2
Costs and Expenses
Cost of products sold 1,322.0 1,217.4 978.1
Selling, general and administrative 158.9 138.0 127.4
Interest 10.9 13.0 12.1
Provisions for restructuring 3.2 8.3 1.8
Gain on sale of property (3.6) (1.6)
Other (income)/expense, net (0.5) 3.3 (4.0)
--------- --------- ---------
1,494.5 1,376.4 1,113.8
--------- --------- ---------
Earnings before Income Taxes 33.1 24.9 33.4
Income Taxes 24.4 14.0 18.7
Net Earnings $ 8.7 $ 10.9 $ 14.7
========= ========= =========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
COMBINED BALANCE SHEET
August 31
(Dollars in Millions)
<S> <C> <C>
1997 1996
-------- --------
Assets
Current Assets
Cash and cash equivalents $ 25.2 $ 20.3
Marketable securities 6.8 11.3
Receivables, less allowance for doubtful accounts 114.4 119.1
Inventories 112.0 134.6
Other current assets 11.7 10.9
------- --------
Total Current Assets 270.1 296.2
-------- --------
Investments and Other Assets 54.2 56.0
Property at Cost
Land 12.2 9.1
Buildings 68.7 67.6
Machinery and Equipment 228.0 216.5
Construction in progress 20.7 5.8
-------- --------
329.6 299.0
Accumulated depreciation (172.7) (153.4)
-------- --------
156.9 145.6
-------- --------
Total $ 481.2 $ 497.8
======== ========
Liabilities and Net Investment in Agribrands
Current Liabilities
Current maturities of long-term debt $ 19.4 $ 1.1
Notes payable 33.8 67.8
Accounts payable and accrued liabilities 162.7 160.2
Income taxes 7.5 7.7
------- --------
Total Current Liabilities 223.4 236.8
-------- --------
Long-Term Debt 22.8 41.3
Deferred Income Taxes 9.6 7.1
Other Liabilities 27.3 22.3
Net Investment in Agribrands 198.1 190.3
------- --------
Total $ 481.2 $ 497.8
======== ========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
COMBINED STATEMENT OF CASH FLOWS
Year ended August 31
(Dollars in Millions)
<S> <C> <C> <C>
1997 1996 1995
------- ------- -------
Cash Flow from Operations
Net earnings $ 8.7 $ 10.9 $ 14.7
Adjustments to reconcile net earnings to
net cash flow provided by operations:
Depreciation and amortization 21.9 20.4 17.5
Translation and exchange loss 3.7 8.3 4.0
Non-cash restructuring 2.2 -- --
Deferred income taxes 1.9 (3.4) 1.7
Gain on sale of property (3.6) (1.6)
Changes in assets and liabilities used in operations:
Increase in accounts receivable (2.7) (17.3) (13.1)
Decrease (increase) in inventories 16.6 (43.8) (37.2)
(Increase) decrease in other current assets (1.1) 1.2 (2.4)
Increase in accounts payable and accrued
liabilities 10.3 17.2 27.6
Increase (decrease) in other current liabilities 0.7 (0.4) (1.0)
Other, net 5.6 (7.8) (3.2)
------- ------ -------
Net cash flow from (used by) operations 67.8 (18.3) 7.0
------- ----- -------
Cash Flow from Investing Activities
Acquisitions of businesses (3.3) (25.6)
Property additions (44.1) (28.5) (27.1)
Proceeds from sale of Korean cereal business 10.0
Proceeds from the sale of property 2.0 1.2 7.1
Other, net 6.9 6.8 (6.6)
------- ---- ------
Net cash used by investing activities (38.5) (36.1) (26.6)
------- ------- -------
Cash Flow from Financing Activities
Proceeds from sale of long-term debt 3.8 10.7 2.3
Principal payments on long-term debt,
including current maturities (5.3) (17.0) (3.3)
Net (decrease) increase in notes payable (33.3) 16.1 20.1
Net transactions with Ralston 13.7 51.3 0.9
----- ------ ------
Net cash (used by) provided by financing
activities (21.1) 61.1 20.0
------- ------- -------
Effect of Exchange Rate Changes on Cash (3.3) (2.2) (0.9)
------- ------- ------
Net Increase (Decrease) in Cash and Cash Equivalents 4.9 4.5 (0.5)
Cash and Cash Equivalents, Beginning of Year 20.3 15.8 16.3
------- ------- -------
Cash and Cash Equivalents, End of Year $ 25.2 $ 20.3 $ 15.8
======= ======= =======
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
BASIS OF PRESENTATION
On March 28, 1996, the Board of Directors of Ralston Purina Company
("Ralston") approved in principle a plan to spin-off its international animal
feeds and agricultural products business to holders of its common stock.
Subsequently, the Ralston Board authorized the contribution to Agribrands
International, Inc. ("Agribrands") of the capital securities of Ralston's
various international subsidiaries engaged in the animal feeds and
agricultural products business and the acquisition by Agribrands of other
assets utilized in that business in Canada and Brazil. Following such
transfer, all of the issued and outstanding shares of $.01 par value common
stock of Agribrands would then be spun off in a distribution (the
"Distribution") to Ralston's shareholders. Not included in the spin-off are
Ralston's international pet operations (RPI Consumer). Ralston has requested
rulings from the IRS as to whether the Distribution will qualify as a tax-free
spin-off.
Agribrands is one of the leading international producers and marketers of
animal feeds and, through its subsidiaries and joint venture partners,
operates 70 manufacturing plants in 16 countries. Its products are marketed
under the Purina and Chow global brand through a worldwide network of
approximately 3,500 independent dealers, as well as an independent and a
direct sales force.
The financial statements of Agribrands include the financial position, results
of operations and cash flows of Agribrands. Ralston's historical cost basis
of assets and liabilities has been reflected in the Agribrands financial
statements. The financial information in these financial statements is not
necessarily indicative of results that would have occurred if Agribrands had
been a separate stand-alone entity during the periods presented or of future
results of Agribrands.
RPI Consumer, while not included in the accompanying financial statements,
generally operates within the same subsidiaries and affiliates as Agribrands.
See Related Party Activity note for a more complete discussion.
SUMMARY OF ACCOUNTING POLICIES
Agribrands' significant accounting policies, which conform to U.S. generally
accepted accounting principles and are applied on a consistent basis among all
years presented, are described below:
Principles of Combination - These financial statements include the accounts of
Agribrands and its majority-owned subsidiaries. All significant intercompany
transactions are eliminated. Investments in affiliated companies, 20% through
50%-owned, are carried at equity.
Minority interests in earnings of subsidiaries and Agribrands' share of the
net earnings of unconsolidated companies carried at equity are included in
selling, general and administrative expenses.
Foreign Currency Translation - Financial statements of foreign operations
where the local currency is the functional currency are translated using
exchange rates in effect at period end for assets and liabilities and average
exchange rates during the period for results of operations. Related
translation adjustments are reported as a separate component of Net Investment
in Agribrands.
For foreign operations where the U.S. dollar is the functional currency and
for countries which are considered highly inflationary, translation practices
differ in that inventories, properties, accumulated depreciation and
depreciation accounts are translated at historical rates of exchange and
related translation adjustments are included in earnings. Gains and losses
from foreign currency transactions are generally included in earnings.
Financial Instruments - Agribrands periodically uses financial derivatives in
the management of foreign currency risks that are inherent to its business
operations. Such instruments are not held or issued for trading purposes.
Agribrands periodically uses foreign exchange (F/X) instruments, including
currency forwards, futures and options, to reduce transaction and translation
exposures resulting from its foreign currency activities. F/X instruments
used are selected based on their risk reduction attributes and the related
market conditions. Such instruments are marked-to-market, and the terms
generally do not exceed twelve months. Realized and unrealized gains and
losses from instruments qualifying as hedges are deferred as part of the cost
basis of the asset or liability being hedged and are recognized in the
statement of earnings in the same period as the underlying transaction.
Realized and unrealized gains or losses from F/X instruments used as economic
hedges but not qualifying for hedge accounting are recognized currently in the
statement of earnings. Cash flows from F/X instruments are classified in the
same category in the statement of cash flows as the underlying activities.
F/X instruments are generally not disposed of prior to the settlement date;
however, if an F/X instrument and the underlying hedged transaction were
canceled prior to the settlement date, any gain or loss would be recognized
immediately in the statement of earnings.
Cash Equivalents, for purposes of the statement of cash flows, are considered
to be all highly liquid investments with a maturity of three months or less
when purchased, including time deposits of $6.4 and $6.3 at August 31, 1997
and 1996, respectively.
Marketable Securities are valued at cost which approximates market.
Inventories are valued generally at the lower of average cost or market.
Property at Cost - Expenditures for new facilities and those which
substantially increase the useful lives of the property, including interest
during construction, are capitalized. Maintenance, repairs and minor renewals
are expensed as incurred. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
accounts and gains or losses on the dispositions are reflected in earnings.
Depreciation is generally provided on the straight-line basis by charges to
costs or expenses at rates based on the estimated useful lives of the
properties. Estimated useful lives range from 5 to 15 years for machinery and
equipment and 15 to 40 years for buildings. Depreciation expense was $19.6 in
1997, $19.1 in 1996, and $17.3 in 1995.
Goodwill, which is included in Investments and Other Assets, represents the
excess of cost over the net tangible assets of acquired businesses and is
amortized over periods of up to 40 years, with the majority being amortized
over a 25 year period.
Subsequent to acquisition, Agribrands continually evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful life of businesses carrying goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. The measurement of
possible impairment is based on the ability to recover the balance of goodwill
from expected future operating cash flows on an undiscounted basis. In the
opinion of management, no such impairment existed as of August 31, 1997 and
1996.
Revenue is recognized when products are shipped to customers. Sales
discounts, returns and allowances are included in net sales. The provision
for doubtful accounts is included in selling, general and administrative
expenses.
Advertising Costs are expensed as incurred and were $16.8 in 1997, $15.7 in
1996 and $15.9 in 1995.
Research and Development Costs are expensed as incurred and were $3.2 in 1997,
$3.2 in 1996 and $2.0 in 1995.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Income Taxes - Agribrands is included in the consolidated federal income tax
return filed by Ralston. U.S. income tax payments, refunds, credits,
provision and deferred tax components have been allocated to Agribrands in
accordance with Ralston's tax allocation policy. Such policy allocates tax
components included in the consolidated income tax return of Ralston to
Agribrands to the extent such components were generated or related to
Agribrands.
Agribrands follows the liability method of accounting for income taxes.
Deferred income taxes are recognized for the effect of temporary differences
between financial and tax reporting. No additional U.S. taxes have been
provided on earnings of foreign subsidiaries expected to be reinvested
indefinitely. Additional income taxes are provided, however, on planned
repatriation of foreign earnings after taking into account tax-exempt earnings
and applicable foreign tax credits.
Earnings per Share - The combined financial statements of Agribrands include
primarily wholly-owned subsidiaries of Ralston and its subsidiaries. As such,
earnings per share data does not provide meaningful information about the
results of operations of Agribrands.
RELATED PARTY ACTIVITY
Financing - As a matter of policy, most financial activities of Agribrands and
RPI Consumer are managed jointly. Such activities include cash management and
the issuance and repayment of debt. Accordingly, substantially all cash and
cash equivalents, marketable securities, notes payable and long-term debt have
been allocated based on cash flows.
Interest expense and interest income have been allocated to Agribrands based
upon the allocation of interest bearing instruments. No interest has been
charged on intercompany transactions with affiliates.
Shared Services - Agribrands and RPI Consumer share some general and
administrative functions and distribute some product through a combined
distribution network. Costs of shared activities are allocated based on
utilization or other methods which management believes to be reasonable.
Total costs of these shared activities were $46.0 in 1997, $56.9 in 1996 and
$57.3 in 1995. Of such costs, allocations to Agribrands were $38.7 in 1997,
$40.8 in 1996 and $45.4 in 1995. In preparation for the upcoming spin-off,
the total costs of shared activities declined in 1997 as many of the
previously shared activities became direct activities of Agribrands or RPI
Consumer.
Ralston provides certain general and administrative services to Agribrands
including finance, legal, facilities and systems. These expenses were
allocated to Agribrands based on utilization or other methods which management
believes to be reasonable. These allocations were $2.0 in 1997, $1.3 in 1996
and $1.3 in 1995.
Agribrands receives technical service fees from non-consolidated affiliates
which are carried under the equity method of accounting. Included in other
income and expense is service fee income from such affiliates of $1.4 in 1996
and $3.1 in 1995. Service fee income from non-consolidated affiliates was
insignificant in 1997.
<PAGE>
GEOGRAPHIC SEGMENT INFORMATION
Financial information by geographic location for the past three years is set
forth below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
SALES
Americas (excluding United States) $ 599.6 $ 573.7 $ 521.0
Europe 467.7 461.5 327.5
Asia Pacific 460.3 366.1 298.7
Total $1,527.6 $1,401.3 $1,147.2
========= ========= =========
OPERATING PROFIT
Americas (excluding United States) $ 16.0 $ 20.8 (b) $ 22.7
Europe 1.9(a) 0.1 (c) 5.8 (e)
Asia Pacific 32.8 24.3 (d) 19.3
--------- --------- ------
Operating Profit 50.7 45.2 47.8
Unallocated Corporate Expenses (7.2) (4.0) (6.3) (f)
Interest Expense (10.9) (13.0) (12.1)
Other Income/(Expense), Net 0.5 (3.3) 4.0
Earnings Before Income Taxes $ 33.1 $ 24.9 $ 33.4
========= ========= =========
TOTAL ASSETS
Americas $ 180.7 $ 168.7 $ 143.2
Europe 143.9 163.6 109.2
Asia Pacific 156.6 165.5 155.4
Total $ 481.2 $ 497.8 $ 407.8
========= ========= =========
</TABLE>
(a) Includes restructuring provisions of $3.2
(b) Includes restructuring provisions of $1.9
(c) Includes restructuring provisions of $6.4
(d) Includes gain on the sale of property of $3.6
(e) Includes restructuring provisions of $0.9 and gain on the sale of
property of $1.6
(f) Includes restructuring provisions of $0.9
<PAGE>
INCOME TAXES
U.S. income tax payments, refunds, credits, provision and deferred tax
components have been allocated to Agribrands in accordance with Ralston's tax
allocation policy. Such policy allocates tax components included in the
consolidated income tax return of Ralston to Agribrands to the extent such
components were generated by or related to Agribrands.
Had Agribrands' income tax provision been calculated as if Agribrands was a
single, stand-alone U.S. taxpayer, the income tax provision would have been
lower by approximately $3.8 in 1997, $2.8 in 1996 and $2.1 in 1995.
The provisions for income taxes consisted of the following for the years ended
August 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
----- ------ -----
Currently Payable:
United States $ 3.8 $ 6.5 $ 2.0
Foreign 18.7 10.9 15.0
Total Current 22.5 17.4 17.0
----- ------ -----
Deferred - Foreign 1.9 (3.4) 1.7
Provision For Income Taxes $24.4 $14.0 $18.7
===== ====== =====
</TABLE>
The source of pre-tax earnings was:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
----- ----- -------
United States $ 3.2 $12.2 $( 4.4)
Foreign 29.9 12.7 37.8
Total $33.1 $24.9 $ 33.4
===== ===== =======
</TABLE>
A reconciliation of income taxes with the amounts computed at the statutory
federal rate follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
------ ------ ------
Computed tax at federal statutory rate $11.6 $ 8.7 $11.7
Increases (decreases) in taxes resulting from:
Foreign tax rates other than domestic rate (1.0) 1.4 2.5
Change in valuation allowance 6.9 (0.6) (0.6)
Taxes on repatriation of foreign earnings 6.9 4.5 5.1
$24.4 $14.0 $18.7
====== ====== ======
</TABLE>
<PAGE>
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of August 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------- -------
Deferred Tax Liabilities:
Depreciation and property differences $ 4.5 $ 5.3
Inventory differences 5.0 4.5
Retirement plans 3.6 3.1
Other tax liabilities, current 0.6 2.6
Other tax liabilities, non-current 10.5 6.0
------- -------
Gross deferred tax liabilities $ 24.2 $ 21.5
------- -------
Deferred Tax Assets:
Tax loss carryforwards $ (3.8) $ (4.0)
Tax credits (3.8) (2.0)
Other tax assets, current (11.7) (7.9)
Other tax assets, non-current (6.2) (4.5)
Gross deferred tax (assets) (25.5) (18.4)
Valuation allowance 10.9 4.0
------ -------
Net deferred tax liabilities $ 9.6 $ 7.1
======= =======
</TABLE>
Tax loss carryforwards of $0.3 expired in 1997. An insignificant amount of
tax credits expired in 1997. Future expiration of tax loss carryforwards and
tax credits, if not utilized, are as follows: 1998 - $0.2, 1999 - $0.1, 2000
- - $0.1, 2001 - $1.8, 2002 and beyond - $5.4. The valuation allowance is
primarily attributed to certain tax loss carryforwards and tax credits outside
the U.S.
At August 31, 1997, approximately $63.0 of foreign subsidiary net earnings was
considered permanently invested in those businesses. Accordingly, U.S. income
taxes have not been provided for such earnings. It is not practicable to
determine the amount of unrecognized deferred tax liabilities associated with
such earnings.
NOTES PAYABLE
Notes payable of $33.8 and $67.8 at August 31, 1997 and 1996, respectively,
had a weighted average interest rate of 11.2% and 10.9%, respectively.
Compensating balance arrangements are informal and do not restrict the
withdrawal of funds. Under these arrangements, Agribrands maintained
compensating bank balances of $5.6 and $8.0 at August 31, 1997 and 1996,
respectively.
On August 31, 1997, total unused lines of credit for Agribrands were
approximately $260.0.
<PAGE>
LONG-TERM DEBT
The detail of long-term debt allocated to Agribrands is as follows at August
31:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
----- -----
Canadian subsidiary, interest rate reset quarterly,
weighted average interest rate of 4.1% in 1997 and
6.2% in 1996; due 1998 $11.5 $11.6
Colombian subsidiary, Libor + .25%, which was
5.9% in 1997; due 1998 4.5 4.6
Korean subsidiary, with interest rate of 10%
in 1997 and 1996; due 1999 8.8 9.7
Korean subsidiary, with interest rate of 11.5%
in 1997 and 1996; open-ended maturity 7.3 8.3
Other long-term debt with interest rates ranging
from 6.5% to 12.8% in 1997 and 6.5% to 30.5% in 1996 10.1 8.2
------- ------
42.2 42.4
Less: Current Maturities (19.4) (1.1)
------- ------
$22.8 $41.3
======= ======
</TABLE>
Aggregate maturities of long-term debt are $11.9, $1.1, $1.2, and $0.4 for the
years ending August 31, 1999 through 2002, respectively.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Certain foreign locations participate in various defined benefit pension plans
sponsored by Ralston affiliates, and substantially all U.S. administrative
employees of Agribrands participate in Ralston's noncontributory defined
benefit plan. In addition, employees in certain foreign locations are covered
by defined benefit plans that are required by local laws. These plans
generally provide retirement or severance benefits based on years of service
and compensation.
The cost of these plans are allocated to Agribrands based on employee
population and include the following components for the years ended August 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<PAGE>
<PAGE>
1997 1996 1995
------ ------ ------
Service cost for benefits earned during the year:
Funded plans $ 1.7 $ 1.7 $ 1.6
Unfunded plans 2.5 2.5 3.6
Interest cost on projected benefit obligation 2.4 2.4 2.1
Return on plan assets (6.7) (4.0) (2.1)
Net amortization and deferral 3.6 1.0 (0.9)
$ 3.5 $ 3.6 $ 4.3
====== ====== ======
</TABLE>
The following table presents the funded status of the principal funded defined
benefit plans and amounts recognized in the balance sheet at August 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------- -------
Actuarial present value of:
Vested benefits $(19.0) $(18.0)
Nonvested benefits - -
------- -------
Accumulated benefit obligation (19.0) (18.0)
Effect of future salary increases (9.1) (8.2)
------- -------
Projected benefit obligation (28.1) (26.2)
Plan assets at fair value 36.8 30.8
------- -------
Plan assets in excess of projected benefit
obligation 8.7 4.6
Unrecognized net (gain) loss (1.3) 2.0
Unrecognized prior service cost 0.7 0.7
Unrecognized net asset at transition,
net of amortization (3.2) (3.8)
------- -------
Net pension asset $ 4.9 $ 3.5
======= =======
</TABLE>
The assumptions used in determining the above information reflect weighted
averages for the component plans and are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
Discount rate 9.0% 9.0%
Rate of increase of future compensation levels 7.3% 7.1%
Long-term rate of return on assets 9.2% 9.2%
</TABLE>
The balance sheet accruals for unfunded plans of $12.4 and $13.9 as of August
31, 1997 and 1996, respectively, approximate the actuarial present value of
vested benefits for these plans or represent accrual amounts that comply with
local regulations for required termination payments.
Ralston provides health care and life insurance benefits for a limited group
of retired employees who meet specified age and years of service requirements.
Ralston also sponsors plans whereby certain management employees may defer
compensation in exchange for cash benefits after retirement. The cost of these
postretirement benefits has been allocated to Agribrands based on employee
population and was $0.8 in 1997, $0.8 in 1996 and $0.9 in 1995.
NET INVESTMENT IN AGRIBRANDS
The following analyzes Ralston's Net Investment in Agribrands for the years
ended August 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
Balance at beginning of year $190.3 $136.3 $130.1
Net earnings 8.7 10.9 14.7
Change in cumulative translation adjustment (21.4) (4.4) (10.1)
Net transactions with Ralston 20.5 47.5 1.6
------- ------- -------
Balance at end of year $198.1 $190.3 $136.3
======= ======= =======
</TABLE>
Included in Net Investment in Agribrands are cumulative translation
adjustments occurring in non-hyperinflationary countries of $71.0, $49.6, and
$45.2 at August 31, 1997, 1996 and 1995, respectively, representing net
devaluation of currencies relative to the U.S. dollar over the period of
investment.
Also included in Net Investment in Agribrands are accounts payable and
receivable between Agribrands and Ralston and Agribrands borrowings from
Ralston.
<PAGE>
RESTRUCTURING RESERVES
In 1997, Agribrands recorded provisions for restructuring which reduced
earnings before income taxes and net earnings by $3.2. These charges
represented primarily severance costs and fixed asset write-offs associated
with the streamlining of Agribrands' operations in the Iberian peninsula of
Europe. The provisions provided for the severance of approximately 30
employees, most of whom were severed prior to August 31, 1997. Provisions for
restructuring in previous years related to closing of production facilities
and reorganization of certain administrative functions. Severance costs
related to these restructuring provisions were substantially paid by August
31, 1997.
Components of the provisions for the years ended August 31 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
----- ----- -----
Severance $ 0.6 $ 7.1 $ 1.8
Other cash costs 0.4 1.2 -
Fixed asset writedown 2.2 - -
$ 3.2 $ 8.3 $ 1.8
===== ===== =====
</TABLE>
The following summarizes activity within the restructuring reserves:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
------ ------ ------
Balance at beginning of year $ 4.3 $ 2.4 $ 3.9
Provision during year 3.2 8.3 1.8
Spending/fixed asset writedown during year (6.1) (6.4) (3.3)
Balance at end of year $ 1.4 $ 4.3 $ 2.4
====== ====== ======
</TABLE>
Most of the reserve balance is expected to be utilized in 1998.
FINANCIAL INSTRUMENTS
Foreign Currency Contracts - At August 31, 1997 and 1996, the notional value
of the forward foreign exchange contracts outstanding was $1.4 and $3.1,
respectively. Unrealized gains or losses related to these contracts were not
significant at either date.
Concentration of Credit Risk - The counterparties to foreign currency
contracts consist of a number of major international financial institutions
and are generally institutions with which Agribrands or Ralston maintains
lines of credit. Agribrands does not enter into foreign exchange contracts
through brokers nor does it trade foreign exchange contracts on any other
exchange or over the counter markets.
Agribrands continually monitors its positions and the credit ratings of its
counterparties both internally and by using outside rating agencies.
Agribrands has implemented policies which limit the amount of agreements it
enters into with any one party. While nonperformance by these counterparties
exposes Agribrands to potential credit losses, such losses are not anticipated
due to the control features mentioned.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers, generally short payment terms and their
dispersion across geographic areas.
Fair Value of Financial Instruments - Agribrands' financial instruments
include cash equivalents, marketable securities, short-term and long-term debt
and foreign currency contracts. Due to the nature of cash equivalents and
marketable securities, carrying amounts on the balance sheet approximate fair
value.
Agribrands has been allocated borrowings in numerous countries under a variety
of terms and arrangements. Due to the number of countries involved, and the
availability of information about market value of debt in these countries, it
is not practicable to determine the market value of such debt of Agribrands at
August 31, 1997 and 1996.
The fair value of foreign currency contracts is the amount that Agribrands
would receive or pay to terminate the specific agreements, considering first,
quoted market prices of comparable agreements, or in the absence of quoted
market prices, such factors as interest rates, currency exchange rates and
remaining maturities. Based on these considerations, the calculated fair
values of foreign currency contracts outstanding at August 31, 1997 and 1996
approximate the notional value. The value of the contacts upon ultimate
settlement is dependent upon actual currency exchange rates at the various
maturity dates. All of the outstanding contracts mature by November 15, 1997.
LEGAL AND ENVIRONMENTAL MATTERS
Various Ralston affiliates engaged in agribusiness activities are parties to a
number of legal and tax proceedings in various jurisdictions. These
proceedings are in varying stages and many may proceed for protracted periods
of time. Some proceedings involve highly complex questions of fact and law.
The operations of Agribrands, like those of other companies engaged in similar
businesses, are subject to various laws and regulations intended to protect
the public health and the environment, including air and water quality, and
waste handling and disposal.
In October of 1997, Agribrands' subsidiary in the Philippines applied for a
renewal of its license to warehouse corn, rice and by-products thereof at its
facility in Pulilan. The Philippine National Food Authority (the "NFA")
denied the renewal, although it has subsequently granted a temporary permit to
continue such operations, and also asserted that the Agribrands subsidiary has
violated applicable law regarding limited foreign ownership of Philippine
businesses engaged in the corn/rice industry. The NFA requested that the U.S.
parent of the Agribrands subsidiary, which owns 100% of the subsidiary's
outstanding capitol stock, file a plan for the divestiture of at least 60% of
its equity ownership. An administrative appeal of the denial of the license
has been filed, and, based upon the opinion of its Philippines counsel,
Agribrands believes that it will prevail. The denial of the license has not
disrupted the transaction of business pending a final decision. Agribrands is
challenging the NFA interpretation that the restrictions regarding foreign
ownership, and its request for a plan of divestiture, apply to Agribrands
operations in the Philippines. Agribrands believes that in the event it is
ultimately unsuccessful in its challenge, it will have a substantial period
of time in which to complete the divestiture.
Various tax and labor claims have been asserted against the Agribrands
Business in Brazil. The claims arose principally from monetary corrections
made in connection with the institution of economic plans by prior Brazilian
administrations to control inflation.
A claim has been asserted against the Agribrands Business in connection with
its withdrawal from an unsuccessful joint venture in Chile. Efforts to settle
the claim have heretofore been unsuccessful and it is anticipated that the
parties will submit the dispute to arbitration in Santiago, Chile.
In the opinion of management, based on the information presently known, the
ultimate liability for all such matters, together with the liability for all
other pending legal and tax proceedings, asserted legal claims and known
potential legal claims which are probable of assertion, taking into account
established accruals for estimated liabilities, should not be material to the
financial position of Agribrands, but could be material to results of
operations or cash flows for a particular quarter or annual period.
<PAGE>
OTHER CONTINGENCIES AND COMMITMENTS
Guarantees - At August 31, 1997, Agribrands had third party guarantees
outstanding in the aggregate amount of approximately $7.7. These guarantees
relate to financial arrangements with customers, suppliers and other business
relations.
Sale of Receivables - Agribrands sells certain of its trade accounts
receivable and notes receivable to others subject to defined limited recourse
provisions. Agribrands is responsible for collection of the accounts and
remits the proceeds to the purchaser on a monthly basis. During 1997,
Agribrands sold, on average, accounts receivable totaling $4.9 each month. At
August 31, 1997, $8.8 of transferred receivables were outstanding and subject
to recourse provisions.
Other Commitments - Future minimum rental commitments under noncancellable
operating leases in effect as of August 31, 1997 were: 1998 - $1.3, 1999 -
$1.0, 2000 - $0.5, and 2001 - $0.1. Total rental expense for all operating
leases was $10.8 in 1997, $7.5 in 1996, and $5.6 in 1995.
ACQUISITIONS
In May 1997, Ralston acquired a 75% interest in Purina Fushun Feed Mill, a new
joint venture in Fushun City, People's Republic of China, for $3.0. Since
June 1, 1997, Purina Fushun is included as a consolidated subsidiary in the
financial statements of Agribrands.
In December 1995, Ralston acquired the 50% interest of its joint venture
partner in the agribusiness operations of Gallina Blanca Purina (Barcelona,
Spain) for $16.7. The agribusiness operations of Gallina Blanca Purina are
included in the financial statements at 50% equity for the year ended August
31, 1995, and the four months ended December 31, 1995. Since January 1, 1996,
the agribusiness operations in Spain have been included on a consolidated
basis in the financial statements of Agribrands.
In October 1995, Ralston acquired the 49% interest of the minority
shareholders in Purina Hage (Budapest, Hungary) for $8.9. The agribusiness
operations in Hungary have been included on a consolidated basis in the
financial statements of Agribrands as of and for the years ended August 31,
1997 and 1996.
These acquisitions were accounted for using the purchase method of accounting.
Assuming these acquisitions had occurred as of the beginning of their
respective fiscal years, they would not have had a material effect on net
sales or net earnings. Such acquired interests will be among the assets
contributed to Agribrands prior to the Distribution.
<PAGE>
OTHER (INCOME)/EXPENSE, NET
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
------ ------ ------
Translation and exchange loss $ 3.7 $ 8.3 $ 4.0
Investment income (4.2) (3.6) (4.9)
Other income - (1.4) (3.1)
$(0.5) $ 3.3 $(4.0)
====== ====== ======
</TABLE>
SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
----- ----- -----
Interest paid $10.4 $11.6 $12.1
===== ===== =====
Income taxes paid $21.1 $14.2 $23.6
===== ===== =====
</TABLE>
SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996
------- -------
Receivables (current) --
Trade $ 92.1 $ 95.8
Value added tax 12.1 10.5
Other 20.0 20.0
Allowance for doubtful accounts (9.8) (7.2)
$114.4 $119.1
======= =======
Inventories --
Raw materials and supplies $ 89.7 $111.3
Finished products 22.3 23.3
$112.0 $134.6
======= =======
Investments and Other Assets --
Goodwill (net of accumulated amortization of $ 34.0 $ 31.9
$4.1 in 1997 and $2.7 in 1996)
Investments in affiliated companies 4.1 5.2
Deferred charges and other assets 16.1 18.9
$ 54.2 $ 56.0
======= =======
<PAGE>
Account Payable and Accrued Liabilities --
Trade accounts payable $107.2 $111.1
Incentive compensation, salaries and vacations 14.8 13.3
Restructuring reserves 1.4 4.3
Other items 39.3 31.5
$162.7 $160.2
======= =======
Other Liabilities --
Retirement and other employee benefits $ 16.2 $ 16.4
Minority interests 2.7 1.2
Other 8.4 4.7
$ 27.3 $ 22.3
======= =======
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1997 1996 1995
------- ------- ------
Balance, beginning of year $ 7.2 $ 4.5 $ 4.1
Provision charged to expense 4.6 3.8 2.1
Write-offs, less recoveries (2.0) (1.1) (1.7)
Balance, end of year $ 9.8 $ 7.2 $ 4.5
======= ======= ======
</TABLE>
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
QUARTERLY FINANCIAL INFORMATION
(Dollars in millions)
(Unaudited)
The results of any single quarter are not necessarily indicative of
Agribrands' results for the full year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal 1997 First Second Third Fourth
------ ------- ------ --------
Net sales $390.0 $ 363.1 $375.5 $ 399.0
Gross profit 54.1 50.7 51.6 49.2
Net earnings (a) 7.0 1.2 6.6 (6.1)
Fiscal 1996 First Second Third Fourth
------ ------- ------ --------
Net sales $319.8 $ 341.4 $373.8 $ 366.3
Gross profit 44.4 44.9 47.1 47.5
Net earnings (b) 3.6 5.4 4.0 (2.1)
</TABLE>
(a) Net earnings in the fourth quarter of 1997 were reduced by a $3.2
provision for restructuring.
(b) Net earnings in 1996 were reduced by the following amounts due to
provisions for restructuring:
first quarter $ 0.3
second quarter 0.4
third quarter 0.8
fourth quarter 5.7
Additionally, net earnings in the second quarter of 1996 were increased
by a $2.9 gain on the
sale of the Korean cereal business.
<PAGE>
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
Combined Statement of Earnings
(Dollars in millions-unaudited)
<S> <C> <C>
Three Months Ended
--------------------
November 30,
--------------------
1997 1996
-------------------- -------
Net Sales $ 374.8 $390.0
Costs and Expenses
Cost of products sold 318.7 335.9
Selling, general and administrative 39.5 37.3
Interest 3.1 2.7
Gain on sale of property (0.4)
Other (income)/expense, net 4.5 (0.7)
-------------------- -------
365.4 375.2
-------------------- -------
Earnings before Income Taxes 9.4 14.8
Income Taxes 5.4 7.8
Net Earnings $ 4.0 $ 7.0
==================== =======
</TABLE>
See Accompanying Notes to Condensed Financial Statements
<PAGE>
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
Combined Balance Sheet
(Condensed)
(Dollars in millions-unaudited)
November 30, August 31,
1997 1997
-------------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 30.2 $ 25.2
Marketable securities 6.1 6.8
Receivables, less allowance for doubtful accounts 112.2 114.4
Inventories 110.1 112.0
Other current assets 10.9 11.7
Total Current Assets 269.5 270.1
-------------- ------------
Investments and Other Assets 53.5 54.2
Property at Cost 319.7 329.6
Accumulated depreciation (169.4) (172.7)
-------------- ------------
150.3 156.9
Total $ 473.3 $ 481.2
============== ============
Liabilities and Net Investment in Agribrands
Current Liabilities
Current maturities of long-term debt $ 18.3 $ 19.4
Notes payable 55.2 33.8
Accounts payable and accrued liabilities 156.7 162.7
Income taxes 8.1 7.5
Total Current Liabilities 238.3 223.4
-------------- ------------
Long-Term Debt 19.3 22.8
Deferred Income Taxes 11.5 9.6
Other Liabilities 24.8 27.3
Net Investment in Agribrands 179.4 198.1
Total $ 473.3 $ 481.2
============== ============
</TABLE>
See Accompanying Notes to Condensed Financial Statements
<PAGE>
<TABLE>
<CAPTION>
AGRIBRANDS INTERNATIONAL, INC.
Combined Statement of Cash Flows
(Condensed)
(Dollars in millions-unaudited)
Three Months Ended,
November 30,
---------------------
1997 1996
--------------------- -------
<S> <C> <C>
Net Earnings $ 4.0 $ 7.0
Non-cash items included in income 12.2 5.1
Changes in operating assets and liabilities used in operations
(9.4) 12.6
Other, net 0.2 2.5
------- ------
Net cash flow from operations 7.0 27.2
------- -------
Cash Flow from Investing Activities
Property additions (10.9) (6.1)
Proceeds from the sale of property 0.7 0.8
Other, net (1.7) 8.4
________ _______
Net cash (used by) provided by investing
activities (11.9) 3.1
---------- -------
Cash Flow from Financing Activities
Proceeds from sale of long-term debt 0.8
Principal payments on long-term debt, including
current maturities (1.1) (0.6)
Net increase (decrease) in notes payable 23.6 (22.7)
Net transactions with Ralston (10.4) 15.6
Net cash provided by (used by) financing
activities 12.9 (7.7)
----------- -------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (3.0) (0.2)
---------- -------
Net Increase in Cash and Cash Equivalents 5.0 22.4
Cash and Cash Equivalents, Beginning of Period 25.2 20.3
-------- -------
Cash and Cash Equivalents, End of Period 30.2 42.7
======== =======
</TABLE>
See Accompanying Notes to Condensed Financial Statements
<PAGE>
AGRIBRANDS
NOTES TO CONDENSED FINANCIAL STATEMENTS
November 30, 1997
(Dollars in millions)
(Unaudited)
Note 1 - The accompanying unaudited financial statements have been
prepared in accordance with Article 10 of Regulation S-X and do not include
all of the information and footnotes required by generally accepted accounting
procedures for complete financial statements. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. These statements
should be read in connection with the financial statements of Agribrands
International, Inc. and notes thereto for the year ended August 31, 1997.
Note 2 - Receivables consist of the following:
<TABLE>
<CAPTION>
November 30, 1997 August 31, 1997
<S> <C> <C>
Gross receivables $ 122.6 $ 124.2
Allowance for doubtful accounts (10.4) (9.8)
$ 112.2 $ 114.4
=================== =================
</TABLE>
Note 3 - Inventories consist of the following:
<TABLE>
<CAPTION>
November 30, 1997 August 31, 1997
<S> <C> <C>
Raw materials and supplies $ 87.0 $ 89.7
Finished products 23.1 22.3
$ 110.1 $ 112.0
================== ================
</TABLE>
Note 4 - Investments and Other Assets consist of the following:
<TABLE>
<CAPTION>
November 30, 1997 August 31, 1997
<S> <C> <C>
Goodwill, net of accumulated amortization of
$4.5 at November 30 and $4.1 at August 31 $ 33.7 $ 34.0
Investments in affiliated companies 5.3 4.1
Deferred charges and other assets 14.5 16.1
_______ _______
$ 53.5 $ 54.2
======== ==========
</TABLE>
Note 5 - Accounts payable and accrued liabilities consist of the
following:
<TABLE>
<CAPTION>
November 30, 1997 August 31, 1997
<S> <C> <C>
Trade accounts payable $ 105.7 $ 107.2
Incentive compensation, salaries,
and vacations 13.4 14.8
Restructuring reserves 1.2 1.4
Other items 36.4 39.3
_________ ________
$ 156.7 $ 162.7
=========== ==========
</TABLE>
Note 6 - Subsequent Events
In December 1997, Agribrands invested $5.0 million in Agribrands Purina
(Langfang) Feedmill Company Ltd., a new wholly owned foreign subsidiary. The
new subsidiary utilized the funds to acquire a feed mill in Langfang, People's
Republic of China. In January 1998, Agribrands acquired a feed mill in
Maracay, Venezuela for approximately $5.0 million. In January 1998,
Agribrands also acquired a feed mill in Spessa, Italy for approximately $8.0
million. Agribrands had previously leased the feed mills in both Maracay and
Spessa. Assuming these acquisitions had occurred as of September 1, 1996,
they would not have had a material effect on net sales or net earnings.
In February of 1998, Agribrands signed a letter of intent to acquire a feed
mill operation in Jiangxi Province, People's Republic of China for
approximately $4 million.
ANNEX A
AGRIBRANDS INTERNATIONAL, INC.
1998 INCENTIVE STOCK PLAN
SECTION I. GENERAL PROVISIONS
A. PURPOSE OF PLAN
The purpose of the Agribrands International, Inc. 1998 Incentive Stock
Plan (the "Plan") is to enhance the profitability and value of the Company for
the benefit of its shareholders by (i) providing for stock options and other
stock awards to attract, retain and motivate officers and other key employees
who make important contributions to the success of the Company, and (ii)
providing stock options and other stock awards to encourage stock ownership by
the non-employee members of the Board of Directors of the Company.
B. DEFINITIONS
Unless otherwise defined herein, all capitalized terms have the same
meaning as in the Rights Agreement between Agribrands, International, Inc. and
Continental Stock Transfer & Trust Company.
1. "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall become, at any time after
the date of the Rights Agreement (whether or not such status continues for any
period), the Beneficial Owner of Common Stock representing 20% or more of
the Common Stock then outstanding, other than as a result of a Permitted
Offer. Notwithstanding the foregoing, (A) the term "Acquiring Person" shall
not include (i) the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Stock for or pursuant to the terms of any such plan, or (ii)
any Person, who or which together with all Affiliates and Associates of such
Person becomes the Beneficial Owner of 20% or more of the then outstanding
Common Stock as a result of the acquisition of Common Stock directly from the
Company (provided, however, that if, after such acquisition, such Person, or
an Affiliate or Associate of such Person, becomes the Beneficial Owner of any
additional Common Stock in an acquisition not made directly from the Company,
then such Person shall be deemed an Acquiring Person), or (iii) a
Grandfathered Person, and (B) no Person shall be deemed to be an "Acquiring
Person" (X) as a result of the acquisition of Common Stock by the Company
which, by reducing the number of Common Stock outstanding, increases the
proportional number of shares beneficially owned by such Person together with
all Affiliates and Associates of such Person; except that if (i) a Person
would become an Acquiring Person (but for the operation of this subclause (X))
as a result of the acquisition of Common Stock by the Company, and (ii) after
such share acquisition by the Company, such Person, or an Affiliate or
Associate of such Person, becomes the Beneficial Owner of any additional
Common Stock, then such Person shall be deemed an Acquiring Person, (Y) if
such Person, or an Affiliate or Associate of such Person, inadvertently
becomes the Beneficial Owner of 20% or more of the outstanding Common Stock,
or (Z) if a Person, or an Affiliate or Associate of such Person, is the
involuntary transferee of Common Stock from a Grandfathered Person (including,
but not limited to, when such involuntary transfer is as a result of the death
of a Grandfathered Person), provided that, in the case of any situation
referred to in subclause (Y) or (Z) above (1) within 8 days thereafter such
Person notifies the Board of Directors that such Person acquired the Common
Stock in question inadvertently or involuntarily, respectively, and (2) within
2 days after such notification, such Person is the Beneficial Owner of less
than 20% of the outstanding Common Stock. Notwithstanding anything to the
contrary in this Agreement, any Common Stock owned by a Grandfathered Person
shall not be taken into account when computing the number of Common Stock
beneficially owned by an Affiliate or Associate of a Grandfathered Person,
provided that such Affiliate or Associate (i) does not constitute a member of
a group (as defined for purposes of Section 13(d) of the Exchange act)
including such Grandfathered Person, or (ii) is not otherwise acting in
concert with such Grandfathered Person, each with respect to the Company.
2. "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
3. "Beneficial Owner" means a Person who is deemed to have acquired
beneficial ownership of any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly, as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act as in effect
on the date hereof;
(ii) which such Person or any of such Person's Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall be deemed the Beneficial
Owner of, or to beneficially own, any security if the agreement, arrangement
or understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules
and regulations promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso
to paragraph (ii)) above or disposing of any securities of the Company.
Notwithstanding anything in this definition of "Beneficial Owner" to the
contrary, the phrase "then outstanding", when used with reference to a
Person's beneficial ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
4. "Board" means the Board of Directors of the Company.
5. "Business Day" means any day other than a Saturday, a Sunday, or a day
on which banking institutions in St. Louis, Missouri are authorized or
obligated by law or executive order to close.
6. "Change in Control" means the earlier of:
(i) the close of business on the tenth Business Day after the Shares
Acquisition Date; or
(ii) the close of business on the tenth Business Day (or such later date
as may be determined by action of the Board of Directors of the Company prior
to such time as any Person becomes an Acquiring Person, as defined in the
Rights Agreement) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, or any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Stock for or pursuant to the terms of any such plan) is first
published or sent or given within the meaning of Rule 14d-2 of the General
Rules and Regulations under the Exchange Act, if upon consummation thereof,
such Person would be the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding; or
(iii) the Company shall consolidate with, or merge with and into any other
Person; or
(iv) the Company shall consolidate with, or merge with, any other Person,
and the Company shall be the continuing or surviving corporation of such
consolidation or merger (other than, in a case of any transaction described in
(iii) or (iv), a merger or consolidation which would result in all of the
securities generally entitled to vote in the election of directors ("voting
securities") of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
securities of the surviving entity) all of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation and the holders of such securities not having changed as a
result of such merger or consolidation); or
(v) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or a series of related
transactions, assets or earning power aggregating more than 50% of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than the Company or any Subsidiary of the Company in
one or more transactions each of which does not violate Section 11(n) of the
Rights Agreement.
7. "Committee" means the Nominating and Compensation Committee of the
Board of Directors of the Company or any successor committee the Board may
designate to administer the Plan. The Committee shall be comprised of at
least three non-Employee members of the Board.
8. "Common Stock" means Agribrands International, Inc. $.01 par value
Common Stock.
9. "Company" means Agribrands International, Inc.
10. "Corporate Officer" means the President, Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer, Secretary and Treasurer of
the Company.
11. "Director" or "Directors" means a non-Employee member or members of
the Board of Directors of the Company.
12. "Employee" means any person who is employed by the Company or an
Affiliate.
13. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
14. "Fair Market Value" of any class or series of Stock means the fair and
reasonable value thereof as determined by the Committee according to
prices in trades as reported on the New York Stock Exchange Composite
Transactions. If there are no prices so reported or if, in the opinion of the
Committee, such reported prices do not represent the fair and reasonable value
of the Stock, then the Committee shall determine Fair Market Value by any
means it deems reasonable under the circumstances.
15. "Grandfathered Person" shall mean any of the members of the Company's
Board of Directors as of the date of the Rights Agreement, who are David R.
Banks, Jay W. Brown, M. Darrell Ingram, H. Davis McCarty, Joe R. Micheletto,
Martin K. Sneider and William P. Stiritz, together with his immediate family
and any other Grandfathered Person; provided, however, that a Grandfathered
Person shall cease to be a Grandfathered Person at the time that (i) such
Person is no longer a member of the Company's Board of Directors, and (ii)
thereafter such Person becomes the Beneficial Owner of any Common Stock of the
Company, other than as a result of (A) a dividend or distribution on the
Common Stock, payable in Common Stock or securities convertible into Common
Stock, which such dividend or distribution is payable to all holders of Common
Stock, (B) a subdivision, combination, recapitalization or reclassification of
the Common Stock, or (C) an acquisition of Common Stock as a result of
exercise of Rights.
16. "Incentive Stock Option" means an option to purchase Stock which
satisfies the requirements set forth in Section 422 of the Internal Revenue
Code of 1986, as amended.
17. "Non-Qualified Stock Option" means an option to purchase Stock which
does not satisfy the requirements set forth in Section 422 of the Internal
Revenue Code of 1986, as amended.
18. "Permitted Offer" means a tender or exchange offer which is for all
outstanding Common Stock at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by at least a majority
of the members of the Board of Directors who are not officers of the
Company and who are not (or would not be, if the offer were consummated)
Acquiring Persons or Affiliates, Associates, nominees or representatives of an
Acquiring Person, to be adequate or otherwise in the best interests of the
Company and its stockholders (other than the Person or any Affiliate or
Associate thereof on whose basis the offer is being made). In determining
whether an offer is adequate or in the best interests of the Company and its
shareholders, the Board may take into account all factors that it deems
relevant including, without limitation,
(i) the consideration being offered in the proposal in relation to the
Board's estimate of: (1) the current value of the Company in a freely
negotiated sale of either the Company by merger, consolidation or otherwise,
or all or substantially all of the Company's assets, (2) the current value of
the Company if orderly liquidated, and (3) the future value of the Company
over a period of years as an independent entity discounted to current value;
(ii) then existing political, economic and other factors bearing on
security prices generally or the current market value of the Company's
securities in particular;
(iii) whether the proposal might violate federal, state or local laws;
(iv) social, legal and economic effects on employees, suppliers, customers
and others having similar relationships with the Company, and the
communities in which the Company conducts its businesses;
(v) the financial condition and earnings prospects of the person making
the proposal including the person's ability to service its debt and other
existing or likely financial obligations; and
(vi) the competence, experience and integrity of the person making the
acquisition proposal.
19. "Person" shall mean any individual, firm, partnership, corporation,
trust, association, joint venture or other entity, and shall include any
successor (by merger or otherwise) of such entity.
20. "Plan" means the Agribrands International, Inc. 1998 Incentive Stock
Plan.
21. "Plan Administrator" means the Company or its delegate.
22. "Restricted Stock Award" means an award of restricted stock granted
under paragraph 1 of Section III of the Plan.
23. "Rights Agreement" means the Rights Agreement between Agribrands
International, Inc. and Continental Stock Transfer & Trust Company.
24. "Shares Acquisition Date" shall mean the first date of a public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act)
by the Company or an Acquiring Person that an Acquiring Person has become
such; provided, that, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
25. "Stock" means the Common Stock or any other authorized class or series
of common stock or any such other security outstanding upon the
reclassification of any of such classes or series of common stock, including,
without limitation, any stock split-up, stock dividend, creation of targeted
stock, or other distributions of stock in respect of stock, or any reverse
stock split-up, or recapitalization of the Company or any merger or
consolidation of the Company with any Affiliate.
26. "Stock Award" means a Stock Option granted under Section II of the
Plan or a Stock Award granted under Section III of the Plan.
27. "Stock Option" means an option to purchase Stock granted under Section
II of the Plan.
28. "Subsidiary" means a "subsidiary corporation" of the Company as
defined in Section 424(f) (or any successor provision) of the Code.
C. SCOPE OF PLAN AND ELIGIBILITY
1. Any Employee or Director selected by the Committee shall be eligible
for the Stock Awards granted under Sections II and III of the Plan; provided,
however, that only Employees of the Company or a Subsidiary are eligible to
receive Incentive Stock Options; and, provided, further that Stock Awards for
members of the Committee shall be approved by the Board.
D. AUTHORIZATION AND RESERVATION
1. There shall be established a reserve of 2,750,000 authorized shares of
Common Stock, which shall be the total number of shares of Stock that may be
issued pursuant to Stock Awards. The maximum aggregate number of shares of
Stock with respect to which Incentive Stock Options may be granted under this
Plan shall be 2,750,000 shares. Notwithstanding the foregoing, no shares will
be issued in violation of the Agreement and Plan of Reorganization
between Ralston Purina Company and Agribrands International, Inc. The
following principles will apply in determining the number of shares of Stock
issued pursuant to Stock Awards:
(i) The number of shares underlying a Stock Award shall be counted against
the Plan reserve at the time of grant.
(ii) When a Stock Award is payable in cash and the amount of such cash is
based on the value of a number of shares of Stock which is determinable at the
time of grant, that determinable number of shares shall be deemed to
underlie that Stock Award for purposes of the Plan. If the amount of such
cash, in effect, is calculated by applying a percentage to the Fair Market
Value of a certain number of shares of Stock, if such percentage is
determinable at the date of grant, and if such determinable percentage, in
effect, exceeds 100%, the Committee shall determine at the time of grant the
number of shares which is deemed to underlie such Stock Award.
(iii) If the number of shares underlying a Stock Award is not determinable
at the time of grant, the Committee shall determine at the time of grant
a number of shares which is deemed to underlie such Stock Award; that number
may be adjusted after grant as the Committee deems appropriate.
(iv) Shares which underlie Stock Awards that (in whole or part) expire,
terminate, are forfeited, or otherwise become non-payable, or which are
recaptured by the Company in connection with a forfeiture event, may be
re-used in new grants to the extent of such expiration, termination,
forfeiture, non-payability, or recapture.
2. The reserves may consist of authorized but unissued shares of Stock or
of reacquired shares, or both.
3. The maximum aggregate number of shares of Stock with respect to which
Stock Options or Stock equivalents may be granted pursuant to any Stock Award
in any one fiscal year to any single Employee shall be 2,750,000 shares.
E. GRANT OF STOCK AWARDS AND ADMINISTRATION OF THE PLAN
1. The Committee shall determine those Employees and Directors eligible to
receive Stock Awards and the amount, type and terms of each Stock Award,
subject to the provisions of the Plan, and it shall have the power to delegate
responsibility to others to assist it in making such determinations with
respect to Employees other than Corporate Officers of the Company. Except to
the extent prohibited by Rule 16b-3, the Committee may accelerate the date on
which any Stock Award or Stock or property issued pursuant to a Stock Award
shall vest and may remove any restrictions on such Stock Award at any time
after grant and for any reason the Committee deems appropriate. The Committee
shall be comprised of (i) "outside directors" within the meaning of Section
162(m) of the Code, subject to any transitional rules applicable to the
definition of outside director, and (ii) at least three "non-employee
directors" within the meaning of Rule 16b-3 under the Exchange Act, or
otherwise qualified to administer this Plan as contemplated by that Rule or
any successor Rule under the Exchange Act; provided, however, that no Director
shall participate in any Committee decisions regarding his Stock Awards under
Articles II or III hereof. In making any determinations under the Plan, the
Committee shall be entitled to rely on reports, opinions or statements of
officers or employees of the Company, as well as those of counsel, public
accountants and other professional or expert persons. All determinations,
interpretations and other decisions under or with respect to the Plan or any
Stock Award by the Committee shall be final, conclusive and binding upon all
parties, including without limitation, the Company, any Employee or Director,
and any other person with rights to any Stock Award under the Plan, and no
member of the Committee shall be subject to individual liability with respect
to the Plan.
2. The Plan Administrator shall administer the Plan and, in connection
therewith, it shall have full power to construe and interpret the Plan,
establish rules and regulations and perform all other acts it believes
reasonable and proper, including the power to delegate responsibility to
others to assist it in administering the Plan.
SECTION II. STOCK OPTIONS
A. DESCRIPTION
The Committee may grant options with respect to any class or series of
Stock that qualify as Incentive Stock Options and it may grant Non-Qualified
Stock Options.
B. TERMS AND CONDITIONS
1. Each Stock Option shall be set forth in a written agreement containing
such terms and conditions as the Committee may determine, subject to the
provisions of the Plan.
2. Except as otherwise provided herein, the purchase price of any shares
exercised under any Stock Option must be paid in full upon such exercise. The
payment shall be made in such form, which may be cash, Stock (through
delivery of Stock or by attestation or other deemed or constructive delivery)
or any other property, as the Committee may determine. The Committee may
permit a Participant to elect to pay the exercise price upon the exercise of a
Stock Option by authorizing a third party to sell shares of Stock (or a
sufficient portion of the shares) acquired upon exercise of the Stock Option
and remit to the Company a sufficient portion of the sale proceeds to pay the
entire exercise price and any withholding tax resulting from such exercise.
The Committee may also permit other forms of cashless exercise. The
Committee, in its discretion may impose such conditions, restrictions and
contingencies with respect to shares of Stock acquired pursuant to the
exercise of an Option as the Committee determines to be desirable.
3. No Incentive Stock Option may be exercised after the expiration of ten
(10) years from the date such option is granted.
4. The option price of shares subject to any Stock Option shall not be
less than the Fair Market Value of the appropriate class or series of Stock at
the time the option is granted.
5. In the case of an Incentive Stock Option, the aggregate Fair Market
Value (determined as of the time the option is granted) of the Stock with
respect to which options are exercisable for the first time by any Employee
during any calendar year (under all such plans of his employer corporation and
its parent and subsidiary corporations) shall not exceed $100,000. To
the extent the $100,000 limitation is exceeded, the Stock Options will be
treated as Non-Qualified Stock Options.
6. All options will become immediately exercisable in the event of a
Change in Control.
C. PERIOD OF EXERCISE
Unless otherwise provided herein, a Stock Option shall be exercisable in
accordance with such terms and conditions and during such periods as may be
established by the Committee.
SECTION III. OTHER STOCK AWARDS
In addition to Stock Options, the Committee may grant other Stock Awards
payable in any class or series of Stock upon such terms and conditions as the
Committee may determine, subject to the provisions of the Plan. These terms
and conditions may include continuous service and/or the achievement of
performance measures. The performance measures that may be used by the
Committee for such Stock Awards may include stock price, market share, sales,
earnings per share, return on equity or costs. The Committee may designate a
single goal criterion or multiple goal criteria for performance measurement
purpose. Other Stock Awards may include, but are not limited to, the
following:
1. Restricted Stock Awards. The Committee may grant Restricted Stock
Awards, each of which consists of a grant of shares of any class or series of
Stock subject to terms and conditions determined by the Committee in its
discretion, subject to the provisions of the Plan. Such terms and conditions
shall be set forth in written agreements. The shares of Stock granted will be
restricted and may not be sold, pledged, transferred or otherwise
disposed of until the lapse or release of restrictions in accordance with the
terms of the agreement and the Plan. Prior to the lapse or release of
restrictions, all shares of Stock are subject to forfeiture in accordance with
Section IV of the Plan. Shares of Stock issued pursuant to a Restricted Stock
Award may be issued for no monetary consideration.
2. Stock Appreciation Right. A right to receive in cash the excess of the
Fair Market Value of a share of Stock on the date the stock appreciation
right is exercised over the Fair Market Value of a share of Stock on the date
the stock appreciation right was granted.
3. Restricted and Performance Share Unit. A fixed or variable share or
dollar denominated unit subject to such conditions of vesting, performance and
time of payment as the Committee may determine, which unit may be paid in
Stock, cash or a combination of both.
4. Limited Rights. The Committee shall have authority to grant limited
stock appreciation rights ("Limited Rights") to any Recipient of any Options
or stock appreciation rights granted under the Plan (the "Related Award") with
respect to all or some of the shares of Stock which underlie such Related
Award. Limited Rights shall not be granted separately, but shall be granted
only as alternative to their Related Award. Limited Rights may be granted
either at the time of grant of the Related Award or (except in the case of
Incentive Stock Options) at any time thereafter during its term. Limited
Rights shall be exercisable or payable at such times, payable in such amounts,
and subject to such other terms, conditions, and restrictions as the Committee
deems appropriate.
5. Stock Related Deferred Compensation. The Committee may, in its
discretion, and subject to compliance with applicable federal and state
securities laws, permit the deferral of payment of all or a portion of an
Employee's or Director's cash bonus or other cash compensation in the form of
either cash or any class or series of Stock (or Stock equivalents, each
corresponding to a share of such Stock) under such terms and conditions as the
Committee may prescribe. Payment of such compensation may be deferred
for such period or until the occurrence of such event as the Committee may
determine. Such terms and conditions shall be set forth in written
agreements. The Committee may, in its discretion, determine whether any
deferral, whether made in cash or such class or series of Stock (or Stock
equivalents) shall be paid on distribution in cash or in Stock. If a deferral
is permitted in the form of Stock or Stock equivalents, the number of shares
of Stock or number of Stock equivalents deferred will be determined by
dividing the amount of the Employee's or Director's bonus or other cash
compensation being deferred by the average of the closing prices of the
appropriate class or series of Stock, as reported by the New York Stock
Exchange Composite Transactions, during the ten trading days preceding the
effective date of the Committee's decision to defer. In addition, the
Committee may, in any fiscal year, provide for an additional matching deferral
to be credited to an Employee's or Director's account. If the Committee
directs the payments in any class or series of Stock of any portion of amounts
deferred in cash, the number of shares of such Stock paid will be determined
based on the average of the closing prices of such Stock, as reported by the
New York Stock Exchange Composite Transactions, during the ten trading days
before the payment is due. The Committee, in its discretion, may permit the
conversion of deferrals in any class or series of Stock or Stock equivalents
into deferrals in cash, or the conversion of deferrals in cash into deferrals
in any class or series of Stock or Stock equivalents. In the event such
conversion is permitted, the conversion price of the appropriate class or
series of Stock shall be based on the Fair Market Value of such Stock.
Additional rights or restrictions may apply in the event of a Change in
Control of the Company to the extent such additional rights or restrictions
are set forth in the written agreement setting for the terms of such deferred
compensation.
6. Other Stock Awards. Other Stock Awards which are related to or serve a
similar function to the Stock Awards set forth in this Section III.
7. Change in Control. All Stock Awards described in this Section III will
vest and/or become immediately exercisable in the event of a Change in
Control.
SECTION IV. FORFEITURE OF STOCK AWARDS
The Committee may include in any Stock Award agreement any provision
relating to forfeitures of Stock Awards that it deems appropriate. Such
forfeiture provisions may include, among others, prohibitions on competing
with the Company and its Subsidiaries and Affiliates and other detrimental
conduct. Forfeiture provisions for one Stock Award type may differ from those
for another type, and also may differ among Stock Awards of the same type. As
used in the Plan, a "forfeiture" of a Stock Award includes the recapture of
economic benefits derived from a Stock Award, as well as the forfeiture of a
Stock Award itself; however, the Committee may define the term more narrowly
in specific Stock Award agreements or contexts.
Stock Award agreements may provide for any forfeiture provision to
terminate or be waived upon a Change in Control. In its discretion, the
Committee may provide in any Stock Award agreement for the termination of any
forfeiture provision upon the happening of any specified event, and may
terminate or waive any forfeiture provision by action taken after grant.
SECTION V. DEATH OF STOCK AWARD RECIPIENT
The Committee, in its discretion, may determine the disposition of Stock
Awards in the event of the death of an Employee or a Director.
To the extent permitted by the Committee in its sole discretion, a Stock
Award recipient may file with the Committee a written designation of a
beneficiary or beneficiaries (subject to such limitations as to the classes
and number of beneficiaries and contingent beneficiaries as the Committee may
from time to time prescribe) to exercise, in the event of the death of the
recipient, a Stock Option, or to receive, in such event, any other Stock
Awards. The Committee reserves the right to review and approve beneficiary
designations. A recipient may from time to time revoke or change any such
designation or beneficiary and any designation of beneficiary under the Plan
shall be controlling over any other disposition, testamentary or otherwise;
provided, however, that if the Committee shall be in doubt as to the right of
any such beneficiary to exercise any Stock Option or to receive any Other
Stock Award, the Committee may determine to recognize only an exercise by the
legal representative of the recipient, in which case the Company, the
Committee and the members thereof shall not be under any further liability to
anyone.
SECTION VI. OTHER GOVERNING PROVISIONS
A. TRANSFERABILITY
Except as otherwise noted herein, no Stock Award shall be transferable
other than by beneficiary designation, will or the laws of descent and
distribution, and any right granted under a Stock Award may be exercised
during the lifetime of the holder thereof only by him or by his guardian or
legal representative; provided, however, that the Committee may grant
Non-Qualified Stock Options that are transferable, without payment of
consideration, to (i) revocable trusts for the benefit of immediate family
members which qualify as grantor trusts for Federal income tax purposes, (ii)
to immediate family members, and (iii) to partnerships whose only partners are
immediate family members. The transferee of a transferable Non-Qualified
Stock Option is subject to all conditions applicable to the transferable
Non-Qualified Stock Option prior to its transfer except that the transferee
may not avail himself of the limited transferability proviso of this Section
VI.A.
B. RIGHTS AS A SHAREHOLDER
A recipient of a Stock Award shall, unless the terms of the Stock Award
provide otherwise, have no rights as a shareholder, with respect to any Stock
Options or shares which may be issued in connection with the Stock Award until
the issuance of a Stock certificate for such shares, and no adjustment other
than as stated herein shall be made for dividends or other rights for which
the record date is prior to the issuance of such Stock certificate. In
addition, with respect to Restricted Stock Awards, recipients shall have only
such rights as a shareholder as may be set forth on the certificate or in the
terms of the Stock Award. In lieu of actual issuance of stock certificates,
the company may elect to maintain bookkeeping records of stock ownership until
such time as an Employee or Director requests stock certificates.
C. GENERAL CONDITIONS OF STOCK AWARDS
No Employee, Director or other person shall have any right with respect
to this Plan, the shares reserved or in any Stock Award, contingent or
otherwise, until written evidence of the Stock Award shall have been delivered
to the recipient and all the terms, conditions and provisions of the Plan
applicable to such recipient have been met.
D. RESERVATION OF RIGHTS OF COMPANY
The selection of an Employee for any Stock Award shall not give such
person any right to continue as an Employee and the right to discharge with or
without cause any Employee is specifically reserved.
E. ACCELERATION
The Committee may, in its sole discretion, accelerate the date of
exercise of any Stock Award.
F. EFFECT OF CERTAIN CHANGES
In the event of any extraordinary dividend, stock split-up, stock
dividend, issuance of any targeted stock, recapitalization, warrant or rights
issuance or combination, exchange or reclassification with respect to any
outstanding class or series of Stock, or consolidation, merger or sale of all
or substantially all of the assets of the Company, the Committee or its
delegee shall cause such equitable adjustments as it deems appropriate to be
made to the shares reserved and the other share limitations under Section I.D.
of the Plan and the terms of outstanding Stock Awards to reflect such event
and preserve the value of such Stock Awards. In the event the Committee
determines that any such event has a minimal effect on the value of Stock
Awards, it may elect not to cause any such adjustments to be made. In all
events, the determination of the Committee or its delegee shall be conclusive.
If any such adjustment would result in a fractional security being issuable or
awarded under this Plan, such fractional security shall be disregarded.
G. STOCK AWARDS FOR EMPLOYEES EMPLOYED OUTSIDE THE UNITED STATES
Without amending the Plan, Stock Awards may be granted to Employees who
are foreign nationals or who are employed outside the United States or both,
on such terms and conditions different from those specified in the Plan as
may, in the judgment of the Committee, be necessary or desirable to further
the purposes of the Plan. Such different terms and conditions may be
reflected in Addenda to the Plan. However, in the case of Incentive Stock
Options, no such different terms or conditions shall be employed if such term
or condition constitutes, or in effect results in, an increase in the
aggregate number of shares which may be issued under the Plan or a change in
the definition of Employee.
H. WITHHOLDING OF TAXES
The Company shall deduct from any payment, or otherwise collect from the
recipient, any taxes required to be withheld by federal, state or local
governments in connection with any Stock Award. The recipient may elect,
subject to approval by the Committee, to have shares of Stock withheld by the
Company in satisfaction of such taxes, or to deliver other shares of Stock
owned by the recipient in satisfaction of such taxes. With respect to
Corporate Officers or other recipients subject to Section 16(b) of the
Exchange Act, the Committee may impose such other conditions on the
recipient's election as it deems necessary or appropriate in order to exempt
such withholding from the penalties set forth in said Section 16(b). The
number of shares to be withheld or delivered shall be calculated by reference
to the Fair Market Value of the appropriate class or series of Stock on the
date that such taxes are determined.
I. NO WARRANTY OF TAX EFFECT
Except as may be contained in the terms of any Stock Award, no opinion is
expressed nor warranties made as to the effect for federal, state or local tax
purposes of any Stock Award.
J. AMENDMENT OF PLAN
The Board may, from time to time, amend, suspend or terminate the Plan in
whole or in part, and if terminated may reinstate any or all of the provisions
of the Plan, except that no amendment, suspension or termination may apply to
the terms of any Stock Award (contingent or otherwise) granted prior to the
effective date of such amendment, suspension or termination without the
recipient's consent. Any such action of the Board may be taken without the
approval of the Company's shareholders, but only to the extent that such
shareholder approval is not required by applicable law or regulation,
including specifically the Internal Revenue Code of 1986, as amended, or Rule
16b-3 promulgated under the Securities Exchange Act.
K. CONSTRUCTION OF PLAN
The place of administration of the Plan shall be in the State of
Missouri, and the validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to
the Plan, shall be determined solely in accordance with the laws, but not the
laws pertaining to choice of laws, of the State of Missouri.
SECTION VII. EFFECTIVE DATE AND TERM
This Plan shall be effective April 1, 1998 and shall continue in effect
until December 31, 2007, when it shall terminate. Upon termination, any
balances in the Stock reserve established in Section I.D. shall be canceled,
and no Stock Awards shall be granted under the Plan thereafter. The Plan
shall continue in effect, however, insofar as is necessary to complete all of
the Company's obligations under outstanding Stock Awards and to conclude the
administration of the Plan.
AGRIBRANDS INTERNATIONAL, INC.
By:
46
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
March __, 1998, by and among Ralston Purina Company, a Missouri corporation
("Ralston"), Ralston Purina International Holding Company, Inc., a Delaware
corporation and wholly owned subsidiary of Ralston ("RPIHCI") and Agribrands
International, Inc. ("Agribrands"), a Missouri corporation and wholly owned
subsidiary of RPIHCI.
WITNESSETH:
WHEREAS, Ralston's businesses consist of the manufacture, distribution
and sale of battery products and pet products domestically and
internationally, and the manufacture, distribution and sale of agricultural
formula animal feeds and other agricultural animal nutrition products
primarily outside the United States; and
WHEREAS, the Board of Directors of Ralston (the "Ralston Board") has
determined that it is in the best interests of the Ralston shareholders to
separate Ralston's international agribusiness from its core pet products and
battery businesses, and to consolidate such agribusiness, which is currently
conducted by various subsidiaries and affiliates, into Agribrands, and to
distribute the $.01 par value Agribrands Stock ("Agribrands Stock") to
shareholders of its $.10 par value Ralston Purina Common Stock ("Ralston
Stock"); and
WHEREAS, in order to effect such separation, the Ralston Board has
determined that it is necessary and advisable to consolidate the international
agribusiness through various restructurings and to transfer to Agribrands the
direct stock ownership of those subsidiaries and other assets of Ralston that
are engaged in the operation of the agribusiness, as well as certain
trademarks and technology used in the international agribusiness, as more
fully set forth below; and
WHEREAS, in connection with such consolidation, Ralston formed Agribrands
by causing Tradico, Inc., a Delaware corporation and wholly-owned subsidiary
of Ralston, to be merged into Tradico Missouri, Inc., a Missouri corporation
and wholly-owned subsidiary of Ralston, and the surviving Missouri corporation
to be renamed Agribrands International, Inc., effective November 18, 1997; and
WHEREAS, in order to effect such distribution of the ownership of
Agribrands to the holders of Ralston Stock, the Ralston Board has determined
that it is necessary and desirable to distribute all outstanding shares of
Agribrands Stock on a pro rata basis to the holders of Ralston Stock, such
distribution being hereinafter referred to as the "Distribution"; and
WHEREAS, the mergers and liquidations of certain affected subsidiaries
are intended to qualify under Sections 368(a)(1)(A) and 332 of the Internal
Revenue Code of 1986, as amended (the "Code"), the transfer of assets are
intended to qualify under Code Section 368(a)(1)(D), and the distribution of
Agribrands Stock is intended to qualify under Code Section 355; and
WHEREAS, the parties hereto have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and to set forth other agreements that will govern certain
other matters prior to and following the Distribution;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound thereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.01 General. As used in this Agreement, the following terms shall
-------
have the following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
AAFCO: the Association of American Feed Control Officials.
-----
Action: any action, claim, suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any arbitration or other tribunal.
Affiliate: with respect to any specified Person, an "affiliate" as
---------
defined in Rule 405 promulgated pursuant to the Securities Act; provided,
however, that for purposes of this Agreement (i) Affiliates of Agribrands
shall not be deemed to include Ralston or any corporation which will be a
subsidiary or affiliate of Ralston following the Distribution; and (ii)
Affiliates of Ralston shall not be deemed to include Affiliates of Agribrands.
Agribrands Asset Purchase Prices: Cash contributed to Agribrands or its
---------------------------------
Affiliates by Ralston or its Affiliates in connection with the purchase by
Affiliates of Agribrands, as set forth in Section 2.01, of certain assets and
liabilities of Ralston Purina Canada Inc. and of Ralston Purina do Brasil,
LTDA.
Agribrands Board: the Board of Directors of Agribrands International,
-----------------
Inc. and their duly elected or appointed successors.
Agribrands Cash Holdings: the Cash to be held by Agribrands as of the
--------------------------
Distribution, as defined in Section 2.04(a) and as adjusted pursuant to
Section 2.04(g).
Agribrands Deferred Compensation Plan: as defined in Section 7.07 of
----------------------------------------
this Agreement.
Agribrands Notes: the promissory notes issued by Agribrands to Ralston
-----------------
in connection with the contribution by Ralston to Agribrands of the stock of
certain foreign subsidiaries.
Agribrands Stock: Agribrands common stock, par value $.01 per share.
-----------------
Agribusiness: Ralston's direct or indirect ownership of (i) the
------------
international business of the manufacture, distribution and sale of feeds for
commercial livestock, commercial poultry, laboratory animals, zoo animals,
wild birds and game, and fish and shellfish raised in commercial aquaculture
facilities; and operation of hatcheries; (ii) pet food manufacturing
operations in Korea and sale and distribution of such locally manufactured pet
food products; (iii) pet food manufacturing operations in Canada at Strathroy,
Ontario, and the sale and distribution of such locally manufactured products;
and (iv) all joint ventures involving or associated with the businesses
described in (i) through (iii) above.
Agribusiness Assets: except to the extent provided in, and subject to
--------------------
the provisions of, any of the Ancillary Agreements, (i) all of the Assets used
or held by or on behalf of any member of the Agribusiness Group or the Ralston
Group immediately prior to the Distribution, which Assets are used or held for
use exclusively in the Agribusiness rather than the Ralston Business; (ii) any
office equipment and furniture used immediately prior to the Distribution
exclusively by Agribusiness Employees; and (iii) all of the other Assets
listed on Schedule ___. Notwithstanding the above, however, Agribusiness
Assets shall not include the Assets listed or described on Schedule ___ [e.g.,
Encrucijada].
Agribusiness Employee: any individual who (a) is identified on Schedule
----------------------
___, (b) on the Distribution Date is, or immediately following the
Distribution will be, an officer or employee of any member of the Agribusiness
Group, (c) is employed by a member of the Ralston Group but, pending transfer
of employment to a member of the Agribusiness Group, performs duties primarily
for the Agribusiness; or (d) is on leave (including but not limited to leave
for disability) or layoff from active employment on the Distribution Date but
who, immediately prior to commencement of such leave or layoff, was primarily
employed in the Agribusiness. Notwithstanding the foregoing, an Agribusiness
Employee shall not include any individual who, as of the Distribution Date,
(i) has been determined to be disabled under the Purina Benefit Association
Long Term Disability Plan ("LTD Plan"), the Ralston Purina Company Group Life
Insurance Plan or the Retirement Plan; (ii) is on leave during a waiting
period prior to a determination of disability under the LTD Plan; or (iii) is
employed by a member of the Agribusiness Group but performs duties primarily
for a Ralston Business, pending subsequent transfer of employment to a member
of the Ralston Group or termination of employment.
Agribusiness Group: Agribrands and its Affiliates at the Distribution.
-------------------
Agribusiness Individual: any individual who is an Agribusiness Employee,
-----------------------
a Former Agribusiness Employee, or a beneficiary of an Agribusiness Employee
or of a Former Agribusiness Employee.
Agribusiness Obligations: as defined in Article X of this Agreement.
-------------------------
Agricultural Channel: as defined in Section 5.01(_) of this Agreement.
---------------------
Ancillary Agreements: any and all of the agreements, instruments,
---------------------
understandings, assignments and other arrangements entered into in connection
with the transactions contemplated hereby, including, without limitation, the
Tax Sharing Agreement, the Bridging Services Agreement, the Trademark
Agreement, the Technology License Agreement and certain Toll-Milling
Agreements.
Asset: any and all assets and properties, tangible or intangible,
-----
including, but not limited to, the following: (i) cash, notes and trade
receivable accounts (whether current or non-current and including all rights
with respect thereto); (ii) certificates of deposit, bankers' acceptances,
stock, debentures, evidences of indebtedness, certificates of interest or
participation in profit-sharing agreements, collateral-trust certificates,
preorganization certificates, investment contracts, voting-trust certificates;
(iii) trade secrets, confidential information, registered and unregistered
trademarks, service marks, service names, trade styles and trade names and
associated goodwill; statutory, common law and registered copyrights;
applications for any of the foregoing, rights to use any of the foregoing and
other rights in, to and under any of the foregoing; (iv) rights under leases,
contracts, licenses, permits, and sales and purchase agreements; (v) real
estate and buildings and other improvements thereon and timber and mineral
rights of every kind; (vi) leasehold improvements, fixtures, trade fixtures,
machinery, equipment (including transportation and office equipment), tools,
dies and furniture; (vii) office supplies, production supplies, spare parts,
other miscellaneous supplies and other tangible property of any kind; (viii)
raw materials, work-in-process, finished goods, consigned goods and other
inventories; (ix) prepayments or prepaid expenses; (x) claims, causes of
action, choses in action, rights of recovery and rights of set-off of any
kind; (xi) the right to receive mail and other communications; (xii) lists of
advertisers, records pertaining to advertisers and accounts, lists and records
pertaining to suppliers and agents, and books, ledgers, files and business
records of every kind; (xiii) advertising materials and other recorded,
printed or written materials; (xiv) goodwill as a going concern and other
intangible properties; (xv) personnel records and employee contracts,
including any rights thereunder to restrict an employee from competing in
certain respects; and (xvi) licenses and authorizations issued by any
governmental authority.
Bridging Services Agreement: as defined in Section 5.03 of this
-----------------------------
Agreement.
Business: the Agribusiness or the Ralston Business; together, the
--------
"Businesses."
-
Business Day: any day other than a Saturday, a Sunday or a day on which
-------------
banking institutions located in the State of Missouri are obligated by law or
executive order to close.
Cash: cash, marketable securities, compensating balances used to secure
----
debt financing, [checks in transit] and such other items as have been
classified as cash consistent with accounting practices historically employed
by Ralston.
CME: calculated metabolizable energy.
---
Code: the Internal Revenue Code of 1986, as amended, or any successor
----
legislation.
Committee: the Nominating and Compensation Committee of the Board of
---------
Directors of Agribrands.
Comparable Product: as defined in Section 5.01(_) of this Agreement.
-------------------
Current Plan Year: the plan year or fiscal year, to the extent
-------------------
applicable with respect to any Plan, during which the Distribution Date
occurs.
-
Distribution: as defined in the recitals to this Agreement.
------------
Distribution Date: the date, to be determined by the Ralston Board as of
-----------------
which the Distribution shall be effected.
DuPont Agreement: the agreement as defined in Section 5.01(_) of this
-----------------
Agreement.
ERISA: the Employee Retirement Income Security Act of 1974, as amended,
-----
or any successor legislation.
ESOP Stock: Ralston Purina Company Series A ESOP Convertible Preferred
-----------
Stock, $1.00 par value.
Exchange Act: the Securities Exchange Act of 1934, as amended, together
--------------
with the rules and regulations promulgated thereunder.
Executive SIP: the Ralston Purina Executive Savings Investment Plan.
--------------
Fair Market Value: the fair market value of property as determined by
-------------------
appraisals performed by third party appraisers independent of Ralston and
Agribrands.
Form 10: as defined in Section 2.06 of this Agreement.
--------
Former Agribusinesses: all of the following international businesses and
---------------------
operations heretofore, but not currently, owned and conducted directly or
indirectly by Ralston: (i) former international businesses of producing and
distributing commercial feeds for livestock and poultry and rations for
laboratory animals, zoo animals and wild birds and game; and operation of
hatcheries; (ii) former pet food manufacturing operations in Korea, and sale
and distribution in Korea of pet foods formerly locally manufactured; (iii)
poultry processing; (iv) finished poultry products; (v) manufacture and sale
of silos; (vi) manufacture and distribution of livestock and poultry health
products; (vii) commercial egg production (fertile and infertile); (viii)
raising of laboratory rats; (ix) fishmeal processing; (x) oilseed processing;
(xi) sale and lease of breeding hogs; (xii) other businesses managed or
directed by employees of the Agribusiness, other than cereal, baked goods,
tuna processing and soy protein businesses; and (xiii) all joint ventures
involving or associated with the businesses described in (i) through (xii)
above or the Agribusiness.
Former Agribusiness Employee: an individual who was employed by a member
----------------------------
of the Agribusiness Group or a Former Agribusiness at the time of his or her
termination or retirement on or prior to the Distribution Date.
Former Businesses: the Former Ralston Businesses and the Former
------------------
Agribusinesses.
Former Ralston Businesses: all of the businesses and operations
---------------------------
heretofore, but not currently, directly or indirectly owned and conducted by
---
Ralston, other than a Former Agribusiness.
Former Ralston Employee: an individual who was employed by a member of
-------------------------
the Ralston Group or a Former Ralston Business at the time of his or her
termination or retirement.
Group: the Ralston Group or the Agribusiness Group.
-----
Indebtedness of Agribrands: external obligations in the form of money
----------------------------
that is borrowed from third party banks and/or financial institutions, to the
extent that such indebtedness (i) is incurred in connection with, or arising
out of the operations of, the Agribusiness and (ii) is reflected and booked on
the balance sheet statements of the Agribusiness consistent with accounting
practices historically employed by Ralston; provided that, that the following
shall not be deemed to constitute Indebtedness of Agribrands: (A) obligations
incurred with respect to third party banks and/or financial institutions for
which the proceeds are used to finance intercompany and/or intracompany
obligations, and (B) obligations of Ralston or its Affiliates arising on or
prior to May 31, 1998 in connection with Ralston's guarantee of any borrowings
from third parties by Purina Korea, Inc.
Indemnifiable Loss: with respect to any claim by an Indemnitee for
-------------------
indemnification hereunder, any and all losses, liabilities, claims, damages,
obligations, payments, costs and expenses (including, without limitation, the
costs and expenses of any and all Actions, demands, claims and assessments,
and any and all judgments, settlements and compromises related thereto and
reasonable attorney's fees and expenses in connection therewith) incurred or
suffered by such Indemnitee with respect to such claim except as may arise in
connection with the performance of any of the Ancillary Agreements, which
shall, in each such case, be governed by the terms of such Ancillary
Agreement.
Indemnitee: as defined in Section 4.03 of this Agreement.
----------
Indemnitor: as defined in Section 4.03 of this Agreement.
----------
Information: as defined in Section 6.02 of this Agreement.
-----------
Information Statement: the information statement to be sent to holders
----------------------
of Ralston Stock in connection with the Distribution, which shall set forth
appropriate disclosures concerning the Agribusiness, Agribrands, the
Distribution and other related matters.
IRS: the Internal Revenue Service.
---
ISP: the Ralston Purina 1988 and 1996 Incentive Stock Plans.
---
Liabilities: all claims, debts, liabilities, royalties, license fees,
-----------
losses, costs, expenses, deficiencies, litigation proceedings, taxes, levies,
imposts, duties, deficiencies, assessments, attorneys' fees, charges,
allegations, demands, damages, judgments, guaranties, indemnities, or
obligations, whether absolute or contingent, matured or unmatured, liquidated
or unliquidated, accrued or unaccrued, known or unknown and whether or not the
same would properly be reflected on a balance sheet, including all costs and
expenses relating thereto.
LIBOR: London Interbank Offer Rate.
-----
Notice of Claim: as defined in Section 4.03 of this Agreement.
-----------------
NYSE: the New York Stock Exchange.
----
Operating Agreement: an agreement as described in Section 2.04(f) in
--------------------
effect during a period of beneficial ownership of the Agribusiness Assets or
the Ralston Assets.
Person: an individual, a partnership, a joint venture, a corporation, a
------
trust or other entity, an unincorporated organization or a government or any
department or agency thereof.
Plan: any plan, policy, arrangement, contract or agreement providing
----
benefits (including salary, bonuses, deferred compensation, incentive
compensation, savings, stock purchases, pensions, profit sharing, welfare
benefits or retirement or other retiree benefits, including retiree medical
benefits) for any group of employees or former employees or individual
employee or former employee, or the beneficiary or beneficiaries of any such
employee or former employee, whether formal or informal or written or
unwritten and whether or not legally binding, and including any means, whether
or not legally required, pursuant to which any benefit is provided by an
employer to any employee or former employee or the beneficiary or
beneficiaries of any such employee or former employee.
Protected Agribrands Business: the business described in Section 5.01(_)
-----------------------------
of this Agreement.
Protected Ralston Business: the business described in Section 5.01(_) of
--------------------------
this Agreement.
Qualified Plan: a Plan which is an employee pension benefit plan (within
--------------
the meaning of Section 3(2) of ERISA) and which constitutes or is intended in
good faith to constitute a qualified plan under Section 401(a) of the Code.
Ralston: as defined in the recitals to this Agreement.
-------
Ralston Assets: subject to the provisions of any of the other agreements
--------------
referred to in this Agreement, all of the Assets, other than the Agribusiness
Assets, used or held immediately prior to the Distribution Date by or on
behalf of any member of either Group.
Ralston Board: the Board of Directors of Ralston Purina Company and
--------------
their duly elected or appointed successors.
Ralston Business: all of the businesses owned, directly or indirectly,
-----------------
by Ralston and conducted immediately prior to the Distribution Date, other
than the Agribusiness.
Ralston Deferred Compensation Plan: the Ralston Purina Deferred
-------------------------------------
Compensation Plan for Key Employees.
Ralston Employee: any individual who at any time is or was an officer or
----------------
employee of any member of either Group, other than an Agribusiness Employee.
Ralston Group: Ralston and its Subsidiaries and Affiliates, other than
--------------
members of the Agribusiness Group.
Ralston Individual: any individual who (i) is a Ralston Employee, (ii)
-------------------
at any time prior to the Distribution Date is or was an officer or employee of
any Former Ralston Business or (iii) is a beneficiary of any individual
specified in clause (i) or (ii).
Ralston Option: the option defined in Section 7.08(_) of this Agreement.
--------------
Ralston Stock: Ralston Purina Company common stock, $.10 par value.
--------------
Ralston Stock and Asset Purchase Prices: cash paid after the
---------------------------------------------
Distribution to Agribrands or its Affiliates by Ralston or its Affiliates, to
the extent necessary, to close the purchase by Ralston or its Affiliates, as
set forth in Section 2.01, of the stock of Newco France or, as applicable,
certain assets and liabilities of Purina de Guatemala, S.A., Purina
Colombiana, S.A., Purina de Venezuela, C.A., and Purina Peru, S.A.
Record Date: the date to be determined by the Board of Directors of
------------
Ralston, or the Executive Committee thereof, as the record date for
determining shareholders of Ralston Stock entitled to receive the
Distribution.
Retirement Plan: the Ralston Purina Retirement Plan.
----------------
Rights: the rights to be issued by Agribrands pursuant to the Agribrands
------
Rights Agreement.
RPIHCI: Ralston Purina International Holding Company, Inc.
------
SEC: the Securities and Exchange Commission.
---
Securities Act: the Securities Act of 1933, as amended, together with
---------------
the rules and regulations promulgated thereunder.
Shared Liability: a Liability arising out of, or associated with, the
-----------------
ownership of both the Agribusiness Assets and the Ralston Assets; or the
operation of the Agribusiness or a Former Agribusiness, on the one hand, and
the Ralston Business or a Former Ralston Business, on the other hand, prior to
the Distribution.
SIP: a Savings Investment Plan.
---
Subsidiary: with respect to any specified Person, any corporation or
----------
other legal entity of which such Person or any of its Subsidiaries controls or
owns, directly or indirectly, 50% or more of the stock or other equity
interest entitled to vote on the election of members to the board of directors
or similar governing body of such corporation or other legal entity.
Tax Sharing Agreement: as defined in Section 5.03 of this Agreement.
-----------------------
Technology License Agreement: as defined in Section 5.03 of this
------------------------------
Agreement.
--
Third-Party Claim: any Action or claim by a third party against or
------------------
otherwise involving an Indemnitee for which indemnification may be sought
pursuant to Article IV hereof.
Toll-Milling Agreements: as defined in Section 5.03 of this Agreement.
------------------------
Trademark Agreement: as defined in Section 5.03 of this Agreement.
--------------------
Welfare Plan: any Plan, including but not limited to the Plans listed on
------------
Schedule 7.04, which is not a Qualified Plan and which provides medical,
health, disability, accident, life insurance, death, dental or other welfare
benefits, including any post-employment benefits or retiree medical benefits.
1.02 References to Time. All references to times of the day in this
------------------
Agreement shall refer to St. Louis, Missouri time.
ARTICLE II
CERTAIN RESTRUCTURING TRANSACTIONS
2.01 Restructuring Transactions. Prior to, or as soon as practicable
--------------------------
following, the Distribution Date, the following shall be effected:
(a) Italian Demerger. Pursuant to Italian law, Purina Italia S.p.A.,
----------------
an Italian corporation, shall be divided into two corporations by transferring
all assets and liabilities of Purina Italia associated with the Ralston
Business to Newco Italy 1 and thereafter by issuing the stock of Newco Italy 1
to RPIHCI (99.98% owner) and Ralston (.02% owner), in proportion to their
ownership of shares of Purina Italia. A pro rata portion of the shares of
Purina Italia, representing the net book value of the assets of the Ralston
Business in proportion to the entire net book value of assets of Purina
Italia, shall be canceled and new share certificates in Purina Italia shall be
issued to reflect the reduction in the number of shares outstanding as a
result of the demerger. Schedule 2.01(a) sets forth the balance sheet for
Purina Italia as of the effective date of the demerger.
(b) Canadian Restructuring. Agribrands shall form a new wholly-owned
----------------------
subsidiary, Newco Canada. Agribrands shall contribute capital to Newco Canada
in an amount sufficient to purchase, and shall cause Newco Canada to purchase,
all of the assets and liabilities associated with the portion of the
Agribusiness owned and conducted by Ralston Purina Canada Inc., as set forth
on Schedule 2.01(b). The purchase price shall be equal to the Fair Market
Value of such assets.
(c) Brazilian Restructuring. Agribrands shall form a new
------------------------
wholly-owned subsidiary, Newco Brazil, a Brazilian corporation. Agribrands
shall contribute capital to Newco Brazil in an amount sufficient to purchase,
and shall cause Newco Brazil to purchase, all of the assets and certain
liabilities associated with the portion of the Agribusiness owned and
conducted by Ralston Purina do Brasil, LTDA, a Brazilian corporation, as set
forth on Schedule 2.01(c). The purchase price shall be equal to the Fair
Market Value of such assets.
(d) French Restructuring. Ralston Purina France, a French
---------------------
corporation, shall form a new wholly-owned subsidiary, Newco France, and shall
contribute all of the assets and liabilities associated with its ownership and
operation of the Ralston Business to Newco France. Ralston shall then
purchase from Ralston Purina France all of the stock of Newco France for cash
in an amount equal to its Fair Market Value as set forth on Schedule 2.01(d).
(e) Mexican Restructuring/Merger. PPA Investments Inc., a Delaware
----------------------------
corporation, shall purchase from Ralston Purina Holdings Mexico S.A. de C.V.,
a Mexican corporation, all of the capital stock of Industrias Purina, S.A. de
C.V., a Mexican corporation, owned by Ralston Purina Holdings Mexico, for cash
in an amount equal to its Fair Market Value as set forth on Schedule 2.01(e).
PPA Investments Inc. shall then adopt a plan of complete liquidation and merge
into RPIHCI, as a result of which Industrias Purina shall become a direct
subsidiary of RPIHCI. Any intercompany debt owed by RPIHCI to PPA Investments
at the time of the merger will be extinguished as a result of the merger.
(f) Guatemalan Restructuring. Ralston shall cause [a Ralston
-------------------------
Affiliate] to purchase from Purina de Guatemala, S.A., a Guatemalan
corporation, certain of the assets and liabilities associated with the pet
products operations of Purina de Guatemala for cash in an amount equal to the
net book value of such assets as set forth on Schedule 2.01(f).
(g) Colombian Restructuring. Checkerboard Holding Company, a wholly
-----------------------
owned subsidiary of Ralston, shall form a new wholly-owned subsidiary, Newco
Colombiana, and shall cause Newco Colombiana to purchase from Purina
Colombiana S.A, a Colombian corporation, certain of the assets and liabilities
associated with the pet products operations of Purina Colombiana for cash in
an amount equal to the net book value of such assets as set forth on Schedule
2.01(g).
(h) Venezuelan Restructuring. Checkerboard Holding Company, a wholly
------------------------
owned subsidiary of Ralston, shall form a new wholly-owned subsidiary, Newco
Venezuela, a Venezuelan corporation, and shall cause Newco Venezuela to
purchase from Purina de Venezuela, C.A., a Venezuelan corporation, all of the
assets and liabilities associated with the pet products operations of Purina
de Venezuela and certain of the assets formerly associated with the
Agribusiness for cash in an amount equal to the net book value of such assets
as set forth on Schedule 2.01(h).
(i) Peruvian Restructuring. Newco Colombiana, a Colombian
-----------------------
corporation,shall purchase from Purina Peru, S.A., a Peruvian corporation, all
of the assets and liabilities associated with the pet products operations of
Purina Peru for cash in an amount equal to the net book value of such assets
as set forth on Schedule 2.01(i).
(j) Merger of RPIHCI into Ralston. Ralston and RPIHCI shall enter
-----------------------------
into an Agreement and Plan of Merger and Complete Liquidation in substantially
the form attached to this Agreement as Exhibit ___, ("Merger Agreement")
pursuant to which RPIHCI shall be merged with and into Ralston pursuant to the
General and Business Corporation Law of Missouri and Delaware General
Corporation Law, and in accordance with the terms and conditions of the Merger
Agreement. Following such merger, RPIHCI will cease to exist, and Ralston
shall become the direct owner of Agribrands and all other stock interests
owned by RPIHCI at the time of the merger. Intercompany debt owed by RPIHCI
to Ralston at the time of the merger will be paid through the liquidating
distribution of RPIHCI's assets to Ralston at such time.
(k) Contribution to Agribrands; Issuance of Notes Prior to the
----------------------------------------------
Distribution, Ralston shall contribute to Agribrands, as contributions to
capital, all of its stock ownership in the following:
(i) Latin American Agribusiness Development Corporation, a Panamanian
corporation;
(ii) Purina Italia S.p.A.;
(iii Purina de Guatemala, S.A., a Guatemalan corporation;
(iv) Purina Colombiana S.A., a Colombian corporation;
(v) Purina de Venezuela, C.A., a Venezuelan corporation;
(vi) Purina Peru S.A., a Peruvian corporation;
(vii) Purina Korea, Inc., a Korean corporation;
(viii) Industrias Purina, S.A. de C.V, a Mexican corporation;
(ix) Purina Espana, S.A., a Spanish corporation;
(x) Ralston Purina France, a French corporation;
(xi) Purina Besin Maddeleri Sanayi VE Ticaret A.S., a Turkish corporation;
(xii) Agribrands Services, Inc., a Delaware corporation;
(xiii) Purina Nanjing Feedmill Company Limited, a Chinese corporation;
(xiv) Purina Yantai Feedmill Company Ltd, a Chinese corporation;
(xv) Purina Fushun Feedmill Company, Ltd., a Chinese corporation;
(xvi) Agribrands Purina (Langfang) Feedmill Company, Ltd., a Chinese
corporation;
(xvii) Purina Philippines, Inc., a Philippines corporation;
(xviii) Purina Hungaria Animal Feed and Trading Company Limited, a Hungarian
corporation;
(xix) Purina Portugal Alimentacao e Sanidade Animal Lda., a Portuguese
corporation.
In partial consideration for the contribution by Ralston to Agribrands of the
stock of each majority-owned foreign subsidiary as set forth above, Agribrands
shall issue to Ralston a separate Agribrands Note with respect to each such
subsidiary. Each Agribrands Note shall be in the principal amount of
US$1,000, bear interest at the rate of 6% per annum and be payable in a lump
sum on September 30, 1998. Prior to the Distribution, Ralston shall transfer
the Agribrands Notes to one or more members of the Ralston Group as payment
against outstanding indebtedness which is owed to such member or members by
Ralston and is reflected in interest-bearing intercompany accounts.
2.02 Issuance of Stock. Prior to the Distribution Date, the parties
-----------------
hereto shall take all steps necessary so that immediately prior to the
Distribution Date, the number of shares of Agribrands Stock outstanding and
held by Ralston shall equal the number of shares necessary to effect the
Distribution. The Distribution shall be effected by distributing, on a pro
rata basis to every holder of Ralston Stock, one share of Agribrands Stock for
every ten (10) shares of Ralston Stock held as of the Record Date.
