Registration No.1-13479
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 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
<PAGE>
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
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
<C> <S>
Exhibit No.
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 License 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 Incentive Stock Plan *
10.2 Form of Agribrands 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 Non-Qualified Stock Option with Chief Executive Officer*
10.6 Form of Agribrands Savings Investment Plan*
21 List of Agribrands Subsidiaries
27 Financial Data Schedule*
<S> <C>
Exhibit No. Description
Form of Agreement and Plan of Reorganization*
Form of Tax Sharing Agreement*
Form of Bridging Agreement *
Form of Technology License Agreement *
Form of Trademark Agreement *
Articles of Incorporation of Agribrands International, Inc.
Bylaws of Agribrands International, Inc.
Form of Rights Agreement between Agribrands International, Inc. and
Continental Stock Transfer & Trust Company, as Rights Agent
Form of Agribrands Incentive Stock Plan *
Form of Agribrands Deferred Compensation Plan *
Form of Management Continuity Agreements
Form of Indemnification Agreements with Executive Officers and Directors *
Form of Non-Qualified Stock Option with Chief Executive Officer*
Form of Agribrands Savings Investment Plan*
List of Agribrands Subsidiaries
Financial Data Schedule*
</TABLE>
* To be filed by amendment
II-2
<PAGE>
AGRIBRANDS INTERNATIONAL, INC.
9811 South Forty Drive
St. Louis, Missouri 63124
March 31, 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.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 2 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.
February 16, 1998
II-3
<PAGE>
RALSTON PURINA COMPANY
Ralston Purina Company W. Patrick
McGinnis
Checkerboard Square J. Patrick
Mulcahy
St. Louis, Missouri 63164 Co - Chief
Executive Officers
March 31, 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 the close of business on March 31,
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 at the close of
business on March 31, 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 March 31, 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
<PAGE>
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 the close of business on March 31,
1998 on the basis of one share of Agribrands Stock for every ten shares of
Ralston Stock held on that date. 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 __, 1998.
* 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.
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
INFORMATION STATEMENT
TABLE OF CONTENTS
<S> <C> <C>
<PAGE>
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
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 License 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
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SPINOFF OF AGRIBRANDS STOCK
Q. When will the spinoff occur?
A. The spinoff of Agribrands will occur at the close of business on March
31, 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 March 31, 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 (800) 509-5586 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 January 29, 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."
* 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.
<PAGE>
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 __, 1998, and continuing through March __,
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 April __, 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 __, 1998 and before you receive 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 72 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".
<PAGE>
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) 7.3
0.8 (d)
Provisions for restructuring 3.2 3.2
Other (income)/expense, net (0.5) - (e) (0.5)
1,494.5 1.6 1,496.1
Earnings before Income Taxes 33.1 (1.6) 31.5
Income Taxes 24.4 (2.8)(f) 21.6
Net Earnings $ 8.7 $ 1.2 $ 9.9
======= ========= ======
Earnings per share (g) $ 0.97
=======
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 amortization of deferred financing costs.
(e) No interest income has been imputed on excess cash 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) 3.3
0.2 (d)
Gain on sale of property (0.4) (0.4)
Other (income)/expense, net 4.5 - (e) 4.5
----- ----- -----
365.4 0.9 366.3
----- ----- -----
Earnings before Income Taxes 9.4 (0.9) 8.5
Income Taxes 5.4 (1.2)(f) 4.2
----- ----- -----
Net Earnings $ 4.0 $ 0.3 $ 4.3
===== ===== =====
Earnings per share (g) $ 0.42
=====
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 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, the acquisition by Agribrands of other assets utilized in
that 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 to each holder of record of Ralston Stock at
the close of business on March 31, 1998 (the "Distribution Date") of one share
of Agribrands Stock, together with an associated Right for every 10 shares of
Ralston Stock held by such holder on the Distribution Date.
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, as well as an
Agribrands 401(k) plan with a significant company match for eligible
employees, 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, 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. A facility in Colombia
and one in 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 prior to 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.
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 OPERATlON --
Liquidity and Capital Resources".
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 -- Liquidity and Capital Resources" 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 __ 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", 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.
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. 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.
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 January 29, 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.foot1
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; and restricted shares of Agribrands
Stock so distributed will be taxed as compensation when the shares become
unrestricted. 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 the close of business on March 31,
1998 (the "Distribution Date") on a pro rata basis to holders of record of
issued and outstanding Ralston Stock at the close of business 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 on the
Distribution Date will receive shares of Agribrands Stock on the basis of one
share of Agribrands Stock for every 10 shares of Ralston Stock held on the
Distribution Date. 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
________, 1998, approximately 10.2 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 ___ million shares of
Agribrands Stock will remain authorized but unissued, of which approximately
___ million will be reserved for issuance pursuant to Rghts, 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.foot2
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. 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 _____ shareholders of record, based upon the
number of holders of record of Ralston Stock as of _________, 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 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 will be either retained on behalf of the employees granted
such awards, and will be subject to the same restrictions applicable to the
original restricted stock awards, or, at the discretion of the Human Resources
Committee of Ralston's Board of Directors ("Ralston HRC"), may be distributed
directly to such employees free of restrictions. See "AGREEMENTS BETWEEN
RALSTON AND AGRIBRANDS--Employee Benefit Arrangements".
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), with an
aggregate net book value of $_________, as well as $________, an amount equal
to the appraised value of the net assets utilized in the Canadian Agribrands
Business (which assets will then be acquired by Agribrands or one of its
subsidiaries from the Ralston subsidiary currently owning those assets) and
$________, an amount equal to the appraised value of the capital stock of a
newly formed subsidiary holding the agricultural products assets of the
Agribrands Business in Brazil (which capital stock will subsequently be
acquired by Agribrands); (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 price of $_________, an amount
equal to the net book value of such assets and liabilities; (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. 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; (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, (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. 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, 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. 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, for all purposes under the Agribrands SIP,
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 service had been rendered to Agribrands and as if such account
balance had originally been credited to such Agribrands Employee under the
Agribrands SIP. Agribrands has agreed that the Agribrands SIP will contain a
"Agribrands Stock Fund" in which matching contributions will be invested. The
Agribrands SIP will provide a 50% matching contribution to the Agribrands
Stock Fund for the first 6% of participant elective deferrals. Agribrands
will have the option of contributing an additional amount of up to 50% of
elective deferrals if its business achieves certain financial goals.
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 Plan,
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. The Ralston HRC has approved
the amendment of existing options to acquire Ralston Stock held by Agribrands
Employees so that they will become exercisable prior to the Distribution and
will continue to be exercisable for a period of time after the Distribution
Date in accordance with the terms of the options. It is contemplated that such
acceleration will permit Agribrands Employees to exercise their Ralston
options prior to the Distribution Date, and thereafter, at the Distribution,
receive shares of Agribrands Stock with respect to the shares of Ralston Stock
received upon exercise on the same basis as all other Ralston shareholders.
As of the Distribution Date, (i) 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 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 either be restricted and vest in the same manner and
upon the same schedule as the underlying restricted shares of Ralston Stock,
or, at the discretion of the Ralston HRC, may be distributed directly to such
employees free of restrictions.
Incentive Stock Plan. Agribrands has agreed that, effective as of the day
immediately following 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. Agribrands has also agreed that on the Distribution
Date, the Agribrands Committee will grant Mr. Stiritz, the Chairman and Chief
Executive Officer of Agribrands, an option to acquire ____ shares of
Agribrands Stock, with an exercise price equal to or greater than the fair
market value of the Agribrands Stock as of the date of grant, which option
will be granted in lieu of salary for Mr. Stiritz' services as Chief Executive
Officer for a five year period commencing on the Distribution Date.
Deferred Compensation Plans. Agribrands has agreed that, as soon as
practicable and effective as of the day immediately following the Distribution
Date, Agribrands will establish and administer a deferred compensation plan
(the "Agribrands Deferred Compensation Plan") which will provide benefits to
Agribrands Employees and Directors. Account balances of Agribrands Employees
under the Ralston Purina Deferred Compensation Plan for Key Employees (other
than balances under the Fixed Benefit Option) 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 11:59 p.m. on the Distribution Date, and
reimbursement by each party for any of its taxes which may have been paid or
advanced by the other. The Tax Sharing Agreement provides that Ralston will be
liable for certain tax liabilities through 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 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" and
the Checkerboard logo 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 License Agreement
Ralston and Agribrands will enter into a Technology License 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.