2.03 Share Purchase Rights Agreement; Articles of Incorporation;
-----------------------------------------------------------
Bylaws. Prior to the Distribution Date, Agribrands shall adopt an Agribrands
Share Purchase Rights Agreement in substantially the form filed with the SEC
as an exhibit to the Form 10, and the Board of Directors of Agribrands shall
authorize a distribution of one Right to every share of outstanding Agribrands
Stock, such distribution to occur prior to the Distribution. Ralston and
Agribrands shall take all action necessary so that, at the Distribution Date,
the Articles of Incorporation and Bylaws of Agribrands shall be substantially
in the forms filed with the SEC as exhibits to the Form 10.
2.04 Transfer of Assets; Assumption of Liabilities.
--------------------------------------------------
(a) Prior to the Distribution Date, the parties hereto shall also take
all action necessary to convey, assign and transfer to Agribrands, effective
as of the Distribution Date, all of the right, title and interest of Ralston
or its Affiliates in the Agribusiness Assets and to convey, assign and
transfer to Ralston or its Affiliates all of the right, title and interest of
any member of the Agribusiness Group to the Ralston Assets. Effective as of
the Distribution Date, Ralston shall contribute to Agribrands the capital
stock of the Subsidiaries of Agribrands listed in Schedule 2.01(k), and
Agribrands shall become the beneficial owner of all of the Agribusiness
Assets. Ralston shall use its best efforts to cause Agribrands to hold, as of
the Distribution Date, Cash in an amount equal to the Agribrands Cash
Holdings, which shall be defined as: the sum of (A) the outstanding
Indebtedness of Agribrands as of the Distribution, (B) US$25 million, and (C)
the Agribrands Asset Purchase Prices, less (D) the Ralston Stock and Asset
Purchase Prices and (E) any amounts Ralston may become obligated, on or prior
to May 31, 1998, to pay in connection with its guarantee of certain
third-party indebtedness of Purina Korea, Inc. Effective as of the
Distribution Date, Ralston and its Affiliates shall become the beneficial
owners of all of the Ralston Assets. The parties acknowledge that formal
actions to effect fully such transfers of Assets may not be completed by the
Distribution Date, but that the entire beneficial title and interest in and to
each Asset shall pass to Agribrands or to Ralston, as the case may be, as of
the Distribution Date. Except as provided otherwise in other agreements, the
parties shall take such action as is necessary in their reasonable discretion,
whether before or after the Distribution Date, to complete the transfer of the
Agribusiness Assets to Agribrands and the Ralston Assets to Ralston, as the
case may be, and each party shall cooperate fully with the other in such
regard.
(b) As of the Distribution Date, Agribrands and Ralston and, as
appropriate, other members of their respective Groups, shall assume or retain
all of, the Liabilities, with respect to Agribrands, of the Agribusiness and
Former Agribusinesses and, with respect to Ralston, the Ralston Business and
Former Ralston Businesses, of whatsoever type or nature, arising exclusively
out of or associated exclusively with the ownership of the Assets of such
Businesses or Former Businesses or the operation of such Businesses or Former
Businesses prior to the Distribution, whether such Liabilities become known
prior to or after, or are asserted prior to or after, the Distribution.
Agribrands and its Affiliates and Ralston and its Affiliates shall assume a
share of any Shared Liability in proportion, as applicable, to their
respective ownership of the applicable assets, control of affected operations
or employment of affected individuals. Notwithstanding the foregoing,
effective as of the Distribution Date, Agribrands or another member of the
Agribusiness Group shall assume Liabilities specifically described in any
other provision of this Agreement or any Ancillary Agreement, and Liabilities
described on Schedule 2.04(b) to this Agreement. Ralston and members of the
Ralston Group shall, except as qualified hereinabove, retain or assume (i) the
Liabilities specifically described in this Agreement or any Ancillary
Agreement, and (ii) the Liabilities specifically described on Schedule 2.04(b)
to this Agreement.
(c) The parties agree and acknowledge that the assumption by Agribrands
or other members of the Agribusiness Group or Ralston or other members of the
Ralston Group, as the case may be, of all such Liabilities described herein is
part of a single plan to transfer the Agribusiness and the Agribusiness Assets
to Agribrands. With regard to that plan, the parties further agree that (i)
the entire beneficial title and interest in and to each and all of the
Agribusiness Assets shall, regardless of when legal title to any such asset is
in fact transferred to Agribrands or its Subsidiaries, remain in Ralston until
the Distribution Date at which time all beneficial title and interest in all
of the Agribusiness Assets will pass to Agribrands, and all title and interest
in and to each and all of the Ralston Assets which is owned by a member of the
Agribusiness Group prior to the Distribution Date shall, regardless of when
legal title to any such asset is in fact transferred to Ralston or its
Subsidiaries after the Distribution Date, be beneficially owned by Ralston;
(ii) the economic burden of the assumption by the members of the Agribusiness
Group or the Ralston Group, as the case may be, of each and all of the
Liabilities described herein shall pass to the Agribusiness Group or the
Ralston Group, as the case may be, as of the Distribution Date, regardless of
when Agribrands or any other member of the Agribusiness Group or Ralston or
any other member of the Ralston Group, as the case may be, in fact assumes or
becomes legally obligated to the obligee of any one or more of such
Liabilities; and (iii) all operations of the Agribusiness shall be for the
account of Ralston through 12:01 a.m. on the Distribution Date and shall be
for the account of Agribrands thereafter.
(d) Ralston and Agribrands shall, and shall cause their Affiliates to,
execute prior to, or as soon as practicable following, the Distribution Date,
such additional agreements and arrangements as may be necessary or appropriate
(i) to effect the restructuring transactions set forth in Section 2.01; (ii)
to transfer to the appropriate member of the Agribusiness Group or Ralston
Group such local product registrations, franchises, licenses, and any other
governmental authorizations or other rights owned or held by Ralston,
Agribrands or their respective Groups that are necessary to the conduct of
their Businesses in such jurisdiction; (iii) to make all such further
assignments and do all such other acts as are necessary or desirable to carry
out the intent of the parties that each of the Businesses, as a going concern,
be fully vested in the appropriate party as of the Distribution Date and
operated for its benefit and burden as of 12:01 a.m. CST; and (iv) to provide
for, and negotiate in good faith, such other agreements and arrangements
relating to the foregoing as the parties deem appropriate, including but not
limited to any such agreements or arrangements relating to the treatment of
employees, benefit plans and taxes.
(e) If any Agribusiness Asset or Ralston Asset is not owned,
respectively, by a member of the Agribusiness Group or Ralston Group or leased
from a third party or governmental entity by a member of the appropriate
Group, as of the Distribution Date, Ralston and Agribrands shall use their
reasonable best efforts to transfer, assign and deliver such assets or leases
to the appropriate member of the other Group as soon as practicable
thereafter. Prior to such transfer or assignment, Ralston or Agribrands, as
the case may be, shall use its best efforts to give the benefits of ownership
of such Assets to the appropriate member of the other Group. The entire
economic beneficial interest in and to, and the risk of loss with respect to,
such Assets shall, regardless of when legal title thereto shall be transferred
to the appropriate member of the Agribusiness or Ralston Group, pass to those
entities as of the Distribution. Ralston and Agribrands shall, or shall cause
their Affiliates to, hold such Assets for the benefit and risk of the other
and shall cooperate with the other in any lawful and reasonable arrangements
designed to provide the benefits of ownership of the Assets to it, including
but not limited to properly recording evidence of such beneficial ownership
and risk of loss with appropriate governmental entities as required by
applicable law. In the event that the legal interest in such Assets or any
claim, right or benefit arising thereunder or resulting therefrom, is not
capable of being sold, assigned, transferred or conveyed hereunder as a result
of the failure to receive any consents or approvals required for such
transfer, then the legal interest in such Assets shall not be sold, assigned,
transferred or conveyed unless and until approval, consent or waiver thereof
is obtained. Ralston and Agribrands shall, or shall cause their Affiliates,
at their expense, to use reasonable best efforts to cooperate in obtaining
such consents or approvals as may be necessary to complete such transfers and
to obtain satisfaction of conditions to transfer as soon as practicable.
Nothing in this Agreement shall be construed as an attempt to assign to a
member of the Agribusiness Group or the Ralston Group any legal interest in
such Assets which, as a matter of law or by the terms of any legally binding
contract, engagement or commitment to which the legal owner is subject, is not
assignable without the consent of any other party, unless such consent shall
have been given.
(f) After the Distribution Date, Ralston and Agribrands shall cause
such Assets (including the capital stock of any Affiliates) which are
beneficially owned by the other party to be managed at the direction of the
beneficial owner pursuant to an Operating Agreement until such Assets are
actually legally transferred and conveyed. Without limiting the foregoing,
all revenues, earnings and cash flows associated with the Assets following the
Distribution Date shall be for the account of the beneficial owner but shall
be retained by the respective legal owner until the transfers are legally
effected. Following the Distribution Date, neither Ralston nor Agribrands
shall be required to lend, advance, contribute or use any of its own funds in
connection with the operations of such Assets.
(g) Ralston and Agribrands shall, as soon as practicable, review the
books and records of Agribrands and its Affiliates to determine the actual
Indebtedness of Agribrands and the Cash held by Agribrands and its Affiliates
as of the Distribution. To the extent that it is determined that, at the
Distribution Date, Agribrands and its Affiliates held Cash in excess of the
Agribrands Cash Holdings amount, Agribrands shall remit such excess to Ralston
in US dollars; and if Agribrands and its Affiliates held Cash less than the
Agribrands Cash Holdings amount, Ralston shall pay such difference to
Agribrands in US dollars. Such amounts shall be increased by an amount equal
to interest accrued on such unpaid excess (or underpayment, as applicable) at
LIBOR plus 25 basis points for the period from the Distribution Date until the
date such adjustment is paid to the party to which it is owed. Prior to any
such payment, Ralston shall have the opportunity to review, to its
satisfaction, the books and records of Agribrands and its Affiliates, bank
records, loan documentation and other relevant materials in order to enable
Ralston to verify the amount to be transferred. Agribrands shall cooperate in
Ralston's review and shall remit such funds, if any, to Ralston, or Ralston
shall pay such funds to Agribrands, as soon as practicable after the final
determination of the amount to be transferred.
2.05 Conduct of Business Pending the Distribution Date. Prior to the
-------------------------------------------------
Distribution Date, the Agribusiness shall be operated for the sole benefit of
Ralston.
2.06 Registration and Listing. Prior to the Distribution Date:
-------------------------
(a) Ralston and Agribrands shall prepare, and Agribrands shall file with
the SEC, a Registration Statement on Form 10 pursuant to Section 12(b) of the
Exchange Act with respect to the Agribrands Stock and associated Rights.
Ralston and Agribrands shall use reasonable efforts to cause the Form 10 to
become effective under the Exchange Act, and, following such effectiveness,
Ralston shall mail the Information Statement to the holders of record of
Ralston Stock as of the close of business on the Record Date.
(b) The parties hereto shall take all such actions as may be necessary or
appropriate under state securities and Blue Sky laws in connection with the
Distribution.
(c) Ralston and Agribrands shall prepare, and Agribrands shall file and
seek to make effective, an application for the listing of the Agribrands Stock
and associated Rights on the NYSE.
ARTICLE III
THE DISTRIBUTION
3.01 Record Date and Distribution Date. Subject to the satisfaction
---------------------------------
of the conditions set forth in Section 12.01, the Ralston Board shall
establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution. The determination of record
holders of Ralston Stock on the Record Date shall be as of 12:01 a.m. CST on
the Distribution Date, and the Distribution shall also be effective as of
12:01 a.m. CST on the Distribution Date.
3.02 Distribution. Ralston shall distribute all of the outstanding
------------
shares of Agribrands Stock to holders of record of Ralston Stock on the Record
Date on the basis of one share of Agribrands Stock for each ten (10) shares of
Ralston Stock outstanding as of 12:01 a.m. CST on the Record Date, subject to
the treatment of fractional shares set forth in Section 3.03. All shares of
Agribrands Stock issued in the Distribution shall be duly authorized, validly
issued, fully paid and nonassessable.
3.03 Payment in Lieu of Fractional Shares. No fractional shares of
------------------------------------
Agribrands Stock shall be issued in the Distribution. In lieu thereof, a
distribution agent will aggregate fractional shares into whole shares and sell
them in the open market at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional share interests, and such
distribution agent shall remit to each holder of Ralston Stock who would
otherwise be entitled to receive such fractional shares a cash payment equal
to such holder's pro rata share of the total gross sale proceeds (after making
appropriate deductions of the amount required for Federal tax withholding
purposes). Ralston shall bear the cost of commissions incurred in connection
with such sales.
ARTICLE IV
INDEMNIFICATION
4.01 Indemnification.
---------------
(a) From and after the Distribution Date, Ralston agrees to indemnify
and hold harmless Agribrands against and in respect of any and all Liabilities
assumed or retained by Ralston pursuant to Section 2.04(b) of this Agreement
or related to, arising from, or associated with:
(i) any breach or violation of any covenant made in this
Agreement or any Ancillary Agreement by Ralston or any of its Subsidiaries;
(ii) any Third-Party Claim primarily relating to the actions of
the Ralston Board in authorizing the Distribution;
(iii) the ownership, use or possession of the Ralston Assets or
the operation of the Ralston Business or Former Ralston Businesses, whether
relating to or arising out of occurrences prior to or after the Distribution,
except to the extent liability therefor is assumed or retained by Agribrands
or another member of the Agribusiness Group pursuant to Section 2.04(b) of
this Agreement; and all operations conducted by Ralston, its successors and
their Affiliates following the Distribution.
(iv) with respect to employee benefit plans sponsored by
Ralston, Ralston's failure to comply with the provisions of ERISA or the Code;
(v) any violations of the Code, or of federal or state
securities laws, in connection with the Distribution, the Information
Statement and Form 10 or any filings made with governmental agencies with
respect thereto, except to the extent that such violations, or allegations of
violations, result from or are related to the disclosure to Ralston's
corporate staff of information, or failure to disclose information, by
officers, directors, employees, agents, consultants or representatives of the
Agribusiness.
Any indemnification provided for under this Section shall be deemed to
also extend to other members of the Agribusiness Group, Affiliates,
Agribusiness Employees, directors, Plan fiduciaries, shareholders, agents,
consultants, representatives, successors, transferees and assigns of
Agribrands or members of the Agribusiness Group.
(b) From and after the Distribution Date, Agribrands agrees to indemnify
and hold harmless Ralston against and in respect of all Liabilities assumed or
retained by Agribrands or another member of the Agribusiness Group pursuant to
Section 2.04(b) of this Agreement or related to, arising from, or associated
with:
(i) any breach or violation of any covenant made in this
Agreement or any Ancillary Agreement by Agribrands or any of its Subsidiaries
or Affiliates; or
(ii) the ownership, use or possession of the Agribusiness Assets
or the operation of the Agribusiness or Former Agribusinesses, whether
relating to or arising out of occurrences prior to or after the Distribution,
except to the extent liability therefor is assumed or retained by Ralston or
another member of the Ralston Group pursuant to Section 2.04(b) of this
Agreement; and all operations conducted by Agribrands, its successors and
their Affiliates following the Distribution.
(iii) with respect to employee benefit plans sponsored by
Agribrands, Agribrands' failure to comply with the provisions of the plan,
ERISA or the Code;
(iv) any violation or allegations of violations of federal or
state securities laws in connection with the Distribution, the Information
Statement and Form 10 or any filings made with governmental agencies with
respect thereto, to the extent that such violations, or allegations of
violations, result from or are related to, the disclosure to Ralston's
corporate staff of information, or failure to disclose information, by
officers, directors, employees, agents, consultants or representatives of the
Agribusiness; and
(v) any continuing guarantee by Ralston of any obligation of
Agribrands or its Affiliates.
Notwithstanding the foregoing, neither party shall have any obligation to
indemnify the other for a single Liability of less than US$10,000.
Any indemnification provided for under this Section shall also be deemed
to extend to other members of the Ralston Group, Affiliates, Ralston
Employees, directors, Plan fiduciaries, shareholders, agents, consultants,
representatives, successors, transferees and assigns of Ralston or members of
the Ralston Group.
4.02 Insurance and Third-Party Obligations. Any indemnification
-------------------------------------
otherwise payable pursuant to Section 4.01 shall be reduced by the amount of
any insurance or other amounts (net of deductibles and allocated paid loss
retro-premiums) that would be payable by any third party to the Indemnitee or
on the Indemnitee's behalf in the absence of this Agreement. It is expressly
agreed that no insurer or any other third party shall be (i) entitled to a
benefit it would not be entitled to receive in the absence of the foregoing
indemnification provisions, (ii) relieved of the responsibility to pay any
claims for which it is obligated, or (iii) entitled to any subrogation rights
with respect to any obligation hereunder.
4.03 Actions and Claims Other Than Third-Party Claims; Notice and
------------------------------------------------------------
Payment. Upon obtaining knowledge of any Action, Liability or claim, other
than Third-Party Claims, which any Person entitled to indemnification (the
"Indemnitee") believes may give rise to any Indemnifiable Loss, the Indemnitee
shall promptly notify the party liable for such indemnification (the
"Indemnitor") in writing of such Action or claim (such written notice being
hereinafter referred to as a "Notice of Claim"); provided, however, that
failure of an Indemnitee timely to give a Notice of Claim to the Indemnitor
shall not release the Indemnitor from its indemnity obligations set forth in
this Article IV except to the extent that such failure materially increases
the amount of indemnification which the Indemnitor is obligated to pay
hereunder, in which event the amount of indemnification which the Indemnitee
shall be entitled to receive shall be reduced to an amount which the
Indemnitee would have been entitled to receive had such Notice of Claim been
timely given. A Notice of Claim shall specify in reasonable detail the nature
and estimated amount of any such Action Liabilities or claim giving rise to a
right of indemnification. The Indemnitor shall have ninety Business Days
after receipt of a Notice of Claim to notify the Indemnitee (a) whether or not
it disputes its liability to the Indemnitee with respect to such Action
Liabilities or claim or the amount thereof, and setting forth the basis for
such objection. If the Indemnitor fails to respond to the Indemnitee within
such ninety Business Day period, the Indemnitor shall be deemed to have
acknowledged its responsibility for such Indemnifiable Loss. The Indemnitor
shall pay and discharge any such Indemnifiable Loss which is not contested
within one hundred twenty days after its receipt of a Notice of Claim.
4.04 Third-Party Claims; Notice, Defense and Payment. Promptly
------------------------------------------------
following the earlier of (i) receipt of notice of the commencement of a
Third-Party Claim or (ii) receipt of information from a third party alleging
the existence of a Third-Party Claim, any Indemnitee who believes that it is
or may be entitled to indemnification by any Indemnitor under Section 4.01
with respect to such Third-Party Claim shall deliver a Notice of Claim to the
Indemnitor. Failure of an Indemnitee timely to give a Notice of Claim to the
Indemnitor shall not release the Indemnitor from its indemnity obligations set
forth in this Section 4.04 except to the extent that such failure adversely
affects the ability of the Indemnitor to defend such Action, Liabilities or
claim or materially increases the amount of indemnification which the
Indemnitor is obligated to pay hereunder, in which event the amount of
indemnification which the Indemnitee shall be entitled to receive shall be
reduced to an amount which the Indemnitee would have been entitled to receive
had such Notice of Claim been timely given. Indemnitee shall not settle or
compromise any Third-Party Claim in an amount in excess of US$________ prior
to giving a Notice of Claim to Indemnitor. In addition, if an Indemnitee
settles or compromises any Third-Party Claims prior to giving a Notice of
Claim to an Indemnitor, the Indemnitor shall be released from its indemnity
obligations to the extent that such settlement or compromise was not made in
good faith and was not commercially reasonable. Within ninety (90) days after
receipt of such Notice of Claim (or sooner if the nature of such Third-Party
Claim so requires), the Indemnitor may (x) by giving written notice thereof to
the Indemnitee, acknowledge liability for, and at its option elect to assume,
the defense of such Third-Party Claim at its sole cost and expense or (y)
object to the claim of indemnification set forth in the Notice of Claim
delivered by the Indemnitee; provided that if the Indemnitor does not within
the same ninety (90) day period give the Indemnitee written notice either
objecting to such claim and setting forth the grounds therefor or electing to
assume the defense, the Indemnitor shall be deemed to have acknowledged its
responsibility to accept the defense and its ultimate liability, if any, for
such Third-Party Claim. Any contest of a Third-Party Claim as to which the
Indemnitor has elected to assume the defense shall be conducted by attorneys
employed by the Indemnitor and reasonably satisfactory to the Indemnitee;
provided that the Indemnitee shall have the right to participate in such
proceedings and to be represented by attorneys of its own choosing at the
Indemnitee's sole cost and expense. If the Indemnitor assumes the defense of
a Third-Party Claim, the Indemnitor may settle or compromise the Third-Party
Claim without the prior written consent of Indemnitee; provided that the
Indemnitor may not agree to any such settlement pursuant to which any such
remedy or relief, other than monetary damages for which the Indemnitor shall
be responsible hereunder, shall be applied to or against the Indemnitee,
without the prior written consent of the Indemnitee, which consent shall not
be unreasonably withheld. If the Indemnitor does not assume the defense of a
Third-Party Claim for which it has acknowledged liability for indemnification
under Section 4.01, the Indemnitee may require the Indemnitor to reimburse it
on a current basis for its reasonable expenses of investigation, reasonable
attorney's fees and reasonable out-of-pocket expenses incurred in defending
against such Third-Party Claim and the Indemnitor shall be bound by the result
obtained with respect thereto by the Indemnitee, provided that the Indemnitor
shall not be liable for any settlement effected without its consent, which
consent shall not be unreasonably withheld. The Indemnitor shall pay to the
Indemnitee in cash the amount for which the Indemnitee is entitled to be
indemnified (if any) within thirty (30) days after the final resolution of
such Third-Party Claim (whether by settlement, a final nonappealable judgment
of a court of competent jurisdiction or otherwise) or, in the case of any
Third-Party Claim as to which the Indemnitor has not acknowledged liability,
within thirty (30) days after such Indemnitor's objection has been resolved by
settlement, compromise or arbitration pursuant to the provisions of Article XI
of this Agreement.
4.05 Remedies Cumulative; Survival of Indemnities. The remedies
--------------------------------------------
provided in this Article IV shall be cumulative and shall not preclude
assertion by any Indemnitee of any other rights or the seeking of any and all
other remedies against any Indemnitor. The obligations of each of the Ralston
Group and the Agribusiness Group under this Article IV shall survive the sale
or other transfer by it of any assets or businesses or the assignment by it of
any Liabilities, with respect to any claim of the other for any Indemnifiable
Losses related to such assets, businesses or Liabilities.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.01 Non-Competition. (a) In light of the extensive affiliation
---------------
among Ralston, Agribrands and their respective Affiliates, and in order to
secure the benefit of the good will previously associated with Ralston's
business, which is being transferred to Agribrands, and to maintain the good
will associated with those businesses being retained by Ralston, and to secure
the good will previously associated with that portion of Agribrands' business
which is being assumed by Ralston, all as provided in the terms of this
Reorganization Agreement; and in light of the continuing relationship among
the parties, as provided in the Ancillary Agreements; the parties mutually
agree that, except as otherwise provided in this Section 5.01, for the period
ending on the fifth anniversary of the Distribution Date (except with respect
to obligations under the Agreement and Plan of Merger and Exchange dated as of
December 2, 1997, by and among E. I. du Pont de Nemours and Company, Ralston
and certain of their affiliates (the "DuPont Agreement"), which obligations
shall continue for the period specified in the DuPont Agreement):
(i) Neither Ralston, nor any of its Affiliates, nor any of their
successors or successive successors, shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in the business of the manufacture, distribution or sale of feeds for
commercial livestock, commercial poultry, laboratory animals, zoo animals, or
fish or shellfish raised in commercial aquaculture facilities; or in the
business of providing services or facilities to the foregoing classes of
animals and fish (collectively, the foregoing are hereafter termed the
"Protected Agribrands Business").
(ii) Neither Agribrands, nor any of its Affiliates, nor any of
their successors or successive successors shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in the manufacture, distribution or sale of foods or feeds for pets,
pet products, pet supplies, pet accessories, litter or personal care products
for cats, dogs or other pets; provided that:
A. Agribrands and its Affiliates in Canada may manufacture and
sell, solely under trademarks authorized by the Trademark License Agreement
and solely in Canada, those pet food products which they were manufacturing
and selling at the date of this Agreement; and, without the prior written
consent of Ralston, the commercial and nutritional characteristics of such
products shall not be changed, and the composition of such products shall not
be changed materially.
B. Agribrands and its Affiliates may distribute any pet food
purchased from Ralston, it being expressly agreed that Ralston may, in its
sole discretion, refuse to supply or limit the supply of such pet foods to
Agribrands or any of its Affiliates at any time and in any country; provided
that, should Ralston refuse to supply any of the following products to
Agribrands and its Affiliates in any country, then Agribrands and its
Affiliates may manufacture (and distribute only a product of its own
manufacture) in any such country--
1) not more than one (1) brand (which brand shall be owned solely
by Agribrands or its Affiliates) of dry dog food, which shall be formulated to
provide sufficient nutritional properties as are then deemed adequate to
maintain an adult dog under standards promulgated by the Association of
American Feed Control Officials ("AAFCO"), which in no case shall contain more
than 18% protein and 8% fat (both as reflected in the guaranteed analysis or
average analysis), which shall be formulated so that the top three (3)
ingredients of the ration are not animal-, poultry-, or fish-based protein
ingredients, and which shall possess a calculated metabolizable energy ("CME")
of no more than 3500 kilocalories per kilogram ("KCal/Kg");
2) not more than one (1) brand (which brand shall be owned solely
by Agribrands or its Affiliates) of dry puppy food, which shall be formulated
to provide sufficient nutritional properties as are then deemed adequate for
the growth of puppies under standards promulgated by AAFCO, which shall in no
case contain more than 22% protein and 9% fat (as reflected on the same
basis), which shall be formulated so that the top three (3) ingredients of the
ration are not animal-, poultry-, or fish-based protein ingredients, and which
shall possess a CME of no more than 3700 KCal/Kg; and
3) not more than one (1) brand (which brand shall be owned solely by
Agribrands or its Affiliates) of dry cat food, which shall be formulated to
provide sufficient nutritional properties as are then deemed adequate to
maintain an adult animal under standards promulgated by AAFCO, which shall in
no case contain more than 28% protein and 10% fat (as reflected on the same
basis), which shall be formulated so that the top three ingredients of the
ration are not animal-, poultry- or fish-based protein ingredients, and which
shall possess a CME of no more than 3600 KCal/Kg.
C. With respect to all products described in sub-Section
5.01(ii)(B), Ralston shall be deemed to have "refused" to supply any such
products only if Ralston and Agribrands have failed, following good faith
negotiations which shall be conducted within sixty (60) days following written
notice from Agribrands to Ralston, to agree on mutually acceptable terms for
the supply of any such products to Agribrands or its Affiliates by Ralston.
D. Neither Agribrands, nor any of its Affiliates, nor any of
their successors nor successive successors, shall directly or indirectly
solicit, offer for sale, sell, distribute, encourage the sale, or be otherwise
involved in any distribution of any dog or cat food products to any person
outside the "Agricultural Channel," which Channel shall consist exclusively
of:
1) persons outside the United States principally (i.e., more than
one-half of the monthly gross sales of which are generated by) engaged in the
resale of formulated livestock and poultry feeds (exclusive of dog and cat
foods);
2) persons outside the United States principally engaged in the
resale of farm supplies, farm equipment, and/or animal feeds other than dog or
cat foods, provided that no less than seventy-five per cent (75%) of the
monthly gross animal feed sales of any such person consists of feeds for
animals other than dogs and/or cats; and
3) persons outside the United States who are, at the date of this
Reorganization Agreement, customers of Agribrands or any of its Affiliates,
provided that, should any such persons either change the location or the
nature of their present business activities, or experience a direct or
indirect change of control by any means, then in either case such person shall
be deemed removed from the Agricultural Channel promptly upon written notice
from Ralston to Agribrands.
E. Agribrands, its Affiliates, and their successors and
successive successors:
1) shall not solicit sales of any dog or cat food products in or
into the United States, or to any purchaser outside the Agricultural Channel;
2) shall not develop, encourage, assist or participate in any sales
of such products in or into the United States, or outside the Agricultural
Channel; and
3) shall use their best efforts, including but not limited to
ceasing to sell dog and cat foods to any person, to deter any sales of such
products in or into the United States, or outside the Agricultural Channel, by
any such person.
(iii) Neither Agribrands, nor any of its Affiliates, nor any or
their successors or successive successors, shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in:
A. the business of the manufacture, sale or distribution of
primary or rechargeable batteries, lighting products or devices; or
B. any activities which are proscribed as to Ralston or its
Affiliates under the terms of Section 6.10 of the DuPont Agreement, the terms
of which are hereby acknowledged as binding upon Agribrands and its
Affiliates, and their successors and successive successors.
The businesses defined in sub-paragraphs (ii) and (iii) of this Section 5.01
of this Reorganization Agreement, are hereafter termed the "Protected Ralston
Business."
(b) The proscriptions contained in sub-sections (i) and (ii) of
Section 5.01(a) of this Reorganization Agreement shall not be interpreted to
prevent:
(i) either Agribrands or Ralston, or any of their Affiliates, or
any of their successors or successive successors, respectively, from the
acquisition and ownership of no more than fifteen per cent (15%) of either a
voting or equity interest in a Person engaged in either the Protected Ralston
Business or the Protected Agribrands Business; or
(ii) either Agribrands or Ralston, or any of their Affiliates, or
any of their successors or successive successors, respectively, from the
acquisition or ownership of any interest in a Person engaged in either a
Protected Ralston Business or Protected Agribrands Business if no more than
ten per cent (10%) of such Person's gross sales (as reflected in its most
recent regularly prepared financial statements) are derived from either the
Protected Ralston Business or the Protected Agribrands Business, as the case
may be.
(c) If any Person who is not at the date of this Agreement an Affiliate
of Ralston or Agribrands, respectively, should acquire (by any means,
including but not limited to operation of law) a voting or equity interest of
twenty per cent (20%) or more in either Ralston or Agribrands, then the other
shall be relieved of its responsibilities under this Section 5.01, except that
Agribrands, its Affiliates, and their successors and successive successors
shall continue to observe and be bound by the terms of Section 6.10 of the
DuPont Agreement.
(d) Without limiting the remedies otherwise available to either party,
the parties expressly agree that (i) damages at law for breach of this
Agreement would be an inadequate remedy, and that either party would be
subjected to irreparable harm upon breach by the other, and is entitled to
injunctive or other equitable relief upon breach or threatened breach by the
other; and (ii) since equitable relief may not be available in the
jurisdiction in which such breach has occurred, the party against whom such
breach has occurred may cancel all or any of the Ancillary Agreements upon
such breach or threat thereof; provided, however, that neither party shall be
entitled to invoke any of the remedies provided in this Section 5.01(d) unless
it has given written notice of such alleged breach or threat thereof to the
other party, and the other party has failed to cure such breach or threat
thereof to the reasonable satisfaction of the notifying party within sixty
(60) days of its receipt of such notice.
(e) If any of the provisions of this Section 5.01 are held by a court or
governmental authority of competent jurisdiction to be unenforceable as
written, then any such provision shall be deemed automatically amended so that
it is enforceable to the maximum extent permissible under the laws and public
policy of the applicable jurisdiction or authority. The provisions of this
Section 5.01 are severable and this Section 5.01 shall be interpreted and
enforced as if all completely invalid or unenforceable provisions were not
contained in this Section ___, and partially valid or enforceable provisions
shall be enforceable to the extent they are valid or enforceable.]
5.02 Further Assurances. Each party hereto shall cooperate with the
------------------
other parties, and execute and deliver, or use its best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any governmental or regulatory
authority or any other Person under any permit, license, agreement, indenture
or other instrument, and take all such other actions as such party may
reasonably be requested to take by any other party hereto from time to time,
consistent with the terms of this Agreement, in order to effectuate the
provisions and purposes of this Agreement and the transfers of Assets and
Liabilities and the other transactions contemplated hereby or in any of the
Ancillary Agreements. If any such transfer of Assets or Liabilities is not
consummated prior to or on the Distribution Date, then the party hereto
retaining such Asset or Liability shall thereafter hold such Asset in trust
for the use and benefit of the party entitled thereto (at the expense of the
party entitled thereto), or shall retain such Liability for the account of the
party by whom such Liability is to be assumed pursuant hereto, as the case may
be, and shall take such other action as may be reasonably requested by the
party to whom such Asset is to be transferred, or by whom such Liability is to
be assumed, as the case may be, in order to place such party, insofar as
reasonably possible, in the same position as if such Asset or Liability had
been transferred as contemplated hereby. If and when any such Asset or
Liability becomes transferable, such transfer shall be effected forthwith.
The parties hereto agree that, as of the Distribution Date, each party hereto
shall be deemed to have acquired complete and sole beneficial ownership of all
of the Agribusiness Assets, or Ralston Assets, as the case may be, together
with all rights, powers and privileges incident thereto, and shall be deemed
to have assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities incident
thereto, that such party is entitled to acquire or required to assume pursuant
to the terms of this Agreement.
5.02 Agribrands Board. Prior to the Distribution Date, Agribrands
----------------
shall take such actions as are necessary so that its Board of Directors is
comprised of those individuals named as directors in the Form 10.
5.03 Contractual Arrangements.
-------------------------
(a) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into the Tax Sharing Agreement, substantially in the form attached
to this Agreement as Exhibit 5.03(a) ("Tax Sharing Agreement").
(b) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into the Bridging Services Agreement, substantially in the form
attached to this Agreement as Exhibit 5.03(b) ("Bridging Services Agreement").
(c) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into the Trademark Agreement, substantially in the form attached
to this Agreement as Exhibit 5.03(c) ("Trademark Agreement").
(d) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into the Technology License Agreement, substantially in the form
attached to this Agreement as Exhibit 5.03(d) ("Technology Agreement").
(e) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into certain Toll-Milling Agreements, substantially in the form
attached to this Agreement as Exhibit 5.03(e) ("Toll-Milling Agreement").
5.04 Cash Management and Intercompany Accounts.
----------------------------------------------
(a) Through and including 12:01 a.m. local time on the Distribution
Date, Ralston shall continue to employ cash management practices with respect
to the Agribusiness consistent with those employed immediately prior to the
date of this Agreement.
(b) All bank accounts used exclusively in the Agribusiness, and the
balances therein existing as of 12:01 a.m. local time on the Distribution
Date, shall be transferred on the Distribution Date to Agribrands or its
Subsidiaries or Affiliates. All bank accounts used jointly by a member of the
Agribusiness Group and any member of the Ralston Group, and balances therein
existing as of the Distribution Date, shall remain with the Ralston Group.
Following the Distribution Date, each party shall promptly pay to the other
any amounts collected by it through any of its accounts to the extent any of
such amounts collected relate exclusively to the Business of the other party.
(c) All intercompany services provided by the Ralston Group to the
Agribusiness Group, and vice versa, shall terminate as of the Distribution
Date unless otherwise provided in the Bridging Agreement or any other
Ancillary Agreement. Effective as of the close of business on the
Distribution Date, all intercompany receivables or payables and loans then
existing between any member of one Group and any member of the other Group
shall be settled or forgiven as set forth on Schedule 5.04(c), except that,
unless otherwise provided on Schedule 5.04(c), trade receivables or payables
arising out of intercompany sales of inventories or other tangible goods shall
be settled in the normal course of business.
ARTICLE VI
ACCESS TO INFORMATION
6.01 Provision of Corporate Records. Subject to the terms of the
------------------------------
Ancillary Agreements, prior to, or as promptly as practicable after, the
Distribution Date, Ralston shall deliver to Agribrands all corporate books and
records of Agribrands and its Subsidiaries. Ralston shall also make available
for copying or, to the extent not detrimental, in Ralston's reasonable
opinion, to the interests of Ralston, originals of all books, records and data
reasonably related to the Agribusiness Assets, the Agribusiness, and the
Liabilities assumed or retained by Agribrands, including, but not limited to,
all books, records and data relating to the purchase of materials, supplies
and services, financial results, sale of products, records of the Agribusiness
Employees, commercial data, catalogues, brochures, training and other manuals,
sales literature, advertising and other sales and promotional materials,
maintenance records and drawings, all active agreements, active litigation
files and government filings. To the extent that originals of such books,
records and data are provided to Agribrands, Agribrands shall provide Ralston
copies thereof as reasonably requested in writing by Ralston. Notwithstanding
the above, Ralston shall provide copies of customer information, invoices and
credit information only to the extent reasonably requested in writing by
Agribrands, and Ralston shall provide such copies of all books, records and
data only to the extent that such action is not prohibited by the terms of any
agreements pertaining to such information or is not prohibited by law. From
and after the Distribution Date, all books, records and copies so delivered
shall be the property of Agribrands. Notwithstanding the above, Ralston shall
not be required to make copies, other than pursuant to Section 6.02 of this
Agreement, of any books, records and data which are more than seven years old
or which relate to events occurring more than seven (7) years prior to the
Distribution Date, or of any portion of any books, records or data to the
extent such portion relates exclusively to the Ralston Assets, the Ralston
Business or to Liabilities assumed or retained by Ralston.
6.02 Access to Information. From and after the Distribution Date,
---------------------
each of Ralston and Agribrands shall afford to the other and to the other's
agents, employees, accountants, counsel and other designated representatives,
reasonable access and duplicating rights during normal business hours to all
records, books, contracts, instruments, computer data and other data and
information ("Information") within such party's possession relating to such
other party's businesses, assets or liabilities, insofar as such access is
reasonably required by such other party. Without limiting the foregoing, such
Information may be requested under this Section 6.02 for audit, accounting,
claims, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations.
6.03 Retention of Records. Except as otherwise required by law or
--------------------
agreed in writing, or as otherwise provided in the Tax Sharing Agreement, each
of Ralston and Agribrands shall retain, for a period of at least seven years
following the Distribution Date, all significant Information in such party's
possession or under its control relating to the business, assets or
liabilities of the other party and, after the expiration of such seven-year
period, prior to destroying or disposing of any of such Information, (a) the
party proposing to dispose of or destroy any such Information shall provide no
less than 30 days' prior written notice to the other party, specifying the
Information proposed to be destroyed or disposed of, and (b) if, prior to the
scheduled date for such destruction or disposal, the other party requests in
writing that any of the Information proposed to be destroyed or disposed of be
delivered to such other party, the party proposing to dispose of or destroy
such Information promptly shall arrange for the delivery of the requested
Information to a location specified by, and at the expense of, the requesting
party.
6.04 Confidentiality. From and after the Distribution Date, each
---------------
Group shall hold, in strict confidence, all Information obtained from the
other Group prior to the Distribution Date or furnished to it pursuant to this
Agreement or any other agreement referred to herein which relates to or
concerns the business conducted by such other Group, and such Information
shall not be used by it to the detriment of the other Group, or disclosed by
it or its agents, officers, employees or directors without the prior written
consent of such other Group unless and to the extent that (a) disclosure is
compelled by judicial or administrative process or, in the opinion of such
Group's counsel, by other requirements of law, or (b) such Group can show that
such Information was (i) available to such Group on a nonconfidential basis
prior to its disclosure by the other Group, (ii) in the public domain through
no fault of such Group, (iii) lawfully acquired by such Group from other
sources after the time that it was furnished to such Group pursuant to this
Agreement or any other agreement referred to herein, or (iv) independently
developed by such Group. Notwithstanding the foregoing, each Group shall be
deemed to have satisfied its obligations of confidentiality under this Section
6.04 with respect to any Information concerning or supplied by the other Group
if it exercises substantially the same care with regard to such Information as
it takes to preserve confidentiality for its own similar Information.
6.05 Reimbursement. Each member of any Group providing Information
-------------
pursuant to Sections 6.02 or 6.03 to any member of the other Group shall be
entitled to receive from the recipient, upon presentation of an invoice
therefor, payment in U. S. dollars of all out-of-pocket costs and expenses as
may reasonably be incurred in providing such Information.
ARTICLE VII
EMPLOYEE MATTERS
7.01 Employee Liabilities; Continuation of Employment.
-----------------------------------------------------
After the Distribution Date, except as otherwise specifically provided
for in this Agreement and Plan of Reorganization, the Agribusiness Group shall
be responsible for all employment and benefit liabilities related to the
Agribusiness Individuals and the Ralston Group shall be responsible for all
employment and benefit liabilities related to the Ralston Individuals, whether
arising before, coincident with or after the Distribution. Ralston and
Agribrands shall cause each member of their respective Groups to cooperate
with the members of the other's Group to effect, as soon as practicable in a
cost-effective manner, the transfer of employment, where applicable, of
Agribusiness Employees and Ralston Employees to the appropriate Affiliate of
either Group.
7.02 Ralston Purina Retirement Plan.
---------------------------------
Effective as of the Distribution Date, all Agribusiness Employees who are
participants in the Retirement Plan shall cease to accrue benefits under such
Plan. Ralston shall retain all assets and liabilities under the Plan
associated with such Employees and Former Agribusiness Employees.
Ralston shall cause the Retirement Plan to be amended, effective as of
the Distribution Date, to provide that Agribusiness Employees who are
participants in the Plan as of such date who are between 50 and 54 years of
age, or who have a combination of age and years of service for vesting
purposes greater than or equal to 65, will have the number of years necessary
to attain age 55 added to the calculation of their age (but not credited
service) for purposes of determining their accrued benefit under such Plan.
Commencement of payment of retirement benefits under the Plan shall be subject
to the terms of the Plan currently in effect, without taking into account the
deemed addition of years of service.
7.03 International Retirement Plans.
--------------------------------
(a) Canadian Pensions. Effective as of the Distribution Date, the
Agribusiness Employees participating in the defined benefit pension plan
sponsored by Ralston Purina Canada Inc. (the "Ralston Canadian Pension Plan")
shall cease to accrue further benefits under such plan, and all liabilities
for benefits accrued by such individuals as of such Distribution Date shall be
transferred to a new pension plan (the "Agribrands Canadian Pension Plan")
established by Newco Canada, an Affiliate of Agribrands, the terms of which
are substantially the same as those of the Ralston Canadian Pension Plan. The
Agribrands Canadian Pension Plan shall give the Agribusiness Employees credit,
for purposes of eligibility, vesting and benefit accrual, for service with the
Ralston Group on or prior to the Distribution Date, to the extent such service
was recognized under the Ralston Canadian Pension Plan. Benefits accrued by
Former Agribusiness Employees under the Ralston Canadian Pension Plan shall
remain liabilities of such plan. Ralston shall, as soon as practicable after
the Distribution Date, cause Ralston Purina Canada Inc. to transfer from the
Ralston Canadian Pension Plan to the Agribrands Canadian Pension Plan an
amount (the "Transfer Amount") equal to (i) the present value of benefits
accrued by the Agribusiness Employees as of the Distribution Date (determined
on the greater of an ongoing concern or solvency basis in accordance with plan
documents, plan interpretations specified therein and actuarial assumptions as
used in the last filed actuarial report adjusted as necessary to comply with
legislation and regulatory authorities), plus (ii) a proportionate share of
the defined benefit assets held in the Ralston Canadian Pension Plan in excess
of the present value of defined benefit liabilities for all participants in
the plan as of that date, plus (iii) interest based on the Ralston Canadian
Pension Plan rate of return on the Transfer Amount as at the Distribution Date
from the Distribution Date to the actual transfer date, less any expenses,
less (iv) an adjustment for the value of benefits for Agribusiness Employees
who terminate, die or retire after the Distribution Date and prior to the
actual transfer date. Such transfer shall be conditioned upon receipt of, and
subject to, all requisite governmental and other approvals and consents and if
a different Transfer Amount is required by applicable regulatory authorities,
an adjustment to the Transfer Amount will be made. Upon completion of the
transfer of such assets and liabilities, the Ralston Canadian Pension Plan and
the Ralston Group shall have no further liability for pension benefits for the
Agribusiness Employees.
(b) Other Foreign Funded Benefit Plans. With respect to other
foreign funded pension plans in which Agribusiness Employees, Former
Agribusiness Employees, Ralston Employees and Former Ralston Employees
participate, Agribrands and Ralston shall cooperate in taking such actions as
are necessary or desirable to ensure that the assets and liabilities related
to the current and former employees, respectively, of the Agribusiness Group
and the Ralston Group are transferred to (or retained in, as the case may be)
the pension plan applicable to each such Group's employees or former
employees. The amount to be transferred from one defined contribution plan to
another shall be equal to the account balances accrued as of the date of
transfer. The amount to be transferred from one defined benefit plan to
another shall be equal to the present value of benefits accrued by the
transferred employees as of the Distribution Date (determined in accordance
with plan documents, plan interpretations and actuarial assumptions specified
therein), plus a proportionate share of the funds held in the plan in excess
of the amount required to satisfy the accumulated benefit obligation for all
participants in the plan as of that date. If such defined benefit plan lacks
sufficient funds to satisfy the accumulated benefit obligations of all
participants in the plan prior to the transfer, then such transfer shall be
equal to a share of total assets proportionate to the share of total
liabilities being transferred. The transfers of assets and liabilities shall
be conditioned upon receipt of, and subject to, all requisite governmental and
other approvals and consents. Upon completion of the transfer of such assets
and liabilities, the transferring plan and the Group which sponsors the
transferring plan shall have no further responsibility for pension benefits
for the employees for whom such assets and liabilities were transferred.
7.04 Savings Investment Plan.
-------------------------
(a) Agribrands shall take, or cause to be taken, all necessary and
appropriate actions to establish, effective as of the day after the
Distribution Date, and administer a defined contribution Plan which will be a
Qualified Plan and which will also be subject to Section 401(k) of the Code
("Agribrands SIP"), and to provide benefits thereunder for all Agribusiness
Employees who, immediately prior to the Distribution Date, were participants
in the Ralston Purina Company SIP ("Ralston SIP"). Agribrands agrees that
each such Agribusiness Employee shall be, to the extent applicable, entitled,
for all purposes under the Agribrands SIP, to be credited with the term of
service and any account balance credited to such Agribusiness Employee as of
the Distribution Date under the terms of the Ralston SIP as if such service
had been rendered to the Agribusiness Group and as if such account balance had
originally been credited to such Agribusiness Employee under the Agribrands
SIP. Ralston agrees to provide Agribrands, as soon as practicable after the
Distribution Date (with the cooperation of Agribrands to the extent that
relevant information is in the possession of the Agribusiness Group), with a
list of the Agribusiness Employees who were, to the best knowledge of Ralston,
participants in the Ralston SIP immediately prior to the Distribution Date,
together with a listing, if requested by Agribrands, of each such Agribusiness
Employee's term of service for eligibility and vesting purposes under such
Plan and a listing of each such Agribusiness Employee's account balance
thereunder. Ralston shall, as soon as practicable after the Distribution
Date, provide Agribrands with such additional information (in the possession
of the Ralston Group and not already in the possession of the Agribusiness
Group) as may be reasonably requested by Agribrands and necessary in order for
Agribrands to establish and administer effectively the Agribrands SIP. The
Agribrands SIP receiving transfers of accounts from the Ralston SIP shall
contain an "Agribrands Stock Fund" as an investment alternative for
participants, and Agribusiness Employees for whom account balances are to be
transferred to the Agribrands SIP from the Ralston SIP, as described below,
shall be permitted to elect to invest such balances, or any portion thereof,
in the Agribrands Stock Fund.
(b) Ralston shall amend the Ralston SIP to cause the Agribrands
Employees to be fully vested, as of the Distribution, in amounts credited to
their accounts in the Ralston SIP as of such date. Ralston further agrees, as
soon as practicable following the Distribution Date, to direct the trustees of
the Ralston Purina Company Savings Investment Trust to transfer to the trustee
of the Agribrands SIP in cash, securities or other property (including notes
associated with the outstanding balance of any loans to Agribrands Employees
pursuant to ERISA section 408(b)(1) and Code section 4975(d)(1)) or a
combination thereof, as reasonably determined by Ralston, an amount equal to
the account balances credited as of the date of transfer to the participants
and beneficiaries in the Ralston SIP who are Agribusiness Employees. Such
transfer shall be adjusted, if and to the extent necessary, to comply with
Section 414(l) of the Code and the regulations promulgated thereunder. At the
time determined by the appropriate fiduciaries of the Ralston SIP, such
fiduciaries shall cause shares of ESOP Stock allocated to accounts of
Agribusiness Employees under the Ralston SIP to be converted into or redeemed
for shares of Ralston Stock, as provided by the terms of the ESOP Stock.
Shares of Ralston Stock received by the Ralston SIP upon such redemption or
conversion, as well as shares of such stock otherwise held in the Plan with
respect to Agribusiness Employee participant accounts in the Ralston Stock
Fund, will be transferred directly to the trustee of the Agribrands SIP for
attribution to respective participant accounts in that Plan. Shares of
Agribrands Stock distributed with respect to shares of Ralston Stock held in
the Ralston SIP as of the Distribution, to the extent allocated to accounts of
Agribusiness Employees, shall be transferred to respective participant
accounts in the Agribrands Stock Fund of the Agribrands SIP.
(c) In connection with the transfers described in Section 7.03(b),
Ralston and Agribrands shall cooperate in making any and all appropriate
filings required under the Code or ERISA, and the regulations thereunder, and
any applicable securities laws and take all such action as may be necessary
and appropriate to cause such transfers to take place as soon as practicable
after the Distribution Date; provided, however, that each such transfer shall
not take place until as soon as practicable after the earlier of (A) the
receipt of a favorable IRS determination letter with respect to the
qualification of the Agribrands SIP under Section 401(a) of the Code or (B)
the receipt by Ralston of an opinion of counsel retained by Agribrands and
reasonably satisfactory in form and substance to Ralston to the effect that
such counsel believes the Agribrands SIP will be found by the IRS to be
qualified under Section 401(a) of the Code and that each trust established
thereunder is exempt from federal income tax under Section 501(a) of the Code.
Ralston and Agribrands agree to provide to such counsel such information in
the possession of the Ralston Group and the Agribusiness Group, respectively,
as may be reasonably requested by such counsel in connection with the issuance
of such opinion. Ralston agrees, during the period ending with the date of
complete transfer of assets and liabilities to the Agribrands SIP, to
administer the Ralston SIP in accordance with plan provisions, and, insofar as
it is practical, in the ordinary course as it was operated prior to the
Distribution, except as otherwise set forth in this Agreement.
(d) Except as specifically set forth in this Section 7.03, from and
after the Distribution Date, Ralston shall cease to have any liability or
obligation whatsoever with respect to Agribusiness Employees under the Ralston
SIP (other than the obligation to complete the transfer of assets and
liabilities to the Agribrands SIP described in (c) above) and Agribrands shall
assume and shall be solely responsible for all liabilities and obligations
whatsoever of either Ralston or Agribrands with respect to Agribusiness
Employees under the Ralston SIP and shall be solely responsible for all
liabilities and obligations whatsoever under the Agribrands SIP; provided,
however, that Ralston shall, in respect of Agribusiness Employees
participating in the Ralston SIP prior to the Distribution, either be
responsible for or make all required contributions, no later than the date
such contributions are legally required to be made, for all prior Plan years
and for the portion of the Current Plan Year ending on the Distribution Date,
to the extent not previously made.
7.05 U.S. Welfare Plans
--------------------
(a) Agribrands shall take, or cause to be taken, all actions
necessary and appropriate on behalf of itself and the Agribusiness Group to
adopt such Welfare Plans as necessary to provide welfare benefits, effective
as of the Distribution Date, to Agribusiness Individuals, including the Plans
listed on Schedule 7.04. In connection with the foregoing, Ralston agrees to
provide Agribrands or its designated representative with such information (in
the possession of the Ralston Group and not already in the possession of the
Agribusiness Group) as may be reasonably requested by Agribrands and necessary
for the Agribusiness Group to establish any such Welfare Plan.
(b) Except as otherwise noted in this Section 7.04, Agribrands shall
assume, or cause one or more members of the Agribusiness Group to assume, and
shall be solely responsible for, or cause its insurance carriers or agents to
be responsible for, all welfare benefit claims incurred by Agribusiness
Individuals under the Agribusiness Welfare Plans described above in which such
Agribusiness Individuals are eligible to, and elect to, participate on or
after 12:01 a.m. on the Distribution Date. Ralston shall retain liability for
welfare benefit claims incurred by Agribusiness Individuals under the Purina
Comprehensive Health and Well-Med Plan or other Ralston Welfare Plans before
12:01 a.m. on the Distribution Date. For purposes of this Section 7.03,
medical and dental services are incurred when the Agribusiness Individual is
provided with medical or dental care; death benefit claims are incurred at the
time of death of the insured notwithstanding any other provision of any
welfare benefit plan to the contrary. As of 12:01 a.m. on the Distribution
Date, Agribusiness Employees will cease participating in Welfare Plans
maintained by any member of the Ralston Group, except to the extent they elect
continued coverage under Ralston's health benefit plans pursuant to the
Consolidated Omnibus Budget Reconciliation Act.
(c) Ralston and the Ralston Group shall be responsible for any
retiree medical and life insurance benefits payable under any Welfare Plans of
Ralston and the Ralston Group on or after the Distribution Date with respect
to any employees working in the Agribusiness who have retired from the
Agribusiness Group or the Ralston Group on or before the Distribution Date and
who have met the eligibility requirements for such benefits at that time.
Agribusiness Employees who retire from the Agribusiness Group after the
Distribution Date shall not be entitled to retiree medical and life insurance
benefits from such Welfare Plans of Ralston and the Ralston Group. For
purposes of this subsection, the distribution of ownership of the Agribusiness
Group to shareholders of Ralston Stock shall not be deemed a termination of
employment of Agribusiness Employees.
7.06 International Welfare Plans
-----------------------------
Ralston and Agribrands shall each retain all liabilities related to
international welfare plans in which only employees of members of their
respective Groups are enrolled. With respect to welfare plans in which
employees and former employees of members of both Groups are participants,
Ralston and Agribrands shall cause each member of their respective Groups to
cooperate with members of the other Group to establish additional welfare
plans as soon as practicable after the Distribution Date in order to enroll
the Employees and Former Employees of the Agribusiness and Ralston in separate
plans.
7.07 Internationalist Retirement Plan.
----------------------------------
As of the Distribution Date, Agribusiness Employees who participate in
the Internationalist Retirement Plan shall cease to accrue benefits under such
plan, and Ralston shall retain all liabilities in connection with such accrued
benefits. Benefits shall be paid to the participants or their beneficiaries
in accordance with the terms of such plan.
7.08 Stock Options and Restricted Stock.
--------------------------------------
(a) The stock options held by Agribusiness Employees as of the
Distribution Date shall be administered in accordance with the terms of such
agreements. For purposes of restricted stock awards and stock options under
the ISPs, the Distribution shall be deemed to constitute an involuntary
termination of employment of Agribusiness Employees.
(b) Effective immediately after the Distribution Date, the number of
shares of Ralston Stock subject to, and the exercise price of, each
non-qualified option to acquire Ralston Stock granted pursuant to the terms of
an ISP ("Ralston Option") which immediately prior to the Record Date is
outstanding and not exercised shall be adjusted by the Human Resources
Committee of the Ralston Board in order to reflect the difference in the fair
market value of the Ralston Stock attributable to the Distribution, in
accordance with the requirements of Section 424 of the Code and the
regulations promulgated thereunder, based upon (i) the average of the closing
prices on the NYSE Composite Index for the Ralston Stock, trading regular way
with due bills for the Agribrands Stock, for the __ trading day period prior
to the Distribution Date and (ii) the average of the closing prices on the
NYSE Composite Index for the Ralston Stock, trading regular way, for the _ day
trading period following the Distribution Date.
(c) Ralston and Agribrands agree that Ralston, as sole shareholder of
the outstanding capital stock of Agribrands, will approve the adoption by the
Board of Agribrands of an ISP prior to the Distribution, such plan to be
administered by the Nominating and Compensation Committee of the Agribrands
Board (the "Committee"). The Committee shall have authority under such plan
to grant stock options, restricted stock awards and other awards payable in
Agribrands Stock, to directors of Agribrands and eligible Agribusiness
Employees, including executive officers.
7.09 Unfunded Deferred Compensation Plans.
---------------------------------------
(a) Ralston shall retain liability for all unpaid benefits,
obligations and liabilities with respect to account balances of Agribusiness
Employees and Former Agribusiness Employees in the Fixed Benefit Option of the
Ralston Purina Company Deferred Compensation Plan for Key Employees ("Ralston
Deferred Compensation Plan").
(b) Prior to the Distribution Date, Agribrands will establish a
Deferred Compensation Plan, which shall be a non-qualified unfunded deferred
compensation plan ("Agribrands Deferred Compensation Plan"). Effective as of
the Distribution, Ralston shall (i) amend the Ralston Deferred Compensation
Plan to permit the transfer to the Agribrands Deferred Compensation Plan of
that portion of the Ralston Deferred Compensation Plan relating to the
benefits accrued as of the Distribution Date by the Agribusiness Employees in
the Equity Option and Variable Interest Option of such Plan; and in connection
therewith, Ralston shall assign to Agribrands all its right, title and
obligations under the deferred compensation agreements associated with such
accrued benefits; and (ii) amend the Executive SIP to permit the transfer to
the Agribrands Deferred Compensation Plan of that portion of the Executive SIP
relating to the benefits accrued as of the Distribution Date by the
Agribusiness Employees.
After the Distribution Date, Agribrands shall be solely responsible for the
payment of all liabilities and obligations for benefits with respect to all
Agribusiness Employees under the Agribrands Deferred Compensation Plan, and
Ralston shall have no liability with respect thereto.
7.10 U. S. Life Insurance Programs.
---------------------------------
(a) Partnership Life Insurance Plan. Agribusiness Individuals who,
immediately prior to the Distribution Date, were participants in or otherwise
entitled to benefits under the Ralston Partnership Life Insurance Plan, will,
as of the Distribution Date, be treated as terminated employees for purposes
of such Ralston Partnership Life Insurance Plan, and will be afforded all
rights and benefits to which all terminated employees are entitled under the
terms of such Plan. Ralston will retain ownership of any individual life
insurance contracts then insuring the life of any Agribusiness Employee in
accordance with the terms of the Partnership Life Insurance Plan.
(b) Split-Dollar Second-To-Die Life Insurance Contracts. On the
Distribution date, Ralston shall relinquish all rights under any Split-Dollar
Second-To-Die Life Insurance policies currently insuring the lives of any
Agribusiness Employees and their spouses, including but not limited to, rights
to any portion of the cash value or death benefits under such policies,
created in accordance with the terms of the Split Dollar Agreement and
Collateral Assignment between Ralston and such employee regarding such
policies, and will take all reasonable steps necessary to assign such rights
to Agribrands. Prior to the Distribution date, Ralston shall perform any and
all obligations required of it under the terms of such Split Dollar Agreement
and Collateral Assignment with respect to such policies.
7.11 Vacation Pay. Agribrands and the Agribusiness Group will assume
------------
(or, as applicable, retain) all liability for unpaid vacation pay accrued by
Agribusiness Employees prior to the Distribution Date. After the Distribution
Date, Ralston and the Ralston Group will have no liability for vacation pay
for Agribusiness Employees. Ralston and the Ralston Group will assume (or, as
applicable, retain) all liability for unpaid vacation pay accrued by Ralston
Employees prior to the Distribution Date. After the Distribution Date,
Agribrands and the Agribusiness Group will have no liability for vacation pay
for Ralston Employees.
7.12 U. S. Severance Pay.
----------------------
(a) Ralston and Agribrands agree that, with respect to individuals
who, in connection with the Distribution, cease to be employees of the Ralston
Group and become employees of the Agribusiness Group, such cessation shall not
be deemed a severance of employment from either Group for purposes of any Plan
that provides for the payment of severance, salary continuation or similar
benefits and shall, in connection with the Distribution, if and to the extent
appropriate obtain waivers from individuals against any such assertion.
(b) The Ralston Group shall assume and be solely responsible for all
liabilities and obligations whatsoever in connection with claims made by or on
behalf of Ralston Individuals and the Agribusiness Group shall assume and be
solely responsible for all liabilities and obligations whatsoever in
connection with claims made by or on behalf of Agribusiness Individuals in
respect of severance pay, salary continuation and similar obligations relating
to the termination or alleged termination of any such person's employment
either before, to the extent unpaid, or on or after the Distribution Date.
7.13 International Severance Pay.
-----------------------------
(a) Ralston and Agribrands agree that, with respect to individuals
who, in connection with the Distribution, cease to be employees of the Ralston
Group and become employees of the Agribusiness Group or vice versa, such
cessation shall not be deemed a severance of employment from either Group
except to the extent so required by the terms of any benefit plan, labor
agreement, applicable law or governmental regulation that provides for the
payment of severance pay, salary continuation, termination indemnity or
similar benefits. The parties agree, if and to the extent appropriate, to
obtain waivers from individuals against any such assertion.
(b) To the extent severance pay, salary continuation or termination
indemnity is payable with respect to an Agribusiness Individual or Ralston
Individual, the respective Group shall assume and be solely responsible for
all liabilities and obligations whatsoever in connection with claims for such
benefits made by or on behalf of such Individuals relating to the termination
or alleged termination of any such person's employment either before, to the
extent unpaid, or on or after the Distribution Date.
Notwithstanding the foregoing, after the Distribution Date, employees of
Purina Colombiana, S.A. whose principal duties after the Distribution Date are
in connection with the manufacture of pet food pursuant to a Toll-Milling
Agreement shall be considered Ralston Individuals for purposes of this Section
7.13, and the Ralston Group shall be solely responsible for payment of any
claims for severance benefits by such employees; and employees of Purina de
Venezuela, C.A. whose principal duties after the Distribution Date are in
connection with the manufacture of agricultural formula animal feeds pursuant
to a Toll-Milling Agreement shall be considered Agribusiness Individuals for
purposes of this Section 7.13, and the Agribusiness Group shall be solely
responsible for payment of any claims for severance benefits by such
employees.
In the event that the individual to whom the benefits are due was an employee
of both the Agribusiness and the Ralston Business, then the termination
expenses shall be shared on an equal basis by both the Agribusiness Group and
the Ralston Group.
7.14 Other Balance Sheet Adjustments. To the extent not otherwise
-------------------------------
provided in this Agreement, Ralston and Agribrands shall take such action as
is necessary to effect an adjustment to the books of the members of the
Ralston Group and the Agribusiness Group so that, as of the Distribution Date,
the prepaid expense balances and accrued employee liabilities with respect to
any employee liability or obligation assumed or retained as of the
Distribution Date by the Ralston Group or the Agribusiness Group are
appropriately reflected on the consolidated balance sheets as of the
Distribution Date of Ralston and Agribrands, respectively.
7.15 Preservation of Rights to Amend or Terminate Plans. Subject to
--------------------------------------------------
the provisions of Article VII hereof, no provision of this Agreement,
including the agreement of Ralston or Agribrands that it, or any member of the
Ralston Group or the Agribusiness Group, will make a contribution or payment
to or under any Plan herein referred to for any period, shall be construed as
a limitation on the right of Ralston or Agribrands or any member of the
Ralston Group or the Agribusiness Group to amend such Plan or terminate its
participation therein which Ralston or Agribrands or any member of the Ralston
Group or the Agribusiness Group would otherwise have under the terms of such
Plan or otherwise, and no provision of this Agreement shall be construed to
create a right in any employee or former employee or beneficiary of such
employee or former employee under a Plan which such employee or former
employee or beneficiary would not otherwise have under the terms of the Plan
itself.
7.16 Reimbursement; Indemnification. Each of the parties hereto
------------------------------
acknowledges that the Ralston Group, on the one hand, and the Agribusiness
Group, on the other hand, may incur costs and expenses (including
contributions to Plans and the payment of insurance premiums) arising from or
related to any of the Plans which are, as set forth in this Agreement, the
responsibility of the other party hereto. Ralston and Agribrands agree that
they, or the appropriate members of their respective Groups, shall reimburse
the appropriate members of the other's Group, as soon as practicable but in
any event within 30 days of receipt from the other party of appropriate
verification, for all such costs and expenses.
7.17 Further Transfers. For a period of six months following the
-----------------
Distribution Date, no member of either Group shall, directly or indirectly,
without the prior written consent of a corporate officer of the other Group,
solicit or attempt to solicit any employee or officer of such other Group for
the purpose of obtaining his or her services for hire, or otherwise causing
such employee to leave employment with such other Group, and no member of
either Group, without the prior written consent of a corporate officer of the
other Group, will, for such period of six months, hire such employee or
officer; provided, however, if the employment of any officer or employee of
one Group is terminated by that Group at any time following the Distribution,
a member of the other Group may employ such person without the consent of the
other Group
7.18 Other Liabilities. As of the Distribution Date, Agribrands and
-----------------
Ralston shall each assume and be solely responsible for all Liabilities
whatsoever of the other's Group with respect to claims made by, in the case of
Agribrands, Agribusiness Individuals and, in the case of Ralston, Ralston
Individuals, relating to any Liability not otherwise expressly provided for in
this Agreement, including earned salaries, wages, severance payments, bonus
accruals or other compensation, regardless of whether such Liability was
incurred before or after the Distribution Date.
7.19 Compliance. Notwithstanding anything to the contrary in this
----------
Article VII, to the extent any actions of the parties contemplated in this
Article are determined prior to the Distribution to violate law or result in
unintended tax liability for Ralston Individuals or Agribusiness Individuals,
such action may be modified to avoid such violation of law or unintended tax
liability.
7.20 Agreement of Parties. Notwithstanding anything herein to the
--------------------
contrary, the agreements contained in this Article VII shall be binding only
as between the parties to this Agreement, no Ralston Individual or
Agribusiness Individual or other person shall have any right with respect to
any such agreement, and no person other than the parties to this Agreement
shall have any rights to enforce any provision hereof.
ARTICLE VIII
POST-DISTRIBUTION OBLIGATIONS
8.01 Agribrands' Post-Distribution Obligations. Agribrands shall, and
-----------------------------------------
shall cause each member of the Agribusiness Group to, comply with each
representation and statement made, or to be made, to the Internal Revenue
Service (the "IRS") in connection with any ruling obtained, or to be obtained,
by Ralston, from the IRS with respect to any transaction contemplated by this
Agreement. Neither Agribrands nor any member of the Agribusiness Group shall
for a period of three years following the Distribution Date engage in any of
the following transactions, unless, in the sole discretion of Ralston, either
(a) an opinion in form and substance satisfactory to Ralston is obtained from
counsel to Agribrands, the selection of which counsel is agreed to by Ralston
or (b) a supplemental ruling is obtained from the IRS, in either case to the
effect that such transactions would not adversely affect the tax consequences
of the contributions, transfers, assumptions, Merger and Distribution
described in Articles II and III of this Agreement to (1) Ralston or any
member of the Ralston Group, (2) Agribrands or any member of the Agribusiness
Group, or (3) the Ralston shareholders. The transactions subject to this
provision are: (i) making a material disposition (including transfers from one
member of the Agribusiness Group to another member of the Agribusiness Group),
by means of a sale or exchange of assets or capital stock, a distribution to
shareholders, or otherwise, of any of its assets (other than the transactions
contemplated by this Agreement) except in the ordinary course of business;
(ii) repurchasing any Agribrands capital stock, unless such repurchase
satisfies the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 or
any successor Revenue Procedure; (iii) issuing any Agribrands capital stock
that in the aggregate exceeds twenty percent (20%) of the issued and
outstanding stock of Agribrands immediately following the Distribution; (iv)
liquidating or merging with any other corporation (including a member of the
Agribusiness Group); or (v) ceasing to engage in the active conduct of a trade
or business within the meaning of Section 355(b)(2) of the Code. Agribrands
hereby represents that neither Agribrands nor any member of the Agribusiness
Group has any present intention to undertake any of the transactions set forth
in (i), (ii), (iii), (iv) or (v) above.
8.02 Ralston's Post-Distribution Obligations. For a period of three
---------------------------------------
years after the date of the Distribution, Ralston shall, and shall cause each
member of the Ralston Group, to refrain from taking any action which would
adversely impact any ruling obtained, or to be obtained, by Ralston from the
IRS with respect to any transaction contemplated by this Agreement.
8.03 Indemnification of Shareholders. In the event that Ralston or
-------------------------------
Agribrands breaches or violates any covenant made in this Article VIII, the
breaching party shall indemnify and hold harmless (a) all shareholders of
Ralston, and (b) if the breaching party is Agribrands, Ralston as of the
Record Date against and in respect of any and all costs, expenses,
deficiencies, litigation, proceedings, taxes, levies, assessments, attorneys'
fees, damages or judgments of any kind or nature whatsoever, related to,
arising from, or associated with such breach or violation.
ARTICLE IX
NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS
Agribrands understands and agrees that, except as set forth in Article
VIII, no member of the Ralston Group is, in this Agreement or in any Ancillary
Agreement or other agreement or document, implicitly or explicitly
representing or warranting to Agribrands in any way as to the Agribusiness
Assets, the Agribusiness or the Liabilities of the Agribusiness Group or as to
any consents or approvals required in connection with the consummation of the
transactions contemplated by this Agreement, it being agreed and understood
that the Agribusiness Group shall take all of the Agribusiness Assets "as is,
where is" and that, except as provided in Section 2.04, the Agribusiness Group
shall bear the economic and legal risk that conveyances of the Agribusiness
Assets shall prove to be insufficient or that the title of any member of the
Agribusiness Group to any Agribusiness Assets shall be other than good and
marketable and free from encumbrances.
ARTICLE X
GUARANTEES AND SURETY BONDS OF RALSTON
Agribrands agrees that as soon as practicable following the Distribution
Date, it will substitute surety bonds obtained by it for each of the surety
bonds of any member of the Ralston Group, if any, relating to any Agribusiness
Asset, the Agribusiness or any Liability assumed by Agribrands or its
Subsidiaries of Affiliates hereunder. Agribrands agrees that it shall enter
indemnification agreements in its name with each provider of a surety bond
obtained with respect to the Agribusiness Assets, the Agribusiness or any
Liability assumed by Agribrands. Except as set forth on Schedule ___,
Agribrands shall use its best efforts to obtain the complete release and
discharge of any member of the Ralston Group from all obligations (including
any obligations upon any renewal or extension) related to the Agribusiness
Assets, the Agribusiness or any Liability assumed by Agribrands on which any
member of the Ralston Group is directly or contingently obligated as a
guarantor or assignor or otherwise contingently liable (including, without
limitation, any letter of credit) (the " Agribusiness Obligations"). In the
event that Agribrands is unable to obtain any such release, Agribrands agrees
that (i) it shall not extend the term or otherwise modify any such
Agribusiness Obligation in a manner which would expand Ralston's financial
exposure under such Agribusiness Obligation, (ii) it shall use its best
efforts to substitute itself or another member of the Agribusiness Group as
primary guarantor of such Agribusiness Obligations, and (iii) Agribrands or
any member of the Agribusiness Group shall not assign any such Agribusiness
Obligation or directly or indirectly transfer, sell or assign any assets
securing such Agribusiness Obligation or comprising all or any substantial
portion of a project, the financing of which gave rise to such Agribusiness
Obligation, including, but not limited to, the transfer, sale or assignment of
the capital stock of any Affiliate holding title to such assets, unless
Ralston or the appropriate member of the Ralston Group, as the case may be, is
released and discharged of all liabilities with respect to such Agribusiness
Obligation. Without limiting any other obligation of indemnification under
this Agreement or any agreement described herein, Agribrands shall defend,
indemnify and hold harmless each member of the Ralston Group and their
respective Affiliates, Subsidiaries, directors, officers and employees against
any and all Liabilities whatsoever incurred or suffered by any of them as a
result of any Agribusiness Obligation.
ARTICLE XI
NEGOTIATION
If any question shall arise in regard to (a) the interpretation of any
provision of this Agreement or, except to the extent provided otherwise
therein, any Ancillary Agreement, or (b) the rights or obligations of either
Group hereunder or thereunder, each Group shall designate a senior executive
within its organization who shall, within thirty days after such question
arises, meet with the designated executive of the other Group to negotiate and
attempt to resolve such question in good faith. Such senior executives may,
if they so desire, consult outside advisors for assistance in arriving at such
a resolution. In the event that a resolution is not achieved within sixty
days following such initial meeting, then the parties may seek other legal
means of resolving such question, including but not limited to binding or
non-binding arbitration.
ARTICLE XII
MISCELLANEOUS
12.01 Conditions to the Distribution.
---------------------------------
(a) The obligation of Ralston to make the Distribution is subject to
the satisfaction of each of the following conditions:
(i) The transactions contemplated by Article II shall have been
consummated in all material respects;
(ii) Ralston shall have received rulings from the IRS, in form and
substance satisfactory to Ralston's tax counsel and independent auditors, that
the contributions, transfers, assumptions, Merger and Distribution described
in Articles II and III of this Agreement will not be subject to federal income
taxation at the corporate or shareholder level;
(iii) The Agribrands Stock and associated Rights shall have been
approved for listing on the NYSE, subject to official notice of issuance;
(iv) The Form 10 shall have been filed with the SEC and shall have
become effective, and no stop order with respect thereto shall be in effect;
(v) All authorizations, consents, approvals and clearances of all
federal, state, local and foreign governmental agencies required to permit the
valid consummation by the parties hereto of the transactions contemplated by
this Agreement shall have been obtained; and no such authorization, consent,
approval or clearance shall contain any conditions which would have a material
adverse effect on (A) the Ralston Business or the Agribusiness, (B) the
Assets, results of operations or financial condition of the Ralston Group or
the Agribusiness Group, in each case taken as a whole, or (C) the ability of
Ralston or Agribrands to perform its obligations under this Agreement; and all
statutory requirements for such valid consummation shall have been fulfilled;
(vi) Ralston shall have provided the NYSE with the prior written
notice of the Record Date required by Rule 10b-17 of the Exchange Act and the
rules and regulations of the NYSE;
(vii) No preliminary or permanent injunction or other order, decree
or ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, shall be in effect preventing the payment of the Distribution;
(viii) The Distribution shall be payable in accordance with
applicable law;
(ix) All necessary consents, waivers or amendments to each bank
credit agreement, debt security or other financing facility to which any
member of the Ralston Group or the Agribusiness Group is a party or by which
any such member is bound shall have been obtained, or each such agreement,
security or facility shall have been refinanced, in each case on terms
satisfactory to Ralston and Agribrands and to the extent necessary to permit
the Distribution to be consummated without any material breach of the terms of
such agreement, security or facility; and
(x) One or more members of the Agribusiness Group shall have been
substituted, as of the Distribution Date in respect of all Ralston Group debt
obligations assumed by Agribrands or another member of the Agribusiness Group
pursuant to this Agreement.
(b) Any determination made by the Ralston Board in good faith
concerning the satisfaction or waiver of any or all of the conditions set
forth in Section 12.01(a) shall be conclusive.
12.02 Survival of Agreements. All covenants and agreements of the
----------------------
parties hereto contained in this Agreement shall survive the Distribution
Date.
12.03 Entire Agreement. This Agreement, the Exhibits and Schedules
----------------
hereto and the Ancillary Agreements shall constitute the entire agreement
between the parties hereto with respect to the subject matter hereof
superseding all previous negotiations, commitments and writings with respect
to such subject matter. To the extent that the provisions of this Agreement
are inconsistent with the provisions of any Ancillary Agreement, the
provisions of such Ancillary Agreement shall prevail.
12.04 Expenses. Except as otherwise provided in this Agreement and
--------
the other agreements referred to herein, each party shall pay all of its costs
and expenses (including attorneys' and accountants' fees, legal costs and
expenses) incurred in connection with this Agreement and the consummation of
the transactions contemplated hereby.
12.05 GOVERNING LAW; JURISDICTION AND VENUE. THIS AGREEMENT IS MADE
-------------------------------------
AND ENTERED INTO IN, AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF, THE STATE OF MISSOURI, UNITED STATES OF AMERICA,
WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES, AS TO ALL MATTERS,
INCLUDING MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES
UNDER THIS AGREEMENT. ALL MATTERS RELATING TO THIS AGREEMENT SHALL, SUBJECT
TO THE PROVISIONS OF ARTICLE XI OF THIS AGREEMENT, BE ADJUDICATED EXCLUSIVELY
IN THE COURTS OF THE STATE OF MISSOURI LOCATED IN ST. LOUIS, MISSOURI, OR
WITHIN THE UNITED STES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI;
AND EACH PARTY HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF SUCH
COURTS FOR ALL SUCH MATTERS.
12.06 Notices. All notices, requests, claims, demands and other
-------
communications hereunder (collectively, "Notices") shall be in writing and
shall be given (and shall be deemed to have been duly given upon receipt) by
delivery in person, by cable, telegram, telex, facsimile or other standard
form of telecommunications, or by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to a member of the Ralston Group:
Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Attention: General Counsel
If to a member of the Agribusiness Group:
Agribrands International, Inc.
9811 South Forty Drive
St. Louis, Missouri 63124
Attention: General Counsel
or to such other address as either Group may have furnished to the other Group
by a notice in writing in accordance with this Section 12.06.
12.07 Amendment and Modification; Non-Waiver. This Agreement may be
--------------------------------------
amended, modified or supplemented, or rights, powers or options hereunder
waived or impaired, only by a written agreement signed by a corporate officer
Ralston and Agribrands and attested by their respective corporate secretaries.
Neither party shall be deemed to have waived or impaired any right, power or
option created or reserved by this Agreement (including without limitation,
each party's right to demand compliance with every term herein, or to declare
any breach a default and exercise its rights in accordance with the terms
hereof) by virtue of: (i) any custom or practice of the parties at variance
with the terms hereof; (ii) any failure, refusal or neglect to exercise any
right hereunder, or to insist upon compliance with any term; (iii) any waiver,
forbearance, delay, failure or omission to exercise any right or option,
whether of the same, similar or different natures, under this Agreement or in
any other circumstances; or (iv) the acceptance by either party of any payment
or other consideration from the other following any breach of this Agreement.
The rights and remedies set forth in this Agreement are in addition to any
other rights or remedies which may be granted by law.
12.08 Successors and Assigns; No Third-Party Beneficiaries. This
- ----- --------------------------------------------------------
Agreement and all of the provisions hereof shall be binding upon and inure to
- -----
the benefit of each Group and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests and
obligations hereunder shall be assigned by either Group without the prior
written consent of the other Group (which consent shall not be unreasonably
withheld). Except for the provisions of Sections 4.02 and 4.03 relating to
Indemnities, which are also for the benefit of the Indemnitees, this Agreement
is solely for the benefit of each Group and is not intended to confer
upon any other Person any rights or remedies hereunder.
12.09 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Interpretation.
--------------
(a) The Article and Section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties hereto and shall not in any way affect the meaning or interpretation
of this Agreement.
(b) The parties hereto intend that, for federal income tax purposes,
the contributions, transfers, assumptions, Distribution and Merger
contemplated hereby shall qualify for non-recognition treatment under Sections
332, 336, 337, 355, 357(a), 361, 368(a)(1)(D) and 1032 of the Code.
12.11 Legal Enforceability. Any provision of this Agreement or any
--------------------
of the Ancillary Agreements which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. Each party acknowledges that money damages would be
an inadequate remedy for any breach of the provisions of this Agreement or any
of the Ancillary Agreements and agrees that the obligations of the parties
hereunder and thereunder shall be specifically enforceable.
12.12 References; Construction. References to any "Article",
-------------------------
"Exhibit", "Schedule" or "Section", without more, are to Articles, Exhibits,
Schedules and Sections to or of this Agreement. Unless otherwise expressly
stated, clauses beginning with the term "including" set forth examples only
and in no way limit the generality of the matters thus exemplified.
12.13 Termination. Notwithstanding any provision hereof, this
-----------
Agreement may be terminated and the Distribution abandoned at any time prior
to the Distribution Date by and in the sole discretion of the Ralston Board
without the approval of any other party hereto or of Ralston's shareholders.
In the event of such termination, no party hereto shall have any Liability to
any Person by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AGRIBRANDS INTERNATIONAL, INC. RALSTON PURINA COMPANY
By: By:
RALSTON PURINA INTERNATIONAL
HOLDING COMPANY, INC.
By:
c:0319reo.doc
49
TRADEMARK AGREEMENT
-------------------
THIS TRADEMARK AGREEMENT dated as of the _____ day of ___________, 1998 is by
and between RALSTON PURINA COMPANY, a corporation organized under the laws of
the state of Missouri, having its principal office at Checkerboard Square, St.
Louis, Missouri 63164 (hereinafter "RPCo.") and AGRIBRANDS INTERNATIONAL,
INC., a corporation organized under the laws of the state of Missouri having
its principal office at 9811 South Forty Drive, St. Louis, Missouri 63124
(hereinafter "Agribrands").
WITNESSETH:
-----------
WHEREAS, the parties have entered into an Agreement And Plan Of Reorganization
of even date herewith; and
WHEREAS, pursuant to said Agreement And Plan Of Reorganization, the parties
have agreed to transfer certain trademarks and other intellectual-property
assets to Agribrands or one or more of its subsidiaries and to license other
such assets to Agribrands, and/or one or more of such subsidiaries;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
for other good and valuable consideration, the parties agree as follows:
I. Definitions
-----------
(a.) Affiliates
----------
Hereunder, an "Affiliate" of, or person "Affiliated" with, a specified
person, is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
the person specified.
(b.) Agri Business
--------------
Hereunder, "Agri Business" shall mean a business or portion of a business
devoted directly and specifically to the care and nutrition of horses
(whether or not agricultural), laboratory or zoo animals (but not including
pet products sold to such institutions) and agricultural animals (whether
terrestrial, aquatic or aviary), including by way of illustration, but not
limitation, commercial livestock; commercial poultry; fish, reptiles or
shellfish raised in commercial aquaculture facilities; rabbits raised for
commercial purposes; animals raised for fur; wild or game birds; and services
for the care and feeding of such animals.
(c.) Closing
-------
Hereunder, "Closing" shall have the same meaning as Distribution Date in
the Agreement and Plan of Reorganization.
(c-1) Control
-------
Hereunder, "Control" shall mean the ability in fact to effect or prevent
-------------------------------------------------------------------------
the action of a legal person, whether such ability may be exercised by (I) the
- ------------------------------------------------------------------------------
direct or indirect ownership of voting securities; (ii) the direct or indirect
- ------------------------------------------------------------------------------
ownership of an interest in an unincorporated legal person; (iii) contract or
- ------------------------------------------------------------------------------
other arrangement; or (iv) otherwise.
- -----------------------------------------
(c-2) Group
-----
Hereunder, "Group" shall mean Oldco or Newco.
(d.) Newco
-----
Hereunder, "Newco" shall mean Agribrands and any and all subsidiaries or
controlled affiliates of Agribrands . "Newco" shall not, however, include
Ralston Purina Company (hereinafter RPCo.) and any of its affiliates whose
shares will be owned, whether directly or indirectly, by RPCo. following
Closing.
(e.) Newco Territory
----------------
Hereunder, "Newco Territory" shall mean all jurisdictions outside The
United States of America, its territories, possessions and facilities of its
armed forces. "Newco Territory" shall, however, include Puerto Rico.
(f.) Oldco
-----
Hereunder, "Oldco" shall mean RPCo. and any and all of its affiliates
whose shares it will directly or indirectly own following Closing.
(g.) Trademarks
----------
Hereunder, "Trademark" shall include trademarks, service marks, trade dress,
and copyrights; however, "trademark" shall mean only a word, symbol or device
registrable as a trademark or service mark.
(h.) Trade Names
------------
Hereunder, "trade name" shall mean corporate name and/or other business
name including, but not limited to, names of corporations, partnerships and
joint ventures.
(i.) Oldco Territory
----------------
Hereunder, "Oldco Territory" shall mean any and all jurisdictions and
geographical areas outside the Newco Territory.
2. Trademarks
----------
(a.) Assignments
-----------
(i.) At Closing, or at such date or dates thereafter as Newco may elect,
Oldco will assign to Newco, all of Oldco's rights in the Newco Territory in
Trademarks which are exclusively associated with RPCo.'s and its Affiliates'
Agri Business. Registrations and applications to register trademarks to be so
assigned are listed on Schedule 2(a) (I). Oldco will also assign to Newco its
rights in certain other trademarks which are also listed on Schedule 2 (a)
(i).
(ii.) Except for marks listed on Schedule 2(a) (i),
at Closing or at such other date or dates as Oldco may elect, Newco will
assign to Oldco all of Newco's rights in Trademarks which are exclusively
associated with businesses other than Agri Businesses. Registrations and
applications to register trademarks to be so assigned are listed in Schedule
2(a)(ii).
(iii.) Anything in this Trademark Agreement to the contrary
notwithstanding, Oldco will not assign to Newco any Trademark consisting of or
containing the words PURINA, RALSTON, CHOW, CHECKERBOARD, DAMIER or other word
meaning "Checkerboard", the 9-Square or other Checkerboard designs, or any
Trademark consisting of or containing any Trademark now owned by any non-Agri
Business subsidiary or affiliate of RPCo or any Trademarks confusingly similar
to any of the Trademarks enumerated in this Subparagraph 2 (a) (iii). To the
extent any such Trademark is currently owned by Newco, it will be assigned to
Oldco or cancelled on or before Closing.
(iv.) All assignments contemplated by this Trademark Agreement will be on
a quitclaim basis. The assignee will assume all limitations, undertakings and
liabilities related to such assigned Trademarks, including, but not limited
to, limitations in contracts relating to such Trademarks entered into by the
assignor and binding upon its successors and/or assigns.
(v.) With respect to Trademarks to be assigned from RPCo. to Agribrands
hereunder, RPCo. will deliver to Agribrands at Closing, a beneficial,
multi-country assignment of such Trademarks. RPCo. shall promptly execute
and return to Agribrands one or more country-specific assignments of such
Trademarks prepared by Agribrands and delivered to RPCo. for such purpose.
(vi.) With respect to Trademarks to be assigned from an Affiliate of
Agribrands to RPCo. or to an Affiliate of RPCo., or from an Affiliate of RPCo.
to Agribrands or to an Affiliate of Agribrands pursuant to this Trademark
Agreement; the Assignor of any such Trademarks shall promptly execute and
return to the assignee one or more country-specific assignments of such
Trademarks, prepared by the assignee and delivered to the assignor for such
purpose.
(vii.) Trademarks which are obligated to be assigned hereunder, but which
are not assigned at Closing, will be maintained by their putative assignor for
the benefit of the person to whom they are obligated to be assigned as such
person shall direct; however, the putative assignee shall reimburse the
putative assignor for all out-of-pocket expenses incurred for such
maintenance.
(viii.) If for any reason a Trademark otherwise required to be assigned to
Newco in the Agri-Business field cannot be assigned without also assigning
rights used in or associated with Oldco-related businesses, such Trademark
shall not be assigned; however, to the extent feasible, Oldco shall add such
Trademarks to the License Agreement referred to in Subparagraph 2(b)
hereinbelow.
(b.) License Agreement
------------------
(i.) At Closing, the parties will execute the Trademark License Agreement
in Schedule 2(b) (i) attached hereto and incorporated by reference herein.
(ii) The parties agree to enter into or to cause to be entered into such
country-specific licenses or sublicenses, consistent with the Trademark
License Agreement, as may be reasonably required to record Newco's or its
sublicensees status as licensee or sublicensee.
(c.) Cost of Recordation
---------------------
Except as provided in Subparagraph 2(a) (vii) hereinabove, Oldco will pay
the first $200,000 of expenses incurred to prepare and record assignments and
licenses contemplated by this Trademark Agreement. All expenses incurred for
such purpose beyond the first $200,000 will be incurred by Newco. Such
expenses shall include, but not be limited to, taxes, attorneys' or agents'
fees, governmental filing fees and costs of notarizing and legalizing
documents.
3. RALSTON and PURINA Trademarks
--------------------------------
(a.) Anything in this Trademark Agreement to the contrary notwithstanding,
and without limitation as to duration or territory, Newco agrees not to use or
register the word RALSTON or word or phrase confusingly similar thereto as or
in a trademark or trade name, in connection with any product, service or
activity.
(b.) Anything in this Trademark Agreement to the contrary notwithstanding,
Newco agrees not to use the word PURINA or any Trademark licensed under the
License Agreement or word or phrase confusingly similar thereto, as or in the
trade name of any publicly traded company without limitation as to duration or
territory.
4. Third-Party Agreements
-----------------------
To the extent assignable without third-party consent and, if not, to the
extent such consents are obtained; at Closing, license agreements and other
contracts between RPCo. and unaffiliated third parties to the extent related
to the rights in Trademarks to be assigned to Newco hereunder will be assigned
from RPCo. to Newco. Newco agrees to assume RPCo's obligations under such
agreements. RPCo. will not, however, assign or cause to be assigned to any
Newco entity, any license or other contract to which an Oldco Affiliate of
RPCo. is a party or has an interest.
5. Newco Phase-Out of Retained Marks
-------------------------------------
Newco agrees to remove all Oldco Trademarks not assigned or licensed to Newco
from Newco's labels, packaging, advertising, signs and other materials within
six (6) months following Closing. Oldco agrees to remove all trademarks
assigned to Newco, and to the extent exclusively licensed to Newco, from
Oldco's labels, packaging, advertising, signs and other materials within the
same six-(6-) month period.
6. Heritage
--------
Oldco , and Newco subject to the rights of Purina Mills, Inc. and any of its
successors and assigns, as interpreted by Oldco, will each be allowed to
refer to its pre-spin-off heritage in good faith in truthful articles,
histories and the like to the extent such use does not express or imply a
continuing relationship between Oldco and Newco.
7. Protein Products
-----------------
For purposes of this Agreement, none of the business of Protein Technologies
International Holdings, Inc. and its subsidiaries as of December 1, 1997
shall be considered an Agri Business.
8. Good Faith
-----------
The parties agree not to do indirectly, through subsidiaries, Affiliates or
otherwise, what they could not do directly under this Trademark Agreement.
9. Scope and Modification
------------------------
This Trademark Agreement, including its schedules, sets forth the entire
agreement between the parties and supersedes all prior agreements and
understandings between the parties relating to the subject matter hereof.
None of the terms of this Trademark Agreement may be waived or modified except
as expressly agreed to, in writing, by both parties.
10. "Country Roads" and French Equivalent Trademarks
----------------------------------------------------
Oldco agrees to file papers to cancel its Canadian registrations consisting of
or containing "Country Roads" or "Tradition Ralston" within fifteen (15)
working days following a request from Newco to do so.
11. Purina Mills Limitation
-------------------------
Anything in this Agreement or any of its schedules to the contrary not -
withstanding, Newco shall enjoy no rights inconsistent with those licensed
to Purina Mills, Inc. in its agreement with RPCo. dated October 1, 1986.
12. Successors and Assigns
------------------------
This Trademark Agreement shall be binding upon and inure to the benefit of the
parties and each of their respective successors and assigns. Nothing in this
Paragraph 12 shall, however, affect transferability under the Trademark
License Agreement referred to in Subparagraph 2 (b) (i) which shall be
governed by the terms of such agreement.
13. Interpretation
--------------
The section headings contained in this Trademark Agreement are solely for the
purpose of reference, are not part of the agreement of the parties hereto, and
shall not in any way affect the meaning or interpretation of this Trademark
Agreement.
14. Counterparts
------------
This Trademark Agreement may be executed in two or more counterparts, each of
which may be deemed an original, but all of which together shall constitute
one and the same instrument.
15. Governing Law
--------------
This Agreement is made and entered into, and shall be governed by and
construed and interpreted in accordance with the laws of, the State of
Missouri, United States of America, without regard to its conflicts of laws
principles, as to all matters, including those relating to the validity,
construction, performance, effect and remedies under this Trademark Agreement.
All matters relating to this Agreement shall, subject to the provisions of
Paragraph 17 hereinbelow, be adjudicated exclusively in the courts of the
State of Missouri located in St. Louis, Missouri, or within the United States
District Court for the Eastern District of Missouri; and each party hereby
consents to the exclusive jurisdiction and venue of such courts for all such
matters.
16. Amendment and Modification; Non-Waiver
-----------------------------------------
This Trademark Agreement may be amended, modified or supplemented, or rights,
powers or options hereunder waived or impaired, only by a written agreement
signed by a corporate officer of RPCo. and Agribrands and attested by their
respective corporate secretaries. Neither party shall be deemed to have
waived or impaired any right, power or option created or reserved by this
Trademark Agreement (including without limitation, each party's right to
demand compliance with every term herein, or to declare any breach a default
and exercise its rights in accordance with the terms hereof) by virtue of:
(I) any custom or practice of the parties at variance with the terms hereof;
(ii) any failure, refusal or neglect to exercise any right hereunder, or to
insist upon compliance with any term; (iii) any waiver, forbearance, delay,
failure or omission to exercise any right or option, whether of the same,
similar or different natures, under this Trademark Agreement or in any other
circumstances; or (iv) the acceptance by either party of any payment or other
consideration from the other following any breach of this Trademark Agreement.
The rights and remedies set forth in this Trademark Agreement are in addition
to any other rights or remedies which may be granted by law.
17. Negotiation
-----------
If any question shall arise in regard to (a) the interpretation of any
provision of this Trademark Agreement or (b) the rights or obligations of
either Group hereunder or thereunder, each Group shall designate a senior
executive within its organization who shall, within thirty (30) days after
such question arises, meet with the designated executive of the other Group to
negotiate and attempt to resolve such question in good faith. Such senior
executives may, if they so desire, consult outside advisors for assistance in
arriving at such a resolution. In the event that a resolution is not achieved
within sixty (60) days following such initial meeting, then the parties may
seek other legal means of resolving such question, including but not limited
to binding or non-binding arbitration.
18. Additional Documents
---------------------
The parties agree to execute or cause to be executed such additional documents
as may be reasonably required to give effect to their undertakings in this
Trademark Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Trademark Agreement
as of the date first above written.
RALSTON PURINA COMPANY AGRIBRANDS INTERNATIONAL, INC.
By: By: ______
------
Name: Name: ______
------
Title: Title: ______
------
Date:______________________ Date:___________________________
----------------------- ----------------------------
<PAGE>
TRADEMARK LICENSE AGREEMENT
---------------------------
This TRADEMARK LICENSE AGREEMENT is effective as of this _____ day of
____________, 1998, by and between RALSTON PURINA COMPANY, a Missouri
corporation having an office at Checkerboard Square, St. Louis, Missouri
63164, U.S.A. (hereinafter referred to as "LICENSOR"), and, AGRIBRANDS
INTERNATIONAL, INC., a Missouri corporation having an office at 9811 South
Forty Drive, St. Louis, Missouri 63124, U.S.A. (hereinafter referred to as
"LICENSEE").
WHEREAS, LICENSOR is record owner of many registrations and applications
to register various trademarks consisting of or containing the words "PURINA,"
"CHOW," "Checkerboard," Checkerboard designs, and variations on such marks,
including, but not limited to, the registrations shown on Schedule A, some or
all of which are used in connection with Licensed Products; and
WHEREAS, LICENSEE desires to use the trademarks listed in Schedule A in
connection with the manufacture, distribution, sale and advertising of
Licensed Products as hereinafter defined in the corresponding countries and
jurisdictions as listed in said Schedule A; and
WHEREAS, LICENSEE also desires to use the trademarks shown on Schedule A
in connection with Licensed Products in new jurisdictions into which LICENSEE
may expand its business beyond the Territory as hereinafter defined; and
WHEREAS, LICENSOR is willing to grant LICENSEE a license to use the
aforementioned trademarks on Licensed Products under the terms and conditions
of this Trademark License Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereafter set
forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS: The following terms shall have the following meanings:
-----------
(a) "Affiliates" shall mean a person that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with the person specified.
(a-1) "Agricultural" shall mean for a purpose primarily connected to (i)
the raising of livestock or poultry for the production of meat, milk, eggs,
fur or skin; or as beasts of burden; (ii) the cultivation of soil; or (iii)
the harvesting of crops.
(b) "Control" shall mean the ability in fact to effect or prevent the
action of a legal person, whether such ability may be exercised by (i) the
direct or indirect ownership of voting securities; (ii) the direct or indirect
ownership of an interest in an unincorporated legal person; (iii) contract or
other arrangement; or (iv) otherwise.
(c) "Effective Date" shall mean the date in line 2 of this Trademark
License Agreement.
(d) "Licensed Marks" shall mean those trademarks or service marks shown in
Schedule A together with such trademarks as may be added from time to time as
provided for in this Trademark License Agreement or as agreed to in writing
between LICENSOR and LICENSEE and to which the terms and conditions of this
Trademark License Agreement shall thereafter apply. Any one of the Licensed
Marks shall be referred to in this Trademark License Agreement as a "Licensed
Mark."
(e) "Licensed Products" shall, except as limited elsewhere in this
Agreement, mean all products formulated to provide nourishment to or care of
horses (whether or not agricultural), laboratory or zoo animals (but not
including Pet Products sold to such institutions) and agricultural animals
(whether terrestrial, aquatic or aviary), including by way of illustration,
but not limitation, commercial livestock; commercial poultry; fish, reptiles
or shellfish raised in commercial aquaculture facilities; rabbits raised for
commercial purposes; animals raised for fur; wild or game birds; and services
for the care and feeding of such animals. Except as limited elsewhere in this
Trademark License Agreement, Licensed Products also include accessories,
health products and services for the care and feeding of horses, zoo animals,
laboratory animals and agricultural animals and by way of illustration, but
not limitation, the following equipment, products and services for use for
agricultural purposes:
(i) products and services for breeding, feeding, health care, shelter,
control and transportation of agricultural animals;
(ii) products and services for extraction, collection, processing,
packaging, storage of agricultural animal products and agricultural animal
wastes;
(iii) products and services for genetic research and development,
hybridization and seed production, soil analysis, planting, propagation,
cultivating, harvesting, treatment and storage of agricultural products;
(iv) agricultural genetic and chromosomal material and other products of
biotechnology, biology and other sciences, plant tissue cultures, pure line
seeds, planting seeds;
(v) agricultural pharmaceuticals, antibiotics, wormers, fertilizers,
pesticides, herbicides, insecticides, rodenticides, fungicides;
(vi) agricultural feeders, waterers, agricultural animal semen, embryos,
live agricultural animals, larvae, non-pet veterinary instruments, cleaners,
cultivation equipment, aquaculture, hydroponic and greenhouse equipment,
irrigators, heaters, harvesters, fruit pickers, driers, trailers, silos,
marking devices, bedding, tanks, paints, pens, fencing, groomers, cages,
saddles, tack, milk handling equipment, transporters, manure collecting and
processing equipment;
(vii) products and services related to the provision of methods, systems
and techniques for the development, production, application and utilization of
the products described above, such as farm and agricultural management
services, farm and agricultural computer programs and software, farm and
agricultural financial services, soil analysis, non-pet related veterinary
services; sale, leasing and brokerage services for agricultural land and
equipment; distributing, wholesaling and retailing Licensed Products;
(viii) publications directly related to agriculture or agricultural
animals;
(ix) agricultural animal end-use products (e.g., hams, cheese, eggs) other
than products for pets.;
(x) Licensed Products are not limited to products in existence at the
date hereof but will include products not yet invented or commercialized
which fall within the above definition; however, except for products and
services for horses, a product or service shall not be considered a
Licensed Product if it is not primarily related to agriculture or for
agricultural animals, laboratory or zoo animals. Licensed Products shall
not include any "Pet Products" or any other products or services not
included in this definition of Licensed Products. Licensed Products shall
also exclude feed rations for the purpose of fattening dogs for human
consumption. Any one of the Licensed Products shall be referred to in
this Trademark License Agreement as a "Licensed Product."
(f) "Other Products" shall mean products other than Licensed
Products upon which LICENSEE may use the Licensed Marks pursuant to this
Trademark License Agreement. Any one of the Other Products shall be referred
to in this Trademark License Agreement as an "Other Product."
(g) "Person" shall mean a juristic person as well as a natural person.
The term "juristic person" includes a firm, corporation, union, association,
joint venture, partnership or other organization capable of being sued.
(h) "Pet Products" shall mean products for and services related to the
nourishment or care of pets other than horses, including by way of
illustration, but not limitation, dogs, cats and other small pet animals such
as birds, reptiles, guinea pigs, white mice, and ornamental fish. Pet
Products include, but are not limited to, pet and pet-related food,
nutritional products, accessories, care and/or health products and services
for the care and feeding of pets. Pet accessories, pet-care and/or pet health
products include, but are not limited to, pet and pet-related litter,
rawhides, bedding, vitamins/minerals, flea and tick-control products, shampoos
and grooming accessories, bird food (but not wild-bird or game-bird food),
leashes, collars, toys and other accessories (e.g. aquarium accessories). Pet
Products also include pet and pet-related products for purchase or use by
breeders, small-animal veterinarians, police, military or guard-dog forces and
zoos. Pet Products also include any food for dogs or cats other than food
formulated specifically for laboratory dogs or laboratory cats. Any one of
the Pet Products shall be referred to in this Trademark License Agreement as a
"Pet Product."
(i) "Principal Competitor" shall mean a person which has, or has an
affiliate which has, ten percent (10%) or more of dollar sales volume or
dollar market share as measured by A. C. Nielsen, Euromonitor, or other
generally recognized data research company (or, in the event such data is not
available, then as reasonably determined by LICENSOR) in any country in any of
the following product categories: dog food, cat food, pet litter, pet
snacks, or any other product manufactured or sold by LICENSOR or one or more
of LICENSOR's Affiliates. Notwithstanding the foregoing, "Principal
Competitors" also shall include, but not be limited to, Nestle, Mars, Heinz,
Iams, Colgate-Palmolive and/or Hill's Pet Nutrition, Doanes, Nutro, Dalgety,
Cargill, Royal Canin, Greens, and any of their Affiliates.
(j) Except as limited by Subparagraph 2 (a) hereinbelow, the "Territory"
with respect to a given mark or marks shall be the jurisdiction indicated with
respect to such mark or marks on Schedule A. The Territory may be expanded to
include additional jurisdictions pursuant to Subparagraph 2(h) hereinbelow.
In no event shall the "Territory" include the United States of America, its
territories, possessions (other than Puerto Rico) and facilities of its armed
forces. Despite the foregoing, the "Territory" shall include Puerto Rico as a
jurisdiction which may be added to this Agreement pursuant to Paragraph 2(h)
hereinbelow.
(k) "Third-Party Licenses" shall mean licenses with persons which are not
LICENSOR's or LICENSEE's Affiliates.
(l) "Trade Name" shall mean corporate name and/or other business name
including, but not limited to, names of partnerships and joint ventures.
(m) "Licensed Trade Name" is a Trade Name consisting of or containing one
or more Licensed Marks.
(n) "Trademark" shall include trademarks, service marks, trade dress and
copyrights; however, "trademark" shall mean only a word, symbol or device
registrable as a trademark or service mark.
2. GRANT OF RIGHTS
-----------------
Except to the extent previously licensed to Purina Mills, Inc and except
as provided elsewhere in this Trademark License Agreement:
(a) LICENSOR hereby grants to LICENSEE the exclusive license to use in the
- --- ----------------------------------------------------------------------
Territory the Licensed Marks on or in connection with the Licensed Products
- ------------------------------------------------------------------------------
subject to the terms and conditions of this Agreement. Except as provided for
- ------------------------------------------------------------------------------
in Subparagraph 2(h), hereinbelow, the license granted hereunder shall be
- ------------------------------------------------------------------------------
limited to products manufactured or services rendered by LICENSEE or an
- ------------------------------------------------------------------------------
Affiliate of LICENSEE on the Effective Date and shall be further limited to
- ------------------------------------------------------------------------------
the jurisdictions in which such products were then sold or services then
- ------------------------------------------------------------------------------
rendered. LICENSOR shall not use nor permit any of LICENSOR's Affiliates to
- ------------------------------------------------------------------------------
use in the Territory any Licensed Mark or any mark confusingly similar thereto
- ------------------------------------------------------------------------------
on or in connection with any Licensed Product nor shall, except as
- -----------------------------------------------------------------------------
specifically provided for in agreements listed in Schedule B, LICENSOR license
- ------------------------------------------------------------------------------
any other Person to do so anywhere in the world. Such prohibition shall
- ------------------------------------------------------------------------------
extend to the use of the term "Purina" and other Licensed Marks as all or part
- ------------------------------------------------------------------------------
of the Trade Name of any business engaged in the manufacture, distribution or
- ------------------------------------------------------------------------------
sale of Licensed Products. LICENSEE agrees, however, without limitation as to
- ------------------------------------------------------------------------------
products, territory or duration, not to object to the inclusion of "Purina" in
- ------------------------------------------------------------------------------
LICENSOR's Trade Name in any good-faith reference to any business operated as
- ------------------------------------------------------------------------------
an Affiliate whose name does not include "Purina." Such undertaking also
- ------------------------------------------------------------------------------
extends to Affiliates LICENSOR may hereafter establish or acquire. LICENSOR
- ------------------------------------------------------------------------------
and LICENSEE shall each have the non-exclusive right to use the Licensed Marks
- ------------------------------------------------------------------------------
for publications such as educational, training, advertising and promotional
- ------------------------------------------------------------------------------
material, stock certificates and annual reports relating to the respective
- ------------------------------------------------------------------------------
businesses they are permitted to conduct under Licensed Marks. Except as
- ------------------------------------------------------------------------------
provided in Subparagraph 2 (b) hereinbelow, if LICENSOR or Affiliate of
- ------------------------------------------------------------------------------
LICENSOR manufactures or sells any Licensed Product in the Territory, it shall
- ------------------------------------------------------------------------------
conduct its business with respect to such Licensed Product under a Trade Name
- ------------------------------------------------------------------------------
which does not include the term "Purina" or any other Licensed Mark or any
- ------------------------------------------------------------------------------
other Trade Name or designation confusingly similar to "Purina" or other
- ------------------------------------------------------------------------------
Licensed Mark. LICENSOR shall, however, have the right to refer to its
- ------------------------------------------------------------------------------
ownership of such business in its annual reports and in other contexts in
- ------------------------------------------------------------------------------
which it is appropriate to impart information about such ownership. The
- ------------------------------------------------------------------------------
exclusivity of the license granted by this Trademark License Agreement shall
- ------------------------------------------------------------------------------
not, however, preclude LICENSOR's use (either by itself or through Affiliates
- ------------------------------------------------------------------------------
or other licensees) of any of the Licensed Marks in the Territory or elsewhere
- ------------------------------------------------------------------------------
with respect to products and/or services other than the Licensed Products.
- ------------------------------------------------------------------------------
Notwithstanding any other provision of this Trademark License Agreement,
- ------------------------------------------------------------------------------
LICENSEE shall be permitted to use in the Territory a Licensed Trade Name in
- ------------------------------------------------------------------------------
connection with the production, distribution and sale of those dog- and
- ------------------------------------------------------------------------------
cat-food products described in Section 5.01 of the Reorganization Agreement
- ------------------------------------------------------------------------------
between the parties, dated as of April 1, 1998, in the Agricultural Channel as
- ------------------------------------------------------------------------------
described therein, which description shall apply during the entire term of
- ------------------------------------------------------------------------------
this Trademark License Agreement; provided however, that such dog- and
- ------------------------------------------------------------------------------
cat-food products (i) shall not display, accompany or otherwise be connected
- ------------------------------------------------------------------------------
with any of the Licensed Marks; (ii) shall be sold only under and in
- ------------------------------------------------------------------------------
connection with trademarks wholly owned by LICENSEE; and (iii) shall be sold
- ------------------------------------------------------------------------------
only in jurisdictions where LICENSEE or LICENSEE's affiliates or sublicensees
- ------------------------------------------------------------------------------
are required by law to include the product manufacturer's full and true
- ------------------------------------------------------------------------------
corporate name on the package, and alternatives thereto (including, but not
- ------------------------------------------------------------------------------
limited to, the use of names of an Affiliate, a fictitious name or an
- ------------------------------------------------------------------------------
abbreviation) are not permitted. LICENSEE shall not be required to form a
- ------------------------------------------------------------------------------
separate subsidiary in order to comply with the provisions of this paragraph
- ------------------------------------------------------------------------------
if to do so would be unlawful or unduly burdensome. The use of Licensed Trade
- ------------------------------------------------------------------------------
Names as permitted by this Subparagraph 2 (a) shall not go beyond their
- ------------------------------------------------------------------------------
appearance on the side panel of packaging, and shall be set forth in the
- ------------------------------------------------------------------------------
smallest typeface legally permissible. The limitations contained in this
- ------------------------------------------------------------------------------
Subparagraph 2 (a) shall not be construed to prevent LICENSEE from selling the
- ------------------------------------------------------------------------------
dog- and cat-food products described in Section 5.01 of the Reorganization
- ------------------------------------------------------------------------------
Agreement through the Agricultural Channel as defined therein, which Channel
- ------------------------------------------------------------------------------
may involve the display of Licensed Marks on (for example) buildings,
- ------------------------------------------------------------------------------
vehicles, stationery and billing documents; provided however, that LICENSEE
- ------------------------------------------------------------------------------
shall at all times endeavor in good faith to prevent any association of
- ------------------------------------------------------------------------------
Licensee's products with those of LICENSOR, or any of LICENSOR's Affiliates,
- ------------------------------------------------------------------------------
distributors, customers or other licensees.
- -----------------------------------------------
(b) Where legally feasible, and subject to the terms and conditions of
this Trademark License Agreement, LICENSEE shall have the right to use
"Purina" in its Affiliates' Trade Names in the Territory provided such Trade
Names include wording reflecting the agricultural- or aquacultural-related
nature of the business of the entity concerned, namely "Agribrands Purina" or
such other wording as LICENSOR and LICENSEE shall agree upon, and provided the
use of such wording is not likely to cause confusion with a product, service
or business of LICENSOR, or any third party because such name is similar
(apart from the common inclusion of the word "Purina") to a name or mark owned
or used by LICENSOR or any third party at the time of the adoption of the name
by LICENSEE or its Affiliates.
(c) Except as specifically provided elsewhere in this Trademark License
Agreement, LICENSEE shall not use "Purina" or any other Licensed Mark, or term
confusingly similar thereto, as a trademark for, or Trade Name associated
with, any product or service other than a Licensed Product. If LICENSEE
manufactures or sells any other product or renders any other service, it shall
conduct its business with respect to such product or service not licensed to
it hereunder under a Trade Name which does not include the word "Purina" or
any other Licensed Mark, abbreviation thereof or term otherwise confusingly
similar thereto. LICENSEE shall, however, have the right to refer to its
ownership of such business in its annual reports and other contexts in which
it is appropriate to impart information about such ownership provided such
reference is not likely to cause confusion with a product, service or business
of LICENSOR, Purina Mills, Inc. or any of its/their Affiliates, or its/their
successors or assigns.
(d) LICENSEE shall not use the term "Checkerboard Square" or any term
including that term or any term confusingly similar thereto, as its business
address or otherwise. LICENSEE shall not use the term "Ralston" or any term
confusingly similar thereto in any manner. LICENSEE shall not hold itself
out as corporately related or otherwise related to LICENSOR except as a
licensee of the Licensed Marks. LICENSOR and LICENSEE may truthfully and in
good faith describe themselves as part of the same business which has sold the
Licensed Products for many years or, in the case of LICENSEE, as the successor
to LICENSOR's business in the Licensed Products, and refer to the history of
that business and its products as its own provided it does so in a manner
which, by LICENSOR's interpretation, is not likely to cause confusion with a
product, service or business of , or otherwise conflict with the rights of,
LICENSOR, Purina Mills, Inc. or other licensee of LICENSOR or any of its/their
Affiliates, or its/their successors or assigns.
(e) In order to avoid conflicts with third parties, LICENSEE shall not
have the right to coin new marks which are, in whole or in part, derived from,
incorporate or are similar to any of the Licensed Marks or names or elements
of those marks or names without LICENSOR's prior written consent, which may be
granted or withheld at LICENSOR's sole discretion. LICENSEE shall have the
right as provided in Subparagraph 2(h) hereinbelow to extend the use of
Licensed Marks to new Licensed Products provided such extension does not
conflict with the rights of LICENSOR or any third party.
(f) LICENSOR shall promptly, to the extent it is able, (i) assign all
licenses, if any, for marks of others used on Licensed Products in the
Territory to LICENSEE; or, if such assignment is not legally feasible, but a
sublicense is, (ii) grant sublicenses to LICENSEE for such marks of others as
LICENSOR is unable to assign. Anything in this Agreement to the contrary
notwithstanding, LICENSOR makes no representation concerning LICENSEE's
continued right to use marks owned by third parties. LICENSEE acknowledges
that the continued use of such marks as are sublicensed shall be governed by
such agreements as LICENSOR may have or hereafter obtain from the owners of
such marks. Continued use of marks covered by such sublicenses shall be
governed by their terms. All such sublicenses (if any) as are material to the
LICENSEE's business and cannot be assigned are listed on Schedule C hereto.
(g) Except as otherwise specifically provided for in this Agreement,
LICENSEE hereby agrees, for itself and its Affiliates and sublicensees, to
limit its and their use of the Licensed Marks and Trade Names to the Licensed
Products and to the Territory. LICENSOR and LICENSEE agree, upon receipt of
notice from the other party, reasonably to cooperate to resolve conflicts
resulting from sales of Licensed Products violating third-party rights or
jeopardizing trademark rights of the other party, or contractual obligations
of the other party to third parties. LICENSOR and LICENSEE agree to enter
into and to record such registered-user agreements, or country-specific
licenses or sublicenses, at the expense of the requesting party, as LICENSOR
or LICENSEE may reasonably request, to comply with local law.
(h) If LICENSEE wishes to expand its business to include use of Licensed
Marks on Licensed Products beyond those Licensed Products in use by LICENSEE
or its Affiliates on the Effective Date and/or if LICENSEE expands its
business outside the Territory, LICENSOR agrees, where legally feasible , at
LICENSEE's expense, and pursuant to LICENSEE's request therefor, to add to the
license granted LICENSEE under this Trademark License Agreement such Licensed
Marks as LICENSOR may then own for Licensed Products in such jurisdictions;
and to establish, at LICENSEE's request and expense, where necessary and where
legally feasible , new rights in Licensed Marks for such expanded Licensed
Products and/or in such jurisdictions thereby expanding the definition of
"Territory." LICENSEE acknowledges that LICENSOR is under no obligation to
maintain existing registrations for LICENSEE's future use under this
Subparagraph 2(h) prior to such request. Any Licensed Marks for Licensed
Products in such jurisdiction added to the Territory pursuant to this
subparagraph shall be subject to the maintenance and renewal provisions of
Paragraph 8 of this Trademark License Agreement. In no event shall this
Subparagraph 2(h) obligate LICENSOR to expand the Territory to include the
United States of America or any of its territories or possessions (other than
Puerto Rico) or facilities of its armed forces.
(i) Notwithstanding anything to the contrary in this Trademark License
Agreement, the license granted shall not extend to products or services beyond
those comprehended by the trademark rights Licensor has secured or may in the
future secure in those jurisdictions in which LICENSEE uses or seeks to use a
Licensed Mark. LICENSEE acknowledges that in certain jurisdictions LICENSOR
may not own rights it owns in other jurisdictions; and that in certain
jurisdictions LICENSOR may have non-exclusive rights in certain marks (e.g.
CHOW) for which LICENSOR possesses exclusive rights in other jurisdictions.
LICENSEE further acknowledges that in certain jurisdictions its rights to use
the Licensed Marks and Licensed Trade Names are limited by existing
Third-Party Licenses and undertakings to third parties in existence as of the
Effective Date. Such licenses and undertakings known to LICENSOR as of the
Effective Date are reflected on Schedule B attached hereto. LICENSEE therefore
undertakes not to use marks and names otherwise licensed hereunder to the
extent such use would be inconsistent with third-party rights under licenses
or undertakings reflected on Schedule B or which may come to light in the
future but were in existence as of the Effective Date.
(j) LICENSOR and LICENSEE shall both have the right to display Licensed
Marks consistent with the terms of this Trademark License Agreement in
connection with their participation in conferences and symposia anywhere in
the Territory. Participation in conferences and symposia in the United States,
but not in Puerto Rico, shall require reasonable notice that Licensed Products
bearing the Licensed Trademarks are not available from Licensee, its
affiliates, dealers, franchises or licensees in the United States. The display
of Licensed Marks at such events is subject to the rights, as interpreted by
LICENSOR, of Purina Mills, Inc., its successors and assigns.
(k) Except to the extent LICENSEE may be separately licensed by LICENSOR
in writing to use one or more of the Licensed Marks or Licensed Trade Names
outside the Territory, LICENSEE hereby agrees, for itself and for its
Affiliates and other sublicensees, to limit its use of the Licensed Marks and
Licensed Trade Names to the Territory; not to export from the Territory
products on or in connection with which Licensed Marks are used and not to
sell, deliver or otherwise convey such products to anyone LICENSEE
believes or has reason to believe will take the same outside the
Territory.
(l) To the extent LICENSEE makes an incidental use of a Licensed Mark in
the United States, in any of its territories or possessions (other than Puerto
Rico) or at any facility of its armed forces, by, for example, but not by way
of limitation, featuring a Licensed Product displaying a Licensed Mark in
LICENSEE's annual report, and such use results in a complaint from Purina
Mills, Inc., any of its successors, assigns or other person or persons
claiming rights pursuant to the License Agreement dated October 1, 1986 among
Ralston Purina Company, Purina Mills, Inc. and BP Nutrition Limited, LICENSOR
shall be the sole judge of whether, as between LICENSOR and LICENSEE, such use
may violate LICENSOR's obligation to Purina Mills, Inc., BP Nutrition Limited
and/or any of its/their successors and assigns or other person or persons
claiming rights pursuant to such License Agreement. In the exercise of its
judgment, LICENSOR may require LICENSEE to discontinue any such use unless and
until LICENSOR satisfies itself that such use does not place LICENSOR in
violation of any of its obligations to Purina Mills, Inc., BP Nutrition
Limited, its and/or their successors and assigns.
3. PRODUCT QUALITY
----------------
(a) LICENSEE may use the Licensed Marks and Licensed Trade Names only in
connection with Licensed Products and Other Products which are of a good and
merchantable quality (the "Product Standards"); and which are in compliance
with applicable laws and governmental regulations relating to the nature and
quality of the products (the "Legal Standards"). The Product Standards and
the Legal Standards shall be collectively referred to as the "Quality
Standards." The quality and product specifications of the Licensed Products
and Other Products heretofore manufactured and sold by LICENSOR or its
Affiliate(s) in a given jurisdiction under the Licensed Marks are hereby
adopted as acceptable Product Standards for the Licensed Products and Other
Products to be sold by LICENSEE under the Licensed Marks in such jurisdiction;
however, LICENSEE may change product formulations, specifications, or methods
of making Licensed Products and Other Products and create new such products,
provided such changes and creations are subject to the Quality Standards
required by this Paragraph 3 and LICENSEE's other undertakings in this
Trademark License Agreement. LICENSOR will not object under this Paragraph 3
to LICENSEE's use of the Licensed Marks in association with Licensed Products
and Other Products equal to or exceeding the Quality Standards. If a
Licensed Product or Other Product contains ingredients or is made by methods
which are not generally accepted as appropriate for the product by independent
experts, but which are accepted as appropriate for the product by at least
three independent experts, then any doubts as to the quality of the product
arising from such disagreement among experts shall be resolved in favor of
LICENSEE and shall not cause the product to be deemed of less than good and
merchantable quality. If a Licensed Product contains ingredients, or is made
by methods, which are new or proprietary, so that independent experts have
insufficient data for evaluating them, such Licensed Product shall be deemed
to have met the Product Standards until LICENSOR can reasonably establish the
contrary by substantial objective evidence; provided that LICENSEE submits to
LICENSOR a written statement by an expert reasonably acceptable to LICENSOR
to the effect that the product is of good and merchantable quality and in
compliance with all applicable laws and governmental regulations.
(b) Upon request of LICENSOR, at least two (2) samples of each new article
of Licensed Products or Other Products shall be furnished free of charge to
LICENSOR from LICENSEE for the purpose of LICENSOR's examination and approval
hereunder sufficiently in advance of any sale or distribution thereof.
LICENSEE shall give LICENSOR notice in advance of introduction of new article
of Licensed Products sufficiently in advance of sale or distribution to afford
LICENSOR an opportunity to request samples. The reformulation of an existing
Licensed Product or Other Product shall be deemed not to be a "new article" or
"variation" for purposes of this subparagraph. Thereafter, any reduction in
the quality or change in the style of any of the Licensed Products or Other
Products shall be submitted in like fashion for approval by LICENSOR in
advance. From time to time reasonable quantities of samples of Licensed
Products and Other Products shall be submitted at LICENSOR's request without
charge to LICENSOR for its examination and approval as to the maintenance of
the approved standards of quality and style. Any variation of a Licensed
Product or Other Product will be submitted to LICENSOR for LICENSOR's
approval. The absence of any objection by LICENSOR to submitted samples
within fifteen (15) days following submission thereof shall be deemed to be
acceptance; and any objections thereto shall be subject to the provisions at
Section 4 of this Trademark License Agreement.
(c) Anything in this Trademark License Agreement to the contrary
notwithstanding, if the laws of a particular jurisdiction require a product to
be of a higher quality than that imposed by this Paragraph 3 in order to
preserve the viability of the Licensed Marks and Licensed Trade Names, then
such higher requirement shall apply hereunder in such jurisdiction.
4. QUALITY CONTROL
----------------
(a) Upon at least five (5) business days' advance written notice and
during normal business hours, LICENSOR shall have the right to inspect the
places of manufacture of Licensed Products or Other Products bearing a
Licensed Mark or Licensed Trade Name,
and the places where services are rendered under a Licensed Mark, to
determine whether the Quality Standards of Paragraph 3 of this Trademark
License Agreement are being met. At such inspections, LICENSOR's
representative shall have the right to observe the production of Licensed
Products and Other Products and the delivery of the services concerned.
LICENSOR shall not have the right to inspect a particular place of manufacture
or observe particular services more than twice per year unless a problem has
occurred at such place which reasonably requires additional visits, or to
remove more samples or more volume of a product in any given sample than is
reasonably necessary to conduct quality analyses. Such inspection visits
shall be made by appointment at a time mutually convenient for the parties.
LICENSOR shall not have the right to request samples in a manner which will
interfere with production of a Licensed Product or Other Product , such as by
requiring a production line or machine to be shut down. LICENSEE shall
reimburse LICENSOR for its incremental costs reasonably incurred by LICENSOR
in connection with the inspections carried out pursuant to this Paragraph
4(a).
(b) If LICENSOR is dissatisfied with the quality of a Licensed Product or
Other Product, LICENSOR shall not serve a notice of breach of this Trademark
License Agreement on LICENSEE until LICENSOR has sought to reconcile its view
of the quality of the Licensed Product or Other Product at issue with that of
LICENSEE by providing to LICENSEE written evidence which supports its view
that the quality of the product is deficient. If LICENSEE and LICENSOR are
unable to reconcile their views within forty-five (45) days following
LICENSOR's notification of its dissatisfaction to LICENSEE stating reasons
therefor, LICENSOR shall seek or shall have sought the opinion of an
independent expert on the product or service concerned. LICENSOR shall
provide that expert with a sample of the product or service that LICENSOR
finds unsatisfactory. LICENSOR shall cause the expert to discuss the points
of dissatisfaction fully with LICENSEE and to review any further samples of
the product or service which LICENSEE may provide from a regular production
run. LICENSOR shall serve a notice of breach only if the expert, in a written
report made after discussions with LICENSEE, concludes that the product or
service concerned has violated the requirement to maintain the quality in
Paragraph 3 of this Agreement. LICENSOR shall include a copy of that written
report with the notice of breach.
5. DISCLAIMER OF WARRANTIES BY LICENSOR
----------------------------------------
LICENSOR disclaims any warranty of validity, right to use or right exclusively
to use or register the Licensed Marks or any of them.
6. INDEMNITY BY LICENSEE
-----------------------
(a) From and after the Effective Date, LICENSEE agrees to defend,
indemnify and hold LICENSOR, its officers, agents, employees, successors
or assigns harmless against any and all claims, demands, and causes of
action including, but not limited to, those relating to product liability,
patent infringement and environmental law, and associated judgments, costs
and expenses in excess of ten thousand dollars $10,000.00 per event,
including attorney's fees, arising out of (i) LICENSEE's manufacture,
distribution, shipment, disposal, advertising, promotion or sale of
Licensed Products or (ii) any act or omission by LICENSEE, its agents or
employees, provided that LICENSEE receives prompt notice of such claim,
demand or cause of action and is permitted to deal with it in LICENSEE's
sole discretion.
(b) At all times during which LICENSEE or an Affiliate or sublicensee
of LICENSEE uses any of the Licensed Marks, LICENSEE will maintain
liability insurance, protecting both LICENSOR and LICENSEE and which
provides for at least thirty- (30-)days advance written notice of
termination, revocation or diminution of coverage, in an amount not less
than ten million dollars ($10,000,000). Such coverage shall also include
broad-form contractual coverage applicable to all indemnities given by
LICENSEE under this Trademark License Agreement. LICENSEE shall deliver to
LICENSOR evidence of such insurance within thirty (30) days following the
execution of this Trademark License Agreement. LICENSOR shall notify
LICENSEE of any claim for which it may seek indemnification from LICENSEE
promptly upon its General Counsel's becoming aware of such claim, but in
any event in sufficient time so that LICENSOR's or LICENSEE's rights are
not prejudiced by any delay in notification, and LICENSEE shall have the
right to control the defense of such claim. LICENSEE may elect to defend
against any claim without thereby waiving any objection as to LICENSEE's
obligation to defend LICENSOR therefrom. LICENSOR shall have the right to
participate in the defense of such claim through counsel of its own
selection at its own expense. If LICENSEE does not defend against a
claim for which it is obligated to indemnify LICENSOR, LICENSOR may defend
against all such claim at LICENSEE's expense, provided LICENSEE shall have
the right at all times, in its sole discretion and at LICENSEE's expense,
to retain or resume control of the conduct of the defense.
6.1 SETTLEMENTS
-----------
(a) Neither party shall settle any claim affecting the other party's right
to use any of the Licensed Marks or Licensed Trade Names in the Territory
without such other party's prior written consent, which consent shall not
be unreasonably withheld or delayed
(b) The undertakings of Paragraphs 6 and 6.1 shall survive expiration
or termination of this Agreement.
7. LICENSOR'S RIGHTS
------------------
(a) LICENSEE hereby acknowledges that LICENSOR is and will forever remain
the sole and rightful owner of the Licensed Marks and the Licensed Mark in any
Licensed Trade Names to the extent such Licensed Trade Name incorporates a
Licensed Mark; and that use of the Licensed Marks and Licensed Trade Names by
LICENSEE or any Affiliate or other sublicensee pursuant to this Trademark
License Agreement shall inure to the benefit of LICENSOR. LICENSEE agrees
that during the continuance and after a termination of this Trademark License
Agreement, LICENSEE will not claim any right in or to any of the Licensed
Marks and Licensed Trade Names other than the license to use the same as
specifically provided herein, nor will LICENSEE dispute or assist others to
dispute the ownership or validity of any of the Licensed Marks and Licensed
Trade Names. LICENSOR reserves the right to use, and license other parties to
use, the marks and names included in Schedule A to this Trademark License
Agreement anywhere in the world for all products and services other than
Licensed Products.
(b) LICENSEE agrees to make reasonable efforts to use the Licensed Marks
properly as trademarks or service marks, by, for example: (i) using , " ,"
"SM," "MD" or "MR" or other appropriate trademark registration symbols,
employing notices indicating LICENSOR's ownership of the Licensed Marks and
(ii) using Licensed Marks as adjectives followed by generic terms. The
parties recognize, however, that use of trademark registration symbols and
generic terms every time a mark is used on a particular item may be awkward
and is not necessary in order to make acceptable trademark or service-mark
usage. This Section 7(b) shall not be deemed to require LICENSEE to alter the
manner in which marks have been used immediately prior to the Effective Date.
Advertising, packaging and labeling shall be made available to LICENSOR at
LICENSOR'S request from time to time for the purposes of satisfying LICENSOR
of LICENSEE's compliance with this Trademark License Agreement.
8. REGISTRATION
------------
LICENSOR will, where legally feasible and where requested by LICENSEE, use
reasonable efforts to renew and maintain existing registrations of the
Licensed Marks and to obtain new registrations for the Licensed Marks. To that
end, LICENSOR will periodically notify LICENSEE of Licensed Marks for which
renewals, proofs of use and the like are required. If LICENSOR decides to
renew a particular registration for its own benefit, it will renew such
registration at its own cost. If LICENSOR decides it does not wish to renew
such registration of a Licensed Mark, it will so notify LICENSEE and afford
LICENSEE the opportunity to request that LICENSOR renew such registration at
LICENSEE's sole cost. LICENSEE shall then provide LICENSOR with a prompt
written request to renew or maintain such marks as it wishes to renew or
maintain along with evidence of use, specimens or other materials LICENSOR may
reasonably request to facilitate such renewal or maintenance. LICENSOR shall
not be required to renew or otherwise maintain any registration for which
LICENSOR does not receive a timely request to renew or to maintain or for
which LICENSOR does not timely receive adequate proofs of use and other
evidence which may be required under local law for renewal and/or maintenance
or such registration. In addition, LICENSEE shall pay LICENSOR an annual
trademark-administration fee of Seventy-five thousand U.S. dollars
($75,000.00) to cover LICENSOR's in-house costs of administering this
Trademark License Agreement. If LICENSEE avails itself of the benefits of
Subparagraph 2(h) hereinabove, the annual trademark-administration fee shall
be increased by five thousand dollars ($5,000) for each jurisdiction added to
the Territory. Such fees shall be increased by three percent (3%) annually.
If the consumer price index compiled by the U.S. government increases by an
amount equal to ten percent (10%) or more in a given year, then the amount of
increase in that year shall be substituted for the three percent (3%) figure
noted hereinabove.
9. TERM AND TERMINATION
----------------------
(a) This Trademark License Agreement shall commence on the Effective Date
and shall where legally feasible remain in effect perpetually; however,
LICENSOR shall have no further obligations to LICENSEE under this Trademark
License Agreement with respect to any Licensed Mark or Licensed Trade Name in
a given jurisdiction which has been or will be abandoned as determined by the
law of the applicable jurisdiction or to the extent a registration covering
the same is cancelled for any reason not caused by LICENSOR or is cancelled or
rendered cancellable for non-use by LICENSEE for Licensed Products in such
country or for which LICENSEE has not timely requested, provided supporting
evidence for and paid for renewal or maintenance. Abandonment or
cancellability for non-use shall be determined by applying the law of such
jurisdiction. If granting a perpetual license in a given jurisdiction is not
legally feasible (e.g. where a jurisdiction deems such license an
assignment), the term of license in such jurisdiction shall be the maximum
allowed under the law of such jurisdiction. The Parties will cooperate and
use all reasonable efforts and take all reasonable steps in any jurisdiction
to facilitate LICENSEE's continued use of the Licensed Marks and Licensed
Trade Names on Licensed Products in the Territory beyond what would otherwise
be the maximum term permitted in such jurisdiction.
(b) Omitted
(c) Omitted
(d) This Trademark License Agreement shall terminate for a breach thereof
effective one hundred and eighty (180) days following notice in writing from
LICENSOR to LICENSEE unless, (I) within ninety (90) days following such
notice LICENSEE has initiated and is taking reasonable measures to remedy
such breach to the reasonable satisfaction of LICENSOR and (2) such breach has
been remedied to the reasonable satisfaction of LICENSOR within one hundred
and eighty (180) days following such notice. This Trademark License Agreement
shall also be terminable upon the same notice in the event all or part of this
Trademark License Agreement is transferred in any manner other than as
provided in Paragraph 16 hereinbelow.
10. INFRINGEMENTS
-------------
(a) Upon becoming aware in the Territory of:
(i) any infringement or suspected infringement of a Licensed Mark, or of a
Licensed Trade Name which includes the word "Purina," or other Licensed Mark,
any application for the registration of a mark which LICENSEE or LICENSOR
believes should be opposed, or any registration for a mark which LICENSEE or
LICENSOR believes should be cancelled, or
(ii) any matter or circumstance which in the opinion of LICENSEE or
LICENSOR would likely adversely affect the interest of the other party, the
party believing the item in question to require action hereunder shall
forthwith notify the other thereof, and LICENSOR may, with respect to such
uses of marks on products or services other than Licensed Products then in use
by LICENSEE or its Affiliate or other sublicensee in the jurisdiction in
which such circumstance exists, assert such claim, file such action for
infringement, file such opposition or cancellation proceeding, enter into a
settlement or take such other steps for the protection of the Licensed Marks
or decline to take any action as LICENSOR considers advisable in the exercise
of its sole discretion. LICENSEE shall supply such assistance and information
as LICENSOR may reasonably require in support of such action as LICENSOR
elects to take. With respect to infringements involving a third-party use of
a mark on any Licensed Product then in use by LICENSEE in the jurisdiction in
which the infringement, matter or circumstance arises; LICENSOR and LICENSEE
shall consult with each other in a good-faith attempt to reach an agreed-upon
course of action. If LICENSOR and LICENSEE are unable to do so within ten
(10) working days following the commencement of such discussions, either party
shall be free to proceed to assert its rights at its own expense.
(b) The reasonable costs (including but not limited to fees and
disbursements paid to counsel of LICENSOR's choice) of claims, actions and
other proceedings brought by LICENSOR at LICENSEE's request shall be paid to
LICENSOR by LICENSEE . LICENSOR shall have the right, in consultation with
LICENSEE, reasonably to control the course of such litigation; however, any
settlement of such litigation shall, to the extent it may adversely impact the
rights of LICENSEE, be subject to LICENSEE's approval, which approval may not
be unreasonably withheld.
11. ROYALTY
-------
No royalty shall be payable by LICENSEE to LICENSOR in respect of any rights
granted under the terms of this Trademark License Agreement.
12. SUBLICENSING
------------
LICENSEE shall have the exclusive right where legally feasible to grant
sublicenses to Persons other than a Principal Competitor for use of the
Licensed Marks for the Licensed Products in the Territory, provided that the
sublicense shall be subject to all terms and conditions of this Trademark
License Agreement and LICENSEE shall be responsible for acts pursuant to or in
breach of this Trademark License Agreement by any sublicensee, and further
provided that LICENSEE gives LICENSOR at least thirty- (30-) days advance
written notice indicating the identity of any prospective sublicensee and the
Licensed Marks and Licensed Products to be sublicensed, accompanied by a
certification that the use of such marks with respect to such Licensed
Products will comply with all the terms and conditions of this Trademark
License Agreement. In the event any sublicense shall be determined to
impose franchising-compliance, or other obligations or costs on LICENSOR,
LICENSEE shall pay such costs and, to the extent feasible , discharge such
obligations. If LICENSOR is nevertheless required to discharge such
obligations, LICENSEE shall reimburse LICENSOR's total costs resulting from
the reasonable discharge of any such obligation and/or growing out of any such
activity.
13. CONTRACT MANUFACTURING
-----------------------
LICENSEE shall have the right where legally feasible to use third-party
manufacturers to produce Licensed Products and Other Products bearing the
Licensed Marks and Licensed Trade Names in the Territory meeting the Quality
Standards of Paragraph 3 hereinabove solely for purchase by LICENSEE, its
sublicensed Affiliates or other sublicensees for distribution to or through
its or their customers under the terms and conditions of this Trademark
License Agreement.
14. PROMOTIONAL PRODUCTS
---------------------
Subject to the items listed on Schedule B, neither party shall object to the
other party's, its Affiliates', sublicensees', dealers', franchisees' or
other customers' sale or distribution in the Territory on a non-exclusive
basis of promotional products, such as caps, T-shirts, hats and agriculturally
oriented apparel (e.g. jackets, shirts, pants, boots, belts), pens, balloons,
mugs, keychains, calendars, pocket knives and the like bearing LICENSEE's, its
sublicensed Affiliate's or sublicensee's Licensed Trade Name and/or one or
more Licensed Marks or Licensed Trade Names for the purpose of developing
goodwill and promoting the products for which such party or its Affiliates and
sublicensees are allowed to use the Licensed Marks pursuant to this Trademark
Agreement provided such items do not infringe or otherwise violate third-party
rights. Neither party shall grant a license or sublicense that would undermine
the other's rights under this Paragraph 14. The fact that the sale of products
pursuant to this Paragraph 14 may be at a profit shall not remove such
products from the scope of product contemplated by this Paragraph 14.
15. OMITTED
-------
16. TRANSFERABILITY
---------------
LICENSOR shall have the right to transfer some or all its rights and
obligations under this Trademark License Agreement, either by affirmative act
or by operation of law, by share ownership or otherwise, without the consent
of LICENSEE. Neither LICENSEE nor any of its Affiliates or sublicensees shall
have the right to transfer all or part of its or their rights or obligations
under this Trademark License Agreement, either by affirmative act or by
operation of law, by share ownership, or otherwise, except with the consent
of LICENSOR, which consent will not be unreasonably withheld. LICENSOR may
withold its consent in situations where to do so would be reasonable. Such
situations include, but are not limited to, LICENSOR's withholding consent to
LICENSEE's, any of its sublicensed Affiliates' and/or any other sublicensee's
transfer of rights and obligations under this Trademark License Agreement to
a transferee who acquires rights to use less than all of the Licensed Marks or
to a transferee of such rights for a territory covering less than a continent
(e.g. Africa, Europe, Asia) or a transfer of any rights hereunder to a
Principal Competitor of LICENSOR anywhere in the world. A transfer of the
Trademark License shall be deemed to have occurred if (a.) LICENSEE transfers
(by any means including, but not limited to, operation of law), all or part of
its interest in the Trademark License and/or if (b.) a third party should
acquire (by any means including, but not limited to, operation of law) a
voting, profits or equity interest of ten percent (10%) or more in LICENSEE.
17. NOTICES
-------
All notices hereunder given by the parties hereto shall be in writing and
shall be hand delivered or sent by U.S. Registered or Certified U.S. Mail,
postage prepaid, return-receipt requested, or delivered by a courier company,
prepaid, to the addresses indicated below. The addresses of the parties until
further written notice to the contrary are:
LICENSOR RALSTON PURINA COMPANY
Checkerboard Square
St. Louis, Missouri 63164
Attn: Trademark Counsel
LICENSEE ABRIBRANDS INTERNATIONAL, INC.
9811 South Forty Drive
St. Louis, Missouri 63124
Attn: General Counsel
18. RELATIONSHIP OF THE PARTIES
------------------------------
This Trademark License Agreement does not make either party the agent of the
other, create a partnership or joint venture between the parties or any
relationship other than that of LICENSOR and LICENSEE, nor shall this
Trademark License Agreement give either party the power to obligate or bind
the other in any manner whatsoever. The manufacture, distribution, sale,
offering for sale, pricing, trade promotion and marketing of the Licensed
Products shall be accomplished by LICENSEE at LICENSEE's sole cost and expense
or that of its Affiliates or other sublicensees.
19. CAPTIONS
--------
The captions used in connection with the paragraphs and subparagraphs of this
Trademark License Agreement are inserted only for the purpose of reference.
Such captions shall not be deemed to govern, limit, modify, or in any other
manner affect the scope, meaning or intent of the provision of this Trademark
License Agreement or any part thereof; nor shall such captions otherwise be
given any legal effect.
20. GOVERNING LAW, JURISDICTION AND VENUE
-----------------------------------------
This Trademark License Agreement is made and entered into, and shall be
governed by and construed and interpreted in accordance with the laws of, the
State of Missouri, United States of America, without regard to its conflicts
of laws principles, as to all matters, including those relating to the
validity, construction, performance, effect and remedies under this Trademark
License Agreement. All matters relating to this Trademark License Agreement
shall, subject to the provisions of Paragraph 22 of this Trademark License
Agreement, be adjudicated exclusively in the courts of the State of Missouri
located in St. Louis, Missouri, or within the United States District Court for
the Eastern District of Missouri; and each party hereby consents to the
exclusive jurisdiction and venue of such courts for all such matters.
21. SEVERABILITY
------------
If any of the provisions of this Trademark License Agreement are held by a
court or governmental authority of competent jurisdiction to be unenforceable
as written, then any such provision shall be deemed automatically amended so
that it is enforceable to the maximum extent permissible under the laws and
public policy of the applicable jurisdiction or authority. The provisions of
this Trademark License Agreement are severable and each provision shall be
interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained in this Trademark License Agreement and
partially valid or enforceable provisions shall be enforceable to the extent
they are valid or enforceable.
22. DISPUTE RESOLUTION
-------------------
If any question shall arise in regard to (a) the interpretation of any
provision of this Trademark License Agreement or (b) the rights or obligations
of either party hereunder or thereunder, each party shall designate a senior
executive within its organization who shall, within thirty (30) days after
such question arises, meet with the designated executive of the other party to
negotiate and attempt to resolve such question in good faith. Such senior
executives may, if they so desire, consult outside advisors for assistance in
arriving at such a resolution. In the event that a resolution is not achieved
within sixty (60) days following such initial meeting, then the parties may
agree to seek other legal means of resolving such question, including but not
limited to binding or non-binding arbitration. If the parties cannot so
agree, they shall be free to avail themselves of the remedies provided in
Paragraph 20 hereinabove.
23. MISCELLANEOUS
-------------
(a) This Trademark License Agreement may be amended, modified or
supplemented, or rights, powers or options hereunder waived or impaired, only
by a written agreement signed by a corporate officer of LICENSOR and LICENSEE
and attested by their respective corporate secretaries. Neither party shall
be deemed to have waived or impaired any right, power or option created or
reserved by this Trademark License Agreement (including without limitation,
each party's right to demand compliance with every term herein, or to declare
any breach a default and exercise its rights in accordance with the terms
hereof) by virtue of: (i) any custom or practice of the parties at variance
with the terms hereof; (ii) any failure, refusal or neglect to exercise any
right hereunder, or to insist upon compliance with any term; (iii) any waiver,
forbearance, delay, failure or omission to exercise any right or option,
whether of the same, similar or different natures, under this Trademark
License Agreement or in any other circumstances; or (iv) the acceptance by
either party of any payment or other consideration from the other following
any breach of this Trademark License Agreement. The rights and remedies set
forth in this Trademark License Agreement are in addition to any other rights
or remedies which may be granted by law.
(b) Neither LICENSOR nor LICENSEE nor any of its/their Affiliates, or, in
the case of LICENSEE, its Affiliates, sublicensees and contract manufacturers,
shall use a mark or name which is confusingly similar to any mark or name it
is precluded from using pursuant to this Trademark License Agreement.
(c) Anything in this Trademark License Agreement to the contrary
notwithstanding, LICENSEE's Affiliates shall have a license hereunder to use
the word "Ralston" in their Trade Names on stationary, business cards and
other physical materials to the extent now used, under the terms and
conditions of this License, for the sole purpose of exhausting existing
inventories of such materials, over a period not to extend beyond
six (6) months following the Effective Date.
(d) All payments required to be made pursuant to this Trademark License
Agreement shall be due and payable in United States currency thirty (30) days
following the event giving rise to the obligation to make such payment.
(e) The parties agree not to do indirectly through, for example, their
Affiliates, anything they are not allowed to do directly under this Trademark
License Agreement.
<PAGE>
RALSTON PURINA COMPANY AGRIBRANDS INTERNATIONAL, INC.
By: By:
Name: Name:
Title: Title:
Date:_______________________ Date:______________________
(Aglicns.doc)
<PAGE>
53
<PAGE>
SCHEDULE A
Mark Registration No.
CHOW
PURINA
Checkerboard
SCHEDULE B
Third-party Licenses and Undertakings to Third Parties
(AgriTMA.doc)
TAX SHARING AGREEMENT
---------------------
BETWEEN
-------
RALSTON PURINA COMPANY
----------------------
AND
---
AGRIBRANDS INTERNATIONAL, INC.
------------------------------
THIS AGREEMENT (the "Agreement") dated as of April 1, 1998 is made by and
between RALSTON PURINA COMPANY ("Ralston"), a corporation organized under the
laws of the State of Missouri, and Agribrands International, Inc.
("Agribrands"), a corporation organized under the laws of the State of
Missouri.
WHEREAS, Ralston is the common parent of an affiliated group of domestic
corporations within the meaning of Section 1504(a) of the U. S. Internal
Revenue Code of 1986, as amended (the "Code"), which group includes Agribrands
(such corporations hereinafter referred to collectively as the "Ralston
Domestic Subsidiaries" and individually as a "Ralston Domestic Subsidiary",
and such affiliated group shall be referred to as the "Ralston Group");
WHEREAS, Ralston is also the parent of certain directly or
indirectly-owned foreign corporations (such corporations hereinafter referred
to collectively as the "Ralston Foreign Affiliates", and individually as a
"Ralston Foreign Affiliate"), as more specifically defined below.
WHEREAS, Agribrands will become the common parent of an affiliated group
of domestic corporations within the meaning of Code Section 1504(a) (such
corporations hereinafter referred to collectively as the "Agribrands Domestic
Subsidiaries" and individually as a "Agribrands Domestic Subsidiary", and such
affiliated group shall be referred to as the "Agribrands Group");
WHEREAS, Agribrands will also become the parent of certain directly or
indirectly-owned foreign corporations (such corporations hereinafter referred
to collectively as the "Agribrands Foreign Affiliates" and individually as the
"Agribrands Foreign Affiliate"), as more specifically defined below.
WHEREAS, Ralston intends to distribute to its shareholders all of its
stock in Agribrands (the "Distribution") under the Agreement and Plan of
Reorganization between Ralston and Agribrands dated April 1, 1998 (the "Plan
of Reorganization") on April 1, 1998 (the "Distribution Date") subject to the
receipt of a favorable ruling from the Internal Revenue Service ("IRS") that
the Distribution qualifies as a tax-free distribution of stock of a controlled
corporation under Code Section 355; and
WHEREAS, Ralston and Agribrands believe that it is in their mutual best
interests to set forth in this Agreement the rights and duties of each party
with respect to various tax matters relating to the Agribrands Group and the
Agribrands Foreign Affiliates, which may arise as a result of the
Distribution.
NOW, THEREFORE, in consideration of the premises and of the agreements
herein set forth, Ralston, (on its own behalf and on behalf of the Ralston
Domestic Subsidiaries and the Ralston Foreign Affiliates) and Agribrands (on
its own behalf and on behalf of the Agribrands Domestic Subsidiaries and the
Agribrands Foreign Affiliates), hereby agree as follows:
ARTICLE I. DEFINITIONS
(a) Agribusiness. Agribusiness shall mean Ralston's direct or
------------
indirect ownership of (i) the international business of the manufacture,
distribution, and sale of feeds for commercial livestock, commercial poultry,
laboratory animals, zoo animals, wild birds and game, and fish and shellfish
raised in commercial aquaculture facilities; and operation of hatcheries; (ii)
pet food manufacturing operations in Korea and sale and distribution of such
locally manufactured pet food products; (iii) pet food manufacturing
operations in Canada at Strathroy, Ontario, and the sale and distribution of
such locally manufactured products; and (iv) all joint ventures involving or
associated with the businesses described in (i) through (iii) above.
(b) Audit. As used herein, the term "Audit(s)" shall mean any audit
-----
or examination undertaken by a Tax authority with respect to Taxes.
(c) Controversy. As used herein, the term "Controversy(ies)" shall
-----------
mean any action involving a Tax authority before any administrative or
judicial body which results from a disagreed Tax adjustment proposed during
the course of an Audit.
(d) Domestic. As used herein to modify the terms "Tax", "Taxes" or
--------
"Return", the term "Domestic" shall mean with respect to any U.S. federal,
territorial, state or local government.
(e) Foreign. As used herein to modify the terms "Tax", "Taxes" or
-------
"Return", the term "Foreign" shall mean with respect to any government which
is not any U.S. federal, territorial, state or local government.
(f) Agribrands Foreign Affiliate. As used herein, "Agribrands
------------------------------
Foreign Affiliate" shall mean any subsidiary which on the Distribution Date is
owned directly or indirectly by Agribrands, and is incorporated under the laws
of a government other than the United States, its states or territories.
(g) Former Agribusiness. As used herein "Former Agribusiness" shall
-------------------
mean all of the following international businesses and operations heretofore,
but not currently, owned and conducted directly or indirectly by Ralston: (i)
former international businesses of producing and distributing commercial feeds
for livestock and poultry and rations for laboratory animals, zoo animals, and
wild birds and game; and operation of hatcheries; (ii) former pet food
manufacturing operations in Korea, and sale and distribution in Korea of pet
foods formerly locally manufactured; (iii) poultry processing; (iv) finished
poultry products; (v) manufacture and sale of silos; (vi) manufacture and
distribution of livestock and poultry health products; (vii) commercial egg
production (fertile and infertile); (viii) vitamins for human consumption;
(ix) raising of laboratory rats; (x) professional services in ocean sciences
and technology; (xi) fishmeal processing; (xii) oilseed processing other than
soy processing; (xiii) sale and lease of breeding hogs; (xiv) other businesses
managed or directed by employees of the Agribusiness, other than cereal, baked
goods, tuna processing, and soy protein businesses; and (xv) all joint
ventures involving or associated with the businesses described in (i) through
(xiv) above or the Agribusiness.
all of the businesses and operations (i) heretofore, but not currently,
conducted by any former or current member of the Agribusiness Group or by an
Agribrands Foreign Affiliate, or (ii) currently conducted by any such former
member or former Foreign Affiliate; except that the cereal business formerly
conducted by Purina Korea, Inc. shall not be deemed a Former Agribusiness.
(h) Former Ralston Business. As used herein "Former Ralston
-------------------------
Business" shall mean all businesses and operations heretofore, but not
currently, directly or indirectly owned and conducted by Ralston, other than a
Former Agribusiness.
(i) Ralston Business. As used herein "Ralston Business" shall mean
----------------
all of the businesses owned, directly and indirectly, by Ralston and conducted
immediately prior to the Distribution Date, other than the Agribusiness.
(j) Ralston Foreign Affiliate. As used herein, "Ralston Foreign
-------------------------
Affiliate" shall mean any subsidiary which on the Distribution Date is owned
directly or indirectly by Ralston, is incorporated under the laws of a
government other than the United States, its states or territories, and is not
a Agribrands Foreign Affiliate.
(k) Tax or Taxes. As used herein, "Tax" or "Taxes" shall mean all
------------
taxes, however denominated, including any interest, penalties or other
additions that may become payable, in respect thereof, that are imposed, (or
with respect to Foreign Taxes allocated among the Ralston Business, the
Agribusiness, any Former Ralston Business, or any Former Agribusiness
currently or formerly conducted by a single Foreign Affiliate, the taxes that
would have been imposed had the Agribusiness or Former Agribusiness been the
sole business of a single Foreign Affiliate in accordance with Article III
1(b) hereof) by any governmental entity, whether foreign or domestic, federal,
territorial, state or local, or any agency or political subdivision of any
such governmental entity, including, but not limited to, all income or profits
taxes, payroll and employee withholding taxes, unemployment insurance, social
security taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise
taxes, gross receipt taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, transfer taxes, value-added tax, and
other governmental charges, and other government obligations of the same or of
a similar nature to any of the foregoing, which any member of the Ralston
Group or Agribrands Group, or any Ralston Foreign Affiliate or Agribrands
Foreign Affiliate, is required to pay, withhold or collect.
(l) Tax Return or Return. As used herein, "Tax Return" or "Return"
--------------------
shall mean any return, filing, questionnaire, information report or other
document required to be filed, including amended returns that may be filed,
for any Tax period with any Tax authority (domestic or foreign) in connection
with any Tax or Taxes (whether or not payment is required to be made with
respect to such filing). As used herein, "Consolidated Tax Return" shall mean
a U.S. federal income Tax Return described in Code Section 1501.
ARTICLE II. DOMESTIC TAXES
1. DOMESTIC TAXES - PREPARATION AND FILING OF TAX RETURNS, PAYMENTS OF
-------------------------------------------------------------------
TAXES, ADJUSTMENTS, AUDITS AND CONTROVERSIES.
---------------------------------------------
(a) (i) Preparation and Filing of Domestic Return. The
-----------------------------------------
preparation and filing of any Domestic Tax Return for Agribrands or the
Agribrands Domestic Subsidiaries for any Tax period beginning on or prior to
the Distribution Date shall be the responsibility of Ralston. Ralston shall
consistently prepare and file such Domestic Tax Returns in accordance with its
historical practices.
(ii) Agribrands hereby designates, and Agribrands agrees to
cause each of the Agribrands Domestic Subsidiaries to designate, Ralston
irrevocably as its agent for the purpose of taking any and all action
necessary or incidental to the filing of any Consolidated Return or any other
Domestic Tax Return, as necessary for any Tax period beginning on or prior to
the Distribution Date.
(iii) The preparation and filing of any Domestic Tax Return for
Agribrands or the Agribrands Domestic Subsidiaries for any Tax period
beginning after the Distribution Date shall be the responsibility of
Agribrands.
(b) Liability for Domestic Taxes.
-------------------------------
(i) Ralston shall be liable for, shall hold the Agribrands Group
harmless against, and shall make payment of any Domestic Tax which is
attributable to the Agribrands Group, for any and all Tax periods ending on or
prior to the Distribution Date, including any such liabilities resulting from
the Audit or other adjustment to previously filed Domestic Tax Returns.
Ralston shall be entitled to any refund of such Domestic Taxes for any such
Tax period.
(ii) Agribrands shall be liable for, shall hold the Ralston
Group harmless against, and make payment of any Domestic Tax due which is
attributable to the Agribrands Group for all Tax periods beginning after the
Distribution Date, and shall be entitled to any refund of such Taxes for any
such Tax period.
(iii) If, as a result of operations for periods commencing after
the Distribution Date, Agribrands, or any Agribrands Domestic Subsidiary,
shall have, for Domestic Tax purposes, any losses or credits which may be
carried back to the Tax periods commencing prior to the Distribution Date,
Agribrands shall be entitled to any refunds as a result of such carrybacks and
any Tax refunds (plus interest) received by Ralston or the Ralston Domestic
Subsidiaries as a result of such carrybacks shall be promptly remitted to
Agribrands. Ralston agrees to cooperate with Agribrands to obtain such
refunds and Agribrands agrees to reimburse Ralston for expenses related
thereto.
(c) Domestic Audits and Controversies.
------------------------------------
(i) Ralston shall exclusively control and direct any Tax Audit
or Controversy as to any Domestic Taxes for a Tax period which begins on or
prior to the Distribution Date. Agribrands, however, shall have the right to
participate in any such Audit or Controversy to the extent such Audit or
Controversy would impact the Domestic Taxes for which Agribrands is liable in
accordance with this Agreement, as determined by Ralston and Ralston shall not
consent to any resolution, compromise or conclusion of such Audit or
Controversy without the written approval of Agribrands, which approval shall
not be unreasonably withheld. Notwithstanding the foregoing, in the event
Ralston shall compromise or settle any such deficiency of Domestic Tax without
the prior consent of Agribrands, Ralston shall hold Agribrands and any
Agribrands Domestic Subsidiary harmless against any losses, costs, or damages,
including Taxes resulting from such compromise or settlement.
(ii) Agribrands shall exclusively control and direct any Audit
or Controversy with respect to any Domestic Taxes attributable to the
Agribrands Group for a Tax period which begins after the Distribution Date.
Ralston, however, shall have the right to participate in any such Audit or
Controversy to the extent such Audit or Controversy would impact the Domestic
Taxes for which Ralston is liable in accordance with this Agreement, as
determined by Ralston and Agribrands shall not consent to any resolution,
compromise or conclusion of such Audit or Controversy without the written
approval of Ralston, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, in the event Agribrands shall compromise or
settle any such deficiency of Domestic Tax without the prior consent of
Ralston, Agribrands shall hold Ralston and any Ralston Domestic Subsidiary
harmless against any losses, costs, or damages, including Taxes resulting from
such Audit of Controversy.
(d) Domestic Tax Adjustments
--------------------------
(i) If the IRS, or any state or local taxing authority, shall
make an adjustment to any Domestic Tax Return of the Ralston Group, any
Ralston Domestic Subsidiary, Agribrands, or any Agribrands Domestic Subsidiary
for any Tax period beginning prior to the Distribution Date, and such
adjustment (including adjustments to tax basis determination, a tax accounting
method with respect to its property and accounts included in and carried
forward from Ralston or the Ralston Domestic Subsidiaries prior to the
Distribution Date), consistently applied would require Agribrands or the
Agribrands Domestic Subsidiaries to make a corresponding adjustment to their
Domestic Tax Returns for periods after the Distribution Date, then,
(A) if such corresponding adjustment in a Domestic Tax
Return of Agribrands or any Agribrands Domestic Subsidiary results in an
actual diminution of any Domestic Taxes for such period, whether or not an
actual amended return is filed, Agribrands shall pay Ralston the amount of
such Domestic Tax either (I) when such refund and related interest are
received and required to be remitted within the period provided in Article VI
3 hereof, or (II) within thirty (30) days of written notice by Ralston to
Agribrands of such corresponding adjustment, if an amended return is not
filed.
(B) if such corresponding adjustment in a Domestic Tax
Return of Agribrands or a Agribrands Domestic Subsidiary results in an
increase of any Domestic Tax for Agribrands for such period, and an actual
diminution of any Domestic Tax for Ralston, Ralston shall pay Agribrands the
amount of such Domestic Tax, either due (I) when such refund and related
interest are received and required to be remitted within the period provided
in Article VI 3 hereof, or (II) within thirty (30) days of written notice by
Agribrands to Ralston of such corresponding adjustment, if an amended return
is not filed.
(e) Domestic Transfer Taxes. Ralston shall pay any and all Domestic
-----------------------
Taxes or similar charges required (or which may, in the future, be required)
by federal, state, or local authorities upon, or by virtue of, (a) the
Distribution and (b) the transfer of property to the Agribrands Group
including the transfer of shares of stock of Agribrands Foreign Affiliates in
connection with the Distribution.
(f) Domestic Tax Attributes.
-------------------------
(i) Any Domestic Tax attribute generated by Ralston or
Agribrands shall, to the extent permitted by the applicable law of the Tax
jurisdiction in question, remain with Ralston or Agribrands, respectively, or
the appropriate entity. In any case where the applicable law of the Tax
jurisdiction in question requires such Tax attribute to be allocated between
Ralston and Agribrands, such allocation shall be made as provided by the law
of such jurisdiction.
(ii) Any excess Foreign Tax credits of the Ralston Group, as of
the Distribution Date, as finally determined by Ralston in accordance with
Code Section 904, shall be allocated between the Ralston Group and the
Agribrands Group, in accordance with Regs. 1.1502-79.
(iii) Any earnings and profits of the Ralston Group as of the
Distribution Date, as finally determined by Ralston, shall be allocated
between the Ralston Group and the Agribrands Group in accordance with Regs.
1.312-10(a).
ARTICLE III. FOREIGN TAXES
1. PREPARATION AND FILING OF TAX RETURNS, PAYMENT OF TAXES, ADJUSTMENTS,
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AUDITS AND CONTROVERSIES.
-------------------------
(a) Preparation and Filing of Foreign Returns.
----------------------------------------------
(i) Agribrands shall be responsible for the preparation and
filing of any Foreign Tax Return of any Agribrands Foreign Affiliate for all
Tax Periods.
(ii) Ralston shall be responsible for the preparation and filing
of any Foreign Tax Return of any Ralston Foreign Affiliate for all Tax
Periods.
(b) Liability for Foreign Taxes.
------------------------------
(i) Subject to (A) the Foreign Transfer Taxes described in
subparagraph (c) below, and (B) any Foreign Taxes with respect to the Italian
Usufruct transaction described in the Agreement between Ralston Purina
International, Inc. and Fiduciaria Shearson Lehman Brothers, SpA, dated
December 4, 1989, Agribrands shall be liable for, shall hold the Ralston Group
and the Ralston Foreign Affiliates harmless against, and shall make payment
of, all Foreign Taxes attributable to the Agribusiness and Former
Agribusiness, for any and all Tax periods commencing before, on, or after the
Distribution Date, including any such liabilities resulting from an Audit or
other adjustment to previously filed Tax Returns. Agribrands shall be
entitled to any refund of such Foreign Taxes for any such Tax period. The
allocation of any such Foreign Taxes among the Ralston Business, the
Agribusiness, the Former Ralston Business or any Former Agribusiness,
currently or formerly conducted by a single Ralston Foreign Affiliate, shall
be determined in accordance with the books and records of Ralston and the
Ralston Foreign Affiliate, as though the Agribusiness or Former Agribusiness
were deemed to have been conducted as the sole business of a single Foreign
Affiliate.
(ii) Ralston shall be liable for, shall hold the Agribrands
Group and the Agribrands Foreign Affiliates harmless against, and shall make
payments of, all Foreign Taxes owed by any Ralston Businesses and Former
Ralston Business, for any and all Tax Periods commencing before, on, or after
the Distribution Date, including any such liabilities resulting from an Audit
or other adjustment to previously filed Tax Returns. Ralston shall be
entitled to any refund of such Foreign Taxes for any Tax period. The
allocation of any such Foreign Taxes among the Ralston Businesses and the
Agribusiness, the Former Ralston Business, or any Former Agribusiness
conducted by a single Ralston Foreign Affiliate shall be in accordance with
the books and records of Ralston and the Ralston Foreign Affiliate, as though
the Agribusiness or Former Agribusiness were deemed to have been conducted as
the sole business of a single Foreign Affiliate.
(iii) If, in accordance with Article III 1(b), hereof, either
Ralston or Agribrands is liable for any portion of the Foreign Taxes payable
in connection with any Foreign Tax Return to be filed by the other, the party
responsible for filing such Return (the "Preparer") shall prepare and deliver
to the other party (the "Payor") a copy of such return and any schedules, work
papers and other documentation then available that are relevant to the
preparation of the portion of such return for which the Payor is or may be
liable hereunder not later than the earlier of twenty (20) days prior to the
due date for such Tax Return (including applicable extensions) (the "Due
Date") or when the information is available in the normal course of business.
The Preparer shall not file such return until the earlier of either the
receipt of written notice from the Payor indicating the Payor's consent
thereto, or five (5) days prior to the Due Date to ensure timely receipt of
the return by the taxing jurisdiction.
The Payor shall have the option of providing to the
Preparer, at any time at least ten (10) days prior to the Due Date, written
instructions as to how the Payor wants any, or all, of the items for which it
may be liable in full reflected on such Tax Return. Failure by the Payor to
give written instructions at least ten (10) days prior to the Due Date shall
constitute a waiver by the Payor of its right to provide instructions, to the
extent such failure is prejudicial to the Preparer.
The Preparer shall, in preparing such Return, cause the
items for which the Payor is liable hereunder to be reflected in accordance
with the Payor's instructions unless the Preparer determines that such manner
of reporting is in contravention of applicable law. In the absence of having
received instructions from Payor, such items shall be reported in the manner
determined by the Preparer, which is not in contravention of applicable law,
and consistent with historic business practices, as applicable.
(c) Foreign Transfer Taxes. Ralston shall pay any and all Foreign
----------------------
Taxes or similar charges required by any Foreign authorities upon, or by
virtue of, any transfer of property contemplated under the Plan of
Reorganization, including the transfer of shares of stock of Agribrands
Foreign Affiliates to Agribrands in connection with the Distribution. Foreign
Tax Returns required to be prepared and filed by Agribrands relating to the
transfer of shares of stock of Agribrands Foreign Affiliates to Agribrands,
must be provided to Ralston by Agribrands at least ten (10) days prior to the
due date for such Tax Returns so that Ralston may timely make any payment of
Foreign Transfer Taxes due with respect to such Foreign Tax Return.
(d) Foreign Audits and Controversies
-----------------------------------
(i) Agribrands shall exclusively control and direct any Audit or
Controversy with respect to any Agribrands Foreign Affiliate. Ralston,
however, shall have the right to participate in any such Audit or Controversy
to the extent such Audit or Controversy would impact the Foreign Taxes for
which Ralston is liable in accordance with this Agreement. Agribrands shall
not consent to any resolution, compromise or conclusion of such Audit or
Controversy without the written approval of Ralston, which approval shall not
be unreasonably withheld. Notwithstanding the foregoing, in the event
Agribrands shall compromise or settle any such deficiency of Foreign Tax
without the prior consent of Ralston, Agribrands shall hold Ralston and any
Ralston Foreign Affiliate harmless against any losses, costs, or damages,
including Taxes resulting from such Audit or Controversy.
(ii) Ralston shall exclusively control and direct any Tax Audit
or Controversy as to any Foreign Tax with respect to any Ralston Foreign
Affiliate. Agribrands, however, shall have the right to participate in any
such Audit or Controversy to the extent such Audit or Controversy would impact
the Foreign Taxes for which Agribrands is liable in accordance with this
Agreement. Ralston shall not consent to any resolution, compromise or
conclusion of such Audit or Controversy without the written approval of
Agribrands, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, in the event Ralston shall compromise or settle
any such deficiency of Foreign Tax without the prior consent of Agribrands,
Ralston shall hold Agribrands and any Agribrands Foreign Affiliate harmless
against any losses, costs, or damages, including Taxes resulting from such
compromise or settlement.
(e) Foreign Tax Attributes.
------------------------
Subject to subparagraph (c) above regarding Foreign Transfer Taxes,
any Foreign Tax attribute generated by Ralston or Agribrands shall, to the
extent permitted by the applicable law of the Tax jurisdiction in question,
remain with Ralston or Agribrands, respectively, or the appropriate entity.
In any case where the applicable law of the Tax jurisdiction in question
requires such Tax attribute to be allocated between Ralston and Agribrands,
such allocation shall be made as provided by the law of such jurisdiction. In
the event the applicable law of the Tax jurisdiction requires that such Tax
Attribute be allocated between the parties based on a method of allocation
agreed to by the parties, Ralston and Agribrands shall apply an allocation
method reasonably agreed to by both parties.
ARTICLE IV. ARBITRATION
For the purposes of this Agreement, all computations or recomputations of
Tax liability, and all computations or recomputations of any amount or any
payment (including, but not limited to, computations of the amount of the tax
liability, any loss or credit or deduction, statutory tax rate for a year,
interest payments, and adjustments) and all determinations of payments or
repayments, or determination of any other nature required to be made pursuant
to this Agreement, shall be based on the assumptions and conclusions of the
party making the computations. If either Ralston or Agribrands objects thereto
in writing, addressed to the other party, the provisions of Article XI the
Plan of Reorganization shall be applicable to resolve any issues under this
Tax Sharing Agreement.
ARTICLE V. AGRIBRANDS POST-DISTRIBUTION TRANSACTIONS
1. Agribrands shall, and shall cause each member of the Agribrands
Group and each Agribrands Foreign Affiliate to comply with each representation
and statement made, or to be made, to the IRS in connection with any ruling
obtained, or to be obtained, by Ralston from the IRS with respect to any
transaction contemplated by the Plan of Reorganization. Neither Agribrands
nor any member of the Agribrands Group shall for a period of three years
following the Distribution Date engage in any of the following transactions,
unless, in the sole discretion of Ralston, either (a) an opinion in form and
substance satisfactory to Ralston is obtained from counsel to Agribrands , the
selection of which counsel is agreed to by Ralston or (b) a supplemental
ruling is obtained from the IRS, in either case to the effect that such
transactions would not adversely affect the tax consequences of the
transactions described in Articles II and IV of the Plan of Reorganization to
(i) Ralston or any member of the Ralston Group, (ii) Agribrands or any member
of the Agribrands Group, or (iii) the Ralston shareholders. The transactions
subject to this provision include, but are not limited to: (i) making a
material disposition (including transfers from one member of the Agribrands
Group to another member of the Agribrands Group), by means of a sale or
exchange of assets or shares of stock, a distribution to shareholders, or
otherwise, of any of its assets (other than the transactions contemplated by
this Agreement) except in the ordinary course of business; (ii) repurchasing
any Agribrands Shares, unless such repurchase satisfies the requirements of
Section 4.05(1)(b) of Revenue Procedure 96-30, (iii) issuing any Agribrands
shares of stock that in the aggregate exceeds twenty percent (20%) of the
issued and outstanding stock of Agribrands immediately following the
Distribution; (iv) liquidating or merging with any other corporation
(including a member of the Agribrands Group); or (v) ceasing to engage in the
active conduct of a trade or business within the meaning of Section 355(b)(2)
of the Code. Agribrands hereby represents that neither Agribrands nor any
member of the Agribrands Group has any present intention to undertake any of
the transactions set forth in above, except as set forth in ruling request
submitted to the IRS with respect to the Distribution.
2. Ralston shall, and shall cause each member of the Ralston Group
and each Ralston Foreign Affiliate to refrain from taking any action which
would adversely impact any ruling obtained, or to be obtained, by Ralston from
the IRS with respect to any transaction contemplated by the Agreement of
Reorganization.
ARTICLE VI. MISCELLANEOUS PROVISIONS
1. Mutual Cooperation. Ralston and Agribrands shall, and shall cause
------------------
each of their Domestic Subsidiaries and Foreign Affiliates to, cooperate with
each other in filing any Tax Returns or consent contemplated by this Agreement
and to take such action as the other party may reasonably request, including
but not limited to the following: (a) provide data for the preparation of Tax
Returns, including schedules, and make elections that may be required by the
other party; (b) provide required documents and data and cooperate in Audits
or investigations of Tax Returns and execute appropriate powers of attorney in
favor of the other party and/or its agents; (c) file protests or otherwise
contest proposed or asserted tax deficiencies, including filing petitions for
redetermination or prosecuting actions for refund in court, and pursuing the
appeal of such actions; (d) take any of the actions of the type described in
Regulation Section 1.1502-77(a) of the Code (describing the scope of the
agency of the common parent of a group of affiliated corporations); and (v)
file requests for the extension of time within which to file Tax Returns.
2. Maintenance of Books and Records. Until the applicable statute of
--------------------------------
limitations (including periods of waiver), or statute of similar import, has
expired in accordance with laws governing Domestic or Foreign Taxes and Tax
Returns, Ralston and Agribrands shall, and shall cause each Domestic
Subsidiary and Foreign Affiliate to, retain all Tax workpapers and related
materials used in its possession and under its control in the preparation of
any Tax Return for Tax periods commencing prior to or on the Distribution
Date.
3. Payment. Failure to make any payment required under this
-------
Agreement will result in the accrual of interest on such amount due. Any
interest payment required hereunder shall be calculated from the same date and
at the rate used by the IRS, any foreign, state, or local tax authority, as
applicable, in computing the interest payable by it or to it. Unless
otherwise provided, all payments required to be made under this Agreement from
one party to another shall be made within thirty (30) days after the event
which gives rise to the requirement for payment occurs. Any payments made
pursuant to this Agreement are to be adjusted in the event that future events
or new information would, had they occurred or been known at the time of a
payment, have altered the amount of such payment, so that at the time of such
future events or knowledge of such information, appropriate adjustments shall
be made retroactively to include the consequences of such event or information
in the original computation.
4. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Missouri and shall be binding on the
successors and assigns of the parties hereto.
5. Entire Agreement. Unless otherwise specified, this Agreement
----------------
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior written agreements, memoranda,
negotiations and oral understandings, if any, and may not be amended,
supplemented or discharged except by performance or by an instrument in
writing signed by all of the parties hereto.
6. Controlling Agreement. In the case of a conflict between the Plan
---------------------
of Reorganization and this Agreement, this Agreement shall control.
7. Counterpart. This Agreement may be executed simultaneously in two
-----------
or more counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
RALSTON PURINA COMPANY
BY ___________________________________
AGRIBRANDS INTERNATIONAL, INC.
BY ___________________________________
H:\RCWINTER\WINWORD\PRCWAGR3.DOC
1
BRIDGING SERVICES AGREEMENT
---------------------------
This BRIDGING SERVICES AGREEMENT (the "Agreement") is made as of this 1st
day of April, 1998 (the "Effective Date") by and between Ralston Purina
Company, a Missouri Corporation (hereinafter "Purina"), and Agribrands
International, Inc., a Missouri corporation (hereinafter "Agribrands").
WHEREAS, Purina and Agribrands have entered into an "Agreement and Plan
of Reorganization" (hereinafter the "Plan and Reorganization"), dated as of
April 1, 1998, through which Purina has effected a consolidation and
distribution to Agribrands of Purina's international animal feeds and
agricultural products businesses (hereinafter the "Agribrands Businesses");
and
WHEREAS, pursuant to said Plan of Reorganization, the parties have agreed
that Purina desires to provide to Agribrands, and Agribrands desires to
receive from Purina, certain services, as more fully described on Schedules
l(a) through 1(__), attached hereto and incorporated herein by reference,
(collectively, the "Agribrands Services") in connection with the Agribrands
Businesses on an interim basis following the consolidation and distribution;
and
WHEREAS, Agribrands desires to provide Purina, and Purina desires to
receive from Agribrands, certain services, as more fully described on
Schedules 2(a) through 2(__) attached hereto and incorporated herein by
reference, (collectively, the "Purina Services"), in connection with Purina's
businesses (other than the Agribrands Businesses) on an interim basis
following said consolidation and distribution; and
WHEREAS, Purina and Agribrands desire to enter into this Agreement to
confirm the terms and conditions pursuant to which Purina or Agribrands will
provide, for a limited time from and after the Effective Date, the Agribrands
Services or the Purina Services, as the case may be.
NOW THEREFORE, in consideration of the mutual convenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Services. Subject to the terms of this Agreement, from and after
---------
the Effective Date, the party providing particular Purina or Agribrands
Services, as the case may be, (the "Provider") shall make such Services
available to the party receiving such Services (the "Recipient") in accordance
with the practices in effect as of the Effective Date or as specifically set
forth in the Schedules. In consideration for the Services, the Recipient
shall pay to the Provider the fee or other charge set forth opposite each such
service on the applicable Schedule and each Service provided will be
separately invoiced to Recipient in accordance with the billing provisions set
forth in the Schedule with respect to such Service. The Recipient shall give
the Provider written notice of its intent to terminate any one or more of the
Services at least 30 days prior to the termination of the service unless any
Schedules hereto provide for a different notice period. If such a different
notice period is provided, then such different notice period shall apply to
the applicable Services. This Agreement shall continue in full force and
effect with respect to any Services not terminated by any such notices.
2. Liability; Indemnification. The Provider shall have no liability to the
---------------------------
Recipient with respect to its furnishing any of the Services hereunder except
for its willful misconduct. By agreeing to provide the Services as an
accommodation to the Recipient, the Provider is making no representations or
warranties as to the quality, suitability or adequacy of the Services for any
purpose or use. In providing the Services, the Provider shall not be
obligated to (i) hire any additional employees; (ii) maintain the employment
of any specific employee; (iii) purchase, lease or license any additional
equipment or software; or (iv) pay any costs related to the transfer or
conversion of the Recipient's data to the Recipient or any alternate supplier
of administrative services. The sole remedy of the Recipient in the event
data owned by it is lost or damaged in any way during processing by the
Provider is the refund to it of any charges paid for the processing of the
damaged data. The Provider agrees to exercise reasonable diligence to correct
errors or deficiencies in the Services but the Recipient shall have no other
remedy against the Provider regardless of any loss suffered by the Recipient
or any other person or entity. The Provider shall not be liable to any third
party in any way for any obligation or commitment pursuant to this Agreement
or for an act or omission and the Recipient shall be solely liable and
responsible for any and all claims, liabilities, obligations, losses, costs,
expenses, litigation, proceedings, taxes, levies, imposts, duties,
deficiencies, assessments, charges, allegations, demands, damages or judgments
of any kind or nature whatsoever (hereinafter the "Liabilities") related to,
arising from, asserted against or associated with the Provider furnishing or
failing to furnish to the Recipient any of the Services described herein.
Upon the termination of any of the Services, the Recipient shall be obligated
to return to the Provider, as soon as practicable, any equipment or other
property of the Provider relating to the Services which is owned. or leased by
it and is or was in the Recipient's possession or control. As of the
Effective Date, the Recipient shall indemnify/and hold the Provider and its
affiliates and their respective directors, shareholders, officers, employees,
agents, consultants, representatives, successors, transferees and assigns
harmless from and against any and all Liabilities (including, without
limitation, reasonable fees and expenses of counsel) of whatever kind and
nature related to, arising from, asserted against, or associated with the
Provider's furnishing or failing to furnish the Services provided for in this
Agreement, other than Liabilities arising out of the fraudulent acts or
willful misconduct of the Provider or its affiliates or their respective
directors, shareholders, officers, employees, agents, consultants,
representatives, successors, transferees or assigns. Nothing herein, however,
shall be deemed to effect the right of the Recipient to seek damages or other
rights of redress against the Provider for breach of the provisions of this
Agreement under U.S. law as provided under this Agreement.
3. Claims. Recipient's receipt of any Services performed hereunder
-------
shall be an unqualified acceptance of, and a waiver by it of any and all
claims with respect to such Services unless it gives the Provider notice of
claim within 30 days after such receipt; no claim by the Recipient against the
Provider of any kind, whether as to Services performed or for delayed
performance or non-performance and whether or not based on negligence, shall
be greater in amount than the fee for the Services in respect of which such
claim is made; and in no event will the Provider be liable to the Recipient
for any incidental or consequential damages, whether or not caused by or
resulting from negligence or breach of obligations hereunder.
4. Additional Services. If a party to this Agreement wants the other
--------------------
to provide any service other than the Services provided for in the Schedules,
such party shall notify the other in writing, and within 30 days following the
giving of such notice such other party shall decide, in its sole discretion,
whether to provide such additional service. If such other party agrees to be
a Provider with respect to such additional service, the Recipient shall be
invoiced for such services in accordance with billing practices reasonably
determined by the Provider. The provision by Provider of any such additional
services shall be subject to all other provisions of this Agreement, as if
those services had originally been part of the Schedules to this Agreement.
5. Confidentiality. Any and all information which is not generally
---------------
known to the public which is exchanged between the parties in connection with
this Agreement, whether of a technical or business nature, shall be considered
to be confidential. The parties agree that confidential information shall not
be disclosed to any third party or parties without the prior written consent
of the other party. Each party shall take reasonable measures to protect
against nondisclosure of confidential information by its officers and
employees. Confidential information shall not include any information (i)
which is or becomes part of the public domain, (ii) which is obtained from
third parties who are not bound by confidentiality obligations or (iii) which
is required to be disclosed by law, regulation, legal process or the rules of
any state or federal regulatory agency or the New York Stock Exchange. The
provisions of this section shall survive the termination of this Agreement.
6. Assignment. Notwithstanding anything to the contrary in this
-----------
Agreement, this Agreement shall not be assignable by either party hereto, to
any other person, firm or entity without the prior written consent of the
other party; provided, however, that the Agreement in its entirety, or any
portion of the rights and obligations established hereunder, may be assigned
by either party hereto to one of its directly or indirectly wholly-owned
subsidiaries (provided such ownership is ___% or more) without the prior
written consent of the other party. Except as expressly provided herein,
nothing herein shall create or be deemed to create any third party beneficiary
rights in any person or entity not a party to this Agreement.
7. Waiver, Amendment or Modification. No waiver, amendment or
------------------------------------
modification of this Agreement shall be valid unless in writing and duly
executed by the party to be charged therewith.
8. Entire Agreement. This Agreement and the Schedules hereto
------------------
constitutes the entire agreement of the parties concerning the subject matter
hereof and supersedes all previous agreements between the parties, whether,
written or oral, with respect to such subject matter.
9. Governing Law and Language. Despite any different result required
---------------------------
by any conflicts of law provisions, this Agreement shall be governed by the
laws of the State of Missouri, United States of America. This Agreement is
originally drafted in the English language. Should it be translated into any
other language, the English version shall govern any interpretation thereof.
10. Notices. All notices, requests, demands, waivers and other
--------
communications (hereafter "notices") required or permitted to be given
pursuant to this Agreement shall be in writing and shall be deemed to have
been duly given (i) at the time of delivery, if delivered by hand, (ii) on the
date of transmission, if sent by facsimile, telegram or other standard form of
telecommunications or (iii) three business days after mailing, if mailed
registered or certified first-class mail, postage prepaid, return receipt
requested. Notices shall be delivered or sent, as the case may be, to the
following addresses or to such other addresses as the parties may hereafter
designate by like notice similarly provided:
If to Agribrands: Agribrands International, Inc.
9811 South Forty Drive
St. Louis, MO 63124
Attn: General Counsel
If to Purina: Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Attn: General Counsel
11. ForceMajeure. Anything else in this Agreement notwithstanding,
-------------
the Provider shall be excused from providing Services hereunder while, and to
the extent that, its performance is prevented by fire, drought, explosion,
flood, invasion, rebellion, earthquake, civil commotion, strike or labor
disturbance, governmental or military authority, acts of God, mechanical
failure or any other event or casualty beyond the reasonable control of the
Provider, whether similar or dissimilar to those enumerated in this paragraph
(hereafter a "Casualty"). In the event of a Casualty, the Recipient shall be
responsible at its own cost for making its own alternative arrangements with
respect to the interrupted Services.
12. Independent Contractor. The relationship of Provider and
-----------------------
Recipient which is created hereunder is that of an independent contractor.
This Agreement is not intended to create and shall not be construed as
creating between Agribrands and Purina the relationship of affiliate,
principal and agent, joint venture, partnership, or any other similar
relationship, the existence of which is hereby expressly denied.
13. Billing and Payment. Unless otherwise provided in an applicable
-------------------
Schedule, the Provider shall bill the Recipient on a monthly basis for the
amounts due to the Provider for services provided pursuant to the terms of
this Agreement. All such bills shall contain reasonable detail and shall be
due 30 days after receipt. The failure of the Recipient to pay any bill
within 30 days of receipt shall result in the Recipient owing the Provider an
additional handling charge equal to l% per month of the amount due from the
date due to the payment date.
14. Term. It is intended that the Services be provided by each party
----
hereto as a temporary accommodation to the other. Each party shall arrange
for the relevant Services to be provided by its own employees or by
third-party providers as soon as is practicable even if such arrangements
result in greater cost to it than it would incur if the Services were provided
by the other. In no event, however, shall either be obliged to provide any
Services after September 30, 1999. Notwithstanding the foregoing, if any
Schedules hereto provide for the provision of Services for a longer period,
such longer period shall govern the provision of such Services.
15. Waiver. The failure of either party at any time or times to
-------
enforce or require performance of any provision hereof shall in no way operate
as a waiver or affect the right of such party at a later time to enforce the
same. No waiver by either party of any condition or the breach of any
provision contained in this Agreement.
16. Severability. If any provision of this Agreement shall hereafter
-------------
be held to be invalid or unenforceable for any reason, that provision shall be
reformed to the maximum extent permitted to preserve the parties' original
intent, failing which it shall be severed from this Agreement with the balance
of the Agreement continuing in full force and effect. Such occurrence shall
not have the effect of rendering the provision in question invalid in any
other jurisdiction or in any other case or circumstances or of rendering
invalid any other provisions contained herein to the extent that such other
provisions are not themselves actually in conflict with any applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
RALSTON PURINA COMPANY AGRIBRANDS_________
By: ______________________________ By:______________________
Name:_____________________________ Name:___________________
Title: _____________________________ Title:____________________
<PAGE>
SCHEDULE 1(__)
--------------
<PAGE>
SCHEDULE 2(__)
--------------
TECHNOLOGY [TRANSFER AND LICENSE] AGREEMENT
===========================================
This Technology [TRANSFER AND LICENSE] Agreement (hereinafter
"Agreement") is effective as of ___________ __, 1998, and is by and between
Agribrands International, Inc., a Missouri corporation having its principal
place of business at 9811 South Forty Drive, St. Louis, Missouri 63124 and
Ralston Purina Company, a Missouri corporation having its principal place of
business at Checkerboard Square, St. Louis, Missouri 63164.
WITNESSETH THAT:
WHEREAS, Ralston and Agri have simultaneously with this Agreement
entered into a separate agreement and plan of reorganization ("Reorganization
Agreement" as defined in Section 1.17 below);
WHEREAS, this Agreement is entered into in conjunction with the
Reorganization Plan to achieve the goals of the Reorganization Agreement;
WHEREAS, Ralston is the owner and/or licensee of certain valuable
technical information and know how including, but not limited to,
confidential, proprietary and/or trade secret manufacturing and production
[MARKETING, DISTRIBUTION AND SALES] information relating to [AGRICULTURAL]
animal feeds, [AGRICULTURAL] animal products and various other agricultural
related products;
WHEREAS, Agri desires to license certain confidential, proprietary
and trade secret manufacturing and production [MARKETING, DISTRIBUTION AND
SALES] information relating to [AGRICULTURAL] animal feeds, [AGRICULTURAL]
animal products and various other agricultural related products from Ralston;
NOW, THEREFORE, in consideration of the foregoing recitals, the
mutual covenants, promises, agreements, representations and obligations set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally
bound, the parties hereto agree as follows:
Article 1 - Definitions
- --------------------------
1.1 An AFFILIATE of Ralston or Agri shall mean any person and/or
entity: (a) who directly or indirectly controls, is controlled by, or is under
common control of Agri or Ralston; (b) who owns or controls [FIFTY PERCENT
(50%)] or more of Agri's or Ralston's outstanding voting securities or
percentage interest; (c) in whom Agri or Ralston owns or controls [FIFTY
PERCENT (50%)] or more of the outstanding voting securities or percentage
interest; or (d) who is a director, partner, member, manager, executive
officer or trustee of Agri or Ralston.
1.2 Agri shall mean Agribrands International, Inc., a Missouri
corporation having its principal place of business at 9811 South Forty Drive,
St. Louis, Missouri 63124, [AND ITS AFFILIATES, EXCLUDING RALSTON AND
RALSTON'S AFFILIATES.]
1.3 Agri business shall mean the businesses transferred to Agri by
Ralston under and pursuant to the Reorganization Agreement as of the
Distribution Date as defined in said Reorganization Agreement.
1.4 Agri Products shall mean all products formulated to provide
nourishment to or care of agricultural animals (terrestrial, aquatic, and
aviary) which agricultural animals may include, by way of example, but not
limitation, livestock, rabbits, poultry, horses, llamas, ostriches, fish,
shrimp, shell fish, turtles, snakes, animals raised for fur, laboratory
animals, zoo animals, and wild or game birds (collectively "Agri Animals").
The term Agri Products expressly excludes any and all Pet Products (including,
but not limited to, Pet Products sold for use with zoo animals) [AND ANY AND
ALL OTHER PRODUCTS OTHER THAN AGRI PRODUCTS]. Agri Products shall include,
but not be limited to, the following products and services only for Agri
Animals:
(a) products and services for breeding, feeding, and health
care;
(b) extraction, collection, processing, packaging, and storage
of Agri Products;
(c) pharmaceuticals, antibiotics, wormers, disinfectants ,
pesticides, herbicides,
insecticides, rodenticides, and fungicides;
(d) feeders, embryos, live animals, larvae, aquaculture,
hydroponic and aeration
equipment;
(e) agricultural end-use products (e.g., hams, cheese, eggs);
and
(f) products and services related to the provision of methods,
systems, and techniques for the development, production, application, and
utilization of the Agri Products described in sections (a) - (e) of this
Section 1.4 such as farm and agricultural management services, farm and
agricultural computer programs and software, farm and agricultural financial
services, soil analysis, and non-pet related veterinary services.
1.5 Agri Technical Information and Know-how shall mean any and all
information owned by Ralston, [OR LICENSED FROM THIRD-PARTIES BY RALSTON UNDER
WHICH RALSTON HAS THE RIGHT TO SUB-LICENSE AND/OR ASSIGN SUCH LICENSE RIGHTS
(SUBJECT TO AGRI OBTAINING ANY REQUIRED CONSENT FROM ANY SUCH THIRD-PARTIES),]
including confidential, proprietary and/or trade secret know-how,
manufacturing, research, and other technical information that is being
exclusively used, has been exclusively used, and/or which is being exclusively
developed, by the Agri Business and is not being used and has not been used by
the Ralston business as of the Effective Date. Agri Technical Information and
Know-How shall only include, and be limited to, trade secrets, know-how,
research and other technical information which are directly related to the
development, research, manufacturing [, MARKETING, DISTRIBUTION, SALE] and/or
production of Agri Products.
1.6 Assignment Agreement shall mean the Assignment Agreement having
an effective date of December 2, 1997 by and between Protein Technologies
International, Inc., and Ralston, attached hereto as Schedule A, and
incorporated herein by this reference, as it may have been amended and
modified as of the Effective Date.
1.7 Effective Date shall mean the date set forth in the first
paragraph of this Agreement upon which this Agreement is to be effective.
1.8 Expressly Excluded Technology shall mean any and all
confidential, proprietary and/or trade secret information, formulations,
specifications, technology, know-how, development, research, manufacturing,
production, and other technical information identified on or referred to by
Schedule B attached hereto and incorporated herein by this reference.
1.9 Other Restrictions shall mean any and all restrictions,
prohibitions, non-compete provisions, and the like, contained in Article V of
the Reorganization Agreement.
1.10 Permitted Pet Foods shall mean:
(a) not more than one (1) brand of dry dog food, which shall be
formulated to provide sufficient nutritional properties as are then deemed
adequate to maintain an adult dog under standards promulgated by the
Association of American Feed Control Officials ("AAFCO"), which in no case
shall contain more than 18% protein and 8% fat (both as reflected in the
guaranteed analysis or average analysis), which shall be formulated so that
the top three (3) ingredients of the ration are not animal-, poultry-, or
fish-based protein ingredients, and which shall possess a calculated
metabolizable energy ("CME") of no more than 3500 kilocalories per kilogram
("KCal/Kg");
(b) not more than one (1) brand of dry puppy food, which shall
be formulated to provide sufficient nutritional properties as are then deemed
adequate for the growth of puppies under standards promulgated by AAFCO, which
shall in no case contain more than 22% protein 9% fat (both as reflected in
the guaranteed analysis or average analysis), which shall be formulated so
that the top three (3) ingredients of the ration are not animal-, poultry- or
fish-based protein ingredients, and which shall possess a CME of no more than
3700 KCal/Kg; and
(c) not more than one (1) brand of dry cat food, which shall be
formulated to provide sufficient nutritional properties as are then deemed
adequate to maintain an adult cat under standards promulgated by AAFCO, which
shall in no case contain more than 28% protein and 10% fat (both as reflected
in the guaranteed analysis or average analysis), which shall be formulated so
that the top three ingredients of the ration are not animal-, poultry-, or
fish-based protein ingredients, and which shall possess a CME of no more than
3600 KCal/Kg.
1.11 Pet Products shall mean all types and classifications of
products produced by Ralston as of the Effective Date for the feeding,
nourishment and care of dogs and cats, and cat litter, including, without
limitation, pet and pet related food, pet nutritional products, any food for
dogs or cats other than foods formulated specifically for laboratory dogs or
laboratory cats, bird food (but not wild bird or game bird food), pet
accessories, pet care and/or pet health products, pet and pet-related litter,
rawhides, bedding, vitamins, minerals, flea and tick control products,
shampoos, grooming accessories, leashes, collars, toys, aquarium accessories,
other pet accessories, and pet or pet-related products for purchase or use by
breeders, small animal veterinarians, police, military, guard dog forces, or
Pet Products sold to zoos. The term "Pets" includes, but shall not be limited
to, dogs, cats, and other small pet animals such as birds, guinea pigs, white
mice, and ornamental fish.