Agribrands is currently negotiating with lenders in order to obtain a
committed revolving credit facility which management believes will approximate
$100 million. No agreement with a bank has yet been reached, but the
structure is expected to be a combined credit facility available for either
letters of credit or short-term borrowings. 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, (ii) an amount equal to the appraised value
of the net assets utilized in the Canadian animal feed business, including a
shared animal feed and pet food production facility (which assets will
subsequently be acquired by Agribrands or one of its subsidiaries from the
Ralston subsidiary currently owning those assets), and (iii) the value of the
capital stock of a newly formed subsidiary holding the animal feed assets in
Brazil (which capital stock will then be acquired by Agribrands or a
subsidiary of Agribrands). In addition, Agribrands subsidiaries will retain
certain production assets historically shared with Ralston's international pet
products business in Songtan, Korea and Mosquera, Colombia. Prior to 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 72 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.
- - 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 an extremely valuable resource for
identifying customer needs and product opportunities, as well as an extremely
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. Included among these programs is the creation of the
Agribrands SIP. 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. The 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, 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.
(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 International, Inc. Non-Qualified
Deferred Compensation Plan (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, including an Agribrands Stock equivalent option. Each
participant's account will be increased or decreased at least quarterly 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. See "AGREEMENTS BETWEEN
RALSTON AND AGRIBRANDS -- Agreement and Plan of Reorganization -- Incentive
Stock Plan" and "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 Chief Operating Officer - Americas Region 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 since 1994.
Age: 57.
Kim Ki Yong will be Chief Operating Officer - Asian Region (North) 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 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, on the
Distribution Date, under the terms of the Agribrands ISP, an option to acquire
___ shares of Agribrands Stock. The option will be granted with an exercise
price equal to or greater than the fair market value of the Agribrands Stock
at Distribution, as determined by the Agribrands Committee, and will become
exercisable on the fifth anniversary of the date of grant, provided that if
Mr. Stiritz terminates his employment prior to that time, a pro rata portion
of the award will accelerate and become immediately exercisable. The option
will 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 the Agribrands Committee. 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 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 such earlier time as determined by the Agribrands
Committee. 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 grant of Agribrands Stock and stock equivalents pursuant to the Agribrands
Deferred Compensation Plan will be subject to the provisions of that plan. See
"--Deferred Compensation Plan". Pursuant to that plan, the Agribrands
Committee may in its discretion permit an eligible employee to defer payment
of a cash bonus or other cash compensation in the Agribrands Stock option of
the Agribrands Deferred Compensation Plan, or in other investment options
available under that plan. Upon a deferral into the Agribrands Stock option,
an account in the employee's name will be credited with an appropriate number
of shares of Agribrands Stock or stock equivalents. Such account will be
credited from time to time with dividends or dividend equivalents if dividends
are paid by Agribrands. Upon retirement or other termination of employment,
the employee receives shares of Agribrands Stock equal to the number of shares
or stock equivalents credited to such employee's account or, at the
Committee's discretion, may receive the value of such shares in cash.
The Agribrands ISP generally provides that it may be amended by the
Agribrands Board of Directors. Agribrands ISP 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 of any targeted 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, including Agribrands Stock
equivalents pursuant to the Agribrands Deferred Compensation Plan, but
excluding 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, on the Distribution Date,
under the terms of the Agribrands ISP, an option to acquire ___ shares of
Agribrands Stock. The option will be granted with an exercise price equal to
or greater than the fair market value of the Agribrands Stock at Distribution,
as determined by the Agribrands Committee, and will become exercisable
on the fifth anniversary of the date of grant, provided that if Mr. Stiritz
terminates his employment prior to that time, a pro rata portion of the award
will accelerate and become immediately exercisable. The option 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 regular non-union sales, administrative or
clerical 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 of up to 50% of elective deferrals if its business
achieves certain financial goals. Neither the Elective Contributions nor the
Company Matching 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 6 such funds offering a variety of
investment options. Company Matching Contributions will be invested in the
Agribrands Common Stock Fund.