[1.12 Principal Competitor shall mean a person which has, or has an
Affiliate which has, ten percent (10%) or more of dollar sales volume [AND/OR
MARKET SHARE] as measured by A.C. Nielsen, Euromonitor, or other generally
recognized data research company (or, in the event such data is not available,
then as reasonably determined by Ralston), in any country in any of the
following product categories: [DOG FOOD, CAT FOOD, PET LITTER, PET SNACKS, OR
ANY OTHER PRODUCT MANUFACTURED] or sold by the Ralston business or one or more
of Ralston's Affiliates. Notwithstanding the foregoing, Principal Competitor
shall also include, but not be limited to, Nestle, Mars, Heinz, Iams,
Colgate-Palmolive and/or Hill's Pet Nutrition, Doanes, Nutro, Dalgety,
Cargill, Royal Canin, Greens, and any of its and/or their Affiliates.]
1.13 Purina Mills Technology Agreement shall mean the Technology
Agreement having an effective date of October 3, 1986 by and between Purina
Mills, Inc. and Ralston, attached hereto as Schedule C, and incorporated
herein by this reference, as it may have been amended and modified as of the
Effective Date.
1.14 "Ralston" shall mean Ralston Purina Company, a Missouri
corporation having its principal place of business at Checkerboard Square, St.
Louis, Missouri 63164, [AND ITS AFFILIATES, EXCLUDING AGRI AND AGRI'S
AFFILIATES.]
1.15 Ralston business shall mean the businesses of Ralston other than
the Agri business.
1.16 Ralston Designed shall mean all information which qualifies as
Proprietary Information hereunder and which relates to the research,
development, design, manufacture, processes, methods, technology, and the
like, created, developed, generated, or otherwise produced by Ralston
(including, but not limited to, Ralston's officers, directors, employees,
agents, representatives, and independent contractors) prior to the Effective
Date.
1.17 Reorganization Agreement shall mean the Agreement and Plan of
Reorganization dated as of ______, 1998, by and among Ralston Purina Company,
Ralston Purina International Holding Company, Inc., and Agribrands
International, Inc.
1.18 Shared Technical Information and Know-How shall mean any and all
information owned by Ralston, [OR LICENSED FROM THIRD PARTIES BY RALSTON UNDER
WHICH RALSTON HAS THE RIGHT TO SUB-LICENSE AND/OR ASSIGN SUCH LICENSE RIGHTS
(SUBJECT TO AGRI OBTAINING ANY REQUIRED CONSENT FROM ANY SUCH THIRD-PARTIES),]
including confidential, proprietary and/or trade secret know-how,
manufacturing, research, and other technical information, that, as of the
Effective Date: (i) has been used by and/or is being used by the Agri
Business for anything other than Pet Products; and which also (ii) has been
used by, is being used by, and/or is in the possession of the Ralston
business. The parties understand and agree that certain Ralston Designed dry
extrusion technology and Ralston Designed pellet milling technology fall
within the scope of Shared Technical Information and Know-How. However, with
respect to the Ralston X4 and Ralston X4X extrusion technology, Agri
acknowledges, understands and agrees that it may only use: (i) the one
Ralston X4X extruder which is in place in Buga, Colombia, as of the Effective
Date, in Buga, Colombia, and nowhere else; and (ii) the two Ralston X4
extruders which are in place in Songtan, Korea, and in Strathroy, Canada, as
of the Effective Date, in Songtan, Korea, and in Strathroy, Canada, and
nowhere else; and that Agri shall have no right to, and shall not, employ or
in any way use any other Ralston X4X and/or X4 extruders and/or Ralston X4X
and/or X4 extruder technology.
1.19 Territory shall mean the entire world excluding the United
States and its territories and possessions, except that the Territory shall
include Puerto Rico.
Article 2 - Grants and Licenses
- ------------------------------------
2.1 Ralston hereby transfers and assigns to Agri the entire right,
title and interest that it has, if any, in and to the patents identified on
Schedule D attached hereto, to be held and enjoyed by Agri, its successors,
and assigns, as fully and entirely as the same would have been held and
enjoyed by Ralston had this transfer and assignment not been made. Ralston
agrees to reasonably cooperate with Agri, at Agri's sole cost and expense,
including the execution of necessary recordation documents, in recording this
assignment in the appropriate patent offices.
2.2 Subject to Section 2.2(c), Ralston hereby grants to Agri, subject
to the terms, provisions and conditions of this Agreement, the following:
(a) a perpetual, royalty-free, exclusive license to utilize, for
any purpose whatsoever (expressly subject to the Other Restrictions), the Agri
Technical Information and Know-How only in the Territory. Agri shall have the
right to sub-license the Agri Technical Information and Know-How licensed to
it under this Section 2.2(a) only in and for use in the Territory, and nowhere
else, only so long as any such sub-licensees first expressly agree in writing
to be bound by and to comply with the Other Restrictions and the same
confidentiality and use restrictions as Agri has agreed to be bound by and to
comply with under Article 5 below;
(b) a perpetual, royalty-free, non-exclusive license to utilize
the Shared Technical Information and Know-How only in the Territory only to
develop, make, have made, use, and sell any products or services expressly
excluding Pet Products (expressly subject to the Other Restrictions). Agri
shall have the right to sub-license the Shared Technical Information and
Know-How licensed to it under this Section 2.2(b) only in and for use in the
Territory, and nowhere else, for any purpose except the production and sale of
Pet Products; only so long as any such sub-licensees first expressly agree in
writing to be bound by and to comply with the Other Restrictions and the same
confidentiality and use restrictions as Agri has agreed to be bound by and to
comply with under Article 5 below;
(c) The licenses and rights to sub-license granted in Sections
2.2(a) and 2.2(b) shall be subject in all cases to the following: (i) no such
license or right to sub-license shall be granted to the extent it is
inconsistent with or not permitted by the original license or other grant of
rights to RALSTON; (ii) no such license or right to sub-license (or
sub-license by AGRI) shall be granted to the extent consent thereto is
required under the original license or other grant of rights to RALSTON and
such consent has not been received; (iii) no such license or right to
sub-license shall be granted to the extent it is inconsistent with or not
permitted by, and any such license or right to sub-license shall be subject
to: (1) the rights granted to Purina Mills, Inc., under the Purina Mills
Technology Agreement; (2) the rights granted to Protein Technologies
International, Inc., under the Assignment Agreement; and/or (3) the Other
Restrictions under Article V of the Reorganization Agreement.
(d) It is understood, acknowledged and agreed that so long as
Agri and any permitted sub-licensees fully comply with the applicable terms,
conditions and provisions of this Agreement, and any authorized sub-license
agreements, including, but not limited to, the confidentiality and use
restrictions set forth in Article 5 below, Agri shall have the sole discretion
as to whether, to whom, and under what terms and conditions, it will
sub-license the rights granted it under Sections 2.2(a) and (b) herein.
2.3 Agri acknowledges and agrees that it will not grant any
sub-licenses as permitted under Section 2.2 above unless and until any such
proposed sub-licensee agrees in writing to the termination provisions set
forth in Section 9.2 of this Agreement and to the following:
(a) to be bound by and comply with the same confidentiality and
use restrictions as Agri has agreed to be bound by under Article 5 below;
(b) to be bound by and comply with the Other Restrictions;
(c) upon the termination and/or expiration of any sub-license
agreement, cease any and all use of the Agri Technical Information and
Know-How and Shared Technical Information and Know-How which constitutes
Proprietary Information as defined herein and return any and all documents and
things embodying or containing any such information to Agri.
2.4 Agri acknowledges and agrees that it presently has within its
custody, possession and/or control all of the Agri Technical Information and
Know-How and Shared Technical Information and Know-How licensed to it under
this Article 2, and Ralston acknowledges and agrees that Agri shall be
entitled to retain all such information in its possession subject to the
confidentiality and Other Restrictions set forth herein and in the
Reorganization Agreement. However, the parties acknowledge and agree that
Agri and/or the Agri Business shall, prior to the Effective Date, conduct an
audit and identify any and all Ralston Proprietary Information not licensed to
it under this Agreement including, but not limited to, any Expressly Excluded
Technology, that it has within its possession and/or control, and shall within
180 days after the Effective Date : (i) return any and all such documents,
materials, media, or the like, to Ralston; and/or (ii) provide Ralston with a
written certification, signed by an officer of Agri, representing and
warranting that all such documents, materials, media, and the like, embodying
or reflecting any such information has been destroyed. Subsequent to the
Effective Date, in the event Agri and/or Ralston learn that Agri possesses any
Ralston Proprietary Information not licensed to it under this Agreement
including, but not limited to, any Expressly Excluded Technology, Agri shall
immediately return any and all such information, documents and materials to
Ralston.
Article 3 - Reservations & Exclusions
- ------------------------------------------
3.1 Agri understands, acknowledges and agrees that Ralston expressly
reserves, and does not grant to Agri, either expressly or implicitly, any
right, title or interest to utilize, employ, disclose, disseminate,
distribute, make, license, sell, or export any Expressly Excluded Technology.
3.2 Ralston understands, acknowledges and agrees that to the extent
Agri may have or obtain the ability to use Agri Technical Information and Know
How in conjunction with publicly available information or information
rightfully obtained from third-parties, without the use or benefit of any
Ralston Proprietary Information and/or any Expressly Excluded Technology, to
develop, market, distribute and sell Permitted Pet Foods in accordance with
the terms of Article 5 of the Reorganization Agreement, this Agreement shall
not prevent or preclude such conduct.
3.3 Ralston understands, acknowledges and agrees that it shall not
have any right to grant any new licenses to any other persons or entity, on or
after the Effective Date, of any of the Agri Technical Information and
Know-How anywhere for any purpose.
3.4 Ralston understands, acknowledges and agrees that it shall not
have any right to license to any other persons or entity in the Territory, on
and after the Effective Date, any of the Shared Technical Information and
Know-How for the development, use, production, manufacture and distribution
[MARKETING AND SALE] of Agri Products.
3.5 Agri understands, acknowledges and agrees that Ralston has not
made any, and makes no, representations or warranties (and Agri expressly
waives and releases Ralston from any and all warranties), express or implied,
regarding Ralston's and/or Agri's right to make, use, offer for sale, license,
and/or sell any of the rights transferred, granted and/or licensed to Agri
under this Agreement, and/or any goods and/or services employing any of the
rights transferred, granted and/or licensed to Agri under this Agreement,
including, but not limited to, any implied warranties of title, or claims of
superior rights, infringement, or the like, in or to any of the technology or
information transferred or licensed under this Agreement.
3.6 Agri understands, acknowledges and agrees that in no event shall
Ralston be liable to Agri, any permitted sub-licensee under this Agreement,
and/or any other persons or entities, regardless of the form of a cause of
action, whether in contract, tort or under a statute, including, but not
limited to, negligence, strict liability, product liability, patent
infringement, misappropriation of trade secrets, copyright infringement,
unfair competition, or the like, which in any way arises out of and/or is
related to Agri's, any permitted sub-licensee's, and/or any other person's
and/or entity's, manufacture, use, offer for sale, license, and/or sale of any
of the rights transferred, granted and/or licensed to Agri under this
Agreement, and/or any goods and/or services employing any of the rights
transferred, granted and/or licensed to Agri under this Agreement.
3.7 The terms and provisions of Sections 3.5 through 3.7 of this
Article 3 shall survive the termination and/or expiration of this Agreement
for any reason.
Article 4 - Assignment of Technology Agreements
- -----------------------------------------------------
4.1 (a) Ralston agrees, upon the receipt of a written request by
Agri, to use commercially reasonable efforts, at Agri's sole cost and expense,
to seek to secure any required consent of third-parties for Agri to obtain a
sub-license from Ralston to use any Shared Technical Information and Know-How
(which is licensed by Ralston from a third-party) only for Agri's use,
production, manufacture, distribution, marketing, and sale of Agri Products in
the Territory.
(b) Subject to and upon Ralston's receipt of the written consent
of any such third-parties, as contemplated under Section 4.1(a) above, Agri
hereby agrees to assume, assumes, agrees to be bound by, conform with, and
undertakes to be obligated to perform each and every term, covenant, and
condition contained in any such license agreements between Ralston and any
such third-party in which Agri is granted a sub-license to use any such Shared
Technical Information and Know-How.
(c) Upon effectuation of a sub-license agreement to Agri, as
contemplated under Sections 4.1(a) above, if any, Agri agrees to defend,
indemnify, and hold Ralston harmless from and against any and all claims,
actions, suits, demands, obligations, investigations, causes of action,
judgments, losses, damages, costs, and expenses (including, but not limited
to, attorneys' and expert witness fees), arising out of or relating to any
activities, omissions, and/or breaches which occur subsequent to the Effective
Date and which could have, may have, and/or which are brought against Ralston
and/or Agri for alleged or actual breaches of any of the obligations and
duties assumed and/or undertaken by Agri under any such sub-license
agreement(s).
Article 5 - Confidentiality
- ------------------------------
5.1 Subject to the provisions of Section 5.9 below, the term
"Proprietary Information" shall mean and include only: (i) the Agri Technical
Information and Know-How; (ii) the Shared Technical Information and Know-How;
(iii) the Expressly Excluded Technology; and (iv) any other information that
the parties hereto agree in writing to designate as "Proprietary Information"
under this Agreement.
5.2 Agri acknowledges, understands and agrees, and any permitted
sub-licensees shall agree, that: (i) Ralston has expended substantial time,
money and effort researching and developing its Proprietary Information; (ii)
the Proprietary Information provides it with a significant competitive
advantage in the marketplace; (iii) the Proprietary Information is
confidential, proprietary and trade secret information; (iv) if the
Proprietary Information was disclosed or misused, Ralston would suffer
substantial irreparable harm and likely lose its competitive advantage in the
marketplace; (v) as of the Effective Date, agri is not aware of any facts or
allegations which would, in any way or manner, compromise the confidentiality,
propriety and trade secret status of any of the Proprietary Information; and
(vi) Agri will not make any use of any portion of the Proprietary Information
in a manner inconsistent with the provisions of this Agreement.
5.3 Agri agrees, and any permitted sub-licensees shall agree, that
they will each use commercially reasonable security measures and efforts to
ensure that the Proprietary Information is kept and retained in confidence and
secret; however, in no event shall the degree of care exercised by Agri, or
any permitted sub-licensee, be any less than the degree of care it employs to
maintain and protect the confidentiality of its own confidential or
proprietary information.
5.4 Agri agrees, and any permitted sub-licensees shall agree, that it
will not disclose or reveal to any other person or entity (except as permitted
herein and to the extent required or permitted pursuant to the terms of the
Purina Mills Technology Agreement and/or the Assignment Agreement, the Agri
Technical Information and Know-How which qualifies as Proprietary Information
subject to the provisions of Section 5.9.
5.5 Agri agrees, and any permitted sub-licensees shall agree, that it
will not disclose or reveal to any other person or entity (except as expressly
permitted herein) the Shared Technical Information and Know-How and/or the
Expressly Excluded Technology, which qualifies as Proprietary Information
subject to the provisions of Section 5.9. Agri agrees, and any permitted
sub-licensee shall agree, that it will only disclose the Shared Technical
Information and Know-How which qualifies as Proprietary Information subject to
the provisions of Section 5.9 to its employees, agents, officers, and
directors which have a need to know such information in connection with the
purpose of any licenses granted Agri herein and, further, that prior to
disclosing any Proprietary Information to any such persons it will require any
such employees, agents, officers, and directors to agree in writing to be
bound by and comply with the confidentiality and use restrictions of this
Article 5 to the same extent Agri is obligated herein.
5.6 Agri agrees, and any permitted sub-licensees will agree, to
promptly notify Ralston of any unauthorized use of any Proprietary Information
to the extent Agri or a sub-licensee learns or otherwise becomes aware of any
unauthorized use and to reasonably cooperate with Ralston in pursuing and
protecting its legal rights in regard to such unauthorized use.
5.7 In the event of a breach or threatened breach of any of Agri's
and/or any permitted sub-licensee's confidentiality duties and obligations
under the terms and provisions of this Article 5, Ralston shall be entitled,
in addition to any other legal or equitable remedies that it may be entitled
to (including any rights to damages that it may suffer), to temporary,
preliminary and permanent injunctive relief restraining such breach or
threatened breach.
5.8 Prior to disposing of any documentation, media, equipment,
machinery, software, or the like, containing or reflecting any Proprietary
Information, Agri agrees, and any permitted sub-licensees shall agree, that it
will first destroy, obliterate, and/or otherwise remove any and all
Proprietary Information from such materials.
5.9 Notwithstanding any other provision of this Agreement,
information shall not be considered to be Proprietary Information, and neither
party shall have any obligations respecting, nor be liable for, the use and
disclosure thereof, if the party alleging that such information is not
confidential, proprietary and/or a trade secret can prove that the
information: (a) was known to the trade or public at the time that the
information was disclosed to it; or (b) is or becomes generally known to the
trade or public through no fault on the recipient party's part; or (c) is
independently generated after the Effective Date by employees of a party, or
on its behalf by its agents, contractors, or consultants, without the use or
benefit of any Proprietary Information.
5.10 It is understood and agreed that nothing in this Agreement shall
preclude Ralston from licensing its Shared Technical Information and Know-How
and/or the Expressly Excluded Technology to any other persons or entities,
except that Ralston shall not license Shared Technical Information and
Know-How in connection with the manufacture or production of Agri Products in
the Territory.
5.11 All of the provisions of this Article 5 regarding
confidentiality shall survive the expiration and/or termination of this
Agreement.
Article 6 - Indemnification
- ------------------------------
6.1 Subject to Section 6.2, Agri agrees to defend, indemnify and hold
Ralston and its Affiliates and their respective officers, directors,
employees, agents, representatives, shareholders, successors and assigns
harmless from and against any and all claims, actions, suits, demands,
obligations, investigations, causes of action, judgments, losses, damages,
costs, and expenses (including, but not limited to, attorneys' and expert
witness fees), arising out of or relating to: (i) the breach by Agri of any
material warranty, representation, covenant, commitment or undertaking made
hereunder; (ii) any act or omission of Agri; (iii) any allegation relating to
the production, manufacture, marketing, advertising, promotion, distribution,
use, offer for sale, or sale of any goods and/or services by Agri and/or on
Agri's behalf including, but not limited to, Agri Products; (iv) any and all
alleged negligent acts, fraud or omissions of or by Agri, its officers,
directors, employees, agents, representatives, independent contractors, and/or
sub-licensees, in connection with the production, manufacture, marketing,
advertising, promotion, distribution, use, offer for sale, or sale of any
goods and/or services including, but not limited to, Agri Products; (v) any
and all allegations relating in any way or manner to products liability,
defective goods, failure to warn, or the like, as applied to goods and/or
services produced, manufactured, marketed, advertised, promoted, distributed,
used, offered for sale, or sold by or on behalf of Agri; or (vi) Agri's
alleged or actual failure to comply with any governmental and/or other laws,
statutes, ordinances, rules, and/or regulations.
6.2 Notwithstanding the foregoing, Agri shall not have any obligation
to indemnify Ralston for a singly claim, action, suit, demand, obligation,
investigation, cause of action, judgment, loss, damage, cost, and/or expense
(including, but not limited to, attorneys' and expert witness fees), which has
a total damage value of less than Ten Thousand Dollars $10,000.
Article 7 - Assignability
- ----------------------------
7.1 Ralston shall have the right to transfer some or all of its
rights and obligations under this Agreement, either by affirmative act or by
operation of law, by share ownership or otherwise, without the consent of
Agri. Agri shall have the right to transfer its rights and obligations under
this Agreement, either by affirmative act or by operation of law, by share
ownership, or otherwise, only upon its receipt of the prior written consent of
Ralston, which consent will not be unreasonably withheld. By way of example
only, the parties agree that it would be reasonable for Ralston to withhold
consent if Agri desired to transfer its rights and obligations under this
Agreement to a transferee who would thus acquire rights for a territory
covering less than a continent (e.g., Africa, Europe, Asia), or desired to
transfer any of its rights hereunder to a Principal Competitor of Ralston
anywhere in the world. "Transfer" as used in this Section 7.1 shall mean: (a)
the transfer, assignment, or conveyance (by any means including, but not
limited to, operation of law) of all or part of Agri's interest in, to or
under this Agreement or its rights or obligations hereunder; and/or (b) one or
more third-party(ies) acquiring, purchasing, and/or gaining (by any means
including, but not limited to, operation of law) a voting, profits or equity
interest of _______ percent (___%) or more in Agri; and/or (c) a change in
control transaction involving Agri.
Article 8 - Notice
- ---------------------
8.1 All notices, requests, demands, and other communications under
this Agreement or in connection therewith shall be given to or made upon the
respective parties hereto as follows:
Ralston Agri
------- ----
Ralston Purina Company Agribrands International, Inc.
Checkerboard Square 9811 South Forty Drives
St. Louis, Missouri 63164 St. Louis, Missouri 63124
Attn: General Counsel Attn: General Counsel
or to such other address, and to the attention of such other officers or
persons as each of the parties hereto may specify by notice in writing to the
other.
8.2 All notices, requests, demands, and other communications given or
made in accordance with the provisions of this Agreement shall be in writing
and by certified or registered mail, and if received shall be deemed to have
been given when deposited in the United States mail, postage prepaid.
Article 9 - Termination
- --------------------------
9.1 In the event Agri shall commit a material breach of any material
term, provision or condition of this Agreement, this Technology [TRANSFER AND
LICENSE] Agreement shall be terminable upon ninety (90) days written notice by
Ralston to Agri. Such termination shall become effective unless: (i) within
that ninety (90) day period Agri has initiated and is taking reasonable
measures to remedy such breach; and (ii) such breach has been remedied to the
reasonable satisfaction of Ralston within one hundred eighty (180) days
following such notice. This Technology [TRANSFER AND LICENSE] Agreement shall
also be terminable by Ralston upon ninety (90) days written notice by Ralston
to Agri in the event Agri Products attempts or seeks to assign, convey and/or
transfer all or any part of this Technology [TRANSFER AND LICENSE] Agreement
in any way or manner other than as provided in Article 7 above. Any
termination shall not prejudice any cause of action or claims of Ralston
accrued or to accrue on account of any material breach or default by Agri.
9.2 Agri acknowledges and agrees that it will immediately terminate
any and all permitted sub-license agreements under this Agreement in the event
any such sub-licensee materially breaches any such sub-license agreement
including, but not limited to, the terms or provisions requiring that such
sub-licensee be bound by and comply with the terms and provisions of Article 5
herein, and fails to cure any such breach, if curable, within thirty (30) days
after said breach. Each sub-license agreement shall permit such termination.
Article 10 - Miscellaneous Provisions
- -----------------------------------------
10.1 Agri understands, acknowledges and agrees that any and all
licenses and/or technical service agreements previously entered into between
Ralston and/or Ralston International Service Corporation, on the one hand, and
the Agri Business, on the other, shall be, at a minimum, amended to conform to
be consistent with the terms, provisions and conditions of this Agreement. In
the event any of the terms, provisions of conditions of any licenses and/or
technical service agreements previously entered into between Ralston and/or
Ralston International Service Corporation, on the one hand, and the Agri
Business, on the other, differ in any manner whatsoever, the terms, provisions
and conditions of this Agreement shall govern.
10.2 Agri understands, acknowledges and agrees that because Ralston
International Service Corporation ("RISCO") will become an Affiliate of Agri
in accordance with the terms and provisions of the Reorganization Agreement,
any and all license agreements, technical service agreements, and/or the like,
which were entered into between Ralston and RISCO prior to the Effective Date,
which granted RISCO any license rights to RISCO, or which otherwise permitted
or allowed RISCO, to use or in any way employ any Expressly Excluded
Technology, are hereby terminated.
10.3 Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, deemed automatically amended so that it is enforceable to the
maximum extent permissible under the laws of that jurisdiction without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Each party
acknowledges that money damages would be an inadequate remedy for any breach
of the provisions of this Agreement and agrees that the obligations of the
parties hereunder shall be specifically enforceable.
10.4 The waiver of any breach or non-enforcement of any provision of
this Agreement shall not be a waiver of future compliance or a waiver to the
provisions hereof.
10.5 Dispute Resolution. ]
-------------------
(a) If any question or dispute shall arise in regard to: (i) the
interpretation of any provision of this Agreement; or (ii) the rights or
obligations of either party hereunder; or in the event any dispute(s) shall
arise between the parties hereto which otherwise relate to or arise under this
Agreement, whether based on contract, tort, statute or otherwise, (hereinafter
collectively "Disputes"), such questions and disputes shall, in the first
instance, be exclusively governed by and settled in accordance with the
provisions of this Section 10.5; provided, that the foregoing shall not
preclude equitable or other judicial relief to enforce the provisions hereof
or to preserve the status quo pending resolution of Disputes hereunder.
Either party to this Agreement (each a "Party" and together the "Parties") may
commence proceedings hereunder by delivery of written notice providing a
reasonable description of the Dispute to the other, including a reference to
this Section 10.5 (the "Dispute Notice").
(b) Negotiations Between Executives. The Parties shall first attempt
-------------------------------
in good faith to resolve promptly any Dispute by negotiations between
executives who are not directly involved in the Dispute, and who have
authority to settle it (as to each Party, an "Executive"). Not later than 20
days after delivery of the Dispute Notice, each Party shall designate an
Executive to meet with the other Party's Executive at a reasonably acceptable
time and place, and thereafter as such Executives deem reasonably necessary.
The Executives shall exchange relevant information and endeavor to resolve the
Dispute. Prior to any such meeting, each Party's Executive shall advise the
other as to any other individuals who will attend such meeting. All
negotiations pursuant to this Section 10.5(b) shall be confidential and shall
be treated as settlement and compromise negotiations for purposes of Rule 408
of the Federal Rules of Evidence and similarly under other federal and state
rules of evidence.
(c) Mediation. Except to the extent the Parties agree to continue
---------
proceedings pursuant to Section 10.5(b) above, the Parties shall, commencing
not later than 90 days after the date of delivery of the Dispute Notice,
endeavor to settle the Dispute by Mediation pursuant to the Center for Public
Resources ("CPR") Model Procedure for Mediation of Business Disputes, as
amended from time to time, and/or according to such other or additional rules
or procedures as the Parties may mutually agree upon in writing. The neutral
third party in such Mediation shall be as agreed by the Parties or, failing
such agreement, selected with the assistance of the CPR.
10.6 This Agreement is deemed to be entered into, executed and
delivered within the State of Missouri, and it is the intention of the parties
that it shall be construed, interpreted and applied in accordance with the
laws of the State of Missouri without regard to its conflict of laws
provisions.
10.7 Ralston and Agri hereby agree that any and all disputes,
causes of action, lawsuits, or the like, arising out of and/or under this
Agreement, except for the Dispute Resolution procedures set forth in Section
10.5 above, shall be brought only in a state court located in St. Louis,
Missouri, or the United States District Court for the Eastern District of
Missouri. Ralston and Agri each hereby consent and submit to the jurisdiction
of any such court and waives any objection it may have to either jurisdiction
or venue in any such court.
10.8 Agri shall have the right:
(a) to bring suit in its own name at its own expense and on its
own behalf, for infringement of the exclusive rights licensed to Agri
hereunder;
(b) in any suit, to seek to enjoin the infringement by any
third-parties of the exclusive rights licensed to it under this Agreement and
to collect for its use, damages, profits, and awards of whatever nature
recoverable for such infringement; and
(c) to settle any claim or suit for infringement by any
third-parties of any of the exclusive rights licensed to it under this
Agreement by granting to the infringing party a sub-license in accordance with
the provisions set forth herein including, but not limited to, Article 5
above.
10.9 To the extent that Agri determines that it requires replacement
parts for the X4X or X4 extruders referenced in Section 1.18 above, and only
to the extent that Ralston is then producing such replacement part, Ralston
agrees to supply such replacement parts to Agri on reasonable commercial
terms.
10.10 Ralston and Agri agree and understand that this Agreement does
not create an employment, partnership, joint venture or agency relationship,
of any kind or nature, between the parties. Neither party shall have any
right, power, or authority to act as a legal representative of the other, and
neither party shall have any power to obligate or bind the other, or to make
any representations, warranties, express or implied, on behalf of or in the
name of the other in any manner for any purpose whatsoever.
10.11 The headings used in this Agreement are for reference only and
shall not be relied upon or used in the interpretation of this Agreement.
10.12 Notwithstanding anything to the contrary in this Agreement,
neither the execution of this Agreement nor the disclosure of any Proprietary
Information hereunder shall be construed as granting to Ralston either a
license (expressly, or by implication, estoppel, or otherwise) under, or any
right of ownership in, any information, patent, or patent application now or
hereafter owned or controlled by Agri.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate by their respective duly authorized representatives
effective on the day and year set forth in this Agreement.
RALSTON PURINA COMPANY
By: _________________________________
Printed Name: ___________________________
Title: _________________________________
Date: _________________________________
AGRIBRANDS INTERNATIONAL, INC.
By: __________________________________
Printed Name:
Title: __________________________________
Date: __________________________________
<PAGE>
======
SCHEDULE A
===========
Protein Technologies , Inc. Assignment Agreement
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<PAGE>
SCHEDULE B
===========
Expressly Excluded Technology
-------------------------------
1. Ralston Designed 16" wet mixers.
2. Ralston Designed extruder slurry technology.
3. Ralston Designed coating technology.
4. Ralston Designed packaging technology.
5. Ralston Designed fine grinding technology.
6. Ralston Designed stuffing technology.
7. Ralston Designed double extrusion technology.
8. Ralston Designed liquid animal digest technology.
9. Pet Products formulations.
10. All Pet Products nutritional data.
11. All Pet Products palatability data.
12. Specifications for Ralston Designed Pet Product formulas.
13. Specifications for Ralston Designed Pet Product packaging.
14. Specifications for Ralston Designed Pet Products ingredients.
15. Specifications for Ralston Designed Pet Products processes.
16. Specifications for Ralston Pet Product suppliers.
17. Ralston X4X extruder technology except and only to the extent
expressly permitted under 1.18 of the Agreement.
18. Ralston X4 extruder technology except and only to the extent
expressly permitted under Section 1.18 of the Agreement.
<PAGE>
SCHEDULE C
==========
Purina Mills Technology Agreement
---------------------------------
<PAGE>
SCHEDULE D
==========
Patents
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AGRIBRANDS INTERNATIONAL, INC.
1998 INCENTIVE STOCK PLAN
SECTION I. GENERAL PROVISIONS
A. PURPOSE OF PLAN
The purpose of the Agribrands International, Inc. 1998 Incentive Stock
Plan (the "Plan") is to enhance the profitability and value of the Company for
the benefit of its shareholders by (i) providing for stock options and other
stock awards to attract, retain and motivate officers and other key employees
who make important contributions to the success of the Company, and (ii)
providing stock options and other stock awards to encourage stock ownership by
the non-employee members of the Board of Directors of the Company.
B. DEFINITIONS
Unless otherwise defined herein, all capitalized terms have the same
meaning as in the Rights Agreement between Agribrands, International, Inc. and
Continental Stock Transfer & Trust Company.
1. "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall become, at any time after
the date of the Rights Agreement (whether or not such status continues for any
period), the Beneficial Owner of Common Stock representing 20% or more of
the Common Stock then outstanding, other than as a result of a Permitted
Offer. Notwithstanding the foregoing, (A) the term "Acquiring Person" shall
not include (i) the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Stock for or pursuant to the terms of any such plan, or (ii)
any Person, who or which together with all Affiliates and Associates of such
Person becomes the Beneficial Owner of 20% or more of the then outstanding
Common Stock as a result of the acquisition of Common Stock directly from the
Company (provided, however, that if, after such acquisition, such Person, or
an Affiliate or Associate of such Person, becomes the Beneficial Owner of any
additional Common Stock in an acquisition not made directly from the Company,
then such Person shall be deemed an Acquiring Person), or (iii) a
Grandfathered Person, and (B) no Person shall be deemed to be an "Acquiring
Person" (X) as a result of the acquisition of Common Stock by the Company
which, by reducing the number of Common Stock outstanding, increases the
proportional number of shares beneficially owned by such Person together with
all Affiliates and Associates of such Person; except that if (i) a Person
would become an Acquiring Person (but for the operation of this subclause (X))
as a result of the acquisition of Common Stock by the Company, and (ii) after
such share acquisition by the Company, such Person, or an Affiliate or
Associate of such Person, becomes the Beneficial Owner of any additional
Common Stock, then such Person shall be deemed an Acquiring Person, (Y) if
such Person, or an Affiliate or Associate of such Person, inadvertently
becomes the Beneficial Owner of 20% or more of the outstanding Common Stock,
or (Z) if a Person, or an Affiliate or Associate of such Person, is the
involuntary transferee of Common Stock from a Grandfathered Person (including,
but not limited to, when such involuntary transfer is as a result of the death
of a Grandfathered Person), provided that, in the case of any situation
referred to in subclause (Y) or (Z) above (1) within 8 days thereafter such
Person notifies the Board of Directors that such Person acquired the Common
Stock in question inadvertently or involuntarily, respectively, and (2) within
2 days after such notification, such Person is the Beneficial Owner of less
than 20% of the outstanding Common Stock. Notwithstanding anything to the
contrary in this Agreement, any Common Stock owned by a Grandfathered Person
shall not be taken into account when computing the number of Common Stock
beneficially owned by an Affiliate or Associate of a Grandfathered Person,
provided that such Affiliate or Associate (i) does not constitute a member of
a group (as defined for purposes of Section 13(d) of the Exchange act)
including such Grandfathered Person, or (ii) is not otherwise acting in
concert with such Grandfathered Person, each with respect to the Company.
2. "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
3. "Beneficial Owner" means a Person who is deemed to have acquired
beneficial ownership of any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly, as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act as in effect
on the date hereof;
(ii) which such Person or any of such Person's Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall be deemed the Beneficial
Owner of, or to beneficially own, any security if the agreement, arrangement
or understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules
and regulations promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso
to paragraph (ii)) above or disposing of any securities of the Company.
Notwithstanding anything in this definition of "Beneficial Owner" to the
contrary, the phrase "then outstanding", when used with reference to a
Person's beneficial ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
4. "Board" means the Board of Directors of the Company.
5. "Business Day" means any day other than a Saturday, a Sunday, or a day
on which banking institutions in St. Louis, Missouri are authorized or
obligated by law or executive order to close.
6. "Change in Control" means the earlier of:
(i) the close of business on the tenth Business Day after the Shares
Acquisition Date; or
(ii) the close of business on the tenth Business Day (or such later date
as may be determined by action of the Board of Directors of the Company prior
to such time as any Person becomes an Acquiring Person, as defined in the
Rights Agreement) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, or any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Stock for or pursuant to the terms of any such plan) is first
published or sent or given within the meaning of Rule 14d-2 of the General
Rules and Regulations under the Exchange Act, if upon consummation thereof,
such Person would be the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding; or
(iii) the Company shall consolidate with, or merge with and into any other
Person; or
(iv) the Company shall consolidate with, or merge with, any other Person,
and the Company shall be the continuing or surviving corporation of such
consolidation or merger (other than, in a case of any transaction described in
(iii) or (iv), a merger or consolidation which would result in all of the
securities generally entitled to vote in the election of directors ("voting
securities") of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
securities of the surviving entity) all of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation and the holders of such securities not having changed as a
result of such merger or consolidation); or
(v) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or a series of related
transactions, assets or earning power aggregating more than 50% of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than the Company or any Subsidiary of the Company in
one or more transactions each of which does not violate Section 11(n) of the
Rights Agreement.
7. "Committee" means the Nominating and Compensation Committee of the
Board of Directors of the Company or any successor committee the Board may
designate to administer the Plan. The Committee shall be comprised of at
least three non-Employee members of the Board.
8. "Common Stock" means Agribrands International, Inc. $.01 par value
Common Stock.
9. "Company" means Agribrands International, Inc.
10. "Corporate Officer" means the President, Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer, Secretary and Treasurer of
the Company.
11. "Director" or "Directors" means a non-Employee member or members of
the Board of Directors of the Company.
12. "Employee" means any person who is employed by the Company or an
Affiliate.
13. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
14. "Fair Market Value" of any class or series of Stock means the fair and
reasonable value thereof as determined by the Committee according to
prices in trades as reported on the New York Stock Exchange Composite
Transactions. If there are no prices so reported or if, in the opinion of the
Committee, such reported prices do not represent the fair and reasonable value
of the Stock, then the Committee shall determine Fair Market Value by any
means it deems reasonable under the circumstances.
15. "Grandfathered Person" shall mean any of the members of the Company's
Board of Directors as of the date of the Rights Agreement, who are David R.
Banks, Jay W. Brown, M. Darrell Ingram, H. Davis McCarty, Joe R. Micheletto,
Martin K. Sneider and William P. Stiritz, together with his immediate family
and any other Grandfathered Person; provided, however, that a Grandfathered
Person shall cease to be a Grandfathered Person at the time that (i) such
Person is no longer a member of the Company's Board of Directors, and (ii)
thereafter such Person becomes the Beneficial Owner of any Common Stock of the
Company, other than as a result of (A) a dividend or distribution on the
Common Stock, payable in Common Stock or securities convertible into Common
Stock, which such dividend or distribution is payable to all holders of Common
Stock, (B) a subdivision, combination, recapitalization or reclassification of
the Common Stock, or (C) an acquisition of Common Stock as a result of
exercise of Rights.
16. "Incentive Stock Option" means an option to purchase Stock which
satisfies the requirements set forth in Section 422 of the Internal Revenue
Code of 1986, as amended.
17. "Non-Qualified Stock Option" means an option to purchase Stock which
does not satisfy the requirements set forth in Section 422 of the Internal
Revenue Code of 1986, as amended.
18. "Permitted Offer" means a tender or exchange offer which is for all
outstanding Common Stock at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by at least a majority
of the members of the Board of Directors who are not officers of the
Company and who are not (or would not be, if the offer were consummated)
Acquiring Persons or Affiliates, Associates, nominees or representatives of an
Acquiring Person, to be adequate or otherwise in the best interests of the
Company and its stockholders (other than the Person or any Affiliate or
Associate thereof on whose basis the offer is being made). In determining
whether an offer is adequate or in the best interests of the Company and its
shareholders, the Board may take into account all factors that it deems
relevant including, without limitation,
(i) the consideration being offered in the proposal in relation to the
Board's estimate of: (1) the current value of the Company in a freely
negotiated sale of either the Company by merger, consolidation or otherwise,
or all or substantially all of the Company's assets, (2) the current value of
the Company if orderly liquidated, and (3) the future value of the Company
over a period of years as an independent entity discounted to current value;
(ii) then existing political, economic and other factors bearing on
security prices generally or the current market value of the Company's
securities in particular;
(iii) whether the proposal might violate federal, state or local laws;
(iv) social, legal and economic effects on employees, suppliers, customers
and others having similar relationships with the Company, and the
communities in which the Company conducts its businesses;
(v) the financial condition and earnings prospects of the person making
the proposal including the person's ability to service its debt and other
existing or likely financial obligations; and
(vi) the competence, experience and integrity of the person making the
acquisition proposal.
19. "Person" shall mean any individual, firm, partnership, corporation,
trust, association, joint venture or other entity, and shall include any
successor (by merger or otherwise) of such entity.
20. "Plan" means the Agribrands International, Inc. 1998 Incentive Stock
Plan.
21. "Plan Administrator" means the Company or its delegate.
22. "Restricted Stock Award" means an award of restricted stock granted
under paragraph 1 of Section III of the Plan.
23. "Rights Agreement" means the Rights Agreement between Agribrands
International, Inc. and Continental Stock Transfer & Trust Company.
24. "Shares Acquisition Date" shall mean the first date of a public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act)
by the Company or an Acquiring Person that an Acquiring Person has become
such; provided, that, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
25. "Stock" means the Common Stock or any other authorized class or series
of common stock or any such other security outstanding upon the
reclassification of any of such classes or series of common stock, including,
without limitation, any stock split-up, stock dividend, creation of targeted
stock, or other distributions of stock in respect of stock, or any reverse
stock split-up, or recapitalization of the Company or any merger or
consolidation of the Company with any Affiliate.
26. "Stock Award" means a Stock Option granted under Section II of the
Plan or a Stock Award granted under Section III of the Plan.
27. "Stock Option" means an option to purchase Stock granted under Section
II of the Plan.
28. "Subsidiary" means a "subsidiary corporation" of the Company as
defined in Section 424(f) (or any successor provision) of the Code.
C. SCOPE OF PLAN AND ELIGIBILITY
1. Any Employee or Director selected by the Committee shall be eligible
for the Stock Awards granted under Sections II and III of the Plan; provided,
however, that only Employees of the Company or a Subsidiary are eligible to
receive Incentive Stock Options; and, provided, further that Stock Awards for
members of the Committee shall be approved by the Board.
D. AUTHORIZATION AND RESERVATION
1. There shall be established a reserve of 2,750,000 authorized shares of
Common Stock, which shall be the total number of shares of Stock that may be
issued pursuant to Stock Awards. The maximum aggregate number of shares of
Stock with respect to which Incentive Stock Options may be granted under this
Plan shall be 2,750,000 shares. Notwithstanding the foregoing, no shares will
be issued in violation of the Agreement and Plan of Reorganization
between Ralston Purina Company and Agribrands International, Inc. The
following principles will apply in determining the number of shares of Stock
issued pursuant to Stock Awards:
(i) The number of shares underlying a Stock Award shall be counted against
the Plan reserve at the time of grant.
(ii) When a Stock Award is payable in cash and the amount of such cash is
based on the value of a number of shares of Stock which is determinable at the
time of grant, that determinable number of shares shall be deemed to
underlie that Stock Award for purposes of the Plan. If the amount of such
cash, in effect, is calculated by applying a percentage to the Fair Market
Value of a certain number of shares of Stock, if such percentage is
determinable at the date of grant, and if such determinable percentage, in
effect, exceeds 100%, the Committee shall determine at the time of grant the
number of shares which is deemed to underlie such Stock Award.
(iii) If the number of shares underlying a Stock Award is not determinable
at the time of grant, the Committee shall determine at the time of grant
a number of shares which is deemed to underlie such Stock Award; that number
may be adjusted after grant as the Committee deems appropriate.
(iv) Shares which underlie Stock Awards that (in whole or part) expire,
terminate, are forfeited, or otherwise become non-payable, or which are
recaptured by the Company in connection with a forfeiture event, may be
re-used in new grants to the extent of such expiration, termination,
forfeiture, non-payability, or recapture.
2. The reserves may consist of authorized but unissued shares of Stock or
of reacquired shares, or both.
3. The maximum aggregate number of shares of Stock with respect to which
Stock Options or Stock equivalents may be granted pursuant to any Stock Award
in any one fiscal year to any single Employee shall be 2,750,000 shares.
E. GRANT OF STOCK AWARDS AND ADMINISTRATION OF THE PLAN
1. The Committee shall determine those Employees and Directors eligible to
receive Stock Awards and the amount, type and terms of each Stock Award,
subject to the provisions of the Plan, and it shall have the power to delegate
responsibility to others to assist it in making such determinations with
respect to Employees other than Corporate Officers of the Company. Except to
the extent prohibited by Rule 16b-3, the Committee may accelerate the date on
which any Stock Award or Stock or property issued pursuant to a Stock Award
shall vest and may remove any restrictions on such Stock Award at any time
after grant and for any reason the Committee deems appropriate. The Committee
shall be comprised of (i) "outside directors" within the meaning of Section
162(m) of the Code, subject to any transitional rules applicable to the
definition of outside director, and (ii) at least three "non-employee
directors" within the meaning of Rule 16b-3 under the Exchange Act, or
otherwise qualified to administer this Plan as contemplated by that Rule or
any successor Rule under the Exchange Act; provided, however, that no Director
shall participate in any Committee decisions regarding his Stock Awards under
Articles II or III hereof. In making any determinations under the Plan, the
Committee shall be entitled to rely on reports, opinions or statements of
officers or employees of the Company, as well as those of counsel, public
accountants and other professional or expert persons. All determinations,
interpretations and other decisions under or with respect to the Plan or any
Stock Award by the Committee shall be final, conclusive and binding upon all
parties, including without limitation, the Company, any Employee or Director,
and any other person with rights to any Stock Award under the Plan, and no
member of the Committee shall be subject to individual liability with respect
to the Plan.
2. The Plan Administrator shall administer the Plan and, in connection
therewith, it shall have full power to construe and interpret the Plan,
establish rules and regulations and perform all other acts it believes
reasonable and proper, including the power to delegate responsibility to
others to assist it in administering the Plan.
SECTION II. STOCK OPTIONS
A. DESCRIPTION
The Committee may grant options with respect to any class or series of
Stock that qualify as Incentive Stock Options and it may grant Non-Qualified
Stock Options.
B. TERMS AND CONDITIONS
1. Each Stock Option shall be set forth in a written agreement containing
such terms and conditions as the Committee may determine, subject to the
provisions of the Plan.
2. Except as otherwise provided herein, the purchase price of any shares
exercised under any Stock Option must be paid in full upon such exercise. The
payment shall be made in such form, which may be cash, Stock (through
delivery of Stock or by attestation or other deemed or constructive delivery)
or any other property, as the Committee may determine. The Committee may
permit a Participant to elect to pay the exercise price upon the exercise of a
Stock Option by authorizing a third party to sell shares of Stock (or a
sufficient portion of the shares) acquired upon exercise of the Stock Option
and remit to the Company a sufficient portion of the sale proceeds to pay the
entire exercise price and any withholding tax resulting from such exercise.
The Committee may also permit other forms of cashless exercise. The
Committee, in its discretion may impose such conditions, restrictions and
contingencies with respect to shares of Stock acquired pursuant to the
exercise of an Option as the Committee determines to be desirable.
3. No Incentive Stock Option may be exercised after the expiration of ten
(10) years from the date such option is granted.
4. The option price of shares subject to any Stock Option shall not be
less than the Fair Market Value of the appropriate class or series of Stock at
the time the option is granted.
5. In the case of an Incentive Stock Option, the aggregate Fair Market
Value (determined as of the time the option is granted) of the Stock with
respect to which options are exercisable for the first time by any Employee
during any calendar year (under all such plans of his employer corporation and
its parent and subsidiary corporations) shall not exceed $100,000. To
the extent the $100,000 limitation is exceeded, the Stock Options will be
treated as Non-Qualified Stock Options.
6. All options will become immediately exercisable in the event of a
Change in Control.
C. PERIOD OF EXERCISE
Unless otherwise provided herein, a Stock Option shall be exercisable in
accordance with such terms and conditions and during such periods as may be
established by the Committee.
SECTION III. OTHER STOCK AWARDS
In addition to Stock Options, the Committee may grant other Stock Awards
payable in any class or series of Stock upon such terms and conditions as the
Committee may determine, subject to the provisions of the Plan. These terms
and conditions may include continuous service and/or the achievement of
performance measures. The performance measures that may be used by the
Committee for such Stock Awards may include stock price, market share, sales,
earnings per share, return on equity or costs. The Committee may designate a
single goal criterion or multiple goal criteria for performance measurement
purpose. Other Stock Awards may include, but are not limited to, the
following:
1. Restricted Stock Awards. The Committee may grant Restricted Stock
Awards, each of which consists of a grant of shares of any class or series of
Stock subject to terms and conditions determined by the Committee in its
discretion, subject to the provisions of the Plan. Such terms and conditions
shall be set forth in written agreements. The shares of Stock granted will be
restricted and may not be sold, pledged, transferred or otherwise
disposed of until the lapse or release of restrictions in accordance with the
terms of the agreement and the Plan. Prior to the lapse or release of
restrictions, all shares of Stock are subject to forfeiture in accordance with
Section IV of the Plan. Shares of Stock issued pursuant to a Restricted Stock
Award may be issued for no monetary consideration.
2. Stock Appreciation Right. A right to receive in cash the excess of the
Fair Market Value of a share of Stock on the date the stock appreciation
right is exercised over the Fair Market Value of a share of Stock on the date
the stock appreciation right was granted.
3. Restricted and Performance Share Unit. A fixed or variable share or
dollar denominated unit subject to such conditions of vesting, performance and
time of payment as the Committee may determine, which unit may be paid in
Stock, cash or a combination of both.
4. Limited Rights. The Committee shall have authority to grant limited
stock appreciation rights ("Limited Rights") to any Recipient of any Options
or stock appreciation rights granted under the Plan (the "Related Award") with
respect to all or some of the shares of Stock which underlie such Related
Award. Limited Rights shall not be granted separately, but shall be granted
only as alternative to their Related Award. Limited Rights may be granted
either at the time of grant of the Related Award or (except in the case of
Incentive Stock Options) at any time thereafter during its term. Limited
Rights shall be exercisable or payable at such times, payable in such amounts,
and subject to such other terms, conditions, and restrictions as the Committee
deems appropriate.
5. Stock Related Deferred Compensation. The Committee may, in its
discretion, and subject to compliance with applicable federal and state
securities laws, permit the deferral of payment of all or a portion of an
Employee's or Director's cash bonus or other cash compensation in the form of
either cash or any class or series of Stock (or Stock equivalents, each
corresponding to a share of such Stock) under such terms and conditions as the
Committee may prescribe. Payment of such compensation may be deferred
for such period or until the occurrence of such event as the Committee may
determine. Such terms and conditions shall be set forth in written
agreements. The Committee may, in its discretion, determine whether any
deferral, whether made in cash or such class or series of Stock (or Stock
equivalents) shall be paid on distribution in cash or in Stock. If a deferral
is permitted in the form of Stock or Stock equivalents, the number of shares
of Stock or number of Stock equivalents deferred will be determined by
dividing the amount of the Employee's or Director's bonus or other cash
compensation being deferred by the average of the closing prices of the
appropriate class or series of Stock, as reported by the New York Stock
Exchange Composite Transactions, during the ten trading days preceding the
effective date of the Committee's decision to defer. In addition, the
Committee may, in any fiscal year, provide for an additional matching deferral
to be credited to an Employee's or Director's account. If the Committee
directs the payments in any class or series of Stock of any portion of amounts
deferred in cash, the number of shares of such Stock paid will be determined
based on the average of the closing prices of such Stock, as reported by the
New York Stock Exchange Composite Transactions, during the ten trading days
before the payment is due. The Committee, in its discretion, may permit the
conversion of deferrals in any class or series of Stock or Stock equivalents
into deferrals in cash, or the conversion of deferrals in cash into deferrals
in any class or series of Stock or Stock equivalents. In the event such
conversion is permitted, the conversion price of the appropriate class or
series of Stock shall be based on the Fair Market Value of such Stock.
Additional rights or restrictions may apply in the event of a Change in
Control of the Company to the extent such additional rights or restrictions
are set forth in the written agreement setting for the terms of such deferred
compensation.
6. Other Stock Awards. Other Stock Awards which are related to or serve a
similar function to the Stock Awards set forth in this Section III.
7. Change in Control. All Stock Awards described in this Section III will
vest and/or become immediately exercisable in the event of a Change in
Control.
SECTION IV. FORFEITURE OF STOCK AWARDS
The Committee may include in any Stock Award agreement any provision
relating to forfeitures of Stock Awards that it deems appropriate. Such
forfeiture provisions may include, among others, prohibitions on competing
with the Company and its Subsidiaries and Affiliates and other detrimental
conduct. Forfeiture provisions for one Stock Award type may differ from those
for another type, and also may differ among Stock Awards of the same type. As
used in the Plan, a "forfeiture" of a Stock Award includes the recapture of
economic benefits derived from a Stock Award, as well as the forfeiture of a
Stock Award itself; however, the Committee may define the term more narrowly
in specific Stock Award agreements or contexts.
Stock Award agreements may provide for any forfeiture provision to
terminate or be waived upon a Change in Control. In its discretion, the
Committee may provide in any Stock Award agreement for the termination of any
forfeiture provision upon the happening of any specified event, and may
terminate or waive any forfeiture provision by action taken after grant.
SECTION V. DEATH OF STOCK AWARD RECIPIENT
The Committee, in its discretion, may determine the disposition of Stock
Awards in the event of the death of an Employee or a Director.
To the extent permitted by the Committee in its sole discretion, a Stock
Award recipient may file with the Committee a written designation of a
beneficiary or beneficiaries (subject to such limitations as to the classes
and number of beneficiaries and contingent beneficiaries as the Committee may
from time to time prescribe) to exercise, in the event of the death of the
recipient, a Stock Option, or to receive, in such event, any other Stock
Awards. The Committee reserves the right to review and approve beneficiary
designations. A recipient may from time to time revoke or change any such
designation or beneficiary and any designation of beneficiary under the Plan
shall be controlling over any other disposition, testamentary or otherwise;
provided, however, that if the Committee shall be in doubt as to the right of
any such beneficiary to exercise any Stock Option or to receive any Other
Stock Award, the Committee may determine to recognize only an exercise by the
legal representative of the recipient, in which case the Company, the
Committee and the members thereof shall not be under any further liability to
anyone.
SECTION VI. OTHER GOVERNING PROVISIONS
A. TRANSFERABILITY
Except as otherwise noted herein, no Stock Award shall be transferable
other than by beneficiary designation, will or the laws of descent and
distribution, and any right granted under a Stock Award may be exercised
during the lifetime of the holder thereof only by him or by his guardian or
legal representative; provided, however, that the Committee may grant
Non-Qualified Stock Options that are transferable, without payment of
consideration, to (i) revocable trusts for the benefit of immediate family
members which qualify as grantor trusts for Federal income tax purposes, (ii)
to immediate family members, and (iii) to partnerships whose only partners are
immediate family members. The transferee of a transferable Non-Qualified
Stock Option is subject to all conditions applicable to the transferable
Non-Qualified Stock Option prior to its transfer except that the transferee
may not avail himself of the limited transferability proviso of this Section
VI.A.
B. RIGHTS AS A SHAREHOLDER
A recipient of a Stock Award shall, unless the terms of the Stock Award
provide otherwise, have no rights as a shareholder, with respect to any Stock
Options or shares which may be issued in connection with the Stock Award until
the issuance of a Stock certificate for such shares, and no adjustment other
than as stated herein shall be made for dividends or other rights for which
the record date is prior to the issuance of such Stock certificate. In
addition, with respect to Restricted Stock Awards, recipients shall have only
such rights as a shareholder as may be set forth on the certificate or in the
terms of the Stock Award. In lieu of actual issuance of stock certificates,
the company may elect to maintain bookkeeping records of stock ownership until
such time as an Employee or Director requests stock certificates.
C. GENERAL CONDITIONS OF STOCK AWARDS
No Employee, Director or other person shall have any right with respect
to this Plan, the shares reserved or in any Stock Award, contingent or
otherwise, until written evidence of the Stock Award shall have been delivered
to the recipient and all the terms, conditions and provisions of the Plan
applicable to such recipient have been met.
D. RESERVATION OF RIGHTS OF COMPANY
The selection of an Employee for any Stock Award shall not give such
person any right to continue as an Employee and the right to discharge with or
without cause any Employee is specifically reserved.
E. ACCELERATION
The Committee may, in its sole discretion, accelerate the date of
exercise of any Stock Award.
F. EFFECT OF CERTAIN CHANGES
In the event of any extraordinary dividend, stock split-up, stock
dividend, issuance of any targeted stock, recapitalization, warrant or rights
issuance or combination, exchange or reclassification with respect to any
outstanding class or series of Stock, or consolidation, merger or sale of all
or substantially all of the assets of the Company, the Committee or its
delegee shall cause such equitable adjustments as it deems appropriate to be
made to the shares reserved and the other share limitations under Section I.D.
of the Plan and the terms of outstanding Stock Awards to reflect such event
and preserve the value of such Stock Awards. In the event the Committee
determines that any such event has a minimal effect on the value of Stock
Awards, it may elect not to cause any such adjustments to be made. In all
events, the determination of the Committee or its delegee shall be conclusive.
If any such adjustment would result in a fractional security being issuable or
awarded under this Plan, such fractional security shall be disregarded.
G. STOCK AWARDS FOR EMPLOYEES EMPLOYED OUTSIDE THE UNITED STATES
Without amending the Plan, Stock Awards may be granted to Employees who
are foreign nationals or who are employed outside the United States or both,
on such terms and conditions different from those specified in the Plan as
may, in the judgment of the Committee, be necessary or desirable to further
the purposes of the Plan. Such different terms and conditions may be
reflected in Addenda to the Plan. However, in the case of Incentive Stock
Options, no such different terms or conditions shall be employed if such term
or condition constitutes, or in effect results in, an increase in the
aggregate number of shares which may be issued under the Plan or a change in
the definition of Employee.
H. WITHHOLDING OF TAXES
The Company shall deduct from any payment, or otherwise collect from the
recipient, any taxes required to be withheld by federal, state or local
governments in connection with any Stock Award. The recipient may elect,
subject to approval by the Committee, to have shares of Stock withheld by the
Company in satisfaction of such taxes, or to deliver other shares of Stock
owned by the recipient in satisfaction of such taxes. With respect to
Corporate Officers or other recipients subject to Section 16(b) of the
Exchange Act, the Committee may impose such other conditions on the
recipient's election as it deems necessary or appropriate in order to exempt
such withholding from the penalties set forth in said Section 16(b). The
number of shares to be withheld or delivered shall be calculated by reference
to the Fair Market Value of the appropriate class or series of Stock on the
date that such taxes are determined.
I. NO WARRANTY OF TAX EFFECT
Except as may be contained in the terms of any Stock Award, no opinion is
expressed nor warranties made as to the effect for federal, state or local tax
purposes of any Stock Award.
J. AMENDMENT OF PLAN
The Board may, from time to time, amend, suspend or terminate the Plan in
whole or in part, and if terminated may reinstate any or all of the provisions
of the Plan, except that no amendment, suspension or termination may apply to
the terms of any Stock Award (contingent or otherwise) granted prior to the
effective date of such amendment, suspension or termination without the
recipient's consent. Any such action of the Board may be taken without the
approval of the Company's shareholders, but only to the extent that such
shareholder approval is not required by applicable law or regulation,
including specifically the Internal Revenue Code of 1986, as amended, or Rule
16b-3 promulgated under the Securities Exchange Act.
K. CONSTRUCTION OF PLAN
The place of administration of the Plan shall be in the State of
Missouri, and the validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to
the Plan, shall be determined solely in accordance with the laws, but not the
laws pertaining to choice of laws, of the State of Missouri.
SECTION VII. EFFECTIVE DATE AND TERM
This Plan shall be effective April 1, 1998 and shall continue in effect
until December 31, 2007, when it shall terminate. Upon termination, any
balances in the Stock reserve established in Section I.D. shall be canceled,
and no Stock Awards shall be granted under the Plan thereafter. The Plan
shall continue in effect, however, insofar as is necessary to complete all of
the Company's obligations under outstanding Stock Awards and to conclude the
administration of the Plan.
AGRIBRANDS INTERNATIONAL, INC.
By:
AGRIBRANDS INTERNATIONAL, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
Article 1
Definitions
-----------
Section 1.1 Acquiring Person - Any Person who or which, together with all
- ------------ ----------------
Affiliates and Associates of such Person, shall become, at any time after the
date of the Rights Agreement (whether or not such status continues for any
period), the Beneficial Owner of Common Stock representing 20% or more of the
Common Stock then outstanding, other than as a result of a Permitted Offer.
Notwithstanding the foregoing, (A) the term "Acquiring Person" shall not
include (i) the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company, or any entity holding
Common Stock for or pursuant to the terms of any such plan, or (ii) any
Person, who or which together with all Affiliates and Associates of such
Person becomes the Beneficial Owner of 20% or more of the then outstanding
Common Stock as a result of the acquisition of Common Stock directly from the
Company (provided, however, that if, after such acquisition, such Person, or
an Affiliate or Associate of such Person, becomes the Beneficial Owner of any
additional Common Stock in an acquisition not made directly from the Company,
then such Person shall be deemed an Acquiring Person), or (iii) a
Grandfathered Person, and (B) no Person shall be deemed to be an "Acquiring
Person" (X) as a result of the acquisition of Common Stock by the Company
which, by reducing the number of Common Stock outstanding, increases the
proportional number of shares beneficially owned by such Person together with
all Affiliates and Associates of such Person; except that if (i) a Person
would become an Acquiring Person (but for the operation of this subclause (X))
as a result of the acquisition of Common Stock by the Company, and (ii)
after such share acquisition by the Company, such Person, or an Affiliate or
Associate of such Person, becomes the Beneficial Owner of any additional
Common Stock, then such Person shall be deemed an Acquiring Person, (Y) if
such Person, or an Affiliate or Associate of such Person, inadvertently
becomes the Beneficial Owner of 20% or more of the outstanding Common Stock,
or (Z) if a Person, or an Affiliate or Associate of such Person, is the
involuntary transferee of Common Stock from a Grandfathered Person (including,
but not limited to, when such involuntary transfer is as a result of the death
of a Grandfathered Person), provided that, in the case of any situation
referred to in subclause (Y) or (Z) above (1) within 8 days thereafter such
Person notifies the Board of Directors that such Person acquired the Common
Stock in question inadvertently or involuntarily, respectively, and (2) within
2 days after such notification, such Person is the Beneficial Owner of less
than 20% of the outstanding Common Stock. Notwithstanding anything to the
contrary in this Agreement, any Common Stock owned by a Grandfathered Person
shall not be taken into account when computing the number of Common Stock
beneficially owned by an Affiliate or Associate of a Grandfathered Person,
provided that such affiliate or Associate (i) does not constitute a member of
a group (as defined for purposes of Section 13(d) of the Exchange act)
including such Grandfathered Person, or (ii) is not otherwise acting in
concert with such Grandfathered Person, each with respect to the Company.
Section 1.2 Affiliate and Associate - The respective meanings ascribed to
- ------------ -----------------------
such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
Section 1.3 Base Salary Compensation - The salary payable to an Eligible
- ------------ ------------------------
Employee by the Employer with respect to services performed during the Year,
including amounts deferred by the Eligible Employee under the SIP and pursuant
to any salary reduction agreement under Section 125 of the Code.
Section 1.4 Basic Matched Contributions - The contributions made to the
- ------------ ---------------------------
Plan as described in Section 3.2 of the Plan.
Section 1.5 Basic Unmatched Contributions - The contributions made to the
- ------------ -----------------------------
Plan as described in Section 3.3 and Section 4.1 of the Plan.
Section 1.6 Beneficial Owner - a Person who is deemed to have acquired
- ------------ ----------------
beneficial ownership of any securities:
(a) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly, as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act as in effect
on the date hereof;
(b) which such Person or any of such Person's Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall be deemed the Beneficial
Owner of, or to beneficially own, any security if the agreement, arrangement
or understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules
and regulations promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(c) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso
to paragraph (b)) above or disposing of any securities of the Company.
Notwithstanding anything in this definition of "Beneficial Owner" to the
contrary, the phrase "then outstanding", when used with reference to a
Person's beneficial ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
Section 1.7 Beneficiary - The person or persons (including legal entities)
- ----------- -----------
who have been designated in accordance with Section 7.3 hereof to receive
benefits under the Plan following a Participant's death.
Section 1.8 Board - The Board of Directors of Agribrands International,
- ------------ -----
Inc.
Section 1.9 Bonus Compensation - Any cash bonus or other cash incentive
- ------------ ------------------
compensation, other than Base Salary Compensation, payable by the Employer to
an Eligible Employee with respect to the Eligible Employee's service for the
calendar year.
Section 1.10 Business Day - Any day other than a Saturday, a Sunday, or a
- ------------- ------------
day on which banking institutions in St. Louis, Missouri are authorized or
obligated by law or executive order to close.
Section 1.11 Change in Control - The earlier of:
- ------------- -------------------
(a) the close of business on the tenth Business Day after the Shares
Acquisition Date; or
(b) the close of business on the tenth Business Day (or such later date as
may be determined by action of the Board prior to such time as any Person
becomes an Acquiring Person, as defined in the Rights Agreement) after the
date that a tender or exchange offer by any Person (other than the Company,
any Subsidiary of the Company, or any employee benefit plan of the Company or
of any Subsidiary of the Company or any entity holding Common Stock for or
pursuant to the terms of any such plan) is first published or sent or given
within the meaning of Rule 14d-2 of the General Rules and Regulations under
the Exchange Act, if upon consummation thereof, such Person would be the
Beneficial Owner of 20% or more of the share of Common Stock then outstanding;
or
(c) the Company shall consolidate with, or merge with and into any other
Person; or
(d) the Company shall consolidate with, or merge with, any other Person,
and the Company shall be the continuing or surviving corporation of such
consolidation or merger (other than, in a case of any transaction described in
(iii) or (iv), a merger or consolidation which would result in all of the
securities generally entitled to vote in the election of directors ("voting
securities") of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
securities of the surviving entity) all of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation and the holders of such securities not having changed as a
result of such merger or consolidation); or
(e) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or a series of related
transactions, assets or earning power aggregating more than 50% of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than the Company or any Subsidiary of the Company in one
or more transactions each of which does not violate Section 11(n) of the
Rights Agreement.
Section 1.12 Code - The Internal Revenue Code of 1986, as amended.
- ------------- ----
Section 1.13 Committee - The Nominating and Compensation Committee of the
- ------------- ---------
Board.
Section 1.14 Common Stock - Agribrands International, Inc. $.01 par value
- ------------- ------------
Common Stock.
Section 1.15 Company - Agribrands International, Inc.
- ------------- -------
Section 1.16 Company Basic Matching Contributions - The contributions made
- ------------ ------------------------------------
to the Plan as described in Section 3.5(a) of the Plan.
Section 1.17 Company Supplemental Matching Contributions - The
- ------------- ----------------------------------------------
contributions made to the Plan as described in Section 3.5(b) of the Plan.
Section 1.18 Director - A non-Employee member of the Board of Directors of
- ------------ --------
the Company.
Section 1.19 Director Compensation - The retainer and meetings fees earned
- ------------ ---------------------
by Directors for services rendered to the Company.
Section 1.20 Disability - A mental or physical disability as, in the
- ------------- ----------
opinion of the Plan Administrator, will prevent a Participant from resuming
work of the same general nature as that which he performed for the Employer
prior to his disability.
Section 1.21 Eligible Employee - An Employee who satisfies the
- ------------- ------------------
requirements of Sections 2.1 and 2.2 of the Plan.
- -----------
Section 1.22 Employee - Any individual who is employed by an Employer.
- ------------- --------
Section 1.23 Employer - Agribrands International, Inc. or any of its
- ------------- --------
subsidiaries so designated by the Committee.
Section 1.24 ERISA - The Employee Retirement Income Security Act of 1974,
- ------------- -----
as amended.
Section 1.25 Exchange Act - The Securities Exchange Act of 1934, as
- ------------- -------------
amended.
Section 1.26 Grandfathered Person - Any of the members of the Company's
- ------------- --------------------
Board of Directors as of the date of this Rights Agreement, who are David R.
Banks, Jay W. Brown, M. Darrell Ingram, H. Davis McCarty, Joe R. Micheletto,
Martin K. Sneider and William P. Stiritz, together with his immediate family
and any other Grandfathered Person; provided, however, that a Grandfathered
Person shall cease to be a Grandfathered Person at the time that (i) such
Person is no longer a member of the Company's Board of Directors, and (ii)
thereafter such Person becomes the Beneficial Owner of any Common Stock of the
Company, other than as a result of (A) a dividend or distribution on the
Common Stock, payable in Common Stock or securities convertible into Common
Stock, which such dividend or distribution is payable to all holders of Common
Stock, (B) a subdivision, combination, recapitalization or reclassification of
the Common Stock, or (C) an acquisition of Common Stock as a result of
exercise of Rights.
Section 1.27 Participant - An Eligible Employee or Director who is
- ------------- -----------
deferring, or an Eligible Employee, former Eligible Employee, Director or
former Director who has deferred, compensation pursuant to Article 3 of the
Plan.
Section 1.28 Permitted Offer - A tender or exchange offer which is for all
- ------------ ---------------
outstanding Common Stock at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by at least a majority
of the members of the Board of Directors who are not officers of the Company
and who are not (or would not be, if the offer were consummated) Acquiring
Persons or Affiliates, Associates, nominees or representatives of an Acquiring
Person, to be adequate or otherwise in the best interests of the Company and
its stockholders (other than the Person or any Affiliate or Associate thereof
on whose basis the offer is being made). In determining whether an offer is
adequate or in the best interests of the Company and its shareholders, the
Board may take into account all factors that it deems relevant including,
without limitation,
(a) the consideration being offered in the proposal in relation to the
Board's estimate of: (1) the current value of the Company in a freely
negotiated sale of either the Company by merger, consolidation or otherwise,
or all or substantially all of the Company's assets, (2) the current value of
the Company if orderly liquidated, and (3) the future value of the Company
over a period of years as an independent entity discounted to current value;
(b) then existing political, economic and other factors bearing on
security prices generally or the current market value of the Company's
securities in particular;
(c) whether the proposal might violate federal, state or local laws;
(d) social, legal and economic effects on employees, suppliers, customers
and others having similar relationships with the Company, and the communities
in which the Company conducts its businesses;
(e) the financial condition and earnings prospects of the person making
the proposal including the person's ability to service its debt and other
existing or likely financial obligations; and
(f) the competence, experience and integrity of the person making the
acquisition proposal.
Section 1.29 Person - Any individual, firm, partnership, corporation,
- ------------- ------
trust, association, joint venture or other entity, and shall include any
successor (by merger or otherwise) of such entity.
Section 1.30 Plan - The Agribrands International, Inc. Non-Qualified
- ------------- ----
Deferred Compensation Plan, as amended from time to time.
Section 1.31 Plan Administrator - means Agribrands International, Inc. or
- ------------- ------------------
its delagatee.
Section 1.32 Retirement - Termination of Employment at or after age 55.
- ------------- ----------
Section 1.33 Rights Agreement - The Rights Agreement between Agribrands
- ------------- ----------------
International, Inc. and Continental Stock Transfer & Trust Company.
Section 1.34 Shares Acquisition Date - The first date of a public
- ------------- -------------------------
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act)
by the Company or an Acquiring Person that an Acquiring Person has become
such; provided, that, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
Section 1.35 SIP - The Agribrands International, Inc. Savings Investment
- ------------- ---
Plan, as amended from time to time.
Section 1.36 Subsidiary - A "subsidiary corporation" of the Company as
- ------------- ----------
defined in Section 424(f) (or any successor provision) of the Code.
Section 1.37 Supplemental Contributions - The contributions made to the
- ------------- --------------------------
Plan as described in Section 3.4 of the Plan.
Section 1.38 Termination for Cause - An Employee's termination of
- ------------- -----------------------
employment with an Employer because of the Employee's willful engaging in
gross misconduct; provided, however, that a Termination for Cause shall not
include termination attributable to (i) poor work performance, bad judgment or
negligence on the part of Employee, (ii) an act or omission believed by
Employee in good faith to have been in or not opposed to the best interests of
the Employer and reasonably believed by Employee to be lawful, or (iii) the
good faith conduct of Employee in connection with a Change of Control
(including opposition to or support of such Change of Control).
Section 1.39 Termination of Employment - Separation from employment with
- ------------- -------------------------
the Company, any other Employer, or any other Affiliate of the Company for
reasons other than death of the Participant; provided, however, that a
transfer in employment between the Company, any other Employer or an Affiliate
of the Company shall not be deemed a Termination of Employment. For
purposes of the Plan, the sale by the Company or an Affiliate of all or
substantially all of the outstanding capital stock of an Employer or other
Affiliate shall be deemed to be a Termination of Employment of Participants
employed by such Employer or other Affiliate.
Section 1.40 Year - A calendar year, unless otherwise specified.
- ------------- ----
Article 2
Eligibility and Participation
-----------------------------
Section 2.1 Eligibility
- ------------ -----------
Participation in the Plan is limited to (i) Directors, and (ii) a select
group of management or highly compensated employees, as defined in Section
201(2) of ERISA. An Employee shall be eligible to elect to participate in the
Plan during the period of time in which the Employee:
(a) (1) is Chairman of the Board, Director, Chief Executive
Officer, President, Chief Financial Officer, Corporate Officer or Vice
President of an Employer; or
(2) is designated by the Chief Executive Officer of Agribrands
International, Inc. as eligible to participate in the Plan; and
(b) has elected to defer Base Salary Compensation and Bonus
Compensation as permitted under the terms of the SIP.
Section 2.2 Initial Enrollment
- ------------ -------------------
(a) A Director may first become a Participant upon the date he or she has
completed and submitted to the Plan Administrator or its designee an
enrollment form by which the Director elects to defer a specified percentage
of his or her Director Compensation in accordance with Article 3.
(b) An Employee may first become an Eligible Employee upon the date he or
she has completed and submitted an enrollment form by which the Employee
elects to defer a specified percentage of Base Salary Compensation and/or
Bonus Compensation in accordance with Article 3.
<PAGE>
Section 2.3 Annual Deferral Elections
- ------------ ---------------------------
Within thirty (30) days of commencement of employment or, with regard to
existing Participants, on or before December 31 of the preceding Year, an
election to defer compensation may be submitted to the Plan Administrator or
its designee on forms provided by it in order for in order for a Participant
to defer compensation pursuant to the Plan during the Year. Each deferral
election is effective for an entire Year, and cannot be increased or decreased
during that period. In the event a Participant fails to submit an annual
deferral election form, he or she will be deemed to have made the same
election submitted for the prior Year.
Section 2.4 Cessation of Deferrals
- ------------ ------------------------
An Eligible Employee who ceases to meet the eligibility requirements of
Section 2.1 may no longer defer Base Salary Compensation and/or Bonus
Compensation pursuant to the Plan effective as of the first payroll period
beginning after such cessation of eligibility. Such Employee shall continue
to be a Participant in the Plan for all other purposes until distribution of
his or her account balance.
Article 3
Eligible Employee Contributions
-------------------------------
Section 3.1 Deferrals into the Plan
- ------------ --------------------------
An Eligible Employee whose deferrals into the SIP are limited during a
Year by the deferral limits imposed by ERISA and the Code may defer a portion
of his or her Base Salary Compensation and/or Bonus Compensation, in excess of
that permitted to be deferred pursuant to the SIP, on a before-tax basis into
the Plan. No after-tax deferrals are permitted under the Plan. If an
Eligible Employee's deferrals from a single payment of Base Salary
Compensation and/or Bonus Compensation must be apportioned between the SIP and
the Plan, the deferral percentage applicable to the initial deferral under the
Plan shall be equal to the deferral percentage then in effect for the SIP.
Subsequent deferrals pursuant to the Plan shall be made at the deferral
percentage elected by the Eligible Employee for that Year.
Section 3.2 Basic Matched Contributions
- ------------ -----------------------------
Subject to Section 3.1, each Eligible Employee may defer receipt of a
portion of his or her Base Salary Compensation and Bonus Compensation in any
amount from 1% to 6%, in 1% increments, for each payroll period in a Year
beginning with that payroll period in which the Eligible Employee exceeds the
deferral limits in the SIP. Such deferrals into the Plan shall be defined as
Basic Matched Contributions.
<PAGE>
Section 3.3 Basic Unmatched Contributions
- ------------ -------------------------------
Subject to Section 3.1, each Eligible Employee who has elected the
maximum Basic Matched Contributions rate of 6% may defer receipt of a portion
of his or her Base Salary Compensation and Bonus Compensation by an additional
1% to 6%, in 1% increments, for each payroll period in a calendar year
beginning with that payroll period in which the Eligible Employee exceeds the
deferral limits in the SIP. Such deferrals shall be defined as Basic
Unmatched Contributions.
Section 3.4 Supplemental Contributions
- ------------ ---------------------------
Subject to Section 3.1, each Eligible Employee who has elected the
maximum Basic Matched Contribution rate of 6% and the Basic Unmatched
Contribution of 6% may defer receipt of all or a portion of the balance of his
or her Base Salary Compensation and/or Bonus Compensation, in 1% increments,
for each payroll period of the Year. The deferral percentages for Base Salary
Compensation and Bonus Compensation need not be the same.
Section 3.5 Company Matching Contributions
- ------------ --------------------------------
(a) With respect to each applicable payroll period, the Company shall
contribute on behalf of each Eligible Employee an amount equal to 50% of such
Eligible Employee's Basic Matched Contributions. Such contributions shall be
defined as Company Basic Matching Contributions.
(b) With regard to each applicable payroll period, the Company may
contribute, in its discretion, such additional matching contributions for the
Year as it deems appropriate. Such contributions shall be defined as Company
Supplemental Matching Contributions.
Article 4
Director Contributions
----------------------
Section 4.1 Basic Unmatched Contributions
- ------------ -------------------------------
Each Director may defer receipt of all or a portion of his or her
Director Compensation earned during the Year, in 1% increments.
Article 5
Investments and Recordkeeping
-----------------------------
Section 5.1 Investments. The Committee will establish at least four
- ------------ -----------
investment funds for the Plan which shall be substantially similar to the
investment funds established for the SIP. All contributions on behalf of a
Participant will be invested at the election of the Participant in multiples
of one percent (1%) in the investment funds authorized by the Committee. A
Participant's investment election will be made on the same form as his annual
deferral election submitted pursuant to Section 2.3. A Participant may not
change his investment election during the Year.
Section 5.2 Participants' Accounts
- ------------ -----------------------
The Company shall establish a book reserve account for each Participant.
With respect to each payroll period, as appropriate, the Company shall credit
to a Participant's account his or her deferrals. Each Participant's account
balance shall be credited daily with earnings or losses attributable to the
investment funds specified by the Participant in his annual deferral election
submitted pursuant to Section 2.3. A Participant's account will include any
amounts transferred to the Plan from the Ralston Purina Company Deferred
Compensation Plan for Key Employees and the Ralston Purina Company Executive
Savings Investment Plan.
Section 5.3 Statement of Benefits. Each Participant shall be furnished a
- ------------ ---------------------
statement setting forth the value of his or her account at least annually.
Article 6
Vesting of Contributions
------------------------
Section 6.1 Vesting of Deferral Contributions
- ------------ ------------------------------------
Each Participant shall be vested at all times in amounts attributable to
his or her Basic Matched Contributions, Basic Unmatched Contributions,
Supplemental Contributions, any amounts transferred to the Plan from the
Ralston Purina Company Deferred Compensation Plan for Key Employees and the
Ralston Purina Company Executive Savings Investment Plan, and any earnings
thereon.
Section 6.2 Vesting of Company Matching Contributions
- ------------ ---------------------------------------------
A Participant shall be vested in the following manner in Company Matching
Contributions made to such Participant's account pursuant to Section 3.5:
(a) 100% vested in the case of a Participant employed by an Employer on or
before April 15, 1998;
(b) At the rate of 20% for each whole year of employment with the Company
commencing after the Participant's first year of employment, as recognized
under the terms of the SIP; or
(c) 100% vested in the event of the occurrence of any one of the
following:
(1) attainment of age 65
(2) Retirement
(3) Disability
(4) Death
(5) Termination of the Plan.
(6) Change in Control.
Article 7
Distributions
-------------
Section 7.1 Time of Distribution
- ------------ ----------------------
(a) A Participant's Basic Matched Contributions, Basic Unmatched
Contributions and Supplemental Contributions which are attributable to Base
Salary Compensation or Director Compensation, as well as any amounts
transferred to the Plan from the Ralston Purina Company Deferred Compensation
Plan for Key Employees and the Ralston Purina Company Executive Savings Plan,
will become payable upon Termination of Employment or death.
(b) An Eligible Employee's Basic Matched Contributions, Basic Unmatched
Contributions and Supplemental Contributions which are attributable to Bonus
Compensation will be come payable (1) on January 31 of the Year following the
Year in which such Bonus Compensation was earned, or (2) upon Termination of
Employment, as elected by the Eligible Employee in his annual deferral
election under Section 2.3.
(c) Notwithstanding the foregoing, in the event the Company is in default
of its funding obligations under any rabbi trust agreement established with
respect to the Plan, and it fails to cure such default in a timely manner as
provided under such trust agreement, the Plan Administrator shall, as soon as
practicable, pay to each Participant or Beneficiary all amounts credited to
the account of each Participant or Beneficiary, except to the extent such
individual elects, before the date such payments are made, to continue to
defer receipt of such payment.
Section 7.2 Commencement of Distributions to Participant
- ------------ ------------------------------------------------
Subject to Section 7.1(b), amounts due to a Participant, including any
earnings thereon, shall be paid no later than January 31 of the Year following
the Year of such Participant's Retirement or other Termination of Employment.
Notwithstanding the foregoing, distributions to Participants who have incurred
a Disability shall be made on the 60th day following the determination of such
Disability. No distribution to a Participant will be accelerated as a result
of termination of the Plan.
Section 7.3 Distribution Upon Death
- ------------ -------------------------
In the event of the Participant's death, all amounts due to be
distributed shall be paid to the Beneficiary designated by the Participant in
a writing submitted to the Employee Benefits Department; but if none is
designated, then benefits shall be paid to the Participant's revocable living
trust, and if none, to the Participant's testamentary trust, and if none, to
the Participant's estate or as provided by law. Changes in designation may be
made by filing a written request with the Plan Administrator or its designee.
Distribution in full shall be paid on the 60th day following the Participant's
death. The Plan Administrator reserves the right to review and approve
Beneficiary designations.
Section 7.4 Amount to be Distributed
- ------------ ---------------------------
At the appropriate time of distribution described in Section 7.1, 7.2 or
7.3, the Company shall distribute the value of a Participant's account as of
the date of distribution. Earnings, if any, on the Participant's account
balance shall be credited to the Participant's account as of the date
preceding the date of distribution of the principal account balance.
Section 7.5 Form of Distribution
- ------------ ----------------------
All distributions shall be made in a single lump sum cash payment.
Section 7.6 Withdrawals and Loans
- ------------ -----------------------
(a) Loans are not permitted under the Plan.
(b) Subject to Section 7.1(b), no inservice withdrawals are permitted
except that the Plan Administrator, in its sole and absolute discretion, may
permit withdrawals by a Participant of any amount from such Participant's
account if the Plan Administrator determines, in its discretion, that such
funds are needed due to serious and immediate financial hardship from an
unforeseeable emergency. Serious and immediate financial hardship to the
Participant must result from a sudden and unexpected illness or accident of
the Participant or a dependent, loss of property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising from events
beyond the control of the Participant. A distribution based upon such
financial hardship cannot exceed the amount necessary to meet such immediate
financial need, including federal, state and local taxes on the distribution.
In addition, the Plan Administrator may impose suspension of a Participant's
deferrals into the Plan or other penalties as a condition of such withdrawals.
<PAGE>
Article 8
Forfeitures
-----------
Section 8.1 Time of Forfeiture
- ------------ --------------------
(a) In the event of a Participant's Termination of Employment prior to the
attainment of age 55, the unvested, if any, portion of Company Matching
Contributions allocated to such Participant's account, and any earnings
thereon, shall be forfeited as of the date of such Termination of Employment.
(b) Company Matching Contributions will be forfeited in the event a
Participant is Terminated for Cause.
Section 8.2 Disposition of Forfeitures
- ------------ ----------------------------
All forfeitures arising out of the application of the provisions of
Section 8.1 shall be used to reduce Company Matching Contributions otherwise
payable to Participants' accounts under the Plan.
Article 9
Amendment and Administration of the Plan
----------------------------------------
Section 9.1 Power to Amend
- ------------ ----------------
The power to amend, modify or terminate this Plan at any time is reserved
to the Committee; provided that, no amendment, modification or termination may
apply to or affect the terms of any deferral of compensation deferred prior to
the effective date of such amendment, modification or termination, without the
consent of the Participant or Beneficiary affected thereby.
Section 9.2 Administration of the Plan
- ------------ -----------------------------
The Plan Administrator shall administer the Plan and, in connection
therewith, shall have full power to designate types of compensation which may
be deferred; to construe and interpret the Plan; to establish rules and
regulations; to delegate responsibilities to others to assist it in
administering the Plan or performing any responsibilities hereunder; and to
perform all other acts it believes reasonable and proper in connection with
the administration of the Plan.
Section 9.3 Claim Procedure
- ------------ ----------------
Each Participant or Beneficiary who believes his claim for benefits has
been wholly or partially denied shall have the right to request the Plan
Administrator or its designee to review such denial. A request for review
shall be filed by the Participant or Beneficiary or duly authorized
representative on or before the sixtieth (60th) day following the Participant
or Beneficiary's receipt of notice of denial of his claim. The Participant or
Beneficiary shall have the right to review pertinent documents and submit
issues and comments in writing in connection with the request for review. The
Plan Administrator or its designees shall issue a written statement on or
before the sixtieth (60th) day following its receipt of such request stating
the Plan Administrator or its designee's decision on review and the reasons
therefor, including specific references to pertinent Plan provisions on which
the decision is based, and any other information required by applicable law.
If special circumstances require additional time for processing such review,
the Plan Administrator or its designee may extend the period for an additional
sixty (60) days provided that the Participant or Beneficiary is notified of
such circumstances. If the decision is not issued within the prescribed
period, the appeal shall be deemed denied. No Participant or Beneficiary
shall have recourse to courts of law until the administrative review process
set forth herein has been completed.
Article 10
Miscellaneous
-------------
Section 10.1 Company's Obligations Unfunded
- ------------- --------------------------------
All benefits due a Participant or Beneficiary under the Plan are unfunded
and unsecured and are payable out of the general funds of the Company. The
Company, in its sole and absolute discretion, may establish a grantor trust
for the payment of benefits and obligations hereunder, the assets of which
shall be at all times subject to the claims of creditors of the Company as
provided for in such trust, provided that such trust does not alter the
characterization of the Plan as an unfunded plan for purposes of ERISA. Such
trust shall make distributions in accordance with the terms of the Plan.
Section 10.2 No Right to Continued Employment
- ------------- ------------------------------------
Neither the establishment of the Plan nor the payment of any benefits
thereunder nor any action of the Company, its affiliates, the Plan
Administrator, the Board, the Committee or their designees shall be held or
construed to confer upon any person any legal right to be continued in the
employ of an Employer or any affiliate of an Employer.
Section 10.3 Transferability of Benefits
- ------------- -----------------------------
The right to receive payment of benefits under this Plan shall not be
transferred, assigned or pledged except by beneficiary designation, will or
pursuant to the laws of descent and distribution.
Section 10.4 Address of Participant or Beneficiary
- ------------- -----------------------------------------
A Participant shall keep the Plan Administrator apprised of the
Participant's current address and that of any Beneficiary at all times during
participation in the Plan. At the death of a Participant, a Beneficiary who
is entitled to receive payment of benefits under the Plan shall keep the
Employee Benefits Department apprised of such Beneficiary's current address
until the entire amount to be distributed has been paid.
Section 10.5 Taxes
- ------------- -----
Any taxes required to be withheld under applicable federal, state, local
or foreign tax laws or regulations may be withheld from any payment due
hereunder.
Section 10.6 Missouri Law to Govern
- ------------- -------------------------
All questions pertaining to the interpretation, construction,
administration, validity and effect of the provisions of the Plan shall be
determined in accordance with the laws of the State of Missouri.
Section 10.7 Headings
- ------------- --------
Headings of Articles and Sections of the Plan are inserted for
convenience of reference. They constitute no part of the Plan.
AGRIBRANDS INTERNATIONAL, INC.
By: ___________________________
4/1/98
INDEMNIFICATION AGREEMENT
-------------------------
INDEMNIFICATION AGREEMENT (the "Agreement") made this ______ day of
______________, 19__, between AGRIBRANDS INTERNATIONAL, INC., a Missouri
corporation (the "Company") and ("Officer").
WHEREAS, Officer is a Corporate Officer of the Company, and in such
capacity is performing a valuable service for Company; and
WHEREAS, the Company's Restated Articles of Incorporation (the
"Articles") permit the indemnification of directors, officers, employees and
certain agents of the Company, and indemnification is also authorized by
Section 351.355 of the Missouri Revised Statutes 1978, as amended to date (the
"Indemnification Statute"); and
WHEREAS, the Articles and the Indemnification Statute permit full
indemnification of officers absent knowingly fraudulent, deliberately
dishonest or willful misconduct; and
WHEREAS, in order to induce Officer to continue to serve as a Corporate
Officer of the Company, Company has determined and agreed to enter into this
contract with Officer;
NOW THEREFORE, in consideration of Officer's continued service as a
Corporate Officer after the date hereof, the Company and Officer agree as
follows:
1. Indemnity of Officer. Company hereby agrees to hold harmless and
--------------------
indemnify Officer to the full extent authorized or permitted by the provisions
of the Indemnification Statute, or by any amendment thereof, or any other
statutory provisions authorizing or permitting such indemnification which is
adopted after the date hereof.
2. Additional Indemnity. Subject to the exclusions set forth in
---------------------
Section 3 hereof, Company further agrees to hold harmless and indemnify
Officer against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by
Officer in connection with any threatened, pending or completed action, claim,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Company) to which Officer is,
was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that Officer is, was or at any time whether before or after
the date of this Agreement) becomes a director, officer, employee or agent of
the Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
<PAGE>
3. Limitations on Additional Indemnity.No indemnity pursuant to Section 2
------------------------------------
hereof shall be paid by Company:
(a) Except to the extent the aggregate of losses to be indemnified
thereunder exceeds the amount of such losses for which the Officer is
indemnified pursuant to Section 1 hereof or pursuant to any insurance policies
or other comparable policies purchased and maintained by the Company;
(b) In respect to remuneration paid to Officer if it shall be finally
judicially adjudged that such remuneration was in violation of law;
(c) On account of any suit for an accounting of profits made from the
purchase or sale by Officer of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
or similar provisions of any state or local statutory law;
(d) On account of Officer's conduct which is finally judicially
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct;
(e) If a final decision by a Court having jurisdiction in the matter
(all appeals having been denied or none having been taken) shall determine
that such indemnification is not lawful.
4. Continuation of Indemnity. All agreements and obligations of
-------------------------
Company contained herein shall continue during the period Officer is a
Corporate Officer of Company and shall continue thereafter so long as Officer
shall be subject to any possible claim or threatened, pending or completed
action or claim, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that Officer was a Corporate Officer
of the Company or was serving in any other capacity referred to herein.
5. Notification and Defense of Claim. Promptly after receipt by
---------------------------------
Officer of notice of the commencement of any action, claim, suit or proceeding
against her by reason of her status as a director, officer, employee or agent,
Officer will notify Company of the commencement thereof; provided, however,
that the omission to so notify Company will not relieve Company from any
liability which it may have to Officer under this Agreement unless and to the
extent that Company's rights are prejudiced by such failure. With respect to
any such action, claim, suit or proceeding as to which Officer notifies
Company of the commencement thereof:
(a) Company will be entitled to participate therein at its own
expense; and,
<PAGE>
(b) Except as otherwise provided below, to the extent that it may wish,
Company jointly with any other party will be entitled to assume the defense
thereof, with counsel satisfactory to Officer. After notice from Company to
Officer of its election to so assume the defense thereof, Company will not be
liable to Officer under this Agreement for any legal or other expenses
subsequently incurred by Officer in connection with the defense thereof unless
Officer shall have reasonably concluded that there may be a conflict of
interest between Company and Officer in the conduct of the defense of such
action, in which case, Company shall not be entitled to assume the defense of
any action, claim, suit or proceeding brought by or on behalf of Company;
(c) Company shall not be liable to indemnify Officer under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Company shall not settle any action or claim in
any manner which would impose any penalty or limitation on Officer without
Officers written consent. Neither Company nor Officer will unreasonably
withhold their consent to any proposed settlement.
6. Advancement and Repayment of Expenses.
-----------------------------------------
(a) To the extent that the Company assumes the defense of any action,
claim, suit or proceeding against Officer, Officer agrees that she will
reimburse Company for all reasonable expenses paid by Company in defending any
civil or criminal action, claim, suit or proceeding against Officer in the
event and only to the extent that it shall be ultimately judicially determined
that Officer is not entitled to be indemnified by Company for such expenses
under the provisions of the Indemnification Statute, the Articles, this
Agreement or otherwise.
(b) To the extent that the Company does not assume the defense of any
action, claim, suit or proceeding against Officer, Company shall advance to
Officer all reasonable expenses, including all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with defending,
preparing to defend or investigating any civil or criminal action, suit or
proceeding, within twenty days after the receipt by Company of a statement or
statements from Officer requesting such advance or advances, whether prior to
or after final disposition of such action, suit or proceeding. Such statement
or statements shall reasonably evidence the expenses incurred by Officer and
shall include or be preceded or accompanied by an undertaking by or on behalf
of Officer to repay all of such expenses advanced if it shall be ultimately
judicially determined that Officer is not entitled to be indemnified against
such expenses. Any advances and undertakings to repay pursuant to this
paragraph shall be unsecured and interest free.
<PAGE>
7. Enforcement.
-----------
(a) Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on Company hereby in order
to induce Officer to continue to serve as a Corporate Officer of Company, and
acknowledges that Officer is relying upon this Agreement in continuing in such
capacity.
(b) In the event Officer is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, Company shall reimburse Officer for all of Officer's reasonable fees
and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a
------------
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
9. Governing Law; Binding Effect; Amendment and Termination.
------------------------------------------------------------
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Missouri.
(b) This Agreement shall be binding upon Officer and upon Company,
its successors and assigns, and shall inure to the benefit of Officer, his or
her heirs, personal representatives and assigns, and to the benefit of
Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless signed in writing by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
AGRIBRANDS INTERNATIONAL, INC.
By:_____________________________
OFFICER
By:_____________________________
AGRIBRANDS INTERNATIONAL, INC.
SAVINGS INVESTMENT PLAN
April 1, 1998
<PAGE>
v
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- -----------------
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS 1
Section 1.01 Accounts 1
Section 1.02 Affiliated Company 1
Section 1.03 Beneficiary 1
Section 1.04 Benefits Council 1
Section 1.05 Board of Directors 1
Section 1.06 Code 1
Section 1.07 Common Stock 1
Section 1.08 Common Stock Fund 1
Section 1.09 Commonly Controlled Entity 1
Section 1.10 Company 1
Section 1.11 Company Contribution Account 1
Section 1.12 Company Matching Contributions 1
Section 1.13 Company Profit Sharing Contributions 1
Section 1.14 Compensation 1
Section 1.15 Disability 1
Section 1.16 Effective Date 1
Section 1.17 Elective Contributions 1
Section 1.18 Elective Contributions Account 1
Section 1.19 Eligible Employee 1
Section 1.20 Eligible Spouse 1
Section 1.21 Employee 1
Section 1.22 Employer 1
Section 1.23 Entry Date 1
Section 1.24 Five-Percent (5%) Owner 1
Section 1.25 Highly Compensated Employee 1
Section 1.26 Hour of Service 1
Section 1.27 Investment Fund or Funds 1
Section 1.28 Leased Employee 1
Section 1.29 Member 1
Section 1.30 Non-Break in Service Member 1
Section 1.31 Non-Highly Compensated Employee 1
Section 1.32 One Year Break in Service 1
Section 1.33 Participating Unit 1
Section 1.34 Plan 1
Section 1.35 Plan Administrator 1
Section 1.36 Plan Year 1
Section 1.37 Ralston Stock 1
Section 1.38 Ralston Purina Stock Fund 1
Section 1.39 Retirement 1
Section 1.40 Rollover Contribution 1
Section 1.41 Supplemental Contributions 1
Section 1.42 Supplemental Contributions Account 1
Section 1.43 Termination of Employment 1
Section 1.44 Trustee 1
Section 1.45 Trust Fund 1
Section 1.46 Valuation Date 1
Section 1.47 Withdrawal Valuation Date 1
Section 1.48 Year of Eligibility Service 1
Section 1.49 Year of Vesting Service 1
ARTICLE II MEMBERSHIP 1
Section 2.01 Eligibility 1
Section 2.02 Membership Application 1
Section 2.03 Rehired Former Employee 1
ARTICLE III LEAVE OF ABSENCE 1
Section 3.01 Absence in Military Service 1
Section 3.02 Family Medical Leave 1
Section 3.03 Approved Leave of Absence 1
ARTICLE IV CONTRIBUTIONS 1
Section 4.01 Elective Contributions 1
Section 4.02 Company Contributions 1
Section 4.03 Deferral Percentages 1
Section 4.04 Contribution Percentages 1
Section 4.05 Change in Elective Contributions 1
Section 4.06 Suspension of Elective Contributions 1
Section 4.07 Limitation of Contributions 1
ARTICLE V TRUST FUND 1
Section 5.01 The Trust Agreement 1
Section 5.02 The Trustee 1
Section 5.03 Separate Investment Funds 1
Section 5.04 Temporary Investment 1
Section 5.05 Investment Managers 1
Section 5.06 The Ralston Stock Fund and Common Stock Fund 1
ARTICLE VI INVESTMENT OF CONTRIBUTIONS 1
Section 6.01 Election 1
Section 6.02 Transfer of Investments 1
Section 6.03 Member Responsibility For Selection of Funds 1
ARTICLE VII VALUATION OF ASSETS AND MEMBERS' ACCOUNTS 1
Section 7.01 Valuation of Assets 1
Section 7.02 Valuation of Accounts 1
Section 7.03 Statement of Accounts 1
ARTICLE VIII VESTING OF CONTRIBUTIONS 1
Section 8.01 Vesting of Elective Contributions Account 1
Section 8.02 Vesting of Company Contributions Account 1
ARTICLE IX DISTRIBUTIONS 1
Section 9.01 General 1
Section 9.02 Methods of Distribution 1
Section 9.03 Distributions for Former Participants in the Ralston Purina Company Savings Investment Plan 1
Section 9.04 Direct Rollovers 1
Section 9.05 Completion of Appropriate Forms 1
Section 9.06 Accounts of Former Employees 1
Section 9.07 Consent to Payment 1
Section 9.08 Latest Deferral of Payment 1
Section 9.09 Lost Payees 1
Section 9.10 Distribution of Annuity Contracts 1
ARTICLE X DEATH BENEFITS 1
Section 10.01 Death Benefits 1
Section 10.02 Beneficiary Designation 1
Section 10.03 Pre-Retirement Survivor Annuity 1
Section 10.04 Payment of Benefit 1
Section 10.05 Latest Time for Payment 1
Section 10.06 Payments in the Event of Death with No Designated Survivor or Incompetency 1
Section 10.07 Renunciation of Death Benefit 1
Section 10.08 Proof of Death and Right of Beneficiary or Other Person 1
ARTICLE XI WITHDRAWAL PRIOR TO TERMINATION OF EMPLOYMENT 1
Section 11.01 Withdrawal of Supplemental Contributions 1
Section 11.02 Hardship Withdrawal of Elective Contributions and/or Company Contributions 1
Section 11.03 Age Fifty-Nine and One-Half (59-1/2 Withdrawal) 1
Section 11.04 Order of Withdrawals 1
ARTICLE XII FORFEITURES 1
Section 12.01 Time of Forfeiture and Restoration 1
Section 12.02 Disposition of Forfeitures 1
Section 12.03 Effect of Withdrawal Under Article XI 1
Section 12.04 Maternity Absence 1
ARTICLE XIII ADMINISTRATION OF PLAN 1
Section 13.01 Plan Administrator 1
Section 13.02 Benefits Council 1
Section 13.03 Authority and Duties of Various Fiduciaries 1
Section 13.04 Named Fiduciaries 1
Section 13.05 Declaration 1
Section 13.06 Multiple Capacities 1
ARTICLE XIV AMENDMENTS, TERMINATION, PERMANENT DISCONTINUANCE OF CONTRIBUTIONS, MERGER OR CONSOLIDATION 1
Section 14.01 Amendments 1
Section 14.02 Termination or Permanent Discontinuance of Contributions 1
Section 14.03 Partial Termination 1
Section 14.04 Benefits in Case of Merger or Consolidation 1
ARTICLE XV LOANS 1
Section 15.01 Loans 1
Section 15.02 Interest Rates 1
Section 15.03 Other Rules 1
ARTICLE XVI MISCELLANEOUS 1
Section 16.01 Benefits Payable from Trust Fund 1
Section 16.02 Elections 1
Section 16.03 No Right to Continued Employment 1
Section 16.04 Inalienability of Benefits and Interest 1
Section 16.05 Payments for Exclusive Benefits of Members 1
Section 16.06 Missouri Law to Govern 1
Section 16.07 No Guarantee 1
Section 16.08 Address of Record 1
Section 16.09 Participating Units 1
Section 16.10 Headings 1
Section 16.11 Use of Masculine Terms 1
Section 16.12 Payment of Expenses 1
Section 16.13 Rollover Contributions 1
ARTICLE XVII CLAIM PROCEDURE 1
Section 17.01 Initial Determination 1
Section 17.02 Review 1
ARTICLE XVIII LIMITATION ON CONTRIBUTIONS 1
Section 18.01 Maximum Annual Additions 1
ARTICLE XIX TOP-HEAVY PROVISIONS 1
Section 19.01 Application of Top-Heavy Provisions 1
Section 19.02 Definitions 1
Section 19.03 Minimum Contribution 1
Section 19.04 Limit on Annual Additions: Combined Plan Limit 1
</TABLE>
<PAGE>
38
AGRIBRANDS INTERNATIONAL, INC.
SAVINGS INVESTMENT PLAN
WHEREAS, Agribrands International, Inc., a corporation duly organized and
existing under the laws of the State of Missouri, desires to establish a
savings plan for certain of its employees and to promote in those employees a
strong interest in the successful operation of the business of the Company and
increased efficiency in their work;
NOW, THEREFORE, Agribrands International, Inc., effective April 1, 1998,
does hereby establish and adopt the following Savings Investment Plan:
ARTICLE I
DEFINITIONS
Section 1.01 Accounts shall mean, with respect to any Member, his
------------- --------
Elective Contributions Account, his Company Contribution Account, his Rollover
Account, and his Supplemental Contributions Account.
Section 1.02 Affiliated Company shall mean (a) any company fifty
------------- ------------------
percent (50%) or more of the voting stock of which is directly or indirectly
owned by Agribrands International, Inc. or by any successor, and (b) any
Commonly Controlled Entity.
Section 1.03 Beneficiary shall mean any person or persons designated
------------- -----------
in accordance with Section 10.02.
Section 1.04 Benefit Council means the committee appointed by the
------------- ---------------
Chairman of the Board of Directors to assist with the administration of the
Plan pursuant to Section 13.02.
Section 1.05 Board of Directors shall mean the Board of Directors of
------------- ------------------
Agribrands International, Inc. and any committee of directors authorized by
such Board to act in its behalf with reference to the Plan.
Section 1.06 Code shall mean the Internal Revenue Code of 1986, as
------------- ----
amended from time to time. Reference to any section or subsection of the Code
includes reference to any comparable or succeeding provisions of any
legislation which amends, supplements or replaces such section or subsection.
Section 1.07 Common Stock shall mean the common stock of Agribrands
------------- ------------
International, Inc. or any other authorized class or series of common stock
outstanding upon the reclassification of any of such classes or series of
common Stock, including, without limitation, any stock split-up, stock
dividend, creation of targeted stock or other distributions of stock in
respect of stock, or any reverse stock split-up, or recapitalization of the
Company, or any merger or consolidation of the Company with any Affiliated
Company.
Section 1.08 Common Stock Fund shall mean the fund established
------------- ------------------
pursuant to Section 5.06 of the Plan to hold the Common Stock, if any,
credited to a Member's account under the Ralston Purina Company Savings
Investment Plan as of March 31, 1998 and transferred to such Member's Account
on April 1, 1998.
Section 1.09 Commonly Controlled Entity shall mean (1) any
------------- ----------------------------
corporation which is a member of the same controlled group of corporations
[within the meaning of Code Section 414(b)] as Company, (2) any trade or
business (whether or not incorporated) which is under common control with
Company within the meaning of Code Section 414(c), and (3) any organization
which is a member of an affiliated service group [within the meaning of Code
Section 414(m)] of which a Company is also a member, and (4) any entity which
is required to be aggregated under Code Section 414(o).
Section 1.10 Company shall mean Agribrands International, Inc., a
------------- -------
Missouri corporation, and any Affiliated Company while an Affiliated Company.
Section 1.11 Company Contribution Account shall mean that portion of
------------- ----------------------------
the Trust Fund which, with respect to any Member, is attributable to any
contributions made on his behalf by the Company in accordance with Section
4.02 and any investment earnings and gains or losses thereon.
Section 1.12 Company Matching Contributions shall mean the amount
------------- ------------------------------
contributed by the Employer in accordance with Section 4.02(a).
Section 1.13 Company Profit Sharing Contributions shall mean the
------------- ------------------------------------
amount contributed by the Employer in accordance with Section 4.02(b)(i).
Section 1.14 Compensation shall mean the basic compensation and such
------------- ------------
other forms of cash compensation paid an Employee for employment with the
Company, as determined by the Plan Administrator including but not limited to,
regular cash bonuses (unless the Member elects to defer such bonus under a
Company sponsored Deferred Compensation Plan); payments made under a Code
Section 125 Cafeteria Plan; payments received by Members as a result of
non-occupational sicknesses or injuries as wage replacement; and payments
received by a Member under any type of Company sponsored voluntary
supplementation of worker's compensation payments. Compensation shall not
include employer paid reimbursements and allowances, or non-recurring awards.
Compensation for purposes of the Plan shall not exceed $160,000, or such
increases as the Secretary of Treasury may determine in accordance with
Section 401(a)(17) of the Code.
Section 1.15 Disability shall mean a mental or physical disability
------------- ----------
as, in the opinion of a physician acceptable to the Benefit Council, will
prevent a Participant from ever resuming work of the same general nature as
that which he performed for the Company prior to his disability.
Section 1.16 Effective Date shall mean April 1, 1998, except as
------------- --------------
otherwise provided herein, in respect of Agribrands International, Inc., and
the date as of which the Plan is adopted by an Affiliated Company, with
respect to such company.
Section 1.17 Elective Contributions shall mean the amount remitted by
------------ ----------------------
the Employer in accordance with Section 4.01.
Section 1.18 Elective Contributions Account shall mean that portion
------------- ------------------------------
of the Trust Fund which, with respect to any Member, is attributable to
Elective Contributions made on his behalf in accordance with Section 4.1 and
any investment earnings and gains or losses thereon.
Section 1.19 Eligible Employee shall mean an Employee who has
------------- ------------------
satisfied the eligibility requirements of Section 2.01.
--
Section 1.20 Eligible Spouse shall mean the person to whom a Member
------------- ---------------
is lawfully married at the time benefit payments to the Member from this Plan
commence, or in the case of a Member who dies before such time, the person to
whom the Member is lawfully married on the date of death of the Member.
Section 1.21 Employee shall mean any person employed by the Company,
------------- --------
excluding:
(i) a Leased Employee,
(ii) any person employed as an independent contractor, or
(iii) any Employee who is a member of a collective bargaining unit
covered by a collective bargaining agreement between the Company and
representatives of employee and under which retirement benefits were the
subject of good faith bargaining.
Section 1.22 Employer shall mean Agribrands International, Inc. or
------------- --------
any Affiliated Company by whom the Employee is employed that contributes to
the Plan for the benefit of its employees with the approval of the Plan
Administrator. Any such Company that contributes to the Plan shall thereby
agree to all of the terms and conditions of the Plan.
Section 1.23 Entry Date shall mean the first day of employment with
------------- ----------
respect to an Eligible Employee employed by the Company on or before April 15,
1998. For all other Eligible Employees, Entry Date shall mean the first day
of the month immediately following satisfaction of the requirements in Section
2.01.
Section 1.24 Five-Percent (5%) Owner shall mean an employee who owns
------------- -----------------------
(or is considered as owning within the meaning of Code Section 318) more than
five percent (5%) of the outstanding stock of the Company or stock possessing
more than five percent (5%) of the total combined voting power of all stock of
the Company.
Section 1.25 Highly Compensated Employee shall mean any employee who:
------------ ---------------------------
(i) was a Five Percent (5%) Owner of at any time during the year or the
preceding year, or
(ii) for the preceding year:
1) has compensation from the Company in excess of $80,000 (as adjusted in
accordance with Section 414(q), and
2) was in the top paid group of employees for such preceding year.
An employee is in the top-paid group of employees for any year if such
employee is in the group consisting of the top 20% of the employees when
ranked on the basis of compensation paid during such year."
Section 1.26 A. "Hour of Service" shall mean each hour for which
(1) an Employee is paid, or entitled to payment, by the Company for the
performance of duties during the applicable computation period, and the Hour
of Service shall be credited to the period in which the duties are performed,
(2) an Employee is paid, or entitled to payment, by the Company on account of
a period of time during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military leave or leave
of absence and the Hour of Service shall be credited to the period in which
the period during which no duties are performed occurs, (3) back pay,
irrespective of mitigation of damages, has been either awarded or agreed to by
the Company and the Hour of Service shall be credited to the period to which
the award or agreement pertains and (4) an Employee would have been paid or
entitled to payment under (1) above assuming that (a) he had not been on an
authorized leave of absence (in accordance with the provisions of Article
III), and (b) but for the authorized leave of absence would have been
regularly engaged in the performance of his duties and the Hour of Service
shall be credited to the period he would have been regularly engaged in the
performance of his duties had he not been on authorized leave of absence;
provided, however, that in no event shall an Hour of Service be credited to an
Employee under more than one of the applicable (1), (2), (3) or (4) above.
The number of Hours of Service to be credited under (2) above shall be in
accordance with the requirements of 29 CFR 2530.200b-2 as such regulations may
be amended or superseded from time to time and such regulations are
incorporated herein by reference.
B. Anything contained herein to the contrary notwithstanding, in the
case of an Employee who is absent from work for any period:
(1) by reason of the pregnancy of the Employee,
(2) by reason of the birth of a child of the Employee,
(3) by reason of the placement of a child with the Employee in
connection with the adoption of such child by the Employee, or
(4) for purposes of caring for such child for a period beginning
immediately following the birth or placement of such child,
Hours of Service, solely for the purpose of determining whether a One Year
Break in Service has occurred, shall mean:
(a) the number of Hours of Service which otherwise would normally
have been credited to an Employee but for such absence from work, or
(b) in any case in which Hours of Service are not determinable, eight
(8) Hours of Service per day during such absence from work;
provided, however, that the total number of Hours of Service under this
subparagraph B by reason of any such pregnancy or placement shall not exceed
501.
The Hours of Service pursuant to this subparagraph B shall be treated as
Hours of Service:
(1) only in the Plan Year in which such absence from work begins, if
the Employee would be prevented from incurring a One Year Break in Service in
such Plan Year solely because periods of absence are treated as Hours of
Service as provided in this subparagraph B; or
(2) in any other case, in the immediately following Plan Year.
No credit will be given pursuant to this subparagraph B unless the
Employee furnishes to the Committee such timely information as the Committee
may reasonably require to establish (i) that the absence from work is for
reasons referred to in this subparagraph B, and (ii) the number of days for
which there was such an absence.
C. Hours of Service includes (1) all Hours of Service completed by
any individual who is a Leased Employee, as required by law, and (2) all Hours
of Service completed with any employer which is a member of the controlled
group of corporations (within the meaning of Code Section 1563(a), determined
without regard to subsections 1563(a)(4) and (e)(3)(C) of the Code) of which
the Company is a member, and all other trades or businesses (whether or not
incorporated) which are under common control with the Company. All
determinations required by this Section 1.24 shall be pursuant to and
consistent with Code Sections 414(b) and (c) and regulations issued
thereunder.
D. The definition of Hour of Service as provided in this Section 1.25
shall be construed so as to resolve any ambiguities in favor of crediting
Employees with Hours of Service.
Section 1.27 Investment Fund or Funds shall mean the separate funds
------------- ------------------------
established within the Trust in accordance with Article VI.
Section 1.28 Leased Employee shall mean a person who is not otherwise
------------ ---------------
an Employee of the Company but who provides services to the Company and
(1) such services are provided pursuant to an agreement
(written or oral) between the Company, and any other person ("leasing
organization"),
(2) such person has performed such services for the Company
on a substantially full-time basis for a period of at least one year, and
(3) such services are performed under the primary direction
or control of the Company.
A person shall not be deemed a Leased Employee if he is covered by a
plan maintained by a leasing organization which is a money purchase pension
plan with a non-integrated employer contribution rate of at least ten percent
(10%) of compensation, and provides for immediate participation and for full
and immediate vesting provided that Leased Employees constitute less than
twenty percent (20%) of the Company's Non-Highly Compensated Employees.
Section 1.29 Member shall mean any person included in the membership
------------- ------
of the Plan as provided in Article II.
Section 1.30 "Non-Break in Service Member" shall mean a Member who
------------- -----------------------------
(1) died during the Plan Year, (2) terminated his employment during the Plan
Year because of his Retirement or Disability, and (3) on or as of the end of a
Plan Year shall have both completed at least 1,000 Hours of Service during
such Plan Year and be an Employee of the Company on the last day of such Plan
Year; provided, however, that if the Plan is a Top Heavy Plan for a Plan Year
and the minimum contribution required by Section 19.03 hereof is to be made to
this Plan, the term "Non-Break in Service Member" shall mean with respect to
such Plan Year in addition to Members described above, Members who are
employed by the Company on the last day of the Plan Year regardless of the
number of Hours of Service completed during such Plan Year.
Section 1.31 Non-Highly Compensated Employee shall mean any Employee
------------- -------------------------------
who is not a Highly Compensated Employee, as defined in Section 1.24 herein.
Section 1.32 One Year Break in Service shall mean a Plan Year during
------------- -------------------------
which an Employee has completed not more than 500 Hours of Service or, if such
Plan Year is less than a consecutive twelve (12) month period, a pro rata
portion of 500 Hours of Service.
Section 1.33 Participating Unit shall mean Agribrands International,
------------- ------------------
Inc. or any subsidiary of Agribrands International, Inc. that contributes to
the Plan for the benefit of its Employees with the approval of the Plan
Administrator, and any unit of Employees of the Company or an Affiliated
Company authorized to participate in the Plan in accordance with Section
16.09.
Section 1.34 Plan shall mean the Agribrands International, Inc.
------------- ----
Savings Investment Plan, as described herein or as hereafter amended.
Section 1.35 Plan Administrator shall mean Agribrands International,
------------- ------------------
Inc. or its delegatee.
Section 1.36 Plan Year shall mean the calendar year.
------------- ----------
Section 1.37 Ralston Stock shall mean the common stock of Ralston
------------- -------------
Purina Company.
Section 1.38 Ralston Purina Stock Fund shall mean the fund
------------- ----------------------------
established pursuant to Section 5.06 of the Plan to hold the Ralston Stock, if
any, credited to a Member's account under the Ralston Purina Company Savings
Investment Plan as of March 31, 1998 and transferred to such Member's Account
on April 1, 1998.
Section 1.39 Retirement shall mean Termination of Employment after
------------- ----------
attaining age sixty-five (65).
Section 1.40 Rollover Contributions shall mean that portion of the
------------- ----------------------
Trust Fund which, with respect to any Member, is attributable to Rollover
Contributions under Section 16.13 under the Plan, and any investment earnings
and gains or losses thereon.
Section 1.41 Supplemental Contributions shall mean the after-tax
------------- --------------------------
contributions made by a Participant under the Ralston Purina Company Savings
Investment Plan.
Section 1.42 Supplemental Contributions Account shall mean that
------------- ----------------------------------
portion of the Trust Fund which, with respect to any Member, is attributable
to a Member's after-tax contributions made by the Member under the Ralston
Purina Company Savings Investment Plan, and any investment earnings and gains
or losses thereon. A Participant shall at all times be 100% vested in his
Supplemental Contributions Account.
Section 1.43 Termination of Employment shall mean separation from the
------------ -------------------------
employment of the Company for any reason, including, but not limited to,
Retirement, death, Disability, resignation or dismissal by the Company;
provided, however, that a transfer of employment between Agribrands
International, Inc. and an Affiliated Company or between Affiliated Companies
shall not be deemed to be "Termination of Employment." Notwithstanding the
foregoing, for purposes hereunder, an Employee who has been placed on inactive
status for a twelve (12) consecutive month period shall be treated as having
incurred a Termination of Employment; provided, however, if a definite date
has been established at which time the Employee is expected to return to
employment, then the person shall not be deemed to have incurred a Termination
of Employment. With respect to any leave of absence or any period of service
which constitutes qualified military service (as defined n Code Section
414(u)), Article III shall govern.
Section 1.44 Trustee shall mean a trustee or trustee at any time
------------- -------
acting as such under a trust agreement or agreement established for purpose of
this Plan.
Section 1.45 Trust Fund shall mean the cash and other properties
------------- ----------
arising from contributions made in accordance with the provisions of this
Plan.
Section 1.46 Valuation Date shall mean each day the New York Stock
------------- --------------
Exchange is open for business.
Section 1.47 Withdrawal Valuation Date shall mean, with respect to a
------------- -------------------------
Member, the Valuation Date coinciding with, or immediately following, the date
on which his request for a withdrawal under the Plan is filed with the
Company.
Section 1.48 Year of Eligibility Service shall mean a consecutive
------------- ---------------------------
twelve (12) month period, beginning on the date the Employee first performs an
Hour of Service during which the Employee has completed at least 1,000 Hours
of Service. If an Employee does not complete at least 1,000 Hours of Service
in his initial employment year, a "Year of Eligibility Service" shall then be
computed on a Plan Year basis, beginning with the Plan Year which includes the
anniversary date on which the Employee first performed an Hour of Service.
Section 1.49 Year of Vesting Service shall mean a Plan Year during
------------- -----------------------
which the Employee has completed at least 1,000 Hours of Service with the
Company. In determining the number of Years of Vesting Service for a Member,
Years of Vesting Service need not be consecutive.
ARTICLE II
MEMBERSHIP
Section 2.01 Eligibility. Each Employee who commences employment
------------- -----------
with and Employer on or before April 15, 1998 shall become an Eligible
Employee on the first day of his employment. Each other Employee shall become
an Eligible Employee on the first day of the month immediately following the
date he attains the age of twenty-one (21) years and completes one (1) Year of
Eligibility Service.
Section 2.02 Membership Application. An Eligible Employee may become
------------ ----------------------
a Member on an Entry Date by completing and submitting to the Plan
Administrator an application form supplied by the Plan Administrator on which
he designates the percentage of his Compensation he wishes to be contributed
to this Plan by means of deductions from his Compensation, he chooses one or
more Investment Fund(s), and he names a Beneficiary. Participation in the
Plan by an Eligible Employee is voluntary.
Section 2.03 Rehired Former Employee. If a former Employee formerly
------------- -----------------------
eligible for membership under Section 2.01 above is rehired, the former
Employee shall again be eligible to become a Member of the Plan on the date of
his re-employment as an Eligible Employee.
ARTICLE III
LEAVE OF ABSENCE
Section 3.01 Absence in Military Service. If an Employee shall have
------------- ---------------------------
been absent from the service of the Company because of qualified military
service (as defined in Code Section 414(u)), contributions, benefits and
service credit under the Plan with respect to such qualified miliary service
will be provided under the Plan in accordance with Section 414(u) of the Code.
Section 3.02 Family Medical Leave. If an Employee is absent from the
------------ --------------------
service of the Company because of a leave of absence which qualifies as a
leave under the Family Medical Leave Act, such absence shall be shall be taken
into account under the Plan.
Section 3.03 Approved Leave of Absence. A period during which an
------------- -------------------------
Employee is on a leave of absence approved by the Company shall be taken into
account under the Plan under rules uniformly applicable to all Employees
similarly situated.
ARTICLE IV
CONTRIBUTIONS
Section 4.01 Elective Contributions.
------------- -----------------------
(a) Each Member may elect to reduce his Compensation in any amount
from one percent (1%) to twelve percent (12%) [in one percent (1%) increments]
of his Compensation for each payroll period subject to the provisions set
forth in Sections 4.01(b), 4.03, 4.07, and Article XVIII, and his Employer
shall remit to the Plan on his behalf Elective Contributions equal to the
amount of the reduction in his Compensation as soon as practicable after the
end of the payroll period. Such contribution shall in no event be made later
than fifteen (15) days after the end of such payroll period.
(b) Notwithstanding the foregoing, the Employer shall not remit to
the Plan any Elective Contributions on behalf of any Member who receives a
hardship withdrawal of his Elective Contribution Account or his Company
Contribution Account, in accordance with Section 11.02, during the
twelve-month period immediately following such withdrawal.
Section 4.02 Company Contributions.
------------- ----------------------
(a) Company Matching Contributions. Subject to the provisions of
--- ------------------------------
Section 12.02, each Employer shall, for any Plan Year, contribute on behalf of
each Member a Company Matching Contribution equal to fifty percent (50%) of
the Elective Contributions made on behalf of such Member for the Plan Year
under Section 4.01, taking into account only the first six percent (6%) of
Compensation deferred as Elective Contributions on behalf of such Member for
the Plan Year.
(b) Profit Sharing Contributions.
--- ------------------------------
(i) For each Plan Year the Company shall contribute to the Trust a
Profit Sharing Contribution in the amount determined by the Board of
Directors. Nothing in this Section 4.02(b)(i) shall be construed as requiring
the Company to make a Profit Sharing Contribution to the Trust for any Plan
Year.
(ii) Profit Sharing Contributions, if any, shall be allocated as of
the last day of such Plan Year to the Company Contribution Account of each
Non-Break in Service Member in proportion to the ratio that his Compensation
plus his Excess Compensation bears to the Compensation plus Excess
Compensation of all Non-Break in Service Members; provided that each such
Member will not receive an amount in excess of the product of the Permitted
Disparity Percentage multiplied by the sum of his Compensation plus Excess
Compensation.
(iii) The balance of Company contributions over the amount allocated
under subparagraph (ii) of this Section 4.02(b) shall be allocated to each
Non-Break in Service Member's Company Contribution Account in proportion to
the ratio that each such member's Compensation for the Plan Year bears to the
total Compensation of all Non-Break in Service members for such Plan Year.
For purposes of this Section 4.02(b) only:
Base Contribution Percentage means the percentage at which Profit Sharing
Contributions are allocated to the Company Contribution Accounts of Members at
or below the Integration Level.
Excess Compensation means Compensation for the Plan Year in excess of the
Social Security Taxable Wage Base in effect on the first day of the Plan Year
("Integration Level"); and
Permitted Disparity Percentage means the lesser of (i) the Base
Contribution Percentage, or (ii) the greater of (a) 5.7% or (b) the portion of
the percentage rate of tax under Section 3111(a) of the Code, as in effect on
the first day of the Plan Year, which is attributable to old age insurance
established under Title II of the Social Security Act and the Federal
Insurance Contributions Act set forth in Internal Revenue guidelines.
(c) In the event that the Commissioner of Internal Revenue, on timely
application made after the adoption of the Plan, as restated, determines that
the Plan and the implementing trust do not qualify for tax-exempt status, or
refuses, in writing, to issue a favorable determination with respect to the
Plan and such trust, the Employer contributions made on or after the date on
which such determination or refusal is applicable shall be returned to the
Employer without interest. In the event that an Employer contribution to the
Plan is made by a mistake of fact or all or part of the Employer's deductions
under Code Section 404 for contributions to the Plan are disallowed by the
Internal Revenue Service, the portion of the contributions attributable to
such mistake of fact or to which such disallowance applies shall be returned
to the Employer without interest.
Any such return shall be made within one year after the making of such
contribution by mistake of fact or the denial of qualification or disallowance
of deductions, as the case may be.
Section 4.03 Deferral Percentages.
------------- ---------------------
(a) The actual deferral percentage for the Highly Compensated
Employees shall satisfy at least one of the following tests:
(i) The actual deferral percentage for the eligible Highly
Compensated Employees for the Plan Year does not exceed the actual deferred
percentage for the eligible Non-Highly Compensated Employees for the preceding
Plan Year, multiplied by 1.25; or
(ii) The actual deferral percentage for the eligible Highly
Compensated Employees for the Plan Year does not exceed the actual deferral
percentage for the eligible Non-Highly Compensated Employees for the preceding
Plan Year, multiplied by 2.0; provided, however, that the actual deferral
percentage for the eligible Highly Compensated Employees may not exceed the
actual deferral percentage for the eligible Non-Highly Compensated Employees
by more than two percentage points.
The Company may perform the calculations in this paragraph (a)
by using data for the Plan Year rather than the preceding Plan Year; provided,
however, that any such election may only be revoked as provided by the
Secretary of Treasury. In the case of the first Plan Year, the actual
deferral percentage of Non-Highly Compensated Employees shall be the greater
of (i) three percent (3%) or (ii) the actual deferral percentage of Non-Highly
Compensated Employees for the first Plan Year.
(b) (l) The actual deferral percentage with respect to Elective
Contributions for a specified group of Employees for a Plan Year shall be the
average of the ratios (calculated separately for each Employee in such group)
of:
(i) The amount of Elective Contributions actually paid to the Plan on
behalf of each such Employee for such Plan Year, to
(ii) The Employee's compensation (within the meaning of Code Section
414(a)) for such Plan Year.
(b) (2) The actual deferral percentage test described in Section
4.03(a) shall be computed separately for each controlled group [determined in
accordance with Code Sections 414(b), (c), (m), (n), and (o)] whose Employees
participate in the Plan.
(c) In making the deferral percentage calculations set forth above,
the Plan Administrator, as permitted by law, may, but is not required to, take
into account other contributions made by the Company on behalf of Eligible
Employees; provided that such other contributions must be one hundred percent
(100%) vested and subject to the withdrawal restrictions applicable to
qualified non-elective contributions [as defined in Code Section 401(m)].
(d) If the actual deferral percentage of eligible Highly Compensated
Employees exceeds the amounts allowed under paragraphs (a) and (b) above, the
excess deferrals (as determined below) shall be distributed to the Members as
soon as practicable (but in no event later than the last day of the next
succeeding Plan Year). Any such distribution shall include income and loss
allocated to the excess in accordance with Reg. Section 1.401(k)-l(f)(4).
(e) The amount of excess deferrals to be so distributed to a Highly
Compensated Employee Shall be determined on the basis of the amount of
Elective Contributions by, or on behalf of such Highly Compensated Employee.
The amount distributed shall equal
(i) The Elective Contributions specified in clause i) of Section
4.03(b)(1) for such employee, less
(ii) The amount by which the Elective Contributions specified in
clause i) of Section 4.03(b)(1) exceeds the next highest total Elective
Contributions of a Highly Compensated Employee for the Plan Year.
The above process shall be repeated until the highly compensated group
satisfies one of the tests set forth in paragraph (a).
(f) The Plan Administrator may implement rules limiting the Elective
Contributions which may be made on behalf of some or all Highly Compensated
Employees so that the tests set forth in Section 4.03 are satisfied.
Section 4.04 Contribution Percentages.
------------- -------------------------
(a) The actual contribution percentage for the Highly Compensated
Employees, for each Plan Year, shall not exceed the greater of (i) the actual
contribution percentage for eligible Non-Highly Compensated Employees for the
preceding Plan Year multiplied by 1.25, or (ii) the lesser of (A) two hundred
percent (200%) of the actual contribution percentage of the eligible
Non-Highly Compensated Employees, or (B) the actual contribution percentage of
the eligible Non-Highly Compensated Employees, plus two (2) percentage points.
The Company may perform the calculations in this paragraph (a)
by using data for the Plan Year rather than the preceding Plan Year;
provided, however, that any such election may only be revoked as provided by
the Secretary of the Treasury. In the case of the first Plan year, the actual
contribution percentage of Non-Highly Compensated Employees shall be the
greater of (i) 3% or (ii) the actual contribution percentage of Non-Highly
Compensated Employees for the first Plan Year.
(b) (1) The actual contribution percentage with respect to Company
Matching Contributions and Qualified Non-Elective Contributions (as defined in
Code Section 401(m)), if any, for a specified group of Employees shall be the
average of the ratios (calculated separately for each Employee in such group)
of:
(i) The sum of Company Matching Contributions, and Qualified
Non-Elective Contributions, if any, which are actually paid on behalf of such
Employee for such Plan Year, to
(ii) The Employee' compensation (within the meaning of Code Section
414(a)) for such Plan Year.
(c) In making the contribution percentage calculations set forth
above, the Plan Administrator, as permitted by law, may, but is not required
to, take into account other contributions made by the Company on behalf of
Eligible Employees.
(d) If the actual contribution percentage of Highly Compensated
Employees exceeds the amounts allowed under Paragraph (a) and (b) above, the
excess contributions (as determined below) shall be distributed to the Members
as soon as practicable (but in no event later than the last day of the next
succeeding Plan Year). Any such distribution shall include income and loss
allocated to the excess in accordance with Reg. Section 1.401(m)-l(e)(3).
(e) The amount of excess contributions to be distributed to a Highly
Compensated Employee shall be determined on the basis of the amount of Company
Matching Contributions and Qualified Non-Elective Contributions, if any, by,
or on behalf of such Highly Compensated Employee. The amount distributed
shall equal:
(i) The Company Matching Contribution and Qualified Non-Elective
Contributions, if any, for such employee, specified in clause i) of Section
4.04(b) less
(ii) The amount by which the Company Matching Contribution and
Qualified Non-Elective Contribution, if any, specified in clause i) of Section
4.04(b)(1) exceeds the next highest amount of Company Matching Contribution
and Qualified Non-Elective Contribution, if any, for a Highly Compensated
Employee for the Plan Year.
The above process shall be repeated until the highly compensated group
satisfies one of the tests set forth in paragraph (a).
(f) The multiple use of the alternative non-discrimination tests set
forth in Section 4.03(a)(ii) and Section 4.04(a)(ii) shall be limited as
prescribed by law. If restrictions on such multiple use apply, the Plan
Administrator shall designate either the actual deferral percentages or the
actual contribution percentages of Highly Compensated Employees to be reduced,
and shall reduce such percentages in the manner described above, until the
multiple use limitations are no longer exceeded.
Section 4.05 Change in Elective Contributions. Subject to the
------------- ----------------------------------
provision of Section 4.01, and not more than once in any one-month period, a
Member may change the election permitted by Section 4.01 by giving at least
fifteen (15) days' prior written notice to the Plan Administrator or such
shorter period as the Plan Administrator or its delegatee may approve. Such
changed election shall become effective no later than the first day of the
first month commencing on or after the expiration of the notice period. In
addition, where Elective Contributions by payroll deduction are or may be
prohibited by law, in the opinion of counsel to the Company, a Member, upon
approval by the Plan Administrator, may make contributions directly to the
Trustee for each payroll period by a method satisfactory to the Plan
Administrator as long as such deposits are timely made on the same schedule as
payroll deductions. The Trustee shall not accept direct contributions not
timely made by a Member.
Section 4.06 Suspension of Elective Contributions.
------------- ----------------------------------------
(a) A Member may cause the suspension of Elective Contributions, on
his behalf at any time by giving at least fifteen (15) days' prior written
notice to the Plan Administrator, or such shorter period as the Plan
Administrator or its delegatee may approve, in advance of the date on which
such a suspension shall become effective. The suspension shall become
effective as soon as practicable after notification is received. During such
period of suspension of Elective Contributions no Company Matching
Contributions on behalf of such a Member shall be made by the Company.
(b) A Member who has caused the suspension of Elective Contributions,
may have them resumed in accordance with Section 4.01 by notifying the Plan
Administrator in writing at least fifteen (15) days in advance of the date on
which contributions are resumed, or such shorter period as the Plan
Administrator or its delegatee may approve. Contributions shall resume on the
first day of the first month commencing immediately after the expiration of
the fifteen (15) day notice period.
(c) A Member for whom Elective Contributions under Section 4.01 have
ceased because he is on an unpaid absence from service shall again be eligible
to have such contributions made on the date he returns to service as an
Eligible Employee. No contributions may be made for a Member for any unpaid
period of absence from service including, but not limited to, absence due to
sickness, leave of absence due to sickness, and leave of absence under the
Family and Medical Leave Act.
(d) A Member for whom contributions under Section 4.01 have ceased
because he has ceased to be an Eligible Employee but, nevertheless, continues
to be an Employee shall again be eligible to have such contributions made on
the next Entry Date after he again becomes an Eligible Employee and gives
written notice to the Plan Administrator on the prescribed form.
Section 4.07 Limitation of Contributions. The sum of Elective
------------- ----------------------------
Contributions remitted on behalf of any Member shall be limited to the dollar
-
amount specified by the Secretary of the Treasury pursuant to Section 402(g)
of the Code. Contributions shall be further limited as described in Article
XVIII. In accordance with Code Section 402(g)(2)(A)(ii), any excess deferral
shall be distributed to a Member by April 15 following the close of the Plan
Year in which such excess deferral occurred. Any such distribution shall
include income and loss allocated to such excess.
ARTICLE V
TRUST FUND
Section 5.01 The Trust Agreement. Agribrands International, Inc.
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shall enter into a trust agreement which shall contain such provisions as
shall render it impossible for any part of the corpus of the Trust or income
therefrom to be at any time used for, or diverted to, purposes other than for
the exclusive benefit of Members. Any or all rights or benefits accruing to
any person under the Plan with respect to any Company contributions deposited
under the Trust Agreement shall be subject to all the terms and provisions of
the Trust which shall be part of the Plan.
Section 5.02 The Trustee. The Trustee shall be appointed by the
------------- -----------
Board of Directors or its delegatee to serve at its pleasure. The Trust Fund
may be held by the Trustee as part of a master or collective trust comprised
of assets of various qualified plans maintained by the Company.
Section 5.03 Separate Investment Funds. The Trustee will maintain at
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least four separate Investment Funds, each with different investment
objectives, as the Benefit Council deems advisable; provided however, that
such Investment Funds must offer Members a broad range of investment
alternatives with materially different risk and return characteristics in
compliance with ERISA Section 404(c). Such Investment Funds may be added or
deleted as the Benefit Council so determines in accordance with the provisions
of Section 13.03. Each Investment Fund may be part of a fund with the same
investment objectives maintained by the Trustee for the benefit of
participants in other qualified plans maintained by the Company, or may be a
separate fund maintained only for the benefit of Members of this Plan.
Earnings or gains derived from the assets of any Investment Fund will be
invested in that Fund. Appropriate Accounts for each Member shall be
established and maintained in each Investment Fund in which a Member has an
interest.
Section 5.04 Temporary Investment. Pending permanent investment of
------------- --------------------
the assets of any Investment Fund, the Trustee temporarily may make short-term
investments in obligations of the United States Government, commercial paper,
an interim investment fund for tax qualified employee benefit plans
established by the Trustee unless otherwise provided by applicable law, or
other investments of a short-term nature.
Section 5.05 Investment Managers. Agribrands International, Inc.
------------- -------------------
may, by action of the parties authorized under Article XIII, enter into a
written agreement with or direct the Trustee to enter into an agreement with
one or more investment managers to manage the investments of one or more of
the Investment Funds. Such investment managers may include one or more
insurance companies which enter into guaranteed investment contracts with the
Trustee. Agribrands International, Inc. may, from time to time, remove any
such investment manager or any successor investment manager, or direct the
Trustee to do so, and any such investment manager may resign. Agribrands
International, Inc. may, upon removal or resignation of an investment manager
provide for the appointment of a successor investment manager.
Section 5.06 The Ralston Stock Fund and Common Stock Fund. The
------------- --------------------------------------------
assets of the Ralston Stock Fund shall be invested solely in the common stock
of Ralston Purina Company ("Ralston Stock"), credited to a Member's Account on
April 1, 1998. The assets of the Common Stock Fund shall be invested solely
in Common Stock credited to a Member's Account on April 1, 1998. The Trustee
shall not purchase any additional shares of Ralston Stock or Common Stock for
crediting to Members' Accounts. All shares of Ralston Stock and Common Stock
held in the Fund shall be held in the name of the Trustee or its nominee. On
or before December 31, 1998, each Member shall elect to sell all shares of
Ralston Stock and Company Stock credited to the Member's Accounts and reinvest
the proceeds in one or more of the other Investment Funds maintained by the
Plan. Any assets remaining in the Ralston Stock Fund or the Common Stock Fund
on December 31, 1998 shall be invested in a Money Market Fund selected by the
Plan Administrator.
ARTICLE VI
INVESTMENT OF CONTRIBUTIONS
Section 6.01 Election. All Elective Contributions, Company Matching
------------- --------
Contributions, Company Profit Sharing Contributions, Rollover Contributions,
and Supplemental Contributions will be invested at the election of the Member
in multiples of one percent (1%) in the Investment Funds authorized by the
Benefit Council and maintained by the Trustee in accordance with Section 5.03.
Contributions for which a Member does not make a valid election shall be
invested in a Money Market Fund selected by the Plan Administrator.
Investment directions of each new Member shall be delivered in writing to
the Plan Administrator or its delegatee. A Member may change his direction
governing investment of future contributions to be credited to his respective
Accounts at any time upon providing the appropriate notice to the Plan
Administrator or its delegatee. An investment direction once given shall be
deemed to be a continuing direction until explicitly changed by the Member by
a subsequent direction to the Plan Administrator or its delegatee in
accordance with appropriate procedures set forth by the Plan Administrator or
its delegatee.
Section 6.02 Transfer of Investments. A Member may elect, at any
------------- -----------------------
time, to have all or any multiple of one percent (1%) of the value of his
Account as of any future Valuation Date or any dollar amount of his Account
transferred to any separate Investment Fund maintained by the Trustee in
accordance with Section 5.03, other than the Ralston Stock Fund and the Common
Stock Fund.
Notwithstanding anything in this Section to the contrary, any
contributions invested in an investment contract shall be subject to any and
all terms of such contract, regarding the transfer of assets from such
contract.
Section 6.03 Member Responsibility For Selection of Funds. Each
------------- --------------------------------------------
Member is solely responsible for the selection of his Investment Funds.
Neither the Trustee, the Plan Administrator, the Company nor any of the
officers or supervisors of the Company are empowered to advise a Member as to
the manner in which his Accounts shall be invested. The fact that a security
is available to members for investment under the Plan shall not be construed
as a recommendation for the purchase of that security, nor shall the
designation of any Investment Fund impose any liability on the Company, its
directors, officers or employees, the Trustee, or the Plan Administrator.
When an investment election regarding the Fund is required to be made by
Members, such Member shall be informed as to the manner in which their funds
will be invested if they fail to make an affirmative election in a timely
manner. In such event, those Members who fail to communicate an election to
the Plan Administrator or its delegatee shall be deemed to have elected the
specified investment by default and the Company, its directors, officers or
employees, the Trustee, the Benefit Council, and any other plan fiduciary
shall be deemed to be relieved of fiduciary responsibility for the investment
of such funds.
ARTICLE VII
VALUATION OF ASSETS AND MEMBERS' ACCOUNTS
Section 7.01 Valuation of Assets.
------------- ---------------------
(a) At the end of each Valuation Date, the Trustee shall determine
the aggregate fair market value of the assets then held by it in each
Investment Fund.
(1) The market value of shares of Common Stock shall be its
closing value on the New York Stock Exchange.
Section 7.02 Valuation of Accounts. At the end of each Valuation
------------- ---------------------
Date, before the calculation and debiting of any distributions and in-service
withdrawals from the Trust fund or the posting of transfers among Investment
Funds, the net credit balances in the Accounts of Members or their
beneficiaries will be adjusted to reflect any contributions to, and investment
gains or losses in, the respective Investment Funds.
Section 7.03 Statement of Accounts. Each member shall be furnished,
------------- ---------------------
at least annually, a statement setting forth the value of his Accounts.
ARTICLE VIII
VESTING OF CONTRIBUTIONS
Section 8.01 Vesting of Elective Contributions Account. Each
------------- -------------------------------------------
Member's Elective Contribution Account and Supplemental Contributions Account
shall at all times be fully vested.
Section 8.02 Vesting of Company Contributions Account.
------------- --------------------------------------------
(a) A Member who becomes an Eligible Employee on or before April 15,
1998 shall be 100% vested in his Company Contribution Account.
(b) Subject to the provisions of subparagraph (a), a Member shall be
vested in his Company Contribution Account (i) at the rate of twenty percent
(20) for each Year of Vesting Service commencing with the Participant's second
Year of Vesting Service regardless of whether such employment occurs before or
after participation in the Plan, or (ii) one hundred percent (100%) in the
event of the occurrence of any one of the following:
(1) attainment of age sixty-five (65),
(2) Disability,
(3) death,
(4) termination of the Plan,
(5) complete discontinuance of Company contributions.
ARTICLE IX
DISTRIBUTIONS
Section 9.01 General.
------------- -------
(a) Upon the Termination of Employment of a Member due to Retirement,
Disability or another subsection 8.02(b) event, the entire amount credited to
all of his Accounts, determined as of the Valuation Date on which the Trustee
receives properly authorized instructions from the Plan Administrator to make
the payment, as adjusted in accordance with Article IX, shall be distributed
as provided in Section 9.02 to the Member.
(b) Upon the Termination of Employment of a Member for reasons other
than Retirement, Disability, or death, or another Section 8.02(b) event, the
vested portion of the value of his Accounts shall become distributable in
accordance with Article VIII (Vesting of Contributions) and shall be
determined as of the Valuation Date on which the Trustee receives properly
authorized instructions to make the payment from the Plan Administrator,
adjusted in accordance with Section 9.06, and distributed as provided in
Section 9.02.
Section 9.02 Methods of Distribution. Except as otherwise provided
------------- -----------------------
in this Article a Member who has incurred a Termination of Employment, for
whatever reason, shall receive his distribution in cash in a lump sum payment
as soon as practicable after such Termination of Employment.
Section 9.03 Distributions for Former Participants in the Ralston
------------- ----------------------------------------------------
Purina Company Savings Investment Plan.
---------------------------------------
(a) A Member who was a participant in the Ralston Purina Company
Savings Investment Plan on March 31, 1998, in addition to the method of
payment set forth in Section 9.02, may elect to receive his distribution in
accordance with any one of the following methods of payment:
(i) in monthly, quarterly, semiannual or annual installments of
principal (together with earnings on the remaining Account balance) to reflect
(A) fixed dollar installments, (B) fixed percentage installments, (C)
declining balance installments, or (D) life expectancy installments, and
(ii) in the form of an annuity contract that permits payments in the
form of a life annuity; provided, however, that in the case of a married
Member, the annuity contract shall provide that benefits are paid
automatically in the form of a Qualified Joint and Survivor Annuity, as
defined in paragraph (b) below, unless the Member, with the consent of his
Eligible Spouse, if any, elects another form of payments in accordance with
paragraph (c) below.
(b) Qualified Joint and Survivor Annuity. A Qualified Joint and
--- ------------------------------------
Survivor Annuity means an annuity for the life of the Member, with a survivor
annuity for the life of the Eligible Spouse which is not less than fifty
percent (50) and is not greater than one hundred percent (100) of the amount
of the annuity which is respectively payable during the joint lives of the
Member and the Eligible Spouse and which is the actuarial equivalent of a
single life annuity for the life of the Member. In the case of a Member who
does not have an Eligible Spouse, a Qualified Joint and Survivor Annuity means
an annuity for the life of the Member.
Each Member entitled to receive his benefit in the form of a
Qualified Joint and Survivor Annuity shall furnish proof of the age of the
Eligible Spouse within a reasonable period before payments commence under the
Qualified Joint and Survivor Annuity.
(c) Election Not to Receive a Qualified Joint and Survivor Annuity.
--- --------------------------------------------------------------
An election not to receive retirement income in the form of a Qualified Joint
and Survivor Annuity may be made (and any prior such election may be revoked)
by a Member entitled to receive his retirement income in such form, subject to
the following:
(i) The election must be made during the ninety (90) day period
ending on the date payments of benefits to the Member commence ("Election
Period").
(ii) The election must be in writing on a form acceptable to the Plan
Administrator (or the insurance company) and must be signed by the Member. The
election form must clearly indicate that the Member is electing to receive his
retirement income in a form other than a Qualified Joint and Survivor Annuity.
(iii) The Eligible Spouse, if any, of the Member must consent to the
election in writing on a form acceptable to the Plan Administrator (or the
Insurance Company), signed by the Eligible Spouse and witnessed by a Plan
representative or a notary public. The consent must acknowledge the effect of
the election. Such a consent is not necessary if the Member establishes to
the satisfaction of the Plan Administrator (or the insurance company) that
such written consent may not be obtained because there is no Eligible Spouse,
because the Eligible Spouse cannot be located, or because of such other
circumstance as Treasury Regulations may prescribe. Any consent by an
Eligible Spouse shall be effective only with respect to such Spouse, and must
specifically identify the beneficiary and the optional form of benefit to
which the consent relates.
(iv) Any such election may be revoked or changed by the Member by a
subsequent election made in accordance with this Section during the Election
Period. The election may be revoked, but not changed, without the consent of
the Eligible Spouse. The Eligible Spouse may not revoke a consent to a valid
election.
(v) Within a reasonable period [no later than ninety (90) days and at
least thirty (30) days] before the benefit payments commence, the Plan
Administrator (or the insurance company) shall furnish to each Member entitled
to receive his retirement income in the form of a Qualified Joint and Survivor
Annuity, a written explanation of:
a) The terms and conditions of the Qualified Joint and Survivor
Annuity;
b) The availability of the election provided by this Section and the
effect of making such an election;
c) The rights of the Eligible Spouse of the Member; and
d) The right to revoke a previous election and the effect of such
revocation.
The Member may elect to waive the minimum 30 day notice if the
distribution commences more than seven (7) days after the explanation is
provided.
Section 9.04 Direct Rollovers.
------------- -----------------
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a Distributee's election under Sections 9.02 and 9.03, a
Distributee may elect, at the time and in the manner prescribed by the Plan
Administrator or its delegatee to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by the
Distributee in a direct rollover.
(b) As used herein, Eligible Rollover Distribution shall mean any
distribution of all or any portion of the balance to the credit of the
Distributee' Accounts except that an Eligible Rollover Distribution does not
include any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the Distributee or the joint lives (or joint life
expectancies of the Distributee and the Distributee's designated beneficiary,
or for a specified period of ten (10) years or more; any distribution to the
extent such distribution is required under Code Section 401(a)(9) and the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect
to Employer securities).
(c) As used herein, Eligible Retirement Plan shall mean an individual
retirement account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in Code Section 401(a), that
accepts the Distributee's Eligible Rollover Distribution. However, in the
case of an Eligible Rollover Distribution of the surviving spouse, an
Eligible Retirement Plan is an individual retirement account or individual
retirement annuity.
(d) A Distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employees or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p) are Distributees with regard to the interest of the spouse or former
spouse.
(e) A direct rollover shall mean a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
Section 9.05 Completion of Appropriate Forms. The Plan Administrator
------------ -------------------------------
has prescribed forms providing written notice to the Plan Administrator in
order for a distribution to be made under the Plan. In the event a Member or
a Beneficiary does not complete, execute and return such forms to the Company,
the distribution of such Member's Accounts shall (except to the extent
provided in Section 16.08), be mailed, to the Address of Record as provided in
Section 16.08 to a Member as soon as practicable following the sixty-fifth
(65th) birthday of such Member, or to a Beneficiary. The Valuation Date for
purposes of this Section 9.05 shall be as described in Article VII.
Section 9.06 Accounts of Former Employees. The amount credited to
------------- ----------------------------
the accounts of a Member, if any, after Termination of Employment of such
Member shall be adjusted in accordance with Article VII as of each Valuation
Date next following such Termination of Employment until such amount shall
have been distributed in full in accordance with this Article. Distribution
of the balance of the amount credited to the Accounts of a Member, determined
as of the Valuation Date immediately preceding such distribution, shall
constitute payment in full of the benefits of such Member hereunder. Any
balance of such accounts remaining unpaid at the death of a Member or
Beneficiary shall be distributed in accordance with Article X.
Any amounts being held for deferred distribution will continue to be
held by the Trustee and invested in accordance with the instructions of the
Members. Such instructions will be given in accordance with the provisions of
this Plan. Persons receiving a deferred distribution are former Members and
shall not be credited with Elective, Company Matching, or Company Profit
Sharing Matching Contributions after Termination of Employment, except with
respect to compensation paid subsequent to the Termination of Employment but
attributable to services performed as an Employee
Section 9.07 Consent to Payment. Notwithstanding the foregoing
------------- ------------------
provisions of Article IX: (a) if the vested portion of the Accounts of a
Member is $5,000 or less, it shall be distributed in a lump sum payment; and
(b) if the vested portion of the Accounts of a Member exceeds $5,000 at the
time the Member first becomes entitled to a distribution under this Article
IX, and the Member has not attained sixty-five (65) years of age, the Member
must consent in writing before any portion of such Account may be distributed
to the Member.
Section 9.08 Latest Deferral of Payment. Notwithstanding anything to
------------ --------------------------
the contrary in the Plan, payment of benefits pursuant to the Plan (including
pursuant to annuity contracts distributed to a Member) shall not provide for
deferment of payments extending beyond the following periods:
(a) If the Beneficiary of a Member under any method of distribution
is other than his Eligible Spouse, the actuarial present value of payments
expected to be made to the Member shall not be less than fifty-one percent
(51%) of the total actuarial present value of the benefits expected to be paid
to the Member and his Beneficiary.
(b) Unless the Member elects otherwise in writing, the latest date by
which payment of benefits must commence shall be the sixtieth (60th) day after
close of the Plan Year in which the latest of the following events occurs:
(1) the Member attains sixty-five (65) years of age; (2) the Member incurs a
Termination of Employment; and (3) ten (10) years have elapsed from the time
the Member commenced participation in the Plan.
If payment in full is not feasible within the time limits prescribed by
this subsection (b) the Plan Administrator may make interim payment from
Accounts of the Member.
(c) Notwithstanding anything to the contrary in this Plan and
regardless of any election by the Member, payment of benefits of a Member,
other than a Five Percent (5%) Owner shall commence no later than the April 1
of the calendar year following the later of the calendar year in which the
Member attains age seventy and one-half (70-1/2) years, or the calendar year
in which the Member actually retires. A Member who is a Five-Percent (5%)
Owner must commence receiving benefits no later than April 1 of the calendar
year following the calendar year in which such Member attains age seventy and
one-half (70 1/2). The minimum distribution to be made each year shall be the
amount equal to the quotient obtained by dividing the Member's Account balance
at the beginning of the year by the life expectancy of the Member (or the
joint life and last survivor expectancy of the Member and the Beneficiary).
If payments are made over the life expectancy of the Member, or the joint life
expectancy of the Member and his spouse, life expectancy will be determined
either: (1) only once, at the time the Member (or his spouse) receives the
first distribution of his account balance; or (2) periodically, but no more
frequently than annually. If payments are made over the joint life expectancy
of the Member and a non-spouse Beneficiary, the change in the life expectancy
of the Member may be determined periodically, but not more frequently than
annually; but the life expectancy of the non-spouse Beneficiary shall be
determined only once at the time the Member (or Beneficiary) receives the
first distribution of his account balance.
Section 9.09 Lost Payees. In the event the amount credited to the
------------- -----------
Account(s) of a Member remain unclaimed for more than five (5) years after
such amount becomes distributable pursuant to Section 9.07, and the Plan
Administrator is unable to locate such Member (or his Beneficiary), the Plan
Administrator may direct such amount to be applied to reduce Company Matching
Contributions provided that in the event such Member (or his Beneficiary)
subsequently claims such amounts, the Employer shall contribute an amount to
the Plan which will cause the balance of such Member's Account(s) to equal the
amount which would have been credited to such Account(s) as of such date if
such amounts had never been reallocated pursuant to this Section.
Section 9.10 Distribution of Annuity Contracts. Notwithstanding
------------- ---------------------------------
anything to the contrary in the Plan, the Plan Administrator may distribute
all or any portion of the balance of an Account that is distributable to a
Member (or a Beneficiary) by purchasing a nontransferable annuity contract
from an insurance company and transferring ownership of the contract to the
Member. Any annuity contract distributed to a Member (or a Beneficiary) shall
provide payment options that conform to those provided by the terms of the
Plan, so that payments pursuant to the contract satisfy the survivor annuity
and other requirements of the Plan governing payment of benefits.
ARTICLE X
DEATH BENEFITS
Section 10.01 Death Benefits. Upon the death of a Member, the amount
------------- --------------
credited to the Member's Account shall become distributable to the Beneficiary
or Beneficiaries of the Member in a lump sum cash payment as soon as
practicable after the death of such Member unless the Member has elected
payment of his benefit in the form of life annuity prior to his death.
Section 10.02 Beneficiary Designation. Subject to Section 10.03,
-------------- -----------------------
each Member from time to time on a form acceptable to the Plan Administrator
may designate any person (including a trust) or persons (concurrently,
contingently or successively) to whom the Member's benefits under the Plan are
to be paid if the Member dies before receiving all of such benefits. A
beneficiary designation form shall be effective only when the form is filed in
writing by the Member and shall cancel all beneficiary designation forms
previously signed and filed by the Member.
With respect to a Member who has at least one Hour of Service after
August 22, 1984, the designation of a non-spouse beneficiary shall be valid
only if the surviving spouse of the Member shall have consented in writing to
such designation, the consent acknowledges the effect of such designation and
the consent is witnessed by a Plan representative or a notary public.
Section 10.03 Pre-Retirement Survivor Annuity. This Section shall
-------------- -------------------------------
apply only to a Member who is eligible to receive a Qualified Joint and
Survivor Annuity pursuant to Article IX because the Member elected payment in
the form of a life annuity and who dies before payment of benefits has
commenced.
Upon the death of such a Member, at least fifty percent (50%) of the
amount credited to the Member's Accounts (or the cash value of an annuity
contract distributed to the Member) as of the date of death shall be
distributed in the form of a single life annuity for the life of the Member's
Eligible Spouse unless the Eligible Spouse has validly consented to the
designation of another Beneficiary in accordance with Section 10.02 after the
earlier of (a) the first day of the Plan Year in which the Member attained
thirty-five (35) years of age or (b) the date on which such Member terminates
employment. If the amount to be applied to the purchase of such an annuity is
Five Thousand Dollars ($5,000) or less, such amount shall be paid to the
Eligible Spouse in cash in lieu of the annuity.
An Eligible Surviving Spouse entitled to receive a single life annuity
may direct that payments under the annuity commence within a reasonable time
after the Member's death.
Section 10.04 Payment of Benefit. The death benefit shall be
-------------- --------------------
distributed in one lump sum cash payment as soon as practicable after the
death of the Member. Such payment shall be made to the Member's Eligible
Spouse unless such Eligible Spouse has consented to another beneficiary
pursuant to Section 10.02.
Section 10.05 Latest Time for Payment. If a Member dies after
-------------- ------------------------
distribution of benefits has commenced but before the entire interest has been
distributed, the remaining portion of such interest shall be distributed at
least as rapidly as the distribution option elected by the Member.
If a Member dies before a distribution of benefits has commenced, the
entire interest shall be distributed within five (5) years of the Member's
death; unless any portion of the interest is payable to or for a Beneficiary
over a period not to exceed the life or life expectancy of the Beneficiary and
payments commence within one year after the Member's death. However, if the
Beneficiary is the surviving spouse of the Member, distribution need not
commence before the date when the Member would have attained age seventy and
one-half (70-1/2) years; provided that if the surviving spouse dies before
distribution to such spouse begins, this paragraph shall be applied as if the
surviving spouse were the Member.
Section 10.06 Payments in the Event of Death with No Designated
-------------- -------------------------------------------------
Survivor or Incompetency. In the event of (a) the death of a Member or
---------------------
Beneficiary not survived by a person designated to receive any payment then
due, or (b) the Plan Administrator finding that a Member or other person
entitled to a benefit is unable to care for his affairs because of illness or
accident or is a minor or has died, or (c) no Beneficiary being designated,
the Plan Administrator may direct that any benefit payment due him, unless
claim shall have been made therefor by a duly appointed legal representative,
be paid to his spouse, a child, a parent or other blood relative, a person
with whom he resides, or to any other person the Plan Administrator considers
suitable, and any such payment so made shall be a complete discharge of the
liabilities of the Plan therefor.
Section 10.07 Renunciation of Death Benefit. Any Beneficiary of a
-------------- -----------------------------
Member entitled to a benefit under this Plan may disclaim his right to all or
a portion of such benefit by filing a written irrevocable and unqualified
refusal to accept such a benefit with the Plan Administrator before receiving
any such benefit. Any benefits so disclaimed shall be distributable to the
person or persons (and in the proportions) to which such benefit would have
been distributable if the Beneficiary who so disclaims such benefits had
predeceased such Member.
Section 10.08 Proof of Death and Right of Beneficiary or Other
-------------- -------------------------------------------------
Person. The Plan Administrator may require and rely upon such proof of death
and such evidence of the right of any Beneficiary or other person to receive
the undistributed value of the Accounts of a deceased Member as the Plan
Administrator may deem proper and its determination of death and of the right
of such Beneficiary or other person to receive payment shall be conclusive.
ARTICLE XI
WITHDRAWAL PRIOR TO TERMINATION OF EMPLOYMENT
Section 11.01 Withdrawal of Supplemental Contributions. A Member may
------------- ----------------------------------------
withdraw all or a portion of his Supplemental Contributions in accordance with
guidelines determined by the Plan Administrator at any time by submitting a
written request to the Plan Administrator specifying the amount to be
withdrawn. Payment shall be made to the Member as soon as practicable after
the submission of the Member's written request to the Plan Administrator. The
withdrawal may not exceed the lesser of the Member's Supplemental
Contributions Account or his total Supplemental Contributions.
Section 11.02 Hardship Withdrawal of Elective Contributions and/or
-------------- ----------------------------------------------------
Company Contributions. A Member may withdraw amounts from his Elective
--------------------
Contribution Account and/or his Company Contribution Account, if fully vested,
by submitting his written request to the Plan Administrator at such time and
in such manner as shall be prescribed by the Plan Administrator subject to the
following provisions:
(a) The withdrawal request must be for an immediate and heavy
financial need on account of:
(1) Nonreimbursable medical expenses incurred by the
Member, his Spouse, or dependents;
(2) Costs directly related to the purchase (excluding
mortgage payments) of a principal residence for the Member;
(3) Payment of tuition for the next twelve (12) months of
post-secondary education for the Member, his Spouse, or dependents; or
(4) The need to prevent the eviction of the Member from his
principal residence or foreclosure on the mortgage on the Member's principal
residence.
(b) The amount withdrawn may not exceed the actual expense incurred
or to be incurred by the Member on account of such needs. The amount of an
immediate and heavy financial need may include any amounts necessary to pay
any federal, state, or local income taxes or penalties reasonably anticipated
to result from the distribution. The amount may be withdrawn only to the
extent that the need cannot be satisfied by other resources reasonably
available to the Member.
In making this determination, the Plan Administrator may rely
on the Member's representation that the need cannot be relieved:
(1) Through reimbursement or compensation by insurance or
otherwise;
(2) By reasonable liquidation of the Member's assets;
(3) By other distributions or loans from Company -sponsored
plans, or
(4) By borrowing from commercial sources on reasonable
terms.
(c) Only one such withdrawal shall be permitted during a twelve-month
period.
(d) The maximum amount which may be withdrawn is the sum of:
(i) The dollar amount of Elective Contributions made on behalf of
such Member (but excluding income thereon);
(ii) The balance of his Company Contributions Account, provided he is
fully vested in his Company Contribution Account; and
(e) The withdrawal shall be paid to the Member as soon as practicable
after the Member's written request is submitted to the Plan Administrator.
(f) A Member receiving a hardship withdrawal shall be precluded from
making any Elective Contributions during the twelve (12) month period
immediately following such withdrawal.
Section 11.03 Age Fifty-Nine and One-Half (59-1/2 Withdrawal). A
-------------- -----------------------------------------------
Member who has attained age fifty-nine and one-half (59-1/2) may withdraw
Elective, Company Matching, and Company Profit Sharing Contributions, and
related earnings (to the extent he is vested in such contributions and related
earnings) in accordance with guidelines determined by the Plan Administrator
by submitting a written request to the Plan Administrator specifying the
amount to be withdrawn. Payment shall be made to the Member as soon as
practicable after submission of the Member's written request to the Plan
Administrator.
Section 11.04 Order of Withdrawals.
-------------- ----------------------
(a) A Member wishing to withdraw amount from his account must first
withdraw the total amount in his Supplemental Contributions Account, provided
he satisfies the withdrawal requirements of Section 11.01.
(b) When a Member has withdrawn all amounts in his Supplemental
Contributions Account or if a Member has no Supplemental Contributions
Account, he must then withdraw amounts from his Company Contribution Account,
provided he satisfies the withdrawal requirements of Section 11.02.
(c) When a Member has withdrawn all amounts in his Company
Contribution Account or is not fully vested in said Account, then the Member
may withdraw amounts from his Elective Contribution Account provided he
satisfies the requirements of Section 11.01.
ARTICLE XII
FORFEITURES
Section 12.01 Time of Forfeiture and Restoration.
-------------- --------------------------------------
(a) If a Member incurs a Termination of Employment prior to the
attainment of age sixty-five (65) for reasons other than Retirement,
Disability or death, the portion, if any, of his Company Contribution Account
in which he is not vested pursuant to Article VIII shall be forfeited as of
the Valuation Date on which (i) the Member has received a distribution of the
entire vested portion of his Accounts, or (ii) the Member has incurred five
consecutive One Year Breaks in Service.
(b) If a Member has forfeited a portion of his Company Contribution
Account pursuant to subsection (a), such forfeited amount will be restored if
he is re-employed by the Company before he has incurred five consecutive One
Year Breaks in Service
The permissible sources for restoring forfeitures shall be income or gain
to the Plan, forfeitures, or Company contributions (without regard to the
existence of profits).
Section 12.02 Disposition of Forfeitures. All forfeitures arising
-------------- --------------------------
out of the application of the provisions of Section 12.01 shall be used to
reduce Company Matching Contributions otherwise payable to the Plan.
Section 12.03 Effect of Withdrawal Under Article XI. The non-vested
-------------- -------------------------------------
Company Contribution Account of a Member who makes a withdrawal described in
Article XI shall not be forfeited by reason thereof.
Section 12.04 Maternity Absence. In the case of an Employee who is
-------------- -----------------
absent from work for maternity or paternity reasons, the Break in Service of
the Employee shall not include the twelve (12) consecutive month period
beginning on the first anniversary of the day such absence began. Absence
from work for maternity or paternity reasons means absence from work on
account of the pregnancy or birth of a child of the employee, the placement of
a child with the Employee in connection with the adoption of the child, or for
purposes of caring for a child following such a birth or placement.
ARTICLE XIII
ADMINISTRATION OF PLAN
Section 13.01 Plan Administrator. Agribrands International, Inc., as
------------- ------------------
the Plan Administrator, shall have the responsibility for carrying out the
provisions of the Plan and the general administration of the Plan.
Section 13.02 Benefit Council.
-------------- ----------------
(a) The claims fiduciary for the Plan, in accordance with Article
XVII, shall be the Benefit Council, to be comprised of no less than three
persons appointed by the Chairman of the Board of Agribrands International,
Inc.
(b) Any person appointed a member of the Benefit Council shall
signify his acceptance by filing a written acceptance with the Secretary of
the Benefit Council. Any member of the Benefit Council may resign by
delivering his written resignation to the Secretary of the Benefit Council,
and such resignation shall become effective upon the date specified therein.
(c) The Chairman of the Board shall appoint a Chairman and a
Secretary of the Benefit Council. The Benefit Council may appoint from its
members such committees with such powers as it shall determine, and may
authorize one or more of its members, or any agent, to execute or deliver any
instrument or make any payment in its behalf.
(d) The Benefit Council shall hold meetings upon such notice, at such
place or places, and at such time or times as it may from time to time
determine.
(e) A majority of the members of the Benefit Council shall constitute
a quorum for the transaction of business. All resolutions or other actions
taken by the Benefit Council shall be by the vote of a majority of the members
of the Benefit Council present at any meeting or without a meeting by an
instrument in writing signed by a majority of the member of the Benefit
Council.
(f) The Benefit Council shall have the authority to amend the Plan to
the extent the annual cost to the Plan resulting from such amendment does not
exceed $250,000.
(g) Certain responsibilities to control and manage Plan assets, to
add or delete investment funds, and to appoint and remove the Trustee and any
investment managers retained in connection with the investment of Plan asset,
shall be placed in the Benefit Council.
Section 13.03 Authority and Duties of Various Fiduciaries.
-------------- ------------------------------------------------
(a) Except for matters required by the terms of the Plan, or of the
Trust to be decided by the Trustee, the Plan Administrator shall have the
exclusive right to interpret the Plan and to decide any and all matters
arising under the Plan or in connection with its administration, including
determination of eligibility for, and the amount of distributions and
withdrawals. The Plan Administrator may from time to time adopt rules for the
administration of the Plan and the conduct of its business, which rules shall
be consistent with the provisions of the Plan.
(b) The Plan Administrator, the Benefit Council, the Trustee, and any
other named fiduciary may each employ counsel, agents, and such clerical and
accounting services as it may require in carrying out its responsibilities
under the Plan. All fiduciaries shall be entitled to rely upon tables,
valuations, certificates, opinions, and reports furnished by any actuary,
accountant, or legal counsel appointed under the provisions of the Plan.
(c) The Plan Administrator shall keep in convenient form such
personnel data as may be necessary for the Plan. The Plan Administrator shall
prepare, distribute, and file such reports and notices as may be required by
applicable law or regulations.
(d) The Plan Administrator shall control and manage the Plan assets
to the extent it has not delegated its power to do so to the Benefit Council.
Such delegation of power may include the right to appoint and remove
investment managers and Trustees. Such delegation may be accomplished by a
separate instrument or by appropriate provisions in the Trust.
(e) The members of the Plan Administrator, the Benefit Council and
the Trustee shall use that degree of care, skill, prudence and diligence that
a prudent person acting in a like capacity and familiar with such matters
would use in his conduct of a similar situation. A member of the Plan
Administrator, or the Trustee shall not be liable for the breach of fiduciary
responsibility of another fiduciary unless (l) he participates knowingly in,
or knowingly undertakes to conceal, an act or omission of such other
fiduciary, knowing such act or omission is a breach; or (2) by his failure to
discharge his duties solely in the interest of Members and Beneficiaries for
the exclusive purpose of providing their benefits and defraying reasonable
expenses of administering the Plan not met by the Company, he has enabled such
other fiduciary to commit a breach; or (3) he has knowledge of a breach by
such other fiduciary and does not make reasonable efforts to remedy the
breach; or (4) if the Plan Administrator, the Benefit Council or the Trustee
improperly allocates among themselves or delegates to others, or fails to
properly review such allocation or delegation of fiduciary responsibilities.
(f) The Company will indemnify and save harmless the members of the
Plan Administrator, the Benefit Council, the Trustee, and any person to whom
fiduciary responsibilities are delegated under this Plan against any and all
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by him in connection with any
civil, criminal, administrative, or investigative action, proceeding, or claim
(including an action by or in the right of the Company) by reason of the fact
that he is or was serving in such capacity, provided that such person's
conduct is not finally adjudged to have been knowingly fraudulent,
deliberately dishonest or willful misconduct.
(g) Each Trustee shall maintain accounts showing the fiscal
transactions of the Trust established hereunder. The Benefit Council shall
keep in convenient form such financial data as may be necessary for the Plan,
and shall annually cause to be prepared a balance sheet and statement of
financial transactions of the Plan and the Trust.
(h) Whenever, in the administration of the Plan, any discretionary
action is required, the authorized party shall exercise his authority in a
nondiscriminatory manner so that all persons similarly situated will receive
substantially the same treatment.
Section 13.04 Named Fiduciaries.
-------------- ------------------
(a) The Board of Directors, the Plan Administrator, and the Benefit
Council shall each constitute named fiduciaries as such term is defined in
ERISA.
(b) Any committee of the Board of Directors or other fiduciary
appointed as a named fiduciary by the Board of Directors by resolution or
appointed by an appropriate instrument executed by an officer of the Company
thereunto authorized by resolution of the Board of Directors, shall also
constitute a named fiduciary in respect of the duty delegated to him or it in
such resolution or instrument.
Section 13.05 Declaration. Any named fiduciary designated herein or
-------------- -----------
appointed as provided herein, unless precluded from doing so by the terms of
such appointment, may by appropriate instrument designate any person
(including any firm or corporation) to carry out part or all of such
fiduciary's responsibilities and upon such designation the named fiduciary
shall have no liability, except as imposed by applicable law, for any act or
omission of such person. The foregoing does not preclude any other fiduciary
to the extent allowed by ERISA and the terms of his appointment from
delegating part or all of such fiduciary's responsibilities with respect to
the Plan.
Section 13.06 Multiple Capacities. Any fiduciary may serve in more
-------------- -------------------
than one fiduciary capacity with respect to the Plan.
ARTICLE XIV
AMENDMENTS, TERMINATION, PERMANENT DISCONTINUANCE
OF CONTRIBUTIONS, MERGER OR CONSOLIDATION
Section 14.01 Amendments. The Board of Directors, or the Benefit
-------------- ----------
Council, or any delegatee, to the extent authority to do so is granted by the
Board of Directors, may at any time and from time to time, both retroactively
and prospectively, modify or amend, in whole or in part, any or all of the
provisions of the Plan, including any modification in the Plan or in the
agreement or agreements establishing the Trust as the Plan Administrator shall
deem to be necessary or advisable in order to obtain the qualification or
exemption, or to maintain the qualification or exemption of the Plan and the
Trust under the Code to comply with ERISA, provided, however, that no such
modification or amendment shall make it possible for any part of the funds of
the Plan to be used for, or diverted to, purposes other than for the exclusive
benefit of Members, spouses, former Members, retired Members or Beneficiaries
under the Plan; that no modification or amendment shall be made which has the
effect of decreasing retroactively the Accounts of any Member or of reducing
the non-forfeitable percentage of the Company Matching Contribution Account of
a Member below the non-forfeitable percentage thereof computed under the Plan
as in effect on the later of the date on which the amendment is adopted or
becomes effective.
Section 14.02 Termination or Permanent Discontinuance of
-------------- ----------------------------------------------
Contributions. Agribrands International, Inc. may by action of its Board of
--------
Directors terminate the Plan with respect to all participating companies or
any of them or direct complete discontinuance of contributions hereunder by
all or any of the participating companies for any reason at any time. In case
of such termination or complete discontinuance of contributions hereunder,
there shall automatically vest in the appropriate Members non-forfeitable
rights to the Company Contributions credited to their Accounts.
Section 14.03 Partial Termination. In the event of a partial
-------------- --------------------
termination of the Plan, the provisions of Section 14.02 shall be applicable
only to the Members affected by such partial termination.
Section 14.04 Benefits in Case of Merger or Consolidation. The Plan
-------------- -------------------------------------------
may not be merged or consolidated with, nor may its assets or liabilities be
transferred to, any other plan unless each Member, spouse, former Member,
retired Member or Beneficiary under the Plan would, if the resulting plan were
then terminated, receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit he
would have been entitled to receive immediately before the merger,
consolidation, or transfer if the Plan had been terminated.
ARTICLE XV
LOANS
Section 15.01 Loans. A Member may make application to the Plan
-------------- -----
Administrator in writing to borrow from the Trust Fund and the Plan
Administrator may permit such a loan upon the conditions hereinafter
specified. Only one loan shall be permitted during a twelve month period. No
loan shall be made in an amount less than $1,000. Loans shall be granted in a
uniform and non-discriminatory manner and shall be made on the following
conditions:
(a) The amount of a loan to a Member (when added to the outstanding
balance of all other loans from the Plan to the Member) shall not exceed the
lesser of
(1) Fifty percent (50%) of the vested amount in the
Member's Accounts, or
(2) $50,000, reduced by the excess, if any, of the highest
outstanding balance of loans from the Plan to the Member during the one-year
period ending on the day before the date on which such loan was made over the
outstanding balance of loans from the Plan on the date on which such loan was
made.
The maturity of a loan shall not exceed five (5) years.
If the Member is also covered under another qualified plan
maintained by the Company, the limitations of subsections (a)(l) and (2) shall
be applied as though all such qualified plans are one plan.
(b) A note shall be signed by the Member establishing regular
installment payments made by payroll deduction whenever possible and to the
extent permitted by law. The terms of such loans shall require substantially
level amortization over the term of the loan with payments not less frequently
than quarterly. Loans shall bear interest as specified in Section 15.02.
Loans shall be granted only if secured by the Member's vested Account
Balances; provided, however, that no more than fifty percent (50%) of the
Member's vested Account Balance may be pledged as collateral for the loan.
(c) In the event an installment payment is not paid within seven (7)
days following the due date, the Plan Administrator shall give written notice
to the Member sent to his last known address. If such installment payment is
not made within thirty (30) days thereafter, the Plan Administrator may
proceed with such actions as they deem necessary in order to preserve plan
assets from loss including, but not limited to, foreclosure, sale, or other
disposition of the security.
Section 15.02 Interest Rates. Interest rates for Plan loans shall be
------------- --------------
regularly reviewed and adjusted in conformity with interest rates which, in
the judgment of the Plan Administrator, are commensurate with rates charged by
commercial lenders for similar types of loans. The interest rate applicable
to a Plan loan shall be fixed as of the date the application for such a
loan is received by the Plan Administrator or its delegatee, and shall not be
subject to change or renegotiation after such date.
Section 15.03 Other Rules. In addition to the foregoing, the Plan
-------------- -----------
Administrator shall prescribe such rules and procedures as it may deem
appropriate, including, without limitation, the imposition of loan application
fees, rules and procedures by which the making of loans may be terminated,
suspended or restricted, and the requirement of a spousal consent to loans of
married Members, if and to the extent deemed by the Plan Administrator to be
necessary or desirable in order to effect compliance with applicable laws and
regulations or to provide for effective administration of such loans.
ARTICLE XVI
MISCELLANEOUS
Section16.01 Benefits Payable from Trust Fund. All persons with any
------------ --------------------------------
interest in the Trust Fund shall look solely to the Trust Fund for any
payments with respect to such interest.
Section16.02 Elections. Elections hereunder shall be made by a
------------ ---------
Member in writing by the completion and delivery to the Plan Administrator of
forms prescribed by the Plan Administrator for such purposes, within the time
limits set forth hereunder with respect to each such election or, if no time
limit is set forth, such limit as may be established by the Plan
Administrator.
Section16.03 No Right to Continued Employment. Neither the
------------ ------------------------------------
establishment of the Plan nor the payment of any benefits thereunder nor any
action of the Company, the Board of Directors, the Plan Administrator, the
Benefit Council or the Trustee shall be held or construed to confer upon any
person any legal right to be continued in the employ of the Company.
Section16.04 Inalienability of Benefits and Interest.
------------ -------------------------------------------
(a) Subject to the provisions of paragraph (b) and (c) below, no
benefit payable under the Plan or interest in the Trust Fund shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such attempted action shall be void and no such
benefit or interest shall be in any manner liable for or subject to debts,
contracts, liabilities, engagements or torts of any Member or Beneficiary. If
any Member or Beneficiary shall become bankrupt or shall attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any
benefit payable under the Plan or interest in the Trust Fund, then to the
extent permitted by law, the Plan Administrator in its discretion may hold or
apply such benefit or interest or any part thereof to or for the benefit of
such Member, or his Beneficiary, his spouse, children, blood relatives, or
dependents, or any of them, in such manner and in such proportions as the Plan
Administrator may consider proper. Notwithstanding the foregoing, any Member
may direct that benefits payable pursuant to Article IX from the Trust Fund
shall be paid to the trustee of a trust created by him for his own benefit or
for the benefit of his immediate family.
(b) Notwithstanding any provision in the Plan to the contrary, the
Plan shall make all payments required by a qualified domestic relations order
within the meaning of Code Section 414(p), including distributions required
or permitted by the qualified domestic relations order to an alternate payee
even though such payments are with respect to a Member who has not separated
from service and which commence before the Member has attained the earliest
retirement age under the Plan; provided, however, the present value of the
benefit to be paid to the alternate payee (1) does not exceed $5,000; or (2)
exceeds at least $5,000 and the alternate payee consents in writing to such
earlier distribution. The Plan Administrator shall establish a procedure to
determine the qualified status of a domestic relations order and to administer
distributions under such a qualified order.
(c) Notwithstanding any provision of the Plan to the contrary, the
Plan Administrator may offset against the amount in a Member's Accounts under
the Plan any amount which the Participant is ordered or required to pay as a
result of a judgement or settlement described in Code Section 401(a)(13)(C)
provided that the requirements set forth in Code Sections 401(a)(13)(C) and
401(a)(13)(D) are satisfied.
Section16.05 Payments for Exclusive Benefits of Members. Payments of
------------ ------------------------------------------
benefits in respect of the interest of a Member under the Plan to any person
other than such Member in accordance with the provisions of the Plan shall be
deemed to be for the exclusive benefit of such Member.
Section16.06 Missouri Law to Govern. All questions pertaining to the
------------ ----------------------
construction, regulation, validity and effect of the provisions of the Plan
shall be determined in accordance with the laws of the State of Missouri,
except as provided in Section 514 of ERISA.
Section16.07 No Guarantee. Neither the Company nor the Trustee
------------ -------------
guarantees the Trust Fund in any manner against loss or depreciation.
Section16.08 Address of Record. Each individual or entity with an
------------ -----------------
actual or potential interest in the Plan shall file and maintain a current
record address with the Plan. Communications mailed by the Company, trustee,
or Plan Administrator to such record address fulfills all obligations to
provide required information to Members, including former employees and
Beneficiaries, in regard to the Plan.
If no record address is filed, it may be presumed that the address used
by the Company in forwarding statements of a Member's Account is the record
address.
Section16.09 Participating Units. The Board of Directors or the Plan
------------ -------------------
Administrator, to the extent authority to do so is granted to the Plan
Administrator by the Board of Directors, may include a designated unit of the
Employees of an Affiliated Company in the Plan as employed in a Participating
Unit upon appropriate action by such Affiliated Company necessary to adopt the
Plan. Any such company may terminate its participation in the Plan with
respect to a designated unit of its employees upon appropriate action by it,
in which event the funds of the Plan held on account of Members in the employ
of such company and any unpaid balances of the Accounts of Members who have
separated from the employ of such company, shall be determined by the Plan
Administrator and shall be distributed as provided in Section 14.02 in the
event of termination of the Plan or shall be segregated by the Trustee as a
separate trust fund, pursuant to direction to the Trustee by the Plan
Administrator, continuing the Plan as a separate plan for such employees of
such company under which the board of directors of such company shall succeed
to all the powers and duties of the Plan Administrator and the Benefit
Council.
Section 16.10 Headings. Headings of Articles and Sections of the
-------------- --------
Plan are inserted for convenience of reference. They constitute no part of
the Plan.
Section 16.11 Use of Masculine Terms. As used herein, masculine
-------------- ----------------------
terms shall include the feminine wherever appropriate.
Section 16.12 Payment of Expenses.
-------------- ---------------------
(a) Direct charges and expenses arising out of the purchase or sale
of securities, and taxes levied on or measured by such transactions shall be
charged against the Investment Fund or Funds for which the transaction took
place.
(b) To the extent permitted by law, all other expenses reasonably
incurred in administering the Plan, including expenses of the Plan
Administrator and the Trustee, fees for legal services, and all taxes, if any,
other than those charged to the Funds, shall be charged to the Company.
Section 16.13 Rollover Contributions.
-------------- -----------------------
(a) An Employee, whether or not he would otherwise be a Member in the
Plan, may contribute a Rollover Contribution to the Trust by delivery of such
contribution to the Trustee, provided that the contribution qualifies as a
rollover contribution within the meaning of Code Section 402(a) which the Plan
may accept.
(b) A Rollover Contribution shall be considered as a part of the
Account of the Employee in this Plan, shall be fully vested and
non-forfeitable, and shall be accounted for separately from Company
contributions.
ARTICLE XVII
CLAIM PROCEDURE
Section 17.01 Initial Determination. The initial determination of a
-------------- ---------------------
Member's or Beneficiary's eligibility for, and the amount of, a benefit shall
be made by the Benefit Council which shall mail or deliver to each covered
individual who has filed an effective claim for a benefit a written statement
of the amount of his benefit or a notice of denial of his claim on or before
the ninetieth (90th) day following the Council's receipt of such claim. If
special circumstances require additional time for processing the claim, the
Benefit Council may delay issuing its statement or notice for an additional
ninety (90) days provided that the Member or Beneficiary is notified of the
circumstances necessitating the delay and the date the Committee expects to
render its final opinion. A claim for benefits is not effective unless filed
on forms prescribed by the Benefit Council. Each notice of whole or partial
denial of claimed benefits shall set forth the specific reasons for the
denial, the time within which an appeal must be made by the Member or
Beneficiary or his duly authorized representative, and shall contain such
other information as may be required by applicable law. If a statement or
notice is not issued within the prescribed period, the claim shall be deemed
denied.
Section 17.02 Review. Each Member or Beneficiary whose claim for
-------------- ------
benefits has been wholly or partially denied shall have such rights to review
documents and submit comments as the Benefit Council may provide, and shall
also have the right to request the Benefit Council to review such denial; such
request shall be made on forms prescribed by the Benefit Council. A request
for review shall be filed by the Member or Beneficiary or his duly authorized
representative on or before the sixtieth (60th) day following the earlier of
the Member or Beneficiary's receipt of notice of denial of his claim or the
expiration of the prescribed period for issuing a statement of benefits or
notice of denial. The Benefit Council shall issue a written statement on or
before the sixtieth (60th) day following its receipt of such request stating
the Benefit Council's decision on review and the reasons therefor, including
specific references to pertinent Plan provisions on which the decision is
based, and any other information required by applicable law. If special
circumstances require additional time for processing such review, the Benefit
Council may delay issuing its decision for an additional sixty (60) days
provided that the Member or Beneficiary is notified of such circumstances and
the date the Benefit Council expects to render its final decision. If the
decision is not issued within the prescribed period, the appeal shall be
deemed denied. No Member or Beneficiary shall have recourse to courts of law
until the administrative review process set forth herein has been completed.
ARTICLE XVIII
LIMITATION ON CONTRIBUTIONS
Section 18.01 Maximum Annual Additions.
-------------- --------------------------
(a) The Annual Addition (as defined in subsection (c) below) for a
-------------------
Member with respect to a Limitation Year (as defined in subsection (e) below)
shall not exceed the lesser of-
(1) $30,000 or such higher annual amount specified by the
Department of the Treasury to reflect increases in the cost-of-living,
effective January 1 of each year; or
(2) Twenty-five percent (25%) of the Member's Section
415(c)(3) compensation.
(b) (1) If a Member is, or was, covered under a qualified defined
benefit plan maintained by the Company, the sum of the Member's Defined
Benefit Fraction and Defined Contribution Fraction may not exceed 1.0 in any
Limitation Year.
(2) The Defined Benefit Fraction is a fraction, the
numerator of which is the sum of the Member's Projected Annual Benefits under
all qualified defined benefit plans (whether or not terminated) maintained by
the Company and the denominator of which is the lesser of--
(A) 1.25 times the dollar limitation of Code Section 415(b)(1)(A) in
effect for each Limitation Year, or
(B) 1.4 times the Member's average Section 415(c)(3) compensation for
the three consecutive Plan Years during which the Member both was an active
participant in the Plan and had the greatest aggregate Section 415(c)(3)
compensation
Projected Annual Benefit means the annual benefit to which the
Member would be entitled under the terms of a defined benefit plan, if the
Member continued employment until normal retirement age (or current age, if
later) and the Member's Section 415(c)(3) compensation for the Limitation Year
and all other relevant factors used to determine such benefit remained
constant until normal retirement age (or current age, if later).
(3) The Defined Contribution Fraction is a fraction, the
numerator of which is the sum of the Annual Additions to the Member's account
under all qualified defined contribution plans whether or not terminated)
maintained by the Company or a Commonly Controlled Entity of the Company for
the current and all prior Limitation Years, and the denominator of which is
the sum of the lesser of the following amount determined for such year and for
each prior year of service with the Company or a Commonly Controlled Entity--
(A) 1.25 times the dollar limitation in effect under Code Section
415(c)(1)(A) for such year [determined without regard to Code Section
415(e)(6)], or
(B) 1.4 times the amount which may be taken into account under Code
Section 415(c)(1)(B).
In calculating the Defined Contribution Fraction, the Plan
Administrator may, at its discretion, make the election described in Code
Section 415(e)(6).
(c) Annual Addition means the sum of the following amounts for a
Limitation Year with respect to each Member--
(1) Elective Contributions
(2) Company Matching Contributions
(3) Profit Sharing Contributions
(4) Forfeitures
(5) Similar amounts under other qualified defined
contribution plans maintained by the Company, and
(6) Amounts allocated to a post-retirement medical account
described in Code Section 415(1)(2) or Code section 419A(d).
Annual additions shall include excess contributions as defined in Code
Section 401(k)(8) of the Code, excess aggregate contribution as defined in
Code Section 401(m)(6)(B), and excess deferrals as described in Code Section
402(g), regardless of whether such amounts are distributed or forfeited.
Rollover Contributions, repaid distributions, restored forfeitures
pursuant to Section 12.01, and loan payments shall not be treated as Annual
Additions.
(d) For the purpose of this section, Company shall include a Commonly
Controlled Entity as defined in Section 1.08, except that in applying Section
414(b), the phrase "more than fifty percent (50) shall be substituted for the
phrase "at least eighty percent (80%)" each place it appears in Code Section
1563(a)(1).
(e) "Limitation Year" means the Plan Year.
(f) For the purposes of this section, "Sectopm 415(c)(3)
compensation" mean compensation as defined in Code Section 415(c)(3) and the
regulations promulgated thereunder.
(g) If, for any Plan Year, it is necessary to limit the allocation of
an amount to a Member's Account to comply with subsection (a), the Plan shall
limit such allocation by reducing contributions in the following order --
(1) first, to the extent necessary, the Elective
Contributions, if any, made on his behalf and any earnings thereon. The
Company Matching Contributions made with respect to such Elective
Contributions and any earnings thereon shall be treated as though they were
forfeitures to the extent necessary and as soon as administratively feasible;
(2) second, to the extent necessary, the amount of the
Profit Sharing Contributions made on his behalf and any earning thereon; and
(3) third, to the extent necessary, other Company or
Commonly Controlled Entity contributions made to other qualified defined
contribution plans.
If the limitations of subsection (b) are exceeded, the accrued benefit of
the Member under the defined benefit plan shall be reduced to the extent
necessary to satisfy the requirements of subsection (b).
ARTICLE XIX
TOP-HEAVY PROVISIONS
Section 19.01 Application of Top-Heavy Provisions.
-------------- --------------------------------------
(a) Except as provided in subsection (b)(2), if as of a Determination
Date, the sum of the amount of the Section 416 Accounts of Key Employees and
the Beneficiaries of deceased Key Employees exceed sixty percent (60%) of the
amount of the Section 416 Accounts of all Members and Beneficiaries, the Plan
is top-heavy and the provisions of this Article shall become applicable.
If any individual has not received any Section 415(c)(3) compensation
(other than benefits under a plan) from the Company or a Commonly Controlled
Entity of the Company at any time during the five-year period ending on the
Determination Date, the Section 416 Account of such individual or his
Beneficiary shall be excluded from all computations under this Article.
However, if such an individual returns to employment with the Company or
Commonly Controlled Entity, his Section 416 account shall be included in
calculations under this section. The Section 416 Account of an individual who
was a Key Employee but is not a Key Employee for the Plan Year containing the
Determination Date and the preceding four Plan Years or the Section 416
Account of the Beneficiary of such an individual shall be excluded from all
computations under this Article.
(b) (1) If as of a Determination Date this Plan is part of an
Aggregation Group which is top-heavy, the provisions of this Article shall
become applicable. Top-heaviness for the purpose of this subsection shall be
determined with respect to the Aggregation Group in the same manner as
described in subsection (a) except that if the Aggregation Group includes a
defined benefit plan, the Section 416 Account shall include the present value
of the accrued benefit of a member or a beneficiary under such plan.
(2) If this Plan is top-heavy under subsection (a), but the
Aggregation Group is not top-heavy, this Article shall not be applicable.
(c) The Plan Administrator shall have responsibility to make all
calculations to determine whether this Plan is top-heavy. The Plan
Administrator may use a method which approximates the calculations described
in Section 19.01(a) provided that it mathematically proves that the Plan is
not top -heavy, such as a method which overstates the Section 416 Accounts
with respect to Key Employees and understates the Section 416 Accounts with
respect to non-Key Employees.
Section 19.02 Definitions.
-------------- -----------
(a) "Aggregation Group means this Plan and all other plans (including
a frozen plan) maintained by the Company which covers a Key Employee or his
Beneficiary and any other plan which enables a plan covering a Key Employee or
his Beneficiary to meet the requirements of Code Sections 401(a)(4) or 410. A
terminated plan shall be included in an Aggregation Group if it was maintained
by the Company within the last five (5) years ending on the Determination Date
for the Plan Year in question and would, but for the fact it was terminated,
meet the conditions of the preceding sentence. In addition, at the election
of the Plan Administrator, the Aggregation Group may be expanded by the
Company if such expanded Aggregation Group meets the requirements of Code
Sections 401(a)(4) and 410.
(b) "Determination Date" means the last day of the Plan Year
immediately preceding the Plan Year for which top-heaviness is to be
determined.
(c) "Key Employee" means an Employee (or a former or deceased
Employee) who, for the Plan Year containing the Determination Date or any of
the four preceding Plan Years (including years before 1984), is:
(1) an officer of the Company or a Commonly Controlled
Entity of the Company having an annual Section 415(c)(3) compensation for a
Plan Year greater than one hundred fifty percent (150%) of the amount in
effect under Code Section 415(c)(1)(A) for the calendar year in which the Plan
Year ends; provided, however, that no more than the lesser of --
(A) 50 Employees, or
(B) the greater of (i) three Employees or (ii) ten percent (10%) of
the greatest number of employees of the company and its Commonly Controlled
Entities for the Plan Year containing the Determination Date and the preceding
four Plan Years shall be treated as officers, and such officers shall be those
with the highest annual Section 415(c)(3) compensation in the five-year
period;
(2) one of the ten Employee having an annual Section
415(c)(3) compensation in excess of the amount in effect under Code Section
415(c)(1)(A) and owning (or considered as owning within the meaning of Code
Section 318) both more than one-half percent (1/2%) interest in the Company
and the largest interests in the Company;
(3) a five-percent (5%) owner of the Company; or
(4) a one-percent (1%) owner of the Company having an
annual Section 415(c)(3) compensation of more than $150,000.
For the purpose of subsection (c)(1)(B)(II), if ten percent (10%) of
the number of Employees is not an integer, the number shall be increased to
the nearest integer. The determination as to whether a person is an officer
shall be made on the basis of his actual authority and duties and without
regard to his title. For the purpose of subsection (c)(2), if two Employees
have the same interest in the Company, the Employee having the greater annual
Section 415(c)(3) compensation from the Company, shall be treated as having a
larger interest. For the purpose of subsections (c)(3) and (c)(4), ownership
shall be determined in accordance with Code Section 416(i)(l)(B) and (C).