A participant's Elective Contributions will be vested from the time made.
Company Matching Contributions will be fully vested for those individuals
employed on April 1, 1998, and, for employees hired after April 1, 1998, will
vest at the rate of 20% per year provided that such individuals have been
employed full-time for one year. Company Matching Contributions are also
fully vested upon attainment of age 65 or death, or in the case of termination
of the Agribrands SIP or discontinuance of Company Matching Contributions.
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.
Deferred Compensation Plan
Agribrands intends to adopt the Agribrands Deferred Compensation Plan
which will be administered by the Nominating and Compensation Committee. 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.
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, including an Agribrands Stock equivalent option. Benefits under the
Agribrands Deferred Compensation Plan will be distributed to the participant
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
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 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 "THE
DISTRIBUTION--Manner of Effecting the Distribution", "THE
DISTRIBUTION--Listing and Trading of Agribrands Stock"; "AGREEMENTS BETWEEN
RALSTON AND AGRIBRANDS--Agreement and Plan of Reorganization--Stock Options
and Restricted Stock", and "AGRIBRANDS COMPENSATION AND BENEFIT
PLANS--Incentive Stock Plan".
CERTAIN TRANSACTIONS
The Agribrands Business has in the past engaged in numerous transactions
with other Ralston divisions and subsidiaries. (See "Notes to Combined
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. See "AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS--
Trademark Agreement", and "AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS--
Technology License Agreement".
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. See "AGREEMENTS BETWEEN RALSTON AND AGRIBRANDS --Bridging Agreement".
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 also, 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
FMR Corp 551,427 5.14% (C)
82 Devonshire Street
Boston, Massachusetts 02109
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) 159,027 1.47% (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 written representations made by the shareholder, 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 Ralston's Notice of Annual Meeting
and Proxy Statement dated December 10, 1997. This amount includes shares of
Agribrands Stock which would be owned by the following subsidiaries or
associated companies of FMR Corporation ("FMR") -- Fidelity Management and
Research Company -- 451,183 shares; Fidelity Management Trust Company --
99,413 shares; Fidelity International Limited -- 830 shares. Of these, FMR
would have sole power to vote or to direct the vote of 67,352 shares and sole
power to dispose or direct the disposition of 550,597 shares.
(D) Would include 4,616 shares of Agribrands Stock owned by Mr. Stiritz'
wife and 912 shares owned jointly with his child, and 57,977 shares which
could be acquired within 60 days by the exercise of stock options.
(E) Would include 1,065 shares of Agribrands Stock owned by Mr. Brown's
wife and 27,007 shares which could be acquired within 60 days by the exercise
of stock options. 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) Would include 26 shares held in IRA accounts.
(G) Would include 493 shares held in trust for which Mr. McCarty serves as
co-trustee.
(H) Would include 33 shares which such other Executive Officers share
ownership with other parties, and 6,762 shares which could be acquired within
60 days by the exercise of stock options. 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 February __, 1998,
approximately 10.2 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 $__ 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 March 31, 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 39.8 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 72 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.
17
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 Board: the Board of Directors of Agribrands International,
-----------------
Inc. and their duly elected or appointed successors.
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 $.__ 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
legally or beneficially owned by any member of the Agribusiness Group at the
Distribution; (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 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.
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)
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.
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.
-----
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.
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).
RPIHCI: Ralston Purina International Holding Company, Inc.
------
Ralston Option: the option defined in Section 7.08(_) of this Agreement.
--------------
Ralston Stock: Ralston Purina Company common stock, $.10 par value.
--------------
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.
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 TRANSACTIONS PRIOR TO THE DISTRIBUTION
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. Ralston Purina do Brasil, LTDA, a
------------------------
Brazilian corporation, shall form a new wholly-owned subsidiary, Newco Brazil,
and shall contribute all of the assets and certain liabilities associated with
its ownership and operation of the Agribusiness to Newco Brazil. Agribrands
shall purchase from Ralston Purina do Brasil the stock of Newco Brazil for
cash in an amount equal to its Fair Market Value as set forth on Schedule
2.01(c).