(d) Section 416 Account means the sum of:
(1) the amount credited to a Member's or Beneficiary's
Account under this Plan as of the most recent Valuation Date occurring within
the twelve (12) month period ending on the Determination Date (or his account
under another qualified defined contribution plan which is part of an
Aggregation Group) including uncontributed amounts due as of such Valuation
Date but which are actually contributed on or before the Determination Date;
(2) the present value of the accrued benefit credited as of
a Determination Date to a Member or Beneficiary under a qualified defined
benefit plan which is part of an Aggregation Group; and
(3) the amount of distributions to the Member or
Beneficiary during the five-year period ending on the Determination Date,
including a distribution under a terminated plan which, if it had not been
terminated, would have been required to be included in an Aggregation Group, a
distribution of Employee contributions, and a distribution made before January
1, 1984, but excluding a distribution which is a tax-free rollover
contribution (or similar transfer) that is not initiated by the Member or that
is contributed to a plan which is maintained by the Company; reduced by;
(4) the amount of a rollover contribution (or
similar transfer) which is accepted by this Plan (or a plan forming part of
an Aggregation Group) after December 31, 1983 and which was initiated by
the Member and derived from a plan not maintained by the Company or a
commonly Controlled Entity of the Company, and the earnings on such
rollover contribution.
(e) Section 415(c)(3) compensation is defined in that same way as in
Section 18.01(f) of the Plan.
Section 19.03 Minimum Contribution.
-------------- ---------------------
(a) If this Plan is determined to be top-heavy under the provisions
of Section 19.01, with respect to each Member who is not a Key employee and is
an Employee on the last day of the Plan Year, the sum of Employer
Contributions other than Elective Contributions), forfeitures treated a
Employer Contributions under this Plan, and under all qualified defined
contribution plans in the Aggregation Group shall not be less than three
percent (3%) of such Member's Section 415(c)(3) compensation. Notwithstanding
the provisions of Section 8.02, contributions made pursuant to this Section
shall be fully vested at all times. This Section shall not be applicable with
respect to a Member who is also covered under a defined benefit plan
maintained by the Company which provides the benefit specified by Code Section
416(c)(1).
(b) The contribution rate specified in subsection (a) shall not
exceed the percentage at which Employer Contributions and forfeitures are
allocated under the Plan or the plans of the Aggregation Group to the account
of the Key Employee for whom such percentage is the highest for the Plan Year.
For the purpose of this subsection, the percentage for each Key Employee shall
be determined by dividing the Employer Contributions and forfeitures for the
Key Employee by the amount of his total compensation for the year not in
excess of the limitation imposed by Code Section 401(a)(17) [as adjusted by
the Secretary of the Treasury]. This subsection shall not apply if this Plan
is required to be included in an Aggregation Group and the Plan enables a
defined benefit plan which is part of the Aggregation Group to meet the
requirements of Code Section 401(a)(4) or 410.
Section 19.04 Limit on Annual Additions: Combined Plan Limit.
-------------- ------------------------------------------------
(a) If this Plan is determined to be top-heavy under Section 19.01,
Section 18.01(b) of this Plan shall be applied by substituting 1.0 for 1.25.
The transitional rule of Code Section 415(e)(6)(B)(i) shall be applied by
substituting "$41,500" for "$51,875"-
(b) Subsection (a) shall not be applicable if--
(1) Section 19.03 is applied by substituting "four percent
(4%)" for "three percent (3%)" and
(2) this Plan would not be top-heavy if "ninety percent
(90%) is substituted for "sixty percent (60%) in Section 19.01.
(c) If, but for this subsection (c), subsection (a) would begin to
apply with respect to the Plan, the application of subsection (a) shall be
suspended with respect to a Member so long as there are--
(1) no Company contributions, forfeitures, or voluntary
nondeductible contributions allocated to such Member, and
(2) no accruals under a qualified defined benefit plan for
such Member.
IN WITNESS WHEREOF, Agribrands International, Inc. has caused these
present to be executed by the undersigned representative of the Company
effective as of the _____ day of _________________, 1998 or as otherwise
indicated.
AGRIBRANDS INTERNATIONAL, INC.
By:
LONG TERM CREDIT AGREEMENT
Dated as of March __, 1998
among
AGRIBRANDS INTERNATIONAL, INC.
THE SUBSIDIARY BORROWERS AND SUBSIDIARY OBLIGORS
FROM TIME TO TIME PARTY HERETO,
THE FINANCIAL INSTITUTIONS FROM TIME TO TIME
PARTY HERETO AS LENDERS,
and
ABN AMRO BANK N.V.,
as Agent
<PAGE>
TABLE OF CONTENTS
-------------------
Page
----
ARTICLE I: DEFINITIONS 1
- --------------------------
1.1 Certain Defined Terms. 1
-----------------------
1.2 Currency Equivalents. 19
---------------------
ARTICLE II: THE CREDITS 20
- ----------------------------
2.1 Revolving Loans to the Company and the Subsidiary Borrowers 20
----------------------------------------------------------------
2.2 Prepayments. 20
-----------
2.3 Method of Borrowing 21
---------------------
2.4 Method of Selecting Types and Interest Periods for Advances;
--------------------------------------------------------------------
Determination of Applicable Margins, Interest on Advances to
Purina Korea, Inc
-----------------------------------------------------
21
(a) Method of Selecting Types and Interest Periods for
Advances 21
----------------------------------------------------------------
(b) Determination of Applicable Margins, Applicable Letter of Credit
Fee and Applicable Facility Fee 22
---------------------------------
2.5 Minimum Amount of Each Advance 24
----------------------------------
2.6 Method of Selecting Types and Interest Periods for
Conversion and Continuation of Advances 24
-----------------------------------------
(A) Right to Convert 24
------------------
(B) Automatic Conversion and Continuation 25
----------------------------------------
(C) No Conversion Post-Default or Post-Unmatured Default 25
---------------------------------------------------------
(D) Conversion/Continuation Notice 25
-------------------------------
2.7 Default Rate 25
-------------
2.8 Method of Payment 25
-------------------
2.9 Notes, Telephonic Notices 26
---------------------------
2.10 Promise to Pay; Interest and Fees; Interest Payment Dates;
Interest and Fee Basis; Taxes; Loan and Control Accounts 26
-------------------------------------------------
(A) Promise to Pay 26
----------------
(B) Interest Payment Dates 26
------------------------
(C) Fees 26
----
(D) Interest and Fee Basis 27
-------------------------
(E) Taxes 27
-----
(F) Loan Account 30
-------------
(G) Entries Binding 30
----------------
2.11 Notification of Advances, Interest Rates, Prepayments and
Aggregate Commitment Reductions 30
------------------
2.12 Lending Installations 30
----------------------
2.13 Non-Receipt of Funds by the Agent 30
--------------------------------------
2.14 Termination Date 31
-----------------
2.15 Replacement of Certain Lenders 31
---------------------------------
2.16 Letters of Credit 32
-------------------
2.17 Letter of Credit Participation 33
---------------------------------
2.18 Reimbursement Obligation 33
-------------------------
2.19 Cash Collateral 34
----------------
2.20 Letter of Credit Fees 34
------------------------
2.21 Indemnification; Exoneration 35
-----------------------------
2.22 Judgment Currency 36
------------------
2.23 Currency Disruption 37
--------------------
2.24 Termination Date Extension 37
----------------------------
ARTICLE III: CHANGE IN CIRCUMSTANCES 37
- ------------------------------------------
3.1 Yield Protection 37
-----------------
3.2 Changes in Capital Adequacy Regulations 38
-------------------------------------------
3.3 Availability of Types of Advances 39
-------------------------------------
3.4 Funding Indemnification 39
------------------------
3.5 Lender Statements; Survival of Indemnity 39
--------------------------------------------
ARTICLE IV: CONDITIONS PRECEDENT 40
- -------------------------------------
4.1 Initial Advances and Letters of Credit 40
-------------------------------------------
4.2 Each Advance and Letter of Credit 40
--------------------------------------
ARTICLE V: REPRESENTATIONS AND WARRANTIES 41
- -----------------------------------------------
5.1 Organization; Powers 41
---------------------
5.2 Authority 41
---------
5.3 No Conflict; Governmental Consents 41
-------------------------------------
5.4 Financial Statements 42
---------------------
5.5 No Material Adverse Change 42
-----------------------------
5.6 Taxes 42
-----
(A) Tax Examinations 42
-----------------
(B) Payment of Taxes 43
------------------
5.7 Litigation; Loss Contingencies and Violations 43
-------------------------------------------------
5.8 Subsidiaries; Capital Stock 43
-----------------------------
5.9 ERISA 43
-----
5.10 Accuracy of Information 44
-------------------------
5.11 Securities Activities 44
----------------------
5.12 Material Agreements 45
--------------------
5.13 Compliance with Laws 45
----------------------
5.14 Assets and Properties 45
-----------------------
5.15 Statutory Indebtedness Restrictions 45
-------------------------------------
5.16 Post-Retirement Benefits 45
-------------------------
5.17 Insurance 45
---------
5.18 Contingent Obligations 45
-----------------------
5.19 Restricted Junior Payments 46
----------------------------
5.20 Labor Matters 46
--------------
5.21 Environmental Matters 46
----------------------
5.22 Foreign Employee Benefit Matters 47
-----------------------------------
ARTICLE VI: COVENANTS 47
- -------------------------
6.1 Reporting 47
---------
(A) Financial Reporting 47
--------------------
(B) Notice of Default 48
-------------------
(C) Lawsuits 49
--------
(D) Insurance 49
---------
(E) ERISA Notices 49
--------------
(F) Labor Matters 50
--------------
(G) Other Indebtedness 51
-------------------
(H) Other Reports 51
--------------
(I) Environmental Notices 51
----------------------
(J) Other Information 51
------------------
6.2 Affirmative Covenants 51
----------------------
(A) Existence, Etc. 51
----------------
(B) Corporate Powers; Conduct of Business 52
-----------------------------------------
(C) Compliance with Laws, Etc. 52
-----------------------------
(D) Payment of Taxes and Claims; Tax Consolidation 52
----------------------------------------------------
(E) Insurance 52
---------
(F) Inspection of Property; Books and Records; Discussions 52
------------------------------------------------------------
(G) ERISA Compliance 53
-----------------
(H) Maintenance of Property 53
-------------------------
(I) Environmental Compliance 53
-------------------------
(J) Use of Proceeds 53
-----------------
(K) Foreign Employee Benefit Compliance 53
--------------------------------------
6.3 Negative Covenants 53
-------------------
(A) Indebtedness 53
------------
(B) Sales of Assets 54
-----------------
(C) Liens 55
-----
(D) Investments 55
-----------
(E) Contingent Obligations 56
-----------------------
(F) Restricted Junior Payments 56
----------------------------
(G) Conduct of Business; Subsidiaries; Acquisitions 57
---------------------------------------------------
(H) Transactions with Shareholders and Affiliates 57
-------------------------------------------------
(I) Sales and Leasebacks 58
----------------------
(J) Margin Regulations 58
-------------------
(K) ERISA 58
-----
(L) Issuance of Equity Interests 59
-------------------------------
(M) Organizational Documents 59
-------------------------
(N) Other Indebtedness 59
-------------------
(O) Fiscal Year 59
------------
(P) Hedging Obligations 59
--------------------
(Q) Subsidiary Covenants 59
---------------------
6.4 Financial Covenants 59
--------------------
(A) Interest Coverage Ratio 59
-------------------------
(B) Maximum Leverage Ratio 60
------------------------
(C) Capital Expenditures 60
---------------------
(D) Minimum Consolidated Net Worth 60
---------------------------------
(E) Country Debt Limitations 60
--------------------------
ARTICLE VII: DEFAULTS 62
- -------------------------
7.1 Defaults 62
--------
ARTICLE VIII: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND
- -------------------------------------------------------------------------
REMEDIES 64
- --------
8.1 Remedies 64
(a) Termination of Commitments; Acceleration 64
-------------------------------------------
(b) Rescission 65
----------
(c) Enforcement 65
-----------
8.2 Defaulting Lender 65
------------------
8.3 Amendments 66
----------
8.4 Preservation of Rights 67
------------------------
ARTICLE IX: GENERAL PROVISIONS 67
- -----------------------------------
9.1 Survival of Representations 67
-----------------------------
9.2 Governmental Regulation 67
------------------------
9.3 Performance of Obligations 67
----------------------------
9.5 Entire Agreement 68
-----------------
9.7 Expenses; Indemnification 68
--------------------------
(A) Expenses 68
--------
(B) Indemnity 69
---------
(C) Waiver of Certain Claims; Settlement of Claims 69
----------------------------------------------------
(D) Survival of Agreements 70
------------------------
9.8 Numbers of Documents 70
----------------------
9.9 Accounting 70
----------
9.10 Severability of Provisions 70
----------------------------
9.11 Nonliability of Lenders 70
-------------------------
9.12 GOVERNING LAW 70
--------------
9.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL 70
--------------------------------------------------------------
(A) JURISDICTION 70
------------
(B) OTHER JURISDICTIONS 71
--------------------
(C) VENUE 71
-------
(D) WAIVER OF JURY TRIAL 71
-----------------------
9.14 Subordination of Intercompany Indebtedness 71
---------------------------------------------
9.15 No Strict Construction 73
------------------------
ARTICLE X: THE AGENT 73
- -------------------------
10.1 Appointment; Nature of Relationship 73
--------------------------------------
10.2 Powers 73
------
10.3 General Immunity 73
-----------------
10.4 No Responsibility for Loans, Creditworthiness, Collateral,
Recitals, Etc. 73
-------------------------------------------------------------------
-
10.5 Action on Instructions of Lenders 74
-------------------------------------
10.6 Employment of Agents and Counsel 74
------------------------------------
10.7 Reliance on Documents; Counsel 74
---------------------------------
10.8 The Agent's Reimbursement and Indemnification 74
-------------------------------------------------
10.9 Rights as a Lender 74
---------------------
10.10 Lender Credit Decision 75
------------------------
10.11 Successor Agent 75
----------------
10.12 Collateral Documents 75
---------------------
ARTICLE XI: SETOFF; RATABLE PAYMENTS 76
- ------------------------------------------
11.1 Setoff 76
------
11.2 Ratable Payments 76
-----------------
11.3 Application of Payments 76
-------------------------
11.4 Relations Among Lenders 77
-------------------------
ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 77
- ------------------------------------------------------------------
12.1 Successors and Assigns 77
------------------------
12.2 Participations 78
--------------
(A) Permitted Participants; Effect 78
--------------------------------
(B) Voting Rights 78
--------------
(C) Benefit of Setoff 78
-------------------
12.3 Assignments 78
-----------
(A) Permitted Assignments 78
----------------------
(B) Effect; Effective Date 79
------------------------
(C) The Register 79
-------------
12.4 Confidentiality 79
---------------
12.5 Dissemination of Information 80
------------------------------
ARTICLE XIII: NOTICES 80
- -------------------------
13.1 Giving Notice 80
--------------
13.2 Change of Address 81
-------------------
ARTICLE XIV: COUNTERPARTS 81
- -----------------------------
<PAGE>
EXHIBITS AND SCHEDULES
Exhibits
--------
EXHIBIT A -- Commitments
(Definitions)
EXHIBIT B -- Form of Note
(Definitions)
EXHIBIT C -- Form of Compliance Certificate
(Definitions, 4.2, 6.1(A)(iii))
EXHIBIT D -- Form of Assignment Agreement
( 2.15, 12.3)
EXHIBIT E -- List of Closing Documents
( 4.1)
EXHIBIT F -- Form of Officer's Certificate
( 4.2, 6.1(A)(iii))
EXHIBIT G -- Financial Statements
( 5.4(A), 5.18)
<PAGE>
Schedules
---------
The information presented on each of the following Schedules is dated as of
[February 28, 1998].
Schedule 1.1.1 -- Permitted Existing Contingent Obligations
(Definitions)
Schedule 1.1.2 -- Permitted Existing Indebtedness (Definitions)
Schedule 1.1.3 -- Permitted Existing Investments (Definitions)
Schedule 1.1.4 -- Permitted Existing Liens (Definitions)
Schedule 2.16(b) -- Existing Letters of Credit ( 2.16(b))
Schedule 5.3 -- Conflicts; Governmental Consents ( 5.3)
Schedule 5.7 -- Litigation; Loss Contingencies ( 5.7)
Schedule 5.8 -- Subsidiaries ( 5.8)
Schedule 5.17 -- Insurance ( 5.17, 6.1(D), 6.2(E))
Schedule 5.20 -- Labor Matters; Compensation Agreements ( 5.20)
Schedule 5.21 -- Environmental Matters ( 5.21)
Schedule 6.3(F) -- Restricted Junior Payments
Schedule 6.3(H) -- Transactions with Shareholders and Affiliates
<PAGE>
LONG TERM CREDIT AGREEMENT
This Long Term Credit Agreement dated as of March __, 1998 is entered
into among Agribrands International, Inc., a Missouri corporation, any
Subsidiary Borrowers and any Subsidiary Obligors (as such terms are defined
herein) which are now or may hereafter become a party hereto from time to
time, the financial institutions from time to time a party hereto as Lenders,
whether by execution of this Agreement or an assignment and acceptance
pursuant to Section 12.3, ABN AMRO Bank N.V., in its capacity as Agent for
-------------
itself and the other Lenders. The parties hereto agree as follows:
ARTICLE I: DEFINITIONSARTICLE I DEFINITIONS
- ---------------------------------------------------
1.1 Certain Defined Terms. In addition to the terms defined in other
----------------------
sections of this Agreement, the following terms used in this Agreement shall
have the following meanings, applicable both to the singular and the plural
forms of the terms defined:
As used in this Agreement:
"Acquisition" means any transaction, or any series of related
-----------
transactions, consummated on or after the date of this Agreement, by which the
-----
Company or any Subsidiary of the Company (i) acquires any going business or
all or substantially all of the assets of any firm, corporation or division
thereof, whether through purchase of assets, merger or otherwise, including,
without limitation, by surrender of or foreclosure on collateral provided by
customers or (ii) directly or indirectly acquires (in one transaction or as of
the most recent transaction in a series of transactions, including, without
limitation, by surrender of or foreclosure on collateral provided by
customers) at least a majority (in number of vote) of the securities of a
corporation which have ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) or a majority (by percentage of voting power), of the membership,
ownership or other equity interests in a limited liability company or of the
outstanding partnership interests of a partnership.
"Advance" means a borrowing hereunder consisting of the aggregate amount
-------
of the several Loans made by the Lenders to a Borrower of the same Type and,
in the case of Eurodollar Advances and Korean Eurodollar Advances, for the
same Interest Period.
"Affected Lender" is defined in Section 2.15 hereof.
---------------- -------------
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act) of greater than ten percent (10%) or more of any class of voting Capital
Stock (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person through ownership of Equity
Interests. In addition, each director of a Borrower or any Subsidiary of a
Borrower shall be deemed to be an Affiliate of each Borrower.
"Agent" means ABN AMRO Bank N.V. in its capacity as contractual
-----
representative for itself and the Lenders pursuant to Article X hereof and any
--- ---------
successor Agent appointed pursuant to Article X hereof.
----------
"Aggregate Commitment" means the aggregate of the Commitments of all the
---------------------
Lenders under this Agreement as adjusted from time to time pursuant to the
terms hereof. The initial Aggregate Commitment is Fifty-Five Million and
00/100 Dollars ($55,000,000.00).
"Agreement" means this Long Term Credit Agreement, as it may be amended,
---------
restated or otherwise modified and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
---------------------------------
principles as in effect as of the date of this Agreement in the United States.
If any changes in generally accepted accounting principles are hereafter
required or permitted and are adopted by the Company with the agreement of its
independent certified public accountants and such changes result in a change
in the method of calculation of any of the financial covenants, restrictions
or standards herein or in the related definitions or terms used therein
("Covenant Accounting Changes"), the parties hereto agree to enter into
-------------------------
negotiations, in good faith, in order to amend such provisions in a credit
neutral manner so as to reflect equitably such changes with the desired result
that the criteria for evaluating the Company's consolidated financial
condition shall be the same after such changes as if such changes had not been
made; provided, however, that no Covenant Accounting Change shall be given
-------- -------
effect in such calculations until such provisions are amended in a manner
reasonably satisfactory to the Required Lenders. If such amendment is entered
into, all references in this Agreement to Agreement Accounting Principles
shall mean generally accepted accounting principles as of the date of such
amendment except as agreed in connection with the Covenant Accounting Changes
set forth in such an amendment and together with any changes in generally
accepted accounting principles after the date of such amendment which are not
Covenant Accounting Changes.
"Alternate Base Rate" means, for any day, a fluctuating rate of interest
--------------------
per annum equal to the higher of (i) the Prime Rate for such day and (ii) the
sum of (a) the Federal Funds Effective Rate for such day and (b) one-half of
one percent (0.5%) per annum.
"Applicable Facility Fee" as at any date of determination, shall be the
-------------------------
rate per annum then applicable in the determination of the amount payable
under Section 2.10(C) with respect to the Aggregate Commitment determined in
----------------
accordance with the provisions of Section 2.4(b).
---------------
"Applicable Eurodollar Margin" as at any date of determination, shall be
-----------------------------
the rate per annum then applicable to Eurodollars Rate Loans determined in
accordance with the provisions of Section 2.4(b).
---------------
"Applicable Base Rate Margin" as at any date of determination, shall be
-----------------------------
the rate per annum then applicable to Base Rate Loans determined in accordance
with the provisions of Section 2.4(b).
---------------
"Applicable Letter of Credit Fee" as at any date of determination, shall
--------------------------------
be the rate per annum then applicable in the determination of the amount
payable under Section 2.20 with respect to Letters of Credit, determined in
-------------
accordance with the provisions of Section 2.4(b).
---------------
"Applicable Margin(s)" is defined in Section 2.4(b).
--------------------- ---------------
"Arranger" means ABN AMRO Bank N.V. in its capacity as the arranger for
--------
the loan transaction evidenced by this Agreement.
"Authorized Officer" means any of the chief executive officer, chief
-------------------
operating officer, chief financial officer, controller and treasurer of a
Borrower, acting singly.
"Base Rate" means, for any day for any Loan, a rate per annum equal to
----------
(i) the Alternate Base Rate for such day plus (ii) the Applicable Base Rate
Margin applicable to such Loan, changing when and as the Alternate Base Rate
changes.
"Base Rate Advance" means an Advance which bears interest at the Base
-------------------
Rate.
"Base Rate Loan" means a Loan, or portion thereof, which bears interest
----------------
at the Base Rate.
"Benefit Plan" means a defined benefit plan as defined in Section 3(35)
-------------
of ERISA (other than a Multiemployer Plan) in respect of which the Company or
any other member of the Controlled Group is, or within the immediately
preceding six (6) years was, an "employer" as defined in Section 3(5) of
ERISA.
"Borrower" shall mean the Company, [the Company's Canadian Subsidiary, a
--------
company organized under the federal laws of Canada], Purina Italia, S.p.A., a
company organized under the laws of Italy, Purina Espana, S.A., a company
organized under the laws of Spain, Purina Hungaria Animal Feed Production &
Trading Company, Ltd., a company organized under the laws of Hungary, and
Purina Korea, Inc., a corporation organized under the laws of the Republic of
Korea, and each of their respective successors and assigns.
"Borrowing Date" means a date on which an Advance, is made hereunder.
---------------
"Borrowing Notice" is defined in Section 2.4(a) hereof.
----------------- ---------------
"Business Day" means (i) with respect to any borrowing, payment or rate
-------------
selection of Revolving Loans bearing interest at the Eurodollar Rate, a day
(other than a Saturday or Sunday) on which banks are open for business in New
York, New York and on which dealings in United States Dollars and Korean Won
are carried on in the relevant interbank market and (ii) for all other
purposes a day (other than a Saturday or Sunday) on which banks are open for
business in New York, New York.
"Calculation Date" means (i) with respect to any Revolving Loan or Letter
----------------
of Credit in Korean Won, the Business Day of the making of such Revolving Loan
or the issuance of the Letter of Credit with respect to Korean Won; (ii) with
respect to outstanding Revolving Loans and Letters of Credit, (x) the Business
Day on which any subsequent Loan is made or Letter of Credit is issued, (y)
the twenty-fifth day of each calendar month (or, if such date is not a
Business Day, the next succeeding Business Day), and (z) any other Business
Day selected at the option of the Agent or at the direction of the Required
Lenders; provided, with respect to any option exercised pursuant to clause
-------- ------
(ii)(z) above, without the consent of the Agent required to calculate the
----
applicable Exchange Rate, the Calculation Date selected shall not be earlier
-
than the second (2nd) Business Day following exercise of such option.
"Capital Expenditures" means, for any period, the aggregate of all
---------------------
expenditures (whether paid in cash or accrued as liabilities and including
Capitalized Leases) by the Company and its Subsidiaries during that period
that, in conformity with Agreement Accounting Principles, are required to be
included in or reflected by the property, plant, equipment or similar fixed
asset accounts reflected in the consolidated balance sheet of the Company and
its Subsidiaries other than with respect to the acquisition of inventory in
the ordinary course of business.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
--------------
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (howsoever designated)
of corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing person, in each such case
regardless of class or designation.
"Capitalized Lease" of a Person means any lease of property by such
------------------
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
-------------------------------
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"Cash Collateral Account" means that certain deposit account, Account No.
-----------------------
[___________] maintained at all times by the Company at ABN AMRO Bank N.V.
with a balance not less than $25,000,000 at any time.
"Cash Equivalents" means (i) marketable direct obligations issued or
-----------------
unconditionally guaranteed by the government of the United States or the
government of any member of the European Union; (ii) domestic and Eurodollar
certificates of deposit and time deposits, bankers' acceptances and Base Rate
certificates of deposit issued by any commercial bank organized under the laws
of the United States, any state thereof, the District of Columbia, or its
branches or agencies or the laws of any member of the European Union and
having capital and surplus in an aggregate amount not less than $500,000,000
(fully protected, if denominated in a currency other than Dollars, against
currency fluctuations for any such deposits with a term of more than ten (10)
days); (iii) shares of money market, mutual or similar funds having net assets
in excess of $500,000,000 maturing or being due or payable in full not more
than one hundred eighty (180) days any Borrower's acquisition thereof and the
investments of which are limited to investment grade securities (i.e.,
securities rated at least Baa by Moody's Investors Service, Inc. or at least
BBB by Standard & Poor's Ratings Group) and (iv) commercial paper of United
States and foreign banks and bank holding companies and their subsidiaries and
United States and foreign finance, commercial, industrial or utility companies
which, at the time of acquisition, are rated A-1 (or better) by Standard &
Poor's Ratings Group or P-1 (or better) by Moody's Investors Services, Inc. or
commercial paper of British banks of similar credit quality approved for such
purposes by the Agent in its sole discretion; provided that the maturities of
--------
such Cash Equivalents shall not exceed 365 days.
"Cash Interest Expense" will mean, for any period, the total Interest
-----------------------
Expense of the applicable entity actually paid in cash (including the interest
component of Capitalized Leases but excluding the arrangement fee set forth in
the letter agreement between the Agent, the Arranger and the Company dated
February 25, 1998) all as determined in conformity with Agreement Accounting
Principles.
"Change" is defined in Section 3.2 hereof.
------ ------------
"Change of Control" means any of the following:
-------------------
(i) any "person" or "group" (as such terms are used in Sections 13(d)
--------------
and 14(d) of the Exchange Act)is or becomes the "beneficial owner" (as defined
-----
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of 20% or more of the
combined voting power of the Company's Capital Stock ordinarily having the
right to vote at an election of directors;
(ii) during any period of 12 consecutive calendar months,
individuals:
(a) who were directors of the Company on the first day of such period, or
(b) whose election or nomination for election to the board of directors of
the Company was recommended or approved by at least a majority of the
directors then still in office who were directors of the Company on the first
day of such period, or whose election or nomination for election was so
approved,
shall cease to constitute a majority of the board of directors of the Company;
(iii) the Company consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of its
property to any Person, or any corporation consolidates with or merges into
the Company, in either event pursuant to a transaction in which the
outstanding Capital Stock of the Company is reclassified or changed into or
exchanged for cash, securities or other property; and
(iv) except as provided by Section 6.3(B)(iv) with respect to the
------------------
sale, dissolution or liquidation of certain Subsidiaries of the Company, shall
cease to own of record and beneficially, with sole voting and dispositive
power, at least 80% of the outstanding shares of Capital Stock of each
Subsidiary Borrower and each Subsidiary Obligor ordinarily having the right to
vote at an election of directors or shall cease to have the power, directly or
indirectly, to elect a majority of the board of directors of each Subsidiary
Borrower.
"Closing Date" means March __, 1998.
-------------
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
----
otherwise modified from time to time.
"Collateral Document" shall mean the Pledge Agreements, the Guaranties
--------------------
and all other security agreements, mortgages, loan agreements, notes,
guarantees, pledges, powers of attorney, consents, assignments, contracts, fee
letters, notices, leases, financing statements and all other written matter
whether heretofore, now, or hereafter executed by or on behalf of the Company
or any of its Subsidiaries and delivered to the Agent or any of the Lenders,
together with all agreements and documents referred to therein or contemplated
thereby.
"Collateral" means all property and interest in property now owned or
----------
hereafter acquired by the Company which has been pledged to the Agent for the
benefit of the Holders of Secured Obligations under the Pledge Agreements.
"Commission" means the Securities and Exchange Commission and any Person
----------
succeeding to the functions thereof.
"Commitment" means, for each Lender, the obligation of such Lender to
----------
make Revolving Loans, and to purchase participations in Letters of Credit not
exceeding the Dollar Amount set forth on Exhibit A to this Agreement opposite
---------
its name thereon under the heading "Commitment" or in the assignment and
acceptance by which it became a Lender, as such amount may be modified from
time to time pursuant to the terms of this Agreement or to give effect to any
applicable assignment and acceptance.
"Company" means Agribrands International, Inc., a Missouri corporation,
-------
together with its successors and assigns.
"Compliance Certificate" means a certificate substantially in the form of
----------------------
Exhibit C delivered to the Agent and each Lender by the Company pursuant to
- ----------
the provisions of this Agreement and covering, among other things, its
calculation of the Applicable Margins, Applicable Facility Fee, Applicable
Letter of Credit Fee, its compliance with the financial covenants contained in
Section 6.4 and certain other provisions of this Agreement.
- ------------
"Confidential Information Memorandum" means that certain Confidential
-------------------------------------
Information Memorandum dated February 1998 and delivered by the Agent and the
Company to prospective Lenders in connection with this Agreement.
"Consolidated EBITDA" means, for any period, EBITDA of the Company and
its Subsidiaries on a consolidated basis.
"Consolidated Net Worth" means, at a particular date, all amounts which
------------------------
would be included under shareholders' or members' equity for the Company and
its consolidated Subsidiaries deter-mined in accordance with Agreement
Accounting Principles.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
-----------
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBs"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
"Contingent Obligation", as applied to any Person, means any Contractual
----------------------
Obligation, contingent or otherwise, of that Person with respect to any
Indebtedness of another or other obligation or liability of another,
including, without limitation, any such Indebtedness, obligation or liability
of another directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), co-made or
discounted or sold with recourse by that Person, or in respect of which that
Person is otherwise directly or indirectly liable, including Contractual
Obligations (contingent or otherwise) arising through any agreement to
purchase, repurchase, or otherwise acquire such Indebtedness, obligation or
liability or any security therefor, or to provide funds for the payment or
discharge thereof (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), or to maintain solvency, assets, level of
income, or other financial condition, or to make payment other than for value
received.
"Contingent Purchase Price Obligation", as applied to any Person, means
--------------------------------------
any Contractual Obligation of such Person incurred in connection with an
Acquisition pursuant to which such Person is obligated to pay additional
consideration to the applicable seller in the form of an earnout, milestone
payment, contingent purchase price payment, or other similar performance based
compensation relating to post-Acquisition financial or operating performance
of the business acquired.
"Contractual Obligation", as applied to any Person, means any provision
-----------------------
of any equity or debt securities issued by that Person or any indenture,
mortgage, deed of trust, security agreement, pledge agreement, guaranty,
contract, undertaking, agreement or instrument, in any case in writing, to
which that Person is a party or by which it or any of its properties is bound,
or to which it or any of its properties is subject.
"Controlled Group" means the group consisting of (i) any corporation
-----------------
(other than Ralston Purina Company) which is a member of the same controlled
group of corporations (within the meaning of Section 414(b) of the Code) as
the Company; (ii) a partnership or other trade or business (whether or not
incorporated (other than Ralston Purina Company)) which is under common
control (within the meaning of Section 414(c) of the Code) with the Company;
and (iii) a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as the Company, any corporation described in
clause (i) above or any partnership or trade or business described in clause
------ ------
(ii) above (in each case, other than Ralston Purina Company).
---
"Conversion/Continuation Notice" is defined in Section 2.6(D) hereof.
------------------------------- --------------
"Customary Permitted Liens" means:
---------------------------
(i) Liens (other than Environmental Liens and Liens in favor of the
IRS or the PBGC) with respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other similar Liens imposed
by law created in the ordinary course of business for amounts not yet due or
which are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(iii) Liens (other than Environmental Liens and Liens in favor of the
IRS or the PBGC) incurred or deposits made in the ordinary course of business
in connection with worker's compensation, unemployment insurance or other
types of social security benefits or to secure the performance of bids,
tenders, sales, contracts (other than for the repayment of borrowed money),
surety, appeal and performance bonds; provided that (A) all such Liens do not
--------
in the aggregate materially detract from the value of assets or property of
any Borrower taken as a whole or materially impair the use thereof in the
operation of the businesses taken as a whole, and (B) all Liens securing bonds
to stay judgments or in connection with appeals that do not secure at any time
an aggregate amount exceeding $5,000,000;
(iv) Liens arising with respect to zoning restrictions, easements,
licenses, reservations, covenants, rights-of-way, utility easements, building
restrictions and other similar charges or encumbrances on the use of real
property which do not interfere with the ordinary conduct of the business of
any Borrower or any Subsidiary of any Borrower;
(v) Liens of attachment or judgment with respect to judgments, writs
or warrants of attachment, or similar process against any Borrower or any
Subsidiary of any Borrower which do not constitute a Default under Section
-------
7.1(h);
---
(vi) Liens arising from leases, subleases or licenses granted to
others which do not interfere in any material respect with the business of any
Borrower or any Subsidiary of any Borrower; and
(vii) any interest or title of the lessor in the property subject to
any operating lease entered into by any Borrower or any Subsidiary of any
Borrower in the ordinary course of business.
"Default" means an event described in Article VII hereof.
------- ------------
"DOL" means the United States Department of Labor and any Person
---
succeeding to the functions thereof.
--
"Dollar" or "$" means the lawful money of the United States of America.
------ -
"Dollar Amount" of any currency at any date shall mean (i) the amount of
--------------
such currency if such currency is Dollars or (ii) the Equivalent Amount of
Dollars if such currency is any currency other than Dollars, calculated on the
basis of the then applicable Exchange Rate.
"EBITDA" will mean, for any period, on a consolidated basis for the
------
applicable Person, the sum of the amounts for such period, without
duplication, of (i) net sales minus (ii) cost of products sold minus (iii)
selling, general and administrative expenses, plus (iv) depreciation expense
to the extent deducted in computing the amounts in clauses (ii) and (iii)
above, plus (v) amortization expense, including, without limitation,
amortization of goodwill and other intangible assets to the extent deducted in
computing the amounts in clauses (ii) and (iii) above, all as determined in
accordance with Agreement Accounting Principles. EBITDA for each Subsidiary
shall be calculated excluding the effect of any service fees paid by such
Subsidiary to the Company.
"EBITDA Contribution Ratio" shall mean the ratio of (i) Total Debt of the
-------------------------
Company and its Subsidiaries to (ii) the sum of 100% of EBITDA contributed by
Subsidiaries in countries with a rating of equal to or better than BBB- from
S&P and Baa3 from Moody's and 50% of EBITDA contributed by Subsidiaries in
countries with a rating of lower than BBB- from S&P or lower than Baa3 from
Moody's.
"Environmental, Health or Safety Requirements of Law" means all
---------------------------------------------------------
Requirements of Law derived from or relating to federal, state and local laws
or regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. 9601 et seq., the Occupational Safety and Health
-- ---
Act of 1970, 29 U.S.C. 651 et seq., and the Resource Conservation and
-- ---
Recovery Act of 1976, 42 U.S.C. 6901 et seq., in each case including any
-- ---
amendments thereto, any successor statutes, and any regulations or guidance
promulgated thereunder, and any state or local equivalent thereof.
"Environmental Lien" means a lien in favor of any Governmental Authority
-------------------
for (a) any liability under Environmental, Health or Safety Requirements of
Law, or (b) damages arising from, or costs incurred by such Governmental
Authority in response to, a Release or threatened Release of a Contaminant
into the environment.
"Environmental Property Transfer Act" means any applicable requirement of
-----------------------------------
law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site
Recovery Act" or "Responsible Property Transfer Act."
"Equipment" means all of the present and future (i) equipment, including,
---------
without limitation, machinery, manufacturing, distribution, selling, data
processing and office equipment, assembly systems, tools, molds, dies,
fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft,
aircraft engines, and trade fixtures, (ii) other tangible personal property
(other than the Inventory), and (iii) any and all accessions, parts and
appurtenances attached to any of the foregoing or used in connection
therewith, and any substitutions therefor and replacements, products and
proceeds thereof owned by the Company or any of the other Borrowers.
"Equity Interests" means Capital Stock and all warrants, options purchase
----------------
rights, conversion or exchange rights, other rights to acquire Capital Stock
and all voting rights, calls or claims of any character with respect thereto
(but excluding any debt security that is convertible into, or exchangeable
for, Capital Stock).
"Equivalent Amount" of any currency with respect to any amount of Dollars
-----------------
at any date means the equivalent in such currency of such amount of Dollars,
calculated on the basis of the then applicable Exchange Rate rounded up to the
nearest incremental amount of such currency as determined by the Agent from
time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time including (unless the context otherwise requires)
any rules or regulations promulgated thereunder.
"Eurodollar Advance" means an Advance (other than a Korean Eurodollar
-------------------
Advance) which bears interest at the Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Loan or Korean
--------------------
Eurodollar Loan for the relevant Interest Period, the rate at which deposits
in Dollars are offered by ABN AMRO Bank N.V. to first-class banks in the
London interbank market at approximately (x) in the case of a Eurodollar Loan,
11:00 a.m. (London time) two Business Days and (y) in the case of a Korean
Eurodollar Loan, 11:00 a.m. (London time) three Business Days, prior to the
first day of such Interest Period, in the approximate amount of the portions
of the relevant Eurodollar Loan of ABN AMRO Bank N.V., and having a maturity
approximately equal to such Interest Period.
"Eurodollar Loan" means a Loan (other than a Korean Eurodollar Loan), or
----------------
portion thereof, which bears interest at the Eurodollar Rate.
"Eurodollar Payment Office" of the Agent means, for each of the Agreed
---------------------------
Currencies, the office, branch or affiliate of the Agent, specified as the
"Eurodollar Payment Address" for such currency on the signature page for each
Lender hereto or such other office, branch, affiliate or correspondent bank of
the Agent, as it may from time to time specify to the Borrowers and each
Lender as its Eurodollar Payment Office.
"Eurodollar Rate" means, with respect to a Eurodollar Advance or Korean
----------------
Eurodollar Advance for the relevant Interest Period, the sum of (a) (i) the
Eurodollar Base Rate divided by (ii) one minus the Reserve Requirement
-----
(expressed as a decimal) applicable to such Interest Period plus (b) the
----
percentage determined in accordance with Section 2.4(b) to be the Applicable
--------------
Eurodollar Margin in connection with Eurodollar Loans.
"Exchange Rate" means with respect to Korean Won on a particular date,
--------------
the rate at which Korean Won may be exchanged into Dollars, calculated on the
basis of the arithmetical mean of the buy and sell spot rates of exchange of
the Agent in the London interbank market (or other market where the Agent's
foreign currency exchange operations in respect of Korean Won are then being
conducted) for Korean Won at or about 1:00 p.m. (local time), on such date for
the purchase of Dollars with Korean Won for delivery five (5) Business Days
later; provided, however, that if at the time of any such determination, for
-------- -------
any reason, no such spot rate is being quoted, the Agent may use any
reasonable method it deems appropriate to determine such rate, and such
determination shall be conclusive absent manifest error.
"Existing Letters of Credit" is defined in Section 2.16(b).
"Federal Funds Effective Rate" means, for any day, an interest rate per
------------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations at approximately 10:00
a.m. (New York time) on such day on such transactions received by the Agent
from three Federal funds brokers of recognized standing selected by the Agent
in its sole discretion.
"Fees" is defined in Section 6.4(A) hereof.
---- ---------------
"Foreign Employee Benefit Plan" means any employee benefit plan as
--------------------------------
defined in Section 3(3) of ERISA which is maintained or contributed to for the
benefit of the employees of the Company, any of its Subsidiaries or any
members of its Controlled Group and is not covered by ERISA pursuant to ERISA
Section 4(b)(4).
"Foreign Pension Plan" means any employee benefit plan as described in
----------------------
Section 3(3) of ERISA which (i) is maintained or contributed to for the
benefit of employees of the Company, any of its Subsidiaries or any of its
ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of
ERISA, and (iii) under applicable local law, is required to be funded through
a trust or other funding vehicle.
"Governmental Acts" is defined in Section 2.21(a) hereof.
------------------ ----------------
"Governmental Authority" means any nation or government, any federal,
-----------------------
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty" means each of (i) those certain Guaranties dated as of the
--------
Closing Date executed in favor of the Agent for the benefit of the Holders of
Secured Obligations pursuant to which each of the Subsidiary Borrowers and
Subsidiary Obligors shall guaranty all of the Obligations of the other
Subsidiary Borrowers and Subsidiary Obligors and (ii) that certain Guaranty
dated as of the Closing Date executed by the Company in favor of the Agent for
the benefit of the Holders of Secured Obligations pursuant to which the
Company shall guaranty all of the Obligations of the Subsidiary Borrowers and
the Subsidiary Obligors, in each case, as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"Hedging Agreements" is defined in Section 6.3(P).
------------------- ---------------
"Hedging Obligations" of a Person means any and all obligations of such
--------------------
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, commodity prices,
exchange rates or forward rates applicable to such party's assets, liabilities
or exchange transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Holders of Secured Obligations" means the holders of the Secured
---------------------------------
Obligations from time to time and shall refer to (i) each Lender in respect of
-
its Loans (including, if applicable, any agency or Affiliate of a Lender, (ii)
the Issuing Lenders in respect of Reimbursement Obligations and other
Obligations relating to its Letters of Credit, (iii) the Agent, the Arranger,
and the Issuing Lenders in respect of all other present and future obligations
and liabilities of any Borrower or any of their subsidiaries of every type and
description arising under or in connection with this Agreement or any other
Loan Document, (iv) each Indemnitee in respect of the obligations and
liabilities of any Borrower to such Person hereunder or under any of the Loan
Documents, (v) each Lender (or any agency or Affiliate thereof) in respect of
all Hedging Obligations of any Borrower or any of their Subsidiaries to such
lender (or agency or Affiliate thereof) and (vi) their respective successors,
transferees and assigns.
"Indebtedness" of any Person means (i) any indebtedness of such Person,
------------
contingent or otherwise, (a) in respect of borrowed money including all
principal, interest, fees and expenses with respect thereto (whether or not
the recourse of the lender is to the whole of the assets of such Person or
only to a portion thereof), or (b) evidenced by bonds, notes, acceptances,
debentures or other instruments or letters of credit (or reimbursement
obligations with respect thereto, including, in the case of the Borrowers,
Reimbursement Obligations with respect to amounts funded under the Letters of
Credit) or representing the balance deferred and unpaid of the purchase price
of any property (including pursuant to Capitalized Leases) or services, if and
to the extent any of the foregoing indebtedness would appear as a liability
upon a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles (except that any such balance that constitutes a trade
payable and/or an accrued liability arising in the ordinary course of business
shall not be considered Indebtedness); (ii) to the extent not otherwise
included, (a) any Capitalized Lease Obligations, (b) obligations, whether or
not assumed, secured by Liens or payable out of the proceeds or production
from property now or hereafter owned or acquired by such Person, and (c)
Contingent Obligations (exclusive of whether such items would appear upon such
balance sheet). The amount of Indebtedness of any Person at any date shall be
without duplication (i) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such Contingent Obligations at such date and (ii) in the case of Indebtedness
of others secured by a Lien to which the property or assets owned or held by
such Person is subject, the lesser of (x) the fair market value at such date
of any asset subject to a Lien securing the Indebtedness of others and (y) the
amount of the Indebtedness secured.
"Indemnified Matters" is defined in Section 9.7(B) hereof.
-------------------- ---------------
"Indemnitees" is defined in Section 9.7(B) hereof.
----------- ---------------
"Interest Expense" means, for any period, the consolidated total interest
----------------
expense of the Company and its Subsidiaries, determined on a consolidated
basis, whether paid or accrued, but without duplication (including the
interest component of Capitalized Leases), but excluding interest expense not
payable in cash (including amortization of discount) and excluding the
arrangement fee set forth in the letter agreement between the Agent, the
Arranger and the Company dated February 25, 1998, all as determined in
conformity with Agreement Accounting Principles.
"Interest Period" means, (x) with respect to a Eurodollar Loan, a period
----------------
of one (1), two (2), three (3) or six (6) months, and, to the extent available
to all of the Lenders, upon request of the applicable Borrower and only if the
Lenders, in their discretion, shall agree, nine (9) months or twelve (12)
months, and (y) with respect to a Korean Eurodollar Loan, a period of one
(1), two (2) or three (3) months, and, to the extent available to all of the
Lenders, upon request of Purina Korea, Inc. and only if the Lenders, in their
discretion, shall agree, six (6) months, in each case commencing on a Business
Day selected by the applicable Borrower pursuant to this Agreement. Such
Interest Period shall end on (but exclude) the day which corresponds
numerically to such date one, two, three or six months thereafter; provided,
--------
however, that if there is no such numerically corresponding day in such next,
------
second, third or sixth succeeding month, such Interest Period shall end on the
last Business Day of such next, second, third or sixth succeeding month. With
respect to a Korean Won Advance, Interest Period means a period designated by
the Agent of approximately ninety (90) days. If an Interest Period would
otherwise end on a day which is not a Business Day, such Interest Period shall
end on the next succeeding Business Day, provided, however, that if said next
-------- -------
succeeding Business Day falls in a new calendar month, such Interest Period
shall end on the immediately preceding Business Day.
"Investment" means, with respect to any Person, (i) any purchase or other
----------
acquisition by that Person of any Equity Interest, notes, debentures or other
securities, or of a beneficial interest in any Equity Interest, notes,
debentures or other securities, issued by any other Person, (ii) any purchase
by that Person of all or substantially all of the assets of a business
conducted by another Person, and (iii) any loan, advance (other than deposits
with financial institutions available for withdrawal on demand, prepaid
expenses, accounts receivable, advances to employees and similar items in each
case made or incurred in the ordinary course of business) or capital
contribution by that Person to any other Person, including all Indebtedness to
such Person arising from a sale of property by such Person other than in the
ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to the
---
functions thereof.
"Issuing Lender" means, as the context may require, ABN AMRO Bank N.V.,
---------------
with respect to Letters of Credit issued by it pursuant to this Agreement, and
any other Lender that becomes an Issuing Lender, pursuant to Section 2.16,
------------
with respect to Letters of Credit issued by such Lender.
"Knowledge" means, at any time and relative to any matter, knowledge
---------
which the Authorized Officers of the Company, the Subsidiary Borrowers and the
Subsidiary Obligors would reasonably be expected to have regarding such
matter.
"Korean CD Rate" means with respect to any Korean Won Advance for any
----------------
specified Interest Period, the rate per annum, as determined by the Agent,
shown on page "KWCD 3M" screen of the Bloomberg L.P. service (or such other
page as may replace the "KWCD 3M" screen on that service) for the purpose of
displaying the rate offered in Seoul, Korea for 91-day certificates of deposit
issued in Seoul, Korea as of 11:00 a.m. (Seoul time) five (5) Business Days
prior to the first day of such Interest Period.
"Korean Eurodollar Advance" means an Advance to Purina Korea, Inc., in
---------------------------
Dollars which bears interest at the Korean Eurodollar Rate.
"Korean Eurodollar Rate" means a rate per annum equal to the Eurodollar
------------------------
Rate minus the Applicable Eurodollar Margin plus 3.50% per annum.
----- ----
"Korean Eurodollar Loan" means a Loan, or portion thereof, which bears
------------------------
interest at the Korean Eurodollar Rate.
"Korean Won Advance" means an advance made pursuant to Section 2.1
-------------------- -----------
denominated in Korean Won to Purina Korea, Inc.
"Korean Won Loan" means with respect to a Lender, such Lender's portion
-----------------
of any Korean Won Advance or Korean Eurodollar Advance made pursuant to
Section 2.1.
------
"L/C Draft" means a draft drawn on an Issuing Lender pursuant to a Letter
---------
of Credit.
"L/C Interest" is defined in Section 2.17.
------------- -------------
"L/C Obligations" means, without duplication, an amount equal to the sum
----------------
of (i) the aggregate of the amount then available for drawing under each of
the Letters of Credit, (ii) the face amount of all outstanding L/C Drafts
corresponding to the Letters of Credit, which L/C Drafts have been accepted by
the Issuing Lender, (iii) the aggregate outstanding amount of all
Reimbursement Obligations at such time and (iv) the aggregate face amount of
all Letters of Credit requested by any Borrower but not yet issued (unless the
request for an unissued Letter of Credit has been denied).
"Lenders" means the lending institutions listed on the signature pages of
-------
this Agreement, including the Issuing Lenders and their respective successors
and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any
---------------------
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter(s) of Credit" means the letters of credit to be issued by one of
--------------------
the Issuing Lenders pursuant to Section 2.21 hereof.
-------------
"Lien" means any lien (statutory or other), mortgage, pledge,
----
hypothecation, assignment, deposit arrangement, encumbrance or preference,
----
priority or security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan(s)" means with respect to a Lender, such Lender's portion of any
-------
Advance made pursuant to Section 2.1.
------------
"Loan Account" is defined in Section 2.10(F) hereof.
------------- ----------------
"Loan Documents" means this Agreement, the Notes, the and all other
---------------
documents, instruments and agreements executed in connection therewith or
contemplated thereby, including the letter agreements regarding fees among the
Agent, the Arranger, and the Company and between the Agent and the Borrower,
in each case as the same may be amended, restated or otherwise modified and in
effect from time to time.
"Margin Stock" shall have the meaning ascribed to such term in Regulation
------------
U.
"Material Adverse Effect" means a material adverse effect upon (a) the
-------------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company and its Subsidiaries taken as a whole,
(b) the ability of the Company and the other Borrowers and the Subsidiary
Obligors taken as a whole to perform their obligations under the Loan
Documents in any material respect, or (c) the ability of the Lenders or the
Agent to enforce in any material respect the Obligations or their rights with
respect to the Collateral other than any such inability resulting form the
gross negligence or willful misconduct of any Lender or the Agent.
"Maximum Korean Commitment" shall mean the maximum amount which the
---------------------------
Lenders have agreed to provide as Loans or Letters of Credit to Purina Korea,
Inc. under this Agreement. The initial Maximum Korean Commitment is
$15,000,000.
"Maximum Korean Won Commitment" shall mean the maximum amount which the
-------------------------------
Lenders have agreed to provide as Loans or Letters of Credit to Purina Korea,
Inc. in Korean Won under this Agreement. The Dollar Amount of the initial
Maximum Korean Won Commitment is $7,500,000.
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means a "Multiemployer Plan" as defined in Section
-------------------
4001(a)(3) of ERISA which is, or within the immediately preceding six (6)
years was, contributed to by either the Company or any member of the
Controlled Group.
"Note" means any promissory note issued by any Lender in substantially
----
the form of Exhibit B hereto, duly executed by a Borrower and payable to the
---------
order of a Lender in the amount of its Commitment, including any amendment,
restatement, modification, renewal or replacement of such Note.
"Notice of Assignment" is defined in Section 12.3(B) hereof.
---------------------- ----------------
"Obligations" means all Loans, advances, debts, liabilities, obligations,
-----------
covenants and duties owing by any of the Borrowers or Subsidiary Obligors to
---
the Agent, the Arranger, or the Lenders, the Issuing Lenders, any Affiliate of
any of the foregoing or any Indemnitee, of any kind or nature, present or
future, arising under this Agreement, the Notes, any other Loan Document,
whether or not evidenced by any note, guaranty or other instrument, whether or
not for the payment of money, whether arising by reason of an extension of
credit, loan, guaranty, indemnification, or in any other manner, whether
direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and
however acquired. The term includes, without limitation, all interest,
charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees
(in each case whether or not allowed), and any other sum chargeable to any of
the Borrowers or Subsidiary Obligors under this Agreement or any other Loan
Document.
"Other Taxes" is defined in Section 2.10(E)(ii) hereof.
------------ --------------------
"Participants" is defined in Section 12.2(A) hereof.
------------ ----------------
"Payment Date" means the last Business Day of each March, June, September
------------
and December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
----
thereto.
"Permitted Acquisition" is defined in Section 6.3(G) hereof.
---------------------- ---------------
"Permitted Existing Contingent Obligations" means the Contingent
--------------------------------------------
Obligations of the Borrowers and all other Subsidiaries of the Company
--
identified as such on Schedule 1.1.1 to this Agreement.
- ---------------
"Permitted Existing Indebtedness" means the Indebtedness of the Borrowers
-------------------------------
and all other Subsidiaries of the Company identified as such on Schedule 1.1.2
--------------
to this Agreement.
"Permitted Existing Investments" means the Investments of the Borrowers
--------------------------------
and all other Subsidiaries of the Company identified as such on Schedule 1.1.3
--------------
to this Agreement.
"Permitted Existing Liens" means the Liens on assets of the Borrowers or
-------------------------
all other Subsidiaries of the Company identified as such on Schedule 1.1.4 to
--------------
this Agreement.
"Person" means any natural person, corporation, firm, company, joint
------
venture, partnership, association, enterprise, trust or other entity or
organization, or any government or political subdivision or any agency,
department or instrumentality thereof.
"Plan" means an employee benefit plan defined in Section 3(3) of ERISA in
----
respect of which the Company or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined
in Section 3(5) of ERISA.
"Pledge Agreements" means those certain Pledge Agreements dated as of the
-----------------
Closing Date pursuant to which the Company pledges to the Agent for the
benefit of the Holders of Secured Obligations all of the Capital Stock of each
of the Subsidiary Borrowers and Subsidiary Obligors.
"Prime Rate" shall mean the rate of interest per annum announced from
-----------
time to time by the Agent as its prime lending rate in effect at its principal
office in New York, New York; each change in the Prime Rate shall be effective
on the date such change is announced. The Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate charged by any
customers. ABN AMRO Bank N.V. and the other Lenders may make commercial loans
or other loans at rates of interest at, above or below the Prime Rate.
"Pro Rata Share" means, with respect to any Lender, the percentage
----------------
obtained by dividing (A) such Lender's Commitment at such time (as adjusted
from time to time in accordance with the provisions of this Agreement) by (B)
the Aggregate Commitments at such time; provided, however, if all of the
-------- -------
Commitments are terminated pursuant to the terms of this Agreement, then "Pro
Rata Share" means the percentage obtained by dividing (x) the sum of all of
such Lender's Loans and L/C Obligations by (y) the aggregate amount of all
Loans and L/C Obligations.
"Purchasers" is defined in Section 12.3(A) hereof.
---------- ----------------
"Rate Option" means the applicable Eurodollar Rate or Base Rate.
------------
"Regulation G" means Regulation G of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by nonbank, nonbroker lenders for the
purpose of purchasing or carrying margin stock (as defined therein).
"Regulation T" means Regulation T of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by and to brokers and dealers of
securities for the purpose of purchasing or carrying margin stock (as defined
therein).
"Regulation U" means Regulation U of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing or
carrying Margin Stock applicable to member banks of the Federal Reserve
System.
"Regulation X" means Regulation X of the Board of Governors of the
-------------
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by foreign lenders for the purpose of
purchasing or carrying margin stock (as defined therein).
"Reimbursement Obligation" is defined in Section 2.18 hereof.
------------------------- -------------
"Release" means any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration into
---
the indoor or outdoor environment, including the movement of Contaminants
through or in the air, soil, surface water or groundwater.
"Replacement Lender" is defined in Section 2.15 hereof.
------------------- -------------
"Reportable Event" means a reportable event as defined in Section 4043 of
----------------
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days
after such event occurs; provided, however, that a failure to meet the minimum
-------- -------
funding standards of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or
Section 412(d) of the Code.
"Required Lenders" means Lenders whose Pro Rata Shares, in the aggregate,
----------------
are at least sixty-six and two-thirds percent (66-2/3%), provided, however,
-------- -------
that, if any of the Lenders shall have failed to fund its Revolving Credit
Share of any Loan requested by any Borrower which such Lenders are obligated
to fund under the terms of this Agreement and any such failure has not been
cured, then for so long as such failure continues, "Required Lenders" means
Lenders (excluding all Lenders whose failure to fund such Loans have not been
so cured) whose Pro Rata Shares represent at least sixty-six and two-thirds
percent (66-2/3%) of the aggregate Pro Rata Shares of such non-defaulting
Lenders; provided, further, however, that, if the Commitments have been
-------- ------- -------
terminated pursuant to the terms of this Agreement, "Required Lenders" means
Lenders (without regard to such Lenders' performance of their respective
obligations hereunder) whose aggregate ratable shares (stated as a percentage)
of the aggregate outstanding principal balance of all Loans and L/C
Obligations are at least sixty-six and two-thirds percent (66-2/3%).
"Requirements of Law" means, as to any Person, the charter and by-laws or
-------------------
other organizational or governing documents of such Person, and any law, rule
or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject including, without limitation, the Securities Act, the Securities
Exchange Act, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act,
the Worker Adjustment and Retraining Notification Act, Americans with
Disabilities Act of 1990, and any certificate of occupancy, zoning ordinance,
building, environmental or land use requirement or Permit or environmental,
labor, employment, occupational safety or health law, rule or regulation,
including Environmental, Health or Safety Requirements of Law.
"Reserve Requirement" means the maximum reserve requirement, as
--------------------
prescribed by the Board of Governors of the Federal Reserve System (or any
---
successor) with respect to "Eurodollar liabilities" or in respect of any other
category of liabilities which includes deposits by reference to which the
interest rate on Eurodollar Loans is determined or category of extensions of
credit or other assets which includes loans by a non-United States office of
any Lender to United States residents.
"Reset Date" is defined in Section 1.2.
----------- ------------
"Restricted Junior Payment" means (i) any dividend or other distribution,
-------------------------
direct or indirect, on account of any ownership, membership or other Equity
Interest in the Company now or hereafter outstanding, except a dividend
payable solely in additional interests of the same type, (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any ownership, membership or other Equity
Interest in the Company or any such interests or shares of any class of
Capital Stock of the Company now or hereafter outstanding, (iii) any payment
made to redeem, purchase, repurchase or retire, or to obtain the surrender of,
any outstanding options or other rights to acquire any ownership, membership
or other Equity Interests in the Company and (iv) any payment of a claim for
the rescission of the purchase or sale of, or for material damages arising
from the purchase or sale of any ownership, membership or other Equity
Interests in the Company or of a claim for reimbursement, indemnification or
contribution arising out of or related to any such claim for damages or
rescission.
"Revolving Advance" means a borrowing hereunder consisting of the
------------------
aggregate amount of the several ratable Revolving Loans made by the Lenders
-
having Commitments to the Company of the same Type and, in the case of
Eurodollar Advances, denominated in the same currency and for the same
Interest Period.
"Revolving Credit Availability" means, at any particular time, the amount
-----------------------------
by which the Aggregate Commitment at such time exceeds the Dollar Amount of
the Revolving Credit Obligations at such time.
"Revolving Credit Obligations" means, at any particular time, the sum of
-----------------------------
(i) the outstanding principal Dollar Amount of the Revolving Loans at such
time, plus (ii) the L/C Obligations at such time.
----
"Revolving Credit Share" means, with respect to any Lender, the
------------------------
percentage obtained by dividing (A) such Lender's Commitment at such time by
---
(B) the Aggregate Commitment at such time.
"Revolving Loan" is defined in Section 2.1.
--------------- ------------
"Risk-Based Capital Guidelines" is defined in Section 3.2 hereof.
------------------------------- ------------
"Secured Obligations" means, collectively, (i) the Obligations and (ii)
--------------------
all Hedging Obligations owing to one or more of the Lenders (or any agency or
Affiliate thereof).
"S&P" means Standard & Poor's Ratings Group.
---
"Single Employer Plan" means a Plan maintained by the Company or any
----------------------
member of the Controlled Group for employees of the Company or any member of
the Controlled Group.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
----------
outstanding Capital Stock having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one
or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any company, partnership, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a direct or indirect Subsidiary of the Company.
"Subsidiary Borrowers" means those Borrowers which are Subsidiaries of
---------------------
the Company.
"Subsidiary Obligors" means Purina Korea, Inc., a corporation organized
--------------------
under the laws of Korea, Industrias Purina S.A. de C.V., a company organized
under the laws of Mexico, Purina Colombiana S.A., a company organized under
the laws of Colombia, [the Company's Brazilian subsidiary, a company organized
under the laws of Brazil,] Purina Philippines, Inc., a corporation organized
under the laws of the Philippines, and Purina de Venezuela, V.A., a company
organized under the laws of Venezuela.
"Taxes" is defined in Section 2.10(E)(i) hereof.
----- -------------------
"Termination Date" means the earlier of (a) March 31, 2001 or (b) the
-----------------
date of termination of the Commitments pursuant to Section 8.1.
------------
"Termination Event" means (i) a Reportable Event with respect to any
------------------
Benefit Plan; (ii) the withdrawal of the Company or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Company
or such Controlled Group member was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA or the cessation of operations which results in
the termination of employment of twenty percent (20%) of Benefit Plan
participants who are employees of the Company or any member of the Controlled
Group; (iii) the imposition of an obligation on the Company or any member of
the Controlled Group under Section 4041 of ERISA to provide affected parties
written notice of intent to terminate a Benefit Plan in a distress termination
described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of
proceedings to terminate a Benefit Plan; (v) any event or condition which
might constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any Benefit Plan; or (vi) the
partial or complete withdrawal of the Company or any member of the Controlled
Group from a Multiemployer Plan.
"Total Debt" means the sum of all Indebtedness of the Company and its
-----------
Subsidiaries (including, without limitation and without duplication, standby
letters of credit (whether on or off-balance sheet)) minus ordinary course
-----
liability for trade indebtedness (including reimbursement under commercial
letters of credit).
"Tranche C Obligations" means the Obligations of the Borrowers other than
---------------------
Purina Korea, Inc.
"Tranche D Obligations" means the Obligations of the Subsidiary Obligors.
---------------------
"Transferee" is defined in Section 12.5 hereof.
---------- -------------
"Type" means, with respect to any Advance, its nature as a Base Rate
----
Advance or a Eurodollar Advance or a Korean Eurodollar Advance or a Korean Won
Advance.
"Unmatured Default" means an event which, but for the lapse of time or
------------------
the giving of notice, or both, would constitute a Default.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. Any accounting terms used in
this Agreement which are not specifically defined herein shall have the
meanings customarily given them in accordance with United States generally
accepted accounting principles in existence as of the date hereof.
1.2 Currency Equivalents. Not later than 1:00 p.m., New York time or
---------------------
Seoul, Korea time, as applicable, on each Calculation Date, the Agent shall
(i) determine the Exchange Rate as of such Calculation Date with respect to
Korean Won and (ii) give notice thereof to the Company and the Lenders. The
Exchange Rates so determined shall become effective immediately with respect
to any new Loans being made or Letters of Credit being issued on any
Calculation Date and otherwise on the fifth Business Day immediately following
the relevant Calculation Date (a "Reset Date"), shall remain effective until
the next succeeding Reset Date and shall during the period of their
effectiveness be employed in making any computation of currency equivalents
required to be made under this Agreement.
ARTICLE II: THE CREDITSARTICLE II THE CREDITS
- -------------------------------------------------------
2.1 Revolving Loans to the Company and the Subsidiary Borrowers. Upon
-----------------------------------------------------------
the satisfaction of the conditions precedent set forth in Sections 4.1 and 4.2
------------ ---
hereof, from and including the date of this Agreement and prior to the
Termination Date, each Lender with a Commitment severally and not jointly
agrees, on the terms and conditions set forth in this Agreement, to make
revolving loans to the Company and/or the Subsidiary Borrowers from time to
time, in Dollars or, with respect to Purina Korea, Inc., Korean Won, in a
Dollar Amount, not to exceed such Lender's Revolving Credit Share of the
Dollar Amount of the Revolving Credit Availability at such time (each
individually, a "Revolving Loan" and, collectively, the "Revolving Loans");
provided, however, at no time shall the Dollar Amount of the Revolving Credit
------ -------
Obligations in Korean Won exceed the Maximum Korean Won Commitment other than
as a result of currency fluctuations and then only to the extent permitted in
Section 2.2(B); provided, further, however, at no time shall the amount of the
- -------------- -------- ------- -------
Revolving Credit Obligations owed by any of the Borrowers pursuant to this
Agreement exceed the corresponding amounts listed below:
Agribrands International, Inc. $ 5,000,000
[Canadian Subsidiary] $ 6,500,000
Purina Italia S.p.A. $ 4,000,000
Purina Espana, S.A. $ 2,500,000
Purina Hungaria Animal Feed
Production & Trading Company Ltd. $ 2,000,000
Purina Korea, Inc. $15,000,000
Each Revolving Advance under this Section 2.1 shall consist of Revolving Loans
-----------
made by each such Lender ratably in proportion to such Lender's respective
Revolving Credit Share. Subject to the terms of this Agreement, the Borrowers
may borrow, repay and reborrow at any time prior to the Termination Date. The
Revolving Loans (other than any Korean Won Advances or Korean Eurodollar
Advances) shall initially be Base Rate Loans and thereafter may be continued
as Base Rate Loans or converted into Eurodollar Loans in the manner provided
in Section 2.6 and subject to the other conditions and limitations therein set
-----------
forth and set forth in this Article II. Korean Won Advances and Korean
-----------
Eurodollar Advances shall bear interest at the rates prescribed in Section
-------
2.4(c). On the Termination Date, the outstanding principal balance of the
---
Revolving Loans shall be paid in full by the applicable Borrower and prior to
the Termination Date prepayments of the Revolving Loans shall be made if and
to the extent required in Section 2.2(B).
---------------
2.2 Prepayments2 Prepayments. (A) Optional Payments. Upon prior
----------- ----------- -----------------
notice to the Agent which notice shall be given not later than 11:00 a.m. (New
York time) on the date of payment, the Borrowers may from time to time repay
or prepay, without penalty or premium all or any part of outstanding Base Rate
Advances. Subject to payment of all amounts payable pursuant to Section 3.4
-----------
upon not less than (x) five (5) Business Days' prior notice with respect to
Advances to Purina Korea, Inc. and (y) two (2) Business Day's prior notice
with respect to all other Advances, in each case to the Agent which notice
shall be given not later than 11:00 a.m. (New York time or Seoul, Korea time,
as applicable), the Borrowers may from time to time repay or prepay all or any
part of the Korean Eurodollar Advances or Korean Won Advances, or Eurodollar
Advances, respectively. Unless the aggregate outstanding principal balance of
the applicable Loans is to be prepaid in full, voluntary prepayments of the
Loans shall be in the same aggregate minimum amounts and integral multiples in
excess of such amounts as are required for borrowings of Loans of the same
Type and in the same currency as set forth in Section 2.5.
------------
(B) Mandatory Prepayments. If at any time the Dollar Amount of the
----------------------
Revolving Credit Obligations is greater than 105% of the Aggregate Commitment,
the Borrowers shall within five (5) Business Days after receiving notice
thereof from the Agent make a mandatory prepayment (i) of the Obligations in
an amount equal to such excess and (ii) of the Korean Won Loans and/or L/C
Obligations denominated in Korean Won in an aggregate amount such that after
giving effect thereto the Dollar Amount of the sum of the Korean Won Loans and
L/C Obligations denominated in Korean Won is less than or equal to the Maximum
Korean Won Commitment.
2.3 Method of Borrowing. The Agent shall notify each Lender having
---------------------
Commitments by 12:00 noon (New York time or Seoul, Korea time, as applicable)
of each Revolving Advance on the Borrowing Date of each Base Rate Advance, two
(2) Business Days before the Borrowing Date of each Eurodollar Advance, three
(3) Business Days before the Borrowing Date of each Korean Eurodollar Advance,
and five (5) Business Days before the Borrowing Date for each Korean Won
Advance, and, not later than 1:00 p.m. (New York time or Seoul, Korea time, as
applicable) on each Borrowing Date, each Lender having Revolving Credit
Commitments shall make available its Revolving Loan or Loans, in funds
immediately available in New York, New York to the Agent at its address
specified pursuant to Article XIII hereof unless the Agent has notified the
------------
Lenders that such Loan is to be made available to Purina Korea, Inc. at the
Agent's office in Seoul, Korea, in which case each Lender shall make available
its Revolving Loan or Loans, in funds immediately available to the Agent at
its office in Seoul, Korea not later than 1:00 p.m. at the Agent's office in
Seoul, Korea in Korean Won or Dollars, as requested. The Agent will promptly
make the funds so received from the Lenders available to the applicable
Borrower.
2.4 Method of Selecting Types and Interest Periods for Advances;
------------------------------------------------------------------
Determination of Applicable Margins, Interest on Advances to Purina Korea,
-----------------------------------------------------------------------
Inc. The Advances (other than Korean Won Advances or Korean Eurodollar
Advances) may be Base Rate Advances or Eurodollar Advances, or a combination
thereof, selected by the applicable Borrower in accordance with this Article
-------
II. Advances to Purina Korea, Inc., shall bear interest as prescribed in
-
Section 2.4(c). The applicable Borrower may select, in accordance with this
-
Article II, Rate Options and Interest Periods applicable to portions of the
----------
Revolving Loans.
-
(a) Method of Selecting Types and Interest Periods for Advances. The
------------------------------------------------------------
applicable Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance or Korean Eurodollar Advance, the Interest Period
applicable to each Advance from time to time. The applicable Borrower shall
give the Agent irrevocable notice (a "Borrowing Notice") not later than 11:00
a.m., New York time (or Seoul time for Korean Won Advances or Korean
Eurodollar Advance) (i) on the Borrowing Date of each Base Rate Advance; (ii)
two (2) Business Days before the Borrowing Date for each Eurodollar Advance;
(iii) three (3) Business Days before the Borrowing Date for each Korean
Eurodollar Advance; and (iv) five (5) Business Days before the Borrowing Date
for each Korean Won Advance, specifying: (i) the Borrowing Date (which shall
be a Business Day) of such Advance; (ii) the aggregate amount of such Advance;
(iii) the Type of Advance selected, as applicable; and (iv) in the case of
each Eurodollar Advance or Korean Eurodollar Advance, the Interest Period.
There shall be (x) no more than twenty (20) Interest Periods in effect with
respect to all of the Revolving Loans at any time, and (y) with respect to any
Borrower individually, no more than four (4) Interest Periods in effect with
respect to all of the Revolving Loans made to such Borrower at any time, in
each case, with Interest Periods for the same term but in different currencies
or to different Borrowers being treated as separate Interest Periods. Each
Base Rate Advance shall bear interest from and including the date of the
making of such Advance to (but not including) the date of repayment thereof at
the Base Rate, changing when and as such Base Rate changes. Each Eurodollar
Advance, Korean Eurodollar Advance and Korean Won Advance shall bear interest
from and including the first day of the Interest Period applicable thereto to
(but not including) the last day of such Interest Period at the interest rate
determined as applicable to such Advance. All Obligations (other than
Advances) shall bear interest from and including the date such amount is
payable under the terms of this Agreement or the other Loan Documents to (but
not including) the date of repayment thereof at the Base Rate, changing when
and as such Base Rate changes. Changes in the rate of interest on that
portion of any Advance maintained as a Base Rate Loan or such other
Obligations will take effect simultaneously with each change in the applicable
Base Rate.
(b) Determination of Applicable Margins, Applicable Letter of Credit Fee
--------------------------------------------------------------------
and Applicable Facility Fee.
- ------------------------------
(i) Definitions. As used in this Section 2.4(b) and in this Agreement,
----------- --------------
the following terms shall have the following meanings:
"Applicable Margins", "Applicable Facility Fee" and "Applicable Letter of
------------------ ----------------------- --------------------
Credit Fee" shall mean the Applicable Base Rate Margins and/or Applicable
- -----------
Eurodollar Margins, with respect to Loans and the Applicable Facility Fee
- ----
and/or Applicable Letter of Credit Fee, with respect to fees payable as the
- ----
case may be. The Applicable Margins shall be determined, in accordance with
- --
the provisions of this Section 2.4(b), by reference to the following:
- - ---------------
<PAGE>
0564993.03 - 25 -
(ii) Determination of Applicable Margins, Applicable Letter of Credit
-----------------------------------------------------------------
Fee and Applicable Facility Fee.
---------------------------------
(A) The Applicable Margins in respect of any Loan, the Applicable Letter
of Credit Fee payable under Section 2.20 and the Applicable Facility Fee
-------------
payable under Section 2.10(c) shall be determined by reference to the table
----------------
set forth in clause (i) above, as applicable, on the basis of the EBITDA
-----------
Contribution Ratio determined by reference to the most recent financial
statements delivered pursuant to Section 6.1(A)(i) or 6.1(A)(ii); provided,
----------------- ---------- --------
however, for the period from the Closing Date until August 31, 1998, the
-----
Applicable Margins, Applicable Letter of Credit Fee, Applicable Facility Fee
---
shall be at Level II; provided, further that Level IV shall be applicable only
-------- -------
in the event that the Company shall have a rating of equal to or better than
BBB- from S&P or Baa3 from Moody's and, provided, further, however, that the
-------- ------- -------
Borrowers shall not be eligible for any reduction in the pricing prescribed in
this Section 2.4 in the event that as of the date of determination, the
------------
Company's Consolidated EBITDA for the most recently completed four fiscal
-
quarters (or, prior to March 31, 1999, the period from the Closing Date to the
end of the most recently completed quarter) shall be less than 80% of the
Company's forecasted Consolidated EBITDA for such period as set forth on
Exhibit G hereto.
(B) Upon receipt of the financial statements delivered pursuant to
Section 6.1(A)(i) or Section 6.1(A)(ii), as applicable, the Applicable Margins
------------ ------------------
for all outstanding Loans, the Applicable Letter of Credit Fee and Applicable
Facility Fee shall be adjusted, such adjustment being effective on the first
(1st) Business Day after receipt of such financial statements and the
Compliance Certificate to be delivered in connection therewith; provided,
--------
however, if the Borrowers shall not have timely delivered such financial
---
statements in accordance with Section 6.1(A)(i) or Section 6.1(A)(ii), as
- ------------------ ------------------
applicable, beginning with the date upon which such financial statements
should have been delivered and continuing until such financial statements are
delivered, it shall be assumed for purposes of determining the Applicable
Margins, the Applicable Facility Fee and the Applicable Letter of Credit Fee
that the EBITDA Contribution Ratio was greater than 1.50 to 1.0.
(C) Interest on Advances to Purina Korea, Inc. Advances to Purina
----------------------------------------------
Korea, Inc. in Korean Won shall bear interest in the per annum rate equal to
the Korean CD Rate minus 6.00% per annum. Advances to Purina Korea, Inc. in
-----
Dollars shall bear interest at a rate per annum equal to the Korean Eurodollar
Rate.
2.5 Minimum Amount of Each Advance. Each Eurodollar Advance or Korean
------------------------------
Eurodollar Advance shall be in the minimum amount of $1,000,000 (and in
multiples of $100,000 if in excess thereof). Each Base Rate Advance shall be
in the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess
thereof), provided, however, that any Base Rate Advance may be in the amount
-------- -------
of the unused Aggregate Commitment. Each Korean Won Advance shall be in the
minimum amount of [________] Won (and in multiples of [________] Won if in
excess thereof).
2.6 Method of Selecting Types and Interest Periods for Conversion and
------------------------------------------------------------------
Continuation of Advances.
------------------------
(A) Right to Convert. The Borrowers may elect from time to time,
------------------
subject to the provisions of Section 2.3, Section 2.4, and this Section 2.6 to
----------- ----------- -----------
convert all or any part of a Loan of any Type into any other Type or Types of
Loans; provided that any conversion of any Eurodollar Advance or Korean
--------
Eurodollar Advance shall be made on, and only on, the last day of the Interest
Period applicable thereto.
(B) Automatic Conversion and Continuation. Base Rate Loans shall continue as
-------------------------------------
Base Rate Loans unless and until such Base Rate Loans are converted into
Eurodollar Loans. Eurodollar Loans shall continue as Eurodollar Loans until
the end of the then applicable Interest Period therefor, at which time such
Eurodollar Loans shall be automatically converted into Base Rate Loans unless
the applicable Borrower shall have given the Agent requesting that, at the end
of such Interest Period, such Eurodollar Loans continue as a Eurodollar Loan.
Korean Eurodollar Advances shall continue as Korean Eurodollar Advances until
repaid and Korean Won Advances shall continue as Korean Won Advances until
repaid.
(C) No Conversion Post-Default or Post-Unmatured Default.
---------------------------------------------------------
Notwithstanding anything to the contrary contained in Section 2.6(A) or
--- --------------
Section 2.6(B), no Loan may be converted into or continued as a Eurodollar
---------
Loan except with the consent of the Required Lenders when any Default or
Unmatured Default has occurred and is continuing.
(D) Conversion/Continuation Notice. The Borrower shall give the Agent
------------------------------
irrevocable notice (a "Conversion/Continuation Notice") of each conversion of
a Base Rate Loan into a Eurodollar Loan or continuation of a Eurodollar Loan
not later than 11:00 a.m. (New York time) three Business Days before the
proposed date of such conversion or continuation, specifying: (1) the
requested date (which shall be a Business Day) of such conversion or
continuation; (2) the amount and Type of the Loan to be converted or
continued; and (3) the amounts of Eurodollar Loan(s) into which such Loan is
to be converted or continued and the duration of the Interest Periods
applicable thereto.
2.7 Default Rate. After the occurrence and during the continuance of a
------------
Default, the interest rate(s) applicable to the Obligations and the letter of
credit fee payable under Section 2.20 with respect to Letters of Credit shall
------------
be increased by two percent (2.0%) per annum above the Base Rate, Eurodollar
Rate, Korean CD Rate, Korean Eurodollar Rate or Applicable Letter of Credit
Fee, as applicable.
2.8 Method of Payment. All payments of principal, interest, and fees
-------------------
hereunder shall be made, without setoff, deduction or counterclaim, to the
Agent (i) at the Agent's office in New York, New York (or, in the case of
Advances to Purina Korea, Inc., Seoul, Korea) in immediately available funds
or at any other Lending Installation of the Agent specified in writing by 9:00
a.m. (New York time) on the day before the date when due) by the Agent to the
Company, by 12:00 noon (New York time) with respect to Advances to Borrowers
other than Purina Korea, Inc. and 12:00 noon (Seoul time) with respect to
Advances to Purina Korea, Inc. on the date when due and shall be made ratably
among the applicable Lenders with respect to Revolving Advances in proportion
to their Revolving Credit Shares (unless such amount is not to be shared
ratably in accordance with the other terms hereof). Each Advance shall be
repaid or prepaid in the currency in which it was made in the amount borrowed
and interest payable thereon shall be paid in such currency. Each payment
delivered to the Agent for the account of any Lender shall be delivered
promptly by the Agent to such Lender in the same type of funds which the Agent
received at its address specified pursuant to Article XIII or at any Lending
------------
Installation specified in a notice received by the Agent from such Lender by
9:00 a.m. (New York time) on the Business Day prior to the date such payment
is to be made. The Borrowers authorize the Agent to charge any account of any
Borrower maintained with the Agent, as applicable, for each payment of
principal, interest and fees as it becomes due hereunder if not paid when due.
Notwithstanding the foregoing provisions of this Section, if, after the making
of any Advance in Korean Won, currency control or exchange regulations are
imposed in the Republic of Korea with the result that different types of such
currency (the "New Currency") are introduced and the type of currency in which
the Advance was made (the "Original Currency") no longer exists or Purina
Korea, Inc. is not able to make payment to the Agent for the account of the
applicable Lenders in such Original Currency, then all payments to be made by
Purina Korea, Inc. hereunder or under the Notes in such Original Currency
shall be made in such amount and such type of the New Currency or Dollars as
shall be equivalent to the amount of such payment otherwise due hereunder or
under the Notes in the Original Currency as determined as of the date of
repayment, it being the intention of the parties hereto that the Borrowers
take all risks of the imposition of any such currency control or exchange
regulations.
2.9 Notes, Telephonic Notices. The Agent and the Lenders are authorized
-------------------------
to record the principal amount of each of the Loans and each repayment with
respect to Loans on the schedule attached to the applicable Note issued to
evidence the Revolving Loans; provided, however, that the failure to so record
-------- -------
shall not affect the applicable Borrower's obligations under any such Note.
2.10 Promise to Pay; Interest and Fees; Interest Payment Dates; Interest
-------------------------------------------------------------------
and Fee Basis; Taxes; Loan and Control Accounts
- ------------------------------------------------------
(A) Promise to Pay. Each of the Borrowers unconditionally promises to
--------------
pay when due the principal amount of each Loan made to it and all other
Obligations incurred by it, and to pay all unpaid interest accrued thereon, in
accordance with the terms of this Agreement and the Notes, it being understood
and agreed that each Subsidiary Borrower and Subsidiary Obligor shall be
obligated to repay only the Loans made to it and pay the other Obligations
incurred by it and certain other Loans made and Obligations incurred by other
Subsidiary Borrowers and Subsidiary Obligors.
(B) Interest Payment Dates. Interest accrued on each Base Rate Loan
------------------------
shall be payable on each Payment Date, commencing with the first such date to
occur after the date hereof, on any date on which the Base Rate Loan is
prepaid, whether due to acceleration or otherwise, and at maturity (whether by
acceleration or otherwise). Interest accrued on each Eurodollar Loan or
Korean Eurodollar Loan or Korean Won Loan shall be payable on the last day of
its applicable Interest Period, on any date on which the Eurodollar Loan or
Korean Eurodollar Loan is prepaid, whether by acceleration or otherwise, and
at maturity; provided, interest accrued on each Eurodollar Loan or Korean
--------
Eurodollar Loan having an Interest Period longer than three months shall also
be payable on the last day of each three-month interval during such Interest
Period. Interest accrued on the principal balance of all other Obligations
shall be payable in arrears (i) upon repayment thereof in full or in part,
(ii) if not theretofore paid in full, at the time such other Obligation
becomes due and payable (whether by acceleration or otherwise) and (iii) if
not theretofore paid in full, on demand, commencing on the first such day
following the date such Obligation became payable pursuant to the terms of
this Agreement or the other Loan Documents.
(C) Fees. (i) The Company shall pay or cause the appropriate
----
Subsidiary to pay to the Agent, for the account of the Lenders in accordance
with their Pro Rata Shares, a facility fee accruing at the rate of the
Applicable Facility Fee per annum from and after the Closing Date until the
Termination Date on the sum of the Aggregate Commitment in effect from time to
time minus the Maximum Korean Won Commitment. All such facility fees payable
under this clause (C) shall be payable quarterly in arrears on each Payment
-----------
Date commencing June 30, 1998 and on the Termination Date. In addition, the
Company shall pay to the Agent, for the account of the Lenders in accordance
with their Pro Rata Shares, a Korean facility fee accruing at the rate of
3.00% per annum payable on the Maximum Korean Won Commitment from and after
the Closing Date until the Termination Date, payable quarterly in arrears on
each Payment Date commencing June 30, 1998 and on the Termination Date.
(ii) The Company agrees to pay or cause the appropriate Subsidiary to
pay to the Agent the fees set forth in the letter agreement between the Agent
and the Company dated February 25, 1998.
(D) Interest and Fee Basis. Interest on Eurodollar Loans, Korean
-------------------------
Eurodollar Loans and Korean Won Loans and fees shall be calculated for actual
days elapsed on the basis of a 360-day year. Interest on Base Rate Loans
shall be calculated for actual days elapsed on the basis of a 365/366-day
year. Interest shall be payable for the day an Obligation is incurred but not
for the day of any payment on the amount paid if payment is received prior to
12:00 noon (New York time) with respect to Advances (other than Advances to
Purina Korea, Inc.) and 12:00 noon (Seoul time) with respect to Advances to
Purina Korea, Inc. If any payment of principal of or interest on a Loan or
any payment of any other Obligations shall become due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and, in the case of a principal payment, such extension of time shall be
included in computing interest in connection with such payment; provided,
--------
however, if such extension of payment would cause payment of principal or
---
interest on any Eurodollar Loan or Korean Eurodollar Loan to be made in the
next following calendar month, such payment shall be made on the immediately
preceding Business Day.
(E) Taxes.
-----
(i) Any and all payments by any of the Borrowers or Subsidiary Obligors
hereunder shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings or any liabilities with respect thereto including those arising
after the date hereof as a result of the adoption of or any change in any law,
treaty, rule, regulation, guideline or determination of a Governmental
Authority or any change in the interpretation or application thereof by a
Governmental Authority but excluding, in the case of each Lender and the
Agent, such taxes (including income taxes, franchise taxes and branch profit
taxes) as are imposed on or measured by such Lender's or Agent's, as the case
may be, income by the United States of America or any Governmental Authority
of the jurisdiction under the laws of which such Lender or Agent, as the case
may be, is organized or incorporated (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings, and liabilities which the Agent or
a Lender determines to be applicable to this Agreement, the other Loan
Documents, the Commitments, the Loans or the Letters of Credit being
hereinafter referred to as "Taxes"). Subject to Section 2.10(E)(vii), if any
---------------------
of the Borrowers or Subsidiary Obligors shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under the other Loan
Documents to any Lender or the Agent, (i) the sum payable shall be increased
as may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.10(E))
---------------
such Lender or Agent (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (ii) such Borrower or
Subsidiary Obligor shall make such deductions, and (iii) such Borrower or
Subsidiary Obligor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law. If a
withholding tax of the United States of America or any other Governmental
Authority shall be or become applicable (y) after the date of this Agreement,
to such payments by any of the Borrowers made to the Lending Installation or
any other office that a Lender may claim as its Lending Installation, or (z)
after such Lender's selection and designation of any other Lending
Installation, to such payments made to such other Lending Installation, such
Lender shall use reasonable efforts to make, fund and maintain its Loans and
issue Letters of Credit through another Lending Installation of such Lender in
another jurisdiction so as to reduce the Borrowers' liability hereunder, if
the making, funding or maintenance of such Loans and the issuance of such
Letters of Credit through such other Lending Installation of such Lender does
not, in the good faith judgment of such Lender, otherwise adversely affect
such Loans, or obligations under the Commitments or such Lender. With respect
to such deduction or withholding for or on account of any Taxes and to confirm
that all such Taxes have been paid to the appropriate Governmental
Authorities, the Company shall promptly (and in any event not later than
thirty (30) days after receipt) furnish to each Lender and the Agent such
certificates, receipts and other documents as may be required (in the judgment
of such Lender or the Agent) to establish any tax credit to which such Lender
or the Agent may be entitled. A payment may be made by the Company or by the
Subsidiary that is the Borrower with respect to the Loan that gives rise to
such payment.
(ii) In addition, the Company agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges, or
similar levies that arise from any payment made hereunder, from the issuance
of Letters of Credit hereunder, or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement, the other Loan
Documents, the Commitments, the Loans or the Letters of Credit (hereinafter
referred to as "Other Taxes").
(iii) Subject to Section 2.10(E)(vii), the Company indemnifies each
---------------------
Lender and the Agent for the full amount of Taxes and Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any Governmental
Authority on amounts payable under this Section 2.10(E)) paid by such Lender
---------------
or the Agent (as the case may be) and any liability (including penalties,
interest, and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted. This
indem-nification shall be made within thirty (30) days after the date such
Lender or the Agent (as the case may be) makes written demand therefor. A
certificate as to any additional amount payable to any Lender or the Agent
under this Section 2.10(E) submitted to the Company and the Agent by such
----------------
Lender or the Agent shall show in reasonable detail the amount payable and the
calculations used to determine such amount and shall, absent manifest error,
be final, conclusive and binding upon all parties hereto.
(iv) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes by any Borrower or Subsidiary Obligor, such Borrower or Subsidiary
Obligor shall furnish to the Agent the original or a certified copy of a
receipt evidencing payment thereof.
(v) Without prejudice to the survival of any other agreement of any of
the Borrowers or Subsidiary Obligor hereunder, the agreements and obligations
of the Borrowers and Subsidiary Obligor contained in this Section 2.10(E)
---------------
shall survive the payment in full of principal and interest hereunder, the
termination of the Letters of Credit and the termination of this Agreement.
(vi) Without limiting the obligations of the Borrowers and Subsidiary
Obligor under this Section 2.10(E) (except as expressly provided by subsection
--------------- ----------
(vii) below), (A) each Lender that has a Commitment that is not created or
- -----
organized under the laws of the United States of America or a political
- ---
subdivision thereof shall deliver to the Company and the Agent on or before
- ---
the Closing Date, or, if later, the date on which such Lender becomes a Lender
- --
pursuant to Section 12.3 hereof, a true and accurate certificate executed in
------------
duplicate by a duly authorized officer of such Lender, in a form satisfactory
to the Company and the Agent, to the effect that such Lender is capable under
the provisions of an applicable tax treaty concluded by the United States of
America (in which case the certificate shall be accompanied by two executed
copies of Form 1001 of the IRS) or under Section 1442 of the Code (in which
case the certificate shall be accompanied by two copies of Form 4224 of the
IRS) of receiving payments of interest and fees hereunder without deduction or
withholding of United States federal income tax and (B) each Lender shall
deliver to the Company and the Agent on or before the Closing Date, or, if
later, the date on which such Lender becomes a Lender, a true and accurate
certificate executed in duplicate by a duly authorized officer of such Lender,
in a form satisfactory to the Company and the Agent, to the effect that such
Lender is capable under the provisions of an applicable tax treaty or under
the provisions of applicable law of receiving payments of interest with
respect to the Advances to Purina Korea, Inc. hereunder without deduction or
withholding of income tax. Each such Lender further agrees to deliver to the
Company and the Agent, from time to time a true and accurate certificate
executed in duplicate by a duly authorized officer of such Lender
substantially in a form satisfactory to the Company and the Agent, before or
promptly upon the occurrence of any event requiring a change in the most
recent certificate previously delivered by it pursuant to this Section
-------
2.10(E)(vi). Further, each Lender which delivers a certificate accompanied by
----
Form 1001 of the IRS covenants and agrees to deliver to the Company and the
Agent within fifteen (15) days prior to January 1, 1999, and every third (3rd)
anniversary of such date thereafter, on which this Agreement is still in
effect, another such certificate and two accurate and complete original signed
copies of Form 1001 (or any successor form or forms required under the Code or
the applicable regulations promulgated thereunder), and each Lender that
delivers a certificate accompanied by Form 4224 of the IRS covenants and
agrees to deliver to the Company and the Agent within fifteen (15) days prior
to the beginning of each subsequent taxable year of such Lender during which
this Agreement is still in effect, another such certificate and two accurate
and complete original signed copies of IRS Form 4224 (or any successor form or
forms required under the Code or the applicable regulations promulgated
thereunder).
Each such certificate shall certify pursuant to this Section 2.10(E)(vi)
-------------------
as to one of the following:
(a) that such Lender is capable of receiving payments of interest
hereunder without deduction or withholding of United States of America federal
income tax;
(b) that such Lender is not capable of receiving payments of interest
hereunder without deduction or withholding of the applicable income tax as
specified therein but is capable of recovering the full amount of any such
deduction or withholding from a source other than the Borrowers and the
Subsidiary Obligor and will not seek any such recovery from the Borrowers or
the Subsidiary Obligor; or
(c) that, as a result of the adoption of or any change in any law,
treaty, rule, regulation, guideline or determination of a Governmental
Authority or any change in the interpretation or application thereof by a
Governmental Authority after the date such Lender became a party hereto, such
Lender is not capable of receiving payments of interest hereunder without
deduction or withholding of applicable income tax as specified therein and
that it is not capable of recovering the full amount of the same from a source
other than the Borrowers and the Subsidiary Obligors.
Each Lender shall promptly furnish to the Company and the Agent such
additional documents as may be reasonably required by the Company or the Agent
to establish any exemption from or reduction of any Taxes or Other Taxes
required to be deducted or withheld and which may be obtained without undue
expense to such Lender.
A Borrower shall provide such information and take such action as a
Lender may reasonably request without undue expense to such Borrower to enable
the Lender to comply with the foregoing provisions of this subsection (vi).
---------------
(vii) None of the Borrowers shall be required to pay any additional amounts
under subsection (i) above or indemnification under subsection (iii) above to
-------------- ----------------
the extent that the obligation to pay such additional amounts or
indemnification would not have arisen but for: (a) a failure by the Lender or
Agent to comply with the provisions of subsection (vi) above; or (b) the
---------------
certifications referred to in subsection (vi) above not being true.
----------------
(viii) Each Lender and the Agent agree that if it shall become aware
that it is entitled to receive a refund in respect of Taxes or Other Taxes as
to which it has been indemnified by the Company or any other Borrower pursuant
to this Section 2.10(E), it shall promptly notify the Company of the
----------------
availability of such refund and at the request of the Company will apply for
-
such refund; provided, however the failure to provide such notice shall not
relieve the Company or any other Borrower of any of their Obligations
hereunder. Upon receipt of such refund, the Lender or Agent agrees to pay
such refund to the applicable Borrower along with any interest actually
received from the taxing authority, net of all out-of-pocket expenses of such
Lender or Agent incurred with respect to such refund.
(F) Loan Account. Each Lender shall maintain in accordance with its
-------------
usual practice an account or accounts (a "Loan Account") evidencing the
Obligations of each of the Borrowers to such Lender owing to such Lender from
time to time, including the amount of principal and interest payable paid to
such Lender from time to time hereunder and under the Notes.
(G) Entries Binding. The entries made in each Loan Account shall be
----------------
conclusive and binding for all purposes, absent manifest error, unless the
Company objects to information contained in the Loan Account within thirty
(30) days of the Company's receipt of such information.
2.11 Notification of Advances, Interest Rates, Prepayments and Aggregate
-------------------------------------------------------------------
Commitment Reductions. Promptly after receipt thereof, the Agent will notify
- ----------------------
each applicable Lender of the contents of each Aggregate Commitment reduction
notice, Borrowing Notice for Revolving Loans, Conversion/Continuation Notice
with respect to Revolving Loans, and repayment notice received by it
hereunder. The Agent will notify each applicable Lender of the interest rate
applicable to each Eurodollar Loan, Korean Eurodollar Loan and Korean Won Loan
promptly upon determination of such interest rate, and the Agent will give
each applicable Lender prompt notice of each change in the Alternate Base
Rate.
2.12 Lending Installations. Each Lender may book its Loans at any
----------------------
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to
any such Lending Installation and the Notes shall be deemed held by each
Lender for the benefit of such Lending Installation. Each Lender may, by
written or facsimile notice to the Agent and the Borrowers, designate a
Lending Installation through which Loans will be made by it and for whose
account Loan payments are to be made.
2.13 Non-Receipt of Funds by the Agent. Unless the applicable Borrower
---------------------------------
or a Lender, as the case may be, notifies the Agent prior to the date on which
it is scheduled to make payment to the Agent of (i) in the case of a Lender,
the proceeds of a Loan or (ii) in the case of a Borrower, a payment of
principal, interest or fees to the Agent for the account of the Lenders for
the account of the applicable Lenders, that it does not intend to make such
payment, the Agent may assume that such payment has been made. The Agent may,
but shall not be obligated to, make the amount of such payment available to
the intended recipient in reliance upon such assumption. If such Lender or
Borrower, as the case may be, has not in fact made such payment to the Agent
the recipient of such payment shall, on demand by the Agent, repay to the
Agent the amount so made available together with interest thereon in respect
of each day during the period commencing on the date such amount was so made
available by the Agent until the date the Agent recovers such amount at a rate
per annum equal to (i) in the case of payment by a Lender, the Federal Funds
Effective Rate for such day or (ii) in the case of payment by a Borrower, the
interest rate applicable to the relevant Loan.
2.14 Termination Date. This Agreement shall be effective until the
-----------------
Termination Date. Notwithstanding the termination of this Agreement on the
Termination Date, until all of the Obligations (other than contingent
indemnity and reimbursement obligations) shall have been fully and
indefeasibly paid and satisfied, all financing arrangements among the
Borrowers and the Lenders shall have been terminated (other than under Hedging
Agreements) and all of the Letters of Credit shall have expired, been canceled
or terminated, all of the rights and remedies under this Agreement and the
other Loan Documents shall survive and the Agent shall be entitled to retain
its security interest in and to all existing and future Collateral for the
benefit of itself and the Holders of Secured Obligations.
2.15 Replacement of Certain Lenders. In the event a Lender ("Affected
------------------------------
Lender") shall have: (i) failed to fund its Revolving Credit Share of any
Advance requested by any Borrower which such Lender is obligated to fund under
the terms of this Agreement and which failure has not been cured, (ii)
requested compensation from any Borrower under Sections 2.10(E), 3.1 or 3.2 to
---------------- --- ---
recover Taxes, Other Taxes or other additional costs incurred by such Lender
which are not being incurred generally by the other Lenders, (iii) delivered a
notice pursuant to Section 3.3 claiming that such Lender is unable to extend
-----------
Eurodollar Loans to any Borrower for reasons not generally applicable to the
other Lenders, (iv) declined to extend the Termination Date or the expiry date
of the Aggregate Commitment with respect to the Tranche D Obligations pursuant
to Section 2.24, or (v) has invoked Section 9.2, then, in any such case, any
------------- -----------
Borrower or the Agent may make written demand on such Affected Lender (with a
copy to the Agent in the case of a demand by any Borrower and a copy to the
Borrowers in the case of a demand by the Agent) for the Affected Lender to
assign, and such Affected Lender shall use its best efforts to assign pursuant
to one or more duly executed assignment and acceptance agreements in
substantially the form of Exhibit D five (5) Business Days after the date of
---------
such demand, to one or more financial institutions that comply with the
provisions of Section 12.3(A) (and, if selected by the Borrowers is reasonably
---------------
acceptable to the Agent, and, so long as no Default shall have occurred and is
continuing, if selected by the Agent is reasonably acceptable to the Company)
which any Borrower or the Agent, as the case may be, shall have engaged for
such purpose ("Replacement Lender"), all of such Affected Lender's rights and
obligations under this Agreement and the other Loan Documents (including,
without limitation, its Commitment, all Loans owing to it, all of its
participation interests in existing Letters of Credit and its obligation to
participate in Letters of Credit hereunder) in accordance with Section 11.3.
------------
The Agent agrees, upon the occurrence of such events with respect to an
Affected Lender and upon the written request of any Borrower, to use its
reasonable efforts to obtain the commitments from one or more financial
institutions qualified to act as a Replacement Lender. Further, with respect
to such assignment the Affected Lender shall have concurrently received, in
cash, all amounts due and owing to the Affected Lender hereunder or under any
other Loan Document, including, without limitation, the aggregate outstanding
principal amount of the Loans owed to such Lender, together with accrued
interest thereon through the date of such assignment, amounts payable under
Sections 2.10(E), 3.1, and 3.2 with respect to such Affected Lender and
--------------- --- ---
compensation payable under Section 2.10(C) in the event of any replacement of
---- ---------------
any Affected Lender under clause (ii) or clause (iii) of this Section 2.15;
----------- ------------ ------------
provided that upon such Affected Lender's replacement, such Affected Lender
------
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.10(E), 3.1, 3.2, 3.4, and 9.7, as well as to any fees
---------------- --- --- --- ---
accrued for its account hereunder and not yet paid, and shall continue to be
obligated under Section 10.8. Upon the replacement of any Affected Lender
-------------
pursuant to this Section 2.15, the provisions of Section 8.2 shall continue to
------------ -----------
apply with respect to Advances which are then outstanding with respect to
which the Affected Lender failed to fund its Revolving Credit Share and which
failure has not been cured.
2.16 Letters of Credit. (a) Upon receipt of duly executed applications
-----------------
therefor, and such other documents, instructions and agreements as such
Issuing Lender may reasonably require, and subject to the provisions of
Article IV, the Agent shall, or any other Lender in its sole discretion may,
-----
issue standby or commercial letters of credit denominated in Dollars for the
account of the Company or one of the Subsidiary Borrowers or Subsidiary
Obligors or standby letters of credit denominated in Korean Won for the
account of Purina Korea, Inc., on terms as are satisfactory to such Issuing
Lender; provided, however, that no Letter of Credit will be issued hereunder
-------- -------
by an Issuing Lender if on the date of issuance, before or after taking such
Letter of Credit into account, (i) the Dollar Amount of the Revolving Credit
Obligations at such time would exceed the Aggregate Commitments at such time
or (ii) the amount (or with respect to standby Letters of Credit denominated
in Korean Won, the Dollar Amount) of the Revolving Credit Obligations owed by
any of the Borrowers or Subsidiary Obligors pursuant to this Agreement would
exceed the corresponding amounts listed below:
Agribrands International, Inc. $ 5,000,000
[Canadian Subsidiary] $ 6,500,000
Purina Italia S.p.A. $ 4,000,000
Purina Espana, S.A. $ 2,500,000
Purina Hungaria Animal Feed
Production & Trading Company Ltd. $ 2,000,000
Purina Korea, Inc. $15,000,000
Industrias Purina S.A. de C.V. $ 5,000,000
Purina Colombiana S.A. $ 5,000,000
[Brazilian Subsidiary] $ 5,000,000
Purina Philippines, Inc. $ 2,500,000
Purina de Venezuela, V.A. $ 2,500,000
and provided, further, that no Letter of Credit shall be issued which has an
-------- -------
expiration date more than one year after the date of issuance of such Letter
of Credit or an expiration date later than the date which is five (5) Business
Days immediately preceding (x) the Termination Date with respect to Letters of
Credit issued for the account of any Borrower and (y) the then effective
expiry date of the Aggregate Commitment for the Tranche D Obligations with
respect to any Letter of Credit issued for the account of any Subsidiary
Obligor; and provided, further, that all commercial Letters of Credit
-------- -------
requested hereunder shall be made denominated in Dollars. Each Letter of
Credit issued for the account of any Borrower may, upon the request of the
applicable Borrower, include a provision whereby such Letter of Credit shall
be renewed automatically for additional consecutive periods of 12 months or
less (but not beyond the date that is five Business Days prior to the
Termination Date) unless the Issuing Lender notifies the beneficiary thereof
at least 30 days prior to the then-applicable expiry date that such Letter of
Credit will not be renewed. Each Letter of Credit issued for the account of
any Subsidiary Obligor shall be renewed or extended at the request of the
applicable Subsidiary Obligor only with the consent of all of the Lenders.
Prior to issuing any Letter of Credit, the applicable Issuing Lender shall
request and the Agent shall provide confirmation that the request for such
Letter of Credit complies with the provisions of this Section 2.16(a). If the
------------
Agent notifies the applicable Issuing Lender that it is authorized to issue
such Letter of Credit, and the conditions described in Article IV have been
----------
satisfied, then such Issuing Lender shall issue such Letter of Credit as
requested. The applicable Issuing Lender shall give the Agent and each Lender
prompt notice of the issuance of any such Letter of Credit by it. Each
Issuing Lender shall furnish to the Agent and each Lender on the first
Business Day of each month a written report, with respect to each outstanding
Letter of Credit issued by such Issuing Lender, summarizing whether such
Letter of Credit is a standby or commercial Letter of Credit, the maximum
amount available to be drawn thereon, and the beneficiary and the issuance and
expiration dates thereof. Together with each such monthly report each
Issuing Lender shall provide the Agent a copy of each Letter of Credit issued
by such Issuing Bank during the previous month.
(b) Schedule 2.16(b) contains a schedule of certain letters of credit
issued for the account of certain Borrowers and Subsidiary Obligors prior to
the Closing Date by certain Lenders (the "Existing Letters of Credit").
Subject to the satisfaction of the conditions contained in Sections 4.1 and
4.2, from and after the Closing Date the Existing Letters of Credit shall be
deemed to be Letters of Credit issued pursuant to Section 2.16(a).
2.17 Letter of Credit Participation. On the Closing Date with respect
------------------------------
to the Existing Letters of Credit, and immediately upon the issuance of each
Letter of Credit by any Issuing Lender hereunder, each Lender that has a
Commitment shall be deemed to have automatically, irrevocably and
unconditionally purchased and received from the applicable Issuing Lender an
undivided interest and participation in and to such Letter of Credit, the
obligations of the applicable Borrower in respect thereof, and the liability
of the applicable Issuing Lender thereunder (collectively, an "L/C Interest")
in an amount equal to the amount available for drawing under such Letter of
Credit multiplied by such Lender's Revolving Credit Share.
The applicable Issuing Lender will notify the Agent promptly upon
presentation to it of an L/C Draft or upon any other draw under a Letter of
Credit and the Agent will promptly notify each Lender that has a Commitment.
On or before the Business Day on which the applicable Issuing Lender makes
payment of each such L/C Draft or any other draw on a Letter of Credit, on
demand of the Agent received by each Lender that has a Commitment not later
than 12:00 noon (Seoul, Korea time) on the fifth (5th) Business Day after the
date of such demand with respect to Letters of Credit issued for the account
of Purina Korea, Inc., and 12:00 noon (New York time) on the third (3d)
Business Day after the date of such demand with respect to all other Letters
of Credit, each Lender (other than the Issuing Lender) shall make payment on
such Business Day to the Agent for the account of the applicable Issuing
Lender, in immediately available funds in the applicable currency in an amount
equal to such Lender's Revolving Credit Share of the amount of such payment or
draw.
Upon the Agent's receipt of funds as a result of an Issuing Lender's
payment on an L/C Draft or any other draw on a Letter of Credit issued by an
Issuing Lender, the Agent shall promptly pay such funds to the Issuing Lender.
The obligation of each Lender that has a Commitment to pay the Agent for the
account of the applicable Issuing Lender under this Section 2.17 shall be
------------
unconditional, continuing, irrevocable and absolute. In the event that any
such Lender fails to make payment to the Agent of any amount due under this
Section 2.17, the Agent shall be entitled to receive, retain and apply against
----------
such obligation the principal and interest otherwise payable to such Lender
hereunder until the Agent on behalf of the applicable Issuing Lender receives
such payment from such Lender or such obligation is otherwise fully satisfied;
provided, however, that nothing contained in this sentence shall relieve such
- -------- -------
Lender of its obligation to reimburse the Agent for such amount in accordance
with this Section 2.17.
-------------
2.18 Reimbursement Obligation. Each of the Borrowers and Subsidiary
-------------------------
Obligors agrees unconditionally, irrevocably and absolutely upon receipt of
notice from the Agent or the applicable Issuing Lender to pay immediately to
the Agent, for the account of the applicable Issuing Lender or the account of
the Lenders, as the case may be, the amount of each advance which may be drawn
under or pursuant to a Letter of Credit issued for its account or an L/C Draft
related thereto (such obligation of each of the Borrowers and Subsidiary
Obligors to reimburse the Issuing Lender or the Agent for an advance made
under a Letter of Credit or L/C Draft being hereinafter referred to as a
"Reimbursement Obligation" with respect to such Letter of Credit or L/C
Draft), each such payment to be made by the applicable Borrower to the Agent
no later than 1:00 p.m. (New York time) or with respect to Reimbursement
Obligations owed by Purina Korea, Inc. 1:00 p.m. (Seoul time) on the Business
Day on which the applicable Issuing Lender makes payment of each such L/C
Draft or, in the case of any other draw on a Letter of Credit, 1:00 p.m. (New
York time) or with respect to Reimbursement Obligations owed by Purina Korea,
Inc. 1:00 p.m. (Seoul time) on the date specified in a demand by the Agent and
such payment shall be made in the applicable currency in which such Letter of
Credit was issued. Any Issuing Lender may direct the Agent to make such
demand with respect to Letters of Credit issued by such Issuing Lender. If
any Borrower at any time fails to repay a Reimbursement Obligation pursuant to
this Section 2.18, such Borrower shall be deemed to have elected to borrow a
-------------
Revolving Loan from the applicable Lenders, as of the date of the Advance
giving rise to the Reimbursement Obligation equal in amount to the amount of
the unpaid Reimbursement Obligation. Such Revolving Loan shall be made as of
the date of the payment giving rise to such Reimbursement Obligation,
automatically, without notice and without any requirement to satisfy the
conditions precedent otherwise applicable to an Advance of Revolving Loans if
such Borrower shall have failed to make such payment to the Agent for the
account of the applicable Issuing Lender prior to such time. Such Revolving
Loans shall constitute a Base Rate Advance, or, in the case of standby Letters
of Credit denominated in Korean Won, a Korean Won Advance, the proceeds of
which Advance shall be used to repay such Reimbursement Obligation. If, for
any reason, any Borrower or Subsidiary Obligor fails to repay a Reimbursement
Obligation on the day such Reimbursement Obligation arises and, for any
reason, the Lenders are unable to make or have no obligation to make a
Revolving Loan, then such Reimbursement Obligation shall bear interest from
and after such day, until paid in full, at the interest rate applicable to a
Base Rate Advance, or in the case of standby Letters of Credit denominated in
Korean Won, at the Korean CD Rate.
2.19 Cash Collateral. Notwithstanding anything to the contrary herein
---------------
or in any application for a Letter of Credit, after the occurrence and during
the continuance of Default, each Borrower and Subsidiary Obligor shall, upon
the Agent's demand, deliver to the Agent for the benefit of the Lenders, cash
collateral, having a value, as determined by such Lenders, equal to the
aggregate outstanding L/C Obligations of such Borrower or Subsidiary Obligor
in addition to amounts on deposit in the Cash Collateral Account. Any such
additional collateral shall be held by the Agent in a separate account
appropriately designated as a cash collateral account in relation to this
Agreement and the Letters of Credit and retained by the Agent for the benefit
of the Lenders as collateral security for the Borrowers' and Subsidiary
Obligors' obligations in respect of this Agreement and each of the Letters of
Credit and L/C Drafts. Such amounts shall be applied to reimburse the Agent
or each Issuing Lender, as applicable, for drawings or payments under or
pursuant to Letters of Credit or L/C Drafts, or if no such reimbursement is
required, to payment of such of the other Obligations as the Agent shall
determine. If no Default shall be continuing, amounts remaining in any cash
collateral account (other than the Cash Collateral Account) established
pursuant to this Section 2.19 which are not to be applied to reimburse the
-------------
Agent for amounts actually paid or to be paid by the Agent in respect of a
Letter of Credit or L/C Draft, shall be promptly returned to the applicable
Borrower (after deduction of the Agent's expenses incurred in connection with
such cash collateral account).
2.20 Letter of Credit Fees. The Company agrees to pay (i) quarterly, in
---------------------
arrears, on each Payment Date to the Agent for the ratable benefit of the
Lenders having Commitments, except as set forth in Section 8.2, a letter of
-----------
credit fee ("Letter of Credit Fee") in the amount of:
(w) with respect to Letters of Credit issued for the account of the
Borrowers (other than Purina Korea, Inc.) and the Subsidiary Obligors (other
than Purina Korea, Inc.), a rate per annum equal to the Applicable Letter of
Credit Fee on the aggregate average daily outstanding amount available for
drawing under all of the Letters of Credit issued for its account;
(x) with respect to standby Letters of Credit issued for the account of
Purina Korea, Inc. and denominated in Dollars, a per annum rate equal to 3.50%
on the aggregate average daily outstanding amount available for drawing under
all standby Letters of Credit denominated in Dollars and issued for its
account;
(y) with respect to standby Letters of Credit issued for the account of
Purina Korea, Inc. and denominated in Korean Won, a per annum rate equal to
1.75% on the aggregate average daily outstanding amount available for drawing
under all of the standby Letters of Credit denominated in Korean Won and
issued for its account; and
(z) with respect to commercial Letters of Credit issued for the account of
Purina Korea, Inc. and denominated in Dollars, a per annum rate equal to 1.50%
on the aggregate average daily outstanding amount available for drawing under
all of the commercial Letters of Credit denominated in Dollars and issued for
its account; plus
----
(ii) to the Agent for the benefit of the Issuing Lenders, a fronting fee of
one-eighth of one percent (0.125%) per annum on the aggregate average daily
outstanding Dollar Amount available for drawing under all of the Letters of
Credit issued for the account of any Borrower or Subsidiary Obligor payable
quarterly, in arrears, on each Payment Date; plus
----
(iii) in each case, all customary fees and other issuance, amendment, document
examination, negotiation and presentment expenses and related charges in
connection with the issuance, amendment, presentation of L/C Drafts, and the
like customarily charged by the Issuing Lender with respect to standby and
commercial Letters of Credit, including, without limitation, standard
commissions with respect to commercial Letters of Credit, payable at the time
of invoice of such amounts.
2.21 Indemnification; Exoneration. (a) In addition to amounts payable
----------------------------
as elsewhere provided in this Agreement, each Borrower and Subsidiary Obligor
with respect to Letters of Credit issued for its account agrees to protect,
indemnify, pay and save harmless the Agent, each Issuing Lender and each
Lender from and against any and all liabilities and costs which the Agent, any
Issuing Lender or any Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit other than, in
the case of the Issuing Lender, as a result of its gross negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, or (ii) the failure of the Issuing Lender of a Letter of Credit
to honor a drawing under such Letter of Credit as a result of any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto Governmental Authority (all such acts or omissions herein called
"Governmental Acts").
(b) As among the Borrowers, the Subsidiary Obligors, the Lenders, the
Issuing Lenders and the Agent, the Borrowers and Subsidiary Obligors assume
all risks of the acts and omissions of, or misuse of such Letter of Credit by,
the beneficiary of any Letter of Credit. In furtherance and not in limitation
of the foregoing, subject to the provisions of the Letter of Credit
applications and Letter of Credit reimbursement agreements executed by the
applicable Borrower or Subsidiary Obligor at the time of request for any
Letter of Credit, the Issuing Lender of a Letter of Credit, the Agent and the
Lenders shall not be responsible (in the absence of gross negligence or
willful misconduct in connection therewith, as determined by the final
judgment of a court of competent jurisdiction): (i) for the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted
by any party in connection with the application for and issuance of the
Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
a Letter of Credit to comply duly with conditions required in order to draw
upon such Letter of Credit; (iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex, or other similar form of teletransmission or otherwise; (v) for errors
in interpretation of technical trade terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of the Agent, the Issuing Lender and the
Lenders including, without limitation, any Governmental Acts. None of the
above shall affect, impair, or prevent the vesting of any of the Issuing
Lender's rights or powers under this Section 2.21.
-------------
(c) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by an Issuing
Lender under or in connection with Letters of Credit issued on behalf of any
Borrower or Subsidiary Obligor or any related certificates shall not, in the
absence of gross negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, put the Issuing Lender, the
Agent or any Lender under any resulting liability to any Borrower or
Subsidiary Obligor or relieve any Borrower or Subsidiary Obligor of any of its
obligations hereunder to any such Person.
(d) Without prejudice to the survival of any other agreement of the
Borrowers or the Subsidiary Obligors hereunder, the agreements and obligations
of the Borrowers contained in this Section 2.21 shall survive the payment in
------------
full of principal and interest hereunder, the termination of the Letters of
Credit and the termination of this Agreement.
2.22 Judgment Currency. If, for the purposes of obtaining judgment in
-----------------
any court, it is necessary to convert a sum due from a Borrower hereunder or
under any of the Notes in the currency expressed to be payable herein or under
the Notes (the "specified currency") into another currency, the parties hereto
agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures the Agent could purchase the specified currency with such other
currency at the Agent's main office in New York, New York or Seoul, Korea or
any other applicable local office on the Business Day preceding that on which
the final, non-appealable judgment is given. The obligations of the
applicable Borrower in respect of any sum due to any Lender or the Agent
hereunder or under any Note shall, notwithstanding any judgment in a currency
other than the specified currency, be discharged only to the extent that on
the Business Day following receipt by such Lender or Agent (as the case may
be) of any sum adjudged to be so due in such other currency such Lender or
Agent (as the case may be) may in accordance with normal, reasonable banking
procedures purchase the specified currency with such other currency. If the
amount of the specified currency so purchased is less than the sum originally
due to such Lender or Agent, as the case may be, in the specified currency,
the applicable Borrower agrees, to the fullest extent that it may effectively
do so, as a separate obligation and notwithstanding any such judgment, to
indemnify such Lender or Agent, as the case may be, against such loss, and if
the amount of the specified currency so purchased exceeds (a) the sum
originally due to any Lender or Agent, as the case may be, in the specified
currency and (b) any amounts shared with other Lenders as a result of
allocations of such excess as a disproportionate payment to such Lender under
Section 11.2, such Lender or Agent, as the case may be, agrees to remit such
- -------------
excess to the applicable Borrower. Without prejudice to the survival of any
of the other agreements of the Borrowers hereunder, the agreements and
obligations of the Borrowers in this Section 2.22 shall survive the
- - -------------
termination of this Agreement and the payment of all other amounts owing
hereunder.
2.23 Currency Disruption. Notwithstanding the satisfaction of all
--------------------
conditions referred to in Article II with respect to any Advance in Korean Won
----------
or in Dollars to Purina Korea, Inc., if, after the Closing Date, a material
adverse change in the banking market (including, without limitation, a
significant down-grading of the credit ratings of the major domestic banks in
the Republic of Korea or the sovereign debt of the Republic of Korea) occurs
or bank regulatory circumstances change or currency controls or restrictions
or other exchange regulations are imposed or other circumstances arise as a
result of which, in the reasonable opinion of the Agent or the Required
Lenders, Korean Won or Dollars in Korea are unavailable to the Lenders or are
no longer readily available or freely traded or other exchange regulations are
imposed in the Republic or Korea with the result that different types of
currency are introduced, then the Advances and standby Letters of Credit
denominated in Korean Won and the Advances in Dollars to Purina Korea, Inc.
and standby Letters of Credit denominated in Dollars for the account of Purina
Korea, Inc. shall no longer be available until such time as the Agent or the
Required Lenders determine that the disqualifying event or events no longer
exist; provided, that during the period that such Korean Won or Letters of
--------
Credit denominated in Dollars are unavailable pursuant to this Section 2.23,
------------
the Company's obligation to pay the Korean facility fee pursuant to Section
-------
2.10(C)(i) shall be suspended.
--------
2.24 Termination Date Extension. The Aggregate Commitment with respect
--------------------------
to Tranche C Obligations shall expire on the Termination Date. Within the
period beginning 120 days and ending 90 days before each anniversary of the
Closing Date, the Company may request in writing that the Termination Date be
extended for an additional year. Within the period beginning 45 days and
ending 30 days prior to such anniversary, each Lender may, in its sole
discretion, agree to such extension by giving written notice of such agreement
to the Company and the Agent (and the failure to provide such notice shall be
determined to be a decision not to extend). The Aggregate Commitment with
respect to Tranche D Obligations shall expire on the first anniversary of the
Closing Date. Within the period beginning 270 days and ending 30 days prior
to such first anniversary of the Closing Date, the Company may request in
writing that the expiry date for the Aggregate Commitment with respect to
Tranche D Obligations be extended to remain in effect for up to one year from
the extension date; and thereafter within the period beginning 270 days and
ending 30 days prior to the then effective expiry date for the Aggregate
Commitment with respect to Tranche D Obligations, the Company may request in
writing that the expiry date for the Aggregate Commitment with respect to
Tranche D Obligations be extended to remain in effect for up to one year from
such then effective extension date. Within 30 days after such request, each
Lender may, in its sole discretion, agree to such extension by giving written
notice of such extension to the Company and the Agent (and the failure to
provide such notice shall be deemed a decision not to extend). The Commitment
of each Lender that declines to extend with respect to the Tranche C
Obligations or the Tranche D Obligations may, at the option of the Company, be
replaced in accordance with Section 12.3 (but only to the extent a replacement
------------
Lender is then available) or the Aggregate Commitment reduced. The Required
Lenders must agree to any extension with respect to the Termination Date or
the expiry of the Aggregate Commitment with respect to Tranche D Obligations
for any such extension to become effective.
ARTICLE III: CHANGE IN CIRCUMSTANCES
- ------------------------------------------
3.1 Yield Protection. If any law or any governmental or
-----------------
quasi-governmental rule, regulation, policy, guideline or directive (whether
-----
or not having the force of law) adopted after the date of this Agreement and
having general applicability to all banks within the jurisdiction in which
such Lender operates (excluding, for the avoidance of doubt, the effect of and
phasing in of capital requirements or other regulations or guidelines passed
prior to the date of this Agreement), or any interpretation or application
thereof by any Governmental Authority charged with the interpretation or
application thereof, or the compliance of any Lender therewith,
(i) subjects any Lender (each reference in this Section 3.1 to a Lender
-----------
being in its capacity as a Lender or an Issuing Lender, or all of the
foregoing) or any applicable Lending Installation to any tax, duty, charge or
withholding on or from payments due from any of the Borrowers (excluding
taxation imposed by the United States of America or any Governmental Authority
of the jurisdiction under the laws of which such Lender is organized, on the
overall net income of any Lender or applicable Lending Installation), or
changes the basis of taxation of payments to any Lender in respect of its
Loans, its L/C Interests, the Letters of Credit or other amounts due it
hereunder, provided however that this clause (i) shall not apply with respect
----------
to any Taxes to which Section 2.10(E) applies, or
----------------
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Lender or any
applicable Lending Installation with respect to its Eurodollar Loans, Korean
Eurodollar Loans, Korean Won Loans, L/C Interests or the Letters of Credit
(other than reserves and assessments taken into account in calculating the
Eurodollar Rate or Korean Eurodollar Rate), or
(iii) imposes any other condition the result of which is to increase the
cost to any Lender or any applicable Lending Installation of making, funding
or maintaining the Eurodollar Loans, Korean Eurodollar Loans, Korean Won
Loans, the L/C Interests or the Letters of Credit or reduces any amount
received by any Lender or any applicable Lending Installation in connection
with Eurodollar Loans, Korean Eurodollar Loans, Korean Won Loans or Letters of
Credit, or requires any Lender or any applicable Lending Installation to make
any payment calculated by reference to the amount of Loans or L/C Interests
held or interest received by it or by reference to the Letters of Credit, by
an amount deemed material by such Lender;
and the result of any of the foregoing is to increase the cost to that Lender
of making, renewing or maintaining its Loans, L/C Interests or Letters of
Credit or to reduce any amount received under this Agreement, then, within 15
days after receipt by the Company of written demand by such Lender pursuant to
Section 3.5, the Company shall pay or cause the appropriate Subsidiary to pay
- ------------
such Lender that portion of such increased expense incurred or reduction in an
amount received which such Lender determines is attributable to making,
funding and maintaining its Loans, L/C Interests, Letters of Credit and its
Commitment.
3.2 Changes in Capital Adequacy Regulations. If a Lender (each
-------------------------------------------
reference in this Section 3.2 to a Lender being in its capacity as a Lender or
-----------
an Issuing Lender, or all of the foregoing) determines (i) the amount of
capital required or expected to be maintained by such Lender, any Lending
Installation of such Lender or any corporation controlling such Lender is
increased as a result of a "Change" (as defined below), and (ii) such increase
in capital will result in an increase in the cost to such Lender of
maintaining its Loans, L/C Interests, the Letters of Credit or its obligation
to make Loans hereunder, then, within 15 days after receipt by the Company of
written demand by such Lender pursuant to Section 3.5, the Company shall pay
-----------
or cause the appropriate Subsidiary to pay such Lender the amount necessary to
compensate for any shortfall in the rate of return on the portion of such
increased capital which such Lender determines is attributable to this
Agreement, its Loans, its L/C Interests, the Letters of Credit or its
obligation to make Loans hereunder (after taking into account such Lender's
policies as to capital adequacy). "Change" means (i) any change after the
date of this Agreement in the "Risk-Based Capital Guidelines" (as defined
below) excluding, for the avoidance of doubt, the effect of any phasing in of
such Risk-Based Capital Guidelines or any other capital requirements passed
prior to the date hereof, or (ii) any adoption of or change in any other law,
governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after
the date of this Agreement and having general applicability to all banks and
financial institutions within the jurisdiction in which such Lender operates
which affects the amount of capital required or expected to be maintained by
any Lender or any Lending Installation or any corporation controlling any
Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital
guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States implementing
the July 1988 report of the Basle Committee on Banking Regulation and
Supervisory Practices Entitled "International Convergence of Capital
Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
3.3 Availability of Types of Advances. If (i) any Lender determines
-----------------------------------
that maintenance of its Eurodollar Loans, Korean Eurodollar Loans or Korean
Won Loans at a suitable Lending Installation would violate any applicable law,
rule, regulation or directive, whether or not having the force of law, or (ii)
the Agent or the Required Lenders determine that (x) deposits of a type,
currency and maturity appropriate to match fund Eurodollar Advances, Korean
Eurodollar Advances or Korean Won Advances are not available or (y) the
interest rate applicable to a Eurodollar Advance, Korean Eurodollar Advances
or Korean Won Advance is unavailable or does not accurately reflect the cost
of making or maintaining such a Eurodollar Advance, Korean Eurodollar Advances
or Korean Won Advance, then the Agent shall suspend the availability of
Eurodollar Advances, Korean Eurodollar Advances or Korean Won Advances and, in
the case of any occurrence set forth in clause (i), require any Eurodollar
----------
Advances, Korean Eurodollar Advances or Korean Won Advances to be repaid or,
at the option of the Company, converted to Base Rate Advances denominated in
Dollars or repaid at the end of the current Interest Period.
3.4 Funding Indemnification. If (i) any payment of a Eurodollar Advance
-----------------------
or Korean Eurodollar Advance or Korean Won Advance occurs on a date which is
not the last day of the applicable Interest Period, (ii) any Loan in any
currency is converted to a Loan in any other currency on a date which is not
the last day of the applicable Interest Period, whether because of
acceleration, prepayment, or otherwise, or if a Eurodollar Advance, a Korean
Eurodollar Advance or Korean Won Advance is not made or continued on the date
specified by the applicable Borrower for any reason other than default by the
Lenders, the applicable Borrower agrees to compensate and indemnify each
Lender, on demand, for any loss or cost incurred by it resulting therefrom,
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the Eurodollar Advance, the Korean
Eurodollar Advance or Korean Won Advance.
3.5 Lender Statements; Survival of Indemnity. If reasonably possible,
----------------------------------------
each Lender shall designate an alternate Lending Installation with respect to
its Eurodollar Loans, Korean Eurodollar Loans or Korean Won Loans to reduce
any liability of the Borrowers to such Lender under Sections 3.1 and 3.2 or to
------------ ---
avoid the unavailability of a Type of Advance under Section 3.3, so long as
-----------
such designation is not disadvantageous to such Lender. Each Lender requiring
compensation pursuant to Section 2.10(E) or to this Article III shall use its
--------------- -----------
reasonable efforts to notify the Company and the Agent in writing of any
Change, law, policy, rule, guideline or directive giving rise to such demand
for compensation not later than sixty (60) days following the date upon which
the responsible account officer of such Lender knows or should have known of
such Change, law, policy, rule, guideline or directive; provided, that failure
--------
to give such notice shall not affect any obligations of the Borrowers
hereunder with respect thereto; provided, further that for each such Change,
-------- -------
law policy, rule, guideline or directive giving rise to such demand, such
reimbursement obligations shall be limited to an amount equal to costs
incurred sixty (60) days prior to such notice and thereafter. Any demand for
compensation pursuant to this Article III shall be in writing and shall state
-----------
the amount due, if any, under Section 3.1, 3.2 or 3.4 and shall set forth in
----------- --- ---
reasonable detail the calculations upon which such Lender determined such
amount. Such written demand shall be rebuttably presumed correct for all
purposes. Determination of amounts payable under such Sections in connection
with a Eurodollar Loan, Korean Eurodollar Loan or Korean Won Loan shall be
calculated as though each Lender funded its Eurodollar Loan, Korean Eurodollar
Loan or Korean Won Loan, as applicable through the purchase of a deposit of
the type, currency and maturity corresponding to the deposit used as a
reference in determining the Eurodollar Rate, Korean Eurodollar Rate or Korean
CD Rate, as applicable to such Loan, whether in fact that is the case or not.
The obligations of the Borrowers under Sections 3.1, 3.2 and 3.4 shall survive
------------ --- ---
payment of the Obligations and termination of this Agreement.
ARTICLE IV: CONDITIONS PRECEDENT
- -------------------------------------
4.1 Initial Advances and Letters of Credit. The Lenders shall not be
---------------------------------------
required to make the initial Loans or issue any Letters of Credit unless the
Borrowers and Subsidiary Obligors have furnished to the Agent, with sufficient
copies for the Lenders, such documents as the Agent or any Lender or its
counsel may have reasonably requested, including, without limitation, all of
the documents reflected on the List of Closing Documents attached as Exhibit E
---------
to this Agreement.
4.2 Each Advance and Letter of Credit. Except as expressly provided in
---------------------------------
Sections 2.17 with respect to the purchase of participations in Letters of
- --------------
Credit, the Lenders shall not be required to make any Advance and the Issuing
- ---
Lender shall not be required to issue any Letter of Credit, unless on the
applicable Borrowing Date, or in the case of a Letter of Credit, the date on
which the Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default; and
(ii) The representations and warranties contained in Article V are true
---------
and correct in all material respects as of such Borrowing Date, except for
representations and warranties made with reference to a specific date which
representations and warranties shall be true and correct in all material
respects as of such date.
Each Borrowing Notice with respect to each such Advance and the letter of
credit application with respect to a Letter of Credit shall constitute a
representation and warranty by the Borrower requesting such Advance that the
conditions contained in Sections 4.2(i) and (ii) will have been satisfied as
--------------- ----
of the date of such Advance or the issuance of such Letter of Credit. Any
Lender may require a duly completed officer's certificate in substantially the
form of Exhibit F hereto and/or a duly completed compliance certificate in
----------
substantially the form of Exhibit C hereto as a condition to making an
----------
Advance.
ARTICLE V: REPRESENTATIONS AND WARRANTIES
- -----------------------------------------------
In order to induce the Agent and the Lenders to enter into this
Agreement and to make the Loans and the other financial accommodations to the
Borrowers and in order to induce the Issuing Lender to issue the Letters of
Credit for the account of the Borrowers and Subsidiary Obligors, each of the
Borrowers and the Subsidiary Obligors represents and warrants as follows to
each Lender and each Agent as of the Closing Date and thereafter on each date
as required by Section 4.2:
------------
5.1 Organization; Powers. Each of the Borrowers and Subsidiary Obligors
--------------------
(i) is a duly organized corporation validly existing and in good standing
under the laws of the jurisdiction of its organization, (ii) is duly qualified
to do business as a foreign company or corporation and is in good standing
under the laws of each jurisdiction in which failure to be so qualified and in
good standing could have a Material Adverse Effect, and (iii) has all
requisite power and authority to own, operate and encumber its property and to
conduct its business as presently conducted and as proposed to be conducted in
connection with and following the consummation of the transactions
contemplated by this Agreement.
5.2 Authority.
---------
(A) Each of the Borrowers and each of the Subsidiary Obligors has the
requisite power and authority (i) to execute, deliver and perform each of the
Loan Documents which have been executed by it as required by this Agreement
and (ii) to file the Loan Documents which must be filed by it with any
Governmental Authority.
(B) The execution, delivery, performance and filing, as the case may be,
of each of the Loan Documents which must be executed or filed by any of the
Borrowers or any Subsidiary Obligor which have been executed or filed as
required by this Agreement and to which any of the Borrowers or any Subsidiary
Obligor is party, and the consummation of the transactions contemplated
thereby, have been duly approved, to the extent required, by the respective
boards of managers or directors, as applicable, and, if necessary, the members
or shareholders or workers' councils of the applicable Borrower or Subsidiary
Obligor, as applicable, and such approvals have not been rescinded. No other
action or proceedings on the part of any Borrower or any Subsidiary Obligor or
other Person are necessary to consummate such transactions.
(C) Each of the Loan Documents to which any of the Borrowers or any
Subsidiary Obligor is a party has been duly executed, delivered or filed, as
the case may be, by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms (except as
enforceability may be limited by bankruptcy, insolvency, or similar laws
affecting the enforcement of creditors' rights generally), is in full force
and effect and no material term or condition thereof has been amended,
modified or waived from the terms and conditions contained in the Loan
Documents delivered to the Agent pursuant to Section 4.1 without the prior
-----------
written consent of the Required Lenders, and each of the Borrowers or each
Subsidiary Obligor has, and, to the best of such Borrower's or Subsidiary
Obligor's Knowledge, all other parties thereto have performed and complied
with all the terms, provisions, agreements and conditions set forth therein
and required to be performed or complied with by such parties, and no
unmatured default, default or breach of any covenant by any such party exists
thereunder.
5.3 No Conflict; Governmental Consents. The execution, delivery and
------------------------------------
performance of each of the Loan Documents to which any of the Borrowers or any
Subsidiary Obligor is a party do not and will not (i) conflict with the
documents of organization or governance of such Borrower or Subsidiary
Obligor, (ii) constitute tortious interference with any Contractual Obligation
of any Person or conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under any Requirement of
Law (including, without limitation, any Environmental Property Transfer Act)
or Contractual Obligation of any Borrower or any Subsidiary Obligor, or
require termination of any Contractual Obligation, except such interference,
breach, default or termination which individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect or to subject the
Agent, the Arranger, any of the Lenders or any Issuing Lender to any
liability, (iii) with respect to the Loan Documents, result in or require the
creation or imposition of any Lien whatsoever upon any of the property or
assets of any Borrower or any Subsidiary Obligor, other than Liens permitted
by the Loan Documents, or (iv) require any approval of the Borrower's or any
Subsidiary Obligor's members, shareholders, workers' council or other similar
constituent group except such as have been obtained. The execution, delivery
and performance of each of the Loan Documents to which any Borrower or any
Subsidiary Obligor is a party do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or by any
Governmental Authority, including under any Environmental Property Transfer
Act, except (i) filings, consents or notices which have been or, in the case
of any of the foregoing, not required prior to the Closing Date, will be made,
obtained or given, and (ii) filings, registrations and deliveries necessary to
create or perfect security interests in the Collateral.
5.4 Financial Statements. The historical and forecasted financial
---------------------
statements, including, without limitation, the Consolidating Financial
Forecasts for Subsidiaries dated February 25, 1998 and delivered to the Agent
on February 26, 1998 (the "Statements") of the Company and its Subsidiaries,
copies of which are attached hereto as Exhibit G, (i) with respect to the
---------
historical Statements, (a) were prepared in accordance with generally accepted
accounting principles consistently applied throughout the period covered
thereby, except as otherwise expressly noted therein, (b) fairly present on a
pro forma basis the consolidated financial position of the Company and its
Subsidiaries as of the date thereof and consolidated results of operations for
the period covered thereby; and (c) show all material indebtedness and other
liabilities, direct or contingent, of the Company and its consolidated
Subsidiaries as of the date thereof, including liabilities for taxes, material
commitments and material Contingent Obligations; and (ii) with respect to the
forecasted Statements, the projections and assumptions expressed therein were
prepared in good faith and represent management's opinion based on the
information available to the Company at the time so furnished.
5.5 No Material Adverse Change. (a) Since November 30, 1997 up to the
--------------------------
Closing Date, except as disclosed in Amendment No. 2 to the Company's Form 10
filed with the Commission (a copy of which has been delivered to the Agent),
there has occurred no change in the business, properties, condition (financial
or otherwise), results of operations or prospects of the Company and its
Subsidiaries taken as a whole or any other event which has had or is
reasonably likely to have a Material Adverse Effect.
(b) Since the Closing Date, there has occurred no change in the
business, properties, condition (financial or otherwise), results of
operations or prospects of the Company and its Subsidiaries taken as a whole
or any other event which has had or is reasonably likely to have a Material
Adverse Effect.
5.6 Taxes.
-----
(A) Tax Examinations. All deficiencies which have been asserted against
----------------
the Company or any of the Company's Subsidiaries as a result of any federal,
state, local or foreign tax examination for each taxable year in respect of
which an examination has been conducted have been fully paid or finally
settled or are being contested in good faith, and as of the Closing Date no
issue has been raised by any taxing authority in any such examination which,
by application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in the Company's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles. Except as permitted pursuant to Section 6.2(D) and except as
--------------
reserved for in the Company's consolidated financial statements to the extent,
if any, required by Agreement Accounting Principles, neither the Company nor
any of the Company's Subsidiaries anticipates any material tax liability with
respect to the years which have not been closed pursuant to applicable law.
(B) Payment of Taxes. All tax returns and reports of each of the
------------------
Company and its Subsidiaries required to be filed have been timely filed, and
all taxes, assessments, fees and other governmental charges thereupon and upon
their respective property, assets, income and franchises which are shown in
such returns or reports to be due and payable have been paid except those
items which are being contested in good faith and have been reserved for in
accordance with Agreement Accounting Principles. The Company has no Knowledge
of any proposed tax assessment against the Company, or any of the Company's
other Subsidiaries that will have or is reasonably likely to have a Material
Adverse Effect.
5.7 Litigation; Loss Contingencies and Violations. Except for Permitted
---------------------------------------------
Existing Contingent Obligations and as set forth in Schedule 5.7 to this
------------
Agreement, there is no action, suit, proceeding or investigation of which the
Company has Knowledge or arbitration before or by any Governmental Authority
or private arbitrator pending or, to the Knowledge of the Company or any of
its Subsidiaries, threatened against the Company or any of its Subsidiaries or
any property of any of them (i) challenging the validity or the enforceability
of any material provision of the Loan Documents or (ii) which will have or is
reasonably likely to have a Material Adverse Effect. There is no material
loss contingency within the meaning of Agreement Accounting Principles which
has not been reflected in the consolidated financial statements of the Company
prepared and delivered pursuant to Section 6.1(A) for the fiscal period during
--------------
which such material loss contingency was incurred. Neither the Company nor
any of its Subsidiaries is (A) in violation of any applicable Requirements of
Law which violation will have or is reasonably likely to have a Material
Adverse Effect, or (B) subject to or in default with respect to any final
judgment, writ, injunction, restraining order or order of any nature, decree,
rule or regulation of any court or Governmental Authority which will have or
is reasonably likely to have a Material Adverse Effect.
5.8 Subsidiaries; Capital Stock. Schedule 5.8 to this Agreement (i)
----------------------------- ------------
contains a description of the corporate structure of the Company, the
Company's Subsidiaries and any other Person in which the Company or any of its
Subsidiaries holds an equity interest; and (ii) accurately sets forth (A) the
correct legal name, the jurisdiction of organization or incorporation and the
jurisdictions in which each Borrower and the direct and indirect Subsidiaries
of the Company is qualified to transact business as a foreign company or
corporation, (B) the authorized, issued and outstanding shares of each class
of Capital Stock of each entity referred to above that is a corporation and
the owners of such shares (both as of the Closing Date and on a fully-diluted
basis), and (C) a summary of the direct and indirect ownership, membership,
partnership, joint venture, or other equity interests, if any, of the Company
and each Subsidiary of the Company in any Person that is not a corporation.
Except as disclosed on Schedule 5.8, none of the issued and outstanding
-------------
Capital Stock of the Company or any of its Subsidiaries is subject to any
vesting, redemption, or repurchase agreement, and there are no warrants or
options outstanding with respect to such Capital Stock. The outstanding
Capital Stock of the Company and each of its Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and, with the exception of the
Company, is not Margin Stock. Within sixty (60) days after the Closing Date,
the Company's Subsidiaries shall be capitalized (with contributions to
capital, or, in the Company's discretion, loans) as described in the
Consolidating Financial Forecasts for Subsidiaries dated February 25, 1998 and
delivered to the Agent on February 26, 1998.
5.9 ERISA. No Benefit Plan has incurred any accumulated funding
-----
deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code)
whether or not waived. Neither the Company nor any member of the Controlled
Group has incurred any liability to the PBGC which remains outstanding other
than the payment of premiums, and there are no premium payments which have
become due which are unpaid. Schedule B to the most recent annual report
filed with the IRS with respect to each Benefit Plan and furnished to the
lenders is complete and accurate. Since the date of each such Schedule B,
there has been no material adverse change in the funding status or financial
condition of the Benefit Plan relating to such Schedule B. Neither the
Company nor any member of the Controlled Group has (i) failed to make a
required contribution or payment to a Multiemployer Plan or (ii) made a
complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a
Multiemployer Plan. Neither the Company nor any member of the Controlled
Group has failed to make a required installment or any other required payment
under Section 412 of the Code on or before the due date for such installment
or other payment. Neither the Company nor any member of the Controlled Group
is required to provide security to a Benefit Plan under Section 401(a)(29) of
the Code due to a Plan amendment that results in an increase in current
liability for the plan year. Neither the Company nor any of its Subsidiaries
maintains or contributes to any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA which provides benefits to employees after
termination of employment other than as required by Section 601 of ERISA.
Each Plan which is intended to be qualified under Section 401(a) of the Code
as currently in effect is so qualified, and each trust related to any such
Plan is exempt from federal income tax under Section 501(a) of the Code as
currently in effect. The Company and all Subsidiaries are in compliance in
all material respects with the responsibilities, obligations and duties
imposed on them by ERISA and the Code with respect to all Plans. Neither the
Company nor any of its Subsidiaries nor any fiduciary of any Plan has engaged
in a nonexempt prohibited transaction described in Sections 406 of ERISA or
4975 of the Code which could reasonably be expected to subject the Company to
liability individually or in the aggregate in excess of $2,500,000. Neither
the Company nor any member of the Controlled Group has taken or failed to take
any action which would constitute or result in a Termination Event, which
action or inaction could reasonably be expected to subject the Company nor any
of its Subsidiaries to liability in excess of $2,500,000. Neither the Company
nor any Subsidiary is subject to any liability under Sections 4063, 4064,
4069, 4204 or 4212(c) of ERISA and no other member of the Controlled Group is
subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of
ERISA which could reasonably be expected to subject the Company to or any of
its Subsidiaries liability individually or in the aggregate in excess of
$2,500,000. Neither the Company nor any of its Subsidiaries has, by reason of
the transactions contemplated hereby, any obligation to make any payment to
any employee pursuant to any Plan or existing contract or arrangement.
5.10 Accuracy of Information. Each of (i) Amendment No. 2 to the
-------------------------
Company's Form 10 filed with the Commission (a copy of which has been
delivered to the Agent), as of the date of filing of such Form 10, (ii) any
registration statement or report on Form 10-K, 10-Q and 8-K (or their
equivalents) which the Company shall have filed with the Commission as at the
time of filing of such registration or report, as applicable, and (iii) all
written reports, certificates and documents of the Company furnished by or on
behalf of the Company and any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents, including, without limitation, the Confidential Information
Memorandum reviewed by the Company (provided that except as set forth in
Section 5.4, no representation or warranty is made with respect to the forward
------
looking information contained therein), in each case, as of the date
furnished, do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made,
not misleading.
5.11 Securities Activities. Neither the Company nor any of its
----------------------
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
5.12 Material Agreements. Neither the Company nor any Subsidiary is a
-------------------
party to any agreement or instrument or subject to any charter or other
contractual or corporate restriction which will have or is reasonably likely
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has received notice or has Knowledge that (i) it is in default in
the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any Contractual Obligation applicable to
it, or (ii) any condition exists which, with the giving of notice or the lapse
of time or both, would constitute a default with respect to any such
Contractual Obligation, in each case, except where such default or defaults,
if any, will not have or are not reasonably likely to have a Material Adverse
Effect.
5.13 Compliance with Laws. The Company and its Subsidiaries are in
----------------------
compliance with all Requirements of Law applicable to them and their
respective businesses, in each case where the failure to so comply
individually or in the aggregate will have or is reasonably likely to have a
Material Adverse Effect.
5.14 Assets and Properties. The Company and each of its Subsidiaries
----------------------
has good and marketable title to all of its assets and properties (tangible
and intangible, real or personal) owned by it or a valid leasehold interest in
all of its leased assets (except insofar as marketability may be limited by
any laws or regulations of any Governmental Authority affecting such assets),
and all such assets and property are free and clear of all Liens, except Liens
securing the Obligations and Liens permitted under Section 6.3(C).
---------------
Substantially all of the assets and properties owned by, leased to or used by
the Company and/or each such Subsidiary of the Company are in adequate
operating condition and repair, ordinary wear and tear excepted. Except for
Liens granted to the Agent for the benefit of the Agent and the Holders of
Secured Obligations, neither this Agreement nor any other Loan Document, nor
any transaction contemplated under any such agreement, will affect any right,
title or interest of the Company or such Subsidiary in and to any of such
assets in a manner that will have or is reasonably likely to have a Material
Adverse Effect.
5.15 Statutory Indebtedness Restrictions. Neither the Company, nor any
-----------------------------------
of its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or
the Investment Company Act of 1940, or any other federal, state, local or
foreign statute or regulation which limits its ability to consummate the
transactions contemplated hereby.
5.16 Post-Retirement Benefits5.16 Post-Retirement Benefits. As of the
------------------------------------------------------
Closing Date, the Company and its Subsidiaries have no expected cost of
post-retirement medical and insurance benefits payable by the Company or its
Subsidiaries to its employees and former employees, as estimated by the
Company in accordance with Financial Accounting Standards Board Statement No.
106.
5.17 Insurance. Schedule 5.17 to this Agreement accurately sets forth
--------- -------------
as of the Closing Date all insurance policies and programs currently in effect
with respect to the respective properties and assets and business of the
Company and its Subsidiaries, specifying for each such policy and program, (i)
the amount thereof, (ii) the risks insured against thereby, (iii) the name of
the insurer and each insured party thereunder, (iv) the policy or other
identification number thereof, (v) the expiration date thereof, (vi) the
annual premium with respect thereto and (vii) describes any reserves, relating
to any self-insurance program that is in effect. Such insurance policies and
programs reflect coverage that is reasonably consistent with prudent industry
practice.
5.18 Contingent Obligations. Except for Permitted Existing Contingent
----------------------
Obligations, neither the Company nor any of its Subsidiaries has any
Contingent Obligation, contingent liability, long-term lease, or synthetic
lease, not reflected in the financial statements attached hereto as Exhibit G
---------
or otherwise disclosed to the Agent and the Lenders in the other Schedules to
this Agreement, which could reasonably be expected to subject the Company nor
any of its Subsidiaries to liability individually or in the aggregate in
excess of (a) $2,500,000 with respect to payments for Contingent Purchase
Price Obligations (b) $30,000,000 with respect to guarantees issued for the
benefit of third-parties as support for loans and advances made by such
third-parties to Subsidiaries (other than Subsidiary Borrowers and Subsidiary
Obligors) of the Company or (c) $2,500,000 for other amounts.
5.19 Restricted Junior Payments. Neither the Company nor any of its
----------------------------
Subsidiaries has directly or indirectly declared, ordered, paid or made or set
apart any sum or properties for any Restricted Junior Payment or agreed to do
so, except to the extent permitted pursuant to Section 6.3(F) of this
---------------
Agreement.
5.20 Labor Matters.
--------------
(A) There are on the Closing Date no material collective bargaining
agreements, other labor agreements or Multiemployer Plans covering any of the
employees of the Company or any of its Subsidiaries. As of the Closing Date,
no material labor disputes, strikes or walkouts affecting the operations of
the Company or any of its Subsidiaries, is pending, or, to the Company's
Knowledge, threatened, planned or contemplated.
(B) Set forth in Schedule 5.20 to this Agreement is a list, as of the
-------------
Closing Date, of all material consulting agreements, executive compensation
plans, deferred compensation agreements, employee pension plans or retirement
plans, employee profit sharing plans, employee stock purchase and stock option
plans, severance plans, group life insurance, hospitalization insurance or
other plans or arrangements of the Company and its Subsidiaries providing for
benefits for employees of the Company or its Subsidiaries.
5.21 Environmental Matters. (a) Except as disclosed on Schedule 5.21:
--------------------- -------------
(i) the operations of the Company and its Subsidiaries comply in all
material respects with Environmental, Health or Safety Requirements of Law;
(ii) the Company and its Subsidiaries have all material permits,
licenses or other authorizations required under Environmental, Health or
Safety Requirements of Law and are in material compliance with such permits;
(iii) neither the Company, any of its Subsidiaries nor any of their
respective present property or operations, or, to the best of, the Company's
or any of its Subsidiaries' Knowledge, any of their respective past property
or operations, are subject to or the subject of, any investigation known to
the Company or any of its Subsidiaries, any judicial or administrative
proceeding, order, judgment, decree, settlement or other agreement respecting:
(A) any material violation of Environmental, Health or Safety Requirements of
Law; (B) any material remedial action; or (C) any material claims or
liabilities arising from the Release or threatened Release of a Contaminant
into the environment;
(iv) there is not now, nor to the best of the Company's or any of its
Subsidiaries' Knowledge has there ever been on or in the property of the
Company or any of its Subsidiaries any material landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface impoundment or
hazardous waste storage facility of any kind, polychlorinated biphenyls (PCBs)
used in hydraulic oils, electric transformers or other equipment, or
asbestos-containing material; and
(v) neither the Company nor any of its Subsidiaries has any material
Contingent Obligation or material contingent liability in connection with any
Release or threatened Release of a Contaminant into the environment.
(b) For purposes of this Section 5.21 "material" means any noncompliance
------------
or basis for liability which could reasonably be likely to subject the Company
to liability individually in excess of $2,500,000 or in the aggregate in
excess of $5,000,000.
5.22 Foreign Employee Benefit Matters. (a) Each Foreign Employee
-----------------------------------
Benefit Plan is in compliance in all respects with all laws, regulations and
rules applicable thereto and the respective requirements of the governing
documents for such Plan, except for any non-compliance the consequences of
which, in the aggregate, would not result in a material obligation to pay
money; (b) the aggregate of the accumulated benefit obligations under all
Foreign Pension Plans does not exceed to any material extent the current fair
market value of the assets held in the trusts or similar funding vehicles for
such Plans or reasonable reserves have been established in accordance with
prudent business practices or as required by Agreement Accounting Principles
with respect to any shortfall; (c) with respect to any Foreign Employee
Benefit Plan maintained or contributed to by the Company or any Subsidiary or
any member of its Controlled Group (other than a Foreign Pension Plan),
reasonable reserves have been established in accordance with prudent business
practice or where required by ordinary accounting practices in the
jurisdiction in which such Plan is maintained; and (d) there are no actions,
suits or claims (other than routine claims for benefits) pending or, to the
Knowledge of the Company and its Subsidiaries, threatened against the Company
or any Subsidiary of it or any ERISA Affiliate with respect to any Foreign
Employee Benefit Plan.
ARTICLE VI: COVENANTS
- -------------------------
Each of the Borrowers covenants and agrees that so long as any
Commitments are outstanding and thereafter until payment in full of all of the
Obligations (other than contingent indemnity and reimbursement obligations),
unless the Required Lenders shall otherwise give prior written consent:
6.1 Reporting. The Borrowers shall:
---------
(A) Financial Reporting. Furnish to the Agent (which will furnish copies
-------------------
of the following to the Lenders):
(i) Quarterly Reports. As soon as practicable, and in any event within
-----------------
forty-five (45) days after the end of the first three fiscal quarters in each
fiscal year beginning with the fiscal quarter ending February 28, 1998, the
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such period, the related consolidated and
consolidating statements of income and the related consolidated statement of
stockholders' equity and cash flow of the Company and its Subsidiaries for
such fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, certified by the chief
financial officer of the Company on behalf of the Company as fairly presenting
in all material respects the consolidated and, as applicable, consolidating
financial position of the Company and its Subsidiaries as at the dates
indicated and the results of their operations and cash flow for the periods
indicated in accordance with Agreement Accounting Principles, subject to
normal year end adjustments.
(ii) Annual Reports. As soon as practicable, and in any event within
---------------
ninety (90) days after the end of each fiscal year, (a) the consolidated and
consolidating balance sheet of the Company and its Subsidiaries as at the end
of such fiscal year and the related consolidated and consolidating statements
of income and the related consolidated statement of stockholders' equity and
cash flow of the Company and its Subsidiaries for such fiscal year, and, in
comparative form the corresponding figures for the previous fiscal year, (b) a
schedule from the Company setting forth for each item in clause (a) hereof,
----------
the corresponding figures from the consoli-dated financial budget for the
current fiscal year delivered pursuant to Section 6.1(A)(iv), and (c) an audit
------------------
report on the items (other than the consolidating financial statements) listed
in clause (a) hereof of independent certified public accountants of recognized
----------
national standing, which audit report shall be unqualified and shall state
that such financial statements fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as at the
dates indicated and the results of their operations and cash flow for the
periods indicated in conformity with Agreement Accounting Principles and that
the examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards. The deliveries made pursuant to this clause (ii) shall be
-----------
accompanied by (y) for the fiscal year ending August 31, 1998, the report on
internal controls prepared by the above-referenced accountants and (z) a
certificate of such accountants that, in the course of their examination
necessary for their certification of the foregoing (such examination utilizing
only their customary audit procedures without any necessity of conducting
extra procedures for purposes of this certificates), they have obtained no
knowledge of any Default or Unmatured Default under Section 6.4, or if, in the
opinion of such accountants, any Default or Unmatured Default shall exist,
stating the nature and status thereof.
(iii) Officer's Certificate. Together with each delivery of any
----------------------
financial statement pursuant to clauses (i) and (ii) of this Section 6.1(A),
----------- ---- --------------
(a) an Officer's Certificate of the Company, substantially in the form of
Exhibit F attached hereto and made a part hereof, stating that no Default or
------
Unmatured Default exists, or if any Default or Unmatured Default exists,
stating the nature and status thereof and (b) a Compliance Certificate,
substantially in the form of Exhibit C attached hereto and made a part hereof,
---------
signed by the Company's chief financial officer, setting forth the Company's
calculations for the period then ended for Section 2.2(B) and for Section
-------------- -------
2.4(b) and which demonstrate compliance, when applicable, with the provisions
--
of Section 6.4, and which calculate the EBITDA Contribution Ratio for purposes
-----------
of determining the Applicable Eurodollar Margins, the Applicable Base Rate
Margins, the Applicable Letter of Credit Fee, and the Applicable Facility Fee.
(iv) Budgets. As soon as practicable and in any event not later than
-------
thirty (30) days following the beginning of each fiscal year beginning with
the fiscal year beginning January 1, 1999, a copy of the budget (including a
budgeted balance sheet and income statement) of the Company for the upcoming
fiscal year prepared in such detail as shall be reasonably satisfactory to the
Agent.
(B) Notice of Default. Promptly upon any of the chief executive
-------------------
officer, chief operating officer, chief financial officer of the Company or
obtaining Knowledge (i) of any condition or event which constitutes a Default
or Unmatured Default, or becoming aware that any Lender or Agent has given any
written notice with respect to a claimed Default or Unmatured Default under
this Agreement, or (ii) that any Person has given any written notice to the
Company or any Subsidiary of the Company or taken any other action with
respect to a claimed default or event or condition of the type referred to in
Section 7.1(e), deliver to the Agent and the Lenders an Officer's Certificate
- ---------------
specifying (a) the nature and period of existence of any such claimed default,
Default, Unmatured Default, condition or event, (b) the notice given or action
taken by such Person in connection therewith, and (c) what action the Company
has taken, is taking and proposes to take with respect thereto.
(C) Lawsuits. (i) Promptly upon the Company obtaining Knowledge of the
--------
institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting the Company or
any of its Subsidiaries or any property of the Company or any of its
Subsidiaries not previously disclosed pursuant to Section 5.7, which action,
-----------
suit, proceeding, governmental investigation or arbitration exposes, or in the
case of multiple actions, suits, proceedings, governmental investigations or
arbitrations arising out of the same general allegations or circumstances
which expose, in the Company's reasonable judgment, the Company or any of its
Subsidiaries to liability in an amount aggregating $2,500,000 or more, give
written notice thereof to the Agent on behalf of the Lenders and provide such
other information as may be reasonably available to enable each Lender and the
Agent and its counsel to evaluate such matters; and (ii) in addition to the
requirements set forth in clause (i) of this Section 6.1(C), upon request of
---------- --------------
the Agent or the Required Lenders, promptly give written notice of the status
of any action, suit, proceeding, governmental investigation or arbitration
disclosed on Schedule 5.7 or covered by a report delivered pursuant to clause
------------ ------
(i) above and provide such other information as may be reasonably available to
- ---
it that would not result in loss of any attorney-client privilege by
disclosure to the Lenders to enable each Lender and the Agent and its counsel
to evaluate such matters.
(D) Insurance. As soon as practicable and in any event within one
---------
hundred twenty (120) days of the end of each fiscal year commencing with
fiscal year ending August 31, 1998 deliver to the Agent and the Lenders (i) a
report in form as attached as Schedule 5.17 or otherwise in form and substance
-------------
reasonably satisfactory to the Agent outlining all material insurance coverage
maintained as of the date of such report by the Company and its Subsidiaries
and the duration of such coverage and (ii) an insurance broker's statement
that all premiums with respect to such coverage have been paid when due.
(E) ERISA Notices. Deliver or cause to be delivered to the Agent and
--------------
the Lenders, at the Company's expense, the following information and notices
as soon as reasonably possible, and in any event:
(i) (a) within ten (10) Business Days after the Company obtains
Knowledge that a Termination Event has occurred, a written statement of the
chief financial officer of the Company describing such Termination Event and
the action, if any, which the Company has taken, is taking or proposes to take
with respect thereto, and when known, any action taken or threatened by the
IRS, DOL or PBGC with respect thereto and (b) within ten (10) Business Days
after any member of the Controlled Group obtains Knowledge that a Termination
Event has occurred which could reasonably be expected to subject the Company
to or any of its Subsidiaries liability individually or in the aggregate in
excess of $2,500,000, a written statement of the chief financial officer of
the Company describing such Termination Event and the action, if any, which
the member of the Controlled Group has taken, is taking or proposes to take
with respect thereto, and when known, any action taken or threatened by the
IRS, DOL or PBGC with respect thereto;
(ii) within ten (10) Business Days after the Company or any of its
Subsidiaries obtains Knowledge that a prohibited transaction (defined in
Sections 406 of ERISA and Section 4975 of the Code) has occurred, a statement
of the chief financial officer of the Company describing such transaction and
the action which the Company or such Subsidiary has taken, is taking or
proposes to take with respect thereto;
(iii) within ten (10) Business Days after any material increase in the
benefits of any existing Plan or the establishment of any new Benefit Plan or
the commencement of, or obligation to commence, contributions to any Benefit
Plan or Multiemployer Plan to which the Company or any member of the
Controlled Group was not previously contributing, notification of such
increase, establishment, commencement or obligation to commence and the amount
of such contributions;
(iv) within ten (10) Business Days after the Company or any of its
Subsidiaries receives notice of any unfavorable determination letter from the
IRS regarding the qualification of a Plan under Section 401(a) of the Code,
copies of each such letter;
(v) within thirty (30) Business Days after the establishment of any
Foreign Employee Benefit Plan or the commencement of, or obligation to
commence, contributions to any Foreign Employee Benefit Plan to which the
Company or any Subsidiary was not previously contributing, notification of
such establishment, commencement or obligation to commence and the amount of
such contributions;
(vi) within ten (10) Business Days after the filing thereof with the
IRS, a copy of each funding waiver request filed with respect to any Benefit
Plan and all communications received by the Company or a member of the
Controlled Group with respect to such request;
(vii) within ten (10) Business Days after receipt by the Company or any
member of the Controlled Group of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, copies of
each such notice;
(viii) within ten (10) Business Days after receipt by the Company or any
member of the Controlled Group of a notice from a Multiemployer Plan regarding
the imposition of withdrawal liability, copies of each such notice;
(ix) within ten (10) Business Days after the Company or any member of
the Controlled Group fails to make a required installment or any other
required payment under Section 412 of the Internal Revenue Code on or before
the due date for such installment or payment, a notification of such failure;
and
(x) within ten (10) Business Days after the Company or any member of the
Controlled Group knows or has reason to know that (a) a Multiemployer Plan has
been terminated, (b) the administrator or plan sponsor of a Multiemployer Plan
intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan.
For purposes of this Section 6.1(E), the Company, any of its Subsidiaries and
--------------
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
(F) Labor Matters. Notify the Agent and the Lenders in writing,
--------------
promptly upon the Company's or any of its Subsidiaries' learning thereof, of
(i) any labor dispute to which the Company or any of its Subsidiaries may
become a party, including, without limitation, any strikes, lockouts or other
disputes relating to such Persons' plants and other facilities and (ii) any
Worker Adjustment and Retraining Notification Act liability incurred with
respect to the closing of any plant or other facility of the Company or any of
its Subsidiaries where, in the case of (i) or (ii), such is reasonably likely
to have a Material Adverse Effect.
(G) Other Indebtedness. Deliver to the Agent (i) a copy of each regular
------------------
report, notice or communication regarding potential or actual defaults
(including any accompanying officers' certificate) delivered by or on behalf
of the Company or any of its Subsidiaries to the holders of Indebtedness for
money borrowed with respect to Indebtedness the outstanding principal balance
of which is at least $2,500,000 pursuant to the terms of the agreements
governing such Indebtedness, such delivery to be made at the same time and by
the same means as such notice or other communication is delivered to such
holders, and (ii) a copy of each notice or other communication received by the
Company or any of its Subsidiaries from the holders of Indebtedness for money
borrowed with respect to Indebtedness the outstanding principal balance of
which is at least $2,500,000 pursuant to the terms of such Indebtedness, such
delivery to be made promptly after such notice or other communication is
received by the Company or the applicable Subsidiary.
(H) Other Reports. Deliver or cause to be delivered to the Agent and
--------------
the Lenders copies of all 10-Ks, 10-Qs and 8-Ks filed with the Commission by
the Company.
(I) Environmental Notices. As soon as possible and in any event within
---------------------
ten (10) days after receipt by the Company or any of its Subsidiaries, a copy
of (i) any notice or claim to the effect that the Company or any of its
Subsidiaries is or may be liable to any Person as a result of the Release by
the Company, any of its Subsidiaries, or any other Person of any Contaminant
into the environment, and (ii) any notice alleging any violation of any
Environmental, Health or Safety Requirements of Law by the Company or any of
its Subsidiaries if, in either case, such notice or claim relates to an event
which could reasonably be expected to subject the Company or any of its
Subsidiaries to liability individually or in the aggregate in excess of
$2,500,000.
(J) Other Information. Within a reasonable period of time following
------------------
receipt of a request therefor from the Agent, prepare and deliver to the Agent
and the Lenders such other information with respect to the Company, any of its
Subsidiaries, or the Collateral, including, without limitation, schedules
identifying and describing the Collateral and any dispositions thereof, as
from time to time may be reasonably requested by the Agent.
6.2 Affirmative Covenants.
----------------------
(A) Existence, Etc. Except as provided by Section 6.3(B)(iv) with
---------------- ------------------
respect to the sale, dissolution or liquidation of certain Subsidiaries of the
Company, the Company shall, and shall cause each of its Subsidiaries to, at
all times maintain its existence and preserve and keep, or cause to be
preserved and kept, in full force and effect its rights and franchises
material to its businesses except that any Subsidiary of the Company may merge
with or liquidate into the Company or any other Subsidiary of the Company;
provided that the surviving entity expressly assumes any liabilities, if any,
-----
of either of such Subsidiaries with respect to the Obligations pursuant to an
assumption agreement reasonably satisfactory to the Agent; provided further
-------- -------
that the Consolidated Net Worth of the surviving corporation is not less than
the Consolidated Net Worth of the Subsidiary with any liability with respect
to the Obligations immediately prior to such merger; and provided further, if
-------- -------
the corporation being merged out of existence or liquidated is a party to a
Pledge Agreement the surviving entity shall execute and deliver such
documents, instruments, agreements and opinions in connection therewith as
shall be required by the Agent in connection with any such Pledge Agreement
(and all accrued interest in connection therewith) of such entity shall be
repaid in full as of the date of such liquidation or merger.
(B) Corporate Powers; Conduct of Business. Except as provided by Section
--------------------------------------- -------
6.3(B)(iv) with respect to the sale, dissolution or liquidation of certain
-------
Subsidiaries of the Company, the Company (x) shall, and shall cause each of
its Subsidiaries to qualify and remain qualified to do business in each
jurisdiction in which the nature of its business requires it to be so
qualified and where the failure to be so qualified will have or is reasonably
likely to have a Material Adverse Effect and (y) will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted.
(C) Compliance with Laws, Etc. The Company shall, and shall cause its
--------------------------
Subsidiaries to, (a) comply with all Requirements of Law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (b) obtain as needed all permits necessary for
its operations and maintain such permits in good standing unless failure to
comply or obtain is not reasonably anticipated to have a Material Adverse
Effect.
(D) Payment of Taxes and Claims; Tax Consolidation. The Company shall
----------------------------------------------
pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and
other governmental charges imposed upon it or on any of its properties or
assets or in respect of any of its franchises, business, income or property
before any penalty or interest accrues thereon, and (ii) all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien (other than a Lien permitted by Section 6.3(C)) upon any of
--------------
the Company's or such Subsidiary's property or assets, prior to the time when
any penalty or fine shall be incurred with respect thereto; provided, however,
-------- -------
that no such taxes, assessments and governmental charges referred to in clause
------
(i) above or claims referred to in clause (ii) above (and interest, penalties
- --- -----------
or fines relating thereto) need be paid if being contested in good faith by
appropriate proceedings diligently instituted and conducted and if such
reserve or other appropriate provision, if any, as shall be required in
conformity with Agreement Accounting Principles shall have been made therefor.
The Company will not permit any of its Subsidiaries to file or consent to the
filing of any consolidated income tax return with any Person other than the
Company or any of its Subsidiaries.
(E) Insurance. The Company shall maintain for itself and its
---------
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full
force and effect the insurance policies and programs listed on Schedule 5.17
-------------
to this Agreement or substantially similar policies and programs or other
policies and programs as reflect coverage that is reasonably consistent with
prudent industry practice.
(F) Inspection of Property; Books and Records; Discussions. The Company
------------------------------------------------------
shall permit, and cause each of the Subsidiary Borrowers and Subsidiary
Obligors to permit, any authorized representative(s) designated by the Agent
(together with an authorized representative of any Lender that may request to
accompany such authorized representative of the Agent) to visit and inspect
any of the properties of the Company or any of the Subsidiary Borrowers and
Subsidiary Obligors, to examine, audit, check and make copies of their
respective financial and accounting records, books, journals, orders, receipts
and any non-privileged correspondence and other data relating to their
respective businesses or the transactions contemplated hereby (including,
without limitation, in connection with environmental compliance, hazard or
liability), and to discuss their affairs, finances and accounts with their
officers and independent certified public accountants, all upon reasonable
notice and at such reasonable times during normal business hours, as often as
may be reasonably requested; provided, however, that the Borrowers' and
-------- -------
Subsidiary Obligors' obligation to reimburse the Agent for reasonable costs
and expenses incurred in connection with such inspections shall be limited to
no more than one (1) inspection during any twelve-month period if such
inspections are conducted at a time when no Default or Unmatured Default shall
have occurred and is continuing. So long as any Default or Unmatured Default
shall have occurred and is continuing, and to the extent reasonably
practicable, any such inspection with respect to a Borrower or Subsidiary
Obligor will be coordinated with an Authorized Officer of the Company. The
Company shall keep and maintain, and cause each of the Company's Subsidiaries
to keep and maintain, in all material respects, proper books of record and
account in which entries in conformity with Agreement Accounting Principles
shall be made of all dealings and transactions in relation to their respective
businesses and activities, including, without limitation, transactions and
other dealings with respect to the Collateral. If a Default has occurred and
is continuing, the Company, upon the Agent's request, shall turn over copies
of any such records to the Agent or its representatives.
(G) ERISA Compliance. The Company shall, and shall cause each of its
-----------------
domestic Subsidiaries to, establish, maintain and operate all Plans to comply
in all material respects with the provisions of ERISA, the Code, all other
applicable laws, and the regulations and interpretations thereunder and the
respective requirements of the governing documents for such Plans.
(H) Maintenance of Property. The Company shall cause all property used
-----------------------
or useful in the conduct of its business or the business of any Subsidiary to
be maintained and kept in adequate condition, repair and working order and
supplied with all necessary equipment and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Company may be necessary so that the business carried
on in connection therewith may be properly conducted at all times; provided,
--------
however, that nothing in this Section 6.2(H) shall prevent the Company from
------ --------------
discontinuing the operation or maintenance of any of such property if such
-
discontinuance is, in the judgment of the Company, desirable in the conduct of
-
its business or the business of any Subsidiary and not disadvantageous in any
respect to the Agent or the Lenders.
(I) Environmental Compliance. The Company and its Subsidiaries shall
-------------------------
comply with all Environmental, Health or Safety Requirements of Law, except
where noncompliance will not have or is not reasonably likely to subject the
Company and its Subsidiaries to liability, individually in excess of
$2,500,000, or in the aggregate in excess of $5,000,000.
(J) Use of Proceeds. The Borrower shall use the proceeds of the Loans
---------------
to pay transaction costs in connection with the transactions evidenced by the
Loan Documents, to refinance existing indebtedness of the Company and its
Subsidiaries and to provide funds for the working capital needs and other
general corporate purposes of the Borrowers and their Subsidiaries. The
Company will not, nor will it permit any Subsidiary to, use any of the
proceeds of the Loans to purchase or carry any "Margin Stock" or to make any
Acquisition, other than any Permitted Acquisition pursuant to Section 6.3(G).
--------------
(K) Foreign Employee Benefit Compliance. The Company shall, and shall
-----------------------------------
cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain
and operate all Foreign Employee Benefit Plans to comply in all material
respects with all laws, regulations and rules applicable thereto and the
respective requirements of the governing documents for such Plans, except for
failures to comply which, in the aggregate, would not result in a material
obligation to pay money.
6.3 Negative Covenants.
-------------------
(A) Indebtedness. Neither the Company nor any of its Subsidiaries shall
------------
directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(a) the Obligations;
(b) Permitted Existing Indebtedness, and any extension, renewal,
refunding or refinancing thereof, provided that any such extension, renewal,
--------
refunding or refinancing is in an aggregate principal amount not greater than
the principal amount of and interest, fees and expenses accrued on, such
Permitted Existing Indebtedness outstanding at the time thereof and is on
terms (including, without limitation, maturity, amortization, interest rate,
premiums, fees, covenants, subordination, events of default, and remedies) not
materially less favorable to the obligor or adverse to the Lenders than the
terms of such Permitted Existing Indebtedness;
(c) Indebtedness permitted pursuant to Section 6.3(H) arising from
--------------
intercompany loans from (1) the Company, or any other Subsidiary of the
Company to any Borrower, (2) any Subsidiary that is not a Borrower to any
other Subsidiary or (3) any Borrower to any Subsidiary of the Company which is
not a Borrower; provided, that all such Indebtedness is subordinated to the
--------
Obligations on terms provided in this Agreement;
(d) Indebtedness in respect of Hedging Agreements permitted under
Section 6.3(P);
---------
(e) Indebtedness permitted by Sections 6.4(B) and 6.4(E)(2);
---------------- ---------
(f) Indebtedness constituting Contingent Obligations permitted by
Section 6.3(E);
---------
(g) unsecured Indebtedness and other liabilities incurred in the
ordinary course of business and consistent with past practice, but not
incurred through the borrowing of money or the obtaining of credit (other than
customary trade terms).
(B) Sales of Assets. Neither the Company nor any of its Subsidiaries
----------------
shall sell, assign, transfer, lease, convey or otherwise dispose of any
property, whether now owned or hereafter acquired, or any income or profits
therefrom, or enter into any agreement to do so, except:
(i) sales of Inventory in the ordinary course of business;
(ii) sales of certain assets of Purina Colombiana S.A., Purina de
Venezuela, V.A., [Purina de Guatemala, S.A.], and [Purina Peru S.A.], in each
case as described in that certain Agreement and Plan of Reorganization, dated
as of March ___, 1998, by and among the Company, Ralston Purina Company, and
Ralston Purina International Holding Company, Inc., as in effect on the
Closing Date and without giving effect to any amendment or modification
thereto;
(iii) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets (other than the Capital Stock of any Subsidiary
of the Company) if such transaction (a) is of assets no longer required in the
ordinary course of business, (b) is for not less than fair market value, and
(c) when combined with all such other sales, assignments, transfers,
conveyances or other dispositions (i) during any fiscal year represents the
disposition of not greater than ten percent (10%) of the Company's
Consolidated Net Worth calculated as of the date of such sale, assignment,
transfer, conveyance or other disposition and after giving effect to such
transaction; and
(iv) (x) disposition of assets, dissolution, liquidation or sales of
shares of Subsidiaries (other than stock or assets of Subsidiary Borrowers or
Subsidiary Obligors) resulting from a determination by the Company to
discontinue its operations in a particular jurisdiction and (y) with the prior
written consent of all of the Lenders, the dissolution, liquidation or sale of
shares of any Subsidiary Borrower or Subsidiary Obligor and only so long as
any such sale or other disposition is for all cash consideration.
(C) Liens. Neither the Company nor any of its Subsidiaries shall
-----
directly or indirectly create, incur, assume, permit or suffer to exist any
Lien on or with respect to any of their respective property or assets except:
(i) Liens created by the Loan Documents;
(ii) Permitted Existing Liens;
(iii) Customary Permitted Liens;
(iv) Liens securing financing under governmental or other special programs
which are more advantageous to the Company than the financing available under
this Agreement, to the extent such Liens are required in order to participate
in such programs, and any renewals or extensions of any such Liens;
(v) other Liens securing indebtedness not exceeding, in the aggregate, ten
percent (10%) of the Company's Consolidated Net Worth at the time of
incurrence thereof; and
(vi) pledges of assets of entities other than Borrowers and Subsidiary
Obligors to secure Indebtedness of Subsidiaries which are neither Borrowers
nor Subsidiary Obligors.
(D) Investments. Except for Permitted Existing Investments in an amount
-----------
not greater than the amount thereof on the Closing Date, neither the Company
nor any of its Subsidiaries shall directly or indirectly make or own any
Investment except:
(i) Investments constituting Permitted Acquisitions permitted by
Section 6.3(G);
-----------
(ii) Investments in Cash Equivalents;
(iii) Investments consisting of Indebtedness of employees to the
extent such Indebtedness does not exceed in the aggregate $1,000,000 in any
fiscal year;
(iv) Investments in a particular jurisdiction of locally generated
funds;
(v) Investments in Affiliates permitted by Section 6.3(H);
---------------
(vi) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business;
(vii) Investments consisting of deposit accounts maintained by the
Company and its Subsidiaries in connection with its cash management system in
the ordinary course of business and consistent with past practice;
(viii) Investments consisting of compensating balances maintained by
Purina Korea, Inc. in Korea as required by domestic financial institutions as
support for loans and advances made by such financial institutions to Purina
Korea, Inc.; provided, such amounts do not in the aggregate exceed $8,000,000
at any time; and
(ix) Investments constituting Contingent Obligations permitted by
Section 6.3(E) or Restricted Junior Payments permitted by Section 6.3(F); and
------------ --------------
(x) Investments with any other Persons which do not exceed in the
aggregate ten percent (10%) of the Consolidated Net Worth of the Company
(calculated as of the date of each such Investment).
(E) Contingent Obligations. Neither the Company nor any of its
-----------------------
Subsidiaries shall directly or indirectly create or become or be liable with
respect to any Contingent Obligation, material contingent liability, long-term
lease, synthetic lease or Contractual Obligation, not reflected in the
financial statements attached hereto as Exhibit G, except: (i) as set forth on
---------
Schedule 1.1.1, (ii) recourse obligations issued for the benefit of
- ---------------
customers, employees, vendors or other trading partners in the ordinary course
- ---------
of its business, (iii) guarantees to officers of the Company and its
subsidiaries of obligations of such officers with respect to the business of
the Company and its subsidiaries, (iv) guarantees incurred in connection with
or resulting from Permitted Acquisitions or other Investments not otherwise
prohibited under this Agreement; provided, that to the extent specified in
--------
this Agreement, such guarantees referred to in this clause (iv) shall be
-----------
treated as Indebtedness for purposes of this Agreement, and (v) guarantees
issued by the Company for the benefit of third-parties as support for loans
and advances made by such third-parties to (x) Subsidiary Borrowers or
Subsidiary Obligors and (y) Subsidiaries of the Company (other than Subsidiary
Borrowers and Subsidiary Obligors) in an amount, contingent or otherwise, not
to exceed $30,000,000 at any time.
(F) Restricted Junior Payments. Neither the Company nor any of its
----------------------------
Subsidiaries shall declare or make any Restricted Junior Payment, except:
(i) dividends payable by the Company in compliance with the corporation
law of the State of Missouri; and
(ii) Restricted Junior Payments made by any Subsidiary of the Company to
the Company or any other Subsidiary of the Company except that no Subsidiary
shall make any Investment in (x) any Affiliate (other than the Company) if as
a result thereof such Investments would at any time exceed in the aggregate
thirty percent (30%) of Consolidated Net Worth of the Company or (y) any
Affiliate (other than a Borrower or Subsidiary Obligor) if as a result thereof
such Investments would at any time exceed in the aggregate fifteen percent
(15%) of the Consolidated Net Worth of the Company;
provided, however, that the Restricted Junior Payments described in clause (i)
- -------- ------- ----------
and clause (ii) shall not be permitted if either a Default or an Unmatured
------------
Default shall have occurred and be continuing at the date of declaration or
payment thereof or would result therefrom.
(G) Conduct of Business; Subsidiaries; Acquisitions. Neither the
---------------------------------------------------
Company nor any of its Subsidiaries shall engage in any business, or acquire
any other business, other than the businesses in, or reasonably related to,
the lines of business carried on by them on the date hereof. The Company
shall not and shall not permit any of its Subsidiaries to create, capitalize
or acquire any Subsidiary after the date hereof or enter into any transaction
or series of transactions in which it acquires all or any significant portion
of the assets of another Person, or such Person merges with or liquidates into
the Company or any of its Subsidiaries, unless (x) such transaction is in
connection with the Company's acquisition from Ralston Purina Company and/or
Ralston Purina International Holding Company of the Capital Stock of each of
the Company's Subsidiaries on or about the Closing Date or (y) such
transaction meets the following requirements (each such transaction
constituting a "Permitted Acquisition"):
(1) no Default or Unmatured Default shall have occurred and be
continuing or would result from such transaction or transactions or the
incurrence of any Indebtedness in connection therewith;
(2) to the extent any such transaction, together with all such other
transactions, exceeds in the aggregate $5,000,000 during any fiscal year,
prior to each such transaction, the Company shall deliver to the Agent and the
Lenders a certificate from one of the Company's Authorized Officers
demonstrating to the satisfaction of the Agent and the Required Lenders that
after giving effect to such transaction or transactions and the incurrence of
any Indebtedness permitted by Section 6.3(A) in connection therewith on a pro
--------------
forma basis as if such acquisition, merger or liquidation and such incurrence
of Indebtedness had occurred on the first day of the twelve-month period
ending on the last day of the Company's most recently completed fiscal
quarter, the Company would have been in compliance with all provisions of
Section 6.4 at all times during such twelve-month period and not otherwise in
--------
Default;
(3) the transaction is consummated pursuant to a negotiated agreement on
a non-hostile basis and involves the purchase of, or entering into of, a
business line similar, or reasonably related, to that of the Company's and its
Subsidiaries as of the Closing Date;
(4) in the case of any merger permitted under this Agreement, the
surviving entity expressly assumes any liabilities, if any, either of the
Company or Subsidiary party thereto, as applicable, with respect to the
Obligations pursuant to an assumption agreement reasonably satisfactory to the
Agent; and
(5) the aggregate amount of Investments (including assumed liabilities)
in connection with all such transactions during the term of this Agreement
shall not exceed:
(A) for any single transaction or series of related transactions,
$20,000,000; and
(B) for all transactions, $80,000,000 (excluding Investments actually
made up to $4,000,000 in the aggregate in connection with the Company's
development of production facilities in _____________, China).
(H) Transactions with Shareholders and Affiliates. Except as set forth
---------------------------------------------
on Schedule 6.3(H), neither the Company nor any of its Subsidiaries shall
directly or indirectly (i) enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder or holders of any
Capital Stock or other Equity Interests in the Company, or with any Affiliate
of the Company, on terms that are less favorable to the Company or its
Subsidiaries, as applicable, than those that might be obtained in an arm's
length transaction at the time from Persons who are not such a holder or
Affiliate; or (ii) enter into or permit to exist any such non-arm's length
transaction, including without limitation loans and advances to or other
Investments in (x) any Affiliate (other than the Company) if as a result
thereof such Investments would at any time exceed in the aggregate thirty
percent (30%) of Consolidated Net Worth of the Company or (y) any Affiliate
(other than a Borrower or Subsidiary Obligor) if as a result thereof such
Investments would at any time exceed in the aggregate fifteen percent (15%) of
the Consolidated Net Worth of the Company.
(I) Sales and Leasebacks. Neither the Company nor any of its
----------------------
Subsidiaries shall become liable, directly, by assumption or by Contingent
Obligation, with respect to any lease, whether an Operating Lease, a synthetic
lease or a Capitalized Lease, of any property (whether real or personal or
mixed) (i) which it or one of its Subsidiaries sold or transferred or is to
sell or transfer to any other Person, or (ii) which it or one of its
Subsidiaries intends to use for substantially the same purposes as any other
property which has been or is to be sold or transferred by it or one of its
Subsidiaries to any other Person in connection with such lease, unless in
either case the sale involved is not prohibited under Section 6.3(B) and the
--------------
lease involved is not prohibited under Section 6.3(A).
---------------
(J) Margin Regulations. Neither the Borrower nor any of its
-------------------
Subsidiaries, shall use all or any portion of the proceeds of any credit
-
extended under this Agreement to purchase or carry Margin Stock.
(K) ERISA. The Company shall not (i) engage, or permit any of its
-----
Subsidiaries to engage, in any prohibited transaction described in Sections
406 of ERISA or 4975 of the Code for which a statutory or class exemption is
not available or a private exemption has not been previously obtained from the
DOL;
(ii) permit to exist any accumulated funding deficiency (as defined in
Sections 302 of ERISA and 412 of the Internal Revenue Code), with respect to
any Benefit Plan, whether or not waived;
(iii) fail, or permit any Controlled Group member to fail, to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group member to terminate, any
Benefit Plan which would result in any liability of the Company or any
Controlled Group member under Title IV of ERISA;
(v) fail to make any contribution or payment to any Multiemployer Plan
which the Company or any Controlled Group member may be required to make under
any agreement relating to such Multiemployer Plan, or any law pertaining
thereto;
(vi) fail, or permit any Controlled Group member to fail, to pay any
required installment or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment or other
payment; or
(vii) amend, or permit any Controlled Group member to amend, a Plan
resulting in an increase in current liability for the plan year such that the
Company or any Controlled group member is required to provide security to such
Plan under Section 401(a)(29) of the Code.
(L) Issuance of Equity Interests. Neither the Company nor any of its
-----------------------------
Subsidiaries shall issue any ownership, membership or other equity interests
after the date of this Agreement if such issuance causes a Change of Control
to occur.
(M) Organizational Documents. Neither the Company nor any of its
-------------------------
Subsidiaries shall amend, modify or otherwise change any of the terms or
provisions in any of their respective organizational documents as in effect on
the date hereof in any manner adverse to the interests of the Lenders without
the prior written consent of the Required Lenders.
(N) Other Indebtedness. Neither the Company nor any of its Subsidiaries
------------------
shall amend, supplement or otherwise modify the terms of any Indebtedness owed
by a Borrower or Subsidiary of the Company that would be materially adverse to
the Lenders, including, without limitation, with respect to subordination.
(O) Fiscal Year. The Company shall not change its fiscal year for
------------
accounting or tax purposes from a period consisting of the 12-month period
ending on August 31 of each calendar year.
(P) Hedging Obligations. The Company shall not and shall not permit any
-------------------
of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements other than hedging
or other derivative transactions (i) relating to the acquisition of raw
materials or the sale of products of the Company which are intended to protect
the Company against the risks of changes in market prices or (ii) relating to
currencies in which the Company receives revenues or incurs expenses which are
intended to protect the Company against the risks of changes in the exchange
rates relating to such currencies or (iii) relating to the interest rates on
its outstanding or proposed Indebtedness which are intended to protect the
Company against the risks of changes in the interest rates relating to such
borrowing (such hedging agreements collectively are sometimes referred to
herein as "Hedging Agreements"). In the event a Lender elects to enter into
any Hedging Agreements with the Company or any of its Subsidiaries, the
obligations of the Company or such Subsidiary with respect to such Hedging
Agreements shall be Secured Obligations secured by the Collateral.
(Q) Subsidiary Covenants. The Company will not, and will not permit any
--------------------
Subsidiary Borrower or Subsidiary Obligor to, create or otherwise cause to
become effective any consensual encumbrance or restriction of any kind on the
ability of any Subsidiary Borrower or Subsidiary Obligor to (i) pay dividends
or make any other distribution on its stock, or make any other Restricted
Junior Payment, (ii) pay any Indebtedness or other Obligation owed to the
Company or any other Subsidiary, (iii) make loans or advances or other
Investments in the Company or any other Subsidiary, or (iv) sell, transfer or
otherwise convey any of its property to the Company or any other Subsidiary.
6.4 Financial Covenants. The Company shall comply with the following:
-------------------
(A) Interest Coverage Ratio. The Company shall maintain a ratio
-------------------------
("Interest Coverage Ratio") of (i) EBITDA to (ii) Cash Interest Expense of at
least 2.50 to 1.00 as of the end of each fiscal quarter commencing with the
fiscal quarter ending August 31, 1998 through the Termination Date.
In each case the Interest Coverage Ratio shall be determined as of the last
day of each fiscal quarter for the four-quarter period ending on such day
(provided; however, (a) for the fiscal quarter ending August 31, 1998, the
----- -------
Interest Coverage Ratio shall be calculated using EBITDA and Cash Interest
Expense for the period commencing on the Closing Date through August 31, 1998,
(b) for the fiscal quarter ending November 30, 1998, the Interest Coverage
Ratio shall be calculated using EBITDA and Cash Interest Expense for the
period commencing on the Closing Date through November 30, 1998, and (c) for
the fiscal quarter ending February 28, 1999, the Interest Coverage Ratio shall
be calculated using EBITDA and Cash Interest Expense for the period commencing
on the Closing Date through February 28, 1999).
(B) Maximum Leverage Ratio. The Company shall not permit the ratio
------------------------
("Leverage Ratio") of (i) Total Debt to (ii) EBITDA to be greater than 3.00 to
1.00 as of the end of each fiscal quarter commencing with the fiscal quarter
ending August 31, 1998 through the Termination Date.
The Leverage Ratio shall be calculated, in each case, as of the last day of
each fiscal quarter based upon (A) for purposes of calculating Total Debt,
Indebtedness as of the last day of each such fiscal quarter; and (B) for
EBITDA, the actual amount for the four-quarter period ending on such day
(provided; however, (a) for the fiscal quarter ending August 31, 1998, the
---- -------
Leverage Ratio shall be calculated using EBITDA for such fiscal quarter
multiplied by four, (b) for the fiscal quarter ending November 30, 1998, the
Leverage Ratio shall be calculated using EBITDA for the two fiscal quarters
ending November 30, 1998 multiplied by two (2), and (c) for the fiscal quarter
ending February 28, 1999, the Leverage Ratio shall be calculated using EBITDA
for the three fiscal quarters ending February 28, 1999 multiplied by
four-thirds (4/3)).
(C) Capital Expenditures. The Company will not, nor will it permit any
--------------------
Subsidiary to, expend, or be committed to expend, for Capital Expenditures
during any one fiscal year in the aggregate for the Company and its
Subsidiaries in excess of (a) $81,250,000 for the fiscal year ending August
31, 1998, (b) $40,000,000 for the fiscal year ending August 31, 1999 plus any
amount permitted to be expended in the previous fiscal year but not expended
and (c) $28,750,000 in the aggregate for the fiscal years ending August 31,
2000 and August 31, 2001 plus any amount permitted to be expended in the
previous fiscal year but not expended.
(D) Minimum Consolidated Net Worth. The Company shall not permit its
--------------------------------
Consolidated Net Worth at any time to be less than the amount set forth below
during the period set forth opposite such amount:
Minimum Consolidated Net Worth Applicable Period
- --------------------------------- ------------------
$230,000,000 Closing Date through and including August 31,
1998
$240,000,000 September 1, 1998 through and including August
31, 1999
$250,000,000 At all times thereafter.
For purposes of determining Consolidated Net Worth of the Company and its
Subsidiaries as required by this Section 6.4(D) only, Consolidated Net Worth
--------------
of the Company and its Subsidiaries shall be calculated excluding (i) the
effect of translation account adjustments for the fiscal year ending on August
31, 1998 of up to $10,000,000 and (ii) the effect of further translation
account adjustments of up to an additional $20,000,000.
(E) Country Debt Limitations. Indebtedness (whether under this
--------------------------
Agreement or otherwise) incurred by the Subsidiaries in any particular country
shall be subject to each of the following limitations:
(1) The applicable Borrower or Subsidiary Obligor shall not have
Indebtedness under this Agreement outstanding at any time in excess of the
maximum Dollar Amount set forth below:
<TABLE>
<CAPTION>
Borrower's or Subsidiary Obligor's
- ----------------------------------
Jurisdiction of Incorporation Maximum Dollar Amount
- ---------------------------------- ----------------------
<S> <C>
Canada $ 6,500,000
- ---------------------------------- ----------------------
United States $ 5,000,000
- ---------------------------------- ----------------------
Italy $ 4,000,000
----------------------
Spain $ 2,500,000
----------------------
Hungary $ 2,000,000
- ---------------------------------- ----------------------
Korea $ 15,000,000
- ---------------------------------- ----------------------
Mexico $ 5,000,000
- ---------------------------------- ----------------------
Colombia $ 5,000,000
----------------------
Brazil $ 5,000,000
----------------------
Philippines $ 2,500,000
----------------------
Venezuela $ 2,500,000
- ---------------------------------- ----------------------
</TABLE>
(2) The ratio of (i) Total Debt for each of the Subsidiary Borrowers and
Subsidiary Obligors (including Indebtedness owed to Affiliates but excluding
Contingent Obligations in the form of standby Letters of Credit issued under
this Agreement for the account of such Subsidiary Borrower or Subsidiary
Obligor for the benefit of domestic financial institutions as support for
loans and advances made by such financial institutions to the applicable
Subsidiary Borrower or Subsidiary Obligor to the extent any such loans or
advances are outstanding) to (ii) EBITDA for each of the Subsidiary Borrowers
and Subsidiary Obligors (other than Purina Korea, Inc.) shall not at any time
exceed 3.00 to 1.00. The ratio of (i) Total Debt (including Indebtedness owed
to Affiliates but excluding Contingent Obligations in the form of standby
Letters of Credit issued under this Agreement for the account of Purina Korea,
Inc. for the benefit of domestic financial institutions as support for loans
and advances made by such financial institutions to Purina Korea, Inc. to the
extent any such loans or advances are outstanding) to (ii) EBITDA for Purina
Korea, Inc. shall not at any time exceed 2.25 to 1.00.