(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, 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 RPIHCI, 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 RPIHCI,] shall 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 Ralston shall
--------------------------
thereafter 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) Ralston International Service Corporation, 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. As of the Distribution, Ralston shall cause Agribrands to hold cash
and marketable securities in an amount equal to the outstanding indebtedness,
if any, of the Agribusiness Group plus US$25 million. 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 including, but not limited to,
approximately US$75 million of debt arising under existing arrangements or
borrowed pursuant to a newly-established revolving credit facility. 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 11:59 p.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 11:59 p.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) To the extent that, at the Distribution Date, Agribrands and its
Affiliates hold cash and marketable securities in excess of US$25 million over
the amount of its outstanding indebtedness, it shall remit such excess over
US$25 million to Ralston in US dollars. If the amount of cash and marketable
securities in excess of such outstanding indebtedness is less than US$25
million, Ralston shall pay such difference to Agribrands in US dollars. 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, within __ days of 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 Distribution shall be
effective as of 11:59 p.m. on the Distribution Date, and the determination of
record holders of Ralston Stock on the Record Date shall also be as of 11:59
p.m. on that 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 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 and Korea may
manufacture and sell, solely under trademarks authorized by the Trademark
License Agreement and solely in those countries, those pet food products which
they were manufacturing and selling at the date of this Reorganization
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 in Brazil may distribute, but
not manufacture, solely under the trademark "Sitios E Quintais" and solely in
Brazil, those dog food products which they were distributing at the date of
this Reorganization 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.
C. 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 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 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 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.
D. With respect to all products described in sub-Section
5.01(ii)(C), Ralston shall be deemed to have "refused" to supply any such
products only if:
1) it has refused to make available to Agribrands or its Affiliates
in the applicable country a product (either under the same or a different
brand) containing the compositional attributes described in sub-Section 5.01
(ii)(C)(a "Comparable Product"), upon the same terms as it is selling such
product to a third party; or
2) in any country in which Ralston is not supplying a Comparable
Product to a third party purchaser, 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.
E. 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.
F. 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 11:59 p.m. 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 11:59 a.m. 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 forgiven, other than trade receivables or payables arising out of
intercompany sales of inventories or other tangible goods. All trade
receivables and payables 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 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.
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 greater than or
equal to 65, will have up to the lesser of (i) five years or (ii) the number
of years necessary to attain age 55, added 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 11:59 p.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
11:59 p.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 11:59 p.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) In order to afford the Agribusiness Employees the opportunity to
increase their ownership of Ralston Stock prior to the Distribution, in order
that they may receive a greater number of shares of Agribrands Stock in the
Distribution, Ralston agrees that all Ralston Options that are held by
Agribusiness Employees as of [date] which are not yet exercisable and have not
been forfeited as of such date shall be amended to provide that such options
are exercisable in their entirety as of such date; and that any applicable
performance standards and repayment of gain provisions in such awards be
waived. All other provisions of such option contracts shall remain in effect.
For purposes of stock awards 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) In view of the importance, in the opinion of the Ralston Board,
of the role of the chief executive officer of Agribrands at the time of the
Distribution and for a period of time thereafter, and in order to retain and
motivate such officer while directly linking his compensation to the interests
of the shareholders of Agribrands, Ralston and Agribrands agree as follows:
(i) 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; and
(ii) as soon as practicable after the Distribution, the Committee will grant
to the chief executive officer of Agribrands a non-qualified option to
purchase ________ shares of Agribrands Stock at or above fair market value as
determined by the Committee. Such option will become fully exercisable on the
fifth anniversary of the date of grant, will remain exercisable for a maximum
period of ten years after the date of grant, and will be subject to such other
terms as the Committee determines.
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 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. This Agreement shall be governed by and
--------------
construed and interpreted in accordance with the laws of the State of
Missouri, without regard to its conflicts of law principles, as to all
matters, including matters of validity, construction, effect, performance and
remedies.
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. This Agreement may be amended,
--------------------------
modified or supplemented, and rights hereunder may be waived, only by a
written agreement signed by Ralston and Agribrands. No waiver of any term,
provision or condition of or failure to exercise or delay in exercising any
rights or remedies under this Agreement, in one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of such term,
provision, condition, right or remedy or as a waiver of any other term,
provision or condition of, or right or remedy under, this Agreement.
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:0217Freo.doc