The foregoing ratios shall be calculated, in each case, as of the last day of
each fiscal quarter based upon (A) for purposes of calculating Total Debt and
Indebtedness as of the last day of each such fiscal quarter, and (B) for
EBITDA, the actual amount for the four-quarter period ending on such day
(provided; however, (a) for the fiscal quarter ending August 31, 1998, the
---- -------
foregoing ratios shall be calculated using EBITDA for such fiscal quarter
multiplied by four, (b) for the fiscal quarter ending November 30, 1998, the
foregoing ratios shall be calculated using EBITDA for the two fiscal quarters
ending November 30, 1998 multiplied by two (2), and (c) for the fiscal quarter
ending February 28, 1999, the foregoing ratios shall be calculated using
EBITDA for the three fiscal quarters ending February 28, 1999 multiplied by
four-thirds (4/3)).
ARTICLE VII: DEFAULTS
- -------------------------
7.1 Defaults. Each of the following occurrences shall constitute a
--------
Default under this Agreement:
(a) Failure to Make Payments When Due. Any Borrower or Subsidiary
-------------------------------------
Obligor shall (i) fail to pay when due any of the Obligations consisting of
principal with respect to the Loans or Letters of Credit or (ii) shall fail to
pay within three (3) days of the date when due any of the other Obligations
under this Agreement or the other Loan Documents.
(b) Breach of Certain Covenants. Any Borrower or Subsidiary Obligor
-----------------------------
shall fail duly and punctually to perform or observe any agreement, covenant
or obligation binding on such Borrower under (i) Sections 6.1 or Sections
------------ --------
6.2(A), (B), (D), (E), (G), or (H), and such failure shall continue unremedied
-- --- --- --- --- ---
for ten (10) Business Days after the earlier to occur of (x) notice from the
Agent or any Lender to the Company of such Default and (y) the Company or any
of its Subsidiaries knew or should have known of such Default exercising
reasonable diligence, or (ii) Sections 6.2(C), (F), (I), (J), or (K), Section
--------------- --- --- --- --- -------
6.3 or Section 6.4.
- --- ------------
(c) Breach of Representation or Warranty. Any representation or
----------------------------------------
warranty made or deemed made by any Borrower or Subsidiary Obligor to the
Agent or any Lender herein or by the Company or any of its Subsidiaries in any
of the other Loan Documents or in any statement or certificate at any time
given by any such Person pursuant to any of the Loan Documents shall be false
or misleading in any material respect on the date as of which made (or deemed
made).
(d) Other Defaults. Any Borrower or Subsidiary Obligor shall default in
--------------
the performance of or compliance with any term contained in this Agreement
(other than as covered by paragraphs (a), (b) or (c) of this Section 7.1), or
-------------- --- --- -----------
the Company or any of its Subsidiaries shall default in the performance of or
compliance with any term contained in any of the other Loan Documents, and
such default shall continue for thirty (30) days after the earlier to occur of
(i) notice from the Agent or any Lender to the Company of such Default and
(ii) the Company or any of its Subsidiaries knew or should have known of such
default exercising reasonable diligence.
(e) Default as to Other Indebtedness. Any of the Company or any of its
--------------------------------
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness (other than the Obligations) the outstanding principal
amount of which Indebtedness is in excess of $5,000,000; or any breach,
default or event of default shall occur, or any other condition shall exist
under any instrument, agreement or indenture pertaining to any such
Indebtedness, if the effect thereof is to cause an acceleration, mandatory
redemption, a requirement that the Company or any such Subsidiary offer to
purchase such Indebtedness or other required repurchase of such Indebtedness,
or permit the holder(s) of such Indebtedness to accelerate the maturity of any
such Indebtedness or require a redemption or other repurchase of such
Indebtedness; or any such Indebtedness shall be otherwise declared to be due
and payable (by acceleration or otherwise) or required to be prepaid, redeemed
or otherwise repurchased by the Company or any of its Subsidiaries (other than
by a regularly scheduled required prepayment) prior to the stated maturity
thereof.
(f) Involuntary Bankruptcy; Appointment of Receiver, Etc.
----------------------------------------------------------
(i) An involuntary case shall be commenced against the Company, or its
Subsidiaries with an aggregate net worth equal to or greater than ten percent
(10%) of the Company's Consolidated Net Worth, and the petition shall not be
dismissed, stayed, bonded or discharged within sixty (60) days after
commencement of the case; or a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Company or such
Subsidiaries in an involuntary case, under any applicable bankruptcy,
insolvency or other similar law now or hereinafter in effect; or any other
similar relief shall be granted under any applicable federal, state, local or
foreign law.
(ii) A decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over the Company, or its
Subsidiaries with an aggregate net worth equal to or greater than ten percent
(10%) of the Company's Consolidated Net Worth, or over all or a substantial
part of the property of the Company, or such Subsidiaries shall be entered; or
an interim receiver, trustee or other custodian of the Company or such
Subsidiaries or of all or a substantial part of the property of the Company or
such Subsidiaries shall be appointed or a warrant of attachment, execution or
similar process against any substantial part of the property of the Company or
such Subsidiaries shall be issued and any such event shall not be stayed,
dismissed, bonded or discharged within sixty (60) days after entry,
appointment or issuance.
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Company or
---------------------------------------------------
its Subsidiaries with an aggregate net worth equal to or greater than ten
percent (10%) of the Company's Consolidated Net Worth, shall (i) commence a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (ii) consent to the entry of an order for
relief in an involuntary case, or to the conversion of an involuntary case to
a voluntary case, under any such law, (iii) consent to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property, (iv) make any assignment for the benefit of
creditors or (v) take any corporate action to authorize any of the foregoing.
(h) Judgments and Attachments. Any money judgment(s), writ or warrant
-------------------------
of attachment, or similar process against any of the Company or any of its
Subsidiaries or any of their respective assets involving in any single case or
in the aggregate an amount in excess of $5,000,000 is (are) entered and shall
remain undischarged, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than fifteen (15) days prior to the date of
any proposed sale thereunder.
(i) Dissolution. Any order, judgment or decree shall be entered against
-----------
the Company, or its Subsidiaries with an aggregate net worth equal to or
greater than ten percent (10%) of the Company's Consolidated Net Worth,
decreeing its involuntary dissolution or split up and such order shall remain
undischarged and unstayed for a period in excess of sixty (60) days; or the
Company or such Subsidiaries shall otherwise dissolve or cease to exist except
as specifically permitted by this Agreement unless the dissolving entity is a
limited liability company which elects to continue its existence.
(j) Loan Documents; Failure of Security. At any time, for any reason,
-----------------------------------
(i) any Loan Document as a whole that materially affects the ability of the
Agent, or any of the Lenders to enforce the Obligations or enforce their
rights against the Collateral, ceases to be in full force and effect or any of
the Company or any of its Subsidiaries party thereto seeks to repudiate its
obligations thereunder and the Liens intended to be created thereby are, or
any of the Company or any such Subsidiary seeks to render such Liens, invalid
and unperfected, or (ii) any action shall be taken to discontinue or to assert
the invalidity or unenforceability of any Loan Document, or (iii) Liens on
Collateral with a fair market value in excess of $2,500,000 in favor of the
Agent contemplated by the Loan Documents shall, at any time, for any reason,
be invalidated or otherwise cease to be in full force and effect, or such
Liens shall not have the priority contemplated by this Agreement or the Loan
Documents.
(k) Termination Event. Any Termination Event occurs which the Required
-----------------
Lenders believe is reasonably likely to subject the Company or any of its
Subsidiaries to liability individually or in the aggregate in excess of
$2,500,000.
(l) Waiver of Minimum Funding Standard. If the plan administrator of
-----------------------------------
any Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and any Lender believes the
substantial business hardship upon which the application for the waiver is
based could reasonably be expected to subject either the Company or any
Controlled Group member to liability individually or in the aggregate in
excess of $2,500,000.
(m) Change of Control. A Change of Control shall occur.
-------------------
(n) Environmental Matters. The Company or any of its Subsidiaries shall
---------------------
be the subject of any proceeding or investigation pertaining to (i) the
Release by the Company or any of its Subsidiaries of any Contaminant into the
environment, (ii) the liability of any of the Company or any of its
Subsidiaries arising from the Release by any other Person of any Contaminant
into the environment, or (iii) any violation of any Environmental, Health or
Safety Requirements of Law by the Company or any of its Subsidiaries, which,
in any case, has or is reasonably likely to subject the Company or any of its
Subsidiaries to liability individually in excess of $2,500,000 or in the
aggregate in excess of $5,000,000.
(o) Guarantor Revocation. Except as provided by Section 6.3(B)(iv) with
-------------------- ------------------
respect to the sale, dissolution or liquidation of certain Subsidiaries of the
Company, any guarantor of the Obligations shall terminate or revoke or refuse
to perform any of its payment obligations under the applicable guarantee
agreement or breach any of the other terms of such guarantee agreement which
breach remains unremedied for five (5) days.
A Default shall be deemed "continuing" until waived in writing in
accordance with Section 8.3.
------------
ARTICLE VIII: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND
- ------------------------------------------------------------------------------
REMEDIES
- --------
8.1 Remedies.s
(a) Termination of Commitments; Acceleration If any Default described
----------------------------------------
in Section 7.1(f) or 7.1(g) occurs with respect to any of the Borrowers, the
--------------- ------
obligations of the Lenders to make Loans hereunder and the obligation of the
Agent or any Issuing Lender to issue Letters of Credit hereunder shall
automatically terminate and the Obligations shall immediately become due and
payable without any election or action on the part of the Agent, any Lender or
any Issuing Lender. If any other Default occurs, the Required Lenders may (i)
terminate or suspend the obligations of the Lenders to make Loans hereunder
and the obligation of the Issuing Lenders to issue Letters of Credit
hereunder, or (ii) declare the Obligations to be due and payable, or both, and
upon any declaration under clause (ii), the Obligations shall become
------------
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which the Borrowers expressly waive.
(b) Rescission. If at any time after termination of the Lenders'
----------
obligations to make Loans or acceleration of the maturity of the Loans,
Borrowers shall pay all arrears of interest and all payments on account of
principal of the Loans and Reimbursement Obligations which shall have become
due otherwise than by acceleration (with interest on principal and, to the
extent permitted by law, on overdue interest, at the rates specified in this
Agreement) and all Defaults and Unmatured Defaults (other than nonpayment of
principal of and accrued interest on the Loans due and payable solely by
virtue of acceleration) shall be waived pursuant to Section 8.3, then upon the
-----------
written consent of the Required Lenders and written notice to Borrowers, the
termination of Lenders' respective obligations to make Loans and the
respective Lenders' and the Issuing Lenders' obligations to participate in or
issue Letters of Credit or the aforesaid acceleration and its consequences may
be rescinded and annulled; but such action shall not affect any subsequent
Default or Unmatured Default or impair any right or remedy consequent thereon.
The provisions of the preceding sentence are intended merely to bind the
Lenders and the Issuing Lenders to a decision which may be made at the
election of the Required Lenders; they are not intended to benefit Borrowers
and do not give Borrowers the right to require the Lenders to rescind or annul
any termination of the aforesaid obligations of the Lenders or Issuing Lenders
or any acceleration hereunder, even if the conditions set forth herein are
met.
(c) Enforcement. The Borrowers acknowledge that in the event the
-----------
Borrowers fail to perform, observe or discharge any of their respective
obligations or liabilities under this Agreement or any other Loan Document,
any remedy of law may prove to be inadequate relief to the Agent, the Issuing
Lenders and the Lenders; therefore, Borrowers agree that the Agent, the
Issuing Lenders and the Lenders shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
8.2 Defaulting Lender. In the event that any Lender fails to fund its
-----------------
Revolving Credit Share of any Advance requested or deemed requested by any
Borrower which such Lender is obligated to fund under the terms of this
Agreement (the funded portion of such Advance being hereinafter referred to as
a "Non Pro Rata Loan"), until the earlier of such Lender's cure of such
failure and the termination of the Commitments, the proceeds of all amounts
thereafter repaid to the Agent by the Borrowers and otherwise required to be
applied to such Lender's share of all other Obligations pursuant to the terms
of this Agreement shall be advanced to the Borrowers by the Agent ("Cure
Loans") on behalf of such Lender to cure, in full or in part, such failure by
such Lender, but shall nevertheless be deemed to have been paid to such Lender
in satisfaction of such other Obligations. Notwithstanding anything in this
Agreement to the contrary:
(i) the foregoing provisions of this Section 8.2 shall apply only with
-----------
respect to the proceeds of payments of Obligations and shall not affect the
conversion or continuation of Loans pursuant to Section 2.6;
------------
(ii) any such Lender shall be deemed to have cured its failure to fund
its Revolving Credit Share of any Advance at such time as an amount equal to
such Lender's original Revolving Credit Share of the requested principal
portion of such Advance is fully funded to the applicable Borrower, whether
made by such Lender itself or by operation of the terms of this Section 8.2,
-----------
and whether or not the Non Pro Rata Loan with respect thereto has been repaid,
converted or continued;
(iii) regardless of whether or not a Default has occurred or is
continuing, and notwithstanding the instructions of the applicable Borrower as
to its desired application, all repayments of principal which, in accordance
with the other terms of this Agreement, would be applied to the outstanding
Base Rate Loans shall be applied first, ratably to all Base Rate Loans
-----
constituting Non Pro Rata Loans, second, ratably to Base Rate Loans other than
------
those constituting Non Pro Rata Loans or Cure Loans and, third, ratably to
-----
Base Rate Loans constituting Cure Loans;
(iv) for so long as and until the earlier of any such Lender's cure of
the failure to fund its Revolving Credit Share of any Advance and the
termination of the Commitments, the term "Required Lenders" for purposes of
this Agreement shall mean Lenders (excluding all Lenders whose failure to fund
their respective Revolving Credit Shares of such Advance have not been so
cured) whose Pro Rata Shares represent at least sixty-six and two-thirds
(66-2/3%) of the aggregate Pro Rata Shares of such Lenders; and
(v) for so long as and until any such Lender's failure to fund its
Revolving Credit Share of any Advance is cured in accordance with Section
-------
8.2(ii), (A) such Lender shall not be entitled to any facility fees with
---
respect to its Commitments and (B) such Lender shall not be entitled to any
-
letter of credit fees, which facility fees and letter of credit fees shall
accrue in favor of the non-defaulting, shall be allocated among such
performing Lenders ratably based upon their relative Commitments.
8.3 Amendments. Subject to the provisions of this Article VIII, the
---------- ------------
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrowers may enter into agreements supplemental hereto for
the purpose of adding or modifying any provisions to the Loan Documents or
changing in any manner the rights of the Lenders or the Borrowers hereunder or
waiving any Default hereunder; provided, however, that no such supplemental
-------- -------
agreement shall, without the consent of each Lender affected thereby:
(i) Postpone or extend the Termination Date or any other date fixed for
any payment of principal of, or interest on, the Loans, the Reimbursement
Obligations or any fees or other amounts payable to such Lender (except with
respect to (a) any modifications of the provisions relating to prepayments of
Loans and other Obligations and (b) a waiver of the application of the default
rate of interest pursuant to Section 2.7 hereof).
------------
(ii) Reduce the principal amount of any Loans or L/C Obligations, or
reduce the rate or extend the time of payment of interest or fees thereon.
(iii) Reduce the percentage specified in the definition of Required
Lenders or any other percentage of Lenders specified to be the applicable
percentage in this Agreement to act on specified matters.
(iv) Increase the amount of the Commitment of any Lender hereunder
(except with respect to an increase in any sublimits for any Types of Loans
within the Commitments).
(v) Permit any Borrower to assign its rights under this Agreement.
(vi) Amend this Section 8.3.
------------
(vii) Except as provided by Section 6.3(B)(iv) with respect to the sale,
------------------
dissolution or liquidation of certain Subsidiaries of the Company, release any
guarantor of all or any part of the Obligations or release all or
substantially all of the Collateral.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. No amendment of any
provision of this Agreement relating to any Issuing Lender shall be effective
without the written consent of the Agent and each of the Issuing Lenders. The
Agent may waive payment of the fee required under Section 12.3(B) without
---------------
obtaining the consent of any of the Lenders.
8.4 Preservation of Rights. No delay or omission of the Lenders, the
-----------------------
Issuing Lenders or the Agent to exercise any right under the Loan Documents
shall impair such right or be construed to be a waiver of any Default or an
acquiescence therein, and the making of a Loan or the issuance of a Letter of
Credit notwithstanding the existence of a Default or the inability of the
Borrowers to satisfy the conditions precedent to such Loan or issuance of such
Letter of Credit shall not constitute any waiver or acquiescence. Any single
or partial exercise of any such right shall not preclude other or further
exercise thereof or the exercise of any other right, and no waiver, amendment
or other variation of the terms, conditions or provisions of the Loan
Documents whatsoever shall be valid unless in writing signed by the Lenders
required pursuant to Section 8.3, and then only to the extent in such writing
-----------
specifically set forth. All remedies contained in the Loan Documents or by
law afforded shall be cumulative and all shall be available to the Agent, the
Issuing Lenders and the Lenders until the Obligations have been paid in full.
ARTICLE IX: GENERAL PROVISIONS
- -----------------------------------
9.1 Survival of Representations. All representations and warranties of
---------------------------
the Borrowers and Subsidiary Obligors contained in this Agreement shall
survive delivery of the Notes and the making of the Loans herein contemplated.
9.2 Governmental Regulation. Anything contained in this Agreement to
------------------------
the contrary notwithstanding, no Lender shall be obligated to extend credit to
the Borrowers and neither the Agent nor any Issuing Lender shall be obligated
to issue any Letter of Credit for the account of any Borrower in violation of
any limitation or prohibition provided by any applicable statute or
regulation.
9.3 Performance of Obligations. Each of the Borrowers agrees that the
--------------------------
Agent may, but shall have no obligation to (i) at any time, pay or discharge
taxes, liens, security interests or other encumbrances levied or placed on or
threatened against any Collateral and (ii) after the occurrence and during the
continuance of a Default make any other payment or perform any act required of
any Borrower under any Loan Document or take any other action which the Agent
in its discretion deems necessary or desirable to protect or preserve the
Collateral. The Agent shall use its best efforts to give the applicable
Borrower notice of any action taken under this Section 9.3 prior to the taking
-----------
of such action or promptly thereafter provided the failure to give such notice
shall not affect the applicable Borrower's obligations in respect thereof.
Each of the Borrowers agrees to pay the Agent, upon demand, the principal
amount of all funds advanced by the Agent under this Section 9.3, together
-----------
with interest thereon at the rate from time to time applicable to Base Rate
Loans from the date of such advance until the outstanding principal balance
thereof is paid in full. If any Borrower fails to make payment in respect of
any such advance under this Section 9.3 within one (1) Business Day after the
-----------
date such Borrower receives written demand therefor from the Agent, the Agent
shall promptly notify each Lender and each Lender agrees that it shall
thereupon make available to the Agent, in Dollars in immediately available
funds, the amount equal to such Lender's Pro Rata Share of such advance. If
such funds are not made available to the Agent by such Lender within one (1)
Business Day after the Agent's demand therefor, the Agent will be entitled to
recover any such amount from such Lender together with interest thereon at the
Federal Funds Effective Rate for each day during the period commencing on the
date of such demand and ending on the date such amount is received. The
failure of any Lender to make available to the Agent its Pro Rata Share of any
such unreimbursed advance under this Section 9.3 shall neither relieve any
-----------
other Lender of its obligation hereunder to make available to the Agent such
other Lender's Pro Rata Share of such advance on the date such payment is to
be made nor increase the obligation of any other Lender to make such payment
to the Agent. All outstanding principal of, and interest on, advances made
under this Section 9.3 shall constitute Obligations secured by the Collateral
-----------
until paid in full by the Borrowers.
9.4 Headings. Section headings in the Loan Documents are for
--------
convenience of reference only, and shall not govern the interpretation of any
of the provisions of the Loan Documents.
9.5 Entire Agreement. The Loan Documents embody the entire agreement
-----------------
and understanding among the Borrowers, the Subsidiary Obligors, the Agent, and
the Lenders and supersede all prior agreements and understandings relating to
the subject matter thereof.
9.6 Several Obligations; Benefits of this Agreement. The respective
-------------------------------------------------
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other. The failure of any Lender to
perform any of its obligations hereunder shall not relieve any other Lender
from any of its obligations hereunder. This Agreement shall not be construed
so as to confer any right or benefit upon any Person other than the parties to
this Agreement and their respective successors and assigns.
9.7 Expenses; Indemnification.
--------------------------
(A) Expenses. Subject to the letter agreements dated February 25, 1998
--------
and November 3, 1997 among the Company, the Agent and the Arranger with
respect to costs and expenses incurred on or prior to the Closing Date, the
Borrowers shall reimburse the Agent and the Arranger for any reasonable costs,
internal charges and out-of-pocket expenses (including attorneys' and
paralegals' fees and time charges of attorneys and paralegals for the Agent or
the Arranger, which attorneys and paralegals may be employees of the Agent or
the Arranger) paid or incurred by the Agent or Arranger in connection with the
preparation, negotiation, execution, delivery, syndication, review, amendment,
modification, and administration of the Loan Documents. Each of the Borrowers
also agrees to reimburse the Agent, the Lenders and the Issuing Lenders for
any costs, internal charges and out-of-pocket expenses (including attorneys'
and paralegals' fees and time charges of attorneys and paralegals for the
Agent, the Lenders and the Issuing Lenders, which attorneys and paralegals may
be employees of the Agent, the Lenders or the Issuing Lenders) paid or
incurred by the Agent, any Lender or any Issuing Lender in connection with the
collection of the Obligations and enforcement of the Loan Documents. In
addition to expenses set forth above, each of the Borrowers agrees to
reimburse the Agent, promptly after the request therefor, for each audit,
collateral analysis or other business analysis performed by the Agent (or its
authorized representative) for the benefit of the Lenders in connection with
this Agreement or the other Loan Documents in an amount equal to the Agent's
then customary charges for each person employed to perform such audit or
analysis, plus all reasonable costs and expenses (including without
limitation, travel expenses) incurred by the Agent in the performance of such
audit or analysis; provided, that each Borrower and Subsidiary Obligor shall
--------
only be responsible for expenses in connection with one (1) such audit or
business analysis performed with respect to such Borrower or Subsidiary
Obligor, as applicable, in any twelve-month period at a time when no Default
had occurred or was continuing. The Agent shall provide the Borrowers with a
detailed statement of all reimbursements requested under this Section 9.7(A).
--------------
(B) Indemnity. Each of the Borrowers and Subsidiary Obligors further agrees
---------
to defend, protect, indemnify, and hold harmless the Agent, the Arranger, each
and all of the Lenders, each and all of the Issuing Lenders, and each of their
respective Affiliates, and each of such Agent's, Arranger's, Lender's, Issuing
Lender's or Affiliate's respective officers, directors, employees, attorneys
and agents (including, without limitation, those retained in connection with
the satisfaction or attempted satisfaction of any of the conditions set forth
in Article IV) (collectively, the "Indemnitees") from and against any and all
----------
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses of any kind or nature whatsoever (including,
without limitation, the fees and disbursements of counsel for such Indemnitees
in connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitees shall be designated a party thereto), imposed
on, incurred by, or asserted against such Indemnitees in any manner relating
to or arising out of:
(i) this Agreement, the other Loan Documents, or any act, event or
transaction related or attendant thereto, the making of the Loans, and the
issuance of and participation in Letters of Credit hereunder, the management
of such Loans or Letters of Credit, the use or intended use of the proceeds of
the Loans or Letters of Credit hereunder, or any of the other transactions
contemplated by the Loan Documents; or
(ii) any liabilities, obligations, responsibilities, losses, damages,
personal injury, death, punitive damages, economic damages, consequential
damages, treble damages, intentional, willful or wanton injury, damage or
threat to the environment, natural resources or public health or welfare,
costs and expenses (including, without limitation, attorney, expert and
consulting fees and costs of investigation, feasibility or remedial action
studies), fines, penalties and monetary sanctions, interest, direct or
indirect, known or unknown, absolute or contingent, past, present or future
relating to violation of any Environmental, Health or Safety Requirements of
Law arising from or in connection with the past, present or future operations
of the Company, its Subsidiaries or any of their respective predecessors in
interest, or, the past, present or future environmental, health or safety
condition of any respective property of the Company or its Subsidiaries, the
presence of asbestos-containing materials at any respective property of the
Company or its Subsidiaries or the Release or threatened Release of any
Contaminant into the environment (collectively, the "Indemnified Matters");
provided, however, the Borrowers and Subsidiary Obligors shall have no
- -------- -------
obligation to an Indemnitee hereunder with respect to (i) Indemnified Matters
- -------
to the extent any such Indemnified Matter is found in a final non-appealable
judgment by a court of competent jurisdiction to have arisen from such
Indemnitee's gross negligence or wilful misconduct or (ii) Indemnified Matters
arising solely out of a dispute between the Agent or a dispute between any
Lender and the Agent. If the undertaking to indemnify, pay and hold harmless
set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Borrowers and Subsidiary Obligors
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Matters incurred by the Indemnitees.
(C) Waiver of Certain Claims; Settlement of Claims. Each of the
----------------------------------------------------
Borrowers and each of the Subsidiary Obligors agrees to assert no claim
against any of the Indemnitees on any theory of liability for consequential
damages, indirect damages, exemplary damages, punitive damages or any other
similar theory of damages howsoever categorized. No settlement shall be
entered into by the Company or any if its Subsidiaries with respect to any
claim, litigation, arbitration or other proceeding relating to or arising out
of the transaction evidenced by this Agreement or the other Loan
Documents(whether or not the Agent, any Lender, any Issuing Lender or any
Indemnitee is a party thereto) unless such settlement releases all Indemnitees
from any and all liability with respect thereto.
(D) Survival of Agreements. The obligations and agreements of the
------------------------
Borrowers and Subsidiary Obligors under this Section 9.7 shall survive the
-----------
termination of this Agreement.
9.8 Numbers of Documents. All statements, notices, closing documents,
--------------------
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
9.9 Accounting. Except as provided to the contrary herein, all
----------
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
9.10 Severability of Provisions. Any provision in any Loan Document
----------------------------
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are
declared to be severable.
9.11 Nonliability of Lenders. The relationship among the Borrowers and
-----------------------
the Lenders, Issuing Lenders and the Agent shall be solely that of borrower
and lender. Neither the Agent nor any Lender nor any Issuing Lender shall
have any fiduciary responsibilities to the Borrowers or to the Subsidiary
Obligors. Neither the Agent, nor any Lender, nor any Issuing Lender
undertakes any responsibility to the Borrowers or the Subsidiary Obligors to
review or inform the Borrowers or Subsidiary Obligors of any matter in
connection with any phase of the Borrowers' or Subsidiary Obligors' business
or operations.
9.12 GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF
--------------
ITSELF, THE OTHER AGENTS, THE LENDERS AND THE ISSUING LENDERS, AT CHICAGO,
ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT THERE. THIS AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF ILLINOIS. WITHOUT LIMITING THE FOREGOING, ANY DISPUTE BETWEEN
ANY BORROWER OR ANY SUBSIDIARY OBLIGOR AND THE AGENT, ANY LENDER, ANY ISSUING
LENDER OR ANY OTHER HOLDER OF SECURED OBLIGATIONS ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM
IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
9.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
--------------------------------------------------------------
(A) JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE
------------ --------------
PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, MAY BE RESOLVED EXCLUSIVELY
BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES
HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT LOCATED OUTSIDE OF CHICAGO, ILLINOIS. EACH OF THE PARTIES HERETO
WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION
--------------
THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. EACH OF THE BORROWERS AND SUBSIDIARY OBLIGORS
-------------------
AGREES THAT THE AGENT, ANY LENDER, ANY ISSUING LENDER OR ANY HOLDER OF SECURED
OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST ANY BORROWER OR ANY
SUBSIDIARY OBLIGOR OR ANY BORROWER'S OR SUBSIDIARY OBLIGOR'S PROPERTY IN A
COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL
JURISDICTION OVER SUCH BORROWER OR SUBSIDIARY OBLIGOR OR (2) REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. EACH OF THE
BORROWERS AND SUBSIDIARY OBLIGORS AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT UNDER THIS CLAUSE (B) BY
----------
SUCH PERSON TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH
PERSON ALL OF WHICH PERMISSIVE COUNTERCLAIMS MAY BE BROUGHT ONLY IN THE
JURISDICTION SET FORTH IN CLAUSE (A) ABOVE. EACH OF THE BORROWERS AND
-----------
SUBSIDIARY OBLIGORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
SUBSECTION (B).
-------------
(C) VENUE. EACH OF THE BORROWERS AND SUBSIDIARY OBLIGORS IRREVOCABLY
-------
WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY
----- --- ----------
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH
ABOVE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
--------------------
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH,
RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
9.14 Subordination of Intercompany Indebtedness. Each of the Borrowers
------------------------------------------
and Subsidiary Obligors agrees that any and all claims of such Borrower or
Subsidiary Obligor against any other Borrower, any Subsidiary Obligor, any
endorser, obligor or any other guarantor of all or any part of the Secured
Obligations, or against any of its properties shall be subordinate and subject
in right of payment to the prior payment, in full and in cash, of all Secured
Obligations. Notwithstanding any right of any Borrower or Subsidiary Obligor
to ask, demand, sue for, take or receive any payment from any other Borrower
or any Subsidiary Obligor, all rights, liens and security interests of any
Borrower or Subsidiary Obligor, whether now or hereafter arising and howsoever
existing, in any assets of any other Borrower or any Subsidiary Obligor
(whether constituting part of Collateral given to any Holder of Secured
Obligations or the Agent to secure payment of all or any part of the Secured
Obligations or otherwise) shall be and are subordinated to the rights of the
Holders of Secured Obligations and the Agent in those assets. No Borrower or
Subsidiary Obligor shall have any right to possession of any such asset or to
foreclose upon any such asset, whether by judicial action or otherwise, unless
and until all of the Secured Obligations (other than contingent indemnity
obligations) shall have been fully paid and satisfied and all financing
arrangements among the Borrowers, Subsidiary Obligors and the Holders of
Secured Obligations have been terminated. So long as any Default shall have
occurred and is continuing, if all or any part of the assets of any Borrower
or Subsidiary Obligor, or the proceeds thereof, are subject to any
distribution, division or application to the creditors of such Borrower or
Subsidiary Obligor, whether partial or complete, voluntary or involuntary, and
whether by reason of liquidation, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors or any other action or proceeding, or
if the business of any Borrower or Subsidiary Obligor is dissolved or if
substantially all of the assets of any Borrower or Subsidiary Obligor are
sold, then, and in any such event, any payment or distribution of any kind or
character, either in cash, securities or other property, which shall be
payable or deliverable upon or with respect to any indebtedness of any such
Borrower or Subsidiary Obligor to any other Borrower or Subsidiary Obligor
("Intercompany Indebtedness") shall be paid or delivered directly to the Agent
for application on any of the Secured Obligations, due or to become due, until
such Secured Obligations (other than contingent indemnity obligations) shall
have first been fully paid and satisfied. The Borrowers and the Subsidiary
Obligors irrevocably authorize and empower the Agent to demand, sue for,
collect and receive every such payment or distribution and give acquittance
therefor and to make and present for and on behalf of the applicable Borrower
or Subsidiary Obligor such proofs of claim and take such other action, in the
Agent's own name or in the name of the applicable Borrower or Subsidiary
Obligor or otherwise, as the Agent may deem necessary or advisable for the
enforcement of this Section 9.14; provided, that the Agent agrees not to
------------- --------
exercise such powers unless a Default shall have occurred and is continuing.
The Agent may vote such proofs of claim in any such proceeding, receive and
collect any and all dividends or other payments or disbursements made thereon
in whatever form the same may be paid or issued and apply the same on account
of any of the Secured Obligations. Should any payment, distribution, security
or instrument or proceeds thereof be received by any Borrower or Subsidiary
Obligor upon or with respect to the Intercompany Indebtedness at any time a
Default shall have occurred and be continuing and prior to the satisfaction of
all of the Secured Obligations (other than contingent indemnity obligations)
and the termination of all financing arrangements among the Borrowers, the
Subsidiary Obligors and the Holders of Secured Obligations, the applicable
Borrower or Subsidiary Obligor shall receive and hold the same in trust, as
trustee, for the benefit of the Holders of Secured Obligations and shall so
long as any Default shall have occurred and be continuing promptly deliver the
same to the Agent, for the benefit of the Holders of Secured Obligations, in
precisely the form received (except for the endorsement or assignment of the
Borrower where necessary), for application to any of the Secured Obligations,
due or not due, and, until so delivered, the same shall be held in trust by
the Borrower or Subsidiary Obligor, as applicable, as the property of the
Holders of Secured Obligations. If any Borrower or Subsidiary Obligor fails
to make any such endorsement or assignment to the Agent, the Agent or any of
its officers or employees are irrevocably authorized to make the same. So
long as any Default shall have occurred and is continuing, the Borrowers and
Subsidiary Obligors agree that until the Secured Obligations (other than the
contingent indemnity obligations) have been paid in full (in cash) and
satisfied and all financing arrangements among the Borrowers, Subsidiary
Obligors and the Holders of Secured Obligations have been terminated, the
Borrowers and Subsidiary Obligors will not assign or transfer to any Person
(other than the Agent) any claim such Borrower or Subsidiary Obligor has or
may have against any other Borrower or Subsidiary Obligor.
9.15 No Strict Construction. The parties hereto have participated
------------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
ARTICLE X: THE AGENT
- -------------------------
10.1 Appointment; Nature of Relationship. ABN AMRO Bank N.V. is
--------------------------------------
appointed by the Lenders (each reference in this Article X to a Lender being
---------
in its capacity either as a Lender or an Issuing Lender, or any or all of the
foregoing) as the Agent hereunder and under each other Loan Document, and each
of the Lenders irrevocably authorizes the Agent to act as the contractual
representative of such Lender with the rights and duties expressly set forth
herein and in the other Loan Documents. The Agent agrees to act as such
contractual representative upon the express conditions contained in this
Article X. Notwithstanding the use of the defined term "Agent," it is
-----
expressly understood and agreed that the Agent shall not have any fiduciary
---
responsibilities to any Lender by reason of this Agreement and that the Agent
is merely acting as the representative of the Lenders with only those duties
as are expressly set forth in this Agreement and the other Loan Documents. In
its capacity as the Lenders' contractual representative, the Agent (i) does
not assume any fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section 9-105 of the
Uniform Commercial Code and (iii) is acting as an independent contractor, the
rights and duties of which are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the Lenders agrees to assert
no claim against the Agent on any agency theory or any other theory of
liability for breach of fiduciary duty, all of which claims each Lender
waives.
10.2 Powers. The Agent shall have and may exercise such powers under
------
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties or fiduciary duties to the Lenders, or
any obligation to the Lenders to take any action hereunder or under any of the
other Loan Documents except any action specifically provided by the Loan
Documents required to be taken by the Agent.
10.3 General Immunity. Neither the Agent nor any of its respective
-----------------
directors, officers, agents or employees shall be liable to any of the
Borrowers, the Subsidiary Obligors, the Lenders or any Lender for any action
taken or omitted to be taken by it or them hereunder or under any other Loan
Document or in connection herewith or therewith except to the extent any such
action or inaction is found in a final non-appealable judgment by a court of
competent jurisdiction to have arisen from the gross negligence or willful
misconduct of such Person.
10.4 No Responsibility for Loans, Creditworthiness, Collateral,
---------------------------------------------------------------
Recitals, Etc. Neither the Agent nor any of its respective directors,
-------
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into, or verify (i) any statement, warranty or
representation made in connection with any Loan Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document; (iii) the satisfaction of
any condition specified in Article IV; (iv) the existence or possible
-----------
existence of any Default or (v) the validity, effectiveness or genuineness of
any Loan Document or any other instrument or writing furnished in connection
therewith. The Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or in any of the other Loan
Documents, for the perfection or priority of any of the Liens on any of the
Collateral, or for the execution, effectiveness, genuineness, validity,
legality, enforceability, collectibility, or sufficiency of this Agreement or
any of the other Loan Documents or the transactions contemplated thereby, or
for the financial condition of any Subsidiary Obligor of any or all of the
Obligations, the Company or any of its Subsidiaries.
10.5 Action on Instructions of Lenders. The Agent shall in all cases be
---------------------------------
fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders (except with respect to actions that require the consent of
all of the Lenders as provided in Section 8.3), and such instructions and any
-----------
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders and on all Holders of Secured Obligations. The Agent shall be fully
justified in failing or refusing to take any action hereunder and under any
other Loan Document unless it shall first be indemnified to its satisfaction
by the Lenders pro rata against any and all liability, cost and expense that
it may incur by reason of taking or continuing to take any such action.
10.6 Employment of Agents and Counsel. The Agent may execute any of its
--------------------------------
duties hereunder and under any other Loan Document by or through employees,
agents, and attorneys-in-fact, and shall not be answerable to the Lenders,
except as to money or securities received by it or its authorized agents, for
the default or misconduct of any such agents or attorneys-in-fact selected by
it with reasonable care. The Agent shall be entitled to advice of counsel
concerning the contractual arrangement among the Agent and the Lenders, as the
case may be, and all matters pertaining to its duties hereunder and under any
other Loan Document.
10.7 Reliance on Documents; Counsel. The Agent shall be entitled to
--------------------------------
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which
counsel may be employees of the Agent.
10.8 The Agent's Reimbursement and Indemnification. The Lenders agree
---------------------------------------------
to reimburse and indemnify the Agent ratably in proportion to their respective
Pro Rata Shares (i) for any amounts not reimbursed by the Borrowers or
Subsidiary Obligors for which the Agent is entitled to reimbursement or
indemnification by the Borrowers or Subsidiary Obligors under the Loan
Documents, (ii) for any other expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents including as a result of
a dispute among the Lenders or between any Lender and the Agent, and (iii) for
any liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature whatsoever
which may be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of the Loan Documents or any other document
delivered in connection therewith or the transactions contemplated thereby, or
the enforcement of any of the terms thereof or of any such other documents,
including as a result of a dispute among the Lenders or between any Lender and
the Agent, provided that no Lender shall be liable for any of the foregoing
to the extent any of the foregoing is found in a final non-appealable judgment
by a court of competent jurisdiction to have arisen solely from the gross
negligence or willful misconduct of the Agent.
10.9 Rights as a Lender. With respect to its Commitments, Loans made by
------------------
it, the Notes issued to it in its individual capacity and Letters of Credit
issued by it as an Issuing Lender, the Agent shall have the same rights and
powers hereunder and under any other Loan Document as any Lender and may
exercise the same as through it were not the Agent, and the term "Lender" or
"Lenders" or "Issuing Lender" or "Issuing Lenders", as applicable, shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent may accept deposits from, lend money to, enter into
Hedging Agreements and generally engage in any kind of trust, debt, equity or
other transaction, in addition to those contemplated by this Agreement or any
other Loan Document, with the Company or any of its Subsidiaries in which such
Person is not prohibited hereby from engaging with any other Person.
10.10 Lender Credit Decision. Each Lender acknowledges that it has,
------------------------
independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by the Company, the Borrowers and
the Subsidiary Obligors and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement and the other Loan Documents. Each Lender also acknowledges
that it will, independently and without reliance upon the Agent or any other
Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking
or not taking action under this Agreement and the other Loan Documents.
10.11 Successor Agent. The Agent may resign at any time by giving
----------------
written notice thereof to the Lenders and the Borrowers. Upon any such
resignation, the Required Lenders shall have the right to appoint, on behalf
of the Borrowers and the Lenders, a successor Agent. If no successor Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within thirty days after the retiring Agent's giving notice
of resignation, then the retiring Agent may appoint, on behalf of the
Borrowers and the Lenders, a successor Agent. Notwithstanding anything herein
to the contrary, so long as no Default has occurred and is continuing, each
such successor Agent shall be subject to approval by the Company, which
approval shall not be unreasonably withheld. Such successor Agent shall be a
commercial bank having capital and retained earnings of at least $500,000,000.
Upon the acceptance of any appointment as the Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder
and under the other Loan Documents. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article X shall continue in effect
---------
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent hereunder and under the other Loan Documents.
10.12 Collateral Documents. Each Lender authorizes the Agent to enter
--------------------
into each of the Collateral Documents to which it is a party and to take all
action contemplated by such documents. Each Lender agrees that no Lender
shall have the right individually to seek to realize upon the security granted
by any Collateral Document, it being understood and agreed that such rights
and remedies may be exercised solely by the Agent for the benefit of the
Holders of Secured Obligations upon the terms of the Collateral Documents.
10.13. No Duties Imposed Upon Arranger. None of the Persons identified
-------------------------------
on the cover page to this Agreement, the signature pages to this Agreement or
otherwise in this Agreement as an "Arranger" shall have any right, power,
obligation, liability, responsibility or duty under this Agreement other than
those applicable to all Lenders as such. Without limiting the foregoing, none
of the Lenders identified on the cover page to this Agreement, the signature
pages to this Agreement or otherwise in this Agreements as an "Arranger" shall
have or be deemed to have any fiduciary duty to or fiduciary relationship with
any Lender. In addition to the agreements set forth in Section 10.10, each of
-------------
the Lenders acknowledges that it has not relied, and will not rely, on any of
the Lenders so identified in deciding to enter into this Agreement or in
taking or not taking action hereunder.
ARTICLE XI: SETOFF; RATABLE PAYMENTS
- ------------------------------------------
11.1 Setoff. In addition to, and without limitation of, any rights of
------
the Lenders or Issuing Lenders under applicable law, if any Default occurs and
is continuing, any indebtedness from any Lender or Issuing Lender to any of
the Borrowers or Subsidiary Obligors (including all account balances, whether
provisional or final and whether or not collected or available) may be offset
and applied toward the payment of the Obligations owing to such Lender, such
Issuing Lender and the other Obligations, whether or not the Obligations, or
any part hereof, shall then be due.
11.2 Ratable Payments. If any Lender, whether by setoff or otherwise,
----------------
has payment made to it upon its Loans (other than payments received pursuant
to Sections 3.1, 3.2 or 3.4) in a greater proportion than that received by any
------------ --- ---
other Lender, such Lender agrees, promptly upon demand, to purchase a portion
of the Loans held by the other Lenders so that after such purchase each Lender
will hold its ratable proportion of Loans. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or
otherwise, receives collateral or other protection for its Obligation or such
amounts which may be subject to setoff, such Lender agrees, promptly upon
demand, to take such action necessary such that all Lenders share in the
benefits of such collateral ratably in proportion to the obligations owing to
them. In case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made.
11.3 Application of Payments. Subject to the provisions of Section 8.2,
----------------------- -----------
the Agent shall, unless otherwise specified at the direction of the Required
Lenders which direction shall be consistent with the last sentence of this
Section 11.3, apply all payments and prepayments in respect of any Obligations
---------
and all proceeds of Collateral in the following order:
(A) first, to pay interest on and then principal of any portion of the
Loans which the Agent may have advanced on behalf of any Lender for which the
Agent has not then been reimbursed by such Lender or the Borrower or
Subsidiary Obligor;
(B) second, to pay interest on and then principal of any advance made
under Section 9.3 for which the Agent has not then been paid by the Borrowers
-----------
or the Subsidiary Obligors or reimbursed by the Lenders;
(C) third, to pay Obligations in respect of any fees, expense
reimbursements or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any fees, expenses,
reimbursements or indemnities then due to the Lenders and Issuing Lender;
(E) fifth, to pay interest due in respect of Loans and L/C Obligations;
(F) sixth, to the ratable payment or prepayment of principal outstanding
on Loans and Reimbursement Obligations and Hedging Obligations in such order
as the Agent may determine in its sole discretion;
(G) seventh, to provide required cash collateral if any pursuant to
Section 2.19; and
---------
(H) eighth, to the ratable payment of all other Obligations.
Unless otherwise designated (which designation shall only be applicable prior
to the occurrence of a Default) by the Borrowers, all principal payments in
respect of Loans shall be applied first, to repay outstanding Base Rate Loans,
-----
and then to repay outstanding Eurodollar Loans and Korean Eurodollar Loans
----
with those Eurodollar Loans and Korean Eurodollar Loans, as applicable, which
have earlier expiring Interest Periods being repaid prior to those which have
later expiring Interest Periods. The order of priority set forth in this
Section 11.3 and the related provisions of this Agreement are set forth solely
--------
to determine the rights and priorities of the Agent, the Lenders, the Issuing
Lender and other Holders of Secured Obligations as among themselves. As long
as a Default shall have occurred and is continuing, the order of priority set
forth in clauses (D) through (H) of this Section 11.3 may at any time and from
----------- --- ------------
time to time be changed by the Required Lenders without necessity of notice to
or consent of or approval by the Borrowers, the Subsidiary Obligors, or any
other Person. The order of priority set forth in clauses (A) through (C) of
----------- ---
this Section 11.3 may be changed only with the prior written consent of the
-------------
Agent.
11.4 Relations Among Lenders.
-------------------------
(a) Except with respect to the exercise of set-off rights of any Lender
in accordance with Section 11.1, the proceeds of which are applied in
-------------
accordance with this Agreement, and each Lender agrees that it will not take
any action, nor institute any actions or proceedings, against any Borrower,
any Subsidiary Obligor or any other obligor hereunder or with respect to any
Collateral or Loan Document, without the prior written consent of the Required
Lenders or, as may be provided in this Agreement or the other Loan Documents,
at the direction of the Agent.
(b) The Lenders are not partners or co-venturers, and no Lender shall be
liable for the acts or omissions of, or (except as otherwise set forth herein
in case of the Agent) authorized to act for, any other Lender.
ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
- ----------------------------------------------------------------------
12.1 Successors and Assigns. The terms and provisions of the Loan
------------------------
Documents shall be binding upon and inure to the benefit of the Borrowers, the
Subsidiary Obligors and the Lenders and their respective successors and
assigns, except that (i) none of the Borrowers or Subsidiary Obligors shall
have the right to assign their rights or obligations under the Loan Documents
and (ii) any assignment by any Lender must be made in compliance with Section
-------
12.3 hereof. Notwithstanding clause (ii) of this Section 12.1, any Lender may
- ---- ----------- ------------
at any time, without the consent of any Borrower, any Subsidiary Obligor or
the Agent, assign all or any portion of its rights under this Agreement and
Notes, if any, issued to it to a Federal Reserve Bank; provided, however, that
-------- -------
no such assignment shall release the transferor Lender from its obligations
hereunder. The Agent may treat the payee of any Note issued to any individual
Lender as the owner thereof for all purposes hereof unless and until such
payee complies with Section 12.3 hereof in the case of an assignment thereof
------------
or, in the case of any other transfer, a written notice of the transfer is
filed with the Agent. Any assignee or transferee of a Note or of an interest
in the Loans agrees by acceptance thereof to be bound by all the terms and
provisions of the Loan Documents. Any request, authority or consent of any
Person, who at the time of making such request or giving such authority or
consent is the holder of any Note, shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.
12.2 Participations.
--------------
(A) Permitted Participants; Effect. Subject to the terms set forth in
------------------------------
this Section 12.2, any Lender may, in the ordinary course of its business and
------------
in accordance with applicable law, at any time sell to one or more banks or
other entities ("Participants") participating interests in any Loan owing to
such Lender, any Note held by such Lender, any Commitment of such Lender, any
L/C Interest of such Lender or any other interest of such Lender under the
Loan Documents on a pro-rata or non-pro-rata basis; provided that without the
--------
prior written consent of the Agent, the amount of such participation shall not
be for less than $5,000,000. Notice of such participation to the Company and
the Agent shall be required prior to any participation becoming effective with
respect to a Participant which is not a Lender or an Affiliate thereof. In
the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, such Lender shall remain the
holder of any such Note for all purposes under the Loan Documents, all amounts
payable by the Borrowers and Subsidiary Obligors under this Agreement shall be
determined as if such Lender had not sold such participating interests, and
the Borrowers, Subsidiary Obligors and the Agent shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents except that, for purposes of Article III
-----------
hereof, the Participants shall be entitled to the same rights as if they were
Lenders; provided however that no Participant shall be entitled to receive any
-------- -------
greater payment under such Article III than the Lender would have been
------------
entitled to receive with respect to the rights participated.
(B) Voting Rights. Each Lender shall retain the sole right to approve,
-------------
without the consent of any Participant, any amendment, modification or waiver
of any provision of the Loan Documents other than any amendment, modification
or waiver with respect to any Loan or Commitment in which such Participant has
an interest which requires the consent of all of the Lenders under Section
-------
8.3.
(C) Benefit of Setoff. The Borrowers and the Subsidiary Obligors agree
-----------------
that each Participant shall be deemed to have the right of setoff provided in
Section 11.1 hereof in respect to its participating interest in amounts owing
- -------------
under the Loan Documents to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under the Loan
Documents, provided that each Lender shall retain the right of setoff provided
--------
in Section 11.1 hereof with respect to the amount of participating interests
-------------
sold to each Participant except to the extent such Participant exercises its
right of set off. The Lenders agree to share with each Participant, and each
Participant, by exercising the right of setoff provided in Section 11.1
------------
hereof, agrees to share with each Lender, any amount received pursuant to the
exercise of its right of setoff, such amounts to be shared in accordance with
Section 11.2 as if each Participant were a Lender.
- -------------
12.3 Assignments.
-----------
(A) Permitted Assignments. Any Lender may, in the ordinary course of
----------------------
its business and in accordance with applicable law, at any time assign to one
or more banks or other entities ("Purchasers") all or a portion of its rights
and obligations under this Agreement (including, without limitation, any
Commitments, any Loans owing to it, all of its interests as Issuing Lender
with respect to Letters of Credit, all of its participation interests in
existing Letters of Credit and its obligation to participate in additional
Letters of Credit in accordance with the provisions of this Section 12.3.
------------
Such assignment shall be substantially in the form of Exhibit D hereto and,
---------
without the prior consent of the Agent, shall not be permitted hereunder
unless (i) such assignment is either for all of such Lender's rights and
obligations under the Loan Documents or involves Loans and Commitments in an
aggregate amount of at least $5,000,000 and (ii) the Purchaser shall be able
to fund in Korean Won its share of any Advance requested or deemed requested
in Korean Won by Purina Korea, Inc. Notice to the Agent and the Company and
consent of the Company and the Agent (which consents will not be unreasonably
withheld) shall be required prior to an assignment becoming effective with
respect to a Purchaser which is not a Lender or an Affiliate thereof;
provided, however, no consent of the Company shall be required for any
-------
assignment to become effective at a time when a Default has occurred and is
continuing.
(B) Effect; Effective Date. Upon (i) delivery to the Agent of a notice
----------------------
of assignment, substantially in the form attached as Appendix I to Exhibit D
---------- ---------
hereto (a "Notice of Assignment"), together with any consent required by
Section 12.3(A) hereof, and (ii) payment of a $3,500 fee to the Agent for
-----------
processing such assignment, such assignment shall become effective on the
effective date specified in such Notice of Assignment. The Notice of
Assignment shall contain a representation by the Purchaser to the effect that
none of the consideration used to make the purchase of the Commitment, Loans
and L/C Obligations under the applicable assignment agreement are "plan
assets" as defined under ERISA and that the rights and interests of the
Purchaser in and under the Loan Documents will not be "plan assets" under
ERISA. On and after the effective date of such assignment, such Purchaser, if
not already a Lender, shall for all purposes be a Lender party to this
Agreement and any other Loan Documents executed by the Lenders and shall have
all the rights and obligations of a Lender under the Loan Documents, to the
same extent as if it were an original party hereto, and no consent or action
by any of the Borrowers, Subsidiary Obligors or the Lenders and no further
consent or action by the Agent shall be required to release the transferor
Lender with respect to the percentage of the Commitments, Loans and Letter of
Credit participations assigned to such Purchaser. Upon the consummation of
any assignment to a Purchaser pursuant to this Section 12.3(B), if requested
---------------
by the transferor Lender or Purchaser, the transferor Lender, the Agent and
the Borrowers shall make appropriate arrangements so that replacement Notes
are issued to such transferor Lender and new Notes or, as appropriate,
replacement Notes, are issued to such Purchaser, in each case in principal
amounts reflecting their Commitments, as adjusted pursuant to such assignment
provided if no such request is made, the master Note(s) shall reflect their
Commitments, as adjusted pursuant to such assignment.
(C) The Register. The Agent shall maintain at its address referred to
------------
in Section 13.1 a copy of each assignment delivered to and accepted by it
-------------
pursuant to this Section 12.3 and a register (the "Register") for the
- -------------
recordation of the names and addresses of the Lenders and the Commitments of
-
and principal amount of the Loans owing to, each Lender from time to time and
whether such Lender is an original Lender or the assignee of another Lender
pursuant to an assignment under this Section 12.3. The entries in the
-------------
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Company and each of its Subsidiaries, the Agent and the Lenders
may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrowers or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
12.4 Confidentiality. Subject to Section 12.5, the Agent and the
--------------- -------------
Lenders shall hold all nonpublic information obtained pursuant to the
requirements of this Agreement in accordance with such Person's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices. Each of the Agent and the
Lenders agrees that it will not make use of any such confidential information
for personal gain or for transactions other than those contemplated by this
Agreement, except to the extent that such information (i) was or becomes
generally available to the public other than as a result of disclosure by
such Agent or such Lender, or (ii) was or becomes available on a
nonconfidential basis from a source other than the Company and its
Subsidiaries provided that such source is not bound by a confidentiality
agreement known to such Agent or such Lender; provided, however, that the
-------- -------
Agent and any Lender may disclose such information (A) at the request or
pursuant to any requirement of any Governmental Authority to which such Agent
or such Lender is subject or in connection with an examination of such Agent
or such Lender by any such Governmental Authority; (B) pursuant to subpoena or
other court process (and shall use its best efforts to provide advance notice
thereof to the extent foreseeable and permitted); (C) when required to do so
in accordance with the provisions of any applicable requirement of law (and
shall use its best efforts to provide advance notice thereof to the extent
foreseeable and permitted); (D) to the extent reasonably required in
connection with any litigation or proceeding to which the Agent, any Lender or
their respective affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Agent's or such Lender's independent
auditors, accountants, attorneys and other professional advisors; (G) to any
affiliate of the Agent or such Lender, or to any prospective Transferee,
provided that such affiliate or prospective Transferee agrees to keep such
information confidential to the same extent required of the Agent and the
Lenders hereunder (and, so long as no Default shall have occurred and is
continuing, shall use its best efforts to provide advance notice thereof); and
(H) as expressly permitted under the terms of any other document or agreement
regarding confidentiality to which the Company or any of its Subsidiaries is
party or is deemed party with such Agent or such Lender. In any event, the
Agent and the Lenders may make disclosure reasonably required by a prospective
Transferee in connection with the contemplated participation or assignment or
as required or requested by any Governmental Authority or representative
thereof or pursuant to legal process and shall require any such Transferee or
prospective Transferee to agree (and require any of its Transferees to agree)
to comply with this Section 12.4. In no event shall the Agent or any Lender
------------
be obligated or required to return any materials furnished by the Borrowers or
Subsidiary Obligors; provided, however, each prospective Transferee shall be
-------- -------
required to agree that if it does not become a participant or assignee it
shall return all materials furnished to it by or on behalf of the Borrowers or
Subsidiary Obligors in connection with this Agreement.
12.5 Dissemination of Information. Each of the Borrowers and Subsidiary
----------------------------
Obligors authorizes each Lender to disclose to any Participant or Purchaser or
any other Person acquiring an interest in the Loan Documents by operation of
law (each a "Transferee") and any prospective Transferee any and all
information in such Lender's possession concerning the Company and its
Subsidiaries and the Collateral; provided that prior to any such disclosure,
--------
such prospective Transferee shall agree to preserve in accordance with Section
-------
12.4 the confidentiality of any confidential information described therein.
- ----
ARTICLE XIII: NOTICES
- -------------------------
13.1 Giving Notice. Except as otherwise permitted by Section 2.11 with
------------- ------------
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing or by facsimile and addressed or delivered to such party, with respect
to any Borrower or any Subsidiary Obligor, in care of the Company at the
address set forth below, and for any other party at its address set forth
below its signature hereto or at such other address as may be designated by
such party in a notice to the other parties. Any notice, if mailed and
properly addressed with postage prepaid, shall be deemed given when received;
any notice, if transmitted by facsimile, shall be deemed given when
transmitted; or, if by courier, one (1) Business Day after deposit with a
reputable overnight carrier services, with all charges paid. Notices to any
Borrower or any Subsidiary Obligor shall be addressed as follows:
Agribrands International, Inc.
9811 South Forty Drive
St. Louis, Missouri 63124
Attention: Mr. David Wenzel
Chief Financial Officer
Phone: (___)___-____
Facsimile: (___)___-____
13.2 Change of Address. Any of the Borrowers, Subsidiary Obligors, the
-----------------
Agent and any Lender may each change the address for service of notice upon it
by a notice in writing to the other parties hereto.
ARTICLE XIV: COUNTERPARTS
- -----------------------------
This Agreement and any amendments, waivers, consents or supplements may
be executed in any number of counterparts, all of which taken together shall
constitute one agreement, and any of the parties hereto may execute this
Agreement by signing any such counterpart. Delivery of an executed signature
page hereof or thereof by facsimile transmission shall be effective as
delivery of a manually signed counterpart. This Agreement shall be effective
when it has been executed by the Borrowers, the Subsidiary Obligors, the Agent
and the Lenders and each party as notified the Agent by facsimile or
telephone, that it has taken such action.
<PAGE>
S-2
IN WITNESS WHEREOF, the Borrowers, the Subsidiary Obligors, the Lenders
and the Agent have executed this Agreement as of the date first above written.
AGRIBRANDS INTERNATIONAL, INC.
as a Borrower
By:___________________________
Name:
Title:
[THE COMPANY'S CANADIAN SUBSIDIARY]
as a Borrower
By: ______________________________
Name:
Title:
PURINA ITALIA, S.p.A.
as a Borrower
By: ______________________________
Name:
Title:
PURINA ESPANA, S.A.
as a Borrower
By: ______________________________
Name:
Title:
PURINA HUNGARIA ANIMAL FEED PRODUCTION & TRADING COMPANY, LTD.
as a Borrower
By: ______________________________
Name:
Title:
<PAGE>
S-6
PURINA KOREA, INC.
as a Borrower
By: ______________________________
Name:
Title:
INDUSTRIAS PURINA S.A. DE C.V.
as a Subsidiary Obligor
By: ______________________________
Name:
Title:
PURINA COLOMBIANA S.A.
as a Subsidiary Obligor
By: ______________________________
Name:
Title:
[THE COMPANY'S BRAZILIAN SUBSIDIARY]
as a Subsidiary Obligor
By: ______________________________
Name:
Title:
PURINA PHILIPPINES, INC.
as a Subsidiary Obligor
By: ______________________________
Name:
Title:
PURINA VENEZUELA, V.A.
as a Subsidiary Obligor
By: ______________________________
Name:
Title:
<PAGE>
ABN AMRO BANK N.V.
as the Agent, an Issuing Lender,
and as a Lender
By:___________________________
Name:
Title:
Notice Address:
Chicago, Illinois 60670
Attention:
Telephone No.: 312/
Facsimile No.: 312/
Payment Address for Dollars: Same as above.
Eurodollar Payment Address: Same as above.
<PAGE>
<PAGE>
The Agent proposes readdressing this issue after receipt of commitments
from prospective Lenders on March 19th.
AGRIBRANDS INTERNATIONAL, INC. AND SUBSIDIARIES
TERM SHEET
AGRIBRANDS INTERNATIONAL, INC.
MULTICURRENCY REVOLVING CREDIT FACILITIES
FEBRUARY 25, 1998
BORROWERS: Agribrands International, Inc. (the "COMPANY") and the
Company's Canadian, Italian, Spanish, Hungarian and Korean subsidiaries (the
"SUBSIDIARY BORROWERS"; together with the Company, the "BORROWERS").
OBLIGORS: The Korean, Mexican, Colombian, Brazilian, Philippine
and Venezuelan subsidiaries of the Company (the "SUBSIDIARY OBLIGORS") shall
apply for letters of credit.
AGENT: ABN AMRO Bank N.V. (individually, "ABN AMRO", as
administrative agent, the "AGENT").
SYNDICATION
MANAGEMENT: The Agent, in consultation with the Company, will manage
all aspects of the syndication including, without limitation, the timing of
offers to potential Lenders, the amounts offered to potential Lenders, the
acceptance of commitments, the designation of "Fronting Banks" (as defined
below) for particular currencies and the compensation provided. The Agent
shall, in consultation with the Company, allocate any commitments received
from the Lenders. All Lenders will be required to commit to make the "Agreed
Currencies" (as defined below) available to the Borrowers.
LENDERS: A selected group of financial institutions agreed to by
the Agent and the Company (collectively, together with ABN AMRO in its
capacity as lenders, the "LENDERS").
<PAGE>
DOCUMENTATION: The Facilities will be evidenced by a credit agreement (the
"CREDIT AGREEMENT"), notes, guarantees, pledge agreements and other legal
documentation (collectively, together with the Credit Agreement, the "LOAN
DOCUMENTS") mutually satisfactory to the Borrowers, the Agent and its counsel,
and the Lenders.
FACILITIES: Senior secured revolving credit facilities totaling up to
$110,000,000 (the "AGGREGATE FACILITY AMOUNT"), available in amounts detailed
on Exhibit B for letters of credit and advances in U.S. Dollars (and, for
----------
Purina Korea, Inc., Korean Won of up to the Dollar Equivalent of $15,000,000)
-
as follows:
FACILITY 1: Up to $55,000,000 (50% of the Aggregate Facility Amount) shall be
- ----------
in a 364-day revolving credit.
Tranche A: Up to $20,000,000 will be available as advances to the Borrowers
- ----------
(other than Purina Korea, Inc.) or as letters of credit for the account of the
Borrowers under Tranche A. Amounts under Tranche A will only be available to
a particular Borrower if there is no availability to such Borrower under
Tranche C.
Tranche B: Up to $35,000,000 will be available as (i) letters of credit
- ----------
denominated in U.S. Dollars for the account of the Subsidiary Obligors or (ii)
- -----
letters of credit or direct advances in U.S. Dollars and Korean Won to the
Korean subsidiary under Tranche B. Amounts under Tranche B will only be
available to a particular Borrower if there is no availability to such
Borrower under Tranche D.
FACILITY 2: Up to $55,000,000 (50% of the Aggregate Facility Amount) shall be
- ----------
in a three year revolving credit.
Tranche C: Up to $20,000,000 will be available as advances to the Borrowers
- ----------
(other than Purina Korea, Inc.) or as letters of credit under Tranche C.
Tranche D: Up to $35,000,000 will be available as (i) letters of credit
- ----------
denominated in U.S. Dollars for the account of the Subsidiary Obligors or (ii)
- -----
letters of credit or direct advances in U.S. Dollars and Korean Won to the
Korean subsidiary under Tranche D.
<PAGE>
MATURITY - FACILITY 1: 364 days from the closing date or any extension date
- ------------------------
agreed to as provided herein. Not more than 59 days and not less than 30 days
- --
before the end of the applicable 364 day period, the Company may request in
writing that the maturity date for Facility 1 be extended for an additional
364 days. Within 30 days after such extension request, each Lender may, in its
sole discretion, agree to such extension by giving written notice thereof to
the Company and the Agent (and the failure to provide such notice shall be
deemed to be a declination of such consent).
MATURITY - FACILITY 2:
- ------------------------
Tranche C: Three years from the closing date. Within the period from 120 to
- ----------
90 days before the end of each anniversary of the closing date, the Company
may request in writing that the maturity date for Tranche C be extended for an
additional year. 30 days prior to such anniversary, each Lender under Tranche
C may, in its sole discretion, agree to such an extension by giving written
notice thereof to the Company and the Agent (and the failure to provide such
notice shall be deemed to be a declination of such consent).
Tranche D: One year from the closing date. Within the period from 270 to 30
- ----------
days prior to the then effective expiry date, the Company may request in
writing that the maturity date for Tranche D be extended so that the
commitments with respect to Tranche D will remain in effect for up to one year
from the extension date and the Lenders will respond to such request within 30
days of receiving it. Each Lender under Tranche D may, in its sole
discretion, agree to such an extension by giving written notice thereof to the
Company and the Agent (and the failure to provide such notice shall be deemed
to be a declination of such consent).
The commitment of each Lender that declines to extend may be replaced or the
Aggregate Facility Amount reduced. The Required Lenders under the applicable
Tranche of each Facility must agree to any extension in respect of any Tranche
of any Facility for such extension thereof to become effective.
SUBSIDIARY BORROWING LIMITATIONS: The amount which may be borrowed by the
- ----------------------------------
Subsidiary Borrowers will be subject to established limitations on
- ---
indebtedness for each Subsidiary Borrower, as discussed more fully below.
- ---
CURRENCIES: (A) Currencies. Loans and letters of credit under Tranche A
- ---------- ----------
and Tranche C from each of the Lenders will be available in U.S. Dollars only.
Letters of credit under Tranche B and Tranche D from each of the Lenders will
be available in U.S. Dollars only except that direct advances of up to the
U.S. Dollar Equivalent of $15,000,000 will be available to Purina Korea, Inc.
in Korean Won.
<PAGE>
(B) Currency Disruption. With respect to Korean Won, if, after the date
-------------------
of this Term Sheet, a material adverse change in the banking market (including
without limitations a significant downgrading of the credit ratings of the
major domestic banks in any particular country) occurs, bank regulatory
circumstances have changed, currency controls or restrictions or other
exchange regulations are imposed or other circumstances arise rendering Korean
Won unavailable to the Lenders or making such currency no longer readily
available or freely traded or other exchange regulations are imposed in the
country in which such currency is issued with the result that different types
of such currency are introduced, then loans and letters of credit denominated
in Korean Won shall no longer be available until such time as the
disqualifying event(s) no longer exist.
CURRENCY ADJUSTMENTS: The documentation for the Facilities will contain
- -----------------------
procedures requiring the Borrowers to prepay loans if from time to time (at
- ----
intervals and upon events to be determined) aggregate outstandings of the
- --
Lenders, calculated in U.S. Dollars, exceed, as of the last business day of
- --
each month, 105% of the then applicable aggregate commitment under the
- --
Facilities. Prepayments must be made within 5 business days of notification
- --
by the Agent, and must reduce (i) the outstandings under the Facilities to an
amount equal to or less than the then applicable aggregate commitment under
the Facilities and (ii) the outstandings in Korean Won to an amount equal to
or less than the Dollar amount committed to in such currency.
LETTER OF CREDIT SUBFACILITY; RISK PARTICIPATION: Certain Lenders to be
- -----------------------------------------------------
determined shall act as issuing banks in respect of the letters of credit.
- -----
Each Lender that is not the issuing bank for a letter of credit shall purchase
- --
a participation interest in such letter of credit equal to its pro rata
portion of its commitment with respect to the applicable Tranche of the
applicable Facility. Drawings under a standby Letter of Credit shall be
deemed an advance of the Tranche of the applicable Facility and shall bear
interest at the rates set forth on the pricing grid plus an issuing fee.
BORROWING
OPTIONS AND
RATES: The Borrowers may request revolving credit loans which
bear interest at defined margins (the "APPLICABLE MARGIN") over the Borrowers'
selected borrowing option. The Borrower may elect the following borrowing
options:
Tranche A and Tranche C: A per annum rate equal to either (i) Base Rate +
- ---------- ----------
Applicable Margin (as set forth on Exhibit A) or (ii) LIBOR + Applicable
- --- ---------
Margin (as set forth on Exhibit A).
- --- ----------
<PAGE>
Tranche B and Tranche D: For borrowings in Korean Won: A per annum rate
- ---------- ----------
equal to Korean CD Rate - 600 b.p. For borrowings by Purina Korea, Inc. in
- ----
U.S. Dollars: A per annum rate equal to LIBOR + 350 b.p. For borrowings in
- --
U.S. Dollars by Borrowers other than Purina Korea, Inc.: A per annum rate
- --
equal to either (i) Base Rate + Applicable Margin (as set forth on Exhibit A)
- --
or (ii) LIBOR + Applicable Margin (as set forth on Exhibit A).
----------
[Definition of Korean CD Rate to come, but will be based on 91-day CD rate in
South Korea in effect as of the date of such borrowing].
The "Pricing Schedule" attached as Exhibit A sets forth
---------
the Applicable Margins over such selected borrowing options. After default,
the interest rate will be equal to the Base Rate (or applicable local floating
rate equivalent to the Base Rate) plus the Applicable Margin plus 2.0% per
----
annum.
INCREASED COSTS;
YIELD PROTECTION: The Credit Agreement will include customary provisions
regarding (a) availability, (b) protecting the Lenders against increased
costs or loss of yield or imposition of withholding taxes resulting from
changes in reserve, tax, capital adequacy and other requirements of law or as
a result of a triggering event, (c) indemnifying the Lenders for breakage
costs incurred in connection with among other things, any prepayment of a
LIBOR or other fixed rate loan on a day other than the last day of an interest
period with respect thereto and (d) illegality.
FEES: The Facilities shall include the fees set forth on the
Pricing Schedule attached as Exhibit A.
----------
GENERAL PROVISIONS
RELATING TO
<PAGE>
INTEREST RATES: Interest periods on fixed rate loans shall be one, two,
three or six months, where readily available. Interest on Base Rate and other
floating rate loans shall be payable quarterly, upon any prepayment (whether
due to acceleration or otherwise) and at final maturity. Interest on fixed
rate loans shall be payable in arrears on the last day of each interest period
and, in the case of an interest period longer than three months (or if
interest periods are not applicable under the local pricing options),
quarterly, upon any repayment (whether due to acceleration or otherwise) and
at final maturity. Unless the local pricing convention is otherwise, interest
on all loans (other than Base Rate loans) will be calculated on a 360-day
basis. Interest on Base Rate loans shall be calculated on a 365/6-day basis.
U.S. Dollar denominated loans made available in the U.S. will be made
available on a same day basis at the Base Rate plus the applicable margin.
Loans provided on a fixed rate basis will be available on three business days
prior notice. U.S. Dollar and Korean Won loans to Purina Korea, Inc. in Korea
will be available on four business days' prior notice.
PREPAYMENTS: Base Rate and other floating rate loans may be repaid or
prepaid at any time. LIBOR and other fixed rate loans may be prepaid upon
prior notice to be agreed upon and payment of any minimum breakage charges and
other breakage costs.
GUARANTEES: Each of the Subsidiary Borrowers and Subsidiary Obligors
will jointly and severally guarantee all obligations under the Facilities of
the other Subsidiary Borrowers and Subsidiary Obligors; provided, mutually
acceptable modifications to the guarantee structure shall be made if
necessary to reduce any material adverse tax consequences resulting from the
proposed structure; and the Company will guarantee all obligations under the
Facilities of the Subsidiary Borrowers and Subsidiary Obligors.
COLLATERAL: There will be a negative pledge on the assets of all the
Subsidiaries, subject to liens in amounts and under circumstances to be agreed
upon. To minimize U.S. income taxes with respect to foreign earnings, the
indebtedness of all of the Subsidiary Borrowers and Subsidiary Obligors shall
be secured by a pledge of 100% of the stock of the Subsidiary Borrowers and
the Subsidiary Obligors and the indebtedness of the Company shall be secured
by a pledge of 65% of the stock of all the Subsidiary Borrowers and the
Subsidiary Obligors. In addition, mutually acceptable modifications to the
collateral and/or guarantees shall be made if necessary to minimize taxes and
costs. If the required pledge agreements and guarantees cannot be obtained
prior to the Closing Date, the Borrowers and Subsidiary Obligors will deliver
assurances satisfactory to the Agent in its sole discretion. In addition the
Company shall at all times maintain with ABN AMRO a cash collateral account
with a balance not less than $25,000,000 at any time, which account shall be
pledged to the Agent for the benefit of the Lenders, and all amounts on
deposit in such cash collateral account shall be available to the Agent and
the Lenders to reduce the Borrowers' obligations upon the occurrence of any
payment default. Amounts in the cash collateral account may be invested in
permitted investments and, prior to a default under the Credit Agreement,
income earned on such investments will be available to the Company.
<PAGE>
REPRESEN-
TATIONS AND
WARRANTIES: Usual representations and warranties in connection with
each loan (or letter of credit) under the Facilities, including but not
limited to accuracy of financial statements, absence of litigation, ERISA,
absence of material adverse change, absence of default or unmatured default,
environmental, priority of Agent's liens, compliance with material
requirements of law, compliance with material agreements, compliance with
Regulations G, T, U and X. The Company will represent that within 60 days
after the Closing Cate, the Company's subsidiaries will be capitalized (with
contributions to capital or, in the Company's discretion, loans) as outlined
in the Consolidating Financial Forecasts for Subsidiaries dated February 25,
1998 and delivered to the Agent on February 26, 1998.
COVENANTS: The Credit Agreement will contain customary covenants
(including, without limitation, compliance with laws, ERISA, environmental,
maintenance of insurance, keeping of books, conduct of business, maintenance
of properties, payment of taxes and inspection of records). The Credit
Agreement will also contain customary restrictive covenants, including,
without limitation, restrictions (subject to exceptions, as appropriate, to be
negotiated) on the following:
Acquisitions and Mergers: The Company and its subsidiaries may invest by
acquisition and/or merger an amount not to exceed $20,000,000 (including
assumed debt) with respect to any individual transaction or an aggregate
amount of $80,000,000 (including assumed debt) during the term of the Credit
Agreement. The Company will not merge with or otherwise acquire or combine
with any other entity nor permit any Subsidiary Borrower or Subsidiary Obligor
to do so, except that, subject to the limitations in the preceding sentence,
such a merger, acquisition or combination shall be permitted if the Company or
such subsidiary is the surviving entity and if the Company certifies that, on
a pro forma (last twelve months) basis following such transaction, the Company
complied with all of its obligations and covenants under the Agreement.
<PAGE>
Sales of Assets: The Company will not sell or otherwise dispose of its
assets, nor permit its subsidiaries to do so, except of (i) dispositions of
assets in the ordinary course of its business having a book value not
exceeding 10% of the Company's Consolidated Net Worth during any fiscal year,
(ii) dispositions of assets no longer required for its operations to the
extent that the Company acquires replacement assets having a cost at least
equal to the book value of the assets disposed of within 180 days thereafter
and (iii) disposition of assets or sales of shares of subsidiaries (other than
stock or assets of Subsidiary Borrowers or Subsidiary Obligors) resulting from
a determination by the Company to discontinue its operations in a particular
jurisdiction.
Liens and Encumbrances: The Company will not create or permit to exist any
liens or encumbrances on any shares or assets of the Company or any subsidiary
which secure indebtedness for borrowed money except (i) liens existing at the
date of the Agreement and disclosed to the Banks prior to such date, (ii)
liens securing financing under governmental or other special programs which
are more advantageous to the Company than the financing available under the
Agreement, to the extent such liens are required in order to participate in
such programs, (iii) renewals or extensions of any such liens, (iv) other
liens securing indebtedness not exceeding, in the aggregate, 10% of the
Company's Consolidated Net Worth at the time of incurrence thereof, and (vi)
pledges of assets of entities other than Borrowers and Subsidiary Obligors to
secure indebtedness of subsidiaries which are neither Borrowers nor Subsidiary
Obligors.
Indebtedness and Off-balance Sheet Items: The Company and its subsidiaries
will not incur any indebtedness to unrelated entities in an aggregate amount
in excess of 10% of the Company's Consolidated Net Worth.
Guarantees: The Company and Subsidiary Borrowers and Subsidiary Obligors will
not issue any guarantees or similar undertakings for the obligations of others
except (i) guarantees issued for the benefit of customers, employees, vendors
or other trading partners in the ordinary course of its business, (ii)
guarantees to officers of the Company and its subsidiaries of obligations of
such officers with respect to the business of the Company and its subsidiaries
and (iii) guarantees incurred in connection with or resulting from
acquisitions or investments not otherwise prohibited under the Agreement,
provided that, to the extent specified in the Agreement, such guarantees
referred to in this clause (iii) shall be treated as indebtedness for money
borrowed for purposes of the covenants of the Agreement.
Changes in Business Lines: The Company will not enter into any lines of
business or acquire any other businesses except for businesses in, or
reasonably related to, the lines of business carried on by the Company and its
subsidiaries at the date of the Agreement.
<PAGE>
Investments, Loans and Advances: The Company and its subsidiaries will not
make any investments, loans or advances to third parties except (i)
investments in permitted acquisitions, (ii) investments of excess funds in
readily marketable securities, (iii) employee loans, (iv) other investments in
a particular jurisdiction of locally-generated funds which are designed to
optimize the Company's overall tax or currency position and (v) loans to or
investments in unrelated entities not to exceed in the aggregate 10% of the
Consolidated Net Worth of the Company.
Transactions with Affiliates: The Company will not enter into any
transactions with any of its subsidiaries or affiliates except for (i)
transactions in existence or contemplated at the date of the Agreement as
described to the Banks prior to the date thereof and (ii) transactions entered
into in the ordinary course of the Company's business on terms no less
favorable to the Company than would be available from unrelated parties. The
Company and its subsidiaries will not make loans or advances to or investments
in related entities which exceed in the aggregate 30% of the Consolidated Net
Worth of the Company. The Company and its Subsidiary Borrowers and Subsidiary
Obligors will not make loans or advances to or investments in related entities
other than Borrowers or Subsidiary Obligors which exceed in the aggregate 15%
of the Consolidated Net Worth of the Company. All such loans shall be
subordinated to the indebtedness owed to the Lenders.
Speculative Financial Contracts: The Company and its subsidiaries will not
enter into any speculative derivative or other financial transactions,
provided, that this shall not prohibit hedging or other derivative
transactions (i) relating to the acquisition of raw materials or the sale of
products of the Company which are intended to protect the Company against the
risks of changes in market prices or (ii) relating to currencies in which the
Company receives revenues or incurs expenses which are intended to protect the
Company against the risks of changes in the exchange rates relating to such
currencies or (iii) relating to the interest rates on its outstanding or
proposed indebtedness for money borrower which are intended to protect the
Company against the risks of changes in the interest rates relating to such
borrowings.
Leases: Sale and leaseback transactions, synthetic leases and operating
leases will be limited.
Capital Expenditures: Capital expenditures in excess of $81,250,000 in the
first year, $40,000,000 in the second year, and $28,750,000 in the third year
(with one year carryover permitted) will be prohibited.
<PAGE>
In addition the Agreement will contain customary reporting requirements,
including, without limitation, annual audited consolidated and certified
unaudited consolidating financial statements of the Company and its
consolidated subsidiaries due within 90 days after each fiscal year; quarterly
certified unaudited consolidated and consolidating financial statements of the
Company and its consolidated subsidiaries due within 45 days after each fiscal
quarter; quarterly compliance and no default certificate signed by the chief
financial officer due within 45 days of each quarter; annual budget
requirements; notice of default; notice of other matters (including, without
limitation, litigation, environmental, ERISA, default on other indebtedness).
FINANCIAL
COVENANTS: Total Debt/EBITDA: The Company shall not permit the ratio
of Total Debt to EBITDA to exceed at any time 3.0 to 1.00. Total Debt shall
include all indebtedness for borrowed money and standby letters of credit
(whether on or off-balance sheet) but shall not include ordinary course
liability for trade indebtedness (including reimbursement under trade letters
of credit). For purposes hereof, EBITDA, for the first four fiscal quarterly
calculations, shall be annualized using EBITDA from the closing date to the
date of such calculation.
"EBITDA" will be defined to mean for any period, on a consolidated basis for
the applicable entity, the sum of the amounts for such period, without
duplication, of (i) net sales minus (ii) cost of products sold minus (iii)
----- -----
selling, general and administrative, plus (iv) depreciation expense to the
----
extent deducted in computing net income, plus (v) amortization expense,
----
including, without limitation, amortization of goodwill and other intangible
assets to the extent deducted in computing net income. EBITDA for each
Subsidiary shall be calculated excluding the effect of any service fees paid
by such Subsidiary to the Company.
Interest Coverage Ratio: The Company shall maintain a ratio of EBITDA to Cash
Interest Expense as of the end of each fiscal quarter during the periods set
forth below of at least the amounts set forth below:
Applicable Period Minimum Interest Coverage Ratio
- ------------------ -------------------------------
At all times 2.50 to 1.00
For the purposes hereof, for the first four calculations of the Interest
Coverage Ratio, EBITDA and Cash Interest Expense shall be calculated for such
amounts from the closing date to the end of such fiscal quarter.
"Cash Interest Expense" will be defined to mean for any period, the total
interest expense of the applicable entity actually paid in cash (including the
interest component of Capitalized Leases) all as determined in conformity with
the United States generally accepted accounting principles.
<PAGE>
Minimum Net Worth: The Company shall at all times during the periods set
forth below maintain a minimum Net Worth of at least:
Required
Net Worth Applicable Period
- ---------- ------------------
$230,000,000 Closing date -8/31/98
$240,000,000 9/1/98-8/31/99
$250,000,000 At all times thereafter
In calculating net worth for the purpose of determining compliance with the
net worth covenant, (i) the effect of translation account adjustments for
fiscal 1998 of up to $10,000,000 shall be excluded and (ii) thereafter, the
effect of translation account adjustments of up to an additional $20,000,000
shall be excluded.
Country Debt Limitations. Indebtedness (whether under the Facilities or
otherwise) incurred by the Subsidiaries in any particular country shall be
subject to each of the following limitations:
(1) The applicable Borrower shall not have Loans outstanding under the
Facilities which exceed the maximum U.S. Dollar equivalent limitations as set
forth on Exhibit B attached hereto; and
----------
(2) The Total Debt (including indebtedness owed to related
entities)/EBITDA ratio for each of the Subsidiary Borrowers and Subsidiary
Obligors (other than Purina Korea, Inc.) shall not at any time exceed 3.0 to
1.00. The Total Debt/EBITDA ratio for Purina Korea, Inc. shall not at any
time exceed 2.25 to 1.00.
Calculation of Financial Covenants: Unless otherwise noted, all financial
covenants will be calculated for the Company and its consolidated Subsidiaries
on a rolling 4-quarter basis and on the basis of GAAP as in effect at the date
of the Credit Agreement. The financial covenants will be tested first as of
August 31, 1998 for the period beginning on the Closing Date and ending on
August 31, 1998.
<PAGE>
CONDITIONS
OF BORROWING: The obligations of the Lenders to make the loans under
the Facilities are subject to customary conditions precedent (borrowing
certificates, legal opinions requested by the Lenders, accuracy of
representations and warranties, no default certificate, corporate resolutions,
etc.).
CONDITIONS
OF INITIAL
BORROWING: Additional conditions precedent to initial funding of the
Facilities will be as deemed appropriate by the Agent for secured
multicurrency financings generally and for this transaction in particular,
including but not limited to the following:
Due Diligence: The completion of all business, accounting, tax and legal
- --------------
review of the Borrowers, their business operations, assets and liabilities,
- ----
including, without limitation, review of financial statements, and review of
- --
pending and threatened litigation and insurance coverage relating thereto,
environmental risks and liabilities (for current and past properties and for
off-site liabilities), material agreements, real estate leases, debt
agreements, property ownership, retiree medical benefits, ERISA obligations
and compliance with applicable laws and regulations deemed necessary or
prudent by the Agent and the Lenders, and such review shall have provided the
Agent and the Lenders with results and information which, in the Agent's and
the Lenders' determination, are satisfactory to permit the Agent and the
Lenders to enter into the financing transaction described herein. As of the
date of this Term Sheet, the Agent has substantially completed its business
and financial due diligence with results satisfactory to the Agent. All
financial, accounting, and tax aspects of the transaction must be acceptable,
including, without limitation receipt of Internal Revenue Service favorable
determination regarding spin-off treatment.
Documentation: The negotiation, execution and delivery of definitive
- -------------
documentation with respect to the Facilities satisfactory to the Agent and the
- --------
Lenders.
No Material Adverse Change. There shall not have occurred a material adverse
- ---------------------------
change since November 30, 1997 in the business, assets, operations, condition
(financial or otherwise) or prospects of the Company and its subsidiaries or
in the facts and information regarding such entities as represented to date
(except for developments disclosed to the Agent in writing prior to the date
of this Term Sheet).
<PAGE>
Opinions. The Agent shall have received (a) satisfactory opinions, to the
- --------
extent permitted by local law, of counsel to the Borrowers (which shall
- ---
cover, among other things, authority, legality, validity, binding effect and
- ---
enforceability of the Loan Documents (including, without limitation, the
guarantees under applicable local law) and perfection and priority of Lien on
pledged stock) and such corporate resolutions, certificates and other
documents as the Agent shall reasonably require and (b) satisfactory evidence
that the Agent (on behalf) of the Lenders) holds a perfected, first priority
lien in all of the collateral for the Facilities, subject to no other liens
except for permitted liens to be determined.
Other Customary Conditions. Other conditions customary for transactions of
- ----------------------------
this type, to include: (a) receipt of all governmental and third party
- --
consents; (b) the absence of any action, suit, investigation or proceeding
- --
pending or threatened in any court or before any arbitrator or governmental
- --
authority that purports to affect the Company or its Subsidiaries or any
- --
transaction contemplated hereby, or that could have a material adverse effect
- --
on any of the Borrowers or any transaction contemplated hereby or on the
ability of the Company and its subsidiaries to perform its obligations under
the documents to be executed in connection with the Facilities; and (c)
receipt and review, with results satisfactory to the Agent and its counsel, of
information regarding litigation, tax, accounting, labor, insurance, pension
liabilities (actual or contingent), real estate leases, material contracts,
debt agreements, property ownership, and contingent liabilities of the Company
and its Subsidiaries. As of the date of this Term Sheet, the Agent has
substantially completed its business and financial due diligence with results
satisfactory to the Agent.
DEFAULTS: Customary events of default, including, without
limitation, defaults for nonpayment of principal when due, nonpayment of
interest and fees within 3 days, inaccuracy of representations and warranties,
default in the performance of any covenant, default in performance of any
other term (with grace periods, as appropriate, to be negotiated), bankruptcy
or insolvency of the Company or subsidiaries with aggregate net worth equal to
or greater than 10% of the Company's Consolidated Net Worth, ERISA, unstayed
judgment and cross-default to any indebtedness of the Company or any
consolidated subsidiary of $5,000,000 or more, which default would permit the
holders of such indebtedness to cause such indebtedness to become due prior to
its stated maturity and change of control.
ASSIGNMENTS
AND
PARTICIPA-
<PAGE>
TIONS: The Lenders may sell assignments in minimum amounts
of$5,000,000 with the consent of the Company and the Agent (such consents not
to be unreasonably withheld; provided no consent of the Company shall be
required following the occurrence of a default) or participations in their
notes or commitments under the Facilities; provided, further however that each
assignee shall be required to be able to fund in Korean Won. A $3,500 fee
shall be payable to the Agent (by the assignor or the assignee) with respect
to each assignment.
OTHER
EXPENSES: The Company agrees to reimburse or pay the Agent for
all reasonable costs, fees and expenses (including, without limitation legal
fees) as provided in the mandate letter between the Agent and the Company
GOVERNING
LAW: Illinois.
REQUIRED
LENDERS: 66-2/3%
AGENT'S
COUNSEL: Sidley & Austin
This term sheet is intended as an outline and does not purport to summarize
all the terms, conditions, covenants, representations, warranties and other
provisions which might be contained in definitive legal documentation for this
transaction. This term sheet supersedes and replaces any prior term sheets
delivered in connection with this matter.
<PAGE>
EXHIBIT A -- PRICING SCHEDULE
PRICING GRID: The Applicable Margins for the Loans, expressed in
basis points per annum, is set out below; provided, however, that from the
Closing Date through August 31, 1998 pricing shall be at Level II, provided,
further however, until completion of the first two fiscal quarters following
the closing date, the Borrowers will not be eligible for pricing under Level
III or IV regardless of the EBITDA Contribution Ratio; provided, further,
-------- -------
however, that the Borrowers shall not be eligible for any reduction in the
pricing set forth below in the event that as of the date of determination
consolidated EBITDA for the most recently completed four fiscal quarters (or
prior to March 31, 1999, the period from the Closing Date to the end of the
most recently completed quarter) shall be less than eighty percent (80%) of
the forecasted consolidated EBITDA for such period:
<TABLE>
<CAPTION>
APPLICABLE MARGINS:
TRANCHE A AND TRANCHE C
-----------------------
<S> <C> <C> <C> <C>
LEVEL LEVEL LEVEL LEVEL IV (4)
I II III
- -- --- ------
EBITDA CONTRIBUTION
RATIO(1) Greater than Less than Less than
1.50 to 1.00 or equal 1.00 to
to 1.50 to 1.00
1.00 but
greater than
or equal to
FACILITY FEE 50 37.5 25 17.5
SPREAD OVER LIBOR (2) 150 100 75 50
SPREAD OVER BASE RATE (3) 25 0 0 0
(1) Ratio of (i) Total Debt of the Company and its Subsidiaries to
(ii) the sum of 100% of EBITDA contributed by Subsidiaries in countries
with a rating of equal to or better than BBB- from Standard & Poor's
Ratings Group ("S&P") and Baa3 from Moody's Investors Service, Inc.
("MOODY'S") and 50% of EBITDA contributed by Subsidiaries in countries
with a rating of lower than BBB- from S&P or lower than Baa3 from
Moody's.
(2) Spread over LIBOR (fully adjusted for maximum statutory
reserves, associated cost rates and the like)
(3) Spread over Base Rate
(4) To be eligible for pricing at Level IV the Company shall be
required to have an investment grade rating from Moody's (Baa3) or
S&P (BBB-).
<PAGE>
APPLICABLE MARGINS:
TRANCHE B AND TRANCHE D
-----------------------
LEVEL LEVEL LEVEL LEVEL
I II III IV (4)
<S> <C> <C> <C>
EBITDA Greater than Less than or Less than
Contribution 1.50 to 1.00 equal to 1.50 1.00 to
Ratio (1) to 1.00 but 1.00
greater than
or equal to
1.00 to 1.00
FACILITY FEE 175 125 100 75
SPREAD OVER
LIBOR (2) 175 125 100 75
SPREAD OVER
BASE RATE (3) 50 0 0 0
</TABLE>
(1) Ratio of (i) Total Debt of the Company and its Subsidiaries to (ii)
the sum of 100% of EBITDA contributed by Subsidiaries in countries with a
rating of equal to or better than BBB- from S&P and Baa3 from Moody's and 50%
of EBITDA contributed by Subsidiaries in countries with a rating of lower than
BBB- from S&P or lower than Baa3 or less from Moody's.
(2) Spread over LIBOR (fully adjusted for maximum statutory reserves,
associated cost rates and the like)
(3) Spread over Base Rate
(4) To be eligible for pricing at Level IV the Company shall be required
to have an investment grade rating from Moody's or S&P.
FEES: The Facilities shall include the following fees:
Facility Fee: A per annum fee (see the Pricing Grid above),
payable on the maximum amount of the aggregate commitment under the applicable
Tranche of the applicable Facility (minus the maximum committed amount of
loans available to Purina Korea, Inc., currently $15,000,000), quarterly in
arrears and on the earlier of the termination of each such Tranche or
Facility.
Korean Facility Fee: A per annum fee equal to 300 b.p., payable upon
the maximum committed amount of loans available to the Korean Subsidiary in
Korean Won under Tranche B and Tranche D, quarterly in arrears and on the
earlier of the termination of each such Tranche or Facility.
<PAGE>
Letter of Credit Fees: A per annum fee equal to the then effective
Applicable Margin for LIBOR loans for such Tranche, payable quarterly in
arrears to the Lenders ratably for standby and commercial letters of credit,
together with standard issuance fees for the letter of credit fronting bank.
In addition, a fronting fee of one-eighth of one percent per annum shall be
payable to the issuing bank, for its own account, payable quarterly in
arrears, for standby and commercial letters of credit.
<PAGE>
EXHIBIT B-COUNTRY DEBT LIMITATIONS
TRANCHE A AND TRANCHE C
- ---------------------------
TRANCHE A TRANCHE C
COUNTRY Maximum Indebtedness Maximum Indebtedness by
by the Borrowers in the Borrowers in such Country
such Country
Canada $6,500,000 $6,500,000
United States $5,000,000 $5,000,000
Italy $4,000,000 $4,000,000
Spain $2,500,000 $2,500,000
Hungary $2,000,000 $2,000,000
TOTAL $20,000,000 $20,000,000
TRANCHE B AND TRANCHE D
- ---------------------------
TRANCHE B TRANCHE D
COUNTRY Maximum Indebtedness Maximum Indebtedness by
by the Subsidiaries in the Subsidiaries
such Country in such Country
Korea $15,000,000 $15,000,000
Mexico $5,000,000 $5,000,000
Colombia $5,000,000 $5,000,000
Brazil $5,000,000 $5,000,000
Philippines $2,500,000 $2,500,000
Venezuela $2,500,000 $2,500,000
TOTAL $ 35,000,000 $ 35,000,000
Aggregate of U.S. Dollars and the U.S. Dollar equivalent in Korean Won
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 11/30/97
AGRIBRANDS INTERNATIONAL INC. BALANCE SHEET AND STATEMENT OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 30,200
<SECURITIES> 6,100
<RECEIVABLES> 122,600
<ALLOWANCES> 10,400
<INVENTORY> 110,100
<CURRENT-ASSETS> 269,500
<PP&E> 319,700
<DEPRECIATION> 169,400
<TOTAL-ASSETS> 473,300
<CURRENT-LIABILITIES> 238,300
<BONDS> 19,300
0
0
<COMMON> 0
<OTHER-SE> 179,400
<TOTAL-LIABILITY-AND-EQUITY> 473,300
<SALES> 374,800
<TOTAL-REVENUES> 374,800
<CGS> 318,700
<TOTAL-COSTS> 318,700
<OTHER-EXPENSES> 43,600
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 3,100
<INCOME-PRETAX> 9,400
<INCOME-TAX> 5,400
<INCOME-CONTINUING> 4,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>LOSS-PROVISION INCLUDED IN OTHER-EXPENSE ABOVE
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 8/31/97
AGRIBRANDS INTERNATIONAL INC. BALANCE SHEET AND STATEMENT OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 25,200
<SECURITIES> 6,800
<RECEIVABLES> 124,200
<ALLOWANCES> 9,800
<INVENTORY> 112,000
<CURRENT-ASSETS> 270,100
<PP&E> 329,600
<DEPRECIATION> 172,700
<TOTAL-ASSETS> 481,200
<CURRENT-LIABILITIES> 223,400
<BONDS> 22,800
0
0
<COMMON> 0
<OTHER-SE> 198,100
<TOTAL-LIABILITY-AND-EQUITY> 481,200
<SALES> 1,527,600
<TOTAL-REVENUES> 1,527,600
<CGS> 1,322,000
<TOTAL-COSTS> 1,322,000
<OTHER-EXPENSES> 157,000
<LOSS-PROVISION> 4,600
<INTEREST-EXPENSE> 10,900
<INCOME-PRETAX> 33,100
<INCOME-TAX> 24,400
<INCOME-CONTINUING> 8,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,700
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
